Understanding Income Tax Slabs and Rates in India: A Comprehensive Guide

Income tax is regular and is known by almost everyone in India. Regardless of whether they are residents or NRIs, everyone must pay income tax on their income. Every year during the budget, the finance minister introduces a tax regime that may differ from the last year. 

Since it is a regular affair, it is essential to understand the different components of income tax slabs. In this article, let’s understand income tax and its various features.

What is Income Tax?

Income tax is a direct tax that every person who receives income pays to the central government of India. It is a tax charged on the income earned during the financial year by salaried individuals and self-employed business persons. The income tax is calculated based on the tax slabs laid down by the government of India. 

The income tax has to be paid by individuals, partnership firms, HUF, corporates, and LLPs per the Indian Income Tax Act. 

What are Income Tax Slabs?

Income tax slabs mean different rates for people with different income brackets. It means the more you earn, the higher your tax slab and the tax rate will be. Income tax has three categories of individual taxpayers:

1. Individuals aged less than 60 yrs (including residents and NRIs)
2. Senior residents aged between 60 to 80 years.
3. Super senior residents aged more than 80 years.

Income Tax Slabs and Rates 2023-24

Below are the tax slabs under the new tax regime, applicable from 1st April 2023. 

Depending on which slab you fall under, you will have to pay the tax rate by the slab. Additionally, here are a few more things to remember:

1. For salaried individuals with taxable income over Rs. 15.5 lakhs, a standard deduction of Rs. 52,500 has been implemented under the new tax system.
2. From 37%, the highest surcharge has been reduced to 25% for anyone earning more than Rs. 5 crores. With this, their tax rates will drop to 39% from 42.74%.
3. The new income tax system will be the default for everyone until someone decides to stick with the old one and update the same with their employer.
4. The government has also increased the leave encashment for non-government employees to Rs 25 lakh from Rs 3 lakh. 
5. On the taxable withdrawal of EPF, the TDS rate has also been reduced to 20% from 30%.

What are the Different Income Sources?

As per the Indian income tax laws, any income generated from the below sources is considered to be a part of the income tax:

1. Salary income
2. House property income
3. Gains and profit of profession or business
4. Capital gains
5. Income from other sources

Irrespective of how many incomes the individual qualifies for, all the income sources will be used to calculate income tax. Let’s understand it in simple terms. If a person is in a job and gets a salary every month and also has house property income with some capital gains and income from other sources, then all of these would be combined for the calculation of income tax under the income tax act of India.

Quick Wrap Up

Paying income tax to the central government is a mandate, and you cannot avoid it as a citizen. It is a regular affair, and tax will be deducted based on your income earned during that financial year. Therefore, understanding the different slabs and their prices is crucial.