What Rs 12 Lakh Exemption Means and How Tax Is Calculated If You Earn More
The Indian government has introduced several tax exemptions and rebates to ease the financial burden on taxpayers. One of the key benefits in the new tax regime is the Rs 12 lakh exemption—but what does it actually mean? If you earn more than this threshold, how is your tax calculated? Let’s break it down in simple terms.
Understanding the Rs 12 Lakh Exemption
Under the new tax regime introduced in Budget 2023, individuals with taxable income up to Rs 7 lakh get a full tax rebate under Section 87A. Additionally, with the benefit of standard deductions and exemptions, the effective tax-free income increases to Rs 12 lakh for certain taxpayers.
Here’s how this works:
- Standard Deduction (Rs 50,000): Available for salaried employees and pensioners.
- New Tax Regime Rebate (Section 87A): Income up to Rs 7 lakh is tax-free.
- Employer’s Contribution to NPS (Up to Rs 1.5 lakh): If your employer contributes to your National Pension System (NPS), this amount is tax-free.
- EPF/Gratuity Exemptions: Some benefits in EPF and gratuity may push the effective tax-free threshold to Rs 12 lakh in certain cases.
How Is Tax Calculated If You Earn More Than Rs 12 Lakh?
If your annual income exceeds Rs 12 lakh, your tax liability depends on the tax slabs under the new tax regime (default option) or the old tax regime (if chosen manually).
New Tax Regime (FY 2023-24) – Tax Slabs
Example Tax Calculation (For Income Rs 15 Lakh)
Let’s assume your total taxable income is Rs 15 lakh under the new tax regime:
- First Rs 3 lakh → No tax
- Rs 3 to 6 lakh → 5% of Rs 3 lakh = Rs 15,000
- Rs 6 to 9 lakh → 10% of Rs 3 lakh = Rs 30,000
- Rs 9 to 12 lakh → 15% of Rs 3 lakh = Rs 45,000
- Rs 12 to 15 lakh → 20% of Rs 3 lakh = Rs 60,000
Total Tax Before Cess: Rs 1,50,000
4% Health & Education Cess: Rs 6,000
Final Tax Payable: Rs 1,56,000
How to Reduce Tax Liability?
- Opt for the Old Tax Regime (if beneficial): Allows deductions like 80C (Rs 1.5 lakh), 80D (health insurance), and HRA exemption.
2. Invest in NPS: Employer contributions to NPS (up to 10% of salary) are tax-free.
3. Utilize Standard Deduction: Salaried individuals automatically get a Rs 50,000 deduction.
4. Claim House Rent Allowance (HRA): If you live in a rented house, this can reduce your taxable income.
Conclusion