The Income-Tax Act, 2025, effective from 1 April 2026, introduces landmark reforms in India’s tax system. Among the most important updates are new income tax slabs, a higher exemption limit, and digital-first compliance measures.
In this article, we’ll cover:
- The new income tax slabs and the ₹12 lakh exemption.
- The impact on salaried individuals and their take-home pay.
- The implications for businesses and startups under the new law.
New Income Tax Slabs & ₹12 Lakh Exemption
A key highlight of the new Act is the ₹12 lakh annual exemption threshold, retained from the Union Budget 2025.
🔹 Individuals earning up to ₹12 lakh per year will not be required to pay any income tax.
🔹 The number of tax slabs has been reduced, making compliance simpler.
🔹 The new structure favors middle-income groups by lowering their tax burden.
Old vs New Tax Calculation (Illustrative Example)
Here’s how the new exemption impacts salaried individuals compared to the old law:
|
Annual Income |
Old Law (1961 Act)* |
New Law (2025 Act)** |
Difference in Tax |
|
₹10,00,000 |
₹52,500 |
₹0 |
+₹52,500 savings |
|
₹15,00,000 |
₹1,95,000 |
₹30,000 (tax only above ₹12L) |
+₹1,65,000 savings |
|
₹20,00,000 |
₹3,37,500 |
₹1,80,000 |
+₹1,57,500 savings |
* Based on the new regime under the 1961 Act (with ₹3L basic exemption).
** Based on illustrative slab where income up to ₹12L is exempt, higher slabs taxed progressively.
Result: The new Act significantly increases disposable income for middle-class and upper-middle-class taxpayers.
Impact on Salaried Individuals
For employees, the Act brings multiple benefits:
- Higher Take-Home Pay
- With a ₹12 lakh exemption, most mid-level professionals will save more.
- Clarity on Deductions
- Defined rules for:
- Home loan interest
- Commuted pensions
- Leave encashment
- This reduces confusion and disputes.
- Seamless Compliance
- Faceless, digital-first assessments → no more frequent visits to tax offices.
- Quicker refunds and smoother processing.
Impact on Businesses & Startups
The Income-Tax Act, 2025 also focuses on making taxation business-friendly:
- Simplified Compliance
- Sections reduced from 800+ to 536 → easier navigation for corporates and MSMEs.
- TDS/TCS procedures streamlined.
- Digital-First Taxation
- Built around faceless, online assessments.
- Encourages businesses to adopt digital record-keeping.
- Clarity for Start-ups
- Rules updated for angel funding, digital revenues, and ESOP taxation.
- Reduces litigation in start-up ecosystem.
- Virtual Digital Assets (VDAs)
- Explicitly covers cryptocurrency, NFTs, and other digital assets.
- Ensures proper reporting and compliance for investors and businesses in the sector.
What Taxpayers Should Do
- Salaried Employees – Reassess salary structures and optimize investments under the new regime.
- Businesses – Upgrade accounting systems for faceless, AI-driven compliance.
- Startups – Track digital asset investments and align with new reporting norms.
Conclusion
The Income-Tax Act, 2025 is designed to make taxation simpler, fairer, and more transparent. With the ₹12 lakh exemption, salaried individuals will enjoy higher take-home pay, while businesses and startups will benefit from streamlined compliance and digital-first processes.
This reform is not just about reducing taxes—it’s about creating a modern, technology-driven tax environment that supports growth and innovation.
💡 Need Expert Guidance on the New Income-Tax Act, 2025?
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