Trusted by 2 Million+ Users
4.8 Star User Rating
Secure & Safe
Calculating income tax in India can be complex and intimidating, especially for salaried individuals. However, it's a crucial aspect of managing personal finances. The process involves determining taxable salary, applicable tax rates, and accounting for exemptions and deductions. Understanding this process empowers individuals to plan their finances efficiently and stay compliant with tax laws.
Tax2win has introduced the Income Tax Calculator after looking at the hardships faced by people that help you easily estimate your tax refund or tax payable to the government. Tax2win income tax calculator calculates taxes on the basis of the latest provisions of the Income Tax Act and rules issued by the Income Tax Department.
In this guide, we will provide a step-by-step explanation of how to calculate income tax on salary, along with an example to illustrate the process.
According to the Income Tax Act of 1961, every salaried person must pay an amount from their salary as tax to the country. This amount of tax is called income tax. The law consists of many provisions and variations with subsections describing the details of tax payments, deductions, and computations. A lot of deductions under subsections 80C to 80U are available. After subtracting all the available tax-saving provisions and deductions, the final amount is paid to the government as the income tax on salary.
Calculating income tax on salary in India involves several steps. Here's a simplified overview of the process:
Calculation of the income tax is very easy. The formula is for the old tax regime:
Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance -------------------------------------- Gross income from salary (-) Exemptions and Deductions -------------------------------------- Net taxable income (Tax calculated according to the income tax slab)
Example
If Mr. Bajaj (non-government employee) has a salary of Rs. 25,000 per month with DA of Rs. 4500 per month, entertainment allowance of Rs. 2250 per month, and pays Rs. 3500 towards professional tax, then his taxable income would be calculated as follows:
| Basic Salary | 25000 * 12 | = 3,00,000 |
| DA | 4500 * 12 | = 54,000 |
| EA | 2250 * 12 | = 27,000 |
| Gross Salary | = 3,81,000 | |
| Standard deduction | (50,000) | |
| Professional Tax | (3500) | |
| Net income | 3,27,500 |
*Entertainment allowance exemption not available in case of non- government employees.
As his taxable income is Rs. 3,27,500 he falls in the slab of 2.5 lakhs – 5 lakhs of income tax as per the old tax regime. Thus he has to pay 5% of his net income as income tax + 4% cess.
Income tax on the above net income
=4030/- but rebate u/s 87A is allowed upto Rs 12,500/- for income less than Rs 5 lakhs therefore no tax on income of Rs 3,27,500/-
Tax calculation for various income sources
Further, check out the calculations below for different income groups to reduce the maximum amounts on your taxes:-
| Gross Salary | 10,00,000 |
| Less: Exemptions | |
| HRA | 1,50,000 |
| LTA | 50,000 |
| Reimbursements | 32,000 |
| Children’s education and hostel allowance | 8,500 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 7,07,100 |
|---|---|
| Less: Deductions | |
| 80C | 1,50,000 |
| 80D | 30,000 |
| 80E | 27,500 |
| Net Taxable Income | 4,99,600 |
| Tax on the above income | 12,480 |
| Rebate u/s 87A (Individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500.) | -12,480 |
| Additionally, you are eligible to claim these:- | |
| Interest on home loan deduction u/s 24b | 2,00,000 |
| Home loan 80EEA | 1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | 50,000 |
| Gross Salary | 2,000,000 |
| Less: | |
| HRA | 200,000 |
| LTA | 40,000 |
| Reimbursements | 24,500 |
| Children's education and hostel allowance | 9,600 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 1673,500 |
| Less: Deductions | |
| 80C (Refer to Note below) | 150,000 |
| 80D | 50,000 |
| 80E | 22,000 |
| Net Taxable Income | 14,51,500 |
| Tax on the above income | 2,57,868 |
| Rebate u/s 87A | Not applicable |
| Total Tax | 2,57,868 |
| Apart from this, you can also claim these tax deductions if eligible: | |
| Interest on home loan EMIs under Section 24b | -2,00,000 |
| Principal amount of the home loan under section 80EEA | -1,50,000 |
| National Pension Scheme (NPS) investments u/s 80CCD(1B) | -50,000 |
| Gross Salary | 5000000 |
| Less: Exemptions | |
| HRA | 320000 |
| LTA | 80,000 |
| Reimbursements | 52,000 |
| Children education and hostel allowance | 9,600 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 44,86,000 |
| Less: Deductions | |
| 80C (Refer Note below) | 1,50,000 |
| 80D | 50,000 |
| 80E | 22,000 |
| Net Taxable Income | 42,64,000 |
| Tax on the above income | 11,35,368 |
| Rebate u/s 87A | Not applicable |
| Total Tax | 11,35,368 |
| Individuals can also claim these deductions: | |
| Interest on home loan deduction u/s 24b | -2,00,000 |
| Home loan 80EEA | -1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | -50,000 |
Calculating income tax on salary can indeed be a complex process for a salaried individual, especially if they are filing for the first time. But worry not; with Tax2win as a salaried individual, it is very easy and quick to file the ITR. Our Income Tax Calculator tool computes your income tax liability based on the inputs provided, such as salary details, deductions, etc. The income tax calculator will display the calculated income tax liability, including the total tax payable and any tax refunds you may be eligible for.
While calculating income tax, a few basic terminologies should be kept in mind. Here’s a list:
| Income Source | Description |
|---|---|
| Income from Salary | All income you receive from your job like salary, leave encashment, allowances, and so on. |
| Income from House Property | Income from house or land (rented or self-occupied) |
| Income from Business/Profession | Earnings from business or profession |
| Income from Capital Gains | Earnings from the sale of a capital asset |
| Income from other sources | Residual income like earnings from the fixed deposit, gifts, pension, etc. |
| Income Slab | Tax Rate |
|---|---|
| Up to 2.5 lakhs | None |
| 2.5 lakhs – 5 lakhs | 10% of exceeding amount |
| 5 lakhs – 10 lakhs | 20% of the exceeding amount |
| Above 10 lakhs | 30% of the exceeding amount |
| Tax Slab | Tax Rate |
|---|---|
| Upto Rs 3,00,000 | Nil |
| Rs. 3,00,001-6,00,000 | 5% |
| Rs. 6,00,001-9,00,000 | 10% |
| Rs. 9,00,001-12,00,000 | 15% |
| Rs. 12,00,01-15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
To reduce taxes, it is highly important to understand the salary structure:-
Every citizen wants to increase their income and, at the same time, pay less tax. There are some ways to do this. These tax-saving methods save money for your future and also save a significant amount on income tax. Some of the most popular tax savings instruments are
These deductions are:
| Section | Maximum Limit | Deductions |
|---|---|---|
| Section: 80C | 1,50,000 | ULIP, ELSS, NSC(National Saving Certificate), the Employee share of PF, LIC Premium, Children’s tuition fees, Home loan principal repayment, 5-year tax saving FD, purchasing of a deferred annuity, Senior citizen’s saving scheme (SCSS), Sukanya Samriddhi Yojana (SSY), Pension fund set up by UTI or mutual fund, annuity plan of LIC, Subscription to Home Loan Account |
| Section: 80CCC | NA | |
| Section: 80CCC | NA | On the amount deposited in the annuity plan of LIC or any other insurance plan for a pension fund. |
| Section: 80CCD(1) | - 1,50,000 -10% of salary (in case the taxpayer is an employee) -20% of gross total income (in case of self-employed) Least of the above |
Employee’s contribution to NPS account |
| 80CCD(2) | 10% salary | Employer’s contribution to NPS |
| Section: 80CCD(1b) | 50,000 | Any other contribution to NPS by employee |
| 80TTA(1) | 10,000 | Income from interest earned on savings account |
| 80TTB | 50,000 | Interest received from banks, post office, etc. but applicable only to senior citizens |
| Section: 80GG | 5000 per month / 25% of adjusted total income rent paid – 10% of adjusted total income (W.E.L.) |
For rent paid when HRA is not received from an employer |
| Section: 80E | Amount equal to the interest paid every year (for a maximum 8 years) | Interest paid on education loan |
| Section: 80EE | 50,000 | Interest paid on home loans by the first time homeowners subject to specified conditions |
| Section: 80D | 25,000 | Medical insurance of self, spouse and children |
| Section: 80D | 50,000 | Medical insurance of parents over 60 years or uninsured parents over 80 years of age. |
| 80DD | 75,000 | Medical treatment of handicapped dependent |
| Section: 80DD | 75,000 (40%-80% disability), ` 1,25,000 (more than 80%) | Payment made to specific scheme taken for the maintenance of handicapped dependent |
| Section: 80DDB | 40,000 or the amount paid (w.e.l.) | Medical expense on self or dependent less than 60 years old |
| Section: 80DDB | 1,00,000 or the amount paid (w.e.l.) | Medical expense on self or dependent more than 60 years old |
| Section: 80U | 1,25,000 (severe disability), ` 75,000 (less severe disability) | Self-suffering from physical disability including blindness and mental instability |
| Section 80 G | NA | various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction |
| Section: 80GGB | Contributed amount (Not in cash) | Contribution made to political parties by companies |
| Section: 80GGC | Contributed amount (Not in cash) | Contribution made to political parties by individuals |
| Section: 80RRB | Income received / Rs 3,00,000 (w.e.l.) | Income received from royalty or patent |
Calculating salary income and filing it correctly in the ITR can be tedious, especially for laymen. But don’t worry; tax filing is now extremely easy with Tax2win. If you are also among those who find taxes complicated, get assistance from an online CA to help smoothen the ITR filing process. Book eCA Now!
Income tax on salary is calculated based on the income earned and the applicable tax rates. The tax rates are determined by the government and are based on income slabs. The income tax calculation is done based on the following formula: Taxable Income = Gross Salary - Deductions; Income Tax = (Taxable Income x Applicable Tax Rate) - Tax Rebate.
Gross salary is the total salary earned by an individual before any deductions or taxes are applied. It includes basic salary, allowances, bonuses, and other benefits.
Deductions from salary are amounts that are subtracted from an individual's gross salary before income tax is calculated. These include contributions to provident fund, health insurance, and other deductions as per the applicable laws.
If your gross total income exceeds the limit of the exemption limit, then you are liable to pay the income tax.
Additionally, if you have the following you must file an ITR:
To boost your in-hand salary, you can use India’s first tax planning optimizer tool that plans your investments and saves more money using recommendations provided by the tool. For instance, if you are still determining the most suitable tax regime, it will suggest the most tax-effective tax regime based on your income and investments. This tool will also analyze the additional deductions you can further avail to obtain tax relief and get a higher in-hand salary.
The new tax regime doesn’t include all the deductions and exemptions that the old regime contained. However, with the new tax regime, the tax rates are further reduced, So it totally depends on your choice which regime will suit you the best.
