INCOME TAX CALCULATION UNDER
OLD AND NEW TAX REGIMES
On 13th
April 2020, the Central Board of Direct Taxes (CBDT) issued a circular to
employers to obtain a declaration from their employees if they wish to opt for
the new tax regime. For better understanding, to know the calculation procedure
under Old and New tax regimes, and to take the decision whether we can select
old tax structure or new tax structure, I am trying to write an article on
this. This will be useful for salaried employees relating to India. Before
going to examples under Old and New tax regimes, we need to keep in mind the
below important points.
1. The tax rate
slabs of both the Old tax regime and New tax regime are as mentioned below :-
|
Calculation
of Tax under Old tax structure |
|
|
Tax Slab |
Tax rate |
|
Up to 2,50,000 |
NIL |
|
2,50,001 to 5,00,000 |
5% |
|
5,00,000 to 10,00,000 |
20% |
|
Above 10,00,000 |
30% |
|
Calculation
of Tax under New tax structure |
|
|
Tax Slab |
Tax rate |
|
Up to 2,50,000 |
NIL |
|
2,50,001 to 5,00,000 |
5% |
|
5,00,001 to 7,50,000 |
10% |
|
7,50,001 to 10,00,000 |
15% |
|
10,00,001 to 12,50,000 |
20% |
|
12,50,001 to 15,00,000 |
25% |
|
Above 15,00,000 |
30% |
2. Health and
Education cess @ 4% will be added to the “Tax payable amount after deduction of
rebate u/s 87A”.
3. Surcharge is
levied on taxable income above Rs50,00,000
4. The
individuals who are having taxable income of up to Rs5,00,000 will be eligible
for tax rebate u/s 87A up to maximum of Rs12,500, and thereby no need to pay
any tax either in old tax regime or new tax regime. (The detailed notes will be
there below about sec 87A).
5. Under the new
tax regime, the individuals are eligible for only one deduction u/s 80CCD(2)
which allows deduction on the employer’s contribution to the National Pension
Scheme (NPS) Account for maximum of 10% of the respective employee’s salary (Basic + DA). Other commonly available
deductions such as u/s 80C, 80D, 80E, 80G, and 80U, etc. under chapter VI A,
and tax exemptions like House Rent Allowance (HRA), Leave Travel Allowance
(LTA), etc. are not available in the new tax regime. The deductions and tax
exempts under chapter VI A are mentioned below :-
|
Deductions under chapter VI A |
|
1. Total aggregate deduction up to Rs1,50,000 of below 3 items i.e.
(a), (b), and (c) |
|
(a) Investments in specified
schemes, savings instruments, etc. such as :- |
|
(i) Employee contribution
to Provident fund (PF) |
|
(ii) Employee contributions
to Public provident fund (PPF) |
|
(iii) L I C premium |
|
(iv) Subscription to
recognized National Savings Scheme certificates (NSC) |
|
(v) Contribution to Unit
Linked Insurance Plan (ULIP) |
|
(vi) Subscription to equity
shares and debentures forming part of approved public limited companies |
|
(vii) Subscription to
approved Mutual funds |
|
(viii) Subscription to Term
deposits for a fixed period of not less than 5 years of approved |
|
(ix) Subscription to
notified bonds issued by NABARD |
|
(x) deposit to senior
citizen savings scheme |
|
(xi) Subscription to 5-year
term deposit with Post Offices. |
|
(b) Contribution to pension
funds of LIC or other insurers u/s 80 CCC |
|
(c) Assessee's contributions
to pension schemes of central government u/s 80 CCD (1) |
|
2. Other deductions under VI-A |
|
(d) Deduction up to Rs 50000
in addition to above points (a), (b), and (c) u/s 80 CCD (1B) |
|
(e ) Assessee's contributions
to pension schemes of central government u/s 80 CCD (2) |
|
(f) Amount invested in Health
insurance u/s 80 D |
|
(g) Interest paid on
Educational loan u/s 80 E |
|
(h) Amount invested in listed
shares u/s 80 CCG |
|
(i) Expenditure incurred for
the medical treatment of a dependent u/s 80 DD |
|
(j) Expenditure incurred for
the medical treatment of specified diseases u/s DDB |
|
(k) Interest on loan for
acquired of residential house property u/s 80 EE |
|
(l) Interest on loan for acquired of electric
vehicle u/s 80 EEB |
|
(m) persons with disability
u/s 80 U |
|
(n) Donations to recognized
trusts u/s 80 G |
|
(o) Rent paid for residential
accommodation u/s 80 GG |
|
(p) Royalty Income of books
u/s 80 QQB |
|
(q) Royalty Income of patents
u/s 80 RRB |
|
(r) Interest on Savings Bank
Accounts u/s 80 TTA |
|
(s) Interest in deposits with
post offices, co-operative banks u/s 80 TTB |
6. Eligibility to claim rebate u/s 87A :-
The following
conditions should satisfy if we claim the benefit of rebate u/s 87A :-
(a) we should be
a resident individual,
(b) Our total
taxable income (after deductions, but before calculating Health and Education
cess) does not exceed Rs12,500.
Then, we are not
required to pay any tax either under old tax structure or new tax structure.
For example, see the below table.
|
Rebate u/s 87A under Old tax regime :- |
||||
|
Total |
Tax payable |
Rebate available |
Tax payable before |
|
|
260000 |
500 |
500 |
NIL |
|
|
400000 |
7500 |
7,500 |
NIL |
|
|
580000 |
28500 |
N/A |
28500 |
|
|
Rebate u/s 87A under New tax regime :- |
||||
|
Total |
Tax payable |
Rebate available |
Tax payable before |
|
|
260000 |
500 |
500 |
NIL |
|
|
400000 |
7500 |
7,500 |
NIL |
|
|
580000 |
28500 |
N/A |
24500 |
|
Based on above
points keep in mind, then we can follow the below examples to understand the
basic calculation procedure of both the Old tax structure and New tax
structure.
Example 1 :-
|
Particulars |
Tax |
Old Tax |
New Tax |
|
Total income or Gross Salary |
|
480000 |
480000 |
|
Less : Standard deduction |
|
50000 |
N/A |
|
Income after standard deduction |
|
430000 |
480000 |
|
Less : Deductions and Tax exemptions of
Chapter VI A |
|
80000 |
0 |
|
Taxable income |
|
350000 |
480000 |
|
Calculation of Tax for Old tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
|
|
|
2,50,001 to 5,00,000 |
5% |
7500 |
|
|
5,00,000 to 10,00,000 |
20% |
|
|
|
Above 10,00,000 |
30% |
|
|
|
Calculation of Tax for New Tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
|
|
|
2,50,001 to 5,00,000 |
5% |
|
11500 |
|
5,00,001 to 7,50,000 |
10% |
|
|
|
7,50,001 to 10,00,000 |
15% |
|
|
|
10,00,001 to 12,50,000 |
20% |
|
|
|
12,50,001 to 15,00,000 |
25% |
|
|
|
Above 15,00,000 |
30% |
|
|
|
Total Tax amount |
|
7500 |
11500 |
|
Less : Tax rebate u/s 87 A |
|
7500 |
11500 |
|
Total Taxable amount after rebate u/s 87 A |
|
0 |
0 |
|
Add : Health and Education cess |
4% |
N/A |
N/A |
|
Total Tax Payable amount to Government |
|
N/A |
N/A |
Note 1 :-
The tax amount of Rs11,500 calculated as below
:-
There is a taxable amount under New tax regime
is Rs4,80,000
|
On first 2,50,000 |
0% |
0.00 |
|
From 2,50,001 to 4,80,000 |
5% |
11500.00 |
|
11500.00 |
Note 2 :-
Total Taxable amount after rebate u/s 87A
is considered zero because both the old and New tax regimes are having the
rebate u/s 87A is below Rs12,500 which is under eligible limit.
|
Particulars |
Tax |
Old Tax |
New Tax |
|
Total income or Gross Salary |
|
860000 |
860000 |
|
Less : Standard deduction |
|
50000 |
N/A |
|
Income after standard deduction |
|
810000 |
860000 |
|
Less : Deductions and Tax exemptions of
Chapter VI A |
|
235000 |
40000 |
|
Taxable income |
|
575000 |
820000 |
|
Calculation of Tax for Old tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
0 |
|
|
2,50,001 to 5,00,000 |
5% |
12500 |
|
|
5,00,000 to 10,00,000 |
20% |
15000 |
|
|
Above 10,00,000 |
30% |
|
|
|
Calculation of Tax for New Tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
|
0 |
|
2,50,001 to 5,00,000 |
5% |
|
12500 |
|
5,00,001 to 7,50,000 |
10% |
|
25000 |
|
7,50,001 to 10,00,000 |
15% |
|
10500 |
|
10,00,001 to 12,50,000 |
20% |
|
|
|
12,50,001 to 15,00,000 |
25% |
|
|
|
Above 15,00,000 |
30% |
|
|
|
Total Tax amount |
|
27500 |
48000 |
|
Less : Tax rebate u/s 87 A |
|
0 |
0 |
|
Total Taxable amount after rebate u/s 87 A |
|
27500 |
48000 |
|
Add : Health and Education cess |
4% |
1100 |
1920 |
|
Total Tax Payable amount to Government |
|
28600 |
49920 |
|
Benefit by choosing old tax regime is Rs. |
21320 |
||
Note :-
The Health and Education cess @ 4% is
calculated on “Total taxable amount after rebate u/s 87A”.
Example 3 :-
|
Particulars |
Tax |
Old Tax |
New Tax |
|
Total income or Gross Salary |
|
1700000 |
1700000 |
|
Less : Standard deduction |
|
50000 |
N/A |
|
Income after standard deduction |
|
1650000 |
1700000 |
|
Less : Deductions and Tax exemptions of
Chapter VI A |
|
210000 |
10000 |
|
Taxable income |
|
1440000 |
1690000 |
|
Calculation of Tax for Old tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
0 |
|
|
2,50,001 to 5,00,000 |
5% |
12500 |
|
|
5,00,000 to 10,00,000 |
20% |
100000 |
|
|
Above 10,00,000 |
30% |
132000 |
|
|
Calculation of Tax for New Tax structure:- |
|
|
|
|
Up to 2,50,000 |
NIL |
|
0 |
|
2,50,001 to 5,00,000 |
5% |
|
12500 |
|
5,00,001 to 7,50,000 |
10% |
|
25000 |
|
7,50,001 to 10,00,000 |
15% |
|
37500 |
|
10,00,001 to 12,50,000 |
20% |
|
50000 |
|
12,50,001 to 15,00,000 |
25% |
|
62500 |
|
Above 15,00,000 |
30% |
|
57000 |
|
Total Tax amount |
|
244500 |
244500 |
|
Less : Tax rebate u/s 87 A |
|
0 |
0 |
|
Total Taxable amount after rebate u/s 87 A |
|
244500 |
244500 |
|
Add : Health and Education cess |
4% |
9780 |
9780 |
|
Total Tax Payable amount to Government |
|
254280 |
254280 |
|
Benefit either by choosing old or New tax regime is Rs. |
0 |
||
Note :-
We understand that the old tax regime is
beneficial for us when the below conditions are fulfilled ;-
(a) Total taxable income is more than
Rs15,00,000, and
(b) The total deductions and exemptions of old
tax regime are should be more than Rs2,50,000 (including standard deduction),
comparing to the deductions under new tax regime which is applicable for only
u/s80CCD(2).
If
the total taxable income is below Rs15,00,000 then the above said deductions
under old tax structure i.e. 2,50,000 gradually decrease, comparing to the
deductions under new tax regime which is applicable for only u/s80CCD(2).
|
Calculation
of Tax under Old tax structure |
|
|
Tax Slab |
Tax rate |
|
Up to 3,00,000 |
NIL |
|
3,00,001 to 5,00,000 |
5% |
|
5,00,000 to 10,00,000 |
20% |
|
Above 10,00,000 |
30% |
|
Calculation
of Tax under Old tax structure |
|
|
Tax Slab |
Tax rate |
|
Up to 5,00,000 |
NIL |
|
5,00,000 to 10,00,000 |
20% |
|
Above 10,00,000 |
30% |
|
80 C |
|
LIC, PF, PPF, NSC, ULIP, Pension fund
set up by NHB, Tution fee, Mutual Funds, etc. |
|
Up to 1,50,000 (Subject to overall
limit of ₹ 1,50,000 under Section 80C, 80CCC and 80CCD) |
|
80 CCC |
|
Specified Pension funds |
|
Up to 1,50,000 (Subject to overall
limit of ₹ 1,50,000 under Section 80C, 80CCC and 80CCD) |
|
80 CCD(1) |
|
Pension scheme of Central Government
(NPS) |
|
Assessee contribution Up to 1,50,000
(Subject to overall limit of ₹ 1,50,000 under Section 80C, 80CCC and 80CCD) |
|
80 CCD(1B) |
|
Assessee's contribution to Pension
scheme of Central Government (NPS) |
|
Up to ₹ 50,000 (in addition to
deduction of ₹ 1,50,000 under Section 80C, 80CCC and 80CCD(1)) |
|
80 CCD(2) |
|
Employer's contribution to Pension
scheme notified by Central Govt (NPS) |
|
14% of Employer's contribution made
by Central Govt, or |
|
80 CCG |
|
Amount invested in Listed shares |
|
Deduction of 50% of total investment
subject to maximum of ₹ 25,000 whose gross total income for the relevant |
|
80 D |
|
Amount invested in Health insurance |
|
Up to ₹ 25,000 (₹ 50,000 if specified
person is a senior citizen or very senior citizen for AY 2019-20) |
|
80 DD |
|
Expenditure for medical treatment of
depenent |
|
Up to ₹ 75,000 (₹ 1,25,000 in case of
severe disability) |
|
80 DDB |
|
Expenditure for medical treatment of
specified diseases |
|
Up to ₹ 40,000 (₹ 1,00,000 for Senior / Very Senior
Citizen) |
|
80 E |
|
Interest paid on Educational loan |
|
Total amount |
|
80 EEA |
|
Interest on loan for purchasing House
property |
|
Up to ₹ 1,50,000 |
|
80 EEB |
|
Interest on loan for purchasing Electric
vehicle |
|
Up to ₹ 1,50,000 |
|
80 G |
|
Donations to certain funds,
Charitable institutions |
|
As per Income tax act |
|
80 GG |
|
Rent paid for Residential Accommodation |
|
a) Rent paid in excess of 10% of
total income |
|
80 QQB |
|
Royalty income of books |
|
a) In case of Lump sum payment -
Amount of royalty income subject to maximum of ₹ 3,00,000 |
|
80 RRB |
|
Royalty of Patents |
|
100% of royalty subject to maximum of
₹ 3,00,000 |
|
80 TTA |
|
Interest on Savings Bank Accounts |
|
100% of amount of such income subject
to maximum of ₹ 10,000 (not available to Senior / Very Senior Citizens) |
|
80 TTB |
|
Interest on Deposits with P.Os,
Co-operative banks |
|
100% of amount of such income subject
to maximum of ₹ 50,000 |
|
80 U |
|
Persons with Disability |
|
Up to ₹ 75,000 (₹ 1,25,000 in case of severe
disability) |
|
16 (ia) |
|
Standard Deduction |
|
50,000 |
Hope this article gives you basic information to opt the suitable tax structure to pay Income Tax.
Thank you,
Chandra Sekhar Reddy
Author and Sole proprietor,
SCR Gallery
Website : https://www.scrgallery.com
Blogger : https://scrgalleryindia.blogspot.com/
E-mail : scr@scrgallery.com
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