Beginner's Guide to Tax Slabs in India

Income tax is a tax levied by the central government on individuals, Hindu Undivided Families (HUFs), and businesses on the income earned by them during a year. This tax is a mandatory tax and is decided based on the amount of the total gross income earned in a financial year. There are also some tax exemptions that can be used to lower the tax output by a taxpayer. For instance, people who invest in a savings plan for guaranteed regular income or buy a life insurance plan can enjoy tax benefits as per the applicable tax laws.  

 

In the year 2020, finance minister Smt. Nirmala Sitharaman had announced that there would be two regimes for filing income tax. These are currently known as the old regime and the new regime. The income tax slab and its corresponding tax rate depend on the chosen regime.

 

This article talks about the tax slab in India for different individuals and entities to help taxpayers with tax filing. 

 

What are tax slabs?
 

An income tax slab refers to the tax rate charged for each income category. In India, the government uses an ascending tax ladder. So, the higher the income, the higher is the tax levied on the income and vice versa. These tax slabs differ for different individuals, such as:

 

  • Individual taxpayers under the age of 60.
  • Senior citizens between the ages of 60 and 80.
  • Super senior citizens over the age of 80.

 

The tax slab is primarily calculated and accorded as per the taxpayer’s gross income along with their age. The gross income is a total of all incomes, such as income from salary, income earned on investments, income from house property, income earned from a savings plan like a fixed deposit, etc.

 

What are the tax slabs under the old and new regime in India?
 

 

The new and old tax regimes follow different tax slabs. While the new tax regime comes across as the lower one out of the two, it does come with certain limitations, the primary one being the exclusion of all tax exemptions.

 

For instance, an individual can invest in life insurance plans for tax saving purposes under the old regime, but if the same individual switches to the new regime, they will not be able to use their investment for tax exemption purposes anymore.

 

Here are the income tax slabs under the old and the new regime in India:

 

 1.  Old tax regime for taxpayers under the age of 60

 

Income tax slab

Tax rate

Below ₹2.5 lakhs

No tax

From ₹2.5 lakhs to ₹3 lakhs

5%

From ₹3 lakhs to ₹5 lakhs

5%

From ₹5 lakhs to ₹7.5 lakhs

20%

From ₹7.5 lakhs to ₹10 lakhs

20%

From ₹10 lakhs to ₹12.5 lakhs

30%

From ₹12.5 lakhs to ₹15 lakhs

30%

Above ₹15 lakhs

30%

 

 2. Old tax regime for taxpayers between the ages of 60 and 80

 

 

Income tax slab

Tax rate

Below ₹2.5 lakhs

NIL

From ₹2.5 lakhs to ₹3 lakhs

NIL

From ₹3 lakhs to ₹5 lakhs

5%

From ₹5 lakhs to ₹7.5 lakhs

20%

From ₹7.5 lakhs to ₹10 lakhs

20%

From ₹10 lakhs to ₹12.5 lakhs

30%

From ₹12.5 lakhs to ₹15 lakhs

30%

Above ₹15 lakhs

30%

 

3. Old tax regime for taxpayers over the age of 80

 

Income tax slab

Tax rate

Below ₹2.5 lakhs

NIL

From ₹2.5 lakhs to ₹3 lakhs

NIL

From ₹3 lakhs to ₹5 lakhs

NIL

From ₹5 lakhs to ₹7.5 lakhs

20%

From ₹7.5 lakhs to ₹10 lakhs

20%

From ₹10 lakhs to ₹12.5 lakhs

30%

From ₹12.5 lakhs to ₹15 lakhs

30%

Above ₹15 lakhs

30%

 

 *In the Budget of 2021, the finance minister also announced that there is no need of filing an Income Tax Return (ITR) by senior citizens above the age of 75 who have an only pension and interest income

 

4. New tax regime for all categories

 

Income tax slab

Tax rate

Below ₹2.5 lakhs

NIL

From ₹2.5 lakhs to ₹3 lakhs

5%

From ₹3 lakhs to ₹5 lakhs

5%

From ₹5 lakhs to ₹7.5 lakhs

10%

From ₹7.5 lakhs to ₹10 lakhs

15%

From ₹10 lakhs to ₹12.5 lakhs

20%

From ₹12.5 lakhs to ₹15 lakhs

25%

Above ₹15 lakhs

30%

 
How can salaried individuals select between the two regimes?
 

The decision to choose between the old and new tax regime will entirely depend on the taxpayers and differ for different people. Ultimately, the right decision would rely on which one of these tax slabs results in a lower tax output. But as a general thumb rule, taxpayers who do not have any tax-saving investments can choose the new tax regime. This way, they can lower their tax liability with low tax rates.

 

However, taxpayers who have investments, such as Public Provident Funds (PPF), insurance plans, National Pension Scheme (NPS), etc., may find more value in the old tax regime as that can provide them with tax exemptions and ultimately lower their tax output. It may be advised to contact a financial advisor or Chartered Accountant in this regard.

 

Another thing to note here is that tax is not the only determinant for savings. While saving tax is crucial, it may help to also focus on investing and saving for future needs. Hence, try to invest as much as possible.

 

Purchasing a life insurance policy from companies like Tata AIA Life Insurance can be a good way to start. Not only can this help in saving tax under the old regime but also ensure future financial security and a cushion to rely on in case of emergencies.

 

To sum it up

Income tax rules can change from time to time, so it helps to be up to date at all times. Also, make sure to consult a professional for any doubts on the various tax slabs before picking one.


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