Definition
Income Tax Slabs in India refer to the structured tax system where different income ranges (slabs) are taxed at different rates. It ensures that individuals with higher incomes pay proportionately higher taxes, following the principle of progressive taxation.
Meaning in Detail
Income tax is a direct tax imposed on an individual’s or entity’s earnings. In India, the concept of slabs was introduced to make taxation fair and equitable. Instead of charging the same percentage of tax from everyone, income is divided into ranges, and each range is taxed at a specific rate. This system helps in reducing inequality and aligns with the ability-to-pay principle of taxation.
The Government of India notifies income tax slabs in each Union Budget, and they may differ for individuals, senior citizens, and companies. Currently, taxpayers can choose between the Old Tax Regime (with exemptions and deductions) and the New Tax Regime (lower rates but minimal exemptions).
Sub-Sections for Clarity
Old Tax Regime vs. New Tax Regime
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Old Regime – Higher rates but with deductions like HRA, LTA, 80C, 80D, etc.
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New Regime – Lower tax rates but fewer exemptions, suitable for those who don’t have many deductions.
Slab Categories
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Individuals below 60 years
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Senior Citizens (60–80 years)
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Super Senior Citizens (Above 80 years)
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Companies and Firms (separate taxation system)
Formula / Calculation
Income Tax is calculated as:
Income Tax = (Taxable Income under each slab × Applicable Tax Rate) – Rebate/Relief + Cess
Where:
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Taxable Income = Gross Income – Deductions/Exemptions
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Cess = 4% Health & Education Cess
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Rebate u/s 87A = Available if income ≤ ₹5,00,000 under old regime, or ≤ ₹7,00,000 under new regime.
Example Calculation
Suppose an individual (below 60 years) has a taxable income of ₹9,00,000 under the old regime.
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0 – ₹2,50,000 → Nil
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₹2,50,001 – ₹5,00,000 → 5% of ₹2,50,000 = ₹12,500
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₹5,00,001 – ₹10,00,000 → 20% of ₹4,00,000 = ₹80,000
Total Tax = ₹92,500 + 4% Cess (₹3,700) = ₹96,200
Key Features / Components
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Progressive structure: Higher income → Higher rate
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Revised annually in Union Budget
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Different for age groups and entities
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Provides option of old vs. new regime
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Includes surcharge for high-income earners
Importance in Business
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Helps in tax planning for employees and businesses
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Affects salary structuring and payroll management
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Influences investment decisions due to deductions and exemptions
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Plays a role in government revenue and fiscal policy
Advantages and Disadvantages
Advantages:
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Fair and equitable taxation
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Encourages compliance
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Offers flexibility via two regimes
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Promotes savings via deductions in old regime
Disadvantages:
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Complex structure may confuse taxpayers
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Frequent changes increase uncertainty
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Some middle-class taxpayers feel burdened despite rebates
Usage
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Used by individuals for personal tax planning
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Used by companies to structure employee salary packages
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Referenced in financial planning, accounting, and auditing
Case Study
Infosys Ltd. provides salary structuring under both old and new regimes. Employees can choose which regime benefits them more. Many opted for the old regime to claim deductions under 80C (PF, ELSS, Life Insurance) and 80D (Health Insurance). This shows how income tax slabs directly affect employee benefits and HR strategy.
Practical Example
A salaried individual with ₹12,00,000 income may save tax by choosing old regime with deductions (like home loan interest, ELSS, PF, insurance). Another with no deductions may find the new regime more beneficial.
Common Mistakes or Misunderstandings
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Believing entire income is taxed at the slab rate (only incremental income is taxed at that rate).
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Ignoring surcharge and cess.
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Choosing wrong regime without comparison.
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Not considering rebates like 87A.
Real-Life Applications & Legal Implications
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Salary structuring by companies
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Tax planning for individuals & firms
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Used in government’s revenue mobilization
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Legal compliance under Income Tax Act, 1961
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Non-compliance may attract penalties, interest, and prosecution
Table: Current Income Tax Slabs (New Regime, FY 2024–25)
| Income Range (₹) | Tax Rate |
|---|---|
| 0 – 3,00,000 | Nil |
| 3,00,001 – 6,00,000 | 5% |
| 6,00,001 – 9,00,000 | 10% |
| 9,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
(+4% Health & Education Cess on total tax)
FAQs
Q1. What is the difference between old and new tax regime?
Old allows deductions, new offers lower rates but no exemptions.
Q2. Who decides income tax slabs?
They are decided by the Government of India in the Union Budget.
Q3. Is income tax slab same for companies?
No, companies have separate tax rates.
Q4. Can I switch between old and new regimes every year?
Yes, salaried individuals can switch every year.
Expert Tip from Learn with Manika
“Always compare both regimes before filing returns. Use an online calculator or consult a tax professional to minimize tax liability. Don’t assume—calculate!”
Related Terms
- Direct Tax
- Progressive Taxation
- Surcharge
- Rebate u/s 87A
- Deduction under Section 80C
- Union Budget
- Tax Planning