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:

ComponentsAmount
BasicINR 40,000
HRAINR 12,000
Special AllowanceINR 6,000
LTAINR 27,000 (Yearly)

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

ComponentsAmount (per annum)Exempted AmountTaxable Amount
BasicINR 4,80,000INR 4,80,000
HRAINR 1,44,000INR 84,000INR 60,000
Special AllowanceINR 72,000INR 72,000
LTAINR 27,000 (Yearly)INR 18,000INR 9,000
Standard DeductionINR 50,000
Gross Total Taxable SalaryINR 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.

InvestmentsAmount
PPFINR 65,000
ELSSINR 25,000
Interest from Fixed & Savings DepositINR 9,000
Life Insurance PremiumINR 7,000
EPFINR 53,000
Medical Insurance PremiumINR 20,000

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

Tax-Saving SectionMaximum Deduction AllowedEligible InvestmentAmount Claimed
Section 80CINR 1,50,000ELSS + Life Insurance Premium + EFP + PPF =INR 25,000 + INR 7,000 + INR 53,000 + INR 65,000INR 1,50,000
Section 80DINR 25,000 for you + INR 50,000 for parentsMedical Insurance Premium =INR 12,000INR 12,000
Section 80TTAINR 10,000Interest from Savings Deposit + Interest from Fixed Deposit =INR 9,000INR 9,000
TotalINR 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.