Many taxpayers are confused about Finance Minister Nirmala Sitharaman’s announcement that individuals earning up to Rs 12 lakh per annum will not have to pay any tax under the new tax regime. This confusion arises because, technically, the income between Rs 8 lakh and Rs 12 lakh falls under multiple tax slabs, with the upper slab attracting a 10% tax rate. So, how does the tax liability become zero?
The answer lies in the revised Section 87A rebate. The government has increased the rebate from Rs 25,000 (earlier applicable to incomes up to Rs 7 lakh) to Rs 60,000, covering incomes up to Rs 12 lakh. Under the new slabs, an individual earning Rs 12 lakh would have a tax liability of Rs 60,000, but this amount gets fully offset by the Rs 60,000 rebate, reducing the final tax payable to zero.
Key Budget highlight for taxpayers:
-No income tax for residents with net taxable income up to Rs 12 lakh under the new tax regime.
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-For salaried individuals, the standard deduction of Rs 75,000 pushes the tax-free threshold to Rs 12.75 lakh.
-The rebate under Section 87A has been raised from Rs 25,000 to Rs 60,000, increasing the rebate-eligible income limit from Rs 7 lakh to Rs 12 lakh.
-Only the rebate has increased, not the basic exemption limit. If annual income exceeds Rs 12.75 lakh, tax will be calculated as per the new slabs.
This marks a significant shift from the previous regime, offering greater tax relief to middle-income earners and boosting disposable income.
Also read: Budget 2025: Tax slabs decoded! ‘Nil’ tax on income upto 12 lakh; How much tax to pay if amount exceeds this threshold
The FM has unveiled “transformative” tax reforms that ranged from a simpler income tax law to higher TCS threshold for remittances and income tax benefits for middle class.
Sitharaman in 2025-26 Budget promised to bring a simpler,
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