Simple steps to calculate Tax on your Salary

Filing taxes is a fiscal responsibility for every citizen. But to ensure that you don’t pay a higher amount in taxes than you must, it is important that the tax calculation on your salary is done correctly. Calculating the taxes payable on your income, including your salary, involves a careful step-by-step estimation of the amount due.

There are several salary tax calculators available online which can help you determine the precise amount you owe in taxes to the government. India follows a progressive tax structure and hence, different tax rates are applied to different income slabs. Individuals earning up to Rs. 2.5 lakh as annual salary are exempted from paying taxes, even though they have to submit income tax returns on time.

The tax calculation on salary is a simple process, which can be completed in 5 steps. Read on to learn the steps involved in the process:

1. Calculate total gross monthly salary:
   The first step to deriving the tax calculation on salary is to sum up the gross monthly income including the basic salary, perquisites and allowances granted to you.
2. Calculate the exemptions you are granted:
   Once you have calculated the total gross monthly income, calculate the exemptions available to you, mainly under Section 10 of the Income Tax Act. These exemptions are most commonly granted on allowances such as HRA, medical and travel. You can easily calculate these by going through the pay slips granted to you by the company.
3. Subtract exemptions from income:
   Once you have derived the total exemptions available to you, subtract them from the gross monthly income you draw. This is your total taxable income on a monthly basis.
4. Convert to annual income:
   The monthly taxable income figure calculated must be multiplied by 12 to calculate the annual figure. This has to be done since Tax Deducted at Source (TDS) is deducted on annual income. This becomes your annual taxable income.
5. Identify your tax slab:
   Now that you have calculated the tax payable on your salary, you will be able to identify the tax slab applicable to you. Different tax slabs are applicable to persons depending on their income, with those earning below Rs. 2.5 lakh being completely exempt from taxation. However, for those above the age of 60 years, different tax slabs will apply. 
   The 5 steps above are a guide for tax calculation on salary. As an example, we can consider the salary of Mr. Sharma, whose salary structure looks a bit like this:

   Basic Salary	Rs. 50,000
   HRA (House Rent Allowance)	Rs. 20,000
   Travel Allowance	Rs. 800
   Medical Allowance	Rs. 1,250
   Child Education Allowance (CEA)	Rs. 200
   Total Monthly Income	Rs. 72,250

Since he stays at his own home, his total exemptions from the allowances granted to him in a month total Rs. 2,250 comprising the sum of his CEA, travel and medical allowances. Thus, his total annual taxable income is the difference between Rs. 72,250 and Rs. 2,250 multiplied by 12. Hence, his total annual taxable salary is Rs. 8,40,000.

Now, aside from the salary, it is also important to take into consideration other sources of income while calculating the total tax payable. This includes income generated from investments through instruments such as Provident Fund (PF), mutual funds, shares, and even fixed deposits and savings accounts with banks.

Several of these investments allow for exemptions under different sections of the Income Tax Act. Calculating these exemptions as well as the deductions available will allow you to easily calculate the total tax payable on your income. You can calculate this separate from your salary, or your income as a whole from salary and other investments; and then identify the tax slab applicable to you. 

You can always choose to use a salary tax calculator online which can help you easily calculate the taxes payable by you. If you are aware of the total taxes payable by you, you can also take effective steps that will allow you to save taxes. Investing in instruments such as the Provident Fund or Equity Linked Saving Scheme (ELSS) can help you save taxes through exemptions allowed by law in India. Buying insurance can also help you save on taxes. You can buy term insurance or life insurance and be eligible for tax benefits under Section 80(C) of the Income Tax Act. If you’d like to learn more about term insurance policies, you can explore PNB MetLife’s various Term Plans. In addition to this, you can also browse through the numerous life insurance plans offered by PNB MetLife.

The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.