Income Tax Slab FY 2023-24 & AY 2024-25 - New & Old Regime Tax Rates

Do you know that you need to be aware of income tax slabs? This is because tax slabs are the foundation for determining your tax burden. The income tax system in India is progressive by design, meaning that as income rises, so does the tax rate. This guarantees that the tax burden is distributed fairly and equally. 

Understanding the basics of income tax slabs can assist professionals, business owners, and salaried employees in both precise tax planning and sound financial decision-making. Let's examine income tax slabs and how they affect your income.

What is the Income Tax Slab?

A range of incomes subject to a particular income tax rate is known as an income tax slab. The amount of income tax that each individual must pay is determined by the Indian tax system using a slab system. Based on their yearly income levels, taxpayers are divided into multiple categories under this system, and each category is subject to a separate tax rate.

The slabs are typically divided into categories such as:

• Income up to a certain threshold which is exempt from tax.
• Income over the threshold but within a certain range taxed at a lower rate.
• Higher income ranges are taxed at progressively higher rates.

Understanding these slabs is important for calculating your tax liability and for effective tax planning. It's also crucial for determining the amount of tax to be deducted at source (TDS) on your income.

Income Tax Slab for Individuals under 60 years of age

Income Tax Slab for Individuals above 60 years of age (but less than 80 years of age)

Income Tax Slab for Individuals above 80 years of age 

How to Calculate Income Tax from Income Tax Slabs?

Calculating income tax using the slab system involves a few steps. Let's break it down:

• Determine Your Gross Income: Calculate your total income for the year. This includes your salary, income from house property, capital gains, business/professional income, and other sources.

• Deduct Allowable Exemptions and Deductions: Subtract exemptions (like House Rent Allowance) and deductions (under Section 80C, 80D, etc.) from your gross income. This gives you your taxable income.

• Apply the Appropriate Tax Slabs: Based on your taxable income, apply the relevant tax slabs. For example, if you fall into the ₹5 lakh to ₹10 lakh range, a certain percentage will be levied on the income within that range, and so on.

• Add Cess: Include Health and Education Cess, which is currently 4% of the income tax.

• Calculate Total Tax Liability: The sum of the tax calculated for each slab, along with the cess, gives you your total tax liability.

For an accurate calculation, consider using an online income tax calculator or consult a tax professional, as they can help factor in various deductions, exemptions, and the latest tax slabs.

Important Points to Note if You Select the New Tax Regime

In 2020, the Indian Government introduced a new tax regime with revised tax slabs and rates. Here are some important points to consider if you opt for this regime:

• Lower Tax Rates but Fewer Deductions: The new regime offers lower tax rates but does not allow most exemptions and deductions available under the old regime.
• Foregoing Deductions: By choosing the new regime, you have to forego various deductions under Section 80C, 80D, housing loan interest (Section 24), etc.
• Flexibility to Choose: Taxpayers have the flexibility to choose between the old and new tax regimes each financial year (for salaried individuals) and can select the one more beneficial to them.
• Ideal for Those with Fewer Deductions: If you don’t have significant investments or expenditures that qualify for deductions under the old regime, the new regime might be more beneficial.
• Mandatory for New Taxpayers: New taxpayers with income sources solely from salary and without business income are mandatorily placed under the new tax regime.
• Calculation Difference: Under the new regime, simply apply the new tax rates to your income without considering various deductions and exemptions.

Remember, the choice between the old and new tax regime should be made after careful consideration of your income, deductions, and exemptions to optimise your tax liability.

Comparison of Income Tax Slabs under New Regime- Before and After Budget

In the Union Budget 2023, only the income tax slabs under the new regimes were changed.

Conditions for Opting New Tax Regime

When considering the new tax regime, it's important to be aware of the conditions attached to it:

Declaration Requirement: If you are a salaried individual, you need to declare to your employer at the beginning of the financial year if you choose the new regime. This declaration will determine the TDS (Tax Deducted at Source) calculations.

Flexibility for Business Owners: Business owners who opt for the new regime have the flexibility to switch back to the old regime once. However, after switching back, they cannot opt for the new regime again unless they cease to have business income.

No Carry Forward of Losses: Under the new regime, you cannot carry forward certain losses (like loss under the head ‘Income from house property’).

No Exemptions and Deductions: Most exemptions and deductions available under the old regime, including standard deduction, professional tax, and entertainment allowance on salaries, are not permissible under the new regime.

Applicable for Individuals and HUFs: The new regime is applicable for individual taxpayers and Hindu Undivided Families (HUFs).

These conditions are crucial in making an informed decision about which tax regime to opt for.

Example for Old Tax Regime Vs New Tax Regime: Which is Better?

Let’s consider a hypothetical example to understand the difference between the old and new tax regimes:

Scenario: An individual with an annual income of ₹10 lakh.

Old Tax Regime:

• Standard Deduction: ₹50,000
• Investment under Section 80C: ₹1.5 lakh
• Health Insurance Premium (Section 80D): ₹25,000
• Taxable Income: ₹10 lakh - ₹50,000 - ₹1.5 lakh - ₹25,000 = ₹7.25 lakh
• Tax Liability: Calculated based on the old tax slabs on ₹7.25 lakh

New Tax Regime:

• No deductions allowed
• Taxable Income: ₹10 lakh
• Tax Liability: Calculated based on the new, lower tax slabs on ₹10 lakh

Which is Better?

The better regime depends on individual circumstances.

• If You Have High Deductions: If you have substantial deductions like home loan interest, large investments under 80C, etc., the old regime might be more beneficial.
• If You Have Fewer Deductions: If you don’t have many deductions or exemptions, the new regime could result in lower tax liability due to its lower tax rates.
• Simplicity: The new regime offers simplicity as it doesn’t require tracking and maintaining proofs of investments/deductions.

It’s advisable to calculate tax liability under both regimes and choose the one that results in a lower tax outgo. Consulting with a tax expert can also provide tailored advice based on your financial situation.

Income Tax Rate for Domestic Companies – FY 2022-23

Income tax rate for Partnership firm or LLP as per old/ new regime

A partnership firm/ LLP is liable for 30% tax.            

NOTE:

• Surcharge of 12% is applied to revenue exceeding Rs 1 crore.
• A 4% Health and Education Cess will be implemented.
• Under the new tax structure, firms that are limited liability partnerships (LLPs) are not eligible for concessional rates.

Why is it Important to Know Your Income Tax Slabs?

Understanding your income tax slabs is crucial for several reasons:

• Accurate Tax Calculation: Knowing your tax slabs helps in accurately calculating your tax liability. This ensures you pay the right amount of tax, avoiding both underpayment and overpayment.

• Effective Financial Planning: Awareness of tax slabs allows for better financial planning. You can make informed decisions about investments, savings, and expenses to optimise your tax outgo.

• Compliance with Tax Laws: Being informed about tax slabs ensures compliance with tax laws, helping you avoid legal issues and penalties associated with non-compliance.

• Making the Most of Deductions and Exemptions: Understanding how different income ranges are taxed helps you make the most of available deductions and exemptions, potentially lowering your taxable income.

• Budgeting and Cash Flow Management: Knowing your tax liability aids in effective budgeting and cash flow management throughout the year.

• Informed Decision Making: For salaried individuals, understanding tax slabs can influence decisions like salary negotiations, as you'd know how a salary hike might impact your tax bracket.

In summary, knowledge of income tax slabs is not just a necessity for compliance, but it's also a tool for smarter financial management.

Conclusion

Income tax slabs form the foundation of the tax system in India, influencing how much tax each individual pays. Whether you are a new taxpayer or have been filing taxes for years, understanding these slabs and how they apply to your income is essential. In the context of constantly evolving tax laws and the introduction of new tax regimes, staying informed is more important than ever. It helps in effective tax planning, ensuring compliance, and optimising your financial strategy. Remember, while the process might seem daunting, leveraging this knowledge can lead to significant financial benefits. 

FAQs

1. What are income tax slabs?

Income tax slabs are ranges of income that are taxed at different rates. In India, these slabs are designed to tax higher income at a higher rate, making the tax system progressive.

2. How often do income tax slabs change?

Income tax slabs can change annually. The government may revise these slabs during the budget presentation each year.

3. Are income tax slabs different for different age groups?

Yes, there are different slabs for individuals below 60 years, senior citizens (aged 60 years but below 80 years), and super senior citizens (aged 80 years and above).

4. What is the difference between the old and new tax regimes?

The old tax regime offers various deductions and exemptions but has higher tax rates. The new regime offers lower tax rates but does not allow most deductions and exemptions.

5. Can I switch between the old and new tax regimes?

Yes, individuals and HUFs can choose between the old and new tax regimes every financial year. However, business owners who switch to the new regime have limited flexibility to switch back.

6. Are there any income tax slabs for companies?

Yes, companies also have different tax slabs, which are separate from individual tax slabs. These rates can vary based on the type and turnover of the company.

7. How does the tax slab system impact my tax planning?

Understanding tax slabs can help you plan your investments and expenditures to optimise tax savings, ensuring that you make the most of the available deductions and exemptions.

8. What happens if my income increases and moves me to a higher tax slab?

If your income increases and moves you to a higher tax slab, you will be taxed at a higher rate on the income exceeding the threshold of the previous slab.

9. Are tax slabs applicable to all types of income?

Tax slabs are generally applicable to your total income, which includes salary, income from house property, capital gains, business/professional income, and other sources. However, some types of income, like long-term capital gains, have specific tax rates.