How to Calculate Income Tax on Your Salary?

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You must have made several tax-saving investments in the past year to save on taxes. But can you keep up with all the tax deductions and exemptions you are supposed to claim? So, before filing your Income Tax Returns, here is how you can calculate the tax applicable on your salary.

Taxable Income Estimation

You can calculate your tax liability by considering factors like your annual income, the tax slab applicable to your income, eligible tax deductions under Section 80C and Section 80D. You have certain allowances allotted in your salary that give you tax benefits like Leave Travel Allowance (LTA) and House Rent Allowance (HRA). Let’s consider the below-given example is your salary break up:

Components Amount
Basic INR 40,000
HRA INR 12,000
Special Allowance INR 6,000
LTA INR 27,000 (Yearly)

Now, from the annual salary earned by you, the amount of taxable income is as given-below:

Components Amount (per annum) Exempted Amount Taxable Amount
Basic INR 4,80,000 INR 4,80,000
HRA INR 1,44,000 INR 84,000 INR 60,000
Special Allowance INR 72,000 INR 72,000
LTA INR 27,000 (Yearly) INR 18,000 INR 9,000
Standard Deduction INR 50,000
Gross Total Taxable Salary INR 6,21,000

What is the Total Income Tax Liability?

To accurately calculate the tax applicable on several of your income sources, you need to follow the below-given aspects:

  • Salary – Income paid by your employer
  • Income earned from a property – Money earned from rented properties and the interest paid for repaying a home loan
  • Income earned from other business – freelancing
  • Income earned from other sources – interest earned on a savings account, fixed deposit or bonds
  • Income earned from capital gains – sale purchase of any house or shares

Now, let’s consider the various tax-savings instruments that you have invested in like Employee Provident Fund (EPF), Public Provident Fund (PPF), Life Insurance, Medical insurance, ELSS (Equity-Linked Savings Scheme), Fixed deposit, and Savings deposit.

Investments Amount
PPF INR 65,000
ELSS INR 25,000
Interest from Fixed & Savings Deposit INR 9,000
Life Insurance Premium INR 7,000
EPF INR 53,000
Medical Insurance Premium INR 20,000

Here is the income tax deductions that you can claim from the investments made:

Tax-Saving Section Maximum Deduction Allowed Eligible Investment Amount Claimed
Section 80C INR 1,50,000 ELSS + Life Insurance Premium + EFP + PPF = INR 25,000 + INR 7,000 + INR 53,000 + INR 65,000 INR 1,50,000
Section 80D INR 25,000 for you + INR 50,000 for parents Medical Insurance Premium = INR 12,000 INR 12,000
Section 80TTA INR 10,000 Interest from Savings Deposit + Interest from Fixed Deposit = INR 9,000 INR 9,000
Total INR 1,71,000‬

So the total taxable income is

= Total annual salary + income from other sources – tax-savings investments 

= INR 6,21,000 + INR 18,000 – INR 1,71,000‬ 

= INR 4,68,000

With the help of the above-given example, you can now easily calculate your taxable income. This will also aid you in making better investment decisions and help in reducing your tax liability.