The Indian tax landscape is buzzing with discussions about the new tax regime and the possibility of “no tax up to 12 lakhs.” While the statement isn’t entirely straightforward, it does reflect a significant change in how tax rebates are structured. Let’s delve into the details to understand the reality behind this claim.

The New Tax Regime: A Quick Recap

The Indian government has made the new tax regime the default option for taxpayers. However, you can still choose the old regime if it better suits your financial needs. The new regime simplifies tax calculations by offering lower tax rates without many of the deductions available under the old regime.

Understanding the Revised Tax Slabs

Here’s a clear look at the income tax slabs under the new tax regime for FY 2025-26:

• Up to Rs. 4,00,000: Nil
• Rs. 4,00,001 – Rs. 8,00,000: 5%
• Rs. 8,00,001 – Rs. 12,00,000: 10%
• Rs. 12,00,001 – Rs. 16,00,000: 15%
• Rs. 16,00,001 – Rs. 20,00,000: 20%
• Rs. 20,00,001 – Rs. 24,00,000: 25%
• Above Rs. 24,00,000: 30%

The Key: Tax Rebate Under Section 87A

The “no tax up to 12 lakhs” concept stems from the enhanced tax rebate under Section 87A. This rebate effectively reduces your tax liability. Here’s how it works:

• The government has increased the rebate, allowing individuals with incomes up to a certain threshold to have zero tax liability.
• This rebate, when applied to the tax calculated based on the new tax slabs, leads to the effective “no tax” scenario.
• Marginal Relief:
  • It is very important to note that marginal relief is also an important part of this calculation. This helps to prevent a very large jump in tax liability for those who earn slightly over the rebate limit.
• Salaried Individuals and the Standard Deduction:
  • For salaried individuals, the standard deduction of Rs. 75,000 further increases the effective income threshold for zero tax liability.
  • Therefore, with the standard deduction, salaried individuals can have a zero tax liability up to an income of approximately Rs. 12.75 lakhs.

Clarifying the “No Tax” Claim

It’s crucial to understand that:

• The “no tax” situation is achieved through the tax rebate, not a complete exemption of income up to 12 lakhs from taxation.
• The rebate is applied after calculating your tax based on the applicable tax slabs.
• Capital gains and other income that are taxed at special rates, are not included in this calculation.
• Therefore, someone can earn less than 12.75 lakhs, and still have a tax liability, if they have capital gains.

Choosing the Right Tax Regime

Deciding between the new and old tax regimes depends on your individual financial situation:

• New Regime:
  • Simplified tax structure.
  • Potentially lower tax rates for certain income brackets.
  • Best for individuals with limited investments and deductions.
• Old Regime:
  • Allows for various deductions and exemptions (e.g., Section 80C, 80D).
  • Potentially beneficial for individuals with significant investments and deductions.

Stay Informed

• Always refer to the official website of the Income Tax Department of India for the most accurate and up-to-date information.
• Consult with a tax professional to receive personalized advice.

By understanding the interplay between the new tax slabs, the tax rebate, and the standard deduction, you can make informed decisions to optimize your tax liability.

To understand the old vs new tax slabs, click here!

March 19, 2025