Income tax is a crucial part of personal finance, particularly for salaried individuals. If you earn ₹12 lakh per year, understanding the income tax for 12 lakhs salary in India can help you plan your finances effectively and minimize unnecessary tax liabilities.
In India, the government offers two tax regimes: the Old Tax Regime and the New Tax Regime. Let’s take a closer look at how these regimes apply to a ₹12 lakh salary.
Income Tax Basics
Income tax is calculated based on your total annual income, and the amount you pay depends on the applicable tax slab. Besides the basic tax, a 4% health and education cess is levied on the total tax amount. The two regimes differ mainly in rates and exemptions:
- Old Tax Regime: Offers higher tax rates but allows exemptions and deductions, such as HRA (House Rent Allowance), standard deduction, LTA (Leave Travel Allowance), and Section 80C deductions.
- New Tax Regime: Offers lower tax rates but removes most exemptions and deductions. It is simpler but may not always result in lower tax for everyone.
Income Tax Slabs for FY 2025-26
Old Tax Regime (for individuals below 60 years)
- Income up to ₹2.5 lakh: No tax
- ₹2,50,001 – ₹5 lakh: 5%
- ₹5,00,001 – ₹10 lakh: 20%
- Above ₹10 lakh: 30%
New Tax Regime
- Income up to ₹2.5 lakh: No tax
- ₹2,50,001 – ₹5 lakh: 5%
- ₹5,00,001 – ₹7.5 lakh: 10%
- ₹7,50,001 – ₹10 lakh: 15%
- ₹10,00,001 – ₹12.5 lakh: 20%
- ₹12,50,001 – ₹15 lakh: 25%
- Above ₹15 lakh: 30%
Tax Calculation for ₹12 Lakh Salary
Old Tax Regime (without deductions):
- Up to ₹2.5 lakh: Nil
- ₹2.5–5 lakh (5%): ₹12,500
- ₹5–10 lakh (20%): ₹1,00,000
- ₹10–12 lakh (30%): ₹60,000
Total tax = ₹1,72,500
Cess (4%) = ₹6,900
Net tax payable = ₹1,79,400
New Tax Regime (without deductions):
- Up to ₹2.5 lakh: Nil
- ₹2.5–5 lakh (5%): ₹12,500
- ₹5–7.5 lakh (10%): ₹25,000
- ₹7.5–10 lakh (15%): ₹37,500
- ₹10–12 lakh (20%): ₹40,000
Total tax = ₹1,15,000
Cess (4%) = ₹4,600
Net tax payable = ₹1,19,600
From this calculation, it is clear that the new tax regime is more beneficial if you do not have major deductions. However, if you invest in tax-saving instruments under Section 80C, claim HRA, or use other exemptions, the old regime could be more advantageous.
Key Takeaways
- Choose your regime carefully: Compare old vs new tax regimes based on your investments and exemptions.
- Plan tax-saving investments: Utilize Section 80C, 80D, and other deductions to lower taxable income.
- Factor in cess: Always remember the 4% health and education cess.
- Review annually: Tax slabs and rules can change every financial year, so staying updated is important.
Understanding income tax slabs allows you to plan your finances efficiently and ensures you don’t overpay taxes. For a ₹12 lakh salary, a careful comparison between the old and new tax regimes, along with smart use of deductions, can help you maximize savings and plan for a financially secure future.
