C.K. GuptaBudget 2025 delivered the biggest personal tax relief in years. Under the new regime, a resident individual with total income up to ₹12 lakh pays zero income tax for FY 2025-26 (the year ending 31 March 2026). For salaried people the effectively tax-free ceiling is ₹12.75 lakh, because the standard deduction of ₹75,000 brings a ₹12.75 lakh salary down to ₹12 lakh of taxable income.
The mechanism: sharper slab rates plus a bigger Section 87A rebate — up to ₹60,000, enough to wipe out the entire tax at ₹12 lakh. Here is exactly how the numbers work.
New regime slabs for FY 2025-26 (AY 2026-27)
| Income range (₹) | Tax rate |
|---|---|
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Example
Salary of ₹12,75,000: minus ₹75,000 standard deduction = ₹12,00,000 taxable income. Slab tax works out to ₹60,000 — exactly cancelled by the ₹60,000 Section 87A rebate. Take-home tax: ₹0.
Marginal relief exists just above ₹12 lakh: if the extra income would push your tax above the benefit, the tax is smoothed so the jump is not brutal. Similar marginal relief applies at higher slab edges under the new regime.
What the Section 87A rebate does and does not cover
- Full rebate up to ₹60,000 for resident individuals with total income ≤ ₹12 lakh (new regime).
- It applies only to income taxed at slab rates. Special-rate income — short-term capital gains on listed shares (20%) and long-term capital gains (12.5% above ₹1.25 lakh exemption) — is not covered by the rebate.
- Non-residents cannot claim the 87A rebate, even on Indian income.
- Under the old regime the rebate remains ₹12,500 with the ₹5 lakh ceiling.
Example
Salary income ₹11,50,000 + capital gains of ₹2,00,000 (STCG on shares). The salary portion enjoys slab taxation, but the ₹2,00,000 special-rate gain is taxed at 20% = ₹40,000 outside the 87A rebate. Total income ₹13.5 lakh also crosses the ₹12 lakh rebate ceiling — this is a genuine trap for traders and investors; plan advances/holdings accordingly.
New regime vs old regime — the honest comparison
| Feature | New regime (default) | Old regime |
|---|---|---|
| Slabs | 0-4L nil → 30% above 24L | 0-2.5L nil → 30% above 10L |
| Standard deduction | ₹75,000 | ₹50,000 |
| 80C, 80D, HRA, home-loan interest (self-occupied) | Not allowed | Allowed |
| Employer NPS (80CCD(2)) | Allowed (14%) | Allowed (10%) |
| Family pension deduction | ₹25,000 | ₹15,000 |
| Best for | Most people without big deductions | Those with large HRA/80C/home-loan interest |
Rule of thumb: if your total deductions under the old regime (80C + 80D + HRA + home loan interest + NPS) exceed roughly ₹4.25 lakh, the old regime may still win; otherwise the new regime almost always does. Salaried taxpayers choose each year while filing; business income allows a switch back only once.
Practical planning moves for FY 2025-26
- Update salary structures: employers are revising TDS slabs from April 2025 payroll — check your April payslip reflects the new tables.
- Do not over-invest to “save tax” under the new regime; instead use surplus for growth (index funds, NPS Vatsalya, etc.) since 80C no longer matters.
- Book capital gains carefully: remember gains bypass the 87A rebate — time sales across FYs where possible.
- Advance tax: if annual tax liability exceeds ₹10,000 after TDS, pay instalments on 15 Jun / 15 Sep / 15 Dec / 15 Mar.
- Form 10-IEA: business owners choosing the old regime must file it before the ITR due date.
Frequently Asked Questions
Is ₹12 lakh truly tax-free for everyone?
For resident individuals under the new regime whose income is all slab-rate income (salary, business, interest etc.) — yes, via the 87A rebate. Capital gains taxed at special rates and non-resident income are excluded from the rebate.
Do I need to file an ITR if my tax is zero?
Filing is still wise: it creates income proof for visas, loans and refunds of TDS. It is mandatory in specific cases — deposits above ₹1 crore in current accounts, foreign travel spend above ₹2 lakh, high-value electricity bills, and others.
Has the old regime been abolished?
No. It remains available alongside, with its ₹2.5 lakh starting slab and ₹50,000 standard deduction. The new regime is simply the default if you do not choose.
What changed for senior citizens?
Under the new regime the same slabs apply to all ages (no 80TTB benefit). Under the old regime, senior citizens still enjoy the ₹50,000 interest deduction (80TTB) and higher basic exemption. Many retirees still find the old regime better — compare before choosing.
Sources & Official References
ITR, GST returns, notices and registrations — fixed fees, human support, on-time filing.
Fact-checked on 2025-09-25 • Content library version 2025.09.1
Disclaimer: This article is for general awareness only and is not legal, tax or professional advice. Tax rules change — always confirm current rates, limits and due dates with the official government portals listed above, or consult a qualified chartered accountant or tax practitioner before acting.
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