How to Calculate Income Tax on Salary ?
Income Tax is the amount of money you pay as tax depending on the tax slab you fall under in accordance with your income. To know how to calculate Income Tax on your Salary, let’s see the Income Slabs and the tax rate applicable in the financial year 2017-18:
Upto 2.5 lakhs- No tax
Upto 2.5 lakhs- No tax
Rs.2.5 lakhs to 5lakhs- 5%
Rs.5 lakhs to 10 lakhs- 20%
Above Rs.10 lakhs - 30%
Now let’s understand the composition of your Salary:
What is Gross Salary?
Basic Pay
+ House Rent Allowance (HRA)
+ Dearness Allowance (DA)
+ Transport Allowance (TA)
+ Special Allowance
+ other Allowance
+ Leave Encashment
+ Gratuity Received
= Gross Salary
What are the Deductions from Salaried Income?
You can claim deductions from your salaried income under the following heads:
HRA Exemption based on the below three:
- the actual amount of HRA
- 50% of your basic pay (employees living in metro cities) or 40% (employees living in non-metro cities)
- Additional rent paid above 10% of salary
LTA Exemption
The LTA exemption is given to a certain extent of the LTA paid by the employer to the employee for his vacation in India. An employee has to submit bills in order to claim LTA.
Exemption on Encashment of Leaves
Encashing the unavailed leaves is exempted from income tax and hence can be claimed under exemptions.
Income Tax Deductions from Section 80C to 80U
There are various investment instruments like PPF, Life Insurance, Tuition Fees paid (upto two children), fixed deposit, etc which are exempted from Income Tax.
Interest on Home Loan
If you have a home loan running, then you can claim tax exemption upto an extent from the amount you have paid as interest on home loan.
Professional Tax
Professional Tax is allowed as a deduction from your gross salaried income.
Entertainment Allowance
Any income received under this head is exempted from income tax.
How Income Tax on Salary is Calculated?
The Total Taxable Income from Salary is calculated after all applicable deductions stated above are adjusted from the total income (gross salary + income from other sources). And then the income tax is calculated according to the slab your taxable income falls under + 3% Cess. For example if your taxable income falls under the tax slab 5 lac to 10 lac, then the amount till 2.5 lacs will be exempted, from 2.5 lacs to 5 lacs will be taxed 5%. And the amount between 5 to 10 lac will be levied 20% tax + 3% Cess.
Rs.5 lakhs to 10 lakhs- 20%
Above Rs.10 lakhs - 30%
Now let’s understand the composition of your Salary:
What is Gross Salary?
Basic Pay
+ House Rent Allowance (HRA)
+ Dearness Allowance (DA)
+ Transport Allowance (TA)
+ Special Allowance
+ other Allowance
+ Leave Encashment
+ Gratuity Received
= Gross Salary
What are the Deductions from Salaried Income?
You can claim deductions from your salaried income under the following heads:
HRA Exemption based on the below three:
- the actual amount of HRA
- 50% of your basic pay (employees living in metro cities) or 40% (employees living in non-metro cities)
- Additional rent paid above 10% of salary
LTA Exemption
The LTA exemption is given to a certain extent of the LTA paid by the employer to the employee for his vacation in India. An employee has to submit bills in order to claim LTA.
Exemption on Encashment of Leaves
Encashing the unavailed leaves is exempted from income tax and hence can be claimed under exemptions.
Income Tax Deductions from Section 80C to 80U
There are various investment instruments like PPF, Life Insurance, Tuition Fees paid (upto two children), fixed deposit, etc which are exempted from Income Tax.
Interest on Home Loan
If you have a home loan running, then you can claim tax exemption upto an extent from the amount you have paid as interest on home loan.
Professional Tax
Professional Tax is allowed as a deduction from your gross salaried income.
Entertainment Allowance
Any income received under this head is exempted from income tax.
How Income Tax on Salary is Calculated?
The Total Taxable Income from Salary is calculated after all applicable deductions stated above are adjusted from the total income (gross salary + income from other sources). And then the income tax is calculated according to the slab your taxable income falls under + 3% Cess. For example if your taxable income falls under the tax slab 5 lac to 10 lac, then the amount till 2.5 lacs will be exempted, from 2.5 lacs to 5 lacs will be taxed 5%. And the amount between 5 to 10 lac will be levied 20% tax + 3% Cess.
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