New Income Tax Slab Determines on Salary of Rs 8 & 10 Lakhs p.a.

If you earn between ₹8 lakh and ₹10 lakh per year, it’s important to understand how the latest income tax rules apply to you. Recently, the government introduced a new income tax system with lower rates, but it doesn’t allow some of the deductions and exemptions you might have used in the past. In this blog, we’ll explain how these tax systems work and help you figure out which one might be better for you.

Two Tax Systems: Old vs. New

You can now choose between two income tax systems:

1. Old Tax Regime: This system has higher tax rates but lets you claim deductions and exemptions, like those for investments, health insurance, and House Rent Allowance (HRA).
2. New Tax Regime: This system has lower tax rates but doesn’t allow many of the common deductions you get under the old system.

Let’s look at how each system affects someone earning ₹8 lakh or ₹10 lakh per year.

Tax on ₹8 Lakh Salary

Under the Old Tax Regime:

In the old system, you can reduce your taxable income by claiming deductions for things like:

• Section 80C: Investments in things like Public Provident Fund (PPF) or insurance, up to ₹1.5 lakh.
• Section 80D: Health insurance premiums.
• HRA: If you pay rent, you can reduce your taxable income by claiming this exemption.

Let’s assume you claim ₹2 lakh in deductions (₹1.5 lakh under Section 80C and ₹50,000 as a standard deduction). This brings your taxable income down.

• Total Income: ₹8,00,000
• Deductions: ₹2,00,000
• Taxable Income: ₹6,00,000

Based on the old tax slabs:

• Up to ₹2.5 lakh: No tax
• ₹2.5 to ₹5 lakh: 5% = ₹12,500
• ₹5 to ₹6 lakh: 20% = ₹20,000

Total Tax Payable: ₹32,500

Under the New Tax Regime:

In the new income tax system, you can’t claim deductions, but the tax rates are lower.

Here’s how it works:

• Up to ₹2.5 lakh: No tax
• ₹2.5 to ₹5 lakh: 5% = ₹12,500
• ₹5 to ₹7.5 lakh: 10% = ₹25,000

Total Tax Payable: ₹37,500

So, with a salary of ₹8 lakh per year, you would pay ₹32,500 in tax under the old regime if you claim deductions, while you would pay ₹37,500 under the new regime. In this case, the old regime saves you money if you’re using deductions.

Tax on ₹10 Lakh Salary

Under the Old Tax Regime:

If you claim ₹2 lakh in deductions (like we did before), your taxable income reduces.

• Total Income: ₹10,00,000
• Deductions: ₹2,00,000
• Taxable Income: ₹8,00,000

Here’s how the tax breaks down:

• Up to ₹2.5 lakh: No tax
• ₹2.5 to ₹5 lakh: 5% = ₹12,500
• ₹5 to ₹10 lakh: 20% = ₹60,000

Total Tax Payable: ₹72,500

Under the New Tax Regime:

Here, the calculation is simpler since no deductions are allowed:

• Up to ₹2.5 lakh: No tax
• ₹2.5 to ₹5 lakh: 5% = ₹12,500
• ₹5 to ₹7.5 lakh: 10% = ₹25,000
• ₹7.5 to ₹10 lakh: 15% = ₹37,500

Total Tax Payable: ₹75,000

In this case, the old regime results in a slightly lower tax of ₹72,500 compared to ₹75,000 under the new regime.

Which Tax System is Better for You?

Choosing between the old and new income tax regimes depends on how you manage your money.

• If you invest regularly in things like insurance, PPF, or have home loans, the old regime could be better since you can claim deductions and save more on tax.
• If you don’t invest much and prefer a simpler way to file your taxes without worrying about claiming deductions, the new regime might be more convenient with its lower tax rates.

Conclusion

For people earning between ₹8 lakh and ₹10 lakh per year, it’s important to compare both tax regimes. The old regime lets you save more if you can claim deductions, while the new regime offers lower rates but fewer benefits. Always take a look at your personal finances to see which system helps you save the most.

By comparing both options with your actual financial situation, you can make a smart choice and pay the least amount of tax possible!