The Indian government has introduced significant changes to the tax structure under the new regime, aiming to simplify the process and provide relief to taxpayers. Finance Minister Nirmala Sitharaman announced that individuals earning up to Rs 12 lakh annually will not have to pay income tax. This move, part of the latest Budget, is designed to boost domestic consumption and savings by leaving more money in the hands of taxpayers.
However, a common question arises: Does this Rs 12 lakh exemption mean that someone earning Rs 15 lakh will only be taxed on the remaining Rs 3 lakh? The answer is no. The Rs 12 lakh exemption applies only to those with an annual income of up to Rs 12 lakh. For those earning more, the tax is calculated based on the revised slab rates.
It’s also important to note that the Rs 12 lakh exemption refers to taxable income. Taxpayers under the new regime also benefit from a standard deduction of Rs 75,000, effectively raising the exemption limit to Rs 12.75 lakh.
Revised Tax Slabs Under the New Regime | Rs 12 Lakh Tax Exemption
The government has introduced a more detailed tax slab structure:
- Up to Rs 4 lakh: Nil tax
- Rs 4-8 lakh: 5% tax
- Rs 8-12 lakh: 10% tax
- Rs 12-16 lakh: 15% tax
- Rs 16-20 lakh: 20% tax
- Rs 20-24 lakh: 25% tax
- Above Rs 24 lakh: 30% tax
How is Income Tax Calculated? Rs 12 Lakh Tax Exemption
Tax calculation follows a slab-wise system, meaning your income is divided into portions, each taxed at the applicable rate. This ensures that you don’t pay a flat tax rate on your entire income.
For example, if you earn Rs 15 lakh annually (after the Rs 75,000 standard deduction), here’s how your tax liability is calculated:
- First Rs 4 lakh: Tax-free
- Next Rs 4 lakh (Rs 4-8 lakh): 5% tax = Rs 20,000
- Next Rs 4 lakh (Rs 8-12 lakh): 10% tax = Rs 40,000
- Remaining Rs 3 lakh (Rs 12-15 lakh): 15% tax = Rs 45,000
Total Tax Liability: Rs 20,000 + Rs 40,000 + Rs 45,000 = Rs 1,05,000
Understanding the Rebate
Even for someone earning Rs 12 lakh, tax is calculated based on the slabs:
- First Rs 4 lakh: Tax-free
- Next Rs 4 lakh (Rs 4-8 lakh): 5% tax = Rs 20,000
- Next Rs 4 lakh (Rs 8-12 lakh): 10% tax = Rs 40,000
Total Tax Liability: Rs 20,000 + Rs 40,000 = Rs 60,000
However, the government provides a full rebate of Rs 60,000, making the entire Rs 12 lakh income effectively tax-free.
Union Budget 2025-26: Sector-Wise Highlights | Download PDF
New Regime vs. Current Structure
For someone earning Rs 12 lakh, the new regime offers a tax benefit of Rs 80,000 compared to the existing structure, providing an additional relief of Rs 20,000.
For higher incomes, the benefits are even more pronounced. For instance, a Rs 15 lakh income would attract a tax liability of Rs 1.05 lakh under the new regime, compared to Rs 1.4 lakh under the current structure—a saving of Rs 35,000.
New Regime vs. Old Regime
The old regime allows for various exemptions and deductions, but the tax rates are higher. For example:
- Rs 12 lakh income: Tax liability under the old regime is Rs 1,72,500 (after exemptions).
- Rs 15 lakh income: Tax liability under the old regime is Rs 2,62,500 (after exemptions).
The new regime, with its lower slab rates and simplified structure, may be more beneficial for many taxpayers, especially those who don’t heavily rely on exemptions.
Conclusion
The Rs 12 lakh tax exemption is a significant relief for middle-income earners, but it’s crucial to understand that higher incomes are taxed slab-wise. The new regime offers lower tax rates and a simplified structure, making it an attractive option for many. However, taxpayers should carefully evaluate their financial situation and compare both regimes to determine which one works best for them.