How to Calculate Income Under Salaries

24 Sep 2021 Admin Tax4wealth 0

Income tax calculation under the head "Salaries"

Generally, Income from salary is total sum of the following

Basic Salary
House Rant Allowance (HRA)
Special Allowance
Transport Allowance
Any other Allowance

Some of the other components that are included under "Salaries" head are exempted from tax such as leave travel allowance, telephone bill reimbursement etc. In case, an individual receives HRA but is living on rent, then he can claim exemption on House Rent Allowance. With the use of HRA calculation, the exempted portion of HRA can be calculated.

Apart from these exemptions, in budget 2018, a standard deduction of Rs. 40,000 was introduced. However, the same increased to Rs. 50,000 in budget 2019. It is to be noted that if new tax regime is adopted, then the aforesaid exemption cannot be claimed.

Illustration

The income tax calculation under the current tax slab and new tax slabs can be better understandable with the help of an example. Jasmine is an employee of a organization located in Delhi. The following are the details of her compensation that she is getting every month;

Basic Salary: Rs. 1, 00,000 per month
House Rent Allowance: Rs 50,000 p.m
Special Allowance: Rs. 21,000 per month
Leave Travel Allowance: Rs 20,000 per annum
Jasmine a pays a rent of Rs 40,000 per month

Nature	Amount	Exemption/Deduction	Taxable(Old regime)	Taxable(New regime)
Basic Salary	12,00,000	-	12,00,000	12,00,000
HRA	6,00,000	3,60,000	2,40,000	6,00,000
Special Allowance	2,52,000	-	2,52,000	2,52,000
LTA	20,000	12,000 (bills submitted)	8,000	20,000
Standard Deduction	-	50,000	50,000	-
Gross Total Income from Salary			16,50,000	20,72,000

Apart from the above-mentioned income, Jasmine also receives the following incomes;

Interest from her savings account - Rs. 80000
Interest from fixed deposit - Rs. 12,000
Public provident Fund Investment - Rs. 50,000
LIC Premium Paid - Rs. 8,000
ELSS purchase - Rs 20,000 during the year
Medical Insurance Paid - Rs. 12,000

The following are the details of deductions that Jasmine can claim under old tax regime;

Nature	Maximum Deduction	Eligible investments/expenses	Amount Claimed
Section 80C	Rs.1,50,000	PPF deposit : Rs 50,000 ELSS investment : Rs 20,000, LIC premium:Rs 8,000. EPF deducted by employer (Jasmine’s contribution) = Rs 1,00,000 12% 12 = 1,44,000	Rs, 1,50,000
Section 80D	Self :Rs 25,000 Parents: Rs 50,000	Medical insurance premium Rs 12,000	Rs, 12,000
Section 80TTA	10,000	Savings account interest 8,000	Rs. 8000

Calculation of Gross Taxable income (Old regime)

Nature	Amount
Income from Salary	16,50,000
Income from Other Sources	20,000
Gross Total Income
Deductions
80C	1,50,000
80D	12,000
80TTA	8,000
Gross Taxable Income
Total tax on above (including cess)

Calculation of Gross Taxable Income (New regime)

Nature	Amount
Income from Salary	20,72,000
Income from Other Sources	20,000
Gross Total Income
Total tax on above (including cess)

The Income tax of Jasmine under the new tax regime can be calculated as follows;

Up to Rs 2,50,000	Exempt from tax
Rs 2,50,000 to Rs 5,00,000	5% (5% of Rs 5,00,000 less Rs 2,50,000)
Rs 5,00,000 to Rs 7,50,000	10% (10% of Rs 7,50,000 less Rs 5,00,000)
Rs 7,50,000 to Rs 10,00,000	15% (15% of Rs 10,00,000 less Rs 7,50,000)
Rs 10,00,000 to Rs 12,50,000	20% (20% of Rs 12,50,000 less Rs 10,00,000)
Rs 12,50,000 to Rs 15,00,000	25% (25% of Rs 15,00,000 less Rs 12,50,000)
More than Rs Rs 15,00,000	30% (30% of Rs 20,92,000 less Rs 15,00,000)
Cess	4% of total tax (4% o12,500 + 25,500+ 37,500 + 50,000 + 62,500 + 1,77,600)
Total Income Tax	12,500 + 25,500+ 37,500 + 50,000 + 62,500 + 1,77,600 + 14,604

Exemptions/Deductions not Allowed under the new tax regime

The Individuals and/or Hindu Undivided Family opting for new tax regime under Section 115BAC of the Act are not eligible to get the below mentioned deductions/exemptions;

Clause (5) of Section 10 meant for Leave Travel Concession
Clause (13A) of section 10 meant for House rent allowance
Clause (14) of section 10 for some other Allowance
Clause (32) of section 10 meant for Allowance for the income of minor
Section 10AA meant for Exemption for SEZ unit
Section 32AD, 33AB, 33ABA meant for Deductions
Section 16 meant for Standard deduction, deduction for entertainment allowance and employment/professional tax
Clause (iia) of sub-section (1) of section 32 meant for Additional Depreciation
Section 24 meant for Interest under in respect of self-occupied or vacant property referred to in sub-section (2) of section 23
Losses incurred from house property income. It is to be noted that rented house are not eligible to be set off under any other income head that has to be carried forward as per law.
In case, an individual receives HRA but is living on rent, then he can claim exemption on House Rent Allowance. With the use of HRA calculation, the exempted portion of HRA can be calculated.