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How is Taxable Income Calculated – Know Income Tax Slab Based

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How is Taxable Income Calculated – Know Income Tax Slab Based

All individuals and entities in India, having a taxable income, are required to pay taxes to the Income Tax Department and file their income tax returns.

If you are looking for financial savings, opting for a health insurance policy is a wise idea. Buying a health insurance policy is vital as medical inflation has created a financial burden on families. Getting a tax deduction under Section 80D of the Income Tax Act, 1961, is one of the advantages of buying a health insurance policy.

Tax is paid depending on the current income tax slab under which the person falls. One can estimate the tax to be paid through manual calculation or by using an income tax calculator – an online tool.

The income tax calculator gives you an estimate of tax that depends on your income. The taxable income is assessed after making deductions, other taxes that you may have paid and tax deducted at source. The calculated taxable income is taxed at the applicable slab rate.

Here is a complete guide to the Income Tax Calculator and the tax benefits you can avail under your health mediclaim policy.

How to use Online Tax Calculator for calculating tax for FY 2020-2021 ?

  • Opt for a financial year for which you want the tax to be calculated.
  • Select your age. The tax liability is different depending on the age group.
  • Mention your taxable salary after eliminating different exemptions such as HRA, standard deduction, etc. if you are selecting the old income tax slabs. Else, you can enter your salary without availing exemptions if you are choosing the new tax slab.
  • Apart from the taxable salary, you should enter details like rent, interest income, and interest paid on home loans for rent.
  • If you want to calculate tax under the old income tax slab, make sure you show your investments as per Section 80C, 80D, 80G, 80E, and 80 TTA.
  • Hit on calculate to get tax liability. You will get a comparison of the old and new income tax slabs.

The online tax calculator calculates the amount of tax that is payable by you. It considers different parameters such as your income, age, gender, and other factors that give a definite amount of tax that has to be paid.

Salaried employees can calculate the income tax with the help of an online tax calculator.

How to Calculate the Gross Taxable Income?

If you are a resident Indian or an NRI, you are required to pay taxes if your income falls within the taxable range. The income can be obtained from various sources, as mentioned below:

  • Income from salary: If you are a salaried individual, your salary structure includes Basic Pay, House Rent Allowance (HRA), Transport Allowance, Leave Travel Allowance (LTA), Special Allowance, Other Allowance, reimbursement of phone bills, etc. However, you are entitled to tax exemptions in some cases, like HRA and LTA. Besides, a standard deduction of Rs 50,000 is applicable.
  • Income from Residential Property: The annual value of the property you own, besides self-occupied property, is chargeable to tax. That is, the rent received from your properties is taxable. However, you can claim deductions up to 30% of the annual value or rent obtained, under section 24 of the I-T act.
  • Income from Profits and Gains of Business or Profession: The ‘profits and gains’ of business or profession undertaken by the assessee, at any time, during the previous year are chargeable to tax.
  • Income on Capital Gains: Profit obtained from transfer or sale of any capital asset (property, securities, etc.) is chargeable to tax. Thus, the income earned is classified into two categories – Short Term Capital Gain and Long Term Capital Gain – depending on the tenure during which the capital asset is held.
  • Income from other sources: The various income sources which are not categorized under other heads viz. income from salary are classified under income from other sources. For instance, interest earned on securities, income from lottery, family pension, etc.

Thus, ‘gross total income’ is the amount obtained by adding up all the income earned under the heads of income as specified above.

Taxpayers have the option to choose the old income tax slab or the new tax slab, which was introduced in the Union Budget 2020. In both the tax regimes, individuals who have net taxable income up to Rs 5 lakh are eligible for a rebate up to Rs 12,500.

For those following the old income tax slab, the taxable income is achieved after making income tax deductions. If you have opted for a health insurance policy, you will get deductions on the premium paid as per Section 80D of the Income Tax Act for yourself and your family.

What is Excluded from Gross Total Income?

According to Section 10 of the Income Tax Act, certain income types are not counted under Gross Total Income and thus are tax exempted.

Few of them are given below:

  • Income earned from agriculture
  • Income received as a HUF member
  • Profit earned as a co-owner in a partnership firm
  • Amount obtained from Provident Fund Account or ‘Sukanya Samruddhi’ Account
  • Amount obtained in the form of death-cum-retirement gratuity under the revised Pension Rules of the Central Government
  • Amount received on voluntary retirement or termination of service, as per any voluntary retirement scheme, up to max. Rs 5 lakh.
  • Amount obtained in the form of gratuity received under Payment of Gratuity Act if it does not exceed the amount calculated as per the provisions of sub-sections (2) and (3) of section 4 of that Act
  • Sum received as an employee from the National Pension Scheme (NPS) Trust on account closure/opting out of the scheme, provided the sum does not exceed 40% of the total sum payable to the person at the time of closure/ opting out of the scheme.

Deductions Applicable on Gross Taxable Income

The income tax deductions help the salaried employees in saving tax. These deductions help in reducing tax liability to a great extent. The tax-free expenses incurred during a financial year are subtracted from an individual’s annual income. The income tax deduction can be claimed by an individual, on investments made during the last year, at the time of filing the income tax return.

An individual taxpayer can apply for several deductions on their income to reduce their taxable income. Let us discuss some of the important income tax deductions that a taxpayer can claim.

  • Section 80C Deductions: A maximum deduction of Rs. 1,50,000 can be claimed for any contribution made by the income tax assessed towards:
    • Payment of Life Insurance policy premium
    • Repayment of the principal portion of home loan
    • Payment of Stamp duty or property registration fees
    • Public Provident fund (PPF), Sukanya Samriddhi Yojana, Equity Linked Saving Scheme (ELSS), Five Year Bank Deposit (FD), Senior Citizens Saving Scheme, National Savings Certificate
  • Section 80D Deductions: Individuals and HUFs, who pay for the premium towards their respective mediclaim policies, are eligible for income tax deductions under Section 80D. The maximum deduction applicable for an individual and his family on the health insurance policy is Rs 25,000. If the plan includes senior citizens or the assessee is above 60 years of age, then the maximum deduction is Rs. 50,000.
  • Section 80DD Deductions: The expenses incurred by individuals and HUFs on medical treatment or maintenance of a person with a disability are applicable for tax deduction up to the maximum amount of Rs 75,000; and up to Rs 125000/- for severe disability.
  • Section 80DDB Deductions: The expenses incurred on medical treatment for specific diseases for self or dependent are applicable for tax deduction up to a maximum amount of up to Rs 40,000. The limit is Rs 1,00,000 for senior citizens.
  • Section 80G Deductions: There is a tax deduction of 100% for contributions made towards charitable institutions specified under the I-T Act, for instance, Prime Minister National Relief Fund or National Defense Fund. In other cases, there is a deduction of 50%.
  • Section 80TTA Deductions: There is a deduction of Rs 10,000 on saving interest income.

Thus, the Net Taxable Income = (Gross Total Income – Deductions)

What are the Various Income Tax Slabs?

The income tax is imposed on an individual as per the income tax slab where the different tax rates are prescribed for various income tax slabs. As per the existing tax regime, there are three categories of individual taxpayers:

  • Taxpayers below the age of 60 years
  • Senior citizens above the age of 60 years and below 80 years
  • Super senior citizens above the age of 80 years

The income tax slab is different for each category of taxpayers. The income tax slabs may change after every budget announcement.

As per the Union Budget 2019, the income tax slab, and rates applicable for tax-paying persons including individuals, Body of Individuals, Hindu Undivided Family (HUF) and Association of People are given below:

For Resident Individuals whose Age is Below 60 Years

Income Range Tax rates
Up to Rs 2.5 Lakh Nil
Rs 2,50,001 to Rs 5,00,000 5% of total income which exceeds Rs 2,50,001
Rs 5,00,001 to Rs 10,00,000 Rs 12,500 + 20% of total income which exceeds Rs 5,00,000
Rs 10,00,001 and above Rs 1,12,500 + 30% of total income which exceeds Rs 10,00,000

For Resident Individuals whose Age is Between 60 to 80 Years

Income Range Tax rates
Up to Rs 3 Lakh Nil
Rs 3,00,001 to Rs 5,00,000 5% of total income which exceeds Rs 3,00,001
Rs 5,00,001 to Rs 10,00,000 Rs 10,000 + 20% of total income which exceeds Rs 5,00,000
Rs 10,00,001 and above Rs 1,10,000 + 30% of total income which exceeds Rs 10,00,000

For Resident Individuals whose Age is above 80 Years

Income Range Tax rates
Up to Rs 5 Lakh Nil
Rs 5,00,001 to Rs 10,00,000 20% of total income which exceeds Rs 5,00,000
Rs 10,00,001 and above Rs 1,10,000 + 30% of total income which exceeds Rs 10,00,000

Note: In addition to the tax amount given above, a cess of 4% is also applicable.

An individual taxed under the new tax regime, as announced in Budget 2020-21, will have to forgo certain tax deductions and exemptions. Mentioned below are certain income tax deductions that a taxpayer has to forgo while opting for the new tax regime.

  • Leave Travel Allowance
  • House Rent Allowance
  • Relocation Allowance
  • Deductions as per Chapter VI A of the Income Tax Act, 1961 such as Section 80 CCC, Section 80D and 80 TTA

The New income tax slabs for individuals for FY 2020-2021

Income Range Tax rates
Up to Rs.2.5 Lakh Nil
Rs.2,50,001 to Rs.5,00,000 5% of the total income that is exceeding Rs.2.5 lakh
Rs.5,00,001 to Rs.7,50,000 10% of the total income that is exceeding Rs.5 lakh
Rs.7,50,001 to Rs.10,00,000 15% of the total income that is exceeding Rs.7.5 lakh
Rs.10,00,001 to Rs.12,50,000 20% of the total income that is exceeding Rs.10 lakh
Rs.12,50,001 to Rs.15,00,000 25% of the total income that is exceeding Rs.12.5 lakh
Income exceeding Rs.15,00,001 30% of the total income that is exceeding Rs.15 lakh

Note : In addition to the tax rate given above, a cess of 4% is also applicable.

In every financial year, most employees are worried as to how they should pay the income tax. The income tax is calculated with the help of an online tax calculator.

Know how to calculate income tax with the help of this example

The annual income is the total of basic salary, House Rent Allowance (HRA), special allowance, transport allowance, and any other allowance. If you are getting HRA and live in a rented house, then you can claim an exemption on it.

Let us understand the calculation of income tax as per the income tax slab.

Example:

Rahul is a salaried person who works in an MNC in Gurgaon, India. His salary structure for the financial year 2019-2020 is as mentioned below:

Components Salary per Month Salary per Annum Deductions Taxable
Basic Salary Rs 40,000 Rs 4,80,000 – – – – Rs 4,80,000
HRA Rs 15,000 Rs 1,80,000 – – – – Rs 48,000
Special Allowance Rs 11,000 Rs 1,32,000 Rs 1,32,000 – – – –
LTA – – – – Rs 20,000 Rs 10,000 Rs 10,000
Standard Deduction – – – – – – – – Rs 50,000 – – – –

Deductions

Rahul lives in Delhi and pays a monthly rent of Rs 15,000. He also claimed LTA of Rs 10,000.

The HRA exemption he will get is the amount which is the least among the following:

  • 1. HRA amount received from an employer in a year = Rs 1,80,000
  • 2. Actual rent paid in a year – 10% of basic = Rs 1,80,000 – Rs 48,000 = Rs 1,32,000
  • 3. 50% of the basic salary if he lives in metro city = Rs 2,40,000

Total salary = Rs 8, 12,000 per annum

Gross taxable income from salary = Rs 6, 20,000 per annum

Investments

Rahul has invested his money as specified below :

Category Investments Amount Deductions claimed
Section 80D Premium paid for mediclaim policy Rs 12,000 Rs 12,000
Section 80C Premium paid for LIC policy Rs 8,000 Rs 1,40,600
Section 80C PPF Rs 60,000 Rs 1,40,600
Section 80C ELSS Rs 15,000 Rs 1,40,600
Section 80C EPF contribution deducted by the employer (Rs 40,000 * 12%) * 12 = 57,600 Rs 1,40,600
Section 80TTA Interest from the savings account Rs 8,500 Rs 8,500

Now, Let’s Calculate his Taxable Income:

Gross Taxable Income in India

Nature of income Amount
Salary Rs 6,20,000
Income from Other Sources Rs 8,500
Gross Total Income Rs 6,28,500

 

Deductions Amount
80C Rs 1,40,600
80D Rs 12,000
80TTA Rs 8,500

Gross Taxable Income = Gross Total Income – Deductions = Rs 4,67,400

How to Calculate Income Tax?

Since Rahul is below 60 years of age, the following income tax slab is applicable for calculation of his income tax.

Income Range Tax rates Total
Up to Rs 2.5 Lakh Nil 0
Rs 2,50,001 to Rs 5,00,000 5% of (Rs 4,67,400 less Rs 2,50,000) Rs 10,870
Rs 5,00,001 to Rs 10,00,000 Rs 12,500 + 20% of total income which exceeds Rs 5,00,000 0
Rs 10,00,001 and above Rs 1,12,500 + 30% of total income which exceeds Rs 10,00,000 0

Cess = 4% of Rs 10,870 = Rs 434.8

Total Income Tax = Rs 10,870 + Rs 434.8 = Rs 11,304.8

Thus, the total tax amount payable by Rahul for the financial year 2019-2020 is Rs 11,304.8. He must file his tax returns for the assessment year 2020-21.

Thus, you can easily find out the estimated tax for the financial year you have selected using an online tax calculator.

FAQs

How much tax should I pay on the salary?

The amount of tax payable will depend on the individual’s annual income and the tax slab chosen. There are different tax slabs applicable for resident individuals below 60 years, senior citizens, and super senior citizens.

FAQs

How much tax should I pay on the salary?

The amount of tax payable will depend on the individual’s annual income and the tax slab chosen. There are different tax slabs applicable for resident individuals below 60 years, senior citizens, and super senior citizens.

How should I calculate Income Tax for FY 2020-2021?

To calculate income tax for the financial year 2020-21, individual taxpayers can opt for either the new concessional tax regime or the old tax regime. However, if one chooses the new tax regime, they have to forgo certain deductions and exemptions. However, they can still claim the deduction under Section 80CCD (2). This benefit is applicable when an employer makes contributions (not exceeding 10% of the salary) to a salaried person’s Tier-1 NPS account. To calculate the net taxable income, you need to consider the basic tax exemption limit up to Rs 2.5 lakh for individuals in both the new and old tax regimes.

Who decides the IT slab rates and can they change?

The income tax slab rates are decided or changed as per the government regulations. If the government decides to revise the tax slabs for the financial year, it is proposed in the upcoming Union Budget and presented in the Parliament.

Is it mandatory to opt for new tax regime while filing returns for AY 2020-2021?

Individuals can choose either the old tax regime that allows deductions and tax exemptions or the new tax regime without deductions and tax exemptions. An individual choosing the new tax regime for a financial year must fill a new form called Form 10-IE when filing I-T returns for the relevant financial year.

Are there separate slab rates for different categories?

Yes, different slab rates are prescribed for various categories and income range. The tax rates vary for individual taxpayers below the age of 60, senior citizens between 60 and 80, and super senior citizens above 80 years of age. Moreover, the tax rates are different for entities, including companies, partnership firms and LLPs, local authorities, etc.

How to calculate the TDS on salary?

The TDS (tax deducted at source) is deducted by an employer from an individual’s income at the rate specified by the tax department and deposited with the government. Before calculating the TDS, the employer obtains the investment proof and declaration by the employee. TDS is computed after calculating total earnings in the year and considering the amount of tax exemptions.

Which incomes are not taxable in India?

Section 10 of the I-T Act, 1961, allows tax exemptions on various allowances or benefits mentioned under different categories. These incomes will not be added to the total taxable income.

Who should file their income tax returns?

All the taxpayers, including entities and individuals, must file their income tax returns if their annual income exceeds the basic tax exemption limit, as per the Income Tax Act.

The exemption limit for individuals is based on their age:

  • Rs 2.5 Lakh for individuals below the age of 60
  • Rs 3 lakh for senior citizens aged below 80 years of age
  • Rs 5 Lakh for super senior citizens above 80 years

An individual with income less than Rs 2.5 lakh can file the tax return as it serves as income proof, helps one claim a tax refund, and apply for credit cards/ loans. Individuals selecting the new tax regime, and if their total income exceeds Rs 2.5 lakh, they will have to file the tax returns.

What is the due date for filing income tax returns?

For individuals, the due date to file ITR is July 31st of the assessment year.

Disclaimer: The information given above is only for reference. The tax exemptions are subject to the rules and regulations of the Income Tax Act.

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