Simply put, income tax is levied by the central government on the income earned by individuals and businesses in a financial year. In India, income tax is a financial and legal obligation, and a thorough understanding of this mode of direct tax is essential for financial planning.
Besides, the income tax collected from taxpayers is the principal source of revenue for the government. The government uses the money to provide citizens with amenities like healthcare, education, and infrastructure and fund various welfare schemes.
Overview of income tax slabs for FY 2023-24
Income tax in India is governed by specific income tax slabs and rates for each financial year (FY) as outlined in the Union Budget. Taxpayers are classified into different tax brackets based on their income, with higher taxes imposed on higher incomes. The slab system, which is designed to maintain fairness, is reviewed in every budget, and modifications are made as required.
In FY 2020-21, the government of India introduced a new income tax regime with reduced tax rates, but with fewer deductions and exemptions. With this, taxpayers now have the option to choose between the old tax regime and the new tax regime. The old regime offers more opportunities to reduce taxable income through deductions like HRA and other exemptions under Sections 80C and 80D. On the other hand, the new regime offers lower tax rates but minimal deductions.
The tables below show the revised income tax slabs applicable for FY 2023-24:
|Up to Rs. 3,00,000||NIL|
|Rs. 300,000 to Rs. 6,00,000||5%|
|Rs. 6,00,000 to Rs. 900,000||10%|
|Rs. 9,00,000 to Rs. 12,00,000||15%|
|Rs. 12,00,000 to Rs. 1500,000||20%|
|Above Rs. 15,00,000||30%|
PS: Tax rates and slabs are subject to annual changes in budgets presented by the government.
Key changes in income tax slabs
Income tax slabs typically get revised in the annual budget, taking into account factors like inflation and the state of the economy. The government may introduce changes like increasing the basic exemption limit, adjusting tax rates, or modifying the income brackets.
Income tax slabs have different tax rates for various income brackets. The lowest income bracket is taxed at a lower rate, while higher income brackets are taxed at higher rates. For example, a 5% tax rate applies to the first income bracket, 10% for the next, and so on. Individuals with an annual income of up to ₹3 lakh are not liable to pay income tax, thanks to standard deduction. Standard deduction is a fixed deduction allowed from the income earned before calculating taxes.
The table below shows a comparison of tax slabs between FY 2023-24 and FY 2022-23 under the new tax regime.
|FY 2022-23 Income Tax Slab||FY 2023-24 Income Tax Slab||Income Tax Rates|
|Rs.0 – Rs.2.5 lakh||Up to Rs. 3,00,000||NIL|
|Rs.2.5 lakh – Rs.5 lakh||Rs.3 lakh – Rs.6 lakh||5%|
|Rs.5 lakh – Rs.7.5 lakh||Rs.6 lakh – Rs.9 lakh||10%|
|Rs.7.5 lakh – Rs.10 lakh||Rs.9 lakh – Rs.12 lakh||15%|
|Rs.10 lakh – Rs.12.5 lakh||Rs. 12,00,000 to Rs. 1500,000||20%|
|Rs.12.5 lakh – Rs.15 lakh||–||25|
|Above Rs. 15 lakhs||Above Rs. 15 lakhs||30%|
A comparison between old and new income tax regime
There are two different income tax regimes in India under which taxpayers can avail tax benefits. The new tax regime was introduced in Budget 2020 in addition to the existing old regime.
Taxpayers are free to choose between the two schemes. It is important for the individual to choose between the two tax options based on which offers the most favorable tax outcome. For example, those who wish to avail substantial deductions and exemptions may prefer the old regime to maximize tax benefits. Lower-earning individuals may choose the new regime which offers lower tax rates. Besides, taxpayers can evaluate their specific financial circumstances, deductions, and exemptions available to them each year to decide which regime suits them best.
New income tax regime
Benefits of the new income tax regime:
- The new tax regime offers lower tax rates.
- Under the new regime, the tax exemption limit has been increased to ₹3 lakhs
- The new tax regime has a simpler tax structure.
- The new regime does not allow taxpayers to claim deductions and exemptions.
- The new tax regime offers limited tax planning opportunities.
Old income tax regime
Benefits of the old tax regime:
- The old scheme offers a wide range of deductions and exemptions.
- Taxpayers can invest in tax-saving instruments like PPF, NSC, and tax-saving fixed deposits.
- The old regime can appear complex due to numerous exemptions and deductions, requiring in-depth knowledge and meticulous record-keeping.
- The old regime has higher tax rates for different income slabs.
Tips for high earners to reduce taxable income
High earners have to pay higher taxes due to the progressive tax system where tax rates increase as an individual’s income rises. Consequently, high-income individuals incur a significant tax liability, which reduces the amount of money they can save. So, tax planning is crucial for individuals who belong to this income bracket.
Here are some effective ways for high earners to reduce their taxable income:
- Invest in Section 80C eligible products like PF, PPF, and ELSS, for a deduction of up to Rs 1.5 lakh from taxable income.
- Purchase health insurance to claim a deduction under Section 80D.
- Seek tax deductions on House Rent Allowance (HRA), if you receive it.
- Reduce taxable income by claiming deductions on home loan interest under Section 24, up to Rs 2 lakh.
- Save on taxes by keeping money in your savings account. Under Section 80TTA, savings account interest is tax-exempt up to Rs 10,000.
- Donate to government-approved charities to claim deductions between 50%-100% of the donated amount under Section 80G.
- Staying informed about tax laws and keeping yourself updated on the latest changes in tax laws can be beneficial in tax planning.
Income tax in India is calculated based on specific income tax slabs and rates outlined in the Union Budget for each financial year. For FY 2023-24, there are notable changes in income tax slabs, impacting the tax liability for individuals.
Tax planning should align with an individual’s financial goals and needs. One should do thorough research or consult tax experts to devise a comprehensive tax strategy to reduce tax liability.
Q. Do I need to file income tax return if my annual income is below Rs.2.5 lakh?
Ans. You need not file an ITR if your yearly income is below Rs.2.5 lakh, but you should file a ‘Nil Return’ just for the record as you can produce it as proof of your employment. For instance, you can provide your ITR while applying for a loan or passport.
Q. How is the income of a taxpayer classified?
Ans. Under Section 14 of the Income Tax Act, the taxpayer’s income has been classified under 5 different income heads: Salaried individuals, Capital gains, Gains/Profits from profession or business, Income from house property, and Income from other sources.
Q. Does family pension come under salary income during taxation?
Ans. No, family pension will not be taxed under salary income but as ‘income from other sources.’
Q. Who can claim a rebate under Section 87A?
Ans. Rebate under Section 87A can be claimed by any resident Indian whose total annual income is below Rs.5 lakh. The maximum available rebate under 87A is Rs.12,500.
Q. Will my income be taxed if I am an agriculturist?
Ans. Any income which is generated from agriculture or allied activities is not taxed. However, it will be considered for calculating total tax if you have any non-agricultural income along with income from farming.
Q. Is income up to Rs.5 lakh tax-free?
Ans. No, income up to Rs.5 lakh is not tax-free. However, individuals who earn an income of up to Rs.2.50 lakh in a financial year do not have to pay taxes.
Q. Can I switch the income tax regime for my tax filing?
Ans. Yes, you can choose to file your income tax returns as per the old regime or the new regime as per your preference.
Q. Are income tax slabs in India subject to change?
Ans. Yes, the income tax slabs in India are subject to changes.
Q. Who makes changes to the income tax slabs in India?
Ans. The changes to the income tax slabs in India are proposed by the Ministry of Finance, government of India.
Q. When are the changes to the income tax slabs in India proposed?
Ans. The changes to the income tax slabs in India are announced by the finance minister when the annual budget is presented every year in the month of February.