₹12 Lakh Tax-Free Target
Zero tax on ₹12 lakh income from FY 2025-26
What is This Hack?
From FY 2025-26, earn up to ₹12 lakh with zero tax under new regime using ₹75,000 standard deduction and ₹60,000 Section 87A rebate
How It Works
Budget 2025 proposed a game-changing increase in the tax-free income limit under the new tax regime: from ₹7 lakh to ₹12 lakh (effective FY 2025-26, ITR filed in 2026). Here's how: New regime basic exemption increases to ₹4 lakh. Standard deduction increases from ₹50K to ₹75K. Section 87A rebate increases from ₹25K to ₹60K for income up to ₹12 lakh. Math: ₹12L gross - ₹75K standard deduction = ₹11.25L taxable. Tax on ₹11.25L = ₹60,000 (at slab rates). Section 87A rebate = ₹60,000. Net tax = ZERO. This is MASSIVE for middle-class salaried employees, removing ~2 crore taxpayers from the tax net. Note: This is proposed for FY 2025-26, NOT current FY 2024-25.
Step-by-Step Implementation
Verify Effective Date
IMPORTANT: This benefit applies from FY 2025-26 (April 2025 onwards). If you're planning for FY 2024-25, current limit is ₹7 lakh only. Budget proposals must be enacted by Parliament first.
Ensure Gross Income ≤ ₹12 Lakh
Calculate your total gross salary: Basic + HRA + Special Allowance + Bonuses. If it exceeds ₹12L even by ₹1, you lose the entire rebate. Plan carefully with employer.
Choose New Tax Regime
This benefit is ONLY in new tax regime. Old regime has different rules. From FY 2023-24, new regime is default. Don't opt for old regime if you want this benefit.
Restructure Salary if Needed
If your CTC is ₹13-14 lakh but gross is ₹12.5L, request employer to shift ₹50K-1L to employer NPS contribution (under 80CCD(2)). This reduces gross salary below ₹12L threshold.
Monitor Income Throughout Year
Track monthly salary, bonuses, arrears. If you're close to ₹12L threshold, avoid accepting mid-year bonuses or negotiate deferring to next FY.
File ITR Claiming Rebate
File ITR-1 showing gross ₹12L, standard deduction ₹75K, taxable ₹11.25L, tax ₹60K, rebate ₹60K, net tax ZERO. Even though tax is zero, filing is mandatory to claim rebate.
Real Example: Software Engineer with ₹11.5 Lakh Salary
Situation
Ananya is a software engineer in Bangalore earning ₹11.5 lakh gross annual salary (₹95,833/month). She's in new tax regime. This is for FY 2025-26 planning.
Without This Hack
Current system (FY 2024-25): ₹11.5L - ₹50K std deduction = ₹11L taxable. Tax (new regime rates): ₹75K. Section 87A rebate: ₹25K (for income up to ₹7L only). Net tax: ₹75K - ₹25K = ₹50,000 payable.
With This Hack
FY 2025-26 onwards: ₹11.5L - ₹75K std deduction = ₹10.75L taxable. Tax: ₹57,500. Section 87A rebate: ₹60K (for income up to ₹12L). Net tax: ₹57.5K - ₹60K = ZERO! Actually gets ₹2,500 benefit (rebate cap is ₹60K, used only ₹57.5K).
💰 ₹50,000 annual tax eliminated completely from FY 2025-26
Common Pitfalls to Avoid
- Applicable ONLY from FY 2025-26 - NOT for current FY 2024-25 returns
- Exceeding ₹12 lakh even by ₹1 eliminates entire rebate - becomes fully taxable
- Only for new tax regime - old regime has no such benefit
- Gross salary includes ALL taxable components - not just basic salary
- Other income (interest, rental, etc.) also counts toward ₹12L limit
- Must file ITR even if tax is zero - filing is mandatory to claim rebate
Prerequisites & Requirements
- Resident individual taxpayer
- Total gross income ≤ ₹12 lakh
- Opt for new tax regime (default from FY 2023-24)
- Applicable from FY 2025-26 onwards (ITR filed in 2026)
- Filing ITR-1/ITR-2 to claim rebate
- All income disclosed (salary + other income)
Key Benefits
- Potential savings: ₹1.5 lakhs tax saved
- Implementation time: Immediate
- Legal status: fully legal
- Risk level: low
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