Tax-free up to Rs 4 lakh or Rs 12 lakh? Clear Your Confusion
In her Union Budget 2025 speech on Saturday, Finance minister Nirmala Sitharaman revealed tax relief measures that will alter the new income tax structure. Her declaration that people making up to Rs 12 lakh would not be required to pay income tax was one of the main points of emphasis.
The new administration has also changed the tax bracket structure, extending the zero tax slab from Rs 0-3 lakh to Rs 0-4 lakh.
Nevertheless, despite these advantages, the announcements have caused misunderstandings over whether income up to Rs 4 lakh or Rs 12 lakh is tax-free.
What's the confusion?
Confusion stems from the fact that taxpayers who earn up to Rs 12 lakh annually are exempt from paying taxes. However, according to the amended slab structure, no tax would be imposed on income up to Rs 4 lakh, one of the planned tax slab adjustments that were presented in the budget today.
Let's look at an example to assist us in better comprehending the situation.
Your tax due will be calculated using the several tax bands that the Finance minister has specified, assuming you make Rs 50 lakh.
So, income tax is zero up to Rs 4 lakh, five percent up to Rs 4-8 lakh, ten percent up to Rs 8-12 lakh, fifteen percent up to Rs 12-16 lakh, twenty percent up to Rs 16-20, twenty-four percent up to Rs 24 lakh, and thirty percent beyond Rs 24 lakh. These tax slabs are used to compute your income tax on a salary of Rs 50 lakh.
NO TAX UP TO RS 4 LAKH OR RS 12 LAKH?
Partner Ritika Nayyar of Singhania & Co. clarified that the Rs 4 lakh level, which is equivalent to a 0% tax rate, is where no tax is computed at all.
The revelation that Rs 12 lakh is tax-free, however, alludes to the Section 87A refund. "The rebate guarantees that the ultimate tax liability is zero, even though the tax is computed based on slabs," she continued.
Manish Dubey, a partner at CorpAcumen Advisors, went on to explain that tax will be calculated based on tax slabs, which begin at Rs 4 lakh.
"However, if total taxable income is up to Rs 12 lakh, a rebate equal to the tax calculated will be applied, making the final tax amount NIL," he stated.
The new administration has also changed the tax bracket structure, extending the zero tax slab from Rs 0-3 lakh to Rs 0-4 lakh.
Nevertheless, despite these advantages, the announcements have caused misunderstandings over whether income up to Rs 4 lakh or Rs 12 lakh is tax-free.
What's the confusion?
Confusion stems from the fact that taxpayers who earn up to Rs 12 lakh annually are exempt from paying taxes. However, according to the amended slab structure, no tax would be imposed on income up to Rs 4 lakh, one of the planned tax slab adjustments that were presented in the budget today.
Let's look at an example to assist us in better comprehending the situation.
Your tax due will be calculated using the several tax bands that the Finance minister has specified, assuming you make Rs 50 lakh.
So, income tax is zero up to Rs 4 lakh, five percent up to Rs 4-8 lakh, ten percent up to Rs 8-12 lakh, fifteen percent up to Rs 12-16 lakh, twenty percent up to Rs 16-20, twenty-four percent up to Rs 24 lakh, and thirty percent beyond Rs 24 lakh. These tax slabs are used to compute your income tax on a salary of Rs 50 lakh.
NO TAX UP TO RS 4 LAKH OR RS 12 LAKH?
Partner Ritika Nayyar of Singhania & Co. clarified that the Rs 4 lakh level, which is equivalent to a 0% tax rate, is where no tax is computed at all.
The revelation that Rs 12 lakh is tax-free, however, alludes to the Section 87A refund. "The rebate guarantees that the ultimate tax liability is zero, even though the tax is computed based on slabs," she continued.
Manish Dubey, a partner at CorpAcumen Advisors, went on to explain that tax will be calculated based on tax slabs, which begin at Rs 4 lakh.
"However, if total taxable income is up to Rs 12 lakh, a rebate equal to the tax calculated will be applied, making the final tax amount NIL," he stated.