Understanding the tax exemption for ₹12 lakhs | Fusion - WeRIndia

The Union Budget 2025-26 has been hailed as a dream budget due to its major tax relaxations.

The government has raised the tax exemption limit to ₹12 lakh, reducing the burden on middle-class taxpayers.

However, this exemption comes with certain conditions that taxpayers must understand for effective tax planning.

Under the new tax regime, the income tax slabs have been revised:

There is no income tax up to ₹4 lakhs.

After that:

• ₹4,00,001 to ₹8,00,000 – 5%
• ₹8,00,001 to ₹12,00,000 – 10%
• ₹12,00,001 to ₹16,00,000 – 15%
• ₹16,00,001 to ₹20,00,000 – 20%
• ₹20,00,001 to ₹24,00,000 – 25%
• Above ₹24,00,000 – 30%

The basic exemption limit has increased from ₹3 lakh to ₹4 lakh. Additionally, the tax rebate under Section 87A has been raised to ₹60,000, ensuring that individuals with net taxable income up to ₹12 lakh pay no tax.

Your Income will be taxable even though it is below ₹12 Lakh in some situations:

The exemption applies only to regular income, excluding special rate income such as capital gains.

For example, if an individual earns ₹10 lakh as salary and ₹2 lakh as capital gains, the salary remains tax-free, but capital gains will be taxed at applicable rates.

The Budget 2024-25 introduced key changes to capital gains taxation:

• Listed Equity Shares & Equity-Oriented Mutual Funds

• Short-term (held <12 months): 20%
• Long-term (held ≥12 months): 12.5% (exempt up to ₹1.25 lakh)

• Debt-Oriented Mutual Funds

• Short-term (held <24 months): Taxed as per income slab
• Long-term (held ≥24 months): 12.5% (if acquired before April 1, 2023), slab rate if acquired later

• Real Estate

• Short-term (held <24 months): Taxed as per slab
• Long-term (held ≥24 months): 20% with indexation or 12.5% without indexation (before July 23, 2024); 12.5% (after July 23, 2024)

• Unlisted Shares

• Short-term (<24 months): Taxed as per slab
• Long-term (≥24 months): 12.5%

Even if your taxable income is within the ₹12 lakh exemption limit, filing an Income Tax Return remains mandatory.

The Income Tax Department requires individuals earning above ₹4 lakh to file an ITR, even if their tax liability is zero.

Image by Mohamed Hassan from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on July 12, 2018

Image Reference: https://pxhere.com/en/photo/1440167