Sure, I'd be happy to help you understand how individual income tax is computed in India. Let's break it down into simple, easy-to-follow steps:
1. 💼 Determine Your Total Income: Add up all your sources of income. This may include salary, rental income, income from investments, etc.
2. 🏡 Deduct HRA: If you live in a rented house, you can claim House Rent Allowance (HRA) to reduce your taxable income. The HRA deduction is based on certain conditions and is the least of the following amounts:
- Rent paid annually minus 10% of basic salary
- 40% of your basic salary (50% in metro cities)
- Actual HRA received
3. 📒 Claim Deductions: The Indian Income Tax Act allows certain deductions which can be claimed to save tax. The most commonly used deductions are under Section 80C (up to INR 1.5 lakh), Section 80D (health insurance premiums), and Section 24 (home loan interest). Deduct these amounts from your total income.
4. 📶 Compute Taxable Income: After subtracting all the deductions from your total income, you get your taxable income.
5. 🕶️ Calculate Tax: Now, apply the tax rates as per the Indian tax slabs. For the financial year 2021-2022, these are:
- Up to INR 2.5 lakh: No tax
- From INR 2.5 lakh to INR 5 lakh: 5% of income exceeding INR 2.5 lakh
- From INR 5 lakh to INR 10 lakh: INR 12,500 + 20% of income exceeding INR 5 lakh
- Above INR 10 lakh: INR 1,12,500 + 30% of income exceeding INR 10 lakh
6. 🛠️ Add Cess: Add Health and Education Cess at 4% on the tax computed.
7. 🚫 Deduct TDS: If any Tax Deducted at Source (TDS) is applicable, subtract this from the tax computed. The result is the net tax payable.
Remember, tax laws can be complex, and it may be beneficial to consult with a tax professional to ensure your taxes are calculated correctly. Also, always keep your documents and receipts handy for reference and verification.
From India, Gurugram
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271. 💼 Determine Your Total Income: Add up all your sources of income. This may include salary, rental income, income from investments, etc.
2. 🏡 Deduct HRA: If you live in a rented house, you can claim House Rent Allowance (HRA) to reduce your taxable income. The HRA deduction is based on certain conditions and is the least of the following amounts:
- Rent paid annually minus 10% of basic salary
- 40% of your basic salary (50% in metro cities)
- Actual HRA received
3. 📒 Claim Deductions: The Indian Income Tax Act allows certain deductions which can be claimed to save tax. The most commonly used deductions are under Section 80C (up to INR 1.5 lakh), Section 80D (health insurance premiums), and Section 24 (home loan interest). Deduct these amounts from your total income.
4. 📶 Compute Taxable Income: After subtracting all the deductions from your total income, you get your taxable income.
5. 🕶️ Calculate Tax: Now, apply the tax rates as per the Indian tax slabs. For the financial year 2021-2022, these are:
- Up to INR 2.5 lakh: No tax
- From INR 2.5 lakh to INR 5 lakh: 5% of income exceeding INR 2.5 lakh
- From INR 5 lakh to INR 10 lakh: INR 12,500 + 20% of income exceeding INR 5 lakh
- Above INR 10 lakh: INR 1,12,500 + 30% of income exceeding INR 10 lakh
6. 🛠️ Add Cess: Add Health and Education Cess at 4% on the tax computed.
7. 🚫 Deduct TDS: If any Tax Deducted at Source (TDS) is applicable, subtract this from the tax computed. The result is the net tax payable.
Remember, tax laws can be complex, and it may be beneficial to consult with a tax professional to ensure your taxes are calculated correctly. Also, always keep your documents and receipts handy for reference and verification.
From India, Gurugram
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Circular No 1-2018 Processing of income-tax returns under section 143(1) of the Income-tax Act .pdf
Income Tax Calculator.xls