At the end of each financial year, employees and businesses have only one think on their minds, how income tax should they pay?
How will they calculate this with so many things to keep in mind? There is an easy solution to this problem, Income tax calculators.
What is Income Tax Calculator?
The income calculator is an easy-to-use online tool application that lets you calculate/estimate the income tax for a financial year after the union budget is presented and income tax slabs are decided.
Before using any income tax calculator, ensure that they are programmed for the lasted budget.
How to Calculate Income tax in FY 2020-21?
For the year 2020, the Financial Minister declared the union budget on 1st February 2020. For a salaried employee, their salary slip comprises of various components of their salary.
The total salary is a summation of basic salary, HRA, transportation allowance, special allowance, and any other kind of allowances. The Income Tax Act offers various exempt from salary like rent allowance, leave travel allowance, etc.
Further, the government has also incorporated a standard deduction of Rs. 50,000 from all employees irrespective of their total income. It is important to note, that if someone opts for a new tax regime then various exemptions will not be applicable to them.
The new Union Budget has launched an additional tax regime scheme where individuals can opt to forgo some exemptions and deductions. This simplified regime has different tax slabs and co-exist with the traditional regime.
An individual can choose from both the regimes whichever suits their requirements better. Below are the new tax slabs and their corresponding tax rates:
| Income Tax Slab | Tax Slab Rate |
| Up to Rs. 2.5 lakh | Nil |
| Between Rs. 2.5 lakh – Rs. 5 lakh | 5% |
| Between Rs. 5 lakh – Rs. 7.5 lakh | 10% |
| Between Rs. 7.5 lakh – Rs. 10 lakh | 15% |
| Between Rs. 10 lakh – Rs. 12.5 lakh | 20% |
| Between Rs. 12.5 lakh – Rs. 15 lakh | 25% |
| Exceeding Rs. 15 lakh | 30% |
Individuals opting for the new tax regime will not be entitled to below-mentioned exemptions and deductions:
- Leave travel concession
- House rent allowance
- Allowances to MLAs/MPs
- Allowances for the income of a minor
- The standard deduction, entertainment deduction and basic employee tax
- Donations for some cause or scientific expenditure for research purposes
- Deduction from family pension
However, they will be entitled to the following exemptions:
- Transport and conveyance allowance
- Any travel expenditure on a tour or on transfer
- Daily allowance to meet ordinary daily requirements if the employee is not at the place of work
Calculating the income with so many components can become a tricky business and prone to errors.
The online available income tax calculators make this task fairly easy for everyone. By filling in required information fields, the calculator gives an estimated idea of payable income tax. The information required to calculate the tax is mentioned below:
- Annual Income: this is the gross annual income without any form of deduction or exemptions.
- Additional Expenses: these are detailed expenses like monthly house rent, monthly HRA received, tuition fees of kids, and interest paid on any education loan.
- Home Loan: If an individual has a home loan, then the loan amount, EMI, and duration are filled.
- EPF: enter the employee provisional fund.
- Savings: declare savings like LIC premium, PPF, tax saving mutual funds and FD, NPS, health insurance premium.
How to calculate income tax?
This process becomes extremely easy by using an income tax calculator. Here is a basic understanding of how does income tax calculator works.
Case 1: It is very easy to calculate the taxable income. Taxable income does not mean the income on which taxes are paid, this is inclusive of the deductions and exemptions available.
For example: Mr. Mehta has a net taxable income of Rs. 15 lakh after removing deductions and exemptions. Then he will pay the following tax:
| Income Tax Slab | Tax Slab Rate | Tax Paid |
| Up to Rs. 2.5 lakh | Nil | Nil |
| Between Rs. 2.5 lakh – Rs. 5 lakh | 5% | Rs. 12,500
|
| Between Rs. 5 lakh – Rs. 7.5 lakh | 10% | Rs. 25,000 |
| Between Rs. 7.5 lakh – Rs. 10 lakh | 15% | Rs. 37,500 |
| Between Rs. 10 lakh – Rs. 12.5 lakh | 20% | Rs. 50,000 |
| Between Rs. 12.5 lakh – Rs. 15 lakh | 25% | Rs. 62,500 |
So, Mr. Mehta will pay tax worth Rs. 1,87,500 on the net taxable income of Rs. 15 lakh.
Case 2: If the net taxable income is not known. Let’s say Mr. Mehta has a basic salary of Rs. 60,000 per month, HRA of Rs 20,000, Conveyance allowance Rs. 4,000 and any special allowance Rs. 2,000 with travel allowance worth Rs. 10,000 per year.
Total basic salary = 60,000*12 = Rs. 7,20,000
Total HRA = 20,000*12 = Rs. 2,40,000 (will not be taxable)
Total travel allowance = 4,000*12 = Rs. 48,000 (it is capped at Rs. 19,200)
Total special allowance = 2,000*12 = Rs. 24,000
Gross salary = basic + HRA + travel + special + travel/leave allowance = 7,20,000 + 2,40,000 + 48,000 + 24,000 +10,000 = Rs. 10,42,000
Let’s assume a person claims the yearly travel/leave allowance with air tickets worth Rs. 8,000.
Total gross taxable income = basic + HRA + travel + special + travel/leave allowance = Rs. 7,20,000 + Rs. 0 + Rs. 28,800 + Rs. 24,000 + Rs. 8,000
Total gross taxable income = 7,80,800
Any investments done will be further deducted from this sum.
Read Also:
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- 5 Tax Deductions Indian Entrepreneurs Should Take Advantage Of This Tax Season
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Author: Prajakta
