Tax planning is challenging, especially when required to deal with new and old regimes, income tax slabs, deductions and exemptions. Understanding these is crucial to saving income, minimising tax payments and managing finances. Leveraging all of these with the right ITA sections can help to identify the right income tax slab and the tax saving possibilities. Scroll down to learn in detail about what we just discussed.
Understanding Income Tax Slab
In India, income taxes are categorised into slabs. These involve different income ranges, and accordingly, income tax rates are devised that the earners must pay. The income tax slab system ensures tax rates are in accordance with the income of individuals, ensuring fair taxation across the nation. These tax slabs witness periodic revisions as well to keep up with the progressions.
Income Tax Rates Based on Tax Slab
Let’s have a comparative view of both old and new tax regimes. These are applicable to HUFs and individuals. Here is how it goes:
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Taxable Income
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Old Tax Regime
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New Tax Regime
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Earnings up to INR 2.5 lakh
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Exempted from tax payment
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Exempted from tax payment
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Income range between INR 2.5 to 3 lakh
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5% tax
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Exempted from tax payment
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Income range between INR 3 to 5 lakh
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5% tax
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5% tax
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Income range between INR 5 to 6 lakh
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20% tax
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5% tax
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Income range between INR 6 to 9 lakh
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20% tax
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10% tax
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Income range between INR 9 to 10 lakh
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20% tax
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15% tax
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Income range between INR 10 to 12 lakh
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30% tax
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15% tax
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Income range between INR 12 to 15 lakh
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30% tax
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20% tax
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Income above INR 15 lakh
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30% tax
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30% tax
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Calculating Income Tax Using Tax Slab
To calculate the income tax, gain information on different factors to consider and accordingly follow the steps:
Step 1
Include the variety of taxable incomes that need to be considered. They include the income from:
1. Salaries and pensions are to be detailed in Form 16 when filing the taxes.
2. Capital gains such as mutual funds, stocks and real estate
3. Leasing, renting or selling a residential property
4. Business, professions or freelancing and side hustles
5. Other sources such as dividends, gifts, FDs, saving bank accounts, gambling, pension after pensioner’s death and rental income from properties used for non-residential purposes
Step 2
Eliminate the incomes that fall into the tax exemptions category. It is to be done by subtracting from the gross income. Examples include conveyance allowance, agriculture income and transfer allowance.
Step 3
Check and calculate the deductions to reduce taxable income. Examples include PPF, ELSS, life insurance plans and others.
Step 4
Based on the above-mentioned considerations and calculations pertaining to the reductions and deductions, taxpayers can calculate the Net Taxable Income. Accordingly, check the income tax slab to find the appropriate amount to pay.
Saving Tax
The tax exemption and deduction categories allow income to be saved from tax. Here are its components to know for strategic planning:
Employer’s Contributions to Pension Schemes
The employer’s contribution to the Provident Fund (PF) is tax-exempted for up to INR 7.5 lakh per year. The employee’s contribution is taxable but is also eligible for deduction under Section 80C in the old tax regime. However, this is not valid with the new tax regime. Concerning the National Pension Scheme (NPS), the employer benefits from tax exemption under Section 80CCD(2). It also holds the same limit of INR 7.5 lakh per year.
Reimbursed Incomes
The reimbursements from the employer obtained as a component of CTC or salary are tax-free. However, submitting the proofs and necessary bills is essential. The reimbursements include phone and internet, driver’s salary, fuel, travel, periodicals, books and others.
Home Loan Interest for Let-Out Property
The interest on home loans submitted for let-out properties can be deducted from taxable income. It reduces the tax liability and can be benefitted under Section 24(B) of the Income Tax Act. Additionally, for these properties, the Government allows the deduction of both principal and interest, thus reducing the taxable income and, subsequently, the income tax slab. Be informed on how to calculate income tax to understand the savings.
Other Tax Saving Possibilities
More options are available under special conditions. Know them here to identify the additional possible benefits:
1. Gifts up to INR 50,000
2. 33.33% or INR 25,000 deduction on family pension (whichever is less)
3. Up to INR 5 lakh on receivings from voluntary retirement under Section 10(10C)
4. A gratuity of up to INR 20 lakh under Section 10(10)
5. Daily allowance when the workplace is different than the usual
6. Tour, travel and conveyance allowance for official purposes, along with the transport allowance for specially-abled
7. Leave encashment amount of up to INR 25 lakh under Section 10(10AA) (applicable on leaving the job)
8. Non-taxable requisitions for official purposes, which include company provided laptops, interest-free salary loans, medical facilities and others
Summing Up
Mastering the income tax slab system is essential for effective tax planning and savings. It helps to plan the strategies for income diversification and allocation to benefit from tax deductions and exemptions. The different tax saving aspects as per the new income tax regime are covered in the article. Do connect with the expert for informed decision-making and more details.
FAQs on Income Tax Slab
Q1. What are the sections that allow exemptions on income tax?
Multiple sections allow tax exemptions in diverse areas. These include Section 80C, 80D, 80E, 80G, 80TTA, 87A and others.
Q2. Which income tax regime is better?
The new income tax regime is better if total deductions are lower than INR 1.5 lakhs. However, the old income tax regime is better for total deductions over INR 3.75 lakhs.
Q3. What is the surcharge amount?
Apart from the Income Tax, the surcharge amount needs to be paid if the total income exceeds INR 5 million.
