Income Tax Slab for FY 2025-26 (Key Highlights)

Finance Minister Nirmala Sitharaman presented the Union Budget of 2025-26 on February 1, 2025, at 11:00 AM, introducing widespread tax reforms aimed at benefiting all taxpayers. The new tax structure brings substantial relief to the middle class, reducing their tax burden and increasing disposable income, which is expected to boost household consumption and savings.

Key highlights include revised income tax rates, and amendments to customs duty structures to drive economic growth. However, the Old Tax Regime remains unchanged, allowing taxpayers to continue with their preferred tax framework.

Here is a comparison of FY24-25 and FY25-26 Income Tax Slab.

Income Tax Slab Comparison: Old vs New

According to the New Tax Slabs, an individual earning up to 12.75 lacks rupees is fully exempted from paying any income tax considering the Rs. 75000 standard deduction and rebate.

Tax Rebate

Under the new tax regime for FY25, resident individuals with a total income of up to Rs.7,00,000 are not required to pay taxes due to a rebate of Rs.25000. However, there is a proposal to increase the income limit for tax rebates for resident individuals. Under this new proposal, those with a total income of up to Rs.12,00,000 would also not be required to pay taxes due to a rebate of Rs.60000.

Understanding How Tax Rates Work with Rebates

Let's calculate the income tax for an individual with a gross income of Rs. 12,00,000, considering a standard deduction of Rs. 75,000 and a tax rebate of Rs. 60,000:

Initial Income Details:

• Total Income: Rs. 12,00,000

• Standard Deduction: Rs. 75,000

Taxable Income after Standard Deduction: Rs. 12,00,000 - Rs. 75,000 = Rs. 11,25,000

Now, let's calculate the tax based on the adjusted taxable income using the provided tax slabs:

After applying the rebate of Rs. 60000, your payable tax is effectively Rs. 0

Other Key Changes with Income Tax

• TDS Threshold: The TDS threshold on interest income for senior citizens is doubled from Rs.50,000 to Rs.1,00,000, increasing the tax relief for seniors.

• TDS on Rent: The threshold for deducting TDS on rent payments is increased from Rs.2,40,000 to Rs.6,00,000 annually, benefitting small taxpayers by excluding smaller rental transactions from TDS.

• Proposed to simplify the tax code by reducing the complexity associated with it. 

• Proposed to raise the income thresholds above which TDS must be deducted, reducing the burden on taxpayers with smaller transactions.

• Tax Relief for Homeowners: The current requirement that allows taxpayers to claim the annual value of only one self-occupied property as nil will be relaxed. It is proposed to extend this benefit to two self-occupied properties without any conditions, easing the tax burden on homeowners who face difficulties under the present system.

• Exemption on Withdrawals from old NSS: Withdrawals from NSS accounts by senior and very senior citizens, which are no longer accruing interest as of August 29, 2024, will be tax-exempt. Additionally, NPS Vatsalya accounts will receive the same tax treatment as standard NPS accounts, within the established limits.

• Dividend TDS Threshold: The threshold for TDS on dividends paid to an individual shareholder is increased from Rs.5,000 to Rs.10,000, benefitting small investors by reducing premature tax deductions.

• Mutual Funds TDS Threshold: The TDS threshold on income from mutual funds or specified company undertakings is increased from Rs.5,000 to Rs.10,000, encouraging smaller investments in mutual funds.

• Simplified Registration for Charitable Trusts: To reduce the administrative burden on small charitable trusts and institutions, the registration period is proposed to be extended from 5 years to 10 years. Additionally, the proposal includes measures to prevent severe penalties for minor infractions, such as submitting incomplete applications.

Conclusion

The Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman, focuses on lightening the income tax burden for individuals. With lowered tax rates, the budget aims to increase the disposable income of taxpayers, enhancing their ability to spend and save more effectively. This key move is expected to stimulate economic activity and support the middle class, making it a significant step toward broader economic improvement and personal financial relief.