Last Updated on February 1, 2025 by IPO Manthan Team
The Union Budget 2025 has introduced a major revision in India’s income tax structure, offering significant relief to middle-class taxpayers. One of the biggest highlights is that individuals earning up to ₹12 lakh annually will now pay zero income tax, thanks to a combination of revised tax slabs and an increased standard deduction of ₹75,000. The new system is expected to leave more disposable income in the hands of taxpayers, boosting savings and overall economic activity.
New Tax Slabs for Incomes Above Rs 12 Lakh
For those earning above ₹12 lakh, the government has introduced a progressive tax slab structure. The new tax slabs for incomes above Rs 12 lakh are:
Revised Tax Slabs (2025)
| Income Range (₹) | Tax Rate |
|---|---|
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 25,00,000 | 25% |
| Above 25,00,000 | 30% |
Who Benefits the Most?
The new tax slabs for incomes above Rs 12 lakh provide relief to salaried professionals, self-employed individuals, and small business owners. With lower tax rates in the ₹12 lakh to ₹20 lakh range, middle-income taxpayers will save more compared to previous years. The 15% tax rate for incomes between ₹12 lakh and ₹16 lakh is significantly lower than the older tax rate of 20% for ₹10 lakh to ₹20 lakh under the previous system.
For example, under the new tax structure, a person earning ₹15 lakh annually would pay:
| Income Slab (₹) | Applicable Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 – 4,00,000 | Nil | 0 |
| 4,00,001 – 8,00,000 | 5% | 20,000 |
| 8,00,001 – 12,00,000 | 10% | 40,000 |
| 12,00,001 – 15,00,000 | 15% | 45,000 |
| Total Tax Payable | – | ₹1,05,000 |
This is a significant improvement, as earlier, the tax amount would have been ₹1,50,000 under the old tax system.
Standard Deduction Increased to ₹75,000
Another major change in the new tax slabs for incomes above Rs 12 lakh is the increase in standard deduction. Salaried individuals and pensioners will now get a ₹75,000 deduction, up from ₹50,000 earlier. This means someone earning ₹12.75 lakh effectively pays tax only on the income exceeding ₹12 lakh.
Comparison: Old vs. New Tax Regime
The government has been shifting towards a simplified new tax regime since 2020. Let’s compare how it differs from the old tax system:
| Aspect | Old Tax Regime | New Tax Regime (2025) |
|---|---|---|
| Basic Exemption Limit | ₹2.5 lakh | ₹4 lakh |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Tax Rebate | Up to ₹5 lakh income | Up to ₹7 lakh income |
| Maximum Tax Rate | 30% (above ₹10 lakh) | 30% (above ₹25 lakh) |
| Deductions & Exemptions | Allowed (80C, 80D, etc.) | Not Allowed (except standard deduction) |
The new tax system simplifies tax filing while ensuring that taxpayers with lower and middle-level incomes pay less compared to the old structure.
Impact on the Middle Class
The new tax slabs for incomes above Rs 12 lakh will directly impact India’s salaried professionals, entrepreneurs, and freelancers. The lower tax rates are expected to:
- Boost disposable income: More savings and investments in financial markets and consumer spending.
- Encourage tax compliance: A simpler tax system reduces the incentive to evade taxes.
- Help businesses and startups: Entrepreneurs with earnings in the ₹12-₹20 lakh range will pay lower taxes, allowing more funds for business expansion.
Should You Opt for the New Tax Regime?
If you are someone who does not rely on multiple deductions like 80C (Investments), 80D (Health Insurance), or HRA exemptions, then the new tax system will likely be beneficial for you. However, if you have high tax-saving investments, the old regime with exemptions might still be a better option.
What’s Next?
The new tax slabs have made income tax filing simpler and reduced the tax burden for millions of people. However, the government might introduce further refinements in the next budget, depending on economic conditions. The next big question is whether future budgets will further increase the tax-free income limit beyond ₹12 lakh.
For now, taxpayers should analyze their incomes and expenses carefully before selecting between the old and new tax regime. The new tax slabs for incomes above Rs 12 lakh offer a great opportunity for tax savings, but the right choice depends on individual financial goals.