The Union Budget for the fiscal year 2025-26 has introduced significant changes to India’s income tax structure. One of the most notable updates is the introduction of a 25% tax rate for incomes ranging from Rs 20 lakh to Rs 24 lakh, along with a shift in the 30% tax bracket to incomes exceeding Rs 24 lakh. These changes aim to rationalize tax liabilities while ensuring a fair distribution of tax burdens.
In this article, we will provide a detailed analysis of the new income tax slabs, discuss their impact on taxpayers, and illustrate these changes with practical examples.
Revised Income Tax Slabs for FY 2025-26
The following table represents the new tax structure:
| Income Range (Rs) | Tax Rate (%) |
| Up to 4,00,000 | 0% (No Tax) |
| 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% |
Key Highlights of the Changes
- New 25% Tax Bracket: A new tax slab has been introduced for incomes between Rs 20 lakh and Rs 24 lakh, taxed at 25%.
- Higher Threshold for 30% Tax Rate: The highest tax rate of 30% now applies only to incomes exceeding Rs 24 lakh, compared to the previous limit of Rs 10 lakh.
- Better Tax Distribution: This restructuring aims to provide relief to middle and upper-middle-income taxpayers while ensuring higher earners contribute proportionally.
Understanding the Changes with Examples
Let’s examine how these changes impact individuals with different income levels.
Example 1: Tax Calculation for an Individual Earning Rs 10,00,000
- Income Breakdown:
- Rs 4,00,000: No tax
- Rs 4,00,000 (Rs 4,00,001 – Rs 8,00,000) taxed at 5% = Rs 20,000
- Rs 2,00,000 (Rs 8,00,001 – Rs 10,00,000) taxed at 10% = Rs 20,000
- Total Tax Payable = Rs 40,000
Example 2: Tax Calculation for an Individual Earning Rs 15,00,000
- Income Breakdown:
- Rs 4,00,000: No tax
- Rs 4,00,000 taxed at 5% = Rs 20,000
- Rs 4,00,000 taxed at 10% = Rs 40,000
- Rs 3,00,000 (Rs 12,00,001 – Rs 15,00,000) taxed at 15% = Rs 45,000
- Total Tax Payable = Rs 1,05,000
Example 3: Tax Calculation for an Individual Earning Rs 22,00,000
- Income Breakdown:
- Rs 4,00,000: No tax
- Rs 4,00,000 taxed at 5% = Rs 20,000
- Rs 4,00,000 taxed at 10% = Rs 40,000
- Rs 4,00,000 taxed at 15% = Rs 60,000
- Rs 4,00,000 taxed at 20% = Rs 80,000
- Rs 2,00,000 (Rs 20,00,001 – Rs 22,00,000) taxed at 25% = Rs 50,000
- Total Tax Payable = Rs 2,50,000
Example 4: Tax Calculation for an Individual Earning Rs 25,00,000
- Income Breakdown:
- Rs 4,00,000: No tax
- Rs 4,00,000 taxed at 5% = Rs 20,000
- Rs 4,00,000 taxed at 10% = Rs 40,000
- Rs 4,00,000 taxed at 15% = Rs 60,000
- Rs 4,00,000 taxed at 20% = Rs 80,000
- Rs 4,00,000 taxed at 25% = Rs 1,00,000
- Rs 1,00,000 (Rs 24,00,001 – Rs 25,00,000) taxed at 30% = Rs 30,000
- Total Tax Payable = Rs 3,30,000
Implications of the New Tax Slabs
Benefits for Taxpayers
- Lower Tax Burden on Middle-Income Groups: Taxpayers earning between Rs 10 lakh and Rs 24 lakh will see a more balanced tax structure.
- Encouragement for Higher Earnings: By extending the threshold for the highest tax rate, taxpayers are encouraged to earn more without being heavily penalized.
- Potential Boost for Consumption and Savings: With tax savings, individuals will have more disposable income, boosting consumption and investments.
Considerations for High Earners
- Those earning above Rs 24 lakh will now see a reduced impact of the highest tax rate (30%) compared to the earlier threshold.
- Tax planning and deductions will become crucial for optimizing tax liabilities.
The revised income tax slabs for FY 2025–26 bring a progressive approach to taxation, benefiting a wide range of income groups. With the introduction of the 25% tax slab for incomes between Rs 20 lakh and Rs 24 lakh and the revised 30% tax threshold, the changes reflect a fairer tax structure that supports economic growth while ensuring revenue generation for the government.
As taxpayers navigate these changes, understanding deductions, exemptions, and strategic financial planning will be key to maximizing tax benefits. The upcoming fiscal year presents an opportunity for individuals to reassess their financial strategies to make the most of the revised tax regime.
