At some point of time, we all have to pay income tax on our income. You can use online Income Tax Calculator to check how much income tax you need to pay. But there are some Facts about Income Tax Calculation that you need to know.
From selecting between Old Tax Regime or New Tax Regime, Tax Rebate in Section 87A to Cess of 4%. These important facts about income tax calculation will help you to plan and save your income tax.
Facts about Income Tax Calculation Video
Let’s discuss all these points at a time
Selecting Tax Regime
Since the introduction of New Tax Regime in Budget 2018, you get the option to select between Old Tax Regime and New Tax Regime.
New Tax Regime were introduced with reduced tax slab rates, compared to Old Tax Regime.
It depends on your income and investments, which tax regime is better for you, and there is no best option for an individual.
You can check this article on New Tax Regime to know which which Tax Regime is better for you to save maximum income tax.
Below is the Table of Income Tax Slab Rates for FY 2022-23 for people of age under 60 years:
ALSO READ: Income Tax Slab Rates FY 2022-23
Deductions availability in which Regime?
With the introduction of New Tax Regime, since tax slab rates were reduced in new regime and kept same in old regime, the condition of no deductions in new regime was implemented.
So All deduction options to save income tax are available only in Old Tax Regime.
You can only get Tax Rebate under Section 87A in New Tax Regime if your gross income is below 5 Lacs in a financial year (discussed below).
No Standard deduction is available in new tax regime if you are a salaried employee.
ALSO READ: Tax Saving Options under Chapter VI
Tax Rebate under Section 87A
Tax Rebate under Section 87A is a type of rebate you get when your taxable income is below Rs. 5 Lacs in financial year.
For Old Tax regime, your taxable income will be calculated by subtracting your total investment deductions from gross salary. This will give you the taxable income on which your income tax will be calculated.
If this taxable income is less than Rs. 5 Lacs in a financial year, you will get maximum tax rebate of Rs. 12,500 according to which your actual income tax will be Rs. 0.
On the other hand, with new tax regime, since you don’t get any deduction options to be claimed, your gross income is considered as taxable income on which income tax will be calculated.
If this gross income is below Rs. 5 Lacs in financial year, than you are eligible to claim Tax Rebate under Section 87A.
Watch Below video to know calculation examples with Tax Rebate:
Tax Rebate Section 87A Video
As seen in above video, even with Rs. 9 Lacs income, you pay Zero Income Tax with Old Tax Regime but New Tax Regime makes you pay Rs. 62,400 as income tax in FY.
Standard Deduction for Salaried Employees
Standard Deduction of Rs. 50,000 is applicable for Salaried Employees and Pensioners for FY 2022-23.
This is flat deduction available to save income tax.
Standard Deduction is only available if you select Old Tax Regime to pay your income tax. New Tax Regime does not allow standard deduction to be claimed.
So, the first thing you should do if you are salaried or pensioner, is reducing standard deduction from your gross income!
ALSO READ: More about Standard Deduction
How Income Tax is same with both Regime?
While calculating income tax with Old and New Tax Regime, we noticed that you pay same income tax on Rs. 6 Lacs income and without any investments in both regime.
Only standard deduction is applied in old tax regime in this case.
Below is the screenshot from our Tax calculator for this example:
As seen above, you pay Rs. 23,400, irrespective of whether you select Old or New Tax Regime, when you income is Rs. 6 Lacs as Salaried employee and you don’t make any investments.
Cess of 4%
While calculating income tax based on different slab rates, you need to add Cess of 4% after adding taxes from all slab rates.
Cess of 4% is applicable on both tax regime and is kind of tax on income tax. This increases your income tax so you should try to reduce your taxable income as much as possible.
Surcharge of 10% and 15%
Surcharge is applicable when your income is above Rs. 50 Lacs in a Financial Year.
So if you income is more than Rs. 50 Lacs in Fy, you need to pay additional Surcharge of 10%, which means 10% tax need to be paid extra on your income tax that is already calculated using slab rates and cess.
For income above Rs. 1 crore in FY, this surcharge is 15%.
So to summarize, below is the table on these 7 Facts about Income Tax Calculation:
|Sr No.||Facts about Income Tax Calculation|
|1||Select between old and new regime|
|2||Deductions are only available under old regime|
|3||Tax rebate under Section 87A|
|4||Standard Deduction of Rs. 50,000|
|5||Income Tax is same on Rs. 6 Lacs Income|
|6||Cess of 4%|
|7||Surcharge of 10% and 15%|
Comment below in case of any queries or if you know about any other Fact about Income Tax Calculation.
Some more Reading
- Section 80C Deductions List
- TDS Calculation on Salary
- Income Tax Calculator Excel Download
- SIP vs Step up SIP Returns on Rs. 2000
- FD Interest Calculation on Rs. 10000 – 7 Days to 10 Years
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Income Tax Calculator App – FinCalC
For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.
What you can do with this mobile App?
- Calculate Income Tax for new FY 2023-24 and previous FY 2022-23
- Enter estimated Investments to check income tax with Old and New Tax Regime
- Save income tax details and track regularly
- Know how much to invest more to save income tax
- More calculators including PPF, SIP returns, Savings account interest and lot more
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