How To Calculate Income Tax on Salary
The Government of India provides provisions for taxpayers to claim deductions and benefits from their taxable income or salary, and mandates to file income tax return (ITR) within a stipulated date to avert charges or penal actions.
In this context, understanding the process of
calculating income tax on salary provides employees with an estimation of the
taxable income, deduction, and tax payable.
Forbes Advisor India has prepared a detailed guide in respect to calculation of income tax on salary as it can have great significance in one’s tax planning and personal finance.
Step by Step Calculation of Income Tax on Salary
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. However, as per the announcement made in the Union
Budget 2023-24, the tax rebate limit under the new tax regime has been increased
to INR 7 lakh from INR 5 lakh. Moreover, the new income tax regime will be a
default regime from now onwards, but taxpayers will have the option to choose
the old regime.
Let’s have a look at the Income tax slab for the financial year 2023- 24 for taxpayers are as follows:
New Tax Regime 2023-24 (Default)
|
Net Annual Income Range |
New Regime Tax Rate |
|
INR 0-3 lakh |
Nil |
|
INR
3-6 lakh |
5% |
|
INR 6-9 lakh |
10% |
|
INR
9-12 lakh |
15% |
|
INR 12-15 |
20% |
|
Above
INR 15 lakh |
30% |
Old Tax Regime
|
Net Annual Income Range
|
New Regime Tax Rate |
|
Up to INR 2.5 lakh |
Nil |
|
INR
2.5 lakh to INR 5 lakh |
5% |
|
INR 5 lakh to INR 7.5 lakh |
20% |
|
INR
7.5 lakh to INR 10 lakh |
20% |
|
INR 10 lakh to INR 12.5 lakh |
30% |
|
INR
12.5 lakh to INR 15 lakh |
30% |
|
Above INR 15 lakh |
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.
How to Pay Income Tax Using Income Tax
E-Filing Portal
Every salaried individual whose income is
taxable must file their Income Tax Returns (ITR). While there is various income
tax filing software as well as banking apps to help taxpayers file their ITR
online, the official website of the Income Tax Department has made the process
easier and seamless.
Note: New taxpayers need to register their PAN card and mobile number to create a login username and password, and follow the process to file their income tax return:
Log in to the e-filing portal (https://www.incometax.gov.in /iec/foportal/) using user ID and password
·
On the dashboard,
click on “e-File” and select “e-Pay Tax”
·
Click on “New
Payment”
·
Select the
“Assessment Year”
·
Select “Type of
payment (minor head)”
·
Add the “tax
break-up” details
·
Pay the tax using
banking credentials of either net banking, debit card, NEFT/RTGS, or authorized
