New Tax Regime: How Income Up to ₹12.76 Lakh Attracts Just ₹1,000 Tax
Major Tax Relief in Budget 2025
Income Tax Alert: The Indian government has introduced a significant tax relief under the New Tax Regime, making income up to ₹12 lakh tax-free. This is a major jump from the previous limit of ₹7 lakh, where taxpayers benefited from a ₹25,000 rebate under Section 87A. With the new update, the rebate has been increased to ₹60,000, allowing taxpayers to save even more.
This announcement has been seen as a historic move for the middle class. While it is expected to add an additional burden of ₹1 lakh crore annually to the government treasury, the amount saved by taxpayers is likely to boost spending and improve liquidity in the economy.
New Tax Slab for 2025
The Finance Minister has introduced revised income tax slabs for the upcoming financial year. Here’s the new structure:
- ₹0 – ₹4 lakh: 0% tax
- ₹4 – ₹8 lakh: 5% tax
- ₹8 – ₹12 lakh: 10% tax
- ₹12 – ₹16 lakh: 15% tax
- ₹16 – ₹20 lakh: 20% tax
- ₹20 – ₹24 lakh: 25% tax
- Above ₹24 lakh: 30% tax
In addition to this, salaried individuals will continue to enjoy a standard deduction of ₹75,000 under the new regime. This effectively makes income up to ₹12.75 lakh completely tax-free.
Why ₹12.76 Lakh Income Attracts ₹1,000 Tax
A unique situation arises when an individual’s income crosses ₹12.75 lakh by just ₹1,000. Here’s why:
- If the income is ₹12.75 lakh, no tax is payable due to the rebate and standard deduction.
- However, if the income increases to ₹12.76 lakh, it falls under the 15% tax slab, leading to a tax liability of ₹62,556.
- This seems unfair, as the tax jumps significantly for just a ₹1,000 increase in income.
To address such issues, the Marginal Relief Rule comes into play.
What is Marginal Relief?
Marginal relief ensures that taxpayers do not face an unreasonable tax jump due to a small increase in income. Under this rule, taxpayers will pay whichever is lower between:
- The incremental income (extra income beyond ₹12.75 lakh)
- The calculated income tax liability
For example:
- A taxpayer earning ₹12.76 lakh will pay just ₹1,000 as tax, instead of ₹62,556.
- Someone with ₹13 lakh income will pay ₹25,000 tax instead of a higher amount.
- If the income is ₹13.25 lakh, the tax payable will be just ₹50.
This relief applies until the gap between incremental income and tax liability becomes zero. Beyond this point, full tax is applicable as per the slab rates.
What This Means for Taxpayers
The Income Tax Alert for New Tax Regime for 2025 brings substantial benefits, especially for those earning up to ₹12.75 lakh. The introduction of marginal relief ensures fair taxation and prevents disproportionate tax jumps.
With these changes, taxpayers will have more disposable income, boosting spending power and overall economic growth. If you fall within this income bracket, it’s time to recalculate your tax savings and plan your finances accordingly.
