Major Income Tax Modifications for FY 2025-26: NIL Tax on Incomes up to Rs 12 Lakhs
Revised Tax Slabs
The budget introduces a restructured tax slab system to ensure a progressive taxation approach. The new tax rates are as follows:
New Income Tax Slabs for FY 2025-26 (as per Budget 2025)
| Annual Income (₹) | Tax Rate (%) |
|---|---|
| Up to ₹4,00,000 | No Tax |
| ₹4,00,001 - ₹7,50,000 | 5% |
| ₹7,50,001 - ₹12,00,000 | 10% |
| ₹12,00,001 - ₹15,00,000 | 15% |
| ₹15,00,001 - ₹20,00,000 | 20% |
| ₹20,00,001 - ₹25,00,000 | 25% |
| Above ₹25,00,000 | 30% |
This restructuring aims to provide relief to middle-income earners while ensuring that higher-income individuals contribute a fair share to the nation's revenue.
The Finance Minister's recent budget speech for the year 2025-26 has brought a revolutionary change in India's income tax scenario. This move is proposing people a great deal, especially those with an income of up to Rs 12 lakhs. In this blog, we shall introduce the main features and implications of the new income tax regime.
1. Exemption Limit: A New Beginning
Traditionally, the income tax exemption limit was Rs 2.5 lakhs for those who were less than 60 years old. In the following financial year, though, there was a surprise twist with those having income up to Rs 12 lakhs exempted from income tax. That is way higher than previous exemptions, and the idea is to lower tax on mid-level income earners.
2. Section 87A Extended Rebate
Most relevant among these extensions is the rebate under Section 87A for taxable incomes that have been lifted to Rs 12 lakhs. That is, such eligible assessee shall not only benefit from a bigger exemption limit but also from the rebate path. It must especially be noted in this regard that this rebate remains reserved only for resident individuals. Foreigners living in India or non-resident Indians are not eligible to claim it.
3. Tax Liability of Salaried Individuals
For salaried people, it is all the more useful. Although the minimum exemption amount is the same at Rs 4 lakhs, one can see that such people can be exempt from taxation up to a point of income of Rs 12.75 lakhs if one takes average deductions and other deductions into consideration. This brings the tax scenario for the salaried community more favourable, and they get to experience prosperity in terms of finance and consumption.
4. Special Rate Incomes: Clarification Needed
Though the new regulations have been welcomed with open arms, special rate incomes like Short-Term Capital Gains (STCG) have instilled fear.
These revenues are not liable for the rebate under the current clauses whether the aggregate revenue of the taxpayer is below Rs 12 lakhs. This provision of the new scheme has brought some ambiguity. Most of the taxpayers are enquiring whether they can avail themselves of the rebate scheme if their taxable revenue is mainly from such special sources.
5. Introduction of Marginal Relief
In order to avoid that the taxpayers suddenly find themselves bearing the tax burden as their incomes just cross Rs 12 lakhs, marginal relief has been provided for by the budget.
This is invoked when the taxpayer's income just crosses this threshold. The marginal relief provides that the tax levied on the income in excess of Rs 12 lakhs is never greater than the size of the excess income, in order to avoid so-called "tax trap." For example, a taxpayer can avail of a marginal relief of overall income of Rs 12,70,587, so that his total tax burden would be the size of the income in excess of Rs 12 lakhs.
6. Implications for the Taxpayer
These measures are aimed at having beneficial effects on tax payers. With an increase in the exemption amount and increasing the rebate under Section 87A, the government aims to increase the disposable incomes of citizens, which will be able to generate economic growth as well as consumption by consumers. It can also simplify the system of taxation, decreasing the compliance burden on individuals.
Other than that, marginal relief schemes are a thoughtfully generous favor for taxpayers' well-being. The budget cost of violating a tax limit could sometimes deter individuals from seeking further meritorious compensations that could hinder economic growth. Taxpayers have much to gain with such an enlightened step on the part of the government here in this budget, with increasing economic liberty.
Conclusion
The newly released budget of FY 2025-26 is a landmark for India's income tax situation, particularly with the inclusion of NIL tax for incomes up to ₹12 lakhs. In addition to lowering the tax burden for mid-income groups, this future-proof budget also promises to increase the economic growth by increasing the disposable income. The introduction to Section 87A and marginal relief also go towards establishing the government's aim of enacting a more progressive tax regime.
And all the while, taxpayers are trying to cope with all this and keep up to speed and seek advice from an expert, especially regarding special rate incomes and rebates qualifying.
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We, at Book My Accountant, are dedicated to guiding you through the implications of these tax reforms and helping you get the best out of the new regime. Our experts are ready to provide you with personalized advice and assistance according to your financial situation.
Greet this exciting new era of Indian taxation with optimism, and let us help you make the most of the possibilities of the future unfolding. We can construct foundations for a prosperous economic future together.
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