Budget 2026: How FM Sitharaman’s 2025 tax slab overhaul helped taxpayers save up to Rs 1.10 lakh

Finance Minister Nirmala Sitharaman’s overhaul of the new income tax regime in 2025 delivered one of the biggest relief packages for individual taxpayers in recent years, with savings of up to Rs 1.10 lakh for certain income groups. By reshaping tax slabs, expanding rebate limits and raising the tax-free threshold, the government has made the new regime significantly more attractive—especially for middle- and higher-income earners seeking simplicity over deductions.

Revised tax slabs in 2025

At the heart of the reform is a redesigned slab structure that widened tax bands while keeping rates concessional. Under the revised framework of New Tax Regime, income up to Rs 4 lakh is tax-free, followed by a 5 per cent rate for income between Rs 4 lakh and Rs 8 lakh, 10 per cent for Rs 8 lakh to Rs 12 lakh, and 15 per cent for Rs 12 lakh to Rs 16 lakh. Higher slabs apply progressively, with 20 per cent tax on income between Rs 16 lakh and Rs 20 lakh, 25 per cent between Rs 20 lakh and Rs 24 lakh, and 30 per cent on income above Rs 24 lakh.

Revised structure of tax slabs

Rs 0–4 lakh: Nil

Rs 4–8 lakh: 5%

Rs 8–12 lakh: 10%

Rs 12–16 lakh: 15%

Rs 16–20 lakh: 20%

Rs 20–24 lakh: 25%

Above Rs 24 lakh: 30%

Tax rebates under Section 87A

The most striking change, however, came through the expansion of tax rebates under Section 87A. In Budget 2025–26, the government raised the rebate threshold for the new regime from Rs 7 lakh to Rs 12 lakh, effectively ensuring that individuals earning up to Rs 12 lakh from regular income sources such as salary or pension pay zero tax. For salaried taxpayers, the benefit goes even further. With a standard deduction of Rs 75,000 now available under the new regime, income up to Rs 12.75 lakh becomes tax-free.

Impact due to New Tax Regime

FM Sitharaman explained the impact of the move in a written reply to the Lok Sabha in December 2025, stating that nearly one crore taxpayers who earlier paid between Rs 20,000 and Rs 80,000 in tax are now in the nil-tax bracket. She also confirmed that marginal relief continues to apply for those earning slightly above Rs 12 lakh, ensuring the transition into the tax net is gradual rather than abrupt.

The savings are substantial across income levels. According to Finance Ministry estimates, a taxpayer earning Rs 16 lakh can save around Rs 50,000 annually under the revised slabs, while those earning Rs 20 lakh can save up to Rs 90,000. For individuals in the Rs 24 lakh to Rs 50 lakh income bracket, the maximum benefit touches Rs 1.10 lakh, one of the biggest direct tax windfalls in recent years.

New simplified structure

Beyond monetary gains, the changes have reinforced the appeal of the new tax regime’s simplified structure. Unlike the old regime, which relies on exemptions and deductions such as HRA, LTA and Section 80C investments, the new regime offers lower rates in exchange for fewer tax breaks. This has resonated with taxpayers who prefer a cleaner, more predictable filing process.

Another important factor driving adoption has been policy design. Since Budget 2023–24, the new tax regime has been the default option, meaning taxpayers must actively opt out if they prefer the old structure. This shift has nudged millions toward the new system. Sujit Bangar, founder of tax-filing platform TaxBuddy.com, noted that making the new regime the default has “given a big impetus to wide adherence,” as many taxpayers now find it easier to stay with the simplified framework rather than navigate the complexities of the old one.

High-income earners have also found the new regime more attractive after the government reduced the surcharge for those earning above Rs 5 crore from 37 per cent to 25 per cent. Combined with lower base rates and wider slabs, this has narrowed the gap between the two regimes even for affluent taxpayers.

Taken together, the 2025 tax reforms have repositioned the new tax regime from an optional alternative to a mainstream choice. By delivering tangible savings, up to Rs 1.10 lakh for some, and pairing them with administrative simplicity, Sitharaman’s slab tweaks have reshaped India’s personal tax landscape, making compliance easier while leaving more money in taxpayers’ hands.