Tax Slabs in India 2017

In India, the tax rate is different for people of different incomes. This means that the tax rate applicable to you will depend on your income.

Income Tax Rate
Less than ₹2.5 lakh Nil
₹2.5 lakh to ₹5.0 lakh 5%
₹5.0 lakh to 10.0 lakh 20%
Above 10.0 lakh 30%

How is Tax Calculated?

Tax calculation is best understood with the help of an example.

Example 1: Let’s take the income of ₹4,50,000 per annum. So the tax rate applicable will be as follows:

Tax Percentage Applicable Income Tax
Nil 2,50,000 0
5% 2,00,000 10,000
Total 4,50,000 10,000

So here, the first ₹2,50,000 of your salary attracts no tax. The remainder amount, ₹2,00,000 attracts a tax rate of 5%.

Example 2: In this second example, let’s tax a higher income of ₹7,00,000 per annum.

Tax Percentage Applicable Income Tax
Nil 2,50,000 0
5% 2,50,000 12,500
20% 2,00,000 40,000
Total 7,00,000 52,500

In this example, the first ₹2,50,000 attracts no tax. The next ₹2,50,000 is taxed at 5%. The remainder of ₹2,00,000 is taxed at a rate of 20%.

How to Save Tax?

There are several ways to save tax. One of the most popular of the ways is to make use of exemptions under section 80C.

There are a number of investment options under section 80C that you can invest in. Whatever amount you invest in a scheme coming under section 80C can be deducted from your taxable income. The max amount for which you can get benefit under section 80C is ₹1,50,000 per annum.

ELSS mutual funds are mutual funds that give tax benefits under section 80C. Some top rated ELSS mutual funds are Mirae Asset Tax Saver, Reliance Tax Saver, and Motilal Oswal MOSt Focused Long Term Fund.

To understand how you can benefit by investing in any scheme under section 80C, let’s look at another example.

Example 3: Let’s again take an income of ₹7,00,000 per annum for our example. Let’s also assume this person has invested ₹1,50,000 in an ELSS mutual fund.

Then, the tax calculation will be as follows.

Total Income 7,00,000
Amount Invested in ELSS 1,50,000
Taxable Income 5,50,000

The amount invested in ELSS fund is subtracted from the total taxable income.

Now, the tax is calculated as usual.

Tax Percentage Applicable Income Tax
Nil 2,50,000 0
5% 2,50,000 12,500
20% 50,000 10,000
Total 5,50,000 22,500

So here we can see that the person had to pay ₹22,500 as tax.

Now, to compare, let’s see how much tax he saved.

Total Tax Without Investment in ELSS 52,500
Total Tax With Investment in ELSS 22,500
Total Tax Saving 30,000

So in this example, the person is having to pay less than half in taxes!

You should know everything you need to know about ELSS funds and other options under section 80C.

Happy investing!