The government has introduced a new income tax regime in Budget 2025, bringing revised tax slabs that change how much individuals will pay based on their earnings. This move aims to reduce the tax burden on middle-income earners while maintaining higher rates for those in higher income brackets. Let’s break down what’s changed and how it impacts taxpayers.
“Overall the changes in slabs and related rates will benefit the middle class and put more disposable income in their hands. The changes are not there in old tax regime which in sync with the government’s intent to phase it out gradually,” Richa Sawhney, Partner, Walker Chandiok & Co LLP, told FE.
New Income Tax Slabs (FY 2025-26)
| Income Range | Tax Rate |
| Up to Rs 4 lakh | 0% (No tax) |
| Rs 4 lakh – Rs 8 lakh | 5% |
| Rs 8 lakh – Rs 12 lakh | 10% |
| Rs 12 lakh – Rs 16 lakh | 15% |
| Rs 16 lakh – Rs 20 lakh | 20% |
| Rs 20 lakh – Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
What’s new in the tax regime?
Higher tax-free limit – Earlier, income up to Rs 3 lakh was tax-free. Now, it is Rs 4 lakh.
Lower taxes for middle-income earners – People earning up to Rs 16 lakh benefit from reduced tax rates, allowing them to save more.
New 25% slab – Instead of jumping straight to 30%, those earning between Rs 20 lakh and Rs 24 lakh will now pay 25% tax.
30% tax for high earners remains unchanged – Income above Rs 24 lakh continues to be taxed at the highest rate.
Who benefits the most?
Low-income earners (earning up to Rs 4 lakh) will pay zero tax.
Middle-income earners (earning between Rs 8 lakh – Rs 16 lakh) will pay less tax than before.
High-income earners (earning above Rs 20 lakh) will see relief as tax increases more gradually rather than jumping directly to 30%.
Example: Tax calculation for Rs 20 lakh annual income
If a person earns Rs 20 lakh per year, here’s how their tax liability changes:
| Income Slab | Old Tax Rate | Tax Paid (Old) | New Tax Rate | Tax Paid (New) |
| Up to Rs 3 lakh | 0% | 0 | 0% | 0 |
| Rs 3 lakh – Rs 7 lakh | 5% | Rs 20,000 | Rs 4 lakh – Rs 8 lakh | 5% |
| Rs 7 lakh – Rs 10 lakh | 10% | Rs 30,000 | Rs 8 lakh – Rs 12 lakh | 10% |
| Rs 10 lakh – Rs 12 lakh | 15% | Rs 30,000 | Rs 12 lakh – Rs 16 lakh | 15% |
| Rs 12 lakh – Rs 15 lakh | 20% | Rs 60,000 | Rs 16 lakh – Rs 20 lakh | 20% |
| Above Rs 15 lakh | 30% | Rs 1,50,000 | Above Rs 20 lakh | 25% |
| Total Tax | Rs 2,90,000 | Rs 2,00,000 |
How much can you save?
Old tax liability (New tax regime): Rs 2,90,000
New tax liability (New Tax Regime) : Rs 2,00,000
Total tax savings: Rs 90,000
With the revised tax structure under the new tax regime, an individual with the same income can now save up to Rs 90,000 in taxes. The old tax liability was Rs 2,90,000, but under the updated system, it has been reduced to Rs 2,00,000.
Conclusion:
These tax changes will lead to an increase in tax-free income for lower-income earners. The expansion of the 10% and 15% slabs helps a broader range of people benefit from lower tax rates. The introduction of a 25% slab prevents a sharp jump in tax liability for high earners.