Income Tax Above ₹5 Lakh

Old Tax Regime Slabs

The old tax system has different tax rates depending on your age and income. Given below is the table showing the tax slabs under old regime:

New Tax Regime Slabs (Default Option)

The New Tax Regime has simplified, uniform slab rates for all individuals, regardless of age.

Income Tax Changes From 1st April 2025

The Union Budget 2025 has introduced some key updates:

• Higher Rebate Under Section 87A: Under Section 87A, taxable income up to ₹12 lakh is eligible for a ₹60,000 rebate, reducing tax liability to zero.
• Standard Deduction: Salaried individuals can claim a ₹75,000 deduction.
• Relaxed TDS Limits: TDS on interest and rent payments has higher exemption limits.
• Simplified Filing: Time to file updated returns has increased from 2 to 4 years.
• New Provisions: Removal of some strict TDS rules and changes for ULIPs and capital gains.

Features of the New Tax Regime (FY 2025–26)

• Default Tax System: The new regime is now the default, but taxpayers can still choose the old regime each year if they want.
• Increased Exemption: The basic exemption limit increased from ₹3 lakh to ₹4 lakh.
• Higher Section 87A Rebate: Taxpayers earning up to ₹12 lakh can pay no tax after rebates.
• Standard Deduction for Salaried: ₹75,000 deduction reduces taxable income.
• Highest Surcharge: Remains at 25% for incomes above ₹2 crore.

How Does Tax-Free Income above 5 Lakh Work? 

Here's how tax liability works for different income levels, considering the ₹75,000 standard deduction for salaried taxpayers and full ₹60,000 rebate under Section 87A:

Scenario 1:

Gross income: 5 Lakh

Taxable income after standard deduction (₹75,000): 4.25 Lakh

Tax payable on income: 

₹0 – ₹4 lakh → 0% = ₹0

₹4 lakh – ₹4.25 lakh → 5% on ₹25,000 = ₹1,250

Total = ₹1,250

Tax payable after section 87A rebate: ₹0

Takeaway: Taxable income is under ₹12 lakh; full rebate and standard deduction apply

Scenario 2: 

Gross income: ₹5.5 lakh

Taxable income after standard deduction (₹75,000): ₹4.75 lakh

Tax payable on income: 

₹0 – ₹4 lakh → 0% = ₹0

₹4 lakh – ₹4.75 lakh → 5% on ₹75,000 = ₹3,750

Total = ₹3,750

Tax payable after section 87A rebate: ₹0

Takeaway: Since income is under ₹12 lakh, full rebate applies and no tax is payable.

Scenario 3: 

Gross income: ₹7 lakh

Taxable income after standard deduction (₹75,000): ₹ 6.25 lakh

Tax payable on income:

₹0 – ₹4 lakh → 0% = ₹0

₹4 lakh – ₹6.25 lakh → 5% on ₹2.25 lakh = ₹11,250

Total = ₹11,250

Tax payable after section 87A rebate: ₹0

Takeaway: Taxable income is under ₹12 lakh; full rebate and standard deduction apply

Tax Liability Under the New Regime vs. the Old Tax Regime

These examples show that for incomes above ₹5 lakh, the new tax regime often results in lower tax payments.

Key Takeaways for Taxpayers Earning Above ₹5 Lakh

• Tax-free income effectively increases to ₹12.75 lakh for salaried individuals due to standard deduction and rebate.
• New tax slabs have lower rates for middle-income earners.
• The Section 87A rebate applies only to incomes up to ₹12 lakh.
• Higher income beyond ₹12.75 lakh is taxed progressively according to slabs.
• Taxpayers can choose old or new regime depending on deductions and income sources.

Does the New Tax Regime Apply to Everyone?

No. The new tax regime is default, but taxpayers can opt for the old regime if they do not have business income. The revised slabs apply only to:

• Resident Individuals
• Hindu Undivided Families (HUFs)
• Salaried persons and pensioners

The new regime does not apply to:

• Businesses or partnerships
• Corporate taxpayers
• Capital gains, which continue to be taxed separately

Conclusion

For those earning above ₹5 lakh annually, the new tax regime offers simplified slabs, higher exemptions, and larger rebates that can lower your tax burden. While the choice between old and new regimes depends on your deductions and financial goals, understanding how your income is taxed and what benefits you qualify for can help improve your financial results and support smarter tax planning over time.

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