Income Tax Slab

What is the Income Tax slab?

In India, income tax refers to the tax obligation on the income earned by business entities and individuals. The government adopts an effective “Income Tax slab” system to collect taxes from eligible assesses, where individuals and entities are categorised based on earnings.

There are different tax rates prescribed for different income ranges. A rise in income brings the individual to a higher tax rate slab, while a reduction in income pulls them down to a lower income tax rate slab. The main purpose of this system is to ensure a progressive, equitable, and transparent taxation window in India.

Every year, the Central Board of Direct Taxes, which works under the Finance Ministry of India, revises taxpayers’ income tax slab rates. The Finance Minister of India announces the income tax rates when discussing the annual budget in Parliament. 

Per the Income Tax Act 1961, there are three categories of “individual” citizens such as:

●    Individuals with age less than 60 years, including residents and non-residents
●    Individuals categorised as resident senior citizens, coming in the 60–80 years age group window
●    Individuals in the super senior citizen category with an age of more than 80 years
 

Types of taxable income in India

Taxable income is that part of gross earnings that the Indian Revenue System imposes tax obligations on, and is ascertained after making standard deductions. In India, taxable income comprises earnings from salaries, bonuses, royalties, businesses, investments, multiple unearned but accrued incomes, etc. The five main types of taxable income in India include

1. Income from salaries
This head includes the income received as employee salaries, including pensions.

2. Income from house property
If you rent out your property in India, the sum received as rent is taxable as income from house property on your credit. The amount earned from renting the property for business or professional purposes does not fall under this head. 

3. Income earned from capital gains
This section includes the income earned from assets, such as earnings collected by the resale of properties, shares, equities, bonds, jewellery, land, etc. When selling these assets, you must pay the tax under the capital gains head. 

4. Income from profits and gains from business or profession
The income from business or profession is taxed under this category from Sections 30 to 43D of the Income Tax Act 1961. Services rendered as a freelance are also covered here. 

5. Income from other sources
All the earnings that do not fit the above four categories club under this head. This includes

●    Profits from gambling, lotteries, horse races, etc. 
●    Gifts from family and friends
●    Rental income from properties other than house properties
●    Gifts earned from TV or game shows
●    Pension collected after the demise of the pensioner
●    Interest earned on bonds, securities, FDs, savings bank accounts, etc.

Income tax slab rates for FY 2024–25

The government has announced a new regime for income tax in FY 2024–25. Here, you will get a fair chance to choose between two options:

● You can choose to pay tax at lower income tax slab rates as per the new tax regime only after forgoing some permissible exemptions and deductions available under the ITA 1961, 
Or
● You can continue to pay taxes at the current rate, which are slightly higher, and avail of the exemptions and rebates offered by the statute. 
The new tax regime rates will apply to incomes earned between April 1, 2024, through March 31, 2025. 
 

Revised Income Tax Slabs for FY 2024-25: Key Changes

Important points to consider

● These income tax slabs will be imposed on every assessee irrespective of their age, i.e., below 60 years, 60–80 years, and 80+ years. 
● Taxpayers with net taxable income less than or equal to Rs. 5 lakh can get a tax rebate under section 87A. As per this rebate, their tax liability will be Nil in new and old tax regimes.
● The exemption limit for NRIs is Rs. 2.5 lakh, irrespective of their age group. 
● There is an inclusion of an additional health and education cess at the rate of 4% to the tax obligation of the payer. 
● Under the new tax regime, the highest surcharge rate for income above ₹5 crore has been reduced from 37% to 25%. The surcharge shall be
Income > Rs. 50 lakh and < Rs. 1 crore: Surcharge rate is 10%
Income > Rs. 1 crore and < Rs. 2 crore: Surcharge rate is 15%
Income > Rs. 2 crore and < Rs. 5 crore: Surcharge rate is 25%
Income > Rs. 5 crore: Surcharge rate is 37%.
 

Income Tax Slabs for FY 2024-25 (AY 2025-26) Under Old Regime

No changes made to the tax slabs under the old regime in the budget 2024. The tax slabs under the old regime are as follows:

Income tax slabs for individuals aged below 60 years & HUF.

NOTE: Surcharge and cess will be applicable.

The surcharge rate on new tax regime for FY 2024–25

●    Additional Health and Education cess at the rate of 4% will be added to the income tax liability 
●    Surcharge shall be
Income > Rs. 50 lakh and < Rs. 1 crore: Surcharge rate is 10%
Income > Rs. 1 crore and < Rs. 2 crore: Surcharge rate is 15%
Income > Rs. 2 crore and < Rs. 5 crore: Surcharge rate is 25%
Income > Rs. 5 crore: Surcharge rate is 37%.
 

Key Differences Between New & Old Tax Regimes

The main differences between the new and old tax regimes are:

● The new revised tax regime has more tax slabs and reduced tax rates compared to the old tax regime. So, your income tax slab rates for FY 2024–25 shall vary based on whether you choose the new or the old tax regime. 
● Some important deductions and exemptions like Section 80C, Section 80D, and others are unavailable in the new regime as in the old one. 
● The new tax regime does not categorise individuals based on their age group. The old tax regime has different income tax slab rates for assesses of different age groups.
 

Things to Remember Before Opting for the New Tax Slab

●    Make sure you know the exemptions and deductions that are not available in the new tax regime like the old one. These deductions greatly relieve the taxpayers by lowering their tax burden.
●    The new tax regime does not offer an exemption based on the age group of the taxpayers. Under the old regime, there was a higher exemption for senior and super-senior citizens. 
●    In the old tax regime, taxpayers got the dual benefit of tax-saving investments made in PPF, term life insurance, the National Pension Scheme, etc.