Income Tax Changes From April 1: Revised Rules To Save More Money In Your Pocket — Here's How

New income tax rules came into effect on April 1, marking the beginning of the new financial year 2025-26. The rules were first announced by Finance Minister Nirmala Sitharaman during the Union Budget presentation in February.

With the changes, the government aimed to ease the tax structure and offer relief to the middle class taxpayer.

The new income tax regime allows annual income up to Rs 12 lakh to be tax-free, making it more attractive for taxpayers.

To be clear, India follows two different taxation regimes: old and new. Within these two structures, tax rates for different income levels have been revised by the government. Under the old or traditional tax regime, taxpayers get various reliefs under taxation laws that allow for more deductions on taxable income. This effectively reduces the taxable income of the taxpayers.

• Rs 0 - 2,50,000: 0% tax (No tax for income up to Rs 2.5 lakh)

• Rs 2,50,001 - 5,00,000: 5% tax (5% on income between Rs 2.5 lakh and Rs. 5 lakh)

• Rs 5,00,001 - 10,00,000: 20% tax (20% on income between Rs 5 lakh and Rs. 10 lakh)

• Rs 10,00,001 and above: 30% tax (30% on income above Rs 10 lakh)

Fewer people are expected to choose the old tax regime this year, as the revised rates make the new regime more attractive. Government data from August 2024 shows that 72% of taxpayers opted for the new regime in financial year 2023-24.

Sitharaman announced that an income up to Rs 12 lakh will have no tax liability under the new regime. The move offered much needed respite to the Indian middle class and aimed to encourage spending among Indian consumers. This decision will increase disposable income and help ease the impact of inflation, she said.

The revised rates under the new regime exempt income up to Rs 4 lakh from taxes. There are subsequent tax rates for income above this basic exemption limit. However, due to the rebate benefits offered under the income tax law, the net tax liability till income of Rs 12 lakh turns out to be zero.

New Tax Slabs Under New Regime:

• Rs 0-4 lakh: Nil (No tax)

• Rs 4-8 lakh: 5% tax

• Rs 8-12 lakh: 10% tax

• Rs 12-16 lakh: 15% tax

• Rs 16-20 lakh: 20% tax

• Rs 20-24 lakhs: 25% tax

• Above Rs 24 lakh: 30% tax

Earlier, an income of Rs 12 lakh under the new tax regime incurred Rs 80,000 in taxes. With the revised rates, the tax is now Rs 60,000. However, due to the full rebate up to Rs 12 lakh, the net tax is nil.

For salaried individuals, the threshold is Rs 12.75 lakh, as they receive a standard deduction of Rs 75,000 under the new regime.

For others, the income above Rs 12 lakh will be taxed entirely. Hence, an income of Rs 16 lakh would be taxed as follows:

• Rs 0-4 lakh: No tax

• Rs 4-8 lakh: 5% on Rs 4 lakh = Rs 20,000

• Rs 8-12 lakh: 10% on Rs 4 lakh = Rs 40,000

• Rs 12-16 lakh: 15% on Rs 4 lakh = Rs 60,000

Total tax = Rs 20,000 + Rs 40,000 + Rs 60,000 = Rs 1,20,000

So, the total tax for an income of Rs 16 lakh would be Rs 1,20,000. Earlier, this tax stood at Rs 1,70,000. The taxpayers earning this amount an annual income will get a net benefit of Rs 50,000. 

Someone with an income of Rs 20 lakh would have to pay Rs 2.9 lakh taxes under the old rates of the new regime. However, the revised tax amounts to:

• Rs 0-4 lakh: No tax

• Rs 4-8 lakh: 5% on Rs 4 lakh = Rs 20,000

• Rs 8-12 lakh: 10% on Rs 4 lakh = Rs 40,000

• Rs 12-16 lakh: 15% on Rs 4 lakh = Rs 60,000

• Rs 16-20 lakh: 20% on Rs 4 lakh = Rs 80,000

Total Tax = Rs 20,000 + Rs 40,000 + Rs 60,000 + Rs 80,000 = Rs 2,00,000

So, the total tax for an income of Rs 20 lakh would be Rs 2,00,000 under the new rates of the new regime. Hence, the taxpayer would save a total of Rs 90,000 under the new rates.