According to the Income Tax Act, 1961, every concerned citizen is responsible when it comes to assessing and settling his/her tax liabilities before the respective due dates.
The IT department extends an instalment scheme for this purpose, wherein Indians can pay their taxes in four parts throughout a financial year, lowering the burden of settling the total amount at the end of the year.
In this regard, using an income tax calculator can come in handy. This online device allows individuals to calculate their tax liabilities within a few seconds and without any errors.
How to use an income tax calculator?
Here is a step-by-step guide on how to use this calculator –
Step 1 – After visiting the income tax department’s official website, select the year for which you want to calculate taxes.
Step 2 – Select the age, and whether you live in a metro city or a non-metro one.
Step 3 – Enter the gross annual salary along with the details of income from other sources such as interest income, rental income, etc.
Step 4 – Now enter the information on HRA exemption like basic salary, DA, annual rent payment.
Step 5 – After that, enter the details of various deductions like PF contribution, home loan payments, tuition fees, medical insurance premiums, etc.
Step 6 – After providing this information, receive tax liability details.
Income tax calculator online helps individuals to compute their tax liabilities without any delay. Nonetheless, to fill up the required file properly, they should be aware of income tax calculation in detail to avoid making mistakes.
Income tax calculation method
There is a common notion that income tax calculation is a complex process, but the following is a simplified guide to help you understand it –
- Compute the annual gross income
Firstly, determine the gross annual salary that includes HRA, LTA, food expenses, etc. After this, remove the exemptions offered on HRA and LTA. Remember that HRA is only applicable for employees living in a rented house. Individuals who have availed funds to purchase a home can enjoy tax savings and other advantages offered by home loans.
The HRA exemption is calculated from the lowest of the following –
- HRA from employer
- Actual rent is less than 10% of the salary
- 50% of basic salary for metro cities
- 40% of basic salary for non-metro cities
Following this, remove the standard deduction of Rs.50,000, and add income from other sources like interest income, rental, and income from capital gains, etc. Individuals will then arrive at their annual gross income after this.
- Remove deductions to arrive at the net taxable income
Tax deductions allow individuals to lower their total burden via investing and spending on certain items. Nonetheless, the standard deduction of Rs.50,000 mentioned above is available for everyone, irrespective of their activities.
The Income Tax Act mentions deductions under various sections such as 80C, 80D, etc. Each of them denotes an exemption owing to a particular investment. For instance, if you are repaying a home loan, you can claim a deduction under Sections 24B and 80C on the interest and principal repayment. Also, borrowers should know the home loan tax benefit to increase their benefits.
Also, if you are paying premiums for medical insurance, you are eligible for a deduction of up to Rs.25,000 under Section 80D. Additionally, under Section 87A, individuals with a net taxable income below Rs.5 lakh can get an income tax rebate of Rs.12,500. Additionally, individuals are liable to pay a 4% health and education cess on their total taxable liability.
Subtracting these deductions from the annual gross income will bring the total net taxable income.
- Finding the total tax liability
Once individuals are aware of their net taxable income, it is easy to find the total tax liability. They can then refer to the income tax slab and find their total outstanding. Here is a guide to that process.
Let’s assume an individual has a net taxable income of Rs.7 lakh for FY2020-21. Here is the remaining calculation –
- Up to Rs. 2.5 lakh, no taxes are required.
- After that, on the remaining amount, i.e., Rs.7 lakh-Rs.2.5 lakh = Rs.4.5 lakh, one has to pay an income tax of 5%.
- Therefore, his/her outstanding tax amount will be Rs.4.5 lakh X 5% = Rs.22,500
- Now factoring a 4% health and education cess will determine the final tax amount, Rs.22,500 X 4% = Rs.23,400
Income tax calculators in India can do this job in a few seconds, but being aware of these details is vital to avoid mistakes while using this online device.
Keeping the income tax repayment record up to date will keep individuals out of legal troubles. At the same time, it also acts as a vital income proof and is mandatory while applying for a home loan. Possessing updated income tax payment documents improves the home loan eligibility of a borrower.
Borrowers can also bypass the hassle of application with assistance from pre-approved offers. These offers are applicable on various financial products, including home loans, loans against property, etc. They can now check their pre-approved offer online in a few simple steps.
Income tax calculators have expedited a seemingly lengthy process. They have helped individuals to find their income tax liabilities swiftly and make payments accordingly. IT papers are also among the vital documents that borrowers need for a home loan. Using this calculator can allow individuals to streamline the entire process, from calculating taxes to their payment.
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Other than that, several NBFCs bring attractive benefits like pre-approved offers that help in simplifying the borrowing process. These offers are available on various financial products, including home loan, loan against property, etc. Check the pre-approved offer by providing details like your name and contact number.
The regime that a borrower chooses directly affects their total loan liability. Borrowers can combine these exemptions and deductions and subtract them from their salary using an income tax calculator online to save their time and effort.
An informed decision on what regime to choose by noting these above-mentioned factors would certainly help taxpayers around the country put aside some room for savings and facilitate better financial planning.