In the last budget – the first full-fledged Union Budget since the COVID-19 became a pandemic – there were no changes in income tax slabs. However, in last to last Budget, Sitharaman introduced a new tax structure, offering an individual the choice of paying tax under the new structure with lower rates but foregoing deductions or continue paying tax under the existing tax laws and claim the applicable exemptions.
According to the current rules, a slab system functions across the country, where different tax rates have been prescribed for different slabs.
There are three categories of individual taxpayers: Individuals (below the age of 60 years) which include residents as well as non-residents, resident senior citizens (60 years and above but below 80 years of age) and resident super senior citizens (above 80 years of age).
Currently, 7 income slabs are available under the new tax regime. According to it, annual income up to Rs 2.5 lakh is exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh have to pay 5 percent tax. Income between Rs 5 and 7.5 lakh is taxed at 10 percent, while those between Rs 7.5 and 10 lakh at 15 percent.
Those earning between Rs 10 and 12.5 lakh have to pay tax at the rate of 20 percent, while those between Rs 12.5 and Rs 15 lakh have to pay at the rate of 25 percent. Income above Rs 15 lakh is taxed at 30 percent.
This structure does not allow exemptions under Section 80C. Home loan exemption, insurance exemptions, standard deduction also do not qualify under the regime.
Meanwhile, according to the old tax regime, if the total income of an individual is not more than Rs 2.5 lakh, the tax rate is nil. If the income falls in Rs 2.5 lakh-Rs 5 lakh bracket, 5 percent income tax is payable. However, those earning up to Rs 5 lakh can claim a rebate of Rs 12,500 under Section 87A of the Income Tax (I-T) Act.
For individuals earning Rs 5 lakh to Rs 10 lakh, tax is deducted at the rate of 20 percent. If the total income of an individual is more than Rs 10 lakh, 20 percent tax is payable.
Union Finance Minister Nirmala Sitharaman will present the full-year Budget for the financial year 2022-23 on February 1, 2022.