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How Your Tax is Calculated

The Indian Income Tax system provides two taxation regimes for individuals: the Old Tax Regime and the New Tax Regime. Below is a detailed explanation of how tax is calculated in both regimes, including considerations for financial year, income slabs, deductions, exemptions, and age-based categories.

1. Understanding the Financial Year

The financial year in India starts from 1st April of a year and ends on 31st March of the following year. For example, the financial year 2024-25 runs from 1st April 2024 to 31st March 2025. Your income earned during this period will be assessed in the assessment year 2025-26, when you file your tax returns.

2. Old Tax Regime

The Old Tax Regime allows individuals to claim various deductions and exemptions to reduce their taxable income. Here’s how it works:

  • Income Slabs: Tax is calculated based on predefined income slabs. The higher your income, the higher the rate of tax.
  • Deductions: You can reduce your taxable income by claiming deductions under sections such as:
    • Section 80C: Investments like EPF, PPF, ELSS, and life insurance premiums can reduce your taxable income up to ₹1,50,000.
    • Section 80D: Medical insurance premiums for self and family can provide an additional deduction of ₹25,000 to ₹50,000.
    • HRA: House Rent Allowance, if applicable, can reduce taxable income.
  • Age-Based Slabs: Senior citizens (60–80 years) and super senior citizens (above 80 years) enjoy higher exemption limits.

After applying deductions, your taxable income is calculated, and the tax is applied as per the slab rates. For example, if your taxable income is ₹7,00,000, you will pay:

  • 5% on income between ₹2,50,001 and ₹5,00,000
  • 20% on income between ₹5,00,001 and ₹7,00,000

3. New Tax Regime

The New Tax Regime introduced lower tax rates but removed most exemptions and deductions. Here’s how it works:

  • Income Slabs: Tax is calculated based on new slab rates. For instance:
    • 0% tax for income up to ₹3,00,000
    • 5% tax for income between ₹3,00,001 and ₹6,00,000
    • 10% tax for income between ₹6,00,001 and ₹9,00,000
    • 15% tax for income between ₹9,00,001 and ₹12,00,000
    • 20% tax for income between ₹12,00,001 and ₹15,00,000
    • 30% tax for income above ₹15,00,000
  • No Deductions: Under this regime, exemptions like HRA and deductions under 80C, 80D, etc., are not available. However, a standard deduction of ₹50,000 is allowed.
  • Simplicity: This regime is beneficial for individuals who do not have significant investments or eligible deductions.

4. Age-Based Categories

Age plays a significant role in determining the tax liability. The three categories are:

  • Below 60 years: Standard slab rates apply.
  • Senior Citizens (60–80 years): Higher exemption limits in the old regime (₹3,00,000 instead of ₹2,50,000).
  • Super Senior Citizens (Above 80 years): Highest exemption limits in the old regime (₹5,00,000).

5. Choosing the Right Regime

Deciding between the old and new tax regimes depends on your income, investments, and eligible deductions. Use the following criteria:

  • Old Regime: Suitable if you have significant investments and can claim deductions.
  • New Regime: Beneficial if you have minimal or no deductions and prefer lower tax rates.

6. Calculation Example

Let’s take an example to compare the two regimes:

  • Income: ₹10,00,000
  • Deductions: ₹1,50,000 under Section 80C (only for the old regime)

Under the Old Regime:

  • Taxable Income = ₹10,00,000 - ₹1,50,000 = ₹8,50,000
  • Tax: ₹12,500 (5% of ₹2,50,000) + ₹70,000 (20% of ₹3,50,000) = ₹82,500
Under the New Regime:
  • Taxable Income = ₹10,00,000
  • Tax: ₹7,500 (5% of ₹1,50,000) + ₹15,000 (10% of ₹1,50,000) + ₹30,000 (15% of ₹2,00,000) = ₹52,500
In this case, the new regime results in lower tax liability.

7. Additional Notes

- Always consider your eligible deductions and exemptions when choosing the regime.
- Senior citizens can benefit from higher exemption limits and additional deductions under the old regime.
- The tax calculator on this page helps you make an informed decision.

Note: The tax system is complex, and the calculator provides an approximate value. For detailed tax planning and professional advice, consult a financial expert or a reputed consultancy. S. Shekhar & Co. (SSCOindia) is a leading accountancy firm specializing in Cost Audit, Stock Audit, Central Excise Audit, and more. With years of expertise and a dedicated team, SSCOindia can help you optimize your tax savings and ensure compliance with all regulations. Visit SSCOindia.com to know more and schedule a consultation today.

Advanced Tax Calculator

Frequently Asked Questions (FAQ)

The Old Tax Regime allows individuals to claim various deductions and exemptions, such as under Section 80C and HRA. The New Tax Regime, on the other hand, offers lower tax rates but removes most deductions and exemptions. Choosing the right regime depends on your income, investments, and eligible deductions.

Age plays a significant role in tax calculations under the Old Tax Regime. Individuals below 60 years have a basic exemption limit of ₹2,50,000, while senior citizens (60–80 years) enjoy an exemption limit of ₹3,00,000. Super senior citizens (above 80 years) have an even higher exemption limit of ₹5,00,000.

Under the Old Tax Regime, you can claim deductions such as:
  • Section 80C: Investments in EPF, PPF, life insurance premiums, etc. (up to ₹1,50,000).
  • Section 80D: Medical insurance premiums (₹25,000 to ₹50,000).
  • House Rent Allowance (HRA).
  • Interest on Home Loan under Section 24(b).

The choice between the Old and New Tax Regime depends on your financial profile. If you have significant investments and deductions, the Old Regime might save you more. If you prefer lower tax rates and simplicity without deductions, the New Regime may be better. Use the tax calculator on this page to determine the best regime for your income and deductions.

The tax calculator provides an approximate estimate based on the information you input. While it uses the latest tax rules, actual tax liabilities may vary based on individual circumstances. For precise tax planning, consult S. Shekhar & Co. (SSCOindia), a trusted accountancy firm. Visit SSCOindia.com to know more.