The Indian government made some major adjustments to the new tax regime 2025 in the Union Budget. The goal is to help middle-class households and simplify the income tax system. Here’s a quick explanation if you’ve been wondering what changed and how it might affect your budget.
What is The New Tax Regime 2025?
In 2020, the new tax regime was first introduced as an optional one that offered reduced tax rates at the expense of giving up the majority of exemptions and deductions (such HRA, 80C, etc.). Over time, the government has been making changes to it to make it more enticing. Although it is now the default regime for taxpayers as of 2025, you are still free to choose the previous regime if you so choose.
Updated Tax Slabs For 2025:
Here are the latest income tax slabs under new tax regime( For individuals below 60 years):
- Up to ₹4 lakh – No tax
- ₹4 lakh – ₹8 lakh – 5%
- ₹8 lakh – ₹12 lakh – 10%
- ₹12 lakh – ₹16 lakh – 15%
- ₹16 lakh – ₹20 lakh – 20%
- ₹20 lakh – ₹24 lakh – 25%
- Above ₹24 lakh – 30%
TDS Threshold Revised:
For senior citizens, the interest income limit before TDS kicks in has been increased to ₹1 lakh (earlier ₹50,000). And for those earning rental income, the TDS threshold is now ₹6 lakh per year, up from ₹2.4 lakh. These changes aim to reduce unnecessary tax hassles for small earners.
Should You Switch To The New Tax Regime 2025?
That depends on your financial situation. If you don’t claim a lot of deductions under sections like 80C (investments), 80D (insurance), or HRA, the new regime is likely better for you. It offers simplicity and lower rates.
However, if you actively invest to save taxes or have home loan interest benefits, the old regime may still result in lower tax outgo. You can use an online tax calculator to compare both options before filing your return.
Tax Calculation Examples:
To understand the New Tax Regime 2025, consider the following Examples:
Example 1: Annual Income of ₹12.75 lakh
- Standard Deduction: ₹75,000
- Taxable Income: ₹12 lakh
- Tax Calculation:
01) ₹0 – ₹4 lakh: Nil
02)₹4 – ₹8 lakh: 5% of ₹4 lakh = ₹20,000
03)₹8 – ₹12 lakh: 10% of ₹4 lakh = ₹40,000
- Total Tax: ₹60,000
- Rebate under Section 87A: ₹60,000
- Net Tax Payable: ₹0
Thus, an individual with a gross income of ₹12.75 lakh will have no tax liability under the new regime.
Example 2: Annual Income of ₹18 lakh
- Standard Deduction: ₹75,000
- Taxable Income: ₹17.25 lakh
- Tax Calculation:
01)₹0 – ₹4 lakh: Nil
02)₹4 – ₹8 lakh: 5% of ₹4 lakh = ₹20,000
03)₹8 – ₹12 lakh: 10% of ₹4 lakh = ₹40,000
04)₹12 – ₹16 lakh: 15% of ₹4 lakh = ₹60,000
05)₹16 – ₹17.25 lakh: 20% of ₹1.25 lakh = ₹25,000
- Total Tax: ₹145,000
- Net Tax Payable: ₹145,000
Under the old regime, the tax liability for the same income would have been higher, resulting in significant savings under the new structure.
Example 3: Annual Income of ₹25 lakh
- Standard Deduction: ₹75,000
- Taxable Income: ₹24.25 lakh
- Tax Calculation:
01)₹0 – ₹4 lakh: Nil
02)₹4 – ₹8 lakh: 5% of ₹4 lakh = ₹20,000
03)₹8 – ₹12 lakh: 10% of ₹4 lakh = ₹40,000
04)₹12 – ₹16 lakh: 15% of ₹4 lakh = ₹60,000
05)₹16 – ₹20 lakh: 20% of ₹4 lakh = ₹80,000
06)₹20 – ₹24 lakh: 25% of ₹4 lakh = ₹100,000
07)₹24 – ₹24.25 lakh: 30% of ₹0.25 lakh = ₹7,500
- Total Tax: ₹307,500
- Net Tax Payable: ₹307,500
Compared to the previous tax regime, this results in a tax saving of approximately ₹1.10 lakh.
Final Thoughts
The goal of the new tax system in 2025 is unmistakably to increase take-home pay and simplify taxes, particularly for middle-class individuals. Although it won’t work for everyone, it’s a more alluring choice than ever for many, particularly younger professionals or those with fewer deductions.
Consider your income, investments, and costs for a time before making a decision. Additionally, using an internet tax comparison tool or having a brief conversation with a tax professional might be quite beneficial if you’re not sure.
