Understanding Income Tax

Income tax is what you pay to the government on your earnings. The more you earn, the higher the percentage — this is called a progressive tax system.

FY 2024-25 New Regime slabs:
- ₹0 - ₹3,00,000: 0% (no tax)
- ₹3,00,001 - ₹7,00,000: 5%
- ₹7,00,001 - ₹10,00,000: 10%
- ₹10,00,001 - ₹12,00,000: 15%
- ₹12,00,001 - ₹15,00,000: 20%
- Above ₹15,00,000: 30%

Plus 4% Health & Education Cess on total tax.

You have two tax regimes to choose from:

New Regime (default from FY 2023-24):
- Lower tax rates
- But you lose most deductions (80C, 80D, HRA, etc.)
- Standard deduction of ₹75,000
- Rebate up to ₹7 lakh (no tax if income ≤ ₹7 lakh)

Old Regime:
- Higher tax rates
- But you get deductions: 80C (₹1.5 lakh), 80D (₹25K-1L), HRA, LTA, etc.
- Better if you have high deductions

How to decide: Calculate your tax under both regimes. Use our Old vs New Regime Calculator to compare.

Sneha earns ₹12,00,000 gross salary. Let's calculate her tax under both regimes.

New Regime:
- Standard deduction: ₹75,000
- Taxable income: ₹11,25,000
- Tax:
- First ₹3L: ₹0
- ₹3L-₹7L: ₹20,000 (5%)
- ₹7L-₹10L: ₹30,000 (10%)
- ₹10L-₹11.25L: ₹18,750 (15%)
- Total tax: ₹68,750 + 4% cess = ₹71,500

Old Regime (with deductions):
- 80C: ₹1,50,000 (EPF + PPF)
- 80D: ₹25,000 (health insurance)
- HRA: ₹1,50,000
- Taxable income: ₹7,25,000
- Tax:
- First ₹2.5L: ₹0
- ₹2.5L-₹5L: ₹12,500 (5%)
- ₹5L-₹7.25L: ₹22,500 (20%)
- Total tax: ₹35,000 + 4% cess = ₹36,400

Sneha saves ₹35,100 by choosing the old regime.

Section 80C lets you reduce taxable income by up to ₹1,50,000. Popular options:

| Investment | Lock-in | Returns | Risk |
|-----------|---------|---------|------|
| EPF | Until retirement | ~8.1% | Zero |
| PPF | 15 years | ~7.1% | Zero |
| ELSS | 3 years | 12-15% (avg) | Market-linked |
| NSC | 5 years | ~7.7% | Zero |
| Sukanya Samriddhi | Until 21 years | ~8.2% | Zero |
| Tax-saver FD | 5 years | ~7% | Zero |

Pro tip: ELSS (Equity Linked Savings Scheme) gives you the best of both worlds — tax saving + potential for higher returns. But it has market risk.

1. Plan in April, not March — Most people scramble in March. Start at the beginning of the financial year.

2. Use the right regime — Don't blindly follow what your colleague does. Calculate for YOUR situation.

3. Don't invest just for tax saving — Buying a random insurance policy or ELSS just to save tax is bad investing. Invest because it's good, tax saving is a bonus.

4. Keep documents ready — Rent receipts, investment proofs, insurance policies. Organise them monthly.

5. Use HRA wisely — If you pay rent to parents, you can claim HRA. But parents must show it as income.

6. Don't forget 80D — Health insurance premiums are deductible (₹25K for self, ₹50K for parents).