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:
- Salary Income:
- Basic salary
- House Rent Allowance (HRA)
- Special allowances, such as LTA or food coupons
- Other Sources:
- Income from fixed deposits or savings accounts
- Rental income from properties
- 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:
- Actual rent paid minus 10% of basic salary
- HRA received from your employer
- 50% of basic salary (metro cities) or 40% (non-metro cities)
For example:
- Basic Monthly Salary: Rs.50,000
- Rent Paid: Rs.20,000/month
- HRA Received: Rs.15,000/month
Calculation:
- Rent Paid – 10% of Basic Salary: Rs.20,000 – Rs.5,000 = Rs.15,000
- HRA Received: Rs.15,000
- 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
Final tax liability: Rs.35,000 + Rs.1,400 = Rs.36,400
Key Differences Between Old and New Tax Regimes
| Aspect | Old Tax Regime | New Tax Regime |
| Tax Rates | Higher | Lower |
| Exemptions | Multiple (80C, HRA, etc.) | Minimal (only standard deduction) |
| Standard Deduction | Rs.50,000 | Rs.75,000 |
| Ideal For | Taxpayers using exemptions and deductions | Those preferring simplicity and lower rates |
