Do You Know These 6 Income Tax Slab Rules?

Understanding the various income tax slabs is important for every salaried individual in India. These brackets define the rates for different earnings levels, ensuring fair contributions. The recent Union Budget 2024-25¹ introduced some changes to the tax system.

In the following sections, we will delve into six key rules you must know, serving as a checklist before your submission. Based on these rules you can further consider the different tax-saving options available for you and plan your investment accordingly.

Application Of Income Tax Rules

Now, let us explore the provisions that apply from April 1, 2024.

#1 Know About The Tax Regimes And The Income Tax Slabs

Now, let us explore the current tax systems and income brackets. The Income Tax Act-1961 governs the tax structure, which categorises earnings into five heads: salary, house property, business/profession, capital gains, and other sources.

Importantly, taxpayers can choose between the traditional and new regimes. The former includes various exemptions and allowances, which can help lower your taxable income. Conversely, the latter offers reduced rates but eliminates most of these benefits.

Selecting the appropriate regime can greatly affect your finances. The new system, being the default under 115BAC section, simplifies the process with straightforward rates. If you prefer the old regime of taxation, inform your employer to ensure that your deductions are adjusted accordingly. This choice should be based on your specific earnings and eligible claims.

Additionally, switching between these options is possible annually but requires careful planning. Make sure to communicate your preference at the start of the financial year. Each regime has its own advantages, so assess your financial situation thoroughly.

Here is the income tax chart for under-60 salaried individuals and HUFs under both the new and old systems for FY 2023-24 - assessment year 2024-25.

The new proposed tax slabs in Budget 2024 for the new tax regime which are applicable for FY 2024-25 - assessment year 2025-26.
 

Please note the tax exemptions here. In case your earnings do not come under the limits, they are entirely free from taxation.

For the latest regime, any income up to INR 3 lakh is not taxed. In the old regime, the thresholds change with age. Below 60? The bar is INR 2,50,000. For sixty to eighty, it is INR 3 lakh. And for those 80+, the exemption is INR 5 lakh.

#2 Zero Tax Liability

If your earnings are up to INR 7 lakh and you choose the latest regime, you are eligible for an income tax rebate of INR 25,000. This effectively nullifies your tax obligation. The old regime provides a rebate of INR 12.5 thousand for incomes up to INR 5 lakh.

Eligibility is key. You must be an Indian resident with post-deduction earnings within the specified limits. This rebate is applied before adding health and education cess.

However, not all types of earnings qualify. Long-term gains from listed shares, equity mutual funds, and income from gambling, lotteries, and betting do not benefit from Section 87A. These are subject to special tax rates.

#3 Maximise Income Tax Deductions

As a salaried person, it is of great importance to be aware of these tax breaks. Proper use of these provisions can significantly lower your taxable receipts and reduce your tax burden.

Section 80C offers a variety of savings options. You can invest up to INR 1.5 lakh in several schemes such as public provident funds, equity equity-linked savings schemes.

Next, the 80D section focuses on health insurance. Claim up to INR 25 thousand for premiums covering yourself, your spouse, and your children. For senior citizen parents, the ceiling doubles. Retain premium receipts for claiming this benefit.

Home loan interest is addressed under Section 24. Claim up to INR 2 lakh on interest paid for a self-occupied property. There is no ceiling for rental properties. This provision offers substantial relief for homeowners. Likewise, interest on education loans is claimable under 80E with applicable rules.

Charitable donations are encouraged under Section 80G. The benefit varies:

• 50% benefit: Applicable to most recognised non-profits.
• 100% benefit: For donations to certain specified funds.

Ensure donations are to approved organisations and keep all receipts.

The National Pension System (NPS) under 80CCD(1B) provides an additional INR 50 thousand benefit. This is over the 80C cap and encourages retirement savings.

These are some of the provisions to deduct. Carefully choose to reduce your taxable income and also the tax liability. 

#4 Common Tax Exemptions

We saw the deductions, but there are also exemptions. Several tax-free allowances can be claimed to reduce your taxable income. Here is a breakdown of some key allowances:

• House Rent Allowance/HRA is a benefit for employees living in rented accommodation. The amount is determined based on HRA received, rent paid, and location.
• Leave Travel Allowance or LTA offers relief for travel costs within India. It applies to journeys for yourself, spouse, children, dependent parents, and siblings.
• Children’s Education Allowance (CEA) supports the educational costs of your children. Additional benefits are available if children reside in a hostel.
• Transport allowance assists with commuting costs between home and workplace.
• Medical allowance covers medical-related expenditures.
• Gratuity is a lump sum received upon retirement or resignation.

#5 File ITR Timely

Submitting your Income Tax Return, also referred to as ITR, on time is vital, especially if you prefer the old tax regime. Since the new system is the default, opting for the old one requires you to complete your ITR before July 31. Missing this cut-off date will switch your tax calculation to the new system, even for late submissions. Filing ITR online is easy and hence you should not miss the deadline.

Plus, here are the key reasons to submit your ITR promptly:

• Avoid Penalties and Interest: Late submissions incur interest and penalties. A 1% monthly interest starts from August 1 until submission.
• Late-Filing Fee: Missing the last date results in a fee of INR 5 thousand. For earnings below INR 5 lakh, it reduces to INR 1,000.
• Quick Refunds: Early submissions ensure faster processing of any refunds due to you.
• Loss Carry Forward: Timely submission allows carrying forward losses for future adjustments, which late submissions do not permit.
• Loan Approvals: Meeting the ITR deadline is often required for loan applications, serving as proof of income.

#6 Benefit From Reduced Surcharge (New Tax Regime)

Individuals with very high earnings can benefit significantly from the new tax structure. For those making over INR 5 crore, the additional charge has been reduced to 25%, down from 37% under the old system.

Bottomline

Understanding income tax rules can significantly impact your overall finances. Select the regime that best suits your earnings and goals. File your returns on time to dodge penalties and secure quick refunds. Consult an expert for personalised strategies to maximise your benefits.

Stay informed on the latest tax rules and explore Grip Invest for top investment opportunities.

Frequently Asked Questions On Income Tax Slabs

1. Is the new tax regime mandatory for FY 2024-25?

No, it is not compulsory, you can choose between the old and new tax regimes. If you prefer the old regime, inform your employer and file before July 31. The choice is yours. Pick what suits you best and lowers your tax liability.

2. Will the 80C limit increase in 2024?

The Section 80C threshold was last updated in 2014². There is no confirmation yet if it will be raised in 2024. We need to wait for the official announcement. Right now, it stays the same. Keep an eye on updates for any changes.

References:

1. Press Information Bureau <https://bit.ly/3AJirnu>

2. Money Control <https://bit.ly/4cFgt50>

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