What is Income Tax? Understand the Income Tax slab Regime

Introduction:- According to India income tax all individuals and entities with an annual income above a specified limit are required to pay tax. Today, there are many changes in the Indian tax system, which are made to simplify tax compliance and improve revenue collection. it is gaye. One of these reforms is a new tax regime, which offers lower tax rates if taxpayers give up certain exemptions and deductions. In this article we will understand the new tax regime, its features and implications, and compare it with the old tax regime.

what is income tax?

under income tax law in india individuals, Hindu Undivided families. companies parternship firms and cooperative socities etc, have to pay a tax on their income. Income tax is a percentage of an individuals or a corporations earnings that is paid to the government. The income tax slab for each category is different. Income tax slab could be different for one entity when compared to other based on factors. we can discuss the various income tax slabs applicable on individual taxpayer in india.

what is the income tax slab?

Income tax slabs are the ranges of income on which different rates of tax are applied. In many countries, including India, the income tax system is structured progressively, meaning that higher income levels are taxed at higher rates.

New tax Regime: 115BAC of Income Tax Act

The government, from Section 115BAC of the Income Tax Act, 1961, was introduced in the Union Budget of 2020, providing a new tax regime for individual and Hindu Undivided Family (HUF) taxpayers. This section allows taxpayers to choose between the existing tax regime with deductions and exemptions or the new, simplified regime with lower tax rates but no deductions.

Budget 2024-25: Tax slab under new tax regime

Income New tax regime slab
Up to Rs 3 lakh Nil
From Rs 3 lakh to Rs 7 lakh 5%
From Rs 7 lakh to Rs 10 lakh 10%
From Rs 10 lakh to Rs 12 lakh 15%
From Rs 12 lakh to Rs 15 lakh 20%
Above Rs 15 lakh 30%

Features of New tax regime

1. Optionality:- Taxpayers can choose between old and new regimes every financial year, depending on their financial situation.
2. Lower Tax Rate:- In the new regime, tax rates on different income slabs have been reduced significantly. For example, taxpayers earning up to ₹3.0 lakh do not have to pay any tax, and other slabs also have significantly lower rates.
3. Deductions and exemptions:- To avail the benefit of lower tax rates, taxpayers have to give certain deductions and exemptions. These include popular deductions like Section 80C (investments in specified instruments), Section 80D (health insurance premiums), and exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA).
4. Simplicity:- The new regime streamlines the tax filing process by eliminating the need for calculations of exemptions and deductions.

New tax regime taxpayers have to exemptions and deductions.

This is meant to simply the tax calculation, opting for new tax regime Under the new tax regime introduced by Section 115BAC of the Income Tax Act, taxpayers have to forgo most exemptions and deductions in order to benefit from the lower tax rates. These include:

1. Section 80C Deductions: Investments in Public Provident Fund (PPF), Employee Provident Fund (EPF), Equity-Linked Savings Schemes (ELSS), National Savings Certificates (NSC), and others are not available.
2. House Rent Allowance (HRA): Taxpayers cannot claim exemptions on HRA if they are paying rent.
3. Leave Travel Allowance (LTA): Tax benefits on travel expenses incurred for leave are not available.
4. Deductions under Section 80E: Interest on loans taken for higher education is not deductible.
5. Standard Deduction: it is deducted RS 50000 currently available to salaried taxpayers.
6. Deductions for Donations: Contributions made to charitable organizations under Section 80G are also not allowed.
7. Children education
8. Deduction for Professional tax.

Rebate under section 87A in under new tax regime

Under the new tax regime, the rebate under Section 87A remains applicable and is designed to provide tax relief to individuals with lower incomes. Here’s how it works specifically in the context of the new tax regime:

Total income: Rs 5 lakhs

Income tax liability

Up to Rs 2.50 lakhs: Nil

From Rs 2.50 lakhs to Rs 5 lakhs: 5% = Rs 12,500

Deduction offered under Section 87A: Rs 12,500

Total tax liability: Nil

summary:- The new tax regime is a major change in the tax landscape in India, offering lower rates and simplified filing process. While there are clear advantages, especially for certain taxpayer profiles, the choice between the new and old regimes depends on individual financial circumstances. Taxpayers should try to assess their situation each year, looking at their income, investments, and potential deductions to make informed decisions.