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How to Calculate Income Tax For Salaried Persons with Examples

How to Calculate Income Tax on Salary, In India, figuring out income taxes can be difficult and intimidating, particularly for salaried people. But it’s an important part of personal finance management. Calculating the taxable salary, applicable tax rates, and accounting for deductions and exemptions are all part of the process. People who are aware of this procedure can better manage their money wisely and adhere to tax regulations. 

We will walk you through calculating income tax on salary in detail in this article completely with an example.

Calculate Your Gross Income:

Let’s look at calculating the gross income below-

  1. In income tax, the total earnings consist of HRA, which stands for house rent allowance; LTA, which stands for leave travel allowance; and distinct allotments like mobile phone remuneration and offers available for food vouchers.
  2. A house rent allowance can be asserted at best if you provide a reasonable rental fee slip as evidence in a temporary home.
  3. It will be diminished if dispensation from the earnings is integral.
  4. House rent allowance is dutiable if you are living with your guardian house or staying in your own home.

The lowest of the following amounts is calculated as tax exemption below the house rent allowance:   

  • The genuine rent reimbursed is not more than 10% of the principal of your per month earnings.  
  • The employer pays a portion of the house rent.
  • If the consumers who are also taxpayers stay in a metropolitan city, 50% of the principal earnings will be for HRA.
  • And if the taxpayers are staying in non-metropolitan cities, they need to give 40% of the principal earnings to the HRA.
  • Furthermore, other wages should be added separately from the house rent allowance to compute the total earnings.  

Also Read:- How To Calculate HRA in Salary | How to Login to EPFO Member Portal | Salary Slip Format

Remove Deductions and Determine Your Next Table Income:

  • Various withdrawals can be valid by the civilian commoner by laying out money in different economic plans.
  • Quality withdrawals of Rs 50,000 can be available by all unescorted infused in some projects.
  • A few tax withdrawals are relevant less than division 80C. For example, taxpayers can get additional money of 1.50 lakh rupees on numerous funding.  
  • Funding relevant under section 80C are known as employee provident fund (EPF), Sukanya Siddhi Yojana, equity-linked savings schemes also known as ELSS, public provident funds known as PPF, mutual funds, and so on.

Regulate the Net Taxable Earnings

You can be conditional on the relevant tax slab if you are required to reimburse the levy of a tax on your entire earnings, which is set by deducting the entitled subtraction from the overall ratable wages.   

These are the following tax rates for a solitude taxpayer who is less than 60 years of age:

Net income.Rate of income taxUnder section 87A, the outgo before rebate.
Before Rs 2.50 lakhZeroZero
Up to Rs 2.50 to 5 lakhs.5.00%.Rs 12,500.
Up to Rs 5 lakh to Rs 10 lakh  20%.Rs 1 lakh.
More than Rs 10 lakh.30%Rs 2,62,500 for net profit before Rs 15 lakh.

Points to Remember.

  • The levy on tax charge is zero for net profit before Rs 3 lakh for taxpayers whose age exceeds more than 60 years.
  • The tax levy is zero for net profit before Rs 5 lakh for taxpayers who are older than 80 years.

Calculate the Tax Levy

The Tax levy is deliberated on the consumer’s taxable salary, which is NIL for the priority of Rs 2.50 lakh and 5.00% for the upcoming Rs 2.50 lakh. In the interval period, tax prices are 20% and 30% for the upcoming Rs 5 lakh and more than Rs 10 lakh, respectively.

Combine Your Net Tax

If a person receives a salary that is not more than a particular attribute, then the government of India will give you tax inducement in the form of a levy on tax refund. The health fitness and higher studies can be levied on Tax of 4.00% can be attached to your levy on Tax total sum; if the entire levy on rateable salary is more than Rs 5 lakh, then the extra charge sum is 10% or 20%, and if the wages decreases in the middle of the fluctuate of Rs.50 lakh to Rs.1 crore and Rs.1 crore to Rs.2 crore accordingly.

An Example is Listed Below:

If an individual named X receives a salary of Rs.15 lakh and the net income comes to Rs.12.50 lakh, subsequently detaching all the dispensation, for example, customary subtraction and house rent allowance, also known as HRA.  

Tax calculationTax Amount
Gross salaryRs.1500000
HRA and LTA deductionRs.250000
Standard deductionRs.50,000
Total salaryRs.1200000
Income other sourcesRs.10,000
Gross taxable incomeRs.12,10,000
Under Section 80C(ELSS+EPF)Rs150000(Deduction).
Under Section 80CCD(1) for NPS  (National pension scheme)Rs.50,000(Deduction)
Under Section 80D for health insurance premiumRs.15,000
Under Section 80TTA for interest on the bank accountRs.10,000
Total taxable incomeRs.985000

The levy on the total tax sum of Rs.5 lakh to Rs.9.85 lakh is 20%, which is Rs.97000 rupees.

Income tax on salary with an example

income tax on salary

Let’s look at the example of Income tax on salary-

  • The sum of the total principal salary and the House rent allowance is the important allotment, and the transportation allotment and any conveyance are earned from wages. Your salary should be authorized, and a levy should be incorporated on tax-free interests like departing from travel charges and mobile phone fee compensation.  
  • Individuals who get a House rent allowance (HRA) can create an HRA exclusion assert. By utilizing their house rent allowance abacus, you can control the house rent allowance spared part.

If we see additionally these exclusions, the 2018 financial estimate also adds a grade subtraction of Rs.40,000 in this method, a Rs.50,000 uplift in the forecast for 2019 and to Rs, and a 50000 additional in the forecast for 2023.    

A grade reduction of Rs.50,000 is also present as an outcome of the new management. The consumer will not be able to construct utilization of this dispensation when you select the levy on tax new method.  

There are some examples given here of how tax total sum works under the new government system in comparison to the old government system:

Sample no 1-

Primary salary: Rs.1lakh every month.

House rent allowance: Rs.50000 every month.

Distinctive allocation: Rs21000 every month.

Leave travel allocation: Rs20000 every year.

The rent for the house is Rs40000 every month.

ComponentsAmountDeductionsTaxable amount under the old schemeTaxable amount under the new scheme
Basic salaryRs.12,00,000N/ARs.12,00,000Rs.12,00,000
Special allowanceRs.2,52,000N/ARs.2,52,000Rs.2,52,000
HRARs.6,00,000Rs.3,60,000Rs.2,40,000Rs.6,00,000
LTARs.20,000Rs.12,000Rs.8,000Rs.20,000
Deductions(Standard)N/ARs.50,000Rs.50,000N/A
Gross incomeN/AN/ARs.16,50,000Rs.20,22,000

In sequence to evaluate levy on income tax, the listed details should be mentioned:

  • The salary
  • Earnings from rent or interest that is rewarded for a home loan.
  • Earnings from your line of employment or trade.
  • You get earnings from your fixed deposit account, bonds, or savings account.

Below the new levy on tax government, various dispensations like mobile bill reimbursement, investments made in savings implements like NSP, PPF, EPF, etc., and House rent allocation are not present.

If an individual is awarded Rs.8000 in engrossment from your savings account and Rs.12 thousand in engrossment from your one-year term deposit every year. To lessen your income tax levy, you can incur numerous expenditures. Rs.50 thousand perfuse in a PPF and Rs20000 in one year respectively.  

If an individual invests Rs.8000 as a LIC premium membership and Rs.12000 has been reimbursed as health insurance, then some of the following will be the reason for tax reduction you will be able to like.

CategoryMaximum deduction allowedInvestment eligibleAmount claimable
Section 80CRs.1.5 lakhEPF, premium on LIC membership. PPF, ELSSRs.1.5 lakh.
Section 80TTARs.10000Interest on your savings account.Rs.8000.
Section 80DRs.25000 for himself, and 50000 for your guardians.Premium membership on your health insurance.Rs.12000.

Calculation of Gross Taxable Income

The given below data shows the computation of the gross taxable income under the new regime and the old regime:

CategoryAmountTotal
Salary incomeRs.20,220,00
Income derived from extra sourcesRs.20,000
Total gross incomeRs.20,420,00
Total amount taxableRs.3,25,104

The below data shows how income tax will be calculated Under the New Regime:

Up to Rs.3 lacsExempted from TaxRs.0
More than Rs.3 lacs and up to Rs. 6 lacs 5%Rs.15,000
More than Rs.6 lacs and up to Rs.9 lacs10%Rs.30,000
More than RS.9 lacsAnd up to Rs.12 lacs15%Rs.45,000
More than Rs.12 lacsAnd up to Rs.15 lacs20%Rs.60,000
More than Rs.15 lacs30%Rs.1,62,000
Cess4% of total TaxRs.12,504
Total amount taxable  –Rs.3,25,104

Computation of Gross Taxable Income-Old regime

CategoryAmountTotal
Salary incomeRs.16.5 Lakhs
Income derived from extra sourcesRs.20,000
Total gross incomeRs.16.7 Lacs
Deduction under Section 80CRs.1.5 Lacs
Deduction under Section 80TTARs.8,000Rs.1.7 Lacs
Deduction under Section 80DRs.12,000
Gross Taxable IncomeRs.15 Lacs
Total amount taxableRs.2.73 Lacs

Conclusion

Legal penalties like large fines and imprisonment can be imposed if one is found guilty of tax fraud. Everyone likes to live luxurious lifestyles, but they believe it is tough due to the fact that a high proportion of their hard-earned money will be spent on Taxes. Having the knowledge of how to compute the correct Taxes, deductions, and returns in proper money investments and tax savings will help people live the luxurious life that everyone wishes for. It will also help to put a stop to committing tax fraud.

Frequently Asked Questions

1. How do you calculate income tax on salary? 

In a general way, any person’s taxable income multiplied by the right income tax rate, allowable tax credits subtracted, and other taxes added determines their Federal income tax load for a given tax year. Every year, taxable income is calculated based on the taxpayer’s tax year.

These are the following formulas used to calculate income taxes: Gross Salary – Deductions = Taxable Income; Income Tax = (Taxable Income x Applicable Tax Rate) – Tax Rebate.

2. How is income tax deducted from salary?

The government sets the tax rates, which are based on income ranges. The following formulas are used to calculate the Income taxes: Gross Salary – Deductions equals Taxable Income. Income Tax is calculated as (Taxable Income x Applicable Tax Rate) – Tax Rebate.

3. What is the maximum limit for tax deduction under section 24?

In addition, Rs. 1,50,000 is the maximum income tax deduction allowed under Section 24 and it is not necessary to be present in that home to file for tax deductions. Further, if any of the following circumstances hold, you are eligible to deduct taxes from your income from your own house. 

4. How much income is tax-free?

India’s tax-free income limit, In the past tax system— a person under 60 years old was exempt up to Rs. 2.5 lakhs, senior citizens between the ages of 60 and 80 were exempt up to Rs. 3 lakhs, and a super senior citizen over 80 years old was exempt up to Rs. 5 lakhs.

5. Is tax calculated on Gross or Net salary? 

The tax can be calculated only on the gross salary and the following formula is used to calculate income taxes: Gross Salary – Deductions = Taxable Income; Income Tax = (Taxable Income x Applicable Tax Rate) – Tax Rebate.

6. How much of the amount in the bank is tax-free?

The Interest earned from all savings bank accounts up to Rs 10,000 is exempt from taxation under Section 80TTA of the Income Tax Act. This applies to savings Bank accounts, Post offices, and Cooperative banks.

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