New Income Tax Slab Budget 2023 Live Updates - Tax rebate limit raised

What is Income Tax?

Income tax is a mandatory payment made by individuals and organizations to the government on the income they earn. It is a crucial source of revenue for the government and helps to fund various public services and infrastructure. In this blog, we'll explore the basics of income tax, how it is calculated, and how to stay compliant.

In conclusion, income tax is a critical aspect of our lives and it is important to understand how it works and how to stay compliant. By staying informed and being proactive, you can ensure that you are meeting your tax obligations and avoid any penalties.

Income Tax Definition?

Income tax is a tax levied on the taxable income of individuals, corporations, or other entities. The tax is calculated based on the taxpayer's taxable income, which is calculated as the total income less deductions and exemptions. The taxable income is then taxed at a rate set by the government. The purpose of income tax is to raise revenue for government programs and services.

Income tax is one of the most common forms of tax and is used to fund various government services, including infrastructure development, social programs, defense, and education. The amount of tax owed by a taxpayer depends on the taxable income, the tax bracket they fall into, and the tax laws in their jurisdiction. The tax laws and procedures can change over time, so it's important to stay informed and consult with a tax professional if you have any questions or concerns.

History of Income Tax!

The history of income tax can be traced back to ancient times, when rulers and governments would collect taxes from their citizens to fund various public services and infrastructure. However, it wasn't until the 19th century that the modern concept of income tax as we know it today began to take shape.

The first modern income tax was introduced in Britain in 1799 during the Napoleonic Wars as a temporary measure to fund the war effort. It was later made permanent in 1842, and other countries followed suit, including the United States in 1862.

In the United States, the passage of the 16th Amendment to the Constitution in 1913 made it possible for the federal government to collect income tax. At the time, the tax rate was relatively low, with a top rate of 7%. However, during World War I and World War II, the tax rate was temporarily increased to help fund the war effort.

Since then, the income tax system has undergone many changes, with tax rates and laws becoming increasingly complex. Today, income tax is a critical source of revenue for the government, funding various public services and infrastructure, including education, health care, and defense.

In conclusion, the history of income tax has been shaped by the changing needs of society and government, and continues to evolve to meet the demands of the present day.

How Income Tax works?

Income tax is a tax levied on the income earned by individuals and organizations. The amount of tax owed is based on the taxpayer's taxable income, which is the amount of income earned after subtracting any eligible deductions and credits. The taxable income is then taxed at a rate that corresponds to the taxpayer's tax bracket.

Here's a step-by-step guide to understanding how income tax works:

1. Determine taxable income: The first step in calculating income tax is to determine your taxable income. This is the amount of income you earned during the tax year, minus any deductions and credits that you're eligible to claim. Examples of deductions include charitable donations, medical expenses, and mortgage interest.
2. Determine tax bracket: The next step is to determine your tax bracket. This is the range of taxable income that is taxed at a specific rate. In most countries, tax brackets are progressive, meaning that higher earners are taxed at a higher rate.
3. Calculate tax liability: Once you have determined your taxable income and tax bracket, you can use a tax calculator or consult with a tax professional to calculate your tax liability. This is the total amount of tax you owe to the government. It is calculated by multiplying your taxable income by the tax rate that corresponds to your tax bracket.
4. File tax return: After calculating your tax liability, you must file a tax return with the relevant government agency. This is usually done annually and is due by a specific date, known as the tax-filing deadline. The tax return is used to report your taxable income, deductions, and credits, as well as to calculate and pay your tax liability.
5. Pay taxes: The final step is to pay your taxes. You can do this by mail, electronic payment, or direct debit from your bank account. If you owe more tax than you can pay, you may be eligible to set up a payment plan with the government.

It's important to note that tax laws and procedures can vary between countries and may change over time, so it's important to stay informed and consult with a tax professional if you have any questions or concerns.

In conclusion, income tax is a critical aspect of our lives and it is important to understand how it works and how to stay compliant. By staying informed and being proactive, you can ensure that you are meeting your tax obligations and avoiding any penalties.

Types of Income Tax?

There are several types of income tax, including:

1. Federal Income Tax: This is a tax levied by the federal government in the United States and is based on the taxable income of individuals and organizations. The tax rate depends on the taxpayer's tax bracket and is calculated based on taxable income and deductions.
2. State Income Tax: This is a tax levied by individual states in the United States and is based on the taxable income of individuals and organizations. State tax rates can vary, and some states do not have an income tax.
3. Payroll Tax: This is a tax levied on the income earned by employees, and is paid by the employer on behalf of the employee. The tax is used to fund Social Security and Medicare programs.
4. Capital Gains Tax: This is a tax levied on the profit made from the sale of a capital asset, such as stocks, bonds, or real estate. The tax rate depends on the taxpayer's tax bracket and the length of time the asset was held.
5. Corporate Income Tax: This is a tax levied on the taxable income of corporations and business entities. The tax rate is typically higher than the tax rate for individuals and is used to fund various government programs and services.
6. International Income Tax: This is a tax levied on the taxable income of individuals and organizations that earn income from foreign sources. The tax is used to fund government programs and services, and the tax rate may be subject to the tax laws of both the country of origin and the country of residence

In conclusion, these are some of the main types of income tax, but tax laws and procedures can vary between countries and may change over time, so it's important to stay informed and consult with a tax professional if you have any questions or concerns.

Types of Income Tax in India?

In India, the types of income tax include:

1. Individual Income Tax: This is a tax levied on the taxable income of individuals, including salaried employees, self-employed individuals, and professionals. The tax rate is based on the taxpayer's tax bracket and is calculated based on taxable income and deductions.
2. Corporate Income Tax: This is a tax levied on the taxable income of companies, including domestic companies and foreign companies operating in India. The tax rate is 30% for domestic companies and 40% for foreign companies, although there are various exemptions and reductions available.
3. Capital Gains Tax: This is a tax levied on the profit made from the sale of a capital asset, such as shares, bonds, or real estate. The tax rate depends on the length of time the asset was held, with a lower rate applying to long-term holdings.
4. Securities Transaction Tax (STT): This is a tax levied on the sale of securities, such as shares and derivatives, and is collected by the Securities and Exchange Board of India (SEBI). The tax rate is based on the value of the transaction.
5. Fringe Benefit Tax (FBT): This is a tax levied on the value of benefits provided by an employer to an employee, such as a company car or housing. The tax is paid by the employer and is calculated based on the value of the benefit.
6. Gift Tax: This is a tax levied on gifts received by an individual, although gifts from certain specified relatives are exempt from tax. The tax rate is based on the value of the gift and the tax bracket of the recipient.

These are some of the main types of income tax in India, but tax laws and procedures can change over time, so it's important to stay informed and consult with a tax professional if you have any questions or concerns.

What percent of income is taxed in India

In India, the tax rate for individuals depends on their taxable income and the tax bracket they fall into. For the financial year 2021-2022, the following tax rates apply to individuals who are residents of India:

1. Up to INR 2,50,000: No tax
2. INR 2,50,000 to INR 5,00,000: 5%
3. INR 5,00,000 to INR 10,00,000: 20%
4. Above INR 10,00,000: 30%

Please note that the tax rates are subject to change and are based on the current tax laws in India. It is also important to consider other tax exemptions and deductions that may be available to reduce the taxable income and lower the overall tax liability.

For corporations, the tax rate is currently set at 30% for domestic companies and 40% for foreign companies. However, various exemptions and reductions may be available to reduce the tax liability.

Also Read:

What is GST in India?

What is EPF Scheme - Benefits?

What is ESIC Scheme - Benefits?

Which states have no income tax?

In the United States, there are currently seven states that do not have a state income tax:

1. Alaska
2. Florida
3. Nevada
4. South Dakota
5. Texas
6. Washington
7. Wyoming

However, it's important to note that these states may still have other taxes, such as sales tax or property tax, to fund government programs and services. Additionally, while they do not have a state income tax, residents of these states may still be subject to federal income tax. The tax laws and procedures can change over time, so it's important to stay informed and consult with a tax professional if you have any questions or concerns.

Advantages of Income Tax?

Income tax has several advantages, including:

1. Revenue generation: Income tax is one of the main sources of revenue for governments, and it allows them to fund important programs and services that benefit society as a whole.
2. Fairness and equity: Income tax helps to ensure that those who have more income pay a larger share of their income in taxes, which helps to reduce income inequality.
3. Economic stability: By providing a stable source of revenue for the government, income tax helps to maintain economic stability and prevent the government from relying on unstable sources of funding, such as borrowing.
4. Encouragement of savings: The tax code often provides incentives for taxpayers to save for retirement or other purposes, which can help individuals to build a stronger financial foundation for their future.
5. Incentive for investment: The tax code may also provide incentives for individuals and corporations to invest in certain areas, such as research and development, which can help to stimulate economic growth and create new jobs.
6. Reduction of poverty: Income tax revenue can be used to fund programs that help to reduce poverty, such as housing assistance, food stamps, and health care programs.

However, it's also important to consider that income tax can also have disadvantages, such as being complex and burdensome to comply with, and potentially affecting the incentive to work and invest. Nevertheless, overall, income tax remains a critical tool for governments to raise revenue and fund important programs and services.

Disadvantages of Income Tax?

Income tax has several disadvantages, including:

1. Complexity: The tax code can be complex and difficult for individuals and businesses to understand and comply with, leading to errors, confusion, and potential legal problems.
2. Burden on taxpayers: Compliance with income tax can be time-consuming and costly for taxpayers, who may need to hire tax professionals or spend a significant amount of time preparing their tax returns.
3. Incentive reduction: High income tax rates can reduce the incentive for individuals to work and invest, leading to lower economic growth and job creation.
4. Economic distortions: The tax code may also create economic distortions, such as favoring certain types of investments over others, and creating disincentives for certain activities.
5. Increased government spending: Income tax revenue can also lead to increased government spending, which can result in higher inflation and higher interest rates, leading to a decrease in economic growth.
6. Limited tax base: Income tax is typically levied on a narrow tax base, as many types of income may be exempt or not subject to taxation, which can limit its effectiveness as a revenue-raising tool.

Overall, while income tax has several advantages, it is important to consider the potential disadvantages when evaluating its effectiveness as a tool for raising revenue and funding government programs and services.

Income Tax Budget 2023 Highlights: New income slabs, rates

Income Tax in the 2023 Budget, Live: The Modi government's final full budget before the April-May 2024 parliamentary elections was this one. In her fifth consecutive budget speech on Wednesday, Union finance minister Nirmala Sitharaman made as many as five announcements regarding personal income tax. The income tax was not mentioned in last year's budget.

Union finance minister Nirmala Sitharaman made five significant changes to personal income tax on Wednesday, which came as a huge relief to people in the middle and salaried classes. Sitharaman stated in his presentation of the Union Budget for FY 2023–2024 that the country's "hard-working middle class" will primarily benefit from the proposals regarding personal income tax. Sitharaman made the announcement that the new income tax system will now serve as the standard tax system. However, citizens will still be able to take advantage of the previous tax system.

1) The personal income tax rebate was the subject of the initial proposal. Under both the old and new tax systems, individuals with incomes up to Rs. 5 lakh do not have to pay any income tax. Sitharaman proposed increasing this rebate limit in the new tax system to 7 lakh. As a result, individuals in the new tax system who earn less than 7 lakh will not be required to pay any taxes, she stated.

2) In the year 2020, Sitharaman established a brand-new personal tax system with six income tax brackets that began at 2.5 lakh. She has now proposed lowering the number of tax exemptions to 3 lakh and reducing the number of slabs to five.

3) The third proposal was made for pensioners, including family pensioners and members of the salaried class. She proposed making the new tax system eligible for the standard deduction. According to the minister, "each salaried person with an income of at least 15.5 lakh will thus stand to benefit by 52,500."

4) The highest tax rate, which is currently 42.74 percent, was her fourth personal income tax proposal. Sitharaman proposed lowering the highest surcharge rate in the new tax system from 37 percent to 25 percent. She stated that the proposed change would bring the maximum tax rate down to 39%.

5) The limit on the tax exemption for non-government salaried employees' retirement leave encashment was the subject of the fifth and final major announcement regarding personal income tax. The last time the limit of 3 lakh rupees was set was in 2002, when the government's highest basic pay was 30,000 rupees per month. Sitharman proposed raising this limit to 25 lakh in line with the rise in government salaries.

What's new in the new income tax regime

1) Basic exemption limit is hiked from Rs 3 lakh to Rs 2.5 lakh

2) Rebate under section 87A has been hiked from Rs 5 lakh to Rs 7 lakh

3) The income tax slabs under the new income tax regime will be as follows:

• Up to Rs 3 lakh - 0% tax
• Between Rs 3 and 6 lakh - 5% tax
• Between Rs 6 and 9 lakh - 10% tax
• Between Rs 9 lakh and Rs 12 lakh - 15% tax
• Between Rs 12 lakh and Rs 15 lakh - 20% tax
• Above Rs 15 lakh above - 30% tax