Do you want to know how to calculate income tax on salary in sheets? If yes, we will share every detail about the process along with the examples for your better understanding.
Are you still among those people who think calculating income tax on salary is a really difficult task? If yes, then we would like to advise you that it is a big misconception that calculating the tax is a really difficult process. Honestly saying, if you know everything about the components and formulas of calculating income tax, then it can be the easiest thing to do. Also, having complete information about income tax and other segments can help you save a lot of bucks in taxes. Most of the people who are unaware of the facts related to income tax end up paying more tax than they are supposed to pay.
Lack of information is the main reason behind all this. So, now we will share with you the formulas through which you can calculate income tax on your salary. We will share an example with you and will also tell you how to calculate income tax in sheets.
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Calculating Income Tax: Key Components
When figuring out your income tax, there are several essential components to remember. Here is a list of these components:
- Financial Year (FY) – The year money is earned referred to as the financial year. This period runs from 1 April to 31 March of the following year. It is important to gather all investment proofs and documentation during this time.
Example: FY 2022-23 is from 1 April 2022 to 31 March 2023.
2. Assessment Year (AY) – The year in which your income from a particular financial year is assessed is known as the assessment year.
Example: AY 2022-23 is the year 2023, in which your income from 1 April 2022 to 31 March 2023 will be calculated.
LLP ITR filing is important as it is mandatory under the law and non-compliance can result in penalties, prosecution, and other legal consequences.
3. Tax Deductions allow you to reduce your taxable income, as per Section 80 in Chapter VI-A of the Income Tax Act.
Example: Under Section 80C of Chapter VIA, you can claim tax deductions of up to ₹1,50,000 for premiums paid for life insurance policies and other investments as prescribed in Chapter VI. This is a popular way to save on taxes.
- Exemptions – This is a specified amount deducted from your gross income before computing tax. These exemptions can be found in Section 10 and Section 54 and include the following:
- Salary income exemptions, allowances, and deductions include leaving travel concession, house rent allowance, standard deduction, and entertainment allowance.
- Rental income from house property deductions, such as interest paid on a home loan.
- Deductions from business or professional income include expenses incurred for the business, depreciation, donations for scientific research, and rent and insurance expenses.
- TDS (Tax Deducted at Source) – TDS refers to tax deducted at the payment source. As per the Income Tax Act, any person or company making a payment must deduct tax if the payment exceeds a certain limit. TDS must be deducted at the tax department’s prescribed rates.
- Salary Breakup – Understanding your salary breakup is the first step in calculating income tax on your salary. This information can be found on your pay slip or salary statement. By studying this document, you will clearly understand the main components and structure of your compensation.
- Taxable Income – This is determined by subtracting eligible deductions from your total income (the sum of all your earnings). Taxable income refers to any sources of income other than your salary on which you must pay taxes.
What Is Income Tax?
According to the Income Tax Act, of 1961, every person earning a salary in India must pay an amount from their salary to the country as tax. This amount of tax is termed income tax. The law consists of many variations and amendments, and many deductions are available under Section 80TTA. We will be sharing every detail related to it in this blog post.
How to Calculate Income Tax on Salary
It is very easy to calculate income tax. The formula for calculating income tax on salary is as follows:
- Example
If Mr. Gupta has a salary of ₹27,000 per month with no extra allowance and has a yearly dedication of ₹25000 and total exemptions of ₹85,000, then sales tax in India.
| Basic Salary | 27000 * 12 | = 3,24,000 |
| DA | 0 * 12 | = 0 |
| EA | 0 * 12 | = 0 |
| Gross Salary | = 3,24,000 | |
| Total deductions+ total exemptions | 1,05,000 | |
| Net income | = 2,19,000 |
How to Calculate Income Tax on Salary With an Example in Sheets
Now, we would like to share the method of how to service income tax on salary in sheets. We will be using the same example that we have used above. Firstly, we will show you how to derive taxable income from gross income. Then, we will tell you how to calculate income tax on taxable income. It is a really simple task, and you will easily understand everything.
Step 1: Firstly, open the sheet with details about any person’s income. It will look like the one below.
Step 2: As you want to calculate the tax and taxable income using a salary tax calculator, so you have to make two rows. One for the taxable income and the other for the tax.
Step 3: Select the cell where you want your calculated result to be shown and subtract the exemptions and deductions from the gross income. Write the formula =B2-B3-B4 inside the formula bar, and then you have to press the enter key.
Step 4: Now, you will finally get the taxable income which is 2,19,000.
According to the income tax slabs, 5% tax is applicable on income below 2.5 lakh. As the taxable income which we have got lies between ₹1.5 lakh and ₹2.5 lakh, therefore, 5% tax will apply to this income.
Step 5: Now, you have to calculate the tax on the taxable income that has been derived earlier. Apply the formula =B6*5/100 in cell B7.
Step 6: Then, you have to press the Enter key, and you will get the income tax value in column B7. Here, the tax value we have got is 10,950. So, this is the amount you have to pay as the tax on your income.
How to Calculate the Income Tax With Income Slabs in Sheets?
Now, we will share an example of how to calculate income tax with different income taxes and perform income tax return filings.
Step 1: We have a dataset of a person’s income and income slabs provided by the government.
Step 2: As you want to calculate the tax and taxable income, so you have to make two rows. One for the taxable income and the other for the tax.
Step 3: Select the cell where you want your calculated result to be shown and subtract the exemptions and deductions from the gross income. Write the formula =B2-B3-B4 inside the formula bar, and then press the enter key.
Step 4: Tax income is now finally derived, and it is ₹38,05,000.
This time different tax slabs will be used for calculating the tax. Since the taxable value is between 35 lakh to 50 lakh, we will calculate tax until the 5th slab.
Step 5: Now find out the total tax to be calculated till the fifth slab.
Step 6: We will now calculate tax for each slab using the formula =taxable income*tax_rate/100.
Step 7: See the calculation for the first slab. The rest of the three will be calculated in the same way.
Step 8: Now press the enter key and get the result for 10% tax over 2.5 lakhs.
Step 9: Now follow the same pattern and calculate tax for all other rows by changing the tax rate and tax for pensioners income in the formula.
Step 10: The final step is to add the tax that you derived for different tax slabs and get the absolute tax value that the taxpayer needs to pay. Use this: =B9+B10+B11+B12
Step 11: Now press the Enter key again and get the final tax value. The final tax that needs to be paid is ₹6,26,250.
So, ₹6,26,250 is the final tax amount to be paid by the taxpayer. So, by following the same way, you can find the income tax value for any person’s income.
Conclusion
As of now, we have shared all the essential details about the process of calculating income tax. We will be back soon with more such updates. Till then, stay tuned to Vakilsearch.
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