Income Up 12 Lakh Tax-Free: Finance Minister Nirmala Sitharaman has introduced some significant changes in the tax system that benefit the middle class, making this the biggest overhaul in tax slabs in over a decade. The most noteworthy update is the increase in the tax-free income limit. Now, individuals earning up to Rs 12 lakh are no longer required to pay any income tax.
This change comes as part of a broader effort to ease the tax burden on salaried individuals and pensioners, with an increase in the standard deduction to Rs 75,000. This raises the tax-free income limit to Rs 12.75 lakh for these groups. According to ABP News, if additional deductions are considered, this limit can be even higher, bringing more taxpayers into the no-tax bracket. Previously, the tax-free limit was Rs 7.75 lakh, making this a substantial rise.
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The Rs 12 lakh tax-free income works through a combination of rebates and new tax slabs. One of the changes this year is the increase in the rebate under Section 87A. Introduced in 2013, this rebate was initially a small relief of Rs 2,000 for those earning up to Rs 5 lakh.
The rebate and its eligibility limits have been revised. In 2025, the rebate has been raised to Rs 60,000 for incomes up to Rs 12 lakh, compared to Rs 25,000 for incomes up to Rs 7 lakh last year. Thanks to this increase, individuals earning between Rs 7.75 lakh and Rs 12.75 lakh can now save up to Rs 83,200 in taxes.
Section 87A rebate applies only to those earning up to Rs 12 lakh. For a person earning more than this amount, regular tax rates will apply without any rebates. As a result, the 10 per cent tax slab still applies to those earning more than Rs 12 lakh.
In terms of new tax slab rates, let’s look at an example. If a person earns Rs 15 lakh, the first Rs 4 lakh is tax-free. The next Rs 4 lakh, between Rs 4 lakh and Rs 8 lakh, is taxed at 5 per cent. From Rs 8 lakh to Rs 12 lakh, the tax rate is 10 per cent. Finally, the last Rs 3 lakh, from Rs 12 lakh to Rs 15 lakh, is taxed at 15 per cent. The total tax liability in this case would be Rs 1,22,150.
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Inflation has long been a concern, as tax slabs hadn’t been adjusted for inflation for more than a decade. In the new tax system, while the 30 per cent tax slab remains unchanged at Rs 15 lakh, the lower slabs have been updated to account for inflation.
The most notable relief is for those earning between Rs 15 lakh and Rs 25 lakh. Their tax burden has been reduced by as much as 25-31 per cent, bringing substantial relief during these inflationary times. For example, someone earning Rs 20 lakh will save approximately Rs 7,800 per month, and those with incomes exceeding Rs 50 lakh could save as much as Rs 10,400 a month.
