The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduced major changes to India’s income tax structure under the new tax regime. One of the most significant highlights is the tax relief for salaried individuals earning up to ₹12.75 lakh per year, effectively bringing their tax liability to zero. However, those earning ₹13 lakh or more will still need to pay tax.
In this article, we will break down the latest tax slabs, new deductions, and rebates to help you understand how taxation works under the updated system.
New Income Tax Slabs for FY 2025-26
The new tax regime has restructured the income tax slabs as follows:
Along with these revised tax slabs, the standard deduction has been increased to ₹75,000 (for salaried individuals). Additionally, the tax rebate under Section 87A has been enhanced, ensuring that individuals earning up to ₹12.75 lakh pay zero tax.
How an Individual Earning ₹12.75 Lakh Pays Zero Tax
Step 1: Deduct Standard Deduction
- Gross Income: ₹12,75,000
- Standard Deduction: ₹75,000
- Net Taxable Income: ₹12,00,000
Step 2: Apply the New Tax Slabs
- 0% tax on ₹4 lakh → ₹0
- 5% tax on ₹4 lakh (₹4L – ₹8L) → ₹20,000
- 10% tax on ₹4 lakh (₹8L – ₹12L) → ₹40,000
- Total Tax Before Rebate: ₹60,000
Step 3: Apply the Rebate Under Section 87A
- Since the net taxable income is ₹12 lakh, the taxpayer qualifies for a full rebate under Section 87A, which reduces the tax liability to zero.
Thus, a salaried individual earning ₹12.75 lakh annually pays no income tax under the new tax regime.
What Happens If You Earn ₹13 Lakh?
Now, let’s calculate the tax liability for someone earning ₹13 lakh per year.
Step 1: Deduct Standard Deduction
- Gross Income: ₹13,00,000
- Standard Deduction: ₹75,000
- Net Taxable Income: ₹12,25,000
Step 2: Apply the New Tax Slabs
- 0% tax on ₹4 lakh → ₹0
- 5% tax on ₹4 lakh (₹4L – ₹8L) → ₹20,000
- 10% tax on ₹4 lakh (₹8L – ₹12L) → ₹40,000
- 15% tax on ₹25,000 (₹12L – ₹12.25L) → ₹3,750
- Total Tax Before Rebate: ₹63,750
Step 3: Check Rebate Eligibility
- The rebate under Section 87A is applicable only if the net taxable income is ₹12 lakh or below.
- Since ₹12.25 lakh exceeds this limit, the individual does not qualify for the rebate.
Step 4: Final Tax Payable
- Total Tax = ₹63,750
- Cess @ 4% on tax (₹63,750 × 4%) = ₹2,550
- Final Tax Payable = ₹66,300
Thus, a salaried individual earning ₹13 lakh will have to pay ₹66,300 as income tax, while someone earning ₹12.75 lakh pays zero tax.
Key Takeaways from the Budget 2025 Tax Changes
- Full Tax Rebate for Salaried Individuals Earning up to ₹12.75 Lakh
- Due to Section 87A rebate and the increased standard deduction, individuals earning ₹12.75 lakh or below will not pay any tax.
- Taxable Income Above ₹12 Lakh Leads to Tax Liability
- Once net taxable income exceeds ₹12 lakh, the rebate does not apply, and tax must be paid as per slabs.
- Standard Deduction Increased to ₹75,000
- Benefiting salaried taxpayers, reducing their taxable income.
- New Tax Slabs Reduce Overall Tax Burden
- Compared to previous years, the 5%, 10%, and 15% slabs ensure lower taxation for middle-income earners.
Final Thoughts: Should You Opt for the New Tax Regime?
With these changes, the new tax regime has become much more attractive, especially for salaried individuals. If your income is below ₹12.75 lakh, you will benefit entirely from tax exemptions. However, if your salary is higher, you should evaluate whether claiming deductions under the old tax regime (like HRA, 80C, 80D) might be more beneficial.
If you’re unsure which tax regime to choose, consult a tax expert to maximize your savings.
FAQs on the New Tax Slabs for 2025
1. Who qualifies for the ₹12.75 lakh tax exemption?
Any salaried individual earning up to ₹12.75 lakh under the new tax regime can benefit from the ₹75,000 standard deduction and Section 87A rebate, bringing their tax liability to zero.
2. Why does a ₹13 lakh earner have to pay ₹66,300 in tax?
Since the net taxable income exceeds ₹12 lakh, they do not qualify for the rebate under Section 87A, resulting in a tax liability.
3. Will the new tax regime benefit everyone?
For those not claiming deductions under the old tax regime, the new system is beneficial. However, taxpayers who invest heavily in 80C, HRA, and other exemptions may need to compare regimes.
4. Can I still choose the old tax regime?
Yes, taxpayers can choose between the old and new regimes, depending on their financial situation.
5. When will the new tax regime be applicable?
The revised tax slabs and benefits will be effective from April 1, 2025, for the financial year 2025-26.
Conclusion
The Union Budget 2025-26 brings substantial tax relief for middle-class salaried employees, especially those earning ₹12.75 lakh or below, who will pay zero tax. However, taxpayers earning ₹13 lakh or more must pay taxes, with the burden increasing as income rises.
Understanding these tax slabs is crucial for financial planning and optimizing tax savings. If you’re unsure which regime works best for you, consult a financial advisor to make the most of these new tax benefits!