The Union Budget 2025 has introduced key updates regarding the tax rebate under Section 87A, significantly benefiting middle-class taxpayers. This rebate is designed to reduce the tax burden on individuals, ensuring more savings and higher disposable income. The Income Tax Rebate for 2025 provides eligible taxpayers with a reduction in tax liability, offering financial relief based on income thresholds. The Income Tax Rebate status of 2025 is explained below for salaried people with different income levels.
No Tax on Rs. 12 Lakh Income in Budget 2025-26
Income Tax Rebate Status 2025
The Budget 2025 has brought a notable change by increasing the tax rebate under Section 87A. Now, resident individuals with a total income of up to Rs. 12,00,000 (Rs. 12.75 lakh for salaried individuals, factoring in the standard deduction of Rs. 75,000) will be exempt from paying any income tax under the new tax regime. This is a significant boost compared to the previous rebate limit of Rs. 7,00,000, extending relief to a larger section of taxpayers.
In addition, a marginal relief provision has been introduced for individuals whose income slightly exceeds Rs. 12,00,000. This ensures that the tax liability remains fair, limiting the additional tax to the amount exceeding the rebate threshold. It’s important to note that this increased rebate applies only to resident individuals opting for the new tax regime, and those choosing the old tax regime will not qualify for this benefit.
Comparison of Previous and Current Income Tax Rebate Status
The income tax rebate status has undergone a significant change with the Budget 2025. Under the previous system, the tax rebate under Section 87A was available only to resident individuals with a total income of up to Rs. 7,00,000. This meant that a relatively smaller group of taxpayers benefited from the rebate.
However, with the introduction of Budget 2025, the rebate limit has been raised considerably. Now, resident individuals with a total income of up to Rs. 12,00,000 (Rs. 12.75 lakh for salaried individuals after factoring in the standard deduction of Rs. 75,000) are eligible for full income tax exemption under the new tax regime. This change allows a larger group of taxpayers to benefit from the rebate, marking a substantial increase in tax relief.
Additionally, a new provision for marginal relief has been introduced for those earning slightly above Rs. 12,00,000. This ensures that taxpayers who cross the rebate threshold by a small margin will not face disproportionate tax liabilities, something that was not in place under the previous rebate system.
Updated Tax Rebate Under Section 87A
As per the Budget 2025, the tax rebate under Section 87A has been increased. Now, resident individuals with a total income of up to Rs. 12,00,000 (Rs. 12.75 lakh for salaried individuals, considering the standard deduction of Rs. 75,000) will not have to pay any income tax under the new tax regime.
This change marks a significant increase from the previous rebate limit of Rs. 7,00,000, providing relief to a larger number of taxpayers.
Additionally, for individuals earning marginally above Rs. 12,00,000, a marginal relief mechanism has been introduced to ensure that taxpayers do not end up paying excessive tax due to a slight increase in income beyond the threshold. This means that if an individual’s income slightly exceeds Rs. 12,00,000, the tax payable will be limited to the amount exceeding the rebate threshold, ensuring fairness in tax computation.
This enhanced tax rebate under Section 87A applies only to resident individuals and is available exclusively under the new tax regime. Taxpayers opting for the old tax regime will not be eligible for this benefit.
Revised Income Tax Slabs for FY 2025-26
The government has also revised the tax slab structure under the new tax regime:
Income Range (Rs.) | 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 – 24,00,000 | 25% |
Above 24,00,000 | 30% |
Example Calculation for Different Income Levels
Liability as per Tax Rebate Under Section 87A
If Taxable Income is Rs. 8 Lakh
- Rs. 4,00,000 @ 0% = Rs. 0
- Rs. 4,00,000 @ 5% = Rs. 20,000
- Total Tax Before Rebate: Rs. 20,000
- Rebate Under Section 87A: Rs. 20,000
- Final Tax Payable: Rs. 0
If Taxable Income is Rs. 9 Lakh
- Rs. 4,00,000 @ 0% = Rs. 0
- Rs. 4,00,000 @ 5% = Rs. 20,000
- Rs. 1,00,000 @ 10% = Rs. 10,000
- Total Tax Before Rebate: Rs. 30,000
- Rebate Under Section 87A: Rs. 30,000
- Final Tax Payable: Rs. 0
If Taxable Income is Rs. 10 Lakh
- Rs. 4,00,000 @ 0% = Rs. 0
- Rs. 4,00,000 @ 5% = Rs. 20,000
- Rs. 2,00,000 @ 10% = Rs. 20,000
- Total Tax Before Rebate: Rs. 40,000
- Rebate Under Section 87A: Rs. 40,000
- Final Tax Payable: Rs. 0
If Taxable Income is Rs. 11 Lakh
- Rs. 4,00,000 @ 0% = Rs. 0
- Rs. 4,00,000 @ 5% = Rs. 20,000
- Rs. 3,00,000 @ 10% = Rs. 30,000
- Total Tax Before Rebate: Rs. 50,000
- Rebate Under Section 87A: Rs. 50,000
- Final Tax Payable: Rs. 0
If Taxable Income is Rs. 12 Lakh
- Rs. 4,00,000 @ 0% = Rs. 0
- Rs. 4,00,000 @ 5% = Rs. 20,000
- Rs. 4,00,000 @ 10% = Rs. 40,000
- Total Tax Before Rebate: Rs. 60,000
- Rebate Under Section 87A: Rs. 60,000
- Final Tax Payable: Rs. 0
If Taxable Income is Rs. 16 Lakh
- Tax Payable: Rs. 1,20,000
If Taxable Income is Rs. 20 Lakh
- Tax Payable: Rs. 2,00,000
If Taxable Income is Rs. 24 Lakh
- Tax Payable: Rs. 3,00,000
If Taxable Income is Rs. 50 Lakh
- Tax Payable: Rs. 10,80,000
Impact of Income Tax Rebate Status on Taxpayers
The enhanced income tax rebate under Section 87A in Budget 2025 is expected to provide substantial relief to taxpayers, particularly middle-class individuals. With the increase in the income threshold to Rs. 12,00,000, a wider range of taxpayers will benefit from reduced tax liabilities, leading to more disposable income. This move aims to boost consumer spending, as taxpayers will have more funds available for investment and consumption.
Moreover, the introduction of marginal relief ensures that those whose income just exceeds the rebate threshold are not unduly burdened with higher taxes. This change promotes a more equitable tax system, ensuring that individuals do not face a steep tax hike due to a small increase in income. Overall, the revised income tax rebate status is likely to improve financial well-being for a large segment of taxpayers while encouraging fair taxation practices.
Conclusion
The government’s decision to raise the tax rebate under Section 87A provides significant tax relief, ensuring that individuals earning up to Rs. 12 lakh (or Rs. 12.75 lakh for salaried persons) do not pay any income tax. This move aligns with the government’s vision of reducing the tax burden on the middle class and fostering economic growth.
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