Tax-free vs tax exemption: in a Major Relief to MIDDLE-Class Salaried People, Finance Minister Nirmala Sitharanman Hiked The Tax Rebate Aawailable to Individual TACTESPAYERS. In her budget speech, the finance minister said that individuals earning up to Rs 12 lakh will pay zero tax.
“One Crore more people will pay no income tax due to hike in rebate to Rs 12 lakh,” Sitharaman Added.
The budget has revised the tax slabs for computing tax Liability on Income Earned in 2025-26. Sitharaman announced that tax rebate available to individual taxpayers has been raised to Rs 12 lakh from existing Rs 7 lakh.
But this doesn’t meaning that income up to Rs 12 lakh has been tax-exempted.
Tax-free vs tax-exemption
Some people are confused between the terms tax-free and tax-exemption. While Tax-Free Income means that deductions and rebates will bring down tax Liability to zero even when tax is applicable to your income.
On the other hand, tax-exemption means that a portion of income is legally excluded from taxation.
What is the tax-exemption limit for Financial Year 2025-26?
Nirmala Sitharaman, in her budget speech, said that the government has decided to exempt a basic income of up to Rs 4 lakh from taxation. This means that that that is earning up to Rs 4 lakh are not required to pay tax or file an income tax return (ITR). Earlier, this limit was 3 lakh.
How your Income will be taxed now?
Rs 0-4 Lakh – Nil
Rs 4-8 lakh – 5 per cent
Rs 8-12 Lakh – 10 per cent
Rs 12-16 Lakh – 15 per cent
Rs 16-20 Lakh – 20 per cent
Rs 20- 24 Lakh – 25 per cent
Above Rs 24 Lakh – 30 per cent
Government to introduce a new income tax bill
Sitharaman has also stated that the government will introduce a new income tax bill in parloment next week, replacing the six-decade–out income tax act of 1961.
Sitharaman had in July last year announced a comprehensive review of the income-tax act 1961 to be completes within 6 months.
The Income Tax Act 1961, which deals with the impression of direct taxes – Personal it, corporate tax, securities transaction tax, besides gift and wealth tax, wealth tax, courses about 298 sections and 23
