Income Tax Computation
A tax refund is a rebate on taxes, when the tax liability is less than the taxes paid for the given financial year. In such cases, taxpayers can get a tax refund on their income tax. If the taxes you owe is less than the total amount of TDS (tax deducted at source) collected or the estimated taxes that you have paid, then you are eligible for a refund.
There are many instances wherein an individual taxpayer affirms more tax amount at the start of the financial year than the authentic liable amount. Mostly this could be because of an investment decision made mid-year or at later or due to investments that you have not declared as a valid tax exemption. In these cases, the taxpayer can claim for a tax refund by filing Form 16 and get back the excess tax paid.
In this article, we will see how income tax is calculated using the Income tax Calculator using an example and what is the various tax saving investments that will qualify for tax refund.
Income Tax Calculator
How much income tax do I need to pay? The income tax calculator is calculated on the basis of the following tax slabs
Income tax rates for individuals under 60 years for FY 2016-2017:
| Slab | Tax Rate |
| Up to Rs.2,50,000 | No tax |
| Rs.2,50,000 to Rs.5,00,000 | 10% |
| Rs.5,00,000 to Rs.10,00,000 | 20% |
| Rs.10,00,000 and above | 30% |
For FY 2017-2018, the tax rate for income tax slab of Rs.2,50,000 to Rs.5,00,000 is reduced to 5%.
How to Calculate Income Tax Using Example
Income from salary is divided into several components such as basic salary, HRA (House Rent Allowance), Transport allowance, LTA and other allowances. Certain components of the salary are exempt from tax like HRA, transport allowance, medical reimbursements.
Let us apply the income tax calculator to an example. Mr. A receives a basic salary of Rs.50,000 per month, HRA of Rs.20,000 per month, transport allowance of Rs.8,000 and special allowance of Rs.5,000 per month. He also gets an LTA of Rs.20,000 annually. He pays a house rent of Rs.20,000 per month.
| Salary Component | Amount (Annual) | Tax Exemption | Taxable Income |
| Basic Salary | 6,00,000 | None | 6,00,000 |
| HRA | 2,40,000 | 1,80,000 | 60,000 |
| Transport Allowance | 96,000 | 19,200 | 76,8000 |
| Special Allowance | 60,000 | None | 60,000 |
| LTA | 20,000 | Bills submitted for 15,000 | 5,000 |
| Medical Bills | 15,000 | Bills submitted for 15,000 | _ |
| Gross Income from Salary | 8,93,000 |
In order to further calculate income tax, income from all other sources need to be added. These can include
- income from house property – rental income
- income for capital gains – sale purchase of shares or house
- income from business
- income from fixed deposit, savings account – interest accrued from FDS, bonds and more
In the above example, Mr A has the following income from other sources
| Savings Bank Account Interest | 8,000 |
| FD Interest | 10,000 |
| Capital Gains | 20,000 |
| Total | 38,000 |
| Total Income Including All Sources- Gross Total Income | 9,31,000 |
Mr. A has also made some tax saving investments that qualify as an exemption. The following are his eligible tax deductions
| Section | Maximum Tax Deduction | Investments made | Amount Claimed by Mr. A |
| Section 80C | Rs.1,50,000 | PPF Deposit of 50,000 + NSC Certificate 20,000+ Employee Provident Fund deducted as his contribution 72,000 | Rs.1,50,000 |
| Section 80D | Rs.25,000 for under 60 years and Rs.30,000 for senior citizens above 60 years | Medical Insurance Premium of Rs.12,000 | Rs.12,000 |
| Section 80TTA | Rs.10,000 | Savings Bank Interest Accrued of Rs.8,400 | Rs.8,400 |
| Total Deductions | 1,70,4000 |
So final taxable income becomes the gross total income minus the total tax deductions. So 9,31,000 – 1,70,400 = 7,60,600
Income Tax Calculator for Mr. A
| Slab | Tax Rate | Amount |
| Up to Rs.2,50,000 | No tax | 0 |
| Rs.2,50,000 to Rs.5,00,000 | 10% – 10% of maximum 5,00,000 minus 2,50,000 | 25,000 |
| Rs.5,00,000 to Rs.10,00,000 | 20% – 20% of 7,60,600 minus 5,00,000 | 52,120 |
| Rs.10,00,000 and above | 30% | Nil |
| Cess | 3% of total tax | 2313.60 |
| Total Income Tax | Rs.79,433.60 |
Mr.A would be liable to pay for Rs.70,433.60 as income tax as computed. If the TDS deducted by his employer is greater than this amount , then he can file for a tax refund.
If you have not declared your tax saving investments at the beginning of the financial year or end up making any investments during the course of the year, then you can file for a tax refund and get a tax rebate.
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