Income Tax Slabs for FY 2025-26
To ease the financial burden on taxpayers and stimulate economic growth, the Indian government has unveiled a series of tax reforms for the Financial Year 2025-26. The spotlight is primarily on the revamped new tax regime, while the longstanding old tax system remains intact. Let’s delve into the details of these changes and explore what they mean for you.
Income Tax Slabs under New Tax Regime for FY.2025-26
The revamped new tax regime is designed to simplify tax calculations while offering relief to a broader section of taxpayers. Here’s a breakdown of the revised income tax slabs:
- Income up to ₹4,00,000: No Tax
- Income from ₹4,00,001 to ₹8,00,000: 5% Tax
- Income from ₹8,00,001 to ₹12,00,000: 10% Tax
- Income from ₹12,00,001 to ₹16,00,000: 15% Tax
- Income from ₹16,00,001 to ₹20,00,000: 20% Tax
- Income from ₹20,00,001 to ₹24,00,000: 25% Tax
- Income above ₹24,00,000: 30% Tax
Enhanced Benefits Under Section 87A
One of the key highlights of this new regime is the improvement in the rebate provided under Section 87A. Taxpayers with an annual income of up to ₹12,00,000 can now enjoy a rebate that effectively reduces their tax liability to zero. For salaried individuals, when the standard deduction of ₹75,000 is factored in, the effective tax-free threshold increases to ₹12,75,000. This enhancement is aimed at increasing disposable income, thereby encouraging higher consumption and savings.
The Unchanged Old Tax Regime
The old tax regime continues to be available with its existing structure for those who prefer a system with various exemptions and deductions. The slabs under the old regime are as follows:
- Income up to ₹2,50,000: No Tax
- Income from ₹2,50,001 to ₹5,00,000: 5% Tax
- Income from ₹5,00,001 to ₹10,00,000: 20% Tax
- Income above ₹10,00,000: 30% Tax
This system remains beneficial for individuals who can optimize their tax liabilities through various exemptions, deductions, and allowances.
Choosing the Right Regime for You
One of the notable features of these reforms is the flexibility offered to taxpayers. You now have the option to choose between the new and old tax regimes based on your financial situation and eligibility for exemptions:
- New Tax Regime: Best suited for those who prefer lower tax rates with a simplified structure and do not rely heavily on exemptions and deductions.
- Old Tax Regime: Ideal for individuals who can leverage various exemptions and deductions to reduce their overall tax liability.
This choice allows you to select the system that aligns best with your income profile and financial planning needs.
Broader Economic Implications
By revising the tax slabs and enhancing rebates, the government aims to boost disposable incomes. Increased take-home pay is expected to drive higher consumption, promote savings, and encourage more investments across the economy. These reforms are a strategic move to strengthen the financial health of the middle class and catalyze overall economic growth.
Final Thoughts
The income tax reforms for FY 2025-26 mark a significant step towards a more balanced and taxpayer-friendly approach. Whether you opt for the simplicity of the new regime or the benefits of the old system, understanding these changes is crucial for effective financial planning in the coming year.