- By Aditya Pratap Singh
- Sun, 02 Feb 2025 12:12 PM (IST)
- Source:JND
Income Tax Calculator 2025-26: The Union Budget 2025-26 brought good news to the salaried and the middle class as Finance Minister Nirmala Sitharaman announced that income up to Rs 12 lakh will be exempted from income tax. Individuals earning up to 12.75 lakh income will not have to pay any taxes, considering the standard deduction of Rs 75000.
During her budget speech in Parliament on Saturday, the finance minister also announced a new tax regime. Under the new income tax slabs, announced on February 1, those earning between Rs 8-12 lakh annually will be charged a 10 per cent of I-T tax. This categorisation has created a sort of confusion among taxpayers as they are wondering how income up to 12 lakh is tax-free. Let's understand it.
How will the income of Rs 12.75 lakh be tax-free?
Under Section 87A of the Income Tax Act, taxpayers are eligible for a rebate that reduces their tax liability. The rebate amount differs based on the tax regime that taxpayers choose. People applying under the old tax regime are eligible for a Rs 12,500 Rebate, while taxpayers choosing the new tax regime can have a Rs 60,000 rebate. This means, that if an individual has Rs 60,000 or less tax liability under the new tax regime, he does not need to pay any income tax.
Before moving forward to calculate the tax liability, have a look at the new tax regime that the finance minister has introduced today:
How much tax is levied in the new tax regime?
Currently, according to the new tax regime, tax is zero on Rs 0-4 lakh. At the same time, a 5 per cent tax is levied on income from Rs 4 to 8 lakh and a 10 per cent tax is levied on income from Rs 8 to 12 lakh. The highest tax of 30 per cent will be levied on annual income of more than Rs 24 lakh.
Income Tax Calculation Under New Tax Slab 2025-26 (Rs 12 Lakh Income)
With the rebate of Rs 60,000 under the new tax regime, an annual income of up to Rs 12 lakh becomes tax-free. Here’s how:
- According to the tax regime announced today, income up to Rs 4 lakh is Tax-free
- Income from Rs 4 lakh to Rs 8 lakh – Taxed at 5%
5% of Rs 40,0,000 = Rs 20,000 (The 4 lakhs were subtracted as it falls under the nill tax category
- Now, Income from Rs 8 lakh to Rs 12 lakh falls under 10% tax regime
10% of Rs 40,0,000 = Rs 40,000 (The remaining 4 Lakhs of Rs 12 Lakhs Income)
- With this the total tax liability on Rs 12 lakh Income = Rs 20,000 + Rs 40,000 = Rs 60,000
- Rebate under Section 87A = Rs 60,000, in this way, the net tax payable = Rs 0
Additional Benefit of Standard Deduction
Additionally, a standard deduction of Rs 75,000 is available under the new tax regime that makes the tax-free amount to Rs 12.75 lakh. This effectively allows individuals earning up to Rs 12.75 lakh annually to pay zero tax under the new tax regime.
How to get the benefit of a tax rebate
You have to file an Income Tax Return (ITR) to claim a tax rebate under section 87A. After your ITR is cleared, the rebate money will come directly to your account.
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