If you thought calculating your income tax was not your cup of tea, here’s a simple 4-step process which will help you calculate your tax and at the end of it lets you confirm whether you are liable for paying tax or likewise tells you if you are due for a refund. We have used a simple excel based calculator to calculate income and the tax component. You can find the download link for the tool at the end of the post in case you want to dabble with it.
Of note it was a moment of joy for individuals with income of up to 5 lakhs per annum because as per a recent notification from CBDT salaried individuals under this income bracket were exempted from filing tax returns. It sounded too good to be true and given the conditions put in place for individuals to avail the exemption, it for now looks nearly impossible for anyone to take any benefit out of it. Read Some Stark Revelations on Returns Filing Exemption for Salaried Individuals Earning Up To 5 Lakhs to know more.
So here’s how we go about calculating our income tax.
Step 1 – Calculate Your Income
In order to find out how much tax your are liable to pay, you need to first understand and gather data on all your sources of income. The below table broadly outlines the various sources of income or revenue for an individual. The categories and the deductions that can be claimed under each category has been explained below.
Income from Salary
Any income earned from an employer which also includes additional monetary benefits and perks as well as special allowances and bonuses received from the employer. Deductions can be claimed for HRA, conveyance allowance, medical and LTA. Note that for salaried individuals the Form 16 is a good reference for understanding the actual taxable income.
Income from Property
Any income earned from rented out property. Deductions available under this category is the standard deduction which amounts to 30% of income, house tax and interest paid on loan for buying the property.
Income from Business or Profession
This includes net profit from any business or profession. Deductions can be claimed for expenses incurred for business or profession as well as losses from previous financial years.
This includes profit earned from the sale of an asset such as property, jewellery, shares, mutual funds, and automobiles to name a few. Deductions are largely dependent on the type of asset, how long was the asset in the possession of the individual, incurred loses carried forward, etc.
Miscellaneous Sources of Income
Income that cannot be classified under any of the above categories would come under the miscellaneous income source. Of note income earned via investments in the name of a “minor” also needs to be considered as a source of income. This also stands true for investments made by the taxpayer in the name of his/her spouse.
Step 2 – Calculate the Deductions Applicable
If the steps so far were easy enough, once you find out your sources of income, next you will need to allocate the appropriate deductions available for each income category or source. This includes investments made in tax saving instruments, interest paid on housing loans, principle component of housing loans, donations made, medical expenses, education and education loans, house rent, etc. You can use the above table to calculate the deductions.
Step 3 – Calculate Tax Payable As Per Your Income Tax Bracket
Next you need to identify your tax bracket to calculate your net tax payable. You will need to input your tax bracket to calculate the total tax payable. You will need to refer the “income tax slab table” below to know your tax bracket.
The below table shows the various tax slabs for 2010-2011 and 2011-2012 applicable as per gender, income bracket and age.
Step 4 – Check If You are Liable for Tax Refunds or Dues
Next sum up all the taxes paid which would finally indicate if you are due to pay tax or claim refunds.
Get the Income Tax Calculator Here
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