In India, a large number of people file Income Tax Returns (ITRs) on their taxable income each year. This taxable income is often calculated by tax advisors, chartered accountants, and online ITR filing platforms. Some people, however, prefer to estimate their taxable income and learn how to calculate income tax on salary.
Although the entire process of how to determine the tax on salary may appear difficult, it only requires a few simple steps.
What’s Included in Taxable Income?
In India, taxable income can originate from some sources, such as capital gains, company income, salary, interest, dividends, and gifts, in addition to revenue from real estate. The Income Tax Act of 1961 provides deductions, exemptions, and refunds that assist in lowering tax burdens.
Factors Involved in Computing Income Tax on Salary
Every salaried person needs to consider a few factors while figuring out their taxable income. These are the following:
- Fiscal Year
- Year of Assessment
- Deductions for taxes
- Exemption from taxes
- Tax deduction at Source (TDS)
- Pay Breakdown
Method for Determining Taxable Income on Salary
For those who earn a salary, figuring out their taxable income may be a bit complicated. We’ll simplify the procedure for figuring up taxable income. The easy procedures to compute your income tax are provided here.
How to Compute Gross Income
The first step in determining your taxable income is figuring out your gross income. All you need to do is add up all of your pay, including the Leave Travel Allowance, House Rent Allowance (HRA), Basic Pay, and any special allowances. To be able to use your rent receipts in the calculations, the HRA demands you have legitimate rent receipts.
Take into consideration other parts of your compensation as well as any other deductions. Take the calculated figure and subtract the standard 50,000 rupees from it.
Determine Your Gross Taxable Income
For investments like ELSS, Mutual Funds, PPF, Sukanya Samriddhi Yojana, EPF, and term insurance premiums, you can claim deductions under Section 80C, up to Rs 1.5 lakh, once you apply for the standard deduction of INR 50,000. Any remaining extra deduction from the previous step will be subtracted in this step to determine your gross taxable income.
You must compare the eligible deductions with various provisions of the Income Tax Act 1961 to determine which ones apply. An extra INR 50,000 deduction is available under Section 80CCD(1B), for instance, if you are investing in NPS.
Determine Your Net Taxable Income
The total income that is taxable according to the current tax slab will be calculated after deducting all relevant exclusions from the gross taxable income. Depending on your age and salary, you will fall under a different tax bracket. Those under sixty who are salaried are subject to the following tax slabs.
| Net Income Range | Income Tax Slab | Tax Amount Rebate Under
Section 87A |
| Above ₹10,00,000 | 30% | ₹2,62,500 (based on the assumption that the individual’s net income is ₹15 lakhs) |
| ₹5,00,000 – ₹10,00,000 | 20% | ₹1 Lakh |
| ₹2,50,000 – ₹5,00,000 | 5% | ₹12,500 |
| Up to ₹2,50,000 | Nil | Nil |
Senior citizen tax slabs change based on age. The first ₹3 lakh of income is free from taxation for individuals over 60. Up to ₹5 lakh in income, there is no tax imposed on individuals above 80.
Determine the Tax Amount
Use the tax slab that applies to you to determine your tax amount now that you are aware of it. To determine the tax for each range of your net taxable income, apply the appropriate tax rate from earlier steps to your categories.
Combine Your Total Net Tax Amount
To determine whether you qualify for tax advantages, you must add the relevant rebates and cess to your taxable income in the last step. If your taxable income is less than ₹5 lakh, Section 87A allows you to receive a ₹12,500 refund. A 4% education and health cess may also need to be added to your estimated tax amount if your income is greater. There is a 10% surcharge for high incomes between ₹50 lakh and ₹1 crore and a 20% surcharge for incomes beyond ₹1 crore.
Example: How to Determine Your Salary’s Taxable Income
Let’s use an example to make the process for calculating taxable income
Total Revenue -: ₹6,90,000
Customary Subtraction -: ₹50,000
₹1,50,000 in Section 80C Deductions
Step 1 -:
Gross Taxable Income = ₹6,90,000 Gross Income – ₹50,000 Standard Deduction
Step 2 -:
Gross Income Eligible for Taxation After Deductions
- Gross Taxable Income = ₹6,40,000 – Section 80C Deductions of ₹1,50,000 = ₹4,90,000
Step 3 -:
Determine whether your tax income is between ₹2,50,000 and ₹5,00,000
- Tax in this range -: ₹12,000 (5% of ₹2,40,000).
- Tax in the range of ₹5,00,000 to ₹10,000,000: ₹50,000 is 20% of ₹2,50,000.
- A total of ₹12,000 plus ₹50,000 equals ₹62,000 in taxes.
- Tax Cess(4%) -: 4% of ₹62,000, or ₹2,480
Step 4 -:
The final tax bill is ₹64,480 (₹62,000 + ₹2,480).
You pay ₹64,480 in income taxes as a result of your taxable income.
Looking For Accurate and Simple ITR Filing
We hope this blog provided a helpful overview of How To Calculate Income Tax On Salary for FY 2023-24. Remember, tax laws can be complex, and this blog is not a substitute for professional advice.
For accurate and simple ITR filing in Jaipur, you can Apkireturn consult our expert team at +91 766 515 6000. They can help ensure you claim all applicable deductions and minimize your tax liability.
We are a team of highly qualified Chartered Accountants and Company Secretaries with over 20 years of experience, providing prompt and efficient services tailored to meet the unique needs of our clients.
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