Budget 2025: How the New ₹12 Lakh Tax Exemption Actually Works
Why salaried professionals earning up to ₹12.75 Lakhs pay ₹0 income tax under the revised New Tax Regime, and how marginal relief protects your extra earnings.
Under Union Budget 2025-26, if you are a salaried employee opting for the New Tax Regime, you pay ZERO income tax on gross earnings up to ₹12.75 Lakhs. This is made possible by combining the enhanced ₹60,000 Section 87A rebate with the existing ₹75,000 Standard Deduction.
1. The Math: Why ₹12 Lakhs is Actually ₹12.75 Lakhs for Salaried Employees
When the Union Budget announced "no tax on income up to ₹12 Lakhs", that threshold applies to taxable income.
As a salaried employee, you automatically receive a flat ₹75,000 Standard Deduction with zero investment proofs or receipts needed. Therefore:
2. The Revised New Tax Regime Slabs (FY 2025-26)
The government restructured the slabs under Section 115BAC to give wider bands and lower rates across the board:
| Taxable Income Slab | Tax Rate | Tax on Slab |
|---|---|---|
| Up to ₹4,00,000 | Nil | ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 |
| Total Tax up to ₹12 Lakhs (Fully rebated under Section 87A) | ₹0 | |
| ₹12,00,001 – ₹16,00,000 | 15% | Up to ₹60,000 |
| ₹16,00,001 – ₹20,00,000 | 20% | Up to ₹80,000 |
| ₹20,00,001 – ₹24,00,000 | 25% | Up to ₹1,00,000 |
| Above ₹24,00,000 | 30% | On balance |
3. What If You Earn ₹13 Lakhs? The Marginal Relief Safety Net
Many people worry about the "tax cliff": If I earn ₹12,85,000, do I suddenly lose the entire ₹60,000 rebate and have to pay a massive tax bill?
No. The Income Tax law includes a provision called Marginal Relief.
Under marginal relief, your total income tax cannot exceed the extra amount of income you earned above ₹12 Lakhs:
Example: Gross Salary of ₹12,85,000
- Net Taxable: ₹12,10,000 (after standard deduction).
- Excess income earned above ₹12 Lakhs = ₹10,000.
- Without relief, calculated tax would be ₹61,500.
- With Marginal Relief, your tax is capped at exactly ₹10,000 (+ 4% cess = ₹10,400).
The break-even point for marginal relief is ₹12,70,588 net taxable (or approximately ₹13,45,588 gross salary for salaried individuals). Beyond this income, standard slab rates apply naturally.
Curious what your take-home pay looks like?
Use HelpAdda's In-Hand Salary Calculator to see your exact monthly paycheck after EPF, Professional Tax, and the updated Budget 2025-26 zero tax rebate.
4. Comparison Across Common Salary Levels
| Annual CTC | Net Taxable | Annual Tax (New Regime) | Monthly TDS |
|---|---|---|---|
| ₹8.0 Lakhs | ₹7.25L | ₹0 | ₹0 / mo |
| ₹10.0 Lakhs | ₹9.25L | ₹0 | ₹0 / mo |
| ₹12.0 Lakhs | ₹10.44L | ₹0 | ₹0 / mo |
| ₹12.75 Lakhs | ₹12.00L | ₹0 | ₹0 / mo |
| ₹15.0 Lakhs | ₹13.25L | ₹81,900 | ₹6,825 / mo |
| ₹20.0 Lakhs | ₹17.90L | ₹1,64,320 | ₹13,693 / mo |
* Disclaimer: This article is provided for educational and illustrative purposes based on standard provisions of the Finance Act and Union Budget 2025-26. Income tax calculations may vary based on special rate incomes (capital gains), employer-specific allowances, and individual tax declarations.