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How do you calculate tax?
It is a great feeling to be paid at the end of every month. However, if you are a salaried individual, chances are there will be a deduction of tax from your salary before it gets credited in your bank account. Therefore, it is extremely important for you to know how to calculate your Income Tax Liability. The first and foremost thing that you need to do is to determine the tax slab, that is applicable to you as per your annual from various sources. This gives you an idea about your tax liability and also which form you need to file for e-filing your Income Tax Return. Once you determine your tax slab, you need to furnish proofs of the investments that you have made so that your employer considers these investments, while deducting TDS from your salary. Declaring your investments is always a good idea since it saves you the hassle of claiming refunds later in the filing process. Your salary mainly consists of your gross salary, provident fund, insurance, pay for leaves taken, gratuity, employee state insurance and labor welfare fund.
The deductions on your income are stated in Section 16 of the Income Tax Act, 1961. Let’s take a look at some of these deductions –
- Entertainment Allowance under Section 16 (ii) of the Act – this deduction is only available for Government employees. The deduction made in this case would be either 1/5th of the salary excluding the benefits/perquisites or other allowances or Rs.5,000, whichever is less.
- Tax on Employment under Section 16 (iii) of the Income Tax Act, 1961 – the professional tax is allowed as a deduction while calculating income from salary.
Here is the tax slab that is applicable for the Financial Year 2018-19: -
Income tax slab for individual taxpayers & HUF (below 60 years old)
| Income Slab | Tax Rate |
| Income up to Rs.2.5 lakh* | No Tax |
| Income from Rs.2.5 lakh – Rs.5 lakh | No Tax |
| Income from Rs.5 lakh – Rs.10 lakh | 20% |
| Income more than Rs.10 lakh | 30% |
| Surcharge | 10% of income tax, where total income is between Rs. 50 lakh and Rs.1 crore. 15% of income tax, where total income exceeds Rs.1 crore. |
| Cess | 4% on total of income tax + surcharge. |
Income tax slab for individual taxpayers & HUF (60 years old or more but less than 80 years old)
| Income Slab | Tax Rate |
| Income up to Rs.3 lakh* | No Tax |
| Income from Rs.3 lakh – Rs.5 lakh | No Tax |
| Income from Rs.5 lakh – Rs.10 lakh | 20% |
| Income more than Rs.10 lakh | 30% |
| Surcharge | 10% of income tax, where total income is between Rs. 50 lakh and Rs.1 crore. 15% of income tax, where total income exceeds Rs.1 crore. |
| Cess | 4% on total of income tax + surcharge. |
Income tax slab for super senior citizens (80 years old or above
| Income Slab | Tax Rate |
| Income up to Rs.2.5 lakh* | No Tax |
| Income from Rs.5 lakh | No Tax |
| Income from Rs.5 lakh – Rs.10 lakh | 20% |
| Income more than Rs.10 lakh | 30% |
| Surcharge | 10% of income tax, where total income is between Rs. 50 lakh and Rs.1 crore. 15% of income tax, where total income exceeds Rs.1 crore. |
| Cess | 4% on total of income tax + surcharge. |
Ways to Calculate Income Tax in India
The total income tax is calculated by applying all the deductions and allowances, such as HRA, LTA and Interest on Home Loan etc. The Interest on Home loan and other deductions are adjusted from the total income that is the gross salary and the income from other sources.
After that the income tax is calculated as per the tax slab under which your income falls + 4% Cess.
You can calculate your Income Tax Liability by using All India ITR’s Income Tax Calculator.
