Understanding Income Tax: How Are Deductions Calculated on a 2.25 Lakh CTC?

Hi, I am Swati. I want to know how income tax is calculated and what deductions apply. My CTC is 2 lakhs 25 thousand. Please provide me with the provision and deduction details. Thank you.

Regards,
Swati

IT tax calculations are available on the official website of the IT department. The calculator is also available there. By the way, in 2.25 LPA, you have 2.25-1.9 = 35000, which is only taxable according to the 2010-11 taxation slab. After that, you have 1 lakh to save in different options, so you can save the whole 35000 in PPF or other insurance sectors to save tax. Otherwise, you have to pay 10% of 35000, i.e., 3500 for the whole year.

Dear Swati,

I think your CTC of Rs. 2,25,000 is for one month. If it is so, the annual income will be Rs. 27 lakhs.

I shall insert an Excel worksheet for Income Tax Calculation on salary for the Financial Year 2010-11 (Assessment Year 2011-12). Prior to that, I wish to explain some details to get an idea to enter the inputs.

On gross salary, the following deductions are applicable:

1) Professional Tax

2) House Rent in excess of 1/10th of salary subject to ceiling equivalent to HRA

3) Interest on Housing loan subject to ceiling Rs. 1,50,000

4) Refund on Housing loan, savings, tuition fee for 2 children, etc., altogether subject to ceiling Rs. 100,000

5) In addition, savings on infrastructure bonds up to Rs. 20,000

6) Other than the above one lakh, 15000 to 20000 towards mediclaim premium, 40000 to 60000 towards treatment for specified diseases like Motor Neuron disease, 75000 to 100,000 towards disability, etc. are also admissible for deduction.

Now taxable income can be calculated as follows:

Gross salary - total deductions = Taxable income

Taxpayers can be categorized into 3:

1) Non Seniors - Male

2) Non Seniors - Female

3) Senior Citizens (65 years old & above)

If the taxable income is Rs. 2,40,000, a Senior Citizen is fully exempted from paying tax. Non-Senior Female has to pay in excess of Rs. 1,90,000 & Non-Senior Male in excess of Rs. 1,60,000.

Beyond the above income, one has to pay 10% up to Rs. 5,00,000, 20% thereafter up to Rs. 8,00,000, and 30% in excess of Rs. 8,00,000. In addition, an education cess @ 3% will be charged on Total Tax.

I shall provide an example:

Gross income of a Non-Senior Male - Rs. 12,00,000

Deductions (actual): Professional Tax - 12000, Housing loan interest - 2,00,000, Total savings/deductions - 2,50,000, Savings on Infrastructure bond - 25,000, other deductions over 1,00,000 - 50,000.

Admissible total deductions (subject to ceiling limits) - 12000 + 150000 + 100000 + 20000 + 50000 = 332000

Taxable income, 1200000 - 332000 = 868000

For Non-Senior Male:

Rs. 1,60,000 is exempted. For the next 340000 (500000-160000), 340000 x 10% = 34000 -(1). For the next 300000 (800000-500000), 300000 x 20% = 60000 -(2). For the next 68000 (868000-800000), 68000 x 30% = 20400 -(3). Tax - (1)+(2)+(3) = 114400

Also for Non-Senior Female Tax is, 114400 - 3000 = 110400, and Senior Citizens Tax is, 114400 - 8000 = 106400

Education Cess, 114400 * 3% = 3432.

Total Tax - Rs. 1,17,832

Please see the Excel Sheet. Enter gross salary and deductions/savings applicable in the green color column. Results will be shown in the yellow color. The red color is used for static data.

ABBAS.P.S,

ITI Ltd, PALAKKAD - 678 623,

KERALA, INDIA.

Ph. +91 9447 467 667

Hi Swati,

I think you have received the salary breakup for 2.25 Lacs. Some heads will get exempted under Section 10, i.e., HRA, conveyance, CEA, etc. Abbas had given a detailed explanation of various deductions under income tax. After incorporating all the deductions, if your taxable income goes beyond the taxable limit, i.e., 190,000/- (female assessee), then tax will be applicable to you.

Regards,

Siji

Thank you for the detailed explanation on the taxable amount and the specific categories it falls under. I appreciate the guidance you have provided, and I now feel confident in my ability to calculate taxes for any CTC.

Thanks once again.

Regards

Thank you. I also received good information from you. In simple language, what will be my taxable amount, and in what way and where can I get the money at the end of the year? Nice explanation.

Thanks once again for giving me valuable information.