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Tuesday, July 4, 2017

How to Calculate Income Tax on Salary Under The Income Tax Act 1961 ?

What is Gross Salary?

Basic Pay 

+ House Rent Allowance (HRA)

+ Dearness Allowance (DA)

+ Transport Allowance (TA)

+ Special Allowance 

+ other Allowance 

+ Leave Encashment

+ Gratuity Received

= Gross Salary

What are the Deductions from Salaried Income?

You can claim deductions from your salaried income under the following heads:

HRA Exemption based on the below three:

- the actual amount of HRA

- 50% of your basic pay (employees living in metro cities) or 40% (employees living in non-metro cities)

- Additional rent paid above 10% of salary

LTA Exemption

The LTA exemption is given to a certain extent of the LTA paid by the employer to the employee for his vacation in India. An employee has to submit bills in order to claim LTA.

Exemption on Encashment of Leaves

Encashing the unavailed leaves is exempted from income tax and hence can be claimed under exemptions.

Income Tax Deductions from Section 80C to 80U

There are various investment instruments like PPF, Life Insurance, Tuition Fees paid (upto two children), fixed deposit, etc which are exempted from Income Tax.

Interest on Home Loan

If you have a home loan running, then you can claim tax exemption upto an extent from the amount you have paid as interest on home loan.

Professional Tax

Professional Tax is allowed as a deduction from your gross salaried income.

Entertainment Allowance

Any income received under this head is exempted from income tax.

How Income Tax on Salary is Calculated?

The Total Taxable Income from Salary is calculated after all applicable deductions stated above are adjusted from the total income (gross salary + income from other sources). And then the income tax is calculated according to the slab your taxable income falls

Income tax slab rates for the financial year 2016-17 (assessment year 2017-18)

1. Normal tax rates applicable to a resident individual below the age of 60 years, non-resident individual, resident/non-resident HUF, AOP, BOI, artificial juridical person. 

2. Normal tax rates applicable to a resident individual of the age of 60 years or above at any time during the year but below the age of 80 year 

3. Normal tax rates applicable to a resident individual of the age of 80 years or above at any time during the year 

Proposed income-tax slabs for FY 2017-2018 (assessment year 2018-19) announced in Budget 2017 


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