Do you not know how much income tax you have to pay? There are others around you. Regardless of your job status—salaried, self-employed, or pensioner—understanding the tax calculation on taxable income helps you make better plans and prevent unpleasant surprises when you file.
Now let’s take a more direct look at it.
What Is Taxable Income?
Your taxable income is the sum left over after subtracting all exemptions and deductions from your total income. This amount is used to calculate your income tax.
Techniques for Tax Calculation on Taxable Income
Step 1: Calculate Your Total Income
Total up all of your sources of income:
- Salary or pension
- Revenue from a company or occupation
- Property (rent, house loan benefits)
- Capital gains (gold, real estate, shares)
- Extra income (interest on FDs, savings accounts, etc.)
Step 2: Subtracted Deductions
Utilize the deductions available under various sections:
- Up to ₹1.5 lakh under Section 80C (tuition fees, PPF, LIC, ELSS, etc.)
- Section 80D: Health Insurance Premiums
- Section 24(b): Up to ₹2 lakh in interest on house loans
- Section 80G: Donations to Charities
- For both salaried people and seniors, the standard deduction is ₹50,000.
- HRA, LTA, etc., if applicable
In Step Three, Determine Your Taxable Income
Now subtract every deduction from the total income.
Taxable income is equal to total income less deductions.
In Step Four, Apply Tax Slabs (Old Regime – FY 2024–25)
Income Range | Tax Rate:
- 0% to ₹2.5 lakh
- Between ₹2.5 and ₹5 lakh, 5%
- ₹5 lakh to ₹10 lakh, 20%
- Above ₹10 lakh, 30%
Income up to ₹5 lakh is eligible for a tax-free refund under Section 87A.
Step 5: Add Cess
Once the entire tax has been determined, add the 4% health and education cess.
An Example of Tax Calculation
- Total revenue: ₹9,000,000
- ₹2,000,000 in deductions (standard deduction, 80C, and 80D)
- ₹7,000,000 is the amount of income subject to taxes.
Now apply slabs:
- At first, ₹2.5 lakh is equal to 0.
- Next, calculate 5% of ₹2.5L = ₹12,500 = ₹2.5 lakh (₹2.5L–₹5L).
- The remaining sum is ₹2 lakh (₹5L–₹7L) = 20% of ₹2L = ₹40,000.
- The entire tax amount is ₹52,000.
- 4% cess, or ₹2,100
- ₹54,600 is the total amount of tax owed.
Tips for Easy Tax Calculation
- Use income tax calculators that are available online.
- Keep all of your evidence of investment handy.
- Choose either the Old Regime or the New Regime based on deductions.
- Return items on time to avoid penalties.
- Make a claim if any advance tax or TDS has been paid.
To Sum Up
Understanding the tax calculation on taxable income is the key to prudent financial planning. Knowing how to calculate your taxes step-by-step can help you keep financial control and avoid mistakes. Make proper files, take use of your exemptions, and legally lower your taxes.
