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The Finance Minister Nirmal Sitharaman’s recently presented union budget has offered much respite to the middle class and salariedemployees. While a budget that was friendly to the middle-class was expected, the composition of relief went a long way in surpassing hope making it a potential hallmark of typical taxpayer.
With this very sweep, the income up to Rs 12 lakh has been made almost exempted and for the salaried class, this limit has been enhanced to about Rs 13 lakh (Rs 12,75,000 in a fiscal).
Answer: Regarding the tax slabs of the old regime, it will be seen that up to Rs 2.5 lakh income a year was either tax-exempt or was placed in the zero tax bracket. In short, under the old tax regime which has been continued with some changes and an option given to the taxpayers who want to file income tax return under this scheme, the taxpayer was not supposed to pay any tax on his/her income.
Thus, for the new tax regime that has come into force in the current financial year, the actual limit computed came to Rs 7 lakhs and for the salaried class, Rs 7.25 lakhs. When income of Rs 3 lakh to Rs 7 lakh was taxed at 5%; with the help of Section 87A of the Income Tax Act of 1961, in a way, income up to Rs 7 lakh was made tax free by allowing rebate of the amount paid as income tax.
The Budget 2021 proposed by Smt. Nirmala Sitharaman has changed the tax rates and tax slabs to make the income tax free up to Rupees twelve only lakh, and for it, she has followed the method that was done by Sh. Piyush Goyal in the Interim Budget 2019-20.
Meaning up to earning of Rs. 120000 is now exempted from tax?
For the income up to Rs 12 lakhs per annum, it is not exempted under both the old regime as well as the new regime and the income tax slabs and rates for attracting the income tax are as follows: Hence, it would not be absolutely accurate to state that all the income up to Rs. 12 lakhs in a year is completely tax-exempt.
It is quite reasonable to ask how the FM was able to make income up to Rs 12 lakh tax-free?
In the Finance Bill of 2025, it is proposed by the finance minister to insert Section 87A in the Income Tax Act of 1961.
Proposed under section 20 of the Finance Bill, 2025, Section 87A states that amendment is clause (a) of the first proviso, for the words “seven hundred thousand rupees” shall be substituted the words “twelve hundred thousand rupees”, secondly, for the word “twenty five thousand rupees”, the words “sixty thousand rupees” shall be substituted in respect for this new section 87A effective from April 1, 2026.
There is also one more addition to the Income Tax Act of 1961 in the Finance Bill 2025 that the first proviso deduction shall not exceed the income-tax under Section 115BAC rates provided in sub-section (1A) of section 115BAB. This proviso signifies that the said enhanced limit will only apply to the taxpayers who would be filing their income tax returns under Section 115BAC of the Income-tax Act which contains provision of new tax regime and does not include the old regime tax payers.
The said amendment to Section 87A passed in the present form mentions rules, which will do two things once approved by the Lok Sabha. First, it seeks to allow any individual earning up to Rs 12 lakh per annum to deduct this amount under the jurisdiction of the law. Second, the amount of rebate would also be enhanced from Rs 25,000 per annum to Rs 60,000 per annum.
Tax and benefits under the new tax laws have been understood in the paper as well.
Finance Minister Mrs. Nirmala Sitharaman even suggested the change in the slabs and rates of tax for the coming financial year. In the proposed tax slabs, as per new income tax regime, the income amount up to Rs. 4 Lac will not be taxed, income from Rs. 4 Lacs to up to Rs. 8 Lacs will be levied at five per cent, which means Rs. 20 thousands tax. Similarly, the income ranging from Rs 8 lakh and up to Rs 12 lakh will be levied 10 percent of the income tax which stand at Rs 40000 income tax.
Therefore, according to the new tax slabs, an income of Rs. 12 lakh will be charged Rs 60,000 income tax and Section 20 of the Finance Bill seeks to insert sub-section (2A) in Section 87 of the Income Tax Act which proposed to raise the rebate limit from the existing Rs. 25,000 to Rs. 60,000 per annum. It implies that Rs 60,000 paid under the head income tax for the next fiscal will be adjusted with the rebate allowed under Section 87A.
In order to avail these benefits, one needs to file ITR or income tax return or learn the procedure for filing income tax return.
To avail of this rebates any person who propose to earn an income more than Rs 4 lakh in the next financial year will have to file an income tax return under section 115BAC of the income tax act.
Many a times, a taxpayer feels that his income proceeding Rs 12 lakh per year is tax free and therefore do not require to file the return of income.
Besides that, since the standard deduction allowable in the employment income is Rs.75,000, salaried employees in this case, income up to Rs.12,75,000 in the next financial year, is not really subjected to any income tax provided they opt for new tax structure and claim other rebates and deductions to them.
