Union Budget 2025: No income tax up to Rs 12 lakh

In her Budget 2025-26 speech, Union Finance Minister Nirmala Sitharaman proposed that there would be no income tax on income up to Rs 12 lakh.

Sitharaman also announced the restructuring of income tax slabs. Now, slabs would look like this:

• Rs 0 - 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 - 25 lakh    :25%
• Above Rs 25 lakh:30%

Prior to Budget 2025-26, the tax slabs were as follows in the new income tax regime:

• Up to Rs 3 lakh will pay 0 per cent tax.
• Rs 3-7 lakh will pay 5 per cent income tax.
• Rs 7-10 lakh will pay 10 per cent income tax.
• Rs 10-12 lakh will pay 15 per cent income tax.
• Rs 12-15 lakh will pay 20 per cent income tax.
• Over Rs 15 lakh will have 30 per cent income tax.

The decision has come at a time when taxpayers as well as analysts were demanding income tax relief for several months owing to rising cost of living.

In the 2020-21 Budget, Sitharaman had announced the New Tax Regime that increased basic exempted income, income tax rebate, and standard deduction, but did away with several exemptions and deductions such as house rent allowance (HRA), leave travel allowance (LTA), 80-C, 8-0D, and others.

Effectively, so far, there was no tax on income up to Rs 7.5 lakh.

As per The Economic Times, this is how your payable tax came to zero on income up to Rs 7.5 lakh under the existing arrangement:

If your total income is Rs 7.5 lakh, you have a standard deduction of Rs 50,000 that brings down your total taxable income to Rs 7 lakh. The payable tax on Rs 7 lakh income would be Rs 25,000 as the tax on Rs 3-6 lakh slab is 5 per cent (Rs 15,000) and 10 per cent for Rs 7-10 lakh (Rs 10,000). However, total rebate under Section 87A of the Income Tax Act is Rs 25,000 which would negate the payable tax of Rs 25,000, meaning you will not pay any tax if you are earning up to Rs 7.5 lakh a year.

Notably, in the previous budget, Sitharaman extended the standard deduction to Rs 75,000, but that was to come into effect from the financial year 2025-26.