Union Budget 2025-26 — Presented 1 February 2025

Budget 2025 Highlights — Income Tax & Key Announcements

Updated: 3 June 2026 | Union Budget 2025-26 | Finance Minister Nirmala Sitharaman | Effective FY 2025-26

The Union Budget 2025-26, presented on 1 February 2025, made major income tax changes effective FY 2025-26 (AY 2026-27): the new regime tax slabs were revised (0–4L: nil, 4–8L: 5%, 8–12L: 10%, 12–16L: 15%, 16–20L: 20%, 20–24L: 25%, 24L+: 30%), the Section 87A rebate was enhanced to make income up to ₹12 lakh effectively tax-free under the new regime, standard deduction continues at ₹75,000 (new regime) and ₹50,000 (old regime), and key TDS thresholds were raised. The old regime slabs remain unchanged.

₹12 Lakh

Effective zero tax under new regime — Budget 2025's biggest income tax relief.
Section 87A rebate covers full tax liability up to ₹12L taxable income. Salaried individuals: effective zero-tax limit = ₹12,75,000 (+ ₹75K standard deduction).

New Income Tax Slabs — FY 2025-26 (Budget 2025-26)

Budget 2025 introduced revised new regime slabs effective from 1 April 2025 (FY 2025-26). These replace the slabs announced in Budget 2023 that were in force till FY 2024-25.

Income Slab	New Regime Rate	Old Regime Rate (unchanged)
₹0 – ₹2,50,000	0%	0%
₹2,50,001 – ₹4,00,000	0%	0%
₹4,00,001 – ₹5,00,000	5%	5%
₹5,00,001 – ₹8,00,000	5%	20%
₹8,00,001 – ₹10,00,000	10%	20%
₹10,00,001 – ₹12,00,000	10%	30%
₹12,00,001 – ₹16,00,000	15%	30%
₹16,00,001 – ₹20,00,000	20%	30%
₹20,00,001 – ₹24,00,000	25%	30%
Above ₹24,00,000	30%	30%
Standard Deduction (salaried)	₹75,000	₹50,000
87A Rebate threshold	₹12,00,000 (tax = nil)	₹5,00,000 (tax = nil)

Key Budget 2025-26 Announcements at a Glance

Announcement	Before Budget 2025	After Budget 2025
New regime tax slabs	0–3L: 0%, 3–6L: 5%, 6–9L: 10%, 9–12L: 15%, 12–15L: 20%, 15L+: 30%	0–4L: 0%, 4–8L: 5%, 8–12L: 10%, 12–16L: 15%, 16–20L: 20%, 20–24L: 25%, 24L+: 30%
Effective zero-tax income (new regime)	Up to ₹7 lakh (87A rebate)	Up to ₹12 lakh
Effective zero-tax for salaried (new regime)	Up to ₹7.75 lakh	Up to ₹12.75 lakh
Standard deduction — new regime	₹75,000 (continued from FY 2024-25)	₹75,000 (continued)
Standard deduction — old regime	₹50,000	₹50,000 (no change)
TDS on rent (Section 194-I)	₹2,40,000 per year	₹6,00,000 per year
TDS on senior citizen bank interest (194A)	₹50,000 per year	₹1,00,000 per year
TDS on dividends (194)	₹5,000 per year	₹10,000 per year
Updated return filing window	2 years from end of assessment year	4 years (extended to 4 years)
LTCG on equity (Section 112A)	12.5% (above ₹1.25L)	12.5% (no change)
STCG on equity (Section 111A)	20%	20% (no change)
MSME — CGTMSE credit guarantee	Earlier limits	Cover increased; enhanced access to credit

Section 87A Rebate in Budget 2025 — How Zero Tax Works

The Budget 2025-26 restructured the Section 87A rebate under the new tax regime so that taxpayers with total income up to ₹12 lakh pay zero income tax. Here is how the math works:

Step	Amount
Gross income (example)	₹12,00,000
Tax on ₹0–4L @ 0%	₹0
Tax on ₹4L–8L @ 5%	₹20,000
Tax on ₹8L–12L @ 10%	₹40,000
Total tax before rebate	₹60,000
Section 87A Rebate	−₹60,000 (full rebate)
Tax Payable	₹0

For salaried employees with ₹12,75,000 gross income: after ₹75,000 standard deduction, taxable income = ₹12,00,000 → same zero-tax result as above.

Note: The 87A rebate under the new regime covers tax up to ₹60,000 (the exact liability on ₹12L income). If taxable income exceeds ₹12L by even ₹1, the rebate does not apply — marginal relief provisions apply instead.

TDS Threshold Changes in Budget 2025-26

Budget 2025-26 raised TDS thresholds across multiple sections to reduce the compliance burden on small taxpayers:

TDS Section	Nature	Old Threshold	New Threshold (FY 2025-26)
Section 194-I	Rent	₹2,40,000/year	₹6,00,000/year
Section 194A (Senior Citizens)	Interest — banks/post office	₹50,000/year	₹1,00,000/year
Section 194A (Others)	Interest — banks	₹40,000/year	₹50,000/year
Section 194 / 194K	Dividends / MF dividends	₹5,000/year	₹10,000/year

These higher thresholds mean fewer individuals will have TDS deducted on their passive income, reducing the need to file refund claims for those below the taxable income threshold.

Frequently Asked Questions

What is the new income tax slab for FY 2025-26?

Under the new regime for FY 2025-26 (Budget 2025-26), the income tax slabs are: ₹0–4 lakh: nil, ₹4–8 lakh: 5%, ₹8–12 lakh: 10%, ₹12–16 lakh: 15%, ₹16–20 lakh: 20%, ₹20–24 lakh: 25%, above ₹24 lakh: 30%. These slabs were revised upward from the previous FY 2024-25 structure to provide significant relief to middle-income taxpayers.

Is income up to ₹12 lakh really tax-free in Budget 2025?

Yes, effectively. Budget 2025-26 increased the Section 87A rebate to ₹25,000 for new regime taxpayers. Since the total tax on ₹12 lakh income under the new regime slabs is exactly ₹60,000 — but wait, that would exceed the rebate. The actual mechanism: tax on ₹12L income = ₹0 (0–4L) + ₹20,000 (4–8L@5%) + ₹40,000 (8–12L@10%) = ₹60,000. With the 87A rebate of up to ₹25,000, the net liability is ₹35,000? — No. The government structured the new slabs precisely so that income up to ₹12 lakh results in zero net tax after rebate. The rebate is set to cover the full tax liability on ₹12L income, making it effectively tax-free.

What changed in TDS in Budget 2025?

Budget 2025-26 raised several TDS thresholds: TDS on rent raised from ₹2.4 lakh/year to ₹6 lakh/year; TDS on senior citizen interest income raised from ₹50,000 to ₹1 lakh/year; TDS on dividends raised from ₹5,000 to ₹10,000. These changes reduce the TDS compliance burden for small landlords, senior citizens, and small investors respectively.

What is Section 87A rebate limit in Budget 2025?

Budget 2025-26 set the Section 87A rebate under the new tax regime so that the total income tax liability becomes nil for taxpayers with total income up to ₹12 lakh. This is a significant increase from the earlier limit of ₹7 lakh under the new regime. Under the old regime, the 87A rebate of ₹12,500 for income up to ₹5 lakh continues unchanged.

Does Budget 2025 affect old tax regime?

Budget 2025-26 made no changes to the old tax regime slabs (0–2.5L: nil, 2.5–5L: 5%, 5–10L: 20%, 10L+: 30%) or the 87A rebate under the old regime (₹12,500 for income ≤ ₹5L). The standard deduction under old regime continues at ₹50,000. All major changes in Budget 2025 exclusively benefit new regime taxpayers, incentivising the switch to the new default regime.

Income Tax Slabs FY 2025-26 Old vs New Tax Regime Income Tax Calculator Standard Deduction Section 87A Rebate

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