According to the Income Tax Act, 1961 paying income tax is compulsory for individuals and companies if the annual earnings exceed a certain specified exempt limit. Taxpayers are given some exemptions and deductions under different sections of the Act.
What is the income tax slab in India?
Individuals across the country earn different incomes and levying taxes at a standard rate would not be a fair policy. Therefore, the Income Tax Act, 1961 segregates income in different ranges, and tax is levied at various rates based on this classification. These rates at which tax is levied are known as tax slabs.
In addition to the annual income, the tax rates vary based on the ages of the taxpayers and the classification of the entities. While determining the Budget every year, the Central Government amends and revises the tax slab rates.
Once these proposed amendments and revisions are approved by the Parliament, the rates become legally applicable.
Why new tax regime for the FY 2020 – 21 is optional?
For income earned in the financial year (FY) 2020-21, the taxpayers have the option to choose one of the following.
- Pay income tax at a lower rate according to the new tax regime but forego some of the permissible tax deductions and exemptions available under the Income Tax Act, 1961.
- Pay income tax under the existing old regime with higher rates and avail of the various exemptions and rebates provided by the Income Tax Act, 1961.
New regime income tax slabs for all Individuals
As per the new regime, the tax rates are the same for all individuals and Hindu Undivided Families (HUFs).
Therefore, the same rate is applicable whether you are below 60 years, aged between 60 and 80 years, or are over 80 years old. In this regime, no additional basic income exemption limit is available for senior citizens and super senior citizen taxpayers.
The income tax slabs under the new regime are as follows:Income slab Tax rate Up to INR 2.50 lakhs Nil INR 2.50 lakhs – INR 5 lakhs 5% of income exceeding INR 2.50 lakhs INR 5 lakhs – INR 7.50 lakhs 10% of income exceeding INR 5 lakhs + INR 12,500 INR 7.50 lakhs – INR 10 lakhs 15% of income exceeding INR 7.50 lakhs + INR 37,500 INR 10 lakhs – INR 12.50 lakhs 20% of income exceeding INR 10 lakhs + INR 75,000 INR 12.50 lakhs – INR 15 lakhs 25% of income exceeding INR 12.50 lakhs + INR 1,25,000 Exceeding INR 15 lakhs 30% of income exceeding INR 15 lakhs + INR 1,87,500
In addition to the applicable tax as per the income slab, you will have to pay a health and education cess of 4%.
Things you should know while opting for the new tax regime
The option has to be exercised on or before each previous year where you as an individual or an HUF have no income from business operations
Once you choose any tax regime as your option, the decision is irreversible during the same year. Suppose you continue with the old regime and want to withdraw your option and switch to the new regime; you can do so during the next financial year.
The following deductions and exemptions are not available in the new regime:
- Leave travel allowance (LTA)
- Deductions under Chapter VI-A, except section 80CCD (2)
- House rent allowance (HRA)
- Housing loan interest under section 24
- Professional tax
- Daily expenses incurred during your regular course of employment
- Standard deduction
- Relocation allowance
- Other special allowance under section 10 (14)
- Helper allowance
- Children education allowance
Old tax regime vs. new tax regime: Which is better?
The new regime is beneficial if your taxable income is up to INR 15 lakhs per year. However, if you are in the high-income category, continuing under the old regime may be more advantageous.
The new regime is beneficial if you make lesser investments. Since the new regime provides lower tax rates on income tax slabs, you pay taxes without claiming any deductions, thus, the lower rate can be beneficial.
For example, if your income before deductions is up to INR 12 lakhs, the tax liability under the old regime will be higher if your investments are less than INR 1.90 lakhs. Therefore, if you do not invest much in tax-saving instruments, opting for the new regime can reduce your tax liability.
However, if you are already investing in different tax-saving products, have life and health insurance policies, pay children’s tuition fees, have education and home loans to pay off, and so on, continuing under the old tax regime provides higher deductions, thus reducing your tax liability.
Here is an example to help you compare the tax liability under both regimes and make an informed decision.
Assume your income is INR 10 lakhs per annum and you invest INR 1.70 lakhs in different tax-saving instruments and life insurance premiums and have a home loan.
Additionally, the annual health insurance premium for you and your spouse is INR 28,000, and interest on the home loan is INR 75,000. Under the old regime, all these expenses are tax-deductible.
The tax liability under the two regimes is as below:Old regime (INR) New regime (INR) Gross income 10,00,000 10,00,000 Deductions: Under Section 80C 1,50,000 Under Section 80D 25,000 Under Section 24(b) 75,000 Taxable income 7,50,000 10,00,000 Tax slab: INR 2.50 lakhs – INR 5 lakhs (5%) 12,500 12,500 INR 5 lakhs – INR 7.50 lakhs (10%) 25,000 INR 7.50 lakhs – INR 10 lakhs (15%) 37,500 INR 10 lakh – INR 12.50 lakhs (20%) INR 5 lakhs – INR 10 lakhs (20%) 50,000 Total tax 62,500 75,000 Cess (4%) 2,500 3,000 Total tax liability 65,000 78,000
From the above example, it is seen that if your income is more than INR 10 lakhs and you claim deductions under the different sections of the Income Tax Act, 1961, the old regime reduces the total tax outgo.
However, if you are in the middle-income group with a lower gross income, the new regime may be more advantageous.
Income tax slabs as per old regime
Senior citizens (from 60 to 80 years old)Income Tax rate Up to INR 3 lakhs Nil INR 3 lakhs – INR 5 lakhs 5% of income exceeding INR 3 lakhs + 4% cess INR 5 lakhs – INR 10 lakhs 20% of income exceeding INR 5 lakhs + INR 10,500 + 4% cess Over INR 10 lakhs 30% of income exceeding INR 10 lakhs + INR 1,10,000 + 4% cess
The following table shows the income tax liability for three different gross incomes.Annual income (INR) 5,00,000 10,00,000 15,00,000 Standard deduction (INR) 50,000 50,000 50,000 Section 80C deductions (INR) 70,000 1,50,000 1,50,000 HRA 82,000 90,000 1,40,000 Gross income 2,88,000 7,00,000 11,50,000 Tax calculation Up to INR 3 lakhs Nil Nil Nil INR 3 lakhs – INR 5 lakhs Nil 10,500 10,500 INR 5 lakhs – INR 10 lakhs Nil 40,000 99,500 Over INR 10 lakhs Nil Nil 45,000 Total tax Nil 50,500 1,55,000 Cess Nil 2,020 6,200 Total tax payable Nil 52,520 1,61,200
Super senior citizens (80+ years old)Income Tax rate Up to INR 5 lakhs Nil INR 5 lakhs – INR 10 lakhs 20% of income exceeding INR 5 lakh + 4% cess Over INR 10 lakhs 20% of income exceeding INR 10 lakh + INR 1 lakh + 4% cess
Here is an example to help you understand.Annual income (INR) 5,00,000 10,00,000 15,00,000 Standard deduction (INR) 50,000 50,000 50,000 Section 80C deductions (INR) 70,000 1,50,000 1,50,000 HRA 82,000 90,000 1,40,000 Gross income 2,88,000 7,00,000 11,50,000 Tax calculation INR 5 lakhs Nil Nil Nil INR 5 lakhs – INR 10 lakhs Nil 40,000 1,00,000 Over INR 10 lakhs Nil Nil 45,000 Total tax Nil 40,000 1,45,000 Cess Nil 1,600 5,800 Total tax payable Nil 41,600 1,50,800
Tax slab rates for FY 2019 – 20 (for individuals below 60 years and HUFs)Income Tax rate Up to INR 2.50 lakhs Nil INR 2.50 lakhs – INR 5 lakhs 5% of income exceeding INR 2.50 lakhs INR 5 lakhs – INR 10 lakhs 20% of income exceeding INR 5 lakhs More than INR 10 lakhs 30% of income exceeding INR 10 lakhs
Tax slab rates for FY 2018 – 19 (below 60 years and HUFs)Income Tax rate Up to INR 2.50 lakhs Nil INR 2.50 lakhs – INR 5 lakhs 5% INR 5 lakhs – INR 10 lakhs 20% More than INR 10 lakhs 30%
Tax slab rates for FY 2017 – 18 (for individuals below 60 years and HUFs)Income Tax Rate Up to INR 2.50 lakhs Nil INR 2.50 lakhs – INR 5 lakhs 5% INR 5 lakhs – INR 10 lakhs 20% More than INR 10 lakhs 30%
Frequently Asked Questions (FAQs)
Is it compulsory to opt for the new tax regime?
No, it is an optional scheme to simplify the tax-filing procedure. You may choose the new or the old regime at the start of the financial year, which can be changed in the next year if required.
Are section 80C deductions available under the new tax regime?
No, the new regime does not allow section 80C and several other deductions under the Income Tax Act, 1961 due to the lower tax rates.
Who determines the tax rates?
The tax rates are proposed in the annual Union Budget and approved by the Parliament before being applicable. The government may change the rates from one year to another.
This is a companion discussion topic for the original entry at https://jupiter.money/resources/income-tax-slabs/