The Union Budget 2025-26 is being hailed as a “dream budget” due to its significant tax relaxations. A major highlight is the exemption of annual incomes up to ₹12 lakh from income tax under the new regime. However, this exemption comes with certain conditions, making it crucial for taxpayers to understand the details for effective tax planning.
Key Announcements by FM Nirmala Sitharaman
During the Budget 2025 presentation, Finance Minister Nirmala Sitharaman stated:
“Under the new tax regime, individuals with an annual income of up to ₹12 lakh (excluding special rate income such as capital gains) will not be liable to pay income tax. For salaried individuals, this limit extends to ₹12.75 lakh, considering a standard deduction of ₹75,000.”
The revised income tax slabs under the new regime are:
- Up to ₹4,00,000 – No tax
- ₹4,00,001 to ₹8,00,000 – 5%
- ₹8,00,001 to ₹12,00,000 – 10%
- ₹12,00,001 to ₹16,00,000 – 15%
- ₹16,00,001 to ₹20,00,000 – 20%
- ₹20,00,001 to ₹24,00,000 – 25%
- Above ₹24,00,000 – 30%
This means the basic exemption limit has increased from ₹3 lakh to ₹4 lakh under the new regime. Additionally, the tax rebate under Section 87A has been enhanced to ₹60,000, ensuring that individuals with a net taxable income of up to ₹12 lakh do not owe any income tax.
When Income Below ₹12 Lakh Becomes Taxable
Despite the tax exemption on income up to ₹12 lakh, there is a crucial condition. The exemption does not apply to “special rate income” such as capital gains.
For example, if an individual earns ₹12 lakh in a financial year, including ₹10 lakh as salary and ₹2 lakh from capital gains, the ₹10 lakh salary income remains tax-free, but the ₹2 lakh capital gain will be taxed at the applicable rate.
Current Tax Rates on Special Incomes
Different types of income attract varying tax rates, particularly for capital gains:
Equity Shares & Equity-Oriented Mutual Funds
- Short-Term Capital Gains (STCG) – 20% (for holdings under 12 months)
- Long-Term Capital Gains (LTCG) – 12.5% (for holdings over 12 months, without indexation)
- Exemption – Gains up to ₹1.25 lakh are tax-free; any excess is taxable
Debt-Oriented Mutual Funds
- STCG – Taxed as per the individual’s slab rate (if held for under 24 months)
- LTCG –
- Purchased before April 1, 2023: 12.5% (without indexation)
- Purchased after April 1, 2023: Taxed at slab rates (without indexation)
Real Estate (Immovable Property)
- STCG – Taxed as per the individual’s slab rate (if held for less than 24 months)
- LTCG –
- Properties bought before July 23, 2024: 20% with indexation or 12.5% without indexation
- Properties bought on/after July 23, 2024: 12.5% without indexation
Unlisted Shares
- STCG – Taxed as per the individual’s slab rate (if held for under 24 months)
- LTCG – 12.5% (if held for 24 months or more, without indexation)
Note: Additional surcharges and cess may apply.
Do You Need to File an ITR If Your Income Is Below ₹12 Lakh?
Yes, filing an Income Tax Return (ITR) remains mandatory even if your taxable income is below ₹12 lakh and no tax is due. As per the Income Tax Department, individuals whose gross total income exceeds ₹4 lakh must file an ITR, irrespective of whether they owe any tax.
Understanding these details will help taxpayers stay compliant while making informed financial decisions under the revised tax regime.