New Tax Regime Explained: Will a ₹13.1 Lakh Salary Still Qualify for the ₹12 Lakh Tax-Free Benefit?

The Union Budget 2025 introduced a major change in India’s income tax structure by making annual income up to ₹12 lakh effectively tax-free under the new tax regime through rebates. This announcement created confusion among many taxpayers whose salaries are slightly above that threshold.

A common question being asked is: If someone earns ₹13.1 lakh annually, can they still take advantage of the tax-free benefit up to ₹12 lakh under the new regime?

Tax experts say the answer depends on how the taxable income is calculated and whether it remains within the rebate limit after deductions allowed under the new system.

Here’s a detailed explanation of how the rule works and whether a person earning ₹13.1 lakh can qualify for the tax rebate.

What the New Tax Regime Offers

The new income tax regime allows individuals, Hindu Undivided Families (HUFs), and Associations of Persons (AOPs) to pay tax at lower slab rates compared to the old regime. However, this system removes most deductions and exemptions that were earlier available.

One of the biggest advantages of the new regime comes through Section 87A of the Income Tax Act

, which provides a rebate of up to ₹60,000 on tax liability for eligible taxpayers.

Because of this rebate, individuals whose taxable income is up to ₹12 lakh per year effectively end up paying no income tax under the new regime.

Standard Deduction Still Available for Salaried Employees

Even though most deductions are not allowed under the new tax system, salaried taxpayers still receive a standard deduction of ₹75,000

This deduction is subtracted from the total salary income to calculate taxable income.

For example:

Annual salary: ₹13.10 lakh
Standard deduction: ₹75,000
Taxable income after deduction: ₹12.35 lakh

Since the taxable income becomes ₹12.35 lakh, it crosses the ₹12 lakh threshold required to claim the Section 87A rebate.

Will a ₹13.1 Lakh Salary Qualify for the ₹12 Lakh Tax-Free Rule?

According to tax experts, a person earning ₹13.1 lakh annually will not receive the Section 87A rebate

under the new tax regime.

Even after applying the ₹75,000 standard deduction, the taxable income remains ₹12.35 lakh, which is higher than the ₹12 lakh limit required to qualify for the rebate.

Because of this, the taxpayer would still have to pay income tax according to the applicable slab rates under the new regime.

Understanding Marginal Relief in the New Tax Regime

The new tax system also includes a concept known as marginal relief

, which helps taxpayers whose income slightly exceeds the rebate limit.

Marginal relief ensures that the final tax payable does not exceed the amount by which the income crosses the ₹12 lakh threshold.

For example, if someone’s income exceeds the limit by a small margin, marginal relief prevents them from paying disproportionately high taxes compared to their extra income.

This feature makes the new regime more attractive for taxpayers whose income is only slightly above ₹12 lakh.

How the Old Tax Regime Differs

Under the old tax regime, taxpayers could claim multiple deductions such as:

Section 80C investments
Health insurance premium deductions
House rent allowance (HRA)
Home loan interest benefits

However, the rebate limit under the old regime applies only to taxable income up to ₹5 lakh.

Once income exceeds ₹5 lakh under the old regime, the taxpayer must pay tax according to slab rates without the same marginal relief benefits available in the new system.

Choosing Between the Old and New Tax Regime

Tax experts recommend that individuals compare both regimes before filing their income tax return.

The new regime may be beneficial for taxpayers who:

Do not claim many deductions
Prefer lower tax rates
Have straightforward salary income

Meanwhile, the old regime may still be useful for those who regularly claim deductions and exemptions through investments or expenses.

Final Takeaway for Taxpayers

If a salaried individual earns ₹13.1 lakh annually

, their taxable income after the ₹75,000 standard deduction becomes ₹12.35 lakh, which exceeds the rebate limit under Section 87A.

As a result, they will not be eligible for the tax-free benefit available for income up to ₹12 lakh under the new tax regime.

However, marginal relief may still reduce the tax burden slightly, making the overall liability lower than expected.

Before choosing a tax regime, experts advise taxpayers to calculate their taxable income carefully and compare both systems to determine which option results in lower tax payments.