Finance Minister Nirmala Sitharaman unveiled new tax slabs under the New Tax system in the Union Budget 2025-26 on Saturday, marking a significant step to lessen the tax burden on middle-class taxpayers.

persons earning up to Rs 12 lakh a year are intended to benefit from the new tax slabs, while salaried persons are exempt up to Rs 12.75 lakh (with normal deductions).

The new tax system would save Rs 80,000 on an income of Rs 12 lakh, Rs 70,000 on an income of Rs 18 lakh, and Rs 1,10,000 on an income of Rs 25 lakh, according to Finance Minister Sitharaman.

Up to Rs 4 lakh in yearly income is exempt from tax under the new tax slabs that were unveiled in the budget.

The tax rate would be 5 percent for earnings between Rs 4 lakh and Rs 8 lakh and 10 percent for incomes between Rs 8 lakh and Rs 12 lakh.

The tax rates would rise gradually for higher income brackets: 15% for earnings between Rs 12 lakh and Rs 16 lakh, 20% for incomes between Rs 16 lakh and Rs 20 lakh, 25% for incomes between Rs 20 lakh and Rs 24 lakh, and 30% for incomes beyond Rs 24 lakh.

Finance Minister Sitharaman announced an increase in the tax refund available under Section 87A in addition to the updated tax slabs.

This implies that no income tax would be due from those whose net taxable income is less than Rs 12 lakh.

You will still pay tax at the appropriate slab rates if your yearly income is precisely Rs 12 lakh, but you will also get the rebate, which will lower your overall tax obligation.

In other words, you would not be required to pay any taxes because of the updated tax slabs and the greater refund if you are a salaried person or earn other forms of “regular income” up to Rs 12 lakh.

Capital gains income, on the other hand, will not qualify for the rebate and will be subject to separate taxation under other regulations.

If Parliament approves the recommendations, the new tax system will take effect on April 1, 2025, for the next fiscal year 2025–2026.

People who make up to Rs 3 lakh would not be taxed under the existing system, and tax rates grow gradually as income does.

Nonetheless, under the previous tax system, people were eligible for a number of deductions, and the baseline exemption level was Rs 2.5 lakh.

A five percent tax rate was applied to earnings between Rs 2.5 lakh and Rs 5 lakh, while a twenty percent tax rate was applied to incomes between Rs 5 lakh and Rs 10 lakh.

A 30% tax rate is applied to incomes beyond Rs 10 lakh.