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The announcement of the new income tax regime in the recent budget brought a wave of joy to the middle class. The government announced zero tax for salaried individuals earning up to INR 12.75 lakhs. The new income tax regime has increased the tax-free threshold from INR 7 lakh to INR 12 lakh under the new tax regime.
What is more exciting is that salaried individuals earning up to INR 12.75 lakh annually will also not have to pay any income tax, there will only be a standard deduction of INR 75,000 from their salary.
Let's Sum Up the New Tax Regime
- Zero tax on annual income up to ₹12.75 lakh for salaried individuals.
- New tax slabs were introduced to simplify taxation and provide relief to the middle class.
- Certain deductions, such as employer contributions to the National Pension Scheme (NPS), can further reduce taxable income.
Annual Income |
Tax rates |
0 - 4 lakh |
Nil |
4 - 8 lakh |
5% |
8 - 12 lakh |
10% |
12 - 16 lakh |
15% |
16 - 20 lakh |
20% |
20 - 24 lakh |
25% |
Above 24 lakh |
30% |
How can salaried individuals earning more than INR 12.75 lakh still pay zero tax?
Even if an individual withdraws a salary above INR 12.75 lakh, they may still have to pay zero income tax by utilizing eligible deductions. Let's take for example, under Section 80CCD(2), an employer’s contribution to the NPS (up to 14% of basic salary) can be a deduction under the new tax regime.
What can be a possible impact of the new regime?
The government’s decision to restructure income tax slabs seems like a move to put more money into the hands of the middle class. This move is expected to boost household consumption and savings, encourage individuals to make financial investments, and also to provide greater financial flexibility to taxpayers.
During her speech Finance Minister Sitharaman also highlighted that these reforms align with the vision of ‘Viksit Bharat’, ensuring a simplified tax system. The new tax regime is expected to make taxation simpler and more beneficial for the middle class. Salaried taxpayers, in particular, stand to gain significantly from the revised tax slabs and deductions. As a result, individuals can plan their finances more effectively while benefiting from lower tax liabilities.
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