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How to calculate tax liability

I have a personal question about my Tax liability for current year. I have tried to gather as much information as possible but still my query remains unanswered. Could you please help me to advise my Tax liability basis following and how much additional I can invest under Section 80C so as to avail maximum benefit - 1. Income from Salary: INR 504540/annum, 2. Term insurance premium: INR 25000/annum, 3. Contribution to PF: INR 31331/annum, 4. Rent paid: INR 16028/month?

Oct 12, 2015 by Devdutt Amte, Mumbai  |   Taxation

You have not provided sufficient information to compute your tax liability. At the very least, information on your Basic Salary, HRA received from your employer and interest received from fixed deposits (if any) are required to calculate your tax liability. However, if you are a salaried individual, have no other source of income except interest on fixed deposits and have the necessary information available with you, you can easily calculate your tax liability by following these steps.

1. Take your total annual income from salary

2. Add interest received from Fixed deposits

3. Deduct HRA exemption. For HRA exemption you need to calculate 3 items.

  1. HRA paid by your employer

  2. Excess rent paid over 10% of your basic salary. For example, if your basic salary is Rs 300,000 / annum 10% of that will be Rs 30,000. Total rent paid by you is Rs 192,336. The amount eligible for HRA exemption is Rs 162,336

  3. 50% of your basic salary if you are living in Mumbai or any other metro city or 40% of your basic salary in case you are living in a non metro city

The lowest of these three items will be eligible for HRA exemption

1. Deduct eligible Section 80C items, e.g. contribution to employee provident fund, life insurance premiums, home loan principal payment (if applicable), children’s school tuition fees (if applicable) etc.

2. If you have a home loan and have taken possession of your house, you can also claim deduction on the interest paid during the financial year up to Rs 200,000.

3. The net result will be your net taxable income.

Calculate your income tax liability

  1. Up to Rs 250,000 it is nil

  2. Your net taxable income minus Rs 250,000 will be taxed at 10%.
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