Calculation Of Income Tax

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Calculation of Income tax (for salaried person and excluding house rent allowance)

Salary is made up of various components such as:  

• Basic salary,  
•  House rent allowance (HRA),  
• Special allowance
• Other allowances, reimbursements etc.  

However, not all of the amount received as salary is fully taxable. A part of it will be fully exempt from tax and a part of it will be partially exempt. Hence, you must have all the required documents in order to ascertain the amount which is chargeable to tax from salary. These income details will be filled by you under the third-tab of the form ‘Income details’.   

Chartered accountants recommend that before you start filing your ITR on the e-filing website of the tax department, it is advisable that you compute your taxable income on the piece of paper or in an Excel file. This helps to avoid wasting time while you are filing your returns as tax department login remains active for only 15 minutes. You can save the general information filled by you as a draft on the e-filing website and log out when have to compute the income chargeable to tax or do this before you start filing your return completely online.   

There are five rows to be filled with regards to salary income:  

• Salary (excluding all allowances, perquisites and profit in lieu of salary),  
• Allowances not exempt,  
•  Value of perquisites,  
•  Profits in lieu of salary and
•  Deductions u/s 16.   

All the information required to fill the salary details are available in Form-16 given to you by your employer as well as in your salary slips. Here’s how to get that information from Form-16 and salary slips and fill in ITR-1.

Form-16

Form-16 consists of two parts, A and B. Part A of the form consists of information such as name and address of the employer, TAN and PAN of your employer, PAN of the employee and summary of tax deducted and deposited quarterly. Part-B of the form consists of break-up of total income from salary, deductions that you can claim to reduce your total income chargeable to salary.   

If you have changed your job in the last financial year, i.e., in 2017-18, ensure that you have received Form-16 from your previous employer as well or you have salary slips from the previous employer. Click here to know how to deal with Form-16 if you have switched jobs.   

TDS deducted from your salary during the FY 2017-18 from your current or ex-employer should also be deposited with the tax department against your PAN. This can be checked by downloading Form 26AS.   

Here, one must remember that TDS deducted from your salary should reflect in Form-26AS as well, otherwise you will not be able claim tax-credit for that deduction. Click here to know why TDS certificates should match with Form-26AS.   

Salary excluding allowances, perquisites and profit in lieu of salary

The first row under the head ‘Salary’ requires you to provide the salary which is excluding of all allowances, perquisites and profit in lieu of salary.  Naveen Wadhwa, DGM, Taxmann.com says, “Amount of salary reported in point no. (a) of gross salary in Part-B of Form 16 is inclusive of basic and all the allowances received during the year. This amount also includes allowances that are partially or fully exempt from tax. Therefore, if your employer does not provide you the break-up of your annual income in the Form-16 Part-B, then you will be required to calculate this taxable figure from the salary slips.”   

This ‘salary’ amount will include basic salary or wages, any annuity or pension, gratuity, advance salary, leave encashment, fees, commissions, explains Wadhwa. Therefore, you will be required to add each of the above mentioned amounts to arrive at this figure.   

Allowances not tax-exempt

The second cell asks the information about allowances not exempt from tax. You will be required to calculate this amount because Part-B of Form-16 provides amount that are exempt from tax.   

You can find these allowances paid to you in the salary slips of the FY2017-18. You will be required to add up each allowance received every month from the corresponding pay-slip to calculate the annual amount received by you.   

Taxation of each allowance received by you is different. It can be fully or partially taxable in your hands. For instance, amount of house rent allowance (HRA) that will be exempt from tax will be calculated based on certain conditions. However, if you are living in your own house or not paying any rent, then the whole amount will be taxable.   

On the other hand, if your salary structure has special allowance, then the whole amount will be chargeable to tax. You will also be required to report the allowances exempt from tax as mentioned in point 2 of Form-16 Part-B in the tab ‘Taxes Paid and Verification’. For FY 2017-18, transport allowance up to Rs 19,200 in a year is exempt from tax. However, from FY 2018-19 onwards, this allowance will be fully taxable in your hands.   

Valuation of perquisites

Apart from basic salary, if there are benefits offered to you from your employer such as rent-free accommodation, motor car for official as well as personal use, sweat Equity Shares, employees’ stock option plans (ESOPs) etc. then these will be chargeable as perquisites in your hands.   

Deductions under section 16

There are certain deductions that are allowed from gross salary income. You can claim these deductions only if you have salary income. As per the current laws, you can claim these two deductions from the salary income:  

• Entertainment allowance  
• Tax on EMPLOYMENT   

Deduction on the entertainment allowance is available only to government employees. The amount of deduction available on entertainment allowance is the least of the following:

• Rs 5,000  
•  1/5th of salary (excluding any allowance, perquisite)  
• Actual amount received.   

If you have paid any employment tax or professional tax to the State Government, then you can claim the deductions for them as well.   

The amount of deduction available is mentioned in the part-b of the Form-16 under the head ‘Deductions’.   

After computing the amount that will be taxable under the different components of salary, you have got the amount that will be chargeable under the head of salary.

These amounts can be entered by you in the ITR-1 on the e-filing website against the corresponding cells under the head income from salaries in the Income Details tab.   

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Income tax is a tax levied on the income of individuals and businesses. It is one of the most important sources of revenue for the government. The income tax system in India is complex and there are many different rules and regulations that taxpayers need to be aware of.

The first step in calculating income tax is to determine your income. This includes your salary, income from investments, and any other sources of income. Once you have determined your income, you need to calculate your taxable income. This is done by subtracting any deductions and exemptions that you are eligible for.

Deductions are expenses that you can deduct from your income to reduce your taxable income. Some common deductions include mortgage interest, medical expenses, and charitable contributions. Exemptions are amounts of income that are not taxed. Some common exemptions include the basic exemption and the standard deduction.

Once you have calculated your taxable income, you need to determine your tax bracket. Your tax bracket is the range of income that is subject to a certain tax rate. There are seven tax brackets in India, ranging from 5% to 30%.

To calculate your income tax, you multiply your taxable income by the tax rate for your tax bracket. For example, if your taxable income is Rs. 5,00,000 and you are in the 20% tax bracket, your income tax would be Rs. 1,00,000.

In addition to income tax, you may also be liable for other taxes, such as Wealth tax, gift tax, and estate tax. You should consult with a tax advisor to determine if you are liable for any of these taxes.

There are a number of ways to pay income tax in India. You can pay your income tax through direct deposit, online payment, or by mail. You can also pay your income tax through a tax representative.

If you fail to pay your income tax on time, you may be subject to late filing fees, interest on arrears, and penalties. You may also be subject to prosecution.

It is important to file your income tax return on time. The due date for filing your income tax return is 31st July of the following year. If you file your income tax return late, you will be liable for late filing fees.

If you have any questions about income tax, you should consult with a tax advisor. A tax advisor can help you understand the income tax system and ensure that you are in compliance with all of the rules and regulations.

Here are some additional details on the subtopics listed above:

• Income Tax Slab: The income tax slab is the range of income that is subject to a certain tax rate. There are seven tax brackets in India, ranging from 5% to 30%.
• Deductions: Deductions are expenses that you can deduct from your income to reduce your taxable income. Some common deductions include mortgage interest, medical expenses, and charitable contributions.
• Exemptions: Exemptions are amounts of income that are not taxed. Some common exemptions include the basic exemption and the standard deduction.
• Tax Credits: Tax credits are amounts that are subtracted from your tax liability. Some common tax credits include the child tax credit and the dependent care credit.
• Advance Tax: Advance tax is tax that you pay on your estimated income during the year. You are required to pay advance tax in four installments, each due on the 15th of June, September, December, and March.
• Self Assessment Tax: Self assessment tax is tax that you pay on your actual income for the year. You are required to file your income tax return and pay self assessment tax by the 31st of July of the following year.
• Income Tax Return: The income tax return is a document that you file with the Income Tax Department to declare your income and pay your income tax. You are required to file your income tax return by the 31st of July of the following year.
• Late Filing Fees: Late filing fees are fees that you are liable for if you file your income tax return late. The late filing fees are 100% of the tax due, if you file your return within 30 days of the due date, and 200% of the tax due, if you file your return after 30 days of the due date.
• Interest on Arrears: Interest on arrears is interest that you are liable for if you do not pay your income tax on time. The interest rate on arrears is 12% per annum.
• Penalties: Penalties are amounts that you are liable for if you violate any of the provisions of the Income Tax Act. The penalties for violation of the Income Tax Act can be severe, and you should consult with a tax advisor if you have any questions about the penalties that may apply to you.
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What is income tax?

Income tax is a tax levied on the income of individuals and businesses. It is a major source of revenue for governments around the world.

Who pays income tax?

In most countries, all individuals and businesses with income are required to pay income tax. However, there are some exceptions, such as people with very low incomes or certain types of businesses.

How is income tax calculated?

The amount of income tax that an individual or business pays depends on their income and the tax rates in their country. In most countries, income tax is progressive, which means that higher-income earners pay a higher Percentage of their income in taxes.

What are the different types of income tax?

There are many different types of income tax, but the most common are personal income tax, corporate income tax, and withholding tax. Personal income tax is levied on the income of individuals, while corporate income tax is levied on the income of businesses. Withholding tax is a type of income tax that is withheld from an individual’s wages by their employer.

What are the benefits of paying income tax?

There are many benefits to paying income tax. Income tax helps to fund important government Services, such as Education, healthcare, and Infrastructure-2/”>INFRASTRUCTURE. It also helps to redistribute wealth and reduce inequality.

What are the drawbacks of paying income tax?

Some people argue that income tax is too high and that it places a burden on businesses and individuals. Others argue that income tax is unfair because it taxes people on their income, regardless of whether they have spent their Money or saved it.

What are the alternatives to income tax?

There are a number of alternatives to income tax, such as consumption taxes, property taxes, and wealth taxes. Consumption taxes are levied on goods and services that are purchased, while property taxes are levied on the value of real estate. Wealth taxes are levied on the value of assets, such as stocks, Bonds, and real estate.

What is the future of income tax?

The future of income tax is uncertain. Some experts believe that income tax will continue to be a major source of revenue for governments around the world. Others believe that income tax will be replaced by other Types of Taxes, such as consumption taxes or wealth taxes.

Sure, here are some MCQs on the following topics:

• Income Tax

• Which of the following is not a deduction from income for income tax purposes?
  (A) Medical expenses
  (B) Charitable contributions
  (C) State and local taxes
  (D) Mortgage interest

• The standard deduction for a married couple filing jointly in 2023 is:
  (A) $25,100
  (B) $27,800
  (C) $30,600
  (D) $38,000

• The tax rate for a single person in 2023 is:
  (A) 10% on the first $9,950 of taxable income
  (B) 12% on the next $40,525 of taxable income
  (C) 22% on the next $84,200 of taxable income
  (D) 24% on all taxable income over $184,800

• Sales Tax

• Which of the following is not subject to sales tax?
  (A) Food
  (B) Clothing
  (C) Prescription drugs
  (D) Motor vehicles

• The sales tax rate in California is:
  (A) 7.25%
  (B) 8.75%
  (C) 9.25%
  (D) 10.25%

• A sales tax exemption is a deduction from the sales tax that is allowed for certain items. Which of the following is not an item that is typically exempt from sales tax?
  (A) Food
  (B) Clothing
  (C) Prescription drugs
  (D) Motor vehicles

• Property Tax

• Which of the following is not a factor that determines the amount of property tax that is owed?
  (A) The assessed value of the property
  (B) The tax rate
  (C) The number of exemptions that are claimed
  (D) The amount of income that the owner of the property earns

• The tax rate for property tax in California is:
  (A) 1% of the assessed value of the property
  (B) 1.25% of the assessed value of the property
  (C) 1.5% of the assessed value of the property
  (D) 1.75% of the assessed value of the property

• A property tax exemption is a deduction from the property tax that is allowed for certain items. Which of the following is not an item that is typically exempt from property tax?
  (A) A home that is owned and occupied by the owner
  (B) A home that is owned by a religious organization
  (C) A home that is owned by a nonprofit organization
  (D) A home that is owned by a government entity

• Gasoline Tax

• The gasoline tax in California is:
  (A) 38 cents per gallon
  (B) 41 cents per gallon
  (C) 44 cents per gallon
  (D) 47 cents per gallon

• The gasoline tax is used to fund:
  (A) The construction and maintenance of roads
  (B) The construction and maintenance of bridges
  (C) The construction and maintenance of public transportation
  (D) All of the above

• The gasoline tax is a regressive tax, which means that it:
  (A) Places a greater burden on low-income taxpayers than on high-income taxpayers
  (B) Places a greater burden on high-income taxpayers than on low-income taxpayers
  (C) Places an equal burden on all taxpayers
  (D) Places no burden on any taxpayers