Tax Calculation Procedure

Examples of Tax Calculation

Direct Tax Code

An Income Tax Slab is a table that prescribes threshold limits beyond which a person would be chargeable to income tax based on a certain rate of tax and some deductions. There is a vast category of persons or companies that are covered by this slab that gets amended from time to time.

For a better understanding of the functioning of this income tax slab, there are three crucial components on the basis of which these tax slabs are created.

1. Income Tax Act, 1961 - This act plays the most influencing factor in the fixing of the tax rates in the income tax slab. The taxable persons will be assessed in accordance with this Act and in case of failure in abiding with such laws, the penalties would be levied in accordance with the Income Tax Act, 1961.

2. Yearly Amendments- As Income Tax is a revenue law, it gets amended from time to time by the government. Whenever such changes are implemented, the Government comes up with a finance bill that directly affects the threshold caps for various tax rates of Income Tax.

3. Income – Income tax is a tax levied on a person or company’s income. Income is any regular monetary or other receipts having a money value from a definite source. Therefore, income plays a deciding factor when it comes to the applicability of the tax rates mentioned in the income tax slabs.

Important factors that determines the applicability of income tax slab

• Assessee’s income: The income of a person decides whether he would be chargeable with income tax or not.
• Gross income: This is an important parameter as the tax is calculated on the basis of this income.
• Residential status of the assessee: Separate rules and regulations have been stated in the Income Tax Act, 1962, in respect of the residential status of the assessee.
• Assessment year: As tax slab rates changes every year, therefore, assessment year becomes a deciding factor to apply tax rates mentioned in the tax slabs.
• Maximum amount beyond which the income tax would be applicable.
• Rate of tax: This is the major aspect highlighted by these slabs to levy income tax on assessees. Based on the above factors, the rate of tax would be applicable.

Applicability of Income Tax Slabs

• Indian residents having a regular source of income
• A Hindu Undivided Families (HUF)
• Companies
• Firms
• Association of Persons (AOP)/ Body of Individuals (BOI) whether incorporated or not
• Local authorities

How to Calculate Your Income Tax? Learn Here… Step I: Calculate Gross Income
Calculate your Annual/Gross Income. (Monthly Income * 12)

Step II: Sum up the donations
Calculate the total donations you have made towards various institutions during the year in accordance with the Income Tax Rules.

Step III: Add together the savings
Calculate your total savings for the entire year. This may include all the savings and investments mentioned in Income Tax Saving Schemes Sections.

Step IV: Calculate Taxable Income
Follow the following rule to calculate your taxable income: Step I - (Step II + Step III) = Taxable Income

Step V: The final amount of Income Tax
When you have calculated your taxable income, refer to the following slabs to calculate your Income Tax accordingly. Choose the slab according to your income to calculate your Income tax.

Applicability of Income Tax Slabs

• No income tax is applicable on income above Rs. 5 Lakhs.
• The above exemption combined with deductions on savings under Section 80 has granted people a grand exemption from Income Tax up to an amount of Rs. 6.5 Lakhs.
• The Long Term Capital Gain Tax has once again made applicable on stock market investments.
• The salaried employees have been allowed with a standard deduction of Rs. 50,000.
• The TDS applicable on rental income has been increased to Rs. 2.4 lakhs from 1.8 lakhs.
• The TDS applicable on bank and post office deposits has been increased from Rs. 10,000 to Rs. 40,000.
• An exemption of Rs. 50,000 on interest from deposits in banks and post offices is provided to the senior citizen above 60 years of age.
• The Education Cess on income tax is increased to 4 percent from 3 percent. This will make a direct impact on the tax liability of the tax payers.

The threshold income tax exemption limit for men has been revised to Rs 2,50,000 than the previous limit of Rs 1,80,000.There will be a minimum saving of Rs 70000 in income tax than previous year.

Income Tax Slab (in Rs.)	Tax
Up to Rs 2,50,000	No Tax
2,50,001 to 5,00,000	5%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

When the government charges a fee on a product, income or activity to be used to finance government expenditure gets known as tax. Government imposes two kinds of taxes :
Direct tax- tax levied on personal or corporate income
Indirect tax- tax levied on price of a good or service
Public goods and services are provided by government and quasi-government agencies which tend to finance themselves largely through taxes.
There is no change in tax structure for women.

Income Tax Slab (in Rs.)	Tax
Upto 2,50,000	No Tax
2,50,001 to 5,00,000	5%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

A new income tax bracket for senior citizens has been introduced which are above eighty years of age. The tax exemption limit to senior citizens above 80 of age has been increased to Rs. five lakhs from the existing 2.4 lakhs. For senior citizens between 60 to 80 years the tax exemption limit has been revised to Rs 3,00,000 from Rs 2,50,000 thus an increase of Rs 50,000 only. The senior citizen age has also been reduced to 60 years from 64 years.

Income Tax Slab (in Rs.)	Tax
Up to Rs 2,50,000	No Tax / Exempt
2,50,001 to 5,00,000	5%
5,00,000 to 10,00,000	20%
Above 10,00,000	30%

Income Tax Slab (in Rs.)	Tax
Up to Rs 3,00,000	No Tax / Nill
3,00,001 to 5,00,000	5%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Income Tax Slab (in Rs.)	Tax
Up to Rs 5,00,000	No Tax / Nill
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Step VI: Education Cess Add 3 % of your taxable income as the Educational Cess to the Income Tax amount calculated in step V.

Example Example 1: Mrs. Kuldeep is 35 year old and earning 8 lac annually. (Male)

Calculation
Example 3: Mrs. Rajesh is 67 years old and earning 8 lac annually. (Senior Citizen)

Calculation

Tax on Income up to 3,00,000	Nil
Tax on Income between 3,00,001-5,00,000 (@ 5%)	20,000
Tax on Income between 5,00,001-10,00,000 (@ 20%)	180,000
Total	20,0000
Educational Cess(@ 3% of Total Tax)	6,000
Net Tax Payable	20,6000

Basic Exemption	Men	Women	Senior Citizen Less Than 60	Senior (60 and 80 Year)	Senior Citezen Above 80
No Tax	250000	250000	250000	300000	500000
5%	250001 to 500000	250001 to 500000	250001 to 500000	300001 to 500000	Nill
20%	500001 to 1000000	500001 to 1000000	500001 to 1000000	500001 to 1000000	500001 to 1000000
30%	Above 1000000	Above 1000000	Above 1000000	Above 1000000	Above 1000000

Indian Union government is, currently, following, Direct Tax Code (DTC) in India from April 1, 2011. This DTC has replaced the previous Income tax structure in India, leaving more money in the hands of people.

Although, During the budget 2010 presentation, the finance minister Mr. Pranab Mukherjee said to enforce the new direct tax code (DTC) from 1st of April, 2011, but same could not be fulfilled and now it will be applicable from 1st April, 2012. Union government is determined to implement that Direct Tax Code (DTC) in India by April 1, 2011. The new DTC will replace the existing Income tax structure in India, leaving more money in the hands of people. Here are the main highlights of Direct Tax Code (DTC)

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