People from any kind of financial field must have basic knowledge regarding the income tax slab rate and tax saving options in India. As India has a diversified investment field, there are multiple Tax Saving schemes available in India. For the newbies, income tax slabs, rules, processes, and tax saving options can seem too tedious as well as daunting for the first time. Actually, the subject is not as hard as it seems. Only basic knowledge can fulfil the purpose. Hence, today we are going to cover some basic topics under the income tax. Let’s begin from the very basics.
What is Income Tax?
In simple terms, depending on the income, each individual person has to give a certain tax directly to the Government as per some calculation, refers as income tax. The first income tax was introduced in India in the year 1860 but currently, the 1961 tax act is applicable in India.
Broadly there are two types of income tax present in India, one is a Directly payable tax and the other is an Indirectly payable tax. As people directly pay income tax to the Govt, it falls under the category of Direct Tax.
There are different slabs of Income Tax according to age, profession, and income. After demonstrating the income tax slab rate, we will go for multiple varieties of tax-saving options in India.
Income Tax Slab Rate
In order to avoid confusion while paying tax to Govt, the income tax Tax Slab Rate is different based on Age group, Income, and Profession. The latest 2018-19 slab rates are mentioned below (as per the Indian Govt Rule).
Tax Slab for Individuals (Age Less than 60 Years)
For individuals below 60 years, the Indian income tax slab rates are as follows:
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Individuals below 60 years are subject to the standard income tax slab rates. Income up to ₹2.5 lakh is exempt from tax, and thereafter, the tax rate progresses in tiers based on the income range.
Slab of Tax for Individuals (Age More than 60 Years but Less than 80 Years)
For senior citizens between 60 and 80 years, the tax rates are slightly relaxed:
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Senior citizens aged between 60 and 80 years benefit from a higher exemption limit of ₹3 lakh, making their tax liability slightly lower compared to younger individuals.
Tax Slab for Individuals (Age More than 80 Years)
For super senior citizens above 80 years, the tax rates are even more favourable:
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 5,00,000 | Nil |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Super senior citizens, those above 80 years, enjoy a significantly higher exemption limit of ₹5 lakh, providing them with substantial tax relief.
Slab of Tax for Firms and Domestic Companies
The tax rates for firms and domestic companies are structured differently and are uniform regardless of the age of the stakeholders:
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 1 crore | 25% |
| Above 1 crore | 30% |
| Surcharge (if income exceeds ₹1 crore) | 7% on tax |
| Surcharge (if income exceeds ₹10 crore) | 12% on tax |
| Health and Education Cess | 4% on tax plus surcharge |
Firms and domestic companies are taxed at a flat rate, with additional surcharges applicable for higher income brackets. A health and education cess is also levied on the total tax payable, including surcharges.
These tax slabs ensure a structured taxation system in India, accommodating different categories of taxpayers with specific benefits for senior citizens.
Tax Saving Options in India
The above basic data reflects the Indian Govt Income Tax slab. Now, we will move on to the next part of the content, Tax Saving Options in India. There is a quote by Benjamin Franklin “In this world, nothing can be certain, except death and taxes”. However, there are a number of smart and effective ways by which people can save tax up to a certain limit and enjoy maximum savings.
Almost all people don’t take tax planning seriously but tax planning is always a smart approach to investment. Section 80C, Section 80CCC, and, Section 80CCD Govt specified certain saving instruments by which common men can save their hard-earned money. Here, we are going to list some of the best tax-saving options in India.
List of Tax Saving Schemes
PPF or Public Provident Fund
Almost all people from any financial field are aware of PPF or public provident fund. It is one of the most popular savings cum tax saving instruments in India. As per the current information (as it keeps changing every three months) PPF offers 8%/annum. Someone who is paying 31.2% tax (highest income slab), comes up with nearly 11.62% taxable return.
EPF or Employees Provident Fund
EPF or Employees Provident Fund is another avenue for salaried persons. An employee contributes 12% of the basic salary/per month to his EPF account. An equal share contributed by the employer (but only 3.67%) goes to EPF. Under Section 80C employee can get up to 1.5 lakh tax benefit (but not on the employer’s share).
ULIP
Unit Linked Insurance Plans, also known as ULIPs are kind of a hybrid product that is a combo pack of insurance and investment. It allows a maximum exemption of Rs.1 lakh/year. Depending on the scheme, it provides returns of 5% to 11% returns.
National Saving Certificate
The issuer of NSC is the post office but the interest is backed up by the Govt of India. As per the current information, it is available for 5-year periods with a minimum investment of Rs.500. However, interest can be claimed as an exemption within the limit of 1.5 lakhs. All age groups can apply for the certificate.
National Pension Schemes
People who are looking for retirement savings may try this NPS or National Pension Schemes as a tax savings scheme. The minimum investment limit is Rs.500 and there is no maximum limit of investment. There are a number of NPS schemes that can give returns between 10% to 15%. However, in the Tier-1 scheme, people can invest up to 1.5 Lakh and get an exemption.
Sukanya Samriddhi Account Scheme
If you have a girl child, this plan is apt for you. Here, you can invest up to 1.5 lakhs with an interest rate of 8.1% per annum. Parents can hold the scheme until the girl attains 15 years. Here, the interest after the maturity of the scheme is free.
Tax Saving Options in Mutual Fund
Mutual Funds are such a vast investment field in the Indian Financial Market. There are lots of income tax saving options available in mutual fund schemes:
ELSS Mutual Fund
ELSS or Equity Linked Savings Scheme is a Mutual Fund division that is a diversified equity scheme. The ELSS has two different characteristics. The first one is, it has tax benefits up to a limit of Rs. 1 lakh each year, Secondly, the invested amount has a 3-year lock-in period. Long-term capital returns from these schemes are tax-free.
Some of the biggest fund houses which offer ELSS funds are as follows:
- HDFC
- Birla Sun Life
- IDBI
- SBI
- ICICI Prudential
Post Office Tax Saving Schemes
Under the tax saving section of 80C, there are post office tax saving schemes too. People can claim up to Rs.1 lakh as tax benefits each year through the multiple post office investment options. Here is the list of major tax savings schemes offered by the post office:
- Recurring deposit account for 5 years
- Time deposit account
- SCSS or Senior Citizen Savings Scheme
- 15 years PPF (Public Provident Fund) account
- NSC or National Savings Certificate (VIII issues)
Tax Saving FD (Fixed Deposit)
Scheduled banks offer tax-saving fixed deposit schemes with a tenure of max 5 years. Here, also investors can claim up to 1.5 lakh tax benefits through these schemes. The list of top banks with tax-saving FD schemes is given below:
- ICICI
- Axis
- HDFC
- SBI
- IDBI
Traditional Life & Health Insurance Plans
Life Insurance and Health Insurance are some of the traditional insurance plans and options for tax savings. You can get tax benefits from these traditional insurance schemes. As there are multiple and a variety of schemes available under it, it is advisable to check the information minutely prior to investment.
FAQ on Income Tax Slab Rate
Income tax slabs vary from one financial year to another. For the FY 2020-21, taxable incomes of up to Rs 2.5 lakh are exempt from paying any taxes whereas incomes between Rs 2.5 lakh to Rs 5 lakh will be taxed at 5%. Incomes between 5 – 7.5 lakh get a 10% charge while those falling in the range of 7.5 – 10 Lakh get a 15% levy and so on for greater amounts; 30% kicks in when annual incomes garner more than 15 lac per annum.
For 2021-22, taxable incomes up to five (5) lacs remain free from taxes while people earning more than this amount fall under different taxing brackets like 10%, 15%, 20% & 30%. In addition, additional cesses and surcharges apply depending upon your applicable category or income level as determined by rules.
Updates related to the upcoming fiscal year’s regulations regarding taxation should come out towards mid-year 2021 or possibly before that due to an evolving macroeconomic situation. Once made available you can easily access such information through official sources like the Ministry of Finance’s website etc., or contact your chartered accountant.
People having yearly gross total income beyond Rupees fifteen (15) lacs need must bear and pay a certain percentage towards various kinds of cesses alongside their regular taxes leviable thereon too; payable amount culminating into thirty percent (30%) once they exceed said figure although sometimes exemptions may apply based on residential status including COVID 19 concessions given recently by both central and state governments alike if proved eligible accordingly during Financial Year inspections concerning the same topic.
Conclusion
In this article, I’ve tried to collect and distribute basic information regarding Income Tax Slab Rates and Tax Saving Options in India. For newcomers, this article is enough to give proper guidance about the income tax slab rate and savings options in India.