Income Tax: Finance Minister Nirmala Sitharaman has provided significant relief to the middle class in her budget. She has earned an annual income of up to Rs 12 lakh tax-free. If you include the normal deduction of Rs 75000, the entire income up to Rs 12.75 lakh is tax-free.
However, in the new tax structure, an annual income of Rs 12 lakh still falls into the 10% tax bracket. As a result, taxpayers are unsure how their Rs 12.75 lakh income will be tax-free. Let’s go over this in depth.
How much Income Tax will be collected under the new regime?
According to the new tax regime, tax on income between Rs 0 and Rs 4 lakh is now zero. At the same time, a 5% tax is levied on income between Rs 4 and 8 lakh, and a 10% tax on income between Rs 8 and 12 lakh. The maximum tax of 30% will be paid on annual income above Rs 24 lakh.
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How would Rs 12.75 lakh be tax-free?
Taxpayers are eligible for a tax rebate under Section 87A of the Income Tax Act. This is Rs 12,500 for the previous tax regime and Rs 60,000 for the new tax scheme. This basically means that if your tax burden under the new scheme is less than Rs 60,000, you would not have to pay any tax.
According to this, your annual income up to Rs 12 lakh is tax-free. Understand that income between 0 and 4 lakh is tax-free. At the same time, 5% will be taxed on amounts ranging from 4 to 8 lakh. This means that your tax liability on the four lakh will be Rs 20,000. The next four lakh, or 8 to 12 lakh, will be subject to a 10% tax, which is Rs 40,000.
This means you must pay a tax of Rs 60,000 on a yearly earnings of Rs 12 lakh, which the government will directly exempt. If you add a standard deduction of Rs 75,000 to this, your yearly income up to Rs 12.75 lakh is tax-free.
How to Get the Benefit of Tax Rebate
To claim a tax rebate under Section 87A, you must file an income tax return (ITR). After your ITR is processed, the rebate money will be deposited immediately into your account.
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