The New tax regime was introduced in Budget 2020-21 aimed to simplify compliance with income tax regulations and provide tax relief to middle-class taxpayers. 
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The New tax regime was introduced in Budget 2020-21 aimed to simplify compliance with income tax regulations and provide tax relief to middle-class taxpayers. New Tax Regime: The proposals in the Union Budget for the new tax regime include full exemption for individuals earning up to Rs 12 lakh per year. The tax slabs have been extended, with a new 25 per cent slab introduced for incomes between Rs 20 lakh and Rs 24 lakh. The introduction of the New tax regime in Budget 2020-21 aimed to simplify compliance with income tax regulations and provide tax relief to middle-class taxpayers. The new income tax regime became the standard tax regime in Budget 2023-24.
Exemptions under New Tax Regime
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Standard Deduction: Salaried employees and pensioners can avail a standard deduction of Rs 75,000.
Retirement Benefits: Gratuity and leave encashment received upon retirement are exempt from taxation.
Employer Contributions to NPS/PF: Contributions made by an employer towards the National Pension System (NPS) or Provident Fund (PF) are not subject to tax.
Agniveer corpus fund: Under both the old and new tax regimes, individuals have the option to claim the full amount of contribution from the Central Government to their account in the Agniveer Corpus Fund as a deduction.
Section 80JJAA deduction: Eligible businesses can now claim a deduction for recruiting new employees.
Tax-free allowances under New Tax Regime
Travel-related Allowance: Allowance provided for travel expenses during tours or transfers.
Transfer-Related Allowance: Individuals moving for work purposes can receive tax exemptions on transition expenses.
Conveyance Allowance: Employees who do not have employer-provided transportation can still receive tax-free travel allowances for work-related trips.
Allowance for Disabled Employees: Transport allowances for employees with disabilities are also exempt from taxes.
Rebate under New Tax Regime
In the Budget 2023-24, the Government introduced a revised income tax rebate in the new tax regime. This will enable resident individuals with a total income of up to Rs 7 lakh to be exempt from paying any tax.
In Budget 2025-26, it was proposed to further extend this rebate. Under this new proposal, individual taxpayers will not be required to pay tax if their total income is up to Rs 12 lakh (excluding special rate income).
With this anticipated change in Budget 2025, it is estimated that approximately one crore taxpayers, who previously had to pay taxes ranging from Rs 20,000 to Rs 80,000, will now be exempt from paying any tax, as per the Ministry of Finance's report.
For salaried taxpayers, the tax-free income threshold will be raised to Rs 12.75 lakh, taking into account the standard deduction of Rs 75,000.
Additionally, the existing marginal relief provided under the new tax regime will continue to apply for those with incomes slightly above Rs 12 lakh.
Exemptions not available under New Tax Regime
Travel Concession: Exemption related to travel concession or assistance mentioned in section 10(5) is not permissible.
House Rent Allowance: The HRA exemption outlined in section 10(13A) is not permitted.
Other Allowances: Any other allowances specified in section 10(14) or section 10(17) are not eligible for exemption.
Entertainment Allowance: Entertainment allowance and professional tax covered in section 16(ii) and section 16(iii) respectively are not allowed.
Latest tax slabs under New Tax Regime
Under the new tax regime, a taxpayer earning Rs 12 lakh will receive a tax benefit of Rs 80,000, equal to the total tax payable under the existing rates. For those earning Rs 18 lakh, the tax benefit will be Rs 70,000, which is 30% of their total tax payable. Similarly, individuals with an income of Rs 25 lakh will benefit from a tax savings of Rs 1,10,000, representing 25% of their total tax payable under the existing rates.
New tax regime rates and slabs in FY 2025-26
Taxable income slab (s) Tax rates under new regime
Up to 4,00,000 Nil
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%
Above 24,00,000 30%
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