Computation of Total Income and Tax Liability of an Individual under old Tax regime and New tax regime 115BAC

The Income Tax Act in India offers two tax regimes for individuals and HUFs (Hindu Undivided Families) – the old tax regime and the new tax regime under Section 115BAC. Taxpayers have the option to choose between these two regimes each financial year based on what is more beneficial for them. The new tax regime offers lower tax rates but requires forgoing certain deductions and exemptions available under the old regime.

Old Tax Regime:

Under the old tax regime, the income tax is calculated based on the existing tax slabs, and taxpayers can avail various deductions and exemptions such as Standard Deduction, Section 80C deductions, Housing Loan Interest (Section 24), etc.

New Tax Regime (Section 115BAC):

The new tax regime introduced in Budget 2020 offers lower tax rates but disallows most deductions and exemptions. This regime is optional and its utility depends on the individual’s financial situation.

Income Tax Slabs for FY 2023-24 (AY 2024-25):

The tax slabs for both the regimes might be different.

Old Regime (Slabs):

• Up to ₹2,50,000: No tax
• ₹2,50,001 to ₹5,00,000: 5%
• ₹5,00,001 to ₹10,00,000: 20%
• Above ₹10,00,000: 30%

New Regime (Slabs under Section 115BAC):

• Up to ₹2,50,000: No tax
• ₹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%

Example Calculation:

Let’s assume an individual has a Gross Total Income of ₹10,00,000.

1. Old Tax Regime:
   • Gross Total Income: ₹10,00,000
   • Less: Standard Deduction: ₹50,000
   • Less: Deduction under Section 80C: ₹1,50,000
   • Net Taxable Income: ₹8,00,000

Tax on ₹8,00,000 as per old slabs:

• Up to ₹2,50,000: No tax
• ₹2,50,000 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,000 to ₹8,00,000: 20% of ₹3,00,000 = ₹60,000
• Total Tax: ₹72,500
• Plus: Cess (4% on tax): ₹2,900
• Total Tax Liability: ₹75,400

2. New Tax Regime:

• Gross Total Income: ₹10,00,000
• No deductions available
• Net Taxable Income: ₹10,00,000

Tax on ₹10,00,000 as per new slabs:

• Up to ₹2,50,000: No tax
• ₹2,50,000 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
• ₹5,00,000 to ₹7,50,000: 10% of ₹2,50,000 = ₹25,000
• ₹7,50,000 to ₹10,00,000: 15% of ₹2,50,000 = ₹37,500
• Total Tax: ₹75,000
• Plus: Cess (4% on tax): ₹3,000
• Total Tax Liability: ₹78,000

Please note that this is a simplified example. In reality, the calculation would depend on the actual income and deductions applicable to the individual. Also, the tax slabs and rules may change, so it’s always best to refer to the latest Finance Act or consult a tax professional for accurate calculations.