The below-mentioned functionality will be part of the following application https://github.com/frappe/india-payroll
Old Tax Regime
The old (existing) tax regime has been in place for decades, with its current structure largely shaped by the Income Tax Act, 1961. It offers various exemptions and deductions (like HRA, 80C, 80D, etc.) that taxpayers can claim to reduce their taxable income.
New Tax Regime
The new tax regime was introduced in Budget 2020, effective from Financial Year 2020-21 (AY 2021-22), under Section 115BAC of the Income Tax Act. It offered lower slab rates but without most exemptions and deductions.
Employees typically have to choose a Tax Regime at the start of the fiscal year, based on which their payroll is processed. The system should be fully capable of helping them choose this option.
The plan here is to give them a comparator where they can add details and choose based on the final output provided
The tool should have a button to select the regime, and upon selection, a "Tax Regime Assignment" should be created for the appropriate payroll period, which will be considered from the next payroll months
Below is the design wireframe and a brief calculation walkthrough
Full calculation walkthrough
The calculation runs in five sequential steps.
Step 1 — Gross income. This is simply the Annual CTC you enter. No adjustments yet.
Step 2 — Exemptions and deductions (old regime only). Several amounts are subtracted before tax is even computed. The standard deduction is a flat ₹50,000 for the old regime (₹75,000 for new). HRA exemption is the minimum of three things: the actual HRA received, rent paid minus 10% of basic salary, and 50% of basic for metro cities (40% for non-metro) — whichever is lowest is the exempt amount. LTA is capped at ₹30,000. Section 80C investments (PF + ELSS + LIC combined) are capped at ₹1,50,000 regardless of how much you invest. Section 80D (health insurance) is capped at ₹25,000. Section 80CCD(1B) — your own voluntary NPS contribution — gets an additional ₹50,000 deduction on top of the 80C cap. Home loan interest under Section 24(b) is capped at ₹2,00,000 for self-occupied property. The sum of all of these is subtracted from CTC to arrive at taxable income.
For the new regime, only the standard deduction (₹75,000) and the employer's NPS contribution under 80CCD(2) are allowed. Everything else is disallowed, which is the trade-off for the lower slab rates.
Step 3 — Slab tax. Tax is computed slab by slab on the taxable income. The old regime has four slabs (0%, 5%, 20%, 30%) while the new regime has six (0%, 5%, 10%, 15%, 20%, 30%) with a higher zero-rate threshold of ₹3L vs ₹2.5L. Only the income that falls within a slab is taxed at that rate — commonly misunderstood as the entire income being taxed at the highest applicable rate.
Step 4 — Surcharge. This is an additional charge on the tax itself (not on income) that kicks in only for high earners. For the old regime: 10% surcharge if taxable income exceeds ₹50L, 15% above ₹1Cr, 25% above ₹2Cr, and 37% above ₹5Cr. The new regime caps the top surcharge at 25%, even above ₹5Cr, which is one reason the new regime is often better for very high earners. Surcharge is applied as a percentage of the slab tax.
Step 5 — 87A rebate. If your taxable income is ₹5L or below under the old regime, your entire tax liability is wiped to zero via the rebate. Under the new regime, the rebate is more nuanced — if taxable income is ₹7L or below, a rebate of up to ₹25,000 is applied, which effectively means incomes up to ₹7L pay zero tax. This is applied after surcharge but before cess.
Step 6 — Health & Education Cess. A flat 4% is applied on (slab tax + surcharge − rebate). This goes to government health and education programmes, and there is no exemption or cap on it.
The final number you see is the sum of all of that, rounded to the nearest rupee.
80CCD(2) note specifically: This is the employer's contribution to your NPS account. Unlike 80CCD(1B) which is your own voluntary top-up, the employer contribution is deductible in both regimes, capped at 10% of basic salary. This makes it one of the most valuable deductions available if your employer offers an NPS contribution structure, since it reduces taxable income even under the new regime.
Show a banner and a notification to the employees (in the desk and in the pwa ) starting from 15 days before the financial year closes
The below-mentioned functionality will be part of the following application https://github.com/frappe/india-payroll
Old Tax Regime
The old (existing) tax regime has been in place for decades, with its current structure largely shaped by the Income Tax Act, 1961. It offers various exemptions and deductions (like HRA, 80C, 80D, etc.) that taxpayers can claim to reduce their taxable income.
New Tax Regime
The new tax regime was introduced in Budget 2020, effective from Financial Year 2020-21 (AY 2021-22), under Section 115BAC of the Income Tax Act. It offered lower slab rates but without most exemptions and deductions.
Employees typically have to choose a Tax Regime at the start of the fiscal year, based on which their payroll is processed. The system should be fully capable of helping them choose this option.
The plan here is to give them a comparator where they can add details and choose based on the final output provided
The tool should have a button to select the regime, and upon selection, a "Tax Regime Assignment" should be created for the appropriate payroll period, which will be considered from the next payroll months
Below is the design wireframe and a brief calculation walkthrough
Full calculation walkthrough
The calculation runs in five sequential steps.
Step 1 — Gross income. This is simply the Annual CTC you enter. No adjustments yet.
Step 2 — Exemptions and deductions (old regime only). Several amounts are subtracted before tax is even computed. The standard deduction is a flat ₹50,000 for the old regime (₹75,000 for new). HRA exemption is the minimum of three things: the actual HRA received, rent paid minus 10% of basic salary, and 50% of basic for metro cities (40% for non-metro) — whichever is lowest is the exempt amount. LTA is capped at ₹30,000. Section 80C investments (PF + ELSS + LIC combined) are capped at ₹1,50,000 regardless of how much you invest. Section 80D (health insurance) is capped at ₹25,000. Section 80CCD(1B) — your own voluntary NPS contribution — gets an additional ₹50,000 deduction on top of the 80C cap. Home loan interest under Section 24(b) is capped at ₹2,00,000 for self-occupied property. The sum of all of these is subtracted from CTC to arrive at taxable income.
For the new regime, only the standard deduction (₹75,000) and the employer's NPS contribution under 80CCD(2) are allowed. Everything else is disallowed, which is the trade-off for the lower slab rates.
Step 3 — Slab tax. Tax is computed slab by slab on the taxable income. The old regime has four slabs (0%, 5%, 20%, 30%) while the new regime has six (0%, 5%, 10%, 15%, 20%, 30%) with a higher zero-rate threshold of ₹3L vs ₹2.5L. Only the income that falls within a slab is taxed at that rate — commonly misunderstood as the entire income being taxed at the highest applicable rate.
Step 4 — Surcharge. This is an additional charge on the tax itself (not on income) that kicks in only for high earners. For the old regime: 10% surcharge if taxable income exceeds ₹50L, 15% above ₹1Cr, 25% above ₹2Cr, and 37% above ₹5Cr. The new regime caps the top surcharge at 25%, even above ₹5Cr, which is one reason the new regime is often better for very high earners. Surcharge is applied as a percentage of the slab tax.
Step 5 — 87A rebate. If your taxable income is ₹5L or below under the old regime, your entire tax liability is wiped to zero via the rebate. Under the new regime, the rebate is more nuanced — if taxable income is ₹7L or below, a rebate of up to ₹25,000 is applied, which effectively means incomes up to ₹7L pay zero tax. This is applied after surcharge but before cess.
Step 6 — Health & Education Cess. A flat 4% is applied on (slab tax + surcharge − rebate). This goes to government health and education programmes, and there is no exemption or cap on it.
The final number you see is the sum of all of that, rounded to the nearest rupee.
80CCD(2) note specifically: This is the employer's contribution to your NPS account. Unlike 80CCD(1B) which is your own voluntary top-up, the employer contribution is deductible in both regimes, capped at 10% of basic salary. This makes it one of the most valuable deductions available if your employer offers an NPS contribution structure, since it reduces taxable income even under the new regime.
Show a banner and a notification to the employees (in the desk and in the pwa ) starting from 15 days before the financial year closes