New Income Tax Slabs and Rates for FY 2025-26 Explained: What is a new Tax Rebate?

The recent Union Budget has introduced significant changes to India's income tax structure, aiming to provide relief to taxpayers and stimulate economic growth. One of the most notable announcements is the introduction of a tax rebate for individuals earning up to Rs 12 lakh annually. Let's delve into what this means for you.

Understanding the New Tax Rebate

In the latest budget, the government has proposed a tax rebate under the new tax regime for individuals with an annual income of up to Rs 12 lakh. This means that if your total income does not exceed Rs 12 lakh, you will not be liable to pay any income tax. For salaried individuals, considering the standard deduction of Rs 75,000, this limit effectively increases to Rs 12.75 lakh.

New Income Tax Slabs in India for Salaried Employees

The budget also introduced changes to the income tax slabs under the new tax regime. The updated tax rates are as follows:

• Income up to Rs 4 lakh: Nil
• Income from Rs 4 lakh to Rs 8 lakh: 5%
• Income from Rs 8 lakh to Rs 12 lakh: 10%
• Income from Rs 12 lakh to Rs 16 lakh: 15%
• Income from Rs 16 lakh to Rs 20 lakh: 20%
• Income from Rs 20 lakh to Rs 24 lakh: 25%
• Income above Rs 24 lakh: 30%

These revised slabs aim to simplify the tax structure and provide relief to middle-class taxpayers.

Impact on Taxpayers Earning Slightly Above Rs 12 Lakh

If your income marginally exceeds Rs 12 lakh, you might be concerned about a sudden increase in tax liability. To address this, the concept of "marginal relief" has been introduced. Marginal relief ensures that the additional tax payable does not exceed the amount by which your income surpasses Rs 12 lakh. For instance, if your income is Rs 12.10 lakh, the tax calculated might be Rs 61,500. However, with marginal relief, you would only pay tax on the Rs 10,000 that exceeds the Rs 12 lakh threshold, resulting in a tax of Rs 10,000.

Benefits for the Middle Class

The introduction of this rebate and the restructuring of tax slabs are significant steps toward increasing the disposable income of middle-class families. With more money in hand, individuals can boost consumption, save, or invest, thereby contributing to economic growth. This move is expected to stimulate demand across various sectors, including consumer goods, automobiles, and real estate.

Tax Savings Under the New 2025 Tax Regime

With the revised tax slabs in FY 2025-26, many taxpayers will enjoy significant savings compared to the FY 2024-25 regime. The increase in the basic exemption limit, adjustments in tax slabs, and a higher rebate threshold contribute to a lower tax burden, especially for middle and upper-middle-income individuals.

Tax Savings Comparison: FY 2024-25 vs. FY 2025-26

Conclusion

The recent changes in the income tax structure, especially the rebate for incomes up to Rs 12 lakh, are designed to provide substantial relief to taxpayers. By understanding these new provisions, you can better plan your finances and take full advantage of the benefits offered.

FAQs

What is the new tax rebate announced in the budget?

The government has introduced a tax rebate for individuals with an annual income of up to Rs 12 lakh under the new tax regime, effectively making their tax liability zero.

Does the rebate apply to both salaried and non-salaried individuals?

Yes, the rebate applies to all individuals, but salaried individuals can benefit from an additional standard deduction of Rs 75,000, effectively increasing the tax-free income limit to Rs 12.75 lakh.

What happens if my income exceeds Rs 12 lakh by a small amount?

If your income slightly exceeds Rs 12 lakh, marginal relief ensures that the additional tax payable does not exceed the amount by which your income surpasses Rs 12 lakh.

Are the new tax slabs applicable under both the old and new tax regimes?

The revised tax slabs are applicable under the new tax regime. The old tax regime continues with its existing slabs and allows for various exemptions and deductions.

How will these changes impact the economy?

By increasing the disposable income of middle-class individuals, the government aims to boost consumption and stimulate economic growth across various sectors.