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How to Understand Income Tax Slabs?

Income tax is adirect taxthat is levied on the income of individuals and businesses by the government. The tax is calculated based on the income earned by an individual in a financial year. Understanding income tax slabs is crucial as it determines the tax liability of an individual. Most importantly, the basic exemption limit has increased to ₹3 lakh from ₹2.5 lakh. The number of income tax slabs has been reduced from 6 to five.

Let’s now understand some jargon related to income tax slabs.

Income Tax Slab

Claims on Tax deductions

Section 87A:Income below ₹5 lakhs is eligible for a tax rebate of up to ₹12,500.

Section 80CCD (1B):For exemption of up to ₹2 lakhs for money deposited in the National Pension System (NPS).

Section 80C:It permits a maximum annual deduction from the taxpayer's gross income of ₹1.5 lakh. Both individuals and HUFs are eligible to take advantage of this discount. LLPs, corporations, and partnership firms are not eligible for this deduction.

Section 80D:Up to ₹25,000 tax exemption on Medical Insurance Premium bills. The limit rises to ₹50,000 for senior citizens.

Section 80G:Any donations made to charitable organizations are fully exempt from tax calculations.

Section 80E:Interest on education loan enjoys a 100% tax rebate for up to 8 years.

Section 8OTTA/80TTB:Interest income from savings accounts is eligible for tax waivers of up to ₹10,000. For senior citizens, all forms of interest income up to ₹50,000 are fully waivered from tax calculations under Section 8OTTB.

How to Calculate the Total Income Tax Liability?

Calculating your total income tax liability can be a daunting task, especially if you are not familiar with the tax laws in your country. However, understanding the basics of how income tax works can help make the process a little easier.

Take these steps to calculate your total income tax liability.

Exemptions on Total Income Tax

Taxation is an integral part of any modern economy, providing governments with the necessary revenue to fund public services and infrastructure. However, tax laws often include exemptions and deductions that allow taxpayers to reduce their overall tax liability. One such concept is exemptions on total income tax, which refers to certain exclusions from the total income of a taxpayer, resulting in a lower taxable income and, consequently, a reduced tax liability. Exemptions on total income tax are typically granted for specific reasons, such as supporting dependents, investing in retirement savings, or promoting economic activities in certain sectors. Understanding the intricacies of exemptions on total income tax can help taxpayers optimize their tax planning strategies and potentially reduce their overall tax burden.

Section 80C

This is one of the most popular sections under the Income Tax Act, and it allows individuals to claim a deduction of up to ₹1.5 lakhs on their total income tax. This deduction is available for various investments and expenses, including contributions to a provident fund, life insurance premiums, tuition fees paid for children, and investments in certain specified instruments such asNational Savings Certificate (NSC),Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and so on.

Section 80D

This section allows individuals to claim a deduction of up to ₹25,000 on health insurance premiums paid for themselves, their spouses, and their dependent children. An additional deduction of ₹25,000 is available for health insurance premiums paid for parents, and if the parents are senior citizens, the deduction limit is increased to ₹50,000.

Section 80E

This section allows individuals to claim a deduction on the interest paid on education loans for themselves, their spouses, and their children. The deduction is available for a maximum of eight years or until the loan is fully repaid, whichever is earlier.

Section 80G

This section allows individuals to claim a deduction for donations made to specified charitable organizations. The deduction amount varies based on the type of organization and the amount of donation made.