New income tax rules: A guide to Budget ’25 tax changes that kick in from April 1

Know the Budget changes for FY 2025-26

For taxpayers, the new financial year will begin on a positive note as they are set for big savings starting April 1.

Finance Minister Nirmala Sitharaman’s budget  announcements for FY25-26 come into effect today, and those who choose the new tax regime will have to pay significantly less  this year.

Here’s a look at the income tax slab rejig and other measures that will come into force.

New slabs

The new, minimal-exemptions tax regime is set to be the favoured choice of most taxpayers this fiscal, thanks to the Finance Act, 2025-26, which has raised the basic exemption threshold from Rs 3 to 4 lakh, hiked the rebate limit from Rs 7 to 12 lakh, and widened the tax slabs. For salaried individuals, income of up to Rs 12.75 lakh will attract no tax due to the standard deduction of Rs 75,000 under the new regime.

According to Deloitte India’s calculations, a salaried individual with an income of Rs 12 lakh will see her tax outgo reduced by Rs 83,200 (inclusive of cess), while a taxpayer with an income of Rs 16 lakh will save Rs 52,000. This is assuming that she had chosen the new regime in 2024-25 as well. Likewise, someone earning Rs 1 crore will save Rs 1,25,840, while those with an income of Rs 2 crore will see their tax going down by Rs 1,31,560.

Also read: Hike in basic exemption limit, rejig of tax slabs mean big savings for taxpayers under the new regime

Old vs new regimes: switch to save

Starting this year, most salaried individuals will save more on their tax outgo under the new regime unless they claim a substantial  house rent allowance (HRA) exemption. This is because the minimum deduction amount required for the old tax regime to be more beneficial is now significantly higher.

Per Deloitte's calculations, those earning more than Rs 24 lakh will have to claim deductions of Rs 8 lakh or more for the old tax regime to be beneficial. Put simply, popular deductions under section 80C (tax saving investment of Rs 1.5 lakh), 80D (health insurance premium of Rs 1 lakh), and 24B (Rs 2 lakh in home loan interest) will not be enough to offset the benefits offered under the new regime.

The new tax regime is the default framework, but ensure that you communicate your decision to pick this regime to your employer in April, when you submit your proposed investment declarations.

Old vs new: Which regime will reduce your tax outgo?

Higher TDS for senior citizens' FDs

FY 2025-26 will offer relief to senior citizens in terms of TDS (tax deducted at source).

The threshold for 10 percent TDS on fixed deposit (FD) interest income earned by senior citizens will go  from Rs 50,000 to 1 lakh this financial year. Sitharaman also raised the threshold for TDS on rent from Rs 2.4 to 6 lakh per year, significantly reducing the outgo for those receiving modest rental income.

Thus, tenants have to withhold TDS @10 percent before transferring the rent to their landlords. Since many senior citizens depend on FD interest and rental income in their retirement years, these measures will mean better cash flows and lower compliance burden.

TCS relaxation for students and travellers

The threshold for withholding tax collected at source (TCS) on overseas remittances through the liberalised remittance scheme (LRS) route has been hiked from Rs 7 to 10 lakh. Also, students and their parents will not have to face liquidity issues due to TCS on remittances of over Rs 7 lakh for education purposes (paying university fees, for example), as the rate has been reduced from 0.5 percent to nil. Do note, however, that TCS exemption will be available only if the remittance is made out of loans taken from financial institutions.

Relief for individuals with two properties

Budget 2025 provided much relief to homeowners by allowing them tax exemption for two house properties. Until FY 2024-25, the annual value of such properties could be considered as nil only if the homeowner resided there or could not occupy the property due to her place of work being elsewhere. Budget 2025 has done way with the conditions required to treat the annual value as nil, providing relief to homeowners.