New Income Tax Regime: Key Changes for FY 2025-26
Starting April 1, 2025, the new income tax regime will bring significant changes for individual taxpayers in India. Under the revised structure, individuals with a taxable income of up to Rs 12 lakh will be exempt from paying any income tax. However, taxpayers should be aware that deductions, such as the standard deduction of Rs 75,000 and the employer’s contribution to the National Pension System (NPS), can affect their net taxable income. This article outlines the new tax slabs and provides insights into how income tax will be calculated under this regime.
Understanding the New Income Tax Slabs
The Finance Minister, Nirmala Sitharaman, unveiled the updated income tax slabs during the February Budget announcement. The new tax structure is designed to simplify the tax calculation process for individuals. Here are the key tax slabs for the financial year 2025-26:
- Income up to Rs 4,00,000: 0% tax
- Income from Rs 4,00,001 to Rs 8,00,000: 5% tax
- Income from Rs 8,00,001 to Rs 12,00,000: 10% tax
- Income from Rs 12,00,001 to Rs 16,00,000: 15% tax
- Income from Rs 16,00,001 to Rs 20,00,000: 20% tax
- Income from Rs 20,00,001 to Rs 24,00,000: 25% tax
- Income above Rs 24,00,000: 30% taxIt is crucial for taxpayers to note that once their net taxable income exceeds Rs 12 lakh, the entire amount will be subject to taxation based on the applicable slabs.
How is Income Tax Calculated?
To illustrate the calculation process, consider an example where an individual’s total taxable income is Rs 21 lakh, which includes salary, bank interest, and dividends. Capital gains are not included in this calculation. Taxpayers can claim a standard deduction of Rs 75,000 and an NPS contribution of Rs 1.5 lakh.
The net taxable income is calculated as follows:
- Gross Taxable Income: Rs 21,00,000
- Less: Standard Deduction: Rs 75,000
- Less: Employer’s NPS Contribution: Rs 1,50,000
- Net Taxable Income: Rs 18,75,000With a net taxable income of Rs 18.75 lakh, the tax liability is computed based on the applicable tax brackets.
Detailed Tax Calculation Breakdown
For the net taxable income of Rs 18,75,000, the tax calculation is as follows:
- First Rs 4,00,000: 0% tax = Rs 0
- Next Rs 4,00,000 (Rs 4,00,001 to Rs 8,00,000): 5% tax = Rs 20,000
- Next Rs 4,00,000 (Rs 8,00,001 to Rs 12,00,000): 10% tax = Rs 40,000
- Next Rs 4,00,000 (Rs 12,00,001 to Rs 16,00,000): 15% tax = Rs 60,000
- Next Rs 4,00,000 (Rs 16,00,001 to Rs 20,00,000): 20% tax = Rs 55,000The total tax liability before cess is Rs 1,75,000. Additionally, a 4% health and education cess on this amount adds Rs 7,000, bringing the total tax payable to Rs 1,82,000.
Taxpayers should be aware that for income brackets above Rs 20 lakh, no additional tax will be applicable if the taxable income does not exceed the thresholds set by the previous brackets. Understanding these calculations is essential for effective financial planning in the upcoming financial year.
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