Finance Minister Nirmala Sitharaman has made big announcements in the budget for the middle class and salaried class. According to his announcement, people earning Rs 12 lakh per year will not have to pay a single rupee of tax. On the other hand, if you looking at the new tax slabs, it is seen that zero tax is levied on income up to Rs 4 lakh, 5 % tax on income between Rs 4 to 8 lakh and 10 % tax on income between Rs 8 to 12 lakh. Now a debate has started on social media about it.
According to the announcement, if there is no tax up to 12 lakh rupees, then why there is a 5 % tax on income between 4 to 8 lakh rupees and 10 % tax on income between 8 to 12 lakh rupees? Go through this article and understand in detail what is reality and how do you see it?
Everything is About the Tax Rebates
There is a rebate provision under Section 87A of the Government Income Tax Act. This means, if your entire income tax is calculated in any slab, you will get some rebate on it.
For example, if your annual income is between 4 to 8 lakhs then the tax on you is 20,000 rupees. Similarly, if your salary is between 8 to 12 lakh rupees, your annual tax will be 40,000 rupees. Accordingly the total tax on you is 60,000 rupees. However, according to Section 87A of Income Tax, the tax rebate has now been increased to Rs 60,000 on an annual income of Rs 12 lakh. That means whether you earn 4 to 8 lakhs or 8 to 12 lakhs annually, you don’t have to pay a single rupee of income tax.
What is a Tax Rebates?
Tax rebates are an important financial benefit, which insures the tax payer from the tax levied on their income. This exception applies to people whose annual income is below a certain threshold. In India, this provision is contained in Section 87A of the Income Tax Act.
What is the Difference Between Tax Deduction and Rebates?
Tax deductions apply directly to your income and certain income levels are completely tax-free. So tax rebate applies when your income is above a certain limit. Apart from this you can forgive some amount. As now 12 lakh rupees will be on the income.
If the Annual Income Exceeds 12 Lakhs, How Much Tax will be Paid?
After the big announcement of the Finance Minister regarding the income tax waiver in the budget, most of them are now in such a dilemma. If your monthly income is Rs.1 lakh, that means annual income of Rs.12 lakh, then you don’t have to pay any income tax. If your annual income is 12 lakh 10 thousand rupees, then how much tax will be calculated? Which slab will you be on? Is 15% tax to be calculated on additional income of
Rs. 10, 000?
- According to the CA, if the annual income is 12 lakhs 10 thousand, then 4 lakhs of income should be exempted from tax while 4 to 8 lakhs of income is 5% i.e 20, 000 rupees. 8 to 12 lakhs will be taxed at the rate of 10 % which means 40,000 rupees. Similarly, another 1,500 will have to be taxed at the rate of 15% on the remaining income of 10,000 rupees. That means a total income tax of Rs. 61, 500 has to be paid. But as income tax exemption up to Rs 12 lakh has been announced, taxpayers will be affected. Therefore, marginal relief will be applicable in this case. That is, as much as his income is above 12 lakh rupees, the income tax cannot be more than that. So instead of Rs. 61,500, he will pay only Rs 10,000 as income tax.
- If the income is 12 lakh 50 thousand rupees, according to the tax slab his tax amount is Rs. 67, 500. But the tax payer will pay only 50 thousand rupees tax.
- Similarly, on an income of 12 lakh 70 thousand rupees, Rs. 70, 500 rupees are taxed while the taxpayer will pay Rs. 70,000 as per marginal relief.
- In case the income is 12 lakh 75 thousand rupees, the amount of tax will be Rs. 71, 250 rupees. As this amount of tax is less than the additional income excluded from the income tax exemption limit, he will have to pay income tax of Rs.71,250.
On the other hand, in the case of employees, as they have a standard deduction facility of Rs.75,000, the standard deduction amount will be excluded in their case, and this rule will apply.
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