On earning Rs 12 lakh, you pay zero tax

Finance Minister Nirmala Sitharaman on Saturday announced major reforms in personal income tax, raising the no-tax limit under the new regime to Rs 12 lakh, with salaried individuals benefiting more through an additional standard deduction of Rs 75,000.

“The middle class provides strength to the nation’s growth. I am now happy to announce that there will be no income tax on an income up to 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. This limit will be Rs 12.75 lakh for salaried tax payers due to standard deduction of Rs 75,000,” the minister said.

Slabs and rates are being changed across the board to benefit all taxpayers. The new structure will substantially reduce the tax burden of the middle class and leave more money in their hands, boost household consumption, savings and investment.

A taxpayer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 (which is 100 per cent of tax payable as per existing rates). A person having an income of Rs 18 lakh will get a benefit of Rs 70,000 (30 per cent of tax payable as per existing rates). A person with an income of Rs 25 lakh gets a benefit of Rs 1,10,000 (25 per cent of his tax payable as per existing rates), Sitharaman added.

Taxpayers have been given the option to choose between two tax regimes — the old and the new. “In FY21, the new tax regime came into force, which offered concessional tax rates with limited deductions and exemptions. The new tax regime became the default option for an individual taxpayer and HUFs (Hindu Undivided Families) from FY24. The old regime has higher tax rates than the new regime, but offers multiple deductions and exemptions under various sections of the Income Tax Act, 1961,” said Chandigarh-based chartered accountant Keshav Garg.

“Salaried taxpayers earning up to Rs 12 lakh would  not have to pay any tax. However, if his income is Rs 15 lakh, he has to pay Rs 1.05 lakh tax under the new regime as compared to Rs 1.4 lakh earlier, still resulting in substantial savings,” he said. This does not include health and education cess.

Sources said with the raising of the tax rebate, at least 1 crore people would not have to pay any tax. The overall tax slab regig would benefit 6.3 crore people, or more than 80 per cent of the taxpayers, they said.