Budget 2025’s ₹12 lakh tax break: Here's what marginal relief, rebate means for your income

As Finance Minister Nirmala Sitharaman rose to present the Union Budget 2025, she delivered a decisive announcement that echoed across households nationwide — no income tax payable for individuals earning up to ₹12 lakh under the new regime. The declaration sparked immediate excitement, positioning Budget 2025 as a financial game-changer for the middle class.

However, with bold reforms come questions. Taxpayers are now grappling with the finer details, prompting the Income Tax department to release FAQs addressing key concerns.

At the heart of the confusion lie two terms: rebate and marginal relief. Simply put, a rebate is a deduction that eliminates tax liability for individuals earning up to ₹12 lakh. On the other hand, marginal relief ensures that those earning just over ₹12 lakh aren’t unfairly taxed more than those below the threshold.

For instance, consider an individual with an income of ₹12,10,000. Without marginal relief, their tax liability would be ₹61,500 — calculated through progressive tax slabs (5% on ₹4 lakh, 10% on the next ₹4 lakh, and 15% on the additional ₹10,000). However, with marginal relief in place, this taxpayer owes just ₹10,000. The rationale? Their post-tax income should remain comparable to someone earning exactly ₹12 lakh, who pays no tax at all.

Addressing another common query, the maximum rebate available is ₹60,000, applicable to taxpayers earning up to ₹12 lakh. But there’s a cap — marginal relief is only admissible for incomes up to approximately ₹12.75 lakh. Beyond this, regular tax slabs apply without additional relief.

Notably, special income sources like capital gains or lottery winnings aren’t eligible for rebates. The relief measures strictly apply to standard income taxed under Section 115BAC.

As the dust settles on Budget 2025’s landmark announcements, the focus shifts from broad headlines to individual tax planning. With the new FAQs, taxpayers now have a clearer roadmap to navigate these reforms confidently.