Income Tax Slabs For FY 2022-23

Every earning individual and entity is liable to pay tax, as per the Income Tax Act, 1961. This Act governs the income tax rules of the country. In India, income tax is levied on the basis of the tax slab rate system. How much income tax one needs to pay depends on the income tax slab one belongs to, and the slab rates may vary based on age groups. 

In this blog, we will take a look at the various types of income that are subject to income tax, the various income tax slabs, and the corresponding slab rates. 

Different Taxable Incomes

Before discussing the income tax slab rates, one should know what constitutes “income.” As per the Income Tax Act 1961, there are five main heads that come under “income”. These are income from salary and pension, income from house property, gains and profits from business or profession, capital gains income, and income from other sources.

• Income from salary and pension
  All forms of salary income, including retirement income and pensions, fall under this category. This is the monetary remuneration that an employer gives to employees for their services based on an employment contract. Along with basic wage or salary, components like advance salary, gratuity, commissions, perquisites, bonuses, etc. are also included in this head.

• Income from business
  Income earned from businesses or by professionals such as lawyers, life insurance agents, chartered accountants, business owners, freelancers, etc. come under this category. The profits earned from business operations or the profession are also included in this category, which is inclusive of components like profits or loss from the sale of goods and services, incentives, commissions from businesses etc. 

Income from house property
If a homeowner earns income from his/her property by letting it out, the return thus generated is considered as “income”, which is taxable. If a house is left vacant, it is considered self-occupied and there is no income accrual from it. Also, if a house is used for an owner’s own business or profession, then it won’t be taken into consideration for  the taxable income calculation from house property.

Income from capital gain
When a taxpayer makes money on held assets such as stocks, debentures, other securities, resale of a property, etc. The profits on resale of these assets are called “capital gains,” which are considered as “income” and taxed under this category. However, if the assets held are in relation to a person’s profession or business operations, as well as land held for agricultural purposes, then those are not included in the capital gains.

Income from other sources

All the other forms of income that are not in the previous four categories are considered under this category. It includes:

• Profits from gambling, lottery, horse races, etc.
• Income from dividends 
• Pension received after the death of the pensioner 
• Gifts received from friends and family 
• Gifts earned by taking part in a game show/TV program 
• Interest from debentures, bonds, securities, etc. 
• Interest from savings bank accounts, fixed deposits, etc. 
• Rental income from properties other than house property 

Existing / Old Tax Regime

In the 2020 Budget, a new tax regime was launched which runs in parallel with the existing tax regime. Taxpayers can choose between the two options. The new tax regime is concessional in nature, however, if one were to avail of this regime, they will have to let go of the array of tax deductions that are available with the existing tax regime. 

Before choosing a tax regime, it is important to calculate the tax burden and check the investments and payments one has made in the current financial year. Most individuals have tax saving opportunities, such as a home loan, health and life insurance, or payment for their kids’ tuition, which are tax deductible. The existing tax regime has many exemptions and deductions that help taxpayers reduce tax liability on many such investment schemes. 

Some of the investments that qualify for exemptions and deductions under the existing Tax Regime include:

• Employees’ Provident Fund (EPF)
• National Pension Scheme (NPS)
• Public Provident Fund (PPF)
• Unit Linked Insurance Plan (ULIP)
• National Savings Certificate (NSC)
• Equity Linked Saving Scheme (ELSS)
• Sukanya Samriddhi Yojana (SSY)
• Five-year tax-saving fixed deposits with a bank and/or post office

Tax Rate Slabs for Existing / Old Tax Regime: FY 2022-2023

Given below are the income tax slab and the corresponding income tax rate for different age limits:

• Taxes for Individuals (resident or non-resident) aged less than 60 years:

• For individuals (resident or non-resident) aged 60 years or more but less than 80 years: 

• For individuals (resident or non-resident) aged 80 years or more:
  

Tax benefits under the existing tax regime

Listed below are some of the tax benefits (exemptions and deductions) under the existing tax regime :

• Taxpayers can save up to ₹ 1.5 lakh a year for various investments under Section 80C of the Income Tax Act, 1961. The benefits of Section 80C are available under the existing tax regime only. 
• A standard deduction of ₹ 50,000 is also available under the existing tax regime.
• Tax exemptions and deductions available under various other subsections of Section 80, like 80D, 80DD, 80DDB, 80E, 80EEE, etc., are available only under the existing tax regime.
• Section 80TTA and 80TTB deductions on interest from saving bank account deposits are available in the existing tax regime.
• Salaried persons can claim deductions on House Rent Allowance (HRA) and Leave Travel Allowance (LTA) offered in their salary.

New Tax Regime 

The new concessional tax regime offers lower tax rates, but certain deductions, like 80C, 80D, HRA, LTA, etc., are not allowed under this tax regime. It was introduced to provide greater freedom in investments outside government schemes. 

Tax Rate Slabs under New Tax Regime for FY 2022-2023:

Note that the tax slabs under the new tax regime are the same for all taxpayers, irrespective of their age.

Benefits under the new tax regime 

Some of the benefits of choosing the new tax regime are given below:

• The introduction of the new tax regime has brought greater flexibility in investment choices for taxpayers. 
  
• One can either choose the existing tax regime, which offers many tax deductions or choose the new tax regime offering lowered tax rates and no obligatory investments. 
  
• The new tax regime has a higher number of tax slabs. Thus, the taxpayer will fall into a tax slab that is better suited to their income.
  
• While many tax benefits of the existing tax regime will be foregone under the new tax regime, deductions under Section 80 CCD (2) are still applicable in the new regime.

• Since the tax rates are lower in the new tax system, there is a possibility that the benefits of a lower tax rate may outrun the tax deductions one can get under the existing tax regime under specific investments, savings and payments.
  
  Surcharge and Health & Education Cess
  
  Surcharge is an additional charge paid by individuals earning income above the specified limits. It is charged on the amount of income tax calculated as per the following applicable rates:
  
• 10%  – Taxable income for income above ₹ 50 lakh – up to ₹ 1 crore
• 15% – Taxable income for income above ₹ 1 crore – up to ₹ 2 crore
• 25% – Taxable income for income above ₹ 2 crore – up to ₹ 5 crore
• 37% – Taxable income for income above ₹ 5 crores
• For dividends and the income under provisions of Section 111A, 112A, and 115AD, the maximum applicable surcharge is 15%. 

Cess is a tax for the development of a certain sector or industry. At present, taxpayers pay a 4% health and education cess on the amount of income tax plus surcharge (if any). 

Conclusion

All salaried individuals and companies will have two options for income tax calculation: the existing tax regime, which offers many deductions and exemptions under Sections 80C, 80D, HRA, LTA, etc. And the new tax regime with lower tax rates and no 80C tax exemptions and deductions. Regardless of the chosen tax regime, eligible taxpayers will continue to enjoy the tax rebate of up to ₹ 12,500 available under Section 87A of the Income Tax Act, 1961.

With regards to the exemption limit, tax-free income will vary under different income tax slabs, depending on income levels and age groups. In the existing tax regime, income up to ₹ 2,50,000 for people below 60 years of age is tax-free. If an individual is 60 years or more but less than 80 years of age, income up to ₹ 3,00,000 is tax-free. Taxpayers of 80 years and above can enjoy tax-free income up to ₹ 5,00,000. Whereas in the new tax regime, the tax-free income limit for all age groups is set at ₹ 2,50,000. 

Lastly, taxpayers who receive professional income or business income have only one chance to switch between the two regimes, while salaried individuals and pensioners can choose between the existing and the new tax regime as per their convenience in every assessment year. However, one must file their ITR by the due date to qualify for the new tax regime as the option is not available after the expiry of the due date.

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