Calculating Indian Income Tax of an Individual - A Brief Review

 

For the Financial year 2015-16, Indian Finance Minister, Mr. Arun Jaitley has announced that an individual can claim exemption from income tax up to Rs 4,44,200.

The above line would mean nothing to majority of people in India. As most of them don’t know how Indian Income Tax works. Here we will explain how income tax is calculated for an individual in a most simple and easy way.

Let us understand what Income is- The Indian Income Tax Act, 1962 has segregated Income of an individual into different categories namely:-

·         Income from salaries

·         Income from house property

·         Profits and gains of business or profession

·         Capital gains

·         Income from other sources

·         Agricultural Income

A point to be noted here is that agricultural income is not subject to tax. Agricultural income includes income earned from

Ø  Rent received or derived from land situated in India used for agricultural purposes.

Ø  Income derived from the usage of land by agriculture operations including sale of agricultural produce.

The sum total of all the income from above mentioned categories except Agricultural Income will ascertain Gross Total Income of the individual.

There are certain deductions allowed by the Government under Sections80 C, Section 80 D to the tax payer. You can check all the types of deductions here.

After discounting permissible deductions from the Gross Total Income, we get our Taxable Income. Taxable Income are taxed as per tax slabs which remain unchanged from the year 2014-15

Tax slabs for the financial year 2015-16

For Individuals below the age of 60

Income Tax Slabs	Income Tax Rates
Where Total Income is less than Rs. 2,50,000	NIL
Where the Total Income is more than Rs. 2,50,000 but doesn’t exceed Rs. 5,00,000	10% of the Amount by which it exceeds Rs. 2,50,000
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

For Senior Citizens above 60 years to 80 years of Age

Income Tax Slabs	Income Tax Rates
Where Total Income doesn’t exceed Rs. 3,00,000	NIL
Where the Total Income is more than Rs. 3,00,000 but doesn’t exceed Rs. 5,00,000	10% of the Amount by which it exceeds Rs. 3,00,000
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

For all Senior Citizens above 80 Years of Age

Income Tax Slabs	Income Tax Rates
Where Total Income doesn’t exceed Rs. 5,00,000	NIL
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

Your taxable amount will be taxable as per the rates in which you fall. Say if you are under 60 years of age and your Taxable Income is 600,000, your tax amount would be 20% of (600,000-500,000) which is Rs 20,000/

Education Cess @ 2% and SHEC @ 1% is levied on the tax calculated using the Income Tax rates mentioned above. In other terms you can say it as tax on tax.

So in the above example, your total tax payment would be Rs.20,000 plus 2% Education Cess on Rs.20,000 plus 1% SHEC (Secondary and higher education cess) on Rs.20,000 which would be Rs.20,600.