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The recent Indian Budget 2025 brought significant changes to the income tax system, primarily benefiting middle-class taxpayers. A key feature is the elimination of income tax for individuals earning up to ₹12 lakh annually under the new tax regime. This significant increase in the exemption limit, coupled with adjusted tax slabs, provides substantial tax relief. For salaried individuals, factoring in the standard deduction of ₹75,000, the tax-free limit effectively reaches ₹12.75 lakh per year. These alterations are designed to ease the tax burden on a considerable portion of the population. However, it's crucial to understand the precise timing of these changes' implementation.
It's imperative to note that the revised tax slabs and rates announced in Budget 2025 are not applicable for the current tax filing season (Assessment Year 2025-26, corresponding to Financial Year 2024-25). The new tax regime, with its increased exemption limits and adjusted slabs, will come into effect for the Financial Year 2025-26, meaning income tax returns for this period will be filed in Assessment Year 2026-27. This distinction is crucial to avoid confusion and ensure accurate tax calculations and filings.
Therefore, for tax returns filed in 2025, the tax rates announced in Budget 2024-25 remain in effect. Taxpayers must utilize the appropriate tax slabs and rates based on their income during the Financial Year 2024-25. Failure to adhere to this distinction could lead to incorrect tax calculations and potential penalties. Understanding the difference between the Financial Year (FY) and Assessment Year (AY) is paramount. The FY represents the period for which income is earned (April 1st to March 31st), while the AY refers to the year during which tax returns are filed.
For the FY 2024-25, the default tax regime remains active. Individuals wishing to opt for the old tax regime must file Form 10-IEA. Under the existing regime, the basic exemption limit is ₹3 lakhs for all individuals, regardless of age. A rebate under section 87A is available for those with an income not exceeding ₹7 lakhs, resulting in zero tax liability for this income bracket. This rebate is significant in ensuring financial relief for low and middle-income earners. Further, the maximum surcharge rate has been reduced to 25%, a notable improvement from the previous 37% under the old regime. A tax rebate of up to ₹25,000 is available for total income not exceeding ₹7,00,000, excluding Non-Resident Indians (NRIs).
The tax slabs for FY 2024-25 are as follows: Income up to ₹3 lakh attracts a NIL tax rate. Income between ₹3 lakh and ₹7 lakh is taxed at 5%, while income between ₹7 lakh and ₹10 lakh is taxed at 10%. The tax rate increases to 15% for income between ₹10 lakh and ₹12 lakh, 20% for income between ₹12 lakh and ₹15 lakh, and 30% for income exceeding ₹15 lakh. A comparison with the old tax regime highlights the changes and potential benefits of choosing one regime over the other for specific income brackets. The old regime features different tax rates across income ranges, and taxpayers should carefully consider the implications of each regime before making a selection. The choice between the old and new regimes should be made strategically to optimize tax liabilities based on individual circumstances.
The upcoming changes in the tax regime for FY 2025-26, as announced in Budget 2025, promise further simplification and relief for taxpayers. While the changes are significant, it's crucial for taxpayers to understand that these changes are prospective, applying only to income earned from April 1, 2025, onwards. The current year’s tax filing season remains governed by the tax slabs and rates established by Budget 2024-25. Therefore, meticulous attention to detail in understanding these differing timelines and rates is absolutely essential to ensure the accurate and timely filing of income tax returns. Misunderstanding these key dates and regulations could lead to penalties and unnecessary complications. Accurate tax planning and compliance are crucial for individuals and businesses alike, so staying informed about these changes is paramount.