The government has introduced tax rebate on income up to ₹12L in the Income Tax Budget of 2025. This move is aimed at easing the tax burden on middle and high-income earners. The new rebate structure aligns with the government's broader goal of simplifying taxation under the new tax regime for FY 2025-26, making it a more attractive option compared to the old regime.
This article delves into what the rebate entails, how it affects high earners, and why it matters.
Understanding the Tax Rebate on Income up to ₹ 12 Lakhs **
For individuals earning above ₹12 lakhs annually, the rebate offers partial relief. While they will still have tax liability on their income, the overall burden is expected to be lower compared to previous years. This is especially beneficial for those who fall in the ₹12-15 lakhs income bracket, as they will experience a noticeable reduction in their tax outflow. For individuals earning more than ₹15 lakh annually, the benefit will be lesser. They could still benefit from the new regime’s lower slab rates, depending on their exact financial situation.
The primary objective of this rebate is to make the new tax system more appealing by offering benefits without the need for multiple deductions. Unlike the old tax regime, where taxpayers relied on exemptions under section 80C and section 80D, the new system provides direct tax relief by way of such rebate.
Impact on High Earners
For individuals earning above ₹12 lakhs annually, the rebate offers partial relief. While they will still have tax liability on their income, the overall burden is expected to be lower compared to previous years. This is especially beneficial for those who fall in the ₹12-15 lakhs income bracket, as they will experience a noticeable reduction in their tax outflow. For individuals earning more than ₹15 lakh annually, the benefit will be lesser. They could still benefit from the new regime’s lower slab rates, depending on their exact financial situation.
Such high earners can use an income tax calculator to assess how much tax they owe under the new system. By entering their annual income, deductions, and applicable rebates, taxpayers can determine whether they benefit more from the new or old tax regime.
Comparison with Previous Tax Slabs**
Under the old tax regime, individuals had to rely on deductions such as:
- Section 80C (₹1.5 lakhs deduction for investments in PPF, ELSS, etc.)
- Section 80D (deductions for health insurance premiums)
- HRA (House Rent Allowance) exemptions
While these deductions reduced taxable income, they required meticulous planning and appropriate investment. The new tax regime FY 2025-26 simplifies this by offering lower tax rates without the need for multiple deductions, ensuring greater transparency and ease of filing.
Who Should Opt for the New Tax Regime?
The revised tax rebate makes the new tax regime particularly beneficial for:
- Salaried individuals who do not wish to invest in tax-saving instruments.
- Self-employed professionals looking for a hassle-free taxation process.
- Middle and upper-middle-class earners aiming for a straightforward tax structure.
Considerations for Taxpayers Benefitting from the New Rebate
For incomes up to ₹12L, the revised tax rebate is beneficial. However, there are some considerations that taxpayers should be aware of:
Lack of deductions:
Those who rely on tax-saving investments may find the new regime less favourable.
Transition concerns:
Individuals accustomed to exemptions and deductions may need time to adjust.
Impact on investments:
With fewer incentives for tax-saving schemes, there might be a decline in investment in certain financial products like PPF and ELSS.
Despite these challenges, the overall simplicity and lower tax liability under the new tax regime for FY 2025-26 make it an attractive option for many taxpayers.
Final Thoughts
The Income Tax Budget 2025 has introduced a progressive reform that significantly impacts how individuals approach tax planning. If you earn up to ₹12L, the tax rebate is a welcome relief making compliance easier and tax liability more manageable. Using an income tax calculator, it can be better help in understanding tax obligations and optimize your financial planning. Hence, an individual that earns up to ₹12L could enjoy little to no tax obligation.
** Tax exemptions are as per applicable tax laws from time to time.
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