Process of Income-tax calculation for the Salaried Persons for F.Y. 2020-21 As per Budget 2020
Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance. Some components of your salary are exempt from tax, such as telephone bills reimbursement, leave travel allowance. If you receive HRA and live on rent, you can claim the exemption on HRA. Calculate the exempt portion of HRA, by using this HRA Calculator. 

On top of these exemptions, a standard deduction of Rs 40,000 was introduced in budget 2018. This has been increased to Rs 50,000 in budget 2019.
In case you opt for the new tax regime, these exemptions will not be available to you.
Let's understand income tax calculation under the current tax slabs and new tax slabs (optional) by way of an example. Mira receives a Basic Salary of Rs 1,00,000 per month. HRA of Rs 50,000. Special Allowance of Rs 21,000 per month. LTA of Rs 20,000 annually. Mira pays a rent of Rs 40,000 and lives in Delhi.
Nature
Amount
Exemption/Deduction
Taxable(Old regime)
Taxable(New regime)
Basic Salary
12,00,000
-
12,00,000
12,00,000
HRA
6,00,000
3,60,000
2,40,000
6,00,000
Special Allowance
2,52,000
-
2,52,000
2,52,000
LTA
20,000
12,000 (bills submitted)
8,000
20,000
Standard Deduction
-
50,000
50,000
-
Gross Total Income from Salary


16,50,000
20,72,000
To calculate Income-tax, include income from all sources. Include:
  • Income from Salary (salary paid by your employer)
  • Income from house property (add any rental income, or include interest paid on the home loan)
  • Income from capital gains (income from sale purchase of shares or house)
  • Income from business/profession (income from freelancing or a business or profession)
  • Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)
Mira has an income from interest from the savings account of Rs 8,000 and a fixed deposit interest the income of Rs 12,000 during the year. Mira has made some investments to save income tax. PPF investment of Rs 50,000. ELSS purchase of Rs 20,000 during the year. LIC premium of Rs 8,000. Medical insurance paid of Rs 12,000. Here are the deductions Mira can claim under the old tax regime.
Nature
Maximum Deduction
Eligible investments/expenses
Amount claimed by Neha
Section 80C
Rs.1,50,000
PPF deposit Rs 50,000, ELSS investment Rs 20,000, LIC premium Rs 8,000. EPF deducted by employer(Neha’s contribution) = Rs 1,00,000 *12% *12 = 1,44,000
Rs 1,50,000
Section 80D
Rs 25,000 for self Rs 50,000 for parents
Medical insurance premium Rs 12,000
Rs 12,000
Section 80TTA
10,000
Savings account interest 8,000
Rs. 8,000

Calculation of gross taxable income in India (Old regime)
Nature
Amount
Total
Income from Salary
16,50,000

Income from Other Sources
20,000

Gross Total Income

16,70,000
Deductions


80C
1,50,000

80D
12,000
-
80TTA
8,000
1,70,000
Gross Taxable Income

15,00,000
Total tax on above (including cess)

2,73,000

Calculation of gross taxable income in India (New regime)
Nature
Amount
Total
Income from Salary
20,72,000

Income from Other Sources
20,000

Gross Total Income

20,92,000
Total tax on above (including cess)

3,79,704
This is how income tax has been calculated for Neha under the new tax regime
Up to Rs 2,50,000
Exempt from tax
0
Rs 2,50,000 to Rs 5,00,000
5% (5% of Rs 5,00,000 less Rs 2,50,000)
12,500
Rs 5,00,000 to Rs 7,50,000
10% (10% of Rs 7,50,000 less Rs 5,00,000)
25,000
Rs 7,50,000 to Rs 10,00,000
15% (15% of Rs 10,00,000 less Rs 7,50,000)
37,500
Rs 10,00,000 to Rs 12,50,000
20% (20% of Rs 12,50,000 less Rs 10,00,000)
50,000
Rs 12,50,000 to Rs 15,00,000
25% (25% of Rs 15,00,000 less Rs 12,50,000)
62,500
More than Rs Rs 15,00,000
30% (30% of Rs 20,92,000 less Rs 15,00,000)
1,77,600



Cess
4% of total tax (4% of Rs 12,500 + Rs 25,500+ Rs 37,500 + Rs 50,000 + Rs 62,500 + Rs 1,77,600)
14,604
Total Income Tax
Rs 12,500 + Rs 25,500+ Rs 37,500 + Rs 50,000 + Rs 62,500 + Rs 1,77,600 + Rs 14,604
Rs 3,79,704

What are the exemptions/ deductions that are disallowed under the new tax regime?
Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/deductions:
(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for the income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard the deduction, the deduction for entertainment allowance and employment/professional tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
Following allowances shall be allowed as notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section:
a) Transport Allowance granted to a div yang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty
b) Conveyance Allowance granted to meet the expenditure on conveyance in the performance of duties of an office;
c) Any Allowance granted to meet the cost of travel on tour or on transfer;
d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

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