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Income Tax

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What is Income Tax?

Income tax is a tax imposed by the government on the income of an individual in every financial year.

To calculate your income, all the income sources like salary, business income, rent, dividends, etc are considered. Every citizen of the nation or even a non-residential individual also has to pay this tax to the government if he is earning any income in India.

The govt of any country has various kinds of expenses like paying pension to govt employees, building roads and infrastructure, start various schemes for the citizens benefit etc etc. For all this, they need money and income tax is one of the ways for the govt to earn the money.

The same money eventually is used to run the nation and its development. So when we pay the income tax, we get back various facilities like roads, public parks, and poor people also get various free services in health and education.

How to use this Income Tax Calculator?

This income tax calculator gives a comparison between the old tax regime (before 2020 budget) and new regime tax slabs.

Govt has announced the new tax slabs with reduced tax rates, but with any deductions and exemptions. One can enter their income details along with the current exemptions/deductions and find out which is a better choice for them - Old vs New tax regime.

One will also get the income tax amount calculations between both regimes.

What is 80C in Income Tax Act, 1960?

80C is a section in Income Tax Act, 1960 through which a tax payer can save tax upto Rs. 1,50,000 on yealy basis. There are various investment option under this section where one can invest and save tax up to Rs. 1,50,000 yearly.

The investment option under this section are as follows -

a) Senior Citizen Saving Schemes (SCSS) -

SCSS is a savings scheme for a senior citizen who falls under the age group of 60 years and above. Those senior citizens who are at the age of 55 years or more but less than 60 years (who have retired on superannuation or under VRS) can also avail of this scheme, within one month of receipt of retirement benefits and the amount should not exceed the number of retirement benefits.

The senior citizen can visit the nearest post office to avail of this scheme. A joint account can be opened with a spouse or husband only( with the first depositor as the investor). The account can be transferred from one post office to another

b) Equity Linked Savings Scheme (ELSS)

ELSSs are equity mutual fund schemes that invest in stocks. They have a mandatory lock-in period of three years. They are riskier than other options like Public Provident Fund, National Saving Certificate, etc. However, they also have the potential to offer superior returns. Investments in ELSSs qualify for tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs 1.5 lakh.

c) Public Provident Fund (PPF) -

PPF is a long-term investment option of 15 years by the Government of India with an attractive interest rate of 8%(with returns fully exempted from Tax). One can invest minimum Rs. 500 to a maximum of Rs. 1,50,000 in one financial year. Deposits can be done in a maximum of 12 transactions only. One can also enjoy loans, withdrawals, and extension of the account. Loans can be taken against the Public Provident Fund between 3rd to the 6th financial year. A partial withdrawal facility can be taken from the 7th financial year onwards. The account can be extended for a period of 5 years after maturity but in a block-in mode.

d) National Pension System (NPS) -

The NPS is a pension scheme by the Indian Government which allows the unorganized sector and working professionals to have a pension after retirement. This can be opened by any Indian citizen aged between 18 and 60. No limit on maximum contribution. Investments of up to Rs. 50,000 can be used to avail tax deductions under Section 80CCD. This limit of 80CCD is deductible over and above the maximum limit of section 80C (Rs.1.5lacs).

e) Employee provident Fund (EPF) -

EPF is a retirement scheme which is available to all salaried employees. 12% of basic salary + DA, is deducted by an employer and deposited in the EPF or other recognized provident funds. Any employee with a basic salary of 15000 per month can open the EPF account. The basic requirement of this scheme is that both the employer and employee will have to contribute a minimum of 12% basic pay+D.A. The entire PF balance with interest is tax-free if it is withdrawn after 5 years of continuous service.

f) 5 yr Tax Saving Fixed Deposits -

Tax saving fixed deposit (FD) is a type of fixed deposit, which comes under section 80C of the Indian Income Tax Act, 1961. This kind of deposit is offered for a lock-in period of 5 years. The maximum deduction an investor can claim through it is Rs 1.5 lakh. FD gives us 100% security of capital + guaranteed return on invested amount.

Which all sources we need to include to calculate income tax?

To calculate income tax, we need to include income from various sources. Let us see these sources -

a) Income from Salary - It means income from one's salary. There are various components of our salary which combine and make Gross Total Income. They are as follows -

  • Basic Salary
  • Dearness Allowance (DA)
  • Any Annuity & Gratuity benefits received in that financial year
  • Allowances on transport, medical expenses etc.
  • Any Special Allowances received such as Leave Travel Allowance (LTA)

b) Income from House Property - Under this head, whatever income an individual generates from renting private and commercial property comes under this head.

c) Income from Capital Gains - Under this head, any profit or gain coming from sale or transfer of capital assets (such as stocks, Mutual Funds, Real estate etc) is taxable.

d) Income from Business/Profession - Under this head, whatever income comes from any business or profession will come under this category.

e) Income from Other Sources - Under this head, income from other sources includes saving account interest income, fixed deposit interest income, interest income from bonds. So whatever income arises from these sources are taxable.

How much income is exempted from tax?

Under both new and old tax regime, if an individuals income is below Rs 2,50,000 then he/she is exempted from tax. Income above Rs 2.5 lakhs is taxed as per the tax slabs provided by the government under both new and old tax regime.