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If you earn a salary or an income beyond a particular set limit, you have to pay a part of this income to the Government as tax.
This tax is charged annually by the Government.
Tax planning is making use of the deductions allowances and exemptions provided by the Government to save on your taxes.
You need to know which income tax slab you fall under and what are the income tax rates charged.
You can invest in certain financial instruments and get a tax deduction up to INR 1.5 Lakhs under Section 80 C of the income tax act.
You can avail deductions under various Sections of the income tax act to further reduce your tax liability.
Step 1: Your gross salary (CTC) includes basic salary, dearness allowance, House rent allowance, medical allowance, other allowances, bonus and so on.
You have to fill in your gross salary (CTC) you earn in a year in the gross salary (CTC) slot.
Step 2: You have to select metro or the non metro option based on the city you live in the HRA exemption calculator at the bottom of the page.
You have to add your basic salary + Dearness allowance (DA) in your monthly salary slip and convert it to the yearly figure. You then fill it in the Basic salary + DA slot of your HRA exemption calculator.
Your HRA is mentioned in your salary slip as a monthly figure which you multiply by 12 to convert it to a yearly figure. You have to fill this amount in the HRA received slot of the HRA exemption calculator.
You then fill in the actual rent paid per month which you multiply by 12 to get the yearly figure in the actual rent paid slot.
The tax calculator calculates your HRA exemption based on
• Actual HRA received
• 50% of Basic salary + DA if you live in a metro or 40% of Basic salary + DA if you live in a non metro
• Actual rent you pay – 10% * (Basic salary + Dearness allowance)
The HRA Exemption calculator then calculates the least among the three (1, 2 and 3) and fills it in the HRA Exemptions u/s 10 A slot.
Step 3: You have to add your medical allowance and conveyance allowance and convert it to a yearly figure and fill it in the other Exemptions u/s 10 A slot.
Step 4: The maximum professional tax in India is INR 2500 a year. You have to fill in the professional tax available from your salary slip after converting it to a yearly figure in the professional tax slot.
The tax calculator then subtracts the total of HRA Exemptions u/s 10 A, other Exemptions u/s 10 A and the professional tax from the Gross salary (CTC) to give the net income under salaries.
Step 5: You get tax deductions on investments you make in certain financial instruments such as PPF, ELSS, NPS and premium on life insurance plans up to INR 1.5 Lakhs a year under Section 80 C of the income tax. You have to fill in your investments eligible for deduction under Section 80 C up to INR 1.5 Lakhs a year in the Deductions u/s 80 C slot.
Step 6: You get tax deductions on investments you make in equity mutual funds or shares under RGESS up to a maximum of 50% of INR 50,000 which is INR 25000 a year.
You fill in your investments under the RGESS in the Deductions u/s 80 CCG slot.
Step 7: You get deductions on the premiums you pay for a health plan for yourself and family up to INR 15000 a year. If you/parents are senior citizens then this deduction goes up to INR 20000 a year. You can avail a maximum tax deduction of INR 35000 a year on the health insurance premiums for both yourself/family and senior citizen parents. You fill in the health insurance premiums (yourself + family +senior citizen parents) up to INR 35000 a year in the Deductions u/s 80 D slot.
Step 8: Section 80 G deductions are towards an eligible charitable cause. Different charitable causes have different eligibility limits. You get a tax deduction of 50% or 100% depending on the charitable cause. You need to fill in your donation to the charitable cause in the deduction u/s 80 G slot.
Step 9: Section 80 E deductions are availed on the interest you pay for an education loan with no upper limit. You need to fill in the EMI interest you pay on your education loan after converting it to a yearly figure. You then fill the interest on your education loan in the deduction u/s 80 E slot.
Step 10: You get a deduction up to INR 10000 a year on the interest you earn on your savings bank account. You need to fill in the interest you earn on your savings bank account in the deduction u/s 80 TTA slot.
Step 11: You get a tax deduction on the EMI interest you repay towards your home loan up to INR 2 Lakhs a year under Section 24 for a self occupied property. You need to fill in the EMI interest you pay on your home loan after converting it to a yearly figure. You then fill the interest on your home loan in the tax benefit u/s 24 slot.
The tax calculator then adds up all deductions giving you the total deductions in the Tax deductions/benefits space.
Your taxable income is the difference between net income under salaries and the total deductions/benefits.
Step 12: You then select your income tax slab and rates depending on your gender (male/female), senior citizen (between 60 years-80 years) or super senior citizen (above 80 years).
The tax calculator calculates the tax on total income obtained from the taxable income slot. Based on the tax slab you fall under and the tax rates corresponding to these slabs it calculates the tax on total income slot.
You have to pay an education cess of 3% (Education cess at 2% + Secondary higher education cess at 1%).
The tax calculator calculates the education cess on the tax on total income and fills up the education cess slot.
It then adds up the tax on total income and the education cess to fill the tax on cess slot.
The tax calculator then calculates your tax liability in the tax liability slot.
• If your total taxable income (obtained from the taxable income slot) is less than INR 5 Lakhs you are eligible for a tax rebate of INR 2000.The tax calculator subtracts the tax credit of INR 2000 from the tax with cess slot to give you your tax liability.
• If you earn income above a crore you have to pay a surcharge on income tax of 10%.You have to pay surcharge tax of 10% on the tax on total income and not on your actual income. You have the tax on the total income slot in the tax calculator. You are charged a surcharge of 10% on this amount in the surcharge slot of the tax calculator.
The total of tax on total income and surcharge gives you the tax with surcharge.
Step 13: The tax calculator then calculates the Income Tax Ratio. The calculator divides your gross income by 12 to give the Monthly Income in the monthly income slot.
Your monthly Tax (Approximate TDS a month) is calculated by dividing tax liability by 12 in the Monthly Tax (Appx TDS) slot.
The tax calculator then divides the Monthly Tax (Appx TDS) slot by the monthly income slot to give the income tax ratio in the Income Tax Ratio slot.