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How to Calculate Income Tax on Salary with Examples FY 2023-24

Priya , Last updated: 03 April 2024  
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As the Financial Year 2023-2024 draws to a close, it is crucial for salaried individuals to calculate their tax liability. This is an imperative step as there is still time for individuals to avail the benefits of the Exemptions and Deductions outlined in the Income Tax Act, 1961. For instance, individuals have until 31st March 2024 to invest in their National Pension Scheme Account which is tax deductible under Section 80CCD(1) up to an amount of Rs 50,000.

Steps to Calculate Income Tax on Salary for FY 23-24 followed by an Illustration considering both Old and New Regime:

Step 1: Ascertain the Annual Gross Salary received from the Employer

An individual can review Payslips from April 2023 to March 2024 to determine the Annual Gross Salary. This is the amount received before the deduction of any tax. It includes bonuses, overtime payments and more importantly allowances. This means that the Annual Gross Salary amount to be taken for the computation of Income Tax should include House Rent Allowance, Leave Travel Allowance and any other Special Allowances received like telephone bill reimbursements and food coupons.

Income Tax on Salary For FY 23-24

Step 2: Avail HRA Exemption and Standard Deduction

From this Gross Salary, Exemption for House Rent Allowance(HRA) must be claimed. An individual may avail this if they are renting an accommodation in the location of employment and have valid proof. HRA benefit cannot be claimed if an individual owns their house or is not actively making rental payments. The amount of HRA exemption is the least of the following:

  • Actual HRA received
  • Actual Rent paid less 10% of Basic Salary
  • 50% of Basic Salary received (in metro)

For other than metro cities, 40% of Basic Salary received is to be taken.

Finally, Standard Deduction of up to Rs 50,000 should be reduced. This deduction is available to everyone who has Salary Income, the maximum amount that can be availed is Rs 50,000 or Gross Salary, whichever is lower.

Step 3: Consider the Other Income

Individuals have to keep in mind that Salary income is not the only source of income. Income can be earned through the renting of House Property or gains on the sale of any capial assets. However, the most common sources of Other Income are Bank Interest on Fixed Deposits or Savings Accounts and Dividends from Shares or Mutual Funds.

The government has streamlined the process of gathering this information, making it convenient. Simply log in to the Income Tax portal and access the auto-generated Annual Income Statement where all the various incomes are summarised, including those from Banks and Investments. It is advisable to cross-check all the figures with the AIS numbers to ensure calculations are free of errors.

The Income Tax Portal has a handy Tax Calculator which can be used- Click here

Step 4: Claim Chapter VIA Deductions

Section 80 of the Income Tax Act, 1961 has various deductions that can be claimed which could alleviate the tax burden. These sections not only provide economic benefit, they also encourage individuals to cultivate a practice of prudent budgeting and saving.

  • Section 80C: This Section provides a deduction on various investments and expenditures. They include:
  1. Investment in ELSS(Equity Linked Saving Schemes) Mutual Funds
  2. Payments made towards Life Insurance Premiums
  3. Principal portion of any home loans taken and repaid
  4. EPF/PPF/RPF investments
  5. Payments made to Sukanya Smriddhi Yojana, National Savings Certificate
  • Section 80CCC: Deduction on Payments made to Pension Schemes
  • Section 80CCE: The total deduction available for 80C and 80CCC together is Rs 1,50,000.
  • Section 80CCD(1B): An additional Rs 50,000 deduction is available on investments in the National Pension Scheme(NPS) over and above the 80C and 80CCC deduction of Rs 1,50,000. An individual can plan their tax savings and avail benefits of up to Rs 2,00,000 in tax deductions.
  • Section 80D: A deduction of Rs 25,000 is available on payment of Medical Insurance for Self, Spouse and any dependent Children. If the individual is aged above 60 then the deduction is Rs 50,000. An additional Rs 25,000 is available for Medical Insurance Payments made for Parents. If the parents are above 60 years of age then Rs 50,000 is the additional deduction available.
  • Section 80E: It is the deduction available on payment of interest education loan taken for higher education. There is no limit on the deduction, but it can be availed for a maximum period of 8 years.
  • 80TTA: A maximum deduction of Rs 10,000 is available on any interest received from Banks and Post Offices on Savings Account.
 

Step 5: Net Taxable Income

By reducing the deductions from Step 4 from the Gross Salary, the Net Taxable Salary is determined. This is the Income on which Tax is calculated according to the applicable rates as per the Income Tax Slabs.

Income Tax Slabs for FY 2023-24 for Individuals below 60 years of age

Net Income Rate of Tax Tax before Rebate
Up to Rs 2,50,000 Nil 0
Rs 2,50,000 - Rs 5,00,000 5% Rs 12,500
Rs 5,00,000 - Rs 10,00,000 20% Rs 1,00,000+Rs 12,500=112500
Above Rs 10,00,000 30% Rs 2,62,500 assuming net income of Rs 15 lakh
  • Income tax slabs vary for persons aged 60 and above with the lower threshold being Rs 3,00,000 and Rs 5,00,000 for those above 80 years of age instead of Rs 2,50,000.
  • These tax slabs are structured to ensure that income falling into each bracket is taxed at the applicable rate, culminating in the ultimate tax liability.
  • An important section to note at this juncture is Section 87A, the rebate Section. It is a section that provides relief to individuals who earn less than Rs 5,00,000 taxable income(after deductions). If this is the case, an amount up to Rs 12,500 can be claimed as rebate and shall be deducted from the tax liability accordingly.
  • On income above Rs 5,00,000, 4% is added to the total tax liability as Health and Education Cess.
  • Any Net Income that falls in the slab of Rs 50,00,000 to Rs 1,00,00,000 is subject to an additional surcharge on tax of 10% and 20% if the income is between Rs 1,00,00,000 and Rs 2,00,00,000.

Step 6: Filing of Return

After the computation of tax is complete, the individual should ensure the return is filed within the due date, which is 31st July 2024 for salaried persons.

 

Income Tax Calculation Example

Consider Rohan, a salaried individual 35 years old working for an MNC in Bengaluru with an Annual Gross Salary of Rs 15,00,000. The Computation of Total Income Tax shall be as

Particulars Amount
Gross Salary Rs 15,00,000
(less: HRA, LTA and Special Allowances) Rs -2,00,000
(less: Standard Deduction) Rs -50,000
Net Salary Rs 12,50,000
Income from Other Sources(SB Interest +Dividend) Rs 15,000
Gross Taxable Income Rs 12,65,000
(less: Section 80C ELSS and LIC) Rs -1,50,000
(less: Section 80CCD(1B)) Rs -50,000
(less: Section 80D Medical Insurance) Rs -10,000
(less: Section 80E Interest on Education Loan) Rs -1,50,000
(less: Section 80TTA Interest on Savings Account) Rs -10,000
TOTAL INCOME Rs 8,95,000

Calculation of Income Tax on the above example

Income Tax Rate
Up to Rs 2,50,000 Nil
5% on Rs 2,50,000 (Rs 5 lakh-Rs 2.5 lakh) Rs 12,500
20% on Rs 3,95,000 (Rs 8.95 lakh-Rs 5 lakh) Rs 79,000
TOTAL Rs 91,500
Add: 4% Health and Education Cess Rs 3,660
TAX for FY 23-24 Rs 95,160

#It is relevant to note that the Interim Budget had no changes in the Income Tax Slabs.

The tax has been calculated as per the old regime above. An individual can opt for the new regime which allows a rebate of up to Rs 25,000 for income up to Rs 7,00,000.

Tax Slabs under New Regime

Particulars Rate Amount for that Slab
Up to Rs 3,00,000 Nil Nil
Rs 3,00,000 to Rs 6,00,000 5% Rs 15,000
Rs 6,00,000 to Rs 9,00,000 10% Rs 30,000
Rs 9,00,000 to Rs 12,00,000 15% Rs 45,000
Rs 12,00,000 to Rs 15,00,000 20% Rs 60,000
More than Rs 15,00,000 30% Income exceeding Rs 15,00,000*30%

However, if an individual opts for New Regime, they are not eligible to avail the HRA, LTA and Special Allowances exemptions. Section 80 deductions are also not allowed. Only the Standard Deduction of Rs 50,000 is allowable. In the previous example,

Particulars Amount
Gross Salary Rs 15,00,000
(less: Standard Deduction) Rs -50,000
Net Salary Rs 14,50,000
Income from Other Sources(SB Interest +Dividend) Rs 15,000
TOTAL INCOME Rs 14,65,000

Calculation of Tax under New Regime

Particulars Rate Amount for that Slab
Up to Rs 3,00,000 Nil Nil
Rs 3,00,000 to Rs 6,00,000 5% Rs 15,000
Rs 6,00,000 to Rs 9,00,000 10% Rs 30,000
Rs 9,00,000 to Rs 12,00,000 15% Rs 45,000
Rs 12,00,000 to Rs 14,65,000 20% Rs 53,000
Total   Rs 1,43,000
Add: Cess 4% Rs 5,720
TAX for FY 23-24(new regime)   Rs 1,48,720

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Priya
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Category Income Tax   Report

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