The 12 Lakh Zero-Tax Limit

How the 2025 budget's changes to the new tax regime meant no income tax for most people earning up to 12 lakh rupees, and what it means for tax planning.

The February 2025 Union Budget made a major change to personal income tax under the new regime.

The rebate

A tax rebate means that individuals with taxable income up to 12 lakh rupees a year pay no income tax under the new regime. For salaried employees, with the 75,000 rupee standard deduction, this means no tax on salary income up to 12.75 lakh rupees.

Note: the rebate doesn’t apply to certain special-rate income, such as some capital gains.

New slabs

The new regime’s slabs were also revised, with rates rising gradually from 0 to 30 percent, and the 30 percent rate applying above 24 lakh rupees.

Effects

Crores of middle-class taxpayers saw lower taxes, increasing disposable income.
The government estimated revenue forgone of around 1 lakh crore rupees a year.
It aimed to boost consumption.

Impact on planning

For many people earning up to about 12 to 15 lakh rupees, the new regime became clearly better, with no need for tax-saving investments.
The old regime may still suit people with large deductions, such as big home loan interest and HRA.

Marginal relief

For incomes slightly above 12 lakh rupees, marginal relief ensures tax payable doesn’t exceed the income above 12 lakh, avoiding a sudden jump.

A shift in philosophy

The move reflects a policy shift toward lower rates and fewer deductions, simplifying taxes and letting people choose how to save.

The 11-lakh earner

A teacher earning 11 lakh rupees a year paid tax in earlier years. After the 2025 budget, under the new regime, she pays no income tax. She uses the savings for an SIP of her choice rather than a tax-saving product.

Thinking everyone earning under 12 lakh pays no tax under any regime

The zero-tax benefit applies under the new regime and not to certain special-rate incomes.

Key takeaways

From 2025, taxable income up to 12 lakh rupees pays no tax under the new regime.
Salaried employees effectively pay no tax up to 12.75 lakh.
The new regime suits most people in this range.
Marginal relief smooths tax just above 12 lakh.