As per the new tax regime, individuals earning up to Rs 12 lakh in a year will not have to pay any taxes
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Finance Minister Nirmala Sitharaman on Saturday announced significant income tax cuts for the middle class.
As per the new tax regime, individuals earning up to Rs 12 lakh in a year will not have to pay any taxes after she raised the exemption threshold from Rs 7 lakh.
An additional Rs 75,000 standard deduction is available for the salaried class.
She also altered tax slabs for people earning above this threshold to help save up to Rs 1.1 lakh in taxes for those with income up to Rs 25 lakh in a year.
The raising of the rebate leads to 1 crore people not having to pay any tax, she said. The overall tax slab regig will benefit 6.3 crore people, or more than 80 per cent of taxpayers.
But if there is no tax for Rs 12 lakh, why is there 5 percent tax on earnings between Rs 4 to 8 lakhs. How is tax calculated? How does it work? Let's try to understand!
The Finance Minister in her budget speech also announced a revised tax structure. The new slabs are as follows:
0-4 lakh rupees -- Nil
4-8 lakh rupees -- 5%
8-12 lakh rupees -- 10%
12-16 lakh rupees -- 15%
16-20 lakh rupees -- 20%
20-14 lakh rupees -- 25%
Above 24 lakh rupees -- 30%
However, 12 lakh rupee income under the new tax regime attracts zero cess. With the number going up to Rs 12.75 lakhs after the addition of standard deductions.
But the income that extends beyond this point attracts tax as per the existing slab rates.
For example, if you earn Rs 15 lakhs then you won't just be taxed for Rs 3 lakhs barring Rs 12 lakh rather you'll be taxed for Rs 11 lakhs.
Your taxable amount is segregated as per the slabs.
The calculation is Rs 4 lakhs is non-taxable as per the new slab and hence deducted from earnings.
On the other hand, Rs 4-8 lakhs attracts 5 percent tax, which amounts to Rs 20,000. 10 percent on the next four lakhs totalling Rs 40,000. The remaining amount comes under 12-16 lakhs slab and makes up for Rs 45,000 tax. So overall, the tax becomes Rs 1,05,000 for Rs 15 lakh earnings.
( Source : Deccan Chronicle )
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