No Income Tax up To Rs 12 Lakhs, Then Why Tax Slabs Start At Rs 4 Lakh? Explained

Finance Minister Nirmala Sitharaman announced on Saturday that income up to Rs 12 lakh would draw no tax. Effectively, with the existing standard deduction of Rs 75,000 in the new tax regime, the limit now stands revised to Rs 12.75 lakh.  

As per the new tax slabs announced by FM Sitharaman, if you earn up to Rs 4 lakh, you do not have to pay any tax in the new tax regime. Earnings between Rs 4-8 lakh are taxed at 5%, Rs 8-12 lakh at 10%, Rs 12-16 lakh at 15%, Rs 16-20 lakh at 20%, Rs 20-24 lakh at 25%, and income above Rs 24 lakh is taxed at 30%.  

Under the existing tax slabs of the new regime for FY 2024-25, if your income is up to Rs 3 lakh, you do not have to pay any tax. Earnings between Rs 3-7 lakh are taxed at 5%, income from Rs 7-10 lakh is taxed at 10%, Rs 10-12 lakh at 15%, Rs 12-15 lakh at 20%, and any income above Rs 15 lakh is taxed at 30%. 

For individuals below 60 years and Hindu Undivided Families (HUF), income up to Rs 2.5 lakh is tax-free under the old tax regime. Earnings between Rs 2.5-3 lakh are taxed at 5%, Rs 3-5 lakh at 5%, Rs 5-10 lakh at 20%, and income above Rs 10 lakh at 30%. For those aged 60-80 years, income up to Rs 3 lakh is tax-free, while for individuals above 80 years, income up to Rs 5 lakh is exempt from tax.  

Under the old tax regime, income up to Rs 2.5 lakh is tax-free, while the new tax regime offers tax-free income up to Rs 3 lakh. In the old regime, income between Rs 2.5-5 lakh is taxed at 5%, Rs 5-10 lakh at 20%, and above Rs 10 lakh at 30%. The new regime taxes Rs 3-6 lakh at 5%, Rs 6-9 lakh at 10%, Rs 9-12 lakh at 15%, Rs 12-15 lakh at 20%, and income above Rs 15 lakh at 30%. 

While income up to Rs 12 lakh is tax-free, you may be confused why taxes start at Rs 4 lakh. The slabs are made to offer relief to the middle-income groups. If someone earns more than Rs 12.75 lakh, they are placed in higher tax brackets and their salaries are taxed as per the slabs. So, if someone is earning Rs 14 lakhs, the first Rs 4 lakh is tax-free, then they will have to pay 5% on income between Rs 4-8 lakh, 10% on income between Rs 8-12 lakh, 15% on Rs 12-16 lakh.

To reduce income tax interest in the old regime, you can claim deductions on investment loans and EMIs. Home loan interest (Section 24), education loan interest (Section 80E), and business loan interest are deductible. Investing in tax-saving instruments like PPF, EPF, and insurance also helps lower taxable income.  (Image Credit: Freepik, Photo)