Why Crossing the Tax-Free Salary Limit Does Not Mean Losing All Your Income

Many salaried taxpayers panic when their income exceeds the tax free threshold by even one rupee, assuming their entire salary will become taxable. Under India’s new income tax regime, this fear is misplaced. The system applies the principle of marginal tax relief, which ensures that tax is charged only on the portion of income exceeding the exemption limit, not the full salary. With a standard deduction of ₹75,000 available to salaried individuals, a gross income of ₹12.75 lakh effectively translates into a taxable income of ₹12 lakh, attracting zero tax. 

Broader economic indicators presented a mixed picture toward the end of 2025. BSE500 companies reported December-quarter net sales growth of 4.1%, the slowest pace in five quarters, reflecting cautious demand conditions. However, operating profit rose 9.5%, and net profit increased 17%, driven by margin expansion and cost efficiencies. GST collections grew 12.3% year on year in January 2025, signaling stronger economic activity in December. Global markets closed 2025 on firmer footing despite persistent trade and policy uncertainty.