Understanding these terms is crucial for accurate tax planning.
Old Regime vs New Regime (u/s 115BAC)
The Old Regime allows you to claim various deductions (80C, HRA, etc.) but has higher tax rates. The New Regime offers significantly lower tax rates but removes most deductions. The New Regime is generally better for those with fewer investments or no home loan.
Standard Deduction
A flat deduction allowed from your gross salary. It was ₹50,000 for both regimes, but recent budgets have proposed increasing it to ₹75,000 specifically for the New Regime to make it more attractive.
Section 87A Rebate
This is a tax relief provided to lower-income earners. Under the Old Regime, if your taxable income is ≤ ₹5 Lakhs, you get a rebate of ₹12,500 (meaning zero tax). Under the New Regime, this limit is higher: income up to ₹7 Lakhs is tax-free (rebate of ₹25,000).
Surcharge & Marginal Relief
Surcharge is an extra tax on the tax, applicable if your income exceeds ₹50 Lakhs. Marginal Relief ensures that the increase in tax due to surcharge doesn't exceed the increase in income itself. It protects you from paying more tax than the extra income you earned.
Health & Education Cess
An additional 4% tax levied on the total tax payable (including surcharge). This money is collected by the government specifically to fund healthcare and education initiatives.
Section 80C
The most popular deduction section. It allows you to reduce your taxable income by up to ₹1.5 Lakhs by investing in EPF, PPF, ELSS Mutual Funds, Life Insurance premiums, or paying children's tuition fees.
HRA (House Rent Allowance)
A component of your salary used to pay rent. You can claim exemption on HRA under the Old Regime based on the lowest of: Actual HRA received, Actual Rent paid minus 10% of Basic Salary, or 50% of Basic Salary (metro cities).