epf image.png

EPF Interest Rate 2024-25: Current & Historical Rates, EPF Calculator

3.1.png

Are Digital Payments Hurting Your Wallet?

medium_image.webp

small_image.webp

thumbnail_image.webp

image.webp

20 Side Income Ideas in India to Earn Extra Money with a Full-Time Job

Wondering how to calculate income tax on salary? Learn the right calculation method with examples.

How to Calculate Income Tax on Salary with Example

Home Page

Guides

Personal Finance

"How to Calculate Income Tax on Salary with Example"

Ulfath Joad

From budgeting to expenses management and everything in between

<p>
    Although income tax might not be your favourite thing to think of, you still need to understand it. With ever-changing taxes and improvisations, calculations can get difficult.
   </p><p>
    So, begin from the basics and learn about
    <strong>
     how to calculate income tax on salary
    </strong>
    .
   </p><h2>
    What is Income tax on Salary?
   </h2><p>
    As per ITA 1961, every person with a salary must deposit a part of their earning as tax. This tax amount paid to the government differs from person to person. Within the norms, there are several exemptions and provisions that deduce overall taxes. Hence, the remaining amount gets collected as income tax.
   </p><p>
    The 1961 ITA specifies the following taxable categories:
   </p><ul role="list">
    <li>
     Direct income from salary
    </li>
    <li>
     Income from housing properties
    </li>
    <li>
     Income from professional or business profits and gains
    </li>
    <li>
     Income from capital gains
    </li>
    <li>
     Income from any other sources
    </li>
   </ul><p>
    As per the old and new tax regimes, the tax slab rates are:
   </p><h2>
    <strong>
     How to Calculate Income Tax on Salary
    </strong>
    with Example
   </h2><p>
    Before learning the
    <strong>
     income tax calculation formula
    </strong>
    , there are some components you need to be familiar with.
   </p><h3>
    1. Financial year
   </h3><p>
    The year in which you earn is the financial year (FY). For instance, 1 April of the present year to 31 March of next year is the current FY.
   </p><h3>
    2. Assessment Year
   </h3><p>
    Assessment year (AY) assesses the income from the FY. For instance, AY 2023-24 assesses your income from April 2022 – March 2023.
   </p><h3>
    3. Deductions
   </h3><p>
    As per the ITA section 80, chapter VI-A, there are several reductions you can avail. These deductions include life insurance, children’s tuition, etc.
   </p><h3>
    4. Exemptions
   </h3><p>
    Certain incomes are excluded from taxes and do not add to the total income. Some exemptions include HRA, LTA, standard deduction, and others under 80C.
   </p><h3>
    5. TDS
   </h3><p>
    TDS or tax deducted at source. It refers to a specific tax deducted during a natural transaction between two people to send to the government.
   </p><h3>
    6. Salary Breakup
   </h3><p>
    Your payslips and statements mention your salary breakdown. It is an essential element in the
    <strong>
     income tax calculation formula
    </strong>
    .
   </p><h3>
    7. Taxable Income
   </h3><p>
    Overall, taxable income = Total sum from earnings – eligible deductions
   </p><p>
    With these components in mind, you can calculate your total taxable income. Let us closely understand
    <strong>
     how to calculate income tax on salary with example
    </strong>
    .
   </p><p>
    Example: Mr Z earns INR 1,00,000 per month. He has a monthly HRA of INR 45,000, a monthly special allowance of INR 20,000, and a yearly LTA of INR 20,000.
   </p><p>
    With an income of INR 20,00,000, Mr Z falls above the INR 15 LPA category. So, let’s look at his net taxable income under the old and new regimes.
   </p><p>
    As the new tax regime does not offer many exemptions, people save a lot of tax with the old regime.
   </p><p>
    Now that you know
    <strong>
     how to calculate income tax on salary
    </strong>
    , just in your values and calculate.
   </p><h2>
    Summing Up
   </h2><p>
    Manage your money better at Fi Money with its new and smart Fi Analyser. Keep track of your spending over time and understand strategies to maximise savings. Get more money management insights with Fi Money.
   </p><h2>
    Frequently Asked Questions
   </h2><h3>
    1. Is tax calculated on gross or net salary?
   </h3><p>
    Tax deductions are always calculated on one’s gross salary.
   </p><h3>
    2. Who can use this income tax calculator?
   </h3><p>
    Any earning adult with a salary eligible to pay taxes for the financial year can use an income tax calculator.
   </p>

How to Calculate Income Tax on Salary with Example| Fi Money

Fi.money