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Introduction

Every Indian Citizen earning income above a certain limit is required to pay income tax to the government. There are various deductions and rebates available to be claimed, that give some tax relief to all individuals and companies. The tax rates are divided into different tax slabs and tax is paid or deducted at source accordingly.

Tax is deducted at source for most salaried individuals. At the beginning of the financial year, they are required to submit various investments they have made to claim tax relief. After calculating relevant rebates, the companies calculate cumulative income tax liability for the year and deducts it from the salary on a pro-rata basis.

Why should I calculate my income tax liability?

As stated earlier, not every individual, who gets a salary, is liable to pay tax. Individuals can claim rebates and deductions under various sections of the Income Tax Act, that frees them from any tax liability. Hence, it is prudent to tax your liability at the beginning of every financial year, based on your projected salary for the coming year, to help you invest accordingly and reduce your tax liability.

How do I calculate my tax liability based on my salary?

“What is my Taxable Income?” is a common question that most salaried individuals ask at the beginning of every financial year. The answer can be found when you learn which components of your salary are taxable and which are not. In order to know that, you should have a look at your Monthly Salary Slip and find out the various components your salary is made of.

Here are some common components of your salary: 

  • Basic
  • HRA
  • Dearness Allowance (or just ‘Allowances’ in some cases)
  • LTA (Leave Travel Allowance)
  • Bonuses
  • Perks & Incentives
  • Special Allowances (Meal Cards, Driver Salary, Fuel Allowance, Phone Bills, etc.,)
  • Deductions (PF, Share Purchase Plan, Professional Tax, etc.,)

Your Net Taxable Income = Your Gross Annual Income – Deductions + Exemptions under relevant sections of the IT Act

Now, in order to calculate your Net Taxable Income, you need to learn the available rebates and deductions under the IT Act, 1961.

Deductions and Rebates on Income from Salary

  • Standard Deduction – First and foremost, you can deduct an amount of Rs.50,000 as standard deductions from your total salary before going to any other deductions. In the financial year 2018-19, the government came up with this standard deduction concept to do away with transport allowance of Rs. 19200 and medical reimbursement of Rs. 15,000 per annum. This was done to remove the hassle of producing bills and claiming reimbursements.
  • HRA – House Rent Allowance is an important part of deductions. Salaried people, who live in rented homes, may claim the House Rent Allowance (HRA) to lower their taxes – partly or entirely. The allowance is for expenses incurred on rented housing. If you don’t live in a rented house, you will be taxed fully on this component. The HRA deduction will be the lowest of the following amounts:
    • Actual HRA received
    • 50% of [basic salary + DA] for those living in metro cities or (40% for non-metros)
    • Actual rent paid less 10% of basic salary + DA
  • Deduct other non-taxable components. These non-taxable components are based on your company. You need to check your salary slip to find out the non-taxable components included in your salary. Here is a list of most common non-taxable components available for salaried individuals:
    • Employees Provident Fund (EPF)
    • Leave Travel Allowance (LTA)
    • Food Coupons/ Meal Cards
    • Car Maintenance Allowance
    • Children Education Allowance
    • Hostel Expenditure Allowance
    • Phone Bill Expenditure
    • Fuel Bill Reimbursements
    • Gift Voucher (Up to Rs.5000)
  • Then you deduct the various investments you have made in the year that will give you rebates under various sections of the IT Act, 1961. Some of the sections under which you can claim deductions are 80C, 80D, 80TTA, 80CCC, 80G, etc.
ITA SectionLimit for Tax DeductionType of investment, expense or incomeEligible claimants

80C

Maximum Rs. 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)

PPF (Public Provident Fund), EPF (Employee Provident Fund), ULIPs (Unit Linked Investment Plans) NPS (National Pension Scheme), ELSS (Equity Linked Saving Scheme), among others

Individuals, HUFs

80CCC

Maximum Rs. 1.5 lakh (aggregate of 80C, 80CCC and 80CCD)

Pension funds (annuity plan by a life insurance company), as defined under Section 10(23AAB)

Individuals

80CCD

80CCD1: Employee Contribution: Maximum Rs. 1.5 lakhs or deduction up to 10% of salary (for employees) or 20% of gross total income (if you are self-employed)

80CCD(1B): Self Contribution- Maximum Rs.50,000 for a deposit made to the NPS (National Pension Scheme) or your Atal Pension Yojana account

80CCD(2): Employer’s Contribution-

Additional deduction up to 10% of your salary

Pension fund initiated by central government

Individuals

80CCG

The deduction amount will be the lower of

50% of investment in equity shares

Rs. 25,000 for 3 successive Assessment Years

Rajiv Gandhi Equity Saving Scheme (RGESS) - In the process of being phased out

Individuals with income less than Rs. 12 lakhs

80DD

Maximum Rs. 75,000 for those with 40%-80% disability, and Rs.1.25 lakh for severe disability (80% or more)

Medical Expenses on Rehabilitation of Handicapped Dependent Relative

Individuals and HUFs with a handicapped relative dependent on them.

80DDB

Maximum of Rs. 40,000 for individuals (under 60 years) and up to Rs. 1 lakh for senior citizens (above 60 years)

Expenses for medical treatment of specific diseases for self or relative.

Individuals and HUFs

80E

Lesser of the two:

8 years from the year or beginning of loan repayment

Until the entire interest is paid off

Interest paid on Education loan taken for self, child or spouse

Individuals

80EE

Maximum Rs. 50,000

Deductions on Home Loan Interest for First Time Home Owners

Individuals

80G

Deductible up to 100% 0r 50%

Donations towards Social Causes

Individuals, HUF's, Companies, Firms

80GGB

100% of donations are eligible for deductions

Non-cash donations by a company to political parties registered under Section 29A of the Representation of People Act (REPA)

Indian companies

80GGC

Depends on quantum of donation

Non-cash donations by a person to political parties or electoral trusts.

Individuals

80GG

Rs. 5,000 per month, 25% of total income or rent minus 10% of adjusted gross total income, whichever is less

Deduction for House Rent Paid Where HRA is not Received

Individuals not receiving HRA

80RRB

Maximum Rs.3 lakhs

 

Income earned by way of royalty for a patent registered on or after 1st April, 2003 under the Patents Act 1970.

Resident Indian

80TTA

Maximum Rs. 10,000

Interest earned on a savings account (bank, co-operative society, or post office)

Individuals and HUFs

80TTB

Maximum Rs. 50,000 can be claimed

On income from deposits.

Senior Citizens (above 60 years)

80U

Rs.75,000 for severe disabilities (including blindness and mental retardation) up to Rs. 1 lakh

Medical expenses (nursing, training, rehabilitation,

specified caretaking scheme)

Individuals with disabilities.

Income Tax Slab Rates

Once you have deducted the relevant rebates and exemptions, you arrive at the Net Taxable Income. You can check the below Tax Slab table to find the applicable tax rate.

Individuals (Other than senior and super senior citizen)

Net Income Range

Rate of Income-tax

Assessment Year 2021-22

Assessment Year 2020-21

Up to Rs. 2,50,000

-

-

Rs. 2,50,000 to Rs. 5,00,000

5%

5%

Rs. 5,00,000 to Rs. 10,00,000

20%

20%

Above Rs. 10,00,000

30%

30%

New Tax Regime for F.Y. 2020-21

In the budget session of February, 2020, the Finance Minister announced a special, reduced Income Tax rate for individuals and HUFs who do not wish to claim any rebates for their Income Tax.

Total Income (Rs)

Rate

Up to 2,50,000

Nil

From 2,50,001 to 5,00,000

5%

From 5,00,001 to 7,50,000

10%

From 7,50,001 to 10,00,000

15%

From 10,00,001 to 12,50,000

20%

From 12,50,001 to 15,00,000

25%

Above 15,00,000

30%

Surcharge on Income Tax Amount

Surcharge is the amount levied on your income tax amount at following rates if total income of an assessee exceeds specified limits:

Range of Income

Assessment Year 2020-21

Rs. 50 Lakhs to Rs. 1 Crore

10%

Rs. 1 Crore to Rs. 2 Crores

15%

Rs. 2 Crores to Rs. 5 Crores

25%

Rs. 5 crores to Rs. 10 Crores

37%

Exceeding Rs. 10 Crores

37%

FAQs

1. What is the time period considered for the purpose of income tax?

Income-tax is based on a person's annual taxable income. The year under the Income-Tax Law is the period beginning on April 1st and ending on March 31st of next calendar year.

2. Is the due date for filing tax returns the same for all taxpayers?

No, not all taxpayers have the same due date. The due date for individual taxpayers is July 31st of the assessment year. However, for FY 2019-20, the due date to file income tax returns is extended till November 30th, 2020.

3. Where can I check on the various provisions introduced in the current Financial Act?

The CBDT issues circulars to clarify any questions concerning the provision of the Act from time to time. Such circulars have the primary function of providing information to the assessee and the officers.

4. Can I claim deductions under section 80C at the time of filing my returns if I have not submitted any proof to my employer?

You can claim the deductions as long as they have been made before 31st of March. The tax deducted at source shall be refunded correspondingly.

5. Can both the earning members of a family claim deduction for home loan taken in a joint name?

Yes, both the earning members of a family can individually claim maximum tax benefits for home loans taken in joint names. The interest on a home loan is eligible for a tax deduction of up to Rs. 2 lakhs in a year under Section 24B of the Income Tax Act. Additionally, the principal repayment qualifies for a deduction of up to Rs. 1.5 lakhs under Section 80C.

End Note

The Income Tax Act, 1961 lists a number of rebates and exemptions for salaried individuals to give them a comprehensive tax regime. The individuals can take advantage of many of these exemptions that allow them to save a considerable amount of money from their income.

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