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THE INCOME Tax bonanza, including increase in exemption slab from Rs 7 lakh to Rs 12 lakh (annual income) and tweaks in rates and slabs, will benefit taxpayers across income brackets.
With the increase in exemption slab to Rs 12 lakh, those who earn up to Rs 1 lakh per month will not have to pay any Income Tax. According to the government, nearly 1 crore taxpayers who fall in this income bracket are expected to benefit from this move.
Another 75 lakh taxpayers, with taxable income of above Rs 12 lakh, are expected to benefit on account of tweaks in the tax slabs and rates as per the proposed changes to the new tax regime (NTR), with savings of up to Rs 1.1 lakh, according to sources.
The new tax slabs under the NTR are: no tax on annual income of up to Rs 4 lakh; 5 per cent on Rs 4 lakh-8 lakh; 10 per cent on Rs 8 lakh-12 lakh; 15 per cent on Rs 12 lakh-16 lakh; 20 per cent on Rs 16 lakh-20 lakh; 25 per cent on Rs 20 lakh-24 lakh; and 30 per cent on annual income above Rs 24 lakh.
The tweak is significant as the income level for the highest tax slab has been raised from the existing Rs 15 lakh to Rs 24 lakh.
Under the NTR, annual taxable income is calculated by deducting Rs 75,000 (standard deduction) from the salary, and this benefit is available to all taxpayers under the regime. So effectively, those with an annual salary of Rs 12.75 lakh will have no tax liability as per the Budget proposal.
Under the current NTR, an individual with an annual income of Rs 12 lakh has a tax liability of Rs 80,000.
However, while the tax exemption slab has been increased from Rs 7 lakh to Rs 12 lakh (annual income), it does not mean that those earning over Rs 12 lakh will have to pay tax only on the extra amount.
If taxable income is even Rs 12.1 lakh, the tax levied will be as per the slab rates under the NTR. So, on a taxable income of Rs 12.1 lakh, the Income Tax liability would be Rs 61,500 — sum of 5 per cent tax on income of Rs 4 lakh-8 lakh, 10 per cent on Rs 8 lakh-12 lakh, and 15 per cent on Rs 12 lakh-16 lakh. Similarly, an individual earning Rs 15 lakh will end up paying a tax of Rs 1,05,000.
The latest rate rationalisation and rebate have further sweetened the simplified NTR, and could prove to be the final nail in the coffin for the old tax regime (OTR), which has been left untouched in the Budget. Over the past few years, the government has been trying to make the simple and exemption-free NTR the preferred tax regime for salaried taxpayers.
A rough calculation shows that while an individual with a gross salary of Rs 15.75 lakh (pre-standard deduction) would have to pay a tax of Rs 1.27 lakh under the old tax regime even after he claims deductions of up to Rs 4.75 lakh (including investments under 80C, home loan interest outgo, health insurance for self and parents, and investment of Rs 50,000 under NPS), the tax outgo will be significantly lower at Rs 1.05 lakh under the proposed new tax regime.
Barring a few exceptions where individuals also claim HRA benefits of over Rs 5 lakh, the proposed NTR will be beneficial for most taxpayers.
A senior finance ministry official said that while about 75 per cent of taxpayers have already moved to the NTR, the latest move is likely to ensure that the remaining too opt for it.
