Mastering Your Income Tax: A Comprehensive Guide to Calculating and Saving on Taxes

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Mastering Your Income Tax: A Comprehensive Guide to Calculating and Saving on Taxes

This blog aims to demonstrate the process of calculating your income tax and present various tax saving options. With this information, you will be equipped to perform your own calculations and take necessary steps to maximize your tax savings in the future

Indian income tax is a mandatory levy imposed by the government on individuals, companies, and other entities for the income they earn. It is a crucial component of the country's financial system that helps the government generate revenue to fund various public services and welfare programs. The Indian income tax system operates on the principles of fairness and equity, with taxpayers required to pay taxes based on their income level and in accordance with a progressive tax structure. The system is designed to promote compliance, transparency, and accountability, and plays a vital role in shaping the economic landscape of the nation Paying income tax and joining hands to build our nation is not just a legal obligation but also a moral responsibility. It is a step towards building a stronger and more prosperous nation for ourselves and future generations. Every citizen must strive to fulfill their tax obligations and contribute towards the growth and development of our nation.

M aximize Your Savings, Minimize Your Taxes - Learn How Today!

Salaried

Individuals for AY 2022-23

Returns and Forms Applicable for Salaried Individuals for AY-2022-23

Disclaimer: The content on this page is only to give an overview and general guidance and is not exhaustive. For complete details and guidelines please refer Income Tax Act, Rules and Notifications.

 

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biswajit

select-one

1. ITR-1 (SAHAJ) – Total Income from sources up to ₹ 50 lakh

2. ITR-2 - This return is applicable for Individual and Hindu Undivided Family (HUF)

3. ITR-3- This return is applicable for Individual and Hindu Undivided Family (HUF)

4. ITR-4 (SUGAM) – This return is applicable for an Individual or Hindu Undivided Family (HUF), who is Resident other than Not Ordinarily Resident or a Firm (other than LLP)

select-one Existing Tax Regime the New Tax Regime

select-one Your age group  1. 60 less 2. 60 + 3. 80 + select-one Income 1. Up to ₹ 2,50,000. 2. ₹ 2,50,001 - ₹ 5,00,000 3. ₹ 5,00,001 - ₹ 10,00,000 4. Above ₹ 10,00,000 select-one Form ( if applicable) 12BB,16, 16A , 67,26AS,15G,15H, 10E - select-one Tax deductions If applicable 80U,80TTB,80TTA,80GGC, 80GGA,80GG,80G,80EEB, 80EEA,80EE,80E,80DDB, 80DD,80D,80CCD(2),80CCD(1B), 80CCD(1),80CCC,80C see Surcharge

RETURNS 

There are four types of return

First select which return is applicable for you

 1. ITR-1 (SAHAJ) – Total Income from sources up to ₹ 50 lakh

• This return is applicable for a Resident (other than Not Ordinarily Resident) Individual having Total Income from any of the  salary / Pension,House Property,Other sources (Interest, Family Pension, Dividend etc.) Agricultural Income up to ₹ 5,000

Important Note: ITR-1 cannot be used by a person who:-

• (a) is a Director in a company 
• (b) has held any unlisted equity shares at any time during the previous year 
• (c) has any asset (including financial interest in any entity) located outside India 
• (d) has signing authority in any account located outside India 
• (e) has income from any source outside India 
• (f) is a person in whose case tax has been deducted u/s 194N 
• (g) is a person in whose case payment or deduction of tax has been deferred on ESOP
• (h) who has any brought forward loss or loss to be carried forward under any head of income

 

2. ITR-2 - This return is applicable for Individual and Hindu Undivided Family (HUF)

Not having Income under the head Profits and Gains of Business or Profession & Who is not eligible for filing ITR-1

 

3. ITR-3- This return is applicable for Individual and Hindu Undivided Family (HUF)

Having Income under the head Profits and Gains of Business or Profession & Who is not eligible for filing ITR-1, 2 or 4

 

4. ITR-4 (SUGAM) – This return is applicable for an Individual or Hindu Undivided Family (HUF), who is Resident other than Not Ordinarily Resident or a Firm (other than LLP) 

• which is a Resident having Total Income up to ₹ 50 lakh and having income from Business or Profession which is computed on a presumptive basis (u/s 44AD / 44ADA / 44AE) 
•  income from  salary / Pension,House Property,Other sources (Interest, Family Pension, Dividend etc.)
• Agricultural Income up to ₹ 5,000

• Important Note: ITR-4 cannot be used by a person who:
• (a) is a Director in a company
• (b) has held any unlisted equity shares at any time during the previous year 
• (c) has any asset (including financial interest in any entity) located outside India 
• (d) has signing authority in any account located outside India 
• (e) has income from any source outside India 
• (f) is a person in whose case payment or deduction of tax has been deferred on ESOP
• (g) who has any brought forward loss or loss to be carried forward under any head of income

Please note that  ITR-4 (Sugam) is not mandatory. It is a simplified return form to be used by an Assessee, at his option, if he is eligible to declare Profits and Gains from Business or Profession on presumptive basis u/s 44AD, 44ADA or 44AE.

Your tax regime 

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Fair and Efficient Taxation: Achieving a Balance between Revenue Generation and Social Equity

Starting from the fiscal year 2020-21, individuals and HUFs can choose to pay their taxes using the new optional tax regime. The new regime has fewer deductions/exemptions and lower tax rates, which could provide benefits to taxpayers. We will discuss the features of the new tax regime and how it could be advantageous

INTRODUCTION By default, the new tax regime will be applied, but taxpayers have the option to select the old regime. The tax exemption limit has been raised from Rs.2.5 lakh to Rs.3 lakh in the new tax regime. Additionally, a tax rebate has been introduced for taxable income of up to Rs.7 lakhs, implying that no tax will be charged for income below this limit.

• Under the new tax regime, tax slabs have been restructured as follows: up to Rs.3 lakh will incur no tax, while incomes between Rs.3-6 lakh will be taxed at a rate of 5%. Incomes between Rs.6-9 lakh will be taxed at 10%, Rs.9-12 lakh at 15%, Rs.12-15 lakh at 20%, and above Rs.15 lakh at 30%.
• Furthermore, the new tax regime provides for a standard deduction of Rs.50,000. Taxpayers earning over Rs.5 crore will benefit from a reduction in the highest surcharge rate from 37% to 25%, resulting in a lower overall tax rate of 39% instead of 42.74%.

WHATstarting from the assessment year 2020-21, the Indian Government introduced a new tax regime under Section 115BAC, which taxpayers can choose to opt for. Under the old tax regime, income tax at a rate of 30% is levied on income exceeding 10 lakhs, whereas income between 10 lakhs to 12 lakhs is taxed at a rate of 15%.

WHYAim of introducing the new tax regime was to make the taxation process simpler and alleviate the burden of complying with tax laws on taxpayers.

DIFFERENCE The primary distinguishing factor between the new tax regime and the previous one is the variation in the slab rates for income tax, along with modifications in the provisions concerning deductions and exemptions that taxpayers can claim.

HOW Submitting Form 10IE within the due date of filing income tax return under Section 139 (1) of the Act allows an individual to change their tax regime only once during their lifetime.

WHICH ONE If your investment in tax saving schemes exceeds 3,12,500, then the previous tax regime would be more beneficial for you. On the other hand, if your investment or expenses are less than 3,12,500, then the new tax regime would prove to be more advantageous

INSIGHT

• The new tax regime offers taxpayers several benefits, such as an increased tax exemption limit and a tax rebate for incomes up to Rs.7 lakhs. Moreover, the tax slabs have been revamped to make it more progressive, with lower-income earners paying little to no tax. The introduction of a standard deduction of Rs.50,000 also helps reduce the tax burden for taxpayers.
• High-income taxpayers earning over Rs.5 crore will particularly benefit from the reduced surcharge rate from 37% to 25%, leading to a lower overall tax rate of 39%. This move will likely stimulate investment and economic growth.
• The new optional tax regime, introduced in the fiscal year 2020-21, is designed to simplify tax compliance and reduce the tax burden for individuals and HUFs. With fewer deductions and exemptions and lower tax rates, it could encourage taxpayers to invest more in the economy and lead to higher growth

TIPS

If the sum of your eligible deductions and exemptions under the old tax regime exceeds the breakeven threshold for your income bracket, it is recommended that you continue with the old regime.

Tax Slabs forAY 2022-23

• Individuals and HUFs can opt for the Existing Tax Regime or the New Tax Regime with lower rate of taxation  u/s 115 BAC of the Income Tax Act)The taxpayer opting for concessional rates in the New Tax Regime will not be allowed certain Exemptions and Deductions (like 80C, 80D,80TTB, HRA) available in the Existing Tax Regime.  

LESS THEN 60 Existing Tax Regime New Tax Regime u/s 115BAC Income Tax Slab Income Tax Rate Income Tax Slab Income Tax Rate Up to ₹ 2,50,000     Nil Up to ₹ 2,50,000 Nil ₹ 2,50,001 - ₹ 5,00,000     5% above ₹ 2,50,000 ₹ 2,50,001 - ₹ 5,00,000 5% above ₹ 2,50,000 ₹ 5,00,001 - ₹ 10,00,000 ₹ 12,500 + 20% above ₹ 5,00,000 ₹ 5,00,001 - ₹ 7,50,000 ₹ 12,500 + 10% above ₹ 5,00,000 Above ₹ 10,00,000  ₹ 1,12,500 + 30% above ₹ 10,00,000 ₹ 7,50,001 - ₹ 10,00,000 ₹ 37,500 + 15% above ₹ 7,50,000     ₹ 10,00,001 - ₹ 12,50,000 ₹ 75,000 + 20% above ₹ 10,00,000     ₹ 12,50,001 - ₹ 15,00,000 ₹ 1,25,000 + 25% above ₹ 12,50,000     Above ₹ 15,00,000 ₹ 1,87,500 + 30% above ₹ 15,00,000

 

60+ to 80

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Existing Tax Regime		New Tax Regime u/s 115BAC
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 3,00,000	Nil	Up to ₹ 2,50,000	Nil
₹ 3,00,001 - ₹ 5,00,000	5% above ₹ 3,00,000	₹ 2,50,001 - ₹ 5,00,000	5% above ₹ 2,50,000
₹ 5,00,001 - ₹ 10,00,000	₹ 10,000 + 20% above ₹ 5,00,000	₹ 5,00,001 - ₹ 7,50,000	₹ 12,500 + 10% above ₹ 5,00,000
Above ₹ 10,00,000	₹ 1,10,000 + 30% above ₹ 10,00,000	₹ 7,50,001 - ₹ 10,00,000	₹ 37,500 + 15% above ₹ 7,50,000
		₹ 10,00,001 - ₹ 12,50,000	₹ 75,000 + 20% above ₹ 10,00,000
		₹ 12,50,001 - ₹ 15,00,000	₹ 1,25,000 + 25% above ₹ 12,50,000
		Above ₹ 15,00,000	₹ 1,87,500 + 30% above ₹ 15,00,000

 

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80+ Existing Tax Regime New Tax Regime u/s 115BAC Income Tax Slab Income Tax Rate Income Tax Slab Income Tax Rate Up to ₹ 5,00,000   Nil Up to ₹ 2,50,000 Nil ₹ 5,00,001 - ₹ 10,00,000 20% above ₹ 5,00,000 ₹ 2,50,001 - ₹ 5,00,000 5% above ₹ 2,50,000 Above ₹ 10,00,000  ₹ 1,00,000 + 30% above ₹ 10,00,000 ₹ 5,00,001 - ₹ 7,50,000 ₹ 12,500 + 10% above ₹ 5,00,000     ₹ 7,50,001 - ₹ 10,00,000 ₹ 37,500 + 15% above ₹ 7,50,000     ₹ 10,00,001 - ₹ 12,50,000 ₹ 75,000 + 20% above ₹ 10,00,000     ₹ 12,50,001 - ₹ 15,00,000 ₹ 1,25,000 + 25% above ₹ 12,50,000     Above ₹ 15,00,000 ₹ 1,87,500 + 30% above ₹ 15,00,000

 

FORMSNow find is there  any  Form(s) Applicable to you

• 1. Form 12BB - Particulars of claims by an employee for deduction of tax (u/s 192))

1. provided by An Employee to his Employer(s) 
2. Evidence or particulars of HRA, LTC, Deduction of Interest on home loan, Tax Saving Claims / Deductions on eligible payments or investments for the purpose of calculating Tax to be Deducted at Source (TDS)

• 2. Form 16 - Certificate of Tax Deducted at Source on Salary (U/s 203 of the Income Tax Act, 1961)

1. Provided by An Employer(s) to his Employee at the end of the financial year
2. Details provided in the form is Income of the such person, Deductions / Exemptions and Tax Deducted at Source for the purpose of Computing Tax Payable / Refundable

• 3. Form 16A – Certificate u/s 203 of the Income Tax Act, 1961 for TDS on Income other than Salary

1. Provided by  Deductor to Deductee
2. Details provided in the Form 16A is a Tax Deducted at Source (TDS) Certificate issued quarterly that captures the amount of TDS, Nature of Payments and the TDS Payments deposited with the Income Tax Department

• 4. Form 67- Statement of Income from a country or specified territory outside India and Foreign Tax Credit 

1. Submitted by Taxpayer, to be furnished on or before the due date specified for furnishing the ITRs u/s 139(1)
2. Details provided in the form is Income from a country or specified territory outside India and Foreign Tax Credit claimed

• 5. Form 26AS - Annual Information Statement 

1. details provided by income Tax Department (It is available in TRACES portal that may be accessible after logging on to Income Tax e-Filing portal or Internet Banking) 
2. Details provided :-

Tax Deducted /  Collected at Source
Advance Tax /  Self Assessment Tax paid
Specified Financial Transactions
Demand /  Refund
Pending /  Completed Proceeding

• 6. Form 15G - Declaration by resident taxpayer (not being a Company or Firm) claiming certain receipts without deduction of tax  

1. submitted by A Resident Individual less than 60 years or HUF or any other Person (other than Company / Firm) to Bank for not deducting TDS on Interest Income if the income is below basic exemption limit
2.  Details provided is Estimated Income for the FY

• 7. Form 15H - Declaration to be made by a resident individual (who is sixty years age or more) claiming certain receipts without deduction of tax

1. Submitted by A Resident Individual, 60 years or more to Bank for not deducting TDS on Interest Income
2. Details provided is Estimated Income for the FY

• 8. Form 10E - Form for furnishing particulars of Income for claiming relief u/s 89(1) when Salary is paid in arrears or advance
• Submitted by An Employee to the Income Tax Departmen
• Details provided in form are 

Arrears / Advance Salary

Gratuity

Compensation on Termination

Commutation of Pension 

Tax deductions specified under Chapter VIA of the Income Tax Act  

These Deductions will not be available to a taxpayer opting for the New Tax Regime u/s 115 BAC, except for deduction u/s 80CCD (2) which will be applicable for New Tax Regime as well

80C,80CCC, 80CCD (1)

Deduction towards payments made to :-

80C

• Life Insurance Premium
• Provident Fund
• Subscription to certain equity shares
• Tuition Fees
• National Savings Certificate,
• Housing Loan Principal
• Other various items

Deduction limit :-Combined deduction limit of ₹ 1,50,000

80CCC

Annuity plan of LIC or other insurer towards Pension Scheme
80CCD(1)	Pension Scheme of Central Government

80CCD(1B)

Deduction towards payments made to Pension Scheme of Central Government, excluding deduction claimed under 80CCD (1)

Deduction limit of ₹ 50,000

80CCD(2)
Deduction towards contribution made by an employer to the Pension Scheme of Central Government If Employer is a PSU, State Government  or Others Deduction limit of 10% of salary

If Employer is Central Government

Deduction limit of 14% of salary

80D
Deduction towards payments made to Health Insurance Premium & Preventive Health check up For Self / Spouse or Dependent Children ₹ 25,000 (₹ 50,000 if any person is a Senior Citizen) ₹ 5,000 for preventive health check up, included in above limit For Parents ₹25,000if any person is a Senior Citizen) ₹ 5,000 for preventive health check up, included in above limi

Deduction towards Medical Expenditure incurred on a Senior Citizen, if no premium is paid on health insurance coverage For Self/    Spouse or Dependent Children Deduction limit of ₹ 50,000 For Parents Deduction limit of ₹ 50,000

 

80DD
Deduction towards payments made towards Maintenance or Medical treatment of a Disabled Dependent or Paid / Deposited any amount under relevant approved scheme	Flat deduction of ₹ 75,000 available for a person with Disability, irrespective of expense incurred The deduction is ₹ 1,25,000 if the person has Severe Disability (80% or more)

 

80DDB
Deduction towards payments made towards Medical treatment of Self or Dependant for specified diseases	Deduction limit of ₹ 40,000 (₹ 1,00,000 if Senior Citizen)

  

80E
Deduction towards interest payments made on loan for higher education of Self or relative	Total amount paid towards interest on loan taken

 

80EE
Deduction towards interest payments made on loan taken for acquisition of residential house property where the loan is sanctioned between 1st April 2016 to 31st March 2017	Deduction limit of ₹ 50,000 on the interest paid on loan taken

 

80EEA
Deduction available only to individuals  towards interest payments made on loan taken for acquisition of residential house property for the first time where the loan is sanctioned between 1st April 2019 to 31st March 2022 & deduction should not have been claimed u/s 80EE	Deduction limit of ₹ 1,50,000 on the interest paid on loan taken

 

80EEB
Deduction towards interest payments made on loan for purchase of Electric Vehicle where the loan is sanctioned between 1st April 2019 to 31st March 2023	Deduction limit of ₹ 1,50,000 on the interest paid on loan taken

 

80G
Deduction towards Donations made to prescribed Funds, Charitable Institutions, etc. Donation are eligible for deduction under the below categories Without any limit 100% deduction 50% deduction Subject to qualifying limit 100% deduction 50% deduction     Important Note - No deduction shall be allowed under this section in respect of donation made in cash exceeding  ₹ 2000/-

 

80GG

Deduction towards rent paid for house & applicable  to only those who are self-employed or for whom HRA  is not part of Salary Least of the following shall be allowed as deduction Rent paid reduced by 10% of Total Income before this deduction ₹ 5,000 per month 25% of Total Income (excluding long term capital gains, short term capital gains under section 111A or income under section 115A or 115D) Note: Form 10BA to be filled for claiming this deduction.

 

80GGA

Deduction towards Donations made for Scientific Research or Rural Development Donation are eligible for deduction under the below categories Research Association or University, College or other Institution for Scientific Research Social Science or Statistical Research Association or Institution for  Rural Development Conservation of Natural Resources or for Afforestation PSU or Local Authority or an association or institution approved by the National Committee for carrying out any eligible project  Funds notified by Central Government for Afforestation Rural Development National Urban Poverty Eradication Fund as setup and notified by Central Government    Note: No deduction shall be allowed under this Section in respect of donation made in cash exceeding ₹  2000/- or if Gross Total Income includes income from Profit / Gains of Business / Profession

  

80GGC
Deduction towards Donations made to Political Party or Electoral Trust	Deduction towards Donations made to Political Party or Electoral Trust

 

80TTA
Deduction on interest received on saving bank accounts by Non-Senior Citizens	Deduction limit of ₹ 10,000/-

  

80TTB
Deduction on interest received on deposits by Resident Senior Citizens	Deduction limit of ₹ 50,000/-

 

80U
Deductions for a resident individual taxpayer with Disability	Flat ₹ 75,000 deduction for a person with Disability, irrespective of expense incurred Flat ₹ 1,25,000 deduction for a person with Severe Disability (80% or more), irrespective of expense incurred

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Surcharge, Marginal Relief and Health & Education Cess

Important Note: 1. The rates of Surcharge and Health & Education cess are same under both the tax regimes 2. Rebate u/s 87-A Resident Individual whose Total Income is not more than ₹ 5,00,000 is also eligible for a Rebate of up to 100% of income tax or ₹ 12,500, whichever is less. This Rebate is available in both tax regimes

Surcharge refers to an extra fee imposed on individuals who earn an income above a particular threshold. This fee is calculated based on the applicable tax rates and is added to the amount of income tax owed. The surcharge rate varies depending on the amount of taxable income earned. For instance, individuals with a taxable income above ₹50 lakh but up to ₹1 crore are subject to a surcharge of 10%, while those with taxable income above ₹1 crore but up to ₹2 crore face a surcharge of 15%. Individuals earning taxable income above ₹2 crore but up to ₹5 crore are charged a surcharge of 25%, and those with a taxable income above ₹5 crore are levied a surcharge of 37%. Additionally, for income derived from dividends or income under specific sections (Sections 111A, 112A, and 115AD), the maximum surcharge rate is 15%.

Could you explain what Marginal Relief means?

Marginal Relief refers to a form of tax relief that applies when an individual or entity's liability to pay a surcharge is triggered by a small amount of additional income. If the surcharge payable exceeds the amount of additional income earned, the Marginal Relief provision will reduce the surcharge payable to a more reasonable amount. The surcharge payable can never exceed the amount of income earned that exceeds the specified threshold of ₹50 lakh, ₹1 crore, ₹2 crore, or ₹5 crore, depending on the individual's or entity's income

Can you explain the meaning of Health and Education cess?

Additionally, a 4% Health and Education cess must be paid on the combined amount of income tax and any applicable surcharge.

What are some types of investments, payments, or incomes that offer tax benefits?

One such option is to claim a deduction under Section 24(b) for interest paid on a housing loan or housing improvement loan as part of your income from house property. The maximum deduction for interest paid on a housing loan for a self-occupied property is ₹ 2 lakh. It's important to note that this deduction is not available to individuals who choose to opt for the New Tax Regime

 

Interest on loan u/s 24(b) allowable is tabulated below 

Nature of Property	When loan was taken	Purpose of loan	Allowable (Maximum limit)
Self-Occupied	On or after 1/04/1999	Construction or purchase of house property	₹ 2,00,000
	On or after 1/04/1999	For Repairs of house property	₹ 30,000
	Before 1/04/1999	Construction or purchase of house property	₹ 30,000
	Before 1/04/1999	For Repairs of house property	₹ 30,000
Let Out	Any time	Construction or purchase of house property	Actual value without any limit

 

Simply

Surcharge is an additional charge levied for persons earning Income above the specified limits, it is charged on the amount of income tax calculated as per applicable rates

1. 10% - Taxable Income above ₹ 50 lakh – up to ₹ 1 crore
2.  15% - Taxable Income above ₹ 1 crore - up to ₹ 2 crore 
3. 25% - Taxable Income above ₹ 2 crore - up to ₹ 5 crore 
4. 37% - Taxable Income above ₹ 5 crore 

Maximum rate of Surcharge on Income by way of Dividend or Income under the provisions of Sections 111A, 112A and 115AD is 15%

Dear Reader,

I hope you have gained a rough understanding of the topics discussed on my blog. However, to avoid any unnecessary complexity and to ensure that you save both time and money, I highly recommend that you visit the official website of the Income Tax Department of India at https://incometaxofindia.gov.in.

In addition to this, I also advise you to seek the assistance of the experts at https://cleartax.in, who can provide you with accurate and reliable information and help you with any tax-related queries.

Thank you for your interest in my blog, and I hope these resources will be helpful to you.

Best regards,

biswajit

Biswajit Choudhury