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Income Tax: Start April 1, your annual salary up to Rs 12 lakh will become tax-free and if you earn above that, you will receive a commensurate tax reduction due to revised slabs.
Income Tax Rule Changes From April 1.
In a bonanza for salaried individuals, the government announced a significant income tax relaxation in the Union Budget 2025-26, to be implemented from April 1, 2025. As part of this, starting April 1, your annual salary up to Rs 12 lakh will become tax-free and if you earn above that, you will receive a commensurate tax reduction due to revised slabs. As a result, your salary is set to increase from April 1. Here’s everything you need to know:
Who Will Get Higher Salary From April 1, 2025?
The Union Budget 2025-26 raised the tax-free income limit to Rs 12 lakh for FY26 via rebate under Section 87A of the Income Tax Act, 1961. Currently, it is Rs 7 lakh for the ongoing FY 2024-25.
So, those earning above Rs 7 lakh will receive higher salary starting April 1 due to lower TDS (tax deducted at source), as they are the primary beneficiary of the income tax reduction for the financial year 2025-26.
Importantly, this income tax relief is available for only those choosing the new tax regime for FY26.
However, those earning below Rs 7 lakh will continue to remain out of income tax purview and will not see any impact on their salary. Also, those earning special-rate income, like capital gains from the share market, will also not be able to get the benefit on that income.
Mainly salaried employees will be the biggest beneficiary of this income tax change from April 1, 2025.
Finance Minister Nirmala Sitharaman in her Budget Speech 2025-26 said, “There will be no income tax payable up to income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried taxpayers, due to a standard deduction of Rs 75,000.”
How Much Will Your Salary Increase From April 1?
Those earning up to Rs 12 lakh will have to pay no income tax, as compared with Rs 7 lakh currently. Over and above this, there is also a standard deduction of Rs 75,000. It means there will be no income tax on income up to Rs 12.75 lakh in FY2025-26.
So, if you fall in the income group of Rs 7 and 12 lakh, your in-hand salary will increase by up to Rs 6,600 per month, depending upon the salary level with the Rs 12.75 lakh earners receiving the maximum hike.
For those earning above Rs 12 lakh, the revised tax slabs offer significant benefits:
•₹12 lakh: ₹80,000 tax benefit (0% effective tax rate)
•₹16 lakh: ₹50,000 tax benefit (7.5% effective tax rate)
•₹18 lakh: ₹70,000 tax benefit (8.8% effective tax rate)
•₹20 lakh: ₹90,000 tax benefit (10% effective tax rate)
•₹25 lakh: ₹1,10,000 tax benefit (13.2% effective tax rate)
•₹50 lakh: ₹1,10,000 tax benefit (21.6% effective tax rate)
Marginal Relief For Those Earning ‘Marginally Above Rs 12 Lakh’
According to the CBDT, in the new regime under Section 115BAC(1A), marginal relief is available to resident individuals who have income “marginally above Rs 12 lakh”.
For instance, for a person having income of Rs 12,10,000 (after excluding standard deduction), in the absence of marginal relief, the tax, works out to be Rs 61,500 (5 per cent of Rs 4 lakh + 10 per cent of 4 lakh and 15 per cent of Rs 10,000). “However, due to marginal relief, the amount of tax to be actually paid is Rs 10,000.”
Income Tax Slabs For FY26: New Vs Old Regime
Under the new regime, the income tax slabs announced in the latest Union Budget 2025-26 are:
- Income up to Rs 4,00,000: Nil
- Income from Rs 4,00,001 to Rs 8,00,000: 5%
- Income from Rs 8,00,001 to Rs 12,00,000: 10%
- Income from Rs 12,00,001 to Rs 16,00,000: 15%
- Income from Rs 16,00,001 to Rs 20,00,000: 20%
- Income from Rs 20,00,000 to Rs 24,00,000: 25%
- Income above Rs 24,00,000: 30%.
Importantly, those earning up to Rs 12.75 lakh a year (including a standard deduction of Rs 75,000) will have to pay zero tax during FY25-26.
Under the old regime, income tax rates continue to remain the same:
- Income up to Rs 2,50,000: Nil
- Income from Rs 2,50,001 to Rs 5,00,000: 5%
- Income from Rs 5,00,001 to Rs 10,00,000: 20%
- Income above Rs 10,00,000: 30%
For senior citizens aged 60-80 years, the basic exemption limit is Rs 3,00,000. For super senior citizens (above 80 years), it is Rs 5,00,000.
The Old Tax Regime allows deductions under various sections, such as:
Section 80C: Up to Rs 1,50,000 for investments like PPF, ELSS, and LIC premiums.
Section 80D: Health insurance premiums.
Section 24(b): Interest on home loan up to Rs 2,00,000.
Other exemptions like HRA and LTA.
