by Great news for taxpayers! The 2025 Budget has introduced a way for individuals earning up to ₹12 lakh per year to pay zero income tax. But wait—this isn’t because the basic tax exemption increased. Instead, it’s thanks to a rebate under Section 87A. Let’s simplify this with examples, FAQs, and key details.
🔹 Key Highlights
✅ No Tax Up to ₹12 Lakh – Eligible taxpayers pay zero tax if their total income is ₹12 lakh or less.
✅ Rebate Magic 🪄 – The benefit comes from a tax rebate under Section 87A, not an increased tax-free limit (which remains ₹4 lakh).
✅ Not for Everyone 🚫 – Income from short-term capital gains (STCG), lotteries, or special categories won’t qualify for the rebate.
✅ Marginal Relief 💡 – If your income is slightly above ₹12 lakh, tax relief ensures you won’t pay excess tax.
🧐 Who Benefits?
👨💼 Eligible: Salaried employees, freelancers, retirees, and self-employed individuals.
❌ Not Eligible: HUFs, firms, non-residents, and those earning from STCG, lottery, or speculative income.
💰 How Does the Rebate Work?
Let’s break it down with an example:
🔹 Mrs. Jyoti’s Case
- Pension/Salary Income: ₹7.75 lakh (after deductions)
- Interest & Dividends: ₹5 lakh
- Total Income: ₹12 lakh (after Standard Deduction)
Tax Calculation:
✔ First ₹4 lakh (0%) → ₹0
✔ Next ₹4 lakh (5%) → ₹20,000
✔ Remaining ₹4 lakh (10%) → ₹40,000
✔ Total Tax Before Rebate → ₹60,000
✔ Rebate (Section 87A) → ₹60,000
✔ Final Tax Payable → ₹0 ✅
💡 Jyoti pays ZERO tax despite earning ₹12 lakh!
⛔ What’s Not Covered?
📌 Example: Mr. Ankit’s Case
- Salary: ₹9 lakh
- Short-Term Capital Gains (STCG): ₹3 lakh
- Total Income: ₹12 lakh
🔹 Tax Calculation
✔ Salary Tax → ₹22,500 (rebate brings it to ₹0)
✔ STCG Tax (20%) → ₹60,000 (rebate doesn’t apply)
✔ Final Tax Payable → ₹60,000 ❌
⚠ Even if total income is ₹12 lakh, certain incomes like capital gains or lottery winnings are still taxed separately!
📉 Marginal Relief Explained
If your income is slightly over ₹12 lakh, marginal relief ensures you don’t pay an unfairly high tax.
🔹 Mr. Kumar’s Case
- Total Income: ₹14 lakh
- After Deductions: ₹12.25 lakh
- Tax as per slabs: ₹63,750
- Marginal Relief Applied → Limits tax to ₹25,000
- Final Tax Payable → ₹25,000 ✅ (instead of ₹63,750!)
🔹 Takeaway: If you earn slightly above ₹12 lakh, the tax doesn’t jump drastically—relief is applied!
❓ FAQs
🔹 Q: Why is there no tax up to ₹12 lakh if the basic exemption is ₹4 lakh?
✅ A: Because the rebate under Section 87A eliminates the tax liability for total incomes up to ₹12 lakh.
🔹 Q: Do capital gains qualify for the rebate?
❌ A: No! If you have capital gains, lottery, or special income, you’ll have to pay tax on that portion.
🔹 Q: What happens if my income is ₹12.5 lakh?
✅ A: Marginal relief will apply—your tax won’t exceed the extra ₹50,000 you earned.
💡 Quick Tax-Saving Tips
📌 Choose the Right Tax Regime – The new tax regime offers lower rates but fewer deductions.
📌 Check Special Incomes – Stocks, crypto, or lottery winnings? Plan for extra tax!
📌 Maximize Deductions – Employer NPS contributions, standard deductions, and HRA exemptions can help.
📢 Conclusion
The ₹12 lakh tax-free income is a huge relief, but remember—it’s all about the rebate, not a higher exemption limit. Stay updated, check your income sources, and plan your taxes smartly. If in doubt, consult Us or a tax advisor!
“It’s not whether you get knocked down, it’s whether you get up.” – Vince Lombardi
