Income tax is charged on income earned by an individual, partnership firm, corporates, and limited liability partnership (LLP) according to the Income Tax Act. In the scenario of an individual i.e., you, tax is charged according to your income tax slab if your income is over a minimum threshold limit (this is addressed by the term “basic exemption limit”).
What is an income tax slab?
Income tax is the charge on you as an individual taxpayer based on your income slab. A slab system is where distinct tax rates are determined for distinct income ranges. This means the tax rates continue increasing with a rise in your income as a taxpayer. This kind of taxation allows fair and progressive tax systems. Such tax slabs often undergo a change in every budget. Fundamentally, income tax is classified into 3 categories. These include –
- Resident super senior citizens (aged over 80 years of age)
- Resident senior citizens (between 60 and 80 years of age)
- Individuals (aged below 60 years) include non-resident and residents
Note that in Budget 2022, there was no major change in the tax slab. However, senior citizens aged 75 and above were exempted from income tax filing if they had a pension as the only income source.
Old vs. new tax slabs
In Budget 2020, there was an announcement for a new tax slab with lower tax rates and higher tax slabs. While the regime for long was demanded by many, this came with a catch i.e., it didn’t allow to claim exemptions and deductions allowed as per the old tax slab regime.
Additionally, taxpayers were also given the choice to decide between the existing and new tax slab, which brought a lot more confusion. Read on below to understand the difference between both the tax regimes.
New tax regime – lower tax rate, more slabs but no way to lower taxes
As compared to the old income tax regime, the new regime is distinct in 2 aspects. Firstly, under the new tax regime, the tax slabs are more with lower tax rates. Secondly, all the deductions under section 80Cand exemption that were being used by taxpayers in the existing regime is not available under the new tax regime.
Here’s a comparative analysis between the new and old tax slabs in table format –
|Income tax slab (Rs)||New tax rates||Old tax rates|
|0 – 2.50 lakh||0 per cent||0 per cent|
|2.50 lakh – 5 lakh||5 per cent||5 per cent|
|5 lakh – 7.50 lakh||10 per cent||20 per cent|
|7.50 lakh – 10 lakh||15 per cent||20 per cent|
|10 lakh – 12.50 lakh||20 per cent||30 per cent|
|12.50 lakh – 15.00 lakh||25 per cent||30 per cent|
|15 lakh and above||30 per cent||30 per cent|
Old income tax regime – high rates and various options to lower taxes
While the old tax rates are on the higher end, there are several ways to lower your income tax liability. Over several years, the Indian government,by adding clauses to the tax act, has provided you as a taxpayer with over 70 tax deductions and exemption options using which you can lower your taxable income and pay less.
While you get exemptions on your salary such as LTA (leave travel allowance) and HRA (house rent allowance), tax deductions permit you to reduce your tax by spending, investing, or saving. The major tax deduction section is Section 80 C, using which you can reduce your income tax by Rs 1.50 lakh. Besides these, there are even other sections that allow you to claim tax deductions.