Category: Salaried Persons

Understanding Tax on ₹12 Lakh Income in India (Tax Year 2025-26)

Income tax can be confusing, especially when new rules come into play. Budget 2025 brought one of the biggest changes in personal income tax in recent years. If you earn ₹12 lakh a year, here’s what you need to know about your tax liability under the Income Tax Act 2025.

What’s Changed in 2025

The government revised the income tax structure effective for financial year 2025-26 (assessment year 2026-27). A key feature is the higher rebate and adjusted slab rates to boost disposable income for individuals. 

How Tax Works on ₹12 Lakh

Under the new tax regime:

• Income upto ₹12 lakh is eligible for a full tax rebate under Section 87A, which essentially reduces your tax liability to zero. 

• This means a person earning ₹12 lakh in a year does not pay any income tax if they choose the new tax regime. 

Here’s the idea:

• The slabs start at zero tax for the first part of income.

• Even though regular slabs would tax portions of income above ₹4 lakh, the rebate cancels the tax completely up to ₹12 lakh. 

This change is a major relief for middle-income earners and increases take-home salary. 

What Salary Earners Should Know

If you’re a salaried employee:

• You receive a standard deduction (around ₹75,000) before calculating taxable income. 

• After standard deduction, your taxable income might effectively fall below ₹12 lakh even if your gross salary is slightly above that.

• In practice, many salaried individuals earning up to ~₹12.75 lakh also pay zero tax because of this deduction plus the rebate. 

Choosing Between Old and New Regime

You can choose between the old tax regime (with exemptions and deductions like 80C, HRA, 80D) and the new simplified regime. For someone at ₹12 lakh:

• Under the old regime, you will have tax liability after standard slabs and only enjoy exemptions you claim.

• Under the new regime, the tax rebate wipes out tax up to ₹12 lakh, making it generally more beneficial for many people without heavy deductions. 

Example in Simple Terms

Imagine your gross salary is ₹12 lakh:

1. You get standard deduction (₹75,000 for a salaried person).

2. Your taxable income becomes ₹11,25,000.

3. Section 87A rebate cancels your tax liability on that amount under the new regime.

4. Final tax payable is zero.

This drastically increases your monthly take-home pay compared to previous years.

Comparison Chart: Old vs New Tax Regime on ₹12 Lakh Income

Particulars	Old Tax Regime	New Tax Regime (2025)
Gross Annual Income	₹12,00,000	₹12,00,000
Standard Deduction	₹50,000	₹75,000
Income After Standard Deduction	₹11,50,000	₹11,25,000
Other Deductions (80C, 80D, HRA etc.)	Assumed ₹1,50,000	Not Applicable
Taxable Income	₹10,00,000	₹11,25,000
Tax Before Rebate	₹1,12,500 approx	₹56,250 approx
Section 87A Rebate	Not Available	Available up to ₹12 lakh
Final Tax Payable	₹1,12,500 + cess	₹0
Best Suited For	People with high deductions	Most salaried individuals

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Tax Calculator Example: New Tax Regime (₹12 Lakh)

Step 1: Gross Income

₹12,00,000

Step 2: Standard Deduction (Salaried)

₹75,000

Step 3: Taxable Income

₹12,00,000 − ₹75,000 = ₹11,25,000

Step 4: Tax as per slabs

Tax calculated as per new slab rates

Step 5: Section 87A Rebate

Since taxable income is below ₹12,00,000, entire tax is rebated

Final Tax Payable

₹0

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Tax Calculator Example: Old Tax Regime (₹12 Lakh)

Assumptions

• Standard deduction: ₹50,000

• 80C deduction: ₹1,50,000

Taxable Income

₹12,00,000 − ₹50,000 − ₹1,50,000 = ₹10,00,000

Tax Calculation

• Up to ₹2.5 lakh: Nil

• ₹2.5 lakh to ₹5 lakh: 5% = ₹12,500

• ₹5 lakh to ₹10 lakh: 20% = ₹1,00,000

Total Tax

₹1,12,500

Plus 4% cess = ₹4,500

Final Tax Payable

₹1,17,000 approx

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Key Takeaways

• Under the new tax regime, income up to ₹12 lakh is completely tax free due to Section 87A rebate.

• Salaried employees can effectively earn up to ₹12.75 lakh with zero tax because of the higher standard deduction.

• The old regime only benefits those with large deductions like home loan interest or major investments.

• For most individuals earning ₹12 lakh, the new tax regime is clearly more beneficial.

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Final Thoughts

The 2025 tax changes are designed to benefit middle-class taxpayers by reducing or eliminating tax on incomes up to ₹12 lakh. For many people with this income level, the best option is the new tax regime with the rebate, especially if you don’t have large deductions to claim. 

Always consider using a tax calculator or consulting a tax professional to determine what’s best for your individual financial situation.

CBDT Notification No. 133/2025: Key Amendments under Section 17(2) of the Income-tax Act:

Comparison: Old Rule vs Amended Rule (2025)

Provision	Amended Limit (w.e.f. 18 Aug 2025)	Earlier Limit
Section 17(2)(iii)(c) Taxability of perquisites for high-salaried employees	₹4,00,000 (salary income threshold)	₹50,000 (salary income threshold)
Proviso (vi) to Section 17(2) Exemption for medical treatment abroad (travel condition)	₹8,00,000 (gross total income limit)	₹2,00,000 (gross total income limit)

Understanding Section 17(2)(iii)(c) & Proviso (vi) of the Income-tax Act, 1961

The Income-tax Act, 1961 lays down clear definitions of “salary,” “perquisites,” and “profits in lieu of salary.” Among these, Section 17(2) specifically defines perquisites. Over the years, perquisites have become a focal point in taxation, as they include various benefits provided by employers to employees apart from regular salary.

In this blog, we’ll break down Section 17(2)(iii)(c) and the Proviso (vi) to Section 17(2), examine their implications, and look at the latest amendments introduced in August 2025.

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Section 17(2)(iii)(c): Value of Benefits or Amenities

According to Section 17(2)(iii), the value of any benefit or amenity granted free of cost or at a concessional rate is considered a perquisite. It applies in three scenarios:

1. To a director of a company (clause a)

2. To an employee holding substantial interest in the company (clause b)

3. To any other employee whose income under the head “Salaries” (excluding non-monetary benefits) exceeds the prescribed threshold (clause c)

• Earlier, this threshold was ₹50,000. However, as per the Income-tax (Twenty Second Amendment) Rules, 2025 notified via Notification No. 133/2025 dated 18th August 2025, the new threshold has been revised to ₹4,00,000 .
• This means that only employees whose salary income (excluding perquisites) exceeds ₹4 lakh will have the value of employer-provided amenities taxed as perquisites.

Key Points:

• Benefits like free housing, concessional loans, or luxury facilities will not be taxed as perquisites unless the employee’s salary income crosses ₹4 lakh.

• Commuting facilities (like a company car used for home-to-office travel) remain outside the perquisite scope under this clause.

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Proviso (vi) to Section 17(2): Medical Treatment Abroad

The provisos to Section 17(2) carve out certain exemptions where benefits provided by employers are not treated as taxable perquisites.

Under Proviso (vi), the following expenses are exempt from perquisite taxation if incurred by the employer:

1. Medical treatment of the employee or family abroad

2. Travel and stay abroad of the employee or family for such medical treatment

3. Travel and stay abroad of one attendant accompanying the patient

Conditions for exemption:

• The expenditure on medical treatment and stay abroad is exempt only to the extent permitted by the RBI.

• The expenditure on travel abroad is exempt only if the employee’s gross total income (before including this expenditure) does not exceed the prescribed limit.

Previously, this limit was ₹2,00,000. But as per the as per the Income-tax (Twenty Second Amendment) Rules, 2025 notified via Notification No. 133/2025 dated 18th August 2025, for the purposes of Proviso (vi) to Section 17(2), the prescribed gross total income shall now be ₹8,00,000 .

This revision significantly broadens the scope of employees who can claim exemption for medical expenditure abroad.

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Practical Implications of 2025 Amendment

For employees:

• The perquisite taxation threshold under Section 17(2)(iii)(c) has increased from ₹50,000 to ₹4 lakh, reducing the tax burden on middle-income employees receiving non-monetary benefits.
• For medical treatment abroad, the exemption limit has expanded fourfold from ₹2 lakh to ₹8 lakh, allowing more employees to claim relief.

For employers:

• Salary structuring becomes more flexible — many perquisites will now escape taxation for employees with salaries below ₹4 lakh.
• Medical support abroad provided by employers can now benefit a larger pool of employees without additional tax liability.

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Conclusion

Section 17(2)(iii)(c) ensures that high-income employees pay tax on perks and benefits beyond their core salary, but the 2025 amendment has made the threshold more realistic by raising it to ₹4 lakh. Similarly, Proviso (vi) reflects the humane side of tax law, and the recent upward revision of the exemption limit to ₹8 lakh provides welcome relief for employees facing genuine medical needs abroad.

These changes balance the government’s aim of preventing tax-free luxury perks with providing much-needed support in health-related scenarios.

Read the source of this post by clicking here (Section 17 & Notification No. 133/2025)

Disclaimer:

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.