Budget 2025 Shock: ₹12 Lakh Salary Isn’t Always Tax-Free – Here’s Why

Budget 2025 raises the tax-free income limit to ₹12 lakh but excludes special rate incomes like capital gains. Salaried individuals benefit from a ₹75,000 standard deduction, reducing tax liability. Taxpayers earning above ₹12.75 lakh can still save up to ₹1.1 lakh annually.

CONTENTS:

• Budget 2025: ₹12 Lakh Salary Not Always Tax-Free Under New Regime
• Budget 2025: A Festive Windfall for Taxpayers
• Income Tax Calculation for Salaries Over ₹12.75 Lakh Under Budget 2025

Budget 2025 Shock: ₹12 Lakh Salary Isn’t Always Tax-Free – Here’s Why

Budget 2025: ₹12 Lakh Salary Not Always Tax-Free Under New Regime

Budget 2025 Shock: ₹12 Lakh Salary Many taxpayers anticipated that income up to ₹12 lakh would be entirely tax-free under Budget 2025. However, certain conditions prevent full exemption. Specifically, special rate incomes like capital gains do not qualify for the Section 87A rebate.

How Section 87A Works

Under the new tax regime, individuals earning up to ₹12 lakh can claim a full tax rebate under Section 87A, making their income effectively tax-free. This calculation includes a ₹75,000 standard deduction for salaried employees.

When Tax Still Applies

If a portion of your income is subject to special tax rates, the rebate will not cover that portion.

• Example 1: Short-Term Capital Gains (STCG)
  • Suppose your total income is ₹12 lakh:
    • ₹8 lakh from salary and other sources
    • ₹4 lakh from short-term capital gains (STCG) on stocks or mutual funds
  • In this case, the Section 87A rebate applies only to the ₹8 lakh salary income. The ₹4 lakh STCG is taxed separately at 20%, resulting in ₹80,000 tax liability.

• Example 2: Long-Term Capital Gains (LTCG)
  • If the ₹4 lakh income comes from long-term capital gains (LTCG) on listed equities:
    • The first ₹1.25 lakh is exempt.
    • The remaining ₹2.75 lakh is taxed at 12.5%, leading to a tax of ₹34,375.

Key Takeaways

• Salaried income up to ₹12 lakh is tax-free under Section 87A, but special rate incomes are excluded.
• Short-term capital gains are taxed at 20%, while long-term capital gains on equities are taxed at 12.5% after exemptions.
• Taxpayers with capital gains must plan accordingly, as they do not receive full tax exemption.

Budget 2025 Shock: ₹12 Lakh Salary While the new tax regime provides relief for salaried individuals, those with investment earnings should be mindful of these exclusions.

Budget 2025: A Festive Windfall for Taxpayers

Budget 2025 Shock: ₹12 Lakh Salary An early Diwali gift or a belated New Year surprise? However you see it, Finance Minister Nirmala Sitharaman unveiled a Budget packed with tax relief, particularly benefiting the middle class, which has been struggling with a slowing economy and rising prices.

Major Income Tax Reforms

After strong hints from PM Modi and President Murmu, the FM delivered in style, slashing taxes and granting ₹1 lakh crore in income tax relief—the highest ever in absolute terms.

• Rebate on Income up to ₹12 Lakh: The threshold for full tax rebate under the new regime has increased from ₹7 lakh to ₹12 lakh.
• Standard Deduction of ₹75,000: For salaried employees, this means zero tax liability up to ₹12.75 lakh.
• Fewer Taxpayers: Nearly 1 crore of India’s 3 crore taxpayers will now escape the tax net, though they must still file returns to claim the rebate.
• Tax Savings: Those still paying taxes will save between ₹30,000 and ₹1.1 lakh annually, depending on income.

Middle-Class and High-Income Benefits

• Biggest Winners: Individuals earning between ₹15 lakh and ₹24 lakh, previously taxed at 30%, will now face rates of 15% to 25%.
• Additional Levies: A 4% cess applies across the board, with increasing surcharges for incomes above ₹50 lakh.

A Politically Charged Budget

As much as it is an economic exercise, this Budget also carries clear political messaging. With Delhi elections on Wednesday and Bihar polls later this year, the government has made strategic moves to appeal to these voter bases.

• Delhi Focus: The capital, home to a vast middle-class population of government employees, private sector workers, and business owners, received a strong tax incentive.
• Bihar Emphasis: Sitharaman repeatedly highlighted Bihar in her speech, announcing:
  • A Makhana Board and a National Institute of Food Technology
  • Expansion of IIT-Patna
  • Tourism promotion around Buddhist heritage sites
  • Support for the Western Kosi Canal
  • A symbolic gesture—wearing a sari with a Madhubani motif, a traditional Bihar folk art

Budget 2025 Shock: ₹12 Lakh Salary All these moves reinforce the BJP-JDU alliance’s intent to challenge the RJD-Congress opposition in Bihar.

Income Tax Calculation for Salaries Over ₹12.75 Lakh Under Budget 2025

Budget 2025 Shock: ₹12 Lakh Salary Finance Minister Nirmala Sitharaman, in her eighth consecutive Union Budget, introduced significant tax relief for the middle class. Individuals earning up to ₹12.75 lakh annually will not have any tax liability. But what about those earning more? Here’s a breakdown of the new tax slabs and potential tax savings.

Tax Savings Based on Salary

Under the revised tax structure for the 2025-26 fiscal year, individuals filing under the new tax regime can save varying amounts depending on their income:

• ₹13 lakh – Tax savings of ₹25,000
• ₹14 lakh – Tax savings of ₹30,000
• ₹15 lakh – Tax savings of ₹35,000
• ₹16 lakh – Tax savings of ₹50,000
• ₹17 lakh – Tax savings of ₹60,000
• ₹18 lakh – Tax savings of ₹70,000
• ₹19 lakh – Tax savings of ₹80,000
• ₹20 lakh – Tax savings of ₹90,000
• ₹21 lakh – Tax savings of ₹95,000
• ₹22 lakh – Tax savings of ₹1 lakh
• ₹23 lakh – Tax savings of ₹1.05 lakh
• ₹24 lakh or more – Tax savings of ₹1.10 lakh

New Income Tax Slabs for FY 2025-26

• Income up to ₹4 lakh is exempt from tax.
• Income between ₹4 lakh and ₹8 lakh is taxed at 5%.
• Income between ₹8 lakh and ₹12 lakh is taxed at 10%.
• Income between ₹12 lakh and ₹16 lakh is taxed at 15%.
• Income between ₹16 lakh and ₹20 lakh is taxed at 20%.
• Income between ₹20 lakh and ₹24 lakh is taxed at 25%.
• Income above ₹24 lakh is taxed at 30%.

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