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The government offers several opportunities to reduce your tax liability through various deductions and exemptions. However, navigating through the jargon and recognizing openings for tax savings can be confusing. Here’s a straightforward guide on how to calculate the tax payable on your salary and claim tax breaks.
How to calculate your taxable salary income?
1. Find out your gross annual income.
Contact your HR department to get your Pay Slip or Tax Statement (Form 16) to learn about your salary details.
2. Add up salary components listed in Form 16 and salary slip, such as:
3. Arrive at your net income by subtracting the exemptions allowed on your salary components, including:
4. Estimate the deductions allowed for investments in tax-saving instruments under Section 80 of the Income Tax Act, 1961.
You can avail of deductions up to ₹ 1.5 lakhs under Section 80C on the following investments:
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Some expenses also count under 80C deductions, such as:
Apart from 80C tax breaks, you can subtract the following expenses from your annual salary to work out your taxable income:
5. Assess your payable tax
You need to pay tax on your taxable income as per your applicable tax slab rate.
|Taxable income||Tax Rate|
|First ₹ 2,50,000||0%|
|The next ₹ 2,50,000||5%|
|₹ 5,00,000 – ₹ 10,00,000||₹ 12,500 + 20% of income over ₹ 5,00,000|
|The part exceeding ₹ 10,00,000||₹ 1,12,500 + 30% of income exceeding ₹ 10,00,000|
From the payable tax, you have to reduce the amount your employer has deducted from your salary as TDS (tax deducted at source). You can find the details in your Form 16. If the income surpasses ₹ 5,00,000, you need to add 4% Cess to the tax amount. Also, if your income is less than ₹ 5,00,000, you can claim ₹ 12,500 tax rebate under Section 87A.