Tax planning is a methodology of arranging your financial affairs in a way so that you can save on taxes in a legal manner. Effective strategies of tax planning can help you have more money to save, invest or spend. Tax planning through Income Tax Calculator enables full advantage of deductions, exemptions, reliefs and rebates, and thereby reduces your tax liability.
Government allows such deductions with an intention to encourage investment and mobilization of funds, and ultimately benefit the society and the economy at large and we have included this benefit in our Income Tax Calculator.
Tax Planning through Income Tax Calculator is done with the following objectives:
- To claim deductions under Section 80C to Section 80U,
- To reduce the tax liability and pay lower amounts of tax,
- To use legal methods for reducing the tax liability and not evade tax.
- Investing in instruments that are capable of yielding good returns and eligible for tax exemption or deduction.
By using our Income Tax Calculator, you can calculate your taxable income, compute your income tax liability, and get the best means to save on taxes.
Income Tax Calculator
Income Tax Calculator is specially designed tool that enables you to calculate your taxable income and your overall tax liability. The Income Tax Calculator calculates this on the basis of your annual income, applicable tax slab, and the deductions you are eligible to claim under Section 80 C and Section 80D. The Income Tax Calculator further provides you with investment options that suit your financial portfolio, their benefits, and their tax saving ability.
Following are the details you need to enter in this Income Tax Calculator:
Personal Details required in the Income Tax Calculator
- Name: This field in the Income Tax Calculator requires your name as per your government and financial records.
- E-mail: In this field of the Income Tax Calculator you are required to enter your E-mail address. Make sure that you enter the correct E-mail address so as to ensure that you receive the reports on your E-mail.
- Mobile Number: This field in the Income Tax Calculator requires your mobile number for record keeping purposes.
- Date of Birth: The date of birth you need to enter in this field of the Income Tax Calculator is majorly for record keeping purposes. At the time of buying a policy on the basis of this calculation, you might need to submit documentary proofs supporting the same. Therefore, in order to get the most reliable results, make sure that the date of birth you enter in the Income Tax Calculator is as per your government IDs.
- Gender: This field of the Income Tax Calculator has been put in place because the tax slabs for men and women in India are different.
- City: In this column of the Income Tax Calculator you need to select your city from the dropdown menu. The reason why the income tax calculator requires your city is that the tax treatment for House Rent Allowance varies between metro cities and non-metro cities.
Annual Income input field in the Income Tax Calculator
This field in the Income Tax Calculator requires you to input your annual income. However, it is always advisable to consider your net income instead of your gross income. This is because your gross income comprises several fringe benefits that that you receive as a part of your salary from your employer, but, do not reach you as cash or bank balance.
Deductions supported by the Income Tax Calculator
After entering your annual income in the Income Tax Calculator, you are required to enter your investments that can be claimed as deductions under the following:
Section 80C: Section 80C comprises certain instruments, investing in which can save you tax up to Rs. 45,000 per annum; depending on your tax slab. These instruments include equity linked saving scheme (ELSS), term insurance plans, unit-linked insurance plans (ULIPs), public provident fund (PPF), bank fixed deposits (FDs), and National Saving Certificates (NSCs). A maximum of Rs. 1.5 lakh invested in all these instruments together is eligible as a deduction from your gross total income or taxable income. Also, an additional deduction, up to Rs. 50,000, against the amount invested towards new pension scheme (NPS) is available under the section. However, to make the best use of these instruments for claiming deduction under the Income Tax Act, it is essential to know these instruments in detail.
Therefore, this field in the Income Tax Calculator requires a total of all the investments you have made under Section 80C.
Section 80D Mediclaim: Under this section, you can claim deductions equal to the amount spent for medical expenses for self or dependent family members. However, a maximum of Rs. 35,000 can be claimed as a deduction under Section 80D. This amount includes a maximum of Rs. 25,000 for self and dependent family members; and the Rs.25,000 for parents. However, if your parents are above 60 years of age, then the maximum deduction available for them is Rs. 30,000. The benefit under Section 80D is over and above the deduction of Rs. 1.5 lakhs under Section 80C.
There are majorly 4 types of health insurance policies to choose from. These include medical insurance plan, super top-up plan, critical illness plan, and hospitalization plan.
Therefore, this field of the Income Tax Calculator requires a total of the amounts you pay towards the medical insurance of you and your dependent family members within the limit of Rs. 25,000 and Rs. 25,000 (Rs. 30,000 if parents are senior citizens) for your parents.
For example, Rahul claims a deduction a deduction of Rs. 25,000 against the medical expenses of his parents in the Income Tax Calculator. Now, even if he spends Rs. 15,000 on his dependent child’s health, he can claim only 10,000 out of it; because the total limit of deduction is Rs. 35,000.
Home Loan (Section 24B): As per this section, any amount, up to Rs. 2,00,000, which you pay as interest towards a home loan, during that particular financial year, can be claimed as a deduction from your taxable income.
As per the recent changes made in the union budget of 2016-17, you may be eligible for an additional deduction of Rs. 50,000 over the current deduction limit. However, this is applicable only if the loan is sanctioned in 2016-17 or later, total home loan amount does not exceed Rs. 35 lakhs, and the total cost of the new house is equal to or below Rs. 50 lakhs.
Therefore, in this field of the Income Tax Calculator you need to enter the amount of interest you have paid as interest towards your home loan.
Home Rent: As per the Income Tax Act, 1961, the amount you pay towards house rent is also eligible as a deduction from your taxable income. However, the minimum amongst the following three amounts is eligible for the exemption:
- 1. Actual house rent allowance (HRA) receive
- 2. Actual rent paid minus 10% of your basic salary
- 3. 50 % of your basic salary if you live in Mumbai, Delhi, Chennai, or Kolkata and 40 % if you live in a non-metro city.
This amount is over and above the exemptions and deductions under Section 80C, Section 80D, and Section 24B.
Therefore in this field of the Income Tax Calculator you have to mention the minimum amongst the given three amounts. However, this tool allows a maximum of Rs. 1,00,000 to be entered in the field as additional proofs and documentary evidences are required beyond this limit.
Outputs given by the Income Tax Calculator
After you key in all this information, the income tax calculator gives you the following outputs:
This summary in the Income Tax Calculator depicts your level of income, your level of investment, and your tax liability in the form of a bar graph. The Income Tax Calculator also gives an estimated amount of tax savings possible by investing in instruments available at policybazaar.com.
To further simplify it for you, the Income Tax Calculator also provides a list of available options suitable for your financial portfolio in a tabular format. This table in the Income Tax Calculator represents the kind of investment instrument, benefits of that instrument, tax saving ability of that option, and recommended product belonging to that category of instrument.
This tab in the Income Tax Calculator shows the tax slab in which your income falls, the rate of tax applicable to you income, and the amount of tax payable. The Income Tax Calculator also shows the total tax payable split into 'Tax on Total Income' and 'Education Cess'.