Taxes can seem overwhelming, but understanding how income tax slabs work in India can actually help you save more and plan smarter. Whether you’re a salaried employee, a freelancer, or a new business owner, knowing where you fall in the tax structure—and how deductions can reduce your liability—is essential for effective financial planning.

Let’s break it down in simple terms.

What Are Tax Brackets (or Tax Slabs) in India?

India follows a progressive tax system, which means that the more you earn, the higher the percentage of tax you pay only on the portion that crosses into higher slabs.

As of FY 2024–25, Indian taxpayers can choose between two regimes:

1. Old Tax Regime (with deductions and exemptions)

2. New Tax Regime (lower tax rates, but fewer deductions)

Here’s a snapshot of the new regime (as per Budget 2023-24):

Under the old regime, the basic exemption limit is ₹2.5 lakh (₹3 lakh for senior citizens), but you can claim popular deductions like Section 80C, 80D, HRA, and home loan interest.

How Tax Brackets Work in India: An Example

Suppose your total income for the year is ₹10,00,000 and you opt for the new regime:

• First ₹3,00,000: 0% tax → ₹0

• Next ₹3,00,000 (₹3L–₹6L): 5% → ₹15,000

• Next ₹3,00,000 (₹6L–₹9L): 10% → ₹30,000

• Remaining ₹1,00,000 (₹9L–₹10L): 15% → ₹15,000

Total tax = ₹60,000 (excluding cess).

Under the old regime, your tax might be lower if you claim deductions under 80C, 80D, HRA, etc.

Deductions: Your Best Friend in the Old Regime

The old regime allows multiple deductions and exemptions that reduce your taxable income:

• Section 80C (up to ₹1.5 lakh): ELSS, PPF, LIC, tuition fees, etc.

• Section 80D: Health insurance premium (up to ₹25,000 or ₹50,000 for senior citizens)

• HRA Exemption: For salaried individuals paying rent

• Home Loan Interest (Section 24): Up to ₹2 lakh for self-occupied property

• NPS Contributions (Section 80CCD)

Example:
If your gross income is ₹10,00,000 and you claim ₹2,00,000 in deductions under 80C and 80D, your taxable income drops to ₹8,00,000, moving part of your income into a lower slab.

Choosing Between Old vs New Tax Regime

Use these basic guidelines:

• If you have high deductions (home loan, investments, insurance): Old regime may be better.

• If you don’t claim many deductions and prefer a simpler system: New regime might save more.

Always use an income tax calculator to compare your liability under both regimes before filing.

Tips to Reduce Your Tax Burden

1. Invest under Section 80C: PPF, ELSS, tax-saving FDs

2. Buy health insurance for deduction under 80D

3. Plan HRA and rent receipts smartly

4. Use NPS for extra savings under 80CCD(1B)

5. Claim home loan benefits if applicable

Final Thoughts

Understanding how Indian tax brackets work—and how deductions impact your taxable income—is the first step to smart money management. Whether you choose the old regime or the new one, the key is to plan ahead, make tax-efficient investments, and keep good records of your expenses and documents.

When in doubt, consult a tax advisor or use online tax calculators to make informed decisions during tax season.