Income tax is a tax levied directly by the central government on the income of the individuals and other non-individuals entities such as Hindu undivided families, companies, firms, etc.
Here, we shall learn to calculate the income tax of salaried individuals only.
Some terms related to income tax:
Financial year. In India, it is the period from 1st April of the current year to 31st March of the next year.
For example, The period of 1st April 2019 to 31st March 2020 is called the financial year 2019-20.
The next year after the financial year is called the assessment year.
For example: For the financial year 2019-20, the period from 1st April 2020 to 31st March 2021 is called the assessment year 2020-21.
It is the total income an individual earned from different sources in a financial year.
Exemptions and Deductions
Salaried persons are the major part of overall taxpayers in the country. Salaried persons tend to save money on tax. They can save tax using exemptions by investing in plans that offer tax benefits. and deductions, some of these are given below.
House Rent Allowance (HRA)
House Rent Allowance (HRA). A salaried individual benefit of HRA who lives in a rented house can get the is not living in a rented exemption. This could be totally or partially exempted from income tax. If a person owns a house then HRA exemption is not permissible.
A standard deduction of Rs. 50000 is allowed for salaried/individual persons.
Deductions under Section 80 C
A person can save tax by investing in different tax-saving schemes. A person can claim a deduction of up to Rs. 1.5 lakh under section 80C. Some of such investments are given below:
- Life insurance premium
- Equity-linked savings scheme (ELSS)
- Employee’s Provident Fund (EPF)
- General Provident Fund (GPF)
- Principal payment on home loan
- The tuition fee of two children
- PPF Account
- National Saving Certificate (NSC)
- National Pension Scheme (NPS)
- Sukanya Samridhi Scheme
Deductions under section 80D
A person can save tax on medical insurance premiums paid for self, family, and dependent parents up to Rs. 25000 under section 80D.
Interest on Home loan under section 24
Homeowners who took home loans can claim a deduction of up to Rs. 2 lakh for interest on home loans under section 24.
Deduction under section 80E
If a person has taken an education loan for his spouse or children for higher studies in India or abroad, then he can claim a deduction for interest on an education loan under section 80E for a maximum of 8 financial years.
Deductions under section 80G
A person who makes donations to charitable organizations can avail of a deduction under section 80G. Under this section one may avail a deduction of 50% or 100% of the total amount donated depending on the type of the organization. Some organizations and their respective deductions are given below:
- Prime Minister’s National Relief Fund 100%
- Family Welfare Relief Fund 100%
- National Security Fund 100%
- Prime Minister’s Armenia Earthquake Relief Fund 100%
- Swachh Bharat Kosh 100%
- Clean Ganga Fund 100%
- Chief Minister’s Relief Fund 100%
- Jawaharlal Nehru Memorial Fund 50%
- Prime Minister’s Drought Relief Fund 50%
- Indira Gandhi Memorial Trust 50%
Deduction under section 80TTA
An individual can avail of a deduction of up to Rs. 10000 on income from savings account interest under section 80TTA.
Taxable income is the income used to calculate the income tax in the given allowed from the gross financial year. It is obtained by subtracting the exemptions and deductions income. Thus,
Taxable income = Gross income Sum of all exemptions and deductions.
Income Tax Slab
Income tax is calculated on the basis of a slab system where different tax rates have been prescribed for different slabs.
Income tax slabs tend to change in every budget. There are different slabs for each category of 531 taxpayers.
Income Tax Slab for FY 2019-20 (A.Y. 2020-21) (For individual taxpayers below the age of 60 years)
For individual taxpayers (60 years old or more but less than 80 years) (Senior-Citizens)
Tax Rebate Under Section 87A
Section 87A provides tax relief to individual taxpayers whose taxable income does not exceed a specific amount. A tax rebate under section 87A is allowed to individual taxpayers a maximum amount of Rs. 12500 for taxable income up to Rs. 5 lakh for Financial Year 2019-20.
Health and Education Cess
A cess is a form of tax collected by the government for the development or welfare of the Health and Education sectors. At present 4% health and education cess is levied on the income tax calculated.
Note: Tax rebate under section 87A is given before calculating 4% cess.
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