Calculating your Tax Liability

Calculating your Tax Liability

The income tax which is charged to you is based on the tax slabs declared by the Government in its annual budget every year. The following table encapsulates the tax slabs applicable this year. (Financial Year 2007-2008 )

Taxable Income Slab	Tax Rate
Upto Rs. 1,10,000 Up to Rs. 1,45,000 (for women) Up to Rs. 1,95,000 (for residents, 65 years or above)	Nil
Rs. 1,10,000 – Rs. 1,50,000	10%
Rs. 1,50,001 – Rs. 2,50,000	20%
Rs. 2,50,001 – Rs. 10,00,000	30%
Above Rs. 10,00,001	30% + 10% surcharge on tax
Note: In addition, an education cess of 3% is charged on the entire tax amount including surcharge.

Please note that the taxable income is arrived at after adding all your different sources of income and subtracting the deductions that you have taken advantage of under Section 80.

Lets take a few examples to illustrate how you can calculate taxes based on these slabs.

Example 1:

Sarla is a salaried employee, her annual income is Rs. 2,40,000. She has made no tax savings investments during the year. Lets calculate her income tax liability.

Heads			Amount
Gross Total Income			Rs. 240,000
Deductions			Nil
Taxable Income			Rs. 240,000
Income Tax calculation:
Tax on Income upto Rs 145,000 Tax on the next Rs 5000 Remaining Amount Rs 90,000 Income Tax Due Rs. 18,500	0% 10% 20%	Zero Rs. 500 Rs. 18000	Rs. 18,500
Education Cess (@3%)			Rs. 555
Total Tax Payable			Rs. 19,055

Example 2:

Vinod is a salaried employee. His annual income is Rs 3,25,000.
His home loan interest payment is Rs 1,20,000
And his home loan principal repayment is Rs 80,000
And he made an investment in NSC of Rs 50,000
Lets calculate Vinod's interest liability.

Heads		Amount
Income from Salary		Rs. 325,000
Income from House Property (Section 24 Deduction for Home loan interest repayment)		(Rs. 120,000)
Gross Total Income		Rs. 205,000
Section 80C Deductions NSC Investment Home Loan Principal Repayment Total	Rs. 50,000 Rs. 80,000 Rs. 110,000	Rs. 100,000
Taxable Income		Rs. 105,000
Total Tax Due		Rs. 0

Example 3:

Ram is a salaried employee who earned Rs.12,00,000.
He has bought a health insurance policy for himself worth Rs 10,000
And bought ELSS fund for Rs. 80,000 and paid a LIC premium of Rs. 20,000.
He has also donated Rs. 20,000 to the Prime Minister's Relief Fund.
Lets calculate Ram's tax liability.

Heads			Amount
Gross Total Income			Rs. 1,200,000
Section 80C Deductions LIC Premium Home Loan Principal Repayment Total		Rs. 20,000 Rs. 80,000 Rs. 100,000	Rs. 100,000
Other Deductions: Section 80D Health Insurance Premium Section 80G Donation to a charity		Rs. 10,000 Rs. 20,000	Rs. 30,000
Taxable Income			Rs. 1,070,000
Income Tax calculation:
Tax on Income up to Rs 110,000 Tax on the next Rs 40,000 (Slab 110,001 to 150,000) Tax on next Rs 100,000 (Slab Rs. 150,001 to Rs. 250,000) Tax on next Rs 750,000 (Slab Rs. 250,001 to Rs. 1000,000) Tax on balance amount (Above 1,000,000 Surcharge is applicable) Income Tax Due	0% 10% 20% 30% 33%	Zero Rs. 4,000 Rs. 20,000 Rs. 225,000 Rs. 23,100 Rs. 272100	Rs. 272,100
Education Cess (@3%)			Rs. 8,163
Total Tax Payable			Rs. 280,263

Regards
Praveen Kumar
www.laymansfinance.blogspot.com

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