Income Tax Rates

The tax rate applicable to an individual would depend on his income bracket. Various income slabs, along with different tax rates, are provided every year in the Union Budget and are generally presented to the Parliament of India on the first day of February.

The slab rates mentioned in the Budget are applicable for the following financial year (April-March).

Furthermore, the law also provides special exemptions to ‘resident senior citizens’ (individuals who are more than 60 years of age) and ‘resident very senior citizens’ (individuals who are more than 80 years of age), where the basic exemption limit is INR 0.3 Million and INR 0.5 Million, respectively.

Section 393(1) of the ITA read with section 263(8)(b) provides conditions for exempting senior citizens aged 75 years and above from filing Income Tax returns. This Section became applicable on 1 April 2021.

The Finance Act has provided the following rates for individual taxpayers (other than senior citizens):

Relief under section 156 of the ITA (erstwhile section 87A) up to INR 12,500 is available for resident individuals having a total income of up to INR 0.5 million. In addition to the above, individuals with a total income exceeding INR 5 million up to INR 10 million in a year are liable to pay a surcharge of 10%. Also, individuals with a total income exceeding INR 10 million up to INR 20 million in a year are liable to pay a surcharge at the rate of 15%.

Additionally, under the Finance Act, 2019, a surcharge of 25% is leviable in case the income exceeds INR 20 million but does not exceed INR 50 million. Similarly, a surcharge of 37% shall be leviable in case the income exceeds INR 50 million.

The Surcharge rate on dividend income, capital gains is capped at a 15%.

The Finance Act 2023 introduced a new tax regime that individuals, Hindu Undivided Families (HUFs), AOP, and, BOI, can opt for, instead of the existing structure. The salient features of the new regime are as follows:

The new tax rates will be applicable if the individual,

Finance Act, 2024 has further revised the applicable rates as under:

Further, Finance Act 2025 revised applicable rates as under:

HUF, Associations Of Persons (AOPs), or Bodies Of Individuals (BOI) complies with all the points mentioned below:

• Forego all deductions (excluding standard deductions of INR 50,000 is increased to INR 75,000 in the Finance Act, 2024) and exemptions such as House Rent Allowance, interest on housing loan, PPF and other Section 123 (erstwhile section 80C) investments, Mediclaim, etc.
• Apart from this, deduction of National Pension and limit of deduction is increased from 10% to 14%. No loss shall be allowed to be set off carried from earlier years if such loss pertains to any specific deductions or loss under the head income from house property.
• Additional depreciation shall not be allowed, and only normal depreciation shall be available.
• No exemption or deduction will be available for allowances or perquisites provided under any law for the time being in force.

Individuals and HUFs, having income from business or profession, must opt for the new tax regime before filing their return of income. After opting for this new tax regime, it can only be withdrawn once in a lifetime.

All taxes in India are further increased by a Health and education cess, which is 4% of the total tax payable (tax plus applicable surcharge).

The surcharge rate under the new regime has been pegged to 25% in cases where total taxable income exceeds INR 20 million.

Furthermore, it has been clarified that the new regime will operate as the default regime and taxpayers will have a choice to specifically opt for the old regime, if required.

The concept of marginal relief is also available in case of people opting for the new regime and a rebate under section 156 of the ITA (erstwhile Section 87A) is allowed up to 100% of the total tax liability or INR 60,000, whichever is less (for Tax Year 2026-27).

Taxation of Dividend Income

The Finance Act 2020 has done away with dividend distribution tax, and consequently, any dividend income earned shall be taxable in the hands of the recipient.

Furthermore, a clarification is provided in the Act that if DDT has been charged and a dividend is received after 1 April 2020, the same shall not be taxable in the hands of recipients. Furthermore, a higher surcharge of 25% and 37% is not applicable to the dividend income.

Taxation of excess contribution to specified funds by employers

Furthermore, any accretion to the above fund by way of interest or dividend or anything of similar nature, which relates to contribution in excess of INR 0.75 million will also be taxable.

Apart from the above, effective 1 October 2024, any amount received on account of buy-back of shares shall be considered as dividend in the hands of taxpayers and cost of acquisition is to be allowed as capital loss. However, the Finance Act 2026 reintroduced the taxation of income arising from the buy-back of shares under the head ‘capital gain’. Further, in case of promotors, additional tax is levied resulting in an effective tax rate of 30% where the promoter is a non-corporate entity, and 22% where the promoter is a company.

You can learn more about individual tax liabilities on the Income Tax Department’s website, www.incometaxindia.gov.in.