Payment of Income tax is the statutory liability of every person who is a citizen of India . At the end of every year, every citizen of India who is a taxpayer has to declare his income to the Income Tax department in a prescribed form provided by the Government of India. Income tax is levied by the Government of India on an individual’s income. Tax slabs are decided based on one’s age and income. The tax slabs to determine liability for income tax are as follows:-
- Any Indian citizen is liable to pay income tax in India if his income is above Rs. 2.5 lakhs per annum.
- If an individual is above 60 years of age and earns more than Rs. 3 lakhs, he is also subject to income tax under the Indian Income Tax rules
- The entities that are liable to pay income tax
- Hindu Undivided Family
- Body of Individuals
- Association of Persons
- Local Authorities
- Corporate Firms and other companies
- Cooperative Societies and Trusts etc.
This article analyses how to calculate income tax using a tax calculator in India and estimate your tax liability.
- Every citizen of India who earns an income in India is liable to tax, provided he earns above a threshold income and the income does not belong to the exempt categories.
- Indian Income Tax Act allows the flexibility to plan your taxes within the ambit of the law.
- As a taxpayer, you need to be aware of all the tax provisions which impact your payment of tax
- There are two regimes of taxation allowed for the Assessment Year 2022-23.
- You can plan your taxes which is legal but evading your taxes is not.
What are the different taxable heads of income?
The first step in analysing how to calculate income tax is to understand your various sources of income. Income is taxed under the following different taxable heads which are based on the source of income. There are five different sources of income under which tax is deducted:
- Income from salaries: Taxable income that employees receive from their employers is known as salaries. As per Section 192 A of the Income Tax Act, employers are expected to withhold taxes when employees come within the tax bracket. The employer has to provide to the employee a Form 16 in which details of the net salaries and tax deductions are detailed.
- Income from Capital Gains: Capital assets refer to tax levied on profits from the sale of capital assets by the assessee.
Capital gains is an all-inclusive term to include profits earned from the sale of buildings, land, bonds, equities, debentures, and jewellery. Tax is levied on all such capital gains.
- Income on House property: This refers to the tax on lease rental received on residential property. This does not however include commercial properties or business properties under its ambit.
- Income or profits earned from businesses: As per sections 30 to 43D of the Income-tax Act, the profits earned by businesses providing professional services or doing business are taxable at the applicable rates. This comes under the head of income called “Profits and Gains from Business or Profession.
- Income from other sources: Speculative income, income from dividends, pension income, rental income (from other than house properties), Gifts and interest received from government debentures, bonds and bond mutual funds all attract tax.
Tax Calculator in India
In the fiscal budget of FY 2021-22, the Finance Minister introduced new slabs of taxation and income tax rates for taxpayers in India. Under the old system of taxation, various deductions were possible from the income of the taxpayer while calculating the total taxable income. Under the new system of taxation, more slabs were introduced at lower tax rates but the only deductions allowed are the employer’s contribution to the pension account (under 80CCD), official travel and other allowances provided by the employer to salaried employees. As long as your income remains within a certain range, the new system with lower rates in the lower slabs would be beneficial compared to the old system.
The Tax Calculator in India is an easy-to-use online tool which enables you to estimate your taxes based on the taxation rates announced in the last Union budget.
How to calculate income tax – First, To calculate income from all sources
To calculate income from all sources using the tax calculator in India, you have to add up income from all the below-listed sources and apply the taxation rates:
- Income from Salary
- Income from House Property
- Income from Capital Gains
- Income from Business or Profession
- Income from other sources
Deductions available from under the old system of taxation
|Deduction Amount Available||Section||What investments are eligible|
|Rs 1,50,000||80 C||National Savings Certificate, Housing Loan principal repayment PPF investment inELSS schemes, provident fund, Tuition fees paid for two children, Life Insurance premium|
|80 CCC||Premium paid on annuity plans and pension plans|
|80 CCD (1)||Investments made in the pension schemes of the Central Government|
|Rs. 50,000||80 CCD (1B)||Investment in the National pension Scheme (NPS)|
|80 CCD(2)||Deduction of the employer contribution to the NPSIf employer is Government, deduction is 10% of basic and dearness allowanceIf employer is Central Govt, deduction is 14% of the basic and D.A|
|Rs 2,00,000||Section 24 (b)||Deduction on interest on home loan|
|Rs 25,000||Section 80 (D)||Deduction on premium paid for purchase of health insurance, For senior citizens, the deduction for health insurance premiums is Rs 50,000.|
|Rs 5,000||Section 80(D)||Deduction for preventive health check-ups|
|Rs 75,000||Deduction for expenses of a disabled dependent|
|Rs 40,000||Section 80 (DD1)||Deduction of medical expenses of self and dependent family members|
|Rs 1,00,000||Deduction of medical expenses of a senior citizen.|
|Rs 50,000||Section 80 EE||Rs 50,000 on interest payment on loan taken for acquisition of residential house property by first time buyers|
|A maximum deduction up to Rs. 60,000||Section 80 GG||Deduction for self-employed individuals and others who are not getting HRA.|
|Rs 1.5 lakhs||Section 80 EEB||Deduction for interest on loan taken to purchase an electric vehicle.|
|Rs 10,000||Section 80 TTA/80 TTB||Deduction on interest income from savings account.For senior citizens – the amount is Rs. 50,000|
How to calculate income tax – Steps to use the tax calculator in India
To compute your tax whether from salary income or all other sources in India, use the Tax calculator in India. Tax calculators in India are available on various sites including the Indian Income tax website, cleartax etc . Use the following steps:
- Choose the assessment year for which you want to calculate tax.
- Enter your age, tax rates differ widely depending on your age
- Click on the income field: enter the gross salary without deductions, monthly or yearly. Fill in other details like annual income from other sources like rental income, annual interest paid on home loans for self-occupied property and let out property
- Enter the details of all deductions under the above-mentioned sections if you have selected the taxation under the old regime.
- Enter the details of interest on a savings account and educational loans
- Enter the details of HRA exemption, such as basic salary, DA, HRA, and total rent paid per annum.
- Select the metro city and hit the button to calculate the tax liability.
How to understand the tax liability?
Use the Tax calculator in India to calculate your tax liability
There are three categories of taxpayers:-
- Individuals below 60 years of age. This category includes both residents and non-residents
- Resident senior citizens – between the ages of 60-80 years
- Resident super senior citizens – above the age of 80 years.
Source: Clear Tax
Additionally, the health and education cess is levied on the total tax rate above the total amount payable at the rate of 4%. A surcharge is also applicable at the rate of 10% of the total income exceeding Rs. 50 lakhs but below Rs. 1 crore. The surcharge is 15% of the income exceeding Rs. 1 crore, 25% of the income if income exceeds Rs. 2 crores, and 37% of the income if the income exceeds Rs. 5 crores.
Source: Clear Tax
How to calculate Income tax on Salary?
There are tax calculators in India which will enable you to determine how to calculate Income tax on Salary.Use the Icalculator provided by the Income tax department to calculate the income tax on your salary.
Here’s how to calculate Income tax on Salary:
Income from salary is compensation received from an employee for their services. There has to be a relationship between employer and employee between the person who makes the payment and the person who receives the compensation. Income from salary includes the following:-
- The employment letter states the amount of basic salary payable.
- Allowance for meeting personal expenses
- Fee, commission and bonus.
The following deductions are allowed while computing total taxable income under Salary
- House rent Allowance: Under the old regime, total HRA paid, or actual rent paid less than 10% of the basic salary, 50% of the salary for metro cities and 40% for non-metro cities
- LTA up to the amount incurred for domestic travel
- Standard deduction up to Rs 50,000 only.
- Section 80CC, 80 CCD (1) and 80 CCC.
- Deductions against home loans up to a maximum of Rs 1.50 lakhs.
- Reimbursement of conveyance, books, newspapers and periodicals, mobile and business entertainment.
- Bonus and Gratuity received during the employment are fully taxable.
- In case the employer is covered under the Payment of Gratuity Act, then the least of the following is exempt under section 10(10) of the Income Tax Act.
- The actual amount received
- Rs 20,00,000
- 15 days salary based on the salary last drawn for every year of completed service or part thereof more than 6 months.
How to calculate HRA in Income Tax
You can use the Tax calculator in India to calculate HRA in Income Tax.
HRA is the House rent allowance under Income Tax. The deduction for HRA is the least of the following amounts:-
- Actual HRA given
- 50% of Basic (salary + D.A) for those living in metros
- 40% of Basic( Salary+ D.A ) for those living in non-metros
- Actual rent paid must be less than 10% of basic salary + D.A.
Use the Tax Calculator in India to calculate the HRA in Income tax.
HRA received by Ramnath is Rs. 8500*12 = Rs. 102000
Annual rent paid by him is Rs 84,000. HRA formula is (Annual rent- 10% of basic salary) =
(Rs 84,000-Rs.30,000)= Rs 54,000.
Pune is a non-metro city, HRA is 40% of basic salary= Rs. 3,00,000*40% = Rs. 120,000.
HRA allowed under Indian Income Tax rules is the least of the three which is Rs. 54,000.
Taxes, like death, are constant in our lives. It is better to understand the various nuances of tax law, the various deductions that are applicable and pay our taxes on time. Payment of taxes in time will ensure that we don’t attract unnecessary penalties or fines. Make sure to pay the various instalments of advance tax as and when they are payable. Use the tax calculator in India to determine how to calculate your income tax
FAQs about Income Tax and Income Tax calculator
A) It is a prescribed form through which you can furnish the details of income earned from different sources and taxes paid to the tax department for the relevant financial year.
A) An income tax calculator is an online tool which enables us to calculate taxes based on the various provisions of the Indian Income Tax law. It enables us to estimate our tax liability.
A) If my income exceeds Rs 2,50,000 without claiming or giving effect to any types of deductions or investments in a particular financial year, you have to pay your taxes.
A) Yes, you may still have income from other sources apart from your salary for which returns have to be filed and taxes paid. So you will have to file income tax returns.
A) If your income exceeds Rs 5,00,000 or you want to claim refunds on taxes paid, you have to file your E-returns.
Word to remember:
PPF investment in equity linked savings schemes : This refers to your investment in a Public Provident fund the underlying investments of which are equity linked savings schemes. This portion is exempt from tax during the year when the investment is made
National Savings Certificate : Is a tax exempt fixed income investment which is purchased from the post office. It provides a low yield and such investments are tax deductible at the time when you make them.
Did you know: That for income below Rs. 10 lakhs, the new regime is better and for higher levels of income the old regime with the various allowed deductions is better. But it is always better to calculate income tax under both regimes before deciding to opt for a particular taxation method.