In the Union Budget 2025, Finance Minister Nirmala Sitharaman delivered a clear message to taxpayers: the future of Indian taxation is the New Tax Regime. By making annual income up to ₹12.75 lakh effectively tax-free for salaried individuals, the government has significantly reduced the incentive for many to stay in the old system.
Add rightsofemployees.com as a Preferred Source
The Math Behind the “Tax-Free” ₹12.75 Lakh
The new regime’s appeal lies in a combination of revised slabs, an enhanced rebate, and a higher standard deduction:
-
Standard Deduction: Increased to ₹75,000 for salaried taxpayers and pensioners.
-
Section 87A Rebate: The rebate limit was hiked to ₹60,000, meaning there is zero tax payable on taxable income up to ₹12 lakh.
-
Effective Limit: For a salaried professional, a gross income of ₹12.75 lakh minus the ₹75,000 standard deduction leaves a taxable income of ₹12 lakh, which is then fully covered by the rebate.
New Tax Regime Slabs: FY 2025-26 (AY 2026-27)
| Annual Income (₹) | Tax Rate |
| Up to 4,00,000 | Nil |
| 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% |
Why the Old Regime is Fading
Under the old regime, taxpayers have to “earn” their tax breaks by locking money into 80C investments, health insurance (80D), and home loans.
-
The Break-Even Point: Experts suggest the old regime now only makes sense if your total deductions exceed ₹8.5 lakh.
-
Declining Adoption: Official data suggests that less than 20% of taxpayers now opt for the old regime, as the simplicity and lower rates of the new regime outweigh the benefits of complex tax planning.
-
The Strategy: The government isn’t formally scrapping the old regime yet; instead, it is making the new regime so attractive that the old one becomes “redundant by choice.”
Looking Ahead to Budget 2026
As we approach the 2026-27 Budget, industry experts expect the government to double down on this shift. There is speculation about further simplifying the Direct Tax Code and potentially raising the entry point for the highest 30% tax bracket to incomes above ₹50 lakh under the new regime to encourage high-earners to switch.
Conclusion
The shift from “invest to save” to “lower tax by default” is nearly complete. For the vast majority of middle-income earners, the new tax regime is now the clear financial winner.
Recommended Readings:-
- Income Tax Refund on Hold? What Happens if You Don’t File a Revised ITR…
- Complete Guide: How to Close Your Demat Account (2025 Updates)
- 13 Multibagger Stocks of 2024 Crashed Up to 60% in 2025
- CIBIL Score Now Determines Home Loan Rate: LIC Housing Finance Cuts Interest Rates (2025)
- Best Loan Apps for Low CIBIL Score in India (2025)
- Budget 2026: CII presents a 4-point strategy to reduce debt and curb tax evasion.
- Income Tax Update: Do you pay income tax? Before the end of the year, the Income Tax Department has issued a major update. Find…
Disclaimer: Tax laws are subject to change. This summary is based on the Finance Act 2025. Always consult a certified tax professional before making major investment or filing decisions…
Add rightsofemployees.com as a Preferred Source
