how to calculate income tax? (theoretical answer for assignment)
Answers
Answer:
What is Income Tax?
An Income Tax is a tax that is levied on the income earned by working individuals. Most governments impose taxes on financial income generated by all entities within their jurisdiction. This is the primary source of funds for the government to finance all its activities. All businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund.
This income tax that you need to pay depends on a number of parameters that include the type of income, the amount of income, your age, and the investments that are considered under tax deduction. Your income tax is usually deducted by your employer. By declaring your taxes in advance, you don’t need to apply for the tax refunds later.
What are the salary slabs for Income Tax in India?
In India, a slab system is based on the tax rates fixed in the budget.
For salaried individuals, these income tax slabs are divided into three
categories:
Individuals and or earners Hindu Undivided Family (HUF) less than 60 years old
Senior Citizens between 60 years to 80 years old
Senior Citizens who are 80 years old or more
New Income Tax Slabs FY 2020-21
On 1 February 2020, the Finance Minister presented Union Budget 2020, with a new and optional income tax regime for individuals willing to forgo certain deductions and exemptions, such as those available through Section 80C. This simplified regime has concessional slab rates and you can choose to file taxes as per this regime from Financial Year 2020-21 onwards. This new system will co-exist with the old and the income tax slab for 2020-21 applicable to you will depend on which system of taxation you opt for.
When the total income is above Rs.50 lakh, you will be levied a surcharge of 10%.
When the total income is above Rs.1 crore, you will be levied a surcharge of 15%.
Tax deduction under different sections of the Income Tax Act
Tax deductions help you to reduce the overall tax that you pay on your total income. You can claim a tax deduction on the money you spend on tuition fees, medical expenses, and charitable contributions. There are certain investments that also help you bring down that overall tax that you pay. These investments include life insurance plans, health insurance plans, retirement savings schemes, and national savings schemes, etc.
What are the different sections under which you can claim a tax deduction?
Section 80C: This section states an exhaustive list of the deductions you may be eligible for, the subsections in this include: Section 80 CCC: This section states the tax deductions on investment in pension funds. You can claim a tax deduction of up to Rs.1.5 lakh.
Section 80 CCD: In order to encourage individuals to save, this section incentivises investing in certain pension schemes. Here, the contributions made by the individual and his or her employer are eligible for a deduction.
Section 80 CCF: Open to both Hindu Undivided Families and Individual, this section has the provisions for tax deductions on a subscription of long-term infrastructure bonds that have been notified by the government. You can claim up to Rs.20,000 under this section.
Your home loan must be for the purchase and construction of a new property
Your loan must be taken on or after 1 April 1999
The construction must be completed within 3 years from the end of the financial year in which the loan was availed
Section 10: A salaried individual, living in a rented house can also avail tax exemption under this section. This exemption for HRA benefits is a minimum of:
The actual HRA received
50% of the salary for individuals living in metro cities
40% of the salary for individuals living in non-metro cities
Actual rent paid reduced by 10% of salary
How to calculate your Income Tax on your salary?
You can easily compute the Income Tax that you need to pay on your salary by using the Income Tax calculator.
Here’s how Income Tax is calculated in India:
Your gross salary includes your basic salary, HRA, Special Allowance, Transport Allowance, and other allowances. Out of this, you can claim for a tax deduction for certain components such as medical reimbursements, telephone bill reimbursement, HRA - if you live in a rented house. For Transport Allowance, the exemption limit is about Rs.1,600 per month or Rs.19,200 per year. This means that you can claim a tax deduction of up to Rs.19,200 for the year.