How to calculate Income Tax on Salary? What are the slab rates and exemptions for Income Tax on Salary? 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 on Salary is calculated on a slab system. There are 3 tax rates i.e. 10%, 20% and 30% in India. The various Income Tax slabs for Salary are mentioned below (the chart below is for the FY 2013-14 for all those who are aged up to 60 years – both for male and female tax payers):
There is an Education Cess of 3% on the Income Tax on Salary in all cases. For FY 2013-14, there is a tax credit of Rs. 2,000, if your income is up to Rs. 5 Lakhs. Also, there is a surcharge of 10%, if the income is above Rs. 1 Crore.For Senior Citizens aged 60, but below 80, the first slab of no tax goes up to Rs. 2.5 Lakhs and for very Senior Citizens aged 80 and above, the first slab of no tax goes up to 5 Lakhs.
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. 1.5 Lakhs for the loans taken after 01.04.1999. For loans taken prior to this date, the maximum is limited to Rs.30,000 per year.
If you are a first time home buyer and taking a Home Loan during the period from 1st April, 2013 to 31st March, 2014 for loans up to Rs. 25 Lakhs on property costing up to Rs. 40 Lakhs, you will get an additional Rs. 1 Lakh exemption for the interest paid for the year 2013-14.
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 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.
9. Rajiv Gandhi Equity Savings Scheme (RGESS)
If your annual income is up to Rs. 12 Lakhs and if you have not invested in shares through demat account earlier, you are eligible for deduction in this scheme. You can invest up to Rs. 50,000 in select shares and designated Mutual Fund schemes and can claim a 50% deduction from the taxable income. You can invest in this scheme for 3 years under Section 80CCG of the IT Act.
So far, we have discussed the important Income Tax exemptions for Salaried Employees in India. A detailed knowledge of the above exemptions will help you in reducing your tax liability and increasing the take home pay.
Income 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.