Paying income tax is a right, not a burden. Here’s a detailed guide to help you calculate your income tax on salary, as follows:
Step One: Calculate your gross income
Your gross income is the total salary received before taxes and other deductions. This includes salary components like house rent allowance (HRA), leave travel allowance (LTA), special allowance, lunch allowance, training, mobile and internet allowance, etc.
Now, take out the exemptions you get under salary components, particularly HRA (only if you’re living in a rented apartment) and LTA, and you’ll arrive at your net salary.
Gross salary – (HRA & LTA) = Net Salary
Also, if you have any additional income from other sources such as rental income, interest earned from deposits, add that amount with the net salary.
Net salary + additional income
Step Two: Remove tax deductions
The Government of India allows standard deduction of INR 50,000 from the net salary of an employee.
Net salary – INR 50,000
Besides standard deduction, tax deductions can be claimed under following sections of the Income Tax Act, 1961.
- Section 80C: Taxpayers can claim up to INR 1.5 lakh of deduction from investments including Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), Employee Provident Fund (EPF), Sukanya Samriddhi Yojana (SSY), etc.
- Section 80CCD(1B): Additional tax benefits can be claimed up to INR 50,000 under Section 80CCD(1B), which pertains to the contributions made towards the National Pension Scheme (NPS).
- Section 80D: The Central Government provides provisions for taxpayers to claim deductions and benefits in respect to health insurance premium paid under Section 80D of the Income Tax Act.
- Section 80TTA: Tax deduction on the interest earned on an individual’s savings account with a bank, cooperative society or post office, can be claimed up to INR 10,000.
- Section 24: A deduction up to INR 2 lakh can be claimed on the interest paid on home loan in a financial year. Forbes Advisor India has prepared a detailed guide on how to avail home loan tax benefits.
- Section 80EE: Taxpayers can avail tax benefits on the interest portion up to INR 50,000 per financial year on home loan.
- Section 80E: Tax deduction of interest paid on education loan is allowed for tax deduction.
- Section 80G: Tax deduction on donations to a charitable organization above INR 2,000 can be made under Section 80G of the Income Tax Act, 1961.
Step Three: Tax deduction as per income tax slab
Once you’ve understood all tax deductions that can be claimed, your net taxable income is subject to taxation as per the income tax slab. There are two income tax slab options available, namely old and new tax regimes, for taxpayers to choose from.
Remember, the old tax regime allows taxpayers to avail of tax exemptions under close to 70 income tax deductions, like the ones mentioned above, available under various sections of the Income Tax Act. Whereas, rates on the new tax regime are fixed but offer lower tax rates than the former.
Income tax slab for financial year 2022-23 for taxpayers are as follows:
|NET ANNUAL INCOME RANGE||OLD REGIME TAX RATE||NEW REGIME TAX RATE|
|Up to INR 2.5 lakh||Nil||Nil|
|INR 2.5 lakh to INR 5 lakh||5% (tax rebate u/s 87A is available)||5% (tax rebate u/s 87A is available)|
|INR 5 lakh to INR 7.5 lakh||20%||10|
|INR 7.5 lakh to INR 10 lakh||20%||15%|
|INR 10 lakh to INR 12.5 lakh||30%||20%|
|INR 12.5 lakh to INR 15 lakh||30%||25%|
|Above INR 15 lakh||30%||30%|
Gross taxable Income – eligible deductions = Net taxable income
Benefits of Timely Filing of ITR
- ITR filing report of last three years is mandatory to avail loans from banks.
- Helps you avail refund on tax deduction at source (TDS) on investments and savings.
- Filing ITR enables taxpayers to carry forward losses of the current year to the next financial year.
- ITR report is a mandatory requirement for opening a current account.
- Filing ITR beyond the due date leads to the additional interest of 1% every month.
What are tax benefits under Section 80C of the IT Act?
Section 80C of the IT Act pertains to deduction from investment such as PPF, ELSS, EPF, and others up to INR 1.5 lakh.
I make a monthly contribution towards the NPS, am I eligible for tax benefits?
Section 80CCD(1B) of the IT Act allows taxpayers to claim up to INR 50,000, which pertains to the contributions made towards the National Pension Scheme (NPS).
I pay INR 15,000 as a health insurance premium, am I eligible for tax benefits?
As per Section 80D of the IT Act, the government provides provisions for taxpayers to claim deductions and benefits in respect to health insurance premium.
Is tax benefit available on a savings account?
The Section 80TTA of the IT Act allows an individual’s savings account with a bank, cooperative society or post office, to claim tax benefits up to INR 10,000.
What tax benefits do I get from a home loan?
Under Section 24, a taxpayer who has availed a home loan, deduction up to INR 2 lakh can be claimed on the interest paid in a financial year.
What happens if I do not pay the income tax?
Paying income tax is a right, not a burden. There are various tax benefits that can be availed from paying income tax, as mentioned above.