Finance Minister Nirmala Sitharaman on Saturday major changes to the Income Tax slab in her budget speech. As per the new tax rates, there will be no Income Tax on income up to ₹12 lakh under the New Tax Regime. The same will be ₹12.75 lakh for taxpayers with salary income.
Under the new income tax slabs, the income tax for the highest tax bracket of 30% has been raised to ₹24 lakh from the existing ₹15 lakh in 2024-25 under the new tax regime. The minimum income has been raised to ₹4 lakh from ₹3 lakh. Moreover, the ‘no tax’ threshold has been raised from ₹7 lakh to ₹12 lakh, a substantial increase.
Zero Income Tax till ₹12 Lakh Income under New Tax Regime
— Ministry of Finance (@FinMinIndia) February 1, 2025
👉 Slabs and rates being changed across the board to benefit all tax-payers
👉 New structure to substantially reduce taxes of middle class and leave more money in their hands, boosting household consumption, savings and… pic.twitter.com/KfQy4a6PGd
The new slabs for the Income Tax calculation are as follows:
- Upto 4,00,000 – 0%
- ₹4,00,000-₹8,00,000 – 5%
- ₹8,00,000-₹12,00,000 – 10%
- ₹12,00,000-₹16,00,000 – 15%
- ₹16,00,000-₹20,00,000 – 20%
- ₹20,00,000-₹24,00,000 – 25%
- Above 24,00,000 – 30%
Now, a question may arise, if there is no income tax for income up to ₹12,00,000, why does the slab show a tax of 5% for income from ₹4 lakh to ₹8 lakh and 10% for ₹8 lakh to ₹12 lakh.
The answer is, that it is for the calculation of tax once the taxable income exceeds ₹12 lakh. Income Tax is calculated on a slab basis, it is not calculated on a flat rate. This means, that if a taxpayer’s income is ₹15,00,000, it will not attract the flat rate of 16% as per the new slab on the entire income. The tax will be calculated based on the slabs, with a lower rate of tax for the lower slabs.
Therefore, Income Tax for taxable income will be calculated as follows:
Up to 4,00,000 – 0%, therefore no tax on the income of the first ₹4 lakh.
₹4,00,000-₹8,00,000 – 5%, therefore 5% on the next ₹4,00,000, which will be ₹20,000.
After that, 10% on the next ₹4,00,000 from ₹8,00,000 to ₹12,00,000, which will be ₹40,000.
The tax is 15% for the slab ₹12,00,000-₹16,00,000, so for the remaining ₹3,00,000 in the income ₹15,00,000, the tax will be ₹45,000. As a result, the total tax will be ₹1,05,000.
Even though the income is ₹15 lakh, it will not be calculated as 15% on ₹15 lakh, which would have been ₹2,25,000.
If the income exceeds ₹16,00,000 but less than 20%, the tax will be ₹1,20,000 plus 20% on the amount above ₹16 lakh. For income above ₹20 lakh, it will be ₹2,00,000 plus 25% on income above ₹20 lakh, and for above ₹24 lakh it will be ₹3,00,000 plus 30% on income above ₹24 lakh.
| Tax Slab | Income Tax rate for the slab | Amount in the slab | Tax for the slab | Total Tax |
|---|---|---|---|---|
| Upto 4,00,000 | 0% | ₹ 4,00,000.00 | ₹ – | ₹ – |
| ₹4,00,000-₹8,00,000 | 5% | ₹ 4,00,000.00 | ₹ 20,000.00 | ₹ 20,000.00 |
| ₹8,00,000-₹12,00,000 | 10% | ₹ 4,00,000.00 | ₹ 40,000.00 | ₹ 60,000.00 |
| ₹12,00,000-₹16,00,000 | 15% | ₹ 4,00,000.00 | ₹ 60,000.00 | ₹ 1,20,000.00 |
| ₹16,00,000-₹20,00,000 | 20% | ₹ 4,00,000.00 | ₹ 80,000.00 | ₹ 2,00,000.00 |
| ₹20,00,000-₹24,00,000 | 25% | ₹ 4,00,000.00 | ₹ 1,00,000.00 | ₹ 3,00,000.00 |
| Above ₹24,00,000 (assuming ₹30,00,000) | 30% | ₹ 6,00,000.00 | ₹ 1,80,000.00 | ₹ 4,80,000.00 |
As can be seen in this table, once the income exceeds ₹24 lakh, the income tax payable will be ₹3 lakh plus 30% tax on the income above ₹24 lakh. For income below that amount, the tax will be the total tax for the slab below income, plus the tax calculated on the remaining amount using the rate for that slab.
According to the finance ministry, the new structure will substantially reduce taxes of middle class and leave more money in their hands, boosting household consumption, savings and investment.
