Union Budget 2025
Amendment in New Tax Regime - Change in Tax Slab Rates
let’s have a look at the substantial revision of income tax slab rates u/s 115BAC in the new tax regime! (check illustration 1 below)
Basic Exemption Limit
The basic exemption limit is now ₹ 4,00,000 for every taxpayer irrespective of age which was earlier ₹ 3,00,000.
This hike will enable taxpayers to file the income tax return (ITR) only if their gross taxable income exceeds the new exemption limit of ₹ 4,00,000, except for some specific cases. (For example in the case of section 112)
Rebate Under Section 87-A
The rebate under section 87A applies to taxpayers (Individuals and HUF) whose total income doesn’t exceed the threshold limit specified.
Previously, the annual income limit was ₹ 7,00,000 and a rebate of ₹ 25,000 was allowed.
As per, the latest amendments in the Union Budget 2025, the annual income limit under the new tax regime is now ₹ 12,00,000.
And the rebate allowed is increased from ₹ 25,000 to ₹ 60,000. (refer to Illustrations)
Rebate shall be lower of the following -
tax calculated on taxable income, or
₹60,000.
Hence there will be zero income tax liability if the income is up to ₹12,00,000.
Under the latest amendments, salaried individuals with an annual income of up to ₹12,75,000 will have no tax liability, since they will benefit from a standard deduction of ₹75,000 under Section 16 and a full tax rebate under Section 87A. (refer to Illustrations)
Note: The rebate of section 87A will not be available against income taxable on special rates for example capital gains tax.
Note: The rebate u/s 87A is allowed only to residential individuals and HUF and not to non-residents.
The Government of India has announced these amendments aimed at providing relief to low-income individuals and supporting the lower-middle-class segment of the country. These changes are designed to benefit a larger number of taxpayers, addressing the impact of inflation while fostering economic growth by enhancing disposable income.
Taxpayers will be able to avail of these benefits starting from the Assessment Year 2026-27, corresponding to the Financial Year 2025-26.
Understanding Through Illustrations
For a better understanding of the impacts of the finance budget 2025, let’s take a few illustrations :
Illustration 1
Illustration showing tax computation under the old regime.
Since the gross income is above ₹ 7,00,000 the benefit under section 87A can’t be availed.
Illustration showing tax computation under the new amended regime.
With the same gross income the taxpayer now has to pay no tax with the benefit u/s 87A.
Illustration 2
This illustration will help you understand how a salaried person is benefited from the latest amendments.
Disclaimer: This article is based on the information available as of February 1, 2025. The content reflects the author's interpretations of provisions of the Income Tax Act, 1961 and the latest financial budget 2025. While every effort has been made to ensure the accuracy of the information, the author does not guarantee its completeness or reliability. Readers are advised to consult with a professional tax advisor for specific advice tailored to their individual circumstances.