One of the most common questions that pops up during the tax filing season is ” What is my taxable income and how much I need to pay tax ?? ” and to know your taxable income & amount of tax to be paid is considered to be the most tedious & complex work for any layman. Most of us feel that only CA’s can do this task.
But now your problem has been solved. No need of CA!!
You can calculate by yourself your taxable income and know how much tax you need to pay to Income Tax department for your income tax FY 2017-18.
This article will help you determine your taxable income, will explain the different tax slabs that apply to taxpayers and your tax amount that you will need to pay.
So to calculate income tax FY 2017-18, you need to follow below steps:
- Calculate Total Income
- Calculate Total Exemptions
- Calculate Total Deduction
- Total Taxable income = Total Income – Total Exemption – Total Deduction
- Calculate Income Tax from Total Taxable Income and applicable slab.
- Calculate Rebate, Surcharge if applicable
- Calculate Cess on Income Tax
- Total Tax = Income Tax – Rebate + Surcharge + Cess
Before knowing how to calculate taxable income from salary, however, you need to first calculate your total income.
1. Calculate Total Income
To calculate your total income, first step is to divide your income into following sections:
- 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)
2. Calculate Total Exemptions
Lets understand what is exemption ??
Exemption literally mean “The action of freeing or state of being free from an obligation or liability imposed on others”. But in income tax language, exemption means part of fixed amount you can deduct from your salary for income tax calculation if it is given to you as part of allowance by your employer and you also have receipt of actual expense incurred to you.
So in short, if it is there in your allowance and you have bills for that then you can deduct from your salary.
But you can not deduct entire amount given as allowance or actual expense incurred. There is limit/cap of fix amount you can consider as exemption.
For each allowance there is different exemption limit. So lets check different exemption limits for various allowance.
HRA exemption is divided in major two portion metro and non-metro. HRA is calculated as the lower of the following three:
-> Actual HRA
-> 50% of the Basic pay (in metro) or 40% of the Basic pay (in non-metro)
-> Actual rent paid minus 10% of Basic + DA
Other exemption limit as per income tax norms:
|Children Education Allowance||100.00 per Child upto 2 children||1200.00 per Child upto 2 children|
3. Calculate Total Deductions
Deductions are also amount you can claim from your total income tax. Deductions are different than exemptions. In exemption, you can claim if and only if it is given by your employer as allowance but deduction you can claim irrespective of provided by employer. Although deduction are subject to actual spending and limits.
In income tax there are many deductions but we will go through only well known and generally applicable deductions.
– Deduction under 24B (Home loan interest paid)
– Deduction under 80C (Investment in EPF, VPF, PPF, Sukanya Samriddhi scheme, NSCs, Insurance Premium, etc.)
– Deduction under 80CCD(1b) (Additional contribution to NPS)
– Deduction under 80CCD(2) (Employer’s contribution to NPS account)
– Deduction under 80D (Investment under Medical Insurance)
– Deduction under 80DD (Deductions for disease and medical expense)
– Deduction under 80E (Interest paid for higher education loan)
– Deduction under 80EE (Interest on home loan for first time home owners)
– Deduction under 80DDB (Deductions for dependents’ disease)
– Deduction under 80G (Deductions for donations paid)
– Deduction under 80TTA (Interest received on savings account)
– Deduction under 80U (Deductions for disability)
4. Total Taxable income
Total taxable income is nothing but total income less exemptions less deductions.
5. Income tax slabs
To calculate income tax FY 2017-18, we have to select tax slab that fits to an individual.
6. Calculate Rebate and Surcharge
Rebate is extra benefit given by government if your taxable income is less then Rs 3.5 lakhs and it is deducted from calculated income tax. While surcharge is additional tax charged by government if your taxable income is more than Rs 50 lakhs in FY 2017-18.
7. Calculate Cess on Income Tax
After deduction, rebate or adding surcharge we have to calculate Secondary Education cess which is 2% of total income tax and Higher Secondary Education cess which is 1% of total income tax. Both are added in total income tax to arrive at final income tax to be paid.
Lets go through an example to understand each concept thoroughly.
Amee receives a (Basic+DA) salary of Rs 5,00,000 (3,00,000 + 2,00,000) per annum. She has 2 children.
Following are the allowances mentioned on her payslip:
HRA : Rs 25,000 per month [ Rs 3,00,000 annually ]
Medical allowance : Rs 1,500 per month [ Rs 18,000 annually ]
Transport allowance : Rs 8,000 per month [ Rs 96,000 annually ]
Children Education allowance : Rs 200 per month [ Rs 2400 annually ]
Uniform allowance : Rs 833 per month [ Rs 10,000 annually ]
She pays a rent of Rs 20,000 per month and lives in Mumbai. She also pays professional tax of Rs 2400 per annum. Other expenses are school fees of Rs 40,000, doctor fee of Rs 20,000 and office outfit bills of Rs 10,000.
During the year, her income from a savings account is Rs 8,400. She has a fixed deposit (FD) that gives her an annual interest income of Rs 10,000.
She also invested Rs 1,22,000 in Employees’ Provident Fund (EPF), Rs 20,000 in tax-saving mutual funds, Rs 8,000 in LIC premium and Rs 12,000 in Medical Insurance during the year.
1. Calculate Total Income
So Amee’s total annual income from salary is :
|Basic + DA Salary||Rs 5,00,000.00|
|Medical allowance||Rs 18,000.00|
|Transport allowance||Rs 96,000.00|
|Children Education allowance||Rs 2400.00|
|Uniform allowance||Rs 10,000.00|
Her major income is considered as income from salary. While income from other sources are Rs 18,400.00 which is sum of interest amount of Rs 8,400.00 from savings account and fixed deposit interest income of Rs 10,000.00
2. Calculate Total Exemptions
Her expenses are house rent, doctor fees and medical bills, children education tuition fees and office outfit bills. She can not directly deduct from income for calculation of income tax. These expenses can be availed as part of exemptions and there are certain limits with each for how much you can claim.
Amee’s Basic+DA is Rs 5 lakhs, house rent allowance is Rs 3 lakhs, actual rent paid is Rs 2.4 lakhs and she lives in Mumbai.
-> Actual HRA = Rs 3 lakhs
-> 50% of Basic+DA as Mumbai is a metro city = Rs 2.5 lakhs
-> The actual rent paid is Rs 20,000 per month. This amounts to a yearly rent of Rs 2.4 lakhs. So, Rs 2.4 lakhs minus 10% of Basic+DA comes to Rs 1.9 lakhs.
So Rs 1.9 lakhs is the minimum amount, and hence it will be used for tax exemption.
Bill Paid (Rs)
|Transport allowance||96,000.00||Not Required||19,200.00|
So total exemptions she can get
3. Calculate Total Deduction
EPF : Rs 1,22,000
ELSS : Rs 20,000
LIC premium : Rs 8,000
Medical Insurance Premium : Rs 12,000
Here are the deductions Amee can claim :
|Applicable section of deduction||Maximum Deduction||Investments / Expenses||Amount claimed by Amee|
|Section 80C||Rs 1,50,000/-|
EPF Rs 1,22,000
ELSS Rs 20,000
LIC premium Rs 8,000
|Section 80D||Rs 25,000/- for self||Medical insurance premium Rs 12,000||Rs 12,000|
|Section 80TTA||Rs 10,000/-||Savings account interest Rs 8,400||Rs 8,400|
Total deductions is Rs 1,70,400.00
4. Total Taxable income
Now we calculate gross taxable income
Gross Taxable Income = Gross Total Income – Exemptions – Deductions
|(A) Income from Salary||Rs 9,46,000.00|
|(B) Income from Other Sources||Rs 18,400.00|
|(C) Gross Total Income (A+B)||Rs 9,64,400.00|
|(D) Exemptions||Rs 2,36,600.00|
|(E) Deductions||Rs 1,70,400.00|
|(F) Gross Taxable Income (C-D-E)||Rs 5,57,400.00|
5. Calculate Income Tax from Total Taxable Income and applicable slab, Rebate & Surcharge if applicable and Cess on Income Tax
Now, you can calculate the tax amount to be paid under Indian IT laws using the current, applicable tax rates of income tax FY 2017-18.
Now, to calculate income tax FY 2017-18 for Amee, here are the calculations :
0 to Rs 2,50,000
0 [ 2,50,00 * 0% ]
Rs 2,50,000 to Rs 5,00,000
12,500 [ 2,50,000 * 5% ]
Rs 5,00,000 to Rs 10,00,000
11,480 [ 57,400 * 20% ]
Rs 10,00,000 to Rs 50,00,000
Rs 50,00,000 to Rs 1,00,00,000
30% + 10% Surcharge
More than Rs 1,00,00,000
30% + 15% Surcharge
Rebate u/s 87A
2% of total tax
Rs 480 [ 23,980 * 2% ]
Secondary & Higher Education Cess
1% of total tax
Rs 240 [ 23,980 * 1% ]
Total Income Tax to be paid
Rs 23,980 + Rs 480 + Rs 240
So Amee needs to pay Income Tax of Rs 24,700
But as she already paid Rs 2400 as professional tax during the year so it will be deducted from calculated income tax FY 2017-18.
Income tax to be paid
Rs 24,700.00 – Rs 2,400.00 = Rs. 22,300.00
Hence, she needs to pay tax of Rs 22,300 only.
So far we have seen how to calculate your income tax.
Are you still having problems on how to calculate your income tax FY 2017-18??
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