Income Tax

No Income Tax till Rs.12 Lakh? Know the Truth


➡️ Click here to join our Whatsapp Group

In a major move to provide relief to taxpayers, Finance Minister Nirmala Sitharaman announced significant changes to the income tax system on Saturday during her budget speech. Under the new tax rules, individuals earning up to ₹12 lakh annually will not have to pay any income tax under the New Tax Regime. For salaried individuals, this limit goes up to ₹12.75 lakh. This is a big jump from the earlier tax-free limit of ₹7 lakh.

The changes aim to ease the financial burden on the middle class and encourage spending, savings, and investments. However, the Old Tax Regime remains unchanged, giving taxpayers the option to choose between the two systems.

People are in doubt that whether really there is no income tax on income upto Rs.12 lakh or there is any hidden tax. The government is praising itself for not taking any tax from individuals earning upto Rs.12 lacs annually. But you need to understand one important point. There is no income tax if individual earns upto Rs.12 lacs annually but individual will have to pay income tax as per New tax slabs if his/her income exceeds Rs.12 lacs annually. Let’s understand this in detail.

Key Changes in Tax Slabs

The government has introduced New Tax Slabs this year. The new tax slabs have been adjusted to benefit taxpayers, especially those in the middle-income group.

  1. No Tax on Income Up to ₹12 Lakh: Earlier, the tax-free limit was ₹7 lakh. Now, individuals earning up to ₹12 lakh will pay zero tax under the new regime.
  2. Higher Threshold for Top Tax Bracket: The highest tax bracket of 30% will now apply to income above ₹24 lakh, up from the previous limit of ₹15 lakh.
  3. Minimum Taxable Income Raised: The minimum income threshold for taxation has been increased from ₹3 lakh to ₹4 lakh.

New Tax Slabs and Rates

Here’s a breakdown of the new tax slabs and rates under the New Tax Regime:

  • Up to ₹4,00,000: 0% tax
  • ₹4,00,000–₹8,00,000: 5% tax
  • ₹8,00,000–₹12,00,000: 10% tax
  • ₹12,00,000–₹16,00,000: 15% tax
  • ₹16,00,000–₹20,00,000: 20% tax
  • ₹20,00,000–₹24,00,000: 25% tax
  • Above ₹24,00,000: 30% tax

If there is no tax till Rs.12 lakh, then why so many slabs?

A common question is: If there’s no tax on income up to ₹12 lakh, why are there tax rates for lower slabs?

The answer lies in how income tax is calculated. Individuals need not pay tax till Rs.12 lakh annual income but individuals will have to pay tax if income is more than Rs.12 lakh annually. Slabs are given because if income will exceed Rs.12 lac annually, then tax needs to be paid according to those slabs. Tax is applied on a slab basis, not as a flat rate on the entire income. This means that only the income exceeding a particular slab is taxed at the higher rate.

Example: If someone earns ₹15 lakh annually, here’s how their tax will be calculated:

  1. First ₹4 lakh: 0% tax = ₹0
  2. Next ₹4 lakh (₹4–8 lakh): 5% tax = ₹20,000
  3. Next ₹4 lakh (₹8–12 lakh): 10% tax = ₹40,000
  4. Remaining ₹3 lakh (₹12–15 lakh): 15% tax = ₹45,000

Total Tax: ₹1,05,000

Without the slab system, the taxpayer would have paid 15% on the entire ₹15 lakh, which would have been ₹2,25,000. The slab system ensures lower tax rates for lower income levels, reducing the overall tax burden.

Tax Calculation Table

Tax SlabTax RateAmount in SlabTax for SlabTotal Tax
Up to ₹4,00,0000%₹4,00,000₹0₹0
₹4,00,000–₹8,00,0005%₹4,00,000₹20,000₹20,000
₹8,00,000–₹12,00,00010%₹4,00,000₹40,000₹60,000
₹12,00,000–₹16,00,00015%₹4,00,000₹60,000₹1,20,000
₹16,00,000–₹20,00,00020%₹4,00,000₹80,000₹2,00,000
₹20,00,000–₹24,00,00025%₹4,00,000₹1,00,000₹3,00,000
Above ₹24,00,00030%₹6,00,000₹1,80,000₹4,80,000

The new tax structure is designed to leave more money in the hands of middle-class families. By reducing their tax burden, the government hopes to boost household spending, savings, and investments, which could help the economy grow.

Impact on Government Revenue

While this move will benefit taxpayers, the government will lose a significant amount of tax revenue. The Finance Minister stated that the government will lose about ₹1 lakh crore in direct taxes due to these changes. This could affect the government’s spending on infrastructure and other development projects unless other sources of revenue are found.

Leave a Reply

Your email address will not be published. Required fields are marked *