Deductions in New Tax Regime under Union Budget 2025

This article will help you to know some of the valid exemptions and deductions under the new tax regime.

What is the New Tax Regime for the Financial Year 2025-26 (AY 2026-27)?

The Union Government introduced a New Tax Regime under Section 115BAC in Budget 2020 with concessional tax slab rates. 

The Union Budget 2025, presented in the Parliament Session on 01 February 2025, brought significant changes to the tax slabs under the new tax regime for the Financial Year (FY) 2025-26 and Assessment Year (AY) 2026-27. The government introduced the following key changes for FY 2025-26:

1. Streamlining of Income Tax Slabs of New Tax Regime in Union Budget FY 2025-26 on 01 February 2025

   Tax Slab	Tax Rate
   0 - ₹4,00,000	No Tax
   ₹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%
   ₹24,00,001 and Above	30%

2. Streamlining of Income Tax Slabs of New Tax Regime in Union Budget FY 2024-2025

   Income Range	Tax Rate
   0 - ₹3,00,000	0%
   ₹3,00,001 - ₹7,00,000	5%
   ₹7,00,001 - ₹10,00,000	10%
   ₹10,00,001 - ₹12,00,000	15%
   ₹12,00,001 - ₹15,00,000	20%
   Above ₹15,00,000	30%
   Education Cess	4% p.a. of Taxable Income

   Note: Salaried employees in the new tax regime can save up to ₹17,500 in income tax as per the July Budget in 2024.

   New Tax Regime Tax Slabs as per Union Budget FY 2023-24:

   Income Tax Slabs	Tax Rates (in % p.a.)
   Up to Rs. 3 lakhs	NIL
   Rs. 3 lakhs- Rs. 6 lakhs	5%
   Rs. 6 lakhs- Rs. 9 lakhs	10%
   Rs. 9 lakhs- Rs. 12 lakhs	15%
   Rs. 12 lakhs- Rs. 15 lakhs	20%
   Rs. 15 lakhs & Above	30%
   Education Cess	4% p.a. of Taxable Income

3. Increase in Tax Rebate Limits in Budget 2025

   The latest Union Budget for FY 2025-26 has raised the tax rebate limit to ₹12 lakh per annum. Previously, the Budget 2024 increased the tax rebate for income ranging from ₹5 lakh to ₹7 lakh under the new tax regime, as per Section 87A of the Income Tax Act, 1961. This move is aimed at providing greater relief to taxpayers.

   Tax Rebate Limit Under Old Tax Regime for FY 2024-25	Tax Rebate Limit in New Tax Regime for FY 2024-25	Tax Rebate Limit in New Tax Regime for FY 2025-26
   ₹5 lakhs	₹7 lakhs	₹12 lakhs

   Budget 2025: You are liable to pay no tax under the new tax regime, if claiming a standard tax deduction of Rs. 75,000 on an income limit of Rs. 12.75 lakhs.

4. Increase in Basic Tax Exemption Limit in 2025

   The basic tax exemption limit of ₹2.5 lakhs under the old tax regime increased to ₹3 lakhs under the new tax regime in Budget 2024 and further increased to ₹4 lakhs in Union Budget 2025.

   Age Categories	Basic Tax Exemption Limit u/ Old Tax Regime for FY 2025-26	Basic Tax Exemption Limit u/ New Tax Regime for FY 2024-25	Basic Tax Exemption Limit u/ New Tax Regime for FY 2025-26
   < 60 Years	₹2.5 lakhs	₹3 lakhs	₹4 lakhs
   60 to <80 Years	₹3 lakhs
   80 Years & Above	₹5 lakhs

5. Section 80TTB Deductions – Standard Deductions in February 2025

   There are no changes in the standard deduction amount in Budget 2025, as salaried individuals remain eligible to claim the benefit of standard deductions of Rs. 75,000. This change was declared for the new tax regime in the Union Budget of July 2024.

   The standard deduction was ₹50,000 as per Union Budget 2023. You can avail of this benefit as Section 80TTB deduction under the Income Tax Act, 1961.

   Union Budget 2025 Update: Family pensioners can claim the standard deductions of Rs. 25,000 under the new tax regime from ₹15,000 in 2023.

6. Lower Surcharge Rates on High-Income Individuals in 2025

   Individuals earning Rs. 50 lakhs & above fall in the high-income category. The government of India levies a surcharge on high-income earners.

   Income Slabs	Surcharge Rates in Old Tax Regime	Surcharge Rates in New Tax Regime (in % p.a.)
   Rs. 50 lakhs	NIL	NIL
   Rs. 50 lakhs- Rs. 1 crores	10%	10%
   Rs. 1 crores- Rs. 2 crores	15%	15%
   Rs. 2 crores- Rs. 5 crores	25%	25%
   Rs. 5 crores & above	37%	25%

7. New Tax Regime is the Default Option in 2025

   The new tax regime is the default choice for an income tax deduction by an employer and the Income Tax Department.

   Note: You have to specifically opt (with your employer or IT department) to calculate your TDS and other personal taxes as per the new tax regime.

Meaning of Exemptions and Deductions in New Tax Regime

Let us understand the key terms from the list mentioned below: 

1. Deductions in New Tax Regime

   • Refers to the expenses or investments made by the taxpayer that can be subtracted from their gross total income to arrive at the taxable income 

   • Deductions can help lower the tax liability of an individual or a company

2. Exemptions in New Tax Regime

   • Refers to the income or investments made by the taxpayer that are not included in the calculation of their taxable income

Exemptions and Deductions Not Available Under New Tax Regime in 2025

From the table below, let us learn the key exemptions and deductions in the new tax regime that are not claimable by individuals:

Provision of Exemptions and Deductions in New Tax Regime

There are certain deductions and exemptions in the new tax regime, which are as follows:

Deductions on Business Income Not Provided Under New Tax Regime in 2025

Let us have a look at the various exemptions and deductions in the new tax regime not available to businesses:

Comparison of Deductions under Old Regime vs. New Regime for FY 2024-25

The table below shows a comparative analysis of the available deductions under the old vs. new tax regime:

Wrapping It Up

The new tax regime offers taxpayers the option to choose between lower tax rates and limited deductions or higher tax rates and multiple deductions and exemptions as per the Union Budget 2024.

It is important for taxpayers to carefully evaluate their deductions in both these tax regimes. Choose the one that best suits your financial goals and circumstances.