Rishabh Zaveri, director at Anand Rathi Wealth Limited, shed light on an unexpected tax dilemma triggered by the Union Budget 2025. While the budget’s announcement of nil tax for taxable income up to Rs 12 lakh seemed like a win for many, it introduced an unforeseen challenge for those whose earnings teeter just above this threshold. Zaveri’s fictional yet relatable narrative exposes the bitter truth — a salary hike can sometimes leave employees worse off than before.
In a thought-provoking LinkedIn post titled, "All Hikes Next Year - The Increment which will Feel Like a Punishment", Zaveri illustrated this paradox through the story of Rahul.
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Rahul had been eagerly awaiting his appraisal, fueled by months of hard work, late nights, and dedication. The moment arrived: his boss, pleased with his performance, announced a raise from Rs 12.75 lakh to Rs 13 lakh per annum. But instead of elation, Rahul felt underwhelmed by the modest Rs 25,000 increase.
Disappointed but composed, Rahul shared his frustration with his friend Sameer, a chartered accountant. The conversation took a shocking turn. Sameer pointed out, “That Rs 25,000 hike… just pushed you into a tax disaster. At Rs 12.75 lakh, you were paying zero tax because of rebates. But now, at Rs 13 lakh, you no longer qualify for it. You will now pay Rs 50,000 in tax.”
Staggered, Rahul processed the grim reality: his Rs 25,000 raise effectively resulted in a net loss of Rs 25,000 after taxes. The supposed reward for his efforts had inadvertently punished him.
The following day, with clarity and conviction, Rahul confronted his boss: “Sir, I have a request. Either reduce my salary by Rs 1 and keep me at Rs 12.75 lakh… or just push me straight to Rs 16 lakh. Because I refuse to be part of this Rs 13 lakh ‘Tax Victim Club.’”
This scenario underscores the broader implications of the revised tax structure. Alongside the altered income tax slabs, the tax rebate under Section 87A has been increased from Rs 25,000 to Rs 60,000. This adjustment benefits taxpayers with incomes up to Rs 12 lakh, a significant jump from the previous Rs 7 lakh threshold. However, for those just beyond this new limit, like Rahul, even a modest increment can trigger unintended financial consequences.