If your income is ₹14 lakh, know how Income tax is calculated ? Understanding the ₹12 lakh exemption

Finance Minister Nirmala Sitharaman recently announced changes to income tax slabs, offering relief to the middle class and encouraging growth while maintaining fiscal responsibility. The new tax regime introduces a higher tax exemption threshold, reduced tax burdens for middle-income earners, and additional benefits for salaried individuals.

The new income tax regime announced by Finance Minister Nirmala Sitharaman introduces several key changes aimed at providing relief to the middle class. Individuals earning up to Rs 12 lakh annually will no longer be required to pay any income tax. For the salaried class, an additional Rs 75,000 standard deduction has been introduced. The government has also restructured the tax slabs for those earning above Rs 12 lakh, allowing those with incomes up to Rs 25 lakh to save up to Rs 1.1 lakh in taxes. As a result, around 1 crore people will no longer have to pay taxes, and over 6.3 crore people, or more than 80% of taxpayers, will benefit from the new tax structure.

How Income Tax is Calculated Under the New System

Let’s break down how income tax will be calculated for an individual earning Rs 14 lakh annually:

1) First Rs 4 Lakh: This portion is tax-free.

2) Next Rs 4 Lakh (Rs 4-8 Lakh Slab): Tax is applied at 5%.

    Tax: 5% of Rs 4 lakh = Rs 20,000

3) Next Rs 4 Lakh (Rs 8-12 Lakh Slab): Tax is applied at 10%.

   Tax: 10% of Rs 4 lakh = Rs 40,000

4) Remaining Rs 2 Lakh (Rs 12-14 Lakh Slab): Tax is applied at 15%.

    Tax: 15% of Rs 2 lakh = Rs 30,000

Total Tax Liability:

• Rs 20,000 (from Rs 4-8 lakh)
• Rs 40,000 (from Rs 8-12 lakh)
• Rs 30,000 (from Rs 12-14 lakh)

Total Tax = Rs 20,000 + Rs 40,000 + Rs 30,000 = Rs 90,000 

So, for an income of Rs 14 lakh, the total tax liability would be Rs 90,000.

Understanding the Rebate

The new tax system also includes a rebate for taxpayers. For example, if a salaried person earns Rs 12 lakh annually, the tax liability will be calculated as follows:

• First Rs 4 Lakh: No tax
• Next Rs 4 Lakh: Tax at 5% = Rs 20,000
• Next Rs 4 Lakh: Tax at 10% = Rs 40,000

Total Tax = Rs 20,000 + Rs 40,000 = Rs 60,000

However, the government offers a full rebate of Rs 60,000, which effectively makes the income of Rs 12 lakh tax-free for the taxpayer.

In essence, the new tax system not only reduces the tax burden but also provides significant relief for middle-income earners, with many individuals not having to pay any taxes at all.