Income tax slabs refer to the different income ranges on which specific tax rates are applied by the government. These slabs determine the amount of income tax individuals and entities are required to pay based on their earnings. The income tax slabs are designed in a progressive manner, meaning that as income increases, the tax rates also increase.
Let’s take a closer look at how income tax slabs work and how they impact taxpayers:
- Slab System: The income tax slabs in India are structured in a slab system. Each slab corresponds to a specific income range, and the applicable tax rate is determined based on which slab your income falls into. Generally, there are multiple slabs with increasing tax rates as income increases.
- Progressive Taxation: The progressive nature of income tax means that individuals with higher incomes are subject to higher tax rates. This approach ensures a fair distribution of the tax burden, as those who earn more contribute a larger share of their income to taxes. It is a way to promote social equity and reduce income inequality.
- Impact on Tax Liability: Your income tax liability is determined by calculating the tax due on each slab and adding them up. As your income increases and moves into higher slabs, the applicable tax rate also increases, resulting in a higher overall tax liability. Conversely, individuals with lower incomes fall into lower slabs and are subject to lower tax rates, leading to a relatively lower tax burden.
- Old Regime vs. New Regime: In India, there are two income tax regimes – the old regime and the new regime. The old regime allows for various exemptions and deductions that can reduce the taxable income, but it has higher tax rates. The new regime offers lower tax rates but limits the availability of exemptions and deductions. Taxpayers can choose the regime that suits them best based on their income and individual circumstances.
- Surcharge and Cess: In addition to the income tax calculated based on the slabs, there may be additional charges. Surcharge is an additional tax applied to individuals with higher incomes, while cess is a tax imposed for specific purposes such as healthcare and education. These charges further impact the total tax liability.
Understanding the income tax slabs is crucial for individuals to accurately estimate their tax liability and plan their finances accordingly. It is essential to stay updated with the latest tax rates and provisions to ensure compliance with tax laws and make informed financial decisions.
Income Tax Slabs in India
Income tax is a tax imposed by the government on the money people earn from various sources. It applies to individuals, families, partnership firms, LLPs, and corporations in accordance with the Income Tax Act of India. The government periodically revises the income tax rates, usually during each budget session.
These rates are structured in slabs, which means that different income ranges are taxed at different rates. This system ensures that the tax burden increases progressively with higher income, creating a fair and equitable tax system in the country.
Understanding Income Tax Regimes in India
Choosing the right income tax regime is an important decision that can have a significant impact on your tax liability. In India, there are two income tax regimes: the old regime and the new regime. Let’s explore these regimes in detail and understand their implications.
The Old Regime: Maximizing Deductions
The old regime refers to the tax system that existed before the introduction of the new regime. Under this regime, taxpayers have access to a wide range of exemptions and deductions, such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA). These deductions can be claimed to reduce taxable income and ultimately lower tax payments.
While the old regime offers the advantage of numerous deductions, it comes with higher tax rates compared to the new regime. However, there is a rebate of Rs. 12,500 available for individuals with income up to Rs. 5 lakh.
The New Regime: Lower Tax Rates, Limited Deductions
The new regime was introduced in the Budget of 2020 as a simplified alternative to the old regime. Under this regime, tax rates are generally lower compared to the old regime. However, most exemptions and deductions available in the old regime are not applicable in the new regime. Taxpayers who choose the new regime will not be eligible to claim deductions such as HRA, LTA, and others.
The new regime aims to simplify the tax system and make it more transparent. While it may benefit individuals with lower incomes or those who do not have significant deductions, it may not be advantageous for individuals with higher incomes or those who make substantial investments in tax-saving schemes.
Choosing the Right Regime
Taxpayers have the option to choose between the old regime and the new regime based on their income and personal preferences. Salaried employees can switch between the regimes each year, while individuals with business income can switch only once.
It’s important to carefully assess your income, deductions, and financial goals to make an informed decision. You may consider consulting with a tax professional or using online tax calculators to compare the tax liability under both regimes and choose the one that suits you best.
Income Tax Slabs: A Comparison
Here’s a comparison of the income tax slabs for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25) under both regimes:
Old Regime
| Income Slabs | Tax Rates for Individuals below 60 years | Tax Rates for Senior Citizens (60-80 years) | Tax Rates for 80 years above Super Senior Citizens |
| Up to Rs. 2.5 lakh | Nil | Nil | Nil |
| Rs. 2.5 lakh – Rs. 5 lakh | 5% | 5% | Nil |
| Rs. 5 lakh – Rs. 10 lakh | 20% | 20% | 20% |
| Above Rs. 10 lakh | 30% | 30% | 30% |
New Regime
| Income Slabs | Tax Rates for all Individuals |
| Up to Rs. 2.5 lakh | Nil |
| Rs. 2.5 lakh – Rs. 5 lakh | 5% |
| Rs. 5 lakh – Rs. 7.5 lakh | 10% |
| Rs. 7.5 lakh – Rs. 10 lakh | 15% |
| Rs. 10 lakh – Rs. 12.5 lakh | 20% |
| Rs. 12.5 lakh – Rs. 15 lakh | 25% |
| Above Rs. 15 lakh | 30% |
It’s worth noting that the rebate under the new regime has been increased, allowing income up to Rs. 7 lakh to be tax-free from FY 2023-24.
Important Points to Consider
In addition to the tax rates based on income slabs, there are a few other crucial points to keep in mind:
- Surcharge and Cess: Taxpayers may be required to pay a surcharge based on their income level, ranging from 10% to 37%. Additionally, a Health & Education Cess of 4% is levied on the total income tax amount, including the surcharge.
- Standard Deductions: Salaried individuals, including pensioners, can claim a standard deduction of Rs. 50,000 or the actual salary amount, whichever is lower, under both regimes.
- Family Pension Deduction: Individuals receiving family pension can deduct thirty-three and one-third percent of the pension amount or Rs. 15,000, whichever is less, under both regimes.
- Changes in Budget 2023: The surcharge rate on income over ₹5 crores has been reduced from 37% to 25% under the new regime. Additionally, the exemption limit for non-government employees for leave encashment has been raised from ₹3 lakhs to ₹25 lakhs.
- Default Option: Starting from FY 2023-24, the new income tax regime will be set as the default option.
Calculating Your Tax Liability: Old Regime vs. New Regime
When it comes to calculating your tax liability under the old and new tax regimes, here’s a step-by-step guide to help you out:
- Determine Your Gross Total Income: Add up your income from various sources such as salary, house property, capital gains, business or profession, and other sources.
- Deduct Exemptions and Deductions: Identify the exemptions and deductions that are allowed under both the regimes. Examples include HRA (House Rent Allowance), LTA (Leave Travel Allowance), gratuity, and NPS (National Pension System) contribution by your employer under section 80CCD(2).
- Apply Tax Rates: Use the respective tax rates from the tables provided below based on your age and income slab.
Old Regime
| Income Slabs | Tax Rates for Individuals below 60 years | Tax Rates for Senior Citizens (60-80 years) | Tax Rates for 80 years above Super Senior Citizens |
| Up to Rs. 2.5 lakh | Nil | Nil | Nil |
| Rs. 2.5 lakh – Rs. 5 lakh | 5% | 5% | Nil |
| Rs. 5 lakh – Rs. 10 lakh | 20% | 20% | 20% |
| Above Rs. 10 lakh | 30% | 30% | 30% |
New Regime
| Income Slabs | Tax Rates for all Individuals |
| Up to Rs. 2.5 lakh | Nil |
| Rs. 2.5 lakh – Rs. 5 lakh | 5% |
| Rs. 5 lakh – Rs. 7.5 lakh | 10% |
| Rs. 7.5 lakh – Rs. 10 lakh | 15% |
| Rs. 10 lakh – Rs. 12.5 lakh | 20% |
| Rs. 12.5 lakh – Rs. 15 lakh | 25% |
| Above Rs. 15 lakh | 30% |
Note: In Budget 2023, rebate under new regime has been increased and therefore, income upto Rs 7 lakh will be tax-free from FY 2023-24.
Include Surcharge and Cess:
- Depending on your income level, you may need to add surcharge and cess to your tax amount.
- Surcharge is applicable on incomes above Rs. 50 lakh, and its rate varies.
- Cess is levied at 4% on the total income tax amount plus surcharge.
Consider Rebate under Section 87A:
- If you are a resident individual with a total income of not more than Rs. 5 lakh, you may be eligible for a rebate under section 87A.
- The rebate is Rs. 12,500 or 100% of income tax, whichever is less.
Alternatively, you can make use of online tax calculators and tools to easily estimate your tax liability under both the old and new regimes. These tools can help simplify the process and provide you with accurate results.
Let’s calculate the tax liability for an individual named John under both the old and new tax regimes. Here are the details:
- Gross Total Income: Rs. 9,50,000
We’ll consider John to be below 60 years of age. Now, let’s calculate his tax liability under both regimes.
Old Regime:
Determine the Income Slab: John’s income falls between Rs. 5 lakh and Rs. 10 lakh.
Apply the Tax Rate: The tax rate for this income slab under the old regime is 20%.
Calculate the Tax Amount: Tax amount = 20% of (Rs. 9,50,000 – Rs. 5,00,000) = 20% of Rs. 4,50,000 = Rs. 90,000
Include Surcharge and Cess: Since John’s income does not exceed Rs. 50 lakh, there is no surcharge applicable. We only need to consider the cess at 4%.
Cess = 4% of Rs. 90,000 = Rs. 3,600
Final Tax Liability: Tax liability under the old regime = Tax amount + Cess = Rs. 90,000 + Rs. 3,600 = Rs. 93,600
New Regime:
Determine the Income Slab: John’s income falls between Rs. 5 lakh and Rs. 10 lakh.
Apply the Tax Rate: The tax rate for this income slab under the new regime is 20%.
Calculate the Tax Amount: Tax amount = 20% of (Rs. 9,50,000 – Rs. 5,00,000) = 20% of Rs. 4,50,000 = Rs. 90,000
Include Surcharge and Cess: There is no surcharge applicable in the new regime. We only need to consider the cess at 4%.
Cess = 4% of Rs. 90,000 = Rs. 3,600
Final Tax Liability: Tax liability under the new regime = Tax amount + Cess = Rs. 90,000 + Rs. 3,600 = Rs. 93,600
In this example, John’s tax liability remains the same under both the old and new tax regimes, amounting to Rs. 93,600.
Switching Between Income Tax Regimes: What You Need to Know
When it comes to switching between the old and new tax regimes, the process depends on whether you have income from business or profession or not.
Let’s take a closer look at how the switching process works for both scenarios.
Switching for Individuals with Income from Business or Profession
If you have income from business or profession, you can switch between the old and new tax regimes only once in your lifetime. However, it’s important to note that this switch must be made before the due date of filing your income tax return (ITR).
To declare your choice of the tax regime, you need to file Form 10IE online on the e-filing portal. Once you opt for the new regime, you cannot go back to the old regime unless you no longer have any income from business or profession.
Switching for Individuals without Income from Business or Profession
If you do not have income from business or profession, you have the flexibility to switch between the tax regimes every year as per your convenience. In this case, there is no need to file Form 10IE.
When filing your income tax return, you can simply select the tax regime of your choice in the ITR form. Alternatively, you can also inform your employer about your preferred tax regime at the beginning of the financial year. This way, they can deduct tax at source (TDS) accordingly.
Considerations and Comparison
Switching between the income tax regimes does not have any immediate consequences. However, it’s essential to carefully evaluate the tax benefits and drawbacks of each regime before making a decision.
By comparing the tax liability and compliance burden under both regimes, you can determine which regime aligns better with your financial situation and goals. Consulting with a tax professional or using online tax calculators can also provide valuable insights to help you make an informed choice.
Comparing and Choosing Between the Old and New Tax Regimes
When it comes to choosing between the old and new tax regimes, there are a few steps you can follow to make an informed decision. Let’s take a look:
- Calculate Your Tax Liability:
- Use the steps provided earlier or utilize online tax calculators to determine your tax liability under both the old and new regimes.
- This will give you a clear picture of how much tax you would have to pay under each regime.
- Evaluate Exemptions and Deductions:
- Examine the list of exemptions and deductions that are available under the old regime but not under the new regime.
- Some significant deductions include those for investments in PPF, ELSS, NPS, health insurance premiums, education loan interest, and donations to specified funds or institutions.
- Additionally, consider exemptions like HRA, LTA, and conveyance allowance that are applicable in the old regime.
- Assess how these exemptions and deductions impact your tax liability.
- Compare Tax Rates:
- Analyze the tax rates under both the old and new regimes.
- The new regime generally offers lower tax rates compared to the old regime.
- However, keep in mind that the new regime removes most exemptions and deductions.
- Consider how the tax rates influence your overall tax liability.
- Evaluate Surcharge Rates:
- Examine the surcharges applicable in both regimes.
- Surcharge is an additional tax levied on higher incomes, typically starting from Rs. 50 lakh.
- Compare the surcharge rates under both regimes, noting that the new regime reduced the surcharge rate for incomes above Rs. 5 crore in Budget 2023.
- Calculate Final Tax Liability:
- Calculate your final tax liability under both regimes by adding the tax amount, surcharge, and cess (levied at 4% on the tax amount plus surcharge).
- Take into account any applicable rebate, such as the one under section 87A for individuals with a total income of not more than Rs. 5 lakh.
- Compare and Choose:
- Compare the final tax liabilities under both regimes.
- Consider your income level, investment habits, and tax-saving goals.
- Evaluate the benefits and drawbacks of each regime based on your specific circumstances.
- Choose the regime that offers you more tax benefits and aligns with your preferences.
Remember, there is no definitive answer as to which regime is better since it depends on various factors
Understanding Tax Liability and Deductions: Reduce Your Tax Burden
When it comes to taxes, understanding your tax liability and utilizing deductions can help reduce the amount of tax you owe to the government. Let’s break down these concepts to help you navigate the world of taxes more effectively.
Tax Liability: What is it?
Tax liability refers to the amount of tax you owe to the government based on your taxable income for the year. To calculate your tax liability, you need to apply the applicable tax rates from the income tax slabs to your net taxable income. Net taxable income is your gross total income minus any exemptions and deductions you are eligible to claim.
Deductions: Lowering Your Tax Liability
Deductions play a crucial role in reducing your tax liability. They allow you to subtract certain amounts from your gross total income, ultimately arriving at your net taxable income. By leveraging deductions wisely, you can lower the amount of income that is subject to taxation. Here are some common deductions you can consider:
Deduction under section 80C: Under this provision, you can claim deductions for investments in various instruments such as Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), and National Pension Scheme (NPS). You have the opportunity to reduce your taxable income by up to Rs. 1.5 lakh..
Deduction under section 80D: This deduction enables you to claim a deduction for the premium paid towards health insurance policies. The maximum deduction limit is Rs. 25,000 for individuals (Rs. 50,000 for senior citizens).
Deduction under section 80G: By making donations to specific funds or institutions, you can claim deductions under this section. It allows you to reduce your taxable income by the amount donated.
Deduction under section 80E: Interest paid on an education loan can be claimed as a deduction under this section. It helps lessen the tax burden for those repaying education loans.
Deduction under section 80TTA: Interest earned on a savings account can be deducted up to Rs. 10,000, reducing your taxable income.
Deduction under section 80TTB: Senior citizens can claim deductions on interest earned from deposits, such as fixed deposits or savings accounts, up to Rs. 50,000.
Credits: Further Reducing Tax Liability
Tax credits also play a significant role in reducing your tax liability. Unlike deductions that directly reduce your taxable income, credits are subtracted from your tax liability itself. Here are some common tax credits to consider:
- Rebate under section 87A: Resident individuals with a total income of up to Rs. 5 lakh can avail of a rebate under this section. The rebate amount is either Rs. 12,500 or 100% of the income tax, whichever is less.
- TDS Credit: Tax Deducted at Source (TDS) by your employer, bank, or other payers on your income can be credited towards your total tax liability.
- Advance Tax Credit: If your tax liability exceeds Rs. 10,000, any advance tax payments made by you during the year can be credited towards your overall tax liability.
- Self-Assessment Tax Credit: If you have paid self-assessment tax before filing your tax return, it can be credited towards your tax liability.
- Foreign Tax Credit:If you have earned income from abroad and paid taxes on it, you may be eligible for a credit for the foreign tax paid.
Understanding income tax slabs is crucial for accurate tax estimation and financial planning. The progressive nature of taxation ensures a fair distribution of the tax burden. Taxpayers can choose between the old and new tax regimes based on their income and individual circumstances. Considering additional charges like surcharge and cess is important. Stay updated with the latest tax rates and provisions to comply with tax laws and make informed financial decisions.
FAQs about Income Tax Slab:
The income tax slab refers to a system of taxation in which different tax rates are assigned to different income ranges. This ensures that as a person’s income increases, the tax rates also increase, creating a fair and progressive tax system in the country.
The new tax regime offers lower tax rates for most income slabs, resulting in higher disposable income and savings for taxpayers. It also simplifies the tax filing process as there is no need to claim exemptions or deductions, making it more straightforward and less time-consuming.
While the new tax regime offers lower tax rates, it does not allow for exemptions or deductions. This can reduce the tax benefits for taxpayers who have high expenses or investments that qualify for such benefits under the old tax regime. Individuals with home loan interest, tuition fees, medical insurance premiums, and donations, among others, may not be able to claim these deductions under the new tax regime.
The choice between the old and the new tax regime depends on various factors, such as your income level, expenses, investments, and financial goals. To make an informed decision, you can compare the tax liability under both regimes using online calculators or consult a tax expert who can assess your specific situation and provide guidance accordingly.
Yes, you can switch between the old and the new tax regime each year if you are a salaried employee or a non-business taxpayer. However, if you are a business taxpayer, you can switch from the old to the new regime only once, and once switched, you cannot revert to the old regime.
Surcharge is an additional charge levied on the income tax of high-income earners. The surcharge rates vary based on income ranges, starting from nil for income up to Rs. 50 lakh and going up to 37% for income above Rs. 5 crore. Cess is a charge levied on the income tax plus surcharge to fund health and education initiatives, and it is fixed at a rate of 4%.
The standard deduction is a fixed amount deducted from the salary income of salaried taxpayers, regardless of their actual expenses. For the assessment year 2023-24, the standard deduction for salaried taxpayers is Rs. 50,000 or the amount of salary, whichever is less.
Family pensioners, who receive pension from their deceased spouse or parent, can claim a deduction of 33.33% of the pension amount or Rs. 15,000, whichever is lower, from their income.
The rebate under section 87A is a benefit provided to resident individuals whose total income falls below a specified limit. The rebate amount is the lower of Rs. 12,500 (for FY 2022-23) or the income tax payable by the individual.
You can file your income tax return online through the e-filing portal of the Income Tax Department. Start by registering yourself on the portal using your PAN and other required details. Then, choose the appropriate Income Tax Return (ITR) form based on your income sources and tax regime. Fill in the required information, verify your return using Aadhaar OTP, EVC, or digital signature, and submit it online.
The due dates for filing income tax return vary based on the type of taxpayer and whether they are subject to audit. For FY 2022-23 (AY 2023-24), the due dates are as follows:
-Individual/HUF/AOP/BOI/Artificial Juridical Person (not subject to audit): 31st July 2023
-Individual/HUF/AOP/BOI/Artificial Juridical Person (subject to audit): 30th September 2023
-Company (subject to audit): 30th September 2023
If you file your income tax return after the due date but before 31st December of the relevant assessment year, you will have to pay a penalty of Rs. 5,000. If you file your return after 31st December but before 31st March of the relevant assessment year, the penalty increases to Rs. 10,000. However, if your total income does not exceed Rs. 5 lakh, the penalty will be limited to Rs. 1,000. If you do not file your income tax return at all, you will have to pay a penalty of Rs. 10,000 or 50% of the assessed tax, whichever is higher. In addition to the penalties, you may also face interest charges under section 234A, section 234B, and section 234C for late filing or non-filing of income tax return.
You can check your income tax refund status online through the e-filing portal of the Income Tax Department or the TIN NSDL website. Simply enter your PAN and assessment year to view your refund status.
To claim your income tax refund, file your income tax return online and provide your bank account details where you want to receive the refund amount. After verifying your return, the Income Tax Department will process the refund and credit it to your bank account through Electronic Clearing Service (ECS) or National Electronic Funds Transfer (NEFT).
To save tax under the new tax regime, you can take advantage of the lower tax rates offered and plan your income and expenses in a way that minimizes your taxable income. Consider investing in tax-free instruments like the Public Provident Fund (PPF), National Pension System (NPS), or Equity-Linked Savings Scheme (ELSS). Additionally, explore the tax benefits available for home loan interest, education loan interest, and other eligible deductions.
To save tax under the old tax regime, you can claim various exemptions and deductions available under the Income Tax Act, 1961. Some common exemptions and deductions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), conveyance allowance, deductions under section 80C for investments and expenses like life insurance premium and tuition fees, deductions under section 80D for medical insurance premium, deductions under section 80G for donations, and more. It’s important to assess your specific eligibility for each deduction and exemption and plan accordingly. However, before making a decision, compare the tax liability under both the old and new tax regimes to determine which one is more beneficial for you