New Income Tax Relief: How Salaried Assessees Get Zero Tax Up To ₹12.75 Lakh Under Section 115BAC(1A)

The Ministry of Finance has formally clarified in the Lok Sabha that the Finance Act, 2025 has significantly relaxed income-tax slabs and rates for assessees who choose the new tax regime under section 115BAC(1A) of the Income-tax Act, 1961. These amended slab rates will apply from FY 2025–26 onwards, i.e., for AY 2026–27 and subsequent assessment years.

Under this revamped structure, resident individuals opting for the new regime will face no income tax liability on total income up to ₹12,00,000, thanks to an enhanced rebate. For salaried assessees, the availability of a standard deduction of ₹75,000 pushes the effective tax-free gross salary level to ₹12,75,000.

This article explains the key features of these changes, the applicable slab rates, how marginal relief works, and the expected impact on assessees and Government revenue.

Statutory Basis and Effective Date

The revised slabs and rebate provisions arise from amendments introduced through the Finance Act, 2025, specifically linked to returns filed under the new tax regime prescribed in section 115BAC(1A) of the Income-tax Act, 1961.

Important: The new slab rates are applicable only where the assessee opts for the new tax regime under section 115BAC(1A).

Period of Applicability

The Ministry of Finance has clarified that:

  • The amended slab rates and rebate:
    • Apply to income for FY 2025–26 and onwards, and
    • Correspondingly apply for AY 2026–27 and subsequent assessment years.
  • These changes are relevant for all individuals choosing the new regime, not just salaried assessees.

Enhanced Rebate for Resident Individuals

Full Rebate Up To ₹12,00,000

Under the revised structure, a full rebate is now admissible to resident individuals opting for the new regime such that:

  • If total income does not exceed ₹12,00,000,
    • the entire tax computed as per the new slab rates is fully offset by the rebate, and
    • the net tax payable becomes NIL (before cess).

This enhancement is a substantial departure from earlier thresholds and is specifically intended to widen the effective tax-free band for resident individuals under the new tax regime.

Marginal Relief Beyond ₹12,00,000

The Government has also confirmed that marginal relief, which was earlier available under the new tax regime, continues to apply in a modified form:

  • Marginal relief is available where total income exceeds ₹12,00,000 but remains within a specified limit.
  • The Ministry has stated that marginal relief is provided on total income up to ₹12,70,588.
  • Once total income crosses ₹12,70,588, the benefit of marginal relief ceases, and tax is payable strictly as per the slab rates, without any adjustment.

Note: Marginal relief ensures that an assessee whose income marginally exceeds ₹12,00,000 does not suffer a disproportionately higher tax liability compared to someone just below that threshold.

Special Benefit for Salaried Assessees: Standard Deduction

Standard Deduction of ₹75,000

Salaried assessees opting for the new regime will continue to enjoy a standard deduction.