The 5% tax on income between ₹4 lakh and ₹8 lakh applies before considering the rebate under Section 87A. Here’s how it works

The 5% tax on income between ₹4 lakh and ₹8 lakh applies before considering the rebate under Section 87A. Here’s how it works:  

- The revised tax slabs apply to all taxpayers under the new regime.  

- However, individuals earning up to ₹12 lakh will get a full rebate under Section 87A, effectively making their tax liability zero.  

Example Calculation:  

- Suppose your net taxable income is ₹12 lakh.  

- As per the new slabs, tax would be:  

  - ₹4 lakh to ₹8 lakh → 5 percent on ₹4 lakh = ₹20,000  

  - ₹8 lakh to ₹12 lakh → 10 percent on ₹4 lakh = ₹40,000  

  - Total tax before rebate = ₹60,000  

- Since Section 87A now provides a rebate up to ₹60,000, the entire tax is wiped out, resulting in zero tax.  

If your income exceeds ₹12 lakh, the rebate does not cover the full tax, and you will pay tax based on the new slabs.  

Why Show 5 Percent Tax on ₹4L - ₹8L?  

- The slab system remains in place for everyone, but the rebate ensures that taxpayers earning ₹12 lakh or less effectively pay nothing.  

- This way, if someone earns ₹12.5 lakh or more, they still follow the normal slab taxation without rebate.  

So, the 5 percent tax on ₹4 lakh - ₹8 lakh is part of the tax calculation, but for incomes below ₹12 lakh, the rebate cancels it out.