The Union Budget 2025 has brought significant tax reforms aimed at benefiting salaried taxpayers. Finance Minister Nirmala Sitharaman, in her historic 8th budget speech on February 1, 2025, introduced revised income tax slabs, new rebate limits, and reduced tax rates under the new tax regime.
The changes aim to put more money in taxpayers’ hands, encourage higher household savings, and boost investments. Notably, under the revised framework, individuals earning up to ₹12.75 lakh annually will now pay zero tax, making this a major relief for the middle class.
This article provides a detailed tax calculation for salaried individuals earning between ₹12.75 lakh and ₹1 crore, showcasing how the latest tax structure reduces liability and increases savings.
Key Changes in the New Tax Regime for FY 2025-26
The new tax regime was designed to offer lower tax rates while eliminating multiple deductions and exemptions available under the old system. Some of the major changes announced in the Budget 2025 include:
- Revised Tax Rebate: The tax rebate limit has been increased from ₹25,000 to ₹60,000, applicable for incomes ranging from ₹4 lakh to ₹12 lakh.
- Complete Tax Exemption on Income Up to ₹12.75 Lakh: A combination of the increased rebate and the ₹75,000 standard deduction means that individuals earning up to ₹12.75 lakh annually will not have to pay any income tax.
- Reduction in Tax Rates for Middle-Class Salaried Employees: Significant reductions in tax liability for various income brackets, resulting in higher disposable income.
- Implementation in FY 2025-26: These tax reforms will be applicable starting April 1, 2025, impacting tax filings for Assessment Year (AY) 2026-27.
Tax Benefits for Salaried Employees Under the Revised Slabs
The Budget 2025 revisions are expected to significantly reduce tax burdens for those opting for the new tax regime. The table below illustrates the tax savings for different income levels, comparing the previous and revised tax structures.
Tax Calculation: ₹12.75 Lakh Annual Salary
| Particulars | Calculation (₹) |
|---|---|
| Gross Salary Income | 12,75,000 |
| Less : Standard Deduction | 75,000 |
| Net Taxable Income | 12,00,000 |
| Tax Liability (FY 2024-25) | 83,200 |
| Tax Liability (FY 2025-26) | 0 |
| Total Tax Savings | ₹83,200 (100%) |
Insight:
With the revised rebate and ₹75,000 standard deduction, salaried individuals earning ₹12.75 lakh annually will now pay zero tax, providing a direct benefit of ₹83,200 in savings.
Tax Calculation: ₹18 Lakh Annual Salary
| Particulars | Calculation (₹) |
|---|---|
| Gross Salary Income | 18,00,000 |
| Less : Standard Deduction | 75,000 |
| Net Taxable Income | 17,25,000 |
| Tax Liability (FY 2024-25) | 2,15,800 |
| Tax Liability (FY 2025-26) | 1,50,800 |
| Total Tax Savings | ₹65,000 (30.12%) |
Insight:
An individual earning ₹18 lakh per annum will see 30.12% savings in tax liability, allowing them to retain an additional ₹65,000.
Tax Calculation: ₹25 Lakh Annual Salary
| Particulars | Calculation (₹) |
|---|---|
| Gross Salary Income | 25,00,000 |
| Less : Standard Deduction | 75,000 |
| Net taxable income | 24,25,000 |
| Tax Liability (FY 2024-25) | 4,34,200 |
| Tax Liability (FY 2025-26) | 3,19,800 |
| Total Tax Savings | ₹1,14,400 (26.35%) |
Insight:
Those earning ₹25 lakh annually will now pay ₹1.14 lakh less in taxes, reducing their tax liability by 26.35% compared to the previous rates.
Tax Calculation: ₹50 Lakh Annual Salary
| Particulars | Calculation (₹) |
|---|---|
| Gross Salary Income | 50,00,000 |
| Less : Standard Deduction | 75,000 |
| Net taxable income | 49,25,000 |
| Tax Liability (FY 2024-25) | 12,14,200 |
| Tax Liability (FY 2025-26) | 10,99,800 |
| Total Tax Savings | ₹1,14,400 (9.42%) |
Insight:
For a ₹50 lakh salary, the revised tax structure provides a 9.42% reduction in tax liability, leading to ₹1.14 lakh in savings.
Tax Calculation: ₹1 Crore Annual Salary
| Particulars | Calculation (₹) |
|---|---|
| Gross Salary Income | 1,00,00,000 |
| Less : Standard Deduction | 75,000 |
| Net Taxable Income | 99,25,000 |
| Tax Liability (FY 2024-25) | 30,51,620 |
| Tax Liability (FY 2025-26) | 29,25,780 |
| Total Tax Savings | ₹1,25,840 (4.12%) |
Insight:
For high-income earners with a ₹1 crore salary, the revised slabs offer ₹1.25 lakh in savings, reducing tax liability by 4.12%.
Impact of Tax Cuts on Government Revenue
While these tax reductions benefit salaried employees, they are expected to lead to a reduction in direct tax collections. According to preliminary estimates, the government may forgo ₹1 lakh crore in revenue due to these changes. However, the increase in disposable income is expected to stimulate consumption, savings, and economic growth, offsetting revenue losses in the long run.
Conclusion
The revised tax structure for FY 2025-26 brings substantial savings for salaried individuals, especially those earning up to ₹25 lakh per year. With lower tax rates, increased rebates, and standard deductions, taxpayers will experience higher disposable income, driving overall financial well-being and economic growth.
Frequently Asked Questions
1. When do the revised tax slabs come into effect?
The revised slabs and rebates will be applicable from April 1, 2025, impacting tax filings for Assessment Year (AY) 2026-27.
2. Will there be any changes in the old tax regime?
No, the Finance Minister has confirmed that the old tax regime remains unchanged.
3. Should I choose the new tax regime over the old one?
It depends on your financial situation. If you claim multiple deductions like HRA, 80C, and 80D, the old tax regime may be beneficial. If you prefer lower tax rates without exemptions, the new regime is ideal.
4. Will tax liability further reduce in the future?
Future tax reductions depend on economic factors and government policies. However, budgetary reforms may continue to focus on middle-class benefits.
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