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I earn ₹12 lacs per year. What is my tax liability exactly?

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Income tax in India is determined by the Income Tax Act which changes from time to time when the government revises the slab rates. The slab rates are nothing but different rates of taxes applied to different levels of incomes. This is called progressive taxation. For instance, someone earning up to ₹ 2,50,000 a year is exempted from tax. However, those earning ₹ 3,00,000 a year have to pay tax only on the additional ₹ 50,000.

In India, there are different tax rates for different slabs . Below are the Income Tax Slabs & Tax Rate in India for Financial year 2019-2020

Income Range  

Income Tax Rate

Education Cess

 Up to ₹2.5 lakhs              

Nil

Nil

₹2.5 lakhs to ₹5 lakhs

5% of (Total income – ₹2.5 lakhs)   

3%  4%of income tax

₹5 lakhs to ₹10 lakhs

₹25,000 + 20% of (Total income – ₹5 lakhs)         

4% of income tax

Above ₹10 lakhs

₹1,12,500 + 30% of (Total income – ₹10 lakhs)

4% of income tax

Let’s take an example:

If your salary is ₹ 12 lakh per year, what is your total tax liability if you follow the current slab rates? This is shown below.

Income Tax Calculation 2019

Income Slab

Tax Rate

Income in this slab

Total tax you will pay

₹0.00 to ₹2,50,000

Nil

0

0

₹2,50,000 to ₹5,00,000

5%

₹2,50,000

₹12,500

₹5,00,000 to ₹10,00,000

20%

₹5,00,000

₹1,00,000

₹10,00,000 +

30%

₹2,00,000

₹60,000

Total

₹1,72,500


As shown above, the taxes on each slab of income rise as the percentage rises. However, the additional rates are charged only on the additional income from that slab instead of being applied to the total income. So, even if you are in the highest slab rate of 30% because your income is more than ₹ 10 lakh a year, you pay the 30% tax only on the amount above ₹ 10 lakh while other slab rates apply for different levels of income.

This total is without any tax deductions

There are possible components for tax deductions which can help you save taxes:

  • Annuity Plans
  • Child Tuition Fees
  • Employee National Pensions Scheme (NPS)
  • Equity Linked Savings Scheme Investment
  • Fixed Deposits
  • Housing Loan Interest
  • Interest on Saving Account Deposits
  • Interest on the loan is taken for Residential House
  • Life Insurance Premium
  • MediClaim Premium
  • Medical treatment of dependent
  • National Pensions Fund (NPF) and
  • National Savings Certificates (NSC)
  • Public Provident Fund (PPF)
  • Unit Linked Insurance Plan (ULIP)

So, if there are any deductibles, the first step is to deduct total deductibles from gross salary and then calculate your income tax.

After this, one has to calculate the education cess. Education cess is 4% of the total Income Tax liability.

Income Tax

Education cess rate

Amount

₹1,72,500

4%

₹6900

So, Total Tax to pay for ₹ 12 lakh per year:

Gross Salary

₹12,00,000

Total Deductions (assumed)

0

Income Tax Due

₹1,72,500

Education Cess Tax Due

₹ 6,900

Net Income

₹10,20,600

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