Image Source : PIXABAY Some people are confused between the terms tax-free and tax-exemption.
Tax-free vs tax exemption: In a major relief to middle-class salaried people, Finance Minister Nirmala Sitharaman hiked the tax rebate available to individual taxpayers. 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 the tax rebate available to individual taxpayers has been raised to Rs 12 lakh from existing Rs 7 lakh.
But this doesn’t mean 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 those earning up to Rs 4 lakh are not required to pay tax or file an income tax return (ITR). Earlier, this limit was Rs 3 lakh.
How your income will be taxed now?
Rs 0-4 lakh – Nil
Rs 4-8 lakh – 5 per centRs 8-12 lakh – 10 per centRs 12-16 lakh – 15 per centRs 16-20 lakh – 20 per centRs 20- 24 lakh – 25 per centAbove 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 Parliament next week, replacing the six-decade-old Income Tax Act of 1961.
Sitharaman had in July last year announced a comprehensive review of the Income-tax Act 1961 to be completed within 6 months.
The Income Tax Act 1961, which deals with the imposition of direct taxes — personal I-T, corporate tax, securities transaction tax, besides gift and wealth tax, currently has about 298 sections and 23 chapters.
