Understanding the New Tax Regime for FY 2024-25 (AY 2025-26)

Income tax in India is a direct tax levied on the income earned by individuals, Hindu Undivided Families (HUFs), companies, firms, LLPs, and other entities. Governed by the Income Tax Act, 1961, this tax is an important source of revenue to fund a wide array of public services and infrastructure projects.

The income tax system in India is progressive, meaning that tax rates increase with higher income brackets. The taxable income is categorised as salaries, house property, business or profession, capital gains, and other sources.
 

Current Income Tax Slabs FY 2024-25

Before we understand the revised income tax slab, let us run you through the highlights of this year’s union budget. Under new income tax slabs, the basic exemption limit has been changed from Rs.2.5 Lakh to Rs.3 Lakh. Under Section 87A, the tax rebate has been increased from Rs.5 Lakh to Rs.7 Lakh of taxable income. Further, the government has also reduced the surcharge from 37% to 25%. These changes will automatically become effective in FY 2023-24. However, borrowers can also choose to file taxes under the old regime.  

Taxpayers must also know that as per the current income tax regime, slabs vary depending on the age of the borrower. However, this won’t be the case with the new tax regime. Read on to learn more about the old income tax slabs. 

Old Tax Regime: Income Tax Slabs 

Under the old tax regime, taxpayers were exempt from paying any tax on any income up to Rs.2.5 Lakh. The tax one had to pay on income above Rs.2.5 Lakh has been mentioned in the table below.   

Read Also: 8 Useful Income Tax Exemptions for Salaried Employees 

New Tax Regime: Income Tax Slabs 

Under the new tax regime, taxpayers are required to pay no taxes on income up to Rs.3 Lakh. Let us now look at the revised income tax slabs under the new tax exemption limit. 

Whether you are filing taxes under the old regime or the new regime, here are a few things that you must keep in mind:  

1. Income tax regulations allow salaried individuals to switch between the new and old tax regimes based on their preference for each financial year. This means they can choose the regime that offers the most benefit to them in a given year. On the other hand, self-employed individuals or business owners can switch between the tax regimes only once during their lifetime.  
    
2. Taxpayers must also know that, as opposed to old tax regimes, the new tax regime does not differentiate based on age. In the old tax regime, the basic exemption limit was Rs.2.5 Lakh for taxpayers under the age of 60 and Rs.3 Lakh for those between the ages of 60 and 80. Under the new tax regime, a single basic exemption limit applies to taxpayers of all age groups, with no tax levied on income up to Rs.3 Lakh.
    
3. The government has proposed that it will revise the surcharge applicable. The surcharge rates for individuals, HUF, AOP, BOI, and artificial judicial persons are based on the taxable income bracket. Under the new tax regime, taxpayers with an income less than Rs.50 Lakh have to pay no surcharge. For incomes between Rs.50 Lakh and Rs.1 Crore, a 10% surcharge is applied. This surcharge increases to 15% for incomes between Rs.1 Crore and Rs.2 Crore, and further to 25% for incomes between Rs.2 Crore and Rs.5 Crore. However, for incomes exceeding Rs.5 Crore, the surcharge under the old tax regime is 37%, while under the new tax regime, it is capped at 25%.
    
4. ​If you are considering availing of a Home Loan, it is important to understand the implications of the new tax regime exemption. While it offers lower tax rates, it also eliminates several deductions that were previously available under the old tax regime. For instance, deductions on long-term savings, health insurance, such as PPF, house rent allowances, and Home Loans are no longer permitted.

Final Words

In conclusion, the new tax regime and new tax exemption limits introduced in 2023 have brought about significant changes to the way individuals are taxed. If you are servicing a Home Loan, you can calculate the tax benefits using our Income Tax Calculator. By accurately assessing your tax liability, you can make informed decisions and strategise ways to save on taxes.