Income Tax Above 5 Lakh

Income tax is the tax levied on the income earned by an individual through any source and hence is taxable in the eyes of the law if it passes the tax slab category limit. Many taxes, from local to national, are applicable on all levels and are considered one of the major sources of income for the Government of India. Let us walk through what taxes are and their types, offering our prime focus on the Income tax and how deductions are made on income earned above Rs. 5 lakhs, keeping in mind the old and new regimes.

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What is Tax?

Taxes are considered an obligatory contribution that every individual has to make who earns income in India in any form and falls under the tax slab category. Taxes are collected from the citizens of the country to upgrade the Indian economy and standard of living. They can be applicable only after the State Legislative or the Indian Parliament passes the law.

Types of Taxes

There are major 3 types of taxes applicable to the citizens of India, namely:

  • Direct taxes

  • Indirect taxes

  • Other taxes

Both direct taxes and indirect taxes have many sub-categories and different implementations from one another that helps in avoiding double taxation problems.

Apart from the traditional direct and indirect taxes, there are other taxes too that are launched keeping specific agenda in mind by the Government of India. Other taxes are applicable on both direct as well as indirect taxes like Infrastructure Cess, Swachh Bharat Cess Tax, Krishi Kalyan Cess, etc.

Below mentioned are some of the main taxes levied by the Government of India on its citizens.

Taxes
Direct Taxes Indirect Taxes Other Taxes
Income Tax Sales Tax Property Tax
Wealth Tax Goods & Services Tax (GST) Professional Tax
Gift Tax Value Added Tax (VAT) Entertainment Tax
Capital Gains Tax Custom Duty Education Cess
Securities Transaction Tax Octroi Duty Toll Tax
Corporate Tax Service Tax Registration Fees

Overview of the Tax Slab

Here is the overview of Income Tax Slab Rates for the Financial Year 2022 – 2023 (Assessment Year 2023 – 2024). It is important to note that significant changes were made in the Union Budget 2023 that was announced on 1st February 2023 and will be applicable from 1st April 2023. 

Major Changes Made Under Union Budget 2023:

  • The whole income tax slab structure and its associated tax rates are changed. 

  • Taxpayers can continue with the old tax structure, or the new tax slab rates will be applicable by default.

  • Either the Old or the New tax regime can be followed for the payment of tax.

  • The tax rebate offered under Section 87A of the Income Tax Act, 1961, is increased from Rs. 12,500 to up to Rs. 25,000.

  • As per the new tax regime, an individual earning up to Rs. 7,00,000 (earlier Rs. 5,00,000) does not fall under the tax paying category, irrespective of the tax regime followed.

  • Once opted for a new tax regime, a taxpayer can never switch back to the old regime in their lifetime.

  • If no investments are made throughout the financial year, along with income not exceeding Rs. 7,00,000 (earlier, this limit was Rs. 5,00,000), an individual does not fall under the tax paying category.

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Sections That Come Under Income Tax

Here is the list of sections that fall under the income tax category and the maximum claims an individual can make while filing the income tax return.

Sections Maximum Claim Limit
80 C Rs. 1,50,000
80 CCC Rs. 1,50,000
80 CCD Rs. 1,50,000
80 CCF Rs. 20,000
80 CCG Regular Citizens: Rs. 25,000
Senior Citizens: Rs. 50,000
80 D Rs. 20,000
80 DD Normal Disability: Rs. 75,000
Severe Disability: Rs. 1,25,000
80 DDB Senior Citizens: Rs. 1 lakh
Other than Senior Citizen: Rs. 40,000
80 E No limit
80 EE Rs. 3 lakhs
80 GG Rs. 2,000 per month
80 GGA Depends on donation
80 GGB Depends on donation
80 GGC Depends on donation
80 IA No limit
80 IAB No limit
80 IB No limit
80 IC No limit
80 ID No limit
80 IE No limit
80 JJA First 5 years' profits
80 QQB Rs. 3 lakhs
80 RRB Rs. 3 lakhs
80 TTA Rs 10,000 per year
80 U Normal Disability: Rs. 75,000
Severe Disability: Rs. 1,25,000

New Income Tax Slab Rate Table

New income tax slab rates were introduced in the Financial Year 2022 – 2023 for AY 2023-24. It has given the option to individual taxpayers whether to go for the new income tax regime or continue with the old income tax regime. Here is the table with new tax rates as applicable to the annual income.

Income Tax Slab New Regime Income Tax Slab Rates for FY 2022 -2023
(Applicable on All Categories of Individuals & HUF)
Up to Rs. 3 Lakhs NIL
Rs. 3 lakhs to Rs. 6 lakhs 5% (tax rebate u/s 87A is available if income is less than Rs. 7 lakhs)
Rs. 6 lakhs to Rs. 9 lakhs 10%
Rs. 9 lakhs to Rs. 12 lakhs 15%
Rs. 12 lakhs to Rs. 15 lakhs 20%
Rs. 15 lakhs and above 30%

It Is Important to Know That:

  • The new income tax regime is the same for all the categories of individuals and HUFs, be they below 60 years or above 80 years of age.

  • Individuals earning equal to or less than Rs. 7 lakhs annually are eligible for tax rebates under Section 87A, making the tax liability NIL.

  • The exemption limit in the case of NRIs (Non-Resident Indians) is Rs. 2,50,000, irrespective of age.

  • A 4% health and educational cess is applicable to the income tax liability.

Surcharge

The cess and surcharge on income tax payable are applicable if the total income of the assessee exceeds the below-mentioned limits:

Assessment Year 2022-23
Income Range Surcharge
Above Rs. 50 Lakhs but less than Rs. 1 Crore 10%
Above Rs. 1 Crore but less than Rs. 2 Crores 15%
Above Rs. 2 Crores but less than Rs. 5 Crores 25%
Above Rs. 5 crores but less than Rs. 10 Crores 25%
Above Rs. 10 Crores 25%

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Example of Income Tax Rate Calculated Under New Regime

Gross Total Income Rs.12 lakh
Deductions under Section 80 and 80CCD NIL
House Rent Allowance (HRA) NIL
Medical and Travel Allowance NIL
Taxable Income Rs.12 lakh
Up to Rs.3 lakh NIL
Above Rs.3 but less than Rs.6 lakh Rs.15,000
Above Rs.6 lakh but less than Rs.9 lakh Rs.30,000
Above Rs.9 but up to Rs.12 lakh Rs.45,000

Income Tax Slab Rates: New Tax Regime Vs. Old Tax Regime

The new Union Budget 2023 declares new tax slab rates applicable by default from 1st April 2023. Let us understand the significant changes brought in the income tax calculation for the FY 2022-23 (Assessment Year 2023-24) from the table below:

Tax Rates (in %) Previous Income Slabs for FY 2020-21 (Rs. in Lakhs) New Income Slabs for FY 2022-23 (Rs. in Lakhs)
NIL Rs.2.5 lakhs Rs. 3 lakhs
5% Rs. 2.5 lakhs- Rs. 5 lakhs Rs. 3 lakhs- Rs. 6 lakhs
10% Rs. 5 lakhs- Rs. 7.5 lakhs Rs. 6 lakhs- Rs. 9 lakhs
15% Rs. 7.5 lakhs- Rs. 10 lakhs Rs. 9 lakhs- Rs. 12 lakhs
20% Rs. 10 lakhs- Rs. 12.5 lakhs Rs. 12 lakhs- Rs. 15 lakhs
25% Rs. 12.5 lakhs- Rs. 15 lakhs --
30% Rs. 15 lakhs & Above Rs. 15 lakhs & Above

Previous Tax Regimes of FY 2019-20 and FY 2020-21:

Income Tax Slab Old Tax Regime for FY 2019-20 (AY 20-21) Previous Tax Regime for FY 20-21 (AY 21-22)
Resident Individuals, NRIs & HUF <60 years of age Resident Individuals & HUF b/w 60-80 years of age Resident Individuals & HUF >80 years of age Applicable for All Individuals & HUF
Up to Rs. 2.5 lakhs NIL NIL NIL NIL
Rs. 2.5- 3 lakhs 5% (rebate on tax under Section87A) NIL NIL 5% (rebate on tax under Section87A)
Rs. 3-5 lakhs 5% (rebate on tax under Section87A) NIL NIL 5% (rebate on tax under Section87A)
Rs. 5-7.5 lakhs 20% 20% 20% 10%
Rs. 7.5-10 lakhs 20% 20% 20% 15%
Rs. 10-12.50 lakhs 30% 30% 30% 20%
Rs. 12.5-15 lakhs 30% 30% 30% 25%
Rs. 15 lakhs and above 30% 30% 30% 30%

Summing It Up!

The new tax regime promises to encourage the whole spectrum of taxpaying individuals, as no liabilities are charged if the income earned annually is less than Rs. 7 lakhs. Also, for the High Net-worth Income (HNI) class earning annual income above Rs. 5 crores, the previous surcharge rates got reduced from 37% to 25%. With the due enforcement of the new tax regime, the benefits or the disadvantages will be analysed in the upcoming financial year.

FAQ's

  • What tax will I pay on Rs. 5 lakhs?

    No tax is needed to be paid by an individual earning an annual income of Rs. 5 lakhs. As per the announcements made under the Union Budget 2023, if an employee is earning up to Rs. 3 lakhs annually, they are exempted from income tax. For individuals earning up to Rs. 7 lakhs, a tax rebate can be claimed under Section 87A.
  • How to calculate income tax above Rs. 5 lakhs?

    For example, if the individual is earning Rs. 13 lakhs annually, the income tax calculations will be as follows:
    • Income up to Rs. 3 lakhs will be charged no tax= Rs. 0
    • Income in the Rs. 3-6 lakhs tax slab will be charged at a 5% tax rate = Rs. 15,000
    • Income in the Rs. 6-9 lakhs tax slab will be charged at a 10% tax  rate = Rs. 45,000
    • Income in the Rs. 9-12 lakhs tax slab will be charged at a 15% tax rate = Rs. 90,000
    • Income of Rs. 1 lakh is in tax slab of Rs. 12-15 lakhs charged at 20% of tax rate= Rs. 20,000
    Total income tax levied will be= Rs. 15,000+ Rs. 45,000+ Rs. 90,000+ Rs. 20,000= Rs. 1,70,000 annually.
  • Is tax exemption below Rs. 5 lakhs?

    Yes, income up to Rs. 3 lakhs is tax exempted, and income up to Rs. 7 lakhs is applicable to claim tax rebates under Section 87A.
  • How can I reduce income Tax?

    Individuals can reduce their income tax by claiming tax exemptions under Section 80C, Sec. 10(10D), Sec. 80D of the Income Tax Act, 1961. For this, one needs to invest their annual income in various plans and schemes as mentioned in the IT Act. For example, Health insurance policies, tax-free investment plans, life insurance policies, NPS, EPF, PF funds, and more.
  • Can I invest in more than 1 investment policy and claim Rs. 1,50,000 exemptions each?

    Ans: No. Rs. 1,50,000 is the maximum exemption limit regardless of the number of policies or investments made under Section 80C of the Income Tax Act, 1961.
  • Is donation eligible for tax exemption?

    Ans: Yes, but only specific funds and institution donations are eligible for the exemption of tax under Section 80C of the IT Act.
  • When can I claim my 80C deductions?

    Ans: Deductions under any Section can be claimed during the filing of Income Tax Return at the end of each assessment year.
  • Which investment method should I go for to save taxes?

    Ans: There are many Insurance Policies, Fixed Deposits, Mutual Funds, Public Provident Funds, etc. available in the market which an individual or Hindu Undivided Family (HUF) can opt for to save their taxes. However, keeping in mind factors like personal appetite, age, and assets in hand, is very important before making any kind of investment.
  • How does the government collect taxes?

    Ans: There are 3 ways for Government of India to collect taxes from the citizens, namely:
    • Voluntary payment by visiting any designated bank.
    • TDS, that is, Tax Deduction at the Source. It means tax is deducted directly from the income of the receiver.
    • TCS, that is, Tax Collected at the Source.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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