The Government of India levies income tax on both individuals and business organizations. The income tax is collected annually in accordance with the slabs determined in the budget for the financial year. Taxpayers are required to file their income tax within the deadline set by the government. When it comes to tax assessment, many people term it complicated and confusing. Here’s a guide on how to calculate income tax!
Knowledge of Tax Slabs
It is essential to know about the slabs according to which one needs to pay income tax. The current slab rate is variable as there are different parameters for the general category, senior and super senior citizens.
Taxpayers who are under the age of 60 are categorized as a general category taxpayer in India. A person having an annual income of less than Rs. 2.5 lakh needs not to pay any income tax to the government. But, a person having a yearly salary between Rs. 2.5 lakh and Rs. 5 lakh is charged with 10% of the annual income as tax. If the annual income for a person is above Rs. 5 lakh but below Rs. 10 lakh, he or she is charged with 20% of income as tax. Anyone having the annual income that exceeds Rs. 10 lakh should submit 30% of the total income in a particular year as tax to the government.
Senior citizens in India enjoy relaxations under the Income Tax Act (ITA). Any taxpayer above the age of 60 but less than 80 years is considered as a senior citizen. Notably, a senior citizen needs not to pay any tax if the yearly income is up to Rs. 3 lakh. When the annual income exceeds Rs. 3 lakh but remains under Rs. 5 lakh, 5% income tax is charged on the total income. The percentage increases to 20% in the case of having an annual income between Rs. 5 lakh and Rs. 10 lakh. For the people who have an income of more than Rs. 10 lakh, are charged with 30% of the total income as tax.
In the case of the super senior citizens (people above the age of 80), the tax percentage remains the same. But, they enjoy decent relaxations on the basic slab. Up to the annual income of Rs. 5 lakh, super senior citizens need not pay any tax. In the case of having the yearly income between Rs. 5 lakh and Rs. 10 lakh, 20% of the total amount is charged. Moreover, if the income exceeds Rs. 10 lakh, 30% income tax is charged.
Income Tax Slabs of Business Entities
Under the Income Tax Act, 1961, every business entity in India is liable to pay taxes to the government. It is called corporate tax, which also has some slabs. Domestic companies having a gross turnover up to Rs. 250 crore annually need to pay 25% corporate tax. If the gross turnover exceeds Rs. 250 crore, the percentage increases to 30%. On the other hand, foreign companies operating in India is liable to pay 50% of corporate tax on the technical services and royalties they get from Indian concerns. In addition, 40% of corporate tax is imposed on other incomes.
Surcharge rates are also applicable to both domestic and foreign business organizations. A domestic company needs to pay a 7% surcharge rate upon its annual income ranging from Rs.1 crore to Rs. 10 crore. The surcharge rate for foreign companies is set at 2% on the same slab. If the income of a business entity is more than Rs. 10 crore annually, 12% and 5% surcharge rates are mandatory for domestic and foreign business organizations, respectively.
Taxable Allowances and Deductions
If you are an employee of a particular organization getting certain allowances (like city compensatory, entertainment and dearness), you must consider them as taxable too.
Further, ITA lists deductions that can help a taxpayer to enjoy certain relaxations on the taxable income. NPS contributions, PPF, Mediclaim insurance, premiums of life insurance and fixed deposits can help reduce the income tax amount decently.
Types of Income Considerable during Income Tax Computation
There are mainly five types of income that are taxable. While computing the total amount of payable income tax, always consider the following:
● Income from salary
● Income from any business
● Income from other sources
● Profits from capital gains
● Income from any house property
How to calculate income tax?
First, you must calculate the total salary by adding up all types of taxable allowances. Then, subtract all the deductions from the gross income. Then include the income you get from the business organization, house properties, bonuses and commissions. Always consider subtracting deductions mentioned in Chapter VI A of the Income Tax Act 1961. Also, take deductions under 80D, 80C, 80CCC and 80TTA articles into consideration, if you are eligible for it. Upon subtracting deductions, the final reading will be your taxable income. Make sure you cross-check it with the income tax slab available for the financial year.
Though it is always good to have thorough knowledge about things concerning you, many online income tax calculators are available these days to put you at ease.