How to Calculate Your Income Tax in India – Easy 5 steps
For many, Income tax in India is considered as a necessary evil. With continuous-changing tax laws and several lingos – tax exemption, tax deduction, tax rebate, tax-saving and so on – to decrypt, most of us we do not even realize how our income is being taxed and how it is been calculated?
Let’s check out how to can calculate your income tax so that it will help you to compute your own and you can also take enough measures to save your money.
Income Tax Calculation
By understanding how the Income-tax is calculating you can estimate your taxes based on your Salary or income after the annual Union Budget is presented.
Steps involved in calculating income tax
- Evaluate your gross salary by summing up all the allowances such as Leave Travel Allowance (LTA), House Rent Allowance (HRA) and special allowances to your basic salary.
- Next deduct the exemptions such as professional tax, HRA, and other basic or standard deduction from the gross income.
- Then you have to add your extra income such as fees, commission, interest and bonus if there any and also add other incomes like income from renting your properties or any capital gains.
- Next, take away the standard deductions as per Section 80D, Section 80C and other entailments as per Chapter VI A.
- The remaining income is your net taxable income. Importantly the income slab completely depends on this final income
Let’s have an example to make it more understandable on How to calculate income tax in India?
Calculation of the income tax for the Salaried Individual
Income from salary is the total amount of Basic salary + Special Allowance + HRA + Transport Allowance + any other special allowance. There are some components of your income are exempt from tax, that includes telephone bills compensation, leave travel allowance and so on. And consider if the person receives HRA and live on a rented house, you can claim the exemption on your HRA. you can calculate the exemption portion of HRA, by using any HRA Calculator available on the internet.
Ashok works at a Chennai -based MNC and his annual gross income or salary is Rs 15 Lakh. After deducting all exemptions from his salary, such as HRA and all standard deductions, his net annual salary is Rs 12.5 lakh.
Last year, he received interest income of Rs 10,000 from his bank account. And the sum of his total investment in APPL Mutual Funds and contribution to EPF id Rs 1.5 lakh. He also invested Rs 20,000 in NPS and also have a health insurance policy for his whole family for which he pays a yearly premium of Rs.15,000
|Income Tax Calculation in India||Assessment Year 2020-21|
|Gross Income||Rs.15 lakh|
|HRA and LTA||-Rs. 2.5 lakh|
|Standard deduction||-Rs. 50,000|
|Net salary||Rs. 12 lakh|
|Income from other sources||Rs. 10,000|
|Gross taxable income||Rs.12,10,000|
|Deduction under Section 80C (ELSS + EPF)||– Rs.1,50,000|
|Deduction under Section 80CCD(1B) for NPS||– Rs.50,000|
|Deduction under Section 80D for health insurance premium||– Rs.15,000|
|Deduction under Section 80TTA for interest on bank account||– Rs.10,000|
Now let’s check out how much money going to be taxed
|Tax rate||Amount per annum|
|Up to Rs. 2.5 lakh||0|
|5% on Rs. 2.5 lakh (Rs. 5 lakh – Rs. 2.5 lakh)||Rs. 12,500|
|10% on Rs. 4.85 lakhs (Rs.9.85 lakh – Rs. 5 lakh)||Rs. 61,000|
As above discussed, tax deductions can help you to save a lot of tax. And there are some great places or consultancies which can guide and help you to achieve this and also helps you to reduce the stress around finances, WE at Kanakkupillai.com are best in all types of finances related services.
Have a Questing, Then Write us Now at [email protected], We are more than happy to help you out.[contact-form-7]
The post How to Calculate Your Income Tax in India? Easy 5 steps appeared first on Kanakkupillai.