Budget 2025: Understanding ₹12 Lakh Tax Exemption and New Slab Benefits

Decoding how the revised tax regime impacts salaried individuals and comparisons with old tax structures.

February 2, 2025: The Union Budget 2025 introduced transformative tax reforms with Finance Minister Nirmala Sitharaman announcing no income tax for individuals earning up to ₹12 lakh annually. While this tax exemption is a boon for the middle class, there’s some clarity required on how taxable incomes above ₹12 lakh will be calculated under the new regime.

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Breaking Down the Tax Exemption:

For incomes up to ₹12 lakh, the exemption limit ensures no tax liability. Salaried individuals benefit further from the additional standard deduction of ₹75,000, effectively increasing the exemption threshold to ₹12.75 lakh. However, individuals earning beyond this limit will follow the slab-wise taxation process.

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Revised Tax Slabs:

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The government proposed new tax slabs aimed at reducing the tax burden for middle-class taxpayers:

• Up to ₹4 lakh: Nil tax
• ₹4-8 lakh: 5%
• ₹8-12 lakh: 10%
• ₹12-16 lakh: 15%
• ₹16-20 lakh: 20%
• ₹20-24 lakh: 25%
• Above ₹24 lakh: 30%

How Tax is Calculated:

Unlike flat taxation, income tax is calculated slab-wise. For instance:

• If a taxpayer earns ₹15 lakh (excluding the ₹75,000 deduction), the taxable amount is distributed across slabs:
  • First ₹4 lakh: Nil tax
  • Next ₹4 lakh (₹4-8 lakh slab): Taxed at 5% = ₹20,000
  • Following ₹4 lakh (₹8-12 lakh slab): Taxed at 10% = ₹40,000
  • Remaining ₹3 lakh (₹12-16 lakh slab): Taxed at 15% = ₹45,000
  • Total Tax Liability: ₹1,05,000

Rebates Simplified:

The government provides a full rebate for taxpayers with incomes up to ₹12 lakh. For example, a person earning ₹12 lakh incurs a tax liability of ₹60,000 (based on slab rates). However, this amount is fully rebated, resulting in zero tax liability.

Comparing Structures:

1. New vs Current Regime:
   • A person earning ₹12 lakh saves ₹80,000 under the new structure compared to the existing one, receiving an additional relief of ₹20,000.
   • Someone earning ₹15 lakh saves ₹35,000 in slab relief, with the liability dropping from ₹1.4 lakh to ₹1.05 lakh.
2. New vs Old Regime:
   • The old regime offers exemptions but higher rates. For ₹12 lakh taxable income, the liability stands at ₹1,72,500 compared to zero in the new regime. For ₹15 lakh, it is ₹2,62,500 (pre-exemptions).

Taxpayers can opt for the new or old regime based on financial profiles, balancing lower rates against available exemptions.

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Tags:

Income Tax 2025, Budget Tax Reforms, ₹12 Lakh Tax Exemption, New Tax Slabs, Middle-Class Tax Relief, Budget 2025 Explained, Income Tax Comparison, Slab-Wise Tax Calculation.