However, when choosing between the old and the new tax regimes, you need to understand the concept of income tax slabs and how different slabs affect your tax liability. So, let’s understand.
What is The Income Tax Slab?
The income tax slab defines the tax rates applicable at different income levels. The tax slab categorizes taxpayers into different groups, based on their income, and then shows the tax rate applicable on their income.
In India, the tax slab is designed in a progressive system. This means that individuals with low incomes pay a lower amount of tax while high-income individuals pay a higher amount of tax.
Moreover, after the introduction of the new tax regime in 20201, there are two tax slabs in India – the tax slab under the old regime and the tax slab under the new regime. The slab under the new regime has undergone further changes in the Union Budget 20231,$ and the tax rates have changed.
Income Tax Slab Rates for FY 2023-24
For the financial year 2023-24, the income tax slabs under the old and the new regime are given below –
Old tax regime
For individuals aged below 60 and Hindu Undivided Families (HUFs)1 –
| Income level | Tax rate |
| Up to Rs.2,50,000 | Nil |
| Rs.250,001 to Rs.5,00,000 | 5% |
| Rs.500,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
For individuals in the 60-to-80-year age group2 –
| Income level | Tax rate |
| Up to Rs.300,000 | Nil |
| Rs.300,001 to Rs.500,000 | 5% |
| Rs.500,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
For super senior citizens, aged 80 years and above2 –
| Income level | Tax rate |
| Up to Rs.5,00,000 | Nil |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Rs.10,00,001 and above | 30% |
New tax regime
The new tax regime, introduced in 2020, defined the following tax slab which is applicable for the financial year 2022-23 –
New regime tax slab, pre-Budget 20232
| Income level | Tax rate |
| Up to Rs.2,50,000 | Nil |
| Rs.2,50,001 to Rs. 5,00,000 | 5% |
| Rs.5,00,001 to Rs.7,50,000 | 10% |
| Rs.7,50,001 to Rs.10,00,000 | 15% |
| Rs.10,00,001 to Rs.12,50,000 | 20% |
| Rs.12,50,001 to Rs.15,00,000 | 25% |
| Rs.15,00,000 and above | 30% |
However, in the Union Budget 2023$, the tax slab has been changed and is as follows –
New regime tax slab, post-Budget 20232,$
| Income | Tax rate |
| Up to Rs.3,00,000 | Nil |
| Rs.3,00,001 to Rs.6,00,000 | 5% |
| Rs.6,00,001 to Rs.9,00,000 | 10% |
| Rs.9,00,001 to Rs.12,00,000 | 15% |
| Rs.12,00,001 to Rs.15,00,000 | 20% |
| Rs.15,00,001 and above | 30% |
Moreover, the following other changes have been done introduced in the Union Budget 2023$–
Taxable income up to Rs.7 lakhs2 are eligible for income tax exemption through rebates available under Section 87A.
Standard deduction of Rs.50,0002 would be allowed to salaried employees under the new regime.
The new regime would be made default2 but the taxpayer can choose the old regime when filing taxes.
Eligibility for Income Tax in India
Income tax in India is payable by every person earning an income in a financial year. Under Section 2(3)4 of the Income Tax Act of 1961, a ‘person’ is defined as a natural individual as well as an artificial person or entity.
To simplify, income tax is payable by the following4–
- Individuals
- Hindu Undivided Families
- Corporates
- Association of Persons
- Body of Individuals
- Limited Liability Partnerships
- Firms
- Local authorities
- Any other artificial juridical person
That being said, income tax is payable on income that exceeds the basic threshold limit specified by the income tax department. Currently, for the financial year 2023-24, the threshold limits are as follows –
Under the old tax regime5
Individuals, Hindu Undivided Families, Associations of Persons, Bodies of Individuals, artificial juridical persons |
Rs. 2.50 lakhs |
Senior citizens aged between 60 and 80 years |
Rs. 3 lakhs |
Super senior citizens aged 80 years and above |
Rs. 5 lakhs |
Example of Tax Payable Under New & Old Tax Regimes
The tax payable under the new and old tax regimes can be understood with a simple example. Consider the following scenario –
An individual aged 50 years has a salary income of Rs.40 lakhs a year. He invests Rs. 1.5 lakhs in 80C and has a health insurance premium of Rs. 20,000 for his family and Rs. 30,000 for his senior citizen parents.
The net taxable income under both the regimes will be calculated as follows –
Old tax regime |
New tax regime |
Gross taxable income – Rs. 40 lakhs |
Gross taxable income – Rs. 40 lakhs |
Less: Standard deduction on salary – Rs. 50,000 |
Less: Standard deduction on salary – Rs. 50,000 |
Less: 80C deduction – Rs. 1.5 lakhs |
Net taxable income – Rs. 39,50,000 |
Less: Health insurance deduction – Rs. 50,000 |
|
Net taxable income – Rs. 37,50,000 |
|
The tax payable would be calculated as follows –
Old tax regime |
New tax regime |
Up to Rs. 2.5 lakhs – Nil |
Up to Rs. 3 lakhs – Nil |
Rs. 2.5 lakhs to Rs. 5 lakhs – 5% = Rs. 12,500 |
Rs.3 lakhs to Rs. 6 lakhs – 5% = Rs. 15,000 |
Rs. 5 lakhs to Rs. 10 lakhs – 20% + Rs. 12,500 |
Rs.6 lakhs to Rs. 9 lakhs – 10% + Rs. 15,000 |
Rs. 10 lakhs to Rs. 37,50,000 – 30% + Rs. 112,500 |
Rs. 9 lakhs to Rs. 12 lakhs – 15% + Rs. 45,000 |
Total tax payable excluding cess = Rs. 937,500 |
Rs. 12 lakhs to Rs. 15 lakhs – 20% + Rs. 90,000 |
|
Rs. 15 lakhs to Rs. 39,50,000 – 30% + Rs. 1.5 lakhs |
|
Total tax payable excluding cess = Rs. 885,000 |
Overview: New Tax Regime & Old Tax Regime
The Union Budget 2023 made tremendous changes in the new tax regime making it more rewarding for taxpayers. However, the old tax regime also has its benefits. So, let’s assess the pros and cons of both regimes–
Old tax regime
Pros |
Cons |
|
|
New tax regime
Pros |
Cons |
|
|
If you are wondering which one you should pick, the answer depends on your income level and the tax-saving investments and expenses that you have incurred. You can calculate your tax liability under both regimes to find out which regime is offering the lowest amount. Then, choose the regime and save on the tax outgo. As salaried individuals, you can switch between the old and new tax regimes every time you file your returns.
So, assess which regime is giving you the maximum tax saving and then make the choice.
If you compare the slab rates under the new and old tax regimes, you would notice the difference. Let’s highlight the differences in the following table considering the changes made to the new regime in the Union Budget 2023$ –
| New tax regime | Old tax regime |
| The threshold limit for tax starts at Rs.3 lakhs | The threshold limit starts at Rs.2.5 lakhs |
| The taxable income increases by Rs.3 lakhs after each slab till Rs.15 lakhs | The taxable income increases by Rs.2.5 lakhs after the first slab and by Rs.5 lakhs after the second slab. |
| Taxable income of Rs.15 lakhs is taxed at 15% | Taxable income of Rs.10 lakhs is taxed at 30% |
| The tax exemption limit for availing rebate is Rs.7 lakhs | The tax exemption limit of availing rebate is Rs.5 lakhs |
| The tax rates are 5%, 10%, 15%, 20% and 30% | The tax rates are 5%, 20% and 30% |
Moreover, many exemptions and deductions not allowed under the new tax regime are allowed in the old tax regime. A few of the popular exemptions and deductions that are a part of the old tax regime but not the new one are:
- Tax saving investments under chapter VI-A (80C, 80CCC,80D, 80DD,80E,80DDB,80EE,80EEA,80G,80GGA,80GG,80GGC, etc.). For eg.: life insurance premiums
- Leave travel allowance
- House rent allowance
- Deductions under Section 80TTA/TTB
- Entertainment allowance
- Interest on housing loan
- Donations to universities and educational institutes, etc.
Conclusion
Both tax systems come with benefits. The old tax regime inculcates more saving habits in you, and the new tax regime simplifies the tax process and is easy to understand. Choosing the tax regime should be based on your income tax slab, and you can use an income tax calculator to know which regime works better for you. Pay taxes on time and be a responsible citizen.
FAQs
1. Do I need to file Income Tax Return (ITR) if my annual income is below Rs 2.5 lakh?
You don’t have to file ITR if your annual income is below Rs.2.5 lakhs. However, if any TDS has been deducted from your income and you want to claim the TDS refund, you will have to file the ITR for the same.
2. Can you avail of the standard deduction on a salary of Rs. 50,000 under the new tax regime?
Yes, after the changes done in the Union Budget 2023, a standard deduction of Rs.50,000 is available under the new tax regime7.
3. Who can claim a rebate under Section 87A?
Individuals and HUFs whose taxable income is up to Rs.5 lakhs in the old tax regime and Rs.7 lakhs in the new tax regime can claim a rebate under Section 87A8.
4. Are the income tax slab rates under the new tax regime the same for individuals and senior citizens?
Yes, under the new tax regime, the tax slabs are uniform for individuals and senior citizens6.
5. What are the Income Tax Slabs for NRI?
Under the old tax regime, NRIs are taxed at the same rate as resident individuals aged below 60 years.
6. What are the Income Tax Slabs for Women?
Income tax slabs for men and women are the same
References
1. https://cleartax.in/s/section-115bac-features-new-tax-regime-benefits
2. https://cleartax.in/s/income-tax-slabs
3. https://economictimes.indiatimes.com/wealth/tax/what-you-will-lose-if-you-opt-for-the-reduced-tax-rates-and-new-tax/articleshow/73839079.cms
4.https://incometaxindia.gov.in/pages/faqs.aspx?k=General+FAQs&c=6#:~:text=Who%20is%20supposed%20to%20pay%20Income%2Dtax%3F&text=Income%2Dtax%20is%20to%20be,as%20well%20as%20artificial%20persons.
5. https://incometaxindia.gov.in/charts%20%20tables/threshold_limits.htm
6. https://cleartax.in/s/income-tax-slabs
7. https://www.zeebiz.com/personal-finance/news-income-tax-what-are-the-3-deductions-under-the-new-tax-regime-standard-deduction-80cch-80ccd2-agniveer-corpus-national-pension-scheme-nps-223155
8. https://cleartax.in/s/income-tax-rebate-us-87a
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