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2025-02-11
Mr. Parveen Kumar (Partner, Direct Tax, Dewan P.N. Chopra & Co.) and Mr. Gaurav Bhuddi (Senior Consultant) present an in depth analysis of tax impact on income up to and above Rs. 12 lakh in hands of resident individuals. Listing down the key tax implications of amendments proposed in slab rates for new tax regime with the help of various illustrations, the authors inter alia observe that “Considering the ambiguity in current provisions regarding allowability of rebate u/s 87A against income chargeable at special rates, it is proposed to amend section 87A to provide that w.e.f. AY 2026-27, rebate u/s 87A shall not be available against income chargeable at special rate, in the hand of a resident individual, as specified in Chapter XII of the Act.”
“Budget 2025: New Regime – Analysing The Proposed Amendment”
In Depth Analysis Of Tax Impact On Income Up To And Above Rs. 12 Lakh In Hands Of Resident Individual
The Hon’ble Finance Minister (‘FM’), presented the Finance Bill, 2025 (‘the Bill’) on February 1, 2025.
In the Bill, the FM proposed to amend the slab & tax rates prescribed in the default new tax regime under section 115BAC of the Income Tax Act, 1961 (‘the Act’) to be applicable from Assessment Year 2026-2027. Amendments also proposed in Section 87A (Rebate) whereby applicability of such rebate is extended to the income upto Rs 12 lakh from existing Rs 7 lakh.
Key Tax Implications of amendments proposed in slab rates for new tax regime and amendments proposed in section 87A applicable for Resident Individual in summarised form are as under:
• No Tax payable if income earned is upto Rs 12 Lakh for a person earning income other than salary income like business income, professional income, rental income, other source income etc. Rebate u/s 87A will be available in such case.
• No Tax payable if income earned is upto Rs 12.75 Lakh for a person earning salary income as well as other incomes like business income, professional income, rental income, other source income etc. because of standard deduction of Rs 75000 allowed from salary income.
• Rebate u/s 87A shall not be available if total income exceeds Rs 12 Lakh (excluding income taxable at special rate i.e. special rate income will not be clubbed in the other income for purpose of calculating limit of Rs 12 lakh for rebate purposes). In such case, total income (other than special rate income) shall be chargeable to tax as per applicable slab rates subject to marginal relief.
• Marginal Relief – Marginal relief available if income (other than special rate income) exceeding Rs 12 Lakh is lower than tax applicable on total income (other than special rate income). Tax payable in such case will be restricted to income (other than special rate income) exceeding Rs 12 lakh.
• Rebate u/s 87A shall not be available on the income taxable at special rate like STCG taxable @20%, LTCG taxable @12.5% etc. Applicable tax at special rate income has to be paid even if total income including special rate income is within Rs 12 lakh limit. However, no tax on other income in such case due to rebate u/s 87A. Full list of special rate income is provided in table at page no. 6 below.
New Regime for Resident Individual - Tax Rate Comparison (Section 115BAC):
|
Proposed Slab Rate (Amt in Rs.) |
Proposed Tax Rate |
|
Up to 4 Lakh |
Nil |
|
4 Lakh – 8 Lakh |
5% |
|
8 Lakh – 12 Lakh |
10% |
|
12 Lakh – 16 Lakh |
15% |
|
16 Lakh – 20 Lakh |
20% |
|
20 Lakh – 24 Lakh |
25% |
|
Above 24 Lakh |
30% |
|
Existing Slab Rate (Amt in Rs.) |
Existing Tax Rate |
|
Up to 3 Lakh |
Nil |
|
3 Lakh – 7 Lakh |
5% |
|
7 Lakh – 10 Lakh |
10% |
|
10 Lakh – 12 Lakh |
15% |
|
12 Lakh – 15 Lakh |
20% |
|
Above 15 Lakh |
30% |
• Rebate u/s 87A increased - It has also been proposed to amend the provisions of section 87A so as to extend the existing rebate limit of Rs. 25,000 (i.e., for income up to Rs. 7 lakh) to Rs. 60,000 (i.e., for income up to Rs. 12 lakh) in case a resident individual opting for taxation under section 115BAC of the Act.
• 87A rebate will not be available against special rate income specified in Chapter XII - Considering the ambiguity in current provisions regarding allowability of rebate u/s 87A against income chargeable at special rates, it is proposed to amend section 87A to provide that w.e.f. AY 2026-27, rebate u/s 87A shall not be available against income chargeable at special rate, in the hand of a resident individual, as specified in Chapter XII of the Act.
• Accordingly, proposed rebate of Rs. 60,000 will be available to a resident individual opting for taxation under section 115BAC and not having net taxable income exceeding Rs. 12,00,000 during the FY. However, no rebate shall be available against income chargeable at special rate as provided in the table below even though the net taxable income does not exceed Rs. 12 Lakh during the FY.
Income Chargeable at Special rate (Chapter XII):
|
Section |
Section Title |
Tax Rate |
|
111A |
Tax on short-term capital gains on equity shares, units of business trust or equity oriented mutual fund (STT paid) |
20% |
|
112 |
Tax on long-term capital gains (other than referred in 112A) |
12.50% |
|
112A |
Tax on long-term capital gains on equity shares, units of business trust or equity oriented mutual fund (STT paid) |
12.50% |
|
113 |
Tax on income from block assessment (search cases) |
60% |
|
115ACA |
Tax on income from Bonds or GDR purchased in foreign currency or capital gains arising from their transfer in hands of resident employee |
10%/ 12.5% |
|
115B |
Tax on profits from life insurance business |
12.50% |
|
115BB |
Tax on winnings from lotteries, games, horse races |
30% |
|
115BBB |
Tax on income from units of an open-ended equity-oriented fund of the UTI or of a MF |
10% |
|
115BBE |
Tax on unexplained income u/s 68/69/69A/69B/69C/ 69D |
60% |
|
115BBF |
Tax on royalty income from patent developed and registered in India |
10% |
|
115BBG |
Tax on income from transfer of Carbon Credit |
10% |
|
115BBH |
Tax on income from Virtual Digital Asset |
30% |
|
115BBJ |
Tax on winnings from online games |
30% |
Practical Analysis of proposed amendment:
• Scenario 1: Individual having salary Income alongwith interest/PGBP/HP income but not special rate income
|
Particulars |
Case 1 |
Case 2 |
Case 3 |
Case 4 |
Case 5 |
|
1. Salary Income (A) |
12,00,000 |
12,75,000 |
12,75,000 |
13,35,580 |
13,40,000 |
|
2. Interest/PGBP/HP Income (B) |
- |
- |
10,000 |
10,000 |
10,000 |
|
Total (C) |
12,00,000 |
12,75,000 |
12,85,000 |
13,45,580 |
13,50,000 |
|
Tax Computation |
|||||
|
Less: Standard Deduction* (D= Lower of Salary income or 75,000) |
75,000 |
75,000 |
75,000 |
75,000 |
75,000 |
|
Net Taxable Income (E = C - D) |
11,25,000 |
12,00,000 |
12,10,000 |
12,70,580 |
12,75,000 |
|
Tax on normal income u/s 115BAC as per proposed tax rates (F) |
52,500 |
60,000 |
61,500 |
70,587 |
71,250 |
|
Rebate u/s 87A (G = Lower of Normal tax or Rs. 60,000) |
52,500 |
60,000 |
- |
- |
- |
|
Marginal Relief u/s 87A# (H) |
- |
- |
51,500 |
7 |
- |
|
Gross Tax Liability (I= F – G – H) |
- |
- |
10,000 |
70,580 |
71,250 |
|
Cess @ 4% (J =I*4%) |
- |
- |
400 |
2,823 |
2,850 |
|
Total Tax Liability (K = I+J) |
- |
- |
10,400 |
73,403 |
74,100 |
Notes:
*Standard Deduction is available against salary income u/s 16 subject to lower of Rs. 75,000 or salary income earned during the FY.
# Marginal Relief u/s 87A will be available in Case 3 & 4 in above table
• Scenario 2: Individual having salary alongwith Interest/PGBP/HP income and also special rate income
|
Particulars |
Case 1 |
Case 2 |
Case 3 |
Case 4 |
Case 5 |
|
1. Salary Income (A) |
11,50,000 |
12,15,000 |
12,75,000 |
13,35,580 |
13,40,000 |
|
2. Interest/PGBP/HP Income (B) |
10,000 |
10,000 |
10,000 |
10,000 |
10,000 |
|
3. Capital Gain u/s 111A (Special Tax @ 20%) (C) |
50,000 |
50,000 |
50,000 |
50,000 |
50,000 |
|
Total (D) |
12,10,000 |
12,75,000 |
13,35,000 |
13,95,580 |
14,00,000 |
|
Tax Computation |
|||||
|
Less: Standard Deduction (E= Lower of Salary income or 75,000) |
75,000 |
75,000 |
75,000 |
75,000 |
75,000 |
|
Net Taxable Income (F = D - E) |
11,35,000 |
12,00,000 |
12,60,000 |
13,20,580 |
13,25,000 |
|
Tax on normal income u/s 115BAC (G) |
48,500 |
55,000 |
61,500 |
70,587 |
71,250 |
|
Tax on special income u/s 111A (H = C*20%) |
10,000 |
10,000 |
10,000 |
10,000 |
10,000 |
|
Rebate u/s 87A* (I = Lower of Normal tax or Rs. 60,000) |
48,500 |
55,000 |
- |
- |
- |
|
Marginal Relief u/s 87A# (J) |
- |
- |
51,500 |
7 |
- |
|
Gross Tax Liability (K= G + H – I – J) |
10,000 |
10,000 |
20,000 |
80,580 |
81,250 |
|
Cess @ 4% (L = K*4%) |
400 |
400 |
800 |
3,223 |
3,250 |
|
Total Tax Liability (M = K+L) |
10,400 |
10,400 |
20,800 |
83,803 |
84,500 |
Notes:
*Rebate u/s 87A will not be available against special rate income, earned by a resident individual, as specified in Chapter XII of the Act. (Refer Case 1 to Case 5)
# Marginal Relief u/s 87A will be available in Case 3 & 4 in above table
• Scenario 3: Individual having business/HP/ Interest Income but No salary and No special rate income
|
Particulars |
Case 1 |
Case 2 |
Case 3 |
Case 4 |
Case 5 |
|
1. Business Income (A) |
11,00,000 |
12,00,000 |
12,50,000 |
12,60,580 |
12,90,000 |
|
2. Interest/HP Income (B) |
- |
- |
10,000 |
10,000 |
10,000 |
|
Total (C) |
11,00,000 |
12,00,000 |
12,60,000 |
12,70,580 |
13,00,000 |
|
Tax Computation |
|||||
|
Net Taxable Income (D = C) |
11,00,000 |
12,00,000 |
12,60,000 |
12,70,580 |
13,00,000 |
|
Tax on normal income u/s 115BAC as per proposed tax rates (E) |
50,000 |
60,000 |
69,000 |
70,587 |
75,000 |
|
Rebate u/s 87A (F = Lower of Normal tax or Rs. 60,000) |
50,000 |
60,000 |
- |
- |
- |
|
Marginal Relief u/s 87A# (G) |
- |
- |
9,000 |
7 |
- |
|
Gross Tax Liability |
- |
- |
60,000 |
70,580 |
75,000 |
|
Cess@ 4% (I = H*4%) |
- |
- |
2,400 |
2,823 |
3,000 |
|
Total Tax Liability (J = H+I) |
- |
- |
62,400 |
73,403 |
78,000 |
Notes:
# Marginal Relief u/s 87A will be available in Case 3 & 4 in above table
• Scenario 4: Individual having business/HP/ Interest income and special rate income
|
Particulars |
Case 1 |
Case 2 |
Case 3 |
Case 4 |
Case 5 |
|
1. Normal Business Income (A) |
10,90,000 |
11,90,000 |
12,50,000 |
12,60,580 |
12,90,000 |
|
2. Interest Income/HP (B) |
10,000 |
10,000 |
10,000 |
10,000 |
10,000 |
|
3. Capital Gain u/s 111A (Special Tax @ 20%) (C) |
50,000 |
50,000 |
50,000 |
50,000 |
50,000 |
|
Total (D) |
11,50,000 |
12,50,000 |
13,10,000 |
13,20,580 |
13,50,000 |
|
Tax Computation |
|||||
|
Net Taxable Income (E = D) |
11,50,000 |
12,50,000 |
13,10,000 |
13,20,580 |
13,50,000 |
|
Tax on normal income u/s 115BAC (F) |
50,000 |
60,000 |
69,000 |
70,587 |
75,000 |
|
Tax on special income u/s 111A (G = C*20%) |
10,000 |
10,000 |
10,000 |
10,000 |
10,000 |
|
Rebate u/s 87A* (H = Lower of Normal tax or Rs. 60,000) |
50,000 |
60,000 |
- |
- |
- |
|
Marginal Relief u/s 87A# (I) |
- |
- |
9,000 |
7 |
- |
|
Gross Tax Liability (J= F + G - H - I) |
10,000 |
10,000 |
70,000 |
80,580 |
85,000 |
|
Cess @ 4% (K = J*4%) |
400 |
400 |
2,800 |
3,223 |
3,400 |
|
Total Tax Liability (L = J+K) |
10,400 |
10,400 |
72,800 |
83,803 |
88,400 |
Notes:
*Rebate u/s 87A will not be available against special rate income, earned by a resident individual, as specified in Chapter XII of the Act. (Refer Case 1 to Case 5)
# Marginal Relief u/s 87A will be available in Case 3 & 4 in above table
For details, please refer the following:
Finance Bill, 2025 dated 01.02.2025
Memorandum to Finance Bill, 2025
Frequently Asked Questions (‘FAQs’) dated 01.02.2025
DISCLAIMER: - The information herein is based on the Finance Bill, 2025 dated 01.02.2025, memorandum to the Bill and FAQs relating thereto issued dated 01.02.2025. While the information is believed to be accurate, we make no representations or warranties, express or implied, as to the accuracy or completeness of it. Readers should conduct and rely upon their own examination and analysis and are advised to seek their own professional advice. This note is not an offer, advice or solicitation. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it.
