From April 1, 2025, individuals who choose the new income tax regime for the financial year 2025-26 will not be required to pay any tax on their taxable income up to Rs 12 lakh. This adjustment comes as a significant relief for taxpayers, reflecting the government's efforts to simplify tax structures and provide economic relief. The standard deduction of Rs 75,000 and the employer's 14% contribution to the National Pension System (NPS) are key components in calculating the net taxable income under the new guidelines. However, any income exceeding this threshold will be subject to taxation under the new slabs. 

The revised tax slabs introduced by Finance Minister Nirmala Sitharaman during the February 2025 budget announcement are structured to provide more clarity and simplicity in tax calculations. Once the net taxable income surpasses Rs 12 lakh, tax is applied to the entire amount.

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Individuals with earnings of up to Rs. 12,00,000 will not be liable for any taxes under the revised tax structure, thanks to the enhanced rebate of Rs. 60,000. Salaried individuals, on the other hand, will have a zero tax liability for incomes up to Rs. 12,75,000, as a result of the Rs. 75,000 standard deduction.

The tax rates are divided into various brackets: incomes up to Rs 4 lakh are tax-free, Rs 4,00,001 to Rs 8 lakh are taxed at 5%, and Rs 8,00,001 to Rs 12 lakh at 10%. Higher incomes face progressive tax rates, culminating at 30% for amounts exceeding Rs 24 lakh. This tiered structure aims to accommodate varying income levels while maintaining equitable tax liability.

Income Tax Slabs - FY 2025–26

Annual Income Range	Applicable 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%

Tax deductions under New Tax Regime

In a practical scenario, an individual with a gross income of Rs 21 lakh, which includes salary, bank interest, and dividends, can claim deductions such as Rs 75,000 standard deduction and Rs 1.5 lakh for NPS contributions. After these deductions, the net taxable income amounts to Rs 18.75 lakh. 

Gross taxable income: Rs 21 lakh
Standard deduction: Rs 75,000
NPS benefit Rs 1.5 lakh
Net taxable income: Rs 18.75 lakh

The tax liability is calculated incrementally across the brackets, beginning with zero tax on the first Rs 4 lakh and increasing according to the appropriate rates. This example illustrates the new regime's impact on tax liabilities, clarifying the benefits and obligations for taxpayers.

Tax calculation 

The comprehensive tax calculation includes applying a 5% rate on income between Rs 4 lakh and Rs 8 lakh, resulting in a tax of Rs 20,000. For income between Rs 8,00,001 and Rs 12 lakh, a 10% rate applies, adding Rs 40,000 to the tax bill. Income above Rs 12 lakh is taxed progressively at higher rates, with 15% applied to the next segment, generating a tax of Rs 60,000. Further income is taxed at 20%, up to the limit of Rs 20 lakh. These calculations ensure transparency and systematic tax collection under the new regime.

Ultimately, the aggregate tax liability, including a 4% cess, totals Rs 1,82,000 for the assessed income. This new framework is designed to streamline the tax process, making it easier for individuals to understand their financial obligations while potentially reducing their overall tax burden. The absence of tax for incomes up to Rs 12 lakh is a pivotal change, encouraging more people to opt for this regime. It remains essential for taxpayers to evaluate their financial status to determine the most beneficial tax strategy under the current fiscal policies.