Income Tax Relief: Key Updates in the Budget for Financial Year 2025-26

Introduction

The Union Budget for the financial year 2025-26 has introduced several measures aimed at providing income tax relief to individuals and businesses. With an emphasis on economic growth, ease of taxation, and incentives for various sectors, this budget brings significant changes to taxation policies. This article explores the key highlights, their impact on taxpayers, and strategies to maximize tax savings.

Key Income Tax Relief Announcements in Budget 2025-26

1. Increased Basic Exemption Limit

One of the most awaited announcements in this budget is the increase in the basic exemption limit for individual taxpayers.

• The government has raised the basic exemption limit from ₹2.5 lakh to ₹3 lakh under the old tax regime.
• Under the new tax regime, the exemption limit has been increased from ₹3 lakh to ₹3.5 lakh.

This change reduces the tax burden on individuals, particularly those in the lower-income bracket.

2. Changes in Income Tax Slabs and Rates

The budget has revised the income tax slabs, making them more favorable for middle-class taxpayers. The revised tax slabs under the new regime are:

The government has retained the standard deduction of ₹50,000, providing additional relief to salaried individuals.

3. Higher Rebate Under Section 87A

• The rebate limit under Section 87A has been increased from ₹7 lakh to ₹8 lakh in the new tax regime.
• This means individuals with taxable income up to ₹8 lakh will pay zero tax.

4. Increased Deductions for Salaried Individuals and Pensioners

• The deduction limit under Section 80C for investments in PPF, EPF, NSC, ELSS, etc., has been increased from ₹1.5 lakh to ₹2 lakh.
• Standard deduction for pensioners has been increased to ₹75,000.
• HRA exemption has been enhanced for metro city taxpayers.

5. Enhancements in Section 80D for Medical Insurance

With rising healthcare costs, the government has raised the deduction for medical insurance premiums under Section 80D:

• For individuals, the limit is increased from ₹25,000 to ₹30,000.
• For senior citizens, the deduction is now ₹60,000 (earlier ₹50,000).

6. Additional Benefits for Homebuyers Under Section 80EE

• The home loan interest deduction under Section 80EE has been extended from ₹50,000 to ₹75,000.
• This encourages first-time homebuyers to invest in real estate while enjoying tax benefits.

7. Tax Relief for Startups and MSMEs

The government has proposed tax exemptions and lower corporate tax rates for startups and MSMEs:

• Startups incorporated until March 31, 2026, will receive tax holidays for three years.
• The corporate tax rate for MSMEs has been reduced from 25% to 22%.

8. Capital Gains Tax Changes

• Long-term capital gains tax exemption limit under Section 54 and Section 54F has been increased.
• The new cap on capital gains exemptions ensures investors benefit from property sales and reinvestment options.

9. Revised TDS Rules for Freelancers and Professionals

Freelancers and professionals earning through digital platforms have received relief in TDS deductions:

• The TDS threshold for freelance income has been raised from ₹30,000 to ₹50,000.
• This reduces the tax deducted at source, increasing cash flow for professionals.

How These Changes Impact Taxpayers

1. Middle-Class Taxpayers

• With increased exemption limits and rebates, the tax liability for middle-income earners is significantly reduced.
• Higher standard deductions help salaried individuals save more.

2. Senior Citizens

• Increased medical insurance deductions and higher pension deductions provide much-needed financial relief.
• Tax-free income limit for senior citizens has been extended, ensuring better savings post-retirement.

3. Businesses and Startups

• MSMEs and startups benefit from lower tax rates and tax holidays, encouraging entrepreneurship and employment generation.
• New capital gains exemptions help business owners reinvest profits efficiently.

4. Homebuyers

• Higher deductions on home loan interest make real estate investment more attractive.
• The changes provide incentives for first-time homebuyers, boosting the real estate sector.

Tax-Saving Strategies for Financial Year 2025-26

With the new budget announcements, here are some strategies to maximize tax savings:

1. Opt for the Right Tax Regime

• Compare the old and new tax regimes before filing income tax returns.
• If you have higher investments, the old regime with deductions under 80C, 80D, and HRA may be beneficial.
• If you have fewer deductions, the new tax regime with lower slab rates may work better.

2. Maximize Deductions Under Section 80C and 80D

• Invest in PPF, EPF, NSC, and ELSS to claim deductions up to ₹2 lakh.
• Purchase health insurance to take advantage of the higher Section 80D limits.

3. Utilize HRA and Home Loan Benefits

• If you are a salaried individual, claim HRA exemption.
• If you have a home loan, utilize Section 80EE benefits for additional deductions on interest payments.

4. Save Tax Through NPS Contributions

• Contributions to the National Pension System (NPS) provide extra tax savings under Section 80CCD(1B).
• You can claim an additional deduction of ₹50,000 apart from 80C benefits.

Conclusion

The Budget 2025-26 brings a wave of income tax relief, benefiting individual taxpayers, businesses, and startups alike. With higher exemption limits, revised slabs, and enhanced deductions, taxpayers can enjoy significant savings. To make the most of these benefits, individuals must carefully assess their financial situation and select the appropriate tax regime.

By implementing smart tax-saving strategies, you can effectively reduce your tax burden while ensuring compliance with the latest regulations. Stay informed, plan your taxes wisely, and make the most of the new tax relief measures introduced in this budget.

FAQs

1. What is the new income tax exemption limit for FY 2025-26?
The exemption limit has been increased to ₹3 lakh under the old regime and ₹3.5 lakh under the new regime.

2. Who benefits the most from the Budget 2025-26 tax relief?
Middle-class taxpayers, salaried individuals, homebuyers, and small business owners benefit the most from the new tax measures.

3. Should I opt for the new tax regime or stick to the old one?
It depends on your investment pattern. If you have higher deductions under 80C, 80D, and HRA, the old regime is better. If you prefer simpler taxation with lower rates, choose the new regime.

4. Are there additional benefits for startups in Budget 2025-26?
Yes, startups incorporated until March 2026 will enjoy tax holidays and reduced corporate tax rates, encouraging business growth.

Stay updated with the latest tax laws and make informed financial decisions to optimize your savings in FY 2025-26.