Income Tax^* is one of the most prominent topics discussed by many people working in varied sectors. It is a type of direct tax^* paid to the Government based on the income earned from different sources. The Government of India has made paying Income Tax^* mandatory, considering the importance of infrastructural development to benefit every citizen of the nation.
 

Therefore, it is a legal mandate as well as a moral obligation for you to fulfil your tax liability. However, people are often sceptical about calculating the tax on salary, considering it to be a difficult process. Here is a simple guide to explain how you can calculate income tax^*.

Easy Process To Compute Your Income Tax^*
 

1. Calculate Gross Income: As the first step, write down your gross salary and list the different components of the salary, such as the Leave Travel Allowance, House Rent Allowance, etc. Then, add any other income such as interest earned from deposits, rental income, and other capital gains to your Gross Salary. The final amount this arrived at is the gross amount for income tax^* calculation.
   
   
2. Calculate the tax^* exemptions: Based on the prevailing tax^* laws, subtract the components of your salary that qualify for tax^* exemptions. For instance, HRA qualifies for tax^* exemption. However, it is important to consider the criteria and ceiling for the exemption of specific components for the exact computation of the tax-exempt income.
   
   
3. Calculate the tax^* deductions: Deductions are expenses that can further reduce your taxable income. Primarily, subtract the standard deduction of INR 50,000. Tax^* deductions have been introduced to encourage people to save and invest in financial products such as the life insurance savings plan.
   
   

   According to Section 80C of the Income Tax Act, 1961, you can claim a total tax^* deduction of ₹1,50,000. It can include your premium payments towards a Life Insurance Policy, investment in a Public Provident Fund, Equity Linked Savings Scheme, etc. The premium amount you pay towards your term plans and comprehensive life insurance policies such as a guaranteed¹ return plan qualify for tax^* deduction.
    

   Guaranteed¹ return plans in India provide a life cover and, additionally, guaranteed¹ returns on maturity. As the returns are guaranteed¹, you can plan for your family's future financial commitments in a precise manner. The premium amount thus paid qualifies for tax^* deduction under Section 80C, and the returns of the plan qualify for tax^* exemption under Section 10(10D).
    

   At Tata AIA, we have introduced varied, flexible features in our plans to ensure the most suitable - financial assistance to policyholders based on their individual financial needs. For instance, with Tata AIA Life Insurance, you can decide whether you want the policy payout as a lump sum, regular income, or a combination of the two.
    

   If you have a home loan, the principal paid back in a financial year will qualify for tax^* deduction under Section 80C, and the interest portion of the premium up to ₹2 Lakh shall be considered under Section 24.
    

   And, if you have invested in retirement solutions such as the National Pension Scheme, you can get a tax deduction under Section 80CCC(1B) up to a maximum of ₹50,000. This deduction is over and above the ₹1,50,000 deductible under Section 80C.
    

4. Compute the Income Tax^*: After subtracting the tax^* exemptions and deductions from your Gross Total Income, you will derive your Net Taxable Income. Based on this amount and your age, you can calculate the tax^* payable during the year. There is a defined slab rate for this purpose based on age. The Income Tax^* Department of India has announced a New Tax^* Regime for the Assessment Year, AY21-22.
   

   
   Tax Rates as per the Old Regime:

   Taxable Income	Tax Rate (%)	Tax Payable
   Upto ₹2.5 Lakh	-	No tax
   ₹2.5 Lakh to 5 Lakh	5	5% of Taxable Income
   ₹5 Lakh to 10 Lakh	20	₹12,500 + 20% of the Income above ₹5 Lakh
   Above ₹10 Lakh	30	₹1,12,500 + 30% of the Income above ₹10 Lakh

    

   Tax Rates as per the New Regime:

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

   
   The tax^* rates as per the New Tax Regime are lower than the previous tax^* rates. However, this regime does not allow the taxpayer to avail of several exemptions and deductions. Some of the prominent components are:
   

    
   • Leave travel allowance
   • House rent allowance based on rent paid and salary structure.
   • Conveyance allowance
   • Daily allowance
   • Allowance granted on the cost of travel due to a transfer for an employee.
   • Professional tax
   • Deductions based on interests from the Savings accounts under Section 80TTA and 80TTB.
   • Entertainment allowance


It is important to read the different aspects associated with these components carefully before computing your tax. You can purchase savings plans with tax benefits for life cover and ensure savings for the long term as well as tax^* relief.
 

5. Calculate the Surcharge and Cess: In addition to Income Tax, a surcharge is levied if your Total Income exceeds ₹5 million. An additional Health and Education Cess is also charged at 4% of the Income Tax^*.

Should You Buy Life Insurance to Claim Tax Benefits?
 

Life insurance can be a valuable financial tool for many people, but the decision to purchase a policy should be based on a variety of factors beyond just tax savings. While it is true that some life insurance policies in India offer tax benefits, these benefits should not be the primary reason for purchasing a policy.
 

When you buy life insurance with the sole aim of saving taxes^* or getting tax benefits, you may not be able to choose a suitable policy that meets your family’s future requirements. As a result, when the need arises, the life insurance plan will be unable to provide adequate financial assistance to your loved ones.
 

In India, premium payments for life insurance policies are eligible for tax^* deductions under Section 80C of the Income Tax Act, up to a maximum limit of ₹1.5 Lakh per financial year. Additionally, the death benefit received by the nominee is tax-free under Section 10(10D) of the Income Tax Act.
 

However, the primary reason for purchasing life insurance should be to provide financial security for your loved ones in the event of your unexpected death. Tax^* benefits can be a secondary consideration, and it's important to choose a policy that meets your specific coverage needs and fits within your budget.
 

Life insurance riders can help in claiming tax^* deductions and exemptions in India, but it depends on the type of rider and the provisions of the Income Tax Act. For example, if you add a critical illness rider^# or a health rider to your life insurance policy, the premium for that rider can be claimed for tax deduction under Section 80D of the Income Tax Act, just like you can claim the deduction on health insurance policies.
 

The other life insurance riders on which you can claim tax benefits are the ones that cover hospitalisation benefits or any similar health rider^# that requires you to undergo hospitalisation. This is because these riders offer similar benefits when opposed to health insurance policies. Therefore, the deduction can be claimed on the rider premiums which are added to the base life insurance policy.
 

Also, note that when a rider^# is added to a life insurance policy, there is an additional premium cost for each rider. This is why, even though riders may help you claim tax deductions on the premiums, you should choose which riders you want to add to your policy. Doing so can help you keep your premiums reasonable while enhancing the coverage of your life insurance policy.
 

It is also advisable to consult with a financial advisor or insurance professional to understand the tax implications of any life insurance policy and riders. They can help you determine whether the riders^# you are considering are eligible for tax benefits and how they may impact your overall financial plan.

Conclusion
 

Income tax* calculation is a simple process if you have the right first-hand knowledge about the basics of taxable income, tax* exemptions, and deductions. Moreover, it is a systematic procedure that takes very little time for calculation. Here's a quick summary of this process:
 

1. Calculate your taxable income by considering the components of your salary as well as the investments that qualify for tax* exemption and deductions. Make sure that you purchase life insurance with tax benefits to protect your family's financial security. If you are looking for guaranteed¹ returns, you can check out our guaranteed¹ return plan.
2. Based on your preference of the tax* regime, consider the right tax slab and calculate the tax* amount to be paid.
3. Include education cess and surcharges applicable and arrive at the Net Income Tax* amount!

L&C/Advt/2023/Feb/0611