As an Indian taxpayer, it is important to understand the income tax slabs and rates that apply to you, so that you can calculate your tax liability accurately and file your income tax return on time. In this article, we will provide an overview of the income tax slabs and rates for individuals in India.
What are Income Tax Slabs and Rates?
Income tax is levied on the income earned by an individual in a financial year, which runs from April 1 to March 31. The income tax slabs and rates specify the percentage of tax that an individual is required to pay on their taxable income, which is calculated after deducting any exemptions and deductions that are allowed under the Income Tax Act.
There are 2 types of income tax regime having different tax slab rates.
- Old Tax Regime
- New Tax Regime
Note that, the central govt has made a change now in the new tax regime, in budget 2023. This will be effective from FY 2023-24 for all the individuals who have opted for the new tax regime.
Also it’s very important to keep in mind that, once you opt for new tax regime, you can’t opt back to the old tax regime, so be very mindful before opting for a new tax regime. Choose wisely based on which regime benefits you the most. It is not necessary that if your friend or colleague has more benefit in any of the regime, don’t think you also have more benefits by opting the same regime. Because, you may not be having same deductions or benefits as the other person. So, now let’s understand the tax slab rates for both the old and new tax regime.
The income tax slab rates under the old income tax regime is as follows:
- Income up to Rs. 2.5 lakhs: No tax
- Income from Rs. 2.5 lakhs to Rs. 5 lakhs: 5% tax
- Income from Rs. 5 lakhs to Rs. 10 lakhs: 20% tax
- Income above Rs. 10 lakhs: 30% tax
The income tax slab rates under the new income tax regime(Budget 2023 from the FY 2023-24) will now be as follows:
- Income up to Rs. 3 lakhs: No tax
- Income from Rs. 3 lakhs to Rs. 6 lakhs: 5% tax
- Income from Rs. 6 lakhs to Rs. 9 lakhs: 10% tax
- Income from Rs. 9 lakhs to Rs. 12 lakhs: 15% tax
- Income from Rs. 12 lakhs to Rs. 15 lakhs: 20% tax
- Income above Rs. 15 lakhs: 30% tax
It is important to note that the income tax rates and slabs may change from year to year, depending on the budget announcements made by the government.
How to Calculate Your Income Tax Liability?
To calculate your income tax liability, you need to first determine your taxable income, which is the income you earned during the financial year minus any exemptions and deductions that you are eligible for. Once you have calculated your taxable income, you can apply the applicable income tax slab rate to arrive at your tax liability.
For example, as per the old tax regime let's say your taxable income for the financial year 2022-23 is Rs. 10 lakhs. Based on the income tax slabs and rates for the financial year, you would pay 5% tax on income between Rs. 2.5 lakhs and Rs. 5 lakhs (which amounts to Rs. 12,500), you would pay 20% tax on income between Rs. 5 lakhs and Rs. 10 lakhs (which amounts to Rs. 1,00,000), and 30% tax on the remaining income, which is Rs. 0 in this case. Therefore, your total tax liability would be Rs. 1,12,500.The same way if you want to calculate the tax liability for the income tax slab rates using the new income tax regime(From Budget 2023 & effective from FY 2023-24).
For example, as per the new tax regime(Budget 2023 from the FY 2023-24) let's say your taxable income for the financial year 2023-24 is Rs. 10 lakhs. Based on the income tax slabs and rates for the financial year, you would pay 5% tax on income between Rs. 3 lakhs and Rs. 6 lakhs (which amounts to Rs. 15,000), you would pay 10% tax on income between Rs. 6 lakhs and Rs. 9 lakhs (which amounts to Rs. 30,000), and 15% tax on the remaining income of Rs. 1 lakh (which amounts to Rs. 15,000). Therefore, your total tax liability would be Rs. 60,000.Important Note : In the above example, we have just shown how to calculate the taxes based on just the tax slab rates. We have not considered any deductions or tax benefits to keep the calculations simple. Usually, when you choose the old tax regime, it is almost more likely that old regime will benefit you more than the new regime. Just that you should be able to cover 80C & one more deductions or benefits. In old tax regime, there will be a tax rebate for the 1st 2.5 lakhs, you can use 80C(up to Rs. 1.5 lakhs) , 80D (Medical Insurance for you and your parents), 80E (Higher Education Interest paid), Section 10(HRA, LTA, Gratuity, Long Term Capital Gains), Section 24(Home loan interest paid up to 2 lakhs), 80G(Donations*).
More information on each deduction & tax benefits is in the link : Important Income Tax Deductions And Exemptions In India To Reduce Tax.
In conclusion, understanding the income tax slabs and rates is important for individuals who are required to pay income tax in India. By knowing the applicable tax rates, you can calculate your tax liability accurately based on the regime you have opted and file your income tax return on time. It is also important to keep track of any changes to the income tax slabs and rates each year, so that you can adjust your tax planning accordingly.
