How to Calculate Income Tax in India: A Detailed Guide with Examples – 2024

Calculating income tax is a crucial task for every taxpayer in India. Understanding how to compute your tax liability ensures that you comply with tax laws and can also help in better financial planning. This article provides a comprehensive guide on how to calculate income tax in India, complete with examples to make the process clearer.

Understanding the Income Tax Structure in India

India follows a progressive tax system, meaning that the tax rates increase as the income increases. The income tax structure is divided into different slabs, with each slab being taxed at a different rate. The tax rates and slabs may vary depending on the taxpayer’s age and the income tax regime they choose.

Income Tax Regimes in India

As of FY 2024, there are two income tax regimes in India:

1. Old Regime: Offers several exemptions and deductions under various sections of the Income Tax Act.
2. New Regime: Lower tax rates but does not allow most exemptions and deductions.

Tax Slabs for FY 2024 (Old Regime)

• Individuals Below 60 Years:
• Income up to ₹2.5 lakh: No tax
• Income from ₹2.5 lakh to ₹5 lakh: 5%
• Income from ₹5 lakh to ₹10 lakh: 20%
• Income above ₹10 lakh: 30%
• Senior Citizens (60 to 80 Years):
• Income up to ₹3 lakh: No tax
• Income from ₹3 lakh to ₹5 lakh: 5%
• Income from ₹5 lakh to ₹10 lakh: 20%
• Income above ₹10 lakh: 30%
• Super Senior Citizens (Above 80 Years):
• Income up to ₹5 lakh: No tax
• Income from ₹5 lakh to ₹10 lakh: 20%
• Income above ₹10 lakh: 30%

Tax Slabs for FY 2024 (New Regime)

• For all individuals:
• Income up to ₹2.5 lakh: No tax
• Income from ₹2.5 lakh to ₹5 lakh: 5%
• Income from ₹5 lakh to ₹7.5 lakh: 10%
• Income from ₹7.5 lakh to ₹10 lakh: 15%
• Income from ₹10 lakh to ₹12.5 lakh: 20%
• Income from ₹12.5 lakh to ₹15 lakh: 25%
• Income above ₹15 lakh: 30%

Step-by-Step Guide on How to Calculate Income Tax in India

Step 1: Calculate Gross Total Income

Gross Total Income is the sum of income from all sources, including:

• Salary: Basic salary, allowances (such as HRA, LTA), bonuses, etc.
• Income from House Property: Rental income, interest on home loan, etc.
• Income from Business/Profession: Profits or gains from business or profession.
• Capital Gains: Income from the sale of assets like property, stocks, etc.
• Income from Other Sources: Interest from savings accounts, fixed deposits, dividends, etc.

Example:
Let’s assume an individual, Mr. A, has the following income sources:

• Salary: ₹10,00,000
• Rental Income: ₹2,00,000
• Interest Income: ₹50,000

Gross Total Income:
₹10,00,000 (Salary) + ₹2,00,000 (Rental Income) + ₹50,000 (Interest Income) = ₹12,50,000

Step 2: Apply Deductions and Exemptions (Old Regime)

Under the old tax regime, several deductions and exemptions can be applied to reduce the taxable income:

• Standard Deduction: ₹50,000 for salaried individuals.
• Section 80C: Up to ₹1.5 lakh for investments in PPF, EPF, life insurance, etc.
• Section 80D: Health insurance premium deductions (₹25,000 for self, ₹50,000 for senior citizens).
• HRA (House Rent Allowance): Based on rent paid, basic salary, and other factors.
• LTA (Leave Travel Allowance): For travel expenses during leaves.

Example:
Assuming Mr. A avails the following deductions:

• Standard Deduction: ₹50,000
• Section 80C: ₹1,50,000
• Section 80D: ₹25,000

Total Deductions:
₹50,000 + ₹1,50,000 + ₹25,000 = ₹2,25,000

Taxable Income after Deductions:
₹12,50,000 – ₹2,25,000 = ₹10,25,000

Step 3: Compute Tax Liability

Now, apply the relevant tax slab rates to the taxable income.

Example Calculation:

For Mr. A (Under Old Regime):

• Income up to ₹2.5 lakh: No tax
• Income from ₹2.5 lakh to ₹5 lakh: 5% of ₹2,50,000 = ₹12,500
• Income from ₹5 lakh to ₹10 lakh: 20% of ₹5,00,000 = ₹1,00,000
• Income above ₹10 lakh: 30% of ₹25,000 = ₹7,500

Total Tax Liability:
₹12,500 + ₹1,00,000 + ₹7,500 = ₹1,20,000

Rebate under Section 87A:
If the total income is up to ₹5 lakh, a rebate of ₹12,500 is available. However, since Mr. A’s income is above ₹5 lakh, he is not eligible for this rebate.

Step 4: Add Surcharge and Health & Education Cess

• Surcharge: Applicable if income exceeds ₹50 lakh or ₹1 crore. Rates vary from 10% to 37%.
• Health & Education Cess: 4% of income tax.

Example:
Assuming Mr. A has no surcharge, only cess is applied:

• Health & Education Cess: 4% of ₹1,20,000 = ₹4,800

Total Tax Payable:
₹1,20,000 + ₹4,800 = ₹1,24,800

Step 5: Final Tax Payable after TDS and Advance Tax

If TDS (Tax Deducted at Source) or Advance Tax has already been paid, it should be deducted from the total tax payable to arrive at the final tax liability.

Example:
If Mr. A has already paid ₹1,00,000 as TDS:

• Final Tax Payable: ₹1,24,800 – ₹1,00,000 = ₹24,800

Special Considerations for the New Tax Regime

In the new tax regime, the tax slabs are different, and most deductions and exemptions (like 80C, 80D, HRA, etc.) are not available. The process of calculating income tax in India, however, remains similar except for applying the new slab rates directly to the gross total income.

Example Calculation under New Regime:

If Mr. A opts for the new tax regime:

• Income up to ₹2.5 lakh: No tax
• Income from ₹2.5 lakh to ₹5 lakh: 5% of ₹2,50,000 = ₹12,500
• Income from ₹5 lakh to ₹7.5 lakh: 10% of ₹2,50,000 = ₹25,000
• Income from ₹7.5 lakh to ₹10 lakh: 15% of ₹2,50,000 = ₹37,500
• Income above ₹10 lakh: 20% of ₹25,000 = ₹5,000

Total Tax Liability:
₹12,500 + ₹25,000 + ₹37,500 + ₹5,000 = ₹80,000

Adding 4% cess:
₹80,000 + ₹3,200 = ₹83,200

If ₹1,00,000 TDS has been paid, Mr. A would receive a refund of ₹16,800.

Conclusion

Calculating income tax in India may seem complex, but with a clear understanding of the steps involved, it becomes manageable. Whether you opt for the old or new tax regime, the key is to keep track of your income sources, eligible deductions, and apply the correct tax rates. By learning How to Calculate Income Tax in India and doing so, you ensure that you pay the correct amount of tax while also making the most of the available benefits.

For precise tax calculations, it’s always advisable to consult with a tax professional or use official tax calculators provided by the Income Tax Department.

Recommended Reading: Latest Income Tax Slab Rates in India 2024