A Complete Guide to Income Tax Slabs

Income tax applies to the taxable earnings of every individual. Tax is calculated based on the slab or categories an individual falls into. This ’slab’ is referred to as Income Tax Slab. Read on to know the the various tax slabs under old and new tax regime associated rates in India, the factors that affect them, and more. Keep reading!

What is the Income Tax Rate in India?

The income tax rate is the rate your income tax will be calculated. Your income in a particular financial year (2024-25) is taxed in the following year, known as the assessment year (2025-26). There are also two different rates of taxes under the old regime (tax structure before 2021) and the new tax regime.

New vs Old Income Tax Slabs for FY 2024-25 (AY 2025-26)

Changes have not been announced in the interim budget and the income tax slabs in the new tax regime for FY 2024-25 (AY 2025-26), will remain the same. However, in the context of the past year (Budget 2023), a change in the new tax regime exempted taxpayers from paying tax up to an earning limit of Rs. 3 Lakh, instead of Rs. 2.5 Lakh (which remains the same for the old tax regime).

Income Tax Slab Under the Old Tax Regime

Income Tax Slab Under the New Tax Regime

Various Income Tax Slabs and Rates

1. For Senior Citizens

Senior citizens are legally granted several tax benefits under the Income Tax Act of 1961. They do not have to pay tax for income up to Rs. 3 Lakh while super senior citizens are exempted from tax up to an income of Rs. 5 Lakh under the old tax regime.  

The table below specifies the income tax slabs under the old tax regime for senior citizens:

2. For Super Senior Citizens

The table below mentions the income tax slabs under the old tax regime for super senior citizens:

3. For Residents and Non-Residents

The table below lists the income tax slabs under the new tax regime for residents:

4. For Non-residents/NRIs

The table below categorises the income tax slabs under the new tax regime for non-residents/NRIs:

Factors Affecting the Income Tax Slabs and Rates in India

The factors which affect Income Tax Slabs and rates in India are:

• Age: The tax amount you pay every year depends on your age, as different tax benefits are availed towards varied age groups.
• Income: The higher your income, the more tax you are liable as per applicable tax slabs. Up to Rs. 3 Lakh under the new tax regime, you are exempt from paying tax.
• Government Policies: While filing for the ITR, you will have to take into consideration the provisions and policies of the Government of India about taxes.
• Time: Time is also an important factor because the income tax slabs and rates in India are subject to change over the years. If you go through the income tax rates applicable in a particular financial year, you’ll know how much income tax return amount you’re liable to pay.
• Nature of Taxpayer: The income tax slabs are prone to change based on the taxpayer’s nature. Hindu Undivided Families (HUFs) and individuals lie within one category while domestic and foreign enterprises have entirely different tax rules.

Exceptions to the Income Tax Slab

Here are some other exemptions and deductions under new tax regime:

• Investments made to the “National Pension Scheme” which comes under Section 80 CCD (2) and Section 80 CCD (1).
• Travelling allowance for employees or transfer.
• Other employee-related expenditure under Section 80 JJ.
• Employer’s contribution towards an  employee’s EPS account.
• Any applicable deductions under Section 80 JJAA.
• Gifts up to Rs. 5000.
• Conveyance charges.
• Gratuity Amount which comes under Section 10(10).
• Transport allowances for individuals who are differently abled.
• Retirement exemption (voluntary in nature) under Section 10(10C).

Also Read - Everything You Need to Know About Income Tax Returns Filing

Taxable Income Sources

The Income Tax Act categories your earnings under 5 sources (or heads) of income for precisely calculating the applicable tax amount:

1. Income From Salary: When you receive your salary from an employer, it comes under the head "income from salary". This category also includes the pension amount received by a person after retirement. When you file your taxes, you should preferably submit Form 16 as proof of employment and income.

2. Income From House Property: Income earned from selling, renting or leasing a residential property is taxable and comes under this section.

3. Income From Profession or Business: When you earn from your profession, business, or freelancing gig, the earning comes under this section. According to the Income Tax Act, this source of earnings is taxable.

4. Income From Capital Gains: Investments in real estate, mutual funds and stocks, i.e. capital assets, also generate taxable earnings. This section is further divided into 2 sub-sections based on the holding period of investments

• Long-term Capital Gains (LTCG): Long-term capital gains (LTCG) are taxed under Section 112A at a rate of 10% for equity and equity-related instruments. However, if the LTCG is below Rs.1 lakh, it is not taxable. Until FY 2017-18, LTCG from selling listed shares, mutual funds, etc. were not taxed. Individuals must provide scrip-wise details for long-term capital gains when filing ITR 2. This includes ISIN, selling price, purchase price, date of different transactions, and more.
• Short-term Capital Gains (STCG): When you sell listed equity shares, any profits made over a short period of time will be taxed at 15% under Section 111A. If your total taxable income, excluding short-term capital gains, falls below the minimum taxable income threshold of Rs.2.5 lakh, the deficit will be adjusted with the short-term capital gains. The remaining short-term capital gains will be taxed at 15% along with an additional 4% cess.

5. Income From Other Sources: Income which does not come under the above-mentioned categories, is considered to be coming from "other sources”. Some of them may be:

• Monetary gifts coming from friends and families
• Interest earned from bonds and securities
• Earnings from lotteries and game shows
• Income earned from dividends, etc.

Also Read - 9 Top Income Tax Saving Instruments You Must Know

To Conclude

It is crucial to have a clear understanding of the tax to correctly file taxes on time. Familiarizing yourself with the updated income tax slabs and exemptions is essential. Remember, filing your taxes correctly and on time not only saves you money but also helps you to avoid unnecessary stress.