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How to Calculate Income Tax for FY 2011-2012

IndianMoney.com Research Team | Updated On Wednesday, May 09,2018, 12:01 PM
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How to Calculate Income Tax for FY 2011-2012

 

A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” With continuous increase in prices of various commodities, it is essential for an individual to act prudently by having a good financial planning which can balance the increase in prices. Saving on taxes is one method which yields good results in having an efficient financial plan.

It is very common today that most of people are very much keen to know the tax amount they need to pay on their income every month. Some show interest in how tax liability is actually calculated. Therefore, in this article I am trying to explain the various sections available to save taxes and how the tax liability is actually computed.

Let us start with the introduction of various sections available in Income Tax act which provides exemptions from income tax liability under some specific conditions. These sections are described below:

      1)      Section 80C:

Tax payers can avail an advantage of limit up to Rs 1, 00, 000 by investing in securities which comes under this section. If a taxpayer’s taxable income lies in the highest tax bracket, he/she can take advantage of Section 80C to reduce his/her taxable income by Rs.1 lakh. The following is a list of important ways in which a taxpayer can get benefit of section 80C of Indian Income Tax Act:

 

Public Provident Fund

Employee Provident Fund

Life Insurance Premium

Unit Linked Insurance Plans(ULIP)

Equity Linked Savings Scheme(ELSS)

National Savings Certificate(NSC)

5 year Fixed deposits with banks and post office

Home loan principal payment

Tuition fee paid for children’s education (maximum of 2 children)

 

2) Section 80CCF:

Section 80CCF allows an individual to invest an additional Rs. 20,000 in infrastructure bonds, and have that amount deducted from his/her taxable income in addition to the Rs. 100,000 deduction which the taxpayer gets from other tax saving instruments.

3)  Section 80D

Section 80D of Indian Income Tax Act is especially useful if the employer does not cover their employee’s health or medical expenses. One can avail a benefit of Rs. 15,000 for insuring self spouse and children. Medical insurance for parents above 65 years can avail a benefit up to Rs 20, 000.

4)Section 80DD:

Section 80DD of Indian Income Tax Act provides provision for tax deduction if taxpayer incurs medical expenditure for the dependents who are disabled. Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability. 

5)Section 80DDB:

Costs incurred for treatment of specified illnesses like Neurological diseases, malignant cancers, Chronic Renal Failure etc, could fetch one a tax benefit under section 80DDB. For individual less than 60 years of age, a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.

6)Section 80E:

Under section 80E of Indian Income Tax Act, any amount of interest paid on educational loan taken for individual higher education or higher education of individual’s husband / wife or children is deductible from taxable income.

7)Section 80G:

Donations made to funds are deductible from taxable income according to section 80G of Indian Income Tax Act.     

8)Section 80GG:

Any House Rent Allowance given to an employee is tax free up to the minimum value of the conditions like 50% of basic salary, rent paid over 10% of annual income, actual HRA received etc. 

9)Section 80U:

It is deduction in the case of a person with disability. An individual who is suffering from a permanent disability or mental retardation as specified in the Persons with Disabilities Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability the deduction is Rs. 1, 00,000.

10)Section 24(1)(vi):

Individuals can avail a tax benefit of up to Rs. 1, 50, 000 for Housing loan interest according to this section.

11)Section 10(5):

This section allows you to avail tax benefit on leave travel allowance which will be available twice in span of 4 years.

12)Superannuation:

Any contribution made by a company to a superannuation fund up to Rs. 1, 00,000 is tax free in the hands of the employee.

13)Medical allowance:

Any Medical Allowance given to an employee is tax free up to Rs. 15,000 /-

We have gone through various sections available for saving on taxes. Now it becomes easier for an individual to implement a good financial plan. In the next part of this article, I will take you through procedure of how actually the tax liability is computed. Let us start with the brief introduction of different categories of people who are entitled for tax liability. According to Income Tax Act, Income Tax Payers (Individuals) are broadly classified into 4 different types:

         1.    Male citizens

         2.    Female citizens

         3.    Senior citizens ( 60 years-80 Years)

         4.     Very senior citizens ( Above 80 Years)

1) Male Citizens: The following table shows the tax rates applicable for as per tax laws.

 

 

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.

The following examples given below will help you to understand the method of tax compilation in an easy way.

Example 1: Mr. Debal is 30 year old and earning Rs 9, 00,000 annually.

Calculation

 

 

In the above example, we can see that Mr. Debal has not used tax advantages of various sections available to him and ended up paying Rs. 1, 25, 660 as tax.

 Example 2: Mr. Narasimha is 40 year old and earning Rs 9, 00,000 annually. He has bought ELSS funds for Rs. 30,000 and has also paid a LIC premium of Rs. 70,000 towards an insurance policy. He invested 20,000 in IDFC infrastructure bond. Now let us calculate the tax liability for Mr. Narasimha.

 Calculation

 

 

Calculation of net tax payable by Mr. Narasimha is shown below

 

 

From these examples we can see that even though Mr. Debal and Mr. Narasimha are getting same income, Mr. Narasimha have utilized the various tax advantages and reduced his tax liability by  35, 020 when compared to Mr. Debal.

2) Female Citizens: The table below shows the tax rates for female citizens as per tax laws.

 

 

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.

The following examples will help you to understand in detail.

Example 1: Ms.Thapa is 40 year old and earning Rs 11, 00,000 annually. She invested Rs. 30,000 in provident Fund. She has fixed deposit of Rs.70, 000 for tenure of 6 years. She has spent Rs. 20, 000 for her son’s higher education loan. Let us calculate her tax liability.

Calculation

 

 

We can observe that Ms. Thapa has saved tax deductions on Rs 1, 20, 000 amount by investing in various sections available.

Example 2: Udayini is a salaried employee. Her annual income is Rs. 11, 00,000. Her home loan interest payment is Rs 80,000 and she also paid a LIC premium of Rs. 60,000. Let us calculate Udayini's tax liability

Calculation

 

 

In Udayini’s case, she has taken advantage of two options under the 80C deduction available to her, namely principal repayment of Rs. 80,000 on her home loan and an investment of Rs. 60,000 in LIC. However, these totals up to Rs. 140,000, and as shown above she can only take a deduction up to the statutory limit of Rs. 100,000.

Calculation of net tax payable by Udayini is shown below

 

Therefore by the above two examples, we can notice that even though Ms. Udayini has invested 20, 000 more than Ms. Thapa, she ended up in paying more tax than Ms. Thapa. This is because she has crossed her maximum limit under section 80C. Therefore it is better to invest in other available options when the specified limit has crossed.

3) Senior Citizens: The table below shows the tax rates for senior citizens as per tax laws.

 

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.

Example 1: Mr. Sairam is 70 year old and earning Rs 8, 50,000 annually. His expenditure on his malignant cancer illness is 50,000. He has a house loan of Rs. 1, 00,000. He is getting a HRA of Rs. 10, 000. Let us calculate his tax liability.

Calculation

 

 

Calculation of net tax payable for Mr. Sairam is shown below

 

 

Here we can observe that even though Mr. Sairam is getting a HRA allowance of Rs 10, 000; but he is not entitled for tax deduction under section 24 because he has already used the option of home loan under Section 80C.

Example 2: Ms. Naveena is 75 year old and earning Rs 15, 00,000 annually. She has bought ELSS funds for Rs. 20,000 and has also paid a LIC premium of Rs. 60,000 towards an insurance policy. She has spent Rs 50,000 on medical treatment for her disabled husband. Let us calculate her tax liability.

Calculation

 

 

Calculation of net tax payable by Ms. Naveena is shown below

 

 

4) Very senior citizens: The table below shows the tax rates very senior citizens as per applicable tax laws.

 

 

 *Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.

Example 1: Mr. Sitaram is 90 year old and earning Rs 13, 50,000 annually. He has bought ELSS funds for Rs. 40,000 and has also paid a LIC premium of Rs. 60,000 towards an insurance policy. He has donated Rs. 20,000 towards charity. Let us calculate his tax liability.

Calculation

 

 

Calculation of net tax payable by Mr. Sitaram is shown below

 

 

Example 2: Ms. Satya Gandham is 85 year old and earning Rs 8, 00,000 annually. She paid a LIC premium of Rs. 60,000 towards an insurance policy. She got a superannuation amount of Rs. 1, 00, 000. Let us calculate her tax liability.

Calculation

 

 

Calculation of net tax payable by Ms.Satya Gandham is shown below

 

I hope that this article is useful for people to understand the various methods available to save on tax and how the calculation of tax liability is done for different sections of people.

 

 

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