Now that you know what income tax is and the various heads of income, the next step is to calculate your income tax.
Income tax is calculated on your total income. There are tax slabs, which are fixed by the Finance Ministry. These slabs might change, and such changes are communicated in the Union Budget every year. Currently, for the Assessment Year 2017-18, the tax slabs applicable for individuals and HUFs are as follows:
Income level Income Tax | Tax rate |
| If your income is up to INR 2.5 lakhs | Nil |
| If your income is INR 2.5 lakhs to INR 5 lakhs | 5% of the income exceeding INR 2.5 lakhs |
| If your income is INR 5 lakhs to INR 10 lakhs | 5% of INR 2.5 lakhs + 20% of the income exceeding INR 5 lakhs |
| If your income is INR 10 lakhs and above | 5% of INR 2.5 lakhs + 20% of INR 5 lakhs + 30% of the income exceeding INR 10 lakhs |
If you are a senior citizen aged 60 years and above, your tax slab would be:
| Income level | Tax rate |
| If your income is up to INR 3 lakhs | Nil |
| If your income is INR 3 lakhs to INR 5 lakhs | 10% of the income exceeding INR 3 lakhs |
| If your income is INR 5 lakhs to INR 10 lakhs | 10% of INR 2 lakhs + 20% of the income exceeding INR 5 lakhs |
| If your income is INR 10 lakhs and above | 10% of INR 2 lakhs + 20% of INR 5 lakhs + 30% of the income exceeding INR 10 lakhs |
You can claim a rebate of INR 5,000 on your tax liability under the provisions of Section 87A if your annual income is up to INR 5 lakhs. However, if your income is more than INR 1 crore, a 15% surcharge would be applicable in addition to your tax liability. There is also an education cess of 2% and a higher education cess of 1% on your tax liability, including surcharge (if any).
Now let us proceed to the calculation of income tax. In simple terms, calculation of income tax is aggregating your income from all applicable heads and computing your tax liability. However, there are tax exemptions and tax deductions available which can be deducted from your taxable income to lower your tax liability. Income from salary is the main head wherein you find many exemptions. So, let’s understand the deductions and exemptions available under this head before calculating your tax liability.
Income from salary
Under this head, your basic salary, Dearness allowance (DA), House Rent Allowance (HRA), transport allowance and any other allowance are considered as an income. From this gross income, you can claim the following exemptions:
- HRA: For HRA, you get an exemption for the lowest of the following amounts:
- Actual HRA received
- 10% of basic salary (rent paid)
- 40% of basic salary
The lowest of the three is allowed as tax exemption from your HRA (use HRA calculator here).
- Transport allowance: INR 1,600 per month or INR 19, 200 per annum is allowed as tax-free transport allowance. You can, therefore, deduct this amount from your taxable salary (use transport calculator here).
- Leave Travel Allowance (LTA): You can claim LTA exemption if you submit the bills of travel.
- Medical allowance: Medical allowance up to INR 15, 000 is allowed if supported by bills.
So, you can compute your salary after deducting exempted parts of allowances.
Income from house property
You can claim exemptions under Chapter VIA of the Income Tax Act under different sub-sections of Section 80 for your income from house property. These exemptions and deductions are discussed later in the series.
To calculate your income tax, the process is as follows:
| Income from salary | XXX | |
| Less: Exemptions | (XX) | |
| Taxable income from salary (A) | XXX | |
| Income from House Property | XXX | |
| Less: Exemptions | (XX) | |
| Taxable income from house property (B) | XXX | |
| Income from capital gains (C ) | XXX | |
| Income from business or profession (D) | XXX | |
| Income from other sources (E) | XXX | |
| Gross Total income (A+B+C+D+E) = (F) | XXX | |
| Allowable deductions under Section 80 (G) | (XXX) | |
| Gross Taxable Income (F-G) | XXX |
The tax slabs are then applied on the gross taxable income to calculate your tax liability. Rebate or surcharge is applicable, and the two different types of cess are levied to calculate your total tax outgo.
So, this is how income tax is calculated. You can also use the Government’s tax calculator to calculate your taxes if you find doing them yourselves difficult. Use Income tax calculator here.