Income Tax Slabs

Knowing the income tax rates applicable to you is always beneficial, especially from a tax planning and tax saving perspective. A little information goes a long way and helps in the long run. There are mainly three types of taxes levied together: income tax, surcharge, and health and education cess.

Income tax is the tax a person pays on the ‘total income’ earned by him. Total income, in general, includes all income derived from any source, within India or outside India during the ‘previous year’. ‘Previous year’ refers to the year in which a person earns income and it is usually the same as our financial year i.e. 1st April 2018 to 31st March 2019. The tax paid on this total income is according to the tax slabs in India. According to the income tax law, every person must report the income earned in this previous year and tax paid thereon, to the government, by filing the income tax return (ITR) during the next financial year i.e. from 1st April 2019 to 31st March 2020. It is this year, in which the government ‘assesses’ our income and the tax paid thereon. Accordingly, the year in which our ITR is ‘assessed’ is called the ‘assessment year’. Thus, we can say, the ‘previous year’ is always the year preceding the ‘assessment year’.

In India, the amount of tax a person or entity must pay depends on the tax slabs determined by the government. The ‘Annexure’ attached to the Finance Act gives the income tax rates applicable to different individuals and entities for an assessment year.

Currently, there are different income tax slabs for individuals,-depending on the age of the individual, and for companies, depending on the type of the company i.e. domestic or foreign company. Each income tax slab gives a certain tax rate for a particular level of income. The income and tax rates are proportional; for a lower level of income, the tax rate is low and as the income level increases, the tax rate and consequently, tax, increases.

The following few tables will give you an overview of the various tax rates applicable to the common entities, being individuals resident in India, Hindu Undivided Families (HUFs), and domestic companies.

Tax slabs for individuals are further divided into three categories depending on their age.

The budget 2020 has given taxpayers the option to choose between the existing income tax regime (which allows availing existing income tax exemptions and deductions) and a new tax regime with slashed income tax rates and new income tax slabs but no tax exemptions and deductions.

Cess and surcharge on income tax payable in the new proposed personal tax regime remain the same as in the existing tax regime.

As these new tax rates are optional you can still choose to file your taxes according to the old rates. The new income tax rates are lower, however you cannot avail deductions and exemptions.

HUFs also fall in this tax slab.

Surcharge, an additional tax levied over and above the income tax, is taken as a percentage of the income tax amount. It is important to keep in mind the rates of a surcharge, as it may lead to an increase in your tax liability. Subject to certain conditions, for individuals, HUFs, and other entities, the rate of surcharge is 10% or 15% of the income tax amount. Similarly, for domestic companies, the rate of surcharge is 7% or 12% of the income tax amount. In addition, health and education cess at 4% is another tax levied on the total amount of income tax and surcharge.

Addition of the new 4% cess on gross tax amount as a footnote below the slabs table
(Note: this is different from the existing mention of cess)

There are multiple sections of the Income tax act that can save tax on insurance. If you are planning to buy health insurance then you can also claim tax benefits on the health insurance premium.