Top Changes for the Salaried Class in ITA 2025#
A New Dawn for Salaried Taxpayers#
The salaried class has long complained about bearing the brunt of the income tax burden while business owners enjoy massive expense write-offs. The Income Tax Act, 2025 aims to rectify this imbalance with sweeping changes designed to put more money directly into the pockets of employees.
Here are the top changes coming into effect from April 1, 2026.
1. The Enhanced Standard Deduction#
For years, the Standard Deduction was frozen at ₹50,000. Under the new ITA 2025, the Standard Deduction for salaried employees and pensioners has been hiked to ₹75,000. This is a flat deduction applied to your Gross Salary before any taxes are calculated. You do not need to submit any investment proofs or rent receipts to claim this.
2. Completely Restructured Tax Slabs#
The government has solidified its commitment to a simpler, default tax regime with highly lucrative tax slabs. The new formula dictates that tax rates increase by 5% for every ₹4 Lakh bracket:
- ₹0 to ₹4 Lakhs: Nil (Tax-Free)
- ₹4 Lakhs to ₹8 Lakhs: 5%
- ₹8 Lakhs to ₹12 Lakhs: 10%
- ₹12 Lakhs to ₹16 Lakhs: 15%
- ₹16 Lakhs to ₹20 Lakhs: 20%
- ₹20 Lakhs to ₹24 Lakhs: 25%
- Above ₹24 Lakhs: 30%
Coupled with the Section 156 rebate — which fully rebates tax where taxable income is up to ₹12 Lakh — this effectively means a salaried individual earning up to ₹12.75 Lakhs (₹12 Lakhs + ₹75,000 Standard Deduction) pays Zero Income Tax.
3. Simplification of Leave Encashment#
Under the old regime, the exemption limit for leave encashment at the time of retirement for non-government employees was capped at ₹25 Lakhs, subject to complex calculations. The ITA 2025 removes the complex formulas and provides a straight exemption based on the accumulated leaves, heavily benefiting private sector retirees.
4. Family Pension Deduction Hiked#
For dependents receiving a family pension, the deduction limit has been increased. Previously capped at ₹15,000 or 1/3rd of the pension (whichever is lower), the new Act has bumped the maximum deduction limit to ₹25,000, offering relief to the families of deceased employees.
These changes signal a clear intent: simplify compliance and boost the disposable income of the Indian middle class. HR departments must begin updating their payroll software immediately to reflect these new calculation matrices for the upcoming Tax Year.