New Income Tax Rules: The new financial year 2025-26 will kick off in the country on April 1. Alongside this, several income tax changes announced in the Budget 2025, which was presented in February, will also take effect. One of the most significant changes for middle-class taxpayers is that annual taxable income up to Rs 12 lakh will be tax-free. With a standard deduction of Rs 75,000, individuals can now earn up to Rs 12.75 lakh without paying any income tax under the new system. Additionally, the tax slabs have been adjusted in the new income tax framework introduced in Budget 2025, allowing taxpayers to keep more of their earnings.
Income up to Rs 12 lakh tax-free
Taxpayers can benefit from a rebate that makes annual taxable income up to Rs 12 lakh tax-free. A rebate is essentially a tax exemption up to a certain limit. When factoring in the standard deduction, this means that no income tax will be owed on annual earnings up to Rs 12.75 lakh. Currently, under the new system, annual taxable income up to Rs 7 lakh can be exempt from tax through this rebate.
It’s important to note that these new benefits apply only to the new income tax system. For those sticking with the old system, only taxable income up to Rs 5 lakh can be exempted through a rebate. According to the Budget 2025 announcement, there will be no tax on annual taxable income up to Rs 4 lakh, meaning a zero tax rate. The tax rates will be 5% for income between Rs 4 to 8 lakh, 10% for Rs 8 to 12 lakh, 15% for Rs 12 to 16 lakh, 20% for Rs 16 to 20 lakh, 25% for Rs 20 to 24 lakh, and 30% for any income exceeding Rs 24 lakh.
In terms of income tax, combining these two reliefs means that a taxpayer with an annual taxable income of Rs 12 lakh will enjoy a tax benefit of Rs 80,000 starting from the new financial year under the new income tax system. On the other hand, a taxpayer with an annual taxable income of Rs 18 lakh will get a tax benefit of Rs 70,000 and a taxpayer with an annual taxable income of Rs 25 lakh will get a tax benefit of Rs 1.10 lakh.