The income tax which is charged to you is based on the tax slabs declared by the Government in its annual budget every year. The following table encapsulates the tax slabs applicable this year. (Financial Year 2010-2011)
| Taxable Income Slab | Tax Slab |
| Upto Rs. 1,60,000 Up to Rs. 1,90,000 (for women) Up to Rs. 2,40,000 (for residents, 65 years or above) |
Nil |
| Rs. 1,60,001 – Rs. 5,00,000 | 10% |
| Rs. 5,00,001 – Rs. 8,00,000 | 20% |
| Rs. 8,00,001 and above | 30% |
| Note: In addition, an education cess of 3% is charged on the entire tax amount. | |
Please note that the taxable income is arrived at after adding all your different sources of income and subtracting the deductions that you have taken advantage of under Section 80C to 80U.
Lets take a few examples to illustrate how you can calculate taxes based on these slabs.
Lalita is a salaried employee, her annual income is Rs. 2,60,000. She has made no tax savings investments during the year. Let us calculate her income tax liability.
| Heads | Amounts | |
| Gross Total Income | Rs. 260,000 | |
| Deductions | Nil | |
| Taxable Income | Rs. 260,000 | |
| Income Tax Calculations | Tax | |
| Tax on Income upto Rs 1,90,000 | 0% | Zero |
| Tax on the remaining Rs 70,000 | 10% | Rs.7,000 |
| Total Income Tax Due | Rs.7,000 | |
| Educational Cess @ 3% | Rs. 210 | |
| Total Tax Payable | Rs. 7,210 | |
You will notice that Lalita has not used any deduction available to all taxpayers under section 80C (for example deductions related to insurance premium or ELSS investment or home loan principal repayment among other options). If Lalita would have used part of her income towards any tax related instrument under 80C, then she could have reduced her tax liability of Rs 7,210 through this deduction.
Example 2:
Anand is a salaried employee. His annual income is Rs. 4,25,000. His home loan interest payment is Rs 80,000 and his home loan principal repayment is Rs. 60,000. He has made an investment of Rs. 50,000 in NSC. Let us calculate Anand’s tax liability.
| Heads | Amounts | |
| Income from Salary | Rs. 425,000 | |
| Income from House Property (Section 24 Deduction for Home Loan Interest Repayment) |
(-) Rs.80,000 | |
| Gross Total Income | Rs. 345,000 | |
| Less: Section 80C Deductions | Rs.100,000 | |
| NSC Investment | Rs. 50,000 | |
| Home Loan Principal Repayment | Rs. 60,000 | |
| Total | Rs. 110,000 | |
| Taxable Income | Rs. 245,000 | |
| Income Tax Calculations | Tax | |
| Tax on Income upto Rs. 1,60,000 | 0% | Zero |
| Tax on the next Rs 85,000 (Slab Rs. 160,001 to Rs. 5,00,000) |
10% | Rs. 8,500 |
| Income Tax Due | Rs. 8,500 | |
| Education Cess @ 3% | Rs. 255 | |
| Total Tax Payable | Rs. 8,755 | |
In Anand’s case, he has taken advantage of two options under the 80C deduction available to him, namely principal repayment of Rs. 60,000 on his home loan and an investment of Rs. 50,000 in NSC. However, these total up to Rs. 110,000, and as shown above he can only take a deduction up to the statutory limit of Rs. 100,000.
Example 3:
Ravi is a salaried employee who earns Rs. 10,00,000 per annum. He has bought a health insurance policy for himself and his family worth Rs. 10,000. Ravi has also bought ELSS funds for Rs. 30,000 and has also paid a LIC premium of Rs. 70,000 towards an insurance policy. He has also donated Rs. 10,000 to the Prime Minister’s Relief Fund. Let us calculate Ravi’s tax liability.
| Heads | Amounts | |
| Gross Total Income | Rs. 1,000,000 | |
| Less: Section 80C Deductions | Rs. 100,000 | |
| LIC Premium | Rs. 70,000 | |
| ELSS Funds | Rs. 30,000 | |
| Total | Rs. 100,000 | |
| Less: Other Deductions | Rs. 20,000 | |
| Section 80D Health Insurance Premium | Rs. 10,000 | |
| Section 80G Donation to a Charity | Rs. 10,000 | |
| Total Taxable Income | 880,000 | |
| Income Tax Calculations | Tax | |
| Tax on Income upto Rs. 1,60,000 | 0% | Zero |
| Tax on the next Rs. 3,40,000 (Slab Rs. 160,001 to Rs. 5,00,000) |
10% | Rs.34,000 |
| Tax on the next Rs. 3,00,000 (Slab Rs. 5,00,001 to Rs. 8,00,000) |
20% | Rs.60,000 |
| Tax on next Rs. 80,000 (above Rs. 800,001) |
30% | Rs. 24,000 |
| Income Tax Due | Rs. 1,18,000 | |
| Surcharge on total tax (No Surcharge is payable from previous year 2009-10 onwards) |
0% | Nil |
| Income Tax Due | Rs. 1,18,000 | |
| Educational Cess @ 3% | Rs. 3,540 | |
| Total Tax Payable | Rs. 1,21,540 | |
In this case, Ravi is taking the full Rs 1 lakh deduction under 80C. Additionally, he is also taking a deduction for a health insurance policy and for a donation made to charity, for a combined sum of Rs. 20,000.
Under the new budget, as of April 1, 2010, individuals can get an additional deduction of Rs. 20,000 under 80CCF if they invest in certain stipulated long-term infrastructure bonds. So, if Ravi wanted to reduce his tax liability further, and if he had the capital to invest in these bonds, he can also take advantage of this new deduction that is available in tax year 2010-11.
When taxable net income is arrived at after adding all your different sources of income and subtracting the deductions that you have taken advantage of under Section 80C to 80U. Following formula may be used to fix your tax liability.
source-http://tkbsen.blogspot.com/2011/02/calculating-your-income-tax-liability.html
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