Personal income tax is a taxation system that the government imposes on income generated by individuals. By law, taxpayers must file an income tax return annually to determine their tax obligations. The revenues from here are an important source of income for the government of India.
This type of income tax is levied on an individual's wages, salaries, and other types of income such as pensions, interest, and dividends.
The benchmark India uses refers to the Top Marginal Tax Rate for individuals, including health and education cess on tax and surcharge.
According to the Ministry of Finance, the Personal Income Tax Rate in India stands at 35.88 per cent. In 2015, the rate stood at 33.99 per cent.
In Union Budget 2020, Finance Minister Nirmala Sitharaman introduced a new concessional income tax regime with reduced tax rates for those willing to forgo 70 tax-exemptions and deductions. This new system has been made optional and continues to co-exist with the old one that comprises three tax rates and various tax exemptions. The new income tax slabs and rates came into effect from April 1, 2020, for FY 2020-21.
Here are the income tax rates and slabs under the new tax regime:
Total income (Rs): Income tax rate
Up to 250,000: Nil
250,001 to 500,000: 5%
500,001 to 750,000: 10%
750,001 to 10 lakh: 15%
10,00,001 to 12.5 lakh: 20%
12,50,001 to 15 lakh: 25%
Above 15 lakh: 30%
Individuals with a net taxable annual income of up to Rs 500,000 will be able to avail tax rebate of Rs 12,500 under section 87A. This means that individual taxpayers with net taxable income of up to Rs 500,000 will continue to pay zero tax in both the tax regimes.
However, individuals who have opted for the new tax regime would not be able to avail of common tax breaks such as deductions under section 80C for a maximum of Rs 150,000 by investing in specified instruments, section 80D for medical insurance, house rent allowance, etc.