New tax regime 2025: No tax up to Rs 12 lakh but what if your income exceeds this limit - Here's how much you will save

Union finance minister Nirmala Sitharaman on Saturday provided much-needed relief to the middle class by raising the tax rebate limit in the new regime from Rs 7 lakh to Rs 12 lakh.

This effectively means that those with annual income of up to Rs 12.75 lakh will not have to pay any tax - if we further add a standard deduction of Rs 75,000.

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However, FM Sitharaman also announced changes to the tax slabs, which means that the new tax slabs will kick in for those making more than Rs 12.75 lakh a year. It is to be noted that the finance minister has raised the tax rebate limit and not the basic exemption.

This means that if your annual income exceeds Rs 12.75 lakh, taxes will be calculated based on the new slabs in the new assessment year.

"As the individual’s total taxable income is limited to Rs 12 lakh – the tax becomes NIL due to tax rebate, not exemption. If the taxable income exceeds Rs 12 lakh, the slab rates apply on full income," said Neetu Brahama, Director, Nangia Andersen India.

As per the rejig, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh. A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum.
The NIL tax limit of up to Rs 12 lakh will be applicable only to those whose incomes don't exceed this threshold.

Here are the new slabs announced by FM Sitharaman for the new tax regime:

Rs 4 to 8 lakh - 5%
Rs 8 to 12 lakh - 10%
Rs 12 - 16 lakh - 15%
Rs 16 - 20 lakh - 20%
Rs 20 - 24 lakh - 25%
Rs 24 lakh plus - 30%

These slabs, which have been further rationalised, will leave more disposable income in the hands of those who fall under the new regime and whose annual incomes exceed over Rs 12.75 lakh.

A tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.

Those who make over Rs 25 lakh in a year will now be saving Rs 1.1 lakh (25% of tax payable).

Finance minister Sitharaman, in her speech, announced that the government will forgo Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes on account of changes in tax rates.

Tax benefit across various categories

These are the existing tax slabs in the new regime, which will be phased out in the new assessment year:

0-Rs 3 lakh: Nil
Rs 3 lakh to Rs 7 lakh: 5%
Rs 7 lakh to Rs 10 lakh: 10%
Rs 10 lakh to Rs 12 lakh: 15%
Rs 12 lakh to Rs 15 lakh: 20% Above Rs 15 lakh: 30%

Notably, the old tax regime stays the same as no changes have been announced.