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What is the Income Tax Slab?

27 May 2024

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Table of Contents

The Income Tax Slab

Based on a tax slab system, tax is levied on individual taxpayers in India. Each slab is associated with a different tax rate being applied to a different income range. Any increase in the income of a taxpayer directly increases the tax rate for that income value. This progressive tax system ensures that every individual is taxed appropriately based on their income level. Further, tax rates vary as per the 'individual taxpayer' categorization one falls into. The tax brackets for the three classifications are detailed below. It must be borne in mind, however, that individuals and Hindu undivided families (HUF) have the option to opt for either the old or new tax regime.

Classification: Resident and Non-Resident Individuals (less than 60 years)
Income	Tax
Up to Rs. 2.5 lakhs	Exempted
Rs. 2.5 lakhs to Rs. 5 lakhs	5% of income above Rs. 2.5 lakhs
5 lakhs to 10 lakhs	20% of income above Rs. 5 lakhs and Rs. 12,500 as rebate
Above Rs. 10 lakhs	30% of income above Rs. 10 lakhs and Rs. 112,500 as rebate

Classification: Resident Senior Citizens (60 to 80 years)
Income	Tax
Up to Rs. 3 lakhs	Exempted
Rs. 3 lakhs to Rs. 5 lakhs	5% of income above Rs. 3 lakhs
5 lakhs to 10 lakhs	20% of income above Rs. 5 lakhs and Rs. 10,000
Above Rs. 10 lakhs	30% of income above Rs. 10 lakhs and Rs. 1,10,000

Classification: Resident Super Senior Citizens (greater than 80 years)
Income	Tax
Up to Rs. 5 lakhs	Exempted
5 lakhs to 10 lakhs	20% of income above Rs. 5 lakhs
Above Rs. 10 lakhs	30% of income above Rs. 10 lakhs and Rs. 1,00,000

Exemptions, Deductions, and their Implications

One of the major benefits of the old tax system was the level of tax liability it offered every individual. These benefits were complimented by the high tax rates that dictated how much of a person's income could be spent. Deductions were one of the most crucial aspects of the old system's foundation as it offered individuals the ability to save, invest and complete transactions while lowering any tax burden. The most significant tax deduction goes up to Rs. 1.5 lakhs under Section 80C.
According to the rules under the new tax regime, an individual has to make a decision on whether they wish to abide by the old income tax slab or whether they prefer to utilize the lower tax rates provided to them by foregoing some tax exemptions. Common deductions and exemptions to be foregone by a salaried individual under the new regime include:

Leave travel allowance
House rent allowance: Salary and rent expense dependent
Conventional deduction: Rs. 50,000 under Section 16 of the Income Tax Act
Section 80C deduction: Up to Rs. 150,000
Section 24 deduction: Up to Rs. 200,000 on interest on loan
Savings bank interest: Up to Rs. 10,000 covered by Section 80TTA
Interest income: Up to Rs. 50,000 for senior citizens covered by Section 80TTB
Medical insurance premium: Up to Rs. 25,000 and Rs. 50,000 for parents and senior citizens
Entertainment allowance: Provision available only for government employees covered by Section 16
Interest on educational loan: Covered by Section 80E for eight successive years
Medical treatment: Usually up to Rs. 40,000 (self or dependent) and Rs. 1 lakh for senior citizens. For the treatment of any disability, it is up to Rs. 75,000 to Rs. 125,000 (self or dependent) under Sections 80DDB and 80D.

The New Income Tax Regime

Under the new regime, the income tax rates vary for different categories of people and different kinds of corporations.
Under the new regime, the income tax rates vary for different categories of people and different kinds of corporations.

Partnership firms: The taxable income for a partnership firm is 30% with a surcharge of 12% if aggregate income exceeds Rs. 1 crore

-Local authorities: The taxable income for a local authority is 30% with a surcharge of 12% if aggregate income exceeds Rs. 1 crore.

Association of persons (AOP) or body of individuals (BOI): If your taxable income is up to Rs. 250,000, a tax rate does not apply to your income. If, on the other hand, your taxable income is between Rs. 2.5

lakhs and Rs. 5 lakhs, the interest rate calculated on your income will be 5%. This tax rate rises to 20% and then 30% if your income is between Rs. 5 lakhs to Rs. 10 lakhs and above Rs. 10 lakhs, respectively.
The surcharge structure under BOIs and AOPs start from 10% when income exceeds Rs. 50 lakhs, 15% when income exceeds Rs. 1 crore, 25% when income exceeds Rs. 2 crore and 37% when income exceeds Rs. 5 crores.

Income Slab
Income Level	Existing Effective Tax Rate (Surcharge + Cess)	Proposed Effective Tax Rate (Surcharge + Cess)
Up to 250,000	Nil	Nil
250,001 –500,000	Nil (after rebate under section 87A)	5.2%
500,001 –750,000	20.8% (4% education cess thereon)	10.4%
750,001 –1,000,000	20.8% (4% education cess thereon)	15.6%
1,000,001 –1,250,000	31.2% (4% education cess thereon)	20.8%
1,250,001 –1,500,000	31.2% (4% education cess thereon)	26%
1,500,000 –5,000,000	31.2% (4% education cess thereon)	31.2%
5,000,001 –10,000,000	34.32% (10% education cess thereon)	34.32%
10,000,001 –20,000,000	35.88% (15% education cess thereon)	35.88%
20,000,001 –50,000,000	39% (25% education cess thereon)	39%
50,000,001 and above	42.744% (37% education cess thereon)	42.74%

An Example

Let's understand the difference between the two income tax systems with the help of an example.
Let's understand the difference between the two income tax systems with the help of an example.

Rania earns a basic salary of Rs. 100,000 per month, a housing rent allowance of Rs. 50,000 per month and leave travel allowance of Rs. 20,000 annually.

Particulars	Income	Taxable Income under Old Regime	Taxable Income under New Regime
Salary	1,200,000	1,200,000	1,200,000
Housing Rent Allowance	600,000	240,000 (360,000 gets exempted)	600,000
Leave Travel Allowance	20,000	8,000 (12,000 gets exempted)	20,000
Deduction		50,000	Not Applicable
Salary after Tax Changes		1,398,000	1,820,000

It must be noted that in case an individual or HUF opts for the lower tax regime, certain exemptions, deductions and set-off of losses will not be available to be considered while computing the taxable income (certain instances given below):
- LTC/ assistance under Section 10(5);
- HRA under section 10(13A);
- Specific allowances under section 10(14) to be prescribed;
- Standard deduction, professional tax deduction under section 16;
- Interest paid on housing loan under section 24(b) on self-occupied property and loss under the head “house property”;
- Exemption not exceeding INR 1,500 in respect of income of minor child under section 10(32);
- Specified expenditure or deductions that could be claimed while computing profits and gains from business and profession;
- Deduction from income from other source under section 57 for family pension;
- Deductions under Chapter VIA other than deduction in respect of employers contribution to NPS under section 80CCD(2).

National Pension Scheme (NPS)

Both private citizens and government employees can avail the benefits of such a retirement scheme. Money accumulated through the NPS is invested in various avenues including the equity markets and other securities. The reason behind its popularity is because the benefits are high while the investment options are cheap with the added provision of access to the equity market. The only worrisome feature of this account is the lack of assurance it provides in terms of earning steady returns because of its direct linkage with market performance. However, this worrisome feature is immediately trumped once an individual learns that NPS is one of the higher return-offering schemes available for investments.
Under Section 80CCD, income tax deductions are offered to those individuals who have initiated the NPS. Until 2015, individuals redeemed deductions up to Rs. 1 lakh for their contributions to the NPS. In 2015, however, the Indian government maximized the amount payable to the NPS up to Rs. 1.5 lakhs per annum. Eventually, Section 80CCD(1B) was introduced to provide supplementary deductions up to Rs. 50,000 for those citizens that contributed to the NPS.

New vs Old Income Tax Regime

Pros of New Tax Regime	Pros of Old tax Regime
Flexibility: With certain deductions being eliminated, investments can be made anywhere to avail exemptions, thereby, allowing an individual to exercise flexibility over their investment avenues.	Increased Savings: Making it mandatory to invest in different avenues led to an increase in investments and increased an individual's financial stability.
Convenience: As most of the deductions have been removed, tax filing and overall documentation processes have become quicker in the tax department.	Saving Rate Contributor: India's gross savings rate was only 30% in March 2019. As an individual's savings increased, the overall saving rate improved.
Increased Liquidity: Reduced tax rates lead to higher disposable income at a taxpayer's disposal.
Fairness: Allowances will no longer stand as a criterion to redeem any tax exemption. This, in turn, benefits those individuals who cannot afford to make any investments because of the lock-in periods that follow such investments.