Calculate Income Tax on Salary With Example Last Updated : 25 May 2020

An Income tax calculator is an online tool designed to do help with basic tax calculations. Tax calculators make use of information related to your income, deductions and HRA exemption to provide approximate figures of income tax to be paid. Bear in mind that the results provided by these calculators will not be exact. Lets read further to understand in detail how these calculators work.

You can use the following income tax calculator to understand the amount of tax you will be required to pay.

How to Calculate Income Tax on Salary with an Example

Your salary is inclusive of Transport Allowance, Special Allowance, House Rent Allowance (HRA), and Basic Salary. In the old regime, certain salary components such as leave travel allowance, telephone bill reimbursement, and a part of the HRA were exempt from tax. However, if you choose the new regime, these exemptions are not available.

Given below is an example of how tax calculation works under the new regime when compared to the old one:

Assumptions

Basis Salary: Rs.90,000 per month

HRA: Rs.45,000 per month

Special allowance: Rs.20,000 per month

Leave Travel Allowance: Rs.18,000 per year

Rent that is Paid: Rs.25,000 per month

Components Amount Deductions Taxable amount under the old scheme Taxable amount under the new scheme
Basis Salary Rs.10,80,000 Rs.10,80,000 Rs.10,80,000
Special Allowance Rs.2,40,000 Rs.2,40,000 Rs.2,40,000
HRA Rs.5,40,000 Rs.3,00,000 Rs.2,40,000 Rs.5,40,000
LTA Rs.18,000 Rs.10,000 (bills must be submitted) Rs.8,000 Rs.18,000
Deductions (Standard) - Rs.50,000 Rs.50,000 -
Gross Income Rs.15,80,000 Rs.18,78,000

In order to calculate the income tax, the below-mentioned details must be included:

  • Salary.
  • Rental income or interest that is paid for a home loan.
  • Income from your profession, business, or freelancing.
  • Income that is generated from selling shares or a house.
  • Interest that is generated from a fixed deposit account, savings account, or bonds.

Under the new regime, several exemptions such as telephone bill reimbursement, investments made in savings instruments such as PPF, NPS, EPF, etc., and HRA are not available. The calculation of the gross taxable income under the new regime and the old regime are mentioned below:

New Regime

Calculation of Gross Taxable Income

Components Amount Total
Salary Rs.18,78,000
Income that is generated from other sources Rs.30,000
Gross Total Income Rs.19,08,000
Total Income Tax Rs.3,22,296

Components Percentage Taxable Amount
Up to Rs.2,50,000 No tax needs to be paid 0
Rs.2,50,000 – Rs.5,00,000 5% (Rs.5 lakh – Rs.2.5 lakh) Rs.12,500
Rs.5,00,000 – Rs.7,50,000 10% (Rs.7.5 lakh – Rs.5 lakh) Rs.25,000
Rs.7,50,000 – Rs.10,00,000 15% (Rs.10 lakh – Rs.7.5 lakh) Rs.37,500
Rs.10,00,000 – Rs.12,50,000 20% (Rs.12.5 lakh – Rs.10 lakh) Rs.50,000
Rs.12,50,000 – Rs.15,00,000 25% (Rs.15 lakh – Rs.12.5 lakh) Rs.62,500
Above Rs.15,00,000 30% (Rs.19.08 lakh – Rs.15 lakh) 1,22,400
Cess 4% (Rs.12,500 + Rs.25,000 + Rs.37,500 + Rs.50,000 + Rs.62,500+ Rs.1,13,400) Rs.12,396
Total Income Tax Rs.3,22,296

Old Regime

Assumptions

Interest generated from Savings Account: Rs.5,000

PPF: Rs.40,000

ELSS: Rs.10,000

LIC Premium: Rs.6,000

Medical Insurance: Rs.10,000

EPF Contribution: Rs.1,15,200 can be claimed in a year

Type of Deduction Maximum Deduction Eligible Amount Amount Claimed
Section 80C Rs.1,50,000 Rs.40,000 + Rs.10,000 + Rs.6,000 + Rs.1,15,200 Rs.1,50,000
Section 80D Rs.25,000 (self) Rs.50,000 (parents) Rs.10,000 Rs.10,000
Section 80TTA Rs.10,000 Rs.5,000 Rs.5,000
Total Rs.1,65,000

Calculation of Gross Taxable Income

Components Amount Total
Salary Rs.15,80,000
Income that is generated from other sources Rs.30,000
Gross Total Income Rs.16,10,000
Deductions under Section 80C Rs.1,50,000
Deductions under Section 80D Rs.10,000
Deductions under Section 80TTA Rs.5,0000 Rs.1,65,000
Gross Income that is Taxable Rs.14,45,000
Payable Tax, inclusive of Cess Rs.2,55,840

Components Percentage Taxable Amount
Up to Rs.2,50,000 No tax needs to be paid 0
Rs.2,50,000 – Rs.5,00,000 5% (Rs.5 lakh – Rs.2.5 lakh) Rs.12,500
Rs.5,00,000 – Rs.10,00,000 20% (Rs.10 lakh – Rs.5 lakh) Rs.1,00,000
Above Rs.10 lakh 30% (Rs.14.45 lakh – Rs.10 lakh) Rs.1,33,500
Cess 4% (Rs.12,500 + Rs.1,00,000 + Rs.1,33,500) Rs.9,840
Total Income Tax Rs.2,55,840

What is the difference between Exemption and Deduction?

Both exemption and deduction help reduce your tax liability, but these are availed under different sections of the Income Tax Act.

  • Deduction is a reduction in the total taxable income based on Section 80 and Chapter VI-A. Specific kinds of spending such as investment in life insurance policies and payment of children’s tuition fee help you avail a tax deduction.
  • Exemption is a specific amount that is excluded from the gross total income before calculating tax. Exemptions are available under Sections 10 and 54. Interest earned from tax-free bonds and salary components like LTA are examples of exemptions.

FAQs on Income Tax Calculator

  1. Can I avail the Income Tax Calculator facility on the official website of Income Tax Department India?
  2. Yes, you can visit the official website of Income Tax Department and follow the steps to calculate your tax:

    • Visit the official website of Income Tax Department
    • Scroll down and under ‘Important Links’ you will be able to find ‘Tax Calculator’
    • Click on tax calculator and you will be directed to a new page
    • Enter the details as required, and you will be able to view the total tax liability
  3. For which assessment year can I calculate my tax liability?
  4. You can calculate your tax liability for year 2020-21 on the Income Tax Department of India.

  5. Who all can use this tax calculator?
  6. All those who are eligible to pay their tax can use this calculator.

  7. Do I have to pay anything to avail the Income Tax Calculator facility?
  8. No, you can use the facility for free. You do not have to pay anything.

  9. Can firms and foreign companies use the Income Tax Calculator?
  10. Yes, firms, companies, and foreign companies can also use the income tax calculator facility available on the Income Tax Department of India.

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