How to Income Tax Calculated for FY 2024-25

How to Income Tax Calculated for FY 2024-25

Income tax is a crucial aspect of personal finance, especially in a country like India, where the tax slabs, exemptions, and deductions are structured to facilitate different levels of income, savings, and investments. For FY 2024-25, the Indian government has amended the income tax calculation, slabs, and exemptions that each taxpayer should know about. This blog will take you through the process of how you can calculate your income tax for FY 2024-25, enabling you to understand the new structure of tax, the available deductions, and the optimum ways to reduce tax outgo.

Understanding Income Tax Slabs for FY 2024-25

The Indian income tax structure is slab-based. The percentage of tax will vary based on the income category and will be progressive. For FY 2024-25, the taxpayer has the option to choose between the "Old Tax Regime" and the "New Tax Regime". Here's a comparison between them:

Old Tax Regime Slabs

This means the old tax regime lets the taxpayer have a tax slabs along with exemption and deduction that include exempted housing rent (HRA), exemptions on Section 80C investments, exemption from medical insurance premium under Section 80D, among others.

New Tax Regime Slabs

The new tax regime, effective from 2020, has reduced the number of deductions and exemptions available but has offered lower tax rates to simplify the calculation of tax:

The choice between these regimes has to be made for FY 2024-25 as the choice between one and the other can substantially affect the final tax liability.

2. Steps to Calculate Your Income Tax for FY 2024-25

Let us begin with how to calculate the income tax under both the regimes of the FY 2024-25. Here it is in easy steps:-

Step 1: Calculate Gross Total Income

Your gross total income refers to all of your earnings from various sources, like:

Salary Income: These are all your basic pay, allowances, bonuses and perquisites.

Income from House Property: This comprises your rental earnings minus relevant deductions, for example municipal taxes and 30% standard deduction.

Capital Gains Income: This is any income generated from the sale of a capital asset that could be shares or real estate.

Business and Profession Income: All income from self-employment or a business net off against expenses.

Income from Other Sources: This includes interest, dividends, lottery winnings, etc.

Step 2: Claim Applicable Exemptions and Deductions (Old Regime Only)

If you have chosen the old regime, here are some exemptions and deductions that can reduce your taxable income:

- House Rent Allowance (HRA)

- Leave Travel Allowance (LTA)

- Section 80C: Deduction up to ₹1,50,000 investment amount, such as PF, ELSS,     PPF, life insurance, etc.

- Section 80D: Medical insurance for self and family

- Section 24(b): Deduction for home loan interest of up to ₹2,00,000

Based on the quantum of net taxable income generated, the applicable slabs of tax rate slab should be applied to derive the payable tax. For example:

- The total quantum of net taxable income earned under the old regime amounts to ₹8,00,000

Then tax would be so derived ₹5,00,000 - ₹2,50,000 at 5% of tax + ₹8,00,000 - ₹5,00,000 at 20% of tax.

- Under the new regime, the applicable slabs as defined above are to be applied without any other exemption or deduction being granted above.

3. Deductions Provided Under Old Tax Regime

1. Section 80C – ₹ 1,50,000- PPF, ELSS, NSC, premium for LIC, and the rest.

2. Section 80D – Health Insurance Premium Deduction as follows

- ₹25,000 for him/her self, spouse and children.

- Add ₹25,000 additional because you are a senior citizen.

3. Section 24(b) – Interest on Housing Loan ₹2,00,000 in case of a self-occupied property.

4. Section 80TTA and 80TTB - Interest Income on Savings and Fixed Deposits: Rs 10,000 on savings account interest for others and Rs 50,000 for senior citizens under section 80TTB.

5. Standard Deduction: A flat deduction of Rs 50,000 on salary income.
4. Rebate under Section 87A


For FY 2024-25, there is rebate up to ₹12,500 under Section 87A if total income is not exceeding ₹5,00,000. That means a zero tax liability for those low-income groups.
5. Comparison: Old vs. New Regime – Which One to Choose

It is purely upon your financial condition, level of income, and whether you save tax or not that determines which regime is better to opt for.

- Old Regime: Suitable for individuals who can avail deductions like HRA, 80C, 80D, and also have housing loans.

- New Regime: Suitable for taxpayers who have very few deductions or have tax rates within which they can benefit without deduction availed.

Example is given below

If the taxpayer is eligible to claim only ₹2,00,000 in deductions under the old regime, then tax incidence on him comes down to ₹8,00,000, whereas if the new regime applied, then tax incidence would have been at ₹10,00,000.

6. Surcharge and Cess on Income Tax

In addition to the above basic tax rates, there are also "surcharge" on a person whose income exceeds certain thresholds:
A 4% "Health and Education Cess" is also chargeable on the total tax with surcharge.

7. How to File Income Tax Returns

1. Choose Right ITR Form: Choose the right ITR form based on source of income (for example, salaried individual should choose ITR-1).

2. Sign up/Login to Income Tax e-Filing Portal: Login to the account created on the e-filing portal of the income tax department.

3. Add details and scan documents: Add income details, deductibles, tax details correctly.

4. Check and submit: After filling the entire form, review, recheck by using Aadhaar OTP or any other authenticating methods and submit your Income Tax return form.

Conclusion

Calculating income tax for FY 2024-25 can be very daunting, but knowing the income tax slabs, deductions, and the right tax regime will simplify the process. Proper planning and proper utilization of available exemptions and deductions can help a taxpayer reduce his tax liability. Both regimes have unique benefits, and a decision to choose one should be taken after an overall assessment of your income, expenses, and financial goals.