How to Calculate Income Tax for FY 2012-13

May 08, 2012 Tuesday

A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences. With continuous increase in prices of various commodities, it is essential for an individual to act prudently by having a good financial planning which can balance the increase in prices. Saving on taxes is one method which yields good results in having an efficient financial plan.

It is very common today that many people are very keen to know the tax amount they need to pay on their income every month. Some show interest in how tax liability is actually calculated. Therefore, this article provides you complete insight into the various sections available to save taxes and how the tax liability is actually computed.

Let us start with the introduction of various sections available in Income Tax act which provides exemptions from income tax liability under some specific conditions. These sections are described below :

1. Section 80C :

Tax payers can avail an advantage of maximum limit up to Rs 1, 00, 000 by investing in securities which comes under this section along with section 80CCC and 80CCD. If a taxpayer’s taxable income lies in the highest tax bracket, he/she can take advantage of Section 80C to reduce his/her taxable income by Rs.1 lakh. The following is a list of important ways in which a taxpayer can get benefit of section 80C of Indian Income Tax Act :

Public Provident Fund
Employee Provident Fund
Life Insurance Premium
Unit Linked Insurance Plans(ULIP)
Equity Linked Savings Scheme(ELSS)
National Savings Certificate(NSC)
5 year Fixed deposits with banks and post office
Home loan principal payment
Tuition fee paid for children’s education (maximum of 2 children)

2. Section 80CCC :

Section 80CCC allows you to get a deduction in respect of premium paid for annuity plan of LIC or Other Insurer.

3. Section 80CCD :

Section 80CCD allows you a deduction in respect of contribution to pension account. Deposit made by a Central government servant in his pension account to the extent of 10% of his salary.

4. Section 80D :

Section 80D of Indian Income Tax Act is especially useful if the employer does not cover their employee’s health or medical expenses. One can avail a benefit of Rs. 15,000 for insuring self spouse and children. Medical insurance for parents above 65 years can avail a benefit up to Rs 20, 000.

5. Section 80DD :

Section 80DD of Indian Income Tax Act provides provision for tax deduction if taxpayer incurs medical expenditure for the dependents who are disabled. Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability.

6. Section 80DDB :

Costs incurred for treatment of specified illnesses like Neurological diseases, malignant cancers, Chronic Renal Failure etc, could fetch one a tax benefit under section 80DDB. For individual less than 60 years of age, a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.

7. Section 80E :

Under section 80E of Indian Income Tax Act, any amount of interest paid on educational loan taken for individual higher education or higher education of individual’s husband / wife or children is deductible from taxable income.

8. Section 80G :

Donations made to funds are deductible from taxable income according to section 80G of Indian Income Tax Act. The extent of deduction is either 50% or 100% of the contribution, depending on the charitable institution donated to. But one needs to know that donations made to not all charitable institutions qualify for a deduction. Here is a list of approved charitable institutions and funds that qualify for a deduction.

Donations with 100% deduction without any qualifying limit :

a. Prime Ministers National Relief Fund
b. National Defence Fund
c. Prime Ministers Armenia Earthquake Relief Fund
d. The Africa (Public contribution- India) Fund
e. The National Foundation for Communal Harmony
f. Approved university or educational institution of national eminence
g. The Chief Minister’s Earthquake Relief Fund, Maharashtra
h. Donations made to Zila Saksharta Samitis
i. The National Blood Transfusion Council or a State Blood Transfusion Council
j. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.

Donations with 50% deduction without any qualifying limit :

a. Jawaharlal Nehru Memorial Fund
b. Prime Minister’s Drought Relief Fund
c. National Children’s Fund
d. Indira Gandhi Memorial Trust
e. The Rajiv Gandhi Foundation

9. Section 80GG :

Any House Rent Allowance given to an employee is tax free up to the minimum value of the conditions like 50% of basic salary, rent paid over 10% of annual income, actual HRA received etc.

10. Section 80U :

It is deduction of amount in the case of a person with disability. An individual who is suffering from a permanent disability or mental retardation as specified in the Persons with Disabilities Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability the deduction is Rs. 1, 00,000.

11. Section 24(1)(vi) :

Individuals can avail a tax benefit of up to Rs. 1, 50, 000 for Housing loan interest according to this section.

12. Section 10(5) :

This section allows you to avail tax benefit on leave travel allowance which will be available twice in span of 4 years.

13. Superannuation :

Any contribution made by a company to a superannuation fund up to Rs. 1, 00,000 is tax free in the hands of the employee.

14. Medical allowance :

Any Medical Allowance given to an employee is tax free up to Rs. 15,000 /-

In the first part of the article, I have taken you through various sections available for saving on taxes. In the next part of this article, I will take you through procedure of how actually the tax liability is computed. Let us start with the brief introduction of different categories of people who are entitled for tax liability. According to Income Tax Act, Income Tax Payers (Individuals) are broadly classified into 4 different types :

1. Male citizens
2. Female citizens
3. Senior citizens ( 60 years-80 Years)
4. Very senior citizens ( Above 80 Years)

14.1. Male Citizens :

The following table shows the tax rates applicable for as per tax laws.

Annual Income	Tax Rates for FY 2011-2012
Up to 200000	Nil
200001 To 500000	10%
500001 To 1000000	20%
Above 1000000	30%

Example 1: Mr. Bala is 30 year old and earning Rs 9, 00,000 annually.
Calculation

Heads	% of Income Tax	Income Tax
Tax on income up to 200000	Nil	Nil
Tax on income between 200001-500000	10%	30000
Tax on income between 500001-900000	20%	80000
Total		110000
Educational cess	3% on Total tax	3300
Net Tax Payable		113300

In the above example, we can see that Mr. Bala has not used tax advantages of various sections available to him and ended up paying Rs. 1, 13, 300 as tax.

Example 2: Mr. Narasimha is 40 year old and earning Rs 9, 00,000 annually. He has bought ELSS funds for Rs. 30,000 and has also paid a LIC premium of Rs. 70,000 towards an insurance policy. He invested 20,000 for his mother’s medical expenditure. Now let us calculate the tax liability for Mr. Narasimha.

Calculation

Heads		Amount
Gross Total Income		900000
Less : Section 80C deductions 1) ELSS Funds 2) LIC Premium	30,000 70,000	100000
Less: Section 80D deductions	20, 000	20, 000
Total Taxable Income		7,80,000

Calculation of net tax payable by Mr. Narasimha is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 200000	Nil	Nil
Tax on income between 200001-500000	10%	30000
Tax on income between 500001-780000	20%	56000
Total Tax		86000
Educational cess	3% on Total tax	2580
Net Tax Payable		88580

From these examples we can see that even though Mr. Debal and Mr. Narasimha are getting same income, Mr. Narasimha have utilized the various tax advantages and reduced his tax liability by 24, 720 when compared to Mr. Debal.

2) Female Citizens: The table below shows the tax rates for female citizens as per tax laws.

Annual Income	Tax Rates for FY 2011-2012
Up to 200000	Nil
200001 To 500000	10%
500001 To 1000000	20%
Above 1000000	30%

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.

The following examples will help you to understand in detail.
Example 1: Ms. Veda is 40 year old and earning Rs 11, 00,000 annually. She invested Rs. 30,000 in provident Fund. She has fixed deposit of Rs.70, 000 for tenure of 6 years. She has spent Rs. 20, 000 for her son’s higher education loan. Let us calculate her tax liability.

Calculation

Heads		Amount
Gross Total Income		1100000
Less : Section 80C deductions 1. Provident Fund 2. Fixed Deposit	30,000 70,000	100000
Less: Section 80E deductions 1. Child Higher Education Loan	20,000	20,000
Total Taxable Income		9,80,000
Heads	% of Income Tax	Income Tax
Tax on income up to 200000	Nil	Nil
Tax on income between 200001-500000	10%	30000
Tax on income between 500001-980000	20%	96000
Total		126000
Educational cess	3% on Total tax	3780
Net Tax Payable		129780

We can observe that Ms. Veda has saved tax deductions on Rs 1, 20, 000 amount by investing in various sections available.
Example 2: Ragini is a salaried employee. Her annual income is Rs. 11, 00,000. Her home loan interest payment is Rs 80,000 and she also paid a LIC premium of Rs. 60,000. Let us calculate Ragini's tax liability

Calculation

Heads		Amount
Gross Total Income		1100000
Less : Section 80C deductions 1. Home Loan 2. LIC Premium	80,000 60,000	100000
Total Taxable Income		100000

In Ragini’s case, she has taken advantage of two options under the 80C deduction available to her, namely principal repayment of Rs. 80,000 on her home loan and an investment of Rs. 60,000 in LIC. However, these totals up to Rs. 140,000, and as shown above she can only take a deduction up to the statutory limit of Rs. 100,000.

Calculation of net tax payable by Ragini is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 200000	Nil	Nil
Tax on income between 200001-500000	10%	30000
Tax on income between 500001-1000000	20%	100000
Total Tax		130000
Educational cess	3% on Total tax	3900
Net Tax Payable		133900

Therefore by the above two examples, we can notice that even though Ms. Ragini has invested 20, 000 more than Ms. Veda, she ended up in paying more tax than Ms. Veda. This is because she has crossed her maximum limit under section 80C. Therefore it is better to invest in other available options when the specified limit has crossed.

3) Senior Citizens: The table below shows the tax rates for senior citizens as per tax laws.

Annual Income	Tax Rates for FY 2011-2012
Up to 250000	Nil
250001 To 500000	10%
500001 To 1000000	20%
Above 1000000	30%

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.
Example 1: Mr. Satish is 70 year old and earning Rs 8, 50,000 annually. His expenditure on his malignant cancer illness is 50,000. He has a house loan of Rs. 1, 00,000. He is getting a HRA of Rs. 10, 000. Let us calculate his tax liability.

Calculation

Heads		Amount
Gross Total Income		850000
Less : Section 80C deductions 1. Home Loan	100000	100000
Less: Section 80DDB deductions 1. Malignant cancer illness expenses	50000	50000
Total Taxable Income		700000

Calculation of net tax payable for Mr. Satish is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 250000	Nil	Nil
Tax on income between 250001-500000	10%	25000
Tax on income between 500001-700000	20%	40000
Total Tax		65000
Educational cess	3% on Total tax	1950
Net Tax Payable		66950

Here we can observe that even though Mr. Satish is getting a HRA allowance of Rs 10, 000; but he is not entitled for tax deduction under section 24 because he has already used the option of home loan under Section 80C.

Example 2: Ms. Kiranmai is 75 year old and earning Rs 15, 00,000 annually. She has bought ELSS funds for Rs. 20,000 and has also paid a LIC premium of Rs. 60,000 towards an insurance policy. She has spent Rs 50,000 on medical treatment for her disabled husband. Let us calculate her tax liability.

Calculation

Heads		Amount
Gross Total Income		1500000
Less : Section 80C deductions 1. ELSS Funds 2. LIC Premium	20,000 60,000	80000
Less : Section 80DD deductions	50,000	50000
Total Taxable Income		1370000

Calculation of net tax payable by Ms. Kiranmai is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 250000	Nil	Nil
Tax on income between 250001-500000	10%	25000
Tax on income between 500001-1000000	20%	100000
Tax on income between 1000001-1370000	30%	111000
Total Tax		236000
Educational cess	3% on Total tax	7080
Net Tax Payable		243080

4. Very senior citizens: The table below shows the tax rates very senior citizens as per applicable tax laws.

Annual Income	Tax Rates for FY 2011-2012
Up to 500000	Nil
500001 To 1000000	20%
Above 1000000	30%

*Note: No surcharge on income tax is now applicable. However, Education cess and higher education cess is leviable @ 2% and 1% respectively on the tax amount.
Example 1: Mr. Lalu is 90 year old and earning Rs 13, 50,000 annually. He has bought ELSS funds for Rs. 40,000 and has also paid a LIC premium of Rs. 60,000 towards an insurance policy. He has donated Rs. 20,000 towards charity. Let us calculate his tax liability.

Calculation

Heads		Amount
Gross Total Income		1350000
Less : Section 80C deductions 1. ELSS Funds 2. LIC Premium	40,000 60,000	100000
Less: Section 80G 1. Donation towards charity.	20,000	20000
Total Taxable Income		1230000

Calculation of net tax payable by Mr. Lalu is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 500000	Nil	Nil
Tax on income between 500001-1000000	20%	100000
Tax on income between 1000001-1230000	30%	69000
Total Tax		169000
Educational cess	3% on Total tax	5070
Net Tax Payable		174070

Example 2: Ms. Jaya is 85 year old and earning Rs 8, 00,000 annually. She paid a LIC premium of Rs. 60,000 towards an insurance policy. She got a superannuation amount of Rs. 1, 00, 000. Let us calculate her tax liability.

Calculation

Heads		Amount
Gross Total Income		800000
Less : Section 80C deductions 1. LIC Premium	60,000	60000
Less : Superannuation amount	1,00,000	100000
Total Taxable Income		640000

Calculation of net tax payable by Ms.Jaya is shown below

Heads	% of Income Tax	Income Tax
Tax on income up to 500000	Nil	Nil
Tax on income between 500001-640000	20%	28000
Total Tax		28000
Educational cess	3% on Total tax	840
Net Tax Payable		28840

I hope that this article is useful for people to understand the various methods available to save on tax and how the calculation of tax liability is done for different sections of people. Now implementing a good financial plan for an individual is not going to be a big task.

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Comments

"Good article. I got useful information. |Thnaks"

- Dr Arun Kumar, 23rd May 2012, Wednesday

"SR. ACCOUNTS EXECUTIVE"

- SUNIL KHER, 28th May 2012, Monday

"how to avail maximum exemption"

- B M JAIN, 5th June 2012, Tuesday

"good Article, very use full to employees,"

- Y. Srinivasa Rao, 9th June 2012, Saturday

"good Article, very use full to employees,"

- Y. Srinivasa Rao, 9th June 2012, Saturday

"for 2012-`13 nothgismentioned"

- kkrangasrajan, 5th July 2012, Thursday

"Thanks for good advice.But needs some information regarding infra structure bond and other like this investments."

- Dr. Kumar Dayanand Paswan, 8th July 2012, Sunday

"kindly all rules n regulations for tax calc with rebate.? Also p[rovide me to save IT deduction. regards "

- ashish paandey, 10th July 2012, Tuesday

"kindly all rules n regulations for tax calc with rebate.? Also p[rovide me to save IT deduction. regards "

- ashish paandey, 10th July 2012, Tuesday

"please let me know how to calculate tax on my income ,as various deductions are there in my salory sleep are there like LTA, uniformm allowance,the HRA is not shown in the salory sleep but its in my CTC. please call me back or reply i want to understand"

- sachin, 11th July 2012, Wednesday

"For the Financial year 2012-13 and Assessment year 2013-14 what is the maxm amount of saving and and upto what amount Income Tax will not be deducted and what is the slab for deduction of Income Tax."

- SYED MD MOBIN UDDIN, 3rd August 2012, Friday

"sir my net income is 280000 . what amount i have to pay tax"

- priya ranjan, 3rd November 2012, Saturday

"pls. send me about 234A, 234B & 234C"

- Ashoke Kumar Saha, 4th November 2012, Sunday

"usefull, very easy way of learning about income tax "

- REVA KUMAR, 19th January 2013, Saturday

"Thanks"

- Nishant, 21st January 2013, Monday

"Very useful.The example is very easy to understand to every person those who want to calculate their own income.Thanks"

- Dr.Bhalhcandra Deshmukh, 24th January 2013, Thursday

"i want to calculate income tax 2012-13"

- P.Uma, 5th February 2013, Tuesday

"hi i want more information of income tax and tds please help me..."

- ramdas.v, 27th February 2013, Wednesday

"It was very simple to understand & excelent"

- Nayana, 1st March 2013, Friday

"Why nothing has been mentioned about Standard deduction in your examples. What is it, and where it applies?"

- Mariappan, 6th March 2013, Wednesday

"If an employee have other source of regular income , how should she/he pay tax should he inform her/his employer and ask him to deduct TDS or he can pay directly to tax department. If it is informed to employer then in 26AS form it shows that income is earned/paid by employer TDS is deucted for the same. In addition to that employer ask to give all detail for fin.year by 1st week of Feb."

- Brijesh kumar Negi, 15th March 2013, Friday

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How to Calculate Income Tax for FY 2012-13

1. Section 80C :

2. Section 80CCC :

3. Section 80CCD :

4. Section 80D :

5. Section 80DD :

6. Section 80DDB :

7. Section 80E :

8. Section 80G :

Donations with 100% deduction without any qualifying limit :

Donations with 50% deduction without any qualifying limit :

9. Section 80GG :

10. Section 80U :

11. Section 24(1)(vi) :

12. Section 10(5) :

13. Superannuation :

14. Medical allowance :

14.1. Male Citizens :

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