How to Calculate Income Tax on Salary? [2019]

Income Tax is the amount deducted from your salary by the government of India depending on the tax slab. Every employee is liable to pay taxes given their eligibility. The best thing a person can follow is to declare income tax in advance to avoid the lengthy process of taking refund from Income Tax department.

As a first step, decide under which tax slab you fall. For example, government of India has the below tax slab for employees under 60 years of age

Calculate Income Tax

Annual Income Tax Rate
Up to 2,50,000 Rupees No Tax
RS 2,50,000 – RS 5,00,000 5%
RS 5,00,000 – RS 10,00,000 20%
RS 10,00,000 and above 30%

For the individuals who earn less than 2,50,000 Rupees per annum is exempted from Tax. Now second step is to learn what all comes under taxable income. Please find the below taxable income sources:

  • Income from Salary (Basic Salary + HRA + Special Allowance etc).
  • Income from house property (any rental income or interest paid on home loan).
  • Income from capital gain (income from sale or purchase of house or shares)
  • Income from any business or freelancing profession.
  • Income from other sources like interest on savings plan or income from interest on bonds.

Third step is to identify what all sources of income are tax exemptable. Some of the components which are tax exemptable are medical reimbursements, telephone bills, HRA and transport allowance of RS 1600 per month. For example, if you receive transport allowance of RS 2000 per month then the tax exempt amount is RS 1600 which means you will pay tax for remaining RS 400.

Fourth step is to produce saving investments such as 80C, 80D and 80TTA.

  • The maximum limit for 80C is 1,50,000 Rupees which you can deduct from taxable income.
  • Section 80D is medical insurance in which you can claim upto RS 25,000 for yourself and RS 30,000 for parents.
  • Section 80TTA is savings account where you can save upto RS 10,000 and deduct from taxable income.

Now start calculating the tax you have to pay for the salary you receive.

Taxable income is the amount on which you will pay your taxes according to the tax slab.

Taxable Income = Income Salary – (80C+80D+80TTA).

Income Tax = % tax rate per slab (Taxable Income) + Cess 3% (Total tax payable).

For example if a person earns 8,00,000 Rupees per annum then their tax is calculated as below:

Assuming their 80C+80D+80TTA = 1,50,000 Rupees

Taxable Income = (8,00,000 – 1,50,000) = 6,50,000 Rupees

Consider the tax slab

Annual Income   Amount
Up to 2,50,000 Rupees Exempt from Tax No Tax
RS 2,50,000 – RS 5,00,000 5% (RS 5,00,000-2,50,000) 12,500
RS 5,00,000 – RS 10,00,000 20%(6,50,000-5,00,000) 30,000
Cess 3% (42,500) 1275

Cess is a tax on tax paid by an individual levied by government of India for a specific purpose. The cess is levied until the government’s specific purpose is fulfilled. In this case the cess is educational cess which is to provide primary education to every citizen of India.

Total Income Tax = 12,500+30,000+1275 = 43,775 Rupees.

Hope the income tax terminology and the sample calculation help you in calculating your tax.

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