New Income-Tax Act 2025: Why Your April Salary May Be Lower Despite the Zero-Tax Promise
The Income-tax Act, 2025, is live as of April 1, replacing the 1961 law. Key shifts include a zero-tax limit up to ₹12.75 lakh (with standard deduction), higher taxes on corporate cars, and a lower 2% TCS on foreign travel. However, new basic pay rules may increase PF, cutting in-hand pay.
Millions of salaried Indians will notice a shift in their net take-home pay this month as the Income-tax Act, 2025 officially comes into effect. Replacing a six-decade-old law, the new code moves away from the complex "Assessment Year" jargon, introducing a single "Tax Year" and a series of tweaks to standard deductions and perquisites.
The Zero-Tax
Under the new Act, the combination of a ₹75,000 standard deduction and an enhanced Section 87A rebate means that individuals with an annual income up to ₹12.75 lakh will now pay zero tax, provided they opt for the New Tax Regime.
This benefit is strictly for the New Regime. If you are sticking to the Old Regime (with 80C and HRA), your zero-tax limit remains significantly lower at ₹5 lakh.
Company Car Tax Hike
Senior executives and employees with company-provided vehicles will see a hit. The new rules have spiked the taxable "perquisite value" for corporate cars.
- Small Cars (up to 1.6L): Taxable value up to ₹8,000/month.
- SUVs/Large Cars: Taxable value up to ₹10,000/month.
- Add a chauffeur, and your taxable income increases by another ₹3,000 monthly. This can add over ₹1.2 lakh to your taxable base annually.
Hostel & Education Relief
For parents, the Act has finally indexed allowances that remained stagnant for decades. The monthly exemption for children's education has been hiked to ₹3,000 (from ₹100) and the hostel expenditure allowance to ₹9,000 (from ₹300) per child for up to two children, exclusively under the Old Tax Regime.
2% Cap on Foreign Travel (TCS)
Planning a summer vacation? The new Act has rationalized the TCS. Overseas tour packages are now capped at 2% TCS, a reduction from the previous range of 5% to 20%. This means less of your vacation budget gets locked with the government until you file your returns next year.
PF Impact
While not strictly a tax rule, the integration of the new Labour Codes alongside the 2025 Tax Act means companies must now ensure that 50% of your total salary is the basic wage.
Your Provident Fund (PF) contributions will likely increase. This is great for your retirement corpus, but it will lead to a lower in-hand salary on your April pay slip.
Published By : Shourya Jha
Published On: 3 April 2026 at 12:46 IST