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How to calculate income tax for FY 2020-21
For FY 2020-21, an individual taxpayer has an option to choose between the old and the new tax regime. In order to know which tax regime is beneficial for an individual, it is important to know how much will be the tax liability in both the regimes.
The new income tax regime came into effect from April 1, 2020. This gives an individual taxpayer the option to either continue with the existing tax regime (with tax-exemptions and deductions) or opt for new tax regime (without 70 tax-exemptions and deductions). Salaried individuals, who have no business income, will have to choose between the existing and new tax regimes every financial year, as per their convenience.
On the other hand, those who have business income should carefully evaluate whether they want to continue with the existing tax regime or opt for the new one. This is because once they opt for the new tax regime, then they can switch back to the existing tax regime only once in a lifetime.
On the other hand, those who have business income should carefully evaluate whether they want to continue with the existing tax regime or opt for the new one. This is because once they opt for the new tax regime, then they can switch back to the existing tax regime only once in a lifetime.
To choose between the two income tax structures, it is important that you know how much your tax liability comes down to, in both regimes.
Given below are the income tax slabs that are applicable in the new tax regime for individuals from FY 2020-21:
Given below are the income tax slabs that are applicable in the new tax regime for individuals from FY 2020-21:
| S. No. | Income slabs | Income tax rate (%) |
| 1 | Up to Rs 2.5 lakh | Nil |
| 2 | Between Rs 2,50,001 and Rs 5 lakh | 5% |
| 3 | Between Rs 5,00,001 and Rs 7.5 lakh | 10% |
| 4 | Between Rs 7,50,001 and Rs 10 lakh | 15% |
| 5 | Between Rs 10,00,001 and Rs 12.5 lakh | 20% |
| 6 | Between Rs 12,50,001and Rs 15 lakh | 25% |
| 7 | Above Rs 15 lakh | 30% |
Surcharge is levied on income above Rs 50 lakh. Health and Education cess at the rate of 4 per cent will be added to the income tax liability in all cases. Individuals having taxable income of up to Rs 5 lakh will be eligible for tax rebate under section 87A up to Rs 12,500, thereby making zero tax payable in the new tax regime.
Under the new tax regime, an individual is eligible for only one deduction under section 80CCD (2). This section allows deduction on the employer's contribution to the NPS account for maximum of 10 per cent of the employee's salary (salary here means basic plus dearness allowance).
Other commonly availed deductions such as those under sections 80C, 80D etc, and tax exemptions such as HRA, LTA etc. are not available in the new tax structure.
Under the new tax regime, an individual is eligible for only one deduction under section 80CCD (2). This section allows deduction on the employer's contribution to the NPS account for maximum of 10 per cent of the employee's salary (salary here means basic plus dearness allowance).
Other commonly availed deductions such as those under sections 80C, 80D etc, and tax exemptions such as HRA, LTA etc. are not available in the new tax structure.
The calculation of income tax that you are liable to pay under the new tax regime can be explained with an example. Suppose your total income in FY 2020-21 is Rs 16 lakh. Further, during the year, your employer has contributed Rs 60,000 to your NPS account, which is eligible for deduction under section 80CCD (2). Therefore, your net taxable income will be Rs 15, 40,000 (Rs 16 lakh minus Rs 60,000).
The income tax liability in the new tax regime will be calculated on Rs 15.40 lakh. There will be no tax on the first Rs 2.5 lakh from Rs 15.40 lakh income as mentioned above in the table in point 1. The income which is still chargeable to tax now left will be Rs 12.90 lakh (Rs 15.40 lakh minus Rs 2.5 lakh).
The income tax liability in the new tax regime will be calculated on Rs 15.40 lakh. There will be no tax on the first Rs 2.5 lakh from Rs 15.40 lakh income as mentioned above in the table in point 1. The income which is still chargeable to tax now left will be Rs 12.90 lakh (Rs 15.40 lakh minus Rs 2.5 lakh).
The next Rs 2.5 lakh (Rs 5 lakh minus the exempt Rs 2.5 lakh) from Rs 12.90 lakh will be taxed at 5 per cent as mentioned in point 2 in the table above. The tax amount here will be Rs 12,500.
The income left chargeable to tax will be Rs 10,40,000. Out of this, the next Rs 2.5 lakh (Rs 7.5 lakh minus Rs 5 lakh) will be taxed at 10 per cent as mentioned in point 3. The tax amount comes out to be Rs 25,000.
Adding the tax liability from points 1, 2 and 3, at this point, the total tax liability comes to Rs 37,500 (0+12,500 + 25,000).
At this point, the income which is still chargeable to tax is Rs 7,90,000. From point 4, Rs 2.5 lakh (Rs 10 lakh minus Rs 7.5 lakh) will be taxed at 15 per cent and the tax liability is Rs 37,500.
After point 4, the income left for taxation is Rs 5,40,000. From point 5, the next Rs 2.5 lakh (Rs 12.5 lakh minus Rs 10 lakh) will be taxed at 20 per cent. The tax liability comes out to be Rs 50,000.
The income left chargeable for tax is Rs 2,90,000. As mentioned in point 6, out of this, Rs 2.5 lakh (Rs 15 lakh minus Rs 12.5 lakh) will be taxed at 25 per cent. The tax liability will be Rs 62,500.
Only Rs 40,000 is left which is still to be taxed. As mentioned in the table above, from point 7, this will be taxed at 30 per cent. The tax liability will be Rs 12,000.
The income left chargeable to tax will be Rs 10,40,000. Out of this, the next Rs 2.5 lakh (Rs 7.5 lakh minus Rs 5 lakh) will be taxed at 10 per cent as mentioned in point 3. The tax amount comes out to be Rs 25,000.
Adding the tax liability from points 1, 2 and 3, at this point, the total tax liability comes to Rs 37,500 (0+12,500 + 25,000).
At this point, the income which is still chargeable to tax is Rs 7,90,000. From point 4, Rs 2.5 lakh (Rs 10 lakh minus Rs 7.5 lakh) will be taxed at 15 per cent and the tax liability is Rs 37,500.
After point 4, the income left for taxation is Rs 5,40,000. From point 5, the next Rs 2.5 lakh (Rs 12.5 lakh minus Rs 10 lakh) will be taxed at 20 per cent. The tax liability comes out to be Rs 50,000.
The income left chargeable for tax is Rs 2,90,000. As mentioned in point 6, out of this, Rs 2.5 lakh (Rs 15 lakh minus Rs 12.5 lakh) will be taxed at 25 per cent. The tax liability will be Rs 62,500.
Only Rs 40,000 is left which is still to be taxed. As mentioned in the table above, from point 7, this will be taxed at 30 per cent. The tax liability will be Rs 12,000.
The total tax liability in the new tax regime comes out to be Rs 1,99,500 ( 0+12,500+25,000+37,500+ 50,000+62,500+12,000). Health and education cess will be added to this at the rate of 4 per cent. The cess amount is Rs 7,980.
Therefore, in the new tax regime, the total tax liability will be Rs 2,07,480.
Now you are required to compare this with the tax liability under the existing tax regime. The calculation of income tax under the existing tax regime works in a similar way. First, you are required to deduct all the tax exemptions and deductions that you are eligible for from your gross total income and then calculate your tax liability on the net taxable income. Click here to read more about it.
Another way to compare between new and existing tax regimes is by checking how many deductions and/or tax exemptions that one must claim so that tax liability is same in both the tax regimes.
Therefore, in the new tax regime, the total tax liability will be Rs 2,07,480.
Now you are required to compare this with the tax liability under the existing tax regime. The calculation of income tax under the existing tax regime works in a similar way. First, you are required to deduct all the tax exemptions and deductions that you are eligible for from your gross total income and then calculate your tax liability on the net taxable income. Click here to read more about it.
Another way to compare between new and existing tax regimes is by checking how many deductions and/or tax exemptions that one must claim so that tax liability is same in both the tax regimes.
As shown in the table below under the existing regime, if an individual is able to save or claim deductions and tax exemptions of Rs 3,10,000 (Rs 50,000 plus Rs 2,60,000), then he/she will remain tax neutral in both regimes.
However, if the total deductions and tax exemptions claimed by an individual total to less than Rs 3,10,000, then the individual should opt for the new tax regime as it will involve lower tax liability
However, if the total deductions and tax exemptions claimed by an individual total to less than Rs 3,10,000, then the individual should opt for the new tax regime as it will involve lower tax liability
| Particulars | Tax payable in Existing Regime | Tax payable in New Regime |
| Gross Salary | 16,00,000 | 16,00,000 |
| Standard Deduction | (50,000) | - |
| Income under the head salary | 15,50,000 | 16,00,000 |
| Deductions and tax exemptions | (2,60,000) | (60,000) |
| Income under the head salary | 12,90,000 | 15,40,000 |
| Income Tax | 1,99,500 | 1,99,500 |
| Less: Rebate under section 87A | - | - |
| Total tax payable after Rebate | 1,99,500 | 1,99,500 |
| Education Cess @ 4% | 7,980 | 7,980 |
| Total tax, surcharge and education cess | 2,07,480 | 2,07,480 |
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