Income Tax Calculator Basics for Beginners

Each individual with an income itching above the minimum exemption limit for income tax liability calculation in India is liable to pay a specified amount to the government on an annual basis. Further, the tax regime followed in India is of a progressive nature. This signifies that the higher an individual’s income, the higher tax he/she is supposed to pay. Nevertheless, before making such a payment, an individual is required to make tax liability computation, which can be completed quickly with the help of tools like a tax calculator in place.

It is a critical financial tool that enables taxpayers to determine their tax liabilities with significant ease, thus eliminating the need to go into detailed manual computations. These customized tools help to find out the taxable income, tax outgo, and breakdown of the payable tax. 

To better understand how your income tax liability will be calculated with this tool; take a look at the income tax slab for AY 2020-21 applicable as per your income slab:

• Up to Rs.2.5 Lakh – Nil tax liability.

• Above Rs.2.5 lakh until Rs.5 lakh - 5% of the total income (the income is then deducted by Rs.2.5 lakh to find the taxable income).

• Above Rs.5 lakh to Rs.10 lakh - Rs.12,500 plus 20% of the total income.

• More than Rs.10 lakh - Rs.1,12,500 plus 30% of the total income.

A 4% cess is also to be charged on all tax payments. The income tax calculator takes all this into account to give you the final estimates.

Objectives of a tax calculator

Tax saving is a huge concern when it comes to financial liabilities. Individuals often look for tax saving opportunities on home loans and such other avenues to reduce their annual outgo. Tools like a tax calculator thus help them get a better idea regarding their tax liabilities. Here are some objectives of this calculator: 

1. Helps to claim deductions under Section 80C and Section 80U.

2. Helps to bring down tax liabilities and pay lower amounts.

3. Allows you a suitable assessment to initiate legal proceedings for tax deductions.

Certain tax benefits can also be enjoyed on home loans against under-construction properties. As a beginner, you must try and be aware of all these norms to save on your annual tax payments. This would help you make wiser and more informed financial decisions.

How to estimate your tax liabilities with the calculator?

Taxpayers can now make use of an income tax calculator 2020 to get the final estimates of their tax liabilities. Follow these steps to get your estimates:

Step 1: On the calculator, choose the financial year for which you wish to find the estimates. For example, if you are looking for the tax estimates of the financial year 2020-21, the assessment year would be 2021-22. 

Step 2: Select your age to proceed.

Step 3: Click on ‘Go to Next Step’.

Step 4: Mention your taxable income. It is an income resulting after deducting all available exemptions like LTA (Leave Travel Allowance), HRA (House Rent Allowance), etc.

Step 5: Along with your professional taxable income, you must also enter the estimates of other income sources on the tax calculator. It might include rental income, interest paid on a home loan, returns, capital gains, etc.

Step 6: Click on ‘Go to Next Step’ again to proceed.

Step 7: If you wish to calculate the payable tax as per the old slabs, you will need to enter the tax-saving investments placed under provided sections.

Step 8: Click on the option ‘Calculate’ to draw the final estimates. Your estimates of tax liability before and after the budget will also be displayed.

The calculator serves as a great tool while filing income tax returns for a given year. Following this, you must also preserve and maintain the ITR forms properly. It would help you avail tax benefits without facing unnecessary hassles. A properly filed income tax return also serves as a suitable proof when availing financing like a home loan.

To reduce hassles and delays for customers when availing such loans, various HFCs now also extend pre-approved offers. These offers can be availed on different financial products, like home loans and loans against property. Check the pre-approved offer with minimum personal details only.

As for income tax liability computations, taxpayers can access the tax calculator for free at all times. These calculators are hosted by top financial institutions on their official websites. All one needs to do is visit this site to compute their payable taxes for a given financial year.