Budget 2025: Zero tax for income up to Rs 12.75 lakh. See how much you'll save

The tax rebate extends up to Rs 12.75 lakh when factoring in standard deductions under the new tax regime, making it the most significant tax relief since 1997

The biggest Budget 2025 announcement by Finance Minister Nirmala Sitharaman was that individuals earning up to ₹12 lakh annually will not have to pay income tax. This change is expected to benefit millions, particularly middle-class taxpayers.

 

The rebate extends up to ₹12.75 lakh when factoring in standard deductions under the new tax regime, making it the most significant tax relief since 1997.

 

Why this change matters

 

Adhil Shetty, CEO of BankBazaar.com, said, “The income tax reforms introduced in the Budget are among the biggest in the last decade—simplified and rationalised to put more money in people’s hands without compromising the fiscal deficit. The most important change has been the revision of tax slabs in line with inflation.”

 

 

For years, taxpayers have called for tax relief. Now, the 30 per cent tax bracket applies to incomes above ₹24 lakh, up from ₹15 lakh, a 60 per cent adjustment. This means higher take-home pay, which could lead to increased spending and economic growth.

 

Revised income tax slabs for FY26

 

• Up to ₹4,00,000 – No tax

 

• ₹4,00,001 to ₹8,00,000 – 5% tax

 

• ₹8,00,001 to ₹12,00,000 – 10% tax

 

• ₹12,00,001 to ₹16,00,000 – 15% tax

 

• ₹16,00,001 to ₹20,00,000 – 20% tax

 

• ₹20,00,001 to ₹24,00,000 – 25% tax

 

• Above ₹24,00,000 – 30% tax

 

How much will you save?

 

“If an individual under 60 years of age in FY25 (AY26) earns ₹12.75 lakh, the estimated tax liability was ₹83,200 (including cess). With the new Budget changes, there will be no income tax on salary income up to ₹12.75 lakh, resulting in savings of ₹80,000 in tax and ₹3,200 in cess,” said Shrenik Gandhi, managing partner at Chambers of Shrenik Gandhi.

 

For example, someone earning ₹25 lakh annually will pay ₹3.43 lakh in tax under the new regime, compared to ₹4.57 lakh under the previous system. This translates to 5 per cent more take-home income and a monthly saving of around ₹9,500.

 

Shefali Mudra, a tax expert at ClearTax, clarified, “However, this will not include special rate income like capital gains.”

 

Who benefits from standard deductions?

 

Only salaried individuals and pensioners can claim the ₹75,000 standard deduction.

 

Adhil Shetty said, “Under the new tax regime, individuals earning up to ₹12 lakh will pay no tax. Those eligible for the ₹75,000 standard deduction will have tax-free income extended up to ₹12.75 lakh. However, those not eligible for this deduction will face taxation beyond ₹12 lakh, according to the revised tax slabs.”

 

For instance, Rajiv, a 42-year-old professional from Delhi earning ₹13 lakh per annum, will now pay ₹75,000 in income tax under the new tax regime.

 

Changes in filing updated returns

 

The period for filing updated tax returns (ITR-U) has been extended from two years to four years from the relevant assessment year.

 

• Returns filed between 24 to 36 months after the assessment year will attract an additional 60 per cent tax.

 

• Returns filed between 36 to 48 months will be subject to an additional 70 per cent tax.

 

Mudra said, “For those who miss the initial deadlines, the higher additional tax rates mean delayed filing will become costlier.”

 

Sarbvir Singh, joint group CEO of PB Fintech, said, “With the revised tax slabs and elimination of taxes for incomes up to ₹12 lakh, disposable income will increase, stimulating consumption and further boosting India’s consumption-driven growth.”

 

With more disposable income in hand, the new tax regime could push more taxpayers towards the new structure and encourage spending, benefiting multiple sectors of the economy. 

 

What about the old tax regime?

 

There are no changes in the old tax regime. “However, with the revisions in the new tax structure, an estimated 25-30 per cent of taxpayers who currently file ITR under the old regime may transition to the new one,” Shetty said.

 

Take a look at the Old and New tax regime before Budget 2025

 

Income-tax slabs and rates for individuals below 60 years (New Tax Regime before Budget 2025)  

 

Up to Rs 3 lakh

Tax rate: Nil  

Surcharge: Nil  

 

Rs 3,00,001 - Rs 7 lakh

Tax rate: 5% above Rs 3 lakh

Surcharge: Nil  

 

Rs 7,00,001 - Rs 10 lakh  

Tax rate: Rs 20,000 + 10% above Rs 7 lakh

Surcharge: Nil  

 

Rs 10,00,001 - Rs 12 lakh  

Tax rate: Rs 50,000 + 15% above Rs 10 lakh  

Surcharge: Nil  

 

Rs 12,00,001 - Rs 15 lakh

Tax rate: Rs 80,000 + 20% above Rs 12 lakh  

Surcharge: Nil  

 

Rs 15,00,001 - Rs 50 lakh  

Tax rate: Rs 1,40,000 + 30% above Rs 15 lakh

Surcharge: Nil  

 

Rs 50,00,001 - Rs 1 crore

Tax rate: Rs 1,40,000 + 30% above Rs 15 lakh

Surcharge: 10%  

 

Rs 1,00,00,001 - Rs 2 crore

Tax rate: Rs 1,40,000 + 30% above Rs 15 lakh

Surcharge: 15%  

 

Above Rs 2 crore

Tax rate: Rs 1,40,000 + 30% above Rs 15 lakh

Surcharge: 25%  

 

Income-tax slabs and rates for individuals below 60 years – Old Tax Regime  

 

Up to Rs 2.5 lakh

Tax rate: Nil  

Surcharge: Nil  

 

Rs 2,50,001 - Rs 5 lakh

Tax rate: 5% above Rs 2,50,000  

Surcharge: Nil  

 

Rs 5,00,001 - Rs 10 lakh  

Tax rate: Rs 12,500 + 20% above Rs 5 lakh

Surcharge: Nil  

 

Rs 10,00,001 - Rs 50 lakh  

Tax rate: Rs 1,12,500 + 30% above Rs 10 lakh  

Surcharge: Nil  

 

Rs 50,00,001 - Rs 1 crore

Tax rate: Rs 1,12,500 + 30% above Rs 10 lakh  

Surcharge: 10%  

 

Rs 1,00,00,001 - Rs 2 crore

Tax rate: Rs 1,12,500 + 30% above Rs 10 lakh  

Surcharge: 15%  

 

Rs 2,00,00,001 - Rs 5 crore

Tax rate: Rs 1,12,500 + 30% above Rs 10 lakh  

Surcharge: 25%  

 

Above Rs 5 crore

Tax rate: Rs 1,12,500 + 30% above Rs 10 lakh  

Surcharge: 37%