How to calculate income tax payable under the new tax regime for the 2021-22 financial year

As of fiscal year 2020-21, a person has the option of continuing with the old income tax regime and taking advantage of existing tax deductions and exemptions, or choosing the new tax regime and foregoing 70 tax deductions and exemptions such as Sections 80C, 80D, tax exemption on HRA, LTA etc.

In addition, persons who have no business income (ie salaried persons) will have to choose between the two tax regimes each year. Individuals with business income can also opt for the new tax regime. However, once opted in, they can only switch to the old tax regime once in their lifetime.

Thus, if you plan to opt for the new tax regime in the current fiscal year 2021-22, it is important to know the income tax brackets and rates of the new tax regime and to know how to calculate your tax payable.

Income tax brackets and rates under the new tax regime for individuals in fiscal year 2021-22

S. No. Income brackets Tax rate (%)
1 Up to Rs 2.5 lakh None
2 Between Rs 2,50,001 and Rs 5 lakh 5
3 Between Rs 5,00,001 and Rs 7.5 lakh ten
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 12,50,001 and Rs 15 lakh 25
7 Above Rs 15 lakh 30

* A supplement is levied on income above Rs 50 lakh. Health and education tax at the rate of 4% will be added to income tax in all cases. Individuals with taxable income of up to Rs 5 lakh will be eligible for a tax refund under Section 87A up to Rs 12,500, thus making zero tax liability under the new tax regime.

Note that a person opting for the new tax regime is eligible to claim a deduction under Section 80CCD(2) of the Income Tax Act 1961. This is the deduction available on the employer’s contribution to an employee’s NPS Level I account. . An individual can claim a maximum deduction of 10% of the employee’s salary (salary here means basic allowance plus cost).

How to calculate income tax in the new tax system
It is important to know how to calculate your tax payable under the new tax system. Here is an example to help you understand how to calculate your tax payable under the new tax system.

Suppose your gross taxable income for the financial year 2021-22 is Rs 17 lakh. Further, assuming that during the year, your employer has deposited Rs 70,000 into your NPS Level I account. You may qualify for a deduction for this under Section 80CCD(2).

As you are entitled to claim a deduction for this under the new tax regime, your net taxable income will be Rs 16.30 lakh (Rs 17 lakh minus Rs 70,000). You need to calculate the income tax payable on Rs 16.30 lakh for the financial year 2021-22 under the new tax regime.

Details Amount (In Rs)
Gross taxable salary 17,00,000
Deduction under Section 80CCD(2) 70,000
Net taxable salary 16,30,000

From a net taxable income of Rs 16.30 lakh, the first Rs 2.5 lakh will be tax exempt. Indeed, no tax is due as mentioned in point 1 of the table above. The remaining income on which tax is to be calculated is Rs 13.80 lakh (Rs 16.30 lakh minus Rs 2.5 lakh).

From point 2 of the slab table, the next Rs 2.5 lakh (Rs 5 lakh minus exempt Rs 2.5 lakh) from Rs 13.80 lakh will be taxed at 5%. The tax amount here will be Rs 12,500 (5% of Rs 2,50,000).

Now, the income on which the tax liability is to be calculated is Rs 11.30 lakh. Out of this amount, the next Rs 2.5 lakh (Rs 7.5 lakh minus Rs 5 lakh) will be taxed at 10% as mentioned in point 3. The tax amount is Rs 25,000 (10% of 2 ,50,000).

Up to this point, your tax liability is Rs 37,500 (0 + 12,500 + 25,000) up to points 1, 2 and 3 in the table above. Note that not all income has been proposed for tax. The income on which tax is to be calculated is Rs 8.8 lakh.

From Rs 8.8 lakh, Rs 2.5 lakh will be deducted (Rs 10 lakh minus Rs 7.5 lakh) and the tax will be calculated at 15% from point 4 in the table above. Your tax liability will be Rs 37,500. At this point, the remaining income for taxation is Rs 6,30,000.

income tax pads Fiscal responsibility (Rs)
0 – Rs 2.5 lakhs @ NIL 0
Rs 2.5 – Rs 5 lakh @ 5% 12,500
Rs 5 – Rs 7.5 lakh @10% 25,000
Rs 7.5 – Rs 10 lakh @15% 37,500
Rs 10 – Rs 12.5 lakh @20% 50,000
Rs 12.5 – Rs 15 lakh @25% 62,500
Above Rs 15 lakh @ 30% 39,000
Total unceasing tax liability @4% 2,26,500
Addition of ceasing at 4% 9,060
Total tax liability 2,35,560

The next Rs 2.5 lakh (Rs 12.5 lakh minus Rs 10 lakh) will be taxed at 20% as mentioned in point 5 of the table above. The tax liability will be Rs 50,000 (20% of Rs 2.50,000). Now, the remaining taxable income is Rs 3,80,000.

From point 6, the next Rs 2.5 lakh (Rs 15 lakh minus Rs 12.5 lakh) will be taxed at Rs 25%. The amount of tax will be Rs 62,500 (25% of Rs 2,50,000). After that, the income that remains dependent is Rs 1,30,000.

This remaining income will be taxed at 30% from point 7 mentioned in the table. The tax debt will be Rs 39,000.

Once every rupee is offered for tax, the total tax liability is Rs 2,26,500 (0+12,500+25,000+37,500+50,000+62,500+39,000. Now the health and education tax 4% will be added to this.The tax amount is Rs 9,060.

Thus, the total tax liability under the new tax regime is Rs 2,35,560.

For individuals, it is important to compare this tax liability under the old tax system after having claimed the applicable tax deductions and exemptions.

Read also: How to calculate the income tax regime under the old tax regime

Use ET Wealth’s income tax calculator to compare and find out which tax regime you should opt for in the 2021-22 fiscal year.

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