Income tax is a form of direct tax which a government charges on the citizen’s income. It includes not just the money earned in the form of income but also includes business profits, property, capital gains, bonuses, and income from different sources. Certain freedom that government provides in tax collection from an individual’s income involves deductions, exemptions, and rebates. Understanding and finding out tax is a complex process. The calculations and adjustments in the procedures require some sort of help. So, most people opt for an online income tax calculator.
The income tax calculator is an online and easy to access tool that estimates your tax from income after the declaration of the Union Budget. Many people get confused with several terminologies involved in tax calculation and think of it as a hectic task. In such difficulty, an online income tax calculator comes handy.
When the government makes changes in the income tax slab, everyone gets curious about it. After viewing, income tax slab for FY 2020-21, taxpayers are going for an income tax calculator ay 2020-21excel format. The tax calculator makes complete use of the leeway that the government has provided and delivers results effortlessly.
Advantages of using Income Tax Calculator
The benefits of considering an income tax calculator are numerous, like exemptions, rebates, deductions, indexation, and allowances.
Understanding the terminologies of it :
The additional amount paid along with income is termed as allowances. It is given in the form of TA, DA, medical, education, transport, house rent, and many more.
The income tax calculation formula in excel format makes the process way easier and relaxes people from the tedious work.
Procedures for Tax Calculation
The calculations and adjustments in the process income tax computation are very tiring and ambiguous. By following the simple steps, working out tax computation becomes uncomplicated.
Step 1: Evaluating gross income
Analyze the total salary you get throughout the year. The amount must include each and every component of the salary like dearness allowance (DA), leave travel allowance (LTA), housing rent allowance (HRA), food coupons, and other special allowances. In the next step, remove all the exemptions included in it, like HRA and LTA.
The removal of HRA is only possible if you reside in a rented house. The consideration of tax exemption under housing rent allowance needs to fulfill the minimum requirements. It is highly important to add income acquired from other sources like interests from the deposit amount, rental income, capital gains, etc. Also, have a look at the income tax slab for FY 2020-21 to know which category you fall under in the slab.
Step 2: Calculate taxable income after removing any deduction
Deductions are a great way to reduce the taxable amount through investments, savings, and expenditure on certain things. Firstly, consider the standard deduction, which is available and does not require investing and spending on defined products. One can go for the income tax calculation formulain excel for all the calculations needed in reducing tax.
Later, take away all the expenses and investment that is eligible under Section 80. Investments in provident funds, mutual funds, life insurances are some popular claims in the deduction. Loans and education fees are also eligible for deduction in the tax.
Step 3: Approaching the total taxable income
After the removal of all deductions, one can see the total income on which tax is paid on the basis of the income tax slab. The slab rate is different for different income groups. Unlike age groups also have varying tax rates.
Step 4: Computing the tax
It is one of the crucial phases of tax calculation, and here an individual has to pay on the net taxable income. People belonging to the income group of the first 2.5 lakhs do not need to pay any tax. In the next 2.5 lakhs group, one has to pay 5 percent interest, and a further 5 lakh income group has to pay 20 percent interest. Exceeding these income groups, the taxpayer has to pay 30 percent interest in the amount.
Step 5: Integrate the net tax
Tax rebate is applicable to income groups below five lakhs, and it is a sort of exemption that government provides to individuals with limited income. For the ongoing year, rigorous calculations will be difficult. Using income tax calculator ay 2020-21excel will provide ease to it.
Various income sources and tax Computation
The generation of any sort of income from different sources is always tax-payable. The most common sources of income are salary, rental sources, gains from the capital, profits from businesses, and the amount collected from other sources.
- Salary income
The amount of money one gets from the job is salary, and the tax calculation method usually involves a TDS certificate. The process requires the addition of stipends and allowances, after which deduction is made.
- Rental income
It is the amount that a person receives in the form of housing rent. Even if one owns one house and stays in it, they still have to compute the income through the housing property.
- Capital gains
It is the profits earned after selling the property exceeding the purchase price. The earning from selling a capital asset is eligible for tax payment, and one has to consider it as well. It is essential to calculate the short-term gains and long-term gains from the assets total sales. After this, progress towards deductions and tax calculation.
Understanding all the heavy mathematical computation and income tax terminologies is tiresome. Even after doing the entire work, one can miss certain ways of tax reduction. In such a scenario, an income tax calculator can simplify the process and clarify the complex path.