Calculating income tax might sound daunting, but trust us—it doesn’t have to be. If you’ve ever wondered how to figure out your tax liability, whether under the old or new regimes, you’re in the right place.
This guide will break down income tax calculation into bite-sized steps, keeping it simple and conversational. By the end, you’ll feel more confident about your finances and might even start using tools like the PNB MetLife income tax calculator to make the process effortless.
Understanding the Basics of Income Tax
Before diving into the details, let’s get one thing straight: income tax is calculated on your taxable income, not your total income. Your taxable income results from deducting eligible exemptions and deductions from your gross income. Once you know your taxable income, the next step is to apply the tax rates as per the chosen regime—old or new.
The big question: Which regime should you choose? The old regime allows you to claim various deductions, while the new regime offers lower tax rates but removes most deductions. Picking the right one depends on your income, expenses, and financial goals.
Step-by-Step Guide to Calculating Income Tax
Step 1: Know Your Total Income
Start by summing up income from all sources:
- Salary: Your basic pay, allowances, and bonuses.
- Rental income: If you earn from letting out a property.
- Other sources: Interest from savings accounts, fixed deposits, or any capital gains.
For example, if your annual salary is ₹12,50,000, and you earn ₹25,000 in interest, your total income would be ₹12,75,000.
Step 2: Identify Exemptions and Deductions
Under the Old Regime
The old regime is packed with tax-saving opportunities through deductions and exemptions:
- House Rent Allowance (HRA): You can claim HRA exemptions if you live on rent.
- Standard Deduction: ₹50,000 is automatically deducted from your salary.
- Section 80C Deductions: Investments in PPF, ELSS, LIC premiums, and home loan principal repayments qualify for up to ₹1.5 lakh deduction.
- Section 24B: Home loan interest repayments can help you claim up to ₹2 lakh.
Under the New Regime
The new regime simplifies things by removing most deductions. However, you can still claim a standard deduction of ₹50,000.
Step 3: Calculate Your Taxable Income
Subtract all eligible exemptions and deductions from your gross income to arrive at your taxable income.
For instance:
Old Regime:
- If your gross income is ₹12,75,000, and you claim deductions worth ₹2,50,000, your taxable income becomes ₹10,25,000.
New Regime:
- If you opt for the new regime, exemptions like HRA are not applicable. After subtracting the standard deduction, your taxable income could remain close to your gross income, say ₹12,25,000.
Step 4: Apply the Tax Slabs
Tax slabs differ between the two regimes. Let’s break them down:
Old Regime (FY 2024-25)
- Up to ₹2,50,000: Nil
- ₹2,50,001 to ₹5,00,000: 5%
- ₹5,00,001 to ₹10,00,000: 20%
- Above ₹10,00,000: 30%
New Regime (FY 2024-25)
- Up to ₹3,00,000: Nil
- ₹3,00,001 to ₹7,00,000: 5%
- ₹7,00,001 to ₹10,00,000: 10%
- ₹10,00,001 to ₹12,00,000: 15%
- ₹12,00,001 to ₹15,00,000: 20%
- Above ₹15,00,000: 30%
Step 5: Factor in Cess
After calculating your tax, add a 4% health and education cess. For example:
- Old Regime: Tax on ₹10,25,000 could be ₹1,27,500 + 4% cess = ₹1,32,600.
- New Regime: Tax on ₹12,25,000 might be ₹1,72,500 + 4% cess = ₹1,79,400.
Old vs New: Which One Should You Pick?
Choosing between the old and new tax regimes boils down to your financial habits and priorities. If you actively invest in tax-saving instruments like PPF, ELSS funds, or NSC, the old regime is your best bet. It allows you to maximize your savings through deductions like Section 80C, which offers up to ₹1.5 lakhs in tax benefits. Additionally, if you pay a high rent and claim HRA exemptions, the old regime could significantly reduce your taxable income.
Income Tax Calculator: The Easiest Way to Calculate
Manual calculations can be tedious, especially when dealing with multiple income sources, exemptions, and varying tax slabs. This is where an income tax calculator comes to the rescue. Tools like the PNB MetLife income tax calculator make the process stress-free and error-free.
Here’s how it works: Input your details—like annual income, age, and eligible deductions such as investments in Section 80C, HRA, or interest paid on loans. In seconds, the calculator will show your tax liability under both the old and new regimes, helping you make an informed decision.
The best part? It’s not just about saving time. A good calculator ensures accuracy, which is critical to avoid overpaying for underpaying taxes. You’ll also understand how various deductions and exemptions impact your taxable income, giving you insights into better tax planning.
Conclusion
Calculating your income tax under the old vs new regime doesn’t have to be stressful. By following these steps, you’ll know exactly what you owe and how to optimize your tax. And if you’re looking for the simplest way to do this, try the PNB MetLife income tax calculator—it’s accurate, quick, and user-friendly. We also offer best investment plans for your future security.
FAQs
1) What is the difference between the old and new tax regimes?
The old regime offers multiple deductions and exemptions, while the new regime provides lower tax rates but eliminates most deductions.
2) How do I calculate my taxable income?
Add all income sources, subtract exemptions (like HRA) and deductions (like 80C), and you’ll get your taxable income.
3) Can I switch between regimes every year?
Yes, salaried individuals can switch every financial year, but business owners face restrictions.
4) Why use the PNB MetLife income tax calculator?
It’s a free tool that instantly calculates your tax under both regimes, ensuring accuracy and saving time.
