Union Budget 2025-26: Key Changes That Affect Your Taxes

Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on February 1, 2025 with a clear focus on boosting consumption, simplifying taxation, and supporting the middle class. For taxpayers, the budget brought several significant changes — most notably in the personal income tax slabs and exemption limits under the New Tax Regime.

This article breaks down every major change and explains what it means for salaried individuals, business owners, investors, and NRIs.

The most impactful change is the revision of tax slabs under the New Tax Regime (Section 115BAC), which is now the default regime. The revised slabs provide complete tax exemption on income up to ₹12 lakh for resident individuals, making the New Regime significantly more attractive.

The standard deduction for salaried employees and pensioners under the New Tax Regime has been increased from ₹50,000 to ₹75,000. This effectively makes income up to ₹12.75 lakh tax-free for salaried individuals after claiming the standard deduction, coupled with the rebate under Section 87A.

The rebate under Section 87A has been enhanced such that individuals earning up to ₹12 lakh under the New Tax Regime pay zero tax. This is a landmark change that directly benefits a large segment of the salaried and middle-class population.

For example, a salaried person earning ₹12.75 lakh will pay zero tax after the ₹75,000 standard deduction brings taxable income to ₹12 lakh, which is fully covered by the Section 87A rebate.

For businesses, the budget maintained the corporate tax rate at 22% for domestic companies and 15% for new manufacturing companies. However, several indirect changes affect business taxation:

The Long-Term Capital Gains (LTCG) tax structure saw an important update. The exemption limit for LTCG on equity and equity mutual funds under Section 112A has been raised from ₹1 lakh to ₹1.25 lakh per year. The tax rate on LTCG remains at 12.5% (reduced from 20% with indexation benefit for non-equity assets).

With the enhanced benefits under the New Tax Regime, many taxpayers — especially those with income below ₹15 lakh and fewer deductions — will find it beneficial to opt for the New Regime. However, for taxpayers with significant HRA, Section 80C investments, home loan interest deductions, or NPS contributions, the Old Regime may still offer better savings.

The best approach is to compare both regimes with your actual numbers. At CT Associates, we help our clients compute their tax liability under both regimes and make the optimal choice every year.

Budget 2025-26 is taxpayer-friendly, particularly for the salaried middle class. The effective zero-tax threshold of ₹12.75 lakh and the expanded rebate are the most significant benefits. Business owners should review their TDS compliance in light of the revised thresholds, and all taxpayers should reassess their regime choice before filing their FY 2025-26 returns.