The tax structure in India undergoes periodic changes and being well informed can help you optimise your tax liability. Read on to understand the income tax slabs, deductions, and exemptions applicable to those with an annual income of Rs. 12 lakh, exploring both the new and old tax regimes.
Income tax slabs under the new tax regime for FY 2025-26 (AY 2026-27)
In the 2025 Budget, the government introduced updated income tax slabs under the new tax regime. The revised structure increases slab ranges to Rs. 4 lakh intervals, and a 25% tax rate was added. These changes aim to simplify taxation while maintaining clarity across different income brackets for FY 2025–26 (AY 2026–27).
Annual income |
Income tax rate |
Up to Rs. 2.5 lakh |
Nil |
Rs. 2.5 lakh – Rs. 4 lakh |
Nil |
Rs. 4 lakh – Rs. 5 lakh |
5% |
Rs. 5 lakh – Rs. 8 lakh |
5% |
Rs. 8 lakh – Rs. 10 lakh |
10% |
Rs. 10 lakh – Rs. 12 lakh |
10% |
Rs. 12 lakh – Rs. 16 lakh |
15% |
Rs. 16 lakh - Rs. 20 lakh |
20% |
Rs. 20 lakh - Rs. 24 lakh |
25% |
More than Rs. 24 lakh |
30% |
Comparison of old vs. new income tax slabs as per Union Budget 2025
The Union Budget 2025 has introduced major tax relief for individuals, with a rebate ensuring zero tax liability for income up to Rs.12 lakh under the new tax regime. This revision significantly reduces the tax burden for middle-class taxpayers.
Income tax slabs: Old vs. new regime for FY 2024-25 (AY 2025-26)
Income slab (Rs.) |
Old regime tax rate |
New regime tax rate (2025) |
Up to Rs.2.5 lakh |
Nil |
Nil |
Rs.2.5 lakh – Rs.4 lakh |
5% |
Nil |
Rs.4 lakh – Rs.8 lakh |
5% |
5% |
Rs.8 lakh – Rs.12 lakh |
20% |
10% |
Rs.2 lakh – Rs.16 lakh |
30% |
15% |
Rs.16 lakh – Rs.20 lakh |
30% |
20% |
Rs.20 lakh – Rs.24 lakh |
30% |
25% |
Above Rs.24 lakh |
30% |
30% |
Key changes in Budget 2025
The Budget 2025 brought several taxpayer-friendly updates. Firstly, no tax is payable on incomes up to Rs. 12 lakh, thanks to an enhanced rebate under Section 87A. Secondly, tax rates have been reduced for incomes between Rs. 12 lakh and Rs. 24 lakh. Thirdly, while the old regime remains unchanged, it still allows deductions such as 80C and HRA. Note that the new regime restricts many of these traditional exemptions.
Tax saving options under new and old tax regime
Below is a comparative overview of tax-saving opportunities available under the old and new tax regimes:
New tax regime – Allowed deductions
Although limited, certain deductions are still available under the new system:
Deduction type |
Details |
Standard deduction |
Rs. 75,000 |
Employer’s NPS contribution |
Allowed under Section 80CCD(2) |
Agniveer Corpus Fund |
Deduction under Section 80CCH |
Family pension |
Deduction as per Section 57(iia) |
Conveyance and transport allowance |
Applicable, especially for specially-abled individuals |
Gratuity and leave encashment |
Exempt under Sections 10(10), 10(10AA), 10(10C) |
Interest on home loan (Let-out Property) |
Deduction allowed under Section 24 |
Old tax regime – Exemptions and deductions
The old regime offers a wider variety of tax-saving tools, grouped into two categories:
Part A: Benefits under 'Salary'
Component |
Tax treatment |
Basic and DA |
Fully taxable |
HRA |
Partially exempt (subject to limits) |
LTA |
Exempt twice in a four-year block |
Internet/Mobile reimbursement |
Exempt with valid bills |
Children's education allowance |
Rs. 4,800 annually (up to 2 children) |
Food coupons |
Up to Rs. 26,400 yearly |
Professional tax |
Usually Rs. 2,400 |
Standard deduction |
Rs. 50,000 |
Part B: Deductions under Chapter VI-A
Section |
Deduction |
80C |
Up to Rs. 1.5 lakh (EPF, PPF, ELSS, SSY, NSC, etc.) |
80D |
Rs. 25,000–50,000 (health insurance) |
80E |
Interest on education loans (up to 8 years) |
80G |
Donations to approved charities (50% or 100%) |
80DD |
Rs. 75,000–1.25 lakh (for disabled dependents) |
Section 24(b) |
Up to Rs. 2 lakh (home loan interest) |
How to save taxes for Rs. 12 lakh salary?
Whether you go with the old or the new tax regime, understanding your tax-saving opportunities can make a noticeable difference. Here’s a breakdown of common strategies to reduce your tax liability:
1. Make use of the standard deduction
This is the simplest and most widely used deduction available to salaried individuals.
Under the new regime, the standard deduction is Rs. 75,000.
Under the old regime, it is Rs. 50,000.
You don’t need to provide any investment proof—this deduction is applied automatically.
2. Choose the more beneficial regime
In the old regime, income up to Rs. 2.5 lakh is tax-free.
In the new regime, the tax-free threshold is Rs. 3 lakh.
The old regime allows a wider range of deductions (like 80C, 80D, etc.), while the new one offers simpler slab rates with fewer benefits.
Compare both using an online tax calculator based on your actual investments and expenses to see which regime offers lower tax.
3. Claim deduction for employer’s contribution to NPS – Section 80CCD(2)
This benefit is available under both regimes.
Employer type |
Old regime |
New regime |
Government |
14% of (Basic + DA) |
14% of (Basic + DA) |
Private |
Not available |
14% of (Basic + DA) |
4. Exemption on gifts received
If you’ve received gifts (in cash or kind), these are tax-exempt up to Rs. 50,000 per financial year. Any amount above that becomes fully taxable. This applies under both regimes.
5. Interest deduction for let-out property – Section 24
If you have rented out a property and are paying interest on a loan taken for it, you can claim this interest as a deduction. There's no upper limit for this benefit, and it is available under both regimes. Planning on investing in property for your tax planning? Check your eligibility for a home loan from Bajaj Finserv using your mobile number and OTP for verification.
6. Gratuity and leave encashment
Tax exemption is available on gratuity and leave encashment received at retirement or upon leaving employment. This applies to both tax regimes.
7. Deduction for additional employee costs – Section 80JJA
Businesses can claim 30% of additional employee costs as a deduction, regardless of the tax regime selected.
8. Deduction for Agniveer Corpus Fund – Section 80CCH(2)
Eligible Agniveers under the Agnipath Scheme can claim the full amount contributed by the Central Government as a deduction. No cap is applied, and it is applicable under both regimes.
Rs. 12 lakh income tax calculation in old and new tax regime
Let’s understand how taxes are calculated for a gross salary of Rs. 12 lakh in FY 2025–26 under both tax regimes. Suppose Mr A receives an HRA exemption of Rs. 60,000, LTA exemption of Rs. 20,000, and pays Rs. 2,400 as professional tax. He also invests Rs. 1.5 lakh in PPF, pays Rs. 50,000 for his senior citizen parents’ health insurance, and pays Rs. 25,000 towards education loan interest.
Particulars |
Old tax regime |
New tax regime |
Gross Salary |
Rs. 12,00,000 |
Rs. 12,00,000 |
HRA Exemption |
Rs. 60,000 |
NA |
LTA Exemption |
Rs. 20,000 |
NA |
Standard Deduction |
Rs. 50,000 |
Rs. 75,000 |
Professional Tax |
Rs. 2,400 |
NA |
Income after Deductions |
Rs. 10,67,600 |
Rs. 11,25,000 |
Section 80C Deduction |
Rs. 1,50,000 |
NA |
Section 80D Deduction |
Rs. 50,000 |
NA |
Section 80E Deduction |
Rs. 25,000 |
NA |
Net Taxable Income |
Rs. 8,42,600 |
Rs. 11,25,000 |
Tax Before Rebate |
Rs. 84,261 |
Rs. 52,500 |
Rebate under 87A |
NA |
Rs. 52,500 |
Final Tax Payable |
Rs. 84,261 |
Rs. 0 |
Conclusion: Choosing the new tax regime in this case results in zero tax liability, saving Rs. 84,261.
Tax computation for FY 2024-25 under the old and new tax regime
Here’s a similar calculation using income figures for the previous financial year (FY 2024–25), keeping exemptions and deductions the same as in the previous example.
Particulars |
Old tax regime |
New tax regime |
Gross Salary |
Rs. 12,00,000 |
Rs. 12,00,000 |
HRA Exemption |
Rs. 60,000 |
NA |
LTA Exemption |
Rs. 20,000 |
NA |
Standard Deduction |
Rs. 50,000 |
Rs. 75,000 |
Professional Tax |
Rs. 2,400 |
NA |
Income after Deductions |
Rs. 10,67,600 |
Rs. 11,25,000 |
Section 80C Deduction |
Rs. 1,50,000 |
NA |
Section 80D Deduction |
Rs. 50,000 |
NA |
Section 80E Deduction |
Rs. 25,000 |
NA |
Net Taxable Income |
Rs. 8,42,600 |
Rs. 11,25,000 |
Tax Before Rebate |
Rs. 84,261 |
Rs. 71,500 |
Rebate under 87A |
NA |
NA |
Final Tax Payable |
Rs. 84,261 |
Rs. 71,500 |
Conclusion: In this case, the new tax regime still results in a lower tax payable, even without any deductions.
Income tax slabs for FY 2023-24 (old tax regime)
Income range (Rs.) |
Tax rate |
Up to Rs. 2.5 lakh |
Nil |
Rs. 2,50,001 - Rs. 5,00,000 |
5% |
Rs. 5,00,001 - Rs. 10,00,000 |
20% |
Rs. 10,00,001 and above |
30% |
For individuals earning Rs. 12 lakh or more, the old tax regime may still be beneficial due to higher deduction options.
Deductions and exemptions under the new tax regime
Unlike the old regime, the new tax regime has limited deductions. Below are the key tax-saving options available under the new tax regime:
- Standard Deduction: A flat deduction of ₹50,000 for salaried and pensioned individuals under Standard deduction.
- Deductions under Section 80CCD (2): Employer’s contribution to National Pension Scheme (NPS) can be claimed under Section 80CCD (2).
- No Exemptions for Allowances: Perks like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and deductions under Section 80C (like PF contributions, life insurance, etc.) are not available.
- No exemptions for transport and medical allowances: Unlike the old regime, these deductions are removed.
Minimum deductions required if income exceeds Rs. 12 lakh
For taxpayers with an income above Rs. 12 lakh, maximizing deductions is crucial. Here are some key deduction options under the old tax regime:
- Section 80C Deductions: Investments in EPF, PPF, ELSS, NSC, Life Insurance Premiums, etc.
Home Loan Interest (Section 24(b)): Deduction on home loan interest paid. You might already be eligible for favourable terms on a home loan – check your loan offers from Bajaj Finserv by entering your mobile number and OTP.
- Health Insurance Premiums (Section 80D): Tax benefit on health insurance for self, spouse, children, and parents.
- National Pension Scheme (Section 80CCD): Additional deduction for individual contributions.
- Education Loan Interest (Section 80E): Deduction for education loan interest.
- Standard Deduction: Rs. 50,000 deduction for salaried individuals.
Comparison of Tax Liability: Old vs. New Regime
Description |
Amount (Rs.) |
Old regime (Rs.) |
New regime (Rs.) |
Income |
12,50,000 |
12,50,000 |
12,50,000 |
Standard deduction |
50,000 |
50,000 |
50,000 |
Professional tax |
2,400 |
2,400 |
– |
Gross total income |
11,97,600 |
11,97,600 |
12,00,000 |
Less: Deduction u/s 80C |
1,50,000 |
1,50,000 |
– |
Total Taxable Income |
10,47,600 |
10,47,600 |
12,00,000 |
Income Tax Payable |
– |
1,26,780 |
90,000 |
Education Cess (4%) |
– |
5,071 |
3,600 |
Total Tax |
– |
1,31,851 |
93,600? |
- If you have significant deductions and exemptions, the old tax regime could be more beneficial.
- If you do not claim many deductions, the new tax regime provides a lower tax rate and simpler filings
How to calculate income tax on different salary slabs
For better understanding, taxpayers can calculate tax liability based on different salary slabs:
Rs. 7 lakh: Tax calculation for Rs. 7 lakh salary
Rs. 12 lakh: Tax calculation for Rs. 12 lakh salary
Rs. 15 lakh: Tax calculation for Rs. 15 lakh salary
It is essential to assess individual tax-saving options before choosing between the old vs. new tax regime. Make an informed decision based on your financial goals and tax-saving potential.
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Conclusion
Understanding how income tax works allows you to make informed decisions about which regime to choose. If you wish to follow the old tax regime, you can lower your tax burden by investing in schemes like PPF, ELSS, NSC, or Sukanya Samriddhi Yojana. On the other hand, the new regime provides simpler slab rates, and you can still claim a few useful deductions like the standard deduction and employer’s NPS contribution. Planning to buy a house? You can also claim home loan benefits through Bajaj Finserv, which can support your financial planning while potentially reducing your taxable income. You might already be eligible – check your loan offers now by entering your mobile number and verifying with an OTP.
Know how to calculate income tax on different salary slabs
Salary amount |
Calculate income tax for different salary slab: |
Rs. 7 lakh |
|
Rs. 15 lakh |
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