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Income Tax Slabs- What Every Taxpayer Should Know

Updated: May 30


Income Tax Slabs- What Every Taxpayer Should Know

India has a progressive tax structure, meaning that as income levels rise, so do the tax rates. India's income tax slabs establish the applicable tax rates for various income levels. Several variables, including age, taxpayer type, income level, and residential status, affect how applicable certain slabs are. 


Every financial year, the government may implement some changes to the income tax slabs and guidelines for taxpayers to follow. Consult a tax specialist and refer to the established tax recommendations. Depending on the income level, there could be surcharges that apply in addition to the income tax rates. On the overall amount of tax due, there is also a health and education cessation.

 

Table of Content

 

Understanding the Income Tax Slab 

Based on their income tax slab, Indian taxpayers are required to pay income tax. Different income categories with varying tax rates make up the income tax slab. The tax rate rises in tandem with income. Introduced to facilitate a just tax system across the nation was the slab system. The introduction of the budget guides the modifications made to the income tax slab. The three categories used to divide income tax are:

  • Individuals under the age of sixty

  • Senior individuals between the ages of 60 and 80

  • Elderly people who are over 80 years old

Income Tax Slab for Financial Year 2023-24 (Assessment Year 2024-25)

According to the Union Budget 2023, the new tax system has a few significant adjustments. Under the new tax regime, the basic exemption level has been raised to Rs. 3 lakh from Rs. 2.5 lakh and the tax slab has been cut from 6 to 5. These modifications will take effect on April 1, 2023. An update to the slab structure is as follows:


Income Tax Slab Rate for New Tax Regime

Income Tax Slab Rate for New Tax Regime

Income Tax Slab Rate for Old Tax Regime 


Income Tax Slab Rate for Old Tax Regime


Old and New Tax Regimes: A Comprehensive Comparison

Following Budget 2023, there has been a great deal of uncertainty due to the numerous changes made to the new tax structure. This time, the administration concentrated on introducing a new tax structure that would appeal to taxpayers more. However, because of its many deductions, taxpayers have traditionally preferred the previous tax system. Let's examine each of these regimens in more detail and determine which one is ideal for you.


New Tax Regime

Launched in Budget 2020, the new tax system took effect on April 1, 2020. Compared to the previous tax system, the new one offered lower tax rates for higher earners. It is voluntary and lets you reduce your tax liability under certain circumstances. Therefore, you would not be eligible for the majority of the deductions and exemptions provided by the Income Tax Act of 1961 if you decide to compute your taxes using the new tax system. To make the new tax system more appealing, the government did, however, offer a few significant modifications in the budget for 2023:


  • The default setting for taxpayers is the new income tax scheme. Raising the basic exemption level from Rs 2.5 lakh to Rs 3 lakh has increased the attractiveness of the new tax regime. Additionally, income beyond Rs 15 lakh is subject to the maximum tax rate of 30%.

  • The budget 2023–24 announcement increased the  Section 87A refund to Rs. 25000 for taxable income up to Rs. 7 lakhs under the new tax regime.

  • There has been a sharing of the plan to implement the standard deduction under the new tax regime. Pensioners, including family pensioners, receive a standard deduction of Rs. 50,000/-as per this salaried class.

  • The new tax regime also includes an exemption of Rs. 15,000 for a family pension.

  • A reduction of the 37% surcharge to 25% is available to taxpayers under the new regime for annual income exceeding Rs 5 crore. With the current maximum tax rate of 42.74%, the maximum tax rate would drop to 39% with this reduction.

  • The upper limit for tax exemption on leave encashment for non-government paid workers is increased to Rs. 25 lakh from Rs. 3 lakh.

Old Tax Regime

When we discuss the old tax regime in India, we're talking about the income tax slabs and calculation systems that were in place before the new tax regime's implementation. People might lower their taxable income under the previous tax system by claiming a variety of tax deductions and exemptions. More than 70 deductions and exclusions, including Section 80C, HRA, LTA, and others, are available under the Old Tax Regime. Another name for this regime is the current tax regime.


Income Tax Slab for Financial Year 2022-23 (Assessment Year 2023-24)


Income Tax Slab Rate for New Tax Regime


Income Tax Slab Rate for New Tax Regime

Income Tax Slab Rate for Old Tax Regime

Individuals aged below 60 years & HUF



Individuals aged below 60 years & HUF

  • Up to Rs 2,50,000 is the exemption threshold is available to individuals, HUFs under 60, and NRIs.

  • As stated earlier, there will be a cess and surcharge fee.

Individuals aged between 60 years to 80 years


Individuals aged between 60 years to 80 years

  • Up to Rs 3,00,000 is the exemption threshold is available to individuals aged between 60 and 80 years.

  • As stated earlier, there will be a cess and surcharge fee.

Individuals aged between over 80 years

  • Up to Rs 5,00,000 is the exemption threshold that is available to individuals aged over 80 years.

  • As stated earlier, there will be a cess and surcharge fee.



Individuals aged between over 80 years


Exemptions/Deductions Available Under the New Tax Regime

The following deductions and exemptions are available to taxpayers under the new tax regime:

  • Your employer may contribute up to 10% of your pay to the NPS under Section 80CCD (2) (or 14% if you work for the Central Government).

  • If the home property is rented out, a standard deduction of 30% of net rental income is taken.

  • The interest paid on a home loan can be subtracted from the rental revenue of the real estate. It is not possible to deduct losses from any other source of income when it comes to the House Property head.

  • Divyang employees will be eligible for a transport allowance exemption to cover their regular travel costs from work to home.

  • You may use the conveyance allowance to cover the cost of using a vehicle to carry out an official task.

  • Funds allocated to cover the expense of staff travel for tours or transfers.

  • A daily stipend provided to cover routine daily expenses in the event that an employee is absent from their regular place of employment.

Exemptions/Deductions Not Available Under the New Tax Regime

About 70 of the 100 exemptions that were granted under the new system have been eliminated by the 2020 budget. Some of the most significant exemptions and deductions that would be lost if the new tax slab is selected for tax computation are listed below:

  • Allowance for House Rent under Section 10 (13A)

  • Allowance for Leave of Absence under Section 10 (5)

  • Food vouchers and other tax-free allowances 

  • Privileges under Section 10(14)

  • Deductions allowed under Sections 80C, 80D, 80TTA, and other provisions of Chapter VI A of the Income Tax Act.

  • Deduction for home loan interest under Sections 24(b) and 80EEA for self-owned residential property

How to Calculate Income Tax Based on the Income Tax Slabs?

Let's examine X's income tax calculation process. X is a salaried individual whose yearly salary is Rs. 8,50,000. X is eligible for deductions of Rs. 1,50,000 under section 80C. To begin, X calculates his gross taxable income. Thus, his total income is Rs. 8,50,000 less her deductions of Rs. 1,50,000, for a total of Rs. 7,00,000.

Let's examine the tax slabs now. Three slabs are present:

  • 0% tax up to Rs. 5,00,000

  • 20% tax from Rs. 5,00,001 to Rs. 10,00,000.

  • 30% tax over Rs. 10,000,00

Since X's income falls in the Rs. 5,00,001 to Rs. 10,00,000 range, his tax rate is 20%.

Applying the tax rate (20%) to the income in this category (Rs. 7,00,000 - Rs. 5,00,000) yields the tax amount. Thus, X's tax liability in this slab is forty thousand rupees. X doesn't need to worry about the surcharge because it only applies to incomes over Rs. 50 lakhs, while he earns less. X owes Rs. 40,000 in total income tax for the fiscal year 2023–2024. That's basically how he calculates his tax liability. 


Which is the Better Option: Old or New Tax Regime? 

Taxpayers may consider both regimes if they wish to choose the concessional tax rates. Because this can differ from person to person, it is best to compare and contrast both regimes before selecting the most advantageous one. Here are a few key factors to consider for a wise choice between the old and next tax regime:

  • Those in the middle class with taxable incomes up to Rs 15 lakh stand to gain the most from the new tax system. High earners would be better off under the previous system.

  • Those who invest little benefit from the new income tax scheme. Anyone paying taxes without claiming tax deductions can benefit from paying a lower rate of tax under the new tax regime, which offers seven lower-income tax slabs. Under the previous approach, an assessee with a total of income up to Rs 12 lakh before deductions would have a larger tax burden if they had investments of less than Rs 1.91 lakh. Choose the new regime instead of tax-saving plans if you invest less in them.

  • The previous tax system benefited you with larger tax deductions and lower tax outgo if you already had a financial plan in place for building wealth, such as investing in tax-saving instruments, purchasing life and health insurance, paying for your children's tuition, making education loan EMI payments, purchasing a home with a home loan, and so forth.

Things to Consider if You Opt for the New Tax Regime

  • For all categories of individuals, including individuals, senior citizens, and super senior citizens, the tax rates under the new tax regime are the same.

  • Individuals having net taxable income below Rs 5 lakh can claim legitimate tax rebates under Section 87A. It means they won't owe any taxes under either of the two regimes.

  • Due to an increase in the rebate under the new system in Budget 2023, income up to Rs 7 lakh would be tax-free starting in FY 2023–2024.

  • Surcharge: There will be a surcharge if the revenue surpasses a specific level.

The rates of surcharge are as follows:

  • If total income exceeds Rs. 50 lakh, 10% of income tax

  • If total income exceeds Rs. 1 crore, 15% of income tax

  • If total income exceeds Rs. 2 crore, 25% of income tax

  • If total income exceeds Rs. 5 crore, 37% of income tax 

  • The maximum surcharge rate of 37% was lowered to 25% in Budget 2023 in accordance with the new tax structure. (effective as of April 1, 2023)

  • Surcharge rates of 25% or 37% will not be applicable to income subject to section 111A (Short-Term Capital Gain on Shares), section 112A (Long-Term Capital Gain on Shares), and section 115AD (Tax on Income of Foreign Institutional Investors. As a result, 15% will be the highest surcharge rate on the tax due for these income groups.

  • The highest surcharge rate on tax due for capital gains or dividend income specified in Section 112 will be 15% as of Assessment Year 2023–2024. Additionally, an Association of Persons (AOP) made up only of businesses will only be able to levy a 15% surcharge.

  • In all circumstances, an additional 4% Health and Education cess will be charged to the income tax liability plus the surcharge.

Conclusion

Now that you know everything about income tax slabs and tax regimes, you can choose wisely to minimize your tax burden. Even better, consider consulting an expert to seek guidance about the best option according to your unique needs and circumstances.


FAQ

Q1. Was it mandatory for me to select the New tax regime when filing my returns for the 2022–2023 tax year?

It was up to the taxpayers to decide whether to use the New Tax system or the Old Tax regime. Employees must make this decision at the start of the year, albeit it is changeable when completing their ITR. However, you can only choose to convert to the new tax regime once in your lifetime if you work for a living or are in a company. We advise you to thoroughly compare your tax liability under the two regimes and then decide which is best for you.


Q2. Which tax slab do I select for the 2023–2024 fiscal year (AY 2024–2025)?

The simultaneous use of two slab rates is a first for the income tax structure in India. This has led to a great deal of uncertainty among taxpayers. Whether you want to claim the exemptions and deductions that were available under the previous income tax structure will be one of the most crucial factors to consider when selecting an appropriate tax bracket. However, that shouldn't be the sole criterion. Find out more here.


Q3. Can I choose a new income tax slab structure and still claim my 80C deductions?

No, many of the exemptions and deductions that were previously available under the previous tax system are no longer permitted under the new one. Tax deductions under Section 80C are not available to taxpayers who choose the new tax regime.


Q4. Do various groups have varying slab rates?

Indeed, the previous and new tax regimes have different slab rates. Additionally, under the previous tax system, age is a factor in determining the slab rates. The groups are classified as:

  • Individual taxpayers under 60

  • seniors (those between 60 and 80 years old

  • super seniors (those above 80 years old). 

Moreover, there are differences in the tax rates for corporations, cooperative organisations, local governments, partnership firms, and LLPs.


Q5. Which tax system is preferable for a salary of Rs. 5 lakh?

If your yearly pay is Rs. 5 lakh, you will receive a 5% tax deduction under both regimes. Examine your investments and the manner in which you would like to receive tax exemptions so that you may choose the best tax regime for you.


Q6. For Rs. 12 lakh per year, which tax system is preferable?

The tax deduction was thirty percent under the previous tax system and fifteen percent under the current one. However, determine which of the two regimes is best for you by making a choice based on your investments and other tax-saving strategies. Select the previous tax regime if you don't have any investments; otherwise, go with the new one.


Q7. Who sets the IT slab rates, and are they subject to change?

Yes, the government sets and modifies the IT slab rates. The budget presents the revised IT slab rates for the fiscal year before their introduction.


Q8. What is the income tax exemption limit in India?

The basic exemption threshold for persons set forth by income tax law is the amount up to which taxpayers are exempt from paying taxes. This ceiling varies depending on the type of taxpayer. Individuals under 60 are exempt from paying taxes up to a maximum income of Rs 2.5 lakh. When their income is up to Rs 3 lakh, people over 60 but under 80 are exempt from paying tax. Over 80-year-olds are exempt from paying taxes on income up to Rs 5 lakh. Under the new tax regime, Rs 2.5 lakh is the fundamental exemption ceiling for all individuals, regardless of age.


Q9. How is the income tax surcharge calculated?

A surcharge is an additional tax. As a result, the surcharge is determined by the tax due rather than the income received. For instance, suppose you have an income of Rs. 1000 and pay a 30% tax of Rs. 300. If the income is liable to a surcharge, 10% of the tax, or Rs. 30, would be subject to a 10% surcharge. Different rates apply to surcharges, such as:

  • 10% of total income exceeds 50 lakh

  • 15% of total income exceeds 1 crore

  • 25% of total income exceeds 2 crore

  • 37% of total income exceeds 5 crore







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