Comparing Old and New Tax Regimes: Key Changes for the Middle Class in Budget 2025-26

New Delhi, Feb 1 (NationPress) In a significant effort to alleviate the tax obligations of middle-class individuals, Finance Minister Nirmala Sitharaman on Saturday revealed updated tax brackets under the New Tax regime in the Union Budget 2025-26.

The revised tax brackets are designed to offer relief to individuals earning up to Rs 12 lakh annually, with an exemption threshold of Rs 12.75 lakh for salaried personnel (including standard deductions).

According to Finance Minister Sitharaman, the modifications under the new tax regime will result in savings of Rs 80,000 for an income of Rs 12 lakh, Rs 70,000 for Rs 18 lakh, and Rs 1,10,000 for Rs 25 lakh.

As per the newly announced tax brackets in the Budget, there will be no tax on annual incomes up to Rs 4 lakh.

For incomes between Rs 4 lakh and Rs 8 lakh, the tax rate will be 5%, while those earning between Rs 8 lakh and Rs 12 lakh will incur a tax of 10%.

For higher income levels, tax rates will escalate, with 15% for incomes between Rs 12 lakh and Rs 16 lakh, 20% for Rs 16 lakh to Rs 20 lakh, 25% for Rs 20 lakh to Rs 24 lakh, and 30% for incomes exceeding Rs 24 lakh.

In conjunction with the updated tax brackets, Finance Minister Sitharaman also declared an increase in the tax rebate available under Section 87A.

This implies that individuals with a net taxable income of up to Rs 12 lakh will be exempt from paying any income tax.

However, if your annual income is exactly Rs 12 lakh, you will still be subject to tax according to the relevant slab rates but will benefit from the rebate, which will lower your overall tax liability.

To put it simply, if you are a salaried individual or receive other forms of 'regular income' up to Rs 12 lakh, you will not owe any tax due to both the increased rebate and the new tax brackets.

Nonetheless, income derived from capital gains will not qualify for the rebate and will be taxed separately under different regulations.

The new tax regime is set to take effect from the upcoming financial year 2025-26, beginning on April 1, 2025, contingent upon Parliament's approval of the proposals.

Currently, individuals earning up to Rs 3 lakh are not liable for tax, with rates escalating progressively as income rises.

In the previous tax regime, the basic exemption limit was Rs 2.5 lakh, and individuals had access to numerous deductions.

For incomes between Rs 2.5 lakh and Rs 5 lakh, a 5% tax rate was applicable, while those earning between Rs 5 lakh and Rs 10 lakh faced a 20% tax rate.

For earnings surpassing Rs 10 lakh, a 30% tax rate was enforced.