Does the tax exemption of up to Rs 12 lakh income mean that a salaried person earning Rs 15 lakh will be taxed only on the remaining Rs 3 lakh?
The government has revised the tax structure under the new regime with Finance Minister Nirmala Sitharaman announcing that those earning up to Rs 12 lakh annually won’t have to pay any income tax. The proposed changes are part of the latest Budget, which seeks to reduce taxes and leave taxpayers with money in hand. The Finance Minister said this will boost domestic consumption and savings.
But does the tax exemption of up to Rs 12 lakh income mean that a salaried person earning Rs 15 lakh will be taxed only on the remaining Rs 3 lakh?
No. The exemption limit exists only for those earning up to Rs 12 lakh. Those with higher taxable income must follow the slab-wise taxation process.
The Proposed Tax Slabs
The government has proposed a revised structure under which the tax slabs have been further broken down.
The first slab is up to Rs 4 lakh, in which the tax remains nil.
The next slab is Rs 4-8 lakh where the tax rate is 5%, followed by 10% in the Rs 8-12 lakh slab, 15% in the Rs 12-16 lakh slab, 20% in the Rs 16-20 lakh slab, and 25% in the Rs 20-24 lakh slab. It’s flat 30% above Rs 24 lakh.
Understanding The Rebate
The tax benefit comes in the form of rebate. Even a salaried person earning Rs 12 lakh annually will be taxed as per the slabs. This means, the tax liability will stand at Rs 60,000, which is the sum of Rs 0 (Rs 0-4 lakh at nil tax), Rs 20,000 (Rs 4-8 lakh at 5%), and Rs 40,000 (Rs 8-12 lakh at 10%). But the government provides a full rebate of Rs 60,000, making the total income of Rs 12 lakh tax-free in the hands of the taxpayer.
Learning by Example
For instance, if you earn Rs 15 lakh annually, already excluding Rs 75,000 standard deduction, it does not mean the taxpayer will also enjoy Rs 12 lakh exemption limit.
As part of the taxation process, the Rs 15 lakh income will first be broken down and the first Rs 4 lakh will be tax-free. A rate of 5% will be applicable on the next Rs 4 lakh (Rs 20,000) under the Rs 4-8 lakh slab. In Rs 8-12 lakh slab, another Rs 4 lakh will be taxed at 10% (Rs 40,000). The remaining Rs 3 lakh falls in the Rs 12-16 lakh slab, attracting a rate of 15%, which calculates to Rs 45,000.
This adds up to Rs 1,05,000 – which will be the total liability on a total taxable annual income of Rs 15 lakh.
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