Income Tax Calculation – How To Calculate, Tax Slabs & Exemptions

Want to calculate your income tax, but don’t know where to start? Don’t worry, you are not alone. Most people seem to be unaware of how income tax is to be calculated and often consider it to be a difficult and tedious task. However, it does not have to be so. There are a few basic and simple things that you need to know and you can calculate the tax. Thanks to the online income tax calculator, you can do that in a quick and easy way, that too in just a few clicks.

Online Income Tax Calculator

Anyone who receives an income by means of the profession, business, or other sources is liable to pay a specific portion of his/ her income in the form of income tax to the central government.

The Income Tax Calculator is a tool online designed to help individuals in their income tax calculations for a financial year. The IT calculator asks for the employee’s data like salary, HRA, deductions, etc and calculates an approximate amount of the income tax liability that is to be paid by the person.

What are the steps involved in the income tax calculation?

To calculate your income tax liability for a financial year, you can follow the steps stated below:

1. Select the assessment year for whichincome tax calculationis to be done.
2. Choose your age bracket, as in India tax liability differs for different age groups.
3. Next, click on the income field and enter your salary along with your other annual income such as income for interests, income from rent, the interest portion paid on home loans, any loan taken for rental property, etc.
4. Next, you may want to enter the details of your investments for tax-saving U/S 80C, 80G, 80D, 80E as well as 80TTA in case you are following the old tax regime.
5. Finally, click on the ‘Calculate’ button to find out your income tax liability to be settled.
   

Calculating income tax on salary with an example :

Income from salary is the inclusion of basic salary, house rent allowance, conveyance allowance, and other allowances, wherein some of the components of salary are eligible for tax exemption.

Here’s an example to understand income tax calculation for salaried employees:

Rahul Pathak is a 29-year-old male from Delhi, working in an IT Firm. Here’s the information of his annual salary with its components:

• Basic salary: INR 12,00,000
• HRA: INR 6,00,000
• Special Allowance: INR 2,52,000
• Leave Travel Allowance: INR 20,000

Rahul lives on rent and pays a monthly rent of INR 40,000

Rahul earns an annual interest from the following:

• Savings accounts: INR 8,000
• Fixed deposits: INR 12,000
• He has also made some tax-saving investments:
• PPF investment: INR 50,000
• LIC premium: INR 8,000
• ELSS: INR 20,000
• Medical insurance: INR 12,000

Given below are the deductions that Rahul can avail:

Gross taxable income calculation according to the Old Tax Regime:

Gross taxable income calculation according to the new regime :

Different Income tax slabs in India:

Income tax slabs in India are made to show the amount of income tax liability to be paid by an individual based on his total revenue. The tables below show the tax rates for the financial year 2020-2021:

Tax slab for Individuals, Hindu Undivided families (HUFs), and NRIs:

For senior citizens (above the age of 60 years)

For super senior citizens (above the age of 80 years)

What are the different sources of Income for an Individual?

According to the regulations made under Section 14 of the Income Tax Act, 1961 an individual can only have a total of five sources of earning revenue at all points of time. These sources as fixed by the Income Tax Department of India are:

• Income from salary
• Income from capital gains
• Income from house property
• Income from business
• Income from other sources

Income from Salary:

The first head of the sources of income allowed is the income from salary. The Income Tax calculator can be used efficiently to calculate the entire amount for you.

Every employee is provided with Form 16 by the employer which includes a TDS certificate. This TDS certificate can be used to calculate your income from salary. The process is as follows:

1. Collect all your salary slips and Form 16 for the ongoing financial year. Look for all the stipends and allowances (basic salary, TA, DA, HRA, other allowances) provided to you in your salary slips and Form 16 and add them together. Also, add your bonus to the final amount.
2. The total amount after the summation of all these values will be your gross income.
3. Deduct HRA exemption and transport allowance from your gross income amount.
4. The resulting amount will give you your net income.
   

Income from House Property:

The second head of the sources of income allowed is income from house property. This is the computation of earnings of an individual from the rental income if he owns a land and house property. An individual will calculate his income from the property, where he only possesses the ownership of single property and that too is self-occupied.

To calculate the Gross Annual Value (GAV) for your rented house :

1. Find out the Fair Market value (FMV) and the valuation estimated by the Municipal Corporation, and then choose the amount with a higher value. This will be the expected rent for your property.
2. Compare the above-mentioned expected rent with the actual rent you receive. This will give you the gross annual value for your property.
3. The net annual value for the property can be computed by deducting the already paid taxes for the property from the gross annual value.
   

Explain Income from Capital Gains:

A property that is held by an assessee for professional or business purposes is called capital gains. When the assessee sells or transforms his capital asset which was held as an investment, he gains profit.

Calculations of income from capital gains can be done through the following steps:

1. Compute your long-term capital gains from your total sale of assets.
2. Compute your short-term capital gains from your total sale of assets.
3. Claim your deductions after these steps.

Income from Business:

Income from business and profession simply translates to any revenue shown by an assessee in the profit and loss account of a business entity after considering all the expenditures. Any revenue earned whether positive or negative is taxable. It’s mandatory for all business entity holders to file their income tax returns before 31st July of the ongoing assessment year.

Income from other sources:

1. Income that is not eligible for exemption but cannot be placed under heads like salary, income from capital gains, house property, business/profession is kept under the heading of income from other sources.
2. All the dividends received are mentioned under this head
3. Interest earned from deposits and bonds are mentioned under this heading
4. One-time income like winning a lottery, game, racing, gambling, or betting is mentioned under this head.
5. Gifts received in the form of money or property and are eligible for taxation are kept under this head
   

What are the exemptions on total income tax?

A rebate in the total income tax liability can be availed of, under the following sections:

1. Section 87A
   A rebate of INR 12,500 on income below INR 5 lakhs.
2. Section 80 C
   A rebate up to INR 1.5 lakhs on investing in any tax-saving fixed deposits, PPF, National Saving Certificate, etc.
3. Section 80 CCD
   Individuals who have invested in the National Pension Scheme are eligible to avail of a tax exemption up to INR 2 lakhs.
4. Section 80 D
   Tax exemptions on the payment of medical insurance premium, wherein INR 25,000 is applicable for self and INR 50,000 for parents.
5. Section 80 E
   If contributing to charity, the amount will be fully exempted from tax calculations.
6. Section 80 G
   A rebate of 100% on the interests of an education loan for a period of 8 years.
7. Section 80 TTA
   Interest earned from a savings account would be eligible for tax benefits up to INR 10,000. Seniors would be eligible for tax waivers of interest income up to INR 50,000.
8. Section 80 GG
   Tax exemption on the House Rent Allowance.