Income Tax Rules for Taxpayers: Overview
Individual taxpayers need to file annual income tax returns and pay the applicable taxes if their net earnings exceed the minimum threshold, known as the basic exemption limit. Income tax applies to the earnings of individuals, Hindu Undivided Families (HUF), partnership firms, and corporates as per the Income Tax Act of 1961. Taxpayers are not levied a flat rate. They are required to pay according to their income tax slab.
The new income tax slabs for individuals are categorised under three groups – persons below the age of 60 years, taxpayers between 60 to 80 years, and individuals above 80 years.
Importance of Knowing the New Income Tax Rules
Income tax is payable based on one’s salary slab. Hence, those with a higher income will need to pay more taxes. The slab system was implemented to simplify the country’s tax system. Since the income tax slabs change with each budget announcement, it is important to be aware of the current income tax rules and how they may impact your tax returns.
Changes in Income Tax Rules for FY 2024-25
A new tax structure was introduced in FY 2020-21 in addition to the existing tax regime. Taxpayers can choose to pay their taxes under any of the two regimes.
Key Distinction Between the Old and New Tax Regimes
Some of the major differences between the old and new tax regimes include:
- First of all, the new tax structure contains more slabs with lower tax rates than the old tax plan. As a result, your slab will vary based on whether you choose the new tax regime or the old one.
- Secondly, you cannot avail the numerous tax-saving deductions and exemptions applicable under the previous regime such as Section 80C, Section 80D and more if you file your taxes under the new tax regime
The old tax structure allows you to claim 70 different deductions and exemptions. It enables you to decrease tax liability through savings and investments in specific financial instruments. The new tax regime has lower rates but provides few exemptions and rebates.
New Income Tax Rates for FY 2024-25 (AY 2025-26)
The tables below show the revised income tax slabs announced in the latest budget session of FY 2024-25:
New Income Tax Slabs for Taxpayers under 60 Years of Age
| Income Tax Slabs | Income Tax Rates |
|---|---|
| Up to Rs.3 Lakh | Nil |
| Rs.3 Lakh to Rs.6 Lakh | 5% on income exceeding Rs.3 Lakh |
| Rs.6 Lakh to Rs.9 Lakh | Rs.15,000 + 10% on income more than Rs.6 Lakh |
| Rs.9 Lakh to Rs.12 Lakh | Rs.45,000 + 15% on income above Rs.9 Lakh |
| Rs.12 Lakh to Rs.15 Lakh | Rs.90,000 + 20% on income over Rs.12 Lakh |
| Above Rs.15 Lakh | Rs.1.5 Lakh + 30% on income more than Rs.15 Lakh |
Income Tax Slabs for Individuals between 60 to 80 Years of Age
| Tax Slabs | Tax Rates |
|---|---|
| Rs.3 Lakh | Nil |
| Rs.3 Lakh to Rs.5 Lakh | 5% |
| Rs.5 Lakh to Rs.10 Lakh | 20% |
| Rs.10 Lakh and above | 30% |
Income Tax Slab for Senior Citizens over 80 Years of Age
| Income Tax Slabs | Income Tax Rates |
|---|---|
| Up to Rs.5 Lakh | Nil |
| Rs.5 Lakh to Rs.10 Lakh | 20% |
| Above Rs.10 Lakh | 30% |
Changes in Income Tax Slab Rate for New Tax Regime
The table here depicts the HUF and individual tax slab under the new tax regime:
| Income Slab | New Tax Regime (Before Budget 2023 – until 31st March 2023) | New Tax Regime (After Budget 2023 – 1st April 2023 onwards) |
|---|---|---|
| Up to Rs.2.5 Lakh | Nil | Nil |
| Rs.2.5 Lakh to Rs.3 Lakh | 5% | Nil |
| Rs.3 Lakh to Rs.5 Lakh | 5% | 5% |
| Rs.5 Lakh to Rs.6 Lakh | 10% | 5% |
| Rs.6 Lakh to Rs.7.5 Lakh | 10% | 10% |
| Rs.7.5 Lakh to Rs.9 Lakh | 15% | 10% |
| Rs.9 Lakh to Rs.10 Lakh- | 15% | 15% |
| Rs.10 Lakh to Rs.12 Lakh | 20% | 15% |
| Rs.12 Lakh to Rs.12.5 Lakh | 20% | 20% |
| Rs.12.5 Lakh to Rs.15 Lakh | 25% | 20% |
| Above Rs.15 Lakh | 30% | 30% |
Income Tax Slab Under the Old Regime
As opposed to the new tax rules, the tax rates for individuals below 60 years, HUF and NRIs in the old tax regime are:
| Tax Slab | Tax Rates |
|---|---|
| Up to Rs.2.5 Lakh | Nil |
| Rs.2.5 Lakh to Rs.5 Lakh | 5% |
| Rs.5 Lakh to Rs.10 Lakh | 20% |
| Above Rs.10 Lakh | 30% |
Claiming Deductions Under the Old Tax Regime
Individuals who are entitled to considerable rebates under the old tax regime may file for deductions under the previous tax rules. For instance, if you are servicing a Home Loan, you may avail substantial tax relief on the Home Loan EMI payments every financial year. Thus, if you have carefully chosen the ideal Home Loan interest rate and tenor, you can maximise your credit viability even further by securing the applicable Home Loan tax benefits thereby reducing your debt obligation.
The new tax regime aims to simplify the tax filing process. Taxpayers can easily compute their exact tax outgo in minutes by accessing an Income Tax Calculator. They may also use this tool to compare the tax-saving potential under both regimes. Furthermore, salaried employees can alternate between both tax plans as per convenience. So, if they pick the old regime for the current financial year, they may then switch to the new tax plan the following year, and so on.
New Income Tax Rules: FAQs
The new income tax regime comprises a higher number of income slabs and lower tax rates aimed at easing tax calculations. Taxpayers can compute the taxes payable according to their slab. But they cannot claim the old regime concessions and deductions. Meanwhile, individuals also have the option to continue with the old tax structure.
For FY 2023-24, if you calculate your taxes under the previous tax rules, you may claim the deductions and exemptions as applicable, and then compute the net taxable income. Under the new tax regime, you will need to forego these concessions and instead, file your returns based on your income slab and the incremental tax rates.
For example, if you have a taxable income of Rs.9 Lakh, the calculation will be:
| Income Slab | Applicable Tax Rate | Taxable Income | Payable Tax |
|---|---|---|---|
| Up to Rs.3 Lakh | No tax | Nil | Nil |
| From Rs.3 Lakh to Rs.6 Lakh | 5% | Rs.3 Lakh | Rs.15,000 |
| Rs.6 Lakh to Rs.9 Lakh | 10% | Rs.3 Lakh | Rs.30,000 |
| Total income tax payable | - | - | Rs.45,000 |
Therefore, you need to pay a tax of Rs.45,000 (excluding cess) on your taxable income of Rs.9 Lakh.
Taxes calculated under the old tax structure will vary as compared to tax computation done on the basis of the new tax rules. Hence, it is essential to understand the current tax scheme so that one may determine which tax regime offers better savings and suits them best.
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