How to calculate tax on income if salaried
Income tax is the tax deducted on your monthly salary/income depending on the income slab under which you are categorized. Needless to say that you must essentially know how to keep a track of the correct amount of tax that you are liable to pay so that you can avoid being overtaxed. Any income received by an employee is taxed under the head Income from Salaries. It is only taxable when an employer-employee relationship exists. The first important thing one needs to know is the salary slab they fall under. Then the employee needs to submit their declaration about their proposed investments so that the employer can take them under consideration before deducting the tax from the employee's salary. By declaring the taxes in advance you do not have to go through the lengthy process of having to file for refunds from the Income Tax Department. Finally you arrive at the correct amount of tax for which you are liable after deducting the taxes already paid under TDS(Tax Deducted at Source).
Income tax slab rate applicable for the fiscal year 2020-21 are as mentioned under:
- Up to 2.5 lakhs – No tax
- Rs.2.5 lakhs to 5 lakhs – 5 per cent
- Rs.5 lakhs to 10 lakhs – 20 per cent
- Above Rs.10 lakhs – 30 per cent
You can invest under the Section 80C to a maximum of Rs.1,50,000. Or if you are in a higher tax bracket, you can save Rs.45,000 in tax. Alternately, investment in Provident Fund, Life Insurance Premium, Equity Linked Savings Scheme, Home Loan monthly installment, National Savings Certificate, Infrastructure Bond, Pension Funds, Tuition fees and Unit Linked Insurance Plan can be made. You must note that gross salary is the sum total of Basic pay + Dearness allowance + House Rent Allowance + transport allowance + special allowance + other allowance. The total taxable income is calculated after applicable deductions such as HRA, LTA etc are adjusted from the total income which comprises of gross salary and income from other sources. Then the income tax is calculated according to the slab under which the taxable income falls under +3% cess.
Once you have computed the tax payable, you need to note your tax liability. For this follow the mentioned steps:
- Your total income needs to be rounded off to the closest multiple of 10.
- Classify the total amount into four parts: long-term capital gains, short-term capital gains and the total amount that remains (that is ultimately rounded off).
- Add up the computed tax.
- Whatever the balance is, levy the surcharges.
- Add education, secondary and higher education cess to the total calculated tax (including surcharges).
- Check the rebates that are allowed after surcharges are added.
- The remaining balance will be your total payable tax which is then rounded off to the closest multiple of 10.
HDFC Life offers Save Tax Calculator, an online tool for calculating the amount of tax payable by you by taking into consideration various parameters like income, investments, gender, age etc. For checking, click on the mentioned link and follow the steps listed: https://www.hdfclife.com/financial-tools-calculators/tax-saving-calculator.
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