Skip to content

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

Kavita Shah, a resident individual aged 40 with salary of ₹15,00,000 for tax year 2026-27, is comparing regimes. Under the old regime she has: HRA exemption ₹1,00,000, standard deduction ₹50,000, interest on self-occupied house loan ₹2,00,000, section 80C-type deduction ₹1,50,000 and health insurance deduction ₹25,000. Old regime slabs: up to ₹2.5 lakh nil; ₹2.5–5 lakh 5%; ₹5–10 lakh 20%; above ₹10 lakh 30%. Default regime has standard deduction of ₹75,000 and slabs: up to ₹4 lakh nil; ₹4–8 lakh 5%; ₹8–12 lakh 10%; ₹12–16 lakh 15%. Cess is 4% and no surcharge applies. Which regime is cheaper and by how much?

The default regime is cheaper by ₹14,300. Old regime income is ₹9,75,000, giving tax with cess of ₹1,11,800. Default regime income is ₹14,25,000, giving tax with cess of ₹97,500. The difference of ₹14,300 favours the default regime.

  1. AOld regime, by ₹14,300
  2. BDefault regime, by ₹14,300Correct
  3. CDefault regime, by ₹13,750
  4. DOld regime, by ₹13,750

Explanation

Old regime: 15,00,000 − 1,00,000 − 50,000 − 2,00,000 − 1,50,000 − 25,000 = ₹9,75,000. Tax = ₹12,500 + 20% of ₹4,75,000 (₹95,000) = ₹1,07,500; with cess ₹1,11,800. Default: income ₹14,25,000; tax = ₹20,000 + ₹40,000 + 15% of ₹2,25,000 (₹33,750) = ₹93,750; with cess ₹97,500. Difference is ₹14,300 in favour of default regime. ₹13,750 is the difference before cess.

Did you get it right without looking?

One question tells you little. A timed set on Income Tax Liability - Computation and Optimisation shows your real accuracy, how long you take and where you lose marks.

Practise Income Tax Liability - Computation and OptimisationFree diagnostic mock

More Income Tax Liability - Computation and Optimisation questions