All Indian citizens are required to pay income tax on their taxable income. Sadly, a vast majority of tax-payers find the entire tax calculation process overwhelming and confusing. Worry not, this guide will simplify income tax calculations for you. We explain how to calculate the payable taxes on your income, without any complicating jargon. Let’s get started.
How to calculate income tax?
To start the calculation, you need to determine your overall income. For salaried persons, your income is the sum of
Basic salary + HRA (Home Rent Allowance) + Transport Allowance + Special Allowance + Other Allowances (if any)
Note that specific components of your salary like travel allowance, telephone bills are exempt from tax. Similarly, if you live in a rented house, you can claim an exemption on the house rent allowance.
Besides these standard exemptions, all individuals can claim a standard deduction of Rs. 40,000 from their total income. The standard deduction amount was increased to Rs. 50,000 in the Union Budget of 2019. However, note that if you opt for the latest tax regime that was introduced in the latest Union Budget, you cannot claim any tax exemptions.
For non-salaried individuals, business people, self-employed professionals, your taxable income is the total income earned from your profession as well as income from other sources. Income from other sources can include rental income, income derived from dividends and investments, etc.
To calculate income tax, an individual has to include income from all sources like:
Salary paid by the employer
Income from house property – this includes rental income, interest paid on home loans, etc.
Income from a business, profession or freelance work
Income from capital gains like sale of the property, purchase of shares, mutual funds, etc.
Income from other sources like fixed deposit interest, savings account interest, interest from bonds, etc.
The Income Tax Act of 1961 stipulates that the amount of tax payable by an individual is a percentage of the overall income earned by that person in a year. The government sets different tax rates for different income levels. The tax rate may be altered in the annual union budget announcements.
Income Tax Slabs for FY 2019 – 20
The income tax slabs for the fiscal year beginning from 1st April 2019 to 31st March 2020 is as follows. Note that the income tax slabs vary based on the age of the tax-payer.
|Income Tax Slabs||For Individuals Aged below 60 Years|
|Annual income up to Rs. 2,50,000||NIL|
|Annual income from Rs. 2,50,001 to Rs. 5,00,000||5% of total income above Rs. 2,50,000|
|Annual income from Rs. 5,00,001 to Rs. 10,00,000||Income tax of Rs. 12,500 for income up to Rs. 5 lakhs + 20% of income above Rs. 5,00,000|
|Annual income above Rs. 10,00,000||Income tax of Rs. 1,12,500 for income up to Rs. 10 lakhs + 30% of income above Rs. 10,00,000|
|Income Tax Slabs||For Senior Citizens Aged above 60 Years and lesser than 80 Years|
|Annual income up to Rs. 3,00,000||NIL|
|Annual income from Rs. 3,00,001 to Rs. 5,00,000||5% of total income above Rs. 3,00,000|
|Annual income from Rs. 5,00,001 to Rs. 10,00,000||Income tax of Rs. 10,000 for income up to Rs. 5 lakhs + 20% of income above Rs. 5,00,000|
|Annual income above Rs. 10,00,000||Income tax of Rs. 1,10,000 for income up to Rs. 10 lakhs + 30% of income above Rs. 10,00,000|
|Income Tax Slabs||For Super Seniors Aged above 80 Years|
|Annual income up to Rs. 5,00,000||NIL|
|Annual income from Rs. 5,00,001 to Rs. 10,00,000||20% of income above Rs. 5,00,000|
|Annual income above Rs. 10,00,000||Income tax of Rs. 1,00,000 for income up to Rs. 10 lakhs + 30% of income above Rs. 10,00,000|
A few points to understand:
The income tax rates are calculated based on the annual income. Cess and surcharge are added to the payable tax.
The surcharge is also calculated based on income slabs.
For individuals earning between Rs. 50 lakhs and Rs. 1 crore annually, the surcharge is 10%
For individuals earning between Rs. 1 crore and Rs. 2 crores annually, the surcharge is 15%
The Union Budget of 2019 – 20 introduced a new surcharge for super-rich individuals.
For individuals earning between Rs. 2 crores and Rs. 5 crores annually, the surcharge is 25%
For individuals earning above Rs. 5 crores annually, the surcharge is 37%
Besides the surcharge, cess of 4% is applied to health and education.
Individuals can claim deductions up to Rs. 1,50,000 for various investments like PPF, NPS, tax-saving FDs under Section 80C of the ITA. Additionally, investments in NPS are eligible for an additional deduction up to Rs. 50,000 under Section 80 CCD (1B).
Allowed Deductions on Gross Total Income include:
Deductions under Section 80C – A maximum of up to Rs. 1.5 lakhs on investments made in public provident funds (PPF), tax-saving FDs, allowed life insurance plans, national pension system (NPS), unit-linked insurance plans (ULIPs), retirement mutual funds, etc.
Deductions under Section 80D – Allows for deductions up to Rs. 25,000 for medical insurance premium paid for self, spouse, and children.
Deduction under Section 80TTA – Allows for deductions up to Rs. 10,000 for interest received from savings accounts. However, note that this deduction is only available for individual tax-payers and HUFs (Hindu Undivided Families).
As per Section 87A of the ITA, individuals whose total annual income falls below Rs. 5,00,000 can enjoy a tax rebate of Rs. 12,500. This means they don't have to pay any taxes. However, note that even if you don't pay any taxes, you have to file your returns if your income is over Rs. 2,50,000. Note that individuals whose total income exceed Rs. 5 lakh do not get any rebates under Section 87A.
Income Tax Slabs for FY 2020 – 21
The Union Budget of 2020 introduced a new tax regime. However, note that the new tax regime is optional and tax-payers can opt for either one.
|Income Tax Slabs under the New Tax Regime|
|Annual income up to Rs. 2,50,000||NIL|
|Annual income from Rs. 2,50,001 to Rs. 5,00,000||5% (Tax rebate of Rs. 12,500 available under Section 87A)|
|Annual income from Rs. 5,00,001 to Rs. 7,50,000||10%|
|Annual income from Rs. 7,50,001 to Rs. 10,00,000||15%|
|Annual income from Rs. 10,00,001 to Rs. 12,50,000||20%|
|Annual income from Rs. 12,50,001 to Rs. 15,00,000||25%|
|Annual income above Rs. 15,00,000||30%|
Note that individuals opting for the new tax regime will have to give up the various deductions previously available under the old tax regime like – HRA, relocation allowance, conveyance, Section 80C, 80D, 80E, etc.
Income Tax Calculation – Illustration
Let's understand the income tax calculation better with an example. Let's calculate the income tax for Dushyant, who earns a basic salary of Rs. 1 lakh per month. He receives home rent allowance of Rs. 50,000 and a special allowance of Rs. 21,000 monthly. He also gets a leave travel allowance of Rs. 20,000 annually. His home rent is Rs. 40,000 per month.
|Income Type||Annual Earnings||Exemption/Deductions under the old tax regime||Taxable income under the Old Regime||Taxable income under the New Regime|
|Basic Salary||Rs. 12,00,000||NIL||Rs. 12,00,000||Rs. 12,00,000|
|HRA||Rs. 6,00,000||Rs. 3,60,000||Rs. 2,40,000||Rs. 6,00,000|
|Special Allowance||Rs. 2,52,000||NIL||Rs. 2,52,000||Rs. 2,52,000|
|LTA||Rs. 20,000||Rs. 12,000 (based on the number of bills submitted)||Rs. 8000||Rs. 20,000|
|Standard Deduction||Rs. 50,000||Rs. 50,000||NIL|
|Gross Total Income (after Deductions)||Rs. 16,50,000||Rs.20,72,000|
Once the total gross income is calculated, tax-payers can arrive at their gross taxable income after deductions under various Sections like 80C, 80CCD, 80D, etc. The process of calculating one's payable income tax can be simplified by using an online calculator.
Use an Online Income Tax Calculator to Simplify the Calculation
There are multiple online calculators to help you determine the taxable income and the tax payable. Once you input the necessary details like – your age bracket, annual salary, and the exemptions allowed like - investments made under Section 80C, 80CCD, 80D, HRA exemption (if you live in a rented property), home loan, educational loan, etc. The calculator gives you an estimate of the taxable income and the tax payable within a few minutes.