How is Income Tax Calculated in India? Old Tax Regime & New Tax Regime

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How is Income Tax Calculated in India? Old Tax Regime & New Tax Regime

Income tax is due every year for all the individual taxpayers in India. While the due date has been extended till 30 September 2021, it is never too early to know your tax liability.

How is Income Tax Calculated?

Income tax is calculated based on the applicable tax slab. Your taxable income is worked out after making relevant deductions, the resultant taxable income will be taxed at the applicable slab rate.

The following income tax slab rates are notified in the Old Tax Regime:

Individuals aged below 60years


Tax Rate

Upto ₹ 2.5 lakhs Nil.
₹ 2.5 to ₹ 5 lakhs 5%
₹ 5 lakhs to ₹ 10 lakhs ₹ 12,500 + 20% of Income exceeding ₹ 500,000.
Above ₹ 10 lakhs ₹ 1,12,500 + 30% of Income exceeding of ₹10,00,000.

Senior citizen(aged 60yrs to 80yrs)

Income Tax Rate
Upto ₹3,00,000 Nil.
₹ 3,00,001 to ₹ 5,00,000 5%
₹ 5,00,001 to ₹ 10,00,000 ₹10,000 + 20% of Income

exceeding ₹ 500,000.

Above ₹ 10,00,000 ₹ 1,10,000 + 30% of Income exceeding of ₹10,00,000.

Super senior citizen(aged above 80yrs)

Income Tax Rate
Upto ₹ 5 lakhs Nil.
₹ 5 lakhs to ₹ 10 lakhs 20%
Above ₹ 10 lakhs ₹ 1,00,000 + 30% of Income exceeding of ₹10,00,000.

The Union Budget 2019-20 has proposed full tax rebate for income up to ₹5 lakhs u/S. 87A.

The following income tax slab rates are notified in New Tax Regime: 

Income Tax Rate
Upto ₹2.5 lakhs Nil
₹2.5 to ₹5 lakhs 5%
₹5 lakhs to ₹7.5 lakhs ₹12,500 + 10% of Income exceeding ₹500,000.
₹7.5 to ₹10 lakhs ₹37500 + 15% of total income exceeding ₹7,50,000
₹10 lakhs to ₹12.50 lakhs ₹75000 + 20% of total income exceeding ₹10,00,000
₹12.5 to ₹15 lakhs ₹125000 + 25% of total income exceeding ₹12,50,000
Above ₹15 lakhs ₹187500 + 30% of total income exceeding ₹15,00,000

Exemptions Under the New Tax Regime

An individual or a Hindu Undivided Family (HUF) opting for tax deduction under the newly-inserted Section 115BAC of the Income Tax Act is not entitled to the following exemptions:

  • Leave travel concession
  • House rent allowance
  • Some of the allowance as contained in Clause (14) of Section 10
  • Allowance to MPs and MLAs under Clause 17 of Section 10
  • Allowance for the income of a minor in case of Clause 32 of Section 10
  • Exemption for SEZ units contained under Section 10AA
  • The standard deduction, the deduction for entertainment allowance, and employment/professional tax as contained in Section 16
  • Interest under Section 24 in respect of self-occupied or vacant property referred to in Section 23(2)
  • Additional depreciation under clause (iia) of Section 32(1)
  • Deductions under Sections 32AD, 33AB, 33ABA
  • Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of Section 35
  • Deduction under Section 35AD or Section 35CCC
  • Deduction from family pension under clause (iia) of Section 57
  • Any deduction under chapter VIA (like Section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of Section 80CCD (employer contribution on account of the employee in notified pension scheme) and Section 80JJAA (for new employment) can be claimed

Furthermore, the following allowances are permitted as notified under Section 10(14) of the Income Tax Act of 1961 to the Individual or HUF exercising option under the proposed section

  • Transport allowance granted to a divyang employee to meet the expenditure to commute between the place of residence and place of duty
  • Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office
  • Any allowance granted to meet the cost of travel on tour or transfer
  • Daily allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

Maximum Non-Taxable Income Limit

An individual has a maximum limit set at ₹2.5 lakh. Individuals can also get a ₹12,500 rebate under Section 87A of the Income Tax Act if the income is less than ₹5 lakh per annum for the financial year 2019-20. This means that under the new income tax slab, an individual earning less than ₹5 lakh per annum will not be required to pay income tax. If you have invested ₹1.5 lakh in tax-saving instruments under Section 80 C of the Income Tax Act, then you will not have to pay tax till ₹6.5 lakh.