The Union Budget 2025 introduced significant changes to the income tax structure, offering substantial relief to individual taxpayers. One of the notable amendments is the increase in the tax rebate under Section 87A of the Income Tax Act, 1961. Previously, individuals with a net taxable income of up to ₹7 lakh were eligible for a rebate of ₹25,000, resulting in zero tax liability. The recent budget has raised this rebate to ₹60,000, extending the zero-tax benefit to individuals with incomes up to ₹12 lakh.

Revised Tax Slabs for FY 2025-26 (AY 2026-27):

Income Range (₹) Tax Rate (%)
Up to 4,00,000 0
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 – 24,00,000 25
Above 24,00,000 30

Tax Calculation for an Annual Income of ₹12,00,000:

Income up to ₹4,00,000: No tax
Income between ₹4,00,001 and ₹8,00,000: 5% on ₹4,00,000 = ₹20,000
Income between ₹8,00,001 and ₹12,00,000: 10% on ₹4,00,000 = ₹40,000
Total Tax Before Rebate: ₹20,000 + ₹40,000 = ₹60,000

Applying Section 87A Rebate: ₹60,000 (since the total tax matches the rebate limit)

Tax Payable: ₹60,000 – ₹60,000 = ₹0

Therefore, individuals earning up to ₹12 lakh annually will have zero tax liability under the new regime, effectively increasing their disposable income. This change aims to boost household consumption, savings, and investment, thereby stimulating economic growth.

It’s important to note that these benefits are applicable under the new tax regime. Taxpayers should assess their individual financial situations to determine the most advantageous tax structure for their needs.