The Income Tax Calculator will allow you to calculate your income tax for financial year FY 2021-22 (AY 2022-23).
Before you use the income tax calculator, you must know the difference between deduction and exemption. They sound rather similar, and many people confuse one for another. However, they are quite different. An exemption is granted for a specific purpose. For example, if you are a farmer, agricultural income is exempt from tax. If you have a bank savings account, interest income on the account is exempt from tax up to Rs 10,000 a year.
Deductions are earnings that are excluded from your taxable income under certain conditions. For example, if you invest Rs. 1.5 lakh in specified investments under Section 80C of the Income Tax Act, this amount will be deducted from your taxable income. If your total taxable income is Rs. 10 lakh and you invest Rs. 1.5 lakh in Public Provident Fund (PPF), your taxable income then gets reduced to Rs. 8.5 lakh. Since your taxable income is lower, your tax liability also reduces, translating into savings. There are various sections under the Income Tax Act offering such deductions like Section 80C, CCC, CCD, CCF, CCG, 80D, 80E and so on.
So, remember to incorporate all these exemptions and deductions in the income tax calculator to get accurate results.
The online income tax calculator is a great help, but you should have an idea of how to calculate income tax on your own.
Let's take the example or Mr Patel, who is 40, has an annual salary of Rs. 10 lakh and has invested Rs. 1.5 lakh in equity-linked savings schemes (ELSS). Mr Patel's interest income from savings accounts amount to Rs. 30,000 during the year. He also has a housing loan and pays EMIs of Rs 1 lakh a year (of which 50% is principal repayment and 50% is interest). His home is under construction, so he lives in a rented home, where he pays at rent of Rs 20,000 a month.
What would Mr Patel's taxable income and tax liability add up to?:
Mr. Patel gets a basic salary or Rs 8 lakh, house rent allowance of Rs 1 lakh, transport allowance of Rs 20,000, and Rs 80,000 in other allowances in a year.
So, in Mr. Patel's case the HRA exemption would amount to Rs. 1 lakh, thus reducing his taxable income to Rs 9 lakh. His transport allowance is also exempt from income tax up to Rs. 19,200 a year, provided he submits bills. So Mr. Patel will have to pay income tax on only on Rs. 800 of his transport allowance of Rs 20,000. His total taxable salary would now be Rs. 880,800.
Since Mr. Patel has invested Rs. 1.5 lakh in equity-linked savings schemes (ELSS), his taxable income would be reduced to that extent under Section 80C. It would now stand at Rs. 7.5 lakh.
ELSS is only one of the instruments that is covered under Section 80C. Investors can put their money in schemes like the Public Provident Fund (PPF), National Savings Certificates (NSC), Tax Saver Fixed Deposits in banks, ULIP, Sukanya Samriddhi Scheme, Post Office Term Deposit etc. The total investments across all these schemes in aggregate should not cross Rs. 1.5 lakh.
Mr. Patel also sold some equity mutual funds during the year, making short-term capital gains (STCG) of Rs. 1 lakh and long-term capital gains (LTCG) of Rs. 2 lakh. STCG on equity mutual funds is 15% and LTCG is at 10% for profits over Rs 1,00,000.
So, Mr Patel's total taxable income now stands at Rs 9,00,000 (Rs 7 lakh from Salary and Interest Income + Rs 1 lakh in STCG + Rs 1 lakh in LTCG).
So, Mr Patel will now be taxed according to his income tax slab. Since his taxable income is between 5,00,001 and 10,00,000, he falls in the 20% slab.
His total income tax payable is Rs 77500. He will also have to pay a 4% health and education cess, which amounts to Rs 3100.
Mr Patel's income tax liability is, therefore, Rs 80,600.
If Mr. Patel were a senior citizen over 60, he would only have to pay a lower amount of tax due to the higher exemption limit. Senior citizens are exempt from tax up to income of 3,00,000. He would have ended up paying Rs 2500 less.
This example should it make it clear to you how to calculate income tax. You can always use the income tax calculator to make things easier for you. If you don't have a head for numbers, or are too busy, you can always rely on the services of a chartered accountant!