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How to Calculate Income Tax

For any tax paying individual, to have a working knowledge of how income tax is calculated can only make life
simpler. It not only helps you assess the amount of tax you have to pay in a financial year but also gives you a
clearer idea on how to save tax.
Income Tax is tax levied on the income of an individual by the Government. Computing your Income Tax for a year
might seem like a complex process but you will see that it is easy, if you are aware of the income tax slabs of that
particular year and know the mathematical calculation.
Knowing Taxation amount as per the Income Tax Slabs
The first step to understand the workings of Income Tax in India is to be aware of the taxation slabs released each
financial year by the Indian Government. The taxation slabs for the financial year 2014-15 for General tax payers
and Women:
Slab

Income Slab (Rs.)

Income Tax Rate

0 to 2,50,000

NIL

2,50,001-5,00,000

10%

II

5,00,001-10,00,000

20%

III

10,00,001 and above

30%

If you fall in Slab I, tax will be deducted on the amount that exceeds Rs. 2,50,001/- . Similarly, tax for Slab II
and Slab III will be calculated for the amount that exceeds Rs. 5,00,001/- and Rs. 10,00,001/- respectively. The
same principle also applies to the tax slabs for senior citizens (Aged 60 years but less than 80 years):Slab

Income Slab (Rs.)

Income Tax Rate

0 to 3,00,000

NIL

3,00,001 to 5,00,000

10%

II

5,00,001 to 10,00,000

20%

III

10,00,000 and above

30%

India Income tax slabs 2014-2015 for very senior citizens (Aged 80 and above):Slab

Income Slab (Rs.)

Income Tax Rate

0 to 5,00,000

NIL

5,00,001 to 10,00,000

20%

II

10,00,000 and above

30%

Deductions available for saving tax

To opt for saving the maximum amount of tax, examine the deductions defined under different sections of the
Income Tax Act, 1961.
The available deductions are:
Investment under Section 80
This section includes:
Mediclaim insurance premium (u/s 80D)
Donations with 100% benefit (u/s 80G)
Interest repayment for education loans (u/s 80E)
New Pension Scheme for a maximum of 10% of the basic salary (u/s 80CCD)
And Rajiv Gandhi Equity Savings Scheme (u/s 80CCG).

The Investment limit for the deduction under Section 80C of the Income-Tax Act, 1961 was raised from Rs 1 lakh
to Rs 1.5 lakh as per the budget 20014-15. This will result in a maximum saving of Rs. 15,450 to investors in the
30% tax bracket. The most common investments fall under this section:
Life Insurance policies
Employees Provident Fund/Public Provident Fund
National Savings Certificates or Interest accrued on old NSCs
ULIPs (Unit Linked Insurance Plans)
Repayment of home loan for principal amount only.
Pension Funds u/s 80CCC
Tax saver Mutual Funds ELSS: Equity Linked Savings Scheme
Tuition fees of childrens education.
Housing Rent Allowance u/s 10(13A).This is an allowance you get as a company employee for paying
house rent. Deduction available on House Rent Allowance is an amount which is the least of the following
parameters:
Actual HRA received
OR
Actual rent paid by you minus 10% of your basic salary and other allowances (excluding HRA)
OR
50% of your basic salary
In cases where the last two parameters determine the deduction amount, and turns out to be less than the HRA
paid by your company, the excess amount is considered as a part of your taxable income.
Home Loan Benefit u/s 24. This gives you deduction for the interest that you pay on your home loan and
the maximum deduction limit has been raised (as per 2014-2015) to Rs. Rs.2,00,000 for a self-occupied
property. For a property that is not self-occupied, there is no upper cap on the deduction limit.

Calculating your Taxable Income and Income Tax

In order to do the calculation, it is imperative to understand how income tax is deducted. If your income falls within
a certain slab only, say Slab I (as per the tax slabs mentioned above), then the calculation is simpler. But if your
salary falls in more than one range, the income tax is the sum of the tax calculated from each slab as per the
designated tax rate of the said financial year.
In other words,
Income tax for income in Slab II = 10% of Slab I + 20% of slab II
Income tax for income in Slab III = 10% of Slab I + 20% of Slab II + 30% of Slab III
Heres an example* of the income tax calculation of a person earning Rs.10 lakhs, and a comparison of how he
will fare with this years budget rules as opposed to those of last years

As shown in the examples above, tax calculation is not as complex an affair as it is made out to be. You just need
to be aware of the tax slabs for the financial year in question, the deductions available and how taxable income is
determined. Once you have clarity on these three aspects, calculating your income tax becomes very simple.

*sourced from http://www.jagoinvestor.com/2014/07/budget-2014-highlights-and-download-income-taxcalculator.html

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