Taxes in India are categorized as Direct and Indirect Taxes. Income Tax is a direct tax levied on your income or that of an entity. The Government imposes tax on income generated by individuals and businesses within its jurisdiction.
The Income Tax Department functions under the Department of Revenue of the Ministry of Finance and collects this tax. Income Tax is a percentage of your income, paid to the Government, for the smooth functioning of the Nation, to fund infrastructure and pay salaries of citizens employed by the State or Central Governments.
Income from salary is wages, annuity, advance salary, gratuity, pension, fees, commission, profits, leave encashment, perquisites, annual bonus and transferred balance in a recognized provident fund as well as contribution to employees pension account. This is remuneration received, for services provided based on contract of employment. The amount qualifies for income tax only if there is an employer-employee relationship between payer and payee.
An allowance is a fixed amount paid by your employer for office related expenses. These allowances are included in your salary and taxed unless exemptions are available.
Note : Standard Deduction has replaced transport and medical allowance.
This deduction is the least of the following :
Leave Travel Allowance or LTA is offered by your employer to you (employee), who travels on leave from work to cover travel expenses. LTA is a very important component of salary and is tax-free under Section 10(5) of the Income Tax Act.
Perquisites are a benefit you enjoy because of your job or position.
These are some popular perquisites :
Taxable perquisites :
Rent-free accommodation, supply of gas, electricity and water, professional tax, medical expense reimbursements, salary of servant employed by you, fringe benefits offered by the employer like free meals, gifts exceeding Rs 5,000, club and gym facilities are taxable perquisites.
Exempted perquisites :
Computer or Laptop offered by the Company for official use, Refreshments offered by the employer in office hours, Use of health Club, Sports Club, Interest Free Loans offered by your employer, Employer contribution to your EPF, Free medical and recreational facilities are non-taxable perquisites.
Income from house property includes rent earned from your house property. This rent is chargeable to tax. You may have to pay tax on “deemed rent” in case your property is not let out.
Income from House Property is added to gross total income if it satisfies 3 conditions :
Types of property
Gross annual value or GAV is the value at which your property could reasonably be let out from year to year. Gross annual value is the highest among :
If your property is not let out (given on rent), the notional rent or deemed rent receivable is taxable. The gross annual value of a self-occupied house is zero. In case of let out property, its rent collected for a house given on rent.
This is basically the Gross Annual Value – Municipal Taxes Paid.
Any taxes which you pay to the Government during the Financial Year on the property you own like house tax is allowed as a deduction from Gross Annual Value or GAV. If you don’t pay taxes on the property, you can’t avail this deduction.
You can adjust standard deduction from Net Asset Value.
Income From House Property = Net Annual Value – 30% of Net Annual Value – Interest Paid on Home Loan.
Let’s say the standard rent of your property is Rs 13,000. The actual rent you receive from the tenant is Rs 15,000.
Gross Annual Value of Property = Higher of expected rent or Actual Rent Received.
This is higher of Rs 13,000 and Rs 15,000.
Gross Annual Value of Property = Rs 15,000 a month or Rs 1,80,000 a year.
Net Annual Value = Gross Annual Value – Municipal Taxes.
Let’s assume that Municipal Taxes which includes property tax, sewerage tax is Rs 10,000 a year and is paid by you (Owner of the Property). Interest paid on home loan is Rs 2,50,000 a year.
Net Annual Value = Rs 1,80,000 – Rs 10,000 = Rs 1,70,000.
Income from house property = Net Annual Value – 30% of Net Annual Value – Interest paid on Home Loan = Rs 1,70,000 – 30% of Rs 1,70,000 – Rs 2,50,000 = - 1,31,000.
You have loss of Rs 1,31,000 on let out property. You can adjust this loss against income from house property in ITR to reduce your income tax liability.
|Income from House Property||Amount (Rs)|
|Total Annual Rent||xxxxx|
|Less: Municipal Taxes||xxxxx|
|Net Annual Value (NAV)||xxxxx|
|Less: Deduction under Section 24|
|Standard Deduction @ 30%||xxx|
|Interest on Borrowed Capital||xxx|
|Income From House Property||xxxxx|
For a self occupied property, the Gross Annual Value or GAV is 0. Net Annual Value or NAV is 0. (Municipal Taxes cannot be deducted from Self-Occupied Property). Standard Deduction on repairs/maintenance of house property is not allowed. You only get deduction on interest paid towards home loan up to Rs 2 Lakhs a year under Section 24.
Income from house property = -2,00,000.
You have loss of Rs 2,00,000 on self-occupied property. You can adjust this loss against income from house property in ITR to reduce your income tax liability.
Tax deduction on home loan principal repayment :
Tax deduction on home loan interest repayment :
When is the deduction limited to Rs 30,000 instead of Rs 2,00,000?
You get deduction on home loan interest only after the construction of house is complete. The time period from which you borrow the money, till construction is complete is called pre-construction period. The interest you pay during the construction period can be claimed as tax deduction in 5 equal instalments after construction of house is complete.
First-time home buyers get Section 80EE deduction on home loan interest up to Rs 50,000 during a financial year. You get this deduction over and above Section 80C and Section 24.
Some of the conditions are:
The income earned from trade, manufacturing, commerce and profession is chargeable under this head after a deduction on specified expenses.
Any profit/gain from the sale of a ‘capital asset’ is called a capital gain. You have to pay tax on this capital gain, in the year the transfer of the capital asset took place. Land, Buildings, Vehicles, Patents, machinery and jewellery are popular capital assets.
Short term capital asset : If you hold an asset for 36 months or less, it’s a short term capital asset. The criteria have been reduced to 24 months for immovable properties like house property, land and buildings.
Long term capital asset : If you hold an asset for 36 months or more, it’s a long term capital asset.
If some assets are held for 12 months or less they are called short term capital assets. These are :
These above assets if held for more than 12 months are long term capital assets.
Debt Funds: If debt funds are held for less than 36 months, gains/profits are called short term capital gains. These short term capital gains are added to taxable salary and taxed as per tax bracket. If debt funds are held for more than 36 months, gains/profits are called long term capital gains. These gains are taxed at 20% with indexation.
Equity Funds: If equity funds are held for less than 12 months, gains/profits are called short term capital gains. These gains are taxed at 15% + cess. If equity funds are held for more than 12 months, gains/profits are called long term capital gains. Long term capital gains are taxed at 10%, over and above Rs 1 Lakh.
Immovable Property: If you hold immovable property like a house for 2 years or less and then sell, gains are called short term capital gains. These are added to taxable salary and taxed as per tax brackets. If you hold immovable property like a house for more than 2 years and then sell, gains are called long term capital gains. These are taxed at 20% with indexation benefit.
Gold/Jewellery: If you hold gold/jewellery for 3 years or less and then sell, gains are called short term capital gains. These are added to taxable salary and taxed as per tax brackets. If you hold gold/jewellery for more than 3 years and then sell, gains are called long term capital gains. These are taxed at 20% with indexation benefit.
Income from other sources covers income which doesn’t fall under other heads of income.
|Income Tax Slabs||Tax Rate|
|Income up to Rs 2,50,000||No tax|
|Income from Rs 2,50,000 - 5,00,000||5%|
|Income from Rs 5,00,000 - 10,00,000||20%|
|Income more than Rs 10,00,000||30%|
|Income Tax Slabs||Tax Rate|
|Income up to Rs 3,00,000||No tax|
|Income from Rs 3,00,000 - 5,00,000||5%|
|Income from Rs 5,00,000 - 10,00,000||20%|
|Income more than Rs 10,00,000||30%|
|Income Tax Slabs||Tax Rate|
|Income up to Rs 5,00,000||No tax|
|Income from Rs 5,00,000 - 10,00,000||20%|
|Income above Rs 10,00,000||30%|
You get a standard deduction of Rs 50,000 a year from FY 2019-20.
If you have taxable income up to Rs 5 Lakhs, you get a full tax rebate. This rebate is limited to Rs 12,500. This rebate is applied to the total tax before adding the Education Cess (4%).
You can avail a deduction up to Rs 1.5 Lakhs a year under Section 80C of the Income Tax Act. Investments in PPF, ELSS, Sukanya Samriddhi Account, NSC, SCSS, 5-Year FD, Post Office Time Deposit, NABARD Rural Bonds, Contribution to NPS, your contribution to EPF and VPF enjoy this deduction. The premiums paid on life insurance plans like term life insurance, endowment plans, ULIPs, Money Back Plans and Whole Life plans enjoy Section 80C. Principal repayments on home loan and payment of children’s tuition fees for school/college/university enjoy the benefit. This is a collective deduction up to Rs 1.5 Lakhs a year.
You get this deduction for the amount paid towards an annuity plan of LIC or any other insurer.
The amount you deposit towards NPS up to Rs 50,000 a year enjoys this deduction.
You get a deduction of up to Rs 25,000 a year on health insurance premiums paid for self, spouse and dependent children. You get an additional deduction of up to Rs 25,000 on health insurance premiums paid for parents below 60 years and Rs 50,000 if parents are senior citizens. (Above 60 years of age).
You get this deduction on expenses for a dependent handicapped relative for medical treatment. For disability between 40% to 80%, you get a fixed deduction of Rs 75,000. For severe disability (>80%) its Rs 1,25,000 a year.
You get this deduction for expenses incurred towards treatment of specified ailments up to Rs 40,000 a year. Senior citizens can claim a deduction up to Rs 1,00,000 a year.
Various donations are eligible for Section 80G.
Donations with 100% deduction :
Donations with 50% deduction :
You get this deduction on the interest component of the education loan taken for higher studies of self, spouse and children, up to any limit. This deduction is available for a maximum of 8 years starting from the year interest repayment commences, till the entire interest is repaid, whichever is earlier.
You get this deduction for rent paid when HRA is not received. You must not have residential accommodation at the place of employment.
Deduction is the least of:
You get this deduction of Rs 75,000 a year on suffering from a physical disability like blindness or mental retardation. For severe disability its Rs 1,25,000 a year.
You get a deduction of up to Rs 10,000 a year on interest income from savings account from banks and post offices. This is for people less than 60 years of age.
This deduction is available for a resident senior citizen aged 60 years and above. The maximum deduction is Rs 50,000 a year for interest on bank deposits and post office deposits.
Let’s understand income tax with this example. You are 35 years and earn a basic salary of Rs 50,000 a month. HRA is Rs 25,000 a month. Special Allowance is Rs 13,000 a month. LTA is Rs 20,000. You live in Chennai and pay a rent of Rs 20,000 a month.
|Nature||Amount (Rs)||Exemption/Deduction||Taxable (Rs)|
|LTA||20,000||12,000 (Bills Submitted)||8,000|
|Gross Total Salary||8,34,000|
Actual amount of HRA = Rs 25,000.
50% of salary as you reside in a metro= 50% x (50,000) = Rs 25,000.
Actual rent paid - 10% of salary = 20,000 – 10% (50,000) = Rs 15,000.
You get an exemption on the least of the 3 amounts which is Rs 15,000 a month or Rs 1,80,000 a year. The remaining Rs 1,20,000 is taxed.
You earn interest income from SB account at Rs 8,400 a year. You have invested Rs 50,000 for the year in PPF. You pay term insurance premium at Rs 8,000 a year and invest Rs 20,000 in ELSS. You also pay a health insurance premium of Rs 12,000 a year. You earn Rs 10,000 interest income from FD. These are the tax deductions you can avail:
Section 80C: PPF + ELSS + Term Insurance Premium = Rs 78,000.
You also have own contribution to EPF = 12% of basic salary = 50,000 *12% = Rs 6,000 *12 = Rs 72,000.
The total Section 80C deduction = Rs 1,50,000 a year.
The total Section 80D deduction = Rs 12,000 a year.
The total Section 80TTA deduction = Rs 8,400 a year.
|Nature||Amount (Rs)||Total (Rs)|
|Income from salary||8,34,000|
|Income from other sources||18,400|
|Gross Total Income||8,52,400|
|Gross Taxable Income||6,82,000|
You fall in the general income tax slab
You have to pay a total tax of Rs 12,500 + Rs 36,400 = Rs 48,900. You have to add 4% cess = Rs 50,856.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The total of tax on total income and surcharge gives you the tax with surcharge.
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.