In the Union Budget 2025, Finance Minister Nirmala Sitharaman has announced significant income tax relief for the middle class, salaried taxpayers, and the common man. With a major overhaul in the tax slabs, individuals earning up to Rs 12.75 lakh will now be exempt from paying income tax. This brings much-needed relief to a large section of the population. All these changes will apply under the new income tax regime for the financial year 2025-26, offering a more taxpayer-friendly approach and reducing the financial burden for many.

The new tax regime, introduced under Section 115BAC of the Income Tax Act, 1961, was designed to make taxes simpler by offering lower tax rates. However, it removes several exemptions and deductions, making it a better option for those who don’t invest heavily in tax-saving schemes. In Budget 2023, the government introduced key changes to encourage more taxpayers to shift to this system.

In the Union Budget 2025, the new tax slabs have been updated to provide more relief to taxpayers. Under the revised system, a salaried individual will pay no tax on annual income up to Rs 4 lakh. For income between Rs 4 lakh and Rs 8 lakh, a 5% tax will be applied. The rate increases to 10% for income between Rs 8 lakh and Rs 12 lakh. For higher income brackets, the tax rates are 15% for income between Rs 12 lakh and Rs 16 lakh, 20% for Rs 16 lakh to Rs 20 lakh, and 25% for income between Rs 20 lakh and Rs 24 lakh.

The old tax regime offers more opportunities to reduce taxable income through various exemptions and deductions, making it a good option for some taxpayers. Key features of the system include:

For individuals who have significant investments in tax-saving schemes, the old tax regime may still be a more beneficial choice.

Salaried individuals (who don’t have business income) need to decide between the new and old tax regimes each financial year when filing their income tax return. To opt for the old tax regime, they must select “No” for the option under Section 115BAC (which refers to the new tax regime) in the ITR form.

However, for those with business income, the choice isn’t as flexible. They can’t switch between the two regimes every year. If they want to continue with the old tax regime, they need to fill out Form 10-IEA. Business owners also have a one-time opportunity to switch to the new tax regime, but once they make that choice, they can’t go back to the old tax regime.

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