Crossword – ‘TAXATION’ solved here

So you too are wrapped in the taxation web, don’t know how tax is calculated and call this taxation system – bull !#$% Then don’t worry, this thread of my blog would be helpful to you to finish the crossword of taxation as the last date of filling ITR – 31^st July is approaching. Though there are lot many tools and sites available to calculate your tax, I have tried to simplify the things as far as possible.

Before starting, you must be clear that solving the taxation crossword is in favor of YOU not of your employer or IT dept.

Myth: Filling ITR (Income tax Return) is a burden and is of no use for me.

Fact: First, read it as - Return my Income Tax. Yes, ITR is filed to claim your tax refund from the IT Dept. not to pay the taxes (mostly not always). As per the taxation rules and guidelines, it is the duty of employer to deduct the tax before paying the salary to his/her employees. This tax is called as TDS*. Now, ITR is filed to get your tax refund, in case TDS deducted is more than the actual tax payable while you have to submit/pay the extra taxes in case TDS deducted is less than the actual tax payable. In each case, proofs and documents required to be submitted along with ITR.

Myth: I have no refund to be claimed so I need not file ITR.

Fact: As I have already mentioned that the ITR is filed to claim your tax refund from the IT dept, but it does not mean that if your TDS is equal to the actual tax payable then you need not file ITR. As a process, every person whose income is taxable (over and above the exempted limit) should file the ITR, irrespective of the fact that tax refund needs to be claimed or not.

Also, ITR has got other advantages other than claiming tax refund

• Standard Income Proof
• Speed up your loan application process

*TDS: TDS is Tax Deducted at Source. Source refers to Source of Income. It can be Salary from employer, any kind of bonus from employer, interest paid by bank, gift or prize money etc. In every case, it is the duty of employer, banker or one who is sponsoring the gift/prize to deduct the tax & submit it to IT dept. Hence, you ll get the money after deduction of tax named as TDS.

As now you are aware that filling ITR and managing your income and hence, income tax is good for your financial health, lets learn to calculate the taxes.

It would be much easier if you go through these attributes and keep the corresponding figures handy, whichever is applicable for you.

Gross Income	total annual salary (total amount not the amount credited in your salary account)
Income from other sources	refers to income other than salary; rental income, interest on FD, capital gain, income from stocks/mutual funds, gift/prize money, income from any other business or source
Savings/Investments under section 80C (max. upto 1 lac)	includes PF deducted from monthly salary, investements in PPF, tax saving FD, ELSS MF, ULIP, KVP, NSC, LIC etc.
Deductions/Exemptions
section 80D	amount paid as premium for Medical Insurance of parents
section 80E	repayment of interest on loan for higher education
section80DD	in case of disability of dependant
section 80U	in case of self disability
section 80G	donations to charitable trusts, NGO etc.
section 24B (max. upto 1.5 lac)	amount paid as home loan interest
section 10 (13A)	HRA - amount paid as house rent
others	various exemptions are provided on the allowances included in the salary: conveyance allowance, medical allowance, LTA exemption on these allowances is subject to respective limits and conditions

Exemption/Deduction under various sections is subject to guidelines and maximum limits. For example, section 80D provides 100 % exemption on the amount paid as premium while section 80G provides 50% exempt on the amount donated. Exempt on HRA is calculated in a complex manner, 3 figures are calculated and minimum is counted for exemption. All these will be taken as a separate thread but for the time being you can obtain the exemption figures from Taxation Portal of your organization or from FORM-16 provided by the employer.

An easy generalized way of calculating your tax (refer to example for better understanding)

1. Total Income/Credit = (a) Gross Income + (b) Income from other sources

2. Total Debit = (a) Investments + (b) Deductions/Exemptions

3. Taxable Income = Total Credit - Total Debit

4. Tax on Income = calculated according to tax slabs for the assessment year

5. Education Cess = x% of (Tax on Income)

6. Net Tax payable = Tax on Income + Education Cess

7. Tax already Paid = TDS

8. Refund to be claimed = Tax already Paid - Net Tax payable

Example of a person X having following financial details:

· Annual Gross Income = 9,60,000 (12 x 80,000)

· Income from MF and stocks = 60,000

· Income from Rental property = 40,000

· Total PF deducted by Employer = 20,000 (deducted every month from salary)

· Investments in PPF = 50,000

· Tax saving FD = 30,000

· Premium for med insurance of parents = 5000

· Donation made to PM relief fund = 20,000

· Medical bills submitted against medical allowance = 10,000

Gross Income	960,000.00	salary
Income from other sources	60,000.00	MF and stocks
	40,000.00	rental income
Total Income / Total credit	1,060,000.00
Investments	20,000.00	PF
	50,000.00	PPF
	30,000.00	FD
Exemptions/Deductions	5,000.00	80D (100% exempt)
	10,000.00	80G (50% of 20,000)
	5,000.00	50% of 10,000
	7,500.00	exempt on conveyance allowance (from Form16)
Total Debit	127,500.00	Inv + Exemptions
Taxable Income	932,500.00	Total credit - Total debit
Tax on Income	183,750	see annexure below**
Education Cess	5512.5	3% of Tax on Income
Net tax payable	189,262.50	Tax + Edu cess
Tax already paid	194,000.00	TDS deducted each month
Refund to be claimed	4,737.50	TDS - Net tax payable

**Annexure: Tax on Income is calculated according to slabs applicable for a particular financial year. Slabs vary for men, women and senior citizen. In our case, slabs of FY 09-10 for men are used to calculate tax:

upto 1.6 lac	nil
1.6 lac to 3.0 lac	14,000	10% of 1.4 lac
3.0 lac to 5.0 lac	40,000	20% of 2.0 lac
5.0 lac to 932,500.00	129750	30% of 4,32500.00
	183,750

Hope my work helped you somehow somewhere. I would love to clarify any queries or specific user requirements.

Money mantra: If you can’t manage your money, you can’t hold the same.

Good Luck. Keep Earning Keep Enjoying.