With the new regime, the threshold of income above which income is exempt from taxation remains at Rs 3 lakh, but the slabs have been tweaked so that tax incidence on the mid-level earners is minimised.
The new tax slabs announced by Union Finance Minister Nirmala Sitharaman in the Budget 2025-26 has come into effect from Tuesday i.e. April 1. The revised income tax slabs for FY 2025-26 make sweeping changes in the new regime of taxation, providing new rates and bands for easy taxation.
According to Pramod Kathuria, founder and CEO of Easiloan, the new tax slabs also provide relief to specific groups of incomes.
With the new regime, the threshold of income above which income is exempt from taxation remains at Rs 3 lakh, but the slabs have been tweaked so that tax incidence on the mid-level earners is minimised.
For Rs 3-7.5 lakh income, the rate is 5 per cent now, instead of 10 per cent in some slabs, and that relief comes at once.
Consider a salary of Rs 7 lakh a year, for example. It will now pay Rs 20,000 (5 per cent of Rs 4 lakh, or Rs 7 lakh minus Rs 3 lakh), down from Rs 40,000 under the old regime – a reduction of 50 per cent.
“The Rs 7.5-10 lakh bracket is levied at 10 per cent and the Rs 10-12.5 lakh bracket now attracts a 15 per cent rate, falling from 20 per cent. This will help the salaried class and professionals in these brackets; for instance, a person who gets Rs 11 lahks, will now pay Rs 82,500 (Rs 3.75 lahks at 15 per cent) compared to Rs 1.1 lakh previously. The Rs 12.5-15 lakh slab is taxed at 20 per cent, and the income above Rs 15 lakh has a 30 per cent levy, the same as the top slab,” Kathuria explained.
The old regime, in comparison, retains its traditional deductions (like HRA, 80C, etc.) but levies more – starting at 5 per cent for Rs 2.5-5 lakh, 20 per cent for Rs 5-10 lakh, and 30 per cent above Rs 10 lakh. For high earners, the new regime may not be advantageous in all situations unless one eschews deductions.
For instance, a taxpayer with a salary of Rs 20 lahks in the old regime with deductions of Rs 2 lakh would be charged Rs 3.72 lahks, while the new regime would charge Rs 4.56 lakh – thus the preference for the former. But for those with small deductions, such as a young executive with a salary of Rs 9 lakh without any investments, the new regime’s tax (Rs 45,000) is less than the old regime’s Rs 92,500.
“Therefore, the new slabs are advantageous to low and middle-income earners with simpler, lower rates, and high earners must weigh their deduction benefits before opting for either regime,” he concluded.
