Finance Minister Nirmala Sitharaman has provided significant relief to taxpayers in the 2025 budget. Under the new tax regime, annual income up to Rs 12 lakh has been made tax-free. Additionally, when factoring in the standard deduction of Rs 75,000, individuals earning up to Rs 12.75 lakh will not have to pay any income tax. Here’s a breakdown of how this exemption works and how you can benefit.
New Tax Regime and Its Tax Slabs
The updated tax structure under the new tax regime is as follows:
- Income up to Rs 4 lakh – No tax
- Income from Rs 4 lakh to Rs 8 lakh – 5% tax
- Income from Rs 8 lakh to Rs 12 lakh – 10% tax
- Income from Rs 12 lakh to Rs 16 lakh – 15% tax
- Income from Rs 16 lakh to Rs 20 lakh – 20% tax
- Income from Rs 20 lakh to Rs 24 lakh – 25% tax
- Income above Rs 24 lakh – 30% tax
Despite an annual income of Rs 12 lakh falling into the 10% tax bracket, taxpayers can still qualify for a complete exemption.
Understanding the Tax-Free Calculation for Rs 12.75 Lakh
The government provides a tax rebate under Section 87A to reduce tax liability. The rebate amount is Rs 12,500 under the old tax regime and Rs 60,000 under the new tax regime. This means that if your total tax liability under the new tax regime is Rs 60,000 or less, you won’t have to pay any tax.
Here’s how it works for an annual income of Rs 12.75 lakh:
- Rs 0 – 4 lakh – No tax
- Rs 4 – 8 lakh – 5% tax on Rs 4 lakh = Rs 20,000
- Rs 8 – 12 lakh – 10% tax on Rs 4 lakh = Rs 40,000
- Total Tax Liability = Rs 60,000
- Tax Rebate under Section 87A = Rs 60,000
- Final Tax Payable = Rs 0
Additionally, by applying the standard deduction of Rs 75,000, the effective tax-free limit extends to Rs 12.75 lakh.
How to Avail the Tax Rebate
To claim this rebate, taxpayers must file their Income Tax Return (ITR) under the new tax regime. Once the ITR is processed, the rebate amount is directly adjusted against the tax liability, ensuring zero tax payment for eligible individuals.
This update brings a substantial relief to the middle-class salaried segment, reducing their tax burden and increasing disposable income.
