Every Indian worries when the financial year comes to an end, the worry is how much tax to be payable, how to calculate tax?????
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Benjamin Franklin opined: “In this world nothing is certain but death and taxes.”
The story of taxes and the civilized man go back a long way. Taxes were levied when Pharaohs ruled Egypt 5,000 years ago. In India, a treatise on taxation existed 2,300 years ago in the form of Chanakya’s Arthashastra. It emphasized on fairness and equity, recommending that the affluent pay higher taxes as compared to the not so fortunate.
The modern system of Indian taxation started taking shape from the year 1922. After Independence, the Income Tax Act in its present form was passed in 1961. For the purpose of taxation, the total income of an individual’s income has been divided under five heads: salaries, house property, profession, capital gains and other sources. A number of deductions are allowed form the gross total income computed on the basis of individual income accruing under the five heads. The deductions allowed are usually in line with the fiscal policy of the government.
COMPUTATION OF NET SALARY
Basic Salary
Commission and bonuses
Allowances
Conveyance
HRA
Leave encashment
Performance rewards
Residential accommodation
Motor car
Gross salary
Less
Deduction from salary
Entertainment allowance
Professional tax
SALARY INCOME CHARGES TO TAX
COMPUTATION OF INCOME FROM HOUSE PROPERTY
Annual value
Less municipal tax
Net annual value (NAV)
Deductions
Statutory deduction
(30% of NAV)
Interest on loan
INCOME FROM HOUSE PROPERTY
COMPUTATION OF CAPITAL GAINS
Sales value
Less
Acquisition cost
Improvement cost
Transfer cost
CAPITAL GAINS CHARGEABLE TO TAX
BUSINESS/PROFESSION
Gross receipts
Less
Expenses incurred to earn the income
INCOME CHARGEBLE TO TAX
INCOME OTHER SOURCES
Interest on bank or company deposits
Interest on National Savings Certificate
Kisan Vikas Patra or debentures and bonds
Interest received on delayed tax refunds
Income from royalty
Winnings from lotteries
OTHER INCOME CHARGEABLE TO TAX
SECTION 80C PRODUCTS
Bank deposits.
Employee Provident Fund (EPF). .
Public Provident Fund (PPF).
Home loans:The total amount eligible for deduction is up to Rs. 1 lakh a year for the principal amount.
Children’s fees: Parents can claim a deduction for tuition fees for a maximum of two children within the overall limit of Rs. 1 lakh. However, payments towards development fees or donations to the institution are excluded.
National Savings Certificates (NSC).
Equity-linked savings schemes (ELSS).
Life Insurance.
OTHER DEDUCTIONS
Health insurance: Under Section 80D, medical cover premium is tax-deductible up to Rs. 10,000, with an additional deduction of up to Rs. 5,000 if the policy is in the name of a senior citizen (65 years or older) and the premium is paid by him. If someone below 65 buys a plan for his dependents, he can avail benefit upto Rs. 15,000.
Educational loan: The interests on loans taken for higher education are also eligible for deduction from your total income under Section 80E. There is no monetary ceiling on the interest you can claim as a deduction. The loan must have been taken from a financial institution or an approved educational institution. Remember, repayment of loan or interest on loans taken by parents for higher education of their child is not eligible for deductions.
Charity:To avail tax benefits under Section 80G, donations must be made only to specified trusts. The tax breaks vary according to the trust to which you have donated.
Medical treatment: Any expenditure for the medical treatment (including nursing) of a handicapped person, training and rehabilitation of a person suffering form a permanent physical disability (including blindness) or form mental retardation, qualifies for a deduction under Section 80DD upto Rs. 50,000. A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs. 50,000. In case the disability is severe, the claim can go up to Rs. 75,000.
DEDUCTIONS AVAILABLE
Sections When, where and how much of deductions
80C Rs. 1 lakh in specified instruments like life insurance and ELSS
80CCC Pension plans of life insurance companies; 80C limit stands reduced
80CCC investment
80D Rs. 10,000 deduction on mediclaim, Rs. 15,000 for senior citizens
80DD Rs. 50,000 reduced from total income of a person handicapped dependent
80DDB Rs. 40,000 and Rs. 60,000 (sr citizen) for expenditure on treatments ofspecialdiseases
80E Interest on education loan – entire amount tax deductible
80G Donations (all donations don’t qualify for 100% deduction)
80GG Deduction according to formula for rent paid for housing
80U Rs. 50,000 deduction from total income for handicapped persons
HOW MUCH TO PAY AS TAX
TAX RATES- FOR ALL EXCEPT SENIOR CITIZENS AND WOMEN
Taxable income (Rs.) Tax rates Surcharge Education cess
Upto 1 lakh Nil Nil Nil
1 lakh to 1.5 lakh 10% of Rs. 50,000 Nil 2% of tax
1.5lakh to 2.5lakh Rs. 5,000 + 20% of Rs. 1 lakh Nil 2% of tax
2.5lakh to 10lakh Rs. 25,000 + 30% of
(taxable income minus Rs. 2.5 lakh) Nil 2% of tax
10lakh and above Rs. 2.5 lakh + 30% of
(taxable income minus Rs. 10 lakh) 10% of tax 2% of tax
