Budget 2025 Tax Changes: What If Your Income Exceeds ₹12 Lakh?

The Union Budget 2025 has introduced major tax relief, particularly for individuals earning up to Rs 12 lakh annually. Under the new tax regime, the tax rebate under Section 87A has been significantly increased for assessment year 2026-27, ensuring zero tax liability for those earning up to Rs 12 lakh. However, what happens if your total income exceeds Rs 12 lakh by a small margin? Let’s break it down.

1. Understanding the New Tax Slabs:

The income tax slabs and tax rates under the new tax regime for FY 2025-26 ( Assessment Year 2026-27) are as follows:

While the basic exemption limit is Rs 4 lakh, the increase in the rebate under Section 87A ensures that individuals whose total taxable income is up to Rs 12 lakh pay zero tax under the new regime.

2. What Happens If Your Income Slightly Exceeds Rs 12 Lakh?

If your total income is just above Rs 12 lakh, say Rs 12.10 lakh, it would normally attract a tax liability of Rs 61,500 without any tax rebate. However, marginal relief has been introduced to ensure that the tax payable does not exceed the excess income over Rs 12 lakh.

Example of Marginal Relief:

• If your total income is Rs 12,10,000 (just Rs 10,000 over Rs 12 lakh), then instead of paying Rs 61,500 in taxes, you will only pay Rs 10,000/- .
• This ensures that the additional tax burden does not disproportionately affect those earning slightly above Rs 12 lakh.

3. Is This Relief Available for Capital Gains Income?

No. The rebate under Section 87A is not applicable on income taxed at special rates, such as:

• Short-term capital gains (Section 111A)
• Long-term capital gains (Section 112 & 112A)

This means if your income includes taxable capital gains, you cannot claim the rebate for such amounts, and special tax rates will apply.

4. Income Slightly Over Rs 12 Lakh: What to do?

If your taxable income slightly exceeds Rs 12 lakh, consider the following options:

• Get the National Pension System (NPS) component included in your salary to the extent, it is eligible for deduction under section 80CCD(2) .
• Get the employer contribution to the recognised provident fund included in the salary to the extent , it is not includible in the salary u/s 17(1).
• Utilize exemptions available within the new regime, if applicable.

5. Conclusion:

Budget 2025 brings significant tax benefits, particularly for those earning up to Rs 12 lakh. If your income slightly exceeds this threshold, marginal relief ensures you do not pay excessive taxes. However, it’s essential to evaluate whether the old or new tax regime benefits you the most based on your income structure.

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Disclaimer:

This article is based on my personal understanding of relevant provisions of the Income-tax Act and judicial precedents and should not be construed as legal advice. Taxpayers should seek professional advice for specific matters.

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