Planning your investments to save on taxes is vital as it aids in reducing your taxable income. But do you find it difficult to calculate the tax applicable on your salary to make investment decisions? Here are the exemptions and deductions that you claim as a salaried individual and calculate the tax on your income.
Taxable Income Estimation
To calculate your tax liability, you have to consider factors like your annual income, the tax slab applicable to your income, eligible tax exemptions and eligible tax deductions under Section 80C and Section 80D. You can claim certain exemptions with the allowances allotted in your income like Leave Travel Allowance (LTA) and House Rent Allowance (HRA). Let’s assume that your salary break-up looks like the example given below:
| Components | Amount |
| Basic | INR 40,000 |
| HRA | INR 12,000 |
| Special Allowance | INR 6,000 |
| LTA | INR 27,000 (Yearly) |
Now, let’s work out the taxable income after claiming exemptions:
| Components | Amount (per annum) | Exempted Amount | Taxable Amount |
| Basic | INR 4,80,000 | – | INR 4,80,000 |
| HRA | INR 1,44,000 | INR 84,000 | INR 60,000 |
| Special Allowance | INR 72,000 | – | INR 72,000 |
| LTA | INR 27,000 (Yearly) | INR 18,000 | INR 9,000 |
| Standard Deduction | – | INR 50,000 | – |
| Gross Total Taxable Salary | INR 6,21,000 |
What is Total Income Tax Liability?
To be able to calculate the tax on other income sources, you need to know the below-given tax factors:
- Salary – Income paid by your employee
- Income earned from a property – Money earned from rented properties and the interest paid for repaying a home loan
- Income earned from other business – freelancing
- Income earned from other sources – interest earned on a savings account, fixed deposit or bonds
- Income earned from capital gains – sale purchase of any house or shares
Now, let’s assume that you have invested in the tax-savings instruments like Life Insurance, Employee Provident Fund (EPF), ELSS (Equity-Linked Savings Scheme), Public Provident Fund (PPF), Medical insurance, Fixed deposit, and Savings deposit.
| Investments | Amount |
| PPF | INR 65,000 |
| ELSS | INR 25,000 |
| Interest from Fixed & Savings Deposit | INR 9,000 |
| Life Insurance Premium | INR 7,000 |
| EPF | INR 53,000 |
| Medical Insurance Premium | INR 20,000 |
Here is the income tax deductions list under the respective sections that you can claim for above-made the investments:
| Tax-Saving Section | Maximum Deduction Allowed | Eligible Investment | Amount Claimed | |
| Section 80C | INR 1,50,000 | ELSS + Life Insurance Premium + EFP + PPF = | INR 25,000 + INR 7,000 + INR 53,000 + INR 65,000 | INR 1,50,000 |
| Section 80D | INR 25,000 for you + INR 50,000 for parents | Medical Insurance Premium = | INR 12,000 | INR 12,000 |
| Section 80TTA | INR 10,000 | Interest from Savings Deposit + Interest from Fixed Deposit = | INR 9,000 | INR 9,000 |
| Total | INR 1,71,000 | |||
So the total taxable income is
= Total annual salary + income from other sources – tax-savings investments
= INR 6,21,000 + INR 18,000 – INR 1,71,000
= INR 4,68,000
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