The Union Budget 2025 has introduced significant tax relief for salaried individuals and taxpayers, ensuring zero tax liability for those earning up to ₹12.75 lakh per annum under the new tax regime. This change aims to simplify tax compliance, encourage middle-income savings, and offer a higher take-home salary.
With this new provision, individuals earning up to ₹12.75 lakh will not have to pay any income tax due to the increased exemption limit, standard deduction, and rebate extensions. However, taxpayers must carefully assess whether the old tax regime or the new tax regime benefits them more in 2025.
This article breaks down:
- How the new ₹12.75 lakh tax exemption works
- Comparing the new tax regime with the old tax regime
- Steps to optimize your income tax filing for maximum savings
How the ₹12.75 Lakh Zero Tax Exemption Works
The new tax regime was introduced to simplify income tax calculations by removing exemptions and deductions while reducing tax rates. The government has now increased the exemption limit, ensuring zero tax liability for taxpayers earning up to ₹12.75 lakh. This is achieved through:
- Basic Exemption Limit: ₹12 lakh (an increase from ₹7 lakh)
- Standard Deduction: ₹75,000 (for salaried individuals)
- Rebate under Section 87A: 100% rebate on tax liability for income up to ₹12.75 lakh
This means that an individual earning ₹12.75 lakh will not be required to pay any income tax under the new regime.
However, this benefit is not available in the old tax regime, where deductions and exemptions play a significant role in reducing tax liability.
Comparison of the Old vs. New Tax Regime in 2025
The choice between the old and new tax regimes depends on your income structure and the deductions you can claim. Here’s a breakdown:
| Income Level (₹) | Tax in Old Regime (With Deductions) | Tax in New Regime | Exemptions Required to Benefit from Old Regime |
| 7.75 Lakh | ₹59,800 | ₹0 | ₹2.25 Lakh |
| 10.75 Lakh | ₹1,24,800 | ₹0 | ₹5.25 Lakh |
| 12.75 Lakh | ₹1,87,200 | ₹0 | ₹7.25 Lakh |
| 16.75 Lakh | ₹3,12,000 | ₹1,24,800 | ₹6 Lakh |
| 24.75 Lakh | ₹5,61,600 | ₹3,12,000 | ₹8 Lakh |
Key Takeaways
✔ New Tax Regime is better if your deductions and exemptions are less than ₹7.25 lakh.
✔ Old Tax Regime is beneficial if you claim higher deductions under 80C, 80D, HRA, home loan interest, and other exemptions.
How to Optimize Your Income Tax Filing in 2025
1. Choosing the Right Tax Regime
Before filing your Income Tax Return (ITR) for FY 2025-26, compare both regimes:
- If you have a home loan, HRA, tuition fees, insurance, and investment deductions, opt for the old regime.
- If you do not claim many deductions, the new regime will be more beneficial due to its zero tax up to ₹12.75 lakh.
2. Maximizing Tax Benefits in the New Regime
Even though the new regime does not allow traditional deductions like Section 80C, 80D, and HRA, you can still save taxes using:
- Employer Benefits: Maximize meal allowances, fuel reimbursements, and medical reimbursements.
- EPF & NPS Contributions: Utilize Section 80CCD(1B) for additional ₹50,000 savings under NPS.
- Gift & Investment Transfers: Shift part of your income to a spouse or parents to take advantage of lower tax slabs.
3. Planning for Higher Income Brackets
If your income exceeds ₹12.75 lakh, focus on:
- Investing in tax-saving schemes (if opting for the old regime)
- Claiming deductions for education loans, home loan interest, and medical insurance
- Using HRA exemptions if you stay in a rented house
By structuring your income and deductions smartly, you can minimize tax liability in both regimes.
Examples of Tax Computation in 2025
Example 1: Salaried Employee (Income ₹12.75 Lakh)
Scenario 1: Under New Tax Regime
- Gross Salary: ₹12,75,000
- Standard Deduction: ₹75,000
- Net Taxable Income: ₹12,00,000
- Tax Payable: ₹0 (Due to 100% rebate under Section 87A)
Scenario 2: Under Old Tax Regime
- Gross Salary: ₹12,75,000
- Deductions (80C, 80D, HRA, Home Loan Interest): ₹7,25,000
- Net Taxable Income: ₹5,50,000
- Tax Payable: ₹0 (Due to Section 87A rebate)
In this case, both regimes provide zero tax, but the new regime is simpler and does not require tracking multiple deductions.
Who Benefits the Most from the ₹12.75 Lakh Tax Exemption?
1️ Salaried employees with fewer deductions
2️ Young professionals who don’t invest heavily in tax-saving instruments
3️ Freelancers and consultants earning under ₹12.75 lakh
4️ Small business owners opting for the presumptive taxation scheme
If you fall into these categories, the new regime is the better choice in 2025.
Final Thoughts
Key Takeaways from Budget 2025
Zero tax on income up to ₹12.75 lakh under the new regime
Old tax regime still benefits individuals with deductions above ₹7.25 lakh
Choose the right regime to maximize tax savings
Optimize salary structure to reduce taxable income further
Budget 2025 has made tax filing simpler, and by using the right strategies, you can maximize your savings while staying compliant.
