The Indian government made major adjustments to the income tax system in the Union Budget, which was unveiled on February 1, 2025, with the goal of increasing consumer spending and promoting economic expansion. By raising the tax exemption limits and reorganizing the tax slabs, these changes mainly aim to assist the middle class.
Here is a comparison of the new income tax slab (FY 2025-26) with the old tax regime to help you understand the differences:
New vs. Old Tax Regime (FY 2025-26, AY 2026-27)
|
Annual Income (₹) |
New Tax Regime (Tax Rate %) | Old Tax Regime (Tax Rate %) |
| Up to ₹2,50,000 | No tax (0%) | No tax (0%) |
| ₹2,50,001 to ₹5,00,000 | No tax (Rebate under Sec 87A) | 5% |
|
₹5,00,001 to ₹7,00,000 |
5% | 10% |
| ₹7,00,001 to ₹10,00,000 | 10% | 20% |
| ₹10,00,001 to ₹12,00,000 | 15% | 20% |
| ₹12,00,001 to ₹15,00,000 | 20% |
30% |
| Above ₹15,00,000 | 30% |
30% |
Key Differences Between New and Old Regimes:
- Deductions & Exemptions:
- Old Regime allows deductions under Section 80C, 80D, HRA, LTA, etc.
- New Regime offers lower tax rates but removes most deductions and exemptions.
- Standard Deduction:
- In Old Regime, ₹50,000 standard deduction applies.
- In New Regime, ₹75,000 standard deduction is retained for salaried individuals.
- Section 87A Rebate:
- Under Old Regime, rebate is available up to ₹5,00,000 income.
- Under New Regime, rebate is available up to ₹7,00,000 income (No tax).
Which Tax Regime Should You Choose?
- The previous tax system could be advantageous if you had large deductions (such as interest on home loans, insurance, and investments under 80C).
- The new tax regime is preferable if you want a more straightforward system with lower tax rates and no deductions.
Here’s a sample tax calculation under both the new and old tax regimes for an individual earning ₹12,00,000 annually.
Scenario: Income ₹12,00,000 (FY 2025-26, AY 2026-27)
New Tax Regime Calculation (No deductions allowed)
|
Income Slab (₹) |
Tax Rate (%) |
Tax Amount (₹) |
|
0 – 4,00,000 |
0% |
0 |
| 4,00,001 – 7,00,000 | 5% |
15,000 |
|
7,00,001 – 10,00,000 |
10% |
30,000 |
| 10,00,001 – 12,00,000 | 15% |
30,000 |
|
Total Tax |
₹75,000 |
|
| Less: Standard Deduction (₹75,000) | ₹0 (final tax after deduction) |
Total Tax Payable = ₹75,000
⃣ Old Tax Regime Calculation (Including deductions of ₹2,00,000 under 80C, 80D, etc.)
|
Income Slab (₹) |
Tax Rate (%) | Tax Amount (₹) |
| 0 – 2,50,000 | 0% |
0 |
|
2,50,001 – 5,00,000 |
5% | 12,500 |
| 5,00,001 – 10,00,000 | 20% |
1,00,000 |
|
10,00,001 – 12,00,000 |
30% | 60,000 |
| Total Tax |
₹1,72,500 |
|
| Less: Deductions (₹2,00,000) | ₹60,000 saved | |
|
Final Tax Payable |
₹1,12,500 |
Which Tax Regime is Better?
- New Regime: ₹75,000 tax (no deductions needed).
- Old Regime: ₹1,12,500 tax (after using ₹2,00,000 deductions).
New income tax slab will favor those who don’t have high deductions. However, old regime is better if you claim significant deductions like 80C, 80D, home loan interest, etc.
New Income Tax Slab May Hinder Promotions and Increments In Private Companies
The new income tax slabs for 2025 will have a significant impact on private company annual promotions, primarily influencing salary hikes, in-hand pay, and employee tax liabilities. Here’s how:
⃣ Higher In-Hand Salary for Employees
- The new tax regime has lower tax rates and increased exemption limits, meaning employees may pay less tax compared to the old regime.
- Employees in the ₹7-15 lakh income range will see more take-home salary, as the tax burden is lower.
- Companies may adjust compensation structures to factor in reduced tax liability.
Adjustments in Promotion & Increment Strategies
- Higher Disposable Income → Lower Need for Huge Hikes:
Since the new tax slabs reduce overall tax liability, private companies may offer smaller salary hikes, as employees already get more in-hand salary. - Shift Towards Performance-Based Bonuses:
Companies may shift from fixed salary increments to performance-based bonuses, as bonuses have different tax treatments.
Shift from Tax-Optimized Salary Structures
- In the old tax regime, salary structures were designed to maximize deductions (like HRA, LTA, and 80C benefits).
- The new regime doesn’t allow most deductions, so companies may simplify pay structures, reducing the focus on tax-saving components.
Employees May Opt for the New Income Tax Slab More Often
- Promotions and annual increments often push employees into higher tax brackets.
- With the new regime’s higher exemption limit (₹4 lakh) and lower tax rates, many employees will switch to the new regime, making salary restructuring easier.
Cost Savings for Companies
- Since employees pay lower taxes, companies might moderate salary hikes, leading to lower payroll expenses.
- Employers may reduce tax-saving allowances and increase direct CTC components, reducing administrative overhead.
What Should Employees Expect?
✔ More in-hand salary due to lower taxes.
✔ Possibly smaller increments but better performance-based incentives.
✔ Simplified salary structures, with less focus on tax-saving perks.
✔ Companies may focus more on variable pay and perks rather than fixed hikes.
Impact of the New Income Tax Slab on Private Company Promotions – Sector-Wise Analysis
The new income tax slab (2025) will impact salary structures, promotions, and in-hand pay across various private sectors. Here’s a breakdown of how different industries might adjust their promotion strategies in response:
IT & Software Industry
✔ More Take-Home Salary for Mid-Level Employees
- IT professionals earning between ₹7-15 lakh per annum will see lower tax deductions under the new slabs, leading to higher in-hand salary.
- Companies may offer lower percentage hikes since employees already benefit from tax savings.
✔ More Performance-Based Bonuses
- Instead of large fixed hikes, firms may increase performance-based bonuses to reward top performers while optimizing payroll costs.
✔ Less Focus on Allowances & Perks
- Traditional tax-saving components like HRA, LTA, and food coupons might lose relevance, leading to simpler CTC structures.
✔ Effect on Promotions
- Employees might expect smaller salary hikes post-promotion, but companies could compensate with equity, stock options (ESOPs), or retention bonuses.
Banking, Finance & Insurance (BFSI)
✔ High Earners in BFSI Still Pay 30% Tax
- Employees earning ₹15 lakh+ per annum will still be taxed at 30%, so the new regime offers little relief to senior professionals.
✔ Companies May Shift from Fixed Pay to Variable Pay
- BFSI firms may increase performance-linked incentives while keeping fixed salary hikes modest.
✔ Taxation Impact on Investment Professionals
- Wealth managers and financial advisors may rethink salary structures, as tax-exempt benefits like NPS contributions, EPF, and deductions under 80C are no longer as useful under the new regime.
✔ Effect on Promotions
- Salary growth might slow down at senior levels, with a higher focus on profit-sharing and stock-based compensation.
️Startups & Tech Companies
✔ More ESOP-Based Compensation
- Startups, which often rely on equity-based pay (ESOPs), may continue this trend as ESOP taxation remains unchanged.
✔ Smaller Fixed Salary Increments
- With tax relief at lower income levels, startups may reduce salary hikes and instead offer milestone-based bonuses.
✔ More Freelancing & Gig Roles
- The simplified tax structure may encourage gig work & freelance contracts, as independent workers benefit from lower direct taxes.
✔ Effect on Promotions
- Startups may delay promotions but compensate with stock options, as tax savings make salary hikes less pressing.
Manufacturing & Core Industries (Engineering, Automotive, FMCG)
✔ Mid-Level Employees Benefit the Most
- Those earning ₹5-15 lakh per annum will enjoy lower tax rates, leading to higher take-home pay.
- Employers might lower standard salary hikes due to these tax benefits.
✔ More Retention Bonuses Instead of Annual Increments
- Instead of annual pay raises, manufacturing firms may offer loyalty/retention bonuses to maintain a stable workforce.
✔ Effect on Promotions
- Increment percentages may shrink, as disposable income increases.
- Salary hikes may be replaced with higher provident fund contributions or non-monetary perks (e.g., housing benefits).
Consulting & Professional Services (Big 4, Legal, Audit)
✔ Minimal Tax Relief for High Earners As Per New Income Tax Slab
- Senior consultants & partners earning ₹20 lakh+ per annum still pay 30% tax, so tax benefits are limited.
✔ Firms May Offer Lower Base Hikes
- Consulting firms might reduce fixed salary increments and instead increase performance-based payouts.
✔ More Focus on Perks & Benefits
- Non-monetary incentives (such as additional leave, travel perks, or wellness programs) may be more prominent in promotions.
✔ Effect on Promotions
- While salary bumps may be smaller, profit-sharing and bonus structures will become more important.
Retail, Hospitality & Aviation
✔ More Entry-Level Tax Benefits
- Employees earning ₹4-7 lakh per annum will pay less tax, leading to higher take-home salaries.
- This may reduce pressure on companies to give frequent hikes.
✔ More Profit-Linked Pay Structures
- Salaries might increase at a slower pace, but firms may introduce revenue-sharing models for senior employees.
✔ Effect on Promotions
- Higher job security & benefits may replace large salary increments.
Overall Impact of the New Income Tax Slab on Private Companies’ Promotion Strategies
✔ Smaller Fixed Salary Hikes but more performance-based incentives.
✔ More ESOPs, bonuses, and stock options rather than large base salary hikes.
✔ Simplified salary structures, reducing tax-optimized allowances.
✔ Sector-specific changes, with IT, BFSI, and consulting firms adjusting compensation models.
✔ Higher take-home salary for mid-level employees (₹5-15 lakh per annum).
Final Takeaway: Should Employees Expect Bigger or Smaller Promotions?
If you’re a mid-income earner (₹7-15 lakh per annum): You’ll get a higher take-home salary, so companies may offer smaller hikes and focus on performance bonuses.
If you’re a high-income earner (₹15 lakh+ per annum): The 30% tax remains, so promotions might include more stock-based incentives rather than big salary jumps.
Key Advice for Employees:
- Focus on total compensation (not just salary).
- Negotiate for bonuses, ESOPs, and perks during promotions.
- Consider whether the new tax regime benefits you, as some deductions are lost.
Government’s Objective:
These tax measures’ main objective is to provide people more disposable income, which will encourage investment, savings, and consumption. The administration wants to boost economic activity, which is essential for maintaining growth momentum, by lowering the tax burden. By making tax compliance easier and expanding the tax base, the action is also anticipated to encourage more taxpayers to embrace the new tax regime.