What do you do when you get your offer letter from a company? You calculate your take home salary and see how much tax is being deducted.
Tax deduction is not a favourable subject, especially when you fall in the last slab of 30%. You have to determine how much income tax is being deducted so that you can claim it back by providing investment proofs.
Presently, here are the tax slabs:
Every year, salaried employees rush to declare their investments and save taxes. Many a times, especially, first time jobbers are surprised when their tax calculations do not match with the deductions. It is important to know how to calculate taxable income in order to show investments and claim it back.
In order to calculate your taxable income, you will have to understand the components your salary is made of. Basically, your salary is the sum of Basic Salary, HRA, Special Allowance, Transport Allowance, and any other allowance. If you live on rent, you can claim HRA and get exemption. To further save taxes, make a note of your investments in insurance, mutual funds (ELSS), pension schemes, national savings certificates, etc.
Some components in your salary are non-taxable such as telephone and medical bills (only against bills or receipts).
For instance, if your salary is Rs 5 lakh, you can avail a medical reimbursement of Rs 15,000 and transport allowance of Rs 19,200 (as per your company's policy).
Thereby, your net income after the standard deductions stands at Rs 4,65,800. Also, deduct any other exempted portion such as HRA, or any other.
The bonus received during the financial year must be added for the income that is being calculated. The result is your net income from salary.
Once your net income has been calculated, the tax slabs will be applicable.