• 25 JAN 2018

    How to calculate Income Tax as per your Tax Slab

    ‘Today it takes more brains and effort to make out the income tax than it takes to make out income.’

    Here’s an attempt to simplify the computation of tax and its various aspects. Income tax is the most influential tax and one which has significant impact on pockets of Indian citizens. This oldest imposed direct tax has an equitable approach for both self employed and salaried class employee, but a progressive approach in terms of income. In this pre budget season the question which hits every taxpayer mind is how to minimize its tax liability. But for this it is significant to know how to compute tax liability, which is computed on gross total income.

    Gross total income is the sum of heads of income which are majorly the broad sources of income i.e.

    • Income under the head salary
    • Income under the head business/profession
    • Income under the head house property (includes rental income)
    • Income under the head capital gains (gain on sale of capital asset in long and short term)
    • Income under the head other sources (includes interest income, gambling and lottery gains etc.)

    There are two major factors which effects the computation of tax liability of an individual - the residential status of an assesse and the age of a resident citizen.

    Residential Status

    There are various benefits available to a resident while computing tax liability for instance, rebate under section 87A is allowed only to resident individuals and computation of tax liability at concessional slab rates is allowed for resident senior citizen and very senior citizen. However, the entire income of a resident individual is taxable i.e. income accruing and arising both within and outside India is taxable.  Residential status of a person depends upon his stay in India i.e. a person is considered as non resident if

    • He stays in India for less than 182 days in an financial year , or
    • He stays in India for less than 60 days or less than 364 days in India in last 4 years proceeding previous year.

    A person who is not a non-resident is considered as resident.

    But residential status is for individual but companies are distinguished as domestic and foreign company depending upon their registered office and place of general meeting as per section 2(22A).

    Senior Citizens

    Another factor which affects computation of tax liability of an individual is the age which categorize resident citizens into 3 category i.e. individual, senior citizen (assesse who has attained age of 60 in the previous year but is below 80 years) or (person born on or after 1.4.1958) and very senior citizen (assesse who has attained age of 80 in the previous year) or (person born on or after 1.4.1938 but before 1.4.1958)

    Tax Slabs

    In India, individuals are taxed on slab rates on basis of their age and HUF are also taxed on slab rate on basis of age of the karta. Slabs are decided annually in union budget.

    Individual

    Senior Citizen

     

    Very Senior Citizen

     

    Slabs

    Rate

    Slab

    Rate

    Slab

    Rate

    Up to ₹ 2.5 lakhs

    Nil

    Up to₹ 3 lakhs

    Nil

    Up to ₹ 5 lakhs

    Nil

    Next ₹ 2.5 lakhs

    5%

    Next ₹ 2 lakhs

    5%

     

     

    Next  ₹5 lakhs

    20%

    Next ₹5 lakhs

    20%

    Next ₹ 5 lakhs

    20%

    Balance income

    30%

    Balance income

    30%

    Balance income

    30%

    Only normal income is taxable at slab rate which includes income under head salary, business/profession, house property, short term capital gains under section 112 and other sources income except casual income which includes gambling, lottery etc. which is taxable at rate of 30%. Deductions under section 80 C to 80U are also deducted from normal income.

    Capital gains are not taxed at slab rates instead long term capital gain under section 112 is taxed at 20% and short term capital gains under section 111A is taxed at 15% where as long term capital gains under section 10(38) is exempt from income tax.

    Surcharge

    Surcharge, as the name suggests it is additional charge or payment, thus surcharge is paid on the tax liability computed. There is provision of marginal relief also available. The rates of surcharge of various assesse are:

    Applicant

    Rate Applicable

    Individual

    (applicable for : whose total income exceeds ₹100 lakhs)

    15%

    Partnership firm

    (applicable for : whose total income exceeds ₹100 lakhs)

    12%

     

    Hindu undivided firm (HUF)

    15%

    Domestic company

    (applicable for : whose total income exceeds ₹ 1 crores to ₹10 crores )

    7%

    Domestic company

    ( applicable for : whose total income exceeds ₹10 crores)

    12%

    Foreign company

    ( applicable for : total income exceeds ₹1 crores to ₹10 crores )

    2%

    Foreign company

    ( applicable for : total income exceeds ₹10 crores)

    5%

     

    Computation of Net Total Income

    Gross total income                                           -------

    Less: deductions u/s 80C to 80U                       (-------)

    Net total income                                              --------

    Computation Of Tax Liability                                                                                                                                         

    Tax liability                                                     ----------

    (As per slabs for individual and HUF; domestic company at 30%;

    Foreign company at 40%)

    Add: surcharge                                               ----------

    Net total income after surcharge                      ----------

    Less: Rebate (only if total income <=₹5; but maximum ₹5000)                                                                        

    Add: Primary education cess @2%        ----------

    Add: Secondary education cess @1%               ----------

    Total tax liability                                             ----------

    Explanation

    For instance,

    • An individual aged below age 60 in AY 2018-19 and has net total income ₹ 27 lakhs, then first ₹2.5 lakhs will be exempt next ₹2.5 lakhs is taxable at 10%, next ₹5 lakhs at 20% and remaining ₹17 lakhs at 30%

                   Tax liability at slab rate

                   First ₹2.5 lakhs                              -

                   Next ₹2.5lakhs @10%               ₹25,000

                   Next ₹5 lakhs @ 20%                 ₹1,00,000

                   Balance ₹17 lakhs @ 30%         ₹5,10,000

                   Total tax before cess                  ₹6,35,000

                    Add: cess @3%                            ₹19,050

                    Total tax liability                         ₹6,54,050

    • An individual aged above age 80 in AY 2028-19 and has net total income ₹ 27 lakhs,

    Tax liability at slab rate

    First ₹5 lakhs                                    -

    Next ₹5 lakhs @ 20%                    ₹1,00,000

    Next ₹ 17 lakhs @ 30%                 ₹5,10,000

    Total tax before cess                     ₹6,10,000

    Add: cess@ 3%                              ₹18,300

    Total tax liability                           ₹6,28,300   

    Computation of effective Tax Rates

    For all assesse with net total income more than ₹1crores

    Applicants

    Tax Rate

    Surcharge

     (in %)

    Education cess

    (primary education cess+ secondary education cess)(in %)

    Effective rate of tax

    ( in %)

    Partnership firm

    30

    12

    3

    34.608

    Domestic company

    30

    7

    3

    33.063

    Foreign company

    40

    2

    3

    42.024

     

    For assesse with net total income more than 10 crores

    Applicants

    Tax rate for normal income

    (in %)

    Surcharge

     (in %)

    Education cess

    (primary education cess+ secondary education cess)(in %)

    Effective rate of tax

    ( in %)

    Partnership firm

    30

    12

    3

    34.608

    Domestic company

    30

    12

    3

    34.608

    Foreign company

    40

    5

    3

    43.26

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    The most recommended ULIP to strengthen your financial portfolio

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