Salary up to Rs 12 Lakh: Here's why you may still have to pay tax

New Delhi: It is a common misconception among the salaried employees that earning up to Rs 12.75 lakh annually removes their tax liability. The confusion arises since Section 87A under the new tax regime provides workers with an enhanced limit of rebate on income taxed at the normal slab rates.

The maximum rebate limit under the concerned section is Rs 60,000 due to which income up to Rs 12 lakh becomes entirely tax-free. Also, Rs 75,000 is the standard deduction due to which gross salary up to Rs 12.75 lakh is exempted from tax.

However, assuming that the rule provides complete exemption from paying any kind of tax might not be correct, since one may still have to file an income tax return. Section 87A is not a provision for tax exemption for employees earning up to Rs 12 lakh. Instead, it specifies the amount as the salary limit for tax rebate.

The exemption is applicable strictly to income taxed at regular slab rates, while incomes taxed under special provisions may still attract taxes.

Therefore, even those with gross salary up to the limit applicable for exemption would still need to file Income Tax Return in case they have income from sources which are taxed under other slab rates. This makes identifying the nature of income necessary.

Short-term capital gains

Short-term capital gains (STCG) under Section 111A cover income from equity shares, equity-oriented mutual funds, and units of a business trust, which are taxed at a flat rate of 20 percent, subject to the applicable rules.

Long-term capital gains

When earnings are made from selling listed shares or redeeming listed equity mutual funds, the person is liable to pay tax under Section 112A of the Income Tax Act. Other capital gains are also taxable under special-rate provisions, such as Section 112.

Moreover, there is no rebate available under Section 112A. Therefore, any person who has zero tax liability on salary or other gains would still have to pay tax on long-term capital gains.

Cryptocurrency/Virtual Digital Asset (VDA) gains

Taxpayers with income from cryptocurrency investments such as bitcoins and other digital assets have a tax liability at a flat rate of 30 percent. Under Section 115BBH of the Income Tax Act, earnings from Virtual Digital Assets (VDAs) are taxable.

Lottery and games

If a taxpayer wins a lottery or has income from online games or shows, tax liability applies under special provisions of the Income Tax Act.

Before concluding that Section 87A puts a threshold on tax liability from incomes of all kinds, one should do a deep dive into tax implications under different provisions. Even with salary up to Rs 12 lakh, you may still have to pay tax arising from incomes other than your salary.