Income tax is an important source of revenue for the government that is directly received from eligible individuals. Therefore, people should have a basic understanding of how income tax is calculated in India.
Every Indian citizen is bound by law to pay income tax every year, and the tax liability increases with the income growth. As a result, saving income tax through various investments remain a vital part of any financial planning.
Therefore, it is also important to have a basic knowledge of how income tax is calculated so that you can properly plan your taxes year after year.
Calculation of Income Tax
The income tax is calculated based on the taxable income of an individual and the tax slab applicable to that income. The taxable income of an individual is derived from the following simple formula.
Taxable Income= Gross Income – Deductions
Gross Income = Income from all sources such as salary, capital gains, rent, annuities, etc.
Deductions = Various types of claims and exemptions under different sections of the income tax act.
It can be noted that the income tax calculation can vary depending upon whether the taxpayer chooses the old tax regime or the new one.
1. Income Tax Calculation Under Old Tax Regime
Under the old tax regime, the taxpayer can claim various tax exemptions on HRA (House Rent Allowance), LTA (Leave Travel Allowance), etc. along with tax deductions under various sections such as 80C, 80D, 80TTA, 80G, etc.
Furthermore, the old tax regime offers various concessions to senior citizens above the age of 60 and 80 years.
2. Income Tax Calculation Under New Regime
The new tax regime has done away with most exemptions and deductions. Therefore, you would have to forgo the benefits of some popular tax exemptions like 80C, 80D, 80G, 80TTA, LTA, HRA, etc. Furthermore, no concession is allowed for senior citizens in the new regime.
However, the new tax regime can provide you with the benefit of concessional tax slabs in lieu of forgoing the exemptions.
Income Tax Slabs Under Different Regimes
| Taxable Income Under Old Tax Regime | Rate | Taxable Income Under New Tax Regime | Rate |
| Greater than Rs 2.5 lakhs to less than or equal to Rs 5 lakhs | 5% | Greater than Rs 2.5 lakhs to less than or equal to Rs 5 lakhs | 5% |
| Greater than Rs 5 lakhs to less than or equal to Rs 10 lakhs | 20% | Greater than Rs 5 lakhs to less than or equal to Rs 7.5 lakhs | 10% |
| Greater than Rs 10 lakhs | 30% | Greater than Rs 7.5 lakhs to less than or equal to Rs 10 lakhs | 15% |
| Greater than Rs 10 lakhs to less than or equal to Rs 12.5 lakhs | 20% | ||
| Greater than Rs 12.5 lakhs to less than or equal to Rs 15 lakhs | 25% | ||
| Greater than Rs 15 lakhs | 30% |
Note:- An additional Health and Education Cess at the rate of 4% will be applicable on the income tax liability in both old and new regimes.
Using Income Tax Calculator
Once you have a basic understanding of how tax calculation works, you don’t need to perform all the complex calculations yourself. Instead, you can visit the official site of your insurance provider and use the free online income tax calculator provided there to calculate your taxes.
Just fill up your personal and income details followed by your deductions as per the applicable fields given in the form and submit the same. The tax calculator will instantly generate a summary containing details regarding your income, deductions, tax payable under old and new tax regimes.
The benefit of using the tax calculator provided by a reputed insurance firm is that it also recommends the right plan to save taxes at the end of the calculation without needing to navigate elsewhere. Use one to experience the benefits for yourself.
The author, Dr. David K Simson is a trained radiation oncologist specializing in advanced radiation techniques such as intensity-modulated radiotherapy (IMRT), image-guided radiotherapy (IGRT), volumetric modulated arc therapy (VMAT) / Rapid Arc, stereotactic body radiotherapy (SBRT), stereotactic radiotherapy (SRT), stereotactic radiosurgery (SRS). He is also experienced in interstitial, intracavitary, and intraluminal brachytherapy.