Income Tax^* is a Direct Tax paid to the Government of India based on the different sources of income. It is paid for by all residents and Non-Resident Indians. The exact value of the Income Tax is calculated based on various factors. Deductions and tax slabs are the most prominent factors that require special mention. Let us discuss the method to calculate the income tax based on the tax slab in detail here.

Income Tax^* Calculation

Calculation on Income Tax is a simple process, provided you have understood the different terminologies and the factors for consideration. A tax calculator can help you derive at the amount. However, you can follow these simple steps to calculate the Income Tax^* based on Tax Slab:

1. Consider the income from different sources that are applicable for Income Tax:
   Sources of Income – Income from different sources is accountable in the calculation of Income Tax. Here is a basic list of source information.
   
   

   • Salary 

   • Income from house property or buildings in the form of rents

   • Capital gains from assets

   • Business income

   • Other sources
     
     

2. Consider exemptions and subtract them from the gross income:

   
   Exemptions - The type of income that can be excluded from gross income while calculating Income Tax is called an Exemption. For example, agriculture income, conveyance allowance, transfer allowance, etc., are exempt from income tax calculation.
   
   

3. Calculate the appropriate deductions that apply to your expenses:
   Deductions - Deductions refer to the expenses that can be reduced from the taxable income to lower the income tax^* payable. For example, there is a standard deduction of ₹50,000 of the salary earned annually for every individual.
   
   Section 80C of the Income Tax Act, 1961 provides a list of deductions that can be availed. Here are a few to be mentioned. 
   
   

   • Deductions for investments made in Public Provident Fund, Equity Linked Savings Scheme, Life Insurance Plans, National Savings Certificate, Senior Citizen Savings Scheme, ULIPs, etc. subject to certain terms and conditions. 

   • Deductions on interest received on a savings account, paid for house rent, education loan, home loan.

   • Deductions for a premium paid on Medical Insurance, money spent on medical expenses for physical disability, donations, etc. 

 

     Using the tax benefit calculator, you can derive the exact amount for these deductions.



4. Derive at the Net Taxable Income and apply the correct tax rate.
   Tax Slab - Taxpayers are divided into different groups according to their taxable income to apply the appropriate tax^* rate. This concept of grouping is referred to as a tax slab. 

Income Rates based on Tax^* Slab

The Income Tax Department has announced a ‘New Tax^* Regime’ for the Assessment Year, AY21-22. 

According to the Old Tax Regime, the tax rates were as listed:

Income	Tax Rate(%)	Tax Payable
Up to ₹2.5 Lakh	Nil	Nil
₹2.5 Lakh to ₹5 Lakh	5	5% of Taxable Income
₹5 Lakh to ₹10 Lakh	20	₹12,500 + 20% of the Income above Rs 5 Lakh
Above ₹10 Lakh	30	₹1,12,500 + 30% of the Income above Rs 10 Lakh

According to the New Tax Regime, the Tax Rates are:

Income	Tax Rate(%)	Tax Payable
From ₹2.5 Lakh to ₹5 Lakh	5	5% of Taxable Income
From ₹5 Lakh to ₹7.5 Lakh	10	₹12,500 +10% of Excess
From ₹7.5 Lakh to ₹10 Lakh	15	₹37,500 + 15% of Excess
From ₹10 Lakh to ₹12.5 Lakh	20	₹75,000 + 20% of Excess
From ₹12.5 Lakh to ₹15 Lakh	25	₹1,25,000 + 25% of Excess
Above ₹15 Lakh	30	₹1,87,500 + 30% of Excess

However, as per the New Tax Regime that offers lower rates, the taxpayer is not allowed to avail many deductions and exemptions.

In addition to the Income Tax, a surcharge is levied when the Total Income exceeds ₹5 million. The Health and Education Cess is further charged at 4% of the Income Tax^* and Surcharge if applicable.

 

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Summing Up

After a basic understanding of the various factors associated with Income Tax^*, it is easy to calculate the tax based on the tax slab. Ensure you pay attention to these factors while document your income tax^* by doing an online income tax^* return.

Read through the deductions and exemptions to make the best use of tax benefits. If it is the first time you are calculating, seek expert guidance to avail all the benefits and make the most appropriate calculation. You can try different avenues for tax^* benefits such as insurance, investments, loans, etc. 

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L&C/Advt/2021/Oct/1867