What is an Income Tax Slab?

The Government of India has specified income tax slabs or income ranges. The slabs are divided based on the income range, and different tax rates are specified for each income range. The applicability of a specific income tax slab to an assessee depends on their income, age, and residential status.

IT slabs

Under the current income tax rules, all individuals and corporate entities with an annual income above the exemption limits must pay income tax under Income Tax Act 1961.

The new tax regime

The new tax regime was introduced during the budget of 2020. The updated new regime is applicable for income earned during the Financial Year (FY) 2020-21, i.e., Assessment Year (AY) 2021-22. The new tax regime reduces the number of tax brackets, allowing taxpayers to pay at lower rates.

Under the new regime, taxpayers have the choice of paying taxes –

  • At a lower rate specified in the new tax regime and give up certain exemptions and deductions, or
  • Continue paying taxes at the current rates

Income tax slabs for Financial Year 2022-23/AY 2023-24

Income Tax Slab

New Regime Income Tax Slabs FY 2022-23(Applicable for All Individuals & HUF)

Upto Rs. 3 lakh

Nil

Rs.3 lakh to Rs.6 lakh

5%

Rs.6 lakh to Rs.9 lakh

10%

Rs.9 lakh to Rs.12 lakh

15%

Rs.12 lakh to Rs.15 lakh

20%

Above Rs. 15 lakh

30%

IT slabs for age below 60 

Income Tax Slab

Tax rates
Upto Rs. 2.5 lakh

Nil

Rs.2.5 lakh to Rs.5 lakh

5%
Rs.5 lakh – Rs.10 lakh

20%

Above Rs.10 lakh

30%

IT slabs for senior citizens(60-80)

Income Tax Slab

Tax rates
Upto Rs.3 lakh

Nil

Rs.3 lakh to Rs.5 lakh

5%
Rs.5 lakh – Rs.10 lakh

20%

Above Rs.10 lakh

30%

IT slabs for super senior citizens(> 80)

Income Tax Slab

Tax rates

Upto Rs.5 lakh

Nil
Rs.5 lakh – Rs.10 lakh

20%

Above Rs.10 lakh

30%

Note:

a. Additional Health and Education cess is levied at 4% on the income tax payable.

b. The following surcharges apply to all categories mentioned below:

  • 10% of income tax if total income > Rs. 50 Lakh
  • 15% of income tax if total income > Rs. 1 Crore
  • 25% of income tax if total income > Rs. 2 Crore

Differences between The new and old tax regime:

The following table compares tax rates for the various income slabs under the new and old tax regimes:

Old tax regime

Tax slabs

New tax regime

Nil

Upto Rs. 2.5 lakhs Nil
5% Rs. 2.5 lakhs to Rs.3 lakhs

Nil

5%

Rs. 3 lakhs to Rs.5 lakhs 5%
10% Rs.5 lakhs to Rs.6 lakhs

5%

10%

Rs.6 lakhs to Rs.7.5 lakhs 10%
15% Rs. 7.5 lakhs to Rs.9 lakhs

10%

15%

Rs.9 lakhs to Rs.10 lakhs 15%
20% Rs.10 lakhs to Rs.12 lakhs

15%

20%

Rs.12 lakhs to Rs. 12.5 lakhs 20%
25% Rs. 12.5 lakhs to Rs. 15 lakhs

20%

30%

Above Rs. 15 lakhs

30%

Note:

Taxpayers who opt for tax breaks under the new tax regime will have to give up some of the exemptions and deductions they were entitled to under the old regime. In new tax regimes does not allow 70 deductions and exemptions available under the old tax regime.

Deductions not allowed under new tax regime

Here are a few of the exemptions and deductions no longer allowed under the new tax regime:

  • Leave Travel Allowance (LTA)
  • House Rent Allowance (HRA)
  • Conveyance allowance
  • Daily expenses in the course of employment
  • Relocation allowance
  • Helper allowance
  • Children education allowance
  • Other special allowances [Section 10(14)]
  • Standard deduction on salary
  • Professional tax
  • Interest on housing loan (Section 24)
  • Deduction under Chapter VI-A deduction (80C,80D, 80E, etc.) (Except Section 80CCD(2))

List of deductions allowed under the new tax regime:

  • Transport allowance for disabled people
  • Conveyance allowance for expenditure incurred for traveling to work
  • Investment in Notified Pension Scheme under section 80CCD(2)
  • Deduction for employment of new employees under section 80JJAA
  • Depreciation u/s 32 of the Income-tax act except for additional depreciation.
  • Any allowance for traveling for employment or on transfer

Income Tax Calculation – Explained

In terms of understand the difference, it will be instructive to calculate tax liabilities under the old and new tax regimes.

Consider a hypothetical income tax

  • An annual salary of Rs 10,00,000.
  • Investments of Rs 1,70,000 under ELSS, PF, Insurance premium, and home loan EM(home loan interest paid in FY 2020-21 is Rs 75,000).

Heads

Old Tax Regime (Rs) New Tax Regime (Rs)

Gross Income

10,00,000

10,00,000

Deductions:

u/Sec: 80C

1,50,000

u/Sec: 80D

25,000

u/Sec: 24(b)

75,000

Taxable Income

7,50,000

10,00,000

Tax Slab (OLD)

0 to 2.5 Lakh

2.5 to 5 Lakh @ 5%

12,500

5 Lakh to 10 Lakh @ 20%

50,000

> 10 Lakh @ 30%

Tax Slab (NEW)

0 to 3 Lakh

3 to 6 Lakh @ 5%

15,000

6 to 9 Lakh @ 10%

30,000

9 Lakh to 12 Lakh @ 15%

45,000

12 Lakh to 15 Lakh @ 20%

> 15 Lakh @ 30%

Income Tax

62,500

90,000

Cess @ 4%

2,500

3,600

Total Tax Payable 65,000

93600

Based on the above illustrative tax calculation, as a broad generalization, it can be said that:

  • For gross incomes of Rs 10,00,000 or more, the old tax regime is more beneficial (with deductions availed under sections 80C, 80D, and 24(b) of the IT act)
  • For gross incomes of Rs 5,00,000, the new tax regime would be advantageous.

When is the choice of old/new tax regime required to be made?

Source of Income Time of Selection of the Option of Old vs New Regime
Salary or any other income on which TDS is applicable
  • Employees can exercise their choice for the new tax regime and inform the employer at the beginning of the financial year.
  • The selected tax regime can be changed every year.
  • If opted for at the beginning of the year, the new tax regime cannot be changed throughout the year for TDS purposes. However, it can be changed while filing the Income-tax return.
Business Income For business income, the choice between the old or new tax regime can be exercised only once for a particular business.

Advantages and disadvantages of the old and new tax regimes

The pros and cons of the old and new tax regimes are tabulated below:

Advantages Disadvantages
Old Tax Regime
Around 70 exemptions and deductions available under the Income Tax Act Only investments in specified options are eligible for claiming tax benefits
Incentivizes submission of false disclosures as proof of investment
New Tax Regime
Reduced rates of taxation. Limited/no benefits for individuals who were already investing with obligatory premium payment requirements.
Limited tax saving options and hence – enhanced cash flow to the taxpayers

In Closing

Deciding on which tax regime would benefit you can be confusing. The best strategy for determining what is best for you would be to first calculate the tax liability under the old and the new regimes, with and without the applicable deductions and exemptions.

The tax regime with the lower tax liability should then be chosen. However, the prospect of calculating tax liabilities can still be intimidating for most people. Wrong calculation of tax liabilities can lead to wrong decisions and potentially large losses.

Therefore, you need enterprise payroll software to undertake the accurate and correct calculation of tax liabilities to arrive at the right decision on the tax regime appropriate to you and your organization’s needs.

Akrivia HCM provides the best payroll management software that can help you calculate various taxes, create paycheck reports, and track employee payments. You can request a demo of Akrivia HCM’s payroll management software here.

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