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CA Intermediate · Taxation · Income Tax Liability - Computation and Optimisation

Karan Bhatia, a resident individual aged 40, has gross salary of Rs 10,75,000 for tax year 2026-27 and no other income. Under the old regime he claims standard deduction of Rs 50,000 and Chapter VIII deductions of Rs 1,50,000. Old-regime slabs are nil up to Rs 2.5L, 5% to Rs 5L, 20% to Rs 10L and 30% above. By how much is his tax (with 4% cess) lower if he uses the new regime, with standard deduction of Rs 75,000?

The saving is Rs 91,000. Under the old regime his income is Rs 8,75,000, giving tax of Rs 87,500 plus Rs 3,500 cess. Under the new regime income is Rs 10,00,000, and the tax of Rs 40,000 is fully removed by the rebate, so liability is nil.

  1. ARs 91,000Correct
  2. BRs 87,500
  3. CRs 41,600
  4. DRs 50,000

Explanation

Old regime: total income = 10,75,000 - 50,000 - 1,50,000 = Rs 8,75,000. Tax = 12,500 + 20% of 3,75,000 (75,000) = Rs 87,500; the old-regime rebate does not apply above Rs 5L; cess Rs 3,500 gives Rs 91,000. New regime: income Rs 10,00,000, slab tax Rs 40,000 fully offset by rebate, so nil. Saving is Rs 91,000. Rs 87,500 omits cess; Rs 41,600 is new-regime tax with cess ignoring the rebate.

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