Tax-Free up to ₹4 Lakh or ₹12 Lakh? Understanding the Confusion

Aakhir Tak – In Shorts

Finance Minister Nirmala Sitharaman announced tax relief measures in Budget 2025. One of the key highlights was the tax-free threshold of up to ₹12 lakh. She also revised the income tax slab structure, increasing the nil tax slab from ₹0-3 lakh to ₹0-4 lakh. However, there has been confusion regarding whether the tax-free limit is ₹4 lakh or ₹12 lakh. Let’s understand the scenario and the rationale behind the change.

Aakhir Tak – In Depth

Income Tax Slab Changes in Budget 2025
In Budget 2025, Finance Minister Nirmala Sitharaman introduced significant changes to the income tax structure. One of the major announcements was that individuals with an annual income up to ₹12 lakh would not need to pay income tax. In addition to this, the government revised the tax slab, raising the threshold for tax exemption from ₹0-3 lakh to ₹0-4 lakh. This means individuals earning up to ₹4 lakh annually will be exempt from paying income tax altogether.

What is the Confusion?
Despite these changes, a confusion has emerged around the question: Is the tax-free limit ₹4 lakh or ₹12 lakh? To clarify, we need to understand how the new income tax slab structure works. Let’s take an example where your income is ₹50 lakh. The tax calculation for such income would be as follows:

• No tax on income up to ₹4 lakh,
• 5% tax on income between ₹4-8 lakh,
• 10% tax on income between ₹8-12 lakh,
• 15% tax on income between ₹12-16 lakh,
• 20% tax on income between ₹16-20 lakh,
• 25% tax on income between ₹20-24 lakh,
• 30% tax on income above ₹24 lakh.

Is the Tax-Free Limit ₹4 Lakh or ₹12 Lakh?
Experts have clarified that ₹4 lakh is the tax-free threshold, where no tax is applicable at all.
Ritika Nayyar, Partner at Singhania & Co., explained that the ₹12 lakh figure refers to a rebate under Section 87A. This rebate ensures that if your total taxable income is up to ₹12 lakh, the tax calculated according to the slab structure will be reduced to zero.

Manish Dubey, Partner at CorpAcumen Advisors, further emphasized that the tax slabs start from ₹4 lakh. For those with taxable income up to ₹12 lakh, a rebate equal to the calculated tax will make the final tax liability zero.

Aakhir Tak – Key Takeaways to Remember

1. No income tax will be charged on earnings up to ₹4 lakh.
2. A rebate under Section 87A ensures that individuals with up to ₹12 lakh income pay no final tax.
3. The revised tax slabs offer various percentage rates for different income brackets.
4. For further details, refer to the official announcement from the government.

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