Tax plates under the new and old tax systems in fiscal year 2023-24

A tax bracket basically determines how much tax an individual or business must pay based on their income. Finance Minister Nirmala Sitharaman introduced a new tax regime, with modified tax brackets, in the Union budget 2023-24. An increase in the basic exemption threshold and larger tax credits are the notable features of the new regime. Taxpayers can now choose between the old tax regime or the new one.

Knowledge of tax brackets helps to understand how much tax one should pay based on their income level. It is essential to better plan finances and take steps to reduce tax liability. For example, an individual may choose to invest in specific financial instruments to reduce their taxable income and tax liability.

Here are the income tax brackets under the new and old tax regimes:

• In the old tax regime, there are seven tax brackets, with the liability ranging from NIL to 30 percent of income.
• People with annual incomes up to Rs 2.5 lakh are exempt from paying income tax.
• Those earning between Rs 2.5 and 5 lakh must adhere to a tax rate of 5 percent.
• For people whose annual income falls from Rs 5 lakh to 7.5 lakh, the income tax rate is 10 percent of total income.
• Individuals in this category have an annual income of Rs 7.5 to 10 lakh. The tax rate for them is 15 percent.
• For incomes ranging from Rs 10 to 12.5 lakh per annum, the tax rate is 20 percent.
• Those earning between Rs 12.5 and 15 lakh must follow a tax rate of 25 percent.
• For an annual income above Rs 15 lakh, the tax rate is 30 percent.

Under the new income tax regime, the number of plates has been reduced.

• Those earning up to Rs 3 lakh per month are not required to pay income tax.
• Annual income ranging from Rs 3 to 6 lakh will invite a tax rate of 5 percent. However, tax relief applies to income up to Rs 7 lakh making it tax free as well.
• Those earning between Rs 6 lakh and Rs 9 lakh per annum must follow a tax rate of 10 percent.
• The tax rate for an annual income of Rs 9 lakh to Rs 12 lakh is set at 15 percent.
• For the next tax bracket, which covers an annual income of Rs 12 lakh to 15 lakh, the tax rate is 20 percent.
• The last tax bracket covers all those whose annual income exceeds Rs 15 lakh. They have a tax liability of 30 percent.

These rates will take effect when the new financial year (2023-24) starts on April 1.

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