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Income Tax Calculations And Deductions 2013 - Know Your Taxes

By - IndianMoney.com Research Team | Updated On 15 September 2015 | Financial Planning

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Income Tax Slabs For The Financial Year 2013-2014

Individuals And Hindu Undivided Families and Resident Woman Under 60 Years

	Income Tax Slabs	Income Tax Rates	Education Cess
1	Where the total income does not exceed INR 2,00,000	NIL	NIL
2	Where the total income exceeds INR 2,00,000 but does not exceed INR 5,00,000	10% of the amount by which the total income exceeds INR 2,00,000.	2 % of Income Tax
3	Where the total income exceeds INR 5,00,000 but does not exceed INR 10,00,000	INR 30000/- + 20% of the amount by which the total income exceeds INR 5,00,000.	2 % of Income Tax
4	Where the total income exceeds INR 10,00,000	INR 130000/- + 30% of the amount by which the total income exceeds INR 10,00,000	2 % of Income Tax

Education cess on Income tax and Secondary and Higher Education cess on income tax shall be levied at the rate of 2% and 1% respectively.

Let us consider Mr Ritesh who is married and 38 years of age works for a market research firm. He has a pay package of INR 11 Lakhs per Annum. Let us consider Mr Ritesh does not avail of the income tax deductions available to him. So How Much Income Tax Does He Pay?

Table 1

Heads	% Of Income tax	Income Tax
Up To INR 2 Lakhs	Nil	Nil
INR 2 Lakhs - INR 5 Lakhs Here you have a range of INR 2,00,000 To INR 5,00,000 The difference is INR 3,00,000 You have 10% of INR 3,00,000	10%	INR 30000 (A)
INR 5 Lakhs - INR 10 Lakhs Here you have a range of INR 5,00,000 To INR 10,00,000 The difference is INR 5,00,000 You have 20% of INR 5,00,000	20% + INR 30000	INR 100000 (B)
INR 10 Lakhs And Above Here Mr Ritesh earns INR 11,00,000 Here we have a range of 10,00,000 to 11,00,000 which gives us 1,00,000 We then calculate 30% of 100000	30% + INR 130000	INR 30000 ( C )
Total		INR 160000 (A)+(B)+(C)
Educational Cess	3% Of Total Tax (160000 *3%)	INR 4800 (D)
Net Tax Payable		INR 164800 (A)+(B)+(C)+(D)

What Do You Infer From This Example?

Here we notice that Mr Ritesh would have to pay INR 164800 as Income Tax if he does not avail any of the income tax deductions available to him. Education cess on Income tax and Secondary and Higher Education cess on income tax shall be levied at the rate of 2% and 1% respectively.

What Are The Tax Deductions Availed By Mr Ritesh In Order To Save His Income Taxes?

Mr Ritesh is able to use Deductions under Section 80 C. He chooses the Public Provident Fund where he invests INR 50000.

So What Is The Public Provident Fund?

A Loan facility up to 25% can be availed from 3rd financial year till the 5th financial year while a withdrawal of up to 50% is allowed from 6th financial year onwards.

This is popularly called PPF and is the most attractive tax saving fixed income option giving a tax free return of approximately 8.7% compounded annually.
The maximum amount one can invest in PPF is 1Lakh per financial year.
A PPF Account can be opened at post offices, Branches of SBI and its associate banks, and certain Private Sector Banks.
PPF carries a term of 15 year and it can be extended in blocks of 5 year each for any number of blocks.

Deductions On The Premium Of Life Insurance Policies Under Section 80 C

Mr Ritesh makes use of the remaining portion of the deduction of INR 1 Lakh available to him under Section 80 C of the Income Tax act .He pays a premium of INR 50000 per annum and takes up a Unit Linked Insurance Policy for himself, spouse and children.

So What Are The Life Insurance Benefits?

An amount of INR 1 Lakh that you pay towards life insurance premium for Yourself, Spouse and your Children can be included in Section 80C deduction and reduced from your taxable income. Premiums payed for Parents and In-Laws are not eligible for tax deductions under Section 80C of the Income Tax Act. For insurance policies issued on or after April 1st 2012, deduction are allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured. The sum received including bonus under life Insurance is tax free.

Deductions Available Under Section 80 D

Under this section, an individual can claim deduction for the health insurance premium paid for self, spouse and children. He can also claim deduction upto 15,000 for the health insurance premium paid for his parents. If either of the parents are senior citizens, this limit is 20,000. The age limit for senior citizen will be 60 from the financial year 2012-13. So, the limit can go up to INR 35,000 in a year.

Mr Ritesh avails deductions of up to INR 35000 under Section 80 D of the income tax act for health policies for himself and his dependent parents. The maximum amount of INR 35000 is available to him which he utilizes.

Table 2 :

Heads	Amounts
Gross Taxable Income	INR 11,00,000 (A)
Less Public Provident Fund deductions under Section 80 C	INR 50000 (B)
Less Unit Linked Insurance Plan Premium under Section 80 C	INR 50000 (C)
Less Tax Deductions Under Section 80 D	INR 35000 (D)
Total Taxable Income	INR 965000 (A) – (B+C+D)

Table 3

Heads	% Of Income Tax	Income Tax
Up To INR 2 Lakhs	NIL	NIL
INR 2.0 Lakhs - INR 5 Lakhs Here we a range of 200000 to 500000 which gives us 300000 (500000-200000) We then calculate 10% of INR 300000	10%	INR 30000 (A)
INR 5 Lakhs – INR 10 Lakhs Here we a range of 500000 to 1000000 (1000000-500000) We then calculate 20% of INR 465000	20% + INR 30000	INR 93000 (B)
Total Tax		INR 123000 (A)+(B)
Education Cess	3% Of INR 123000	INR 3690 (C )
Net Tax Payable		INR 126690 (D)=(A)+(B)+(C)

Here you have the Net Income Tax payable of INR 164800 (Table -1) where Mr Ritesh has not made use of any of the tax deductions available to him and hence pays a higher amount of tax.
Here we have Net Tax Payable of INR 126690 (TABLE - 3) where we calculate the amount. Mr Ritesh has saved when he made use of the tax saving instruments available to him.
Here the difference between TABLE 3 and TABLE 1 is the yearly amount Mr Ritesh has saved on tax by making use of the tax saving instruments available to him. This translates to a sum of INR 164800-INR 126690 =INR 38110.

You must have noticed that Mr Ritesh has saved a phenomenally huge amount of INR 172010 by making use of the deductions available to him under the Income tax act. You can picture yourself in Mr Ritesh position .Imagine what you can do with this kind of an amount Perhaps buy an LED Television, An Ultrabook, A high end Smartphone or even some jewellery for your wife. Don’t you think it would be wise to invest in qualities of thrift, prudence and perhaps just that extra bit of paying attention to detail and upgrading your income tax knowledge which can save you all this money?.It would be wise to remember " There Is No Elevator To Success You Have To Use The Stairs ".