Are you aware that you do not have to pay huge taxes and can reduce it to the absolute minimum, even zero in some cases? Lets learn how you can increase your take home salary by picking tax-saving investments suited to you. It’s like giving yourself a raise!
For financial year 2020-21, a new regime has been introduced wherein the existing deductions available on income tax will not be applicable but the tax rates have been reduced. Every taxpayer has the option to choose between the existing taxation system and the new system. Taxpayers can claim exemptions as per the Income Tax rules for deductions under the Income tax Act of 1961:
How to Calculate Income Tax on Your CTC?
Let's say, you are 25 years old and your gross annual income is Rs. 10 lakhs and you have an annual interest income of Rs. 13,000 from Fixed Deposit. Assuming that you have not claimed house rent allowance (HRA).
Let's say, you have invested a part of your income in PPF, medical insurance and savings account.
How to Calculate Taxable Income?
Taxable Income = Gross Income – (deductions + exemptions)
Taxable Income = Rs. 10,13,000 – 1,80,000 = Rs. 8,33,000
If you choose the existing taxation scheme, then your total income tax will be as below:
You will pay an income tax of Rs. 81,473.
This example will help you in understanding the income tax you pay on your taxable income and how with careful planning you can avail deductions on your taxable income thereby minimizing taxes and saving income.