Income Tax Calculator

An Direct Tax calculator is a web tool designed to try and help with basic tax calculations. Tax calculators make use of data associated with your income, deductions and HRA exemption to supply approximate figures of direct tax to be paid. Bear in mind that the results provided by these calculators won’t be exact. Lets read further to understand in detail how these calculators work.

You can use the following income tax calculator to understand the amount of tax you will be required to pay.

How to Calculate Direct Tax on Salary with an Example

Let us first take a look at some important concepts you should know before you start calculating your income tax on salary.

How to Calculate Income Tax

The easiest form to calculate your liabilities is through a web direct tax calculator. However, it can be done manually as well.

Let us consider the example of Mr. Dutta whose earnings include a basic salary of Rs.37,500 per month (i.e., Rs.4.5 lakh per annum) as per the fiscal year 2019-2020.

• His salary also includes House Rent Allowance (HRA) of Rs.20,000 per month or Rs.2.4 lakh per annum.
• The Leave Travel Allowance (LTA) is Rs.15,000 on an annual basis.
• There is also a special allowance component of Rs.10,000 per month (i.e., Rs.1.2 lakh per year).
• Mr. Dutta stays in Kolkata and pays rent of Rs.15,000 per month, which amounts to Rs.1.80 lakh per year.
• There is also an EPF component (Mr.Dutta’s share) that is deducted from his salary per month. This is equivalent to 12% of his basic salary on a monthly basis, i.e., Rs.(37,500 * 0.12) = Rs.4,500. On an annual scale this will amount to Rs.54,000.

Step 1: Calculation of Taxable HRA

The first step is to identify the HRA chargeable to tax. Mr. Dutta uses an online HRA Calculator tool to determine the taxable component of his HRA. The manual method of calculating the taxable HRA component is not very complicated either. In this case, it is calculated as shown below:

The lowest value among the following will be exempt from tax:

• 50% of Mr. Dutta’s annual basic salary = Rs.(4.5 lakh * 0.5) = Rs.2.25 lakh
• HRA received on an annual basis = Rs.2.4 lakh
• Rent that is paid in excess of 10% of annual basic salary = Rs.(1.8 lakh – (0.1 * 4.5 lakh)) = Rs.1.35 lakh

Hence, the total taxable HRA = Rs.2.4 lakh – Rs.1.35 lakh = Rs.1.05 lakh

Step 2: Calculation of Taxable Income from Salary

The annual gross income from his salary is outlined in the table below:

*Standard deduction was proposed to be Rs.40,000 in the Union Budget 2018. In the Interim Budget of 2019, it was increased to Rs.50,000.

Step 3: Calculation of Total Deductions

Now let us take a look at the investments made by Mr. Dutta.

• On an annual basis, consider that he has earned interest of Rs.9,000 from a savings account.
• He has also made investments in Public Provident Fund (PPF) and Equity Linked Savings Scheme (ELSS) during the financial year 2019-20. These investments amount to Rs.50,000 for PPF and Rs.15,000 towards ELSS.
• He is also paying premium worth Rs.10,000 for a life insurance policy and Rs.12,500 for a health insurance policy.

Mr. Dutta can claim tax deduction for each of these investments, as shown below:

Step 4: Calculation of Gross Direct Tax that is Taxable

The next step is the calculation of the gross taxable income for Mr. Dutta for the financial year 2019-20.

Step 5: Calculation of Income Tax Liability

The final step is to analyse the income tax slabs and identify Mr. Dutta’s tax liability. The amount of tax he needs to pay is dependent on the tax slab that his income falls under. The tax slabs for the financial years 2019-2020 and 2018-2019 are as shown below. The amount due to be paid by Mr. Dutta is also indicated in the following table:

*The above tax slabs are applicable to taxpayers below 60 years of age

Mr. Dutta is liable to pay the tax for the financial year 2019-2020 and will have to file the income tax returns during the assessment year 2020-2021.

Now that you have a clear idea of the income tax calculation on salary, here are some common income tax terms you may be interested in understanding:

What is the difference between Exemption and Deduction?

Both exemption and deduction help reduce your tax liability, but these are availed under different sections of the Income Tax Act.

• Deduction is a reduction in the total taxable income based on Section 80 and Chapter VI-A. Specific kinds of spending such as investment in life insurance policies and payment of children’s tuition fee help you avail a tax deduction.
• Exemption is a special amount that is rejected from the gross total income before calculating tax. Exemptions are available under Sections 10 and 54. Interest earned from duty-free bonds and salary components like LTA are examples of exemptions.