India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings Th

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Rohit Khuranna

Whether you’re a business exporting goods or services globally, or a freelancer working with international clients, it's essential to share the appropriate purpose code with your bank or payment processor to receive your international payments smoothly.

In this article, we'll explain RBI purpose codes, why they're important, and how to find the right one for your transactions. And yes, we know finding the right <a href="https://www.skydo.com/blog/what-is-purpose-code-and-why-is-it-required">Purpose code</a> for your inward remittance can be confusing, that’s why we have built this purpose code finder tool to help you find the right code without losing your mind!&nbsp;

So let’s jump straight in and explore everything you need to know about purpose codes!

Simply put, a purpose code is an alphanumeric code assigned to every type of international transaction to indicate the nature and purpose of the fund transfer. For instance, if you're a tech service provider receiving payment from international clients for providing software consultancy, you should use code P0802. Alternatively, if you receive your salary from a foreign company while working remotely in India, purpose code P1401 will apply.&nbsp;

In India, businesses and freelancers use RBI purpose codes to specify why they’re receiving international payments. This helps RBI and other authorities understand each transaction precisely, ensuring accurate reporting and compliance with regulations.

How to Find the Right RBI Purpose Code for Inward Remittance?

Finding the right code for your inward remittance can be confusing, thanks to technical jargon and overlapping descriptions. Having assisted over 3,000 businesses and customers, we understand this challenge well.

To ensure accuracy, clearly define your transaction's purpose and stay updated with the <a href="https://www.rbi.org.in/upload/notification/pdfs/52220.pdf?no_follow=true">RBI's purpose code list.</a>

Or, use our Purpose Code Finder tool! It simplifies the process, helping you quickly find the correct code for your payments.

Find the right purpose code for your remittance with Skydo

Our purpose code finder is your shortcut to identifying the correct code and knowing when to use it. You can either search for the activity to find the relevant purpose code or directly look up the specific purpose code for a simple explanation of when to use it.&nbsp;

&nbsp;For complete compliance and accuracy, it's always advisable to get in touch with your financial advisor for professional advice.&nbsp;

For exporters, sharing the correct RBI purpose code with their banks is crucial for receiving international payments. An incorrect RBI purpose code can result in delays or even cancellation of the transaction. And, while it is not very common, in some instances, sharing the incorrect purpose code can also lead to compliance issues later on for exporters. That's why it is always advisable for exporters and freelancers to choose the correct code from the purpose code list of inward remittance.&nbsp;

Beyond these practical reasons, purpose codes are instrumental in monitoring global payments and preventing suspicious activities. Here’s how:

Breaking down some of the most commonly used RBI Purpose Codes

While there are over 150 RBI purpose codes for inward remittance, we break down below some of the commonly used ones:

RBI Category:&nbsp;Computer &amp; Information Services

RBI Description:&nbsp;Software implementation/consultancy  (other than those covered in SOFTEX form)

When to use:&nbsp;This code signifies a foreign payment in exchange for software consultancy or implementation service, provided to a foreign client. It's important to note that P0802 applies specifically to software consultancy or implementation services that are not reported under the <a href="https://vjmglobal.com/fema/fema-fema/introduction-to-software-export-declaration-softex-form/?no_follow=true">SOFTEX form.</a> If your services fall under SOFTEX, a different code might be used.

RBI Description:&nbsp;Realisation of export bills (in respect of goods) sent on collection (full invoice value)

When to use:&nbsp;This code is used when an Indian company exports goods and receives payment for the full invoice value. Note that this purpose code is applicable only when the foreign client has received the shipment.

RBI Description:&nbsp;Advance receipts against export contracts (export of goods only)

When to Use:&nbsp;This is used when businesses receive advance payment against the contract of the goods to be exported. In other words, here the company receives payment for goods before they are shipped.

RBI category:&nbsp;Other Business services

RBI Description:&nbsp;Business and management consultancy and public relations services

When to Use:&nbsp;This code is applicable when an exporter receives payment against providing a combination of business expertise and/or public image management services to a foreign client.

RBI Category:&nbsp;Other Business services

RBI Description:&nbsp;Advertising, trade fair, market research and public opinion polling services

When to Use:&nbsp;This code is used when exporters receive a payment from a foreign client for providing  advertising, trade fair, market research or public opinion polling services.

RBI Description:&nbsp;Value of export bills negotiated/purchased/discounted etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills etc.)

When to Use:&nbsp;P0101 is used when an Indian company exports goods and receives a foreign payment that is usually backed up by official export documentation like GR, PP, SOFTEX, or EC copy of shipping bills.

RBI Description:&nbsp;Goods sold under merchanting / Receipt against export leg of merchanting trade*

When to Use:&nbsp;This code applies to situations where an Indian company acts as a middleman in an international trade transaction, but the goods themselves never physically enter India.

RBI category:&nbsp;Computer &amp; Information Services

RBI Description:&nbsp;Hardware consultancy

When to Use:&nbsp;This code is used when exporters receive foreign payment for providing hardware consultancy or implementation services abroad.

When to Use:&nbsp;This code is used for foreign exchange transactions related to business travel, particularly when someone converts currency for a work trip abroad.

RBI Description:&nbsp;Off-site Software Exports

When to Use:&nbsp;This code signifies that an Indian company is receiving payment for software development or IT services provided to a foreign client, but the work itself is done in India.

What Happens When You Choose the Wrong RBI Purpose Code?

Whether you're a large enterprise billing thousands of dollars or a freelancer getting your first payment, you will not be able to receive inward remittance without sharing the relevant purpose code with your bank or financial institution.&nbsp;

When you share the purpose code, the bank’s internal team reviews it. If they find it incorrect, they may reject it, especially if the remittance amount is significant, leading to the cancellation of the transaction. More often, banks will ask you to revise the application and submit the correct purpose code, but this back-and-forth can cause significant delays in the transaction.

Beyond financial consequences, providing an incorrect code can also lead to legal trouble. If you provide an incorrect RBI purpose code and the bank processes it, the discrepancy can be discovered later during an audit of the bank, or of your business. And if it's found that the incorrect code was deliberately used to bypass compliance, you could face serious legal issues.

To avoid these problems, ensure you thoroughly understand the relevant purpose codes and select the correct one. If you have any questions or doubts, it's always best to seek professional advice.

If you handle multiple foreign clients and regularly send out invoices, manually entering purpose codes can not only be tedious but also prone to errors. With Skydo’s auto-filled purpose codes, you eliminate manual effort and reduce the chances of sharing an incorrect purpose code. Skydo remembers your default purpose code and automatically prefills it for future invoices.&nbsp;

Switch to Skydo today and experience the advantage of hassle-free, transparent international payments.

Decoding RBI Purpose Code: Essential Guide

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It has always been a hassle for small taxpayers, such as small businesses and freelancers, to file taxes effectively. Freelancers, in particular, juggle multiple roles and receive payments from multiple sources, both domestic and international. To ease their burden regarding taxes and compliance, the government has devised a specialised scheme called the Presumptive Taxation Scheme. If you run a small business or are a professional, such as a freelancer, you can choose the Presumptive Taxation Scheme as an ideal method for filing taxes for freelancers in India.&nbsp;

The Presumptive Taxation Scheme is a tax scheme introduced by the Central Board of Direct Taxes (CBDT) to allow small taxpayers, such as small businesses or freelancers, to pay income tax on presumptive income and not actual profits. Section 44AD and Section 44ADA define the rules and guidelines for the presumptive taxation scheme.&nbsp;

Understanding Section 44AD: Presumptive Scheme for Businesses

Section 44AD specifies that a business can opt for the presumptive taxation scheme if its annual turnover does not exceed Rs. 2 crores (or Rs. 3 crores if 95% of the receipts are through online modes).

Individuals who are residents, resident partnership firms (excluding Limited Liability Partnership Firms LLP), and resident Hindu Undivided Families (HUFs) are eligible to benefit from the presumptive taxation scheme under Section 44AD, provided their annual turnover or gross receipts do not exceed the specified limit in the preceding financial year.

Under Section 44AD, businesses can report a minimum of 6%-8% of the gross sales or turnover as income in their ITR without having to maintain extensive books of records

Section 44ADA: Presumptive Taxation Scheme for Professionals&nbsp;

Under Section 44ADA of the Income Tax Act, professionals such as freelancers with an annual turnover of up to Rs. 50 lakhs can opt for the Presumptive Taxation Scheme.

But that's not all. If 95% of the receipts are through online modes, the limit increases to Rs. 75 lakhs for a professional.

According to the rules specified in Section 44ADA, the gains or profits from the profession must be equal to or greater than 50% of the total gross receipts on a presumptive basis.

Many businesses and freelancers choose this scheme because it allows them to file taxes without maintaining detailed books of accounts or submitting financial statements and bills

Eligibility Criteria For Presumptive Taxation Scheme&nbsp;

The two major classifications under presumptive taxation are businesses and individual professionals. Any business with Rs. 2 crores or less as annual turnover and any professional with Rs. 50 lakhs or less as annual earnings can opt for the scheme. Although businesses have been defined as legal entities, individual professionals are further categorized into two sections:&nbsp;

Here are the eligible legal entities under Section 44AD and individual professionals under Section 44ADA of the Income Tax Act: 



If you are not engaged in professional activities other than those mentioned above, you will need to adhere to the rules specified under Sections 44AD and 44ADA for non-specified professions.&nbsp;

The following businesses and taxpayers are excluded from opting for the Presumptive Taxation Scheme:&nbsp;

Calculation of Presumptive Income for Freelancers Under Section 44ADA

As we’ve seen, if you are a professional, freelancer, or consultant, you can pay income tax on only 50% of your gross annual income by utilising the Presumptive Taxation Scheme under <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada">Section 44ADA</a> of the Income Tax Act.&nbsp;

The calculation of presumptive income under the section is simple. You only have to determine 50% of your gross total earnings and pay tax on the determined amount by ITR. Here is a detailed example:&nbsp;

Suppose you are a freelancer and have earned Rs. 40 lakhs in FY 2022-23. As your annual earnings are lower than Rs. 50 lakhs, you are eligible to opt for the Presumptive Taxation Scheme. Opting for the Presumptive Taxation Scheme will allow you to pay a tax on 50% of the gross earnings, i.e., on Rs 20 lakhs only.&nbsp;

However, without the presumptive taxation scheme, the taxable income would be Rs. 30 lakhs due to the maximum allowable work-related deductions (including travel expenses, meeting expenses, and communication expenses) of Rs. 10 lakh, resulting in higher taxes.

Individuals who opt for the Presumptive Taxation Scheme are allowed all tax deductions under Sections 30-38 and <a href="https://taxguru.in/income-tax/section-44ada-presumptive-taxation-professionals.html">Sections 80C to 80U of the Income Tax Act. </a>However, they are barred from claiming any further business expenses from their taxable income.&nbsp;

Advance Tax under the Presumptive Taxation Scheme&nbsp;

If you opt for the Presumptive Taxation Scheme, you are liable to pay the entire advance tax amount before 15 March of the financial year. Advance tax refers to the payment of income tax in instalments throughout the financial year rather than as a lump sum at the end of the year.

If you fail to pay the advance tax amount and your tax liability exceeds Rs. 10,000, interest under <a href="https://learn.quicko.com/section-44ad#5-section-44ad-of-income-tax-5-year-rule">Section 234C</a> will be levied.&nbsp;

Presumptive Taxation For International Payment

If you are a freelancer or a professional and opting for this taxation scheme under Section 44ADA of the Income Tax Act, you must add <a href="https://www.skydo.com/blog/track-your-international-payment-journey-from-skydo-to-your-bank?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international earnings</a> to your total income while computing your presumptive income. Most international clients deduct TDS before sending payments. If deducted, you can claim a refund for the TDS amount if you fall under the tax liability.&nbsp;

Even if they haven’t deducted <a href="https://www.skydo.com/blog/tds-on-international-payments">TDS</a>, you must add the amount received through international channels to your total income and pay the applicable tax.&nbsp;

How to Opt for the Presumptive Taxation Scheme&nbsp;

Here is the detailed process if you are looking to opt for the Presumptive Taxation Scheme: 



To file taxes under the Presumptive Taxation Scheme, use Form ITR-4. If you have income from capital gains, file taxes using Form ITR-3. Mention the Business and Profession Codes based on your profession. The deadline to file ITR for FY 2023-24 (AY 2024-25) is July 31, 2024.&nbsp;

It is important to link your Aadhaar and PAN to file Form ITR-4. Once linked, <a href="https://www.incometax.gov.in/iec/foportal/help/e-filing-itr4-form-sugam-faq">you will need documents</a> such as Form 16, 16A, 26AS, and AIS, as well as bank statements, donation receipts, housing loan interest certificates, rental agreements, rent receipts, and investment premium payment receipts.&nbsp;

If you choose the Presumptive Taxation Scheme, you must stick with it for the next five years. If you don't, you won't be able to choose this scheme for the next five years. For example, if you file under this scheme for AY 2019-20 and AY 2020-21 but don't opt for it for AY 2021-22, you can't choose the PTS for the next five AYs, i.e., AY 2022-23 to AY 2026-27.&nbsp;

Freelancers receive payments from multiple sources, making it difficult for them to determine their total income and pay taxes based on the applicable tax rates. The Presumptive Taxation Scheme provides a simple way for professionals such as freelancers to pay taxes on 50% of their gross income and avoid paying higher taxes. The scheme makes taxation compliance simpler for freelancers and ensures they comply with the tax laws even if they receive international payments.&nbsp;

If you are a freelancer receiving international payments, <a href="https://www.skydo.com/">Skydo</a> is a one-stop solution that can help you create a virtual currency account and easily comply with all the FEMA and taxation rules. <a href="https://www.skydo.com/blog/why-skydo-is-your-trusted-international-payment-partner?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Visit Skydo today</a> to streamline your foreign currency transactions.