What Is An Income Tax Calculator, And How To Calculate It?

An Income Tax Calculator is an online utility tool designed to assess the estimated income tax liability of a taxpayer for a financial year. Individuals need to enter the correct net income information from different sources, following exemptions and deductions.

Steps to calculate Income Tax using the calculator for AY 2023-24

The income tax calculator is available on the website of the Government Income tax Department. In addition, various reputed financial institutions have also designed income tax calculators and have uploaded the same on their websites for the convenience of the taxpayers. The computation of income tax can be made using a few simple steps, which are:

Step 1: Select the current financial year for which the tax is computed.

Step 2: Select the nature of a taxpayer – Individual, Hindu Undivided Family, BOI/AOP, Domestic company, Foreign company, firms, LLP and Co-operative society.

Step 3: Choose the gender. If in case, a taxpayer is a senior citizen, then it is suggested to select accordingly.

Step 4: Enter an appropriate residential status – Resident, Non-resident or Not-Ordinary Resident

Step 5: In this step, provide the exact taxable salary amount which is obtained after deducting exemptions which are HRA, LTA and DA, and any other allowances or reimbursement as mentioned in Form 16 of the pay slips.

Taxpayers generating income from different means like income from house property, capital gains, profits and gains from business or professions and income from other sources will compute and enter the amount accordingly. In case of any earnings from Digital Assets, provide net income details, computed as cost of acquisition deducted from sale consideration.

Step 6: In this step, enter the values of the taxable income, which includes short-term capital gains, long-term capital gains, prizes won from a lottery, etc.

Step 7: Enter surcharge amount and deductions wherever necessary under various sections.

These steps involve the simplest approach of errorless computation of income tax using a calculator. This income tax calculator is mostly used by salaried individuals while applying for home loans to assess the tax benefit on the EMIs payable. In addition to this, while applying for home loans, individuals must consider the pre-approved offers provided by recognised financial institutions. To check the pre-approved offers, individuals must enter their names and essential contact information.

Rate of Income Taxes

Individuals looking for manual ways of computation of income tax other than using an income tax calculator must understand various rates of taxes available under the Income Tax Act, 1961.

• An individual is exempted from paying tax if their income is up to Rs.2,50,000.
• The liability to pay taxes is 5% when the income falls within Rs.2,50,000 to Rs.5,00,000
• Rate of tax is 10% if income bracket falls within Rs.5,00,000 to Rs.7,50,000
• Rate of tax is 15% if income bracket falls within Rs.7,50,000 to Rs.10,00,000
• Taxpayers are liable for 20% rate of tax if income is within Rs.10,00,000 to Rs.12,50,000.
• Rate of tax is 25% when an individual’s income falls from Rs.12,50,000 to Rs.15,00,000
• With an income of more than Rs.15,00,000, the rate of tax applicable is 30%

Surcharges applicable under the new tax structure

Under the revised tax structure of the Income Tax Act, the rate of surcharges is levied or added if the income of the taxpayer exceeds the following limits:

• Income falling within a range of Rs.50 lakh to Rs.1 crore, the surcharge applied is 10%
• Assessee with income falling within a range of Rs.1 crore to Rs.2 crore, surcharge applicable is 15%
• When income ranges between Rs.2 crore to Rs.5 crore, the surcharge rate applicable is 25%
• Lastly, assessees with income between Rs.5 crore to Rs.10 crore and beyond will be levied at 37% of surcharges.

Exemptions and deductions allowed under the Income Tax Act

As per the new tax regime, individuals and HUF will apply for some exemptions and deductions needed to the income tax calculator. These are discussed below:

• Individuals can apply for exemptions for travelling allowances, only falling under the specially-abled people group.
• A tax exemption is available on conveyance allowances which are incurred with the salary to meet the requirements of conveyance expenditure.
• Compensations allowed for adjusting any travelling cost on tour or transfer.
• Under Section 80CCD, a deduction is available for the employer’s contribution to the NPS account.
• Under section 80JJA, a deduction is also available for any additional employee cost.
• In addition to this, an exemption is allowed on daily allowances received for regular charges under a certain clause.

A salaried and self-employed taxpayer can select a new tax regime for the current financial year. However, to follow the calculations as per new rates, they have to apply for the same at the beginning of that financial year. The only difference is a self-employed person will not have the provisions to switch between the new and existing tax structure like the salaried individuals.

To conclude, the computation of income tax liability using the income tax calculator requires a basic understanding of various components of tax. This will help generate a correct result of estimated tax liability for the individuals and prepare them for advanced tax planning.