In India, individuals earning 6 lakh annually are subject to significant income tax liabilities, with the salaried middle class bearing a substantial portion of this burden. This situation arises due to the interplay between income tax slabs, available deductions, and the choice between the old and new tax regimes.
Under the new tax regime for the financial year 2025-26, a 6 lakh salary results in a taxable income of 4.25 lakh after applying the standard deduction of 75,000. The tax calculation is as follows:
- 0% on 0 3 lakh: 0
- 5% on 3 lakh 6 lakh (3 lakh): 15,000
This totals 15,000, and with a 4% health and education cess, the total tax payable amounts to 15,600.
In contrast, the old tax regime allows for deductions such as 1.5 lakh under Section 80C, 25,000 under Section 80D, and 1.2 lakh for House Rent Allowance (HRA). Applying these deductions reduces the taxable income to around 3.05 lakh, resulting in minimal tax liability, possibly even nil.
The choice between tax regimes depends on individual financial circumstances. For those with substantial deductions, the old regime may offer tax savings. However, for individuals without significant deductions, the new regime provides a lower tax liability. This complexity can lead to confusion among taxpayers, especially the salaried middle class, who may find it challenging to navigate these options effectively.
The government's decision to not revise income tax slabs or increase the standard deduction in recent budgets has been a point of contention. Critics argue that this oversight places an undue burden on the middle class, whose incomes have remained relatively stagnant while inflation continues to rise. This situation has sparked debates about the need for tax reforms that better address the financial realities of the salaried middle class.
As the fiscal year progresses, it remains to be seen whether the government will introduce measures to alleviate the tax burden on the middle class. Taxpayers are advised to stay informed about potential policy changes and consider consulting financial advisors to optimize their tax liabilities.