Calculating income tax in India can be complex and intimidating, especially for salaried individuals. However, it's a crucial aspect of managing personal finances. The process involves determining taxable salary, applicable tax rates, and accounting for exemptions and deductions. Understanding this process empowers individuals to plan their finances efficiently and stay compliant with tax laws.
Tax2win Income Tax Calculator help you easily estimate your tax refund or tax payable to the government. It calculates taxes on the basis of the latest provisions of the Income Tax Act and rules issued by the Income Tax Department- - so that the next time, you can do your own calculation and take enough measures to save as much tax as possible.
FM Nirmala Sitharaman has made two announcements for those opting for the new tax regime.
First, the standard deduction for salaried employees is proposed to be increased from Rs 50,000/- to Rs 75,000/-. Similarly, deduction on family pension for pensioners is proposed to be enhanced from Rs 15,000/- to Rs 25,000/-.
Second, in the new tax regime, the tax rate structure is proposed to be revised, as follows:
As a result of these changes, a salaried employee in the new tax regime stands to save up to Rs 17,500/- in income tax.
According to the Income Tax Act of 1961, every salaried person must pay an amount from their salary as tax to the country. This amount of tax is called income tax. The law consists of many provisions and variations with subsections describing the details of tax payments, deductions, and computations. A lot of deductions under subsections 80C to 80U are available. After subtracting all the available tax-saving provisions and deductions, the final amount is paid to the government as the income tax on salary.
Calculating income tax on salary in India involves several steps. Here's a simplified overview of the process:
| Category | Amount | Total |
|---|---|---|
| Salary income (after standard deduction of rs. 75000) | Rs.20.22 lakh | - |
| Income derived from other sources | Rs.20,000 | - |
| Total gross income | - | Rs.20.42 lakh |
| Total Tax to be paid | - | Rs 3,14,704 |
| This is how income tax will be calculated under New Regime | ||
| Up to Rs.3 lakh | Exempted from tax | Rs.0 |
| More than Rs.3 lakh and up to Rs.7 lakh | 5% | Rs.20,000 |
| More than Rs.7 lakh and up to Rs.10 lakh | 10% | Rs.30,000 |
| More than Rs.10 lakh and up to Rs.12 lakh | 15% | Rs.30,000 |
| More than Rs.12 lakh and up to Rs.15 lakh | 20% | Rs.60,000 |
| More than Rs.15 lakh | 30% | Rs.1,62,600 |
| Cess | 4% of total tax | Rs 12104 |
| Total tax to be paid | Rs.-3,14,704 | |
| Category | Amount | Total |
|---|---|---|
| Salary income | Rs.16.5 lakh | - |
| Income derived from other sources | Rs.20,000 | - |
| Total gross income | - | Rs.16.7 lakh |
| Deductions under Section 80C | Rs.1.5 lakh | - |
| Deductions under Section 80TTA | Rs.8,000 | Rs.1.7 lakh |
| Deductions under Section 80D | Rs.12,000 | - |
| Gross Taxable Income | - | Rs.15 lakh |
| Total tax to be paid | - | Rs.2.73 lakh |
Further, check out the calculations below for different income groups to reduce the maximum amounts on your taxes:-
| Gross Salary | 10,00,000 |
| Less: Exemptions | |
| HRA | 1,50,000 |
| LTA | 50,000 |
| Reimbursements | 32,000 |
| Children’s education and hostel allowance | 8,500 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 7,07,100 |
| Less: Deductions | |
| 80C | 1,50,000 |
| 80D | 30,000 |
| 80E | 27,500 |
| Net Taxable Income | 4,99,600 |
| Tax on the above income | 12,480 |
| Rebate u/s 87A (Individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500.) | -12,480 |
| Additionally, you are eligible to claim these:- | |
| Interest on home loan deduction u/s 24b | 2,00,000 |
| Home loan 80EEA | 1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | 50,000 |
| Gross Salary | 2,000,000 |
| Less: | |
| HRA | 200,000 |
| LTA | 40,000 |
| Reimbursements | 24,500 |
| Children's education and hostel allowance | 9,600 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 1673,500 |
| Less: Deductions | |
| 80C (Refer to Note below) | 150,000 |
| 80D | 50,000 |
| 80E | 22,000 |
| Net Taxable Income | 14,51,500 |
| Tax on the above income | 2,57,868 |
| Rebate u/s 87A | Not applicable |
| Total Tax | 2,57,868 |
| Apart from this, you can also claim these tax deductions if eligible: | |
| Interest on home loan EMIs under Section 24b | -2,00,000 |
| Principal amount of the home loan under section 80EEA | -1,50,000 |
| National Pension Scheme (NPS) investments u/s 80CCD(1B) | -50,000 |
| Gross Salary | 5000000 |
| Less: Exemptions | |
| HRA | 320000 |
| LTA | 80,000 |
| Reimbursements | 52,000 |
| Children education and hostel allowance | 9,600 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Taxable Salary Income | 44,86,000 |
| Less: Deductions | |
| 80C (Refer Note below) | 1,50,000 |
| 80D | 50,000 |
| 80E | 22,000 |
| Net Taxable Income | 42,64,000 |
| Tax on the above income | 11,35,368 |
| Rebate u/s 87A | Not applicable |
| Total Tax | 11,35,368 |
| Individuals can also claim these deductions: | |
| Interest on home loan deduction u/s 24b | -2,00,000 |
| Home loan 80EEA | -1,50,000 |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | -50,000 |
While calculating income tax, a few basic terminologies should be kept in mind. Here’s a list:
The tax year is the previous financial year for which the income tax is calculated. The financial year starts on April 1 and ends on March 31 of the next year. So if you are calculating your income tax in 2023, you need to take your salary income from April 1, 2022, to March 31, 2023.
Assessment year is a very popular term, but it confuses most people. The assessment year is not the same as the financial year. An assessment year starts after the previous financial year is over. The year in which income tax is calculated for the previous financial year is called the assessment year. So, if you are calculating your salary income tax for the financial year 2024-25, then your assessment year will be 2025-26, and the due date for filing your ITR without any penalty will be 31st July 2024.
The first step towards calculating your income tax on salary would be to get a hold of your salary breakup. The salary breakdown is available on the salary slip or salary statement. If you don’t have those, go to your HR and ask for them. By closely examining the slip or the statement, you will understand the major components and the basic structure of your salary. The tax exemptions on salary available to you, like HRA (House Rent Allowance), LTC Leave travel concession, etc., will be helpful for you while calculating the tax.
Once you have the breakup of your salary, you need to calculate your taxable income. Taxable income is the income on which you need to pay tax, which includes all other incomes apart from your salary.
| Income Source | Description |
|---|---|
| Income from Salary | All income you receive from your job like salary, leave encashment, allowances, and so on. |
| Income from House Property | Income from house or land (rented or self-occupied) |
| Income from Business/Profession | Earnings from business or profession |
| Income from Capital Gains | Earnings from the sale of a capital asset |
| Income from other sources | Residual income like earnings from the fixed deposit, gifts, pension, etc. |
Income tax is not just about paying money to the government. It is also about all the savings you get to do because of the income tax deductions. These deductions are available under chapter VIA of the Income Tax Act and are subtracted to get to the taxable income.
Taxable Income = Gross Income – Deductions
(Gross income is the sum of all the incomes from all the sources)
To calculate the taxable income, you need to have detailed knowledge about Section 80, “the best friend of taxpayers.” This section includes all types of deductions like investments made on mutual funds, life insurance policies, interest on savings, PPF, NSC, SIPs, home loans, health insurance, pension schemes, etc.
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TDS or Tax Deducted at Source means the tax is deducted directly from your salary. To maintain a hassle-free tax pattern, most employers use TDS. Don’t worry; you get a refund on this, so if there is a chance that more TDS has been deducted, it can be claimed back as a refund by filing the income tax return. To avoid TDS, you can also show the documents in advance.
As per the announcement in the Budget 2023-24, in non-PAN cases, the TDS rate has been reduced from 30% to 20% on the taxable portion of EPF withdrawals. (No TDS is deducted if withdrawal is made after five years.)
The last and final step is to calculate the tax payable. After you deduct all the applicable deductions and TDS, the amount you get is the tax amount you need to pay to the Indian government. If your total income is less than 2.5 lakhs, then you do not need to pay any income tax under the old tax regime. Budget 2023-24 makes the new tax regime a default regime. According to the new tax regime, a tax rebate of up to 3 lakhs is applicable. Beyond this limit, you are liable to pay income tax according to your salary slab. The tax rate for a salaried individual (under 60 years) as per the old regime is as follows:-
| Income Slab | Tax Rate |
|---|---|
| Up to 2.5 lakhs | None |
| 2.5 lakhs – 5 lakhs | 10% of exceeding amount |
| 5 lakhs – 10 lakhs | 20% of the exceeding amount |
| Above 10 lakhs | 30% of the exceeding amount |
| Tax Slab for FY 2023-24 | Tax Rate | Tax Slab for FY 2024-25 | Tax Rate |
|---|---|---|---|
| Upto ₹ 3,00,000 | Nil | Upto ₹ 3,00,000 | Nil |
| ₹ 3,00,000 - ₹ 6,00,000 | 5% | ₹ 3,00,000 - ₹ 7,00,000 | 5% |
| ₹ 6,00,000 - ₹ 9,00,000 | 10% | ₹ 7,00,000 - ₹ 10,00,000 | 10% |
| ₹ 9,00,000 - ₹ 12,00,000 | 15% | ₹ 10,00,000 - ₹ 12,00,000 | 15% |
| ₹ 12,00,000 - ₹ 15,00,000 | 20% | ₹ 12,00,000 - ₹ 15,00,000 | 20% |
| Above 15,00,000 | 30% | Above 15,00,000 | 30% |
To reduce taxes, it is highly important to understand the salary structure:-
Every citizen wants to increase their income and, at the same time, pay less tax. There are some ways to do this. These tax-saving methods save money for your future and also save a significant amount on income tax. Some of the most popular tax savings instruments are
These deductions are:
| Section | Maximum Limit | Deductions |
|---|---|---|
| Section: 80C | 1,50,000 | ULIP, ELSS, NSC(National Saving Certificate), the Employee share of PF, LIC Premium, Children’s tuition fees, Home loan principal repayment, 5-year tax saving FD, purchasing of a deferred annuity, Senior citizen’s saving scheme (SCSS), Sukanya Samriddhi Yojana (SSY), Pension fund set up by UTI or mutual fund, annuity plan of LIC, Subscription to Home Loan Account |
| Section: 80CCC | NA | |
| Section: 80CCC | NA | On the amount deposited in the annuity plan of LIC or any other insurance plan for a pension fund. |
| Section: 80CCD(1) | - 1,50,000 -10% of salary (in case the taxpayer is an employee) -20% of gross total income (in case of self-employed) Least of the above | Employee’s contribution to NPS account |
| 80CCD(2) | 10% salary | Employer’s contribution to NPS |
| Section: 80CCD(1b) | 50,000 | Any other contribution to NPS by employee |
| 80TTA(1) | 10,000 | Income from interest earned on savings account |
| 80TTB | 50,000 | Interest received from banks, post office, etc. but applicable only to senior citizens |
| Section: 80GG | 5000 per month / 25% of adjusted total income rent paid – 10% of adjusted total income (W.E.L.) | For rent paid when HRA is not received from an employer |
| Section: 80E | Amount equal to the interest paid every year (for a maximum 8 years) | Interest paid on education loan |
| Section: 80EE | 50,000 | Interest paid on home loans by the first time homeowners subject to specified conditions |
| Section: 80D | 25,000 | Medical insurance of self, spouse and children |
| Section: 80D | 50,000 | Medical insurance of parents over 60 years or uninsured parents over 80 years of age. |
| 80DD | 75,000 | Medical treatment of handicapped dependent |
| Section: 80DD | 75,000 (40%-80% disability), ` 1,25,000 (more than 80%) | Payment made to specific scheme taken for the maintenance of handicapped dependent |
| Section: 80DDB | 40,000 or the amount paid (w.e.l.) | Medical expense on self or dependent less than 60 years old |
| Section: 80DDB | 1,00,000 or the amount paid (w.e.l.) | Medical expense on self or dependent more than 60 years old |
| Section: 80U | 1,25,000 (severe disability), ` 75,000 (less severe disability) | Self-suffering from physical disability including blindness and mental instability |
| Section 80 G | NA | various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction |
| Section: 80GGB | Contributed amount (Not in cash) | Contribution made to political parties by companies |
| Section: 80GGC | Contributed amount (Not in cash) | Contribution made to political parties by individuals |
| Section: 80RRB | Income received / Rs 3,00,000 (w.e.l.) | Income received from royalty or patent |
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Income tax on salary is calculated based on the income earned and the applicable tax rates. The tax rates are determined by the government and are based on income slabs. The income tax calculation is done based on the following formula: Taxable Income = Gross Salary - Deductions; Income Tax = (Taxable Income x Applicable Tax Rate) - Tax Rebate.
Anyone with taxable income can use the Tax2Win Income Tax Calculator, whether they are salaried employees, self-employed professionals, or individuals with income from other sources.
This tool is especially helpful for those looking to plan their taxes efficiently and maximize their savings by making informed investment decisions.
Gross salary is the total salary earned by an individual before any deductions or taxes are applied. It includes basic salary, allowances, bonuses, and other benefits.
Deductions from salary are amounts that are subtracted from an individual's gross salary before income tax is calculated. These include contributions to provident fund, health insurance, and other deductions as per the applicable laws.
If your gross total income exceeds the limit of the exemption limit, then you are liable to pay the income tax.
Additionally, if you have the following you must file an ITR:
To boost your in-hand salary, you can use India’s first tax planning optimizer tool that plans your investments and saves more money using recommendations provided by the tool. For instance, if you are still determining the most suitable tax regime, it will suggest the most tax-effective tax regime based on your income and investments. This tool will also analyze the additional deductions you can further avail to obtain tax relief and get a higher in-hand salary.
The new tax regime doesn’t include all the deductions and exemptions that the old regime contained. However, with the new tax regime, the tax rates are further reduced, So it totally depends on your choice which regime will suit you the best.
Each month, your employer withholds a segment of your salary and forwards it to the income tax department in your stead. Your employer calculates the TDS deduction from your salary monthly, factoring in your annual salary and investments in tax-saving products.
Gross Salary constitutes the taxable amount, whereas CTC includes non-taxable elements like provident fund and gratuity. While Gross Salary is pivotal in income tax calculations, CTC does not factor into any tax assessments.