Zafar Iqbal
The Indian government has announced a significant tax relief for salaried individuals under the new tax regime. In the Budget 2025, Finance Minister Nirmala Sitharaman revised the tax slabs, ensuring that individuals earning up to Rs 12.75 lakh (including a standard deduction of Rs 75,000) will have zero tax liability. This major shift aims to ease the financial burden on middle-class taxpayers and increase disposable income.
How You Pay Zero Tax on Rs 12.5 Lakh Salary?
The key reason behind this zero-tax benefit is the enhanced tax rebate under Section 87A. The rebate has been increased from Rs 25,000 to Rs 60,000, effectively nullifying the tax liability for incomes up to Rs 12.75 lakh (for salaried individuals).
Here’s how it works:
- If you earn Rs 12.75 lakh, your tax liability under the revised slab rates would be Rs 60,000.
- Since the new rebate is Rs 60,000, your net tax payable becomes zero.
- However, it is crucial to note that capital gains are excluded from this tax relief and will continue to be taxed separately.
Income Tax for Individuals Earning More Than Rs 12 Lakh
If your taxable income exceeds Rs 12 lakh, even by a single rupee, the rebate will no longer apply, and you will have to pay tax according to the new slabs. However, the restructuring of tax slabs and the inclusion of the standard deduction of Rs 75,000 still offer benefits to all taxpayers.
New Income Tax Slabs for FY 2025-26
As per Budget 2025, the income tax slabs under the new tax regime are as follows:
| Income Slab | Tax Rate |
| Up to Rs 4 lakh | Nil |
| Rs 4 lakh – Rs 8 lakh | 5% |
| Rs 8 lakh – Rs 12 lakh | 10% |
| Rs 12 lakh – Rs 16 lakh | 15% |
| Rs 16 lakh – Rs 20 lakh | 20% |
| Rs 20 lakh – Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
How Much Can You Save?
The amount of savings depends on your income level:
- The maximum benefit of Rs 1.1 lakh will be realized at an income level of Rs 24 lakh.
- At Rs 24 lakh, the tax liability under the new regime is Rs 3 lakh, compared to Rs 4.1 lakh under the old regime.
- Beyond Rs 24 lakh, the tax rates remain unchanged at 30%, meaning a consistent benefit of Rs 1.1 lakh.
Impact on Taxpayers
The increase in the nil tax threshold from Rs 7 lakh to Rs 12 lakh benefits approximately 1 crore taxpayers, who previously paid Rs 20,000 to Rs 80,000 in taxes. However, this move will result in a revenue loss of Rs 1 lakh crore for the government.
For those opting for the old tax regime—which provides deductions for home loans and HRA—there are no changes in rates or slabs.
Marginal Relief for Incomes Just Above Rs 12 Lakh
A common concern for individuals earning just above Rs 12 lakh is that they might end up with lower post-tax income than those earning exactly Rs 12 lakh. To address this, the government has introduced marginal relief.
For example:
- If a taxpayer earns Rs 12.10 lakh, their tax liability (as per slabs) would be Rs 61,500.
- However, with marginal relief, they will only pay Rs 10,000, ensuring fairness.
- This relief is applicable up to Rs 12.75 lakh, beyond which standard tax slabs apply.
Government’s Perspective on the Tax Relief
In an exclusive interview, Finance Minister Nirmala Sitharaman emphasized that the goal of Budget 2025 was to support the middle class and boost consumption. She highlighted that honest taxpayers deserve relief and that increasing disposable income would drive economic growth.
Key Highlights from Her Interview:
- Salaried individuals with incomes up to Rs 12 lakh won’t pay tax.
- The new tax structure aims to simplify the tax system.
- The government is focusing on increasing household savings and investments.
Political Reactions
- Prime Minister Narendra Modi stated that the budget reflects the government’s commitment to fulfilling the aspirations of 140 crore Indians and accelerating progress towards a Viksit Bharat.
- Rahul Gandhi, Leader of the Opposition, criticized the budget, calling it a “band-aid for bullet wounds”, and argued that the government lacks innovative economic solutions.
New Income Tax Bill to Be Introduced
The Finance Minister also announced that a new Income Tax Bill will be tabled in Parliament next week. The objective is to further simplify tax laws and improve the taxation system for individuals.
Conclusion
The Budget 2025 tax reforms bring a huge relief to middle-class salaried employees, making incomes up to Rs 12.75 lakh tax-free. This move aims to increase consumption, savings, and economic growth. However, individuals earning above this threshold must plan their finances carefully to maximize tax benefits. With the introduction of the new Income Tax Bill, taxpayers can expect further simplifications in the taxation system.
