If you were following financial news channels or any newspapers for that matter, you will know that the Union Budget was recently announced with some sweeping changes to the Income Tax system. Although tax laws always seem to have a balanced effect on the economy, sometimes they are more favourable to salaried individuals as opposed to business owners. The recent budget was definitely the latter as several rebates took the centre stage this time.
However, one of the biggest changes that we have seen is the apparent ease by which one can file an income tax return or ITR today. The income tax department portal has been busy as millions of Indians filed their taxes through the income tax e-filing portal instead of physically sending documents.
Here are a few other major changes that were made in the income tax laws –
- All aspects of tax slabs other than income up to 5 lakhs will remain unchanged while people with 5 lakh per year incomes are given a full rebate
- The standard deduction limit has been increased from INR 40,000 to INR 50,000 and is applicable to pensioners and employees alike
Let’s take a look at some other features before diving into an example to see how is income tax calculated.
Relief in standard deductions
Earlier, the standard deductions of around INR 40,000 were proposed which replaced INR 15,000 and INR 19,200 (medical reimbursement and travel allowance respectively). Now that it has increased to INR 50,000 everyone can breathe easy.
TDS on net deposits
The income tax deducted at source (TDS) was quite high on very low interests from deposits in banks or post offices. This has changed to INR 40,000 from INR 10,000, which basically means that any interest income that you incur on bank/post office deposits up to INR 40,000 won’t be taxed.
Deduction under 80TTA
With the new tax laws, under section 80TTA, all salaried personnel and UHF (undivided Hindu families) except senior citizens will be subject to deductions of up to INR 10,000.
Apart from these, if you have any tax liabilities in India, then you should consult a chartered accountant who can help you sort everything out.
Calculating income tax if net income is 7 lakhs and above
So let’s assume your age is below 60 years and earning 7 lakhs minimum per year. You will be eligible for a standard deduction that comes to INR 50,000 that will ultimately make your actual taxable income to be INR 7.5 lakhs.
If you’re able to procure proof that you have savings of around INR 1.5 lakhs, then under Section 80C your taxable income becomes INR 6 lakhs. So ensure that you do this as it helps in the long run. In this case, your tax will be zero as the change in Section 87A lets individuals get a rebate of INR 12,500.
Apart from this, you will also have other exemptions like the HRA calculation, and other tax-saving investments. The HRA calculation formula is as follows –
If your company provides INR 13,000 per month as HRA, then your per annum relief is around (13,000 x 12) = INR 1,56,000. Just subtract it from the total income to get your actual taxable income. Let’s look at how the tax changes if there wasn’t any HRA provided.
From the table below let’s calculate how this happens :
|Total Income||INR 7,00,000|
|Standard Deduction||INR 50,000|
|Exemption under 80C||INR 1,50,000|
|Gross Taxable Income – (SD Exemption)||INR 7,00,000 – (50,000 1,50,000) = 5,00,000 (Net Taxable Income)|
|Tax on Net Taxable Income||5% of the amount over INR 2,50,000|
|Rebate under Section 87A||INR 12,500|
|Total Tax||INR 0|
Using online tools to calculate tax
If you are still not very clear on how to calculate your tax due to inconsistencies or other issues, you needn’t worry as there are several online income tax calculators out in the market today. All you need to do is ensure that all your paperwork is in order and that you enter all parameters to the calculator correctly.
Saving on taxes with investments
Let’s be honest. Everyone wants to save on taxes. A foolproof way to save on tax is to have investments in Provident Public Funds (PPF), National Savings Certificates (NSC), and Equity Linked Saving Schemes (ELSS). Ensure that you put in a sum every month into any of these, and during the time of ITR you will end up paying little to no tax.