New Delhi: The Finance Minister Nirmala Sitharaman has announced a hike in tax rebate under Section 87A for resident individuals having net taxable income up to Rs 12 lakh will pay zero tax For Financial Year 2025-26 (Assessment year 2026-27) under the new tax regime.
The Current resident individual taxpayer allowed zero tax on income up to Rs 7 lakh in the new tax regime under the Section 87A of the Income Tax Act, 1961.
Salaried people having standard deduction benefit of Rs 75,000 under the new tax regime will pay zero tax if gross taxable income does not exceed Rs 12.75 lakh.
However, the Finance Minister pointed out that this increased rebate benefit will not apply to income taxed under special tax rates.
This means that individuals having income subject to special tax rates, such as capital gains or certain other categories, will be ineligible for the rebate.
If the net taxable income exceeds Rs 12 lakh, then the income will be taxed as per the new or old tax regime depending on the tax regime chosen by him/her.
Sitharaman on Saturday Aalso announced fresh tax slabs under the New Tax regime in the Union Budget 2025-26.
The new tax slabs aim to provide relief to individuals earning up to Rs 12 lakh annually and the exemption limit is Rs 12.75 lakh for salaried individuals (including standard deductions).
Finance Minister Sitharaman said that after the changes made under the new tax regime, there will be a saving of Rs 80,000 on an income of Rs 12 lakh, Rs 70,000 on an income of Rs 18 lakh, and Rs 1,10,000 on an income of Rs 25 lakh. Under the new tax slabs announced in the Budget, there is no tax on annual incomes up to Rs 4 lakh.
For income between Rs 4 lakh and Rs 8 lakh, the tax rate will be 5 per cent, while incomes between Rs 8 lakh and Rs 12 lakh will be taxed at 10 per cent. For higher income brackets, the tax rates will increase progressively, with 15 per cent for Rs 12 lakh to Rs 16 lakh, 20 per cent for Rs 16 lakh to Rs 20 lakh, 25 per cent for Rs 20 lakh to Rs 24 lakh, and 30 per cent for incomes above Rs 24 lakh.
However, income from capital gains will not be eligible for the rebate and will be taxed separately under different rules. The new tax regime will come into effect from the new financial year 2025-26, starting on April 1, 2025, provided the proposals are approved by Parliament.
In the current structure, individuals earning up to Rs 3 lakh will pay no tax, and tax rates increase incrementally as income rises. However, under the old tax regime, the basic exemption limit was Rs 2.5 lakh, and individuals had access to a range of deductions.
For income between Rs 2.5 lakh and Rs 5 lakh, a 5 per cent tax rate was applied, while incomes between Rs 5 lakh and Rs 10 lakh were taxed at 20 per cent. For earnings above Rs 10 lakh, a 30 per cent tax rate applies.
