Finance Minister Nirmala Sitharaman has given a big relief to the middle class in the budget. She has made annual income up to Rs 12 lakh tax free. If we also include the standard deduction of Rs 75000, then the total income up to Rs 12.75 lakh will be tax free.

However, in the new tax regime, annual income of Rs 12 lakh is still coming in the 10 percent tax slab. Due to this, taxpayers are confused as to how their income of Rs 12.75 lakh will be tax free. Let us understand this in detail.

How much tax is levied in the new tax regime?

According to the new tax regime, tax is zero on Rs 0-4 lakh. At the same time, 5 percent tax is levied on income from Rs 4 to 8 lakh and 10 percent tax is levied on income from Rs 8 to 12 lakh. The highest tax of 30 percent will be levied on annual income of more than Rs 24 lakh.

How will income of Rs 12.75 lakh be tax-free?

Under Section 87A of Income Tax, taxpayers get tax rebates. This is Rs 12,500 for the old tax regime and Rs 60,000 for the new tax regime. This simply means that if your tax liability in the new tax regime is less than Rs 60,000, then you do not need to pay a single rupee tax.

According to this, your annual income up to Rs 12 lakh will be tax-free. Understand it like this that income of 0-4 lakh is tax free. At the same time, 5% will be levied on 4 to 8 lakh. This means that your tax liability on this four lakh will be Rs 20,000. On the next four lakh i.e. 8 to 12 lakh, you will have to pay 10 percent tax, which is Rs 40,000.

This means that you will have to pay a tax of Rs 60,000 on an annual income of 12 lakh, on which the government is giving direct exemption. If you add the standard deduction of Rs 75,000 to this, then the annual income up to Rs 12.75 lakh will be tax free.

How to get the benefit of a tax rebate

You have to file an Income Tax Return (ITR) to claim tax rebate under section 87A. After your ITR is cleared, the rebate money will come directly to your account.

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