Income Tax Calculation

Here I will show you how to calculate how much you have to pay Income Tax for a financial year if you have your Form 16 and if you know what is the Income Tax Rate. You need to know also what are the investment areas where you can save Income Tax. Of course there is a limit on investments. For example, the limit of investments is Rs. 1.5 lakh in 80C sections (it includes 80CCC and 80CCD sections).

Now when you get Form 16 from Organization, you see the Part A contains tax deductions on a quarterly and monthly basis and deposited to the Tax Department. So go to Part B where you see all your total gross salary, investment details and deductions.

In Part B, in the left column the first section is Gross Salary which is your total annual income and on this income the calculated tax will be payable for the financial year.

Now please go through the Form 16 and calculate the income tax on gross salary. Let’s consider the Gross Salary is Rs. 500201.00 in the financial year 2015-16.

Step 1:

For Gross Salary section we have three sub-sections but most of the time you will have amount only for 1.(a), so for both 1.(b) and 1.(c) consider amount 0.

So total gross salary is 1.(a)+1.(b)+1.(c) = Rs. 500201.00 which is taxable amount

Step 2:

Next is section Allowance to the extent exempt u/s 10

Here you can have HRA, Conveyance, LTA exemptions. Add these all together.

For example, HRA – Rs. 36,000.00, Conveyance – 9000.00 and LTA – 3000.00, total is 36000.00 + 9000.00 + 3000.00 = Rs.48000.00

Now the taxable amount is Step 1 – Step 2 = 500201.00 – 48000.00 = Rs. 452201.00

Step 3:

Here you will see Deductions section under which there are mainly two sub-sections – Entertainment Allowance & Tax on Employment(Professional Tax).

If you have Entertainment Allowance is 0.00 and Tax on Employment is 2400.00 then in this section total is Rs. 2400.00

Here the taxable amount is Step 2 – Step 3 = 452201.00 – 2400.00 = Rs. 449801.00

Step 4:

If you have any other income such as Income from House property then add it in section 7 otherwise consider it as Rs. 0.00

So taxable amount is Step 3 –  Step 4 = Rs. 449801.00 – 0.00 = Rs. 449801.00

Step 5:

Then we have section 9.    DEDUCTIONS UNDER CHAPTER VI-A. Under this section we have mainly 80C sub-sections and Other sub-sections that includes 80D, 80E, 80G etc.

Now under section 80C you can have Provident Fund, LIC premium, Public Provident Fund. The aggregated limit of investments is Rs. 1.5 lakh under 80C, 80CCC and 80CCD. If you invest more than 1.5 lakh then also only 1.5 lakh is eligible for tax benefits.

Let’s consider Provident Fund amount is Rs. 12000.00, LIC Premium amount is Rs. 5000.00 and Public Provident Fund amount is Rs. 5000.00. Then total investment amount is 12000.00 + 5000.00 + 5000.00 = Rs. 22000.00

Now calculated taxable amount is Step 4 – Step 5 = 449801.00 – 22000.00 = Rs. 427801.00

Step 6: If you have any investments in 9. (B) Other Sections then add them all together otherwise consider the amount is 0.00

So the taxable amount is Step 5 – Step 6 = 427801.00 – 0.00 = Rs. 427801.00

Step 7: Now we will calculate tax on total income Rs. 427801.00. Please read first

We know that upto Rs. 250000.00 we do not need to pay any tax, so the taxable amount is 427801.00 – 250000.00 = Rs. 177801.00

Now we know from Rs. 250001 to 500000.00 we need to pay tax @10%, so the tax on Rs. 177801.00 is = 177801*10/100 = Rs. 17780.10

Step 8: If you have taxable income upto Rs. 500000.00 then you will get Rs. 2000.00 as a rebate, so in this step the payable tax is 17780.10 – 2000.00 = Rs. 15780.10

Step 9: If your total income exceeds Rs. 1 crore then you need to pay additional 10% on the calculated tax in Step 8.

Step 10: You need to pay additional Education Cess @3% on calculated tax at Step 8. So the final tax is 15780.10 + 15780.10*3/100 = 15780.10 + 473.403 = Rs. 16253.503

Therefore you need to pay the tax Rs. 16253.503 in the financial year on gross income Rs. 500201.00 considering all investments.

Thanks for reading.

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