The budget announcement stating that an annual income up to Rs 12 lakh will be tax-free, with additional benefits for salaried employees, has been well received

Salary expected to rise to Rs 14 lakh after appraisal this year? You won't be able to save much on tax However, higher raises may push individuals into increased tax brackets. The finance minister also announced an increase in the tax rebate under Section 87A to Rs 60,000, effective in the new tax regime

The recent budget announcement that an annual income of Rs 12 lakh will not be taxed has been welcomed with enthusiasm. For salaried employees, the effective tax-free limit increases to Rs 12.75 lakh per annum after accounting for the standard deduction of Rs 75,000. However, consider the scenario where a performance-based raise pushes you into a higher tax bracket.

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New tax regime: What happens if you get a raise on salary of Rs 12.75?

If your boss awards you a 10% hike on Rs 12.75 lakh, your income would rise to approximately Rs 14 lakh a year. In this case, the tax department would deduct around Rs 82,000, leaving you with approximately Rs 13.18 lakh in hand. While this reflects a modest increase, it may not feel significant.

Latest Income Tax Slab and Rates - FY 2025-26 (AY 2026-27) | FY 2024-25 (AY 2025-26)

If your bosses are even more impressed and grant you a 20% hike on Rs 12.75 lakh, bringing your income to about Rs 15.3 lakh, your tax liability could rise to roughly Rs 1.02 lakh. This would leave you with around Rs 14.27 lakh after taxes, resulting in less take-home pay than you might have initially expected, according to the Times of India (ToI) paper.

Tax rebate under Section 87A

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The finance minister has announced an increase in the tax rebate under Section 87A to Rs 60,000 from Rs 25,000 under new tax regime currently. The maximum total taxable income under the proposed new tax regime for which an individual taxpayer has no tax burden is Rs. 12 lakhs. Currently, the limit of income for nil tax payment is Rs 7 lakh till March 31, 2025.

Income tax calculator 2025 (FY 2025-26)

What is ‘New tax Regime’?
New regime provides for concessional tax rates and liberal slabs. However, no deductions are allowed in the new regime (other than those specified for e.g. 80JJAA, 80M, standard deduction).

The change in tax slabs is beneficial for which category of persons?
According to the Income Tax FAQs, “New tax regime is applicable to person, being an individual or Hindu undivided family or association of persons [other than a co-operative society], or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2. Accordingly, change in tax slabs will benefit all these persons.

(With inputs from ToI)

This story originally appeared on: India Times - Author:Faqs of Insurances