How to Calculate Income Tax
As you may know, I shared with you the income tax rates for the financial year 2008-09 in my earlier article. I received hundreds of requests from readers to explain the method of income tax calculation in an easier way. And even they requested for Income Tax calculator to calculate the tax liability on their own. Therefore, I am trying to explain the methods of calculating Income tax in an easier way. I am also giving you a link to access the Income Tax Calculator which we developed at IndianMoney.com to calculate your tax liability.
First of all, I would like to brief about the status of different categories of Individuals for the purpose of calculating Income tax. Income Tax Act has categorized all Income Tax Payers (Individuals) into 3 different types:
- Ordinary Individuals
- Female Citizens
- Senior Citizens
1. Ordinary Individuals: as per the applicable tax laws, the Income tax rates for ordinary individuals are:
Annual Income | Income Tax rates for FY 2008-09 |
Up to 150000 | Nil |
150000 – 300000 | 10% |
300000 – 500000 | 20% |
500000 and above | 30% |
*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.
Note: -
- Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
- A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
- Agricultural income is exempt from income-tax.
Now, let me explain the method of calculating income tax in detail with few examples:
Example 1: Mr. Rajan is 35 year old and earning 8 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 150000 | Nil | Nil |
Tax on Income between 150000-300000 | 10% | 15000 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 800000 | 30% | 90000 |
Total |
| 145000 |
Educational Cess | 3% of the total tax | 4350 |
Net Tax Payable |
| 149350 |
Example 2: Mr. Avinash 40 year old and earning 12 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 150000 | Nil | Nil |
Tax on Income between 150000-300000 | 10% | 15000 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 1200000 | 30% | 210000 |
Total |
| 265000 |
Surcharge | 10% of the Income Tax | 26500 |
Total |
| 291500 |
Educational Cess | 3% on the total tax including surcharge | 8745 |
Net Tax Payable |
| 300245 |
2. Female Citizens: as per the applicable income tax laws, the income tax rates for female citizens are:
Annual Income | Income Tax rates for FY 2008-09 |
Up to 180000 | Nil |
180000 – 300000 | 10% |
300000 – 500000 | 20% |
500000 and above | 30% |
*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.
Note: -
- Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
- A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
- Agricultural income is exempt from income-tax.
Now, let me explain the method of calculating income tax in detail with few examples:
Example 1: Ms. Rachana is 35 year old and earning 8 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 180000 | Nil | Nil |
Tax on Income between 180000-300000 | 10% | 12000 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 800000 | 30% | 90000 |
Total |
| 142000 |
Educational Cess | 3% of the total tax | 4260 |
Net Tax Payable |
| 146260 |
Example 2: Ms. Savitha 40 year old and earning 12 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 180000 | Nil | Nil |
Tax on Income between 180000-300000 | 10% | 12000 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 1200000 | 30% | 210000 |
Total |
| 262000 |
Surcharge | 10% of the Income Tax | 26200 |
Total |
| 288200 |
Educational Cess | 3% on the total tax including surcharge | 8646 |
Net Tax Payable |
| 296846 |
3. Senior Citizens: as per the applicable tax laws, the Income tax rates for Senior Citizens are:
Annual Income | Income Tax rates for FY 2008-09 |
Up to 225000 | Nil |
225000 – 300000 | 10% |
300000 – 500000 | 20% |
500000 and above | 30% |
*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs. 1,000,000.
Note: -
- Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
- A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.
- Agricultural income is exempt from income-tax.
Now, let me explain the method of calculating income tax in detail with few examples:
Example 1: Mr. Ganesh Prasad is 67 year old and earning 8 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 225000 | Nil | Nil |
Tax on Income between 225000-300000 | 10% | 7500 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 800000 | 30% | 90000 |
Total |
| 137500 |
Educational Cess | 3% of the total tax | 4125 |
Net Tax Payable |
| 141625 |
Example 2: Ms. Lakshmi 66 year old and earning 12 lac annually.
Calculation:
Heads | % of Income Tax | Income Tax |
Tax on Income up to 225000 | Nil | Nil |
Tax on Income between 225000-300000 | 10% | 7500 |
Tax on Income between 300000-500000 | 20% | 40000 |
Tax on Income between 500000- 1200000 | 30% | 210000 |
Total |
| 257500 |
Surcharge | 10% of the Income Tax | 25750 |
Total |
| 283250 |
Educational Cess | 3% on the total tax including surcharge | 8497 |
Net Tax Payable |
| 291747 |
I hope this will help you to understand income tax calculation better. Please click on the below link to access Income Tax Calculator.
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