The new income tax regime, announced by Finance Minister Nirmala Sitharaman, promises significant relief to the middle class by raising the tax exemption limit. Individuals earning up to Rs 12 lakh annually will no longer be liable to pay any income tax, with salaried employees benefiting from an increased threshold of Rs 12.75 lakh, thanks to a standard deduction.

Revised tax slabs 
The revamped income tax slabs will be as follows: For those earning more than Rs 12 lakh, the nil tax threshold will apply up to Rs 4 lakh. A 5 per cent tax rate will be levied on income between Rs 4 lakh and Rs 8 lakh, 10 per cent for Rs 8-12 lakh, and 15 per cent for incomes between Rs 12-16 lakh. A 20 per cent tax rate will be imposed on income between Rs 16 lakh and Rs 20 lakh, 25 per cent for Rs 20-24 lakh, and 30 per cent for earnings above Rs 24 lakh per annum.

This overhaul of the tax structure is designed to ease the financial burden on the middle class, potentially boosting household consumption, savings, and investment.

What budget document says about new tax regime
To tax payers upto Rs 12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them. The total tax benefit of slab rate changes and rebate at different income levels can be illustrated with examples. A tax payer in the new regime with an income of 12 lakh will get a benefit of Rs 80,000 in tax (which is 100% of tax payable as per existing rates). A person having income of 18 lakh will get a benefit of Rs 70,000 in tax (30% of tax payable as per existing rates). A person with an income of Rs 25 lakh gets a benefit of Rs 1,10,000 (25% of his tax payable as per existing rates).

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tax structure
Tax benefits | Source: Budget document 2025 

Key changes 

FM Sitharaman also announced several tax-related reforms:

  • TDS rationalisation: Tax deduction at source (TDS) rates will be rationalised, and the tax deduction limit for senior citizens has been doubled to Rs 1 lakh.
  • Updated return filing: The time limit to file an updated return has been extended from two years to four years.
  • Liberalised Remittance Scheme (LRS): The TDS collection threshold for remittances under LRS has been increased from Rs 7 lakh to Rs 10 lakh.
  • TDS on rent: The annual threshold for TDS on rent has been raised from Rs 2.4 lakh to Rs 6 lakh.
  • Decriminalisation of TCS delays: Delays in payment of tax collected at source (TCS) up to the due date will no longer be criminal offences.
  • TCS on education loans: TCS on remittances for education loans has been waived.
  • National Savings Scheme (NSS): Withdrawals from NSS accounts on or after August 2024 will be exempt from tax.

Finer details of tax proposals are available in Budget document.