New Tax Regime 2025: Detailed Guide to Income Tax Slabs, Deductions, and Benefits
Explore the New Tax Regime 2025 with revised tax slabs, rebate of ₹60,000, and higher deductions. Learn how to save more under the simplified system.
Introduction
The Indian taxation system has always been a subject of discussion among salaried employees, professionals, and businesses. Every year, taxpayers eagerly wait for the Union Budget to understand how their financial planning will be impacted. In Budget 2025, the government introduced major changes to the new income tax regime, making it simpler, more transparent, and highly beneficial for middle-class taxpayers.
From 1 April 2025 (FY 2025-26, AY 2026-27), the revised slabs, rebates, and deductions under the new regime will come into effect. While the old regime still exists as an option, the government is making it clear that the future lies in the new system. This article provides a comprehensive 2000-word guide covering the slabs, benefits, drawbacks, comparisons, calculations, and tips for choosing the right regime.
1. Understanding the New Tax Regime
The new tax structure was part of the Union Budget 2020. It offered taxpayers the choice to pay taxes at lower slab rates, provided they gave up most exemptions and deductions available under the old regime.
Many taxpayers were initially reluctant to switch because they would no longer be able to take advantage of popular exemptions like HRA, 80C, or 80D. However, in Budget 2025, the government significantly revamped the new regime to make it more appealing:
Higher income tax rebate under Section 87A
Raised standard deduction for salaried individuals
Revised slab rates to reduce the burden on middle-class earners
The aim is to move towards a system where taxes are easier to calculate, transparent, and less dependent on investment proofs.
2. Income Tax Slabs Under New Regime 2025
The government has revised the income tax slabs for FY 2025-26 as follows:
| Income Range | Tax Rate |
| ———————– | ——– |
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
This slab structure ensures that taxpayers in the middle-income bracket pay considerably less compared to the old regime.
3. Section 87A Rebate – A Major Relief
One of the biggest highlights of Budget 2025 is the enhanced rebate under Section 87A:
Earlier, individuals with income up to ₹5–7 lakh could avail a rebate.
Now, the rebate is 60,000, making income up to ₹12 lakhs completely tax-free.
This move alone brings relief to millions of salaried employees and pensioners who otherwise had to carefully plan deductions just to remain tax-free.
4. Standard Deduction Raised
The standard deduction for salaried taxpayers and pensioners has been increased:
* Earlier limit: ₹50,000
* New limit: ₹75,000
This means that a person earning ₹12.75 lakh annually will not pay any income tax after applying the standard deduction and rebate.
5. Example Tax Calculations
Let’s consider a few scenarios to understand the impact:
Example 1: Salary = ₹12,00,000
* Standard deduction = ₹75,000
* Net taxable income = ₹11,25,000
* Tax before rebate ≈ ₹60,000
* Rebate applied = ₹60,000
* Final tax liability = Nil
Example 2: Salary = ₹12,75,000
* Standard deduction = ₹75,000
* Net taxable income = ₹12,00,000
* Tax before rebate ≈ ₹60,000
* Rebate applied = ₹60,000
* Final tax liability = Nil
Example 3: Salary = ₹15,00,000
* Standard deduction = ₹75,000
* Net taxable income = ₹14,25,000
* Tax payable ≈ ₹1.8 lakh
* This is significantly lower than under the old regime.
6. New Regime Vs Old Regime
Let’s make a comparison in order to choose between the old and new regimes:
| Feature | Old Regime | New Regime 2025 |
| —————— | —————————– | ——————————– |
| Tax Slabs | Higher | Lower |
| Deductions Allowed | 80C, 80D, HRA, home loan, etc. | Only standard deduction |
| Rebate | Up to ₹25,000 | Up to ₹60,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Best for | High-income with deductions | Salaried class, fewer deductions |
7. Advantages of the New Tax Regime
1. Simplified compliance – No need to maintain multiple proofs of investments.
2. Higher rebate – Income up to ₹12 lakhs tax-free.
3. Greater standard deduction – Extra relief for salaried class.
4. Attractive for middle class – Especially those earning between ₹8–15 lakh.
5. Default regime – Taxpayers don’t need to make additional declarations.
8. Disadvantages of the New Regime
1. No HRA, 80C, or 80D exemptions.
2. May discourage tax-saving investments like PPF, ELSS, or NPS.
3. Less beneficial for high-income individuals who claim large deductions.
9. Who Should Choose the New Regime?
The new regime is ideal for:
* Salaried individuals without many deductions.
* Middle-income earners up to ₹15 lakhs.
* Pensioners who rely mainly on fixed income.
The old regime may still be better for:
* High earners with heavy investments.
* Taxpayers claiming home loan interest or HRA.
10. Filing Income Tax Under New Regime
* The new regime is the default option.
* You must expressly choose to stick with the previous system when filing your ITR.
* Salaried individuals can switch regimes every year, while those with business income must stick to their choice once made.
11. Practical Tips for Taxpayers
1. Calculate both regimes – Always compare tax liability before choosing.
2. Re-evaluate annually – As your income and deductions change, so may the suitable regime.
3. Plan beyond taxes – Even if exemptions aren’t available, don’t ignore long-term investments like PPF or NPS.
4. Consult professionals – A tax advisor can help maximize savings legally.
12. Addressing Common Misconceptions
* Myth: Old regime is abolished.
Fact: The old regime is still in power; the new one is just a default.
* Myth: No deduction is allowed.
Fact: Standard deduction of ₹75,000 is available.
* Myth: Only young taxpayers benefit.
Fact: Senior citizens and pensioners also gain from higher deduction and rebate.
FAQs
Q1. Under the new regime, what is the highest amount of money that is tax-free?
Up to ₹12.75 lakh (including standard deduction).
Q2. Can I switch between regimes every year?
Yes, salaried individuals can. Business owners must commit once.
Q3. Does the new regime allow 80C deductions?
No, 80C and most exemptions are not available. Only standard deduction applies.
Q4. Are NRIs eligible?
Although they might not receive all of the rebates, NRIs are free to choose the new regime.
Q5. When does the new regime apply?
From 1 April 2025, for FY 2025-26.
Conclusion
The New Tax Regime 2025 represents a clear shift towards a simplified, transparent tax structure. By offering lower tax rates, a higher rebate of ₹60,000, and an increased standard deduction of ₹75,000, it ensures that most middle-class taxpayers pay little or no income tax.
For individuals earning up to 12.75 lakh, the new regime provides complete relief, while those with higher incomes still benefit from reduced liability compared to the old regime.
Your income profile and deductions, however, should determine which of the old and new regimes you choose. Taxpayers with significant investments and exemptions may still save more under the old system.
Ultimately, the new regime is a step toward making taxation simpler, fairer, and easier to comply with, aligning with India’s goal of encouraging voluntary tax compliance and reducing dependence on exemptions.