The New Tax Regime introduced by the Government of India offers lower tax rates by eliminating most deductions and exemptions available under the old tax regime. While it may sound straightforward, it’s essential to understand how income from various sources is taxed and what deductions (if any) are available under this scheme.

For the Financial Year 2024-25 (Assessment Year 2025-26), the tax slabs under the new regime remain unchanged, and there are no deductions or exemptions that taxpayers can claim except for specific rebates like the Rebate under Section 87A.

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Let’s break down the new tax regime, understand the income from various sources, and calculate tax payable with a practical example.

New Tax Regime Slabs for FY 2024-25 (AY 2025-26)

Under the new tax regime, the tax slabs for individual taxpayers below the age of 60 years are as follows:

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Sources of Income under the New Tax Regime

Under the new tax regime, income is still categorized under the same five heads as per the Income Tax Act, but the treatment is simplified as there are no exemptions or deductions (except for a few) available for most sources.

       1. Income from Salary

Salary refers to the payment an individual (employee) receives from an organization (employer) in exchange for specific services. Your salary slip outlines all the components of your income, such as allowances, which are calculated according to your company’s policies.

Components of Salary

• Basic Salary
• Allowances –

1. Dearness Allowance (DA)
2. House Rent Allowance (HRA)
3. Conveyance Allowance
4. Leave Travel Allowance (LTA)
5. Books and Periodicals Allowance

• Provident Fund (PF)
• Perquisites (Perks)

Deductions Under old & New Tax Regime

Family Pension Deduction – Deduction on family pensions has been increased: From ₹15,000 to ₹25,000.

          2. Income from House Property

Income from house property refers to income earned from renting out a property or from the notional rent on an empty property.

• Interest Deduction: Taxpayers who have a let-out property and are paying interest on a home loan for the property will be eligible for a deduction of up to ₹2 lakh on the interest paid under Section 24(b), just like under the old tax regime.

• Deductions under New Regime: No other deductions are available for interest on home loans or for property taxes under the new regime.

• Tax on Notional Rent for Let-Out Property: Under the new tax regime, the notional rent (income from let-out property) is taxed as income under the head “Income from House Property”. However, if the property is part of the business and used in business activities, related expenses (such as maintenance costs or depreciation) may be deducted.

        3. Income from Business or Profession

If you are a self-employed individual or run a business, the profit or income earned from that business is taxable under this head.

Deductions under New Regime: No specific business-related deductions are allowed, such as

• Additional depreciation (Section 32)

• Investment allowance (Section 32AD)
• Sector-specific deductions (Sections 33AB and 33ABA)
• Expenses on scientific research (Section 35)
• Capital expenditure deductions (Section 35AD)
• SEZ unit exemption (Section 10AA)
• Example: If your business income is ₹6,00,000, this will be fully taxable under the new tax regime.

        4. Income from Capital Gains

Capital gains arise from the sale of assets such as property, stocks, mutual funds, etc. Capital gains are classified as either long-term or short-term based on the holding period of the asset.

Tax Rates for Capital Gains

1. Long-Term Capital Gains (LTCG)
   • Listed Equity Shares & Equity Mutual Funds: Gains over ₹1 lakh are taxed at 10% (12.5% after July 23, 2024).
   • Other Assets: Taxed at 20% After Indexation  (12.5% Without Indexation after July 23, 2024).
2. Short-Term Capital Gains (STCG)
   • Listed Equity Shares: Taxed at 15% (20% after July 23, 2024).
   • Other Assets: Taxed as per the individual’s income tax sla

Note : Deductions under New Regime: No deductions available for long-term capital gains or for any capital loss carry-forward under the new regime.

Example: If you sell a stock and earn ₹50,000 in short-term capital gains, this will be fully taxable under the new regime.

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        5. Income from Other Sources

This includes income from savings accounts, fixed deposits, dividends, and lottery winnings.

• Deductions under New Regime: There are no deductions available for interest on savings accounts or for any other income under this category.

Example: If you earn ₹30,000 from interest on savings accounts and ₹5,000 from fixed deposits, these amounts will be fully taxable.

Deduction Available in the New Tax Regime

Under the new tax regime, the only major deduction available is the Rebate under Section 87A, which is available to individuals with taxable income of ₹7,00,000 or less. This rebate allows a reduction of tax liability up to ₹25,000.

Note: Taxpayers opting for the new tax regime cannot avail of other deductions such as those under Section 80C (like PPF, life insurance premiums), Section 80D (health insurance), or Section 24(b) (interest on home loan).

Example of Income Tax Calculation under the New Tax Regime

Let’s take an example to understand the practical application of the new tax regime for FY 2024-25 (AY 2025-26).

Assumptions:

• Salary: ₹8,00,000
• Rental Income from House Property: ₹2,00,000 Interet on Sec24(b) – 45000
• Business Income: ₹6,00,000
• Interest from Savings Account: ₹30,000
• Interest from Fixed Deposits: ₹5,000
• Short-Term Capital Gains: ₹50,000

Step 1: Total Income Calculation

The total income is the sum of all the different sources:

• Salary: ₹8,00,000-75000=725000
• Rental Income: ₹2,00,000-45000=155000
• Business Income: ₹6,00,000
• Interest from Savings Account: ₹30,000
• Interest from Fixed Deposits: ₹5,000
• Short-Term Capital Gains: ₹50,000

Total Income = ₹725000 + ₹155,000 + ₹6,00,000 + ₹30,000 + ₹5,000 + ₹50,000 = ₹15,65,000

Step 2: Tax Calculation as per New Tax Slabs

Now, we apply the tax slabs for the new tax regime to calculate the tax payable.

• Up to ₹3 lakh: Nil
• ₹3 lakh to ₹7 lakh: 5% of ₹4,00,000 = ₹20,000
• ₹7 lakh to ₹10 lakh: 10% of ₹3,00,000 = ₹30,000
• ₹10 lakh to ₹12 lakh: 15% of ₹2,00,000 = ₹30,000
• ₹12 lakh to ₹15 lakh: 20% of ₹3,00,000 = ₹60,000
• Above ₹15 lakh: 30% of ₹65,000 = ₹19,500

Total Tax = ₹20,000 + ₹30,000 + ₹30,000 + ₹60,000  + ₹19,500 = ₹1,69,500

Step 3: Apply Rebate under Section 87A

As the taxable income is greater than ₹7,00,000, the taxpayer is not eligible for the ₹25000 rebate under Section 87A.

Step 4: Cess Calculation

Cess at 4% is applicable on the total tax amount.

Cess = 4% of ₹1,69,500 = ₹6780

Step 5: Total Tax Payable

Total Tax Payable = ₹1,69,500 + ₹6780 = ₹176280

Conclusion

In this example, the taxpayer will need to pay ₹176280 as income tax for the Financial Year 2024-25 under the new tax regime. Since the new regime does not allow deductions (except for a few, like Section 87A), it results in a simpler calculation. However, taxpayers must evaluate whether the new tax regime suits their needs by comparing it to the old regime, especially if they have significant deductions to claim.

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