How to calculate income tax? (See example)
Income tax calculation for the SalariedIncome from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance. Some components of your salary are exempt from tax, such as medical reimbursements, telephone bills reimbursement. If you receive HRA and live on rent, you can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator
Transport allowance is given to employees as part of their salary to meet travel expenses from residence to work & back. Starting financial year 2015-16, limit of exemption on transport allowance is 1,600 per month or Rs 19,200 per annum. For example - if you receive Rs 2,000 as transport allowance every month, Rs 1600 shall be exempt from tax and remaining Rs 400 per month or Rs 4,800 per annum shall be taxed as salary income.
Let’s understand income tax calculation by way of an example. Neha receives a Basic Salary of Rs 50,000 per month. HRA of Rs 25,000. Transport Allowance of Rs 8,000 per month. Special Allowance of Rs 5,000 per month. LTA of Rs 20,000 annually. Neha pays a rent of Rs 20,000 and lives in Delhi.
| Nature | Amount | Exemption/Deduction | Taxable |
|---|---|---|---|
| Basic Salary | 6,00,000 | - | 6,00,000 |
| HRA | 3,00,000 | 1,80,000 | 1,20,000 |
| Transport Allowance | 96,000 | 19,200 | 76,800 |
| Special Allowance | 60,000 | - | 60,000 |
| LTA | 20,000 | 12,000 (bills submitted) | 8,000 |
| Medical Bills | 15,000 | 15,000(bills submitted) | - |
| Gross Total Income from Salary | 8,64,800 |
- Income from Salary (salary paid by your employer)
- Income from house property (add any rental income, or include interest paid on home loan)
- Income from capital gains (income from sale purchase of shares or house)
- Income from business/profession (income from freelancing or a business or profession)
- Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)
Neha has income from interest from savings account of Rs 8,400 and a fixed deposit interest income of Rs 10,000 during the year. Neha has made some investments to save income tax. PPF investment of Rs 50,000. ELSS purchase of Rs 20,000 during the year. LIC premium of Rs 8,000. Medical insurance paid of Rs 12,000. Here are the deductions Neha can claim.
| Nature | Maximum Deduction | Eligible investments/expenses | Amount claimed by Neha |
|---|---|---|---|
| Section 80C | Rs.1,50,000 | PPF deposit Rs 50,000, ELSS investment Rs 20,000, LIC premium Rs 8,000. EPF deducted by employer(Neha’s contribution) = Rs 50,000 *12% *12 = 72,000 | Rs 1,50,000 |
| Section 80D | Rs 25,000 for self Rs 30,000 for parents | Medical insurance premium Rs 12,000 | Rs 12,000 |
| Section 80TTA | 10,000 | Savings account interest 8,400 | Rs. 8,400 |
Calculation of gross taxable income in India
| Nature | Amount | Total |
|---|---|---|
| Income from Salary | 8,64,800 | |
| Income from Other Sources | 18,400 | |
| Gross Total Income | 8,83,200 | |
| Deductions | ||
| 80C | 1,50,000 | |
| 80D | 12,000 | - |
| 80TTA | 8,400 | 1,70,400 |
| Gross Taxable Income | 7,12,800 |
How to calculate income tax in India for Neha
| Up to Rs 2,50,000 | Exempt from tax | 0 |
| Rs 2,50,000 to Rs 5,00,000 | 10% (10% of Rs 5,00,000 less Rs 2,50,000) | 25,000 |
| Rs 5,00,000 to Rs 10,00,000 | 20% ( 20% of Rs 7,12,800 less Rs 5,00,000) | 42,560 |
| More than Rs Rs 10,00,000 | 30% (nil) | 0 |
| Cess | 3% of total tax (3% of Rs 25,000 + Rs 42,560) | 2,026 |
| Total Income Tax | Rs 25,000 + Rs 42,560 + 2,026 | Rs 69,586.80 |