KKN Gurugram Desk | The Union Budget 2025-26 has been widely described as a “dream budget” for taxpayers, thanks to the new income tax relaxations. Finance Minister Nirmala Sitharaman announced a major relief by exempting annual income up to ₹12 lakh from taxation. However, this tax exemption comes with a crucial caveat that makes some portions of income still taxable.
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To ensure effective tax planning, it is essential to understand the new tax regime, slab structure, and exemptions in detail.
FM Nirmala Sitharaman’s Announcement in Budget 2025
During the Budget 2025 speech, Finance Minister Nirmala Sitharaman declared:
“There will be no income tax payable up to an annual income of ₹12 lakh under the new tax regime, excluding special rate income such as capital gains. For salaried taxpayers, this exemption increases to ₹12.75 lakh due to a standard deduction of ₹75,000.”
This statement means that while individuals earning up to ₹12 lakh per year are eligible for tax exemption, any capital gains or special rate income will still be taxable. This includes long-term capital gains (LTCG), short-term capital gains (STCG), and other investments taxed at special rates.
For salaried employees, an additional ₹75,000 standard deduction increases their tax-free income limit to ₹12.75 lakh per year.
New Income Tax Slabs in Budget 2025
The income tax slab rates have been revised under the new tax regime, offering a progressive tax structure. Below is a breakdown of the latest income tax rates:
| Annual Income (₹) | Tax Rate (%) |
|---|---|
| Up to ₹4,00,000 | 0% (Tax-Free) |
| ₹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% |
This revised tax structure aims to provide more relief to middle-class taxpayers while ensuring higher-income earners contribute more.
Who Benefits from the New Tax Regime?
The revised tax regime benefits multiple income groups, but it is particularly favorable for middle-class salaried individuals, freelancers, and self-employed professionals. Here’s how different income brackets benefit:
1. Individuals with Income Below ₹12 Lakh
- They will not pay any income tax under the new regime.
- Salaried employees with ₹12.75 lakh income also benefit due to the ₹75,000 standard deduction.
- Self-employed individuals with income below ₹12 lakh also enjoy full tax exemption.
2. Salaried Employees with Income Above ₹12.75 Lakh
- They will still benefit from lower tax rates.
- Reduced tax burden compared to previous years.
3. High-Income Earners Above ₹24 Lakh
- Income above ₹24 lakh is taxed at 30%.
- However, certain deductions and exemptions under the old regime are not available in the new tax system.
Capital Gains and Special Rate Income: What is Still Taxable?
Despite the ₹12 lakh tax exemption, special rate income remains taxable. This includes:
- Long-Term Capital Gains (LTCG) on equity shares, mutual funds, real estate, and gold.
- Short-Term Capital Gains (STCG) from stock market trades.
- Interest income on fixed deposits (FDs), bonds, and debentures.
- Dividend income from stocks and mutual funds.
- Rental income from multiple properties.
If an individual earns ₹12 lakh as salary and ₹2 lakh from capital gains, only the salary portion is tax-free, while the capital gains are taxed separately.
Comparison Between Old vs. New Tax Regime
Many taxpayers still have the option to choose between the old and new tax regimes. Here’s a quick comparison:
| Feature | Old Tax Regime | New Tax Regime (2025) |
|---|---|---|
| Tax-Free Income | ₹5 lakh | ₹12 lakh |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Deductions (80C, 80D, HRA, etc.) | Available | Not Available |
| Lowest Tax Rate | 5% (above ₹2.5 lakh) | 5% (above ₹4 lakh) |
| Maximum Tax Rate | 30% (above ₹10 lakh) | 30% (above ₹24 lakh) |
Which Tax Regime Should You Choose?
- If you claim high deductions (80C, 80D, HRA, home loan interest, etc.), the old regime may still be beneficial.
- If you do not claim deductions, the new regime provides lower tax rates and a higher exemption limit.
Impact on Salaried Employees and Businesses
The Budget 2025 tax changes have a direct impact on salaried employees, businesses, and professionals.
For Salaried Employees:
- The higher standard deduction of ₹75,000 gives additional relief.
- The ₹12.75 lakh exemption is a significant boost.
- Fewer compliance requirements compared to the old regime.
For Small Businesses and Freelancers:
- Self-employed professionals with income below ₹12 lakh get full tax exemption.
- Business owners need to plan capital gains carefully to avoid additional tax liability.
How to Plan Your Taxes in 2025?
To maximize tax savings, consider these strategies:
- Opt for the right tax regime
- Choose between old vs. new tax regime based on your deductions.
- Avoid capital gains tax where possible
- Invest in tax-free instruments like PPF and ELSS mutual funds.
- Plan stock market investments to minimize LTCG tax.
- Use employer benefits efficiently
- Maximize HRA and LTA benefits under the old tax regime if applicable.
- Invest smartly
- Shift to tax-saving mutual funds and low-tax debt funds.
The Union Budget 2025-26 has introduced one of the biggest income tax reforms in recent years. While the ₹12 lakh exemption limit provides significant relief to middle-class taxpayers, it is important to understand the exclusions such as capital gains and special rate income.
With lower tax rates and a simplified structure, the new tax regime encourages higher savings and investments. However, choosing the right tax regime is crucial for maximizing tax benefits.
As the new tax laws come into effect, taxpayers must re-evaluate their financial plans and make informed decisions to reduce their tax liabilities in 2025.
Stay updated with the latest tax updates, budget announcements, and expert financial insights to make the most of the Union Budget 2025 tax benefits!
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