Zero Tax Up to ₹12 Lakh: The Budget 2025 Change Most Salaried Indians Haven't Acted On

On 1 February 2025, the Finance Minister announced that individuals with income up to ₹12 lakh will pay zero income tax under the new tax regime. For salaried employees, who also receive a ₹75,000 standard deduction, the zero-tax threshold is effectively ₹12.75 lakh.

This is the largest income tax relief for the middle class in India in recent memory. It applies from Financial Year 2025-26 (Assessment Year 2026-27) — meaning salaries earned from April 2025 onwards.

Crores of people who earn under ₹12 lakh and currently file returns or pay advance tax under the old regime may be paying more than they should. Many others who earn between ₹8-12 lakh have been told by their accountants or employers to "stick with the old regime" — advice that, for many of them, is now wrong.

This article explains exactly what changed, how to decide which regime suits you, and how to file your return free of charge in under 30 minutes.

What Budget 2025-26 Changed

New Tax Regime — Slabs from FY 2025-26

| Income Slab | Tax Rate |
|---|---|
| Up to ₹4 lakh | 0% |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |

The key: A rebate under Section 87A of ₹60,000 is available to anyone with total income up to ₹12 lakh. This rebate wipes out the entire tax liability. So even though the 5% and 10% slabs technically apply, the rebate cancels them out — the effective tax is zero.

For salaried employees: A standard deduction of ₹75,000 is available under the new regime (increased from ₹50,000 in Budget 2024). This means a salaried person's gross salary can be ₹12.75 lakh before tax kicks in:

• Gross salary: ₹12.75 lakh


• Standard deduction: – ₹75,000


• Taxable income: ₹12 lakh


• Tax as per slabs: ₹60,000


• Rebate u/s 87A: – ₹60,000


• Net tax payable: ₹0

Old Regime vs New Regime: Which Is Better for You?

This is the most important decision before filing.

The new regime is better if you:

• Have few deductions (no home loan, no big 80C investments beyond PF, no HRA claim)


• Have gross income up to ₹12.75 lakh (salary) — your tax is literally zero


• Are a young salaried worker early in your career without a loan

The old regime may still be better if you:

• Have a home loan with large interest payment (Section 24: up to ₹2 lakh deduction)


• Pay rent in a metro and claim HRA exemption


• Invest ₹1.5 lakh+ per year in 80C instruments (PPF, ELSS, LIC, EPF over 12%)


• Pay health insurance (Section 80D: up to ₹25,000 for self + ₹50,000 for parents 60+)


• Contribute to NPS (Section 80CCD(1B): additional ₹50,000 deduction)

Quick rule of thumb: Add up all deductions you actually claim. If the total exceeds ₹5 lakh, the old regime likely saves you more. If deductions are under ₹3 lakh, the new regime is almost certainly better.

You can switch regimes every year (for salaried individuals with no business income). Your employer deducts TDS based on whichever regime you declare at the start of the financial year. If you didn't declare, they defaulted to the new regime from FY 2024-25 onwards.

How to File ITR for Free: Step by Step

Who Files Which Form

• ITR-1 (Sahaj): Salaried individuals with income up to ₹50 lakh, one house property, and no capital gains. This covers most government and private sector employees.
• ITR-4 (Sugam): Small business owners and freelancers using the presumptive taxation scheme (Section 44AD/44ADA) with income up to ₹50 lakh.
• ITR-2: Salaried with capital gains (sold shares, mutual funds, property) or with foreign income.

For most readers, ITR-1 is the correct form.

Step-by-Step Filing

1. Go to incometax.gov.in → "Login" (use your PAN as User ID)
2. If you don't have an account: "Register" with your PAN, Aadhaar, and mobile number.
3. After login: "e-File" → "Income Tax Returns" → "File Income Tax Return"
4. Select: Assessment Year 2026-27, Mode: Online, Form: ITR-1
5. The form is pre-filled with data from your employer's TDS returns, bank interest (from your Form 26AS), and Aadhaar-linked accounts. Verify each section — correct any errors.
6. Under "Tax Regime": Select New or Old. The portal shows you the tax under both — compare before choosing.
7. Standard Deduction (₹75,000 for new regime, ₹50,000 for old) is auto-applied for salaried individuals.
8. Check the "Tax Computation" tab — if your income is under ₹12 lakh (new regime), it should show ₹0 payable.
9. If you have tax refund coming (TDS was deducted but your actual tax is less): the refund amount shows here. Pre-validate your bank account under "My Profile" → "Bank Account" to receive the refund directly.
10. Submit and e-verify: Use Aadhaar OTP (instant) or net banking (same day). E-verification is mandatory; paper verification via post to Bengaluru is no longer the norm.

Processing time for verified returns is typically 20–45 days. Track at incometax.gov.in → "View Filed Returns."

The Penalty for Not Filing

If your gross income exceeds ₹2.5 lakh and you don't file:

• After 31 July: you can file a belated return up to 31 December, with a penalty of ₹5,000 (₹1,000 if income is below ₹5 lakh).


• After 31 December: you cannot file for that year at all without a show-cause notice.

If TDS was deducted on your salary but you're due a refund, the refund is processed only after you file. Not filing means leaving money you've already paid in the government's account.

Check Form 26AS Before Filing

Form 26AS is your consolidated tax credit statement — it shows all TDS deducted on your salary, bank interest, and any other income, as well as advance tax paid. Before filing:

1. Go to incometax.gov.in → Login → "e-File" → "Income Tax Returns" → "View Form 26AS"
2. Check that all TDS entries match your salary slips and bank statements.

If something is missing or wrong (employer entered a wrong PAN, bank deducted TDS but it isn't reflected), contact the deductor (employer / bank) to file a correction. Filing with mismatched 26AS causes your return to be flagged.

What You Can Do

• If your salary is under ₹12.75 lakh gross: Your tax is zero under the new regime. File ITR-1 before 31 July at incometax.gov.in. No CA needed — the form is pre-filled and takes 20–30 minutes.
• If you paid TDS and your actual tax is lower or zero: You have a refund coming. File and claim it. It won't come automatically.
• Switch your employer TDS declaration to the new regime (submit Form 12BAA or the employer's internal regime declaration form before April each year) to avoid excess TDS and waiting for a refund.
• If your income is above ₹12.75 lakh: Calculate your total deductions (home loan, 80C, HRA, 80D) and compare the two regime tax liabilities on the portal — it shows both before you submit.
• Don't pay a CA ₹500–2,000 for a simple ITR-1 filing. The portal is designed for self-filing. If you have any trouble, call the Income Tax helpline: 1800-103-0025 (toll-free).

The most important action is simple: file before 31 July, choose the right regime, and if you're under ₹12 lakh — know that your tax bill for FY 2025-26 is zero.

Sources

• Union Budget 2025-26 — Finance Bill, Ministry of Finance (1 February 2025)
• Income Tax Act 1961 — Section 87A rebate, Section 115BAC (new regime)
• Income Tax Department — incometax.gov.in
• CBDT Circular No. 1/2024 — Guidelines on new tax regime as default from FY 2024-25
• CBDT Notification on Budget 2025-26 tax slab changes