No Income Tax on ₹12.75 Lakh; How will Higher Income be Taxed After Budget 2025?

In her Budget 2025 speech, Finance Minister Nirmala Sitharaman announced a major relief for individuals earning up to ₹12 lakh by exempting them from income tax. With the ₹75,000 standard deduction, the exemption limit effectively rises to ₹12.75 lakh.

While the tax slabs for higher incomes remain unchanged, the introduction of a rebate up to ₹12 lakh and the clause of marginal relief for income slightly above 12 lakh provides added relief to the taxpayers. Let’s explore what these changes mean across different income scenarios and understand their impact.

How does the Rebate Work on an Income of ₹12 Lakh?

Before Budget 2025, Ankit, a salaried individual earning ₹12.75 lakh annually, faced a tax liability of ₹80,000 after applying the ₹75,000 standard deduction. With a 4% cess, his total tax liability came to ₹83,200. However, after Budget 2025, the game changed.

Now, thanks to the ₹60,000 rebate on incomes up to ₹12 lakh, Ankit’s tax liability drops to ₹0, saving him the entire ₹83,200. This change significantly benefits Ankit, making the new tax regime much more favourable for those within the ₹12 lakh income bracket.

Marginal Relief for Taxpayers with Incomes Slightly Above ₹12 Lakh

Let’s break down the scenario with two individuals, Ravi and Meera, who have salaries of ₹12.75 lakh and ₹13 lakh, respectively. Both of them are eligible for a standard deduction of ₹75,000.

For Ravi, after applying the standard deduction, their taxable income comes down to ₹12 lakh. Due to the budget provision, Ravi receives a full rebate on the tax liability, meaning they do not have to pay any tax on their income. As a result, Ravi’s post-tax income remains ₹12.75 lakh, the same as their pre-tax income.

On the other hand, Meera earns ₹13 lakh, and after applying the standard deduction, their taxable income becomes ₹12.25 lakh. Based on the tax slabs, Meera’s tax liability is ₹63,750. However, since her income exceeds ₹12 lakh by ₹25,000, she is eligible for marginal relief. This relief reduces her tax liability to ₹25,000, which is the exact amount of income exceeding ₹12 lakh. Additionally, Meera has to pay a 4% cess on the ₹25,000 tax, which amounts to ₹1,000. Therefore, Meera’s total tax payable is ₹26,000 (₹25,000 + ₹1,000).

After deducting the tax, Meera’s post-tax income comes to ₹12.74 lakh, which is ₹1,000 less than Ravi’s post-tax income. This scenario demonstrates how marginal relief works, allowing individuals earning just above ₹12 lakh to reduce their tax burden, but it still results in a slightly lower post-tax income compared to someone earning ₹12.75 lakh.

How Much Tax Will You Have to Pay on ₹18 Lakh Salary After Budget 2025?

Before the Budget 2025, Rajesh, a salaried individual earning ₹18 lakh annually, paid ₹2,07,500 in tax after accounting for the ₹75,000 standard deduction, bringing his taxable income to ₹17,25,000. Adding the 4% cess of ₹8,300, his total tax liability came to ₹2,15,800.

However, post-Budget 2025, Rajesh benefits from a revised tax structure. His tax liability now drops to ₹1,45,000, reducing his total tax liability (after cess) to ₹1,50,800. While the rebate is still applicable only for income up to ₹12 lakh, Rajesh still enjoys significant tax relief under the new regime.

How Much Tax Will You Have to Pay on ₹25 Lakh Salary After Budget 2025?

Before Budget 2025, Priya, earning ₹25 lakh annually, was subject to a tax liability of ₹4,17,500 after applying the ₹75,000 standard deduction, resulting in a taxable income of ₹24,25,000. After accounting for the 4% cess of ₹16,700, her total tax liability amounted to ₹4,34,200.

Post-Budget 2025, the new changes brought relief for Priya as well. Her tax liability now drops to ₹3,07,500, which, after the 4% cess of ₹12,300, reduces her total liability to ₹3,19,800. Though the rebate is still applicable only for incomes up to ₹12 lakh, the overall tax burden has decreased by ₹1,14,400, providing significant savings under the new regime.

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