Union Finance Minister Nirmala Sitharaman has announced a major tax relief for the middle class in the Union Budget 2025. Under the revised tax regime, the tax rebate limit has been increased from ₹7 lakh to ₹12 lakh, effectively eliminating tax liability for individuals earning up to ₹12.75 lakh annually when factoring in the standard deduction of ₹75,000.
What If Your Income Exceeds ₹12.75 Lakh?
While the rebate brings significant savings for those earning below this threshold, new tax slabs will apply to individuals earning more than ₹12.75 lakh per year. It is important to note that the finance minister has raised the rebate limit, not the basic exemption, meaning taxes will still be calculated based on slab rates if income surpasses ₹12.75 lakh.
“Since the total taxable income up to ₹12 lakh qualifies for a rebate rather than an exemption, the tax liability is reduced to nil. However, if the taxable income exceeds ₹12 lakh, the new slab rates apply to the full income,”
explained Neetu Brahama, Director at Nangia Andersen India.
New Income Tax Slabs for 2025
For individuals earning more than ₹12 lakh per year, the revised tax slabs are as follows:
- Up to ₹4 lakh – Nil
- ₹4 lakh to ₹8 lakh – 5%
- ₹8 lakh to ₹12 lakh – 10%
- ₹12 lakh to ₹16 lakh – 15%
- ₹16 lakh to ₹20 lakh – 20%
- ₹20 lakh to ₹24 lakh – 25%
- Above ₹24 lakh – 30%
These revised slabs aim to put more disposable income in the hands of taxpayers, particularly those earning beyond ₹12.75 lakh annually.
Tax Savings Under the New Regime
- Individuals earning ₹12 lakh will benefit from an ₹80,000 tax saving.
- Those earning ₹18 lakh will save ₹70,000.
- Individuals with an annual income exceeding ₹25 lakh will enjoy a ₹1.1 lakh tax benefit (25% of tax payable).
Impact on Government Revenues
During her budget speech, FM Sitharaman stated that the government would forgo ₹1 lakh crore in direct tax revenue and ₹2,600 crore in indirect tax revenue due to the revised tax rates.
Old Tax Regime Remains Unchanged
While the new tax regime has been overhauled, no changes have been made to the old tax structure. The previous tax slabs, which will be phased out in the next assessment year, were as follows:
- Up to ₹3 lakh – Nil
- ₹3 lakh to ₹7 lakh – 5%
- ₹7 lakh to ₹10 lakh – 10%
- ₹10 lakh to ₹12 lakh – 15%
- ₹12 lakh to ₹15 lakh – 20%
- Above ₹15 lakh – 30%
With these revisions, the government aims to provide substantial relief to middle-class taxpayers while streamlining the taxation process for higher-income earners.