Income Tax Act 1961 is a statute that lays the basis of tax payments in India. The Act provides absolute guideline for determination of taxability in India. As per the Act, all people and artificial entities residing in India, be it individual, proprietary firm, a partnership firm or a company, is subject to abide by the Income Tax Act and need to pay tax and submit an annual Income Tax return, if their income exceeds the amount of income subject to tax.
Income Tax Act specifies the amount of income that is exempted from tax and also the rates of taxes applicable on various salary segments for each Financial Year or Previous Year. Financial Year (FY) or Previous Year (PY) is the year in which income is earned. It is a period of 12 months, beginning from April 1 and ending on March 31. Assessment Year (AY) is the year is which the Income Tax Return is filed for the PY. Thus, for FY 2024-25, the assessment year would be 2025-26.
Table of Contents :
- Income Tax Calculation
- Who is liable to pay tax in India
- How to Compute the Gross Taxable Income
- What all incomes do not form part of the Gross Taxable Income
- What are the permissible deductions from the Gross Taxable Income
- What are the exempt limits and rates of taxes applicable on the net taxable income
- Frequently Asked Questions
Income Tax Calculation
To calculate the amount of tax the tax payer has to pay, he/she needs to understand the following things:
- Who is liable to pay tax in India?
- How to compute the Gross Taxable Income?
- What all incomes do not form part of the Gross Taxable Income?
- What are the permissible deductions from the Gross Taxable Income?
- What are the exempt limits and rates of taxes applicable on the net taxable Income?
Who is Liable to Pay Tax in India
All resident Indians, be it individuals or group of individuals or an artificial body, is liable to pay taxes in India. Thus, following categories are liable to pay tax
- Individuals
- Body of Individuals or Firms
- Hindu Undivided Family (HUF)
- Association of People
- Companies (irrespective of whether registered under the Companies Act)
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How to Compute the Gross Taxable Income
Any income received, accrued or deemed, to be received or accrued by a resident Indian, whether in India or abroad, during the previous year, is subject to tax in India. Also, non-residents who received, accrued or deemed, to be received or accrue income in India are subject to tax as per the Income Tax Act. The income earned is classified under the following heads as per the Income Tax Act:
- Income from Salary: Income under the head Salary includes any amount of salary due to the employee, whether paid or not. Section 17 of the Income Tax Act defines salary as ‘any amount received as salary, perquisite and profits in lieu of salary.
- Income from House Property: The annual value of property of which the assesse is owner is chargeable to tax under the head ‘House Property’. However, this does not include the self-occupied property. In case of other properties, the amount of actual rent received or might reasonably be expected to be received is charged to tax, subject to deductions under section 24. Section 24 allows the assesse to claim deductions to the extent of 30% of the annual value or rent received. Also, the amount of interest paid on the loan borrowed for the purchase of property is allowed as a deduction up to Rs. 2,00,000.
- Income from Profits and Gains of Business or Profession: As the name suggests, ‘Profits and Gains’ of any business or profession carried out by the assesse during the previous year is charged to tax under this head.
- Income on Capital Gains: Any profit derived from transfer or sale of any capital asset is chargeable to tax under the head ‘Income on Capital Gains’. Capital asset would include property, shares and securities, jewellery or any art of work. The income earned under this head is divided into Short Term Capital Gain and Long Term Capital Gain, based on the tenure for which the capital asset is held by the assesse.
Short Term Capital Gain is profit earned on sale of short term capital asset, which is held for not more than 36 months by the assesse. Long Term Capital Gain is profit earned on sale of long term capital asset, which is held for more than 36 months by the assesse. However, in case of certain assets like shares, the holding period for long term capital asset is reduced to 12 months.
- Income from other sources: Any income earned by the assesse and not chargeable to tax under any other head of income is charged to tax as ‘Income from Other Sources’. Thus, income from other sources would include but not limited to the following:
- Interest on fixed deposits or securities
- Dividend income
- Family pension, subject to a deduction of one third or Rs. 15,000/- whichever is lower.
The income earned is thus bifurcated amongst various heads of income. Gross total Income is arrived at by totaling the income earned under all the above heads of income.
Gross Total Income = Income from salary + Income from house property + Income from business/profession + Income from Capital Gains + Income from other sources.
What all Incomes do Not Form Part of the Gross Taxable Income
While we try to segregate income earned under various income heads, it is important to know which all income is not included in computation of gross total income and is not taxable as per the Income Tax Act.
Section 10 of the Income Tax Act has mentioned over 50 clauses specifying the type of incomes which is not included while computing the total income. Some of the income not forming part of gross total income is as follows:
- Agricultural Income
- Sum received by an individual as a member of HUF
- Share of profit of a partner in a partnership firm
- Any amount declared, distributed or paid by way of dividends
- Amount received from a Provident Fund Account or ‘Sukanya Samruddhi’ Account
- Any payment from the National Pension Scheme (NPS) Trust to an employee on closure of his account or on his opting out of the pension scheme, to the extent it does not exceed 40% of the total amount payable to him at the time of such closure or his opting out of the scheme
- Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government
- An amount received by an employee on his voluntary retirement or termination of his service, in accordance with any voluntary retirement scheme to the extent of Rs. 5 lakh
- Any gratuity received under Payment of Gratuity Act , to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act
- As per section 10(38), long term capital gain arising from transfer of equity shares or equity oriented mutual funds are exempt from tax.
Please read the above clauses in detail under Section 10 of the Income Tax Act.
Thus, we now know how to calculate the Gross Taxable Income under the Income Tax Act. Now we the try to understand the various deductions from the Gross Total Income.
What are the permissible deductions from the Gross Taxable Income
The Gross Total Income is subject to deductions post which we arrive at the Net Taxable Income. Chapter VI-A of the Income Tax Act provides deductions from the Gross Total Income under Section 80C to 80U of the Income Tax Act. Section 80A specifies that the amount of such deductions shall not exceed the amount of Gross Taxable Income of the assesse. Let us discuss some deductions applicable under Section 80C to 80U and are generally more relevant to the tax payers.
- Section 80C: This sections provides deduction in respect of any contribution made by the assesse towards the following :
- Payment of Life Insurance policies and Public Provident fund
- Payment towards repayment of principal portion of a housing loan
- Payment of tuition fees to school, college or any university
- Stamp duty or registration fees paid for the transfer of house property
- Amount of Fixed Deposit opened for a tenure of not less than five years with a scheduled bank or post office
- Any Investment in ELSS (Equity Linked Savings Scheme) of a Mutual Fund with a lock in of 3 years
The maximum amount of deduction that can be claimed under section 80C is capped at Rs. 1, 50,000/-.
- Section 80D: This section specifies deduction in respect of payments for premiums made under health insurance policies. The deduction is available to individuals and HUFs. The amount of deductions permissible is as follows:
- Amount paid towards health insurance policy of the assesse or his family capped at a maximum of Rs. 25,000/-
- Amount paid towards the health insurance policy of the assesse or his parents, being senior citizens, capped at Rs. 30,000/-. ‘Senior Citizen’ would mean an individual resident of India aged at 60 years and above anytime during the previous year.
- Section 80DD: Any expenditure incurred by an individual or HUF towards medical treatment or maintenance of a person with disability is allowed as a deduction to the extent of actual expenses but limited to Rs. 75,000/-
- Section 80DDB: Any amount of expenditure incurred for medical treatment of specified diseases for himself or a dependent is allowed as a deduction to the extent of actual amount paid but capped at Rs.40,000/-. The limit is enhanced to Rs. 80,000/- in case of senior citizens.
- Section 80G: This section provides for deductions towards contribution made to charitable institutions. The amount of deduction that can be claimed is 100% of the amount paid to certain funds specified under the Act (Prime Minister National Relief Fund or National Defense Fund etc.). In case of payment to other charitable institutions, 50% of the amount paid is allowed as a deduction.
Thus, by reducing the Gross Total Income and the deductions allowed under Chapter VI-A of the Income Tax Act, we arrive at the Net Taxable Income of the assesse.
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What are the exempt limits and rates of taxes applicable on the net taxable income
From the above Information, one can compute the Net Taxable Income of the assesse.
Gross Total Income – Permitted Deductions = Net Taxable Income
Income Tax Act provides the rates of taxes that are to be paid on the taxable Income. The rates and the brackets are subject to revision each year.
The Income Tax rates applicable for PY2024-25 (AY2025-26):
- Tax rate applicable to resident individuals below 60 years of age:
| Existing Tax Regime | New Tax Regime | ||
| Income Slab | Income Tax Rate | Income Slab | Income Tax Rate |
| Up to Rs. 2,50,000 | Nil | 0 – Rs. 3,00,000 | Nil |
| Rs. 2,50,001 – Rs. 5,00,000 | 5% above Rs. 2,50,000 | Rs. 3,00,000 – Rs. 6,00,000 | 5% |
| Rs. 5,00,001-Rs. 10,00,000 | Rs. 12,500 + 20% above Rs. 5,00,000 | Rs. 6,00,000 -Rs. 9,00,000 | 10% |
| Above Rs. 10,00,000 | Rs. 1,12,500 + 30% above Rs. 10,00,000 | Rs. 9,00,00 – Rs. 12,00,000 | 15% |
| Rs. 12,00,000 – Rs. 15,00,000 | 20% | ||
| Above Rs. 15,00,000 | 30% | ||
Thus, for an Individual assesse the amount of tax payable on Rs. 9,00,000/- would be calculated as follows:
| Income Value (Rs.) | Old Tax Regime | New Tax Regime (2023) | |||||
| Standard Deduction | Extra Deductions* | Net Taxable Income | Tax @ Old Slabs # | Standard Deduction | Net Taxable Income | Tax @ New Slabs # | |
| Rs.9,50,000 | Rs. 50,000 | Rs. 4,00,000 | Rs. 5,00,000 | Rs. 0 | Rs. 50,000 | Rs. 9,00,000 | Rs. 45,000 |
Note:
# Tax Calculations are without Surcharge and Cess
*Extra Deductions include:
HRA Exemption, Loss from House Property, Deductions Under Sec 80C, Deductions Under Sec 80D and Other Deductions
- In case of senior citizens (age 60 years and above but below 80 years), the tax rate applicable is as follows:
| Existing Tax Regime | New Tax Regime | ||
| Income Slab | Income Tax Rate | Income Slab | Income Tax Rate |
| Up to Rs. 3,00,000 | Nil | 0 – Rs. 3,00,000 | Nil |
| Rs. 3,00,001 – Rs. 5,00,000 | 5% above Rs. 3,00,000 | Rs. 3,00,000 – Rs. 6,00,000 | 5% |
| Rs. 5,00,001-Rs. 10,00,000 | Rs. 10,000 + 20% above Rs. 5,00,000 | Rs. 6,00,000 -Rs. 9,00,000 | 10% |
| Above Rs. 10,00,000 | Rs. 1,10,000 + 30% above Rs. 10,00,000 | Rs. 9,00,00 – Rs. 12,00,000 | 15% |
| Rs. 12,00,000 – Rs. 15,00,000 | 20% | ||
| Above Rs. 15,00,000 | 30% | ||
- In case of Super Senior Citizens (80 years and above) the tax rate applicable is as follows:
| Existing Tax Regime | New Tax Regime | ||
| Income Slab | Income Tax Rate | Income Slab | Income Tax Rate |
| Up to Rs. 5,00,000 | Nil | 0 – Rs. 3,00,000 | Nil |
| Rs. 5,00,001 – Rs. 10,00,000 | 20% above Rs. 5,00,000 | Rs. 3,00,000 – Rs. 6,00,000 | 5% |
| Above Rs. 10,00,000 | Rs. 1,00,000 + 30% above Rs. 10,00,000 | Rs. 6,00,000 -Rs. 9,00,000 | 10% |
| Rs. 9,00,00 – Rs. 12,00,000 | 15% | ||
| Rs. 12,00,000 – Rs. 15,00,000 | 20% | ||
| Above Rs. 15,00,000 | 30% | ||
Note:
- Between Rs. 50 Lakh to Rs. 1 Crore – A surcharge of 10% of the income tax has to be paid as well.
- Between Rs. 1 Crore to Rs. 2 Crore – A surcharge of 15% of the income tax has to be paid as well.
- Between Rs. 2 Crore to Rs. 5 Crore – A surcharge of 25% of the income tax has to be paid as well.
- Above Rs. 5 Crore – A surcharge of 37% (under old regime) and 25% (under new regime) of the income tax has to be paid.
- Maximum rate of surcharge on income from dividends or income under the provisions of Sections 111A, 112A and 115AD is 15%
- 4% of the income tax has to be paid as Health and Education Cess by all taxpayers irrespective of the slab they fall into.
Rebate
Further, Rebate under Section 87A is available for assesse having a taxable income below Rs. 5, 00,000/-. The amount of rebate is 100% of Income Tax or Rs.5, 000/-, whichever is lower under the old tax regime. .
Special Rates of Income Tax
In addition to the above please note that special rates are prescribed in some of the cases:
- Section 111A: Short Term Capital Gain is taxed @15%
- Tax on Long term capital gain is @20% with indexation benefit and @10% without indexation benefit.
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Frequently Asked Questions
Q – Who can use the Income Tax Calculator?
The income tax calculator can be used by anyone with access to the internet. The results can be obtained multiple times for free by anyone who wished to this income tax tool.
Q- Are the results provided by the Income Tax calculator correct?
Yes, as long as the data input provided by the user of the calculator is correct, the results though not binding, will be correct. However, like any tool, in case, the input provided by the user is wrong, the results provided by the income tax calculator will also be wrong.
Q- What is the difference between financial year (FY) and assessment year (AY)?
Financial year (FY) is the year for which you are filing your return, while assessment year (AY) refers to the year in which you are filing your income tax return. For example, if you are filing taxes for FY 2024-25, the assessment year in which you will file the taxes will be AY 2025-26.
Q- Does the income tax calculator calculate for TDS?
No. The income tax calculator does not take into account any TDS or other advance tax payments that have been made. It just provides details of the total tax due and you will have to calculate the remaining tax dues by subtracting any TDS or advance tax that may have been paid by the income tax assessee.
Q – Why does the income tax calculator give different results for senior citizens, super-senior citizens and other citizens (less than 60 years) of age even if they have the same salary?
This is because the exemption limits are different for different types of individual assessees. Thus even though the income tax slab rate is same for all individual tax payers, the actual amount of tax payable will differ from one type of individual tax assessee to another.