Most of us grew up with our parents always reminding us that “a penny saved is a penny earned”, trying to inculcate the habit of saving money. And while most of us did not really understand the importance of what our parents tried to teach us, now that we are older (and a little bit wiser), we finally get it.
When it comes to saving money as a working adult, the best way to do it is by saving taxes with the multiple deduction options offered under the new income tax slab.
Understanding the New Income Tax Slab
Individual taxpayers are required to pay income tax according to the slab system they fall under. The tax slabs are assigned to individuals on the basis of their income. As a result, people with higher incomes have to pay a higher tax in comparison to people with lesser income. The slab system was implemented to keep the nation’s tax system equitable. With every new budget announcement, the income tax slabs can be changed.
Under the Finance Act 2020, the Government of India introduced a two-tax regime, giving taxpayers the option of choosing between the old and new tax regimes. Under the new regime, new income tax slabs were introduced. As per those, the income must be calculated without any exemptions or deductions for benefits or perks, no matter what they are called, as long as they are permitted by any other law currently in effect.
The new income tax slab has advantages and disadvantages of its own. First off, you would not be able to take advantage of exemptions like the House Rent Allowance, the Leave Travel Allowance, and tax-saving investment deductions, among others, if you chose this system.
The new system also outlaws deductions for professional taxes, housing loan interest, life and health insurance premiums, savings account interest, etc., in addition to standard deductions of ₹50,000. Second, you have more freedom to choose how you want to save money because you no longer have to rush to buy tax-saving insurance or invest in things that are not in line with your goals.
New Income Tax Slabs Rates for FY 2022 – 23
Given below are the Revised New Income Tax Slabs and rates for the financial year 2022-2023 and the annual year 2023-24:
New Income Tax Slab Rates for Individuals:
|New Income Tax Slab||Tax Rate|
|Up to ₹2.5 lakhs||Nil|
|Between ₹2.5 – ₹5 lakhs||5% of the total income|
|Between ₹5 – ₹7.5 lakhs||10% of the total income + ₹12,500|
|Between ₹7.5 – ₹10 lakhs||15% of the total income + ₹37,500|
|Between ₹10 – ₹12.5 lakhs||20% of the total income + ₹75,000|
|Between ₹12.5 – ₹15 lakhs||25% of the total income + ₹1,25,000|
|Above ₹15 lakhs||30% of the total income + ₹1,87,500|
New Income Tax Slab Rates for Companies:
Companies in India are required to pay a corporate tax. And if you are wondering “what is corporate tax”, let us explain. Corporate income tax (CIT) is the tax that both domestic and foreign businesses pay on their income in India. The income tax act sets a precise rate for the CIT, which is subject to annual rate changes in the union budget.
A corporation is a business entity that has an independent legal existence from its stockholders. According to the Income-tax Act, both domestic and international enterprises are required to pay corporate tax. A foreign corporation is only taxed on the money earned within India, that is, the income that is being accrued or received in India, whereas a local firm is taxed on its overall income.
The following categories of companies can be categorised for the purposes of calculating taxes under the Income Tax Act:
- Domestic Company
A domestic company is one that is registered in accordance with the Indian Companies Act, as well as any foreign-registered business that has its whole control and management in India. Private and public corporations are both considered to be domestic companies.
- Foreign Company
A foreign company is one whose management and control are situated outside of India and which is not registered under the Indian Companies Act.
Corporate Tax Planning
Corporate tax planning can be summed up as organizing one’s financial and company affairs in a way that maximizes profit and reduces the amount of tax that must be paid while taking advantage of all permitted deductions, rebates, and exemptions.
Healthy tax planning requires diligence and complete awareness of all tax laws, as well as the accompanying norms and regulations. Tax administration is a risky and tricky business; hence the majority of corporations with significant financial investments use financial experts to handle their taxes procedures.
With due diligence and absolute awareness of the country’s taxation system, individuals, as well as corporations, can plan their taxes and ensure maximum tax savings, thanks to the numerous deductions, exemptions, rebates, etc.