The government is considering making adjustments to the income tax slabs in the upcoming Union Budget for 2025. Finance Minister Nirmala Sitharaman is expected to introduce a tax reduction for individuals earning between Rs 15 lakh and Rs 20 lakh annually.
This will require some modifications in the existing income tax slabs to provide more relief to those in this income bracket. Currently, there are two different income tax regimes, each with its own tax slabs and benefits.
Understanding the Current Tax Regimes
As it stands, the new tax regime, which was introduced in 2020, offers lower tax rates but does not provide most of the typical deduction benefits. On the other hand, the old tax regime has higher rates but allows taxpayers to take advantage of various deductions.
For example, in the new regime, a tax rate of 30% applies to individuals earning more than Rs 15 lakh, while in the old regime, this rate kicks in only for earnings above Rs 10 lakh. Tax experts believe that to ease the tax burden on middle-class citizens, adjustments to both regimes will be essential, and we could see these changes announced on February 1.
Comparing Tax Rates
In the old income tax regime, there is no tax for annual incomes below Rs 2.5 lakh, with a 5% tax for incomes between Rs 2.5 lakh and Rs 5 lakh. The rates increase to 20% for incomes between Rs 5 lakh and Rs 10 lakh, and 30% for anything above Rs 10 lakh.
In contrast, the new regime has a slightly different structure: there’s no tax for incomes up to Rs 3 lakh, followed by a 5% rate for incomes between Rs 3 lakh and Rs 7 lakh, and so on.
The new regime reaches a 30% tax rate for incomes exceeding Rs 15 lakh. With these differences in mind, it’s clear that any changes will not only affect tax rates but also how taxpayers strategize their finances moving forward.
