It is that time of the year, when you reflect on your financial decisions, and begin to prepare your income tax return (ITR). If you file your return at the last moment, you might not be able to make investment decisions that could help reduce the tax liability, therefore, now is the time to calculate your income tax on salary and make the right investment decisions.
If you are a salaried employee, you will be receiving a salary from your employer each month and you will be required to file ITR 1 for your income. It is quite easy to calculate income tax on your salary.
Calculate gross total income
To calculate income tax for a salaried person, you need to understand what your salary income comprises. It includes your income from salary + House Rent Allowance (HRA) + Special allowance + Transportation allowance + any other allowance. There will be certain parts of your salary, which will remain exempt from tax like the reimbursement of telephone bills or medical bills. You can also claim a deduction of the professional tax paid by you. You also need to calculate the exempt portion of your HRA. There is a limit on the transportation allowance of all the employees, which is INR 1,600 per month or INR 19,200 per annum.
To calculate income tax for a salaried person you can include other sources of income like income from house property, income from capital gains, income from business, and income from other sources. You will now arrive at the gross total income.
Consider investments for deductions
There are certain deductions allowed to every individual under the Income Tax Act, 1961 and once your gross income is estimated, you will have to consider the investments made by you. You are allowed a deduction of an amount up to INR 1.5 lakh under section 80C and there is a deduction for medical premium paid by you under section 80D. The employer might have deducted tax at source at the time of making your salary payment. This amount of tax deducted at source (TDS) should also be included here. It is the tax already paid by you. The final amount after all the deductions is your net taxable income. Any other investments made by you, which are eligible for a deduction should be included here.
Calculate tax liability
This is the final stage. If you want to learn how to calculate income tax for a salaried person, you need to identify the tax slab you fall in. There are different slabs for taxation based on your age and income and the rate of taxation will be mentioned in the slab. You need to identify the slab and calculate the percentage of income that you have to pay as your tax liability. If you have already paid excess tax in the form of TDS, you will be eligible for a tax refund.
After the calculation of tax, you can make the payment online or through a challan. Now that you know the process of calculating the income tax on your salary, you may easily file your income tax return for the financial year 2018-19 online.