In India to calculate the income tax you have to apply the income tax act, 1961. We have tried to cover the calculation of income tax in seven steps. You can go through this article below and download the income tax calculator also for ready reference for your income tax calculation.
To Calculate income and income tax there are seven steps you need to follow :
Step 1: Residential Status of Your Business entity
You need to first decide whether the Business entity for which you are calculating income and income tax is resident or non resident . There are few conditions on the basis of which the status of the business entity defined are as follows.
1. Indivdual
· Resident : Whether he has Stayed in India for 182 days or more in the relevant year "or" Stayed in india for 60 days or more in relevant year & 365 days or more during last four years.
· Non-resident: If no above condition satisfied
2. HUF :
· Resident: Control & Management wholly or partially in india
· Non-Resident: Control & Management wholly outside india
3. Partnership firm/LLP/AOP/BOI/Local Authority :
· Resident: Control & Management wholly or partially in india
· Non-Resident: Control & Management wholly outside india
4. Company :
· Resident company : Indian Company or Other company but its Place of effective management is in India in that year
· Non-Resident Company : Other Company whose place of effective management is outside india in that year
If your business entity is resident then global income (i.e indian & foreign income) would be taxable in India that means whether the income accrues or arise in India or outside India that would be taxable in india only.
If your business entity is nonresident of India and hence only Indian income would be taxable in India that means the income which accrues or arise in India only would be taxable.
Step 2: Find taxable income under each head of income tax
After getting an idea about which type of income would be taxable in India, then step 2 is to find your taxable income on the basis of the selected status in step 1.
There are 5 heads of income as per income tax act, 1961
· Salary income: Income from the employee-employer relationship would be taxable under the head Salary Income.
·Capital gain : Income from transferring of Capital Assets or property would be taxable under the head of the capital gain
·House property: Income from Building or land attached to the building (including but not limited to residential buildings, factory buildings, Offices, Shops, Godown & Other commercial premises
·Business & Profession: Income from any kind of business or a income of professional would be taxable under the head of the Business & profession
·Other sources: Income other than the head mentioned in above 4 heads would be taxable under the income from other sources
The taxability of income would be checked as per the income tax act, 1961. You just download our income tax calculator as attached below and you would be able to compute your income and income tax by just filling few details as mentioned in the Income-tax calculator.
Step 3: Set off or carry forward of your previous year losses
After computing your income under each head now in step 3 you should have to adjust your previous year losses if any with the current year income to save the taxes. You will find your previous year losses number in your last income tax return filed.
However, you should need to always consider whether you can adjust that previous year loss or not because losses can be carried forward only up to prescribed years in the income tax laws as follows:
· Loss from Non-speculative Business losses: 8 Years
· Loss from Speculative business losses: 4 years
· Losses from the house property: 8 years
· Loss from Long term capital gain: 8 years
· Loss from Short term capital gain: 8 years
· Loss from Winning income: Cannot carry forward
· Loss from maintains of horse activity: 4 years
· Loss from other sources: Cannot carry forward
Step 4: Deduction under Chapter VI A of Income Tax (i.e Section 80C to 80U)
There are deductions which allowed from the total income as computed until step 3. This helps in reducing the tax burden of the business entity.
Section 80C: Saving Investment as follows :
· Payment of insurance premium
· Provident fund contribution by the employee
· Public Provident fund
· Tuition Fees
· FD for more than 5 years
These above are few investments whose deduction can be availed under section 80 C of the income tax act, 1961. The maximum limit for the deduction is Rs. 150,000.
Section 80CCC: Contribution to pension plan/annuity fund in LIC or other insurers
Section 80CCD (1): Employee Contribution to NPS (National Pension Scheme)
Note: The maximum deduction under above 3 sections i.e. Section 80C, 80CCC & 80CCD cannot exceed Rs. 150,000 in one financial year however the additional benefit upto Rs. 50,000 would be available over and above Rs. 150,000 under section 80CCD (1b) for an employee contribution to NPS.
Section 80CCD (2) : Employer’s contribution to NPS
Section 80 D: Deduction for medical insurance premium/Preventive health checkup of self up to Rs. 25,000 and parent’s up to Rs. 25,000
Section 80D: Medical Expenditure if no insurance policy and age is more than 60 years of self or parent’s deduction of upto Rs. 5,000 would be given for self and parents.
Section 80 TTA: Interest earned from saving bank account/Post office Saving Account upto Rs. 10,000.
Section 80G: Donation to the charitable trust and depending upon the trust the benefit of 100% of the donation or 50% of the donation would be available to the entity.
Section 80E : Interest on education loan for higher studies
Section 80DD : Deduction in respect of maintenance including medical treatment of a dependant who is a person with a disability. If the person is having severe disability then deduction of Rs. 100,000 would be given however otherwise Rs. 75,000 deduction would be given
Section 80U : Disability to the individual taxpayer. If the disability is a severe then deduction of Rs. 100,000 would be given otherwise Rs. 75,000.
Section 80DDB: Deduction in respect of medical treatment upto Rs. 40,000 of the following diseases :
i) Neurological Diseases where the disability level has been certified to be of 40% and above
(a) Dementia ;
(b) Dystonia Musculorum Deformans ;
(c) Motor Neuron Disease ;
(d) Ataxia ;
(e) Chorea ;
(f) Hemiballismus ;
(g) Aphasia ;
(h) Parkinsons Disease ;
(ii) Malignant Cancers ;
(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
(iv) Chronic Renal failure ;
(v) Hematological disorders :
(i) Hemophilia ;
(ii) Thalassaemi
Section 80EEB : Interest deduction on Electric vehicle purchase during the loan sanction amount from 01.04.2019 to 31.03.2023 upto Rs. 150,000.
Section 80GGB/80GGC : Contribution to political parties
Step 5: Calculation of total income
For the purpose of the calculation of the total income just reduce the step 4 from step 3 and you will get the total income.
Step 6: Find the applicability of the rate on your entity
Income tax is total of Basic tax, Education Cess & Surcharge, if your business entity is resident Individual then
Basic Tax would be on
a. Income from Business & Profession
b. Income from salary
c. Income from house property.
d. Income from other sources except winning income.
e. Income from Short term capital gain except gain on sale of the equity shares or equity-oriented mutual funds
Two Scheme was available from Budget 2020 applicable for FY 2020-2021 for an individual:
a. Old Scheme (Slab rate)
0- 2.5 Lakhs 0%
2.5 Lakhs to 5 Lakhs 5%
5 Lakhs to 10 Lakhs 20%
10 Lakhs to infinity 30%
b. New Scheme (Slab rate)
0-2.5 Lakhs 0%
2.5 Lakhs to 5 Lakhs 5%
5 Lakhs to 7.5 Lakhs 10%
7.5 lakhs to 10 lakhs 15%
10 lakhs to 12.5 Lakhs 20%
12.5 lakhs to 15 lakhs 25%
15 lakhs to Infinity 30%
However, if the age is more than 60 years and less than 80 years then the basic exemption i.e. no tax limit is upto 3 lakhs and if the age is above 80 years then the basic exemption limit is 5 lakhs in both the schemes.
Under the new scheme various deduction would have to be forgone like deduction under section 80c to 80u , HRA, Standard deduction under salary, House property interest, LTA etc.
Note: Rebate of Rs. 12,500 would be available if the total income not exceeds Rs. 5 Lakhs however this rebate is not available in case of a nonresident individuals.
Short term capital gain on equity 15%
Shares & equity-oriented mutual fund
Long term capital gain 20%
Winning income 30%
Education cess 4% on Basic Tax
Surcharge if your total income is more than 50 Lakhs
50 Lakhs to 1 Crore 10%
1 crore to 2 crores 15%
2 crores to 5 crores 25%
5 Crores to infinity 37%
In the case of Partnership, Firms/LLP/ Local Authority slab rate as mentioned above is not applicable and the flat rate would be applicable at the rate of 30%, rest other rates would be same as an individual.
In the case of HUF the above-mentioned rate of individual would be applicable however the new regime would not be available for the HUF.
In case of Domestic Company slab rate as mentioned above is not applicable and the flat rate would be applicable at the rate of 30% if the turnover is more than 400 crores in FY 2017-18 if the turnover is below 400 crores then 25% rate would be applicable rest other rates would be same as an individual.
For more details, you can refer this link
In the case of Foreign Company slab rate as mentioned above is not applicable and the flat rate would be applicable at the rate of 40% rest other rates would be the same as an individual.
Step 7: Calculate tax as applicable in step 6 on step 5.
Download Income tax calculator for FY 2019-20 & FY 2020-21 below:
