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.

 

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