People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate.
In India, we have four tax brackets each with an increasing tax rate.
- Income earners of up to 5 lakhs
- Income earners of between 5 lakhs and 10 lakhs
- And those who make more than 10 lakhs per year
| Income Range | Tax rate | Tax to be |
|---|---|---|
| No tax | No tax | |
| Between Rs.2.5 lakhs and Rs.5 lakhs | 10% | 5% of your taxable income |
| Between Rs.5 lakhs and Rs.10 lakhs | 20% | Rs.12,500+ 20% of income above Rs. 5 lakhs |
| Above 10 lakhs | 30% | Rs.1,12,500+ 30% of income above Rs.10 lakhs |
This is the income tax slab for FY 2017-18
A word of note: People often misunderstand that if they earn let’s say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. That’s incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,25,000+ Rs.60,000 = Rs. 1,85,000.
Exceptions to the Tax Slab
Capital gains are taxed depending on the asset you own and how long you’ve had it.
| Type of capital asset | Holding period | Tax rate |
|---|---|---|
| House Property | Holding more than 36 months Holding less than 36 months |
20% Depends on slab rate |
| Debt mutual funds | Holding more than 36 months Holding less than 36 months |
20% Depends on slab rate |
| Equity mutual funds | Holding more than 12 months Holding less than 12 months |
Exempt 15% |
| Shares | Holding more than 12 months Holding less than 12 months |
Exempt 15% |
| FMPs | Holding more than 36 months Holding less than 36 months |
20% Depends on slab rate |
Indians living abroad or Indians earning foreign income are also taxed differently based on their residential status and their income in India.
- If you are
a NRI, only your income earned or accrued in India is taxable. - If you are resident Indian for that financial year, then your global income is taxable.