5 Easy Steps To Calculate Your Income Tax - GADGET-INNOVATIONS

Everyone of us know Income Tax is the tax levied by the government on an individual’s income. It is often looked as a necessary evil and given our country’s ever-changing tax laws, calculating tax considering exemptions, rebates, deductions, etc. can be overwhelming to a beginner. Most of the time, we do not even realize what portion of our income is being taxed, and how we can save some money!


The term ‘individual’ in the context of income tax applies to a person, Hindu Undivided Family, company, co-operative societies and trusts. And, the tax slabs are decided based on one’s income and age. Taxable income is the income of an individual minus tax exemptions, deductions and rebate.



Step 1: Calculate Your Gross Income

If you are a salaried individual, write down your annual gross salary. This will include all the components of your salary including House Rent Allowance (HRA), Leave Travel Allowance (LTA) and special allowances, like food coupons and mobile reimbursements etc. Next, take out the exemptions provided on the salary components. The major exemptions you get are HRA i.e. House Rent Allowance and LTA i.e. Leave Travel Allowance.



For HRA, remember you can claim HRA ONLY if you live in a rented house. If you have your own accommodation or live with your parents, then HRA is fully taxable. Also, your tax exemption under HRA is taken as the lowest of the following amounts:



After this, remove the standard deduction of Rs 50,000 (every salaried individual is entitled to this deduction) to arrive at the net salary amount. Next, you need to add income that you might have received from other sources. This could be rental income, interest earned from deposits, capital gains you might have received et

The amount you arrive at is your gross total income.


Step 2 – Arrive At Your Net Taxable Income By Removing All Deductions


Tax deductions allow you to reduce your taxable income further by investing, saving or spending on certain items. First is the Standard Deduction of Rs 50,000, which can be availed by all, without making investment or expenditure on any defined products.



Under Section 80C, which is the biggest pool for deduction, you can claim up to Rs 1.5 lakh deduction for various investment and expenditure. Investments in PPF, ELSS Mutual Funds, EPF, Sukanya Smriddhi Yojana, premium paid for term insurance are some of the most popular ways to claim this deduction. If you have a home loan, the principal amount paid back in the year can be claimed as deduction under this section. Further your EPF, which is a part of your salary, falls in the category.



If you are investing in NPS, you can claim another Rs 50,000 deduction under Section 80CCD(1B), which is over and above the Rs 1.5 lakh limit under Section 80C. Apart from this, if you have paid premiums towards the health insurance policy of your family and your parents, you can claim that amount as deduction under Section 80D.



In case of a home loan, the interest portion of the EMI paid for the financial year can be claimed as a deduction, up to a maximum of Rs 2 lakh, under Section 24. Again, this is over and above the deduction on the principal amount under Section 80C.



Step 3: Arriving At Your Net Taxable Income


By subtracting all the eligible deductions from the gross taxable income, you will arrive at your total income on which you need to pay tax basis your tax slab. We will now get into the crucial step of calculating your tax.



STEP 4 – Calculate Your Taxes


Now, one pays tax on his/her net taxable income. For the first Rs. 2.5 lakh of your taxable income you pay zero tax. For the next Rs. 2.5 lakhs you pay 5% i.e. Rs 12,500. For the next 5 lakhs you pay 20% i.e. Rs 1,00,000 and for your taxable income part which exceeds Rs. 10 lakhs you pay 30% on entire amount.



Step 5: Consolidate Your Net Tax


Rebate under Sec 87A: Tax rebate is a form of tax incentive provided by the government to individuals earning an income below a specified limit. In case your total taxable income after deductions doesn’t exceed Rs 5 lakh, you can claim rebate under Sec 87A of Rs 12,500.


Now if your taxable income is more than Rs 5 lakh, you can add the health and education cess of 4 percent to your tax amount to see the final amount you will pay. For people in the very high-income bracket, i.e. between Rs 50 lakh and Rs 1 crore, they need to pay a surcharge of 10 percent. And, for income between Rs 1 and Rs 2 crore, the surcharge is 20 percent.


You have now arrived at your final income tax amount.



By : ETMONEY COO & Head of Marketing Mr Santosh Navlani