How to calculate tax as per new regime in India

✅Discover the secrets of India’s new tax regime! Calculate your tax easily with updated slabs, deductions, and exemptions. Stay compliant and save money!

Calculating tax as per the new regime in India involves understanding the revised slab rates and the deductions that are no longer applicable. The new tax regime, introduced in the Union Budget 2020, offers lower tax rates but does not allow certain exemptions and deductions that were available under the old regime.

To help you navigate through the process of calculating tax under the new regime, this article will break down the steps and provide examples to ensure clarity. Whether you are a salaried employee, a business owner, or a freelancer, understanding these changes is crucial for accurate tax planning.

Step-by-Step Guide to Calculate Tax Under New Regime

1. Determine Your Total Income

Start by calculating your total income from all sources, which includes salary, business income, capital gains, and other sources.

2. Apply the New Tax Slab Rates

The new tax regime introduces the following slab rates:

3. Ignore Specific Deductions and Exemptions

Under the new regime, you cannot claim the following deductions and exemptions:

• Standard Deduction
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Section 80C deductions (e.g., PPF, EPF, Life Insurance Premium)
• Interest on Home Loan (Section 24)
• Other deductions under sections 80D, 80E, 80G, etc.

4. Calculate Taxable Income

Subtract any business expenses or allowances that are still permissible under the new regime from your total income to get your taxable income. Note that standard deductions and other exemptions are not allowed.

5. Compute Tax Payable

Apply the new slab rates to your taxable income to compute your tax payable. For example, if your taxable income is INR 7 lakh, the tax calculation would be as follows:

• 0 – 2.5 lakh: Nil
• 2.5 lakh – 5 lakh: 5% of 2.5 lakh = INR 12,500
• 5 lakh – 7 lakh: 10% of 2 lakh = INR 20,000

Total Tax Payable: INR 12,500 + INR 20,000 = INR 32,500

6. Add Surcharge and Cess (if applicable)

Finally, add any applicable surcharge and health and education cess (4%) to the computed tax to get the final tax liability.

Example Calculation

Let’s consider an individual with a total income of INR 10 lakh:

• 0 – 2.5 lakh: Nil
• 2.5 lakh – 5 lakh: 5% of 2.5 lakh = INR 12,500
• 5 lakh – 7.5 lakh: 10% of 2.5 lakh = INR 25,000
• 7.5 lakh – 10 lakh: 15% of 2.5 lakh = INR 37,500

Total Tax Payable: INR 12,500 + INR 25,000 + INR 37,500 = INR 75,000

Add 4% Cess: 4% of 75,000 = INR 3,000

Final Tax Liability: INR 75,000 + INR 3,000 = INR 78,000

Understanding the Different Income Tax Slabs in the New Regime

Understanding the Different Income Tax Slabs in the New Regime

Calculating taxes under the new regime in India involves understanding the various income tax slabs that have been introduced. These slabs determine the rate at which individuals are taxed based on their income levels. Let’s take a closer look at the different income tax slabs and how they affect taxpayers.

Key Income Tax Slabs in India:

It is essential for taxpayers to understand these income tax slabs as they directly impact the amount of tax payable. For example, if an individual has an annual income of ₹6 lakh, they fall in the 10% tax bracket. This means they will pay a 10% tax on the amount exceeding ₹5 lakh.

Properly categorizing your income based on these slabs can help you optimize your tax liability and ensure compliance with the new tax regime.

Benefits of Knowing the Income Tax Slabs:

• Optimization of Tax Planning: By understanding the income tax slabs, individuals can plan their investments and expenses to minimize tax outflow.
• Compliance: Knowledge of the tax slabs ensures that taxpayers accurately calculate and pay their taxes, avoiding any penalties or legal issues.
• Financial Management: Awareness of the tax slabs allows individuals to better manage their finances and allocate resources efficiently.

By familiarizing yourself with the different income tax slabs in the new regime, you can make informed financial decisions and stay compliant with the tax laws in India.

Step-by-Step Guide to Calculate Income Tax Manually

Let’s dive into the step-by-step process for calculating income tax manually in India under the new regime. This guide will help you understand the tax calculation process better and ensure accurate filings.

1. Determine Gross Income:

The first step is to calculate your gross income. This includes your salary, income from house property, capital gains, business or profession income, and any other sources of income.

2. Subtract Exemptions and Deductions:

Next, deduct all eligible exemptions and deductions from your gross income. These can include HRA (House Rent Allowance), LTA (Leave Travel Allowance), investments under Section 80C, 80D, etc.

3. Arrive at Total Taxable Income:

After subtracting exemptions and deductions, you will arrive at your total taxable income. This is the amount on which you will calculate your income tax liability.

4. Calculate Tax Liability:

Based on the tax slab applicable to your income range, calculate the tax liability using the current income tax rates in India. You can use online tax calculators or refer to the income tax slab rates issued by the government.

5. Apply Rebates and Tax Credits:

Consider any applicable rebates or tax credits available to you. This could include rebates for investments in specified instruments or tax credits for taxes already paid, like TDS (Tax Deducted at Source).

By following these steps diligently, you can accurately calculate your income tax liability in India under the new regime. Understanding the nuances of tax calculations can help you optimize your finances and plan your investments efficiently.

Frequently Asked Questions

What is the new tax regime in India?

The new tax regime in India, introduced in 2020, offers lower tax rates but without deductions and exemptions.

How is tax calculated in the new regime?

Tax is calculated based on slab rates ranging from 5% to 30% depending on the income level.

Can individuals choose between the old and new tax regimes?

Yes, individuals can choose between the old and new tax regimes based on which benefits them more.

Are there any changes in tax deductions in the new regime?

Under the new tax regime, individuals cannot claim deductions for investments and expenses like HRA, LTA, and others.

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