Income Tax Calculator

To calculate the income tax, you need to calculate some other things first viz. total income, total taxable income and exemptions. After calculation of these things, you can calculate income tax payable.

Process of Tax calculation:

First step is basically the calculation of Total Income. Total income includes income from salary paid by the employer or employers in the certain financial year, income from house property plus any rental income, income from capital gains which include income from sale of assets like house and shares, income from business/ profession which may include income from freelancing and income from other sources which is very common like income from interest on savings account, FD and income from bonds.

Adding up these all incomes, you can reach the total income, the calculation of which is the first step towards tax calculation.

Second step is to calculate Gross Total Income. There are certain exemptions/ deductions which can be claimed on income but up to a specific limit. This means the exemption limit is straight away subtracted from the total income. The income left after exemptions is gross total income. The exemptions include:

  • Rs 1,80,000 on HRA
  • Rs 19,200 on transport allowance
  • Rs 12,000 on LTA
  • Certain amount on medical bills

*these rates are as per metropolitan cities

Third step is to calculate Gross Taxable Income. There are certain specified investment vehicles, investment on which gives an exemption from income tax. Hence these investments need to be lessened from the gross total income to arrive at Gross taxable income. The amount eligible for deductions with respect to investment types is as follows:

  • Rs.1,50,000 under section 80C which may include PPF, ELSS, LIC premiums, EPF, certain mutual funds, etc.
  • Rs 25,000 for self and Rs 30,000 for parents under section 80D for medical insurance premiums.
  • Rs 10,000 under section 80TTA for interest earned on savings account.

*there are many more such investment vehicles which can be claimed for exemption.

Last step is to calculate tax on the gross taxable income as per the given slabs of taxation. These slabs are:

  • Nil up to an income of Rs 2,50,000
  • 5% tax on income between Rs 2,50,000 and 5,00,000
  • 20% tax on income between 5,00,000 t0 10,00,000
  • 30% tax on income above 10,00,000
  • An additional cess of 3% is levied on tax amount calculated

Case: Mr Goud receives a basic salary of Rs 60,000 per month (pm), HRA of Rs 20,000 pm, transportation allowance of Rs 10,000 pm, special allowance of Rs 5,000 pm and an annual LTA of Rs 20,000. He pays Rs 10,000 as medical bills. He lives in Delhi and pays Rs 20,000 as rent. Apart from this, he earns Rs 12,500 as interest in savings bank account and Rs 20,000 as interest on FDs. He has also invested Rs 60,000 in PPF, Rs 50,000 in ELSS and pays Rs 60,000 as LIC premium. He also pays Rs 10,000 as medical insurance premium in a year.

The calculation of his tax is done as under:
  • Calculation of salary income: His salary income can be clubbed as a sum of basic, HRA, Transport Allowance, Special Allowance, LTA and Medical bills. After converting them to annual form, they come out to be:

    7,20,000+ 2,40,000+ 1,20,000+ 60,000+ 20,000+ 10,000 out of which HRA is exempted up to 1,80,000, TA up to 19,200, LTA up to 12,000 and medical bill reimbursement up to 10,000. This comes to be 11, 70,000 less 2, 21,200 = 9, 48,800(A).

  • Calculation of income from other sources: the income from other sources in this case will be 9,500+ 20,000 = 29,500(B).
  • Calculation of investments eligible for deductions u/s 80C, 80D, 80TTA: The amount u/s 80C comes out to be 60,000+ 50,000+ 60,000 = 1, 70,000, but a maximum of Rs 1, 50,000 are allowed. Then under medical insurance he can claim 10,000 and a maximum of 10,000 for saving fund interest.
  • Calculation of gross taxable income: This can be arrived upon as under:
    Nature Amount Total
    Income from Salary 9,48,800  
    Income from Other Sources 29,500  
    Gross Total Income   9,78,300
    80C 1,50,000  
    80D 10,000  
    80TTA 10,000 1,70,000
    Gross Taxable Income   8,08,300
  • Calculation of Income tax for Mr. Goud:
    Up to Rs 2,50,000 exempted 0
    Rs 2,50,000 to Rs 5,00,000 10% of Rs 5,00,000 less Rs 2,50,000 25,000
    Rs 5,00,000 to Rs 10,00,000 20% of Rs 8,08,300 less Rs 5,00,000 61,660
    More than Rs 10,00,000 30%, but nil for this case 0
    Cess 3% of total tax (3% of Rs 25,000 + Rs 61,660) 2,600
    Total Income Tax   89,260