NEW DELHI: Finance minister Nirmala Sitharaman on Saturday gave a big relief to the middle class as she announced zero income tax for up to Rs 12 lakh under the new tax regime.
For salaried employees, this nil tax limit will be Rs 12.75 lakh per annum, after taking into account a standard deduction of Rs 75,000.
Soon after the budget speech, DMK MP Dayanidhi Maran termed the budget “confusing” pointing out that while the minister initially announced that there would be no taxes for income up to 12 lakhs, she later revealed a 10 per cent tax slab for income between 8 and 12 lakhs.
Also Read: Old vs new income tax regime
Like him, several users took to social media to post the same query.
If you are also confused about this announcement after seeing the tax slabs chart, here is a layman’s guide to the tax structure.
Finance Minister Nirmala Sitharaman on Saturday gave relief to the middle class by raising the exemption limit and rejigging slabs. “I am now happy to announce that there will be no income tax payable up to income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime,” the finance minister said.
As per the rejig, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh.
A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum.
Also Read: How much money has FM Nirmala Sitharaman put in your pocket?
Why three slabs for income below Rs 12 lakh?
Although the person earning up to Rs 12 lakh per annum (plus Rs 75,000 standard deduction) will not have to pay any tax, the mentioned slabs will be applicable when the income crosses this amount.
The income exceeding 12 lakhs gets no rebate relief and is thus taxed from 4 lakhs.
For example:
If your earning is Rs 13 lakh in the year under the new income tax regime, here’s how your tax will be calculated:
– Total income: Rs 13,00,000
– Standard deduction: Rs 75,000
– Taxable income: Rs 13,00,000 – Rs 75,000 = Rs 12,25,000
Now the tax will be calculated on this amount, Rs 12,25,000.
Up to Rs 4L: No tax (0%)
Rs 4L-Rs 8L: 5% on Rs 4L = Rs 20,000
Rs 8L-Rs 12L: 10% on Rs 4L = Rs 40,000
Rs 12L-Rs 12.25L: 15% on Rs 25,000 = Rs 3,750
Thus, if you cross the Rs 12 lakh limit by Rs 1 lakh, your tax outgo will be Rs 63,750 + health and education cess, which is 4%
After today’s announcement, a tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.
A person with an income of Rs 25 lakh gets a benefit of Rs 1.10 lakh.