What are Income Tax Slabs: All you need to know!

The Income Tax Act levies income tax on income earned by all the entities. Individuals, Corporates, HUFs, firms, all are liable to pay income tax as per the provisions given under different sections of the Income Tax Act. Among all the tax paying entities, individuals are levied taxes on their income as per the tax slab system in which all the individuals earning above a certain threshold are liable to pay tax. In this article, we will learn about the different income tax slabs in the old and new tax regimes and what options are available for you to opt for while paying your income tax.

Income Tax Slab

Individual taxpayers have to pay tax if their income is above a threshold called the basic exemption limit. The amount of tax payable depends on the respective income tax slab in which the individual’s annual income falls. Income tax slabs define the amount of tax levied on individuals of different income ranges. There are a number of income tax slabs in which the tax rates keep on increasing with the increase in the range of income. This type of taxation is called progressive taxation and allows governments to implement a fair tax system. 

There are three groups of individual taxpayers in India:

• Resident and non-resident Indians below 60 years of age
• Resident senior citizens between 60 and 80 years of age
• Resident super senior citizens above 80 years of age

These three groups of individuals are taxed differently in different tax regimes.

Union Budget 2022 and New Income Tax Rates

Finance Minister Nirmala Sitharaman tabled the Union Budget 2022-23 on February 1, 2022. She proposed no changes in the existing income tax slabs in India and the respective applicable tax rates. The income tax rates have been kept the same from FY 2020-21. The individual taxpayers will have to choose between either the existing or old and new tax regimes. This means that the income tax slab for FY 2021-22 or the income tax slab for AY 2022-23 remains the same. Individuals can either opt for the old tax regime and avail a number of deductions but have to bear higher tax rates, or they can choose the new tax regime and enjoy lower tax rates but have to forgo around 70 exemptions available under the Income Tax Act. Let us learn about both the tax regimes in detail and see which one is better for you.

New Tax Regime- Income Tax Slab 2020-21

The new tax regime includes the income tax slab for 2020-21 financial year, or the 2021-22 annual year. Individuals can opt for the new tax regime and avail lower tax rates while filing ITR. Please note that the tax rates in the new tax regime are the same for all the categories of individuals, i.e. individuals below the age of 60 years, senior citizens, and super senior citizens. The tax rate is also the same for HUFs.

Apart from the aforementioned Indian tax slabs, tax paying individuals will also have to bear an additional Health and Education of 4% in all the categories. There is also a list of surcharges applicable for higher income groups:

Existing or Old Income Tax Regime

The income tax rates for respective IT slabs in the old tax regime is different for different categories of individuals. 

Individuals Below 60 Years of Age and HUFs

Senior Citizens of Age Between 60 and 80 Years

Super Senior Citizens Above 80 Years of Age

Key Takeaways from Old Tax Regime

• Unlike the New Tax Regime, the basic exemption limit in the Old Tax Regime is up to Rs 2.5 lakhs for individuals below 60 years of age and HUFs, Rs 3 lakhs for senior citizens, and Rs 5 lakhs for super senior citizens. 
• The Old Tax Regime also levies an additional Health and Education cess of 4% on the calculated tax amount.
• The surcharge applicable for higher income groups is as follows:

• The Old Tax Regime also allows individual taxpayers of all age groups to enjoy around 70 more exemptions than the New Tax Regime. The additional exemptions are as follows:

1. Leave Travel Allowance
2. House Rent Allowance (HRA)
3. Exemption of Interest Paid on Home Loan
4. Employer’s contribution to the employee’s NPS account
5. Several deductions under Section 80C, 80CCC, and 80CCD, 80TTA, 80TTB, 80E, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80IAB, 80IAC, 80IB, and 80IBA, 80JJA
6. Allowances for MPs/MLAs

Which One is Better - Old Tax Regime Vs New Tax Regime

The Old Tax Regime allows a number of exemptions that individual taxpayers can use to reduce their annual income and subsequently their tax liability. However, the tax rates in the Old Tax Regime are comparatively higher than the New Tax Regime. The New Tax Regime, on the other hand, comes with lower tax rates but the taxpayers have to forgo around 70 deductions available under the Old Tax Regime. 

Based on these basic differences, the Old Tax Regime is better for individuals having an annual income of more than Rs 10 lakhs. This is because they can avail a number of deductions by making tax saving investments allowed under several sections of the Indian Tax Act.

The New Tax Regime is beneficial for those who belong to the middle class and make fewer investments. The lower tax rates and the higher basic exemption limit proves to be beneficial particularly for salaried employees.

To conclude, knowing about the income tax slabs of all the available tax regimes is important for taxpayers as it allows them to make informed decisions while filing their tax returns.