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    Home » How to Calculate Your Income Tax Using Slabs: A Guide
    Tax

    How to Calculate Your Income Tax Using Slabs: A Guide

    Shehnaz BeigBy Shehnaz BeigJanuary 15, 2025No Comments3 Mins Read
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    How to Calculate Your Income Tax Using Slabs: A Guide
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    The income tax system in India offers two options: the old tax regime and the new tax regime. Both have their own tax slabs, rules, and benefits. Taxpayers can choose the regime best suited to their financial situation and needs. Here’s an easy guide to help you calculate your income tax under both systems.

    Understanding Tax Slabs

    New Tax Regime

    The new tax regime is designed to simplify taxation with lower tax rates but fewer exemptions and deductions. Key features include:

    • Higher Standard Deduction: Rs.75,000 without the need for proof of investments.
    • Limited Exemptions: Fewer benefits compared to the old regime.

    Old Tax Regime

    The old tax regime offers various exemptions and deductions for those who plan their finances strategically. Key features include:

    • Rebate under Section 87A: Income up to Rs.5 lakh is exempted from tax through a rebate of Rs.12,500.
    • Higher Deductions: Avail exemptions under HRA, Section 80C, and more.

    Steps to Calculate Income Tax

    Step 1: Calculate Gross Income

    Gross income includes all sources of income before applying any deductions or exemptions. It may include:

    1. Salary Income:
    1. Basic salary
    2. House Rent Allowance (HRA)
    3. Special allowances, such as LTA or food coupons
    4. Other Sources:
    1. Income from fixed deposits or savings accounts
    2. Rental income from properties
    3. Freelance earnings or business income

    Step 2: Subtract Exemptions and Deductions

    Exemptions for HRA

    If you live in a rented house, HRA exemptions can reduce your taxable income.
    HRA Exemption Calculation:
    The minimum of:

    1. Actual rent paid minus 10% of basic salary
    2. HRA received from your employer
    3. 50% of basic salary (metro cities) or 40% (non-metro cities)
    See also  ITR-3 Form Updated: Key Changes You Should Know

    For example:

    • Basic Monthly Salary: Rs.50,000
    • Rent Paid: Rs.20,000/month
    • HRA Received: Rs.15,000/month

    Calculation:

    1. Rent Paid – 10% of Basic Salary: Rs.20,000 – Rs.5,000 = Rs.15,000
    2. HRA Received: Rs.15,000
    3. 50% of Basic Salary (for Metro): Rs.25,000

    The HRA exemption will be Rs.15,000 as it’s the lowest amount.

    Standard Deduction
    • Old regime: Rs.50,000
    • New regime: Rs.75,000
    Deductions under Section 80C

    Investments like Public Provident Fund (PPF), Employee Provident Fund (EPF), Life Insurance, or ELSS allow up to Rs.1.5 lakh deduction under Section 80C in the old regime.

    Step 3: Calculate Taxable Income

    Taxable income is the gross income minus all eligible exemptions and deductions.

    Example:

    • Gross income: Rs.10,00,000
    • Exemptions and deductions: Rs.2,00,000
    • Taxable income: Rs.8,00,000

    Step 4: Apply the Tax Slab

    Old Tax Regime Tax Slabs for FY 2023-24:

    • Up to Rs.2.5 lakh: No tax
    • Rs.2.5 lakh – Rs.5 lakh: 5%
    • Rs.5 lakh – Rs.10 lakh: 20%
    • Above Rs.10 lakh: 30%

    New Tax Regime Tax Slabs for FY 2023-24:

    • Up to Rs.3 lakh: No tax
    • Rs.3 lakh – Rs.6 lakh: 5%
    • Rs.6 lakh – Rs.9 lakh: 10%
    • Rs.9 lakh – Rs.12 lakh: 15%
    • Rs.12 lakh – Rs.15 lakh: 20%
    • Above Rs.15 lakh: 30%
    Example Calculation Under New Regime:

    Taxable income: Rs.8,00,000

    • Rs.3,00,000: No tax
    • Next Rs.3,00,000 at 5%: Rs.15,000
    • Remaining Rs.2,00,000 at 10%: Rs.20,000

    Total tax: Rs.15,000 + Rs.20,000 = Rs.35,000

    Step 5: Add Cess and Surcharge

    Health and Education Cess: A 4% levy on the total tax amount.
    Surcharge: Applicable for individuals with an annual income of over Rs.50 lakh.

    For example:

    • Total tax: Rs.35,000
    • Cess at 4%: Rs.1,400
    See also  Important Update: GST Returns Older than 7 Years to be Removed from Portal by October 1

    Final tax liability: Rs.35,000 + Rs.1,400 = Rs.36,400

    Key Differences Between Old and New Tax Regimes

    AspectOld Tax RegimeNew Tax Regime
    Tax RatesHigherLower
    ExemptionsMultiple (80C, HRA, etc.)Minimal (only standard deduction)
    Standard DeductionRs.50,000Rs.75,000
    Ideal ForTaxpayers using exemptions and deductionsThose preferring simplicity and lower rates
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    Shehnaz Beig
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    Shehnaz Ali Siddiqui is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing around Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.

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