Income Tax Slab

Income Tax Slab

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Income Tax Slab
Income Tax Slab

Income tax is that percentage of a person’s income that he contributes to the larger revenue of the government for it to fund the infrastructural, development based and welfare needs of the country. Income tax is one of the few direct means of taxation like the capital gains tax etc.  The income tax paid every month or on every contractual earning forms a part of the larger revenue income for the Government of India. The rules and regulations concerning income tax are imposed under The Income Tax Act, 1961.

Income Tax has to be paid by every individual person, Hindu Undivided Family, Association of Persons, Corporate firms, Companies, Local authorities and everyone else who generates an income. The tax is on income generation. Taxes are calculated on their annual incomes and an annual cycle for such assessment is the financial year that begins on 1st April and ends on 31st March. The year for whose income tax is calculated is called the previous year. And the year in which the tax is charged is the assessment year.

Income Tax slab rates are for different categories of taxpayers who are taxed progressively higher based on their earnings every year.

India is charged based on one’s income, more the income more the tax. India has four income slabs or groups

  • Income not taxed at all,
  • Income taxed at 10%,
  • Income taxed at 20% and
  • Income taxed at 30%.

The income slab also varies with age (less than 60,between 60 – 80 years, more than 80), residence (India/non-resident India) and gender (male/female). Tax slabs keep on changing from year to year. Over and above tax, surcharge and education cess is also charged. The Finance Minister announces these in budget every year.

The slabs rates differ between differ amongst one category of taxpayers as well.

SLAB RATES FOR INDIVIDUALS, HUFS, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS.

The income of this group of taxpayers is divided into various ranges. Each range of income has a different percentage of tax imposed.

  1. Income below Rs. 250000 – No Tax
  2. Income between Rs. 250001 – 500000 – 10 Percent Tax
  3. Income between Rs. 500001 – 1000000 – 20 Percent Tax
  4. Income above Rs. 1000001 – 30 Percent Tax

For e.g. suppose an individual is earning Rs. 3.5 Lac a year. The tax rate would be 10 percent. This 10 percent would be charged on the extra income above Rs. 2.5 Lac that is exempted from taxation. Thus, the tax to be paid by that individual would be on Rs 1 Lac that will be Rs. 10000.

Besides the tax rate, cess is also charged. Cess is a tax on the Tax. For a normal individual, the cess is 3 percent. Thus, the effective rates of taxation for an individual would become 10.3 percent, 20.6 percent and 30.9 percent depending upon the income.

SENIORCITIZENS

For Senior Citizens that are between the ages of 60 years to 80 years, there are 4 income tax slabs.

  1. Income below Rs. 300000 – No Tax
  2. Income between Rs. 300001 – 500000 – 10 Percent Tax
  3. Income between Rs. 500001 – 1000000 – 20 Percent Tax
  4. Income above Rs. 1000001 – 30 Percent Tax

SUPER SENIOR CITIZENS

For Senior Citizens above the age of 80 years, there are three income tax slabs.

  1. Income less than Rs. 500000 – No tax
  2. Income between Rs. 500001 – 1000000 – 20 Percent Tax
  3. Income above Rs. 1000001 – 30 Percent Tax

COOPERATIVE SOCIETIES

For co-operative societies, there are three slabs for calculating income tax.

  1. Income up to Rs. 10000 – 10 Percent Tax
  2. Income between Rs. 10000 – 20000 – 20 Percent Tax
  3. Income above Rs. 20000 – 30 Percent

The Income Tax slab is the same for a female as it is for a male. Since last few years, the government has ended taxation differences between genders.Earlier females used to get a relaxed tax slab. The female taxpayers were liable to less tax. However, now there is no such distinction.

A local authority is also required to pay a tax of 30 percent. With education cess, the effective tax rate becomes 30.9 percent. Similarly, a domestic firm is also to undergo taxation of 30 percent. Though, a foreign company is required to pay 40 percent tax over which a cess of 3 percent for education is also charged.

An individual or a group of people whose income is more than 1 crore per annum are also required to pay a surcharge of 12 percent along with the tax payable. When it comes to the handling of a huge amount of money it is highly advisable to hire a Private Sector Umbrella company as they take responsibility for certain aspects and helps other companies save time and money.

The budget of 2016 has given various benefits:

  1. It had made a provision of rebate for middle class taxpayers. This rebate is given in a situation where the income of the individual is less than Rs. 5 Lac. In such a situation, Rs. 5000 will be given as rebate on the total tax payable.
  1. It also provides for marginal relief to a taxpayer who is required to pay a surcharge, as his income is more than Rs. 1 Crore. Marginal Relief provides that a surcharge cannot be more than the excess amount minus tax payable on the excess amount. This leeway given by the government amounts to marginal relief.

To determine a tax slab, you should consider your net income, which comes after subtracting all the available exemptions and deductions. But it should also include any extra income and un-exempted capital gains.

Example of a Tax Calculation:

Step 1

The gross salary of Shyam is 14 lacs per annum. After Deduction and exemptions, his net income is 11 lacs.

From this 11 lakh, initial 2.5 lakh becomes tax free.

11,00,000 – 2,50,000 (Tax free)  = 8,50,000

Tax 1 = 0

Step 2

From the remaining 8.5 lakh another 2.5 lakh us subject to 10% tax

8,50,000 – 2,50,000 (10% tax) = 6,00,000

Tax 2 = 25,000

Step 3

Now Shyam has 6 lakh Rupees. From this amount the Rs 5,00,000 is subject to 20% tax rate.

6,00,000 – 5,00,000 (20% tax) = 1,00,000

Tax 3 = 1,00,000

Step 4

The remaining 1 lakh rupees would be subject to 30% tax.

Tax 4 = 30,000

Step 5 

The income tax liability would be the addition of tax 1, tax 2. tax 3 and tax 4.

Total Tax liability = tax 1 + tax 2+ tax 3 + tax 4

= 25,000+ 1,00,000+30,000

= 1,55,000

Step 6

Now we have to charge cess on this tax. The cess is 3% of the tax.

1,55,000 *3/100

= 4,650

Step 7

Total Tax = 1,55,000+4,650

= 1,59,650

Author: This blog is written by  Ms. Surbhi Jaju, a passionate blogger & intern at  Aapka Consultant.

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