Income Tax is a tax on your income that is imposed by the Government of India. Government needs revenues for maintaining infrastructure, providing social welfare services and for meeting the expenses of defence and internal security. Before you get into the calculation of tax, first understand who has to file tax returns. That is where the discussion begins.
It is essential to file tax returns under the following conditions…
When it comes to filing returns, there are two important concepts that have to be understood i.e. Assessment Year and Financial Year. The financial year is also popularly known as Previous Year. For example, the income that you earn between April 01, 2017, and March 31, 2018, will be your previous year (financial year) 2017-18 for the purpose of tax payment. This will correspond to the assessment year 2018-19. The return for the financial year 2017-18 will have to be filed by you before July 31, 2018.
Having understood the concept of financial year and assessment, the next question is how much tax has to be paid? There are different rates for different categories but the largest number of taxpayers is in the under-60 category males. The following are the tax rates for this category of males under the age of 60.
|Applicable Tax Rates for the financial year 2017-18 (AY 2018-19)|
|Income Slab||Applicable tax rate|
|Up to Rs. 2,50,000 per annum||No tax|
|Rs. 2,50,001 - Rs. 5,00,000||5%|
|Rs. 5,00,001 - Rs. 10,00,000||20%|
|Above Rs. 10,00,000||30%|
The above rates are the flat rates of tax. In addition, all tax payers will be subject to an education cess of 2% and secondary and higher education cess of 1%. (The cess now stands combined to a flat rate of 4% from Financial Year 2018-19 onwards). If your net taxable income is more than Rs50 lakh for the year then there is a surcharge of 10% payable on your tax and if your annual taxable income is more than Rs100 lakh, i.e. Rs1cr, then the surcharge applicable is 15%. For the higher income groups, the cess will be calculated on the total of tax and surcharge.
|Particulars||Taxable income of Rs. 18 lakh||Taxable income of Rs. 60 lakh||Taxable income of Rs. 1.1cr|
|Net Taxable Income||Rs. 18,00,000||Rs. 60,00,000||Rs. 1,10,00,000|
|First Rs. 2.50 lakh||Nil||Nil||Nil|
|Rs. 2.50 lakh - Rs. 5 lakh||Rs. 12,500||Rs. 12,500||Rs. 12,500|
|Rs. 5 lakh - Rs. 10 lakh||Rs. 1,00,000||Rs. 1,00,000||Rs. 1,00,000|
|Above Rs. 10 lakh||Rs. 2,40,000||Rs. 15,00,000||Rs. 30,00,000|
|Income Tax||Rs. 3,52,500||Rs. 16,12,500||Rs. 31,12,500|
|Surcharge on Income Tax (0% / 10% / 15%)||N.A.||Rs. 1,61,250||Rs. 4,66,875|
|Education Cess (2%)||Rs. 7,050||Rs. 35,475||Rs. 71,588|
|Secondary Education Cess (1%)||Rs. 3,525||Rs. 17,738||Rs. 35,794|
|Total Tax Payable||Rs. 3,63,075||Rs. 18,26,963||Rs. 36,86,757|
|Effective Tax Rate (%)||20.17%||30.45%||33.52%|
In taxation parlance, this is called progressive taxation, which means as your income level goes up, your effective tax rate also goes higher.
We have seen the calculation of the tax based on different levels of taxable income. But the big question is how did we arrive at the taxable income in the first place? You start with your total income earned and then take all the exemptions along the way before arriving at your net taxable income. These are the steps based on which the calculation of taxable income is worked out.
The Union Budget 2018 made some key changes to the calculation of income tax on your total income. While the tax rates and the slabs were left untouched, the following changes were made which will have an impact on calculation of total income tax.