How to calculate Income Tax?

How to Calculate Income Tax?

Income tax is the tax payable by all eligible citizens to the government - based on a certain percentage of their ‘Gross Total Income’. The government uses these taxes to pay its employees and fund the development of infrastructure and other public-interest activities.

Types of Taxes

The government collects taxes in two ways- directly and indirectly. The direct taxes are collected directly from the person it’s levied on (e.g. income tax, professional tax, and the now-outdated wealth tax)  while indirect taxes are levied on goods and services (GST, customs duty) and charged indirectly from the consumer.

In India, all matters related to income tax are governed by the Income Tax Act of India which was passed in 1961. It has gone several amendments since then.

Collection of Income Tax

This is done through one of the following ways:

  • Tax Deducted at Source
  • Tax Collected at Source
  • Advanced Tax, which are advance payments made in the year the income is earned

Years that matter

When talking about income tax, we talk about assessment year and financial year.

The financial year is the one in which income is earned. The assessment year is the one in where the tax liability on the income earned in the financial year is calculated. Don’t get confused - every year (from 1st April to 31st March) is both the financial year and assessment year.

Calculating Income Tax

For calculating your personal tax liability, you have to keep in mind separate factors that govern income tax rates. As per the Finance Act 2018, these are the tax rates for different categories of persons:

For individuals below 60 years of age

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Surcharge:

10% of tax where the total income > Rs. 50 lakhs

15% of tax where the total income > Rs. 1 crore

Health & Education cess: 4% of the tax + surcharge

For individuals between 60-80 years of age

Income tax slab

Income tax rate

Income up to Rs. 3,00,000

NIL

Income between Rs. 3,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Surcharge:

10% of tax where the total income > Rs. 50 lakh

15% of tax where the total income > Rs. 1 crore

Health & Education cess: 4% of tax + surcharge

For individuals above 80 years of age

Income tax slab

Income tax rate

Income up to Rs. 5,00,000

NIL

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Surcharge:

10% of tax where the total income > Rs. 50 lakh

15% of tax where the total income > Rs. 1 crore

Health & Education cess: 4% of tax + surcharge

For Hindu Undivided Family (HUFs)

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

 

 

For Associations of Persons, Bodies of Individuals, and Other Artificial Judicial Persons

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Surcharge:

10% of tax where the total income > Rs. 50 lakh

15% of tax where the total income > Rs. 1 crore

For Partnership Firms

Partnership Firms and LLPs (Limited Liability Partnerships) are taxed at a rate of 30%.

Surcharge: 12% of tax where the total income > Rs. 1 Crore

Health & Education cess: 4% of tax + surcharge

For local Authorities/ Entities

Local Authorities are taxed at the rate of 30%.

Surcharge: 12% of tax where the total income > Rs. 1 Crore

Health & Education cess: 4% of tax + surcharge

For Domestic Companies

Taxation at a rate of 30%. The tax rate will be 25% if the turnover of the company in the previous year is less than Rs. 250 crores and qualifies a host of other conditions.

Surcharge: 7% of tax where the total income > Rs. 1 Crore

12% of tax where the total income > Rs. 10 Crore

Health & Education cess: 4% of tax + surcharge

For Cooperative Societies

Income tax slab

Income tax rate

Income up to Rs. 10,000

10%

Income between Rs. 10,001 - Rs. 20,000

20%

Income above Rs. 20,000

30%

Surcharge: 12% of tax where the total income > Rs. 1 Crore

Health & Education cess: 4% of tax + surcharge

For Foreign Companies

Nature of income

Tax rate

If the company is paid in the form of royalties according to the agreement designed by the Indian government (after 31st March 1961 and before 1st April 1976)

50%

If the company is paid fees for any technical services according to the agreement designed by the Indian government (after 29th Feb 1964 and before 1st April 1976)

50%

Any other additional income earned

40%

Surcharge: If income is between 1cr and 10 cr- 2% of the tax amount

If income is greater than 10 cr- 5% of the tax amount

Health & Education cess: 4% of tax + surcharge

For NRIs

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Health and Education Cess- 4%

For Expats

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Education cess and surcharge (if applicable)- 3%
 

For Freelancers

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

For Doctors

Income tax slab

Income tax rate

Income up to Rs. 2,50,000

NIL

Income between Rs. 2,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

For Pensioners

Income tax slab

Income tax rate

Income up to Rs. 3,00,000

NIL

Income between Rs. 3,50,001 - Rs. 5,00,000

5%

Income between Rs. 5,00,001 - Rs. 10,00,000

20%

Income above Rs. 10,00,000

30%

Taxable heads of Income

  • Income from salaries
  • Income from capital gains (short term and long term)
  • Income from house property after a standard 30% deduction
  • Income (profits) from business and profession
  • Income from other sources:
    • Income from dividends
    • Rental income
    • Gifts received
    • Pension received after pensioner's death
    • lottery/ horse race winnings
    • Interest on government securities, debentures, and bonds

Final Steps

  • Calculate all incomes under all heads to arrive at the gross income. After this, factor in HRA (house rent allowance) and LTA (leave travel allowance).
  • Prove further deductions under Section 80 C- 80 U of the Indian Income Tax Act. These might include payment for house construction/ education loan/ treatment of a disabled person/ income from royalty etc.
  • Arrive at a final figure on which income tax is charged.
  • If the assessee has paid any pre-paid taxes or advance taxes, those shall be deducted by him, too.
  • Calculate the final amount to be taxed according to the appropriate slab.

You can also use the Indian Government’s Tax Calculator to come up with your tax figure.

Mar 11/19

(All care has been taken to maintain the accuracy of the information detailed in this blog. Aviva, however, assumes no responsibility about the accuracy of the blog or of the actions taken based on it. Please do refer to the Income Tax Department’s online tax filing site, https://www.incometaxindia.gov.in/Pages/tax-services/file-income-tax-return.aspx, for any further clarifications)

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