Tax Calculation under New & Old Regimes

The income tax slab under the old tax regime remains and the rates are given in the table below:

1.Income Tax Slabs for Individuals below 60 Years, NRI and HUF

2.Income Tax Slabs for Senior Citizens aged between 60 to 80 Years

3.Income Tax Slabs for Super Senior Citizens above 80 Years

Key Components in the Tax Calculation Process

Standard deduction of Rs.50,000 is available to all salaried individuals. Additional benefits under the Old Tax Regime includes the following:

Tax Exemption:

1. HRA exemption based on city residence, actual rent, and salary components.

1. LTA

1. Gratuity

1. Gifts

1. Leave encashment

1. Daily allowance

1. Conveyance allowance

1. Other allowance such as food allowance

Chapter VI-A Deductions

Section 80C:

Deductions up to Rs.1.5 lakh for investments such as EPF, PPF, ELSS, life insurance premiums, and home loan principal repayment.

Section 80CCC

Payment made to life insurance premium per annum.

Section 80CCD(1)

Contributions to pension schemes, such as NPS fund.

Section 80CCD(1B)

Additional deduction of Rs.50,000 for NPS contributions.

Section 80CCD(2)

Contribution to pension scheme such as NPS fund by employers

Section 80D

1. Health insurance premiums up to Rs.25,000 for self and family.

1. Higher limits available for senior citizens

Section 80TTA

Deduction up to Rs.10,000 on savings account interest.

Section 80E

Deduction on interest paid on education loans for higher studies for self, spouse, or children.

Section 80EE and Section 80 EEA

Interest paid against home loans.

Section 80 EEB

Interest paid towards loan taken for purchasing electric vehicles.

Section 80G

Donation made for social causes

Section 80 GG

Applicable for those who pay house rent and are not applicable for HRA.

Section 80U

Deduction for disabled individuals

How to Calculate Income Tax on Salary?

To determine the income tax on salary as per new and old regime, follow the below-mentioned steps:

Calculate the Gross Salary

To determine the gross salary, consider the various salary components, such as:

1. Basic salary: Fixed and bas amount offered to the employees.

1. Dearness Allowance (DA): A percentage of salary covers the impact of inflation.

1. Conveyance Allowance: Covers expenses related to travel from home to workplace.

1. House Rent Allowance (HRA): Covers expenses related to rented accommodations.

1. Leave Travel Allowance (LTA): Covers travel expenses during vacations.

1. Provident Fund (PF): Contributed by both employees and employers for retirement benefits and long-time savings.

1. Medical Allowance: Covers medical expenses of employees and family members (if included)

Calculate the Gross Total Income

To determine the gross total income, add the other sources of income, such as:

1. Income from rent

1. Income from interest

1. Income from house property

1. Business or professional income

1. Capital gain income

1. Income from dividends

Calculate the Salary after Applying the Exemptions and Standard Deductions

Standard deduction of Rs.50,000 and Rs.75,000 under the old tax regime and the new tax regime, respectively. Certain exemptions may also apply to your salary which is subtracted from your gross salary to determine the taxable income. 

Apply the Deductions 

To reduce the taxable income, apply the deductions by making payments to various savings and investment plans, such as NPS, SCSS, PPF, life insurance, ELSS funds qualifies for deductions under section 80C of the Income Tax. 

Calculate the Taxable Income

Subtract the deductions and exemptions to determine the taxable income. 

Apply the Tax Rate on the Salary

The tax rates vary as per the income ranges, which is different for the old and new tax regime. Under the old tax regime, taxpayers get various exemptions and deductions, while under the new tax regime, you get low tax rates corresponding to the income slabs.

From financial year 2023-2024, the new tax regime is the default option, but you can switch to the old tax regime as per your requirement.

Apply the Applicable Cess, Rebate, and Surcharge

To calculate the actual income tax amount, apply the rebate, cess, and surcharge applicable to the income tax payable.

1. Cess is applicable to eligible taxpayers at a rate of interest of 4%.

1. Rebate under section 87A is applied to the taxpayer with taxable income of Rs.7 lakh or Rs.5 lakh, up to the income tax payable or Rs.25,000 or Rs.12,500 (whichever is less) as per new or old tax regime, respectively.

1. Surcharge is another additional tax applied to taxpayers with higher income at the following rate of interest under the old and new tax regime.

The surcharge rates are mentioned in the table below:

Example of How to Calculate the Income Tax on Salary

Let us consider Mr.A who is a professional residing in Bangalore. He makes a payment of Rs.25,000 as house rent, rest other income details are given in the below table:

Gross Total Income

Standard Deductions and Exemptions

Applying deductions

Taxable Income after Deduction

Apply Income Tax Slabs

Old Tax Regime

New Tax Regime 

Total Income Tax Liability