Finance Minister Nirmala Sitharaman said in her 74-minute union budget speech on February 1, 2025 that under the new tax regime (NTR), income is not as high as Rs 12,00,000.
Considering that the standard deduction for salary taxpayers is Rs 75,000, the standard deduction for salary taxpayers is Rs 75,000, will be extended to Rs 12,75,000 per year.
Most importantly, Ms. Sitharaman also readjusted each tablet with equal intervals of Rs 4 lakh. The sectors are Rs 0-40,000-40,000 (Neil), Rs 4-8,000-8,000 (Tax 5% – Rs 20,000), Rs 8-1.2 lakh (10% – 40,000), Rs 1.2 lakh (15%), Rs 16-20,000, <20% (20%), Rs 20-24 (Rs 20-24 (25-24%) and above (25%) and above (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%) (30%). Therefore, if the income is Rs 121 lakh, the tax will be (Rs 60,000 + Rs 1,500, i.e. 15% of Rs 10,000).
New tax rate category
Additionally, she proposed a new 25% tax rate category, which was not available in the last fiscal year.
According to the tablets in the previous year, after 20% of the categories, the next category is 30%.
Now, this extended tax restrictions only apply to those who choose NTR. Whether to choose an old tax system or a new tax system is purely a choice and goal, we introduced this in the Moneywise column on February 17.
Back to the NTR board. It is natural to ask if income is not taxed to Rs 12,00,000, and why only Rs 0-4 crore taxes are shown as zero tax. In addition, for income of Rs 40,000 to Rs 1.2 lakh, the corresponding tax rate in the corresponding column is 5% to 10%. The problem here is that if you have a salary of 55%, you will need to pay a 5% tax (Rs 40-80,000-80,000), for example Rs 55 lakh per year!
No. For clarity, let’s keep it as a component of the standard deduction for some time and consider only the board.
Two components
Ideally, as announced by her budget, the first and corresponding income tax rates should be straightforward for Rs 0-1.2 lakh – zero, but that’s not, but there are other boards between the two and have specific interest rates. This is because the calculation of income tax always takes into account the two components of obtaining the final taxable income.
The first component is a simple straightforward component of the standard deduction (Rs 75,000 under NTR), which will directly shrink the total tax payable. Next, a slightly complex component is called a discount, which falls under Section 87A of the Income Tax Act.
In the case of standard deductions, you cannot directly deduct the rebate amount from your taxable income. Discounts are like discounts, and the total revenue provided meets certain criteria.
Only Rs 60,000’s “discount” (rebate) applies to taxpayers only if the total taxable income limit is within the prescribed limit of Rs 12,00,000. In the 2025 budget, the Finance Minister also increased the rebate amount from Rs 25,000 to Rs 60,000, but only for NTR.
In short, if your taxable income does not exceed Rs 12,00,000, your tax is ₹60,000 (Rs 20,000 plus Rs 40,000). However, since your income is within the threshold of Rs 12,00,000 you can ask for a rebate (discount) Rs 60,000 to increase your net taxable amount to zero [₹60,000 tax minus ₹60,000 Rebate].
So, what if your taxable income exceeds the threshold of Rs 12,00,000? You can’t ask for rebates, thus paying higher taxes. Suppose you earn Rs 12,10,000 per year. Since the untax limit exceeds Rs 10,000, the discount does not apply. For an increase of Rs 10,000 per year you end up paying ₹61,500 (€20,000 +€40,000 + Rs 1,500).
But the clarification of the Central Direct Tax (CBDT) solves the anomaly by providing “marginal relief”. If your taxable income exceeds Rs 1.2 lakh but less than Rs 1.27.5 lakh, you can ask for “marginal relief”.
In the example above, the total tax payable is Rs 61,500 but there is no “marginal relief” but this will be much lower due to marginal relief. To calculate marginal relief, deduct the excess amount exceeding the untaxed limit (Rs 10,000) from the total tax amount of Rs 61,500 that should be paid. Therefore, the marginal relief will be Rs 51,500, so the final tax payment is only Rs 10,000 (Rs 61,500 minus Rs 51,500).
Exceeding limit
What if taxable income exceeds Rs 12.75 lakh? Unfortunately, you can’t take advantage of the rebates and benefits of marginal relief to pay more taxes at the same time. However, if your employer contributes to the national pension plan, you can ask for a donation amount under Section 80ccd (2) (up to 14% of the base salary) to reduce the tax burden. Your contribution to the program will not be considered.
(The author is a nism & Crisil certified wealth manager)
publishing – April 7, 2025 02:30 AM IST
