If you’re earning Rs. 12 lakh per annum, you might be wondering how the latest tax changes affect your take-home salary. Before calculating taxes, let’s break it down.
Exemptions and Deductions
Previously, you could claim exemptions such as HRA, children’s education allowance, and other reimbursements (mobile bills, meal coupons, internet). However, these exemptions are no longer allowed under the new tax regime.
What remains is the standard deduction of Rs. 75,000, applicable to all salaried employees. So, if your net salary is Rs. 12 lakh, your taxable income becomes Rs. 11.25 lakh.
Tax Calculation for FY 2025
Now, let’s apply the tax slabs:
- In the previous year, you would have paid Rs. 71,500 in taxes.
- In 2025, the tax payable is calculated at Rs. 54,600.
However, due to the rebate available up to Rs. 12.75 lakh, you end up paying zero tax. This means if your annual income is Rs. 12.75 lakh or below, you pay no income tax.
What Happens When Your Salary Increases?
Let’s say your salary increases from Rs. 12.75 lakh to Rs. 13 lakh. A minor hike of Rs. 25,000 now pushes you into a higher tax bracket, and suddenly your tax liability jumps to Rs. 66,329! This happens because multiple tax slabs get activated, demonstrating the importance of salary structuring and tax planning.
Cheaper and Costlier Goods Under the New Budget
Some notable changes in taxation impact everyday products:
- Getting Cheaper: Cancer and life-saving drugs, lithium-ion batteries (used in smartphones and EVs), LED TVs, leather products, and critical minerals.
- Getting Costlier: Knitted fabrics, plastic products, and certain types of flat-screen TVs.
Major Updates in Rental Income Taxation
Earlier, the TDS threshold on rental income was Rs. 2.4 lakh per annum, but now it has increased to Rs. 6 lakh per annum, offering relief to landlords with lower rental incomes.
Healthcare and Medical Education Expansion
India faces a healthcare crisis, with 14 lakh cancer cases annually. The government has taken steps to improve affordability by reducing tax on cancer drugs. Additionally, 10,000 new medical seats will be introduced to train more professionals. Over the next three years, district hospitals will have daycare centers dedicated to cancer care, improving access to treatment.
India’s Fiscal Deficit and Economic Growth Strategy
India currently has a fiscal deficit of 4.8%, meaning the government is spending more than it earns. The aim is to reduce this to 4.4%. But if the government has forgone Rs. 1 lakh crore in tax revenue by increasing the income tax slab to Rs. 12 lakh, how does it plan to bridge the gap?
The answer lies in long-term economic stimulation. By reducing taxes, people have more disposable income, which increases spending. Buying a new washing machine, taking an Uber, or financing a new gadget stimulates various sectors of the economy. This increased consumption helps grow the GDP, eventually making the fiscal deficit seem smaller as a percentage of the expanding economy.
Final Thoughts
The new tax regime offers significant benefits to those earning up to Rs. 12.75 lakh but creates a tax jump for those exceeding this threshold. At the same time, the government is betting on increased consumption to fuel economic growth. While the immediate impact may not be evident, these policies aim to create a stronger, more financially empowered India in the long run.
