Budget 2025: No Income Tax Upto Rs 12 Lakhs Explained

The Union budget 2025 presented in the Parliament today on 1st February 2025, the Finance Minister Mrs. Nirmala Sitharaman has given the middle-class taxpayers a big Income tax relief. Under the new tax regime, there will be no income tax on annual earnings up to Rs. 12 Lakhs, with an additional Rs. 75,000 standard deductions for salaried taxpayers, raising the limit to Rs. 12.75 Lakhs. No relief under the old tax regime, it is unchanged. The government has established new tax slabs to significantly lower middle-class taxes and give them more money, increasing household consumption, savings, and investment. Earlier today, FM Sitharaman stated in her annual budget speech that the new tax structure will increase disposable incomes and boost household consumption, savings, and investment.

Income Tax rates under the new tax regime and the old tax regime

If there is no tax upto Rs. 12,00,000 then why there are tax slab below this amount in above table? Because basic exemption limits are still Rs. 4,00,000 in new tax regime (earlier it was Rs. 3,00,000) and Rs. 2,50,000 in old tax regime. Under Section 87A eligible taxpayers get a total waiver of income tax if their total income other than special rate income such as capital gain) is below Rs. 12,00,000 (earlier it was Rs. 7,00,000) under the new tax regime and Rs. 5,00,000 under the old tax regime. Under the new tax regime, the maximum amount of section 87A tax rebate is proposed to be enhanced to Rs. 60,000 (earlier it was Rs. 25,000) and under the old tax regime it is Rs. 12,500. Income taxable at a special rate will not get the benefit of income tax rebate under section 87A. Special rate income includes income such as capital gains under section 111A (short term capital gains), section 112 (long term capital gains) etc. It means you will end up paying income tax in new tax regime also despite income under Rs. 12,00,000 if it includes special rate incomes as U/S 87A rebate will not help to make the tax liability zero. For example, if you have a total income of Rs. 12,00,000 out of which salary and other income are Rs. 10,00,000 but capital gains income is Rs. 2,00,000, then section 87A tax rebate will only be given on Rs. 10,00,000. On the Rs. 2,00,000 capital gains income, taxpayers need to pay the income tax separately as per applicable special tax rate.

The total tax benefit of proposed slab rate changes under the new tax regime at different income levels can be illustrated in the table below

It is clearly showing that the new tax regime has proposed lower income-tax rates, for income segments up to Rs. 24,00,000, but you need to remember that the proposed lower tax rates will be applicable only if you are willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961. This means that when you choose the New Tax Regime, you will have to forgo some exemptions and deductions available under chapter VI A of the Act that grant deductions under Section 80. Even the deduction on home loan interest, under Section 24(b) will be disallowed. Around 70 exemptions and deductions have been removed in the New Tax Regime.

Some of the 70 exemptions and deductions you won't get in the new regime

• Leave travel allowance Section 10(5)
• House rent allowance Section 10(13A)
• Children Education Allowance
• Housing loan interest
• Section 80C investments
• Medical insurance premium U/S 80D
• Expenses actually paid for medical treatment of specified diseases and ailments U/S 80DDB
• Education loan interest U/S 80E
• Rent paid for furnished/unfurnished residential accommodation U/S 80GG
• Deduction in respect of donations to certain funds, charitable institutions U/S 80G
• Interest on deposits in saving account U/S 80TTA
• Interest on deposits U/S 80TTB for senior citizens
• Deduction for a certified person with a disability by the medical authority U/S 80U

You don't really need to do an elaborate calculation to know that which regime to choose. The answer is actually quite simple. Anyone claiming tax exemptions and deductions more than given in below chart can choose old regime, if your total exemption and deduction is less than amount given in below chart select New Tax Regime which will proposed as the default tax regime.

As per the above chart it is clear that Tax is less in New Income Tax Regime, but if your total deduction and exemption is more than amount given in chart you should select Old Income Tax Regime Otherwise New Income Tax Regime is beneficial.

The simple thumb rule that every salaried taxpayer needs to follow that calculate the total exemptions and deductions that you want to claim in a year under the old income tax regime. If the gross income is more than Rs. 24,75,000. Then a salaried individual is better off taking the old income tax regime only if the deductions and exemptions (Which are not allowed under new tax regime) are more than Rs.8,00,000.

In the new regime marginal relief is available to only resident individuals who have income marginally above Rs. 12,00,000. For example, for a person having income of Rs. 12,10,000 in the absence of marginal relief, the tax, works out to be Rs. 61,500. However, due to marginal relief, the amount of tax to be actually paid is Rs. 10,000. The marginal relief is computed in the following manner: -

(i) First the tax as per slab rate is computed on the total income.

(ii) Tax payable on total income of Rs. 12,00,000 on which rebate is available is Nil.

(iii) Now the tax liability without marginal relief (in this case Rs. 61,500) shall be compared with amount exceeding total income upto which rebate is available (in this case Rs. 10,000)

(iv) Therefore, in the above case rebate by way of marginal relief is Rs. 51,500 (Rs.61,500 - Rs.10,000 = Rs.51,500) is allowed and Tax payable is Rs. 10,000 (Rs. 61,500-Rs.51,500)

The author is a Certified and authorized Tax Return Preparer of Income Tax Department of India; currently he is Managing Director and Founder of ARS Solutions. He can also be reached at abhishek@arssolutions.co.in

Disclaimer - Before making any decisions do consult the experts. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on.