Income Tax on 25 Lakh Salary

Earning Rs. 25 lakh a year puts you in a strong financial position—but it also means you’ll likely be paying a good chunk in taxes. And with the 2025 tax regime updates, figuring out exactly how much you owe (and how much you can save) can feel confusing.

The big question: Old regime or new regime?

Both have their pros and cons, but the right one for you depends on how you manage your income, investments, and deductions.

In this quick guide, let’s break down what your tax liability looks like under the new regime for FY 2025–26, how it compares with the old regime, and what smart steps you can take to legally reduce your taxes.

Ready to optimise your Rs. 25 lakh salary? Let’s dive in.

What is the budget 2025 update on income tax?

The 2025 Union Budget introduced changes to the new tax regime, making it more attractive for individuals earning Rs. 25 lakh annually. Here are the key updates:

Revised tax slabs: 

The new regime now features lower tax rates for higher income brackets.

Standard deduction: 

A standard deduction of Rs. 50,000 is now available under the new regime.

Simplified compliance: 

The new regime eliminates the need to track multiple exemptions and deductions, making it easier to file returns.

For individuals earning Rs. 25 lakh, the new regime is often beneficial if you do not have significant deductions or exemptions to claim. However, the old regime remains advantageous for those with substantial investments in tax-saving instruments.

Despite the updates in the new regime, the old tax regime remains unchanged. Here are the key components that remain consistent:

• Tax slabs: 

The old regime continues to follow the existing slab structure.

• Deductions and exemptions: 

Benefits under Section 80C (up to Rs. 1.5 lakh), 80D (health insurance), and HRA remain intact.

• Rebate under Section 87A: 

Individuals with taxable income up to Rs. 5 lakh can still claim a rebate of Rs. 12,500.

While the old regime offers flexibility through deductions, it requires meticulous planning and documentation.

If you earn Rs. 25 lakh annually, here are the budget highlights you should know:

Increased standard deduction: 

The Rs. 50,000 standard deduction under the new regime adds to your tax-saving potential.

No exemptions in the new regime: 

Unlike the old regime, the new regime does not allow exemptions like HRA or LTA.

Higher surcharge threshold: 

The surcharge rates for high-income earners remain unchanged, ensuring stable tax liability.

These updates aim to simplify tax compliance while offering moderate savings. However, optimising your taxes requires a strategic approach.

How to save tax for salary above Rs. 25 lakh

For individuals earning more than Rs. 25 lakh, tax planning is essential. Here are some practical strategies:

Invest in ULIPs: 

Unit-Linked Insurance Plans (ULIPs) offer dual benefits of investment and insurance, with tax exemptions on maturity proceeds under Section 10(10D).

Opt for life insurance: 

Premiums paid for life insurance policies are eligible for deductions under Section 80C, and the maturity benefits are tax-exempt.

Utilise Section 80D: 

Claim deductions on health insurance premiums for yourself and your family.

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Here is a comparison of income tax slabs for a Rs. 25 lakh salary under the old and new regimes:

The new regime offers lower tax rates but does not allow deductions like Section 80C or HRA. Choose the regime that aligns with your financial goals. 

How to save tax on Rs. 25 lakh salary?

To optimise your tax savings on a Rs. 25 lakh salary, consider these strategies:

Life insurance benefits: 

Choose policies with tax-exempt maturity benefits to reduce your taxable income.

Invest in ULIPs: 

These plans offer market-linked returns while providing tax benefits on premiums and maturity proceeds.

Flexi-premium options: 

Opt for flexible premium payment plans to manage cash flow and maximise savings.

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Conclusion

Optimising taxes on a Rs. 25 lakh salary requires a clear understanding of the 2025 budget updates and a strategic approach to choosing the right tax regime. While the new regime simplifies compliance, the old regime offers substantial savings through deductions and exemptions.

Life insurance plans and ULIPs are excellent tools to reduce your tax liability while building wealth. Save tax in the new regime with smarter plans—it is simple and secure. Compare options and get your quote instantly!