How to Calculate Income Tax for Salaried Individuals?

 ^*As per Section 87A of the Income Tax Act, 1961, individuals having taxable income of up to Rs.5 lakh will be able to avail a rebate of Rs.12500 or 100% of income tax amount, whichever is less. [1]

 ^*As per Section 87A of the Income Tax Act, 1961, individuals having taxable income of up to Rs.5 lakh will be able to avail a rebate of Rs.12500 or 100% of income tax amount, whichever is less. [1]

 Note: The income tax slab rates under the new tax regime is applicable to all the individuals and senior citizens. There is no exception available to senior citizens in the income tax slab 2020 under the new tax regime. Senior citizens are above the age of 60 years.

 Note: Super senior citizens can also opt for the Income tax slab 2020 under the new tax regime. The Income tax slab rates 2020-21 are same for all tax payers (individuals, senior citizens and super senior citizens). Super Senior citizens are above the age of 80 years.

 Know More: Income Tax Slab For FY 2020-21

• Basic salary or fixed components as per the term of employment
• Fees, bonus, the commission received by the employee
• Allowance paid by the employer for meeting personal expenses

• Dearness allowance paid by the employer to meet inflation expenses
• City compensatory compensation paid by the employer to move around cities
• Overtime allowance paid by the employer
• Deputation allowance
• Servant allowance

• House rent allowance (HRA)
• Entertainment allowance – except for state or central employees
• Special allowance like travel, uniform, research
• Special allowance like children’s education allowance

• Foreign allowance for employees posted abroad
• Compensation of supreme court or high court judges
• United Nations Organization employee allowance

• Rent-free accommodation
• Concession in rent
• Interest-free loans
• Club fee payments
• Movable assets
• Educational expenses
• Insurance premium paid on behalf of employees

The fringe income tax for salaried:

• Medical benefits
• Health insurance premium
• Leave travel concession
• Laptop, car for personal use
• Staff welfare scheme

 Also Read: TDS on Salary

Let us understand with an example of how to calculate taxable income.

Assuming the following per month basis for the calculation of income tax for salaried:

Basic salary (per month): Rs 90,000

HRA: Rs 45,000

Special allowance: Rs 20,000

Actual rent paid: Rs 25,000

Leave travel allowance: Rs 18,000

To calculate income tax for salaried, include the following:

• 1.) Salary
• 2.) Income generated from selling market shared or a housing property
• 3.) Interest generated from a fixed deposit account, bonds, or savings account
• 4.) Rental income

 Also Read: What is Salary Slip?

The total income here falls under 30% slab of income tax for salaried. It also includes 4% cess levied by the government. Gross income is a sum of total income from salary received in a financial year along with the income generated from other sources.

Exemption of income tax for salaried not available under new tax regime:

• 1.) PPF
• 2.) NPS
• 3.) EPF
• 4.) Bill reimbursement
• 5.) Savings investments under tax saving options for salaried
• 6.) HRA

You can claim income tax deductions for salaried employees either or not by providing rent receipts to your employer. This deduction is calculated for whichever is least of the following:

• 1.) Total HRA received by an employee
• 2.) Actual rent paid less 10% of basic salary + DA
• 3.) 50% of salary for metro city / 40% of salary for non-metro city

A person can claim leave travel allowance upto the amount of actual expense incurred under income tax for salaried and can be claimed two times in a block of four years, which can also be carried forward if not used in any block.

Some restrictions of LTA under income tax for salaried people are:

• 1.) LTA is specific to domestic travel only
• 2.) Mode of your travel can be either by rail, air, or any other public transport

Interim budget 2019 increased total limit of standard deduction under income tax for salaried people to Rs 50,000.

Income arising due to capital gains is not allowed for deductions under income tax for salaried people.

Some investments included under deduction of income tax for salaried are:

• 1.) Life insurance premium
• 2.) Employee Provident Fund (EPF)
• 3.) Equity Linked Savings Scheme (ELSS)
• 4.) Pension schemes
• 5.) Home loan principal payment
• 6.) Sukanya Samriddhi Yojana
• 7.) Contribution to PPF account
• 8.) Fixed deposit
• 9.) National Savings Certificate (NSC)
• 10.) Post office scheme deposits
• 11.) National Pension Schemes (NPS)
• 12.) Health insurance schemes (section 80D)

You can make claim deductions of income tax for salaried people under section 80C, 24, and Section 80E.