Income Tax Changes In Budget 2025: How Much Tax Will You Save In New Regime?

The Union Budget 2025 announced some major changes in the income tax rates under the new tax regime (NTR) which have brought many cheers for middle-class taxpayers. Changes have been brought in the income tax slabs and rates of NTR to make this regime more attractive than ever and woo taxpayers into adopting it. If you are wondering how much you will save under the updated rules of NTR, let’s break it down in simple terms.

What’s New in Budget 2025-26?

The government has significantly revamped the tax slabs under the new regime and has announced some major changes as follows;

• Now, income up to Rs 4 lakh is now completely tax-free.

• Salaried individuals earning up to Rs 12 lakh annually will pay zero tax due to a rebate under Section 87A.

• Finance Bill 2025-26 has proposed a new 25 per cent tax slab for incomes between Rs 20 lakh and Rs 24 lakh.

• New rules have increased the TDS deduction limit on rent from Rs 2.4 lakh to Rs 6 lakh.

• Also, the tax deduction limit for senior citizens on interest income from fixed deposits (FDs) has now been doubled to Rs 1 lakh (from Rs 50,000)

The Revised New Tax Regime Structure Is;

Upto Rs 4 lakh: Nil

Rs 4-8 lakh: 5 per cent

Rs 8-12 lakh: 10 per cent

Rs 12-16 lakh: 15 per cent

Rs 16-20 lakh: 20 per cent

Rs 20- 24 lakh: 25 per cent

Above Rs 24 lakh: 30 per cent

How Do These Changes Impact Your Tax Liability?

Let’s understand the new rates and their taxability on your income with the help of practical examples. Suppose you earn an income of Rs 15 lakh per year, here’s what your tax liability looks like under the new tax regime;

New Tax Regime Calculation

Gross Income: Rs 15,00,000

Standard Deduction: Rs 75,000

Taxable Income: Rs 14,25,000 (15,00,000 - 75,000)

Tax breakdown:

Upto Rs 4 lakh: No tax

Rs 4-8 lakh: 5% = Rs 20,000

Rs 8-12 lakh: 10% = Rs 40,000

Rs 12-14.25 lakh: 15% = Rs 33,750

Total tax payable: Rs 93,750

Cess (4%): Rs 3,750

Final tax liability (approximately): Rs 97,500

To compare tax savings, let’s now understand what will be the tax liability of this income under the old tax regime

Old Tax regime slabs:

Up to Rs 2,50,000: No tax

Rs 3 lakh to Rs 5 lakh: 5 per cent

Rs 5 lakh to Rs 10 lakh: 20 per cent

Rs 10 lakh and above: 30 per cent

Based on the tax rates above, tax liability under this regime will be;

Gross Income: Rs 15,00,000

Deductions that can be applied:

Standard Deduction: Rs 50,000

Section 80C: Rs 1,50,000 (maximum)

Section 80D: Rs 1,00,000 (maximum)

Home Loan Interest (Section 24-b): Upto Rs 2,00,000

Total Deductions: Rs 5,00,000 (subject to change from one case to another)

Taxable Income: Rs 10,00,000

Tax Breakdown:

Rs 0 - Rs 2.5 lakh: No tax

Rs 2.5 lakh - Rs 5 lakh: 5% tax = Rs 12,500

Rs 5 lakh - Rs 10 lakh: 20% tax = Rs 1,00,000

Total Tax Payable: (around) Rs 1,12,500

Cess (4%): Rs 4,500

Final Tax Liability would be approximately Rs 1,17,000

Under the new tax regime, your tax liability comes to around Rs 97,500, compared to Rs 1,17,000 under the old regime. This is roughly a saving of Rs 19,500, which for some taxpayers would be significant, particularly those who do not rely on multiple deductions.

(Please note: These calculations would vary depending on varying incomes, please use the Income Tax Department’s new tax regime calculator or consult an expert for accurate calculations.)

What do experts say?

According to CA Ashish Niraj, Partner at A S N & Company, the new regime ensures that anyone earning up to Rs 12 lakh per year will pay zero tax, thanks to a rebate under Section 87A. However, please note that the rebate is not available for income that is taxed at special rates (such as capital gains under section 112A).

For salaried individuals, the standard deduction of Rs 75,000 pushes this limit further to Rs 12.75 lakh. However, if your salary exceeds Rs 12.75 lakh, you will fall outside this rebate and will have to pay tax accordingly.

“The new tax slabs reduce tax liability by 5 per cent to 15 per cent for individuals earning above Rs 12 lakh, depending on specific cases,” Niraj states.

The Finance Minister, while announcing these changes, had emphasised that there would be no income tax payable up to an income of Rs 12 lakh under the new regime. For salaried taxpayers, this limit extends to Rs 12.75 lakh due to the standard deduction.