Income tax is the tax levied on your income. In order to calculate income tax, a person needs to consider factors, such as his/her total taxable income, tax slab rates, and exemptions and deductions. Taxpayers are allowed to choose between the old tax regime and the new tax regime from 2020-21. Furthermore, a person can calculate income tax online with the help of an income tax calculator.
Read this article to understand how to calculate income tax.
In the Union Budget 2020, Nirmala Sitharaman, the finance minister of India, introduced a new tax regime. The tax rates in this regime are lower compared to the old regime. However, in order to opt for the new tax regime, a taxpayer needs to forgo most of the exemptions and deductions. Furthermore, taxpayers have the option to choose between both the regime.
The income tax a person must pay is based on the tax regime he/she chooses. However, before choosing the income tax regime, a person must first calculate his/her total taxable income. This is because if a person chooses the old regime, then he/she can claim exemptions and deductions. The available exemptions and deductions must be deducted from the total taxable income in order to calculate the net taxable income. However, if a person opts for the new regime, then he/she will not be allowed to claim many exemptions and deductions. But the new tax regime allows a deduction under Section 80CCD(2). Therefore, a taxpayer needs to calculate his/her tax liability according to both the tax regimes. This way, he/she can choose a regime that helps him/her save more tax.
Income Tax Calculator
In order to find out the income tax, a taxpayer can use an income tax calculator. An income tax calculator is an online tool that allows a person to understand his/her tax liability.
How to Use an Income Tax Calculator
- The person needs to enter his/her personal details like age.
- Then, he/she needs to enter the annual income details. There are 5 main sources of income- income from salary, income from capital gains, income from house property, income from business or profession, and income from other sources. The person needs to submit the income generated from all the sources.
- The person needs to enter the available deductions, such as section 80C, Section 80D, and other deductions.
- Once the person enters all the details, the calculator will calculate his/her income tax.
Why Use an Income Tax Calculator?
An income tax calculator can help a taxpayer understand how much income tax he/she will have to pay. Furthermore, it can help a person choose between the new and the old tax regime.
As discussed earlier, the new regime will allow a taxpayer to pay tax at lower rates. However, he/she will not be allowed to avail many exemptions and deductions. If a person chooses the old tax regime, then the tax rates are higher. However, he/she can avail exemptions and deductions.
With the help of an income tax calculator, a taxpayer can calculate tax liability according to both the regimes. Therefore, he/she can choose a regime that helps save more tax.