Is income up to Rs 12 lakh really tax-free?
Short answer: Under the new tax regime, a resident individual whose taxable income is Rs 12 lakh or less pays no income tax, because a rebate cancels the tax. Salaried people also get a standard deduction of Rs 75,000, so a salary of up to Rs 12.75 lakh can result in zero tax.
The new regime has a basic exemption of Rs 4 lakh, with tax rates rising in steps above that. On a taxable income of exactly Rs 12 lakh, the slab tax works out to Rs 60,000. A rebate of up to Rs 60,000 cancels it, so no tax is payable.
What happens just above Rs 12 lakh
The rebate stops at Rs 12 lakh, but marginal relief prevents a sudden jump. Your tax cannot be more than the amount by which your income exceeds Rs 12 lakh. On a taxable income of Rs 12,25,000, for example, tax is limited to Rs 25,000 plus cess, rather than the full slab tax of Rs 63,750.
Important exceptions
- Income taxed at special rates, such as certain capital gains, is treated differently and the rebate may not cover it.
- Under the old regime, the rebate covers taxable income only up to Rs 5 lakh.
- Non-residents are not eligible for this rebate.
Check your own figures with our income tax calculator.
Official sources
- Income Tax Department, Income Tax Department
- Income Tax e-filing portal, Income Tax Department
- Union Budget documents, Ministry of Finance
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