Finance Minister Nirmala Sitharaman recently announced a significant relief for middle-class taxpayers by increasing the threshold for zero income tax liability after a rebate in the new tax regime. The income limit has been raised from Rs 7 lakh to Rs 12 lakh, excluding special rate incomes.
These changes will come into effect from the next financial year beginning on April 1, 2025. This means that individuals with an annual income of up to Rs 12 lakh will qualify for a full income tax rebate under Section 87A, resulting in zero tax payments.
How much tax do I have to pay? Calculate now
It is important to note that this zero tax liability only pertains to the new tax regime that has been in place as the default system since 2023. To avail of this benefit, taxpayers simply need to file their Income Tax Return (ITR) as usual — no additional steps are required.
Previously, individuals earning Rs 12 lakh per year would typically pay around Rs 80,000 in income tax under the New Tax Regime. However, with the revised thresholds, this tax obligation has now been eliminated for eligible taxpayers.
Here's why you have to file ITR
In Budget 2025, FM Sitharaman increased the basic income exemption limit from Rs 3 lakh to Rs 4 lakh in the upcoming tax regime. Starting from April 1, 2025 (FY 2026), individuals with an annual income of up to Rs 4 lakh will not have to pay taxes or file an income tax return (ITR).
For the financial year 2024-25, those earning between Rs 3 lakh and Rs 7 lakh in the new tax regime, and between Rs 2.5 lakh and Rs 5 lakh in the old tax regime must file their ITRs to claim a rebate under Section 87A of the Income Tax Act.
In the Budget 2025, Finance Minister Nirmala Sitharaman raised the rebate amount from Rs 25,000 to Rs 60,000 in the proposed New Tax Regime 2025.
The government offers relief to middle-class taxpayers through a rebate provided under Section 87A. This rebate enables individuals with income below the prescribed threshold to lessen their tax burden.
It's important to note that under the new tax regime, the Rs 60,000 rebate will only be applicable to taxpayers whose total annual income does not include special rate incomes like long-term or short-term capital gains.
"A tax return needs to be filed even if the income is below Rs 12 lakh. Taxpayers are exempt from filing returns only if the basic exemption limit is not breached. This limit is Rs 2.5 lakh for ordinary citizens (below 60 years of age), Rs 3 lakh for senior citizens (ages 60 to 79), Rs 5 lakh for super senior citizens (80 years or older) under the Old Tax Regime, and Rs 4 lakh for all individuals under the new tax regime," said CA (Dr.) Suresh Surana.
Abhishek Mundada, Partner, Dhruva Advisors, said “Filing an ITR is compulsory if you want to claim the rebate available under Section 87A. Those earning more than Rs 4 lakh but under Rs 12 lakh will not automatically qualify for Section 87A rebate if they do not file their ITR starting next year.”
Times when ITR filing is important
CA Nainit Savla said: “As per the IT Act, ITR is not required to be filed if the total income for the year is less than Rs 4 lakh. However, in certain cases illustrated under Section 139, ITR is required to be filed irrespective of the income of the assessee.”
These criteria include:
> Current account deposits with banking institutions exceeding Rs 1 crore. > Electricity bill amounting to more than Rs 1 lakh. > Expenditure on foreign travels exceeding Rs 2 lakh. > Gross receipts in Profession (other than business as covered) exceeding Rs 10 lakhs in a financial year, or has > TDS/TCS amounting to more than Rs 25,000 (with the limit being Rs 50,000 for senior citizens).
The new tax regime will have an additional 25% tax slab, taking the total number of slabs to seven in FY26. The new tax slab structure is as follows:
Rs 0 – Rs 4,00,000: 0% Rs 4,00,001 – Rs 8,00,000: 5% Rs 8,00,001 – Rs 12,00,000: 10% Rs 12,00,001 – Rs 16,00,000: 15% Rs 16,00,001 – Rs 20,00,000: 20% Rs 20,00,001 – Rs 24,00,000: 25% Rs 24,00,001 and above: 30%
Benefits of ITR filing
It may not be mandatory for individuals who fall below the basic income exemption limit to file Income Tax Returns (ITRs) voluntarily. However, there are benefits to filing even a nil ITR. Submitting ITRs, even if they show no taxable income, can serve as proof of income and address.
This documentation can be helpful in obtaining loans from banks and Non-Banking Financial Companies (NBFCs) more easily. Additionally, when applying for a visa at consulates or embassies for a foreign trip, having ITRs may be required for processing your application.