Finance Minister Nirmala Sitaraman announced that taxpayers with salaries up to Rs 12 lakh would not be required to pay tax in the new tax regime.
- No tax for salaries up to Rs 12 lakh in new regime, Standard deduction increases tax-free limit to Rs 12.75 lakh, Marginal relief available for incomes slightly over Rs 12 lakh
“I am now happy to announce that there will be no income tax payable upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried tax payers, due to standard deduction of Rs 75,000,” said the Finance Minister.
“Under the old regime, the nil-rate band was narrower and higher rates kicked in sooner (20% once income exceeded Rs 5 lakh and 30% beyond Rs 10 lakh). Under the proposed new regime, tax-free income extends up to Rs 4 lakh (rather than Rs 2.5 lakh), and intermediate rates begin at 5% (from Rs 4 lakh to Rs 8 lakh) and rise more gradually up to 30% above Rs 24 lakh. This structure offers a gentler climb in tax liability for middle-income earners, particularly those with incomes around Rs 7 lakh to Rs 12 lakh, who also benefit from a higher rebate that reduces or eliminates their tax altogether. Effectively, many individuals in that range will pay little to no tax, in contrast to the old slabs where a 20% rate started at just Rs 5 lakh and jumped to 30% above Rs 10 lakh. But what happens if you earn more than Rs 12 lakh as an annual salary?
For example, if you earn Rs 50 lakh, your tax liablity shall be computed based on the various tax brackets mentioned by the FM. For example, income upto 4 is Nil, 4-8 is 5%, 8-12 is 10%, 12-16 15%, 16-20 20%, 20-24 25% and beyond 24 is 30%. These are general rates which will be calculated by everyone. Because of the upward revision of these slabs, you will get some relief. The budget document said that resident individual with total income up to Rs 7,00,000 do not pay any tax due to rebate under the new tax regime.”It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to Rs 12,00,000. Marginal relief as provided earlier under the new tax regime is also applicable for income marginally higher than Rs 12,00,000,” said the budget document. “The most discussed tax relief has been proposed through the enhancement of the Tax Rebate enshrined in Section 87A of the Income tax statue from the existing Rs 7,00,000 to Rs 12,00,000 pursuant to which for Taxpayers opting for the New Tax regime under Section 115AC of the ITA incomes upto INR 12,00,000 will not entail any tax outlay by virtue of specific tax rebate of the lower of applicable tax or Rs 60,000.
