Tax-Budget 2025: Tweaks in New Tax Regime – How much more you will earn in FY26 vs FY25 if your salary is Rs 12 lakh/year?

Tax Budget 2025: The introduction of Budget 2025 has resulted in significant changes that align with the expectations of the middle class. Notably, the Finance Minister has raised the tax-free income threshold to Rs 12 lakh, translating to Rs 12.75 lakh for salaried individuals after considering the standard deduction.

A key highlight this Budget for middle-class and salaried taxpayers is the exemption of income tax for those earning up to Rs 12 lakh (or Rs 12.75 lakh for salaried individuals with a standard deduction of Rs 75,000). The government has implemented new tax slabs to lessen the tax burden on the middle class and provide them with extra disposable income.

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As a result, taxpayers can anticipate substantial benefits when filing their income tax returns starting April 2026. From FY26 onwards, individuals earning up to Rs 12.75 lakh annually (including the Rs 75,000 standard deduction for salaried taxpayers) will not be liable for any tax payments.

According to the FM’s Budget 2025 announcement, the new slab rates from the next fiscal will be as follows:

Up to Rs 4 lakh – Nil
Rs 4-8 lakh – 5%
Rs 8-12 lakh – 10%
Rs 12-16 lakh – 15%
Rs 16-20 lakh – 20%
Rs 20-24 lakh – 25%
Above Rs 24 lakh – 30%

Difference in salaries in FY25 vs FY26

In the fiscal year 2025 compared to 2026, individuals earning Rs 12 lakh will see a tax benefit in 2026 due to adjustments to the tax slabs in Budget 2024. Under the current income tax structure in the new regime, taxpayers do not have to pay any tax on income up to Rs 7 lakh. This limit has now been increased to Rs 12 lakh, providing a tax liability of Rs 80,000 for individuals earning Rs 12 lakh annually.

However, with the proposed changes, their tax liability would decrease to Rs 60,000, resulting in a benefit of Rs 20,000. Additionally, these taxpayers would receive an extra benefit of Rs 60,000 under Section 87A of the Income Tax Act 1961, bringing the total benefit to Rs 80,000. Ultimately, individuals earning Rs 12 lakh annually would not have to pay any tax.

Section 87A

The tax rebate under Section 87A is now increased as per the Union Budget 2025. Individual taxpayers with a net taxable income of up to Rs 12 lakh will now be eligible for this rebate, resulting in zero tax liability. Salaried individuals benefiting from the standard deduction of Rs 75,000 under the new tax regime will not have to pay any tax if their gross taxable income does not exceed Rs 12.75 lakh.

The Finance Minister said in Budget 2025 speech: “I am now happy to announce that there will be no Income Tax Payable up to income of 12 lakh rupees. I propose to revise tax rate structures as follows, zero to four lakh rupees nil, 4.8 lakh rupees to five four to eight lakh rupees, 5% eight to 12 lakh rupees, 10% 12 to 16 lakh rupees, 15% 16 to 20 lakh rupees, 20% 20 to 24 lakh rupees, 25% and above 24 lakh rupees, 30 lakh, 30% to taxpayers, to taxpayers up to 12 lakh of normal income, other than special grade incomes, such as capital gains.”

As per the Explanatory Memorandum of Budget 2025:

“From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to,–

(i) enhance the limit of total income for rebate in clause (a) and (b) of first proviso under section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of section 115BAC, from Rs. 7,00,000 to Rs. 12,00,000 and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000 to Rs. 60,000.

(ii) rationalise the first proviso to section 87A by inserting a new proviso so as to provide that the deduction under the first proviso, shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC.

Further, as mentioned in para. 4 above, such rebate of income-tax is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.).

The income tax rebate is only available for resident individuals. HUFs, NRIs, companies, and super senior citizens cannot claim rebate under section 87A.
 



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