How to calculate Income Tax on Salary in India? What are the slab rates and exemptions for Income Tax on Salary in 2018-2019-2020? How can Income Tax be saved for Salaried Employees in India?
“The hardest thing in the world to understand is income tax.”
-Albert Einstein
If Einstein could too find taxes difficult to understand, why would the story be different for any layman?
Understanding Income Tax slab rates and how they will impact his income & investment can be a nightmare for anyone.
This article attempts to simplify Income Tax slab rates for individuals.
What is Assessment Year and Financial Year ?
First, let us understand these two terms – Assessment Year and Financial Year.
Financial Year (FY) is the period when businesses and government count and record their earnings/expenses and various other commercial transactions, for the purpose of record keeping and taxation. In India, we follow an FY of 1st April – 31st March. So every year on 31st March, the previous FY ends and from 1st April onwards, the next FY starts.
Assessment Year (AY) is the year in which your taxes for the previous year’s earnings are calculated. Since the tax is paid on earnings, AY will be the immediately following year. So for FY 2018-19, AY will be 2019-20 .
Types of Tax Rates applicable
Which type of tax rates is applicable depends on the age and the category you fall as per Income Tax Act classifications.
There are different Income Tax slab rates for Individual residents.
Let us start with Income Tax slab rates:
What are the Income Tax slab rates for Financial Year 2018-19 and Assessment Year 2019-20?
Also Read : 80C and 80D Deductions for AY 2019-20
Income Tax on Salary – Slab Rates for Individuals
An individual is classified as below:
Individual (resident) below the age of 60 years
| Assessment Year 2019-20 | |
| Income Tax Slab Rates for FY 2018-19 | Taxable Rate |
| When the total income is less than or equal to Rs. 2.5 Lakh | Nil |
| When the total income is greater than Rs. 2.5 Lakh but is less than or equal to Rs. 5 Lakh | 5% |
| When the total income is greater than Rs. 5 Lakh but is less than or equal to Rs. 10 Lakh | 20% |
| When the total income is greater than Rs. 10 Lakh | 30% |
Individual (resident) between 60 years and 80 years of age
| Income Tax Slab Rates for FY 2018-19 | Taxable Rate |
| When the total income is less than or equal to Rs. 3 Lakh | Nil |
| When the total income is greater than Rs. 3 Lakh but is less than or equal to Rs. 5 Lakh | 5% |
| When the total income is greater than Rs. 5 Lakh but is less than or equal to Rs. 10 Lakh | 20% |
| When the total income is greater than Rs. 10 Lakh | 30% |
Individual (resident) above 80 years of age (super senior citizen)
| Income Tax Slab Rates for FY 2018-19 | Taxable Rate |
| When the total income is less than or equal to Rs. 5 Lakh | Nil |
| When the total income is greater than Rs. 5 Lakh but is less than or equal to Rs. 10 Lakh | 20% |
| When the total income is greater than Rs. 10 Lakh | 30% |
Income from Salary – Notes for Financial Year 2018-19 and Assessment Year 2019-20
- Surcharge: The amount of income-tax shall increase by a surcharge at the rate of 10% of such tax, where the total income exceeds Rs. 50 Lakh, but is less than Rs. 1 Crore. However, when income is more than Rs. 1 Crore, the surcharge is 15%
- Surcharge is nil, if the income is below Rs. 50 Lakh
- Health and Education Cess: The amount of income-tax and the applicable surcharge, shall further increase by health and education cess calculated at the rate of 4% of such income-tax and surcharge.
- Rebate under Section 87A: This rebate is available to a resident individual if his total income does not exceed Rs. 3,50,000. The maximum amount of the rebate is Rs. 2,500.
- Standard Deduction : Standard deduction of 40,000 is allowed for the financial year 2018-19
How to calculate Income Tax on Salary for Salaried Person for FY 2018-19?
Income Tax Calculator for FY 2018-19
| Income Slab FY 2018-19 | Tax Slab Budget 2018 |
| Up to Rs. 2.5 Lakh | No Tax |
| Rs. 2.5 Lakh – Rs. 5 Lakh | 5% |
| Rs. 5 Lakh – Rs. 10 Lakh | 20% |
| Rs. 10 Lakh and Plus | 30% |
Taxable Income for Rs. 5 Lakh – FY 2018-19
No Tax – Rs. 2.5 Lakhs, Standard Deduction – Rs. 40,000
Income – Rs. 5 Lakhs, Amount in Excess – Rs. 2.1 Lakhs
Tax before Cess (5%) = 2,10,000*.05 = Rs. 10,500
Health and Education Cess 4% = Rs. 420
Total Tax = Rs. 10,500+ Rs. 420 = Rs. 10,920
Taxable Income for Rs. 10 Lakh – AY 2019-20
No Tax – Rs. 2.5 Lakh, Standard Deduction – Rs. 40,000
Income – 10 Lakh, Amount in Excess – Rs. 7.1 Lakh
Tax before Cess on Rs. 2.5 Lakh (5%) = 2,10,000*.05 = Rs. 10,500
Tax before Cess on Rs. 5 Lakh (20%) = 5,00,000*.2 = Rs. 1,00,000
Health and Education Cess 4% = Rs. 4,420
Total Tax = Rs. 1,10,500 + Rs. 4,420 = Rs. 1,14,920
Taxable Income for Rs. 15 Lakh
No Tax – Rs. 2.5 Lakh, Standard Deduction – Rs. 40,000
Income – 15 Lakh, Amount in Excess – Rs. 12.1 Lakh
Tax before Cess on Rs. 2.5 Lakh (5%) = 2,10,000*.05 = Rs. 10,500
Tax before Cess on Rs. 5 Lakh (20%) = 5,00,000*.2 = Rs. 1,00,000
Tax before Cess on Rs. 5 Lakh (30%) = 5,00,000*.3 = Rs. 1,50,000
Health and Education Cess 4% = Rs. 10,420
Total Tax = Rs. 2,60,500 + Rs. 10,420 = Rs. 2,70,920
Section 87A – Rebate of Rs. 2,500 from total tax payable before cess (if taxable income is Rs. 3.5 Lakh)
Exemptions for Income Tax on Salary
All of us plan for tax exemptions under Section 80C of the IT Act. Let us see “What are the exemptions on Income Tax on Salary in India?”
HRA Exemption
House Rent Allowance (HRA) received will be eligible for deduction as per the following formula. You can claim the least of the following as a deduction:
(a) Actual HRA received
(b) Rent Paid – 10% of Basic + DA
(c) 40% of your Basic + DA (50%, if you are staying in a metro city)
Interest paid on Housing Loan
Loan Interest paid on your Home Loan will be eligible for deduction from the taxable income under Section 24 of the IT Act. The limit per year is Rs. 2 Lakh for the loans taken after 01.04.1999.
LTA Exemption
Actual on production of tickets within the amount in CTC component. The unclaimed amount will be payable after deducting tax.
Interest on Education Loan
The actual interest paid on an Education Loan taken for higher studies for self, spouse, and children will be exempted from taxable income under Section 80E of the IT Act.
Health Insurance Premium
Health Insurance Premium paid for buying a health insurance policy for self and family will be exempted up to Rs. 25,000 in a year under Section 80D of the IT Act. You can claim another Rs. 25,000 as deduction for health insurance premium paid for a policy for dependant parents. This limit is Rs. 30,000, if they are senior citizens.
NPS
80CCD: Rs. 50,000 deduction under NPS.
Section 80C
Under this most popular section, you can claim exemption up to Rs. 1.5 Lakh in a year. PF, PPF, Principal repayment of Home Loan, Tuition fees paid for 2 children, Life Insurance premium, VPF, Tax Saving Mutual Funds (ELSS) Tax ,Saver FD of 5-year term, NSC, etc. will qualify in this.
Donations
You can also claim a tax deduction if you make donation to certain institutes (up to 100% or 50%).
If you make any donations to certain qualified institutions or causes, you can claim a tax benefit on the donated amounts. Depending on the receiver of the donation, your donation would qualify either for 100% deduction or 50% deduction.
Income Tax on Salary – Conclusion
The taxable income is the income after allowing permissible deductions under various sections like Section 80C, Section 80D, etc. If you plan in advance and avail various tax exemptions, you may get tax benefits by lowering your Income Tax Slab for Salary. An updated knowledge on Income Tax Slab for Salary is a must to get the best out of it year after year.
Hope this article would have helped you to understand the basic concepts of “Income Tax on Salary”. Please share your views.
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