With the financial year 2020-21, it’s time for salaried and self-employed individuals to focus on income tax calculation and filing of IT returns. The tax calculation for this financial year will be based on the income tax slabs for the assessment year 2021-22. To understand how to go about computing your tax liability, you need to begin by calculating your total income. You then need to account for any deductions or tax-saving investments you may have. Then, identify the income tax slab that applies to you to arrive at your tax liability. Here’s a closer look at the details of this step-by-step process.
There are 5 heads of income under which your income is classified. These heads are listed below.
1. Income from salary: This includes all the income earned as part of your salary. You can find these details in the Form 16 issued by your employer.
2. Income from house property: If you own a house property that you’ve let out as a rental, the rental income earned from that property falls under this head of income.
3. Income from business or profession: For self-employed individuals practicing their own business or profession, the income earned is classified as business income.
4. Income from capital gains: Any profits arising out of the sale of a capital asset during the financial year is taxed under this head of income. Capital assets include land, building, bullion, jewelry, bonds, and stocks, among others.
5. Income from other sources: Any other income that cannot be classified under the above-mention heads is taxed as an income from other sources. Some examples include interest on fixed deposits, dividends earned, and lottery winnings.
Once you’ve calculated your total income and classified them under the categories mentioned above, the next step in the income tax calculation process is to account for the deductions and savings, if any. The amount parked in some tax-saving investments can be deducted from your total income, thereby reducing the amount of income that’s taxable.
For instance, investments made under section 80C can give you the benefit of deductions up to Rs. 1,50,000. Some of the tax-saving investments that qualify for a deduction under section 80C are mentioned below.
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Aside from these tax-saving investments, there are also certain expenses that can be claimed as a deduction under section 80C. Some examples of these include:
In addition to the savings under section 80C, there are many other avenues that can help you save tax. For instance, you can claim an additional deduction of Rs.50,000 for investment in NPS under Section 80CCD(1B), bringing your total deduction from tax-saving investments up to Rs. 2,00,000. Furthermore, premiums paid for health insurance can also be claimed as a deduction as per section 80D.
tax rate for individuals is determined based on the slab under which their total income falls. There are three different sets of income tax slab rates, depending on the age of the individual taxpayer.
1. Individual other than Senior Citizen
2. Senior Citizen
3. Super Senior Citizen
Income tax slabs for individuals other than senior citizens
|Income tax slabs for individuals below the age of 60||Tax rates applicable|
|0 to 2,50,000||Nil|
|2,50,001 to 5,00,000||5% of the total income exceeding 2,50,000|
|5,00,001 to 10,00,000||Rs. 12,500 + 20% of total income exceeding 5,00,000|
|Above 10,00,000||Rs. 1,12,500 + 30% of total income exceeding 10,00,000|
Income tax slabs for resident senior citizens who is 60 years or more at any time during the financial year
|Income tax slab (in rupees)||Tax rates applicable|
|Up to 3,00,000||Nil|
|3,00,001 to 5,00,000||5% of the total income exceeding 3,00,000|
|5,00,001 to 10,00,000||Rs. 10,000 + 20% of total income exceeding 5,00,000|
|Above 10,00,000||Rs. 1,10,000 + 30% of total income exceeding 10,00,000|
Income tax slabs for Super Senior Citizens who is 80 years or more at any time during the financial year
|Income tax slab (in rupees)||Tax rates applicable|
|Up to 5,00,000||Nil|
|5,00,001 to 10,00,000||20% of total income exceeding 5,00,000|
|Above 10,00,000||Rs. 1,00,000 + 30% of total income exceeding 10,00,000|
There is an additional 4% Health & Education Cess that needs to be paid on every front on the amount of income tax and surcharge being paid. Surcharge will be applicable based on Individual’s Income Slab.
In case you’ve already paid TDS, TCS, or advance taxes, deduct them from your tax liability to arrive at the balance tax payable (or refundable).
With these simple steps, you can perform the income tax calculation for the assessment year 2021-22. It’s important to pay your taxes and file your IT returns on time, so you can avoid facing penalties and additional interest charges.
Hi, I am Radhika Palkar. I am a Practicing Chartered Accountant, mainly working as an advisor to foreign companies with regards to managing their operations in India. I also take keen interest in associating myself with start-ups from the stage of incorporation, bookkeeping to income tax filling and in advising the management on cost price analysis thus we act like a virtual CFO for the entities in their growth phase.
I am here today as part of the Tax video series by Canara HSBC Oriental Bank of Commerce Life Insurance Company. In this video let’s understand in detail the income tax calculation applicable for the financial year 2020-21.
|Particulars||Amount (In Rs)|
|1||Total Income from 5 different sources of income||XX|
|2||Less: Tax Exemptions under each of the sources of income, if any****||XX|
|3||Less : Standard Deduction, in case of salaried individuals****||XX|
|4||Gross Taxable Income [(1) - (2) - (3)]||XX|
|5||Less : Tax deductions under Section 80C to 80U [(5) cannot exceed (4)]****||XX|
|6||Net Taxable Income [(4) - (5)]||XX|
|7||Divide the net taxable income into the following -|
|7.1 Income subject to special tax rates (Refer note 1 below)||XX|
|7.2 Remaining income subject to normal rates||XX||XX|
|8||Find out Income Tax on the net income-|
|8.1 Tax on income specified in 7.1 at the applicable rates ***||XX|
|8.2 Tax on remaining income at the normal rates as explained in Q1, earlier||XX||XX|
|9||Less: Rebate under Section 87A (Applicable in the case of Resident Individual having net income not exceeding Rs 5 lakhs)||XX|
|10||Income Tax after rebate under section 87A [(8) - (9)]||XX|
|11||Add: Applicable Surcharge of tax calculated at 10 (Surcharge is applicable as a percentage of the Income Tax) (Refer Note 2 below)||XX|
|12||Find out Total of (10) + (11)||XX|
|13||Add : Health and Education Cess (HEC) [4% of 12]||XX|
|14||Find out Total of (12) + (13)||XX|
|15||Less : Rebate under Section 89,90,90A or 91 (Refer Note 3 below)||XX|
|16||Tax liability [(14) - (15)]||XX|
|17||Add: Interest/Penalty, etc, if any (Refer Note 4 below)||XX|
|18||Less : Pre-paid taxes [i.e. advance tax, self-assessment tax, TDS, TCS]||XX|
|19||Tax Payable [(16) + (17) - (18)]||XX|
|Note 1||For example, Short Term capital gains are taxable at the rate of 15% as per Section 111A, Winnings from lotteries, crossword puzzles, or race horse or card game or any other game of any sort or from gambling or betting of any form or nature is taxable at the rate of 30% as per Section 115BB|
|a) 10% of Income tax where total income exceeds Rs. 50 lakh|
|b) 15% of income tax where total income exceeds Rs. 1 crore|
|c) 25% of income tax where total income exceeds Rs. 2 crore|
|d) 37% of income tax where total income exceeds Rs. 5 crore|
|Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b)|
|Note 3||For example, relief for doubly taxed income under Section 90, 90A or 91|
|Note 4||For example, Interest under Section 234B for default in the payment of advance tax|
****Further, Please note: - deductions/exemptions are not eligible if opting for new tax regime - like
- Standard Deduction of Rs 50,000 from salary- Deduction under section 80C to 80U - Chapter VIA Deductions (like 80C, 80D, 80CCD etc) except NPS contribution by employer u/s 80CCD(2)