Income Tax Computation Format PDF

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Income Tax Computation Format

The tax slab is used to calculate income tax. After making the relevant deductions and other taxes (Advance Tax), your taxable income is calculated. The resultant taxable Income will be subject to the applicable slab rate.

Download the Income Tax Computation Format for AY 2020-21 in PDF format online from the link given below.

Calculate Taxable Income on Salary

Income tax is the tax that you pay on your income. Income Tax is levied on a person who was in India for 182 days during the previous tax year or the person who was in India for at least 60 days during the previous tax year and for at least 365 days during the preceding 4 years will be taxed.

Table of Contents

  • Calculate the Taxable Income from Salary
  • Individual income tax rates for FY 2020-21 have been updated
  • Net Pay Calculation for Employees
  • Deductions from Income
  • Calculation of the Net Salary for an Employee

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How do you calculate taxable income on a salary?

It is essential to gather all the details required to file your Income Tax Returns before computing your taxable income on salary. The next step is to calculate your total tax liability. The applicable tax rates will be used to calculate your final tax. You can then subtract taxes that you have already paid via advance tax or TCS/TDS from your tax amount due.

Income tax regulations allow individuals to draw income from five sources. Income from Salary, Income From Business or Property, Income FromCapital Gains?Rent from your House PropertyIncome from Other Sources. Every income earned by an individual must be included in one of these categories.Taxable income from your salary

Here’s how to calculate taxable income from a salary.

  1. Gather your salary slips along with Form 16 for the current fiscal year and add every emolument such as basic salary, HRA, TA, DA, DA on TA, and other reimbursements and allowances that are mentioned in your Form 16 (Part B) and salary slips.
  2. For the income to be calculated, the bonus received in the financial year must also be added.
  3. The sum is your gross salary. You will need to subtract the exempted part of House Rent Allowance, Transport Allowance (which is subject to a maximum exemption of Rs.19,000.200 per annum), Medical reimbursement (which is subject to a maximum exemption of Rs.15,000), as well as all other reimbursements provided that the actual bills were paid for the expenses incurred.
  4. This is your net income minus salary.

After your net income has been calculated the following tax slabs will apply:

Individuals under 60 years old:

Net IncomeRates of Income TaxEducation CessSecondary and higher education Cess
Maximum Rs. 2.5 lakhsNullNullNull
From Rs.2.5 lakhs up to Rs.5 Lakhs5% of the (Total Income – Rs.2.5 Lakhs)2.2% income taxIncome tax 1%
From Rs.5 lakhs up to Rs.10 croresRs.25,000 + 20% (Total Income – Rs.5 Lakhs)2.2% income taxIncome tax 1%
Above Rs.10 LakhsRs.1,12,500 + 30 % of (Total Income – Rs.10 Lakhs)2.2% income taxIncome tax 1%

Individuals between 60-80 years old:

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Net IncomeRates of Income TaxEducation CessSecondary and higher education Cess
As high as Rs. 3 lakhsNILNullNull
From Rs.3 lakhs up to Rs.5 crores5% of the (Total Income – Rs.3 Lakhs)2.2% income taxIncome tax 1%
From Rs.5 lakhs up to Rs.10 croresRs.10,000 + 20% (Total Income – Rs.5 Lakhs)2.2% income taxIncome tax 1%
Above Rs.10 LakhsRs. 1,10,000 + 30% (Total Income – Rs.10 Lakhs)2.2% income taxIncome tax 1%

Individuals over 80 years old:

Net IncomeRates of Income TaxEducation CessSecondary and higher education Cess
Maximum Rs.5 LakhsNullNullNull
From Rs.5 lakhs up to Rs.10 crores20% of (Total income – Rs.5 Lakhs)2.2% income taxIncome tax 1%
Above Rs.10 LakhsRs.1 lakh + 30% (Total Income – Rs.10 Lakhs)2.2% income taxIncome tax 1%

However, in addition to the tax slabs mentioned above, the Finance Minister of India, Nirmala Sitharaman has announced a new optional tax slab for individuals. The new income tax slab can be used in place of the current system. You can sum up the new tax slab as follows:

Individual income tax rates for FY 2020-21 have been updated

Slab Income TaxTax Rate
Maximum Rs. 2.5 lakhNull
Between Rs. 2,50,001 and Rs. 5,00,0005% of the income greater than Rs.2.5 lakh plus 4%
Between Rs.5,00,000.001 and Rs.750,00010% of the total income greater than Rs.5 Lakh + 4% Cess
Starting at Rs.7,50,000.00 to Rs.10,00,000.15% of the total income greater than Rs.7.5 lakh plus 4% Cess
Between Rs.10,00,000.001 and Rs.1250,00020% of the income greater than Rs.10 lakh plus 4%
Starting at Rs.12,500,00001 to Rs.15,000.00,000.25% of the total income greater than Rs.12.5 Lakh + 4% Cess
Earn more than Rs.15,000.00130% of the total income greater than Rs.155,000 + 4% Cess

Notice:These tax slabs can be used in place of existing tax slabs. Individuals may also file taxes based on the income tax slabs previously used.

Below is an example of income tax calculation under the new regime (optional).

ComponentsABCDEF
Annual Salary (Rs.2.5 lakh5 lakh7.5 lakh10 lakh12.5 lakh15 lakh
Calculation of the tax on gross total income
Maximum Rs.2.5 LakhNullNullNullNullNullNull
Starting at Rs. 2,50,001 up to Rs. 5 lakh From Rs.2,50,001 to Rs. 5 lakhNull12,50012,50012,50012,50012,500
Starting at Rs. 5,00,001 – Rs.7.5 LakhNull25,00025,00025,00025,000
Starting at Rs.7,50,000.001 to Rs.10 LakhNull37,50037,50037,500
Starting at Rs.10,00,000.001 to Rs.12.5 LakhNull50,00050,000
Starting at Rs.12,50,000.001 to Rs.15 LakhNull62,500
Above Rs.15 LakhNull
Total Tax AmountNull12,50037,50075,0001,25,0001,87,500
Additional Cess (4%)Null5001,50030005,0007,500
Total amount of tax dueNull13,00039,00078,0001,30,0001,95,000

Note: The calculation in this table is based on the new optional tax regime which has been announced on 1 February 2020.Online Tax Calculator

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Calculate the Taxable Income from Salary based on the new tax slabs

These are the things to remember if you decide to file your taxes under the new income tax system.

  • The new income tax regime does not allow for exemptions
  • The new income tax regime does not allow for deductions

However, the new income tax system will make it very easy to calculate taxable income. It will be calculated as an indirect percentage of income earned by the individual.

What is salary income?

Salary is the amount paid by an employer to an employee for services rendered over a specified period. The salary is paid at fixed intervals, i.e. It is paid monthly at one-twelfth the annual salary.

  1. The salary includes:
    • The basic salary or fixed portion of the salary according to the terms of employment.
    • The employer pays the employee fees, commissions and bonuses
    • Employer pays an employee allowances to cover his personal expenses. Allowances can be taxed fully, partially, or exempt.
  2. Allowances that are fully taxable include:
    • Inflation-related expenses are covered by the Dearness Allowance.
    • City Compensatory Allowance paid to people who move to major metros such as Mumbai, Delhi and Chennai where the standard is higher.
    • Employee who works beyond the hours set by the employer is entitled to an overtime allowance.
    • Deputation allowance, and servant allowance.
  3. Allowances that are partially taxable include:
    • House Rent Allowance: If the employee stays in his own house then the allowance is fully taxable. The allowance exemption is the smallest.
    • The actual house rent allowance
    • Additional rent must be paid if the salary is higher than 10%
    • Rent equals 50% of the salary (metros), or 40% in other areas.
    • Entertainment allowance (except for employees of the Central and State Governments)
    • Special allowances like uniform, travel, research allowance etc.
    • Special allowance to meet personal expenses like childrens education allowance, children hostel allowance etc.
  4. Allowances that are fully exempted include:
    • Employers who are posted abroad receive a foreign allowance.
    • Allowances for Supreme Court and High Court Judges
    • Allocations for employees of the United Nations Organisation
  5. PerquisitesThese are the payments that employees receive in addition to their salary. These payments are not reimbursed for expenses. Certain perquisites may be taxable for employees.
    • Get a free rental apartment
    • Concessions in rental accommodation
    • Loans with no interest
    • Movable assets
    • Club fees
    • Education expenses
    • Employees are entitled to an insurance premium
  6. Gas, electricity and other utilities are free Domestic use only
  7. Concessional education expenses
  8. Concessional transport facility
  9. Gardener, sweeper, and attendant paid.
  10. Medical benefits
  11. Travel concessions
  12. Premium for Health Insurance
  13. Car, laptop etc. Personal use
  14. Employee Welfare Scheme
  15. Retirement benefitsDuring their service, or at retirement, employees receive these benefits.
    • You can receive your pension either monthly or as a lump sum. The employee’s tax status will determine how the tax is calculated.
    • Gratuity is given as appreciation of past performance which is received at the time of retirement and is exempt to a certain limit.
    • Tax on leave salaries varies depending on the type of employee. Employees can make use of or cash the leave.
    • Both the employer and employee contribute to a provisional fund on a monthly basis. The amount is paid to the employee at retirement along with the interest. The type of employer’s provident funds will determine the tax treatment.

What does the term “salaried income” mean?

Dictionary definition: An employer providing a way for employees to earn or make a profit. This is usually in the form an incentive, in addition to regular pay. This is an amount of money that an employee can receive for performing his/her duties to the employer.

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Meaning as per the guidelines of the Income Tax Department: Section 17 (2) of the Income Tax Act, 1961, defines salary as the worth of an accommodation that is free of rent, from an employer to an employee.

Are allowances fully taxable?

Most salaried workers are faced with the dilemma that they must decide which allowances will become taxable or not. They also need to consider the potential tax consequences.

Many companies and organizations offer allowances that are specific in nature or for a particular cause to employees. It is important to verify the nature of any allowances offered. These are the most important aspects to look at. First, it is important to understand the differences between basic allowances and reimbursements for expenses like conveyances. Receipts are not subject to tax because they are simply a return by the employer on expenses incurred by employees for specific services or products. If the money is offered in the form an allowance, it will still be subject to tax unless the company declares it exempt from tax.

Other allowances, such as the leave travel allowance or children’s allowance, are subject to tax benefits but not beyond that point. It all depends on how the individual spends the allowance.

To determine which allowances are taxable, you must carefully identify and separate them.

Salary Income Deductions

A few deductions are permitted under salaried income. These can be perquisites or profits, but they are all different in nature.

A standard deduction was previously allowed for salaried professionals under Section 16 of Income Tax Act, 1961. It was eliminated in 2005-06, however.

Entertainment allowance

As an entertainment allowance, a deduction of Rs.5000 can be made from the gross salary calculation. It is one of the main elements considered when calculating gross salary. This provision is only available to Government officials.

Section 16(ii), 1961 Income Tax Act

According to Section 16(ii) of the Income Tax Act, if an employee is receiving an entertainment allowance, the amount will first be dished out along with the basic salary of the person. It will then be subject to deduction. This allowance will take up one-fifth the salary of the individual and will not be included in any other benefits or allowances.

Payment of Professional Tax by the employer: The Central and State Government levies a certain tax, known as professional tax, on individuals having salaried incomes, trades, employment and callings. The professional tax amount is not more than Rs.2500 per year.

A taxpayer can claim a tax deduction for professional tax paid to his/her employer under Section 16(iii) Income Tax Act, 1961. This deduction can only be claimed if the taxpayer has already paid the tax. No matter what the reason, a professional tax that is past due cannot be deducted.

Calculating the Net Pay of an Employee

What does “net pay” mean?

Net pay is the amount of money an employee receives after all taxes have been deducted. Net pay, as it is commonly known, is the sum of all money received by an employee after any state and federal tax deductions have been made.

How do you calculate the net salary of an employee?

  1. Start with your gross salaryThe gross salary of a salaried employee is basically the sum of all yearly wages divided by the number period.
  2. Federal Income Tax Deduction:The employee’s tax bracket and filing status determine which element will be withheld from the federal income tax.
  3. Withholding deductions from the State and local governments:This part can be tricky. Each state has its own rules and regulations, so you might have to deduct income taxes for different states depending on their rates.
  4. FICA taxes must be withheld
  5. Before calculating your net salary, take into account any deductions you may be eligible.

Salary Employees: Taxable Income

Your taxable income is the amount of income that you will have to subject to Income Tax deductions. While most incomes are subject to tax according to the tax bracket the person falls under, it’s important to remember that some incomes may be partially or completely taxable.

Allowances that are entirely taxable Dearness allowanceCity compensatory allowance (only for people who move to or live in metros such as Delhi, Mumbai and Chennai) and OA (overtime allocation).

Allowances that are partially taxable –These include the House Rent Allowance (HRA), as well as other allowances, and entertainment allowance.

Allowances exempt from taxThis category includes foreign allowances (concerning personnel operating from a completely different country), allowances enjoyed solely by high and supreme court judges, and so forth.

Below is an example structure for a salary that will help you understand the difference between taxable and untaxable income.

Annual Salary That is TaxableSalaried IncomeTax exemptionTotal Taxable Income
Basic PayRs.8,00,000.N/ARs.8,00,000.
House Rent AllowanceRs. 3,00,000Rs.1,72,000Rs.1,28,000
Conveyance allowanceRs.96,000Rs.19,200Rs.76,800
Other allowancesRs.60,000N/ARs.60,000
LTA (leave-travel allowance)Rs. 20.000Rs.12,000Rs.8000
Medical expensesRs.15,000Rs.15,000N/A
Total Gross SalaryRs.12,91,000Rs.2,18,000.Rs.10,728,000

Salary deductions

These deductions can be made from income derived from salary

  • Entertainment taxAllowable as a deduction for employees of the Central Government and State Government. This amount can be less than Rs.5,000 or 20% of the basic income.
  • Tax professionalsThis is the tax on employment that is taken from your monthly income. Every salaried worker is subject to this tax.

Please note, the standard deduction does not apply to salary income starting in Assessment Year 2006-2007.

Calculation of the Net Salary for an Employee

Here’s how the employee’s Net Salary is calculated:

ParticularsAmount (In R.)
Add:
1.Basic Salary
2.Fees and Commission.
3.Allowances
4.Perquisites
5.Retirement Benefits
——————-
Gross Salary——————-
Weaker: Salary Deductions
1.Entertainment Allowance
2.Professional tax
——————-
Net Salary——————-

The incomes can be divided into the following categories to calculate Total income from different sources:

  1. Salaries
  2. Property income or property loss
  3. Business profit and loss
  4. Capital gains can generate income
  5. Other sources of income

This will give you an aggregate income. Each head is calculated with all the allowances, deductions and reliefs eligible.

Gross Total Income = A+B+C+D+E

Total Taxable Income = Gross Total Income- Allowable Deductions

Total Tax Payable = Tax on Total Income- Rebates, and relief permitted under the Income Tax Act

Most Frequently Asked Questions

  1. What is taxable income?
  2. Which income is subject to income taxes?
  3. Salary as income
  4. Capital gains can generate income
  5. Earn income from a profession or business
  6. Rent from your house
  7. Other sources of income
  8. What does income from a salary cover?
  9. Are gifts subject to tax?
  10. What can be considered income from other sources?

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