A ₹30 lakh annual salary does not result in an effective tax rate of 30% under the new tax regime. According to reports from Mint, after applying the ₹75,000 standard deduction, slab-wise taxation, and a 4% health and education cess, the total tax liability comes to ₹475,800, resulting in an effective tax rate of just 15.86%. This demonstrates how progressive taxation works, where only income falling within each slab is taxed at the applicable rate.
The tax calculation follows a progressive slab structure with specific rates for different income brackets. As reported by Mint, the tax slabs range from nil tax up to ₹4 lakh, 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh, 25% for ₹20-24 lakh, and 30% for income above ₹24 lakh. The highest 30% slab applies only to income above ₹24 lakh, while the remaining income is taxed at lower rates ranging from 5% to 25%.
Salaried individuals under the new tax regime can claim a standard deduction of ₹75,000, which significantly reduces their taxable income. According to the calculation provided by Mint, this deduction brings the taxable income down from ₹30 lakh to ₹29.25 lakh, meaning tax is calculated only on the reduced amount. The standard deduction is a key factor in reducing the overall tax burden for salaried employees.
After calculating the income tax liability, a health and education cess of 4% is added to the total amount. As reported by Mint, this cess brings the total tax liability to ₹475,800, which translates to an effective tax rate of 15.86% when calculated as a percentage of the gross salary. This additional cess applies to all taxpayers regardless of their income level.
The progressive tax structure ensures that higher-income earners pay proportionally more tax while protecting lower-income segments. According to Mint's analysis, this system means that even though someone earning ₹30 lakh crosses the ₹24 lakh threshold for the 30% slab, only the portion above ₹24 lakh is taxed at that rate. The remaining income continues to be taxed at lower slab rates, resulting in a significantly lower effective tax rate than the headline 30% rate.
