How to calculate Income Tax on Salary in India? What are the slab rates and exemptions for Income Tax on Salary in 2014-2015? How can Income Tax be saved for Salaried Employees in India.
Let us start with Income Tax slab rates:
Income Tax on Salary – Slab Rates
Income Tax is calculated on a Slab System. In India, there are 3 tax rates i.e. 10%, 20% and 30%.
Given below is the chart of Income Tax slabs for FY 2014-15 for all those who are aged up to 60 years. (Both for male and female tax payers)
For Senior Citizens aged 60 years, but below 80 years, the first slab of no tax goes up to Rs. 3 Lakhs and for Very Senior Citizens aged 80 years and above, the first slab of no tax goes up to Rs. 5 Lakhs.
There is an Education Cess of 3% on the Income Tax in all cases. The tax credit of Rs. 2000 announced last year is available for the current year too, if your income is up to Rs. 5 Lakhs. Also, there is a surcharge of 10%, if the income is above Rs. 1 Crore.
Income Tax on Salary – Exemptions
All of us plan for tax exemptions under Section 80C of the IT Act. Let us see “what are the exemptions on Income Tax on Salary in India?”
1. HRA Exemption
House Rent Allowance (HRA) received will be eligible for deduction as per the following formula. You can claim the least of the following as a deduction.
(a) Actual HRA received
(b) Rent Paid – 10% of Basic + DA
(c) 40% of your Basic + DA (50%, if you are staying in a metro city)
2. Medical Expenses
Medical Expenses will be exempted up to a maximum of Rs. 15,000 in a year. You can claim this by production of the bill. But, if it is paid along with the monthly salary, it will be taxable.
3. Conveyance Allowance (Transport Allowance)
Transport Allowance up to Rs. 800/- per month is exempted from tax.
4. Interest paid on Housing Loan
Loan Interest paid on your Home Loan will be eligible for deduction from the taxable income under Section 24 of the IT Act. The limit per year is Rs. 2 Lakhs for the loans taken after 01.04.1999.
5. LTA Exemption
Leave Travel Allowance can be claimed as tax-free twice in a block of 4 calendar years. The amount is limited to the economy airfare for the family to any destination in India through the shortest route.
6. Interest on Education Loan
The actual interest paid on an Education Loan taken for higher studies for self, spouse and children will be exempted from taxable income under Section 80E of the IT Act.
7. Health Insurance Premium
Health Insurance Premium paid for buying a health insurance policy for self and family will be exempted up to Rs. 15,000 in a year under Section 80D of the IT Act. You can claim another Rs. 15,000 as deduction for health insurance premium paid for a policy for dependant parents. This limit is Rs.20,000, if they are senior citizens.
8. Section 80C
Under this most popular section, you can claim exemption up to Rs. 1.5 Lakh in a year. PF, PPF, Principal repayment of Home Loan, Tuition fees paid for 2 children, Life Insurance premium, VPF, Tax Saving Mutual Funds (ELSS), NPS, Tax Saver FD of 5-year term, NSC etc will qualify in this.
Let us work out the Income Tax liability on salary with some examples:
1. Taxable income for Rs. 4.25 Lakhs
You need not pay any tax up to Rs. 2.5 Lakhs. For the amount in excess of Rs. 2.5 Lakhs (4,25,000 – 2,50,000 = 1,75,000), you have to pay tax at the rate of 10%. Your tax will be Rs. 17,500 in this case. Also, add 3% Education Cess on the Income Tax of Rs. 17,500. With this Rs. 525/-, your total tax outgo will be Rs. 18,025/- in this case.
2. Taxable income for Rs. 8.5 Lakhs
Here too, there is no tax up to Rs. 2.5 Lakhs. Then for the income between Rs. 2.5 Lakhs and Rs. 5 Lakhs, your tax rate will be 10% and for the amount above Rs. 5 Lakhs, the tax rate will be 20%. The calculation will be as follows:
First Rs. 2.5 Lakhs = Nil; Rs. 2,50,001 – 5 Lakhs = Rs. 25,000; Rs. 5,00,001 – 8.5 Lakhs = Rs. 70,000
So, the total tax will be Rs. 95,000. Also, add 3% Education Cess on Rs. 95,000. With this Rs. 2,850, the total tax outgo will be Rs. 97,850.
3. Taxable income for Rs. 13 Lakhs
Here, the tax calculation will be as follows:
First Rs. 2.5 Lakhs = Nil; Rs. 2,50,001 – 5 Lakhs = Rs. 25,000; Rs. 5,00,001 – 10 Lakhs = Rs. 1,00,000; Rs. 10,00,001 – 13 Lakhs = Rs. 90,000
So, the total tax will be Rs. 2,15,000. Also, add 3% Education Cess on Rs. 2.15 Lakhs. With this Rs. 6,450, the total tax outgo will be Rs. 2,21,450.
Tax on Salary – Conclusion
The taxable income is the income after allowing permissible deductions under various sections like Section 80C, Section 80D etc. If you plan in advance and avail various tax exemptions, you may get tax benefits by lowering your Income Tax Slab for Salary. An updated knowledge on Income Tax Slab for Salary is a must to get the best out of it year after year.
Hope this article would have helped you to understand the basic concepts of “Income Tax on Salary“. Please share your views.