Big Budget Boost For Middle Class: No Income Tax Up To Rs 12 Lakh

The recent budget announcements have sparked excitement among the middle class with the headline "No Income Tax Up To Rs 12 Lakh". While this statement might grab attention, it's crucial to understand the nuances and the fine print behind this claim. Let's delve into the details and separate fact from fiction.

The New Tax Regime: A Closer Look

The budget introduced changes to the new tax regime, making it more attractive for taxpayers. Here's a breakdown:

• Increased Rebate: The tax rebate under Section 87A has been increased. This means individuals with an income up to Rs 7 lakh will not have to pay any income tax.

• Standard Deduction: A standard deduction of Rs 50,000 has been introduced under the new regime. This effectively increases the tax-free income limit to Rs 7.5 lakh.

• Slab Changes: The income tax slabs under the new regime have been revised, with lower rates for certain income brackets.

So, Where Does the Rs 12 Lakh Figure Come In?

The claim of "no income tax up to Rs 12 lakh" is a bit misleading. It's based on a scenario where an individual utilizes various deductions and exemptions under the old tax regime to reduce their taxable income.

Here's how it could work:

• Old Regime Benefits: The old tax regime offers numerous deductions and exemptions, such as those under Section 80C (for investments like PPF, life insurance), Section 80D (for health insurance), and deductions for home loan interest.

• Maximizing Deductions: An individual can potentially reduce their taxable income significantly by maximizing these deductions.

• Reaching Rs 12 Lakh: In theory, if someone can utilize these deductions to bring their taxable income down to Rs 5 lakh (after claiming all applicable deductions on a gross income of Rs 12 lakh), they would effectively pay no income tax under the old regime.

Important Considerations:

• Old vs New: The budget announcements primarily focused on making the new tax regime more appealing. However, the old regime still exists, and taxpayers can choose the regime that suits them best.

• Individual Circumstances: The best tax regime for an individual depends on their specific financial situation, investment patterns, and eligibility for deductions.

• Complexity: Maximizing deductions under the old regime can be complex and require careful planning.

The Bottom Line:

While the claim of "no income tax up to Rs 12 lakh" is technically possible, it's not a straightforward scenario. It relies on utilizing the old tax regime and maximizing deductions, which may not be feasible or beneficial for everyone.

The budget has undoubtedly made the new tax regime more attractive, especially for those with simpler financial situations. However, it's crucial for individuals to carefully evaluate both regimes and choose the one that optimizes their tax liability based on their unique circumstances.

Disclaimer: This blog post provides general information about the recent budget announcements and their potential impact on taxpayers. It is not intended to be a substitute for professional financial advice. Please consult with a qualified tax advisor to determine the best tax regime for your individual circumstances.