Check Tax Burden on Your Salary Income from July 1

Check Tax Burden on Your Salary Income from July 1

Salary persons should calculate their income for the purpose of tax chargeability under changes made through Finance Act, 2024 and effective from July 1, 2024.

While there are no changes in the base tax rates for the upcoming tax year for salary persons, the introduction of new surcharges and adjustments in effective tax rates will alter the overall tax burden for many.

For the tax year 2024, individuals with an annual taxable salary income of up to Rs. 600,000 remain exempt from income tax. This exemption continues for the tax year 2025, providing relief to low salary income earners. However, for higher income brackets, the financial implications of the proposed changes become more pronounced.

Mid-Level Income Earners

For those salary earning Rs. 1,200,000 annually, the income tax for the tax year 2024 stands at Rs. 15,000, translating to an effective tax rate of 1.25%. In the tax year 2025, this tax rate doubles to 2.50%, increasing the tax liability to Rs. 30,000. This marks a 1.25% rise in the effective tax rate.

Individuals with an annual salary income of Rs. 2,200,000 will see their tax rise from Rs. 140,000 (6.36% effective tax rate) in 2024 to Rs. 180,000 (8.18% effective tax rate) in 2025. This increase represents an additional burden of Rs. 40,000, or 1.82% in the effective tax rate.

For those earning Rs. 2,400,000, the tax will increase from Rs. 165,000 in 2024 to Rs. 230,000 in 2025, raising the effective tax rate from 6.88% to 9.58%. This results in an additional Rs. 65,000 tax, reflecting a 2.71% rise in the effective rate.

Upper Middle-Income Earners

Salary individuals earning Rs. 3,200,000 will experience a rise in tax from Rs. 345,000 in 2024 to Rs. 430,000 in 2025. This change increases the effective tax rate from 10.78% to 13.44%, adding Rs. 85,000 to their tax liability.

Those earning Rs. 3,600,000 will see their tax liability increase from Rs. 435,000 in 2024 to Rs. 550,000 in 2025. This adjustment raises the effective tax rate from 12.08% to 15.28%, resulting in an additional Rs. 115,000.

For individuals with an annual income of Rs. 4,100,000, the tax amount will rise from Rs. 572,500 in 2024 to Rs. 700,000 in 2025, increasing the effective tax rate from 13.96% to 17.07%. This change adds Rs. 127,500 to the tax liability, marking a 3.11% increase in the effective rate.

High-Income Earners

High-income earners will face more substantial tax hikes. For those with an annual income of Rs. 6,000,000, the tax amount will increase from Rs. 1,095,000 in 2024 to Rs. 1,365,000 in 2025, raising the effective tax rate from 18.25% to 22.75%. This results in an additional Rs. 270,000 tax, or a 4.50% rise in the effective rate.

Individuals earning Rs. 8,000,000 annually will see their tax increase from Rs. 1,795,000 in 2024 to Rs. 2,065,000 in 2025, reflecting a rise in the effective tax rate from 22.44% to 25.81%. This adjustment results in an additional Rs. 270,000 tax.

For those earning Rs. 10,000,000, the tax will rise from Rs. 2,495,000 in 2024 to Rs. 2,765,000 in 2025, increasing the effective tax rate from 24.95% to 27.65%. This change adds Rs. 270,000 to the tax liability.

Very High-Income Earners

The most significant changes impact very high-income earners. Individuals with an annual income of Rs. 12,000,000 will face a tax increase from Rs. 3,195,000 in 2024 to Rs. 3,465,000 plus a surcharge of Rs. 346,500 in 2025, raising the effective tax rate from 26.63% to 31.76%. This results in an additional Rs. 616,500 tax.

For those earning Rs. 15,000,000, the tax will increase from Rs. 4,245,000 in 2024 to Rs. 4,515,000 plus a surcharge of Rs. 451,500 in 2025, raising the effective tax rate from 28.30% to 33.11%. This results in an additional Rs. 721,500 tax.

Extremely high earners, such as those earning Rs. 200,000,000 and Rs. 300,000,000, will see increases including the super tax under section 4C. For instance, individuals earning Rs. 200,000,000 will face a tax increase from Rs. 70,995,000 in 2024 to Rs. 71,265,000 plus a surcharge of Rs. 6,926,500 in 2025, raising the effective tax rate from 35.50% to 39.10%. This results in an additional Rs. 7,196,500 tax. Similarly, those earning Rs. 300,000,000 will see their tax liability increase from Rs. 112,995,000 in 2024 to Rs. 113,265,000 plus a surcharge of Rs. 10,426,500 in 2025, raising the effective tax rate from 37.67% to 41.23%. This results in an additional Rs. 10,696,500 tax.

These changes reflect the government’s efforts to increase revenue from higher income brackets while maintaining some relief for lower-income earners. As these provisions take effect, salaried individuals are encouraged to review their tax liabilities and plan accordingly to accommodate these new financial obligations.