The Union Finance Minister unveiled the Union Budget 2025, offering a major relief for the salaried and middle-income classes. It proposes no income tax up to INR 12 lakh under the new tax regime for individual taxpayers. For salaried individuals, this limit will increase to INR 12.75 lakh due to a standard deduction of INR 75,000.
What Does This Mean for Taxpayers?
Under the new regime, taxpayers with a gross total income of INR 12 lakh or below will have no tax liability. This threshold represents an average monthly income of INR 1 lakh, excluding special incomes like capital gains. This INR 12 Lakh will exclude exempt income and special income.
The key point is that this applies ONLY to those individuals who opt for the new tax regime.
For salaried individuals, the increase to INR 12.75 lakh takes into account the standard deduction of INR 75,000. This signifies ease of tax burden, especially when considering the previously higher income slabs for tax purposes.
Kindly note that this is applicable for the Income Tax Return of the Financial Year 2025-26, not the current year 2024-25.
Capital Gains Still Taxed: Special Rates Apply?
However, the relief of no tax upto INR 12 lakh will not extend to Income from Capital Gains. Income from Capital gains is income earned from the sale of assets like shares, mutual funds, properties, debt bonds etc. Such Incomes are subject to tax at special rates, which are:
| Sr No | Type of Gain | Tax Rate |
| 1 | Short Term Gain | 20% |
| 2 | Long Term Gain | 12.5% |
Additionally, the new tax regime does not allow for indexation benefits on long-term capital assets, meaning that taxpayers cannot adjust the purchase price of assets for inflation, resulting in higher taxable gains.
Old vs. New Tax Regimes
Under the old tax regime, taxpayers are provided with multiple deductions resulting in reduction of their taxable income. Such deductions include payments of life insurance premiums, mediclaim (health insurance), home loan interest etc. These deductions are helpful for individuals with dependents or those investing in long-term savings instruments. However, the new tax regime is designed to simplify the tax structure wherein the assesse cannot claim such deductions.
The rates of taxes under the two schemes for FY 2025-26
| Income Under Old Scheme (INR)* | Rate of Tax (%) | Income under New Scheme (INR) | Rate of Tax (%) |
| 0-2.5 lakh | NIL | 0-4 lakh | NIL |
| 2.5-5 lakh | 5% | 4-8 lakh | 5 |
| 5-10 lakh | 20% | 8-12 lakh | 10 |
| Above 10 lakh | 30% | 12-16 lakh | 15 |
| 16-20 lakh | 20 | ||
| 20-24 lakh | 25 | ||
| Above 24 lakh | 30 |
* This applies to individuals below the age of 60.
The above slabs show that the income above INR 12 lakh will be taxable, and tax on the first 4 lakh will be 0%. The concept of Marginal Relief comes into play for income that is slightly above INR 12 lakh, ensuring that the tax burden remains manageable.
Conclusion
This announcement of exempting income up to INR 12 lakh (INR 12.75 lakhs for the salaried employees) will result in a substantial reduction in tax liability and increased disposable income. This will boost household consumption, savings and investment. The overall vision is clear: a simpler, more efficient tax system that supports economic growth and financial well-being.
The above article written by CA Anuja Burad was published in March 2025 Edition of NIMA Magazine