A Detailed Guide to Income Tax Slabs

Money

A Detailed Guide to Income Tax Slabs

By Jupiter Team · · 6 min read

According to the Income Tax Act, 1961 paying income tax is compulsory for individuals and companies if the annual earnings exceed a certain specified exempt limit. Taxpayers are given some exemptions and deductions under different sections of the Act.

What is the income tax slab in India?

Individuals across the country earn different incomes and levying taxes at a standard rate would not be a fair policy. Therefore, the Income Tax Act, 1961 segregates income in different ranges, and tax is levied at various rates based on this classification. These rates at which tax is levied are known as tax slabs.

In addition to the annual income, the tax rates vary based on the ages of the taxpayers and the classification of the entities. While determining the Budget every year, the Central Government amends and revises the tax slab rates.

Once these proposed amendments and revisions are approved by the Parliament, the rates become legally applicable.

Why new tax regime for the FY 2020 – 21 is optional?

For income earned in the financial year (FY) 2020-21, the taxpayers have the option to choose one of the following.

  • Pay income tax at a lower rate according to the new tax regime but forego some of the permissible tax deductions and exemptions available under the Income Tax Act, 1961.
  • Pay income tax under the existing old regime with higher rates and avail of the various exemptions and rebates provided by the Income Tax Act, 1961.

New regime income tax slabs for all Individuals

As per the new regime, the tax rates are the same for all individuals and Hindu Undivided Families (HUFs).

Therefore, the same rate is applicable whether you are below 60 years, aged between 60 and 80 years, or are over 80 years old. In this regime, no additional basic income exemption limit is available for senior citizens and super senior citizen taxpayers.

The income tax slabs under the new regime are as follows:

Income slab

Tax rate

Up to INR 2.50 lakhs

Nil

INR 2.50 lakhs – INR 5 lakhs

5% of income exceeding INR 2.50 lakhs

INR 5 lakhs – INR 7.50 lakhs

10% of income exceeding INR 5 lakhs + INR 12,500

INR 7.50 lakhs – INR 10 lakhs

15% of income exceeding INR 7.50 lakhs + INR 37,500

INR 10 lakhs – INR 12.50 lakhs

20% of income exceeding INR 10 lakhs + INR 75,000

INR 12.50 lakhs – INR 15 lakhs

25% of income exceeding INR 12.50 lakhs + INR 1,25,000

Exceeding INR 15 lakhs

30% of income exceeding INR 15 lakhs + INR 1,87,500

In addition to the applicable tax as per the income slab, you will have to pay a health and education cess of 4%.

Things you should know while opting for the new tax regime

The option has to be exercised on or before each previous year where you as an individual or an HUF have no income from business operations

Once you choose any tax regime as your option, the decision is irreversible during the same year. Suppose you continue with the old regime and want to withdraw your option and switch to the new regime; you can do so during the next financial year.

The following deductions and exemptions are not available in the new regime:

  • Leave travel allowance (LTA)
  • Deductions under Chapter VI-A, except section 80CCD (2)
  • House rent allowance (HRA)
  • Housing loan interest under section 24
  • Conveyance
  • Professional tax
  • Daily expenses incurred during your regular course of employment
  • Standard deduction
  • Relocation allowance
  • Other special allowance under section 10 (14)
  • Helper allowance
  • Children education allowance

Old tax regime vs. new tax regime: Which is better?

The new regime is beneficial if your taxable income is up to INR 15 lakhs per year. However, if you are in the high-income category, continuing under the old regime may be more advantageous.

The new regime is beneficial if you make lesser investments. Since the new regime provides lower tax rates on income tax slabs, you pay taxes without claiming any deductions, thus, the lower rate can be beneficial.

For example, if your income before deductions is up to INR 12 lakhs, the tax liability under the old regime will be higher if your investments are less than INR 1.90 lakhs. Therefore, if you do not invest much in tax-saving instruments, opting for the new regime can reduce your tax liability.

However, if you are already investing in different tax-saving products, have life and health insurance policies, pay children’s tuition fees, have education and home loans to pay off, and so on, continuing under the old tax regime provides higher deductions, thus reducing your tax liability.

Here is an example to help you compare the tax liability under both regimes and make an informed decision.

Assume your income is INR 10 lakhs per annum and you invest INR 1.70 lakhs in different tax-saving instruments and life insurance premiums and have a home loan.

Additionally, the annual health insurance premium for you and your spouse is INR 28,000, and interest on the home loan is INR 75,000. Under the old regime, all these expenses are tax-deductible.

The tax liability under the two regimes is as below:


Old regime (INR)

New regime (INR)

Gross income

10,00,000

10,00,000

Deductions:



Under Section 80C

1,50,000


Under Section 80D

25,000


Under Section 24(b)

75,000


Taxable income

7,50,000

10,00,000

Tax slab:



INR 2.50 lakhs – INR 5 lakhs (5%)

12,500

12,500

INR 5 lakhs – INR 7.50 lakhs (10%)


25,000

INR 7.50 lakhs – INR 10 lakhs (15%)


37,500

INR 10 lakh – INR 12.50 lakhs (20%)



INR 5 lakhs – INR 10 lakhs (20%)

50,000


Total tax

62,500

75,000

Cess (4%)

2,500

3,000

Total tax liability

65,000

78,000

From the above example, it is seen that if your income is more than INR 10 lakhs and you claim deductions under the different sections of the Income Tax Act, 1961, the old regime reduces the total tax outgo.

However, if you are in the middle-income group with a lower gross income, the new regime may be more advantageous.

Income tax slabs as per old regime

Senior citizens (from 60 to 80 years old)

Income

Tax rate

Up to INR 3 lakhs

Nil

INR 3 lakhs – INR 5 lakhs

5% of income exceeding INR 3 lakhs + 4% cess

INR 5 lakhs – INR 10 lakhs

20% of income exceeding INR 5 lakhs + INR 10,500 + 4% cess

Over INR 10 lakhs

30% of income exceeding INR 10 lakhs + INR 1,10,000 + 4% cess

The following table shows the income tax liability for three different gross incomes.

Annual income (INR)

5,00,000

10,00,000

15,00,000

Standard deduction (INR)

50,000

50,000

50,000

Section 80C deductions (INR)

70,000

1,50,000

1,50,000

HRA

82,000

90,000

1,40,000

Gross income

2,88,000

7,00,000

11,50,000

Tax calculation




Up to INR 3 lakhs

Nil

Nil

Nil

INR 3 lakhs – INR 5 lakhs

Nil

10,500

10,500

INR 5 lakhs – INR 10 lakhs

Nil

40,000

99,500

Over INR 10 lakhs

Nil

Nil

45,000

Total tax

Nil

50,500

1,55,000

Cess

Nil

2,020

6,200

Total tax payable

Nil

52,520

1,61,200

Super senior citizens (80+ years old)

Income

Tax rate

Up to INR 5 lakhs

Nil

INR 5 lakhs – INR 10 lakhs

20% of income exceeding INR 5 lakh + 4% cess

Over INR 10 lakhs

20% of income exceeding INR 10 lakh + INR 1 lakh + 4% cess

Here is an example to help you understand.

Annual income (INR)

5,00,000

10,00,000

15,00,000

Standard deduction (INR)

50,000

50,000

50,000

Section 80C deductions (INR)

70,000

1,50,000

1,50,000

HRA

82,000

90,000

1,40,000

Gross income

2,88,000

7,00,000

11,50,000

Tax calculation




INR 5 lakhs

Nil

Nil

Nil

INR 5 lakhs – INR 10 lakhs

Nil

40,000

1,00,000

Over INR 10 lakhs

Nil

Nil

45,000

Total tax

Nil

40,000

1,45,000

Cess

Nil

1,600

5,800

Total tax payable

Nil

41,600

1,50,800

Tax slab rates for FY 2019 – 20 (for individuals below 60 years and HUFs)

Income

Tax rate

Up to INR 2.50 lakhs

Nil

INR 2.50 lakhs – INR 5 lakhs

5% of income exceeding INR 2.50 lakhs

INR 5 lakhs – INR 10 lakhs

20% of income exceeding INR 5 lakhs

More than INR 10 lakhs

30% of income exceeding INR 10 lakhs

Tax slab rates for FY 2018 – 19 (below 60 years and HUFs)

Income

Tax rate

Up to INR 2.50 lakhs

Nil

INR 2.50 lakhs – INR 5 lakhs

5% 

INR 5 lakhs – INR 10 lakhs

20%

More than INR 10 lakhs

30%

Tax slab rates for FY 2017 – 18 (for individuals below 60 years and HUFs)

Income

Tax Rate

Up to INR 2.50 lakhs

Nil

INR 2.50 lakhs – INR 5 lakhs

5%

INR 5 lakhs – INR 10 lakhs

20%

More than INR 10 lakhs

30%

Frequently Asked Questions (FAQs)

Is it compulsory to opt for the new tax regime?

No, it is an optional scheme to simplify the tax-filing procedure. You may choose the new or the old regime at the start of the financial year, which can be changed in the next year if required.

Are section 80C deductions available under the new tax regime?

No, the new regime does not allow section 80C and several other deductions under the Income Tax Act, 1961 due to the lower tax rates.

Who determines the tax rates?

The tax rates are proposed in the annual Union Budget and approved by the Parliament before being applicable. The government may change the rates from one year to another.

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