The Union Budget 2025, presented on 01 February 2025, introduced significant updates to the new tax regime under Section 115BAC. The changes primarily target salaried taxpayers, professionals, and high-income individuals, making tax planning simpler yet effective. With the help of the Automatic Income Tax Preparation Software All-in-One in Excel for FY 2025-26, taxpayers can calculate and manage their liabilities seamlessly. Below, we provide a comprehensive guide on exemptions, deductions, tax slabs, and the latest provisions announced in Budget 2025.
What is the New Tax Regime for FY 2025-26 (AY 2026-27)?
The new tax regime, introduced in Budget 2020, offered lower tax rates but restricted exemptions and deductions. With the Union Budget 2025, the government enhanced its scope, making it more attractive for taxpayers. For FY 2025-26, the following income tax slabs apply:
| Income Range (₹) | Tax Rate (%) |
| 0 to 4,00,000 | Nil |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Under this structure, income up to ₹4 lakh remains tax-free, and the highest marginal rate of 30% applies to income above ₹24 lakh.
Standard Deduction and Default Tax Regime
The government announced that the new tax regime is the default choice for salary withholding and tax calculations. Key highlights include:
- Salaried individuals can claim a standard deduction of ₹75,000, offering relief and effectively increasing the tax-free threshold to ₹12.75 lakh.
- Family pensioners can claim a standard deduction of ₹25,000, which was raised from ₹15,000 earlier.
- Taxpayers preferring deductions and exemptions of the old regime must opt for it explicitly.
Comparison of the New Tax Regime vs the Previous Year
| FY / AY | Income Range (₹) | Tax Rate (%) | Rebate Limit (₹) |
| FY 2024-25 / AY 2025-26 | 0–3,00,000 | Nil | 7,00,000 |
| 3,00,001–7,00,000 | 5% | ||
| 7,00,001–10,00,000 | 10% | ||
| 10,00,001–12,00,000 | 15% | ||
| 12,00,001–15,00,000 | 20% | ||
| Above 15,00,000 | 30% | ||
| FY 2025-26 / AY 2026-27 | 0–4,00,000 | Nil | 12,00,000 |
| 4,00,001–8,00,000 | 5% | ||
| 8,00,001–12,00,000 | 10% | ||
| 12,00,001–16,00,000 | 15% | ||
| 16,00,001–20,00,000 | 20% | ||
| 20,00,001–24,00,000 | 25% | ||
| Above 24,00,000 | 30% |
Major Highlights of Exemptions and Benefits in Budget 2025
1. Increase in Tax Rebate Limit
The tax rebate under Section 87A increased to ₹12 lakh, providing complete tax relief for individuals earning up to ₹12.75 lakh (after standard deduction). This ensures zero tax liability for a large portion of the salaried middle class.
2. Increase in Basic Exemption Limit
The basic exemption limit rose from ₹3 lakh (FY 2024-25) to ₹4 lakh in FY 2025-26, offering additional relief to all taxpayers.
3. Section 80TTB Deductions and Standard Deductions
- Salaried individuals continue to enjoy a ₹75,000 standard deduction.
- Family pensioners can now claim a ₹25,000 deduction.
- No changes were made to other standard deductions.
4. Lower Surcharge for High-Income Earners
The surcharge on ultra-high incomes has been rationalised:
- Income above ₹5 crore, previously taxed at 37%, now attracts only 25% surcharge.
- This significantly reduces the effective tax rate for the wealthy.
5. Default Applicability of New Tax Regime
Employers will now deduct TDS under the new tax regime by default. However, employees can opt for the old regime by filing a declaration.
Exemptions and Deductions Not Allowed in the New Tax Regime
While the new regime simplifies tax filing, it removes most exemptions. Taxpayers cannot claim:
- HRA, LTA, and Professional Tax.
- Deductions under Section 80C, 80D, 80E, 80G, 80CCD(1B), etc.
- Interest on home loans for self-occupied properties.
- Special allowances like education allowance, helper allowance, and minor child income allowance.
Exemptions Available in the New Tax Regime
Certain specific exemptions and deductions remain available:
- Transport allowance for PwDs.
- Employer’s contribution to NPS under Section 80CCD(2).
- Leave encashment under Section 10(10AA).
- Gratuity under Section 10(10).
- VRS compensation under Section 10(10C).
- Interest on let-out property under Section 24.
- Family pension deduction under Section 57(iia).
- Deposits in Agniveer Corpus Fund under Section 80CCH(2).
Tax Savings Under the New Regime: Salary-Wise Comparison
| Annual Salary | Tax Payable (Old Regime) | Tax Payable (New Regime) | Savings |
| ₹5,00,000 | ₹0* | ₹0* | — |
| ₹7,00,000 | ₹44,200 | ₹0* | ₹44,200 |
| ₹10,00,000 | ₹1,06,600 | ₹0* | ₹1,06,600 |
| ₹12,00,000 | ₹1,63,800 | ₹0* | ₹1,63,800 |
| ₹15,00,000 | ₹2,57,400 | ₹97,500 | ₹1,59,900 |
| ₹18,00,000 | ₹3,51,000 | ₹1,05,800 | ₹2,00,200 |
| ₹20,00,000 | ₹4,13,400 | ₹1,92,400 | ₹2,21,000 |
| ₹24,00,000 | ₹5,38,200 | ₹2,92,500 | ₹2,45,700 |
| ₹26,00,000 | ₹6,00,600 | ₹3,51,000 | ₹2,49,600 |
*Rebate under Section 87A applies up to ₹12 lakh.
Which Regime is Better – Old vs New?
- Choose Old Regime if:
You have large deductions like HRA, 80C investments, medical insurance, and housing loan interest. - Choose New Regime if:
- You want a simplified structure without paperwork.
- Your deductions are small (< ₹2–3 lakh).
- Your income is up to ₹12.75 lakh (zero tax payable).
Conclusion
The Union Budget 2025 has made the new tax regime highly favourable for a large section of salaried and middle-income taxpayers. With higher exemption limits, enhanced rebates, and simplified compliance, individuals can benefit significantly. However, taxpayers must still compare both regimes before filing returns to ensure maximum tax savings. Tools like the Automatic Income Tax Preparation Software All-in-One in Excel for FY 2025-26 provide accurate and quick calculations, empowering taxpayers to make the right choice.
Download Automatic Income Tax Preparation Software All-in-One in Excel for FY 2025-26
To simplify compliance, the Automatic Excel-Based Income Tax Calculator helps taxpayers compute liabilities instantly. Key features include:
- Instant tax computation as per the Budget 2025 rules.
- An inbuilt salary structure for both Government and Non-Government employees.
- Automatic generation of Salary Sheet.
- HRA exemption calculation U/s 10(13A).
- Arrears Relief calculation U/s 89(1) with Form 10E.
- Automatic Form 16 (Part A & B)
- Excel-based Form 16 Part B preparation.
This makes it a one-stop solution for tax filing and compliance in FY 2025-26.
