Utilize efficient online tax calculators to make tax calculation simpler and help you with the nitty-gritties of tax calculation.
Each year, as the deadline to file TAX Returns (ITR) approaches, most employed Indians make a run because of their personal Chartered Accountant or a financial advisor to evaluate the tax clutter and retrieve a few of what they have paid as taxes. But aside from delegating this responsibility to a professional financial planner, it is essential that additionally you understand the tax code yourself.
A precise and thorough knowledge of the tax structure and the overall tax system in India, gives you a thorough idea of all that is involved in the tax calculation process. In the process, you discover ways to save lots of and decrease the tax out-go by yourself.
Things to remember
The very first thing that must be kept in mind while calculating is that tax in India follows a slab structure, i.e., it is calculated in income ranges or groups.
The Indian Finance Minister introduced a fresh slab structure in the Union Budget 2020 for the Financial Calendar year 2020 – 21. According to this tax system amendment, taxpayers in India shall follow either of both slab structures for income tax calculation – the prevailing income slabs or the new slab structure.
Based on the latest income slab structure for Financial Season 2020 – 21, income above Rs. 5 lakhs and up to Rs. 7.5 lakhs will be taxed at 10%, whereas a 15% tax rate will be levied on income between Rs. 7.5 lakh and Rs. 10 lakhs.
However, as per the recent tax system, 70 of the prevailing 100 tax exemptions and deductions will never be available to taxpayers who choose to file their tax based on the latest income slabs. When you have only a small number of investments and spending that be eligible for existing tax exemptions, you’ll be able to benefit from the new income slab composition. Alternatively, if you have channelled your earnings towards several qualifying investments and approved spending, you’ll be able to follow the previous slab structure to avail tax exemptions.
Here are five easy steps to keep in mind while calculating your tax this season.
Calculate your gross total income by including any and every taxable income from all sources.
Add the excess income of interest, commission, bonuses, rental income and capital gains if any.
Take note of your net deductions that may include HRA, conveyance and medical expenses, donations, investments and savings such as provident fund subscriptions and life insurance premiums. The difference between your gross salary and online deductions will give you your online taxable income.
All of those other process is simple. You merely need to use the tax slab matching to your aggregate income to calculate the payable amount.
Yet another 3% of Education Cess is applied on the tax payable. Only once you compute all of this,you will arrive at the full total tax payable. Tax rebates or reliefs, if any, would be applicable upon this amount.
If this sounds too vague, let’s have a look at this hypothetical circumstance.
Rasheed’s gross salary per annum amounts to Rs. 15 lacs. Let’s assume that his online taxable income boils down to Rs. 11 lacs after exemptions and deductions.
The original Rs 2.5 lacs which is tax-free leaves Rs. 8.5 lacs.
Again, Rs 2.5 lacs out of this slab is subject to 5% tax (if he chooses the existing tax regime), going out of Rs 6 lacs of income taxable on the next slab, as the tax at this time amounts to Rs. 12,500.
On deducting the tax, the rest of the amount of Rs 6 lacs is again split in two, which Rs.5 lacs is at the mercy of the 20% slab.
At this point, the rest of the Rs 1 lac would be at the mercy of 30% tax (Rs.30,000).
The tax liability will be the sum of all four taxes calculated at various stages;, i.e. 12,500+ 1,00,000+30,000 = Rs.1,42,500
After applying a 4% cess tax upon this amount, the full total tax comes to Rs. 148200.
Nowadays, you can employ efficient online tax calculators to make this even simpler and help you with the nitty-gritties of tax calculation. Income Tax calculator is one particular holistic tool that not only can help you with calculating your gross annual tax returns and liabilities, but also in financial planning. You need to enter the parameters and leave the others to the calculator. Tax calculation hasn’t been easier and knowing the intricacies than it enables you to have a transparent idea of how a lot of it is redeemable when you apply for tax returns.
Besides, buying Provident Community Funds (PPF), Equity Linked Cutting down Schemes (ELSS) or National Cutting down Certificates (NSC) can help in effectively cutting down taxes. Even life and medical health insurance schemes can act as tax saving instruments. Aegon Life’s iCancer plan, for example, gives you to claim tax benefits on the rates under Section 80D of the TAX Action, thus offering health as well as financial security.