When it comes to income tax rates, India may not be on the top of the list. That honor goes to many European countries such as Germany, Austria, Belgium, and Denmark where taxes can go up to 50% or more. However, India tops the chart when it comes to complexity in tax structure; and constant revisions in the tax system add to the confusion.
An income tax is a government tax levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). The Ministry of Finance along with the Government of India are responsible for assessing the income tax rates in India. Provisions relating to the income tax are governed by the Income Tax Act, 1961.
If you have recently started working or have been working for some time, it is very common for you to wonder how much tax do you have to pay each year.
Individual taxpayers in India can be classified as the following, for the purpose of income tax:
- Individuals less than 60 years of age (Residents & Non-residents)
- Individuals between 60 and 80 years of age or Senior Citizens (Residents)
- Individuals above 80 years of age or Super Senior Citizens (Residents)
Now let us understand the income tax slabs. The below slab is for Financial Year 2020-2021 for individuals less than 60 years of age.
|Taxable Income Slab||Rate of Income-tax|
|Up to Rs. 2,50,000||–|
|Rs. 2,50,000 to Rs. 5,00,000||5%|
|Rs. 5,00,000 to Rs. 10,00,000||20%|
|Above Rs. 10,00,000||30%|
Special tax Rate for Individual and HUFs
The Union Budget 2020 introduced a new income tax regime with reduced tax rates for those willing to forego 70 tax-exemptions and deductions under it.
This new tax system has been made optional and continues to co-exist with the old one(the above table) that comprises of three tax rates and various tax exemptions and deductions available to a taxpayer.
The new income tax slabs and rates have come into effect from April 1, 2020 for FY 2020-21(Assessment Year 2021-22)
|Total Taxable Income (Rs)||Rate|
|Up to 2,50,000||Nil|
|From 2,50,001 to 5,00,000||5%|
|From 5,00,001 to 7,50,000||10%|
|From 7,50,001 to 10,00,000||15%|
|From 10,00,001 to 12,50,000||20%|
|From 12,50,001 to 15,00,000||25%|
Which tax regime old one or the new one would be beneficial to the tax payer i.e. result in lower tax payable for each individual is likely to depend on his/her income composition and investments are done. Each individual will have to do their income calculations to figure out which tax regime is more beneficial to them.
The three situations below give a brief idea:
A person earning an income between 3.5 to 5 lakh will not witness any changes in the income tax slab as there are no changes in it.
A person earning Rs 5.5 lakh in a year and not availing any deductions will pay Rs 18,200 as per the new tax regime compared to an almost nil amount due to the tax exemptions such as policies and insurances as per the old tax regime. Therefore, in such a case, the old tax regime is beneficial.
A person earning Rs 15 lakh in a year and not availing any deductions, etc. will pay only Rs 1, 95,000 as per the new tax regime as compared to Rs 2,73,000 in the old tax regime.
Add Surcharge : Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:-
|Assessment year 2021-22|
Range of Taxable Income
|Income above Rs 50 lakh but below Rs 1 crore||10|
|Income above Rs 1 crore but below Rs 2 crore||15|
|Income above Rs 2 crore but below 5 crore||25|
|Income above Rs 5 crore||37|
For senior citizens (aged 60 years or above but less than 80 years), income up to Rs 3 lakh is exempt from tax. Income from Rs 300,001 to Rs 5 lakh is taxed at 5 per cent, from Rs 500,001 to Rs 10 lakh at 20 per cent and above Rs 10 lakh at 30 per cent.
For super senior citizens, aged 80 years and above, income up to Rs 5 lakh is exempt from tax. Income from Rs 500,001 to Rs 10 lakh is taxed at 20 per cent and above Rs 10 lakh is taxed at 30 per cent.