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How to Calculate Income Tax?

Mr. C.S. Sudheer | Posted On Wednesday, January 07,2009, 01:08 AM

How to Calculate Income Tax?

 

 

To find out how much tax you have to pay, you need to first calculate total taxable income. Once you know your taxable income, you can easily find out how much tax you have to pay, by applying the applicable tax rates.

As you may know, I shared with you the income tax rates for the financial year 2008-09 in my earlier article. I received hundreds of requests from readers to explain the method of income tax calculation in an easier way. And even they requested for Income Tax calculator to calculate the tax liability on their own. Therefore, I am trying to explain the methods of calculating Income tax in an easier way. I am also giving you a link to access the Income Tax Calculator which we developed at IndianMoney.com to calculate your tax liability.

First of all, I would like to brief about the status of different categories of Individuals for the purpose of calculating Income tax. Income Tax Act has categorized all Income Tax Payers (Individuals) into 3 different types:

  1. Ordinary Individuals
  2. Female Citizens
  3. Senior Citizens

 1. Ordinary Individuals: as per the applicable tax laws, the Income tax rates for ordinary individuals are:

Annual Income

Income Tax rates for FY 2008-09

Up to 150000

Nil

150000 – 300000

10%

300000 – 500000

20%

500000 and above

30%

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.

Note: -

  • Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
  • A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
  • Agricultural income is exempt from income-tax.

Now, let me explain the method of calculating income tax in detail with few examples:

Example 1: Mr. Rajan is 35 year old and earning 8 lac annually.

Calculation:

Heads      

% of Income Tax

Income Tax

Tax on Income up to 150000

Nil

Nil

Tax on Income between 150000-300000

10%

15000

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 800000

30%

90000

Total

 

145000

Educational Cess

3% of the total tax

4350

Net Tax Payable

 

149350

Example 2: Mr. Avinash 40 year old and earning 12 lac annually.

Calculation:

Heads

% of Income Tax

Income Tax

Tax on Income up to 150000

Nil

Nil

Tax on Income between 150000-300000

10%

15000

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 1200000

30%

210000

Total

 

265000

Surcharge

10% of the Income Tax

26500

Total

 

291500

Educational Cess

3% on the total tax including surcharge

8745

Net Tax Payable

 

300245

2. Female Citizens: as per the applicable income tax laws, the income tax rates for female citizens are:

Annual Income

Income Tax rates for FY 2008-09

Up to 180000

Nil

180000 – 300000

10%

300000 – 500000

20%

500000 and above

30%

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.

Note: -

  • Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
  • A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
  • Agricultural income is exempt from income-tax.

Now, let me explain the method of calculating income tax in detail with few examples:

Example 1: Ms. Rachana is 35 year old and earning 8 lac annually.

Calculation:

Heads      

% of Income Tax

Income Tax

Tax on Income up to 180000

Nil

Nil

Tax on Income between 180000-300000

10%

12000

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 800000

30%

90000

Total

 

142000

Educational Cess

3% of the total tax

4260

Net Tax Payable

 

146260

Example 2: Ms. Savitha 40 year old and earning 12 lac annually.

Calculation:

Heads

% of Income Tax

Income Tax

Tax on Income up to 180000

Nil

Nil

Tax on Income between 180000-300000

10%

12000

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 1200000

30%

210000

Total

 

262000

Surcharge

10% of the Income Tax

26200

Total

 

288200

Educational Cess

3% on the total tax including surcharge

8646

Net Tax Payable

 

296846

 3. Senior Citizens: as per the applicable tax laws, the Income tax rates for Senior Citizens are:

Annual Income

Income Tax rates for FY 2008-09

Up to 225000

Nil

225000 – 300000

10%

300000 – 500000

20%

500000 and above

30%

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.

Note: -

  • Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
  • A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
  • Agricultural income is exempt from income-tax.

Now, let me explain the method of calculating income tax in detail with few examples:

Example 1: Mr. Ganesh Prasad is 67 year old and earning 8 lac annually.

Calculation:

Heads      

% of Income Tax

Income Tax

Tax on Income up to 225000

Nil

Nil

Tax on Income between 225000-300000

10%

7500

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 800000

30%

90000

Total

 

137500

Educational Cess

3% of the total tax

4125

Net Tax Payable

 

141625

Example 2: Ms. Lakshmi 66 year old and earning 12 lac annually.

Calculation:

Heads

% of Income Tax

Income Tax

Tax on Income up to 225000

Nil

Nil

Tax on Income between 225000-300000

10%

7500

Tax on Income between 300000-500000

20%

40000

Tax on Income between 500000- 1200000

30%

210000

Total

 

257500

Surcharge

10% of the Income Tax

25750

Total

 

283250

Educational Cess

3% on the total tax including surcharge

8497

Net Tax Payable

 

291747

I hope this will help you to understand income tax calculation better. Please click on the below link to access Income Tax Calculator.

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