Income Tax Rates

The tax rate applicable to an individual would depend on his income bracket. Various income slabs, along with different tax rates, are provided every year in the Union Budget and are generally presented to the Parliament of India on the last day of February.

The slab rates mentioned in the Budget are applicable for the following financial year (April-March).

Furthermore, the law also provides special exemptions to ‘resident senior citizens’ (individuals who are more than 60 years of age) and ‘resident very senior citizens’ (individuals who are more than 80 years of age), where the basic exemption limit is INR 300,000 and INR 500,000, respectively.

Finance Act 2021 inserted a new Section 194P which provided conditions for exempting senior citizens aged 75 years and above from filing Income Tax returns. This Section became applicable on 1 April 2021.

For instance, the Finance Act, 2022 has the following rates for individual taxpayers (other than senior citizens):

Relief under section 87A up to INR 12,500 is available for resident individuals having a total income of up to INR 500,000. In addition to the above, individuals with a total income exceeding INR 5 million up to INR 10 million in a year are liable to pay a surcharge of 10%. Also, individuals with a total income exceeding INR 10 million up to 20 million in a year are liable to pay a surcharge at the rate of 15%.

Additionally, under the Finance Act, 2019, a surcharge of 25% is leviable in case the income exceeds INR 20 million but does not exceed INR 50 million. Similarly, a surcharge of 37% shall be leviable in case the income exceeds INR 50 million.

The Finance Act 2023 has introduced a new tax regime that individuals, Hindu Undivided Families (HUFs) AOP, BOI, can opt for, instead of the existing structure. The salient features of the new regime are as follows:

The new tax rates will be applicable if the individual, HUF, Associations Of Persons (AOPs), or Bodies Of Individuals (BOI) complies with all the points mentioned below:

• Forego all deductions (excluding standard deduction of INR 50,000) and exemptions such as House Rent Allowance, interest on housing loan, PPF and other Section 80C investments, mediclaim, etc. However, they are entitled to a deduction in respect to employees’ contribution to a pension scheme.
• No loss shall be allowed to be set off carried from earlier years if such loss pertains to any specific deductions or loss under the head income from house property.
• Additional depreciation shall not be allowed and only normal depreciation shall be available
• No exemption or deduction will be available for allowances or perquisites provided under any law for the time being in force.

Individuals and HUFs, having income from business or profession, must opt for the new tax regime before filing their return of income. After opting for this new tax regime, it can only be withdrawn once in a lifetime.

All taxes in India are further increased by a Health and education cess, which is 4% of the total tax payable (tax plus applicable surcharge).

The surcharge rate under the new regime has been pegged to 25% in cases where total taxable income exceeds INR 25 million.

Furthermore, it has been clarified that the new regime will operate as the default regime and taxpayers will have a choice to specifically opt for the old regime, if required.

The concept of marginal relief is also available in case of persons opting for the new regime and a rebate under Section 87A is allowed up to 100% of the total tax liability or INR 25,000, whichever is less.

Taxation of Dividend Income

The Finance Act, 2020 has done away with dividend distribution tax, and consequently, any dividend income earned shall be taxable in the hands of the recipient. Furthermore, a clarification is provided in the Act that if DDT has been charged and a dividend is received after 1 April 2020, the same shall not be taxable in the hands of recipients.

Furthermore, a higher surcharge of 25% and 37% is not applicable to the dividend income.

Taxation of excess contribution to specified funds by employers

The Finance Act, 2020 now provides that any contribution by an employer towards a recognized provident fund, national pension scheme, or approved superannuation fund of an employee in excess of INR 0.75 million will be taxable in the hands of the employee.

Furthermore, any accretion to the above fund by way of interest or dividend or anything similar nature, which relates to contribution in excess of INR 0.75 million will also be taxable.

You can know more about individual tax liabilities on the Income Tax Department’s website, www. incometaxindia.gov.in.