New income tax slabs: How much will you the taxpayer save, end up paying, explained | Mint
Budget 2025 brought unexpected cheer to a large section of middle-class taxpayers who may opt to file their returns under the new tax regime. Thanks to generous rebates announced, individuals earning up to ₹12 lakh an annum will not be required to pay any tax on incomes from sources such as salary. They will, however, have to pay taxes at special rates on other incomes such as capital gains. For instance, capital gains on earnings from the sale of equities held for less than one year is 20 per cent and for those held for longer, it is 12.5 per cent. Similarly, earnings from the sale of other movable and immovable properties will be subject to capital gains tax at appropriate rates.
The sharp reduction in tax liability was made possible by a rejig of tax slabs under the new tax regime, the introduction of a new slab and enhanced rebates. For a person with an annual income of ₹12 lakh, the tax liability goes down from ₹80,000 at present to nil due to these changes. Those earning ₹20 lakh annually will see their tax liability fall from the current ₹2.90 lakh to ₹2 lakh. For those earning more, say annual income of ₹24 lakh, the tax liability will fall by ₹1.10 lakh from the current ₹4.10 lakh.
Non-salaried taxpayers such as professionals, small businessmen and pensioners are also eligible to file their returns under the new tax regime. However, only the salaried are allowed to avail standard deduction, which was enhanced to ₹75,000 in the July 2024 budget. Thus, income of up to ₹12.75 lakh of salaried individuals is exempt from income tax.
Old tax regime turns unattractive
What is clear is that the government wants all individual taxpayers to shift to the simplified new tax regime from the old tax regime. The Budget did not make any changes to the tax rates or slabs in the old tax regime, making it unattractive.
Taxpayers opting for the new tax regime are not allowed to claim deductions or rebates for rent paid for a house and investments in social security instruments such as life insurance, public provident fund and pension. But those filing their returns under the old tax regime can continue to claim the benefit of deductions for interest paid on home loans, house rent and investments in social security schemes. Despite the lack of deductions, most taxpayers – particularly the younger ones – may find shifting to the new regime beneficial due to the rejig of tax slabs and enhanced rebates. It also increases the disposable income of a taxpayer as he is not forced to save to claim deductions and rebates. Only those taxpayers who can take advantage of most deductions and rebates are likely to continue with the old regime.
The new tax regime now has seven slabs with the introduction of a 25 per cent tax slab for incomes between ₹20 lakh and ₹24 lakh. The lowest slab of nil tax is for income less than ₹4 lakh. Under the old tax regime, income of up to ₹2.5 lakh, net of reduction and rebates, is exempt from tax. Income falling between ₹2.5 lakh and ₹5 lakh is subject to 5 per cent tax, that between ₹5 lakh and ₹10 lakh is taxed at 10 per cent and income above ₹10 lakh, at 30 per cent.
