Examples of Income Tax Calculation

Based on the queries received on the forum we realized that there is confusion about how to calculate income tax. In this article we shall look at some examples of how to calculate income tax . Let’s start with the process. The process is described in detail in Income Tax Overview.

Income Tax Assessment Process

Income tax assessment comprises of following stages:

  • Computation of total income.
  • Deducting valid deductions.
  • Determination of the tax payable thereon.
  • Paying the tax.
  • Filling Income Tax Return Form

Total Income:The total income is the sum of all sources of income that an individual has or the total income he earns in a financial year. It has to fall into one of the five heads and is supported with documents

1. Income from Salary : Form 16, Form 12BA
2. Income from House Property
3. Income from Profits and Gains of Business or Profession
4. Income from Capital Gains
5. Income from other Sources

Deduction under various sections: Tax Deduction is a legal way to reduce the income hence the tax that one needs to pay. One can claim the reduction under different heads  like 80C (limit 1 lakh), 80CCF(limit 20,000) etc.

Income Tax slabs

After a person calculates his income, applies various deductions one  gets taxable income. If taxable income is less than the exemption limit specified by the government he does not have to pay any tax. If  the taxable income is more than the exemption limit then one has to see which category or Type ex Individual, Hindu Undivided Family (HUF), Firm, Trust etc, does one fall into. For an individual it depends on: Gender (male or female),Age (senior citizen between 60 years to 80 years, women below the age of 60 years ) , Residential status (NRI, NRE). Tax rates for Resident Indian based on gender and income slab For Financial year 2011-12 or Assessment Year 2012-13 are given below. For income tax rates of earlier years checkout our Income Tax rates Since AY 1992-1993

TAX MEN WOMEN SENIOR CITIZEN(60 – 80 yrs) Very Senior Citizens(Above 80 years)
Basic Exemption 180000 190000 250000  500000
10% tax 180001 to 500000 190001 to 500000 250001 to 500000  -
20% tax 500001 to 800000 500001 to 800000 500001 to 800000 500001 to 800000
30% tax above 800000 above 800000 above 800000 above 800000

Every Indian income tax assessee gets appropriate exemption.  For indian male less than 60 years of age for For Financial year 2011-12 or Assessment Year 2012-13  is as follows:

Level of income  Tax
   1.  Where the total income does not exceed Rs. 1,80,000/-. Nil
   2.  Where the total income exceeds Rs. 1,80,000 but does not exceed Rs. 5,00,000/- 10 per cent of the amount by which the total income exceeds Rs. 1,80,000/-
   3.  Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 8,00,000/-. Rs. 32,000/- plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000/-.
   4.  Where the total income exceeds Rs. 8,00,000/-. Rs. 92,000/- plus 30 per cent of the amount by which the total income exceeds Rs. 8,00,000/-.

For example  tax on income for Indian male earning 6,00,000, is calculated as follows:

  • 10% on 5,00,000-1,80,000=3,20,000 i.e 32,000 and
  • 20% on 6,00,000-5,00,000 = 1,00,000 i.e 20,000.

So total tax becomes 52,000(32,000+ 20,000)

Education cess: Education cess@ 2% of tax and Secondary and Higher Education Cess@ 1% of Tax or together at 3%  is added to payable tax. Note Education cess and  Secondary and Higher Education Cess is on the tax and not on the income. Explained in example below:

Gross Salary
5,00,000
Less: Deduction U/s 80C
50,000
Taxable Income
4,50,000
(A) Tax thereon
27,000
Add:
(i) Education Cess @ 2%.
540
(ii) Secondary and Higher Education Cess @1%
270
Total tax payable
27,810

Mandatory Quoting of PAN and TAN: According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account No. (TAN) in the challans, TDS-certificates, statements and other documents.

The person for whom Tax is being deducted has to provide Permanent Account number or PAN. Note that non-furnishing of PAN by the deductee to the deductor will result in deduction of TDS at higher rates.  For Salary please read about Section 206AA.TaxGuru:TDS on Salary – Rate & Provisions A.Y. 2012-13 

Examples of Calculation of Income tax

Man below 60 years and only contribution it to Provident Fund

Example: A male employee, say Mr Sharma, is below the age of sixty years and has gross salary income of Rs.1,50,000 with Rs 10,000 contribution to G.P.F. (Source :Circular No.08/2010 dated 13.12.2010 at TaxGuru:TDS on Salary – Rate & Provisions A.Y. 2012-13 )

Gross Income  1,50,000
Deductions
 under section 80C    10,000
Total taxable income 1,40,000.
Tax thereon Nil

As total taxable income for Assessment Year(AY) 2012-13 or Financial Year (FY) 2011-12 less than 1,80,000 for men. Mr Sharma does not have to pay tax.

Examples: Male employee below 60 years of age with salary and contribution to GPF. Source :Circular No.08/2010 dated 13.12.2010 at TaxGuru:TDS on Salary – Rate & Provisions A.Y. 2012-13 

Particulars
Rupees 
Rupees 
Rupees 
Rupees 
Gross Salary
2,00,000
5,00,000
10,00,000
20,00,000
Less: Deduction U/s 80C
45,000
50,000
1,00,000
1,00,000
Taxable Income
1,55,000
4,50,000
9,00,000
19,00,000
(A) Tax thereon
Nil
27,000
1,22,000
4,22,000
Add:
(i) Education Cess @ 2% of Tax.
Nil
540
2440
8440
(ii) Secondary and Higher Education Cess @1% of Tax
Nil
270
1220
4220
Total tax payable
Nil
27,810
1,25,660
4,34,660
(B) TDS under sec. 206AA in case where
PAN is not furnished by the employee 
Nil
90,000
1,80,000
4,36,720

Woman below age of 60 years with no tax savings investments

Example: A female employee, say Ms Anjali, below the age of sixty years and has gross salary income of Rs. 2,40,000. She has made no tax savings investments during the year. Let us calculate her income tax liability.

Gross Total Income Rs. 240,000
Deductions Nil
Taxable Income Rs. 240,000
Income Tax Calculations Tax
Tax on Income upto Rs 1,90,000 0% Zero
Tax on the remaining Rs 50,000 10% Rs.5,000
Total Income Tax Due Rs.5,000
Educational Cess @ 3% Rs. 150
Total Tax Payable Rs. 5,150

Woman with Income from Salary and Interest on Saving Bank Account

Example: Ms Bharti is a salaried employee below 60 years of age. Basic salary is Rs 8,00,000. She has received Rs 14,000 as interest from bank. Her contribution towards Employee Provident Fund is Rs 34,000. TDS deducted by her employee is 80,000.
Income from salary Rs. 8,00,000
Income from other sources
Interest on Saving Bank Account Rs 14,000
Total Income  8,14,000
Deductions:
Under Section 80C :Employee Provident Fund    34,000
Total Taxable Income 7,80,000
Income Tax Calculations
Tax on Income upto Rs 1,90,000  Zero
Tax at 10% ( on income between Rs 1,90,001 to Rs 5,00,000) 31,000
Tax at 20% (on income exceeding Rs. 5,00,000 i.e 280000) 56,000
Total tax on income of Rs 7,80,000 87,000
Education Cess @ 3% of Income Tax Payable   2,610
Total Tax liability 89,610
Less: TDS / Advance Tax deposited 80,000
Net Income Tax due 9,610

Woman with Income from Salary and Interest on Saving Bank Account exceeding 10,000

Example: Ms Aarti is a salaried employee below 60 years of age. Basic salary is Rs 8,00,000. She has received Rs 18,000 as interest from saving bank account. Her contribution towards Employee Provident Fund is Rs 34,000. TDS deducted by her employer is 80,000.
Income from salary Rs. 8,00,000
Income from other sources
Interest on Saving Bank Account Rs 18,000
Total Income  8,18,000
Deductions:
Under Section 80C :Employee Provident Fund    34,000
Total Taxable Income 7,84,000
Income Tax Calculations
Tax on Income upto Rs 1,90,000  Zero
Tax at 10% ( on income between Rs 1,90,001 to Rs 5,00,000) 31,000
Tax at 20% (on income exceeding Rs. 5,00,000 i.e 284000) 56,800
Total tax on income of Rs 7,84,000 87,800
Education Cess @ 3% of Income Tax Payable   2,634
Total Tax liability 90,434
Less: TDS / Advance Tax deposited 80,000
Net Income Tax due 10,434
If you look at the two examples the difference between Ms Bhaarti and Ms Aarti is on amount of interest from saving bank account deposit. Mr Aarti received Rs 14,000 while Ms. Bharti received Rs 18,000. But for Ms Bhaarti as amount of tax due is not more than Rs 10,000 so she does not have to pay advance tax. While Ms Aarti had to pay advance tax during the year else she will have to pay penalty.

Advance Tax

As per income tax an assessee is expected to calculate the estimated income for the year and if the total tax due is more than Rs 10,000 he has to pay advance tax.  If one fails to pay Advance Tax or if one pays less than the stipulated tax, (s)he would be penalised and would have to pay extra tax under Sections 234A, 234B, 234C.  Advance Tax:Details-What, How, Why explains the process and how interest calculation under Sections 234A, 234B, 234C.

Advance tax calculation would be as follows assuming that Ms. Bharti files her return by 31st July 2012 and does not pay any advance tax during the year .
Description  Amount
Calculation of Interest Payable Under Section 234 A 0
Calculation of Interest Payable Under Section 234 B
Number of months for which interest is payable on shortfall amount @ 1% per month  4
Interest Payable under Section 234 B  417
Calculation of Interest Payable Under Section 234 C
Advance Tax Payable upto 15th September 2011 (At least 30% of Total Tax Liability) 3130
Shortfall in Advance Tax payment 3130
Interest Payable under Section 234 C
(1% per month for 3 months on shortfall, if Total Tax Liability is more than Rs. 10,000/-)
 94
Advance Tax Payable upto 15th December 2011 (At least 60% of Total Tax Liability)  6260
 Shortfall in Advance Tax payment  6260
 Interest Payable under Section 234 C
(1% per month for 3 months on shortfall, if Total Tax Liability is more than Rs. 10,000/-)
 188
Advance Tax Payable upto 15th March 2012 (100% of Total Tax Liability)  10434
 Shortfall in Advance Tax payment  10434
Interest Payable under Section 234 C
(1% per month for 3 months on shortfall, if Total Tax Liability is more than Rs. 10,000/-)
 104
Total Interest payable under Section 234 C (94+188 + 104)  386
Total Interest payable under Sections 234 A, 234 B and 234 C  803
So the total tax due to be paid before 31st July by Ms. Bharti becomes 11,237( 10,434 +  803)

Man with Income from Salary and Interest on Saving Bank Account exceeding 10,000

Example: Mr Ajay is a salaried employee below 60 years of age. Basic salary is Rs 8,00,000. He has received Rs 18,000 as interest from Saving Bank Account. His contribution towards Employee Provident Fund is Rs 34,000. TDS deducted by his employer is 80,000.
Income from salary Rs. 8,00,000
Income from other sources
Interest on Saving Bank Account Rs 18,000
Total Income  8,18,000
Deductions:
Under Section 80C :Employee Provident Fund    34,000
Total Taxable Income 7,84,000
Income Tax Calculations
Tax on Income upto Rs 1,80,000  Zero
Tax at 10% ( on income between Rs 1,80,001 to Rs 5,00,000) 32,000
Tax at 20% (on income exceeding Rs. 5,00,000 i.e 284000) 56,800
Total tax on income of Rs 7,84,000 88,800
Education Cess @ 3% of Income Tax Payable   2,664
Total Tax liability 91,464
Less: TDS / Advance Tax deposited 80,000
Net Income Tax due 11,464

As total tax due is more than 10,000 Ajay had to pay advance tax . If Ajay has not paid advance tax before 31st July he would also have to pay interest under Section 234 A, B and C. Which in his case turn out to be Rs 883. So total tax due is 12,347(11,464 + 883)

Note that for same data(income, deductions etc) Ajay and Bharti had to pay different amounts. This is because exemption limit for woman was Rs 1,90,000 vs Rs 1,80,000 for man.

Note:Calculations have been done using the Finotax:Calculator For assessment Year 2012-13 , Finotax:AdvanceTax

How to pay tax which is due?

One needs to pay the income tax due, preferably before one files the returns. One can pay through
Online deposit
• Nationalised banks
Challan No. ITNS 280 is used for payment of Income tax. It’s pdf from tin.nsdl website.
  • Select (0021) INCOME-TAX (OTHER THAN COMPANIES) in tax applicable field
  • Select (300) SELF ASSESSMENT TAX in type of payment.

We have tried to give very simple examples of how to calculate income tax. Hope they are helpful. Apologies upfront for any mistake. Please let us know of the mistake or error in calculation we will correct it. Looking forward for your feedback.

 

11 Responses to Examples of Income Tax Calculation

  1. sanjib kumar roy says:

    Dear Sir
    I have some simple questions to ask you…..
    1. I have some kishan vikas patras whose accrued interest in the current fi year is rs. 99000/-. now if I invest rs. 150000/- with interest rate 10% per annum in this year what will be my taxable amount for the current financial year? Is it Rs. (99000 + 10% of 150000) = Rs. 114000 or Rs. (99000 + 150000) = Rs. 249000 ?
    2. What is the maximum amount I can gift to my wife / parents in a financial year? Is gift taxable?
    3. Is the only interest gained from FD is taxable in a fi year and not the total investment amount? If it is so then one can Invest Rs. 20 Lakhs with interest rate 10% (interest gained from it is Rs. 2 Lakhs) + 1 Lakh in 80C for a fi year. Am I correct?
    4. Does investment instruments like mutual fund, shares, IPO, NCD, Bonds fall under same category of FD ( means only the interest is taxable, not the total investment amount)?

  2. Divakara A B says:

    My DOB is 26-12-1952 and age will be 60 years during the current financial year(i.e.Assess Year – 2013-14). Will I be eligible for the IT benefits of Senior Citizen when I file the IT return for the FY 2012-13 (AY 2013-14)?

    • admin says:

      For consideration under a senior citizen category, the tax payer’s age should be 60 years during any part of the financial year. In your case as you would be 60 as on March 31, 2013 you will be eligible for IT benefits for Senior Citizen when you file IT return for FY 2012-13 (AY 2013-14).

  3. ASP Anjaneyulu says:

    I was a salaried employee newly recruited and will be having gross total income of Rs.4.32lakhs. I was to reduce my tax burden by investing/saving in various sources so that i want to meet nearby(within 2yrs) of financial obligation. Please suggest me in this regard so that my money is not locked for greater period.

    With Regards,
    A.S.P.Anjaneyulu

    • admin says:

      A.S.P.Anjaneyulu with due apologies we are not qualified and have expertise to offer suggestions.
      Investing is just like planning for a trip-budget , risk, time etc needs to be considered. Our article Beginner to Investing throws light on the topic.

  4. allama says:

    Interest earned from Fixed Deposits is Rs.12000. Since I had given Form 15G, no TDS is deducted. My total income (salary+interest) is less than Rs.1,80,000. Now in ITR-1 should I declare the Interest as income?
    Thanks

    • admin says:

      As your total income is less than 1,80,00 you have an option of not filing Income Tax return.
      But it is good if you file Income Tax return for it is proof of your income and is needed for visa and loans by banks.
      If you are filing ITR then yes declare the interest as income under the head income from other sources.

    • sanjib kumar roy says:

      Dear Sir
      I have some simple questions to ask you…..
      1. I have some kishan vikas patras whose accrued interest in the current fi year is rs. 99000/-. now if I invest rs. 150000/- with interest rate 10% per annum in this year what will be my taxable amount for the current financial year? Is it Rs. (99000 + 10% of 150000) = Rs. 114000 or Rs. (99000 + 150000) = Rs. 249000 ?
      2. What is the maximum amount I can gift to my wife / parents in a financial year? Is gift taxable?
      3. Is the only interest gained from FD is taxable in a fi year and not the total investment amount? If it is so then one can Invest Rs. 20 Lakhs with interest rate 10% (interest gained from it is Rs. 2 Lakhs) + 1 Lakh in 80C for a fi year. Am I correct?
      4. Does investment instruments like mutual fund, shares, IPO, NCD, Bonds fall under same category of FD ( means only the interest is taxable, not the total investment amount)?

      • admin says:

        Sorry for delay in replying. The questions were simple but not the answers :-) .
        1. Earning from investment is taxable not the invested amount.
        So for this year when you have 99000 from kisan vikas patra and 10% of 150000) i.e 114000 will be taxed under
        the category income from other sources and would be taxed as per your income tax slab.

        2. What is the maximum amount I can gift to my wife / parents in a financial year? Is gift taxable?
        Any gift received in cash or kind exceeding Rs.50,000 or purchase of movable or immovable property for inadequate payment is taxed in the hands of recipient as “income from other sources. Gifts received from specified relatives are exempt from Income Tax, and there is no upper limit also. Father is included in the definition of relative, therefore amount given to him would be tax free. Yes you can gift to your husband or wife. But, Please be careful that if your spouse invest this money and any gain like interest on FD, Rent etc is received it would be clubbed with your income. Our article Clubbing of income explains it in detail.

        While receiving a gift, its always in the interest of the donee (i.e., the recipient) to get a gift deed signed by the donor. This can always help support the case that the item was indeed a gift and can be used as evidence in case of future litigation/investigation by the Income tax department.

        3. Is the only interest gained from FD is taxable in a fi year and not the total investment amount? If it is so then one can Invest Rs. 20 Lakhs with interest rate 10% (interest gained from it is Rs. 2 Lakhs) + 1 Lakh in 80C for a fi year. Am I correct?
        Yes only interest gained from FD is taxable in a financial year (apr to Mar) not the invested amount. So if you invest 20 lakh at 10% interest only 2 lakh is taxable.
        1 lakh in 80C is deduction available to the tax-payer. Out article Filling ITR-1 may be of help.

        4. Does investment instruments like mutual fund, shares, IPO, NCD, Bonds fall under same category of FD ( means only the interest is taxable, not the total investment amount)?
        In any investment only the earnings are taxed not the invested amount. And taxation of each category of investment is different which also depends on time period for which investment was held.
        For ex: investment in equity mutual funds and stocks if held for less than 1 year are taxed for short term capital gain at 15% while if held for long period are tax free. While for debt mutual funds Selling before 1 year the profit is added to the income and taxed as per tax slab.while if held for longer than 1 year taxed at 20% if indexation used, Without indexation 10% Our article Basics of Capital Gain throws light on it.

        Hope it answers your queries. If you still have doubt please let us know.
        FYI: This blog is run by women.

  5. Kavitha says:

    Thanks a ton. Very detailed and informative article with nice examples. I am greatful to all the efforts you put in here.
    But, couple of clarifications, might be typos, but want to get confirmed before I calculated my income tax due :
    1. In the example of Ms. Aarthi, you mentioned while calulating interest under 234 C, is the last calculation 104 (1% of 10434) correct. (OR) is it 3 months 104 * 3 = 312. Please confirm.
    2. You mentioned “So the total tax due to be paid before 31st July by Ms. Bharti becomes 11,237( 10,434 + 803)”. So eventhough I am paying income tax before 31st July. I have to pay the interest as mentioned under section 234 A, B, C. Am I right ?
    But in the Ajay’s example you said “As total tax due is more than 10,000 Ajay had to pay advance tax . If Ajay has not paid advance tax before 31st July he would also have to pay interest under Section 234 A, B and C. Which in his case turn out to be Rs 883. So total tax due is 12,347(11,464 + 883)”
    3. “TDS deducted by her employee is 80,000″, should be corrected to TDS deducted by her employer is 80,000. I think it is a typo.

    • admin says:

      Thanks Kavita for your valuable input.
      I have added information about advance tax hope it helps in clarifying.

      1. Yes you have to pay interest under section 234 B and C (234 A is for those who don’t file their return before 31 Jul)
      2. Under section 234C interest is only at 1%.
        Number of months is 1 as due date is 15 Mar.
      3. Typo has been corrected.

      So in case of both Bharti and Ajay as they had to pay tax about Rs 10,000 and did not pay they would have to pay penalty under section 234 B and C.

      Please let us know if clarification are fine and/or you have more queries?

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