Any individual beginning a job is obligated to pay Income Tax if their salary falls under the Income Tax Slabs specified by the finance ministry. All individuals earning Rs 3 lakh and above are charged an Income Tax in India.
What is Income Tax?
Income Tax is the tax charged by the government against the individual’s earnings for a year. The amount of tax varies based on the amount of income earned by the individual and is specified by the Finance Ministry in the budget.
Revisions in the ‘New Tax Regime’ has been announced by the finance ministry. The Finance Ministry gives its citizens the option to continue between the ‘Old Tax Regime’ or opt for the ‘New Tax Regime’ while filing their taxes for the year.
As a taxpayer, calculating the taxable amount under the New Tax Regime based on the tax slabs and the taxable amount in the Old Tax Regime with exemptions and deductions will give you a clear picture of which tax regime will suit your case.
The Union Budget for 2023 was announced on Feb 1 and the Finance Minister Nirmala Sitharaman has revised the tax slabs.
Economic Times reported the Tax slabs under the New Tax regime:
1. Rs 0 to Rs 3 lakh – 0% tax rate
2. Rs 3 lakh to Rs 6 lakh – 5%
3. Rs 6 lakh to Rs 9 lakh – 10%
4. Rs 9 lakh to Rs 12 lakh – 15%
5. Rs 12 lakh to Rs 15 lakh – 20%
6. Above Rs 15 lakh – 30%
The New Tax Regime has more tax slabs compared to the Old Tax Regime but does not have provisions for deductions in the tax slab.
Tax slabs under the Old Tax Regime:
1. Rs 0 to Rs 2.5 lakh – 0% tax rate
2. Rs 2.5 lakh to Rs 5 lakh – 5%
3. Rs 5 lakh to Rs 10 lakh – 20%
4. Above Rs 10 lakh – 30%
The Old Tax Regime has higher tax rates but provides exemptions and deductions which enable the taxpayer to reduce his/her taxable income.
Exemptions are House Rent Allowance, Leave Travel Allowance, Mobile and Internet Reimbursement, Food Coupons or Vouchers, Company Leased Car, Standard Deduction, Uniform Allowance, and Leave Encashment.
Deductions are Public Provident Fund, Employee Provident Fund, Equity Linked Savings Scheme, Investment in NPS, Life Insurance Premium, Health Insurance Premiums, Principal and Interest component on Home loans, Children Tuition Fees, and Saving Account Interest.
Unless you have a significant amount falling under the criteria of deductions and exemptions, the New Tax Regime which has numerous tax slabs reduces the taxable amount in comparison to the 4 tax slabs of the Old Tax Regime.
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