The Indian government has introduced important reforms to the income tax system for the Financial Year (FY) 2025-26, aiming to simplify the structure and offer relief to taxpayers.

Key Changes:

1. Updated Tax Slabs: The new tax regime now has the following income tax slabs:

   • Up to ₹4 lakh: Nil
   • ₹4 lakh to ₹8 lakh: 5%
   • ₹8 lakh to ₹12 lakh: 10%
   • ₹12 lakh to ₹16 lakh: 15%
   • ₹16 lakh to ₹20 lakh: 20%
   • ₹20 lakh to ₹24 lakh: 25%
   • Above ₹24 lakh: 30%

   These revisions are designed to ease the tax burden on middle-income groups and boost disposable income.

2. Higher Tax-Free Income Limit: The tax-free income ceiling under Section 87A has been raised from ₹7 lakh to ₹12 lakh, meaning individuals earning up to ₹12 lakh can now avail of tax exemptions.

3. Standard Deduction: A new standard deduction of ₹75,000 has been introduced for salaried individuals, effectively increasing the tax-free income threshold to ₹12.75 lakh.

4. Simplification of Tax Laws: The Union Cabinet has approved a new Income Tax Bill to replace the existing 1961 Act, aimed at simplifying and modernizing the country’s tax system. This bill focuses on reducing legal complexities, improving taxpayer compliance, and making the process easier, without imposing new taxes.

Impact:

These reforms are expected to drive economic growth by enhancing disposable income, which could lead to increased consumption and investment. Additionally, the simplification of tax regulations is likely to reduce legal disputes and improve compliance.

Taxpayers should familiarize themselves with the new tax slabs and provisions to understand their potential tax liabilities and make better financial plans accordingly.