Budget 2025 Expands NIL Tax Bracket, FY 2025-26, Under New Tax Regime

For FY 2025-26 — April 1, 2025 to March 31, 2026 — the biggest point is simple. A NIL Tax Bracket does not mean “no return needed.” It means your final tax liability becomes zero under the applicable rules.

A widely reported claim says more than 1.22 crore taxpayers may fall into the NIL tax bracket in FY 2025-26. That number has drawn attention because Budget 2025 expanded zero-tax outcomes, especially under the New Tax Regime. Still, as of March 24, 2026, official confirmation of the exact 1.22 crore figure is still awaited.

That distinction matters. The policy shift is real. The exact taxpayer count is not yet officially confirmed.

This article compares the New Tax Regime and the Old Tax Regime for AY 2026-27. That is the assessment year for income earned in FY 2025-26. It also explains what immigrants, visa holders, NRIs, and U.S. tax residents with Indian income should watch.

⚠️ Warning: A zero Indian tax bill does not automatically remove filing, disclosure, or foreign reporting duties in another country.

New Tax Regime vs Old Tax Regime: the core difference

The New Tax Regime is now the default regime for AY 2026-27 unless a taxpayer validly chooses the old regime.

The design of each regime is different:

• New Tax Regime uses lower slab rates, a broader nil-tax band, and a larger Section 87A rebate for eligible resident individuals.
• Old Tax Regime depends more on deductions, exemptions, and age-based exemption limits.

That is why more people may see zero tax liability under the new regime even when gross income is well above the basic exemption level.

The right choice still depends on facts such as:

• salary structure
• home loan interest
• Section 80C investments
• HRA and other exemptions
• residential status
• age category

For immigrants and cross-border taxpayers, residency is especially important. A person may be a resident in India, an NRI, or also a U.S. tax resident under separate rules. U.S. filers should review international tax rules and IRS Publication 519 at Pub. 519.

Side-by-side comparison: New Tax Regime vs Old Tax Regime

How the New Tax Regime creates zero-tax outcomes

Under the New Tax Regime, income starts with a nil-tax band. After that, rates apply progressively to higher income bands. The full income is not taxed at one single rate.

The larger reason many taxpayers may enter the NIL Tax Bracket in FY 2025-26 is the combination of:

• the wider tax-free starting band
• the Section 87A rebate
• the standard deduction for eligible salaried taxpayers

For eligible resident individuals, the Section 87A rebate can wipe out the tax bill up to the specified income level under the new regime. That is the main reason a taxpayer can have a moderate gross income and still end up with zero final tax.

This does not mean all income up to that level is “exempt.” It means the tax is computed under slab rules, then the rebate reduces that tax to zero if eligibility conditions are met.

Once income goes beyond the rebate range, tax liability can appear quickly. The nil-tax benefit does not continue forever. It only applies within the legal rebate structure.

That is why taxpayers above the rebate threshold should calculate carefully. A small income increase can move a person out of the NIL Tax Bracket.

How the Old Tax Regime still matters

The Old Tax Regime remains relevant because it uses age-based basic exemptions and allows deductions that many taxpayers still value.

Broadly, the old regime gives different starting exemption levels for:

• individuals below 60
• senior citizens aged 60 to 80
• super senior citizens above 80

The old regime also offers a rebate for qualifying lower-income resident individuals. That rebate can still reduce tax to zero for some taxpayers, but the zero-tax range is generally narrower than under the new regime.

The old regime may still work better if you claim several benefits, such as:

• Section 80C deductions
• home loan interest
• HRA exemption
• other salary-linked exemptions

Residency and age both matter here. A person who is not a resident individual may not qualify for the same rebate outcome. An NRI also does not get the same senior citizen treatment.

Tax calculation mechanics: what actually reduces tax

A common mistake is to compare only the slab rate and ignore the income adjustments that happen first.

For many salaried taxpayers, the standard deduction reduces taxable income before the final tax calculation. That can be the difference between a positive tax bill and a NIL Tax Bracket result.

Budget 2025 changes widened that zero-tax zone for many low- and middle-income earners. Still, a proper tax calculation usually follows this order:

1. start with gross income
2. subtract eligible deductions or allowances
3. arrive at taxable income
4. apply slab rates
5. apply rebate, if eligible
6. add health and education cess at 4%
7. add surcharge, if income crosses higher thresholds

Surcharge becomes relevant at higher income levels. That means a slab-only estimate can understate the final bill for upper-income taxpayers.

💡 Tax Tip: If your income is near the rebate cutoff, one deduction or salary adjustment can decide whether your final tax becomes zero.

For U.S. immigrants and visa holders with Indian earnings, the Indian tax result is only part of the picture. If you are a U.S. tax resident under the Green Card Test or Substantial Presence Test, you may still need to report that income on Form 1040. Foreign tax paid may be relevant to Form 1116. IRS forms are listed at forms and pubs.

Example: New Tax Regime on ₹15 lakh income

A taxpayer with ₹15 lakh income under the New Tax Regime is not in the NIL Tax Bracket.

Why? Because slab taxation is progressive. Each band is taxed at its own rate. Only the lower portion gets the lower rate or zero rate.

In this example, the first part of income falls in the nil-tax band. The next layers are taxed at rising rates. By the time income reaches ₹15 lakh, the basic tax crosses ₹1 lakh. After adding the 4% cess, the final liability rises to a little over ₹1.09 lakh.

This example shows an important rule. Being in the new regime does not mean low tax on the full income. It means each slice of income is taxed separately.

Taxpayers just above the rebate threshold often make the wrong assumption. They think the full income remains inside a zero-tax shield. It does not.

📅 Deadline Alert: For U.S. taxpayers living abroad, the federal return is generally due June 15, 2027 for tax year 2026, with further extension options to October 15, 2027. Indian due dates follow Indian filing rules.

Special notes for NRIs, HUFs, and immigrants

NRIs need extra care here. Broad NIL tax claims often describe resident individuals, not every taxpayer category.

Three points stand out:

• NRIs do not receive the same senior citizen basic exemption treatment available to resident individuals under the old regime.
• Section 87A rebate is not available in the same way to NRIs, so a resident’s zero-tax result may not apply.
• HUFs generally follow the regime structure applicable to them, including the slab treatment under the new regime.

Surcharge rules also continue under both regimes for higher-income taxpayers, though the final effect can differ by regime.

This is especially relevant for immigrants and visa holders who move between countries during the year. A person may be:

• resident in India for Indian tax purposes
• nonresident in India but taxable on Indian-source income
• resident in the United States for federal tax purposes

If that is your situation, compare treaty issues, foreign tax credits, and filing status carefully. U.S. taxpayers can review Publication 901 for treaties and Publication 519 for residency rules.

Common mistakes to avoid

• Treating the 1.22 crore figure as officially confirmed government data
• Assuming NIL Tax Bracket means no filing requirement
• Forgetting that cess is added after basic tax
• Ignoring the standard deduction
• Assuming NRIs get the same rebate as resident individuals
• Choosing the default new regime without comparing deductions under the old regime

You are likely in the NIL tax bracket if.

You are likely in the NIL Tax Bracket for FY 2025-26 if all of the following are true:

• you are using the regime that gives you the lower final liability
• your taxable income stays within the legal rebate structure
• you qualify as an eligible resident individual where the rebate requires residency
• your final tax after rebate becomes zero
• you still complete any required filing and reporting steps

You are not automatically in the NIL Tax Bracket if:

• your income exceeds the rebate range
• you are an NRI
• you depend on assumptions meant for resident individuals
• cess or surcharge applies
• you confuse gross income with taxable income

Before filing, confirm your residential status, compare both regimes, and check whether your tax is reduced by deductions, rebate, or both. If you also file in the United States, report Indian income correctly on Form 1040 and review foreign tax credit rules.

⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.