Computation of Taxable income from salary means finding the income on which tax is actually paid. Under Income Tax Act, an individual can choose between Old Tax Regime and New Tax Regime. Old regime allows various deductions and exemptions like standard deduction, section 80C, 80D, HRA etc. New regime offers lower tax rates but most deductions and exemptions are not allowed. Therefore, taxable income and tax liability differ under both regimes. Proper comparison helps a salaried person choose the better option based on salary structure and deductions available.
Assumptions:
Annual Gross Salary Rs 12,00,000
Standard deduction Rs 50,000
Section 80C deduction Rs 1,50,000 under Old Regime
No other allowances or exemptions
Computation under Old Tax Regime:
| Particulars | Amount Rs |
|---|---|
| Gross Salary | 12,00,000 |
| Less Standard Deduction | 50,000 |
| Income after Standard Deduction | 11,50,000 |
| Less Deduction under Section 80C | 1,50,000 |
| Taxable Income | 10,00,000 |
Old Tax Regime Tax Calculation
| Income Slab | Rate | Tax Rs |
|---|---|---|
| Up to 2,50,000 | Nil | 0 |
| 2,50,001 to 5,00,000 | 5 percent | 12,500 |
| 5,00,001 to 10,00,000 | 20 percent | 1,00,000 |
| Total Tax | xx | 1,12,500 |
| Add 4 percent Cess | xx | 4,500 |
| Total Tax Payable | xx | 1,17,000 |
Computation under New Tax Regime
| Particulars | Amount Rs |
|---|---|
| Gross Salary | 12,00,000 |
| Less Standard Deduction | 50,000 |
| Income after Standard Deduction | 11,50,000 |
| Less Other Deductions | Nil |
| Taxable Income | 11,50,000 |
Why No Tax up to Rs 12,00,000 in New Tax Regime:
Under the New Tax Regime, Section 87A rebate is available if taxable income does not exceed Rs 12,00,000.
Although tax is calculated as per slab rates, the entire tax amount is reduced to zero due to rebate.