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How Does an Income Tax Calculator Work?

IndianMoney.com Research Team | Posted On Wednesday, January 15,2020, 02:49 PM

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How Does an Income Tax Calculator Work?

 

 

It is the tax season and the topmost question on your mind is, “How to Save Taxes”? Have you done the tax planning? If you have not better start tax planning fast. To do tax planning right, you definitely need an income tax calculator.

What is an Income Tax Calculator?

This is an easy to use online tool which helps estimate income taxes based on your income. The Union Budget 2020-21 is just around the corner, and you better learn how to use the income tax calculator.

Want to know more on Tax Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial product.

How Does an Income Tax Calculator Work?

How to Pay Zero Taxes Up to Rs 10 Lakhs?

You earn Rs 10 Lakhs a year and want to save taxes. This example shows how to save tax on salary up to Rs 10 Lakhs.

Naveen who is 35 years earns Income of Rs 10 Lakhs a year. He is repaying a home loan of Rs 50 Lakhs. Let’s get an idea on how much tax he has to pay and how he can save tax?

See Also: How To Calculate Income Tax For Salaried Person?

Naveen earns Rs 10 Lakhs a Year.

Let’s get an idea of the tax deductions Naveen uses to save tax.

Naveen invests in ELSS, NPS, and PPF to save Rs 1.5 Lakhs under Section 80C.

Naveen has availed health insurance for self, spouse and senior citizen parents and pays health insurance premiums of Rs 50,000 a year. He claims this as a tax deduction under Section 80D.

Naveen is repaying the home loan of Rs 50 Lakhs and claims Rs 2 Lakh home loan interest under Section 24.

He also claims Rs 50,000 a year on NPS investment under Section 80CCD(1B).

 

(Rs)

Total Income

10,00,000

Less: Standard Deduction

50,000

 

9,50,000

Less: Deduction under Section 80C

1,50,000

Less: Deduction under Section 80D

50,000

Less: Deduction under Section 24

2,00,000

Less : Deduction under Section 80CCD(1B)

50,000

Total Taxable Income

5,00,000

Gross Tax

Rs 12,500

Less: Rebate under Section 87A

Rs 12,500

Net Tax Payable

0

Naveen pays zero income tax on income of Rs 10 Lakhs.

How Much Tax Do You Pay On The Income of Rs 15 Lakhs?

Let’s understand how much tax you pay with income of Rs 15 Lakhs. Ramesh who is 45 years earns income of Rs 15 Lakhs. He is repaying a home loan of Rs 60 Lakhs. Let’s get an idea on how much tax he has to pay and how he can save tax?

See Also: How To Calculate Your Taxable Income?

Ramesh Earns: Rs 15 Lakhs a Year.

Let’s get an idea on the tax deductions Ramesh uses to save tax.

Ramesh invests in NPS and PPF to save Rs 1.5 Lakhs under Section 80C. He is repaying a home loan and claims Section 80C benefit on Home Loan Principal.

Ramesh has availed health insurance for self spouse, children and elderly parents and pays health insurance premiums of Rs 50,000 a year.

He also claims Rs 50,000 a year on NPS investment under Section 80CCD(1B).

Ramesh is repaying a home loan and claims tax deduction on home loan interest up to Rs 2 Lakhs a year.

Ramesh bears the medical expenses of his brother who suffers a disability and enjoys a tax deduction under Section 80DD. He spends Rs 50,000 a year and claims this benefit.

Ramesh has made a contribution of Rs 30,000 towards PM disaster relief fund. He gets 100% tax exemption under Section 80G.

See Also: HRA Tax Calculation

Tax Exemptions:

Ramesh gets House Rent Allowance (HRA) of Rs 3,75,000 as part of the salary package. His basic salary is Rs 7 Lakhs. He is staying in a rented apartment in Chennai as his house is being constructed at a different location in Bengaluru. He pays Rs 20,000 a month as rent.

Based on HRA Conditions:

  1. Actual HRA received: Rs 3,75,000.
  2. 50% of basic salary for residing in the metro cities. (50% of 7,00,000 = Rs 3,50,000).
  3. Actual rent paid less 10% of basic salary + DA. (2,40,000 – 70,000 = Rs 1,70,000).

The least of the three conditions which is Rs 1,70,000  a year is tax free.

Ramesh is repaying his sons education loan and claims Rs 50,000 a year on education loan interest under Section 80E.

Particulars

Total

Exempt

(Rs)

Basic Salary

750,000

0

750000

HRA

375,000

170,000

205000

LTA

50,000

50,000

0

Special Allowance

250,000

0

250,000

Uniform allowance

15,000

15,000

0

Telephone Reimbursement

15,000

15,000

0

Medical Reimbursement

25,000

25,000

0

Conveyence Allowance

20,000

0

20,000

Salary Income

 

 

1,225,000

Less: Standard Deduction

 

 

50,000

Less: Deduction under Section 80C

 

 

1,50,000

Less: Deduction under Section 80D

 

 

50,000

Less: Deduction under Section 24

 

 

2,00,000

Less : Deduction under Section 80CCD(1B)

 

 

50,000

Less : Deduction under Section 80DD

 

 

50,000

Less : Deduction under Section 80G for Donation

 

 

30,000

Less: Education Loan

 

 

50,000

Total Taxable Income

 

 

645000

Gross Tax Payable

 

 

41500

Net Tax Payable (includes cess of 4%)

 

 

43160

Ramesh pays a tax of Rs 43,160 on salary of Rs 15 Lakhs after using tax exemptions and tax deductions.

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