Budget 2025: New tax slabs, Section 87A rebate explained

CHENNAI: The Union Budget 2025 has brought massive relief to taxpayers with a bold revision in income tax slabs. The new tax regime significantly reduces the burden on the middle class, ensuring more money in their hands. What does the relief mean for the beneficiaries – the salaried class?

No tax on income up to Rs 12.75 lakh – A game changer?

The biggest highlight is that if your annual income is up to Rs 12 lakh, you won’t pay a single rupee in taxes. Even if you earn up to Rs 12.75 lakh, the standard deduction of Rs 75,000 ensures that you remain tax-free. This is a drastic leap from the previous exemption limit of Rs 7 lakh. The government is putting more money back into the pockets of salaried individuals. But what if one earns beyond this threshold? For example (as mentioned in the infographics), if one earns Rs 20 lakh annually, then that income is taxed at different rates across various brackets. The highest tax rate of 30 per cent now kicks in only for those earning over Rs 24 lakh per year.

Section 87A rebate – More savings for middle class

Another huge win for the salaried individuals is the increased rebate under Section 87A: Previously, those earning up to Rs 7 lakh could claim a rebate of Rs 25,000. Now, anyone earning up to Rs 12 lakh can claim a rebate of Rs 60,000, bringing their tax liability to zero. However, note that this rebate does not apply to capital gains, NRIs, HUFs, or companies — it is strictly for resident individuals with regular income.

So, what’s the real impact of these tax cuts? Here are some key takeaways

More money in your pocket: Lower taxes mean more savings, investments, or just extra cash to support your lifestyle

Economic growth: More disposable income leads to higher consumer spending, boosting the economy

Push for the new tax regime: With such benefits, more taxpayers may switch to the simpler new regime from the old deduction-based system

But is this enough? Some might argue that increasing deductions under the old regime would have been a better move. Would that have been a smarter approach?

What should one do now?

This is the perfect time to plan your savings, investments, or lifestyle upgrades. If you earn above Rs 12 lakh, recalculating your tax liability under the new slabs can help optimise your finances.

With these changes taking effect from April 1, 2025, now is the best time to reassess your tax strategy. For clarity on how much one needs to save, a tax expert or financial advisor can help.

(The author is an MBA (finance), certified financial planner, and director-chief financial planner at holisticinvestment.in, a leading financial planning and wealth management company)