Why This Matters
The Budget 2025 has introduced a major game-changer: under the new tax regime (Section 115BAC), resident individuals with taxable income up to ₹12 lakh can now enjoy a full rebate under Section 87A, effectively making their tax payable zero for FY 2025–26.
📊 How the New Tax Slabs Work (FY 2025–26)
| Income Range (₹) | Tax Rate |
|---|---|
| 0 – 4 lakh | 0% |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
🎯 Section 87A Rebate Details
- The rebate limit under Section 87A has been increased to ₹60,000, completely nullifying the tax liability for individuals with taxable income up to ₹12 lakh.
- Only resident individuals are eligible; this rebate is not available to NRIs.
- Special income (like capital gains under Section 111A/112) is excluded from the ₹12 lakh calculation.
💵 Standard Deduction Boost
If you’re a salaried individual, you now get a standard deduction of ₹75,000, meaning your gross salary can go up to ₹12.75 lakh and still result in zero tax under the new regime.
🧮 Marginal Relief Explained
If your taxable income exceeds ₹12 lakh slightly, marginal relief ensures you don’t pay more tax than the excess income.
Example: With taxable income of ₹12.10 lakh, your net tax is capped at ₹10,000—the excess over the ₹12 lakh threshold.
💡 Example Scenarios
- Income ₹12 lakh:
Slab tax ≈ ₹60,000 → Rebate ₹60,000 → Net Tax = ₹0 - Income ₹12.5 lakh (salaried):
₹75k deduction → ₹11.75 lakh taxable → Rebate applies → Net Tax = ₹0 - Income ₹13 lakh:
₹75k deduction → ₹12.25 lakh taxable → Rebate not applicable → Tax applies (approx. ₹30k)
✅ Who Benefits Most
- Salaried and pensioned taxpayers with gross annual income up to ₹12.75 lakh.
- Individuals with minimal deductions — since the new regime does not allow deductions under 80C, 80D, HRA, etc.
- Earners just above ₹12 lakh — as marginal relief prevents sudden jumps in tax.
⚠️ Key Caveats
- The basic exemption limit remains ₹4 lakh. The zero-tax benefit up to ₹12 lakh is due to the rebate, not the slab.
- Income from capital gains or lottery winnings is not eligible for rebate calculation.
- NRIs cannot avail the rebate under Section 87A.
💼 Broader Impact
- This move is expected to increase disposable income for the middle class.
- Tax compliance becomes simpler and faster — no need to calculate multiple deductions.
- Encourages more individuals to adopt the new regime, making it the preferred choice for many.
📋 Decision-Making Checklist
- Is your CTC ≤ ₹12.75 lakh? → Likely zero tax under the new regime.
- Do you claim few or no deductions? → The new regime may benefit you.
- Do you earn from capital gains or foreign income? → Check if you’re rebate-eligible.
- Income just above ₹12 lakh? → Marginal relief ensures tax doesn’t jump drastically.
✅ Final Takeaways
- The ₹12 lakh tax-free limit under the new regime comes via an enhanced ₹60,000 rebate under Section 87A.
- Salaried/pensioned taxpayers benefit from the ₹75,000 standard deduction, effectively pushing the zero-tax ceiling to ₹12.75 lakh.
- Marginal relief protects taxpayers just above ₹12 lakh from steep jumps.
- Capital gains remain outside rebate eligibility, and NRIs are excluded.
- For most middle-class taxpayers, this update offers huge relief, ease of filing, and higher in-hand income.
