Understanding the Key Highlights of Union Budget 2025: Income Tax Reforms and Slab Changes Explained

The Union Budget 2025 has brought some noteworthy changes, especially in the new income tax regime. Finance Minister Nirmala Sitharaman has raised the income tax rebate limit from Rs 7 lakh to Rs 12 lakh, signalling a significant shift for taxpayers in India. With this change, many taxpayers will have more disposable income, as they now stand to benefit from a zero-tax liability on income up to Rs 12 lakh. But what does this mean for taxpayers, particularly those earning above Rs 12 lakh? In this blog, we will take a detailed look at the income tax rebate 2025, new tax regime India, and how the new income tax slabs affect individuals earning above Rs 15 lakh.

Income Tax Rebate 2025: What Does It Mean?

The key highlight of the Income Tax Budget 2025 is the raised limit for tax rebates under the new tax regime. As of now, individuals earning up to Rs 12 lakh will have zero tax liability due to the income tax rebate, which was previously applicable only to those earning up to Rs 7 lakh.

So, does this mean that someone earning Rs 15 lakh will only pay tax on Rs 3 lakh? The Answer is No. Here's Why:

The income tax rebate is specifically for individuals with a taxable income up to Rs 12 lakh. If your taxable income exceeds Rs 12 lakh, the rebate will no longer apply, and you will be taxed according to the new tax slabs under the new tax regime.

For instance, if your taxable income is Rs 12.1 lakh, you will be taxed Rs 61,500 based on the applicable slabs. Let’s break it down:

• Income between Rs 4 lakh to Rs 8 lakh will be taxed at 5%
• Income between Rs 8 lakh to Rs 12 lakh will be taxed at 10%
• Income between Rs 12 lakh to Rs 16 lakh will be taxed at 15%

Thus, if your income is Rs 12.1 lakh, the tax will be calculated as follows:

• Rs 4 lakh to Rs 8 lakh taxed at 5% = Rs 20,000
• Rs 8 lakh to Rs 12 lakh taxed at 10% = Rs 40,000
• Rs 12 lakh to Rs 12.1 lakh taxed at 15% = Rs 150

This brings the total tax liability to Rs 61,500.

Now, if your taxable income is Rs 15 lakh, you will pay tax of Rs 1,05,000 as follows:

• Rs 4 lakh to Rs 8 lakh taxed at 5% = Rs 20,000
• Rs 8 lakh to Rs 12 lakh taxed at 10% = Rs 40,000
• Rs 12 lakh to Rs 15 lakh taxed at 15% = Rs 45,000

New Tax Regime: Key Changes in Tax Slabs

The new tax regime introduced in Union Budget 2025 includes some significant changes for those earning above Rs 15 lakh. While incomes above Rs 15 lakh were previously taxed at the highest rate of 30%, the new budget offers considerable relief to these taxpayers. Here are the updated tax slabs for income above Rs 15 lakh:

• Income between Rs 12 lakh to Rs 16 lakh: Taxed at 15%.
• Income between Rs 16 lakh to Rs 20 lakh: Taxed at 20%.
• Income between Rs 20 lakh to Rs 24 lakh: Taxed at 25%.
• Income above Rs 24 lakh: Taxed at 30% (this remains the same).

This change brings significant tax benefits above Rs 15 lakh, offering a reduction in the overall tax burden for individuals in these income brackets. Earlier, these individuals were taxed at 30% for incomes above Rs 15 lakh, but the new slabs will allow them to pay less tax, resulting in a savings of up to Rs 1.1 lakh.

Also read: Union Budget 2025 Major Taxation Changes for ULIPs and Life Insurance Policies

What Does This Mean for Taxpayers Above Rs 15 Lakh?

For individuals earning above Rs 15 lakh, the revised tax structure is an important development. The new tax regime guarantees that:

1. Taxpayers in the Rs 15 lakh to Rs 24 lakh income range will enjoy a gradual reduction in their tax rate as opposed to the earlier flat 30% rate.
2. Those with an income above Rs 24 lakh will still be taxed at 30%, but the savings provided by the lower tax slabs for the Rs 12 lakh to Rs 24 lakh range will significantly reduce the overall tax burden.

Example: Tax Benefits for an Income of Rs 20 Lakh

Let's take an example to understand the tax savings:

• Income of Rs 20 lakh: According to the new income tax slabs under the new tax regime, the tax would be calculated as follows:

- Rs 4 lakh to Rs 8 lakh taxed at 5% = Rs 20,000

- Rs 8 lakh to Rs 12 lakh taxed at 10% = Rs 40,000

- Rs 12 lakh to Rs 16 lakh taxed at 15% = Rs 60,000

- Rs 16 lakh to Rs 20 lakh taxed at 20% = Rs 80,000

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

This is a sharp reduction compared to the earlier tax regime, where an individual earning Rs 20 lakh would have been taxed at 30%, resulting in a higher tax liability of Rs 6 lakh.

Also read: New vs. Old Tax Regime Making the Right Choice for Your Income

Key Takeaways from the Income Tax Budget 2025

1. Income tax rebate 2025 has been raised from Rs 7 lakh to Rs 12 lakh, allowing individuals with income up to Rs 12 lakh to pay no tax.
2. New income tax slabs under the new tax regime India have introduced lower tax rates for those earning above Rs 15 lakh, resulting in savings of up to Rs 1.1 lakh.
3. Taxpayers with income above Rs 12 lakh will no longer qualify for the rebate and will be taxed according to the updated tax slabs.
4. Tax benefits above Rs 15 lakh will ensure that individuals with incomes between Rs 12 lakh to Rs 24 lakh pay significantly lower taxes than before.
5. The 30% tax rate continues to apply for incomes exceeding Rs 24 lakh.

In conclusion, the Union Budget 2025 has introduced key changes in the new income tax regime, especially for those earning above Rs 15 lakh. With the reduction in tax rates for income between Rs 12 lakh and Rs 24 lakh, individuals will experience substantial tax savings. The income tax rebate 2025 has also been made more beneficial for individuals earning up to Rs 12 lakh, making it an excellent move for lower and middle-income taxpayers. The new income tax slabs are more progressive, providing relief and fairness to taxpayers in different income ranges.

By understanding these changes, taxpayers can optimize their tax planning and make sure they’re benefiting from the new tax regime India in the best possible way.