Money Magazine - How To Calculate Your Income Tax?
Knowing how much of the income tax you have to pay for previous financial year can help you a lot with managing your finances better. For everyone who pays income tax, it’s absolutely a must thing to know how income tax they pay is calculated.
Form 16 Details :
In order to arrive to a net taxable income from your total earnings for the year, every detail mentioned in form 16 must be filled. The details mentioned in form 16 are:
1) Basic Salary: This is the amount of money you receive in the year excluding the perks.
2) Perquisites: This is the amount of money you receive in a year apart from your basic salary.
3) Profit in leu of salary: This is any other compensation received from your employer or past employer.
4) Allowances: There are certain allowances that you receive from your employer that are exempted from tax liability.
5) Deductions: This is the any other sum of money that can be exempted from tax liability.
There are also certain deductions that are mentioned under section 10 of The Income Tax Act, and these too must be deducted before arriving at the net taxable income over which you will calculate your income tax liability.
Deductions under chapter IV-A of The Income Tax Act:
There are various deductions that are mentioned in chapter IV-A of The Income Tax Act, under sections 80C, 80CCC, 80CCD, 80E and section 80G. Now any of these deductions, if applicable to you, should be subtracted from your gross income, before you start looking for your tax slab.
Different tax slabs:
The tax slab changes every year. The tax slab for the financial year 2014-15 is as follows:
1) 0-2,50,000: No tax charged.
2) 2,50,001-5,00,000: 10%
3) 5,00,001-10,00,000: 20%
4) 10,00,001 and above: 30%
After you have identified your tax slab and arrived at your basic tax liability for the financial year, there are a few more taxes you need to add, and you can arrive to your tax liability.
Education Cess:
Every tax payer needs to pay a 3% of education cess. So after you have arrived at your basic tax liability, you need to add 3% of education cess to the amount.
Surcharge:
If your income for the financial year for which you are calculating the income tax exceeds Rs. One Crore, you have to pay an additional surcharge which will be added to your basic tax liability to come to a net tax payable.
It is important to understand that the government charges income tax on your income from all the sources for the said financial year, as such it is of grave importance to declare all sources of your income for the said financial year. If you fail to disclose all sources of income, you can be subject to income tax proceedings.
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