Tax season is one of the most daunting times of the year for many working citizens. Tax liabilities can quickly eat into your income and leave you with far less money than you would like. However, the new income tax regime offers significant relief for salaried taxpayers earning Rs 12 lakh annually.
Thanks to the enhanced Section 87A rebate and a higher standard deduction, individuals with an annual income of Rs 12 lakh can reduce their tax liability to zero under the new regime.
The revised tax structure aims to simplify taxation while leaving more income in the hands of taxpayers. As a result, many middle-income earners may find the new regime more attractive than the traditional tax system.
Read this article below to know how much tax you owe under both regimes.
How Tax Is Calculated Under the New Regime
Under the new tax regime, salaried individuals can claim a standard deduction of Rs 75,000, reducing their taxable income to Rs 11.25 lakh.
Gross Income: Rs 12,00,000
Standard Deduction: Rs 75,000
Taxable Income: Rs 11,25,000
Tax on Slabs: Rs 52,500 (Up to Rs 4 Lakh: NIL, Rs 4–8 Lakh: Rs 20,000, Rs 8–11.25 Lakh: Rs 32,500)
Section 87A Rebate: Rs 52,500
Net Tax Payable: Rs 0 (Since the tax liability remains within the enhanced Section 87A rebate limit of Rs 60,000, the entire amount is offset.)
ALSO READ: Got Form 16 From Your Employer? Check These Key Details Before Filing Your ITR This Year
What Happens Under the Old Tax Regime?
The old tax regime continues to offer a wide range of deductions, including benefits under Sections 80C and 80D, as well as exemptions such as House Rent Allowance (HRA). However, taxpayers who do not make substantial tax-saving investments may face a considerably higher tax bill.
Income Details:
Gross Income: Rs 12,00,000
Standard Deduction: Rs 50,000
Taxable Income: Rs 11,50,000 (without investments like PF, ELSS, insurance, etc.)
Tax Calculation:
Income Tax Calculation: Rs 12,500 + Rs 1,00,000 + Rs 45,000 = Rs 1,57,500 (Up to Rs 2.5 lakh: Nil, Rs 2.5 lakh to Rs 5 lakh (at 5%): Rs 12,500, Rs 5 lakh to Rs 10 lakh (at 20%): Rs. 1,00,000, Above Rs 10 lakh (at 30%): Rs 45,000)
Health & Education Cess (4%): Rs 6,300
Net Tax Payable: 1,63,800
ALSO READ: ITR Filing 2026: Key Changes Taxpayers Must Know Before Filing Returns
New vs Old Tax Regime: Which Is Better?
For most salaried individuals earning Rs 12 lakh annually, the new tax regime emerges as the more beneficial option. It has lower tax rates, a larger standard deduction, and the higher Section 87A rebate reduces your tax liability to zero.
The old regime, on the other hand, becomes advantageous only when taxpayers claim various deductions from the total income. However, it still does not make your tax burden zero on a 12 lakh income.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
