As your income grows, it becomes crucial to understand the tax implications and obligations that come along with it. By gaining clarity on the tax rules and regulations in India, you can effectively manage your finances, plan your investments, and ensure compliance with the law.
In this comprehensive guide, we will explore the taxation rules applicable to individuals with an annual income exceeding Rs. 12 lakh. This blog will provide you with a clear understanding of the income tax slabs, rates, and deductions available to help you navigate the taxation rules for income more than Rs. 12 lakh per year more confidently.
Income Tax Slabs for FY 2023-2024 as per New Tax Regime
The income tax in India is levied based on a progressive tax system, meaning the tax rate increases with the income level. For individuals earning more than INR 12 lakh per year, they fall under the following income tax slabs for the financial year 2023-2024 as per the new tax regime-
| Tax Slab | Tax Rate |
|---|---|
| Upto Rs. 3 lakh | NIL |
| Rs. 3 lakh – Rs. 6 lakh | 5% on income more than Rs. 3 lakh |
| Rs. 6 lakh – Rs. 9 lakh | 10% on income more than Rs. 6 lakh + Rs. 15,000 |
| Rs. 9 lakh – Rs. 12 lakh | 15% on income more than Rs. 9 lakh + Rs. 45,000 |
| Rs. 12 lakh – Rs. 15 lakh | 20% on income more than Rs. 12 lakh + Rs. 90,000 |
| Above Rs. 15 lakh | 30% on income more than Rs. 15 lakh + Rs. 1,50,000 |
Note that the tax rates in the new tax regime as per Budget 2023 remain the same across all categories of individuals up to 60 years of age, senior citizens above 60 years to 80 years and super senior citizens above 80 years of age. Hence, as per the new tax regime of Budget 2023, senior and super senior citizens won’t receive any additional benefit due to no increase in the basic exemption limit. Moreover, under the new tax regime, individuals with a net taxable income of up to ₹7 lakh will qualify for a tax rebate under section 87A.
Income Tax Slabs for FY 2023-2024 as per Old Tax Regime
| Tax Slab | Tax Rate |
|---|---|
| Upto Rs. 2,50,000 | NIL |
| Rs. 2.5lakh – Rs. 5 lakh | 5% |
| Rs. 5 lakh – Rs. 10 lakh | 20% |
| More than Rs. 10 lakh | 30% |
Note that for the financial year 2023-24, the income tax exemption limit is set at ₹ 2.5 lakh for all individuals, Hindu Undivided Families (HUF), individuals below 60 years, and Non-Resident Indians (NRIs). Moreover, an extra 4% health and education cess is levied on the total tax amount.
Deductions and Exemptions under New Tax Regime
Individuals can claim various deductions and exemptions under different sections of the Income Tax Act, such as Section 80C (for investments in specific instruments), Section 80D (for health insurance premiums), Section 80G (for donations to charitable institutions), and more. These deductions help reduce the taxable income, thereby reducing the overall tax liability.
The new tax regime offers tax exemptions for the following:
- Transport allowances for specially-abled individuals.
- Conveyance allowance received to cover employment-related travel expenses.
- Compensation for travel on tour or transfer.
- Daily allowances to meet ordinary charges during absence from the regular place of duty.
- Perquisites for official purposes.
- Exemptions on voluntary retirement under Section 10(10C), gratuity under Section 10(10), and leave encashment under Section 10(10AA).
- Interest on Home Loan for let-out property (Section 24).
- Gifts up to Rs. 5,000.
- Deduction for the employer’s contribution to NPS account under Section 80CCD(2).
- Deduction for additional employee cost (Section 80JJA).
- Budget 2023 introduced a standard deduction of Rs. 50,000 under the New Tax Regime, applicable from FY 2023-24.
- Budget 2023 also introduced a deduction under Section 57(iia) for family pension income.
- Budget 2023 further introduced a deduction for the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).
Minimum Deduction Required if Income is More than Rs. 12 Lakh
The minimum deductions necessary to achieve an annual income of Rs. 12 lakh result in an income tax amount of Rs. 60,000 under the new tax regime. To match this tax amount under the old tax regime, you will need to utilize deductions in a manner that adds up to Rs. 3 lakh in total deductions.
How much Tax you will be paying if your Income is more than 12 Lakh under the New Tax Regime
| Income (Rs) | Amount (Rs) | Old Regime (Rs) | New Regime (Rs) |
|---|---|---|---|
| Salary | 1,250,000 | 1,250,000 | 1,250,000 |
| Less: Standard deduction | 50,000 | 50,000 | 50,000 |
| Less: Professional tax | 2,400 | 2,400 | – |
| Gross total income | 1,197,600 | 1,197,600 | 1,200,000 |
| Less: Deduction u/s 80C | 150,000 | 150,000 | – |
| Total income | 1,047,600 | 1,047,600 | 1,200,000 |
| Income tax | 126,780 | 90,000 | |
| Add: Education cess @ 4% | 5,071 | 3,600 | |
| Total tax | 131,851 | 93,600 |
In the given example, with an income of Rs. 12,50,000, the new tax regime offers a notable advantage, resulting in savings of Rs. 38,251 compared to the old regime. However, if you opt for additional deductions like interest on housing loan for SOP, health insurance, investment in NPS, education loans, etc., the old regime may prove to be more advantageous in terms of tax savings.
Conclusion
By leveraging the available tax-saving options and understanding the deductions applicable to your specific financial situation, you can make informed decisions to maximize your earnings and achieve your financial goals. Remember, effective tax planning not only helps you save money but also ensures compliance with the law. By proactively managing your taxes, you can enjoy the fruits of your hard-earned income while contributing to the nation’s development.
What is the income tax rate for individuals earning more than Rs. 12 lakh in a year in India?
- Income up to Rs. 2.5 lakh: Nil (No tax)
- Income from Rs. 2,50,001 to Rs. 5,00,000: 5% of income exceeding Rs. 2.5 lakh
- Income from Rs. 5,00,001 to Rs. 10,00,000: 20% of income exceeding Rs. 5 lakh + Rs. 12,500
- Income above Rs. 10,00,000: 30% of income exceeding Rs. 10 lakh + Rs. 1,12,500
What are tax deductions, and how can they help in reducing my tax liability?
Can I claim deductions under Section 80C if my income is above Rs. 12 lakh?
Are there any tax-saving investment options beyond Section 80C for high-income earners?
- Section 80D: Deductions on health insurance premiums paid for self, family, and parents.
- Section 80E: Deductions on interest paid on education loans for higher studies.
- Section 80G: Deductions on donations to specified charitable institutions and funds.
- Section 24(b): Deductions on the interest paid on a home loan.
Can I claim deductions for my children’s education expenses if my income exceeds Rs. 12 lakh?
