Hello,
Calculating income tax for a salaried individual in India involves several steps due to the various components of the salary and the different tax slabs laid out by the Indian government. Here's a simplified step-by-step guide on how to calculate the income tax:
🔔 Step 1: Identify your Gross Salary
This is the sum of Basic salary, Dearness Allowance, House Rent Allowance, Transport Allowance, and other allowances. Please note that some components are exempted from tax under certain conditions.
🔔 Step 2: Deduct the Exemptions of House Rent Allowance (HRA), Leave Travel Concession (LTC), etc
If you receive HRA and live in a rented house, you could claim exemption on it. The amount of HRA exempted is the minimum of:
- Actual HRA Received
- 50% of Salary (Basic + DA) for those living in metro cities (40% for non-metros)
- Rent paid minus 10% of salary (Basic + DA)
🔔 Step 3: Calculate the Deductions
Under section 80C, 80CCC, and 80CCD(1), you can claim a deduction of up to INR 1.5 lakh for certain investments, payment towards EPF, PPF, life insurance premium, home loan repayment, etc.
🔔 Step 4: Compute your taxable income
Subtract the exemptions (Step 2) and deductions (Step 3) from the Gross Salary (Step 1). This gives you your taxable income.
🔔 Step 5: Apply the tax rates
The tax slabs for FY 2020-2021 (AY 2021-2022) for individuals below 60 years are:
- Up to INR 2.5 lakhs: Nil
- INR 2.5 lakhs to INR 5 lakhs: 5%
- INR 5 lakhs to INR 10 lakhs: 20%
- Above INR 10 lakhs: 30%
Calculate the tax based on these slabs on your taxable income.
🔔 Step 6: Add Cess
Add Health and Education Cess at the rate of 4% on the income tax computed.
That's it! The result will be your tax liability for the year. Please note that this is a general guideline and individual circumstances can affect the exact calculations. Always consult with a tax professional for accurate information.