{"id":2348,"date":"2020-11-23T18:34:04","date_gmt":"2020-11-23T18:34:04","guid":{"rendered":"https:\/\/cms.lxme.in\/everything-you-need-to-know-about-income-tax\/"},"modified":"2024-07-23T05:17:02","modified_gmt":"2024-07-23T05:17:02","slug":"everything-you-need-to-know-about-income-tax","status":"publish","type":"post","link":"https:\/\/lxme.in\/v1\/everything-you-need-to-know-about-income-tax\/","title":{"rendered":"Demystifying Income Tax: What Is Income Tax and How Does It Work?"},"content":{"rendered":"\n<p><em>Still confused about how to calculate your income tax? Worry no more! In this article, we will tell you all that you need to know about Income Tax.&nbsp;<\/em><\/p>\n\n\n\n<p>Your income tax is levied based on a slab system. Different tax rates have been prescribed for different slabs and these tax rates keep increasing with an increase in your income.&nbsp;<\/p>\n\n\n\n<p>These tax slabs are announced every year by our finance minister in the Union Budget. A new tax regime was announced in budget 2020. It gives you an option to pay taxes as per the new tax slabs FY 2020-21 onwards. The old and new income tax regimes will co-exist.&nbsp;<\/p>\n\n\n\n<p>This means, as a tax-payer, you get to opt for the regime of your choice.&nbsp;<\/p>\n\n\n\n<p>But how do you decide which regime to go for? Let\u2019s find out!<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_75 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/lxme.in\/v1\/everything-you-need-to-know-about-income-tax\/#Old_Tax_Regime_%E2%80%93_High_rates_but_lot_of_tax_saving_options\" >Old Tax Regime \u2013 High rates but lot of tax saving options<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/lxme.in\/v1\/everything-you-need-to-know-about-income-tax\/#New_Tax_Regime_%E2%80%93_More_slabs_lower_tax_rate_but_no_way_to_reduce_taxes\" >New Tax Regime \u2013 More slabs &amp; lower tax rate, but no way to reduce taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/lxme.in\/v1\/everything-you-need-to-know-about-income-tax\/#Old_vs_New\" >Old vs New<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Old_Tax_Regime_%E2%80%93_High_rates_but_lot_of_tax_saving_options\"><\/span><strong>Old Tax Regime \u2013 High rates but lot of tax saving options<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Income Slabs<\/strong><\/td><td><strong>Old Tax Rate<\/strong><\/td><\/tr><tr><td>Up to Rs.2,50,000<\/td><td>NIL<\/td><\/tr><tr><td>Rs.2,50,001 \u2013 Rs.5,00,000<\/td><td>5%<\/td><\/tr><tr><td>Rs.5,00,001- Rs.10,00,000<\/td><td>20%<\/td><\/tr><tr><td>Above Rs.10,00,000<\/td><td>30%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>While these tax rates may seem high, this regime offers multiple ways to reduce your tax liability. Over the years the government has given us over 70&nbsp;exemptions and deduction&nbsp;options through which we can bring down our taxable income, as a result, pay less tax.<\/p>\n\n\n\n<p>While exemptions are part of your salary, like the House Rent Allowance (HRA) and Leave Travel Allowance (LTA), deductions allow you to lower your tax amount by investing, saving, or spending on specific items.&nbsp;<\/p>\n\n\n\n<p>The biggest section for deduction is&nbsp;<a href=\"https:\/\/www.etmoney.com\/blog\/guide-to-section-80c-deduction\/\" target=\"_blank\" rel=\"noopener\">Section<\/a> 80C,&nbsp;through which you can bring down your taxable income by up to Rs.1.5 lakh.&nbsp;<\/p>\n\n\n\n<p>Apart from this, some major deductions you can claim in this regime are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Housing loan interest<\/li>\n\n\n\n<li>Medical insurance premium<\/li>\n\n\n\n<li>Standard deduction<\/li>\n\n\n\n<li>Savings bank interest<\/li>\n\n\n\n<li>Education loan interest<\/li>\n<\/ul>\n\n\n\n<p>The combination of exemptions and deductions can bring down your taxable income significantly. Isn\u2019t that great?!<\/p>\n\n\n\n<p>However, it also means that you have to find ways to optimise your salary and savings, and investments every year, to keep your taxable income to the minimum.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"New_Tax_Regime_%E2%80%93_More_slabs_lower_tax_rate_but_no_way_to_reduce_taxes\"><\/span><strong>New Tax Regime \u2013 More slabs &amp; lower tax rate, but no way to reduce taxes<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Income Slabs<\/strong><\/td><td><strong>New tax rate<\/strong><\/td><\/tr><tr><td>Up to Rs.2,50,000<\/td><td>NIL<\/td><\/tr><tr><td>Rs.2,50,001 \u2013Rs.5,00,000<\/td><td>5%<\/td><\/tr><tr><td>Rs.5,00,001 \u2013 Rs.7,50,000<\/td><td>10%<\/td><\/tr><tr><td>Rs.7,50,001- Rs.10,00,000<\/td><td>15%<\/td><\/tr><tr><td>Rs.10,00,001 \u2013 Rs.12,50,000<\/td><td>20%<\/td><\/tr><tr><td>Rs.12,50,001 \u2013 Rs.15,00,000<\/td><td>25%<\/td><\/tr><tr><td>Above Rs.15,00,000<\/td><td>30%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>The new tax regime is different from the old system in two aspects:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Here, <strong>the tax slabs have increased<\/strong>, accompanied by a <strong>lowering of rates<\/strong>.<\/li>\n\n\n\n<li><strong>All the exemptions and deductions <\/strong>that you could claim in the old regime <strong>won\u2019t be available in the new regime<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p>The good point here is that you can now decide where you want to save your money. So, no more rushing for tax-saving schemes or investments that don\u2019t align with your financial goals.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Old_vs_New\"><\/span><strong>Old vs New<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let\u2019s look at an example.<\/p>\n\n\n\n<p>Assume your annual income comes to Rs.6 lakhs.&nbsp;<\/p>\n\n\n\n<p>If you follow the new regime, you will have to pay 10% income tax, i.e. Rs.60,000.&nbsp;<\/p>\n\n\n\n<p>However, if you choose to stick to the old regime, you can claim deductions of Rs.1.5 lakhs under&nbsp;Section 80C. So now, your taxable income comes down to Rs.4.5 lakhs.<br><\/p>\n\n\n\n<p><strong>So, which regime is right for you?<\/strong><\/p>\n\n\n\n<p>Here is what you need to do:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Calculate all the exemptions that you are currently availing<\/li>\n\n\n\n<li>&nbsp;Look at the deductions that you claim<\/li>\n<\/ol>\n\n\n\n<p>Now, combine these exemptions and deductions and deduct them from your income to see what your taxable income is. And, what it would be if you let go of these deductions. This should be the deciding factor for which regime you should go for.<\/p>\n\n\n\n<p>However, there is one thing you need to keep in mind. The regime you pick shouldn\u2019t decide whether you should invest and get insurance. Achieving your life goals and securing your family\u2019s future should be the reasons for you to invest, not the tax benefits you get from them.<\/p>\n\n\n\n<p>Happy Investing!<\/p>\n\n\n\n<p>Similar blog you may also like to read &#8211; <a href=\"https:\/\/lxme.in\/old-vs-new-tax-regime-2023\/\">Old vs New Tax Regime<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Still confused about how to calculate your income tax? Worry no more! In this article, we will tell you all that you need to know about Income Tax.&nbsp; Your income tax is levied based on a slab system. Different tax rates have been prescribed for different slabs and these tax rates keep increasing with an <a href=\"https:\/\/lxme.in\/v1\/everything-you-need-to-know-about-income-tax\/\" class=\"more-link\">&#8230;<span class=\"screen-reader-text\">  Demystifying Income Tax: What Is Income Tax and How Does It Work?<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":7098,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[650],"tags":[8,5,99,100,25,7],"class_list":["post-2348","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax","tag-budget","tag-income-tax","tag-new-regime","tag-old-regime","tag-savings","tag-tax"],"acf":[],"_links":{"self":[{"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/posts\/2348","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/comments?post=2348"}],"version-history":[{"count":7,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/posts\/2348\/revisions"}],"predecessor-version":[{"id":17516,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/posts\/2348\/revisions\/17516"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/media\/7098"}],"wp:attachment":[{"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/media?parent=2348"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/categories?post=2348"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lxme.in\/v1\/wp-json\/wp\/v2\/tags?post=2348"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}