New Tax Regime 2025: No Tax Up To Rs 12 Lakh, But What If You Earn Even Rs 1 More? Here's How Income Tax Will Be Calculated

Finance Minister Nirmala Sitharaman, in her budget speech on Saturday, announced that individuals earning up to Rs 12 lakh under the new tax regime will be exempt from paying income tax. She emphasized that this move will enhance domestic consumption and encourage savings.  

Finance Minister Nirmala Sitharaman, in her budget speech on Saturday, announced that individuals earning up to Rs 12 lakh under the new tax regime will be exempt from paying income tax. She emphasized that this move will enhance domestic consumption and encourage savings. 

It is important to that the Rs 12 lakh exemption applies to taxable income, as taxpayers also receive a standard deduction of Rs 75,000 under the new tax regime 2025. This effectively increases the exemption limit to Rs 12.75 lakh. 

The first tax slab is now up to Rs 4 lakh, where no tax is levied, an increase from the previous Rs 3 lakh limit. The subsequent slabs are as follows: 5% tax for income between Rs 4 lakh and Rs 8 lakh, 10% for Rs 8 lakh to Rs 12 lakh, 15% for Rs 12 lakh to Rs 16 lakh, 20% for Rs 16 lakh to Rs 20 lakh, and 25% for Rs 20 lakh to Rs 24 lakh. Any income above Rs 24 lakh is taxed at a flat rate of 30%.

For example, if your annual income is Rs 15 lakh, after excluding the Rs 75,000 standard deduction, it doesn’t mean you automatically get a Rs 12 lakh exemption. The income will be taxed step by step. The first Rs 4 lakh is tax-free. The next Rs 4 lakh (Rs 4-8 lakh) is taxed at 5%, which equals Rs 20,000. 

The next ₹4 lakh (₹8-12 lakh) is taxed at 10%, adding Rs 40,000. The remaining Rs 3 lakh (₹12-15 lakh) is taxed at 15%, which comes to Rs 45,000. In total, your tax liability on Rs 15 lakh income will be Rs 1,05,000.

Under the old tax regime, any income above Rs 10 lakh was taxed at 30%. So, if you had Rs 12 lakh in taxable income, your tax would be Rs 1,72,500. For Rs 15 lakh income, the tax would be Rs 2,62,500.

The final tax amount may vary depending on the exemptions claimed by the taxpayer. Moreover, the people can choose between the new and old regimes based on their financial situation.

The new tax regime applies to individuals, Hindu Undivided Families (HUFs), associations of persons (excluding co-operative societies), bodies of individuals (incorporated or not), and certain artificial juridical persons as defined in section 2, sub-clause (vii) of the Income Tax Act. As a result, the changes in tax slabs will benefit all these categories. 

The tax benefit comes as a rebate. For a salaried person earning Rs 12 lakh annually, the tax is calculated according to the new tax slab. This results in a tax liability of Rs 60,000—Rs 0 for income up to Rs 4 lakh, Rs 20,000 for the Rs 4-8 lakh slab at 5%, and Rs 40,000 for the Rs 8-12 lakh slab at 10%.

However, the government offers a full rebate of Rs 60,000, making the total Rs 12 lakh income tax-free for the taxpayer in the country. (Image Credit: File Photo)