What does the Rs 12 lakh I-T rebate mean? What will you pay if you earn above that?

Income Tax Budget 2025 Explained: Finance Minister Nirmala Sitharaman has raised the limit of income tax rebate from Rs 7 lakh to Rs 12 lakh, which essentially means that if an individual has an income of up to Rs 12 lakh, she will have zero tax liability.

Does that mean that those earning Rs 15 lakh will have to pay tax on only Rs 3 lakh?

No, the rebate is only applicable for those earning up to Rs 12 lakh. If your taxable income is even a rupee more than Rs 12 lakh, you will have to pay taxes as per the slab rates under the new tax regime. Earlier, those earning up to Rs 12 lakh paid a tax of Rs 80,000 under the new tax regime.

This means that if your taxable income is, say, Rs 12.1 lakh, your tax liability would be Rs 61,500

This is because, if your income is above Rs 12 lakh you will have to pay a tax of 5% on income between Rs 4 lakh to 8 lakh; 10% on income between Rs 8 lakh to 12 lakh and 15% between Rs 12 lakh to 16 lakh.

So an individual earning Rs 15 lakh will end up paying a tax of Rs 1,05,000.

What is the benefit for those earning above Rs 15 lakh?

The FM has provided significant savings for even those earning above Rs 15 lakh by way of sharp cut in tax rates for incomes falling between Rs 15 lakh and Rs 24 lakh.

While earlier, in the new tax regime, incomes above Rs 15 lakh were taxed at 30%, the FM has proposed to tax incomes between Rs 12 lakh to 16 lakh at 15%; income between Rs 16 lakh and 20 lakh at 20%; and that between Rs 20 lakh and 24 lakh at 25%. Now, 30% rate will be applicable only for income above Rs 24 lakh.

The FM has announced that those earning above Rs 24 lakh will have savings of up to Rs 1.1 lakh under the new tax regime.

Source: The Indian Express