Union Budget 2025: Income Tax-Free up to Rs 12 Lakh
Union Finance Minister Nirmala Sitharaman made history when She announced the Budget 2025, promising that anyone making up to Rs 12 lakh a year, including regular deductions (totaling Rs 12.75 lakh), would not be subject to income tax.
By announcing an increase in tax rebates in Budget 2025, Finance Minister Nirmala Sitharaman provided a significant boost to the nation’s struggling middle class. Under the new tax system, the previous income tax refund cap was Rs 7 lakh.
Up to Rs 12.75 lakh of individual income will be tax-free when the standard deduction of Rs 75,000 is taken into account. But only income from salaries is covered by this; income from other sources, such capital gains, is still subject to taxes.
Under the new tax regime, the income tax exemption limit increased from Rs 7 lakh annually to Rs 12 annually, which is the largest increase since the UPA era in 2005. The income tax exemption limit was Rs 1 lakh in 2005 under the UPA government, and it took seven years for the Manmohan Singh administration to double it to Rs 2 lakh in 2012.
PM Modi raised the income tax exemption ceiling by 25% to Rs 2.5 lakh in 2014 in response to the middle-class, salaried taxpayers’ long-standing demand.
In an effort to meet the demands of India’s youthful, ambitious workforce, the Modi administration implemented a simpler new tax system in FY 2020–21 that offered taxpayers reduced tax rates without any common deductions or exemptions.
In a post on X, Union Home Minister Amit Shah praised the significant increase in the income tax exemption limit that was revealed in the Union Budget 2025–2026 and stated, “PM Modi always has the middle class in mind.”
There is no income tax up to Rs 12 lakh. The middle class’s financial well-being will be greatly improved by the proposed tax exemption. On this occasion, congratulations to all the beneficiaries.
About 1.5 crore people with incomes between Rs 7 lakh and Rs 12 lakh would benefit from the change since they would no longer be required to pay taxes on their salaried income. It is important to remember that the government has raised the tax refund cap rather than the fundamental exemption.
For taxpayers, the income threshold for a refund under Section 87A has been raised from Rs 7 lakh to Rs 12 lakh. The reimbursement amount under clause (a) of Section 87A’s first proviso has also been increased from Rs 25,000 to Rs 60,000.
You would therefore be required to pay taxes in accordance with the tax slabs if your salaried income exceeds Rs 12 lakh (or Rs 12.75 lakh when the standard deduction is taken into account).
Here are the Revised Tax slabs:
Income Range (Rs) Tax Rate
Upto Rs 4 Lakh No Tax
Rs 4 Lakh – Rs 8Lakh 5%
Rs 8 Lakh – Rs 12 Lakh 10%
Rs 12Lakh – Rs 16 Lakh 15%
Rs 16 Lakh – Rs 20 Lakh 20%
Rs 20 Lakh – Rs 24 Lakh 25%
Above Rs 24 Lakh 30%