Finance Minister Nirmala Sitharaman has provided a significant relief to the middle class in the Union Budget 2025-26 by exempting annual income up to ₹12 lakh from income tax under the new tax regime. The revised tax slabs and rebate adjustments will allow individuals to save up to ₹80,000 annually on a ₹12 lakh income. Additionally, those earning ₹24 lakh or more can save ₹1.10 lakh.
With the standard deduction of ₹75,000, individuals earning up to ₹12.75 lakh will effectively pay zero tax. The new tax structure ensures that the initial ₹4 lakh remains tax-free, while subsequent slabs attract 5% to 30% tax rates, depending on the income range.
Revised Tax Slabs Under Budget 2025
- ₹0 – ₹4 lakh → No Tax
- ₹4 lakh – ₹8 lakh → 5% Tax
- ₹8 lakh – ₹12 lakh → 10% Tax
- ₹12 lakh – ₹16 lakh → 15% Tax
- ₹16 lakh – ₹20 lakh → 20% Tax
- ₹20 lakh – ₹24 lakh → 25% Tax
- Above ₹24 lakh → 30% Tax
What If Your Income Slightly Exceeds ₹12 Lakh?
One of the biggest concerns for non-salaried individuals is whether crossing the ₹12 lakh threshold by even a small amount negates all tax benefits. To address this, the government has introduced Marginal Relief—ensuring that individuals earning slightly above ₹12 lakh don’t face an excessive tax burden.
Before understanding marginal relief, let’s break down tax rebates and deductions.
Understanding Tax Rebate (Section 87A)
- Tax rebate applies to individuals whose total taxable income is below a specified limit.
- Previously, the 87A rebate limit was ₹7 lakh, meaning individuals earning below this threshold paid zero tax.
- Budget 2025 increases this limit to ₹12 lakh, extending tax relief to a broader segment of taxpayers.
- This rebate applies only to individual taxpayers, not companies or firms.
How Marginal Relief Helps Taxpayers Above ₹12 Lakh
Marginal relief ensures that if a taxpayer’s income slightly exceeds ₹12 lakh, they do not face a disproportionately high tax liability.
Example Calculation:
- Suppose an individual’s total income is ₹12.10 lakh.
- The standard tax calculation would impose ₹61,500 in taxes under the new regime.
- However, the marginal increase of ₹10,000 in income should not lead to a ₹61,500 jump in taxes.
- Using Section 115BAC(1A), the individual qualifies for ₹51,500 in marginal relief, bringing their final tax liability down to just ₹10,000.
As income increases further, marginal relief gradually reduces—for instance, at ₹12.70 lakh, the relief is just ₹500, and for incomes above ₹12.75 lakh, marginal relief no longer applies.
How Much Tax Will You Pay Under the New Regime?
| Total Income (₹) | Tax (Old Rate) (₹) | Tax (New Rate) (₹) | Benefit from Slab Change (₹) | Rebate Applied (₹) | Total Savings (₹) |
|---|---|---|---|---|---|
| 8,00,000 | 30,000 | 20,000 | 10,000 | 20,000 | 30,000 |
| 9,00,000 | 40,000 | 30,000 | 10,000 | 30,000 | 40,000 |
| 10,00,000 | 50,000 | 40,000 | 10,000 | 40,000 | 50,000 |
| 11,00,000 | 65,000 | 50,000 | 15,000 | 50,000 | 65,000 |
| 12,00,000 | 80,000 | 60,000 | 20,000 | 60,000 | 80,000 |
| 13,00,000 | 1,00,000 | 75,000 | 25,000 | 0 | 25,000 |
| 14,00,000 | 1,20,000 | 90,000 | 30,000 | 0 | 30,000 |
| 15,00,000 | 1,40,000 | 1,05,000 | 35,000 | 0 | 35,000 |
| 16,00,000 | 1,70,000 | 1,20,000 | 50,000 | 0 | 50,000 |
| 17,00,000 | 2,00,000 | 1,40,000 | 60,000 | 0 | 60,000 |
| 18,00,000 | 2,30,000 | 1,60,000 | 70,000 | 0 | 70,000 |
| 19,00,000 | 2,60,000 | 1,80,000 | 80,000 | 0 | 80,000 |
| 20,00,000 | 2,90,000 | 2,00,000 | 90,000 | 0 | 90,000 |
| 21,00,000 | 3,20,000 | 2,25,000 | 95,000 | 0 | 95,000 |
| 22,00,000 | 3,50,000 | 2,50,000 | 1,00,000 | 0 | 1,00,000 |
| 23,00,000 | 3,80,000 | 2,75,000 | 1,05,000 | 0 | 1,05,000 |
| 24,00,000 | 4,10,000 | 3,00,000 | 1,10,000 | 0 | 1,10,000 |
| 25,00,000 | 4,40,000 | 3,30,000 | 1,10,000 | 0 | 1,10,000 |
Final Take: A Win for the Middle Class
With the increase in rebate limits, restructured tax slabs, and the introduction of marginal relief, Budget 2025-26 provides significant tax savings to salaried and non-salaried individuals alike.
For those earning slightly above ₹12 lakh, marginal relief ensures that their additional income doesn’t push them into an excessively high tax bracket. These reforms align with the government’s vision to provide financial ease to the middle class, boosting savings, consumption, and overall economic growth.
Taxpayers should review their income structure, deductions, and investment plans to maximize savings under the new tax regime. With careful tax planning, individuals can make the most of these new provisions while staying compliant with tax regulations.
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.
