Income Tax Slabs in India

Income tax is levied on the income earned by all the individuals, HUF, partnership firms, LLPs and Corporates as per the Income tax Act of India. In the case of individuals, tax is levied as per the slab system if their income is above the minimum threshold limit (known as basic exemption limit). 

What is income tax slab?

Indian Income tax levies tax on individual taxpayers on the basis of a slab system. Slab system means different tax rates are prescribed for different ranges of income. It means the tax rates keep increasing with an increase in the income of the taxpayer. This type of taxation enables progressive and fair tax systems in the country. Such income tax slabs tend to undergo a change during every budget. These slab rates are different for different categories of taxpayers. Income tax has classified three categories of “individual” taxpayers such as:

1. Individuals (aged less than of 60 years) including residents and non-residents.
2. Resident Senior citizens (60 to 80 years of age).
3. Resident Super senior citizens (aged more than 80 years).

Income Tax Slabs & Rates FY 2021-2022:

The finance minister introduced new tax regime in Union Budget, 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections. The following Income Tax slab rates are notified in new tax regime vs old tax regime:

New Regime Income Tax Slab Rates for for Individual/HUF:

Income Tax slabs & Rates as Per Old Regime for individuals/HUF/AOP/BOI/AJP:

Non-resident individual/HUF:

Health and Education Cess: Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge.

Rebate under section 87A: Resident Individuals with Net taxable income less than or equal to Rs 5 lakh will be eligible for tax rebate u/s 87A tax liability will be nil of such individual in both – New and old/ tax regimes.

Currently taxpayers have an option to choose either:

1. To pay income tax at lower rates as per New Tax regime on the condition that they forgo certain permissible exemptions and deductions available under income tax, or
2. To continue to pay taxes under the existing tax rates. The assessee can avail deductions and exemptions by staying in the old regime and paying tax at the existing higher rate.

Conditions for opting New Tax regime:

The taxpayer opting for concessional rates in the New Tax regime will have to forgo certain exemptions and deductions available in the existing old tax regime. In all there are 70 deductions & exemptions that are not allowed, out of which the most commonly used are listed below:

1. Leave Travel Allowance (LTA)
2. House Rent Allowance (HRA)
3. Conveyance allowance
4. Daily expenses in the course of employment
5. Relocation allowance
6. Helper allowance
7. Children education allowance
8. Other special allowances [Section 10(14)].
9. Standard deduction on salary.
10. Professional tax.
11. Interest on housing loan (Section 24).
12. Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD (2))
13. Transport allowance for especially abled people.
14. Conveyance allowance for expenditure incurred for travelling to work.
15. Investment in Notified Pension Scheme under section 80CCD (2).
16. Deduction for employment of new employees under section 80JJAA.
17. Depreciation u/s 32 of the Income-tax act except additional depreciation.
18. Any allowance for travelling for employment or on transfer.

Time of Selection of option of old vs new regime?

Surcharge: Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:

Normal tax rates applicable to a firm/Local Authorities: 

A firm is taxed at a flat rate of 30%. Apart from tax @ 30%, Health and Education Cess is levied @ 4% of income-tax. 

Surcharge: Surcharge is levied @ 12% on the amount of income-tax where net income exceeds Rs. 1 crore. In a case where surcharge is levied, health and education cess of 4% will be levied on the amount of income-tax plus surcharge. 

Normal tax rates applicable to a Co-operative society:

Apart from tax at above rate, Health and Education Cess is levied @ 4% of income-tax. 

Surcharge:  Surcharge is levied @ 12% on the amount of income-tax where net income exceeds Rs. 1 crore. In a case where surcharge is levied, HEC of 4% will be levied on the amount of income-tax plus surcharge. 

Normal Tax rates applicable to a domestic company:

Income-tax rates applicable in case of domestic companies for assessment year 2021-22 and 2022-23 are as follows:

Surcharge: In addition to tax at above rate, surcharge is levied @ 7% on the amount of income tax if net income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% on the amount of income-tax if net income exceeds Rs. 10 crores. In a case where surcharge is levied, health and education cess of 4% will be levied on the amount of income-tax plus surcharge. 

Special Tax rates applicable to a domestic company:

The special Income-tax rates applicable in case of domestic companies for assessment year 2021-22 and 2022-23 are as follows:

Surcharge: The rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB shall be flat 10% irrespective of amount of total income.

Health and Education Cess: The amount of income-tax and the applicable surcharge, shall be further increased by health and education cess calculated at the rate of 4% of such income-tax and surcharge.

Normal tax rates applicable to a foreign company:

A foreign company is taxed at a flat rate of 40%. Apart from tax @ 40%, Health and Education Cess is levied @ 4% of income-tax. 

Surcharge: In addition to tax at above rate, surcharge is levied @ 2% on the amount of income tax if net income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 5% on the amount of income-tax if net income exceeds Rs. 10 crores. In a case where surcharge is levied, health and education cess of 4% will be levied on the amount of income-tax plus surcharge.