The New Tax Regime FY 2025-26 has undergone significant transformations since its inception. In Budget 2023-24, the government introduced an income tax rebate under the new tax regime, allowing resident individuals with total income up to ₹7 lakh to pay zero tax. Now, in Budget 2025-26, the rebate limit has been raised further, ensuring taxpayers with total income up to ₹12 lakh are not liable for tax.
The new income tax regime was made the default tax regime in Budget 2023-24, simplifying tax compliance and offering tax relief to middle-class taxpayers. Over 75% of taxpayers have now opted for the new tax regime FY 2025-26, according to the finance ministry, thanks to continuous revisions in income tax slabs 2025-26 and FY 2025-26 tax rates.
Increase in Basic Exemption Limit
The new tax regime initially had a basic exemption limit of ₹2.5 lakh in Budget 2020-21. This was raised to ₹3 lakh in Budget 2023-24, and in Budget 2025-26, the basic exemption limit is now proposed to be ₹4 lakh, bringing relief to many taxpayers.
Rebate Under Section 87A
The income tax rebate under Section 87A has been a major relief for taxpayers. Initially introduced in Budget 2023-24, it provided tax exemption for individuals earning up to ₹7 lakh. Budget 2025-26 further increases this rebate, ensuring zero tax for income up to ₹12 lakh (excluding special rate income).
With this revision, around one crore taxpayers, who were earlier paying taxes between ₹20,000 to ₹80,000, will now pay no tax, according to the Ministry of Finance. Additionally, due to the standard deduction 2025-26 of ₹75,000, salaried individuals with income up to ₹12.75 lakh will be tax-free.
Marginal relief under the new tax regime FY 2025-26 is also applicable for those with income slightly exceeding ₹12 lakh.
Reduction in Tax Rates
There has been a continuous reduction in personal income tax rates across various income slabs under the new tax regime. In Budget 2025-26, it has been proposed that the 30% tax rate will now apply only to income above ₹24 lakh.
New Tax Regime Rates and Slabs in FY 2025-26
| Taxable Income Slab (₹) | Tax Rate (%) |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Comparing these with previous years:
FY 2024-25 Tax Rates
| Taxable Income Slab (₹) | Tax Rate (%) |
| Up to 3,00,000 | Nil |
| 3,00,001 to 7,00,000 | 5% |
| 7,00,001 to 10,00,000 | 10% |
| 10,00,001 to 12,00,000 | 15% |
| 12,00,001 to 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Increase in Standard Deduction 2025-26
In Budget 2023-24, a standard deduction of ₹50,000 was allowed for salaried individuals under the new tax regime. This was increased to ₹75,000 in Budget 2024-25 (July 2024). Likewise, for pensioners, the deduction on family pension has been raised from ₹15,000 to ₹25,000.
The standard deduction 2025-26 will provide relief to nearly four crore salaried individuals and pensioners, as per government estimates.
Tax Exemptions Under New Regime 2025-26
Despite the removal of most deductions, taxpayers under the new tax regime FY 2025-26 can still claim certain tax exemptions:
Leave encashment up to ₹25 lakh.
Increased employer contributions under the National Pension System (NPS).
Specific allowances such as daily allowance and conveyance allowance.
Gratuity benefits remain available under the new tax structure.
Surcharge and Cess in New Tax Regime 2025-26
Taxpayers earning higher incomes must be aware of surcharge and cess in new tax regime 2025-26. The government has adjusted surcharge rates as follows:
Surcharge remains at 10% for incomes above ₹50 lakh.
For income exceeding ₹1 crore, surcharge has been reduced from 37% to 25%.
Cess remains unchanged at 4%.
Salary vs Business Income – Who Benefits More in FY 2025-26?
Whether you’re a salaried individual or a business owner, the impact of FY 2025-26 tax rates differs. Let’s examine:
Salaried taxpayers benefit from the increased standard deduction 2025-26.
Business owners gain from lower corporate tax rates but miss out on salary deductions.
Professionals with mixed income sources may need to compute their tax liability using the income tax calculator 2025-26 to determine the best option.
New Tax Regime vs Old Tax Regime 2025-26 – Which One is Better?
The debate over new tax regime vs old tax regime 2025-26 continues. Here’s a quick comparison:
Old Regime: Allows multiple deductions and exemptions.
New Regime: Lower tax rates but fewer deductions.
To make the best decision, taxpayers can use the income tax calculator 2025-26 to compare liabilities under both regimes.
Conclusion
The new tax regime FY 2025-26 offers a simplified tax structure with revised income tax slabs 2025-26 and increased FY 2025-26 tax rates thresholds. With significant relief in standard deduction 2025-26, higher tax exemptions under new regime 2025-26, and adjustments in surcharge and cess in new tax regime 2025-26, taxpayers must evaluate their options. By leveraging an income tax calculator 2025-26, individuals can determine whether the new tax regime vs old tax regime 2025-26 is the right choice for them.