Decoding how the revised tax regime impacts salaried individuals and comparisons with old tax structures.
February 2, 2025: The Union Budget 2025 introduced transformative tax reforms with Finance Minister Nirmala Sitharaman announcing no income tax for individuals earning up to ₹12 lakh annually. While this tax exemption is a boon for the middle class, there’s some clarity required on how taxable incomes above ₹12 lakh will be calculated under the new regime.
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Breaking Down the Tax Exemption:
For incomes up to ₹12 lakh, the exemption limit ensures no tax liability. Salaried individuals benefit further from the additional standard deduction of ₹75,000, effectively increasing the exemption threshold to ₹12.75 lakh. However, individuals earning beyond this limit will follow the slab-wise taxation process.
Revised Tax Slabs:
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The government proposed new tax slabs aimed at reducing the tax burden for middle-class taxpayers:
- Up to ₹4 lakh: Nil tax
- ₹4-8 lakh: 5%
- ₹8-12 lakh: 10%
- ₹12-16 lakh: 15%
- ₹16-20 lakh: 20%
- ₹20-24 lakh: 25%
- Above ₹24 lakh: 30%
How Tax is Calculated:
Unlike flat taxation, income tax is calculated slab-wise. For instance:
- If a taxpayer earns ₹15 lakh (excluding the ₹75,000 deduction), the taxable amount is distributed across slabs:
- First ₹4 lakh: Nil tax
- Next ₹4 lakh (₹4-8 lakh slab): Taxed at 5% = ₹20,000
- Following ₹4 lakh (₹8-12 lakh slab): Taxed at 10% = ₹40,000
- Remaining ₹3 lakh (₹12-16 lakh slab): Taxed at 15% = ₹45,000
- Total Tax Liability: ₹1,05,000
Rebates Simplified:
The government provides a full rebate for taxpayers with incomes up to ₹12 lakh. For example, a person earning ₹12 lakh incurs a tax liability of ₹60,000 (based on slab rates). However, this amount is fully rebated, resulting in zero tax liability.
Comparing Structures:
- New vs Current Regime:
- A person earning ₹12 lakh saves ₹80,000 under the new structure compared to the existing one, receiving an additional relief of ₹20,000.
- Someone earning ₹15 lakh saves ₹35,000 in slab relief, with the liability dropping from ₹1.4 lakh to ₹1.05 lakh.
- New vs Old Regime:
- The old regime offers exemptions but higher rates. For ₹12 lakh taxable income, the liability stands at ₹1,72,500 compared to zero in the new regime. For ₹15 lakh, it is ₹2,62,500 (pre-exemptions).
Taxpayers can opt for the new or old regime based on financial profiles, balancing lower rates against available exemptions.
Tags:
Income Tax 2025, Budget Tax Reforms, ₹12 Lakh Tax Exemption, New Tax Slabs, Middle-Class Tax Relief, Budget 2025 Explained, Income Tax Comparison, Slab-Wise Tax Calculation.