New Tax Regime: A Relook At Tax Slabs Ahead Od Budget 2025

As the Union Budget 2025 nears, there is mounting anticipation of potential changes to the New Tax Regime. Taxpayers, especially salaried employees and pensioners, are hopeful that the government will continue to simplify the tax structure. The new Tax Regime has captured over 72% of taxpayers in the 2024-25 assessment year. Many expect that the upcoming budget will introduce further incentives to accelerate its adoption.

Budget 2020: The beginning

The journey of India's New Tax Regime began in 2020 when Finance Minister Nirmala Sitharaman introduced it as part of her Budget speech. Designed to simplify the income tax process, the new framework featured notably lower tax rates. However, taxpayers had to forgo certain exemptions and deductions that were part of the previous system.

For example, an individual with an income of Rs 15 lakh would now pay only Rs 1.95 lakh in taxes under the new regime, compared to Rs 2.73 lakh under the old one.

Taxpayers had the option to choose between the new system and the old regime, depending on which one better suited their financial situation. Sitharaman stressed that the decision to adopt the new regime was voluntary.

Budget 2023: New Tax Regime becomes default

In the 2023 Budget the Finance Minister announced that the New Tax Regime would become the default option for taxpayers starting in 2024. While taxpayers could still opt for the old tax regime, they had to make this decision while filing their returns.

To make the new system even more attractive, the government introduced several changes. These included a standard deduction of Rs 50,000 for salaried individuals and pensioners, and a Rs 3 lakh basic exemption limit.

Budget 2024: Enhanced benefits

In the 2024 Budget, the government took further steps to make the New Tax Regime more attractive, particularly for salaried employees and pensioners. The standard deduction for salaried individuals was increased to Rs 75,000, and Rs 25,000 for family pensioners. Private-sector employees were also granted a deduction of up to 14% of their basic salary for National Pension Scheme (NPS) contributions.

In terms of tax slabs, the government made slight adjustments to ensure that more taxpayers would benefit from reduced tax liabilities.

What to expect in Budget 2025?

As the Union Budget 2025 nears, the focus will likely remain on refining the New Tax Regime. Many taxpayers are hopeful that the government will announce additional tax relief, possibly through more exemptions or revisions in the income slabs.