Income up to Rs 12 lakh gets tax-free, but what’s the tax on Rs 12.01 lakh? Here's everything you need to know

There will be no tax on taxable income up to Rs 12 lakh and those earning a little more than Rs 12 lakh will get the benefit of marginal relief.

Authored by: | Updated 2/5/2025, 1:14:12 PM
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On 1st February, Finance Minister Nirmala Sitharaman has announced full tax exemption on income up to Rs 12 lakh under the new income tax system in the Union Budget 2025. This limit reaches Rs 12.75 lakh when standard deduction is added for salaried employees.

Announcing the budget, FM Sitharaman said, "The middle class provide strengths to the economy. In recognition of their contribution, we have periodically reduced the tax burdens. I am now happy to announce that there will be no income tax up to an income of Rs 12 lakhs."

The government has revised tax slabs under the new regime to offer greater relief:

  • Up to Rs 4 lakh income – Zero tax
  • Rs 4 lakh to Rs 8 lakh – 5% tax
  • Rs 8 lakh to Rs 12 lakh – 10% tax
  • Rs 12 lakh to Rs 16 lakh – 15% tax
  • Rs 16 lakh to Rs 20 lakh – 20% tax
  • Rs 20 lakh to Rs 24 lakh – 25% tax
  • Above Rs 24 lakh – 30% tax

Under the new tax system, the income tax exemption limit has been increased from Rs 7 lakh to Rs 12 lakh. But marginal relief has been provided to those whose income is slightly more than Rs 12 lakh so that they do not have to pay unnecessary high taxes.

Example of calculation of marginal relief:

Income tax without marginal relief & with marginal relief (in Rs):

  • 12, 10, 000 - 61,500   marginal relief- 10,000
  • 12, 50, 000 - 67,500   marginal relief- 50,000
  • 12, 70, 000 - 70, 500   marginal relief- 70,000
  • 12, 75, 000 - 71, 250 (No Marginal Relief)

It is clear from this table that those whose income reaches Rs 12.75 lakh will not get any additional relief. But those earning between Rs 12 lakh and Rs 12.74 lakh will get the benefit of marginal relief and their tax will be limited.

There will be no tax on taxable income up to Rs 12 lakh. Those earning a little more than Rs 12 lakh will get the benefit of marginal relief. Marginal relief ensures that the tax liability of higher income earners is not higher than that of other taxpayers.

The rebate available under section 87A will not be applicable on long term and short-term capital gains. Tax provisions under section 111A will be applicable on short term capital gains.

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