The Union Budget 2025 significantly tilted the tax equation in favour of the new income tax regime. For salaried individuals earning ₹12 lakh annually, the difference between the two regimes has become particularly stark.
Thanks to the higher Section 87A rebate and a ₹75,000 standard deduction under the new regime, a salaried taxpayer earning ₹12 lakh a year can end up paying zero income tax, while the old regime still requires substantial investments and deductions to achieve comparable savings.
Here’s a closer look at how the numbers stack up.
New regime: Zero tax at ₹12 lakh salary
A salaried employee earning ₹12 lakh annually is eligible for the ₹75,000 standard deduction under the new regime. The ₹75,000 standard deduction reduces taxable income to ₹11.25 lakh.
Since the taxable income remains below ₹12 lakh, the taxpayer qualifies for the enhanced rebate under Section 87A, bringing the final tax liability down to nil.
|
Particulars |
Amount ( ₹) |
| Gross salary | 12,00,000 |
| Standard deduction | 75,000 |
| Taxable income | 11,25,000 |
| Tax before rebate | 52,500 |
| Section 87A rebate | 52,500 |
| Final tax payable | 0 |
| Source: ClearTax tax computation for FY2025-26 | |
For many salaried taxpayers, this means they no longer need to make tax-saving investments solely to reduce their tax outgoings.
How much can HRA and other deductions save under the old regime?
To understand whether the old regime can still compete, let’s take an example.
The example, as explained by Cleartax, assumes a salaried taxpayer earning ₹12 lakh a year who is eligible for the following exemptions and deductions:
HRA exemption: ₹60,000
Leave Travel Allowance (LTA): ₹20,000
Professional tax deduction: ₹2,400
Section 80C deduction: ₹1.5 lakh
Section 80D deduction: ₹50,000
Section 80E deduction: ₹25,000
These deductions reduce the taxpayer’s taxable income substantially under the old regime.
What is the final tax liability under the old regime?
After accounting for the standard deduction, HRA exemption, Section 80C investments, health insurance premiums and contributions, taxable income reduces to ₹8.43 lakh.
Even then, the taxpayer continues to have a tax liability.
|
Particulars |
Amount ( ₹) |
| Gross salary | 12,00,000 |
| Less: HRA exemption | 60,000 |
| Less: LTA exemption | 20,000 |
| Less: Standard deduction | 50,000 |
| Less: Professional tax deduction | 2,400 |
| Income from salary | 10,67,600 |
| Less: Section 80C deduction | 1,50,000 |
| Less: Section 80D deduction | 50,000 |
| Less: Section 80E deduction | 25,000 |
| Taxable income | 8,42,600 |
| Tax payable (including cess) | 84,261 |
| Source: ClearTax tax computation for FY2025-26. | |
The taxpayer would still pay ₹84,261 in tax despite claiming some of the most commonly used deductions available under the old regime.
Which regime works better?
For a salaried individual earning ₹12 lakh annually, the new tax regime appears to have a clear advantage. According to ClearTax’s illustration, the taxpayer pays no tax under the new regime after factoring in the ₹75,000 standard deduction and the Section 87A rebate.
By contrast, even after claiming several popular exemptions and deductions, including HRA, LTA, Section 80C, Section 80D and Section 80E benefits, the tax liability under the old regime amounts to ₹84,261. This resulting tax liability suggests that taxpayers with moderate deductions may find the new regime more rewarding, while the old regime may continue to benefit those with significantly higher tax-saving claims.