Union Budget 2025: All Income Tax Changes, New Slabs & Key Highlights
Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on 1 February 2025, brought significant relief for middle-class taxpayers – most notably making income up to ₹12 lakh tax-free under the new tax regime, enhanced Section 87A rebate, and revised TCS rules. Here’s everything announced that impacts your taxes for FY 2025-26 and FY 2026-27.
🎯 Budget 2025 – Key Taxpayer Highlights
- Zero tax for income up to ₹12 lakh under new tax regime (Section 87A rebate enhanced)
- New regime slabs revised: Basic exemption raised to ₹4 lakh
- TCS on overseas tour packages: 5% up to ₹7 lakh, 20% above ₹7 lakh
- No change to old tax regime – all deductions intact
- Income Tax Act 2025 introduced (effective FY 2026-27)
Budget 2025 – Major Income Tax Changes
1. New Tax Regime Slabs Revised (Effective FY 2025-26)
The new tax regime slabs were revised significantly in Budget 2025:
| Income Slab | Old Rate (FY 2024-25) | New Rate (FY 2025-26 & 2026-27) |
|---|---|---|
| Up to ₹3 lakh | NIL | – |
| Up to ₹4 lakh | – | NIL (raised from ₹3L) |
| ₹4-8 lakh | 5% (₹3-7L) | 5% |
| ₹8-12 lakh | 10% (₹7-10L) + 15% (₹10-12L) | 10% |
| ₹12-16 lakh | 20% | 15% |
| ₹16-20 lakh | 25% | 20% |
| ₹20-24 lakh | 30% | 25% |
| Above ₹24 lakh | 30% | 30% |
2. Section 87A Rebate Enhanced – Zero Tax up to ₹12 Lakh
The most impactful change: Section 87A rebate under the new tax regime was raised from ₹25,000 (income limit ₹7L) to ₹60,000 (income limit ₹12L). For salaried individuals, with the ₹75,000 standard deduction, the effective tax-free income threshold becomes ₹12.75 lakh.
3. No Change to Old Tax Regime
Budget 2025 made no changes to old tax regime slabs, deductions, or exemption limits. All existing deductions (80C, 80D, HRA, home loan interest, etc.) continue as before. The old regime remains beneficial only if total deductions exceed a certain threshold.
4. Income Tax Act 2025 – New Simplified Tax Code
Budget 2025 introduced the new Income Tax Act 2025 to replace the 63-year-old Income Tax Act, 1961. Key changes:
- Simplified, plain-language structure – easier to read and understand
- Effective from 1 April 2026 (FY 2026-27)
- No change in tax rates or deductions – only language and structure simplified
- For AY 2026-27 (FY 2025-26), old Act 1961 still applies
5. TCS on Foreign Remittance – Revised LRS Rules
- Overseas tour packages: TCS reduced to 5% up to ₹7 lakh, 20% above ₹7 lakh
- Education/medical remittances: Lower TCS rates maintained
- General LRS: 20% TCS above ₹7 lakh threshold
6. Other Key Budget 2025 Measures
- Updated return (ITR-U) window extended from 2 to 4 years from the end of assessment year
- Tax deducted on rent (Section 194I): threshold increased from ₹2.4L to ₹6L per year
- TDS on senior citizen FD interest (Section 194A): threshold raised from ₹50,000 to ₹1 lakh
- National Pension System (NPS Vatsalya): Contributions for minors eligible for 80CCD(1B) deduction
Budget 2025 Tax Savings – How Much Does a Salaried Person Save?
| Annual Salary | Old Tax (FY 2024-25) | New Tax (FY 2025-26) | Saving |
|---|---|---|---|
| ₹8 lakh | ~₹31,200 | ₹0 | ₹31,200 |
| ₹12 lakh | ~₹82,500 | ₹0 | ₹82,500 |
| ₹15 lakh | ~₹1,11,800 | ~₹78,000 | ₹33,800 |
| ₹20 lakh | ~₹2,01,500 | ~₹1,73,200 | ₹28,300 |
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