After all, how much income will be tax-free?
This time, while presenting the budget, Finance Minister Nirmala Sitharaman left the middle class in the lurch. The government has not even touched the old tax regime, even though a large number of taxpayers still use it. At the same time, from the changes made in the new tax regime, it is not clear whether your income of Rs 3.75 lakh will actually be tax-free or Rs 7.75 lakh. Let us understand the complete maths…
Last year, the government introduced standard deduction in the new tax regime for the first time. Its limit was then kept at Rs 50,000. While income of Rs 7 lakh was made tax-free. Thus, the effective tax-free income of the common man became Rs 7.5 lakh. To make this amount tax-free, the benefit of tax refund under Section 87A had to be availed, about which no announcement has been made in the budget this time.
The standard deduction increased, the tax slab also changed
The government has increased the standard deduction limit in the new tax regime from Rs 50,000 to Rs 75,000. But the tax slab has also been changed. Earlier, the income tax rate on Rs 3 lakh was 0%, which is the same this time too. Whereas there was a 5% tax on income between Rs 3 and Rs 6 lakh. However, the government used to give 87A tax rebate on this. In this way, the common man’s tax became nil. The government has increased this slab from Rs 3 lakh to Rs 7 lakh and there is no mention of income tax rebate this time. This is where the confusion has arisen.
Under the new tax regime, you used to get a rebate of Rs 15,000 on your income of Rs 3 to Rs 6 lakh earlier. Whereas in the Rs 6 to Rs 9 lakh slab the tax rate was 10% and income up to Rs 7 lakh was tax-free. This way your tax on Rs 6 to Rs 7 lakh i.e. Rs 1 lakh would become Rs 10,000. The government also used to give you tax rebates for this. You used to get a total tax rebate of Rs 25,000 from the government.
3.75 lakh or 7.75 lakh, how much income is tax free?
This time in the budget, the government has not made any mention of tax refunds under Section 87A. So, only your income up to Rs 3 lakh will be tax-free in the new tax regime. Even if you add to this the benefit of standard deduction of Rs 75,000, then only a maximum income of Rs 3.75 lakh will come under the tax-free category. While the government has maintained the 5% income tax on income of Rs 3 to 7 lakh.
In this way, even if you subtract Rs 3.75 lakh from this tax slab, your income of Rs 3.25 lakh will be taxable. By imposing tax on this at the rate of 5%, your tax will be Rs 16,250. Now the government will give a rebate for this under Section 87A, even then your income will be tax-free up to Rs 7 lakh or Rs 7.75 lakh. If the government does not give a tax rebate, the tax will be collected from your pocket.
New tax burden of the new tax regime
