How to Calculate Income Tax?

How much tax one should pay depends on the tax slab applicable to the taxpayer’s income and age.
Income tax is calculated based on the below mentioned tax slabs.

IT slab for individual tax payers & HUF (less than 60 years) (Male & Female)

Income Slab Tax Rate
Up to Rs 2,50,000 No Tax
Rs 2,50,000 – Rs 5,00,000 10%
Rs 5,00,000 – Rs 10,00,000 20%
Above Rs 10,00,000 30%

Surcharge: 12% of income tax, where the total is more than Rs.1 crore.

Cess: 3% on total income tax payable including surcharge, if any

IT slab for senior citizens (more than 60 years less than 80 years) (Male & Female)

Income Slab Tax Rate
Up to Rs 3,00,000 No Tax
Rs 3,00,000 – Rs 5,00,000 10%
Rs 5,00,000 – Rs 10,00,000 20%
Above Rs 10,00,000 30%

Surcharge: 12% of income tax, where the total is more than Rs.1 crore.

Cess: 3% on total income tax payable including surcharge, if any

IT slab for super senior citizens (more than 80 years old) (Male & Female)

Income Slab Tax Rate
Up to Rs 5,00,000 No Tax
Rs 5,00,000 – Rs 10,00,000 20%
Above Rs.10,00,000 30%

Surcharge: 12% of income tax, where the total is more than Rs.1 crore.

Cess: 3% on total income tax payable including surcharge, if any

Income tax calculation for a Salaried Individual

Income from salary = Basic + HRA + any other allowance

Few components of your salary such as medical reimbursements and conveyance allowance are exempt from tax. If you are receiving HRA from your employer and live in rented accommodation you are eligible for HRA exemption. (HRA exemption calculation is explained in a separate in this same section)

Conveyance allowance is provided to employees as part of the salary to meet their travel expenses from home to work and vice versa. The exemption limit on conveyance allowance has been raised to is 1,600 p.m or Rs 19,200 p.a from 2015-2016. For eg, if an employee receives Rs 2000 as conveyance allowance every month, only Rs 1600 shall be exempted and remaining Rs 400 pm or Rs 4,800 p.a shall be added to taxable income.

Let us understand income tax calculation with an example. Rajeev receives a Basic Salary of Rs 50,000 p.m., HRA of Rs 25,000 p.m, conveyance allowance of Rs 8,000 p.m., Special Allowance of Rs 5,000 p.m., LTA of Rs 20,000 annually. Rajeev lives in rented accommodation in Delhi and pays Rs 20,000 p.m as rent.

Include income received (if any) from the following sources to calculate income tax

  • Income from Salary which is the salary paid by the employer
  • Income from residential property (rental income)
  • Income from capital gains (income from sale of shares or house property)
  • Income from business or any other profession (income from consulting, freelancing or small business)
  • Income from various other sources (Interest received from savings accounts, fixed deposits, bonds, etc)
Nature Amount(Rs) Allowed deduction(Rs) Taxable(Rs)
Basic 4,00,000 6,00,000
HRA 3,00,000 1,80,000 1,20,000
Conveyance Allowance 96,000 19,200 76,800
Special allowance 60,000 60,000
LTA 20,000 12,000 (submitted bills) 8,000
Medical Bills 15,000 15,000 (submitted bills)
Gross Total Income 8,64,800

Further, Rajeev has received Rs 8,400 as interest from savings account and Rs 10,000 as interest from a fixed deposit account.

In addition, Rajeev has invested in the following to save income tax.

  • Rs 50,000 in PPF
  • Purchased Rs 20,000 worth ELSS during the year.
  • Paid LIC premium of Rs 8,000.
  • Paid Rs.12000 as medical insurance premium.

Rajeev can claim the following deductions.

Nature Maximum Deduction Eligible investments Amount claimed
80C Rs 1,50,000 PPF-Rs 50,000, ELSS – Rs 20,000,
LIC premium- Rs 8,000.
EPF deducted = Rs 50,000 *12% *12 = 72,000
(72000+50000+20000+8000) = 1,50,000
Rs 1,50,000
80D Rs 25,000 (self)
Rs 30,000 (parents)
Medical insurance premium – Rs 12,000 Rs 12,000
80TTA 10,000 Interest from Savings account – 8,400 Rs 8,400

Gross taxable income calculation

Particulars Amount (Rs) Total (Rs)
Income received from Salary 8,64,800
Income received from Other Sources 18,400
Gross Total Income 8,83,200
Deductions
80C 1,50,000
80D 12,000
80TTA 8,400
Less Total Deductions 1,70,400
Gross Taxable Income 7,12,800

Income tax calculation for Rajeev

Range Tax Rates Tax Amount (Rs)
Up to Rs 2,50,000 Exempt from tax Nil
From Rs 2,50,001 to Rs 5,00,000 10% 25,000 (10% x (Rs 5,00,000 – Rs 2,50,000)
From Rs 5,00,001 to Rs 10,00,000 20% 42,560 (20% x (Rs 7,12,800 – Rs 5,00,000)
More than Rs 10,00,000 30% Nil
Cess 3% of total tax 2,026 (3% x (Rs 25,000 + Rs 42,560)
Total Income Tax Rs 69,586.80 (Rs 25,000 + Rs 42,560 + 2,026)
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