With the new tax regime, there’s been a lot of buzz around “tax-free income up to ₹12.75L.” But what does that really mean? Let’s break it down with three practical scenarios:

Scenario 1: Income = ₹11.5L (Below ₹12L)

● Tax Calculation:
– Since your income is below ₹12L, you automatically qualify for a full rebate.
– Total Tax: ₹0
● Key Point:
– Enjoy a completely tax-free outcome if your income remains under ₹12L.

Scenario 2: Income = ₹12.75L (Between ₹12L and ₹12.75L)

● Step-by-Step:
– With a standard deduction of ₹75K, your taxable income adjusts to ₹12L.
– You still secure a 100% rebate.
● Total Tax: ₹0
● Key Point:
– Even if your gross income is ₹12.75L, the standard deduction brings it down to the rebate threshold, ensuring zero tax liability.

Scenario 3: Income = ₹13L (Exceeds ₹12.75L)

● Calculation Breakdown:
○ Income after Standard Deduction:
■ Gross Income: ₹13L
■ Less: Standard Deduction of ₹75K
■ Taxable Income: ₹12.25L
○ Tax Computation (Tax applies from ₹4L onwards):
■ ₹0 to ₹4L: No tax
■ ₹4L to ₹8L: 5% on ₹4L = ₹20,000
■ ₹8L to ₹12L: 10% on ₹4L = ₹40,000
■ ₹12L to ₹12.25L: 15% on ₹0.25L = ₹3,750
■ Total Tax (Before Marginal Relief): ₹63,750
○ After Considering Marginal Relief:
■ Applicable Tax Liability becomes approximately ₹25,000 + applicablecess.

● Key Point:

○ Once your income exceeds ₹12.75L, you start paying tax on the entire amount above ₹4L following the slab rates, even after the standard deduction.

Key Takeaways:

● For Salaried Individuals under the New Tax Regime:
○ Income up to ₹12.75L: Zero tax liability (thanks to the rebate mechanism).
○ Income Above ₹12.75L: You start paying tax on income beyond the basic exemption limit of ₹4L.
● Important Clarifications:
○ The basic exemption limit is ₹4L , not ₹12L.
○ These calculations apply only under the New Tax Regime .
○ Short-Term & Long-Term Capital Gains (STCG & LTCG) are taxed separately.
○ This regime is applicable only for Resident Individuals .

Understanding these scenarios helps demystify the tax benefits and limitations of the new regime. Whether you’re planning your finances or advising clients, knowing how these thresholds work is crucial for effective tax planning.

Stay informed, plan smart, and optimize your tax strategy!

TaxPlanning #NewTaxRegime #FinanceTips #TaxRebate #IncomeTax #FinancialLiteracy #CA

CA. Prakhar Goyal
Investor | Chartered Accountant
Satyanarayan Goyal & Co.