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Income Tax Calculator

The government levies Income Tax on the income earned by an assessee during the previous year. The tax is payable in the assessment year at the rate prescribed by the significant Finance Act. Income Tax is a source of revenue for the government. According to an analysis, 71% of the government's total revenues are collected through taxes. The government uses these funds for infrastructural development and public welfare.

Income Tax Calculator: Overview

An income tax calculator is an online AI-based tool that assists an assessee to compute the taxable income in accordance with the Income Tax Act, 1961. The calculator computes an estimated tax liability on your income by taking the five heads of income (income from salary, income from house property, income from profits and gains of business, income from capital gains, and income from other sources), deductions and exemptions into consideration.

The income tax calculator can be found on the official website of Income Tax India Income and Tax Calculator and other third-party websites.

How is Income Tax Calculated?

Income tax is calculated after computing the total gross income under section 14 of the Income Tax Act,1961. It is the aggregate of income computed under the five heads of income after allowing the set-off of losses according to the provisions of the tax laws. The five heads of income include:

Income from Salary

As a result of an express or implied agreement, salary is compensation received periodically by or accruing to an individual for services rendered. In simple words, salary is paid by the employer to an employee in consideration of the service rendered by them to the organisation. It includes the monetary or non-monetary value of benefits and facilities provided by the employee. Any amount received other than from the employer cannot be termed as salary. Taxable income from salary is the difference between the gross salary and the deductions u/s 16.

Income from House Property

According to section 22, any building or land appurtenant to a building owned by the assessee is subject to income tax under the head, Income from House Property. House properties are classified into self-occupied house properties, let out house properties and inherited house properties.

The taxable income from house property is calculated after deducting standard deductions and interest from a net annual value on home loans.

Income from Capital Gains

The gain on the transfer of a capital asset in the previous year is referred to as capital gains. Capital gains are broadly classified into short-term and long-term gains. Short-term and long-term gains are taxed at 10% and 15%, respectively. According to the act, capital gains are not taxable if an individual inherits the property and has no sale clause. Conversely, if the individual decides to sell the inherited property, it will be taxable under Income from Capital Gains.

Income from Business and Profession

Business and professional income refers to any income derived from business operations. The income earned by freelancers falls into this category. Simply put, it is the net profit or loss of a business.

Income from Other Sources

Any source of income that doesn't fall under any of the other heads of income is chargeable to tax under the head income from other sources. For example:

  1. a) Fee, commission, and remuneration received by an employee other than their employer.
  2. b) Salary or pension received by an MLA, MP and MLC
  3. c) Income from guest lectures
  4. d) Remuneration received from universities for examination work by a non-employee
  5. e) Director's fee
  6. f) Interest from foreign securities
  7. g) Income from undisclosed sources
  8. h) Composite rent received for letting building along with plant and machinery and furniture.
  9. i) Rent from letting a vacant plot
  10. j) Dividends from mutual funds, companies 

Benefits of Filing Income Tax Online

Every assessee whose taxable income exceeds the exemption limit must file income tax returns in accordance to the specified slab rates.  Individuals whose taxable income falls below the exemption limit are absolved from paying income tax. An assessee can file taxes manually or by e-filing intermediaries. By opting for e-filing, you can avail the following benefits:-

Convenience

As India embraces the digital world, filing taxes has become hassle-free. By opting for e-filing of income taxes, you can file your income tax return in the comfort of your home.

E-Verification 

Before e-filing, income tax returns were sent to the Central Public Sector Commission in Bengaluru for verification. With the advent of the e-filing facility, Income Tax Returns can now be verified online via an electronic verification facility. The assessee must have an aadhaar card and a verified mobile number for OTP verification to opt for this facility.

Minimising Errors

As humans, we are prone to make errors. Tax computation is a complicated process involving computations and manual calculations that might lead to errors. With the electronic-based filing, the possibility of errors is erased.

Confidentiality

Data breach has become a common practice in the digital world. E-filing scraps the possibility of a data breach. The data entered by an individual taxpayer is protected with high-security validations and passwords. 

Cost-Efficient

Previously individuals had to hire professionals to file their returns and pay them a significant amount. With an e-filing system, an assessee can easily file their taxes through the income tax portal.

E-Payments

E-filing made the process of filing ITR returns hassle-free. Now, an assessee can link their bank account with the ITR profile and ensure direct deposit for a refund and direct debit for tax payments.

Timely Returns

In the traditional e-filing system, the taxpayers had zero clue about the status of their refunds. With an e-filing system, you can track your returns. Compared to the manual system, returns are processed faster in the e-filing system.

Storage of Records

Before e-filing, the documentation process was complex. In an e-filing process, most of the data is auto-filled with hyperlinks, making it much easier for tax filers to file prospective returns.

Documents Required for E-filing of Income Tax Returns

The electronic filing system  has made filing of income tax returns a hassle-free process. For filing ITR, the assessee should have the following documents:-

Aadhaar Card The Aadhaar card makes the verification process simpler by providing the aadhaar number and verified mobile number. 
PAN Card The Permanent Account Number (PAN) is the most important document. It acts as an identity proof of the assessee.
Form 16 Form 16 is also known as TDS certificate. It acts as a base in filing ITR. It is provided by your current employer stating the details of taxes paid on your behalf. Your salary, deductions, and the allowances are taken into consideration.
Form 16A Form 16A contains records of TDS details by deductors other than the employer.It is usually collected by banks and other financial institutions for interest and commission purposes. You can collect this form from banks and financial institutions.
Form 26A Form 26A contains the tax deducted from your income and paid on your behalf.It can be downloaded from the official website of the Income Tax Department.
Capital Gain Tax If you have invested in shares or mutual funds, you are required to submit the capital gains statement issued by the broker.It reflects the details of your short-term capital gains to be paid, in case you have exited certain shares before the tenure of 1 year.
Self- assessment tax In case you have done a self assessment and paid any amount of tax in advance, you are required to fill in the respective details in the given forms.
Bank statement details The assessee is required to submit details of their saving accounts.The interest earned from savings accounts and fixed deposit accounts are stated under the head ‘income from other sources.’ You can claim deductions u/s 80TTA after submitting the above mentioned documents.
Home loan statements If you have taken a home loan, you are required to submit the documents for the same.You can claim principal deductions u/s 80C and interest deductions u/s 24,
Property related documents You are required to submit the documents of any property bought or sold in the financial year.Ownership, sale, purchase, and rental income documents are required to be submitted. If the property is disposed of, the short term and long term gains earned from the same is to be provided.
Proof of tax saving You can claim deductions on investment and expenditure u/s 80C, 80CCC, and 80CCD(1).You are required to submit the following documents:-
  • Employee Provident Fund
  • National Pension Scheme
  • Life insurance premiums paid
  • Investments in ELSS schemes of mutual funds
  • Public Provident Fund 
 
Salary Slip The salaried individuals are required to submit their salary slips. It consists of details including dearness allowance, house rent allowance, travelling allowance, TDS details, and standard deductions.
Interest Certificate Any interest earned from savings accounts, fixed deposits, recurring deposits, and post office savings accounts are to be mentioned.

Tax Exemptions Available for Salaried Individuals

Allowance/perquisites to Government employee outside India u/s 10(7)

In accordance with section 10(7), any allowance paid to government employees rendering services outside India is exempt from taxation. The exemption applies only to Indian citizens who have received appropriations by their government for services rendered abroad.

Tax on perquisites paid by the employer u/s 10(10CC) 

Section 10(10CC) exempts non-monetary perquisites. In simpler words, it exempts the income tax paid by the employer on behalf of his employee on the non-monetary benefits provided to his employee.

Gratuity u/s 10(10)

Under the Payments of Gratuity Act, 1972, gratuity is the amount paid to employees by their employers as a token of appreciation. An individual is entitled to receive gratuity if he has worked for an employer for a minimum of five years.

As a result of the provisions of Section 10(10), gratuity received by a government employee upon retirement or death is tax-free, regardless of its amount. Conversely, an employee working in the private sector can take advantage of a partial exemption on their gratuity subject to a maximum ceiling of INR 20 lakhs.

Remuneration to Indian Citizens Working outside India u/s 10(6)

  • According to Section 10(6)(ii), NRIs earning income as embassy employees, high commission, or legislative bodies are fully exempt from taxation in India as long as they hold a public office. It is only applicable if an Indian individual resides in a foreign country where the same exceptions apply.
  • Relative to section 10(6)(vi), the remuneration received by a foreign national while he is working for a foreign entity is tax-free only if the foreign entity is not conducting any business in India and he is not staying longer than 90 days in India during the current year.
  • A foreign trainee is exempted from tax under Section 10(6)(xi) of the Income Tax Act in connection with training in a government establishment while in India as a foreign government employee.

Leave Travel Allowance u/s 10(5)

A leave travel allowance is an exemption the employer provides to their employees when travelling. This allowance is fully exempted and tax-free. The exemption doesn't cover the costs incurred during the entire trip. It can be claimed only for two trips in four years. If an individual doesn't take advantage of the allowance during this block, it can be carried forward to the next block. The exemption is available for only two children. 

Allowance/perquisites to Government Employee outside India u/s 10(7)

According to section 10(7) of the Income Tax Act, 1961,  any compensation paid to government employees for services rendered outside India is tax-free.

Life Insurance Policy u/s 10 (10D)

A claimant of a life insurance policy is eligible to receive exemptions under section 10(10D) based on the sum assured and accrued interest. Such exemptions also apply to ULIP returns. Such claims are not subject to any upper limits.

Provident Fund u/s 10(11)/(12)

  • The provision u/s 10(11) exempts all payments derived from statutory provident funds. In addition, the amount received from any other provident fund set up and notified by the Central Government is exempt.
  • A participant in a Recognized Provident Fund is exempt from paying the accumulated balance under section 10(12).

House Rent Allowances u/s 10(13A)

House rent allowance (HRA) is granted to an employee by the employer towards paying the rent of the residence. HRA is partly or fully exempted. It is fully taxable if an assessee resides in his own house. HRA granted to an employee is exempt at the least of the following:-

For Metro Cities For Other Cities
Total HRA received from your employer Total HRA received from your employer
Rent paid (-10%) of salary for the relevant period Rent paid (-10%) of salary for the relevant period
50% of the salary for the relevant period 40% of the salary for the relevant period
Note:- 
  1. Salary refers to basic salary+dearness allowance
  2. The relevant period is when the assessee occupied the said accommodation during the previous year.

Special Allowances to Meet Personal Expenses or Expenses Related to Duties u/s 10(14)

U/S 10(14)(i) There is no specific limit on the amount which the employee can receive from the employer. However, as per the clause, the employee has to utilise the whole amount for the purpose for which it was given to him.

Allowances Prescribed u/s 10(14)(i)

  • Any allowance granted to the employee to meet the cost of tour or transfer
  • Any allowance granted to the employee to meet daily expenses incurred on a tour or transfer
  • Allowance for expenditures incurred on transportation in the course of duties
  • Any allowance granted to meet the expenditure of a helper, only if the helper is performing the duties of the office
  • Any allowance granted for training and research purposes
  • Any allowance given for the purchase of uniform for the performance of duties in the office

Allowances u/s 10(14)(ii)

Children education allowance
  • Upto INR 100 per child
  • Maximum 2 children is exempted
Hostel Expenditure Allowance
  • Up to INR 300 per month per child
  • Exemption is allowed for a maximum of 2 children
Transport allowance (applicable to a blind or handicapped employee) INR 3,200
Allowance for employees working in transportation industry
  • 70% of such allowance is exempted
  • A maximum of upto INR 10,000
Conveyance allowance  (applicable for employees performing their duties) Expenses incurred for official purposes are exempt 
Travelling allowance Expenses incurred for official purposes are exempt 
Daily allowance Expenses incurred for official purposes are exempt 
Helper allowance Expenses incurred for official purposes are exempt 
Research allowance Expenses incurred for official purposes are exempt 
Uniform allowance Expenses incurred for official purposes are exempt 
Special compensatory allowance for hilly areas INR 300 to INR 7,000 per month
Border area/ remote location allowance INR 200 to INR1,300 per month
Tribal area allowance Upto INR 200 per month
Compensatory field area allowance  Upto INR 2,600 per month
Compensatory modified area allowance  Upto INR 1,000 per month
Counter Insurgency Allowance  ( Armed Forces operating individuals in areas away from their permanent locations) Upto INR 3,900 per month
Underground allowance (applicable to employees working in undermines) Upto INR 800 per month
High altitude allowance (only for army individuals place in high altitudes)
  • For 9,000 feet to 15,000 feet altitude- INR 1,060 per month
  • For attitude above 15,000 feet- INR 1,600)
Highly active field area allowance  (for armed forces) Upto INR 4,200 per month
Island duty allowance (for armed forces in Lakshadweep and Andaman and Nicobar islands) Upto INR 3,250 per month

Tax Exemptions Available for Senior Citizens

A senior citizen is an individual whose age is more than 60 years and less than  80 years at any given time during the previous year.

Leave Salary u/s 10(10AA)

According to Section 10(10AA), government employees are fully exempt from taxation on encashment of leave received during retirement. At the same time, it is partially exempted for non-government employees. 

Leave exemption for non-government employees is least of the following:

  • INR 3,00,000
  • Encashment amount received
  • Ten months' salary (based on an average of the last ten months' salary)
  • Cash equivalent to leave

Payment at the Time of Voluntary Retirement u/s 10(10C)

During voluntary retirement, separation, or termination, an individual may qualify for an exemption under Section 10(10C). The maximum limit that can be claimed under the exemption is INR 5 lakhs or the actual amount received under voluntary retirement (whichever is lower).

Tax Exemption

A senior citizen is an individual whose age is more than 60 years and less than  80 years at any given time during the previous year. Such an individual is exempted from paying taxes up to an income limit of INR 3,00,000.

Advanced Tax Allowance

As per taxation guidelines, advance tax is the amount of income tax that must be paid in advance instead of paying a lump sum at year-end and paying instalments as per the deadlines set forth by the IRS. A senior citizen who doesn’t have business income is exempted from paying any advance tax.

TDS on Interest

If a senior citizen is exempted from paying income tax, he can submit Form 15H non-deduction of TDS on Interest on Fixed Deposit.

Reverse Mortgage Allowance

A reverse mortgage is a home loan offered to a senior citizen. This is a reverse of the home loan concept, wherein the lender against the property mortgaged pays the borrower periodic payments. The amount paid is fully exempted from the income tax.  

How to Use An Income Tax Calculator?

You can save ample time by using the online income tax calculator in the digital era. By following the given steps, you can calculate your income tax payable accurately:

Step 1: Choose the assessment year for which you want to calculate your taxes

Step 2: Select your age 

Step 3: From the dropdown menu, select your gender

Step 4: Provide your residential status. (resident, non-resident, or not ordinary resident)

Step 5:  Provide your income from salary, excluding the deductions

Step 6: Provide details for income from house property after calculating the HRA exemptions 

Step 7:  Specify the income from a short term as well as long term capital gains 

Step 8: Specify the income from other sources

Step 9: Enter the profitable income from business or profession

Step 10: Fill in the details of any agricultural income, if applicable

Step 11: Provide the deductions from section 80C to section 80U

Step 12: Click on ‘Calculate’

Step 13: Your taxable income will be displayed on the screen

Frequently Asked Questions (FAQs)

How can I calculate my income tax?

Income Tax is calculated by computing the total gross income after allowing the set-off of losses according to the provisions of the tax laws. You can calculate your income tax liability by using the online income tax calculator provided by the official website of income tax India.

How much is income tax on salary?

Income tax is exempted on salaries up to INR 2,50,000. If an individual’s salary is more than INR 2,50,000, he is liable to pay income tax as per the tax slab rates.

Does the income tax calculator calculate TDS?

No, an income tax calculator doesn’t calculate the tax deducted at source(TDS). It is used to compute the taxable income for the assessment year.

What is gross income?

U/S 14 of Income Tax Act, 1961, gross income is the aggregate of all the five heads of income after setting off losses.

What is ITR?

ITR is an acronym for income tax returns. ITR is a form reflecting an individual’s income and tax payable during the assessment period. 

Is it compulsory to file ITR?

Every individual whose income is above the exemption limit has to file ITR following the slab rates and tax laws.

What is the maximum non-taxable income limit?

Under the old tax regime, the maximum exempted income limit for salaried individuals is INR 2,50,000, whereas, for senior citizens and super senior citizens, it is INR 3,00,000 and INR 5,00,000, respectively.

In contrast, the slab rates are the same for all age groups under the new tax regime. Here, the maximum exempted income limit for salaried individuals is INR 2,50,000.