The Government has introduced amendments to the Income Tax Act, 1961, aimed at clarifying the standard deduction of Rs 75,000 available under the new tax regime for salaried employees. This clarification has also been formally incorporated into the New Income Tax Bill, 2025. The standard deduction plays a crucial role in calculating tax-free income for salaried individuals. Initially set at Rs 50,000, the deduction was enhanced to Rs 75,000 for those opting for the new tax regime through a provision introduced in the Finance (No. 2) Act, 2024, by adding a new proviso to Section 16(ia).
“In addition to the New Income Tax Bill, we are making certain amendments to the Income Tax Act of 1961… bringing clarity to the new Income Tax regime, where the standard deduction of ₹75,000 will apply for salaried individuals,” Finance Minister Nirmala Sitharaman stated on X.
The Rs 75,000 standard deduction for salaried taxpayers under the new tax regime had already been announced during the Union Budget 2024.
What has changed now?
Through the Taxation Laws (Amendment) Bill, 2025, the Government has explicitly clarified that taxable income under the head “Salaries” will be calculated after applying a standard deduction of ₹50,000 under the old tax regime and Rs 75,000 under the new tax regime.
The amendment specifies:
“The income chargeable under the head ‘Salaries’ shall be computed after making the following deductions, namely:—
(ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less.
Provided that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC, the provisions of this clause shall have effect as if for the words ‘fifty thousand rupees’, the words ‘seventy-five thousand rupees’ had been substituted.”
This updated provision has also been integrated into the New Income Tax Bill, 2025, and will be applicable from April 1, 2026, corresponding to the financial year 2026–27.
In addition to addressing the standard deduction, the Taxation Laws (Amendment) Bill also resolves ambiguity regarding deductions related to the Unified Pension Scheme (UPS). The amendment now ensures that tax benefits available for contributions to the UPS are on par with those for the National Pension System (NPS), bringing both retirement savings schemes under the same tax treatment framework.
Both the Taxation Laws (Amendment) Bill, 2025, and the New Income Tax Bill, 2025, have been approved by Parliament, setting the stage for their implementation in the coming financial year.
Revised tax slabs
The New Income Tax Bill, 2025, specifies the revised tax slabs and rates applicable to income up to ₹12 lakh and beyond.
Under Clause 202(I) of the Bill, the new tax regime rates apply to individuals, Hindu Undivided Families (HUFs), and certain other entities. The structure is as follows:
- Total Income (₹) Rate of Tax
- Up to ₹4,00,000 Nil
- ₹4,00,001 – ₹8,00,000 5%
- ₹8,00,001 – ₹12,00,000 10%
- ₹12,00,001 – ₹16,00,000 15%
- ₹16,00,001 – ₹20,00,000 20%
- ₹20,00,001 – ₹24,00,000 25%
- Above ₹24,00,000 30%
These rates will be applicable to:
- Individuals
- Hindu Undivided Families (HUFs)
- Associations of Persons (excluding co-operative societies)
- Bodies of Individuals, whether incorporated or not
- Artificial juridical persons
Old Tax Regime
The new Income Tax Bill does not explicitly list the tax slabs and rates for taxpayers, as these are subject to change through the annual Finance Bill presented during the Union Budget.
At present, the following slab rates apply under the old tax regime:
- General Citizens
- Up to Rs 2,50,000 – Nil
- Rs 2,50,001 to Rs 5,00,000 – 5%
- Rs 5,00,001 to Rs 10,00,000 – 20%
- Above Rs 10,00,000 – 30%
- Senior Citizens (Aged 60 to under 80 years)
- Up to Rs 3,00,000 – Nil
- Rs 3,0 001 to Rs 5,00,000 – 5%
- Rs 5,00,001 to Rs 10,00,000 – 20%
- Above Rs 10,00,000 – 30%
- Super Senior Citizens (Aged 80 years and above)
- Up to Rs 5,00,000 – Nil
- Rs 5,00,001 to Rs 10,00,000 – 20%
- Above Rs 10,00,000 – 30%
