Understanding Your Take-Home Salary After Choosing the New Tax Regime in India

Introduction

When you receive a comprehensive package of 1.3 Lakhs per annum (LPA), it is important to understand the take-home salary after choosing the new tax regime in India. The calculation of take-home salary involves several factors, including deductions, exemptions, and the tax regime you opt for. This article aims to demystify the process and provide a clear breakdown of the take-home salary.

Understanding your salary components

It is crucial to distinguish between your basic salary and other perks or benefits included in the comprehensive package (CTC). Some of the non-payable benefits by the employer that are included in the CTC are:

Contribution to PF (Provided Fund) Group health insurance policy contribution Group term life insurance policy contribution Gratuity Other components such as annual variable pay, which may or may not affect your take-home salary depending on your performance and company performance.

Therefore, the full 1.3 Lakhs gross salary may not be what you receive after all the deductions.

Calculating take-home salary with the new tax regime

Here is a step-by-step breakdown of the calculation:

Step 1: Basic Salary

Assume the base salary is 1.3 Lakhs per year.

Step 2: Deductions

Employer's PF Deduction: 21,600 per year Standard Deduction: 50,000 per year Section 80C Deductions: 1,50,000 (considering EPF and home loan principal repayment) Section 24B Deductions: 2,00,000 (interest on home loan) NPS (National Pension System) Deduction: 50,000 per year (if opted) Section 80D Deductions: 50,000 (medical insurance and preventive health checkup for self and family)

Total Deductions: 21,600 50,000 1,50,000 2,00,000 50,000 50,000 1,51,600

Step 3: Calculating Gross Income

Gross Salary 1,300,000 - 1,51,600 1,148,400

Step 4: Tax Calculation under the Old Regime

0% on income up to 2.5 Lakhs: 2.50,000 - 0 0 12% on income from 2.5 Lakhs to 5 Lakhs: (5.00,000 - 2.50,000) * 12% 3,000 20% on income from 5 Lakhs to 10 Lakhs: (10.00,000 - 5.00,000) * 20% 10,000 20% on the rest up to 1.84 Lakhs: (1,148,400 - 10.00,000) * 20% 2,19,680

Total Tax 3,000 10,000 219,680 2,23,680

Gross Income after Tax: 1,148,400 - 223,680 924,720

Step 5: Calculating Monthly Take-Home Salary

Monthly Income 924,720 / 12 77,060

Step 6: Further Deductions

After considering the deductions, the take-home salary will be further adjusted by:

Employee PF: 21,600 / 12 1,800 Professional Tax: 200 NPS: 4,167

Total Deductions: 1,800 200 4,167 6,167

Net Take-Home Salary: 77,060 - 6,167 70,893

Additional Considerations

HRA, Home Loan Interest, and Others: If you have House Rent Allowance (HRA) or home loan interest deductions, these should be removed from the total CTC. Additionally, if there are two educational cesses, they should be removed.

Summary

The detailed calculation above provides an estimated take-home salary after choosing the new tax regime. However, the exact take-home salary can vary depending on individual circumstances, such as the specific structure of the CTC and applicable tax deductions. It is always wise to calculate your own income using online tax calculators or consult with a tax professional.

Conclusion

Understanding and calculating your take-home salary under the new tax regime is essential for managing your finances effectively. By following the steps outlined in this article, you can better prepare for your first salary and plan your financial future accordingly.