In India, the Income Tax is levied on individuals using a slab system, wherein varying tax rates are allocated to different income brackets. As an individual’s income rises, the corresponding tax rates also go up. This approach to taxation ensures a just and progressive tax structure within the nation. From 1st April 2023 onwards, the new income tax system will become the default tax regime, but taxpayers will retain the choice to opt for the old regime if they prefer. For salaried taxpayers, the TDS (Tax Deducted at Source) will be calculated according to the tax rates applicable under the new tax regime.
The Income Tax Slab pertains to individual taxpayers who are required to pay income tax based on the specific slab system they belong to. The tax slab an individual falls into depends on their income, meaning that different people may fall under different tax slabs. Consequently, individuals with higher incomes are subject to paying a higher amount of taxes. The introduction of the slab system was aimed at establishing a just taxation system in the country. The slabs typically undergo changes with each budget announcement.
Different Types of Taxable Incomes in India
Taxable income can arise from various sources, each with its own specific tax treatment:
a) Income from Salary or Pension: Any earnings, taxable allowances, or profits derived from salary or pension are subject to taxation. This includes the pension received upon retirement, which is considered part of the taxable income calculation.
b) Income from Businesses: For businesses or professions, income can be computed either from presumptive methods or actual earnings. Deductions are taken into account before determining the taxable income.
c) Income from House Property: Individuals owning multiple properties or earning rental income from properties must pay income tax on that income. The tax is based on the rental amount received, and any net income or loss from one property may be offset against income from other properties.
d) Income from Betting, Lottery, etc.: Any income derived from activities like betting, lottery, or other similar sources is taxable and considered as part of the total income. Such income is taxed separately and falls under a distinct category with specific tax rates.
e) Income from Capital Gain: Profits earned from the sale of assets such as properties, gold, mutual funds units, or stocks are subject to taxation as capital gains. Whether it is considered a long-term or short-term capital profit depending on the type of asset and the duration of ownership.
In summary, income from different sources contributes to an individual’s total taxable income, and each category is taxed according to its specific rules and rates.
Changes in Income Tax Slabs
Numerous modifications were introduced in the Budget 2023 to enhance the appeal of the new tax regime for individuals. The income tax slabs under this regime have been reduced to five for the financial year 2023-24, down from the previous six.
Moreover, the new income tax regime has increased the basic exemption limit to Rs. 3 lakhs, up from Rs. 2.5 lakhs. Furthermore, the rebate amount under Section 87A of the Income Act, 1961 has been increased to taxable income up to Rs. 7 lakhs, in comparison to the previous limit of Rs. 5 lakh, under the new tax regime.
The tax rates for the new income tax regime are as follows:
a) A 5% tax will be applied to the total income falling within the range of Rs. 3 lakh to Rs. 6 lakh.
b) For income falling between Rs. 6 lakh and Rs. 9 lakh, a 10% tax will be levied.
c) In the case of income between Rs. 9 lakh and Rs. 12 lakh, a 15% tax rate will apply.
d) For income in the range of Rs. 12 lakh to Rs. 15 lakh, a 20% tax will be levied.
e) Any income exceeding Rs. 15 lakh will be subject to a 30% tax rate.
Income tax slabs under new tax regime for FY 2023-24
|Income Slabs||New Tax Regime FY( 2022-2023 )|
|Rs. 0 – Rs. 3,00,000||–|
|Rs. 3,00,000 – Rs. 6,00,000||5% ( tax rebate available u/s 87 A)|
|Rs. 6,00,000- Rs 9,00,000||10%|
|Rs. 9,00,000- Rs 12,00,000||15%|
|Rs 12,00,000 – Rs 15,00,000||20%|
|More than 15,00,000||30%|
Income tax slabs for individuals under old tax regime
|Income Slabs||Individuals below the age of 60 and NRIs|
|Up to 2.5 Lakh||NIL|
|Rs 2.5 Lakh To Rs 5 Lakh||5%|
|Rs 5 Lakh to Rs 10 Lakh||20%|
|From 10 Lakh and above||30%|