Union Budget 2023 | What Are Income Tax Slabs And Why Taxpayers Have Eyes Fixed On Them

Finance Minister Nirmala Sitharaman will present the Union Budget on February 1. Different sections of the economy have differing sets of expectations from the budget, but what the salaried classes most look forward to is the income tax rate. India follows a progressive method of taxation and there is a possibility that this year's budget dwells on the tax rate, especially since the last change took place in 2020.    

In 2020, the Union government introduced the new tax regime for the 2020-21 financial year. The new regime increased the number of tax slabs from three to six. 

What are income tax slabs? 

In India, the income tax department levies taxes on individual taxpayers based on a slab system. The slab system indicates the different tax rates for different ranges of income. The taxpayers have to pay taxes to the government based on the income slab they are part of. The tax rates go up with an increase in income. 

The government operates on the basis of this slab system to ensure that the individual is paying a fair share of tax based on their income. 

The three categories of taxpayers are:  

1. Individuals (aged less than 60 years) including residents and non-residents
2. Resident Senior citizens (60 to 80 years of age)
3. Resident Super senior citizens (aged more than 80 years)

Old tax regime 

The old tax regime taxed citizens on three income slabs:

Less than Rs 2.5 lakh - Nil 

Rs 2.5 lakh to Rs 5 lakh - 5% (rebate applicable) 

Rs 5 lakh to Rs 7.5 lakh - 20% 

Rs 7.5 lakh to Rs 10 lakh - 20% 

Rs 10 lakh to Rs 12.5 lakh - 30% 

Rs 12.5 lakh to Rs 15 lakh - 30% 

Over Rs 15 lakh - 30% 

In 2020, the Centre introduced the new tax regime for the subsequent financial year. 

The new tax regime 

Less than Rs 2.5 lakh - Nil 

Rs 2.5 lakh to Rs 5 lakh - 5% (rebate applicable) 

Rs 5 lakh to Rs 7.5 lakh - 10% 

Rs 7.5 lakh to Rs 10 lakh - 15% 

Rs 10 lakh to Rs 12.5 lakh - 20% 

Rs 12.5 lakh to Rs 15 lakh - 25%

Over Rs 15 lakh - 30% 

The transition from old tax regime to new tax regime came with certain conditions. To opt for the new tax rates, a taxpayer has to let go of certain exemptions and deductions available in the old regime. Some such exemptions included leave travel allowance, house rent allowance and conveyance allowance.