Taxpayers with earnings of as much as Rs 13.25 lakh, not Rs 12 lakh, will pay nil taxes. Right here’s how – Firstpost

In her Finances 2025 presentation speech on the Parliament on Saturday (February 1), Finance Minister Nirmala Sitharaman introduced that people with a wage earnings of as much as Rs 12 lakh will now be eligible for a full earnings tax rebate underneath the brand new tax regime.

This transfer has been hailed because it offers important reduction to taxpayers by rising the exemption threshold for earnings tax underneath the New Tax Regime from the earlier Rs 7 lakh.

Nonetheless, the advantages lengthen past these incomes Rs 12 lakh.

People with a gross wage earnings of as much as Rs 13.25 lakh may also successfully cut back their taxable earnings to zero through the use of accessible deductions.

12 lakh earnings tax calculation

Commonplace deduction: This can be a flat deduction allowed by the federal government to salaried staff and pensioners. It reduces the whole taxable earnings with out requiring any payments or proof of bills and was launched to simplify the tax submitting course of and supply reduction for bills like transportation and medical prices.

A typical deduction of a most of Rs 75,000 is accessible to salaried staff, decreasing the taxable earnings straight.

Part 80CCD(2) deduction for NPS: This pertains to the employer’s contribution to the Nationwide Pension System (NPS). Workers can declare a deduction of as much as 10 per cent of their wage (primary plus dearness allowance) underneath this part.

As an example, if the essential wage and dearness allowance quantity to Rs 5 lakh, the deduction could be Rs 50,000.

By making use of these deductions, a person with a gross wage of Rs 13,25,000 can deliver their web taxable earnings right down to Rs 12 lakh, making them eligible for the total tax rebate underneath Part 87A.

Right here’s an instance.

Gross Wage: Rs 13,25,000
Much less: Commonplace deduction: upto Rs 75,000
Much less: NPS contribution (Part 80CCD(2)): upto Rs 50,000
Web taxable earnings: Rs 12,00,000

With a web taxable earnings of Rs 12 lakh, the person qualifies for a full rebate underneath Part 87A, leading to zero tax legal responsibility.

For people with greater incomes, the brand new tax regime nonetheless gives substantial tax financial savings.

There are some caveats, although.

The deduction underneath Part 80CCD(2) is just relevant if the employer contributes to the NPS on behalf of the worker.

The utmost deduction underneath Part 80CCD(2) is capped at 10 per cent of the worker’s wage (primary plus dearness allowance) for private-sector staff and 14 per cent for presidency staff.