Many a times, when person joins job for the very first time, gets confused that in the appointment letter income from salary has been mentioned different and when they get paid, it’s different amount. This is mostly because COST TO COMPANY (CTC) has been mentioned, which includes salary, allowances and perquisites. These are like medical, travel, house rent allowance etc. Also, there are some contributions, deductions available. Employer is bound to deduct tax (TDS) before paying salary under section 192 of Income Tax Act, 1961.
For financial year 2021-22, there are two different slab rates applicable. Every employee shall communicate to the employer which slab he wish to opt at the commencement of financial year and employer is bound to deduct tax at the slab opted by employee. Once opted, employee can’t change the slab rates during the year. Though, he can opt for another slab while filling Income Tax Return.
This article contains calculation of Tax Deducted at source (TDS) on salary with the help of existing Income Tax Rates. Now, let us understand step wise how tax is deducted on salary based on existing income tax rates.
Step 1: Calculate your gross annual salary, means basic salary, perquisites, allowances, etc.
Step 2: Calculate exemptions available under section 10, like HRA, Travelling, standard deduction etc.
Step 3: Subtract exemption calculated in step 2 from salary calculated in step 1 (i.e. Step 1 – Step 2). Now, this is your taxable annual salary.
TDS Rate Chart for FY 2022-23/AY 2023-24 – Income Tax
Step 4: Check whether you have any other source of income like house rent, capital gain etc.
Step 5: Add or less this income in step 4 from taxable annual salary calculated in step 3. (i.e. step 3 + step 4)
Step 6: Now, check whether any investments or payments eligible for deductions under Chapter VI of Income Tax Act, have been made.
New Income Tax Rates & existing Income Tax Rates : Quick comparison
Step 7: Subtract exemptions calculated in step 6 from Income calculated in step 5. (i.e. step 5 – step 6)
Step 8: Calculate tax on the above income as per the suitable tax rate applicable. There are different tax rates for individuals and senior citizens. TDS will be weighted average tax per month.
Step 9: TDS on salary will be Income Tax as per step 8 divided by 12 months or number of months of employment in the financial year.
Penalty for not showing the income in Income Tax Return
Now, let’s understand calculation of TDS on Salary with example
Mr X, a 30 years old resident, got a job with a salary package of Rs 11.40 Lacs per annum (computed). Also, he gets monthly rent of Rs. 15,000 and he deposited Rs 75,000 in PPF.
For Income from house property, there is standard deduction of 30%. After this deduction, taxable income from house property will be Rs. 1.26 Lacs.
Calculation of TDS will be as follows:
| Particular | Amount (in Rs) |
| Gross annual salary | 11,40,000 |
| Less: Standard Deduction | 50,000 |
| Income from Salary | 10,90,000 |
| Income from House Property | 1,26,000 |
| Gross Total Income | 12,16,000 |
| Chapter VI-A deductions | 75,000 |
| Total Income | 11,41,000 |
| Tax on total Income | 1,54,800 |
| Cess @4% | 6,192 |
| Total Tax (Note) | 1,60,992 |
| Tax Payable (Round Off) | 1,60,990 |
| Number of months in Job | 12 |
| TDS on Salary per month | 13,416 |
Note : Calculation of Tax on total Income-
| Income (in Rs) | Tax (in Rs) |
| 0 – 2,50,000 | 0 |
| 2,50,000 @ 5% | 12,500 |
| 5,00,000 @ 20% | 1,00,000 |
| 1,41,000 @ 30% | 42,300 |
10 Income Tax Saving Tips for AY 2021-22 : Tax Planning
New Income tax slabs for all individuals for FY 2021-22 (AY 2022-23)
| Income Tax Slab | Tax Rate |
|---|---|
| Up to Rs 2.5 lakh | NIL |
| Rs 2.5 lakh to Rs 5 lakh | 5% |
| Rs 5 lakh to Rs 7.5 lakh | 10% |
| Rs 7.5 lakh to Rs 10 lakh | 15% |
| Rs 10 lakh to Rs 12.5 lakh | 20% |
| Rs 12.5 lakh to Rs 15 lakh | 25% |
| Rs 15 lakh and above | 30% |
Old Income Tax Slabs for FY 2021-22
1. Income Tax Rates for Individual (Less Than 60 Years Old) and HUF for FY 2021-22
| Income Tax Slab (in Rs) | Tax |
|---|---|
| Up to Rs 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% of total income exceeding 2,50,000 |
| 5,00,001 to 10,00,000 | 12,500 + 20% of total income exceeding Rs 5,00,000 |
| Above 10,00,000 | 1,12,500 + 30% of total income exceeding 10,00,000 |
2. Income Tax Slabs for Senior Citizens (60 Years Old Or More but Less than 80 Years Old) for FY 2021-22
| Income Tax Slabs | Tax Rate |
|---|---|
| Income up to Rs 3,00,000 | No tax |
| Income from Rs 3,00,000 to Rs 5,00,000 | 5% |
| Income from Rs 5,00,000 to 10,00,000 | 20% |
| Income more than Rs 10,00,000 | 30% |
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3. Income Tax Slabs for Super Senior Citizens (80 Years Old Or More) for FY 2021-22
| Income Tax Slabs | Tax Rate for Super Senior Citizens |
|---|---|
| Income up to Rs 5,00,000 | No tax |
| Income from Rs 5,00,000 to 10,00,000 | 20% |
| Income more than Rs 10,00,000 | 30% |
Surcharge applicable to the individuals :
| Income limit | Surcharge Rate on income tax |
|---|---|
| Net income exceeds Rs 50 lakh but doesn’t exceed Rs 1 crore | 10% |
| Net income above Rs 1 crore but doesn’t exceed Rs 2 crore | 15% |
| Net income exceeds Rs 2 crore but doesn’t exceed Rs 5 crore | 25% |
| Net income exceeds Rs 5 crore | 37% |
Tax on Interest Income – Saving Account, PPF, Fixed Deposits, bonds, R/D
Important Points
- In all above cases, an additional 4% Health & education cess will be applicable on the tax amount calculated.
- A tax rebate under section 87A is allowed to individual taxpayers a maximum amount of Rs 12,500 for total income up to Rs 5 lakh for FY 2021-22.
Deductions available under ChapterVI-A of Income Tax
1) Section 80 C : An individual can claim maximum of Rs. 1.50 lakh as exemption under section 80C-
- Life Insurance Premium
- Sukanya Samrudhi Yojana
- Public Provident Fund
- Equity linked Saving schemes
- Five year bank deposit
- National Saving Certificates, etc
National Pension Scheme (NPS) in India
2) Section 80 CCG : Exemption of Rs. 25,000 for subscribing equity saving schemes. Read more– Income Tax on selling of Shares and Securities
3) Section 80 D : Premium paid for medical Insurance, for self and dependents. Read More – Mediclaim Deduction Tax benefit: Section 80D
For any questions, you may reach us at Discussion Forum
The author of the above article is CA Ankita Gandhi.
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