Recently, there have been significant updates to India’s tax regulations. These include rebates for incomes up to Rs. 7 lakhs. This means that under the new regime, individuals with incomes lower than Rs. 7 lakh will not be required to pay taxes if they opt for the new system. This article demystifies how these regulations work and how you can benefit from them.
New Tax Slabs and Rates
The new tax regime has introduced revised tax slabs and rates. The structure begins with zero tax for income up to Rs 4 lakh and scales up to higher percentages for larger income brackets.
This progressive system ensures that lower-income earners have a reduced tax liability, and for those earning up to Rs 7 lakh, the tax can be zeroed out with the help of rebates and deductions.
Income Tax Slabs
Tax Rates
Up to Rs. 4,00,000
NIL
Rs. 4,00,001 – Rs. 8,00,000
5%
Rs. 8,00,001 – Rs. 12,00,000
10%
Rs. 12,00,001 – Rs. 16,00,000
15%
Rs. 16,00,001 – Rs. 20,00,000
20%
Rs. 20,00,001 – Rs. 24,00,000
25%
Over Rs. 24,00,000
30%
Several additional deductions are possible for those who choose the new regime for FY 2025-26. These include:
– Under section 87A, the rebate has been increased from Rs. 25,000 to Rs. 60,000.
– Relaxations have also been made on slab rates, and tax incidence will be zero for incomes upto Rs. 12,00,000.
– Marginal relief on rebates is also still applicable
Impact of the Increased Exemption Limit
For the fiscal year 2025-26, if you choose to follow the new tax regime, you are privy to a considerable advantage: How 7 lakh income is tax-free becomes a practical reality for you.
Filing an income tax return (ITR) becomes optional if your gross taxable income does not exceed the Rs 4 lakh mark.
Additionally, the enhanced basic exemption limit contributes to substantial tax savings.
Lastly, individuals will now get to enjoy higher disposable incomes. This means investments into mutual funds and other fund classes are also likely to witness growth.
The New Tax Regime as the Default
At the start of FY 2024-25, salaried individuals can choose between the old or new tax regime, with the new regime as the default:
This choice is communicated to their employer and cannot be changed mid-year. However, they can switch to a different regime when filing their tax returns in July 2025, with the same FY 2025-26 rules:
Tax is deducted under the default new regime if salaried employees don’t specify a choice.
The income tax filing deadline for FY 2024-25 (AY 2025-26) is 31 July 2025. A delayed filing is allowed until 31 December 2025 if the initial deadline is missed.
Taxpayers who wish to opt for the old tax regime must fill out Form 10-IEA, allowing them to choose between the two regimes.
The Roadmap to Achieving a Tax-free Income of Rs 7 Lakh
Navigate the new tax laws effectively, one must understand the roadmap to achieving a tax-free income of Rs 7 lakh:
1 – Assess your income: Understand your gross income and categorize it appropriately to determine your taxable income.
2 – Opt for the new tax regime: Elect to adopt the new tax regime when filing your returns. This regime offers the Rs 7 lakh exemption threshold.
3 – Maximise deductions: Make prudent investments and expenditures that qualify for deductions under the new regime.
4 – Utilize the rebate: Ensure that your taxable income falls within the Rs 7 lakh bracket to take full advantage of the Section 87A rebate.
5 – Filing your returns: Accurately file your income tax returns, claiming the rebate and deductions to reduce your taxable income to nil.
Conclusion
The revised tax regime in India presents an opportunity for individuals earning up to Rs 7 lakh to reduce their tax liability significantly. The higher exemption limit, the introduction of the enhanced Section 87A rebate, and the restructured tax slabs all contribute to this possibility.
For those who are still navigating these changes or for anyone seeking to understand how to maximize their tax benefits, Tata Capital’s Moneyfy can provide tailored guidance. By carefully planning and understanding the new tax laws, taxpayers can not only comply with their tax obligations but also improve their financial well-being.
This journey to a tax-free income is not just about understanding the new laws but also about effectively applying them to your financial planning. With the right approach, an income of up to Rs 7 lakh can indeed be free from tax, and you can enjoy the benefits of your hard-earned money to its fullest.
Which is better between the old tax regime and the new tax regime?
The old regime may yield higher tax savings for individuals with large HRA, LTA, or 80C investments. The new regime’s structure may be more beneficial for those who do not.
What is the difference between the old and new tax regimes?
The old regime allows for more deductions (e.g., 80C, HRA). The new regime has fewer deductions but lower tax rates and broader tax slabs.
Am I eligible for Rs. 50,000 standard deduction in the new tax regime?
Yes, a standard deduction of Rs.50,000 or the salary amount (whichever is lower) is available for the old and new tax regimes.
What is the limit for deductions under Section 80D?
The limit for deductions under Section 80D is Rs. 25,000 a year.
I am filing ITR in a new regime for AY 2024-25. Can I switch between the old and new tax regime in the next few years?
Taxpayers who wish to opt for the old tax regime must fill out Form 10-IEA, allowing them to choose between the two regimes. This has to be done before July 31st, 2025.
How much income is tax-free in India in 2025?
Under the revised tax structure, incomes of up to Rs. 12,00,00 will have no tax liability due to the Rs.60,000 rebate. For salaried individuals, this number will be up to Rs. 12,75,000.
Can I claim 80C deductions and opt for the new income tax regime?
Under the new regime, Section 80C deductions are no longer available.
Which tax regime is better for Rs. 7 lakhs salary?
For an income of Rs. 7 lakh, the new tax regime is considered to be better. This is because tax liability up to Rs. 7 Lakh is zero.
What is the standard deduction available under the new tax regime slabs?
The standard deduction under the new regime has increased. It is now Rs. 75,000. Previously, under the old regime, it was Rs. 50,000.
How do the new income tax slabs for FY 2025-26 differ from the previous year?
The tax slabs under the new regime are slightly different from those under the older one. In the new regime, tax rates are lower. However, there are more limits on exemptions and deductions.
21 February 2025
4 mins read
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