What are the new income tax slabs introduced in Union Budget 2025? How much will you save now?

Each year, ahead of the Budget, there’s one question that has everyone wondering. Will Indians have to pay more or less income tax?

And this year, Finance Minister Nirmala Sitharaman in her record-breaking eighth consecutive Budget has provided some relief to the middle-class man in India by changing the tax slabs as well as raising the limit of income tax rebate.

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What are the changes that Finance Minister Nirmala Sitharaman has made to the income tax slabs? How will it benefit the common man? And how are people reacting to it? We get you the answers.

No tax on income up to Rs 12 lakh

While delivering her Budget speech, which was 74 minutes in duration, Finance Minister Nirmala Sitharaman announced that the government will raise the tax rebate limit in the new regime from Rs 7 lakh to Rs 12 lakh.

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What this means is that if an individual has an income of up to Rs 12 lakh, she will have zero tax liability.

“The middle class provides strength to the economy. In recognition of their contribution, we have periodically reduced the tax burdens. I am now happy to announce that there will be no income tax up to an income of Rs 12 lakh,” Sitharaman said while presenting the Union Budget 2025 in the Lok Sabha.

This is a significant change from the earlier Rs 7 lakh limit, allowing more taxpayers to retain their full income.

However, Nirmala Sitharaman explicitly stated that if your annual income exceeds Rs 12.75 lakh, taxes will be calculated based on the new slabs in the new assessment year.

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New income tax slabs announced

On the topic of income tax, Finance Minister Nirmala Sitharaman further announced new changes to the income tax slabs in the new regime.

“The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said in her Budget speech.

Under the new tax regime, which Sitharaman first introduced in 2020, the slabs have been modified. Now, they will be:

What this essentially means is that for someone who has an income of Rs 12.1 lakh, they will get a tax benefit of Rs 80,000. Similarly, an individual having an income of Rs 18 lakh per annum, will receive a benefit of Rs 70,000 in tax and for those who earn Rs 20 lakh, the tax benefit would be Rs 90,000.

Those who make over Rs 25 lakh in a year will now be saving Rs 1.1 lakhs.

These new income tax slabs are a stark contrast from the current tax slabs. Currently, those who fall in the up to Rs 3 lakh income are exempt from paying tax. Those who fall in the bracket of Rs 3 lakh to Rs 7 lakh must pay five per cent tax. Those who earn an income of Rs 7 lakh to Rs 10 lakh are paying 10 per cent tax, while those who earn between Rs 10 lakh to Rs 12 lakh will be taxed 15 per cent and Rs 12 lakh to Rs 15 lakh will be taxed 20 per cent.

Those earning above Rs 15 lakh will be taxed 30 per cent.

Notably, the old tax regime stays the same as no changes have been announced.

Experts Speak

Many note that the rejigging of the tax slabs is one of the biggest shakeups in Income Tax rates in recent years. Experts said this could positively impact demand, savings, and investment among salaried individuals and small business owners.

Kumarmanglam Vijay, partner, JSA Advocates & Solicitors around Income Tax, told CNBCTV18, “Zero tax up to Rs 12 lakh is expected to be transformative and will provide some relief to the middle class, that was observing this closely given the current inflation.”

Explaining how the modifications will help Indians, Adhil Shetty, CEO of BankBazaar.com, was quoted telling CNBCTV18, “Under the proposed 2025 tax regime, someone earning Rs 25 lakh annually will pay Rs 3.43 lakh in total tax, compared to Rs 4.57 lakh under the 2024 regime. This translates to five more money in hand, or around Rs9,500 per month in savings — a substantial relief for taxpayers.”

Arvind Rao, founder of Arvind Rao and Associates, also concurred that this would benefit the common man. “With these changes and the new bill on its way over a week’s time, the reading is only getting clearer that the new regime will rule the slabs. The almost 70 per cent jump in the slab for the rebate is poised to help a lot of taxpayers across the country,” he told NDTV.

Political parties also praised Nirmala Sitharaman for these changes in tax slabs. BJP’s ally, the Telugu Desam Party (TDP), said that the zero income tax up to an income of Rs 12 lakh per annum as announced in the Union Budget is a ‘historic relief for the middle class. TDP spokesperson Jyothsna Tirunagari noted that this relief will enable more savings and will give more spending power.”

“Historic relief for the middle class. Zero income tax up to Rs 12 lakh – more savings, more spending power, she said in a post on X.

With inputs from agencies