Understanding the No-Tax Benefit on Income up to Rs 12 Lakh
The Union Budget 2025 brought a major relief for taxpayers, especially the middle-class salaried individuals. The Finance Minister announced that those earning up to Rs 12 lakh per year would not have to pay any income tax. Rs 12 Lakh Tax Exemption – Sounds great, right? But does this mean that if you earn Rs 15 lakh annually, you’ll be taxed only on the remaining Rs 3 lakh? Not exactly. The exemption is applicable only to those whose total taxable income does not exceed Rs 12 lakh.
For those earning beyond Rs 12 lakh, taxation follows a slab-wise structure. Let’s break it down in a simple way so you can understand how much tax you’ll actually pay under the new regime.
Revised Tax Slabs Under New Tax Regime (2025-26)
The government has changed the tax slabs under the new regime, making taxation more structured:
| Income Slab | Tax Rate |
|---|---|
| Up to Rs 4 lakh | 0% (No tax) |
| Rs 4 – 8 lakh | 5% |
| Rs 8 – 12 lakh | 10% |
| Rs 12 – 16 lakh | 15% |
| Rs 16 – 20 lakh | 20% |
| Rs 20 – 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
One more important point to note is that a standard deduction of Rs 75,000 is available under the new tax regime. This means your taxable income will be calculated after deducting this amount.
Also Read: Understanding Form 26AS and Its Importance in Tax Planning
How Is Tax Calculated If You Earn More Than Rs 12 Lakh?
Let’s take a real example. Suppose you earn Rs 15 lakh per year, here’s how your tax will be calculated:
- First Rs 4 lakh → No tax
- Next Rs 4 lakh (Rs 4 – 8 lakh slab) → 5% = Rs 20,000
- Next Rs 4 lakh (Rs 8 – 12 lakh slab) → 10% = Rs 40,000
- Remaining Rs 3 lakh (Rs 12 – 15 lakh slab) → 15% = Rs 45,000
Total Tax = Rs 20,000 + Rs 40,000 + Rs 45,000 = Rs 1,05,000
So, even though your income is Rs 15 lakh, your tax is not calculated directly on Rs 3 lakh after the exemption limit, but rather broken down into slabs, as shown above.
What If Your Income is Exactly Rs 12 Lakh?
If you earn Rs 12 lakh per year, the tax will be calculated like this:
- First Rs 4 lakh → No tax
- Next Rs 4 lakh (Rs 4 – 8 lakh slab) → 5% = Rs 20,000
- Next Rs 4 lakh (Rs 8 – 12 lakh slab) → 10% = Rs 40,000
Total Tax = Rs 20,000 + Rs 40,000 = Rs 60,000
Here’s where the rebate comes into play. The government gives a full rebate of Rs 60,000, effectively making your tax liability zero. So, you pay no tax at all if your total taxable income does not exceed Rs 12 lakh.
Rs. 12 Lakh Exemption: Is This Better Than the Old Tax Regime?
Let’s compare how much tax you would have paid under the old tax regime:
- Under the old system, any income above Rs 10 lakh was taxed at 30%.
- That means for Rs 12 lakh income, your tax would have been Rs 1,72,500.
- For Rs 15 lakh income, the tax would have been Rs 2,62,500.
Clearly, the new tax regime is much more beneficial, as the maximum tax rate of 30% now applies only to income above Rs 24 lakh.
Should You Shift to the New Tax Regime?
The old tax regime allowed exemptions (like HRA, 80C deductions, etc.), but the tax rates were higher. The new regime has lower tax rates but no exemptions. If you don’t have many deductions to claim, the new regime is the better choice.
Here’s a quick comparison:
| Annual Income | Old Regime Tax | New Regime Tax |
| Rs 12 lakh | Rs 1,72,500 | Rs 0 (after rebate) |
| Rs 15 lakh | Rs 2,62,500 | Rs 1,05,000 |
| Rs 20 lakh | Rs 4,12,500 | Rs 2,25,000 |
As you can see, the new regime offers major savings, especially for those earning up to Rs 20 lakh.
FAQs About Rs 12 Lakh Tax Exemption
1. Will I pay zero tax if my income is Rs 12 lakh?
Yes, because the Rs 60,000 tax liability gets completely waived off as a rebate.
2. What if I earn Rs 12.5 lakh?
Your taxable income will be Rs 12,75,000 (after Rs 75,000 standard deduction). Your tax will be calculated slab-wise, but you won’t get the full rebate anymore.
3. Is the standard deduction applicable to everyone?
Yes, both salaried individuals and pensioners can avail the Rs 75,000 standard deduction.
4. Should I stick to the old regime?
If you have high deductions (HRA, 80C, etc.), the old regime might still be beneficial. But for most people, the new regime is a better choice.
5. Is this applicable for FY 2025-26?
Yes, the new tax slabs will be applicable for the financial year 2025-26.
Final Thoughts
The Rs 12 lakh tax exemption is a big relief for salaried individuals. However, the important thing to remember is that this exemption only applies fully if your taxable income does not exceed Rs 12 lakh. Beyond that, slab-wise taxation kicks in.
For most taxpayers, shifting to the new tax regime makes more financial sense, especially since the government has introduced lower tax rates and higher rebates.
So, what do you think? Will you be opting for the new regime, or do you still prefer the old tax system with exemptions? Let us know in the comments!
