With taxpayers having to pick between two systems of taxation, knowing your income tax liability for the financial year is a lot more important now. The new, optional tax system levies tax at concessional rates but requires you to forgo a total of 70 deductions and exemptions. Because of this give and take, you may either gain or lose with the new regime, depending on how well you are able to use the exemptions and deductions available to you. However, computing your tax liability in the old regime, with all its deductions, is not easy. Doing so with pen and paper is a tedious affair and not error-free. To get instant and accurate results, you can use an income tax calculator online.
Here is a rundown on how to use an income tax calculator to compute your tax liability.
What is an Income Tax Calculator?
An income tax calculator is a free online tool using which you can accurately compute your tax liability for a given financial year. It is a calculator that accounts for the current tax laws, ensuring that you get the most accurate results. What’s more, learning how to use a tax calculator is also a simple undertaking.
All you have to do is know your income break-up for the financial year while keeping in mind all the deductions you’re eligible for. This way, the process is reduced to simply entering these values in the fields available.
How to Calculate Income Tax for FY 2020-21?
Calculating your income tax for FY 2020-21 is a little nuanced because you have two regimes to pick from. With the old regime, you are eligible for many deductions and these make the computation process complex. The deductions aren’t available with the new regime, making the calculations are easier. However, this shouldn’t be the reason for you to save on tax deductions if they are applicable to you, and thus save more. Take a look at the two regimes in detail below.
Old Income Tax Regime
For the old tax regime, the best way to calculate your tax liability is to use the income tax calculator. Here are the steps to follow.
Step 1 : Enter your annual income details
This includes your gross salary, interest earned from savings accounts, and any other income earned from any other sources. Click 'Next' when filled completely.
Step 2 : Enter your HRA details
Here, you have to first pick between the 'Metro' or 'Non-Metro' option for the city of residence. Then, you enter your basic salary, annual rent paid, and the HRA amount received in your salary. Click 'Next' when filled completely.
Step 3 : Fill the 'Deductions under Section 16' page
Enter the amounts you're eligible for under Section 80CCE, medical insurance premium amounts, and other deductions such as professional tax or donations to approved funds. Click 'Next' when filled completely.
Step 4 : Enter the property details applicable to you
Here, you must choose between 'Self-Occupied' or 'Let-out'. Based on this choice, you will have different fields to fill out with 'Taxes paid to local authority' and 'Interest on housing loan' being common. Once filled, click on 'Calculate' to compute your Income Tax with the old tax regime.
New Income Tax Regime
With the new regime, computing your tax liability is easy and can be done manually. You may also use an online tool to do this. Here, you consider the gross total income from your salary, foregoing the deduction applicable to HRA and LTA as well as the standard deduction. Then, you add the income earned from other sources to arrive at your gross total income. This is taxed at the new tax slab rates and 4% cess is added to it.
What are the Different Income Tax Slabs?
The tax slabs are income categorisations by which you can determine your tax liability. As mentioned earlier, these are based on your annual income and knowing the different kinds of income tax slabs can help you optimise your tax payments for the coming year. To understand the different tax slabs rates in the old and new regime, look at the following table.
|Up to Rs. 2.5 lakh
|Above Rs. 2.5 lakh and up to Rs. 5 lakh
|Above Rs. 5 lakh and up to Rs. 7.5 lakh
|Above Rs. 7.5 lakh and up to Rs. 10 lakh
|Above Rs. 10 lakh and up to Rs. 12.5 lakh
|Above Rs. 12.5 lakh and up to Rs. 15 lakh
|Above Rs. 15 lakh
What is the Maximum Non-Taxable Income Limit?
The maximum non-taxable income is set to Rs. 2.5 lakh for all citizens under age 60; whereas for senior citizens, above 60 years and below 80 years, this limit is set at Rs. 3 lakh. For super senior citizens, the non-taxable limit is up to Rs. 5 lakh. Under the new, optional tax system, the basic non-taxable limit is Rs. 2.5 lakh for all taxpayers. However, under both regimes, those with incomes not exceeding Rs. 5 lakh can claim a rebate of up to Rs. 12,500 under Section 87A.
Another instance in which knowing how to use an income tax calculator comes in handy is when you’re servicing payments toward a home loan. Here, you can reduce your tax liability through deductions of up to Rs. 5 lakh as a first-time homebuyer, especially if you opt for a home in the affordable housing category. In this case, you’re eligible for deductions under Section 80C, 24B and 80EEA of the IT Act. To add to that, with a Bajaj Finserv Home Loan, you can also avail an interest subsidy of up to Rs. 2.67 lakh as a PMAY beneficiary, further adding to the benefits you enjoy while realising your dream of owning a home.
In fact, with a Bajaj Finserv Home Loan, you also get access to a suite of value-added features besides the sizable sanction of up to Rs. 15 Crore*. With this offering, you can opt for a flexible tenor of up to 40 years at nominal home loan interest rates to ensure affordable repayment. To add to this, you can also part-prepay or foreclose floating rate loans at no additional costs at any time during the tenor.
Bajaj Finserv also extends the Property Dossier service, which offers a comprehensive financial and legal guide to being a homeowner. All these features greatly aid the borrowing experience and you can enjoy them to the fullest without any hassles. All you have to do is check your pre-approved offer to get instant approval through a customised deal!
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