What is the income tax slab?
Income tax is a tax paid on an individual’s income during a financial year. In India, the income tax system is progressive, which means that individuals with higher incomes are taxed at a higher rate than those with lower incomes. To determine the tax rate applicable to each taxpayer, the Indian government has created income tax slabs with different rates for different income levels.
Old vs New Tax Regime In FY 2020-21, a new tax regime was introduced in addition to the old tax regime. In the new tax regime, there are more tax slabs with lower tax rates compared to the old tax regime. Taxpayers can choose between the old and new tax regimes for FY 2022-23 (AY 2023-24) and pay tax accordingly.
Different Types of Taxable Income in India
Income from Salary or Pension: This category includes basic salary, allowances, and profits made from salary. An individual’s pension after retirement is also taxed based on the income tax slab. The income tax slab rates FY 2022-23 (AY 2023-24) differ based on the age of the individual receiving a salary or pension during the fiscal.
Income from Business Profits made from businesses are also included as taxable income. The tax is obtained from the presumptive or actual income that the profession or business may incur after adjustments to allowable deductions are made. In FY 2022-23, different rates are applicable to business income of individuals and corporations.
Income from House Property: Income received from renting out more than one house property is treated as part of the taxpayer’s income and is taxable as per the income tax slab rates for FY 2022-23.
Income from Winning Lottery, Horse Races, etc: Income from other sources like winning lottery and horse races is taxable in India, but these earnings are taxed separately and not as per income tax slab rates of FY 2022-23.
Income Generated from Capital Gains: Capital gains income is obtained from selling assets such as gold, house property, mutual funds units, stocks, debentures, etc. The type of asset and profits made on it over time determine whether it’s classified as a long-term or short-term capital gain. Capital gains tax rules of 2022-23 are independent of the income tax slabs for AY 2023-24.
Differences Between Old and New Regime :
One major difference between the old and new tax regimes is that all major deductions and exemptions such as Section 80C and 80D are not allowed in the new tax regime. Deductions and exemptions can lower tax liability by investing, saving or spending on specific financial instruments. In contrast, the old tax regime provides up to 70 deductions or exemptions to lower taxable income and income tax liability for FY 2022-23.
In conclusion, understanding the income tax slabs and applicable rates is crucial for taxpayers in India. Taxpayers should consider their income sources and choose the tax regime that offers them the best possible deductions and exemptions to minimize their tax liability.