Budget 2024 Update
FM Nirmala Sitharaman has made two announcements for those opting for the new tax regime.
First, the standard deduction for salaried employees is proposed to be increased from Rs 50,000/- to Rs 75,000/-. Similarly, deduction on family pension for pensioners is proposed to be enhanced from Rs 15,000/- to Rs 25,000/-.
Second, in the new tax regime, the tax rate structure is proposed to be revised, as follows:
- 0-3 lakh rupees - NIL tax
- 3-7 lakh rupees - 5% tax
- 7-10 lakh rupees - 10% tax
- 10-12 lakh rupees - 15% tax
- 12-15 lakh rupees - 20% tax
- Above 15 lakh rupees - 30% tax
As a result of these changes, a salaried employee in the new tax regime stands to save up to Rs 17,500/- in income tax.
What is income tax?
According to the Income Tax Act of 1961, every salaried person must pay an amount from their salary as tax to the country. This amount of tax is called income tax. The law consists of many provisions and variations with subsections describing the details of tax payments, deductions, and computations. A lot of deductions under subsections 80C to 80U are available. After subtracting all the available tax-saving provisions and deductions, the final amount is paid to the government as the income tax on salary.
How to Calculate Income tax on Salary with example in Old Regime?
| Category |
Amount |
Total |
| Salary income |
Rs.16.5 lakh |
- |
| Income derived from other sources |
Rs.20,000 |
- |
| Total gross income |
- |
Rs.16.7 lakh |
| Deductions under Section 80C |
Rs.1.5 lakh |
- |
| Deductions under Section 80TTA |
Rs.8,000 |
Rs.1.7 lakh |
| Deductions under Section 80D |
Rs.12,000 |
- |
| Gross Taxable Income |
- |
Rs.15 lakh |
| Total amount taxable |
- |
Rs.2.73 lakh |
Further, check out the calculations below for different income groups to reduce the maximum amounts on your taxes:-
Tax saving calculation for yearly income-10 lakhs
| Gross Salary |
10,00,000 |
| Less: Exemptions |
|
| HRA |
1,50,000 |
| LTA |
50,000 |
| Reimbursements |
32,000 |
| Children’s education and hostel allowance |
8,500 |
| Standard Deduction |
50,000 |
| Professional Tax |
2400 |
| Taxable Salary Income |
7,07,100 |
| Less: Deductions |
|
| 80C |
1,50,000 |
| 80D |
30,000 |
| 80E |
27,500 |
| Net Taxable Income |
4,99,600 |
| Tax on the above income |
12,480 |
| Rebate u/s 87A (Individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500.) |
-12,480 |
| Additionally, you are eligible to claim these:- |
|
| Interest on home loan deduction u/s 24b |
2,00,000 |
| Home loan 80EEA |
1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) |
50,000 |
Tax saving calculation for yearly income-10 lakhs
| Gross Salary |
2,000,000 |
| Less: |
|
| HRA |
200,000 |
| LTA |
40,000 |
| Reimbursements |
24,500 |
| Children's education and hostel allowance |
9,600 |
| Standard Deduction |
50,000 |
| Professional Tax |
2400 |
| Taxable Salary Income |
1673,500 |
| Less: Deductions |
|
| 80C (Refer to Note below) |
150,000 |
| 80D |
50,000 |
| 80E |
22,000 |
| Net Taxable Income |
14,51,500 |
| Tax on the above income |
2,57,868 |
| Rebate u/s 87A |
Not applicable |
| Total Tax |
2,57,868 |
| Apart from this, you can also claim these tax deductions if eligible: |
|
| Interest on home loan EMIs under Section 24b |
-2,00,000 |
| Principal amount of the home loan under section 80EEA |
-1,50,000 |
| National Pension Scheme (NPS) investments u/s 80CCD(1B) |
-50,000 |
Tax saving calculation for yearly income-50 lakhs
| Gross Salary |
5000000 |
| Less: Exemptions |
|
| HRA |
320000 |
| LTA |
80,000 |
| Reimbursements |
52,000 |
| Children education and hostel allowance |
9,600 |
| Standard Deduction |
50,000 |
| Professional Tax |
2400 |
| Taxable Salary Income |
44,86,000 |
| Less: Deductions |
|
| 80C (Refer Note below) |
1,50,000 |
| 80D |
50,000 |
| 80E |
22,000 |
| Net Taxable Income |
42,64,000 |
| Tax on the above income |
11,35,368 |
| Rebate u/s 87A |
Not applicable |
| Total Tax |
11,35,368 |
| Individuals can also claim these deductions: |
|
| Interest on home loan deduction u/s 24b |
-2,00,000 |
| Home loan 80EEA |
-1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) |
-50,000 |
Calculating income tax on salary can indeed be a complex process for a salaried individual, especially if they are filing for the first time. But worry not; with Tax2win as a salaried individual, it is very easy and quick to file the ITR. Our Income Tax Calculator tool computes your income tax liability based on the inputs provided, such as salary details, deductions, etc. The income tax calculator will display the calculated income tax liability, including the total tax payable and any tax refunds you may be eligible for.
What are the components of salary in income tax?
While calculating income tax, a few basic terminologies should be kept in mind. Here’s a list:
tax year
The tax year is the previous financial year for which the income tax is calculated. The financial year starts on April 1 and ends on March 31 of the next year. So if you are calculating your income tax in 2023, you need to take your salary income from April 1, 2022, to March 31, 2023.
Assessment year
Assessment year is a very popular term, but it confuses most people. The assessment year is not the same as the financial year. An assessment year starts after the previous financial year is over. The year in which income tax is calculated for the previous financial year is called the assessment year. So, if you are calculating your salary income tax for the financial year 2022-23, then your assessment year will be 2023-24, and the due date for filing your ITR without any penalty will be 31st July 2023.
Salary breakup
The first step towards calculating your income tax on salary would be to get a hold of your salary breakup. The salary breakdown is available on the salary slip or salary statement. If you don’t have those, go to your HR and ask for them. By closely examining the slip or the statement, you will understand the major components and the basic structure of your salary. The tax exemptions on salary available to you, like HRA (House Rent Allowance), LTC Leave travel concession, etc., will be helpful for you while calculating the tax.
Taxable income
Once you have the breakup of your salary, you need to calculate your taxable income. Taxable income is the income on which you need to pay tax, which includes all other incomes apart from your salary.
| Income Source |
Description |
| Income from Salary |
All income you receive from your job like salary, leave encashment, allowances, and so on. |
| Income from House Property |
Income from house or land (rented or self-occupied) |
| Income from Business/Profession |
Earnings from business or profession |
| Income from Capital Gains |
Earnings from the sale of a capital asset |
| Income from other sources |
Residual income like earnings from the fixed deposit, gifts, pension, etc. |
Deductions
Income tax is not just about paying money to the government. It is also about all the savings you get to do because of the income tax deductions. These deductions are available under chapter VIA of the Income Tax Act and are subtracted to get to the taxable income.
Taxable Income = Gross Income – Deductions
(Gross income is the sum of all the incomes from all the sources)
To calculate the taxable income, you need to have detailed knowledge about Section 80, “the best friend of taxpayers.” This section includes all types of deductions like investments made on mutual funds, life insurance policies, interest on savings, PPF, NSC, SIPs, home loans, health insurance, pension schemes, etc.
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TDS
TDS or Tax Deducted at Source means the tax is deducted directly from your salary. To maintain a hassle-free tax pattern, most employers use TDS. Don’t worry; you get a refund on this, so if there is a chance that more TDS has been deducted, it can be claimed back as a refund by filing the income tax return. To avoid TDS, you can also show the documents in advance.
As per the announcement in the Budget 2023-24, in non-PAN cases, the TDS rate has been reduced from 30% to 20% on the taxable portion of EPF withdrawals. (No TDS is deducted if withdrawal is made after five years.)
The payable tax calculation
The last and final step is to calculate the tax payable. After you deduct all the applicable deductions and TDS, the amount you get is the tax amount you need to pay to the Indian government. If your total income is less than 2.5 lakhs, then you do not need to pay any income tax under the old tax regime. Budget 2023-24 makes the new tax regime a default regime. According to the new tax regime, a tax rebate of up to 3 lakhs is applicable. Beyond this limit, you are liable to pay income tax according to your salary slab. The tax rate for a salaried individual (under 60 years) as per the old regime is as follows:-
| Income Slab |
Tax Rate |
| Up to 2.5 lakhs |
None |
| 2.5 lakhs – 5 lakhs |
10% of exceeding amount |
| 5 lakhs – 10 lakhs |
20% of the exceeding amount |
| Above 10 lakhs |
30% of the exceeding amount |
The tax rates for FY 2023-24, as per the new tax regime is, as follows:-
| Tax Slab |
Tax Rate |
| Upto Rs 3,00,000 |
Nil |
| Rs. 3,00,001-6,00,000 |
5% |
| Rs. 6,00,001-9,00,000 |
10% |
| Rs. 9,00,001-12,00,000 |
15% |
| Rs. 12,00,01-15,00,000 |
20% |
| Above Rs. 15,00,000 |
30% |
How to save Income tax for a salaried individual?
To reduce taxes, it is highly important to understand the salary structure:-
- Taxable Salary Income = Salary (-) Exemptions (Exempt allowances + Standard deduction +Professional Tax)
- Net taxable income= Taxable Salary Income (-) Deductions under chapter VIA
Every citizen wants to increase their income and, at the same time, pay less tax. There are some ways to do this. These tax-saving methods save money for your future and also save a significant amount on income tax. Some of the most popular tax savings instruments are
-
ELSS
Equity Linked Savings Schemes are equity mutual funds with distinctive features. ELCC qualify below section 80C and are exempted up to 1.5 lakhs. They have a 3-year lock-in period and are offered by almost every mutual fund company. The returns are based on market changes, and that is why there is no fixed return rate on ELSS. However, these returns from ELSS are completely tax-free, which is the major driving force behind people's choice to invest in ELSS.
-
PPF
Public Provident Fund (PPF) is also a very popular method of investment. Since its launch, PPF has been the preferred method of investment and tax savings for millions of salaried individuals. Being a government scheme, it enjoys a lot of trust from people. PPF gives interest at a fixed rate, which currently is 7.1%. The maximum limit for investing in PPF is 1.5 lakhs, while the minimum limit is INR 500 annually. PPF has a lock-in period of 15 years, which can be extended in the block of 5 years. PPF is the best option for people who do not like volatility in their investments and want to invest in safe options.
-
ULIP
ULIP, or Unit Linked Insurance Plan, is a hybrid of insurance plans and market-linked investments. With a lock-in period of 5 years, it offers both protection and savings. The lock-in period can be extended up to 15 and even 20 years. There are nine fund options in ULIP, which an investor can switch at any time, and the returns on them are completely tax-free.
-
Deductions under section 80
Under section 80 of the Income Tax Act of 1961, many deductions are available, which bring down the taxable income for an individual and thus reduce the tax payable.
These deductions are:
| Section |
Maximum Limit |
Deductions |
| Section: 80C |
1,50,000 |
ULIP, ELSS, NSC(National Saving Certificate), the Employee share of PF, LIC Premium, Children’s tuition fees, Home loan principal repayment, 5-year tax saving FD, purchasing of a deferred annuity, Senior citizen’s saving scheme (SCSS), Sukanya Samriddhi Yojana (SSY), Pension fund set up by UTI or mutual fund, annuity plan of LIC, Subscription to Home Loan Account |
| Section: 80CCC |
NA |
|
| Section: 80CCC |
NA |
On the amount deposited in the annuity plan of LIC or any other insurance plan for a pension fund. |
| Section: 80CCD(1) |
- 1,50,000 -10% of salary (in case the taxpayer is an employee)
-20% of gross total income (in case of self-employed)
Least of the above |
Employee’s contribution to NPS account |
| 80CCD(2) |
10% salary |
Employer’s contribution to NPS |
| Section: 80CCD(1b) |
50,000 |
Any other contribution to NPS by employee |
| 80TTA(1) |
10,000 |
Income from interest earned on savings account |
| 80TTB |
50,000 |
Interest received from banks, post office, etc. but applicable only to senior citizens |
| Section: 80GG |
5000 per month / 25% of adjusted total income
rent paid – 10% of adjusted total income (W.E.L.) |
For rent paid when HRA is not received from an employer |
| Section: 80E |
Amount equal to the interest paid every year (for a maximum 8 years) |
Interest paid on education loan |
| Section: 80EE |
50,000 |
Interest paid on home loans by the first time homeowners subject to specified conditions |
| Section: 80D |
25,000 |
Medical insurance of self, spouse and children |
| Section: 80D |
50,000 |
Medical insurance of parents over 60 years or uninsured parents over 80 years of age. |
| 80DD |
75,000 |
Medical treatment of handicapped dependent |
| Section: 80DD |
75,000 (40%-80% disability), ` 1,25,000 (more than 80%) |
Payment made to specific scheme taken for the maintenance of handicapped dependent |
| Section: 80DDB |
40,000 or the amount paid (w.e.l.) |
Medical expense on self or dependent less than 60 years old |
| Section: 80DDB |
1,00,000 or the amount paid (w.e.l.) |
Medical expense on self or dependent more than 60 years old |
| Section: 80U |
1,25,000 (severe disability), ` 75,000 (less severe disability) |
Self-suffering from physical disability including blindness and mental instability |
| Section 80 G |
NA |
various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction |
| Section: 80GGB |
Contributed amount (Not in cash) |
Contribution made to political parties by companies |
| Section: 80GGC |
Contributed amount (Not in cash) |
Contribution made to political parties by individuals |
| Section: 80RRB |
Income received / Rs 3,00,000 (w.e.l.) |
Income received from royalty or patent |
Calculating salary income and filing it correctly in the ITR can be tedious, especially for laymen. But don’t worry; tax filing is now extremely easy with Tax2win. If you are also among those who find taxes complicated, get assistance from an online CA to help smoothen the ITR filing process. Book eCA Now!
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