The introduction of tax-free income up to ₹12 lakh in the 2025 budget has generated significant optimism among Indian taxpayers. This groundbreaking announcement has opened new possibilities for individuals seeking to optimize their tax liabilities. However, to fully benefit from this initiative, individuals must align with specific conditions set by the government. Understanding these criteria is essential to maximize savings and ensure compliance.
Understanding the New Tax Regime
The government has declared that only those who opt for the New Tax Regime can enjoy the benefit of having their incomes tax-free up to ₹12 lakh. If you are still within the framework of the Old Tax Regime, you will not be able to take advantage of this announcement. This necessitates a shift to the New Tax Regime for those who aim to capitalize on the tax-free income option.
Key Rules of the New Tax Regime
Before switching to the New Tax Regime, it’s crucial to comprehend some of its fundamental rules:
- Default Tax System: The government has made the New Tax Regime the default tax structure. This means if you do not choose the Old Tax Regime at the beginning of the fiscal year, you will automatically be transitioned to the New Tax Regime.
- Permanent Shift: Once you move to the New Tax Regime, there is no option to revert to the Old Tax Regime in subsequent years.
- Standard Deduction: While the taxable income is capped at ₹12 lakh, the actual tax advantage extends to ₹12.75 lakh due to a standard deduction of ₹75,000.
Tax Slabs Under the New Tax Regime
The significant reform in tax slabs under the New Tax Regime further enhances its attractiveness. Here is a summary of the revised tax structure:
| Income Slab (₹) | Tax Rate |
|---|---|
| Up to 4,00,000 | 0% |
| 4,00,001 to 8,00,000 | 5% |
| 8,00,001 to 12,00,000 | 10% |
| 12,00,001 to 16,00,000 | 15% |
| 16,00,001 to 20,00,000 | 20% |
| 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
No Collection of Tax for ₹12 Lakh Income
One important point to note is that although the government has mandated that income up to ₹12 lakh is tax-free, this does not mean it is unregulated. Under the provisions of Section 87A of the Income Tax Act, any tax calculated on an income up to ₹12 lakh will not be collected from you. Instead, you will receive a rebate equivalent to the calculated tax, effectively keeping your tax liabilities at zero up to the specified threshold.
By understanding these regulations and leveraging the New Tax Regime, taxpayers can maximize their tax savings and enjoy the benefits of a more favorable and transparent taxation system.