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# How to Calculate Income Tax?

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

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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