Income Tax Calculation AY 2021-22 (FY 2020-21) Explained

Written by : Knowledge Centre Team

2024-08-02

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With the financial year 2020-21, it’s time for salaried and self-employed individuals to focus on income tax calculation and filing of IT returns. The tax calculation for this financial year will be based on the income tax slabs for the assessment year 2021-22. To understand how to go about computing your tax liability, you need to begin by calculating your total income. You then need to account for any deductions or tax-saving investments you may have. Then, identify the income tax slab that applies to you to arrive at your tax liability. Here’s a closer look at the details of this step-by-step process.

Step 1: Calculate your total income

There are 5 heads of income under which your income is classified. These heads are listed below.

1. Income from salary: This includes all the income earned as part of your salary. You can find these details in the Form 16 issued by your employer.

2. Income from house property: If you own a house property that you’ve let out as a rental, the rental income earned from that property falls under this head of income.

3. Income from business or profession: For self-employed individuals practicing their own business or profession, the income earned is classified as business income.

4. Income from capital gains: Any profits arising out of the sale of a capital asset during the financial year is taxed under this head of income. Capital assets include land, building, bullion, jewelry, bonds, and stocks, among others.

5. Income from other sources: Any other income that cannot be classified under the above-mention heads is taxed as an Income from other sources Some examples include interest on fixed deposits, dividends earned, and lottery winnings.

Step 2: Account for all deductions from your total income

Once you’ve calculated your total income and classified them under the categories mentioned above, the next step in the income tax calculation process is to account for the deductions and savings, if any. The amount parked in some tax-saving investments can be deducted from your total income, thereby reducing the amount of income that’s taxable.

For instance, investments made under section 80C can give you the benefit of deductions up to Rs. 1,50,000. Some of the tax-saving investments that qualify for a deduction under section 80C are mentioned below.

Premium paid for life insurance for yourself, your spouse or dependent children
Premium paid for ULIPs
Tax-saving fixed deposits that come with a lock-in period of five years
Public Provident Fund (PPF)
National Savings Certificate (NSC)
National Pension System (NPS)
Investments in NABARD bonds
Investments in Post Office Savings Schemes
Investments in Senior citizen savings schemes (SCSS)
Tax-saving mutual fund schemes like ELSS

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Option to choose from 7 different funds and 4 portfolio strategies
Loyalty additions and wealth boosters
Flexibility of fund switching and redirection between the various fund options
Partial withdrawals to help you meet emergency expenses

Aside from these tax-saving investments, there are also certain expenses that can be claimed as a deduction under section 80C. Some examples of these include:

Tuition fees paid for children, subject to a maximum of two kids
Repayment of the principal component of a housing loan
Stamp duty, registration charges, and other expenses incurred for a purchase or construction of a residential house

In addition to the savings under section 80C, there are many other avenues that can help you save tax. For instance, you can claim an additional deduction of Rs.50,000 for investment in NPS under Section 80CCD(1B), bringing your total deduction from tax-saving investments up to Rs. 2,00,000. Furthermore, premiums paid for health insurance can also be claimed as a deduction as per section 80D.

Step 3: Identify your income tax slab and apply the relevant rate of tax on your income

tax rate for individuals is determined based on the slab under which their total income falls. There are three different sets of income tax slab rates, depending on the age of the individual taxpayer.

1. Individual other than Senior Citizen

2. Senior Citizen

3. Super Senior Citizen

Income tax slabs for individuals other than senior citizens

Income tax slabs for individuals below the age of 60	Tax rates applicable
0 to 2,50,000	Nil
2,50,001 to 5,00,000	5% of the total income exceeding 2,50,000
5,00,001 to 10,00,000	Rs. 12,500 + 20% of total income exceeding 5,00,000
Above 10,00,000	Rs. 1,12,500 + 30% of total income exceeding 10,00,000

Income tax slabs for resident senior citizens who is 60 years or more at any time during the financial year

Income tax slab (in rupees)	Tax rates applicable
Up to 3,00,000	Nil
3,00,001 to 5,00,000	5% of the total income exceeding 3,00,000
5,00,001 to 10,00,000	Rs. 10,000 + 20% of total income exceeding 5,00,000
Above 10,00,000	Rs. 1,10,000 + 30% of total income exceeding 10,00,000

Income tax slabs for Super Senior Citizens who is 80 years or more at any time during the financial year

Income tax slab (in rupees)	Tax rates applicable
Up to 5,00,000	Nil
5,00,001 to 10,00,000	20% of total income exceeding 5,00,000
Above 10,00,000	Rs. 1,00,000 + 30% of total income exceeding 10,00,000

There is an additional 4% Health & Education Cess that needs to be paid on every front on the amount of income tax and surcharge being paid. Surcharge will be applicable based on Individual’s Income Slab.

Step 4: Deduct TDS, TCS, and advance taxes, if any

In case you’ve already paid TDS, TCS, or advance taxes, deduct them from your tax liability to arrive at the balance tax payable (or refundable).

Conclusion

With these simple steps, you can perform the income tax calculation for the assessment year 2021-22. It’s important to pay your taxes and file your IT returns on time, so you can avoid facing penalties and additional interest charges.

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