How Income Tax Is Calculated

For administering the country, the government generates money through different channels. India follows a system of charging taxes on the income earned by individuals. Income tax is one of the chief revenue sources of a country’s governance. Hence, income tax is the most common topic of every citizen in the country. Here we discuss how income tax is calculated in India.

Income tax slabs

To know how income tax is calculated in India, you must first know about the income tax slabs. Income Tax Slab is the kind of parameter applied by the Income Tax Department in India to decide how taxes are levied to different individuals and non-individuals. Year on year, the tax slab whether revised or continued is announced as part of the Union Budget.

Tax Slabs Overview for individuals (male and female)

Income Range	Rate of Tax
Income up to 2,50,000	Nil.
Rs. 2,50,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	Rs. 12,500 + 20% of the income that exceeds Rs. 500,000.
Above Rs. 10,00,000	Rs. 1,12,500 + 30% of Income that exceeds Rs. 10,00,000.

Tax Slabs Overview for senior citizens in the age group 60 to 80

Income Range	Rate of Tax
Income up to 3,00,000	Nil.
Rs. 3,00,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	Rs. 10,000 + 20% of the income that exceeds Rs. 500,000.
Above Rs. 10,00,000	Rs. 1,10,000 + 30% of Income that exceeds Rs. 10,00,000.

Tax Slabs Overview for senior citizens in the age group above 80

Income Range	Rate of Tax
Income up to 5,00,000	Nil.
Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	Rs. 1,00,000 + 30% of Income that exceeds Rs. 10,00,000.

New changes

The Union Budget 2019 – 20 has announced a revision that allows a full tax rebate for income that is up to Rs. 5 lacs under Section 87 A. This change lifts up the existing tax slab.

Calculation of income tax

Taxable income of individuals is worked out based on several factors including tax slab of the individual or entity, the different kinds of deductions applicable to the concerned tax payer, the taxes already paid including advance tax and tax deducted at source (TDS).

How to know the income tax payable?

In the first slab, know your income tax slab. Work out all the deductions applicable in your case. For example, deduction can be claimed for investment in life insurance for premiums up to Rs. 1.5 lacs. Under Section 80C, you can also claim deduction for investments in PPF (Public Provident Fund), NSC (National Savings Certificate) and other instruments like home loan principal repayment. Section 80 D enables a deduction for investments in health insurance plans up to Rs. 25,000 for the individual and his or her family and up to Rs. 25,000 for parents aged above 60 years. Section 24 enables deduction on home loan interest up to Rs. 2 lac. These deductions can help lower the overall tax outgo.

Filing ITR

For individuals making less than Rs. 2.5 lacs per annum, it is not compulsory to file income tax returns. However, if you have a PAN number, experts advise you to file income tax returns even when you have an income below the taxable threshold. In this case, you can file a Nil return.