Income tax is a tax imposed by the government on an individual or business entity’s financial income. The amount of tax owed is determined by the individual’s or business’s taxable income, which is calculated by subtracting eligible deductions and exemptions from their total income. The tax rate can vary depending on the jurisdiction and the individual’s or business’s level of income.
In many countries, the tax year is the calendar year and the tax payment is due on April 15th or thereabouts. Some countries have a progressive tax system, which simply means that the tax rate increases as the taxable income increases, while others have a flat tax rate applied to all taxable income.
Income tax is used to fund various government programs, such as education, infrastructure, and healthcare. In addition to regular income tax, some countries also impose additional taxes, such as capital gains tax, sales tax, and value-added tax.
It’s important to note that failure to file a tax return or pay taxes owed can result in penalties, interest charges, and even legal action by the government. Therefore, it’s crucial to understand the tax laws and regulations in your jurisdiction and seek professional assistance if necessary.
Impact Of Income tax in India
In India, income tax is a tax levied by the central government on an individual’s or a business’s income. The tax year in India is the financial year, which runs from April 1st to March 31st. The tax is calculated based on the taxable income, which is determined by subtracting eligible deductions and exemptions from the total income.
Individuals and businesses are required to file an income tax return by July 31st of each year if their taxable income exceeds the minimum limit set by the government. The tax rate for individuals is progressive, ranging from 0% to 30%, while companies are taxed at a flat rate of 25%.
In addition to regular income tax, India also imposes taxes on capital gains, dividends, and foreign income. The government uses the revenue generated from income tax to fund various social and economic programs, including healthcare, education, and infrastructure development.
Individuals and businesses need to understand the tax laws and regulations in India and comply with their tax obligations to avoid penalties and legal action by the government.
Types of Taxable Income Sources in India
In India, the taxable income sources can be broadly categorized into the following types:
- Salary income: including basic salary, dearness allowance, house rent allowance, and any other perks.
- Business income: including self-employment, partnership firms, and companies.
- Capital gains: including short-term and long-term gains from the sale of capital assets such as property, stocks, and bonds.
- House property income: rental income from properties owned by the taxpayer.
- Other sources: include interest income from a savings account, fixed deposits, and bonds, and income from agriculture, among others.
Why are income tax slabs created?
Income tax slabs are created to ensure that the tax burden is distributed fairly across different income groups. The idea behind this is to impose lower tax rates on lower-income individuals and businesses and higher tax rates on higher-income individuals and businesses. This helps to reduce the overall tax burden on those with lower incomes and increases the tax revenue from those with higher incomes.
The government can use the revenue generated from income tax to fund various social and economic programs, such as education, healthcare, infrastructure development, and others. By creating income tax slabs, the government can regulate the amount of revenue generated and allocate it effectively to various programs.
Income tax slabs also allow the government to create different tax rates for different types of income, such as salary income, business income, and capital gains. This helps to ensure that the tax system is transparent and equitable, as it considers different sources of income and their respective tax implications.
In summary, income tax slabs are created to distribute the tax burden fairly across different income groups, increase tax revenue, regulate the amount of revenue generated, and create a transparent and equitable tax system.
What are the new income tax slab rates for F.Y. 2023-2024?
The Union Budget for 2023 was presented by Finance Minister Nirmala Sitharaman on Wednesday, February 1st, 2023. The Finance Minister proposed reducing the number of slabs in the new personal income tax regime to five and raising the tax exemption limit to 3 lakhs from 2.5 lakhs to provide relief to taxpayers.
In addition, the new tax system has altered the income tax brackets. The announcement states that there will be five income tax brackets in FY 2023-2024, up from six currently. The new income tax slab has improved a rebate under Section 87A; from the Rs. 5 lakhs that they currently earn to Rs. 7 lakhs. As a result, individuals who opt for the new income tax slab and earn less than Rs. 7 lakhs will not be subject to taxation.
The new income tax slab for FY 2023-2014 (AY 2024-2015) under the new tax regime is as follows:
| Tax Slab | Rates |
| Rs 0 to Rs 3 lakh | 0% |
| Rs 3 lakh to Rs 6 lakh | 5% |
| Rs 6 lakh to Rs 9 lakh | 10% |
| Rs 9 lakh to Rs 12 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Above 15 lakh | 30% |
Additionally, the new income tax regime is made the default tax slab since the union budget was presented. However, individuals will be able to maintain the current income tax system. In the new tax regime, the government has reduced the highest rate surcharge from 37% to 25%.
A salaried individual currently has the option of continuing to take advantage of common tax deductions and exemptions under the old tax system. Otherwise, he or she can choose the new concessional income tax system, which does not provide common tax deductions or exemptions.
They can only return to the previous tax system once in their lifetime if they choose the new system. Because a rebate under Section 87A is available in both tax regimes, individuals with net taxable income of up to Rs 5 lakh will not be required to pay any tax in either regime. They will, nevertheless, be required to submit an income tax return.
The individual will be exempt from 70 tax deductions and exemptions under the new system, such as the HRA tax exemption, the LTA tax exemption, the Section 80C deduction of up to Rs 1.5 lakh, and so on.
The new tax regime was announced for individuals who were unable to benefit from the available tax deductions and exemptions. Additionally, it eases the burden of compliance for salaried taxpayers. As of right now, the new tax system has six tax slabs and lower tax rates compared to the old income tax system.
Keep in mind that the basic tax exemption limit for individuals under the age of 60 during the fiscal year is Rs 2.5 lakh under both tax regimes. However, under the previous tax system, the basic tax exemption limit was Rs 3 lakh for seniors (those over 60 but under 80) and Rs 5 lakh for super seniors (those over 80). The basic tax exemption limit in the new system is Rs 3 lakh, while the old system had a limit of Rs 5 lakh. The basic tax exemption limit under the new tax system is Rs 2.5 lakh, regardless of taxpayer age.
