Finance Minister Nirmala Sitharaman on Saturday announced that there would be no income tax payable for income up to Rs 12 lakh per annum under the new regime.

The limit would be Rs 12.75 lakh for salaried taxpayers considering the standard deduction of Rs 75,000, Sitharaman said in her Union Budget speech for the financial year 2025-’26.

The current exemption is for income up to Rs 7 lakh per year, a level set in 2023.

The finance minister said that the income tax slabs were being changed across the board.

“To taxpayers up to Rs 12 lakh of normal income [other than special rate income such as capital gains] tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them,” she said in her Budget speech.

The finance minister said that the new structure will help “reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment”.

Revised tax rates under the new tax regime

Income Tax slabs Tax rate
Up to Rs 4 lakh Nil
Rs 4-8 lakh 5%
Rs 8-12 lakh 10%
Rs 12-16 lakh 15%
Rs 16-20 lakh 20%
Rs 20-24 lakh 25%
More than Rs 24 lakh 30%
Source: Ministry of Finance

No announcements were made about the old tax regime.

The new tax regime was rolled out in February 2023.

TDS changes

Sitharaman also proposed to rationalise Tax Deducted at Source by reducing the rates and thresholds above which the TDS is deducted.

The limit for tax deduction on interest for senior citizens will be doubled to Rs 1 lakh, the finance minister said. The annual limit of Rs 2.4 lakh for TDS on rent is being increased to Rs 6 lakh.

“The threshold to collect TCS on remittances under RBI’s [Reserve Bank of India’s] liberalised remittance scheme is proposed to be increased from Rs 7 lakh to Rs 10 lakh,” she said. “I also propose to remove remittances for education purposes where such remittances is out of loan taken from a specified financial institution.”

A revenue of Rs 1 lakh crore would be forgone from direct taxes through the revamp of the personal tax slabs, Sitharaman said. Additionally, a revenue of Rs 2,600 crore would be foregone through cuts in indirect taxes.

New Direct Tax Bill

Sitharaman also said that the Union government will introduce a new Direct Tax Bill in Parliament next week.

“The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words,” she said. “It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.”

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