Income tax budget 2025 The Indian government announced changes in income tax slabs in the Union Budget 2025. These changes aim to reduce the tax burden on individuals, especially the middle class. The goal is to increase people’s savings and encourage spending, which will help boost the economy.
New Income Tax Slabs for 2025
The government has introduced new tax slabs under the latest tax regime. Here is the updated tax structure:
- Income up to ₹4 lakh – No tax
- Income from ₹4 lakh to ₹8 lakh – 5% tax
- Income from ₹8 lakh to ₹12 lakh – 10% tax
- Income from ₹12 lakh to ₹16 lakh – 15% tax
- Income from ₹16 lakh to ₹20 lakh – 20% tax
- Income from ₹20 lakh to ₹24 lakh – 25% tax
- Income above ₹24 lakh – 30% tax
According to these slabs, people earning up to ₹4 lakh annually will not have to pay any tax. The highest tax rate of 30% applies to individuals earning more than ₹24 lakh.
Increase in Standard Deduction
The government has also increased the standard deduction for salaried employees. Earlier, the deduction was ₹50,000, but it has now been raised to ₹75,000. This means that salaried individuals can reduce their taxable income by ₹75,000 before calculating their tax. This change will help taxpayers save more money.
Comparison Between Old and New Tax Regimes
There are two tax regimes available – the old regime and the new regime. Taxpayers can choose the one that benefits them the most.
In the old tax regime, tax rates were different, but people could claim exemptions and deductions like HRA (House Rent Allowance), 80C (Investments like PPF, ELSS, etc.), and 80D (Health Insurance Premium).
The new tax regime has lower tax rates, but most exemptions and deductions have been removed. People with fewer deductions may find the new regime more beneficial, while those with high deductions might prefer the old regime.
How Much Can You Save?
Let’s take an example to understand the tax savings under the new tax regime.
Example 1: Individual Earning ₹10 Lakh Per Year
Old Regime:
- Income up to ₹2.5 lakh – No tax
- Income from ₹2.5 lakh to ₹5 lakh – 5% = ₹12,500
- Income from ₹5 lakh to ₹10 lakh – 20% = ₹1,00,000
- Total Tax: ₹1,12,500
New Regime:
- Income up to ₹4 lakh – No tax
- Income from ₹4 lakh to ₹8 lakh – 5% = ₹20,000
- Income from ₹8 lakh to ₹10 lakh – 10% = ₹20,000
- Total Tax: ₹40,000
Savings:
The tax payable in the old regime was ₹1,12,500, whereas under the new regime, it is ₹40,000. The individual saves ₹72,500 under the new system.
Impact on the Economy
The new tax rates are expected to increase people’s savings. With lower taxes, individuals will have more money to spend. This extra spending can boost different sectors like retail, real estate, and automobiles. More spending leads to more demand, which helps businesses grow.
The government believes that this move will increase economic growth and create more jobs. A strong economy benefits everyone, including businesses, workers, and investors.
Who Benefits the Most?
- Middle-Class Salaried Employees: Since tax rates have been reduced, salaried employees will have more take-home income. The increase in the standard deduction will also help them save more money.
- Self-Employed and Small Business Owners: People running small businesses will benefit because they can now retain more of their earnings. This will encourage more entrepreneurs to invest and expand their businesses.
- First-Time Earners: Young professionals who are just starting their careers will benefit from the ₹4 lakh tax-free income limit. They will have to pay less tax and can focus on saving and investing.
Should You Switch to the New Regime?
Deciding whether to choose the old or new tax regime depends on your financial situation.
- If you have many deductions like home loan interest, insurance premiums, and investments under 80C, the old tax regime may still be better.
- If you do not claim many deductions, the new tax regime could save you money with lower tax rates.
To make the best decision, calculate your tax liability under both regimes before filing your income tax return.
Result :
The new income tax slabs in Budget 2025 aim to provide financial relief to taxpayers, especially the middle class. With reduced tax rates and a higher standard deduction, individuals can save more money. The government expects these changes to boost economic growth by increasing consumer spending and investment.
While the new tax regime offers lower tax rates, taxpayers must decide whether it suits their financial goals. By carefully comparing both regimes, individuals can choose the one that helps them save the most.
With these new tax reforms, the government hopes to build a stronger and more prosperous economy for all.