The Finance Act 2025 introduces significant changes to the new tax regime — a revised slab structure, enhanced rebate, and expanded standard deduction. A practitioner’s breakdown of who benefits, who does not, and what planning actions are warranted.
The Finance Act 2025 makes the most significant structural changes to personal income tax in several years. The revised slab structure under the new tax regime, the enhanced rebate under Section 87A, and the expanded standard deduction together alter the calculus for a large number of individual taxpayers who have been on the fence about which regime to choose.
The revised slabs under the new regime now offer a zero-tax threshold up to Rs 7 lakh after the rebate, with a graduated structure that is more favourable than the previous iteration for most income levels up to approximately Rs 15 lakh. Above that level, the comparison with the old regime becomes more dependent on the specific deductions a taxpayer is eligible to claim.
The standard deduction has been enhanced to Rs 75,000 for salaried individuals under the new regime — a meaningful increase from the previous Rs 50,000. This narrows the gap with the old regime for those whose primary deduction is the standard deduction rather than HRA or home loan interest.
Who benefits most from the changes are salaried individuals with straightforward income profiles — those who do not have significant HRA claims, home loan interest deductions, or other items under Chapter VIA. For this group, the new regime now offers a materially better outcome in most cases.
Who should still consider the old regime carefully are individuals with large home loan interest deductions (Section 24), those living in high-rent cities with substantial HRA exemptions, and those with significant investments in instruments like PPF, ELSS, or life insurance under Section 80C. The arithmetic in these cases still sometimes favours the old regime.
The planning implication for the current year is to run the numbers under both regimes with actual figures rather than assumptions. The enhanced rebate and revised slabs mean that many taxpayers who chose the old regime last year should reassess before the financial year ends.