Budget 2025 Highlights — Rs 12 Lakh Zero Tax

The Union Budget 2025-26 was presented by Finance Minister Nirmala Sitharaman on 1 February 2025. The income-tax changes are effective for FY 2025-26, i.e. from 1 April 2025, applying to Assessment Year 2026-27.

No. Budget 2025 left the old-regime slabs (0-2.5L nil, 2.5L-5L at 5%, 5L-10L at 20%, above 10L at 30%), its Rs 50,000 standard deduction and its Section 87A rebate (Rs 12,500 for income up to Rs 5 lakh) unchanged. All the major relief flows to the new regime.

Yes, under the new regime. Budget 2025 raised the Section 87A rebate to Rs 60,000, which exactly cancels the tax computed on Rs 12 lakh income, so net tax is nil. Salaried taxpayers reach this after the Rs 75,000 standard deduction, giving an effective zero-tax salary of Rs 12.75 lakh.

Under the new regime the Section 87A rebate was raised to Rs 60,000, and the income ceiling for the rebate went up from Rs 7 lakh to Rs 12 lakh. So a new-regime taxpayer with taxable income up to Rs 12 lakh pays no income tax. The old-regime 87A rebate (Rs 12,500 up to Rs 5 lakh) is unchanged.

The full Rs 60,000 rebate applies only up to Rs 12 lakh taxable income. Above that the rebate is withdrawn, but marginal relief ensures the extra tax cannot exceed the income earned over Rs 12 lakh, so your post-tax income never dips below Rs 12 lakh. As income rises further, normal slab tax applies.

No. The Section 87A rebate does not apply to income taxed at special rates, such as long-term or short-term capital gains. The Rs 12 lakh nil-tax benefit covers only income taxed at the normal slab rates; capital gains are taxed separately at their own rates (LTCG 12.5%, STCG 20% on listed equity).

The standard deduction for salaried taxpayers and pensioners is Rs 75,000 under the new regime and Rs 50,000 under the old regime. Budget 2025 retained these amounts. The higher new-regime figure is what lifts the salaried zero-tax limit to Rs 12.75 lakh.

From 1 April 2025 the TDS threshold on rent (Section 194-I) rose from Rs 2.4 lakh to Rs 6 lakh a year, on senior-citizen interest (194A) from Rs 50,000 to Rs 1 lakh, on other bank interest from Rs 40,000 to Rs 50,000, and on dividends (Section 194) from Rs 5,000 to Rs 10,000. These reduce the TDS burden on small taxpayers.

No. A higher TDS threshold only means tax is not deducted at source below that limit — it does not make the income tax-free. If your total income is taxable, you still owe tax and must pay it via advance tax or self-assessment and report the income in your ITR.

Budget 2025 extended the window to file an updated return (ITR-U) under Section 139(8A) from 24 months to 48 months from the end of the relevant assessment year. The additional tax payable rises with time — up to 60% or 70% of tax plus interest for returns filed in the third and fourth years.

No. Budget 2025 did not alter the capital-gains rates that were revised in July 2024. Long-term capital gains on listed equity and equity mutual funds remain 12.5% above the Rs 1.25 lakh exemption, and short-term gains under Section 111A remain 20%.

Budget 2025 enhanced the credit-guarantee cover for MSMEs and continued support measures to widen access to collateral-free credit. MSMEs should hold a valid Udyam registration to claim these benefits, priority-sector lending and the 45-day payment protection under the MSMED Act.

For many salaried taxpayers up to Rs 12.75 lakh the new regime now means zero tax, which is hard to beat. But if you claim large deductions — 80C, 80D and especially home-loan interest under Section 24(b) — the old regime can still save more. Run both computations before choosing; you can pick the regime each year if you have no business income.

The new tax regime is the default. If you want the old regime and its deductions, you must actively opt in when filing your return (and, for salary TDS, tell your employer). Taxpayers without business income can switch between regimes each year; those with business income face restrictions on switching back.