New financial year 2025-26: Will taxpayers have more money in hand as promised by FM Sitharaman?

The upcoming financial year 2025-26, which commences on April 1, 2025, is poised to enhance the disposable income of numerous taxpayers nationwide, courtesy of recent policy changes. Finance Minister Nirmala Sitharaman introduced a Budget that is favourable to the middle class, introducing a range of tax benefits aimed at increasing the funds available to ordinary taxpayers. The significant reductions in personal income tax rates and other direct tax measures are forecasted to result in an estimated revenue loss of Rs 1 lakh crore for the exchequer in 2025-26.

Following the presentation of the Union Budget 2025, FM Sitharaman emphasized that this year's budget focuses on returning money to the middle class and taxpayers, a group that she described as essential contributors to the nation's functioning. 

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Here's what will change from April 1, 2025

Taxes after April 1

FM Sitharaman declared that taxable incomes up to Rs 12 lakh will now be tax-exempt at the hands of individuals. In another major move, she rationalized personal income tax slabs, with the highest marginal tax rate of 30 per cent now applicable only for incomes above Rs 24 lakh, up from the earlier Rs 12 lakh threshold.

The changes in income tax slab and rates announced in Budget 2025 will come into effect from April 1, 2025. Taxpayers who choose the new tax regime will not be required to pay taxes on income up to Rs 12 lakh. Incomes slightly above Rs 12 lakh will incur either no tax or minimal tax, thanks to marginal tax relief. However, the Rs 12 lakh tax-free limit does not apply to income from specific assets with special rates outlined in the Income-tax Act.

Salaried employees will have a tax-free income limit of Rs 12.75 lakh, including a Rs 75,000 standard deduction under the new regime. Employers will not collect advance tax from employees whose taxable salary is less than Rs 12.75 lakh. Consequently, these employees will see an increase in their monthly take-home pay.

The higher tax-free income limit means more money for taxpayers. Even individuals in higher income brackets could save up to Rs 1 lakh by opting for the new tax regime.

Here are the tax slabs under New Tax Regime and Old Tax Regime 

New Tax Regime 2025-26

Income Tax Slabs (Rs)    Income Tax Rate (%)

From 0 to 4,00,000    0

From 4,00,001 to 8,00,000    5

From 8,00,001 to 12,00,000    10

From 12,00,001 to 16,00,000    15

From 16,00,001 to 20,00,000    20

From 20,00,001 to 24,00,000    25

From 24,00,001 and above    30

Old Tax Regime 2025-26

0-2.5 lakh          NIL
2.5 to 5 lakh       5% above 2.5 lakh
5 lakh to 10 lakh   Rs 12.5K + 20% above Rs 5 lakh
Above 10 lakh       Rs 1,12,500 + 30% above Rs 10 lakh

Introduction to Higher TDS Thresholds

Effective April 1, new TDS thresholds will be implemented for various transactions such as rents and deposits, as announced in Budget 2025.

Details of Changes in TDS Thresholds

TDS will not be deducted on deposits until ₹50,000 interest income for general citizens and Rs 1 lakh for senior citizens, compared to the previous limits of Rs 40,000 and Rs 50,000 respectively.

In the case of rent, TDS will not be deducted if the rent per month or a part of the month is Rs 50,000 (Rs 6 lakh/year), up from the previous limit of Rs 2.4 lakh/year.

For individuals sending remittances abroad under the RBI's Liberalised Remittance Scheme (LRS), authorized dealers will not deduct TDS until the remittance reaches Rs 10 lakh, an increase from the previous threshold of Rs 7 lakh.

Repo rate cut

The RBI recently announced a 0.25% reduction in the repo rate in February. This decrease in the repo rate translates to lower interest rates on repo rate-linked floating loans, resulting in more disposable income for borrowers.

Banks have already begun passing on the benefits of the reduced repo rate to borrowers by lowering interest rates on various loans such as home loans and auto loans. Looking ahead, it is anticipated that the RBI may further cut the repo rate as inflation has shown signs of easing.

SBI Research suggests that the RBI may potentially reduce the repo rate by an additional 0.75% in the financial year 2025-26.

Forecasted data indicates that CPI inflation may decrease to 3.9% in Q4 FY25 and average at around 4.7% for the fiscal year. It is projected that inflation for FY26 may range from 4.0% to 4.2%, with core inflation falling between 4.2% and 4.4%.

"Going ahead, CPI inflation may come down to 3.9% in Q4 FY25 and average to 4.7% in FY25. We expect FY26 inflation may come to 4.0-4.2% and core inflation in the range of 4.2% to 4.4%. With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in the next policy in April and August 2025. With an intervening gap in Aug’25, the rate cuts cycle could restart from Oct’25," SBI Research said in a report published last week.