The Indian government has revised its tax structure under a new regime, with Finance Minister Nirmala Sitharaman announcing that individuals earning up to Rs 12 lakh annually will not have to pay income tax. The proposed changes aim to reduce taxes and provide taxpayers with more money in hand.
However, the exemption limit only applies to those earning up to Rs 12 lakh. Individuals with higher taxable income must follow a slab-wise taxation process. To understand this, let’s break down the tax slabs:
* The first slab is up to Rs 4 lakh, where tax remains nil.
* The next slab ranges from Rs 4-8 lakh, taxed at 5%.
* The third slab is Rs 8-12 lakh, taxed at 10%.
* The fourth slab is Rs 12-16 lakh, taxed at 15%.
* The fifth slab is Rs 16-20 lakh, taxed at 20%.
* Above Rs 24 lakh, tax rate remains flat at 30%.
Tax calculation involves breaking down total income into different slabs, which are then taxed at respective rates. This means one doesn’t pay tax on entire income at a flat rate.
Let’s take an example: if you earn Rs 15 lakh annually (excluding a standard deduction of Rs 75,000), the first Rs 4 lakh is tax-free, followed by 5% on Rs 20,000 in the next slab. The remaining Rs 3 lakh falls in the third slab, taxed at 15%, resulting in a total liability of Rs 1,05,000.
The tax benefit comes from a rebate. Even with Rs 12 lakh income, individuals will be taxed as per the slabs. This means their tax liability will stand at Rs 60,000, making the total income tax-free.
In comparison to the current structure, the new regime offers additional relief of up to Rs 20,000 for someone with a total income of Rs 12 lakh. For an individual earning Rs 15 lakh, the proposed slabs result in a lower tax liability compared to the existing structure. However, the old regime remains unchanged, with higher rates for certain exemptions.
Source: https://www.ndtv.com/business-news/what-rs-12-lakh-exemption-means-and-how-tax-is-calculated-if-you-earn-more-7611371