Key Points
Enter your income details and deductions to quickly calculate tax liability without studying complex rules
Compare old tax regime with higher rates but more deductions vs new regime with lower rates
Investment tools like PPF, ELSS, and NPS can help save up to Rs. 1.5 Lakh under Section 80C
Home loan interest deductions up to Rs. 2 Lakh can significantly reduce taxable income
Knowing what your liability will be will help you make a sound financial plan for the future. In this regard, an Income Tax Calculator can help you figure out your tax bill.
You enter your details, and the calculator processes them, and your estimated tax is calculated. This approach spares you the confusion of scanning through dozens of tax rules. It also saves you time if you want quick answers about your tax position. Below, we will see how to use an Income Tax Calculator, what information it needs, and how to save income tax as you go along.
What is an Income Tax Calculator?
Think of an Income Tax Calculator as a digital helper that computes your tax based on the facts you provide. It uses either the old tax system with higher rates but more deductions or the new tax system that has fewer deductions but lower rates. This calculator handles the math, so you don't need to go line by line through tables and laws.Most Income Tax Calculators allow you to:
● Enter your salary, rental income, business income, and other earnings.
● Input deductions under various sections of the Income Tax Act, such as 80C, 80D, and 80E.
● Compare tax liability under both the old and new tax regimes.
● Get a breakdown of how much tax is payable after deductions.
Steps to Use an Income Tax Calculator
Using an Income Tax Calculator is easy, and you don't need to be a financial expert to get accurate results.Just follow these steps:
● Start by picking the year
● Enter your age. Keep in mind that tax slabs differ for individuals below 60 years, senior citizens (60 to 80 years), super senior citizens (above 80 years)
● Then, enter your annual salary to show that you're employed. Or, if you're self-employed, add your business income
● After that, note any rental or capital gains you earned during the year. These items add up to your gross income
● The calculator then prompts you to provide details on tax-saving investments, such as PPF or health insurance
● Once those are done, it calculates your net income that gets taxed
● Finally, it works out the amount of tax you owe and how much you might save if you have used the right deductions
Breaking Down Tax Calculation with an Example
Consider Vishal, a 35-year-old who earns Rs. 10 Lakh per year. He invests Rs. 1.5 Lakh in PPF and pays Rs. 25,000 in health insurance premiums. He also has a home loan, so he can claim up to Rs. 2 Lakh in interest deduction.Let's see how the old system compares to the new one for him:
| Particulars | Old Tax Regime (INR) | New Tax Regime (INR) |
|---|---|---|
| Gross Income | 10,00,000 | 10,00,000 |
| Standard Deduction | 50,000 | 50,000 |
| 80C (PPF, Life Insurance) | 1,50,000 | Not Allowed |
| 80D (Health Insurance) | 25,000 | Not Allowed |
| Home Loan Interest (Section 24) | 2,00,000 | Not Allowed |
| Taxable Income | 6,75,000 | 9,50,000 |
| Tax Payable | 37,500 | 60,000 |
Vishal's outcome shows that the old tax system works better for him because it lowers his taxable income significantly. However, for someone else without these deductions, the new system might come out on top. That's where an Income Tax Calculator helps. It tries both systems so you can see which one is most cost-optimised.
Important Aspects to Keep in Mind
You need to know your total income from all places, such as salary, freelance work, or rental money. Then, you gather data about your expenses or contributions that count as deductions, like contributions to the National Pension System (NPS) or the premium for a family health plan. The Income Tax Calculator uses all these details to calculate your total tax. It even factors in tax already paid through TDS (Tax Deducted at Source), which is helpful in case you are owed a refund.It's also important to understand standard deduction. At the moment, you can claim Rs. 50,000 each year as a standard deduction from your salary. This is a direct cut that reduces your taxable income. Both old and new systems might treat these standard deductions differently based on the financial year you're considering. Checking these updates is essential, especially if you're trying to figure out how to save income tax for the next year.
How to Save Income Tax
Every taxpayer wants to reduce their tax bills if they can. The best strategy is to use the right investment and insurance products.If you want to see how these reduce your taxes, an online Income Tax Calculator is your quick friend.
● Invest in Tax-Saving Instruments: Using PPF, ELSS, National Pension Scheme (NPS), or life insurance can help save up to Rs. 1.5 Lakh under Section 80C.
● Opt for a Health Insurance Plan: Premiums paid for self, spouse, children, or parents offer tax deductions under Section 80D.
● Home Loan Benefits: If you're repaying a home loan, the principal amount qualifies under 80C, and interest payments up to Rs. 2 Lakh fall under Section 24.
● Education Loan: If you're repaying an education loan, the interest paid is deductible under Section 80E.
● National Pension System (NPS): Additional tax savings up to Rs. 50,000 are possible under Section 80CCD(1B).
Pick investments that match your risk tolerance, not just for the sake of tax. For example, PPF is a low-risk option but has a longer lock-in. ELSS invests in equity, so it's riskier but can give better returns in the long run. An Income Tax Calculator sorts out how each of these affects your final bill.
Comparing Old vs. New Tax Regime
Many people get confused because we now have two parallel tax regimes. The new regime features more slabs but fewer ways to claim deductions. The old regime sticks to its known structure, letting you claim many exemptions like HRA or LTA. So how do you choose?Often, if you're a person with many deductions, the old system suits you. If you're a single filer with no major investments, you might do better under the new. The Income Tax Calculator tries both and shows you the difference.
Conclusion
A good Income Tax Calculator is more than just a calculator. It's a crucial tool that simplifies tax planning, warns you in case your taxable income is edging upward, and guides you on how to save income tax in the future. By letting you see how different investments and insurance policies lower your taxable income, it also helps you plan your finances year-round, not just at tax time.
If you're someone looking to optimise tax savings, you can explore tax-saving investment plans from premium providers like Axis Max Life Insurance. These plans not only help reduce taxable income but also provide financial security for the future. Use their Income Tax Calculator to check how these products fit within your broader plan. Then, pick a strategy that makes sense for your personal situation.
In short, approach tax season with clarity. Have your paperwork ready, explore the old or new tax system, key in your data into the Income Tax Calculator, and see what you owe or how much you can save. This simple act of planning can help you keep more of your income, ensuring you meet your goals without stress.
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Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.
Note: The tax benefit is subject to change as per prevalent tax laws.
