Calculating your Income Tax may seem like a daunting task! But, if you have some necessary info and an Income Tax calculator (you’ll find many online), it’s actually quite easy. Let us help you.
Income tax is a reality! And whether you like it or not, you’re going to be giving away a part of your money as tax every year. But there are ways to cut down on the amount of money you give away as tax every year. For instance, you could invest in any tax-saving product such as a tax-saver Fixed Deposit!
Additional Reading: Last-Minute Investments To Save On Income Tax
Anyway, before we discuss the different ways to cut down on your yearly tax outgo, let’s find out how your income tax is calculated. The tax that you pay on a yearly basis depends on your gross total income. The total tax amount is calculated according to income tax slabs, which our government announces in the yearly Union Budget. However, there were no changes made to the tax slabs in this year’s Union Budget.
Anyway, here’s a quick look at the IT slabs (FY 2018-19; AY 2019-20):
Income Tax Slab For Resident Individuals Below 60 Years (General Category)
| Income (Yearly) | Tax Rate |
| Below Rs. 2,50,000 | Nil |
| Rs. 2,50,000 to Rs. 5,00,000 | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Income Tax Slab For Individuals Above 60 Years But Below 80 Years
| Income (Yearly) | Tax Rate |
| Below Rs. 3,00,000 | Nil |
| Rs. 3,00,000 to Rs. 5,00,000 | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Income Tax Slab For Resident Individuals Above 80 Years
| Income (Yearly) | Tax Rate |
| Below Rs. 5,00,000 | Nil |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Up until the new budget, a cess of 3%, which included a 2% Education cess and a 1% Secondary and Higher Education cess, was applicable on the tax rate. In addition, a surcharge was applicable for income over Rs. 1 crore. These were added to the final income tax amount that you paid. However, this year’s Union Budget increased the cess on income tax to 4%.
Plus, the Union Budget 2018 introduced a flat standard deduction of Rs. 40,000 for salaried folks towards their employment-related expenses. This will replace travel allowance and medical expense reimbursements.
Let’s take the example of Shrutika, a Digital Marketer, working in an MNC in Chennai. She is 26 years old and her annual income is Rs. 8,00,000. According to the income tax slabs mentioned earlier, here’s how much tax she will be paying if she doesn’t plan her taxes:
| Total Taxable Income | Income Tax Payable |
| Rs. 8,00,000 | Rs. 75,400 |
Shrutika will have to pay Rs. 75,400 as income tax. Remember that this tax amount that Shrutika is liable for is without taking into consideration her other income sources, if applicable. It also doesn’t consider any deductions related to her investments, contributions, donations, medical claims, etc.
An individual can have about five different sources of income – Income from Salary, House Property, Business/Profession, Capital Gains and Other Sources. Her total Income Tax amount is likely to increase or decrease depending on her income sources and deductions.
On a positive note, our government doesn’t like to burden us with a lot of taxes. This is one of the reasons why they have listed different investment avenues under section 80C (and a few other sections) that can help you cut down on your total income tax, provided you invest in them. However, it is necessary to understand these investments and choose from them based on your goals and risk appetite.
Additional Reading: Tax-Saving Investments to Grow Your Wealth
Now, let us consider a scenario wherein Shrutika claims a few deductions, as listed below:
| Particulars | Investment Amount (in Rupees) | Amount (in Rupees) |
| Salary | 8,00,000 | |
| Income From Other Sources | – | |
| Income From House Property | – | |
| Income From Business | – | |
| Income From Capital Gains | – | |
| Net Taxable Income | 8,00,000 | |
| Deduction Under Section 80C | ||
| PPF Contribution | 20,000 | |
| ULIP | 30,000 | |
| NPS Contribution | – | |
| ELSS Funds | – | |
| Children’s Tuition Fees | – | |
| Life Insurance Premium | 1,00,000 | |
| Tax-saver Fixed Deposit | – | |
| Other Deductibles | – | |
| Deduction Under Chapter VI A | ||
| Medi-claim Premium (Section 80 D) | 15,000 | |
| Contribution to Pension Account (Section 80CCD) | – | |
| House Rent Paid (Section 80GG) | – | |
| Interest On Deposits In Savings Account (Section 80TTA) | – | |
| Total Deduction | 1,65,000 | |
| Total Taxable Income | 6,35,000 |
(The above table doesn’t mention all the different avenues available for tax deduction)
With proper tax planning, Shrutika’s total taxable income will be reduced to Rs. 6,35,000. So, here’s how much tax she will be paying for the year:
| Total Income | Total Taxable Income | Total Tax Amount |
| Rs. 8,00,000 | Rs. 6,35,000 | Rs. 41,080 |
Eventually, she’ll be paying only Rs. 41,080 in tax with little planning, as compared to Rs. 75,400 she would have had to pay if she hadn’t planned her taxes at all.
Having trouble with the calculations? There are a number of Income Tax calculators available online which can help you with the calculations. Try our very own calculator here.
There are also quite a few components in your salary that can help you avail tax exemptions. In short, your salary isn’t completely taxable. For example, Employees’ Provident Fund (EPF) and House Rent Allowance (HRA) are a few sought-after tax exemption components in your salary. If you partially or completely deduct these from your annual salary, only the remaining amount will be considered as your taxable income.
Bonus Read: Deciphering Your Salary Slip
Aren’t you all wised-up about how to calculate your Income Tax? We bet you are! Anyway, please do consider the different pre-determined tax reduction avenues and tax-saving investment options listed under section 80C if you want to save on taxes.