What is an income tax calculator? How does it work?

Posted by swarali chavan on April 21st, 2019

The Income Tax Act of 1961 is the law that lays the rules for tax payments. All the people and entities residing in India must abide by the Income Tax Act. They must also pay tax and submit the annual returns if the income amount exceeds the slab directed by the Act.

The Income Tax Act offers two crucial information – the exempted tax amount and the tax rates applicable on each financial year or previous fiscal year. This period is between April 1 to March 31. How to calculate income tax? There is a facility available called Income Tax calculator.

How does it work?

Before using the income tax India calculator, understand the following aspects:

1)      Who is liable to pay taxes in India?

• Individuals
• Group of people
• Hindu Undivided Family (HUF)
• Association of people
• Firms

2)      How to compute gross taxable income?

Any income received or accrued by an Indian resident in the previous year, are subject to taxes. Plus, any non-resident who received salary in India is also eligible for tax. As per the Income Tax Act, the following aspects fall under income earned:

• Income due to the employee which could be any amount as per the law
• The yearly value of the property of which you are the owner
• Revenue gained from profits and gains of the business
• Any profit you earn via capital asset is chargeable under Income on Capital Gains
• Income derived from other factors such as FD interest, dividend income, family pension, etc.

3)      Which income is not part of the gross taxable income?

• Agricultural income
• The sum received by an individual member of HUF
• Profit share of a partner in a partnership firm
• Amount declared, distributed, or paid by dividends
• Any payment received from National Pension Scheme Trust to an employee on account closure
• Death-cum-retirement gratuity received under Pension Rules of Central Government
• Money received by an employee on voluntary retirement
• Gratuity received under Payment of Gratuity Act
• Capital Gain received via transfer of equity shares are exempted from taxes

4)      What are the permissible deductions?

While using the income tax calculator, the following deductions are applicable:

• Section 80C: Any contribution made by you towards the following are tax deductible –

-          Life insurance policies and PPF

-          The principal portion of housing loan

-          Tuition fees to school, colleges, and university

-          Stamp duty or registration fees paid when transferring house property

-          FD opened for tenure not less than 5 years with a reputed bank or post office

-          Any investment in ELSS funds with a lock-in period 3 years

• Section 80D: This section includes deduction regarding the premiums under health insurance policies. All individuals and people belonging to HUF are eligible for exemptions here. It includes –

-          Amount paid towards the policy of the assessee or their family members for maximum INR 25,000

-          Amount paid towards the policy of the assessee or their family members’ senior citizens for maximum INR 30,000

• Section 80DD: This is the expenditure acquired by you or the HUF towards medical treatments
• Section 80DDB: This includes the cost incurred for treatment towards specific diseases on yourself or a dependent
• Section 80G: This section offers a deduction on any contribution made towards charitable organisations

The best part about investments is there is a calculator available for each of them, to help you make an informed decision. For example, mutual funds have calculators for mutual funds, SIP calculator, lumpsum calculator, and retirement calculator.