Endgame for old regime? How tax matrix plays out

The old regime has been left unchanged, but the new regime has a host of changes - including zero tax up to ₹12 lakh income

- Aprajita Sharma and Shipra Singh

NEW DELHI: The budget's biggest, shiniest takeaway: no tax on income up to ₹12 lakh. Union finance minister Nirmala Sitharaman's announcement was met with much cheer and enthusiastic number-crunching across the country.

Before you pop the champagne, though, there are two points to consider. First, zero tax up to ₹12 lakh as well as the attractive new tax slabs are only applicable to the new tax regime. At the same time, the old tax regime does remain relevant in some cases.

Second, if your taxable income is ₹12 lakh, your tax liability is not zero; it is ₹60,000 (per the new tax slabs). However, it will become zero once the rebate of ₹60,000 kicks in (it was earlier ₹25,000).

And if you are salaried (as opposed to self-employed), you get an additional standard deduction of ₹75,000. This means that income up to ₹12.75 lakh is practically tax free for the salaried class. To be sure, the income limit for claiming this rebate has been increased to ₹12 lakh from ₹7 lakh earlier.

If you earn even ₹10,000 above the ₹12 lakh or ₹12.75 lakh threshold, you will not be eligible for this tax rebate and your tax liability will come in at ₹61,500.

While you won't be eligible for the rebate, you will still get some marginal relief. Tax actually payable after marginal relief will come in at ₹10,000. Marginal relief ensures that those above an income tax slab threshold are not unfairly taxed compared to those below the threshold.

However, marginal relief is not limitless. For instance, if you have an annual taxable income of ₹12.75 lakh (or ₹13.5 lakh for salaried), your tax liability will stand at ₹71,250. Marginal tax relief will not kick in at this income level. You will still have to pay a tax of ₹71,250.