Income Tax Calculations - Tax Deductions A Saving Grace

Tax Calculations are so complicated...I am so busy Where do I have the time for all these tax calculations. It is normal to hear people complaining about the amount of taxes they pay. Come on have a heart...Even Mr Obama the US President pays his taxes. Taxes are the price we all pay for civilization. We must have all heard a famous quote." The Best Things In Life Are Free But Sooner or Later The Government Will Find A Way To Tax Them. I would like to remind all of you that the team of Financial Planners at IndianMoney.com are always there for you to plan your Tax Planning needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 022 6181 6111.

See Also: 5 Important Income Tax Changes

Income Tax slab rates for Individuals Less Than 60 Years FY 2012-2013

Annual Income	Tax Rate
Up To INR 2 Lakhs	NIL
INR 2 Lakhs - INR 5 Lakhs	10%
INR 5 Lakhs - INR 10 Lakhs	20%
INR 10 Lakhs and above	30%

Let us consider the following case to understand taxation. Mrs Sumita married and 40 years old works for an Advertising and Marketing firm and has a pay package of INR 12 Lakhs per annum. Let  us  consider Mrs Sumita  does not avail of her Income  tax deductions. What  Would Be The Tax She Would Pay?

Table - 1

Heads	% of Income Tax	Income Tax
Up To INR 2 Lakhs	NIL	NIL
INR 2 Lakhs - INR 5 Lakhs Here we a range of 200000 to 500000 which gives us 300000 (500000-200000) We then calculate 10% of 300000	10%	INR  30000 (a)
INR 5 Lakhs - INR 10 Lakhs Here we a range of 500000 to 1000000 which gives us 500000 (1000000-500000) We then calculate 20% of 500000	20%	INR 100000 (b)
INR 10 Lakhs and above Here Mrs Sumita  earns 1200000 Here we have a range of 1000000 to 1200000 which gives us 200000 We then calculate 30% of 200000	30%	INR 60000 (c)
Total		INR 190000 (a)+(b)+(c)
Educational Cess (190000*3%)	3% of total tax (190000*3%)	INR 5700 (d)
Net Tax Payable		INR 195700 (a)+(b)+(c)+(d)

Here we notice that Mrs Sumita would have to pay INR 195700 as Income Tax if she does not avail of the income tax deductions.

What does Mrs Sumita Do about Her Tax Deductions?
Mrs Sumita and her spouse have taken a home loan of 30 Lakhs .Mrs Sumita is the co applicant of the home loan

Deductions Available Under Section 24 and Section 80C

However Mrs Sumita has taken up only INR 50000 deductions on the Principle Component of her EMI. Her Tax deductions under these sections are a sum of INR 2 Lakhs

Section 80 CCF

Here Mrs Sumita has Tax deductions under Section 80 CCF a sum of INR 20000 invested in Infrastructure Bonds.

Section 80D (Mediclaim Benefits)

Under this section Mrs Sumita claims a tax deduction for mediclaim benefits for herself, spouse and children. Here the tax deductible amounts are INR 15000 per annum

Here Mrs Sumitha wants to financially secure her 8 year old sons college Education.She wants a corpus of about 10 Lakhs for her son’s college education. She pays a premium of INR 50000 towards this policy, tax deductible under Section 80C.

Table - 2

Heads	Amounts
Gross Taxable Income	INR 12,00,000  (a)
Under Section 24 interest portion of EMI is tax deductible up to an amount of 1.5 Lakhs	INR 1,50,000 (b)
Principal Portion of EMI  of INR 50000 under section 80C	INR 50000 (c)
Infrastructure Bond deductible 80 CCF	INR 20000 (d)
Medical Benefits 80 D	INR 15000 (e)
LIC Child policy	INR 50000 (f) (g)=(b)+(c)+(d)+(e)+(f)=285000
Total Taxable Income	INR 9,15,000 (a)-(g)=915000

Heads	% of Income Tax	Income Tax
Up To INR 2 Lakhs	NIL	NIL
INR 2 Lakhs - INR 5 Lakhs Here we a range of 200000 to 500000 which gives us 300000 (500000-200000) We then calculate 10% of 300000	10%	INR 30000 (a)
INR 5 Lakhs - INR 9,15,000 Here we a range of 500000 to 915000 which gives us 415000 (915000-500000) We then calculate 20% of 415000	20%	INR 83000 (b)
Total Tax		INR 113000 (a)+(b)
Education Cess	3% on Total Tax (113000*3%)	INR 3390 (c)
Net Tax Payable		INR 116390 a)+(b)+(c)

Here I hope this article has proved to be highly informative to understand how tax deductions can save our precious monetary resources and also gain us returns as we see in the Infrastructure Bonds, LIC Policy and medical reimbursements when we need them. We all know how costly medical treatment is and premiums paid towards this not only guarantee us tax benefits but also timely medical aid when we need it. On a lighter note "Beware Of Strong Drink It Can Make You Shoot At Tax Collectors And Miss" .Here I would like to remind our readers to lookup IndianMoney.com for their queries regarding Income Tax.