Step-by-Step Guide to Calculating Income Tax Using an Income Tax Calculator

0
65
Income Tax Calculator

Saving on Income tax is a crucial part of the financial planning for every tax-paying individual. An efficient financial plan is the one which comprises of various high-income tax-saving methodologies. Earlier, it was easy for individuals to hide their incomes and thus avoid paying taxes. However, today the individuals are well aware of their duty towards the economy of the nation and thus they ensure to pay their share of income taxes. This has also created an interest among individuals to calculate their income tax and fulfill their liabilities along with saving a part of their incomes. The government allows individuals to use several methods to help them save their taxes. To make the task of calculating income taxes, individuals can use an income tax calculator.

What is an Income Tax Calculator?

An income tax calculator is a tool that is designed to help the taxpaying individuals with their tax calculations online. Individuals can use this calculator to calculate their liability towards income tax conveniently by entering some basic information. There are several free income tax calculators available online for this purpose.

Income tax planning is an important step in the financial planning of an individual. This involves arranging the finances in a way that can help save on taxes within the legal framework. The amount saved on taxes can be used on several expenses or can be invested. Calculating the income tax with the use of a tax calculator provides benefits of deductions, reliefs, exemptions, and rebates thus reducing the tax liability of the individuals.

Such deductions are allowed by the government to encourage selves into investment and mobilize the funds, which in turn, benefits the economy.

Tax Planning is carried out with the following objectives:

  1. Claim deductions mentioned under Section 80C to Section 80U
  2. Reduce tax liabilities and save tax amount
  3. Reduce the tax liability legally instead of completely evading the tax
  4. Invest in high return securities that are eligible for exemptions

An income tax calculator keeps these objectives into consideration while calculating the tax of an individual.

How can you use an Income Tax Calculator?

An income tax calculator is particularly useful for all taxpayers to assess their payable tax while considering the various exemptions and deductions. The tool calculates the tax based on the annual income of the individuals, the applicable tax slab for the financial plan, and the eligible deductions as per Section 80C and Section 80D.

The tax calculator also provides the investment options that suit the individual’s financial portfolio, its benefits, and tax-saving ability.

The process of paying income tax is done annually. Therefore salaried individuals need to determine their taxable income and the measures to save on taxes. All the income that is earned by the salaried employees from various sources is included in the tax computation. No individual wants to pay heavy income taxes and thus it becomes imperative that the people use the various deductions and exemptions available to minimize their tax liability. Individuals are required to produce their investment declarations to enable the employer to use them to provide the benefit of exemptions. Therefore, before even starting with the investments and other tax-saving mechanisms, it is recommended that the individuals use the income tax calculator to compute their overall tax liability and income tax to be paid. 

List of deductions Included in the calculation:

  1. Travel concessions as mentioned in clause 5 of section 10
  2. House rent allowance as mentioned in clause 13A od section 10
  3. Allowances mentioned in clause 14 of section 10
  4. Allowances mentioned clause 17 of section 10 for MPs and MLAs
  5. Allowances for minors under clause 32 of section 10
  6. SEZ units’ concession as mentioned in section 10AA
  7. Deduction for entertainment or the professional tax as mentioned in section 16
  8. Additional depreciation as mentioned in clause (iia) of sub-section 1 of section 32
  9. Deductions mentioned under section 32AD, 33AB, 33ABA, 35AD, 35CCC, clause iia of section 57 and under chapter VIA

A step-by-step guide to calculating income tax using a calculator:

Generally, these are the steps involved in using an income tax calculator:

  1. Choose the financial year for which the taxes are to be calculated
  2. Select your age, tax liabilities in India also vary with the age group
  3. Go to the next step
  4. Enter your salary without any exemptions or deductions
  5. Add your interest income, interest paid on home loan and the education loan, rental income, etc.
  6. Go to the next step
  7. Enter tax-saving investments mentioned under 80C, 80D, 80E, 80G, and 80TTA
  8. Click on ‘Calculate’

What is the annual income?

The gross annual income of the individual without reducing any exemptions, deductions, professional tax, and others.

What are your expenses?

Expenses such as house rent paid, HRA received, tuition fees of children, and interest paid on education loan shall be entered in the calculator.

Do you have a home loan?

Select ‘Yes’ if you have any home loan, else select ‘Next’. If ‘Yes’, enter the details of the loan such as the amount, installments, and the duration of the loan.

Do you have an EPF?

If yes, enter the monthly employee provident fund amount.

Are you saving?

Mention the savings such as LIC premium, PPF, mutual funds, tax-saving fixed deposits, NPS, and health insurance premiums.

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here