Income Tax slabs recast | Rs 80,000 a year and up: Banking on increase in take-home to spur spends
With the increase in the exemption slab to ₹12 lakh, individuals earning up to ₹1 lakh per month will now be exempt from paying income tax. According to the government, this move is expected to benefit nearly 1 crore taxpayers within this income bracket.
The income tax bonanza—featuring an increase in the exemption slab from ₹7 lakh to ₹12 lakh annually, along with revised tax rates and slabs—is set to benefit taxpayers across various income brackets.
With the exemption slab now raised to ₹12 lakh, individuals earning up to ₹1 lakh per month will no longer be required to pay income tax. The government estimates that nearly 1 crore taxpayers in this income range will benefit from this relief.
Additionally, another 75 lakh taxpayers with taxable income exceeding ₹12 lahks are expected to gain from adjustments in tax slabs and rates under the proposed changes to the new tax regime (NTR), with potential savings of up to ₹1.1 lahks, according to sources.
Under the new tax regime (NTR), the revised income tax slabs are as follows:
- Up to ₹4 lakh – No tax
- ₹4 lakh – ₹8 lakh – 5%
- ₹8 lakh – ₹12 lakh – 10%
- ₹12 lakh – ₹16 lakh – 15%
- ₹16 lakh – ₹20 lakh – 20%
- ₹20 lakh – ₹24 lakh – 25%
- Above ₹24 lakh – 30%
These changes aim to provide tax relief across different income brackets while simplifying the taxation structure.
Under the new tax regime (NTR), annual taxable income is calculated after deducting a standard deduction of ₹75,000 from the salary. This benefit is available to all taxpayers under the regime. As a result, individuals earning up to ₹12.75 lakh annually will have no tax liability under the proposed Budget changes.
Under the current new tax regime (NTR), an individual with an annual income of ₹12 lakh has a tax liability of ₹80,000.
While the tax exemption slab has been increased from ₹7 lakh to ₹12 lakh in annual income, this does not mean that individuals earning above ₹12 lakh will only be taxed on the excess amount.
For instance, if an individual’s taxable income is ₹12.1 lakh, the tax liability will be calculated as per the new tax regime (NTR) slabs:
- 5% tax on ₹4 lakh-8 lakh
- 10% tax on ₹8 lakh-12 lakh
- 15% tax on ₹12 lakh-16 lakh
This results in a total Income Tax liability of ₹61,500 on ₹12.1 lakh income. Similarly, an individual earning ₹15 lakh will have to pay ₹1.05 lakh in taxes.
Shift Towards the New Tax Regime
The latest rate rationalization and rebate have further enhanced the simplified new tax regime (NTR), potentially making it the preferred choice for salaried taxpayers. Meanwhile, the old tax regime (OTR) remains unchanged in the Budget, signaling the government’s intent to phase it out gradually.
A rough calculation shows that:
- An individual with a gross salary of ₹15.75 lahks (before standard deduction) would have to pay ₹1.27 lakh in taxes under the old tax regime—even after claiming deductions up to ₹4.75 lahks (including 80C investments, home loan interest, health insurance for self and parents, and ₹50,000 under NPS).
- Under the proposed new tax regime, the tax outgo would be significantly lower at ₹1.05 lakh, making NTR a more attractive option.
Except for a few cases where individuals claim HRA benefits exceeding ₹5 lakh, the proposed new tax regime (NTR) will be beneficial for most taxpayers.
