Income Tax: Effective from April 1, 2025, income up to Rs 12 lakh will be exempt from taxation, following the introduction of new income tax regulations. In the upcoming financial year, the government has revised the income tax brackets, resulting in the tax-free threshold being raised to Rs 12 lakh. This prompts the question of how the income tax brackets will function under the new law and what deductions will apply to your salary, interest income, and other revenue sources. On the first day of the financial year 2025-26, we provide a comprehensive overview to assist you in planning your savings and financial activities according to your requirements.
During the budget presentation, Finance Minister Nirmala Sitharaman announced the tax exemption for income up to Rs 12 lakh under the new tax framework. Consequently, individuals who have chosen this new regime are eager to understand how the tax brackets will be structured. Notably, the highest tax rate in the new regime is 30%, applicable to income exceeding Rs 24 lakh.
For salaried individuals, the standard deduction has been raised to Rs 75,000, resulting in a total tax-free income of Rs 12.75 lakh, compared to the previous limit of Rs 50,000 under the old regime. If an individual’s taxable income slightly exceeds Rs 12 lakh (up to Rs 12.70 lakh), they will incur additional tax only on the portion that ensures their post-tax income remains at least Rs 12 lakh.
Threshold for TDS deductions on fixed deposits has been increased
Furthermore, the threshold for TDS deductions on fixed deposits has been increased from Rs 50,000 to Rs 1 lakh, benefiting senior citizens who rely on interest income from fixed deposits post-retirement. In the new tax regime, a tax rebate of up to Rs 60,000 is available, raising the tax-free income limit to Rs 12 lakh, whereas the old regime offers a rebate of only Rs 12,500, allowing for tax exemption only on income up to Rs 5 lakh.