Understanding Your Tax Liability for a 10 Lakhs Account Balance in FY 2023–24

Many individuals are curious about the tax implications of having a significant amount of money in their bank accounts. Specifically, if an individual has 10 lakhs (1 million rupees) in their account, what is the expected tax liability? This article will explore the relevant tax laws and scenarios based on different tax regimes.

Tax Liability Under the New Regime

For the fiscal year (FY) 2023–24, the government has proposed changes to the tax regime, which affects your tax liability. If you choose to follow the new regime, your tax liability is expected to be Rs. 60,000. This amount is a flat rate and does not depend on your income from other sources.

Old Scheme Scenario

Alternatively, you can opt for the old tax regime. Under the old regime, your net taxable income is calculated after considering various deductions allowed under the Income Tax Act. These deductions include:

Deduction under Section 80C for a maximum of Rs. 1.5 lakhs Deduction under Section 80D for a maximum of Rs. 50,000 Deduction under Section 80CDD for a maximum of Rs. 50,000 Deduction for home loan interest under Section 24 (HRA) and Section 80G for donation

The net taxable income is then subjected to the tax slabs of the old regime, and the tax liability is accordingly calculated.

Based on various factors, your tax liability under the old regime would be in the range of Rs. 50,000 to Rs. 100,000.

Tax Liability Determination

The amount of tax payable does not depend solely on the balance in your account. If you are an individual, you need to include the interest earned on the balance in your total taxable income after considering the limit under Section 80T. Additionally, you should be able to justify how you acquired the 10 lakhs in your account.

Do You Need to Pay Taxes?

It is important to note that holding money in your bank account does not inherently require you to pay taxes. Income tax is applicable only when you earn money in a financial year. If you have an income of more than Rs. 2 lakhs and receive it as a gift from friends or relatives, you might be required to file a tax return.

Interest Income and Tax Deduction

Income tax is payable on the annual income earned during the financial year, including interest income on deposits, rent, or any other income earned. However, banks are not aware of the final taxable income. Therefore, they collect Form 15G or 15H if the interest payable is less than Rs. 10,000 annually. If the interest exceeds Rs. 10,000, banks will deduct TDS (Tax Deducted at Source) at the rate of 10% on the total interest payable and issue a TDS certificate, which can be used for filing the ITR (Income Tax Return).