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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 Lakh

No tax

From ₹2.5 Lakh to ₹3 Lakh

5%

From ₹3 Lakh to ₹5 Lakh

5%

From ₹5 Lakh to ₹7.5 Lakh

20%

From ₹7.5 Lakh to ₹10 Lakh

20%

From ₹10 Lakh to ₹12.5 Lakh

30%

From ₹12.5 Lakh to ₹15 Lakh

30%

Above ₹15 Lakh

30%

 

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

 

 

Income tax slab

Tax rate

Below ₹2.5 Lakh

NIL

From ₹2.5 Lakh to ₹3 Lakh

NIL

From ₹3 Lakh to ₹5 Lakh

5%

From ₹5 Lakh to ₹7.5 Lakh

20%

From ₹7.5 Lakh to ₹10 Lakh

20%

From ₹10 Lakh to ₹12.5 Lakh

30%

From ₹12.5 Lakh to ₹15 Lakh

30%

Above ₹15 Lakh

30%

 

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

 

Income tax slab

Tax rate

Below ₹2.5 Lakh

NIL

From ₹2.5 Lakh to ₹3 Lakh

NIL

From ₹3 Lakh to ₹5 Lakh

NIL

From ₹5 Lakh to ₹7.5 Lakh

20%

From ₹7.5 Lakh to ₹10 Lakh

20%

From ₹10 Lakh to ₹12.5 Lakh

30%

From ₹12.5 Lakh to ₹15 Lakh

30%

Above ₹15 Lakh

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 Lakh

NIL

From ₹2.5 Lakh to ₹3 Lakh

5%

From ₹3 Lakh to ₹5 Lakh

5%

From ₹5 Lakh to ₹7.5 Lakh

10%

From ₹7.5 Lakh to ₹10 Lakh

15%

From ₹10 Lakh to ₹12.5 Lakh

20%

From ₹12.5 Lakh to ₹15 Lakh

25%

Above ₹15 Lakh

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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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimer
  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you

  • Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry