Income tax is a crucial component of personal financing, and it is essential that taxpayers are well-educated on the subject. Irrespective of the kind of occupation, it is necessary to calculate the income tax liabilities at the end of each financial year. However, the complexity of the taxation process might overwhelm some taxpayers, especially beginners. This is where income tax calculators come into place as they simplify the entire process, reducing it to just a few clicks.
An income tax calculator is a tool that helps you estimate your taxes, deductions and related expenses at the end of each financial year. It helps in determining your total taxable income along with the amount of tax a taxpayer is obligated to pay considering any exemptions or deductions they may have. Using an income tax calculator, you can input your income for the year, any taxes you have already paid and the deductions you are eligible for, and the calculator then does the math for you.
Here’s a step-by-step process for how you can use an income tax calculator to calculate your income tax:
Step 1: Start by Calculating Your Gross Income
Gross income is the total earnings from all sources, including salary, bonus, any income generated from hobbies and investments. Add up all these sources of income to get your annual gross income.
Step 2: Calculate Your Taxable Income
Your taxable income is your gross income minus any deductions. To arrive at the taxable income, you’ll need to consider the income tax slab rate.
Taxable Income = Gross Income – Deductions – Exemptions
Step 3: Check your Eligibility for Tax Deductions
There are various tax deductions approved by the Indian government. Based on the framework, some popular allowances include medical bills, home loan repayment, provident fund contributions, life insurance premiums, expenses incurred for the disabled and many more. These deductions help in bringing down your taxable income, thereby reducing the tax liability.
Step 4: Identify the Relevant Tax Slab Rate for the Year
The Indian government announces the tax slab rates each year. It’s essential to know which tax slab rate is applicable to you based on your total taxable income. The tax slab ranges from 0 to 30%, with each slab designed for a different income bracket. It would be best if you kept in mind that the tax rates keep changing each year, so it’s important to be aware of these changes.
Step 5 : Calculate Your Tax Liability Using an Income Tax Calculator
Calculating your tax liability has become increasingly easier because of income tax calculators. Using these calculators, you can input your income and all the deductions you are eligible for, and they will automatically calculate your tax liability.
Home Loan Tax Benefits:
If you have availed of a home loan, there is some good news for you in terms of Tax Benefits. The Indian government allows taxpayers who have availed of home loans to get deductions under Section 80C and Section 24 of the Indian Income Tax Act.
Under Section 80C, a taxpayer can get a maximum deduction of Rs. 1.5 lakhs from their taxable income if they have taken a home loan as the principal component of the home loan is treated as an investment made under the 80C clause.
As per Section 24 of the Income Tax Act, a taxpayer can get deductions on the interest paid on the home loan, up to a maximum of Rs. 2 lakhs. The interest paid on a Home loan is deducted from the taxable income and brings down your tax liability. These deductions connected to Home Loans make the process a little bit less intimidating and more manageable.
Home Loan Documents:
To claim your home loan tax benefits, it is essential that you have a clear understanding of the documents that you need to provide to the government to get these deductions.
1. Property Documents – The Home loan certificate will be given by the bank stating the value of the loan disbursed. This certificate mentions the details of the property on which the loan has been taken.
2. Interest Certificate – The Interest certificate issued by the bank mentions the interest paid and the principal amount paid towards the home loan. This certificate is required to avail of the tax benefits on interest paid on the Home Loan.
3. Possession Certificate – The possession certificate is required to establish the fact that the taxpayer for whom tax benefits are being claimed is the legal owner of the property.
In Conclusion:
Calculating your income tax liabilities can seem like an intimidating process, but with an Income Tax calculator, it can be straightforward. To make sure that you get all the benefits that you are eligible for under the Indian tax laws, ensure that you approach the filing process with knowledge and transparency.
Additionally, if you have availed of a home loan, make use of the Home Loan Tax Benefits under the Indian Tax regime by providing the necessary Home Loan documents to the authorities. These documents will help you plan your finances better and take advantage of the various tax deductions that are available to you. So, calculate your income tax using an income tax calculator, pay your taxes, and get ready to repeat the process for the next financial year.
