Introduction: When it comes to the taxation of salary income, understanding the old tax regime versus the new tax regime under Section 115BAC is crucial. Salary income is taxable based on either the due basis or receipt basis, whichever occurs first. Even if an employer owes an employee salary that remains unpaid during the year, it’s still subject to taxation.
Page Contents
Calculation of taxable salary income (Old Tax Regime vis-à-vis New Tax Regime of Section 115BAC)
The income under the head salary shall be taxable on a due basis or receipt basis, whichever is earlier. Salary due from an employer to an employee, even if it is not paid during the year, shall be chargeable to tax.
The salary income shall be computed in the following manner:
| Particulars | Amount |
| Salary | xxx |
| Add: Additions
a) Allowances |
xxx |
| b) Perquisites | xxx |
| c) Profit in Lieu of Salary | xxx |
| d) Retirement benefits | xxx |
| e) Pension | xxx |
| Less: Deductions
a) Entertainment Allowance |
(xxx) |
| b) Employment Tax | (xxx) |
| c) Standard Deduction | (xxx) |
| Income chargeable under the head Salary | xxx |
Tax Rates for a salaried employee
Normal Tax Rates (Old tax regime)
The normal tax rates are prescribed every year under the First Schedule of the Finance Act. The tax rates in the case of an individual have been enumerated in the below table:
| Net income range | Resident Super Senior Citizen |
Resident Senior Citizen |
Any other Individual |
| Up to Rs. 2,50,000 | Nil | Nil | Nil |
| Rs. 2,50,001- Rs. 3,00,000 | Nil | Nil | 5% |
| Rs. 3,00,001- Rs. 5,00,000 | Nil | 5% | 5% |
| Rs. 5,00,001- Rs. 10,00,000 | 20% | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% | 30% |
‘Super senior citizen’ means an individual whose age is 80 years or more at any time during the relevant previous year.
‘Senior citizen’ means an individual whose age is 60 years or more at any time during the relevant previous year but less than 80 years on the last day of the previous year.
Normal Tax Rates (New tax regime)
Section 115BAC provides a new tax regime for individuals, which has reduced tax slabs. However, to avail of the benefit of this tax regime, the assessee has to forgo specified exemptions and deductions.
If an eligible assessee opts for this regime, the income shall be taxable at the following rate:
| Total Income (Rs) | Rate |
| Upto 3,00,000 | Nil |
| From 3,00,001 to 6,00,000 | 5% |
| From 6,00,001 to 9,00,000 | 10% |
| From 9,00,001 to 12,00,000 | 15% |
| From 12,00,001 to 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Rebate under Section 87A
For the old tax regime – In the case of a resident individual, a rebate of up to Rs. 12,500 is allowed under Section 87A from the amount of tax if the total income of such individual does not exceed Rs. 500,000.
For the new tax regime – A resident individual paying tax as per the new tax regime under Section 115BAC shall be allowed a higher amount of rebate under Section 87A if the total income is up to Rs. 7,00,000. Further, if the total income of the resident individual marginally exceeds Rs. 7,00,000, he will be eligible for the marginal rebate.
Rate of Surcharge
In respect of an individual, the rate of surcharge for the assessment year 2024-25 shall be as under:
|
Nature of Income |
Range of Total Income | ||||
| Up to Rs. 50 lakhs |
More than Rs. 50 lakhs but up to Rs. 1 crore |
More than Rs. 1 crore but up to Rs. 2 crores |
More than Rs. 2 crores but up to Rs. 5 crores |
More than Rs. 5 crores | |
| Short-term capital gain covered under Section 111A or Section 115AD | Nil | 10% | 15% | 15% | 15% |
| Long-term capital gain covered under Section 112A or Section 115AD or Section 112 | Nil | 10% | 15% | 15% | 15% |
| Dividend income (not being dividend income chargeable to tax at a special rate under sections 115A, 115AB, 115AC, 115ACA) | Nil | 10% | 15% | 15% | 15% |
| Unexplained income chargeable to tax under Section 115BBE | 25% | 25% | 25% | 25% | 25% |
| Any other income (if opted for the old tax regime) | Nil | 10% | 15% | 25% | 37% |
| Any other income (if opted for the new tax regime of Section 115BAC) | Nil | 10% | 15% | 25% | 25% |
Health and Education Cess
Every person is liable to pay health and education cess at the rate of 4% on the amount of income tax plus surcharge.
Comparison of exemption/deductions available under the old tax regime and new tax regime of Section 115BAC
| Particulars | Old tax regime | New tax regime |
| Standard Deduction [Section 16(ia)] | Available | Available |
| Leave Travel concession [Section 10(5)] | Available | Not Available |
| House Rent Allowance [Section 10(13A)] | Available | Not Available |
| Official and personal allowances (other than those as may be prescribed) [Section 10(14)] | Available | Not Available |
| Allowances to MPs/MLAs [Section 10(17)] | Available | Not Available |
| Entertainment Allowance [Section 16((ii)] | Available | Not Available |
| Professional Tax [Section 16(iii)] | Available | Not Available |
| Interest on housing loan for self-occupied house property [Section 24(b)] | Available | Not Available |
| Deduction under Sections 80C to 80U other than specified under Section 80CCD(2), and Section 80CCH(2) [Chapter VI-A] | Available | Not Available |
| Set-off of any loss under the head “Income from house property” with any other head of income | Available | Not Available |
| Exemptions or deductions for allowances or perquisites provided under any other law for the time being in force | Available | Not Available |
Which regime is beneficial?
The decision to opt for the old tax regime will depend on the amount of exemptions and deductions available to the assessee. For example, if an individual has no deductions available to him under the old tax regime, it would not be beneficial for him to opt for the old tax regime. On the other hand, if an individual is availing of deductions under Section 80C, Section 80D, and the interest on a housing loan under Section 24, it would always be beneficial for him to opt for the old tax regime.
It’s important to carefully consider the exemptions and deductions available to the assessee when deciding whether or not to opt for the old tax regime. The breakeven points for different situations, as outlined in the below table, can help a person determine which option is more beneficial.
| Which deduction can an assessee claim in the old tax regime? |
Breakeven point of income | When is it beneficial to opt for the old tax regime? |
| No deduction is allowable | – | Never |
| Deduction under Section 80C | – | Never |
| Deduction under Section 80C and Section 80D | 8,25,000 | If income is below the breakeven point |
| Deduction allowable under:
– Section 80C – Section 80D – Section 24 (Interest on housing loan) |
– | Always |
Tax benefit if opted for the old tax regime
| Salary Income after Standard Deduction |
Where no deduction is claimed |
Where deduction under Section 80C is claimed | Where deduction under Sections 80C and 80D are claimed | Where deduction under Sections 80C, 80D and 24(b) are claimed |
| 6,00,000 | -33,800 | – | – | – |
| 7,00,000 | -54,600 | -23,400 | – | – |
| 8,00,000 | -39,000 | -7,800 | 2,600 | 36,400 |
| 8,25,000 | -41,600 | -10,400 | – | 39,000 |
| 8,50,000 | -44,200 | -13,000 | -2,600 | 41,600 |
| 9,00,000 | -49,400 | -18,200 | -7,800 | 46,800 |
| 10,00,000 | -54,600 | -23,400 | -13,000 | 28,600 |
| 11,00,000 | -70,200 | -28,600 | -18,200 | 23,400 |
| 12,00,000 | -85,800 | -33,900 | -23,400 | 18,200 |
| 13,00,000 | -96,200 | -49,400 | -33,800 | 18,200 |
| 14,00,000 | -1,06,600 | -59,800 | -44,200 | 18,200 |
| 15,00,000 | -1,17,000 | -70,200 | -54,600 | 7,800 |
How to opt for the new tax regime?
From the Assessment Year 2024-25, the default tax regime will be the new tax regime of Section 115BAC. If an assessee does not want to pay tax according to the new tax regime, he will have to explicitly opt out of it and choose to be taxed under the old tax regime.
Calculation of taxable salary income – Important Points
1. The income under the head salary shall be taxable on ue basis or receipt basis, whichever is earlier.
Explanation: The income under the head salary shall be taxable on a due basis or receipt basis, whichever is earlier.
2. While computing income under the head salary, which of the following deductions are allowed under Section 16-
(a) Entertainment Allowance
(b) Employment Tax
(c) Standard Deduction
Explanation: While computing income under the head salary, the deduction for Entertainment Allowance, Employment Tax, and Standard Deduction is allowed under Section 16.
3. ‘Super Senior citizen’ means an individual whose age is 80 years or more at any time during the relevant previous year.
Explanation: ‘Super senior citizen’ means an individual whose age is 80 years or more at any time during the relevant previous year.
4. Rebate under Section 87A is available in case of a Resident Individual and is not available to Non-resident Individual and Resident HUF.
Explanation: Rebate under Section 87A is available only in case of a resident individual.
5. Rebate under Section 87A (for the old tax regime) is allowed up to Rs. 12,500 from the amount of tax if the total income of such individual does not exceed Rs. 5,00,000.
Explanation: In the case of a resident individual, a rebate of up to Rs. 12,500 is allowed under Section 87A from the amount of tax if the total income of such individual does not exceed Rs. 500,000.
6. Health and Education Cess at the rate of 4% is applicable on the amount of Income tax plus surcharge.
Explanation: Every person is liable to pay health and education cess at the rate of 4% on the amount of income tax plus surcharge.
7. Standard Deduction allowed from the income in case an assessee pays tax under the new tax regime.
Explanation: Under the new tax regime, Standard deduction under Section 16(i) is allowed, and House Rent Allowance [Section 10(13A)], Entertainment Allowance [Section 16(ii)], and Professional Tax [Section 16(iii)] are not allowed.
Conclusion: Understanding the intricacies of taxable salary income and the choice between the old and new tax regimes is essential for informed financial decision-making. By carefully assessing your financial situation, you can make the right choice and optimize your tax liability.
Source: https://incometaxindia.gov.in/
ADDs-on:
^ Source (ITD Portal)>
https://incometaxindia.gov.in/tutorials/78.calculation-of-taxable-salary-income.pdf
As read through and personally understood, the REVENUE has now, obviously being quite convinced over the points of contention raised, effected certain material changes in levy of surcharge, in taxpayers’ favor.
To be precise, for calculation of surcharge, –
1. a sum of Rs. 50 lakh included in the first slab of income up to Rs one crore should be excluded. Accordingly, surcharge on income-tax should be levied only so much of income-tax payable on the so reduced balance of Rs. 50 lakh.
2. Rate of surcharge prescribed should be applied on a slab wise basis. That is, -for income range covered in a particular slab, only surcharge for that slab should be applied. So much so, in a case in which chargeable (total income) works out to say, Rs 1,50,00,000, surcharge should be calculated as under:
@ 10 % on Rs.1,00,00,000
AND
@ 15% on the balance of Rs.50,00,000
2. For any income included in the chargeable income on which income-tax is payable at a special rate, – e.g., ‘capital gains’, rate of surcharge now separately prescribed should be applied.
To sum up:
As a result, and consequent upon the so effected changes, – among the several points of objection raised, seeking corrections, – at least the primary objection against surcharge auto calculated and collected, in excess, by the SYSTEM (CPC), on the ground of it being arbitrary and confiscatory has to be regarded to have been set at rest/ resolved!
OVER to expert professionals in field practice, with an invite to spare and share independent but eminently well-founded contrarian viewpoints/ opinion, if any!
courtesy
WRT the comment posted- hasten to add for the benefit of those, generally in a majority having no time or mind to read with eyes fully open :
As per GUIDANCE Note since issued by the REVENUE, as pinpointed (SEE the Item 1.,) no Surcharge on income-tax on a sum of Rs.50,00,000 included in the first slab for income range from Rs.01 to Rs.100,00,000 ia payable . As such, surcharge should be calculated @10% ONLY on the reduced balance of Rs. 50,00,000!
Knowing the largely prevailing short sightedness- that is, the horrid imbalance / low level of ‘IQ’ , of ‘literates’ and ‘illiterates’,alike, hasten to add that the observations under Item 2., may have to be read as accordingly corrected , in appropriate time (X inappropriate time).
Incidentally, anyone doubting/casting aspersions, in any manner, on the very laudable objective of the material changes effected by the GUIDANCE Note, in the applicable scheme of surcharge on income-tax, for whatever reason, will be betraying own poverty of intelligence / common sense thinking !!?
TENTATIVE It is noticed that the surcharge rates for AY 2024-25 have been considerably changed and reduced , in comparison to anyone’s earlier understanding. Clarify has that been done through any fresh NOTIFICATION !?
Please note that materially matters in the context of my posted comments wrt the article (authored by Sandeep) of relevance for certain immediately preceding years- upto AY 2023-24 !
Please give us full information of TDS with example
24Q and 26Q and also provide the salary TDS Calculation Sheet