Section 115BAC of Income Tax - Calculation of Salary Income

Topic Covers:

1. Tax Rates for a salaried employee
2. Rebate under Section 87A
3. Rate of Surcharge
4. Comparison of old tax regime and new tax regime
5. Which regime is beneficial?
6. How to opt for the new tax regime?

As per the provision of the Income Tax Act the income under the head salary shall be taxable on a due basis or receipt basis, whichever is earlier. To tax the income there must be an employer and employee relationship. As per the provisions, salary due shall be chargeable to tax, even if it is not paid during the year.

1. Tax Rates for a salaried employee

A. Normal Tax Rates (Old tax regime)

First Schedule of the Finance Act prescribes the normal tax rates. The tax rates in the case of an individual have been given in the below table:

Net income range	Resident Super Senior Citizen	Resident Senior Citizen	Any other Individual
Up to ₹ 2,50,000	Nil	Nil	Nil
₹ 2,50,001- ₹ 3,00,000	Nil	Nil	5%
₹ 3,00,001- ₹ 5,00,000	Nil	5%	5%
₹ 5,00,001- ₹ 10,00,000	20%	20%	20%
Above ₹ 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.

B. Normal Tax Rates (New tax regime)

A New tax regime has been introduced through section 115BAC of the income tax act which provides reduced tax slabs for individuals. However, to avail of the benefit of this tax regime, the taxpayer has to forgo some specified exemptions and deductions.

If an eligible taxpayer opts for this regime, the income shall be taxable at the following rate:

Total Income (₹)	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%

2. Rebate under Section 87A

Old tax regime - A rebate of up to ₹ 12,500 is allowed under Section 87A to the individual. If the total income of such individual does not exceed ₹ 500,000 he can avail the rebate. Subject to specified conditions.

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 ₹ 7,00,000. Further, if the total income of the resident individual marginally exceeds ₹ 7,00,000, he will be eligible for the marginal rebate.

3. 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 ₹ 50 lakhs	More than ₹ 50 lakhs but up to ₹ 1 crore	More than ₹ 1 crore but up to ₹ 2 crores	More than ₹ 2 crores but up to ₹ 5 crores	More than ₹ 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	25%	25%	25%	25%	25%
Section 115BBE
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 additionally at the rate of 4% on the amount of income tax plus surcharge.

4. Comparison of exemption/deductions available under the old tax regime and new tax regime of Section 115BAC

Particulars	New tax regime	Old tax regime
Standard Deduction [Section 16(ia)]	Available	Available
Leave Travel concession [Section 10(5)]	Not Available	Available
House Rent Allowance [Section 10(13A)]	Not Available	Available
Official and personal allowances (other than those as may be prescribed) [Section 10(14)]	Not Available	Available
Allowances to MPs/MLAs [Section 10(17)]	Not Available	Available
Entertainment Allowance [Section 16((ii)]	Not Available	Available
Professional Tax [Section 16(iii)]	Not Available	Available
Interest on housing loan for self-occupied house property [Section 24(b)]	Not Available	Available
Deduction under Sections 80C to 80U other than specified under Section 80CCD(2), and Section 80CCH(2) [Chapter VI-A]	Not Available	Available
Set-off of any loss under the head "Income from house property" with any other head of income	Not Available	Available
Exemptions or deductions for allowances or perquisites provided under any other law for the time being in force	Not Available	Available

5. Which regime is beneficial?

The decision to opt-out from the new tax regime will depend on the amount of exemptions and deductions available to the assessee. One should must compare the tax liability under both the regimes and then opt for the beneficial one.
For example, if an individual is willing to avail the deductions under Section 80C, Section 80D, and the interest on a housing loan under Section 24, it would be beneficial for him to opt for the old tax regime. On the other hand, if an individual is not availing deductions under the old tax regime, it would be beneficial for him to opt for the new tax regime.

6. How to opt for the new tax regime?

From the Assessment Year 2024-25, the new tax regime of Section 115BAC is the default tax regime. If an assessee does want to pay tax according to the old tax regime, he will have to explicitly opt out of the new tax regime and choose to be taxed under the old tax regime.

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