In a world of accountancy and commerce, income tax brackets are basically the division of tax rates that are subject to change and modification in a progressive governmental tax system.
In simple terms, income tax brackets are the values that denote the cut off amount which is applicable for an individual’s taxable incomes. This implies that after a certain amount of income received by a person; he or she is required to pay a certain amount or remuneration to the government as tax. This taxable amount is subjective to the amount of income that is generated.
The higher the amount of income from the cutoff value or income tax brackets, the more the taxes one is likely to pay. Similarly, if the amount of income is on the low end yet above the stipulated income tax bracket, the amount of tax payable in the income is also less. Income generated past a certain point will be taxed at a proportionally higher rate.
Each fiscal year, the tax bracket is revised and is prone to changes for the following year. After deciding on the new income tax bracket for the following financial year, the tax brackets and income tax slabs are issued and are to be followed accordingly by each and every taxpayer.
What is an income tax slab?
India is a diverse country with different religions and people from all sectors of life. In a similar fashion, there are people in India who are diverse with respect to the amount of income they earn.
Each of these individuals is subjected to taxation by the government with respect to the amount of income the individual earns. Each of them has a different workload, different salary amounts and different conditions that they must deal with in the working of everyday life.
So, to impose a singular taxation bracket for all the taxpaying citizens irrespective of their financial roots and situations would be greatly unfair in every sense. So, to avoid injustice and to provide a fair scheme for taxation, the government has formed a categorical system where each individual is placed in a certain category depending on the amount of income they pose. These groups that are differentiated and based on the incomes of the citizens of the country are known as income tax slabs.
Each of these slabs is charged with a tax depending on varying rates each slab possesses and that in turn is dependent on the amount of income individuals have in their respective slabs.
Each and every financial year, these slabs and their rates are gone over and revised during the budget session and necessary changes are brought about. If no changes are deemed necessary, the rates of the previous financial year are carried over to the next.
The basis of revision and the criteria for fair allocation of varying rates of taxes are governed by the Income Tax Act of 1961. Regardless of whether changes are made or not, the provisions made need to be approved by the parliament of the government and must be asserted by the presidential power before becoming the law for the year and is implemented in all sectors of income and taxation.
The financial year each time starts on April 1st. So, the changes and provisions made for the income tax slabs come into effect after the first of April each year.
For 2019, the finance minister has declared that no changes are to be made for the year and that the provisions of the previous year (2018 – 2019) are to be carried forward. Although this year, the proposal of health and education cess has become accepted to be 4 % on income tax as opposed to 3 % on income tax as it was the previous year.
Income tax slab and rates for 2019
Just like every year, the income tax bracket and the income tax rates have gone under the requisite revision. For the year 2019, the budget of this fiscal year has not gone under any announced changes in the income tax slabs. This means that the income tax slabs for 2019 shall remain as it was for the previous year. The income tax brackets are different for the three groups under which these income tax brackets are applicable.
Individuals below the age of 60 years:
The income tax rates are divided according to three classifications that summarise the entire age range that can be witnessed in the common Indian society. On the basis of this age group division, different people have different income tax brackets to which they must respectively adhere to.
Individuals below the age of 60 years are included in the first group. These individuals are not yet regarded as senior citizens and are assumed to still be under a government contract and are earning a salary by engaging in employee-employer relation for a certain amount of agreed salary. Depending on the yearly income created by these individuals, they are subjected to different income tax brackets.
- Those individuals who have a collective income of up to a total of INR Two lakhs Fifty thousand (2, 50,000) are exempted from any income tax slab. People who earn a maximum of INR 2, 50,000 as their yearly income are not liable to pay tax for the year 2018 –19.
- Those who have a yearly income between INR Two Lakhs Fifty Thousand (Rs 2, 50,000) and INR Five Lakhs (Rs 5, 00,000) have an income tax bracket of 5 %.
- Similarly, any individual housing a yearly net income between INR Five lakhs (Rs 5, 00,000) and INR Ten lakhs (Rs 10, 00,000) are subjected to an income tax bracket of 20 % of their yearly income.
- Lastly, for this group, anyone with an income of more than INR Ten Lakhs (Rs 10, 00,000) is subjected to a tax bracket of 30%.
These are the income tax brackets for those individuals who are below the age of 60 years and have their tax rates according to their yearly incomes. For those who have yearly earnings of more than INR Two Lakhs Fifty Thousand (Rs 2,50,000), they are subjected to 4 % of income tax for health and education cess.
Individuals between the age of 60 years or more and 80 years and less:
Those individuals who are between the ages of 60 years and 80 years have a different income tax slab. Though quite similar to that of the previous age group, this age group is subjected and classified as a separate range for income tax slab.
- Here, those individuals who have a gross yearly income of INR Three Lakhs (Rs 3, 00,000) are exempted from income tax rates. The tax exemption limit for this age group is Rs 3 lakhs for the fiscal year 2018 – 19 apart from those who are in the other age groups of below 60 years of age and above 80 years of age.
- Citizens who have a yearly income between INR Three lakhs (Rs 3, 00,000) and INR Five Lakhs (Rs 5, 00,000) are liable to an income tax bracket of 5 % with 4 % of income tax under health and education cess.
- Those who have an income between INR Five Lakhs (Rs 5, 00,000) and INR Ten Lakhs (Rs 10, 00,000) have an income tax bracket of 20%.
- Taxpayers who have an income amount above INR Ten Lakhs (Rs 10, 00,000) have an income tax bracket 30 %.
Individuals who are above the age of 80 years:
In this age group, all the taxpayers are senior citizens of the society.
- Here, if an individual has an income of INR Five Lakhs (Rs 5, 00,000), they are exempted from paying any taxes. No income tax bracket is applicable to them.
- If an individual has an income between INR Five Lakhs (Rs 5, 00,000) and INR Ten Lakhs (Rs 10, 00,000) then the income tax bracket for them is 20 %.
- Finally, if a citizen in this age group has an income of over INR Ten Lakhs (Rs 10, 00,000), the income tax bracket applicable to them is 30 %.
Slab rate for Hindu undivided families (HUF):
A HUF or Hindu undivided family is a family unit created where assets are pooled in to form a HUF. By doing this, one can save on taxes. A Hindu undivided family is taxed separately for each of its individual members.
A family which is Hindu by religion can come together to form a Hindu undivided family. This is not a necessity as people from other religions can also from a HUF. A HUF is like a separate singular identity with its own pan card and files on tax returns so the members are not individually taxed but the HUF is taxed as a singular identity.
For a Hindu undivided family, the income tax slab is as follows:-
- For income up to a maximum of INR Two Lakhs Fifty Thousand (Rs 2, 50,000), there is the benefit of tax exemption. There is no tax to be paid if the income of the HUF is below this amount.
- If the income of a HUF is between INR Two Lakhs Fifty Thousand & One (Rs 2, 50,001) and Five Lakhs (Rs 5, 00,000), applicable tax amount will be 5 % of the income exceeding that of INR Two Lakhs Fifty Thousand (2, 50,000).
- If the income of the HUF happens to be between the range of INR Five Lakhs & One (Rs 5, 000,001) and INR Ten Lakhs (Rs 10, 00,000), the requisite tax amount is 20 % of the income which exceeds Rs Five Lakhs.
- Lastly, if the income of the Hindu undivided family is above INR Ten Lakhs (Rs 10, 00,000), the tax amount is 30 % of the income which exceeds ten lakhs.
Tax calculations with tax brackets
It is not a surprising thing if tax calculations can get quite complicated quickly. A lot of things determine the amount of your total income that is taxable. Taking itemised deductions, multiple sources of income, other uncommon sources of income and complex financial situations into account while calculating your taxes can make the entire process a cumbersome task to go about.
Therefore, we can safely say that calculating one’s taxes is not an easy job. While calculating taxes, one needs to know the amount of taxable income and the income tax bracket it falls under along with the rate of the bracket. Not only that, but one must also be aware of income tax filing status. By knowing which income tax bracket one falls under and knowing the rate of tax of the specific bracket, tax calculation becomes easier and slightly simpler.
For the year 2018 – 2019, aforementioned are the income tax brackets and income tax slabs. All individual parts of the functioning society associated with finance must follow and adhere to these income tax brackets.
From a government employee to a self-employed worker, regardless of what the financial source is if the income of an individual falls under any of the specified income tax slabs, he or she must pay the requisite amount of tax as per their income tax bracket.
Knowing one’s own tax bracket and in which income tax slab it falls under help in calculating the amount of income which is taxable. The different income tax rates are specific to the individual’s income tax bracket and knowing them is a crucial step to be able to clear all tax obligations without any hindrance or possibility of future discrepancies.
By using these tax brackets and being aware of the changes brought to them in each fiscal year, anyone can bring order and simplicity to their tax calculated and its subsequent calculation. The use of these tax rates in their respective income tax brackets are what help taxpayers organise their yearly finances and help minimising the total amount of tax that is payable by them to the government.
People can save up and reduce the total amount of taxes that they are likely to pay by abiding by the information prescribed in each tax bracket. Knowing how to calculate one’s taxes using the current rates help them make timely payments to the tax department and avoid any future complications that may arise.