In a major relief to the middle class, Finance Minister Nirmala Sitharaman on Saturday announced in the Union Budget 2025 that individuals with an annual income of up to Rs 12 lakh will no longer have to pay any income tax — provided they opt for the new tax regime. This significant revision, part of the government’s effort to ease the tax burden on salaried individuals, marks a sharp increase from the previous tax-free threshold of Rs 7 lakh.
How does this benefit work?
The Finance Ministry clarified that this NIL tax liability is applicable only under the new tax regime, which has been the default since 2023. To avail the benefit, individuals simply need to file their Income Tax Return (ITR)—no additional steps are required.
Previously, an individual earning Rs 12 lakh annually would have paid around Rs 80,000 in income tax under the new regime. With the revised slabs, this tax burden is now reduced to zero, provided the taxpayer files an ITR to claim the rebate.
Who benefits from this change?
The government estimates that around one crore taxpayers, who were earlier paying taxes ranging from Rs 20,000 to Rs 80,000, will now enjoy zero tax liability on incomes up to Rs 12 lakh. This change is expected to benefit a large section of middle-class earners, easing financial stress amid rising living costs.
Standard Deduction Boost
The Budget also retains the standard deduction of Rs 75,000 under the new regime. This means that salaried individuals with a gross income of up to Rs 12.75 lakh (before applying the standard deduction) will effectively fall within the tax-free bracket. In simpler terms, if your income before deductions is Rs 12.75 lakh, you’ll still qualify for NIL tax after factoring in the standard deduction.
Key Takeaways
Income up to Rs 12 lakh: No tax payable under the new regime
Standard deduction: Rs 75,000, pushing the effective tax-free limit to Rs 12.75 lakh for salaried taxpayers
ITR filing: Mandatory to claim the rebate—no extra paperwork required
Impact: About one crore taxpayers will now save between Rs 20,000 to Rs 80,000 annually
As of Assessment Year 2024-25, around 8.75 crore individuals have filed their ITRs. All those opting for the new tax regime will directly benefit from this revision, making Budget 2025 a pivotal moment for India’s middle-class taxpayers.