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How To Calculate Income Tax For Salaried Person? Research Team | Posted On Friday, August 10,2018, 04:21 PM

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How To Calculate Income Tax For Salaried Person?



It’s tax season. Right at the top of a salaried person’s to-do list is, How to save taxes? In this World, there’s nothing certain, but death and taxes. Salaried people understand this saying and have to do their tax planning.

If income exceeds the minimum tax exemption limit, you have to pay taxes. The Government has given various tax exemptions and deductions to help save tax. It’s up to you and other salaried people to make use of them and save tax.

What Is Income Tax? 

Income Tax is defined as the tax levied on the income of an individual or entity. In India, the Income Tax Department, functioning under the Department of Revenue of the Ministry of Finance, is responsible for the collection of this tax. 

How To Calculate Income Tax For Salaried Person?

For salaried employees, the Income Tax depends directly on their salary. Employees have to inform employers on tax saving investments/schemes, if any, that they have availed. Employers deduct tax before paying salaries (TDS) and pay it to the Government on your behalf.

If you have tax saving investments these are considered while deducting TDS.  To calculate Income Tax, you must know the income tax slab you fall under. Income Tax increases with a rise in salary. Along with Tax, Cess and Surcharge also apply

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How To Calculate Income Tax For Salaried Person?

Income Tax Surcharge And Cess On Income Levels

Surcharge and Cess are not a tax levied on the income. Instead, they are taxes levied on the income tax itself. Cess is levied to raise funds for a specific reason by the Government and cannot be used for any other purpose. In India, Cess is levied at 4% to raise funds for education and health. Out of 4% of levied Cess, 3% is utilized by the Government for education purpose and remaining 1% for health.

The State Governments get no share from the funds raised through Cess. Cess is levied on all Income Tax payers, irrespective of their income. Cess enhances the total tax payable for all tax payers. The total Tax payable would be Tax payable + Cess.

Surcharge is levied on individuals with high income. Surcharge of 10% is levied on individuals with income of Rs 50 Lakhs and above, at 15% on individuals with income of Rs 1 Crore and above. The funds collected from Surcharge can be utilized for any purpose, unlike Cess. State Governments get a share of funds collected as Surcharge. Surcharge increases the total tax payable of those individuals with income of Rs 50 Lakhs and above. Their total tax would be actual Tax payable + Cess + Surcharge. 

1. Income tax calculation for salaried people:

Salaried people are taxed based on the income they earn. Let’s take a look at the income tax slabs for salaried people.

income tax slab for individuals

Senior Citizens (60 years or more but less than 80 years) for FY 2017-18:

income tax slab for senior citizen

Super Senior Citizens (80 Years or more) for FY 2017-18:

income tax for super senior citizens

2. Income Tax Calculation for FY 2018:

The minimum tax exemption limit for a salaried citizen below 60 years is Rs 2.5 Lakhs. It’s Rs 3 Lakhs for a senior citizen between 60-80 years and Rs 5 Lakhs for a super senior citizen above 80 years.

The most popular tax deduction is the Section 80C. You get a tax deduction on certain investments and expenses. Invest in PPF, NSC, ELSS, SCSS, Tax Saver FD, Sukanya Samriddhi Yojana, Post Office Time Deposits and enjoy Section 80C tax deduction up to Rs 1.5 Lakhs a year. The premiums paid on life insurance plans for self and family, EMI Home Loan Principal and tuition fees for up to 2 children, enjoy the Section 80C deduction.

If the life insurance premium paid does not exceed 10% of the sum assured, the money you receive on maturity of a life insurance plan including bonus is tax free under Section 10(10D). The death benefits received under a term life insurance plan are tax-free under Section 10(10D).

See Also: Income tax return status

Remember: This is a collective deduction on all investments and expenses which enjoy the Section 80C benefit.

3. Save tax with Section 80D:

You get tax deductions under Section 80D on health insurance premiums paid for self and family. A maximum deduction up to Rs 25,000 a year is available on health insurance premiums paid for self, spouse and dependent children. There’s an additional tax deduction on premiums paid on health insurance plans for parents under 60 years. If parents are senior citizens, (60 years and above), the tax deduction on health insurance premiums increases to Rs 50,000 a year.

If you are a senior citizen who is paying health insurance premiums for yourself and parents, the maximum tax deduction under Section 80D is Rs 1 Lakh a year.

Mahesh is 61 years and pays health insurance premiums for himself and his 87 year old Dad. He gets a tax deduction on health insurance premiums up to Rs 1,00,000 a year.

4.  Education loan saves tax:

Availing an education loan not just guarantees a quality education and a bright career, but also saves tax. You get a tax deduction under Section 80E for an education loan availed for self, spouse or children. The Section 80E deduction is available on the total interest part of the education loan EMIs.  There is no upper limit on this deduction.

Deduction on education loan interest starts from the year education loan EMIs are repaid. Tax deductions are available for 8 years starting from the year repayments commence or until the interest on education loans are fully repaid, whichever is earlier.

What does this mean? If you repay entire education loan interest in 6 years instead of 8 years, then tax deduction under Section 80E is for 6 years and not 8 years.

SEE ALSO: Section 80C Benefits For Salaried Persons

5. Donations save tax:

Giving in charity not just helps the poor, you also save tax. You get a deduction under Section 80G of the income tax act on donations made towards certain relief funds and charitable institutions.

Not all donations enjoy tax deductions under Section 80G. Only donations made towards certain eligible funds and charitable institutions qualify for Section 80G deductions.

Some donations which qualify for 100% deduction under Section 80G:

Donations towards:

  • Prime Minister’s National Relief Fund
  • Central Government’s National Defence Fund
  • National Foundation for Communal Harmony.

Some donations which qualify for 50% deduction under Section 80G:

Donations towards:

  • Prime Minister’s drought relief fund
  • Jawaharlal Nehru memorial fund
  • Rajiv Gandhi Foundation

6. Home loan saves tax:

Avail a home loan to buy a dream home and save tax. You are eligible for tax deductions under Section 80C on home loan principal repayments and under Section 24(b) on home loan interest payments. If you avail a joint home loan (You and working spouse take a home loan together), each of you can avail tax deductions under Section 80C and Section 24(b) separately. First time home buyers get an additional tax deduction on home loan interest under Section 80EE.

Income Tax Deductions

The Income Tax Department has set certain guidelines to avail Tax deductions. These are some of the commonly used tax deductions:

  • Income Tax Deduction under Section 80C: An individual or a Hindu Undivided Family (HUF) is eligible to claim Tax Deduction as per Section 80C on the premiums paid towards Life Insurance, investments in PPF, NSC, ELSS, Sukanya Samriddhi Scheme, tuition fees for children, principal repayments on home loan among others. The maximum deduction is Rs 1.5 Lakhs a year. You are also eligible for Tax Deductions on paying premiums for Annuity Plans and pension plans as per Section 80CCC within the Rs 1.5 Lakh limit.
  • Income Tax Deduction Under Section 80D: Individuals under 60 years availing Health Insurance Policies for self, spouse and dependent children are eligible for Tax Deductions on premiums paid up to Rs 25,000 a year. Senior citizens get tax deductions up to Rs 50,000 a year, on premiums paid for health insurance.
  • Income Tax Deduction Under Section 80G: Section 80G under Income Tax Act states that individuals making contribution towards prescribed relief schemes and donations enjoy tax deductions. Donation should be made by Cheque and Demand Drafts to claim deductions.
  • Income Tax Deduction Under Section 24(b): Individuals having Home Loans are eligible to get Tax deductions on repayment of EMIs (home loan interest component) up to Rs 2 Lakhs a year. There’s an additional Rs 50,000 a year on home loan interest for first-time home buyers under Section 80EE subject to certain conditions. 

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