In a big relief to salaried employees, tax payers upto ₹12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them.

Under the new tax regime, income up to ₹12 lakh will be exempt from tax, with salaried taxpayers benefiting from an extended exemption up to ₹12.75 lakh due to the ₹75,000 standard deduction.

The revised tax slabs and rates aim to provide relief across all income groups, particularly benefiting the middle class by reducing their tax burden. This change is expected to enhance household consumption, increase savings, and drive higher investments. By leaving more disposable income in taxpayers' hands, the new structure seeks to stimulate economic growth while ensuring broader financial relief.

Old income tax slab vs new slab

For the Assessment Year 2025-26, the old and new tax regimes have different income tax slabs. Under the old tax regime, no tax is applicable on annual income up to ₹2,50,000. Income between ₹2,50,001 and ₹5,00,000 is taxed at 5%, while income from ₹5,00,001 to ₹10,00,000 is subject to a 20% tax rate.

For income exceeding ₹10,00,000, a 30% tax rate applies. In contrast, the new tax regime provides tax exemption for annual income up to ₹3,00,000. A 5% tax is levied on income between ₹3,00,001 and ₹7,00,000, while income from ₹7,00,001 to ₹10,00,000 is taxed at 10%. For income ranging between ₹10,00,001 and ₹12,00,000, a 15% tax rate applies, whereas income between ₹12,00,001 and ₹15,00,000 is taxed at 20%. Any income above ₹15,00,000 is subject to a 30% tax rate.

"The new tax structure would substantially reduce tax for the middle class," announced FM Sitharaman.

Presenting the Union Budget 2025-26, FM Sitharaman said that the tax deduction at source (TDS) rates will be rationalised and the limit for tax deduction for senior citizens will be doubled to ₹1 lakh.

FM Sitharaman also proposed to extend the time limit to file the updated return from two years to four years.

The threshold to collect TDS on remittances under the Liberalised Remittance Scheme (LRS) would be increased to ₹10 lakh from ₹7 lakh and an annual limit of ₹2.4 lakh for TDS on rent has been raised to ₹6 lakh.

Delay for payment of TCS up to the due date would be decriminalised, according to the Finance Minister, adding that TCS on remittances, if a loan was taken for education, has been waived.

The Union Budget also proposes to exempt withdrawals from National Savings Scheme (NSS) accounts on or after August 2024 from tax.

Also read:

Budget 2025-26 LIVE: Zero income tax till ₹12 lakh income under New Tax Regime