How to calculate income tax payable under new tax regime
If you have decided to opt for the new tax regime for the current financial year, i.e., FY 2023-24, then here’s how to calculate the income tax payable. It is important to note that the incomes tax slabs and income tax rates have been kept unchanged for upcoming financial year 2024-25. The calculation will work in the similar fashion for next financial year as well.
For FY 2023-24 and FY 2024-25, a salaried individual can claim two deductions – i) standard deduction of Rs 50,000 from salary and pension income and ii) Section 80CCD (2) for employer’s contribution to the employee’s NPS account.
Here is an example of how to calculate income tax payable under the new tax regime.
Suppose an individual’s gross total income is Rs 20 lakh in FY 2023-24. Further, his/her employer has deposited Rs 1.5 lakh in his/her Tier-I NPS account. This makes him eligible to claim deduction under section 80CCD (2) of the Income-tax Act.
| Particulars | Amount (In Rs) |
| Gross total income | 20,00,000 |
| Standard deduction from salary/pension | (50,000) |
| Deduction under section 80CCD (2) | (1,50,000) |
| Net taxable income | 18,00,000 |
Hence, the net taxable income on which income tax payable is to be calculated will be Rs 18 lakh (Rs 20 lakh minus Rs 2 lakh).
Under the new income tax regime, income between 0 to Rs 3 lakh is exempted from tax. Hence, no tax will be payable on this income. Above this, the income left which is still chargeable to tax is Rs 15 lakh (Rs 18 lakh minus Rs 3 lakh).
The next income tax slab is above Rs 3 lakh and up to Rs 6 lakh. Thus, out of the taxable income of Rs 15 lakh, Rs 3 lakh (falling in this slab) will be taxed at 5%. The tax payable here will be Rs 15,000. Above this, the income left which is still chargeable to tax is Rs 12 lakh (Rs 15 lakh minus Rs 3 lakh).
The next income tax slab is above Rs 6 lakh and up to 9 lakh. Thus, out of the taxable income of Rs 12 lakh, Rs 3 lakh (falling in this slab) will be taxed at 10%. The tax payable here will be Rs 30,000. Above this, the income left which is still chargeable to tax is Rs 9 lakh (Rs 12 lakh minus Rs 3 lakh).
The next income tax slab is above Rs 9 lakh and up to 12 lakh. Thus, out of the taxable income of Rs 9 lakh, Rs 3 lakh (falling in this slab) will be taxed at 15%. The tax payable here will be Rs 45,000. Above this, the income left which is still chargeable to tax is Rs 6 lakh (Rs 9 lakh minus Rs 3 lakh).
The next income tax slab is above Rs 12 lakh and up to 15 lakh. Thus, out of the taxable income of Rs 6 lakh, Rs 3 lakh (falling in this slab) will be taxed at 20%. The tax payable here will be Rs 60,000. Above this, the income left which is still chargeable to tax is Rs 3 lakh (Rs 6 lakh minus Rs 3 lakh).
The last income tax slab is above Rs 15 lakh. Thus, the balance taxable income of Rs 3 lakh (falling in this slab) will be taxed at 30%. The tax payable here will be Rs 90,000.
| Particulars | Income (Rs) | Tax amount (Rs) |
| Net taxable income | 18,00,000 | – |
| Income exempt up to Rs 3 lakh | (3,00,000) | 0 |
| Income which is still chargeable to tax (Rs 18 lakh – 3 lakh) | 15,00,000 | – |
| Income tax slab of Rs 3 lakh and up to Rs 6 lakh | (3,00,000) | @ 5% = 15,000 |
| Income which is still chargeable to tax (Rs 15 lakh – 3 lakh) | 12,00,000 | – |
| Income tax slab of Rs 6 lakh up to Rs 9 lakh | (3,00,000) | @ 10% = 30,000 |
| Income which is still chargeable to tax (Rs 12 lakh -3 lakh) | 9,00,000 | – |
| Income tax slab of Rs 9 lakh up to Rs 12 lakh | (3,00,000) | @15% = 45,000 |
| Income which is still chargeable to tax (Rs 9 lakh -3 lakh) | 6,00,000 | – |
| Income tax slab of Rs 12 lakh up to Rs 15 lakh | (3,00,000) | @ 20% = 60,000 |
| Income which is still chargeable to tax (Rs 6 lakh-3 lakh) | 3,00,000 | – |
| Income tax slab of above Rs 15 lakh | (3,00,000) | @30% = 90000 |
| Total income tax liability | – | 2,40,000 |
| Cess at 4% on total income tax payable (i.e. on Rs 2,40,000) | – | 9,600 |
| Final income tax liability (inclusive of cess) | – | 2,49,600 |
The total tax payable amount comes to Rs 2,40,000. One must note that cess and surcharge amount is yet to be added.
Cess is levied at the rate of 4% on the income tax payable. The surcharge is applicable if the income is above Rs 50 lakh.
After adding cess of Rs 9,600, the final tax amount is Rs 2,49,600.
How to calculate income tax liability under old tax regime
If you have decided to opt for the old tax regime for the current financial year 2023-24 or plan to opt for the same in upcoming financial year 2024-25, then it is important to know which income tax slab your income falls under. The slab rate applicable to your income will determine the tax rate at which the last rupee of your income will be taxed at. It is important to note that interim budget 2024 has kept income tax slabs under old tax regime unchanged.
Under the old income tax regime, an individual taxpayer can claim various deductions and tax exemptions to bring down their gross total income. Once eligible tax exemptions and deductions are deducted from the gross total income, then you will arrive at net taxable income. It is on this income, an individual will calculate tax payable.
Here is an example on how to calculate income tax payable under the old tax regime.
Suppose an individual aged below 60 years has a gross total income of Rs 17 lakh for the current financial year, i.e., FY 2023-24 (April 1, 2023-March 31, 2024). An individual has decided to opt for the old tax regime for the current financial year. Further, he/she is eligible to claim following tax exemption and deductions – section 80C for up to Rs 1.5 lakh, section 80CCD(1b) for NPS investment of Rs 50,000, section 80D of Rs 25,000 for medical insurance premium paid and section 80TTA of Rs 10,000 on savings account interest earned.
| Calculating net taxable income under old tax regime | |
|---|---|
| Particulars | Amount (in Rs) |
| Gross total income | 17,00,000 |
| Section 80C | (1,50,000) |
| Section 80 CCD(1b) NPS investment | (50,000) |
| Section 80D – medical insurance premium | (25,000) |
| Section 80TTA | (10,000) |
| Net taxable income | 14,65,000 |
After deducting the deductions from the gross total income, one arrives at the net taxable income of Rs 14,65,000. The tax payable will be calculated on the net taxable income.
As per the income tax slab rates table, the first Rs 2.5 lakh from net taxable income will be exempted from tax. This is because there is no tax on income up to Rs 2.5 lakh as per current income tax slabs. Post this, income left on which tax has to be calculated is Rs 12,15,000 (14,65,000-2,50,000). The second slab in the income tax slab table is Rs 2.5 lakh and Rs 5 lakh which is taxed at Rs 5%. This means that out of Rs 12,15,000, then next Rs 2,50,000 will be taxed at 5%. The tax amount will be Rs 12,500.
Now the income left which is still chargeable to tax is Rs 9,65,000. The third slab in the income tax slab table is Rs 5 lakh and Rs 10 lakh, taxed at 20%. This means that out Rs 9,65,000, Rs 5,00,000 will be taxed at 20%. The tax payable here will be Rs 1,00,000.
The balance income on which tax has to be calculated is Rs 4,65,000. The tax amount on this balance income (Rs 14,65,000 minus Rs 10,00,000) will be calculated on the basis of the last slab, i.e., above Rs 10 lakh at the rate of 30%. The tax payable amount comes out to be Rs 1,39,500.
Hence, the total tax payable by an individual will be Rs 2,52,000 (Rs 12,500 + 1,00,000+ 1,39,500).
| Calculation of income tax payable for taxable income of Rs 14.65 lakh | ||
|---|---|---|
| Particulars | Income (Rs) | Tax amount (Rs) |
| Net taxable income | 14,65,000 | – |
| Income exempt up to Rs 2,50,000 | (2,50,000) | 0 |
| Income which is still chargeable to tax (Rs 14,65,000 – 2,50,000) | 12,15,000 | – |
| Income tax slab of Rs 2.5 lakh and up to Rs 5 lakh | (2,50,000) | @ 5% =12,500 |
| Income which is still chargeable to tax (Rs 12,15,000 – 2,50,000) | 9,65,000 | – |
| Income tax slab of Rs 5 lakh up to Rs 10 lakh | (5,00,000) | @20% = 1,00,000 |
| Income which is still chargeable to tax (Rs 9,65,000 – 5,00,000) | 4,65,000 | – |
| Income tax slab of above Rs 10 lakh | (4,65,000) | @ 30% =1,39,500 |
| Total income tax liability | – | 2,52,000 |
| Cess at 4% on total income tax payable (i.e. on Rs 2,52,000) | – | 10,080 |
| Final income tax liability (inclusive of cess) | – | 2,62,080 |
Do note that cess and surcharge are also levied on the income tax payable. Cess is levied at the rate of 4% and surcharge is levied if the total income exceeds Rs 50 lakh.
From the example above, the cess amount is Rs 10,080. The surcharge will not be applicable as net taxable income does not exceed Rs 50 lakh. The final tax amount payable by individual is Rs 2,62,080.
Salaried individuals can claim a deduction called the standard deduction. A certain amount can be claimed by pensioners and salaried individuals without making any investment.
The standard deduction that can be claimed by salaried individuals is Rs.50,000. Earlier, the standard deduction was Rs.40,000.
What is Standard Deduction under the Income Tax Act?
The income you earn that is taxable under the head salaries is subject to a flat deduction of Rs. 50,000 known as the standard deduction.
The following can be claimed for this tax benefit regardless of the actual sum spent:
- Medical allowance
- Transport allowance
Standard Deduction on Salary
It is important to understand the comparative tax benefit provided under the Standard Deduction under the Income Tax Act for various years since its inception:
| Particulars | Before Standard Deduction | For FY 2018-19 | For FY 2019-20 | From FY 2020-21 |
| Specific Condition to be met for exemption | Should be provided by the employer | NA | NA | Assessee should not opt for the New Tax Regime under Section 115BAC |
| Transport Allowance exemption | Rs.19200 | 0 | 0 | 0 |
| Medical Allowance exemption | Rs.15000 | 0 | 0 | 0 |
| Standard Deduction in place of the allowances mentioned above | 0 | Rs.40,000 | Rs.50,000 | Rs.50,000 |
| Deductions available | Rs.34200 | Rs.40,000 | Rs.50,000 | Rs.50,000 |
Standard Deduction under the New Regime
The standard deduction under the New Regime is given below:
| Particulars | FY 2022-23 (Old Tax Regime) | FY 2020-21 2022-23 (New Tax Regime) |
| Salary Income | Rs.3.5 lakh | Rs.3.5 lakh |
| Standard Deduction | 50,000 | – |
| Salary Taxable | Rs.3 lakh | Rs.3.5 lakh |
Impact of Standard Deduction
The impact of standard deduction is given below:
- To minimise paperwork and permit deductions regardless of the actual costs.
- To lower taxes for middle-class salaried people.
- To offer pensioners perks.
What are the income tax exemptions for employees who are salaried?
The income tax exemptions for employees who are salaried are given below in the table:
| Particulars | From F.Y. 2019-20 till date (old regime) | F.Y. 2018-19 | Before Standard Deduction |
| Gross salary | Rs.9 lakh | Rs.9 lakh | Rs.9 lakh |
| Less: HRA exemption | Rs.60,000 | Rs.60,000 | Rs.60,000 |
| Less: LTA exemption | Rs.85,000 | Rs.85,000 | Rs.85,000 |
| Less: Transport Allowance | – | – | Rs.19200 |
| Less: Medical Allowance | – | – | 15000 |
| Other exemption | Rs.20,000 | Rs.20,000 | Rs.20,000 |
| Net Salary (A) | Rs.7.35 lakh | Rs.7.35 lakh | Rs.7.08 lakh |
| Standard Deduction(B) | Rs.50,000 | Rs.40,000 | 0 |
| Taxable salary(C)= (A)-(B) | Rs.6.85 lakh | Rs.6.95 lakh | Rs.7.08 lakh |
| Income Tax on (C) | Rs.49,500 | Rs.51,500 | Rs.52,660 |
| Cess at 4% | Rs.1,980 | Rs.2,060 | Rs.2106 |
| Total tax | Rs.51,480 | Rs.53,560 | Rs.54766 |
Taxpayers who Receive Pension
The standard deduction for taxpayers who are receiving pension has been increased to Rs.50,000 from Financial Year 2019-2020. Earlier, the standard deduction was Rs.40,000.