Income Tax Slabs: Here Is All You Need To Know As A Taxpayer

The changes in the income tax slabs are quite easy to understand and can help you save more when you file your returns this year. This guide will help you navigate the income tax slab for AY 2024-25, so read on. 

The government taxes income in slabs. If you have a higher income, then the tax rate will be higher as India follows a progressive tax system. There are two regimes you can choose from:

• New Tax Regime: Lower tax rates with minimal deductions

• Old Tax Regime: Higher tax rates but with deductions

Choose the regime that suits you best to save more on your tax liability. It all starts with knowing more about the slabs under both and then checking which works for you. 

As per the older regime, there are four slabs. This regime allows deductions for investments, loans, and expenses. Income tax applies as per the following slabs:

The new tax regime has been updated with increased exemptions. The proposal announced by Finance Minister Nirmala Sitharaman during Budget 2025 has revised the slabs and rebates in the new regime. This makes income up-to ₹12 lakh tax-free. Check the table below to see the rate as it applies across tax slabs:

As per the changes proposed, you do not have to pay any tax as a salaried taxpayer if you earn ₹12.75 lakh due to the rebate and standard deduction of ₹75,000.

To summarise, here are a few differences between the old and the new income tax slab.  

To better understand the differences, say you earn ₹12 lakh per year. The following examples show how your taxable amount varies in the old and the new regime. 

Old Tax Regime (with deductions of ₹1.5 lakh)

• Taxable Income: ₹10.5 lakh

• Taxable Income: ₹12 lakh

The new tax regime offers significant savings if you are earning ₹12 lakh per annum. It also increases the basic exemption limit from ₹3 lakh to ₹4 lakh. In addition, you get a rebate of ₹60,000 under section 87A, making up to ₹12 lakh tax-free income. However, no such benefit will arise on special-rate incomes. 

Choosing between the two tax regimes is simple when you know where you stand. Here’s how you can access which one is right for you, as each comes with its own perks. 

• Simplification: No need to track multiple deductions and exemptions

• Higher Disposable Income: You can reduce your tax liability, leading to better spending and investment capacity

• Encourages Compliance: A simplified structure reduces tax avoidance and evasion

• Faster Filing Process: Less documentation is required, making tax filing quicker and hassle-free

• Encourages Savings: Investments in tax-saving instruments such as PPF, NPS, and ELSS help in long-term wealth creation

• Tax Benefits on Loans: Home loans and education loans provide tax relief under this regime

• Best for Investors: Those who invest regularly in tax-saving options benefit more

• Rebate under Section 87A: If your income is under ₹12 lakh, tax is zero as per the new regime

• Senior Citizens: Have a higher exemption limit in the old regime

• New Regime: Best if you have no or very few deductions to claim by way of expenses and investments

• Old Regime: Best if you have investments, repay loans and make other expenses that significantly reduce your tax 

Paying tax as per the old income tax slab or following the new regime and the new income tax slab depends on your financial planning and actions. Take a decision as per these pointers:

• If you have fewer investments, choose the new tax regime

• If you invest in tax-saving instruments and have many deductions to enjoy, choose the old tax regime

• Consider your financial goals – If you prefer liquidity, the new regime is better, but if you want long-term savings, the old regime is preferable

• Higher income means paying tax on the whole amount – No, tax is charged only on the portion of income in each slab.

• Tax-saving investments are always better – No, it depends on individual financial situations. You may end up benefiting more from the new regime.

• The new tax regime eliminates all deductions – While most deductions are removed, a few, like employer contributions to NPS, still apply.

1. What are income tax slabs, and why are they important?

Tax slabs determine tax rates for different income levels. The more you earn, the more tax you pay—but only on the amount that falls in the higher bracket.

2. How does moving to a higher tax slab affect my tax liability?

Only the portion of your income that enters a higher tax slab is taxed at that rate. The rest remains taxed at lower income tax slab rates.

3. Can tax-saving investments help me reduce my tax liability?

Yes! Government-backed investment options help reduce taxable income, like:

PPF (Public Provident Fund)
ELSS (Equity-Linked Savings Scheme)
Tax-saving FDs

4. How can I calculate which tax slab I fall into?

Look at your total income after deductions and compare it with the latest income tax slab chart.

5. How does income tax affect my savings and investments?

Without tax planning, you stand to lose a chunk of your earnings. Smart investments and deductions help you save more while staying tax-compliant.