Income Tax Slabs Budget 2025 Highlights: No income tax up to Rs 12 lakh income! Save up to Rs 1.1 lakh with 30% tax slab on income above Rs 24 lakh - big income tax relief for middle class

“Next week marks a pivotal moment as the Government prepares to unveil a new income-tax bill, potentially reshaping the financial landscape for years to come,” said Surabhi Marwah, Tax Partner, EY India.

No tax is applicable for annual income up to Rs 250,000.

A 5% tax rate is levied on income between Rs 250,001 and Rs 500,000.

For earnings ranging from Rs 500,001 to Rs 1,000,000, a 20% tax rate applies.

Income exceeding Rs 1,000,000 is taxed at 30%.

Finance Minister Nirmala Sitharaman in her Union Budget 2025 speech said that the new Income Tax Bill will be introduced in Parliament next week.

While the new income tax regime simplifies taxation with lower rates, it lacks key deductions available in the OTR, limiting its appeal. To encourage broader adoption, two measures could be considered:

1. Deductions for National Pension Scheme [NPS]– Currently, only employer contributions to NPS are eligible for deductions under NTR. Allowing employees to claim deductions for their own contributions would incentivize retirement savings and align with the government’s broader financial security agenda.
2. Housing-Related Deductions – Introducing HRA deductions and allowing home loan interest deductions, along with the ability to set off housing-related losses, would make NTR attractive for both renters and homeowners, says Sundeep Agarwal, Partner, Vialto Partners.

Up to INR 50 lakh – Nil

INR 50 lakh to INR 1 Crore - 10%

INR 1 Crore to INR 2 Crore - 15%

Above INR 2 Crore - 25%

Currently, individuals opting for the new tax regime can receive a rebate of up to Rs 25,000 when their yearly earnings do not exceed Rs 7,00,000. In contrast, those following the old tax regime are eligible for a maximum rebate of Rs 12,500, provided their annual income stays within Rs 5,00,000.

In line with the Government’s agenda to simplify tax systems, there is a case to make the new tax regime more attractive to increase its adoption. According to Surabhi Marwah, Tax Partner, EY India, the top two things that can be done to make the new tax regime more attractive to taxpayers are:

* Lower tax rates: A reduction in tax rates under the new regime could make it more competitive and appealing.
* Higher income-tax exemption limit: Increasing the exemption limit to Rs. 5 lakhs from the current Rs. 3 lakhs could provide more relief to taxpayers, particularly those in lower-income brackets.

For Assessment Year 2025-26, the new income tax regime offers tax exemption on annual income up to Rs 3,00,000. A 5% tax rate applies to earnings between Rs 3,00,001 and Rs 7,00,000. Income from Rs 7,00,001 to Rs 10,00,000 faces 10% tax. For earnings between Rs 10,00,001 and Rs 12,00,000, the rate is 15%. A 20% tax applies to income from Rs 12,00,001 to Rs 15,00,000. Earnings above Rs 15,00,000 are taxed at 30%.

The old tax regime stipulates zero tax for annual earnings up to Rs 2,50,000. Earnings between Rs 2,50,001 and Rs 5,00,000 attract 5% tax. A 20% tax applies to income from Rs 5,00,001 to Rs 10,00,000. For earnings exceeding Rs 10,00,000, the applicable rate is 30%.

“The government’s "Viksit Bharat 2047" vision prioritizes growth, innovation, infrastructure, and sustainable development, which requires substantial public investment. Given the need to fund critical capital expenditure, significant tax slab reductions seem unlikely.



With a narrow tax base—only a small fraction of the population paying income tax—the focus could be on increasing collections rather than cutting rates. While modest tax reductions for lower-income groups may be considered to stimulate consumption, substantial changes to tax slabs are unlikely. Instead, the government would aim to expand the tax net to secure long-term revenues for India's growth and development,” Sundeep Agarwal, Partner, Vialto Partners tells TOI.

Most of the changes, such as raising the basic exemption limit or increasing the 30% slab limit from INR 15 lakh to INR 18 lakh, are likely to happen under the new tax regime. This is because the government has been encouraging taxpayers to move to the new tax regime, and a large section of taxpayers has already opted for it. To make the new tax regime more attractive, deductions for term insurance and medical insurance premiums may be introduced, as these expenses are necessary for the protection and well-being of the taxpayers and their family, particularly in the post-COVID environment, says Kuldip Kumar, Partner, Mainstay Advisors.

“It seems unlikely that the government will completely phase out the old tax regime in the upcoming Budget. While the new tax regime has gained popularity due to its simplicity, the old regime still offers advantages to taxpayers with claims for higher exemptions and deductions. The government may continue to focus on encouraging the adoption of the new tax regime, possibly by making it more attractive, while maintaining both regimes for a transition period,” says Surabhi Marwah, Tax Partner, EY India.

Finance Minister Nirmala Sitharaman began her Union Budget 2025 speech by saying that Budget 2025 will focus on enhancing spending of India’s rising middle class. This is being seen as a possible hint for income tax relief.

“Nearly 72% of taxpayers opted for the new tax regime for FY 2023-24, according to the press release issued by the government on August 2, 2024. Based on the government's past approach, making changes only to the new tax regime seems to be the way to provide relief to taxpayers, as was done last year. A large majority of taxpayers have already moved to the new tax regime, and further changes this year may make it even more attractive for the rest of others who are yet to decide. The top two includes, one, raising the basic exemption limit from INR 3 lakh to INR 5 lakhs and the 30% tax slab to apply for Income above INR 18 lakhs (currently it is INR 15 lakhs). Second, introduce deduction for the premiums paid for term and medical insurance as India is still highly under covered from insurance perspectives,” says Kuldip Kumar, Partner, Mainstay Advisors.

“A hike in the 80C limit would encourage more individuals to save and invest in financial instruments that contribute to long-term wealth creation. As the latest hike was only in 2014, it would be welcome increase this limit to boost investments. This could also lead to a higher flow of funds into the formal savings sector, that balance immediate financial relief with sustained economic growth,” says Sudhakar Sethuraman, Partner, Deloitte India.

The new tax regime has witnessed various amendments since its inception in FY 2020-21, to increasingly make it lucrative for taxpayers. The current tax slabs and rates which were reset in the last Budget, to also account for inflationary trends, provide a boost to the disposable income of the common man. Now, there is also a need for stability and predictability in the tax rates, along with retention and enhancement of the tax base. Hence, with limited tinkering to the tax rates and slabs, enhancing the income threshold up to which a 100 per cent tax rebate is available from INR 7 lakhs to INR 10 lakhs, could help reducing the tax burden for this section of taxpayers, without reducing the tax net, says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.

Deduction under section 80C of the Act is now available only to the taxpayers opting for old tax regime. This limit has remained unchanged for more than a decade now and has not kept pace with the increasing cost of living. Historically it has been on the wish list, that this limit be enhanced to say INR 3 lakhs from existing INR 1.5 lakhs, to boost household savings and traditional investments such as FDRs, PPF etc.

However, considering the thrust towards an eventual phase out of the old tax regime and retaining limited deductions under the new regime, an increase in the Section 80C limit, may now either have limited utility, says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.

“There is a rise in the cost of living, and high interest rates are prevailing. Further, recent trends in the economy indicate a slowdown. To maintain the growth momentum and spur consumption in the economy, there is a need to increase the disposable income of taxpayers. This can be achieved by raising the basic exemption limit from INR 3 lakh to INR 5 lakh and by raising the 30% tax slab from INR 15 lakh to INR 18 lakh. But this may happen in new regime only,” says Kuldip Kumar, Partner, Mainstay Advisors.

“Exemption limit in old tax regime was not hiked in the recent past, while around one fifth of the tax payers (based on information in income tax portal) opt under old tax regime, it would help if the limit is expanded. However, any increase is likely to be modest to ensure alignment with the government’s fiscal objectives while still promoting consumption and offering meaningful relief to the middle class,” says Sudhakar Sethuraman, Partner, Deloitte India.

New tax regime is a preferred regime for tax-payers with INR 7-8 lakhs income. The tax payers in higher income bracket have planned their investments and expenses to avail all deductions / exemptions available under old regime and hence prefer to opt for the same. In order to lure such class of tax-payers towards new regime, the Government should introduce few additional deductions in new regime, says Preeti Sharma, Partner, Tax & Regulatory Services, BDO India LLP.

1. Deduction on account of interest paid on housing loan for self-occupied properties.
2. House rent allowance (HRA) exemption on account of rent paid by the tax-payer

* Under the new regime: Further reduction in tax rates and more beneficial provisions such as a higher threshold for tax-free income.
* Under the old regime: While changes in the old tax regime are unlikely, given the government’s focus on making the new tax regime more attractive, possible increases in exemptions, deductions, and an effort towards simplification may be expected, Surabhi Marwah, Tax Partner, EY India tells TOI.

Many changes have already been made since introduction of the new tax regime. Further, the following are few changes which are very widely expected in the new tax regime by the common man:

1. Currently full rebate of tax is available to a resident individual when his total income as per new tax regime is INR 7 lakhs. To provide relief to the middle-income group it is expected that the said income limit may be enhanced to at least INR 10 lakhs. This will generate tax savings (and additional net disposable income) in hands of people earning between INR 7 lakhs to INR 10 lakhs per annum. It is anticipated that this could fuel consumption in the economy which is beneficial to the economy at large.
2. Many individuals do incur significant rent cost on account of working in a different city then their home city. Hence, an expectation that the house rent allowance deduction be allowed in the new tax regime as well.

While the wish list can be endless, the Finance Minister will have to juggle with these expectations along with various macro-economic factors, says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.

“It would be welcome if both the old and new tax regimes may witness higher basic exemption limits, expanded deductions, and streamlined tax structure. For instance, considering house property loss under new tax regime, reduction of surcharge. The focus is expected to be on on creating a more favorable tax environment for salaried individuals while simultaneously driving economic growth and ensuring greater financial inclusion,” Sudhakar Sethuraman, Partner, Deloitte India tells TOI.

“There is a need to incentivize NPS. Currently, the employer’s contribution to NPS is not subject to tax to the extent of 14% of salary. Further, NPS is an important instrument to encourage taxpayers to save for their old age. Therefore, even self-employed individuals should be allowed the same deduction for their contributions to NPS as salaried taxpayers receive when their employers contribute. Further, the NPS Vatsalya, introduced in last year’s Budget too merits a separate tax rebate more particularly for the girl child,” says Kuldip Kumar, Partner, Mainstay Advisors.

Section 80C: Allow deductions up to INR 2 lakhs for life insurance premiums, employees’ Provident Fund contribution , etc.

Section 80D: Extend the deduction up to INR 1 lakh for health insurance premiums for self and family, addressing the growing burden of medical expenses.

Section 80TTB: Include a deduction of up to INR 50,000 for senior citizens earning interest from deposits with banks, post office, etc.

­10(13A): Allow salaried taxpayers to claim HRA deductions for rental expenditure under the NTR.

These proposed amendments will make the NTR not only simpler but also more tax-efficient, says Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India.

Similar to the tax rates, the standard deduction was increased in the last budget. As there are no major deductions or exemptions available under the new tax regime, there is a strong case for increasing the standard deduction further to make the new tax regime attractive. An increase could potentially lower taxable income, providing significant relief, particularly for individuals in lower to middle-income brackets.

While an increase in the standard deduction would be a welcome measure under the old tax regime, given the Government’s focus on increasing the uptake of new tax regime, it seems unlikely that there will be an increase in standard deduction under old tax regime, Surabhi Marwah, Tax Partner, EY India tells TOI.

“Considering that the Government has rejigged the tax slabs in the previous budget, one may not expect significant changes in this budget to the tax rates. However, it would be beneficial for the individual taxpayers if the basic exemption limit is increased to Rs. 5 lakhs and the limit for rebate u/s 87A of the Income-tax Act, 1961 is increased to Rs. 10 lakhs from the current limit of Rs. 7 lakhs,” Surabhi Marwah, Tax Partner, EY India tells TOI.

Since the introduction of the new income tax regime, the options for tax savings have been limited, making it essential to reconsider and amend the structure for the benefit of taxpayers. While the NTR is preferred as a streamlined tax system, it can be made even more effective by incorporating the following key changes:

Simplification of income tax slabs and rates:

­Increasing the basic exemption limit of income from INR 3 lakhs to INR 5 lakhs

­Currently, the differences between tax slabs are inconsistent at INR 2 lakhs or INR 3 lakhs. A more uniform approach is needed with consistent income gaps.

­Introduction of a new 25% tax rate slab to provide further tax relief for middle-income earners. The tax rates currently stand at 5%, 10%, 15%, 20% and 30%.
­
The income limit for the 30% should be enhanced from INR 15 lakhs to INR 20 lakhs, says Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India.

Standard deduction is a flat deduction available on your taxable income. In the new income tax regime, the standard deduction is Rs 75,000. This was raised from Rs 50,000 in last year’s Budget by FM Nirmala Sitharaman. The standard deduction under the old income tax regime still stands at Rs 50,000. Tax experts are of the view that the Modi government should further hike the standard deduction to at least Rs 1 lakh under the new income tax regime to incentivise its adoption.

Extend the scope of House Rent Allowance (HRA) to include high-rental cities of Bengaluru, Gurugram, Hyderabad, and Pune under ‘metro cities’ to provide relief to salaried taxpayers in these areas.

Raise the deduction limit for housing loan interest repayment from INR 2 lakhs to INR 3 lakhs under section 24(b) of the Act.

Currently, individual taxpayers face a tight deadline for filing income tax returns (31 July), especially since Form 16 is issued only by mid-June and Form 26AS is updated in June or July. Extending the deadline to 31st August would offer more time to complete the filing process accurately, reducing errors and the need for subsequent revisions. This extension would also ease the stress of taxpayers during the fiscal year-end and monsoon season, says Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India.

The Government has taken series of steps to ease the compliance burden for taxpayers in India. With the objective of imparting greater transparency, efficiency, and accountability, the Government has introduced faceless assessment and appeal mechanism. While 61 per cent of the respondents in a recent KPMG in India survey prefer the hybrid mode of interactions with tax officials, with some improvements, 35 per cent of the respondents are inclined towards complete transition to faceless mode for all interactions (including transfer pricing and international tax). Only 4 per cent of the respondents would prefer to completely go back to offline mode. This feedback validates the initiatives taken by the Government on this front.

▪ Introduce clear guidelines and tax structure for cryptocurrency transactions and Non-Fungible Tokens (NFTs)

▪ Guidelines related to loss incurred towards VDAs, says EY.

Basis the larger agenda of the Finance Ministry to simplify compliance and procedures under the income tax laws, KPMG in India believes that one may expect a few of the following other changes:

Currently, home buyers who purchase property from non-residents (NR) are required to compute the income of the seller and deduct appropriate tax on such income. This casts an onerous obligation on the individual home buyers. Infact they are also required to obtain Tax Deduction Account (TAN) and file quarterly withholding tax returns. Contrast this with the situation where the seller is a resident – the buyer simply has to deduct 1 per cent TDS on sales proceeds and file a challan-cum return without obtaining a TAN. A similar system, probably with a higher rate of TDS say 2 or 5 per cent, may be introduced for buyers of residential property from a NR taxpayer.

Electric vehicles (EV) are the future. In line with the ESG agenda of organization, many employers are encouraging employees to consider an EV in their employer car lease arrangement. However, the current perquisite rules provide for valuation only basis cubic capacity of the car. Hence, it may be prudent for the Government to specify a separate value for EVs as well.

For any financial year a revised/ belated return can be filed by 31 December following the end of the FY. In many cases (especially in case of individuals with cross border investment and income) the tax returns in the home/ host country are not finalized by then. As an example for a US citizen the deadline to file a tax return for calendar year 2024 is 15 April 2025. Whereas he/ she has to report his global income in India (if he/ she is an ordinary resident of India) for FY 2023-24 (partial period in calendar year 2024) by filing a revised/ belated return latest by 31 December 2024. Hence, it may be advisable to provide more time in case of such individuals to file a revised/ belated return.

Currently many individuals are receiving summons notices from the investigation wing of the income tax department. While all the information documents are being provided there is no formal intimation of closure of such proceedings required to be communicated to the taxpayers. Hence, it is an expectation that such a requirement is brought about in the Income Tax law so that taxpayers who have given all information / documents get a satisfactory closure of the matter.

There has been consistent demand to raise the 80C limit, as the existing limit has not been revised for many years. Unfortunately, raising the 80C limit is unlikely, as a large number of taxpayers have already moved to the new tax regime, where the 80C deduction is not permitted. The government has come a long way in promoting the new tax regime, which is simpler and devoid of most of the exemptions and deductions available under the old regime, says Kuldip Kumar, Partner, Mainstay Advisors.

The Government of India had, in July 2024, announced to undertake a comprehensive review of the Income-tax Act, 1961 (‘the Act’). The aim is to make the Act concise, lucid, easy to read and understand, which will reduce disputes and litigation, thereby providing tax certainty to the taxpayers.

While the simplification exercise is underway, KPMG in India conducted a survey in January 2025 to capture industry views and expectations therefrom.

Simplification in the area of dispute/litigation is one of the topmost ask for about 84 per cent of the respondents. Apart from tax litigation/disputes, the respondents felt that other key area that requires attention is simplification of TDS provisions, which today covers more than 30 provisions for various transaction categories. About 64 per cent of the respondents believe that simplification of TDS provisions is the need of the hour.

Up to INR 3 lakh – Nil

INR 3,00,001 to INR 7,00,000 - 5%

INR 7,00,001 to INR 10,00,000 - 10%

INR 10,00,001 to INR 12,00,000 - 15%

INR 12,00,001 to INR 15,00,000 - 20%

Above INR 15,00,000 - 30%

The Budget announced in July 2024 brought limited changes for individual taxpayers, leaving many to hope that the upcoming Budget 2025 will deliver the much-needed tax relief to alleviate their financial pressures. According to Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India, there is a strong expectation that the government will focus on improving taxpayers' savings by introducing reforms such as a unified tax regime and enhanced deductions.

The introduction of two tax regimes - Old Tax Regime (OTR) and New Tax Regime (NTR) - was intended to offer taxpayers flexibility, allowing them to choose the system that best suits their investments, savings habits, and preferences. However, the reality has been far more complex. Many taxpayers find themselves confused between the two regimes, often reassessing their choice not only during the year but also while filing their tax returns.

In light of these complexities, the upcoming Budget should focus on simplifying the tax structure for individual taxpayers by consolidating the current dual regimes into a single, cohesive tax framework. While this shift may take time, it is anticipated that the OTR may eventually be phased out, with its abolition ideally scheduled for FY 2026-27 to provide ample time for taxpayers, employers, and financial institutions to adjust.

This being the first full Budget for the new Government there will always be a slew of expectations from a personal tax perspective. However, one has to also bear in mind the current state of economic growth for India, global economic indicators and other factors that the Finance Minister will consider before presenting the personal tax proposals. Also, the Government has set-up a separate committee for a comprehensive review of the Income tax law from a simplification and ease of administration and compliance perspective.

In that backdrop, KPMG in India highlights some of key expectations:

Providing impetus to the housing sector

In line with the objective of the Government of Housing for all, it is widely expected that the Government may consider some tax SOPs for the housing and funding cost for the middle- and low-income earners. In the context of a self-occupied property, the new default tax regime disallows any deduction for interest on housing loans. Conversely, the old tax regime permits a deduction of up to only INR 2 lakhs. This distinction is crucial as buying a home and securing a loan for self-occupation are substantial financial commitments, often spanning long periods. With recent hikes in interest rates and regulatory reforms there is mounting pressure on the real estate sector. To alleviate these challenges and foster home ownership, it is suggested that the Government may reconsider allowing deductions for interest on self-occupied housing loans even under the new default tax regime or enhancing the deduction in the old tax regime to at least INR 3 lakhs.

Hike in deduction towards health insurance under section 80D

With advancement in healthcare and spiraling medical costs, there is an expectation to increase the current deduction towards health insurance which ranges from INR 25,000 to INR 1 lakh (depending on the family member for whom the insurance is taken and his/ her age) to INR 50,000 to INR 1.5 lakh.

Potentially stable income slab and tax rates:

Over the last 3-4 years the Government has made a conscious effort to make the income slabs and corresponding tax rates more lucrative for taxpayers opting for the new tax regime. Infact the new tax regime tax slabs have been altered in Budget 2023 as well as interim Budget of 2024. This thrust has yielded results as per the statistic released by the Government itself. As per the said statistics for the Assessment Year 2024-25 (FY 23-24) 72% of taxpayers opted for the New Tax Regime compared to 28% who chose the Old Tax Regime.

Hence, while there is always expectation from the common man to get more net disposable income in their hands, on a realistic basis it is expected that there may be no changes to the income slabs and tax rates in the old tax regime and minimal changes (if any) in the new tax regime.

In the last Budget, government rationalised the capital gains structure in terms of holding period of assets and tax rates

According to EY, the government may address some of the unintended anomalies to make the rationalisation of capital gains more complete. For instance:

The period of holding for the following capital assets may be rationalised:

▪ For computation of capital gains arising on slump sale, the holding period for business undertaking may be reduced from 36 months to 24 months. This will be in line with the amendments made in Finance Act, 2024 which reduced the holding period for all capital assets to 12 or 24 months to turn into long term.

▪ The holding period for unlisted shares transferred under “Offer for Sale (OFS)” by existing promoters/PE investors in an Initial Public Offer is 2 years despite other tax treatment for such shares being identical to listed shares for whom holding period is 1 year. Government may reduce the holding period for unlisted shares transferred under OFS in IPO to 1 year

▪ As per the Finance (No. 2) Act, 2024 even if unlisted bonds are held for more than 24 months, the gains on transfer shall still be treated as short term capital gains.

▪ This provision may adversely impact sovereign wealth funds/pension funds that are eligible to claim exemption u/s. 10(23FE) for investment in debt and equity in infrastructure sector. Such funds are exempt only on long term capital gains arising from investment made by it in India, whether in the form of debt or share capital or unit.

▪ Government may provide an exception to such funds under the new treatment of capital gains for unlisted debentures.

Section 87A offers a rebate to individuals with a total taxable income of up to Rs 5 lakh under the old regime and Rs 7 lakh under the new tax regime.

▪ The benefit of rebate u/s. 87A is available for LTCG from listed equity, equity-oriented funds and units of business trust u/s. 112A. However, the rebate does not apply to any LTCG other than s.112A. ) or to STCG from listed equity, equity-oriented funds and units of business trusts.

▪ Since the capital gains tax rates have increased, and to bring parity, government may allow rebate u/s 87A on other income (capital gains) for small taxpayers