New Tax Rates: Who Saves How Much

Curious? Find out how much you will save...

The new tax regime proposed by Finance Minister Nirmala Sitharaman for FY 2025-26 introduces significant changes aimed at simplifying the tax structure and providing relief to taxpayers across various income brackets.

The key highlights include no tax on income up to Rs 1,200,000 and a standard deduction of Rs 75,000 applicable to all taxpayers.

The tax rates are structured progressively, with higher rates applied to higher income slabs. This new regime is designed to benefit middle-income earners the most, offering substantial savings compared to the previous tax structure.

Tax illustrations, Kind Courtesy Anil Rego, CEO, RightHorizons 

Table 1: Tax Slabs and Rates for FY 2025-26

This table outlines the new tax slabs and corresponding rates under the proposed regime:

Benefit: Taxpayers with income up to Rs 1,200,000 will pay no tax, and those in higher brackets will benefit from the standard deduction of Rs 75,000, reducing their taxable income.

Table 2: Tax Payable for Rs 1,600,000 Annual Income

As per the new tax rates (see Table 1):

• The first block of Rs 4 lakh is exempted from tax
• The second block of Rs 4 lakh -- over and above the first block of Rs 4 lakh which is exempt from tax – is charged at 5% (5% of Rs 4 lakh comes to Rs 20,000)
• 10% tax is levied on the third block of Rs 4 lakh (10% of Rs 4 lakh is Rs 40,000)
• 15% tax is levied on the fourth block of Rs 4 lakh (15% of Rs 3,25,000 lakh -- considering the standard deduction of Rs 75,000 taxable income comes to Rs 15,25,000 and the taxable income for fourth block of Rs 4 lakh comes down to Rs 325,000 -- translates to Rs 48,750)

Note: The calculations for rest of the income brackets that are to follow in the succeeding tables are done considering these factors.

Benefit: Taxpayers in this bracket will save on the standard deduction and pay a reduced tax amount due to the progressive tax rates up to Rs 113,100.

• New Tax Rates Confusing? Ask Our Experts

Table 3: Tax Payable for Rs 2,000,000 Annual Income:

Benefit: The standard deduction and lower tax rates for initial slabs result in considerable tax savings for individuals in this income bracket of Rs 192,400 including health and education cess.

Table 4: Tax Payable for Rs 2,400,000 Annual Income

Benefit: Taxpayers in this bracket benefit from the standard deduction and the structured tax rates, leading to lower overall tax liability of Rs 292,500 including health and education cess.

Table 5: Tax Payable for Rs 3,000,000 Annual Income

Benefit: Despite higher income, the standard deduction and progressive tax rates ensure that the tax burden is mitigated -- compared to previous regimes -- to Rs 475,800 including health and education cess.

Table 6: Tax Payable for Rs 3,500,000 Annual Income

Benefit: High-income earners also benefit from the standard deduction, although the tax payable increases progressively with tax of Rs 631,800 including housing and education cess.

The new tax regime offers substantial benefits to taxpayers, especially those in the middle-income brackets.

The introduction of a standard deduction and the progressive tax rates ensure that individuals across various income levels experience reduced tax liabilities, making the new regime more attractive for a wide range of taxpayers.

• Union Budget 2025