The new tax regime, slab by slab, without the jargon
Most explanations of income tax start with a table and lose you on row 3. Start here: what each line actually means.
The single most common misunderstanding about income tax is that your whole income gets taxed at whichever slab you land in. It does not. Each slice of your income is taxed at its own rate, and only the slice above a threshold pays the higher rate.
The slabs
| INCOME BAND | RATE |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
How the calculation actually runs
Take a salaried person earning ₹18 lakh a year. First, a standard deduction of ₹75,000 comes off, leaving ₹17.25 lakh of taxable income. Then each slab is filled in turn:
- The first ₹4 lakh is taxed at nil.
- The next ₹4 lakh at 5%. That is ₹20,000.
- The next ₹4 lakh at 10%. That is ₹40,000.
- The next ₹4 lakh at 15%. That is ₹60,000.
- The remaining ₹1.25 lakh at 20%. That is ₹25,000.
Being in the 20% slab does not mean paying 20% of your income. It means paying 20% on the part of your income that sits inside that slab.
The rebate, and why ₹12.75 lakh is the number people quote
There is a rebate under section 87A for resident individuals. If your taxable income is ₹12 lakh or less, the whole income-tax due is rebated. Once the standard deduction for a salaried person is included, a gross salary of ₹12.75 lakh works out to exactly ₹12 lakh taxable, and the tax comes to zero.
Marginal relief, the part almost nobody mentions
At ₹12 lakh taxable income the tax is zero. At ₹12,00,001 the rebate no longer applies and the tax jumps to around ₹60,000. One extra rupee would cost you sixty thousand.
Marginal relief stops exactly that. If you exceed ₹12 lakh, your income-tax over ₹12 lakh is limited to the amount of income by which you crossed the line. The tax is limited to ₹10,000 rather than ₹60,000 once you pay ₹10,000.
Worth knowing
This is simplified to explain the slab calculation, not every relief, rule or income category. Income such as capital gains may be taxed under separate rules. Please check your own position with a qualified adviser.
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