Rebate

Whether you taxable income next year is just one rupee over Rs 1 crore or Rs 4.4 lakh more will make no difference to your post-tax income. Similarly, whether it's one rupee more than Rs 5 lakh or 2,500 rupees more, you will take home the same amount. How is this possible? That's because the finance minister has given tax relief in the form of a rebate up to a certain income level and extracted more in the form of a surcharge above another level. Had he changed tax slabs or tinkered with the rates instead this peculiar 'no-net-income zone' would not have been created. Here's how the logic works. At an income level of Rs 5 lakh, your tax liability is Rs 30,000 minus the rebate of Rs 2,000, which is Rs 28,000. On this amount, there will be a further Rs 840 by way of education cess, leaving you with a post-tax income of Rs 4,71,160. Now add just rupee to the Rs 5 lakh and see what happens. You are now in the 20% tax slab and no rebate is applicable. The tax liability is still Rs 30,000 since the 20 paise added on for the additional rupee will disappear in the rounding off. But in the absence of the rebate and the cess, the total tax payable becomes Rs 30,900. That should leave a post-tax income of Rs 4,69,101 or Rs 2,060 less than what you would take home at Rs 5 lakh. Thankfully, taxation principles ensure that such aberrations are taken care of and you don't have situations where a higher pre-tax income leads to a lower post-tax one. So your net income will still remain at Rs 4,71,160. This problem of the Rs 2,000 rebate no longer applying leading to post-tax incomes being lower than at the Rs 5 lakh level in the calculations continues all the way till you reach an income of Rs 5,02,600. At this level, your post-tax income finally reaches Rs 4,71,164. That's just three rupees more than what it would be at Rs 5 lakh, but at least it is more.

Surcharge

At the Rs 1 crore level, where there is no rebate and the 30% tax bracket applies, the total tax liability, including cess would be Rs 29,14,900 leaving you with a post-tax income of Rs 70,85,100. Add a rupee to this taxable income and you are in surcharge territory. The key thing is that the surcharge applies not just to the tax liability on your income above Rs 1 crore but to your entire tax liability. This has a dramatic effect. The calculations show that the extra rupee adds Rs 2,91,490 to your tax liability and would reduce you take home correspondingly, but for the principle mentioned earlier. Once again, the extra tax liability due to the surcharge remains a problem all the way till you reach an income of Rs 1,04,41,600. That is almost Rs 4.5 lakh more than Rs 1 crore. At this level, the post-tax income reaches Rs 70,85,110. That is a mere Rs 10 more than what you would have taken home at Rs 1 crore.