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Significant changes are on the horizon for individual taxpayers starting from the financial year 2025-26, following amendments to Section 87A and Section 115BAC of the Income-tax Act. These updates introduce three crucial revisions: an increase in the basic exemption limit, an enhanced tax rebate, and a revised tax slab structure under the new tax regime. Here's a comprehensive overview of these changes and their potential impact.

1. Increase in Basic Exemption Limit:

Currently, the basic exemption limit under the new tax regime is Rs. 3,00,000. Effective 1st April 2025 (Assessment Year 2026-27), this threshold will be increased to Rs. 4,00,000. This means individuals earning up to Rs. 4,00,000 annually will not be required to pay any income tax. This change will provide direct relief to low-income earners and marginal taxpayers.

2. Enhanced Tax Rebate under Section 87A:

At present, a resident individual with total income not exceeding Rs. 7,00,000 is eligible for a rebate of up to Rs. 25,000 under Section 87A. From 1st April 2025, the rebate provision will be significantly upgraded:

• The rebate threshold will increase from Rs. 7,00,000 to Rs. 12,00,000.
• The maximum rebate amount will rise from Rs. 25,000 to Rs. 60,000.
• 100% tax rebate will be available on total income up-to Rs. 12,00,000, if total income does not include any portion chargeable at special rates.
• The rebate will not exceed the tax payable under the revised tax slab rates of Section 115BAC.

This enhanced rebate will make a major difference for middle-income earners, potentially bringing their effective tax liability to zero.

3. New Income Tax Slabs under Section 115BAC:

The new tax regime will introduce a revised, more progressive slab structure, effective from 1st April 2025. The updated tax rates are as follows:

This structure ensures a gradual and equitable increase in tax rates, benefiting a majority of individual taxpayers.

Implications for Taxpayers:

1. Zero Tax up to Rs. 12 Lakh: Due to the increased rebate and exemption limit, individuals earning up to Rs. 12,00,000 will likely have no tax liability, provided their income does not include special-rate components.
2. Broader Tax Relief: The shift from a Rs. 3,00,000 to Rs. 4,00,000 basic exemption limit reduces tax for all individuals under the new regime.
3. More Attractive New Regime: Compared to the old tax regime, the new regime now offers a significantly higher exemption limit, larger rebate, and lower tax rates, making it more appealing for most taxpayers.

Conclusion:

The amendments under Sections 87A and 115BAC mark a pivotal move toward a simpler and more taxpayer-friendly income tax structure. By increasing the exemption limit, enhancing the rebate, and revising the slab rates, the government aims to ease the tax burden on middle-income groups and encourage wider adoption of the new tax regime. Taxpayers should evaluate their income profiles and plan accordingly to take full advantage of these benefits from 1st April 2025 onward.

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Disclaimer:

This article is based on my personal understanding of relevant provisions of the Income-tax Act and judicial precedents and should not be construed as legal advice. Taxpayers should seek professional advice for specific matters.