The Government of India provides conditions for taxpayers to claim deductions and benefits from their income or salary, and mandates filing of income tax return (ITR) within the specified date to avoid charges or punishment.

In this context, understanding the payroll tax calculation process provides an estimate of the taxable income, deductions and taxes payable by the employee.

Forbes India Advisors has prepared a detailed guide on how to calculate income tax on salary as it can be of great importance in tax planning and personal finance.

Table of contents

Step-by-step calculation of income tax on salary

Five Benefits of Timely Filing of ITR

How to pay taxes through the E-Filing Portal

Frequently Asked Questions (FAQs)

Step-by-step calculation of income tax on salary

Paying taxes is a right, not a burden. Here is a detailed guide to help you calculate your income tax, as follows:

Step 1: Calculate your income

Your gross income is your total salary before taxes and other deductions. It includes wages like HRA, Leave Allowance (LTA), Special Allowance, Daily Allowance, Training, Mobile and Internet Allowance, etc.

Now, take the deductions you get from the salary portion, especially HRA (if you live in a rented house) and LTA, and you will arrive at your salary.

Gross Salary – (HRA & LTA) = Net Salary

Also, if you have additional income from other sources such as rental income, interest earned from deposits, add that amount along with your net salary.

Net salary + additional income

Step Two: Eliminate Tax Deductions

The Government of India allows a standard deduction of INR 50,000 from the net salary of an employee.

Net Salary – INR 50,000

Apart from the normal deduction, tax deductions can be claimed under the following sections of the Income Tax Act, 1961.

  • Section 80CCD(1B): Additional tax benefit can be claimed up to INR 50,000 under section 80CCD(1B), which relates to National Pension Scheme (NPS) contributions.
  • Section 80D: The Central Government provides provisions for taxpayers to claim deductions and benefits on health insurance premiums paid under Section 80D of the Income Tax Act.
  • Section 80TTA: Tax deduction on interest earned on an individual’s bank account with a bank, cooperative or post office, can be claimed up to INR 10,000.
  • Section 80EE: A taxpayer can avail tax benefit on interest up to INR 50,000 per annum on loans.
  • Section 80E: Tax deduction on interest paid on education loan is available as tax deduction.
  • Section 80G: Tax deduction on charitable donations exceeding INR 2,000 is available under Section 80G of the Income Tax Act, 1961.

Third step: Deduction of tax according to the income tax rate

Once you have received all the tax deductions that can be claimed, the taxable income is subject to tax according to the tax bill. There are two options available, the old and new tax regimes, that taxpayers can choose from.

Remember that the old tax regime allows taxpayers to receive tax exemptions under about 70 tax deductions, such as those mentioned above, which can be found in different sections of the Tax Law. The new tax amount is fixed but the rate is lower than before.

The tax forms for the year 2022-23 for taxpayers are as follows:

Gross taxable income – allowable deductions = taxable income

Benefits of timely submission of ITR

  • ITR filing report for the last three years is mandatory for bank loans.
  • It helps you get refund by deducting tax at source (TDS) on investments and savings.
  • Filing of ITR allows the taxpayer to carry forward the current year’s losses to the next financial year.
  • ITR report is a requirement for opening a current account.
  • Filing ITR beyond the prescribed period carries an additional interest of 1% per month.

How to pay taxes through the E-Filing Portal

Every salaried person who receives tax must file Income Tax Return (ITR). While there are various income tax filing software as well as banking applications to help taxpayers file their ITR online, the official website of the Tax Department has made it easy to process and without problems.

Note: New taxpayers need to enter their PAN card and phone number to create a login username and password, and follow the steps to file income tax returns:

Login to e-filing portal ( using ID and password

In the dashboard, click on “e-File” and select “e-Pay Tax”

Click on “New Payment”

Select “Assessment Year”

Select “Payment Type (Small Head)”

Add the “tax deduction” details.

Pay the tax through your bank account through netbanking, debit card, NEFT/RTGS, or payment gateway options.

Frequently Asked Questions (FAQs)

What are the tax benefits of section 80C of the IT Act?

Section 80C of the IT Act deals with deduction for investments like PPF, ELSS, EPF, and others up to INR 1.5 lakh.

I contribute monthly to NPS, can I get tax benefit?

I pay INR 15,000 as health insurance premium, do I get tax benefit?

Are there any tax benefits to savings accounts?

What are the benefits of a home loan?

What happens if I don’t pay income tax?

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