For middle-class taxpayers, Union Budget 2025 marked a decisive shift in personal income tax framework. The government moved away from a deduction-heavy system to a simpler structure focused on higher take-home pay, especially under the new tax regime.
The biggest relief came in Budget 2025, when income up to Rs 12 lakh was effectively made tax-free under the new regime (Rs 12.75 lakh for salaried taxpayers after standard deduction). Along with revised slabs and a higher standard deduction, this significantly lowered tax outgo for salaried individuals across income levels — including those earning Rs 20 lakh a year.
How Budget 2025 changed the tax game for salaried taxpayers
Explaining the broader impact of the last two budgets, Amit Baid, Head of Tax at BTG Advaya, said: “Budgets 2024 and 2025 marked a turning point in India’s personal tax regime. The middle class finally felt seen. Budget 2024 laid the groundwork by simplifying tax slabs and reducing exemption-led complexity. Budget 2025 built on this momentum by widening slabs further and raising the rebate threshold, delivering tangible, month-on-month relief for salaried taxpayers.”
He added that the biggest change was visible directly in monthly salaries: “For the first time in years, tax savings showed up in payslips. Income up to Rs 12 lakh for all individuals and Rs 12.75 lakh for salaried taxpayers has effectively been made tax-free.”
So how much does a Rs 20 lakh earner actually save?
To understand this, it is important to look at how the old and new tax regimes treat deductions differently.
Under the old tax regime, a salaried taxpayer earning Rs 20 lakh typically claims multiple exemptions and deductions — such as HRA, LTA, Section 80C investments, NPS contributions, health insurance premiums, and professional tax. These reduce taxable income substantially, but the tax slabs and rates remain relatively higher.
Under the new tax regime, most of these exemptions are forgone. However, this is compensated through: Higher basic exemption limit, lower slab rates, higher standard deduction of Rs 75,000.
Revised slabs with the 30% rate kicking in only beyond Rs 24 lakh
Old regime Vs new regime – Tax comparison for a salaried individual earning Rs 20 lakh (FY 2025–26)
| Particulars | Old Tax Regime (₹) | New Tax Regime (₹) |
| Gross salary | 20,00,000 | 20,00,000 |
| Exemptions | ||
| HRA exemption | 1,00,000 | Not applicable |
| LTA exemption | 20,000 | Not applicable |
| Children education & hostel allowance | 9,600 | Not applicable |
| Standard deduction | 50,000 | 75,000 |
| Professional tax | 2,400 | Not applicable |
| Income from salary | 18,18,000 | 19,25,000 |
| Deductions (Chapter VI-A) | ||
| Section 80C | 1,50,000 | Not applicable |
| Section 80CCD(1B) – NPS | 50,000 | Not applicable |
| Section 80D – Health insurance | 25,000 | Not applicable |
| Net taxable income | 15,93,000 | 19,25,000 |
| Total tax payable (incl. 4% cess) | 3,02,016 | 1,92,400 |
| Tax saving under new regime | — | ₹1,09,616 |
As seen in the comparison table (above), even after giving up all deductions, a salaried individual earning Rs 20 lakh ends up paying significantly lower tax under the new regime.
Final outcome: A taxpayer with an annual income of Rs 20 lakh saves Rs 1,09,616 in taxes in FY 2025–26 by opting for the new tax regime.
Why the new regime works better at higher incomes
The key reason for these savings lies in the restructured slabs. Earlier, the highest tax rate applied at much lower income levels. Budget 2025 pushed this threshold to Rs 24 lakh, ensuring that middle and upper-middle income earners benefit more from lower rates on a larger portion of their income.
According to Amit Baid: “A salaried individual earning ₹20 lakh sees savings of around ₹1.1 lakh or more, depending on their deductions. Beyond the numbers, this translated into a psychological boost — higher take-home pay provided some breathing room against rising EMIs, school fees, and daily expenses.”
What changed specifically in Budget 2025
Summarising the key structural changes, Anita Basrur, Partner at Sudit K Parekh & Co LLP, highlighted:
-The tax-free income limit under the new regime was raised to Rs 12 lakh
-Salaried employees got an additional Rs 75,000 standard deduction
-The basic exemption limit increased from Rs 3 lakh to Rs 4 lakh
-The highest 30% tax rate now applies only beyond Rs 24 lakh, compared to Rs 15 lakh earlier
These changes together made the new regime far more attractive, especially for salaried individuals with limited deductions.
Budget 2026 expectations: What taxpayers are hoping for
With Union Budget 2026 just 20 days away, expectations from taxpayers are more measured than ambitious.
Amit Baid believes major rate cuts are unlikely: “Looking ahead, expectations from Budget 2026 are modest. Big tax cuts are unlikely, but structural relief through the introduction of the new Income Tax Act, 2025 by simplifying TDS compliance and reducing litigation could deliver real benefits.”
Meanwhile, Anita Basrur lists several practical expectations from the upcoming budget, including:
-Increasing standard deduction to Rs 1 lakh
-Raising the 30% tax threshold from Rs 24 lakh to Rs 35 lakh
-Improving slabs for senior citizens
-Enhancing the Section 80C limit
-Allowing key deductions like mediclaim and home loan benefits even under the new regime
-Reducing the highest surcharge rate
-Giving small business taxpayers flexibility to opt in and out of the new regime
Summing up…
For salaried taxpayers earning Rs 20 lakh a year, the new tax regime introduced in Budget 2025 clearly delivers meaningful tax savings, even without deductions. As Budget 2026 approaches, the focus is now shifting from tax cuts to simplification, certainty, and smoother compliance — factors that may matter just as much as lower tax rates.