How to Calculate Your Income Tax Slab in India Step-by-Step

How to Determine Your Income Tax Slab in India?

As of 2024, determining your income tax slab involves analyzing your annual income and choosing between the old tax regime and the new tax regime. Each regime has distinct tax rates, benefits, and conditions.

Old Tax Regime

The old tax regime allows taxpayers to reduce taxable income through various deductions and exemptions, making it ideal for those with significant investments and eligible expenses. The tax slabs under this regime are:

• Income up to ₹2.5 lakh: Nil (No tax)
• Income between ₹2.5 lakh and ₹5 lakh: 5%
• Income between ₹5 lakh and ₹10 lakh: 20%
• Income above ₹10 lakh: 30%

Deductions and Exemptions Available

1. Section 80C: Investments in PPF, EPF, life insurance premiums, ELSS, and more (maximum deduction ₹1.5 lakh).
2. Section 80D: Health insurance premium payments.
3. House Rent Allowance (HRA): For those living in rented accommodation.
4. Leave Travel Allowance (LTA): For expenses incurred on domestic travel.
5. Standard Deduction: Fixed deduction for salaried employees.

These deductions reduce your taxable income, enabling you to fall into a lower tax bracket.

New Tax Regime

The new tax regime features simplified tax slabs with lower rates but eliminates most deductions and exemptions. This regime suits individuals seeking straightforward tax calculations or those who do not claim significant deductions.

Tax Slabs Under New Regime

• Income up to ₹2.5 lakh: Nil (No tax)
• Income between ₹2.5 lakh and ₹5 lakh: 5%
• Income between ₹5 lakh and ₹7.5 lakh: 10%
• Income between ₹7.5 lakh and ₹10 lakh: 15%
• Income between ₹10 lakh and ₹12.5 lakh: 20%
• Income between ₹12.5 lakh and ₹15 lakh: 25%
• Income above ₹15 lakh: 30%

Key Benefit: Section 87A Rebate

For individuals with a gross income of up to ₹7 lakh under the new tax regime, a rebate ensures no tax liability.

Steps to Determine Your Tax Slab

1. Calculate Annual Income:
   • Include all sources such as salary, rental income, and other earnings.
2. Choose a Tax Regime:
   • Evaluate which regime is more beneficial. Opt for the old regime if you have significant deductions; otherwise, the new regime might offer lower taxes.
3. Apply Deductions (if opting for the old regime):
   • Deduct eligible investments and expenses under sections like 80C, 80D, etc.
4. Compare with Slabs:
   • Check where your taxable income falls in the respective tax regime’s slab structure.

Important Considerations

1. Compare Benefits: Calculate taxes under both regimes to determine the most favorable option.
2. Tax Rebate Eligibility: If your taxable income is ₹5 lakh or less (under either regime), you qualify for a full tax rebate under Section 87A.
3. No Deductions in New Regime: Ensure you weigh the impact of missing deductions before opting for the new regime.
4. Switching Between Regimes: Salaried individuals can choose their preferred regime each year, but business owners can only switch once.

Key Points to Remember

• The old regime is beneficial for those with significant investments and expenses due to available deductions.
• The new regime suits taxpayers with simpler finances and no major investments or deductions.
• Use online calculators or consult a tax professional for precise evaluation.

By understanding these factors, you can effectively choose the best tax regime and determine your applicable income tax slab.