Concluding the Union Budget 2025, Finance Minister Nirmala Sitharaman announced that income slabs and rates are changed across the board to reduce taxes on middle class.
This will reduce taxes on middle class, which will in turn leave more money in their hands and boost household consumption and investment. This would mean that salaried taxpayers need not pay tax up to Rs 12.75 lakh income with standard deduction of Rs 75,000.
Revised tax slabs
In the new regime, tax rate will be as follows:
#UnionBudget2025 | Finance Minister Nirmala Sitharaman says, " I am now happy to announce that there will be no income tax up to an income of Rs 12 lakhs." pic.twitter.com/rDUEulG3b9
— ANI (@ANI) February 1, 2025
- Rs 0 to 4 lakh: Nil
- Rs 4 to 8 lakh: 5 per cent
- Rs 8 to 12 lakh: 10 per cent
- Rs 12 to 16 lakh: 15 per cent
- Rs 15 to 20 lakh: 20 per cent
- Rs 20 to 24 lakh: 25 per cent
- Rs 24 lakh and above: 30 per cent
How is Rs 12 lakh income tax-free?
Many taxpayers were confused about the income tax slabs and the exemption of income under Rs 12 lakh. If you are still confused, here is a clarification. The increase in the rebate under section 87A, which was previously applicable for income up to Rs 7 lakh, has now been extended to cover incomes up to Rs 12 lakh. The rebate, previously set at Rs 25,000, has now been increased to Rs 60,000. This would mean that a person with Rs 12 lakh salary need not pay 10 per cent tax (Rs 60,000 in this case) as the rebate is the same amount.
When you file your ITR for the assessment year 2026-27 and select the new tax regime, if your taxable income does not exceed Rs 12 lakh, you will be exempt from paying taxes under Section 115BAC. However, this rebate will not apply to special grade incomes such as capital gains.
Examples
Giving examples, the finance minister said that a taxpayer in new regime with 12 lakh income will get a benefit of Rs 80,000 in tax, which is 100% of tax payable as per existing rates.
For a taxpayer with Rs 18 lakh income, there will be a benefit of Rs 70,000 in tax, 30 per cent of tax payable, as per existing rates.
A taxpayer with Rs 25 lakh income will get a benefit of Rs 1.10 lakh, which is 25 per cent of his tax payable.
The minister said with the new announcement, the government has forgone Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes.
She also announced measures to ease compliance burden by rationalising TDS (Tax Deduction at Source) and TCS (Tax Collections at Source). The limit of TCS on remittances will be increased from Rs Rs 7 lakh to Rs 10 lakh under RBI's liberalised remittance scheme.
