Budget 2025: What ₹12 Lakh Tax Exemption Means and How Tax is Calculated Beyond This Limit

In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced a significant change in the income tax structure, providing relief to salaried individuals. Under the new tax regime, those earning up to ₹12 lakh annually will not have to pay any income tax. This move is aimed at increasing disposable income, boosting domestic consumption, and encouraging savings.

However, many people are confused about what this exemption means for individuals earning above ₹12 lakh. A common misconception is that someone earning ₹15 lakh per year will only be taxed on the remaining ₹3 lakh after the ₹12 lakh exemption. This is not correct. The exemption applies only to those earning up to ₹12 lakh, and individuals earning more than this must pay taxes as per the slab-wise taxation system.

New Income Tax Slabs Under Budget 2025

The government has introduced a revised tax structure, where income is taxed progressively based on different slabs.

• Income up to ₹4 lakh – No tax (Tax-Free)
• Income from ₹4 lakh to ₹8 lakh – Taxed at 5%
• Income from ₹8 lakh to ₹12 lakh – Taxed at 10%
• Income from ₹12 lakh to ₹16 lakh – Taxed at 15%
• Income from ₹16 lakh to ₹20 lakh – Taxed at 20%
• Income from ₹20 lakh to ₹24 lakh – Taxed at 25%
• Income above ₹24 lakh – Taxed at 30%

Additionally, under the new tax regime, a standard deduction of ₹75,000 has been introduced, effectively increasing the tax-free limit to ₹12.75 lakh.

How Tax is Calculated for ₹15 Lakh Salary?

For a salaried person earning ₹15 lakh annually, after adjusting for the ₹75,000 standard deduction, the taxable income is ₹14.25 lakh. The tax liability is calculated as follows:

1. The first ₹4 lakh of income is tax-free, meaning there is no tax payable on this portion.
2. The next ₹4 lakh (₹4-8 lakh slab) is taxed at 5%, which amounts to ₹20,000.
3. The next ₹4 lakh (₹8-12 lakh slab) is taxed at 10%, which amounts to ₹40,000.
4. The remaining ₹2.25 lakh (₹12-16 lakh slab) is taxed at 15%, which amounts to ₹33,750.

After adding up all these amounts, the total tax payable on ₹15 lakh income is ₹93,750 under the new tax regime.

How Tax is Calculated for ₹12 Lakh Salary?

For an individual earning ₹12 lakh annually, the tax is computed as follows:

1. The first ₹4 lakh of income is tax-free, meaning no tax is payable on this portion.
2. The next ₹4 lakh (₹4-8 lakh slab) is taxed at 5%, which amounts to ₹20,000.
3. The next ₹4 lakh (₹8-12 lakh slab) is taxed at 10%, which amounts to ₹40,000.
4. The total tax before rebate is ₹60,000.

However, under the new regime, the government provides a full rebate of ₹60,000, making the final tax payable ₹0. This means individuals with an annual taxable income of ₹12 lakh will not have to pay any tax.

New vs. Old Tax Regime: Which is Better?

Under the old tax regime, taxpayers were allowed to claim various exemptions such as HRA, home loan interest, and 80C investments, but the tax rates were higher. The new tax regime offers lower tax rates and a simpler structure, benefiting those who do not have significant exemptions.

For instance, in the old tax regime, a person earning ₹12 lakh would have paid ₹1,72,500 in taxes. Under the new regime, they will pay nothing. Similarly, someone earning ₹15 lakh would have paid ₹2,62,500 under the old system but now pays only ₹93,750, saving nearly ₹1.7 lakh in taxes.

Key Takeaways from Budget 2025 Tax Changes

• The ₹12 lakh exemption applies only to individuals earning up to ₹12 lakh. If you earn more, your income is taxed as per the slab-wise structure.
• A standard deduction of ₹75,000 increases the effective tax-free income limit to ₹12.75 lakh.
• Individuals earning ₹12 lakh or less will not have to pay any income tax after the rebate adjustment.
• The new tax regime is more beneficial for individuals without major tax exemptions as it offers lower tax rates.
• The decision to opt for the new or old regime should depend on an individual's financial profile and deductions available.

Final Verdict

The Union Budget 2025 tax changes aim to simplify the tax structure and reduce the financial burden on middle-income earners. The new system offers significant tax savings and higher take-home income. However, taxpayers who claim multiple exemptions may still find the old regime more beneficial. Choosing between the two tax regimes should be based on individual financial planning.