Income Tax for Salaried People in India - Tax Slabs
Income Tax Slab 1 - Zero Tax
Male salaried individuals have to pay zero tax if their net taxable income is Rs.1,60,000 and below. For women the limit is Rs. 1,90,000 while for senior citizens the zero taxation limit is Rs. 2,40,000. According to the income tax dept, only men and women who are 65 years of age and above are considered to be senior citizens. By investing in the most optimum tax saving schemes and using salary allowances, it is possible to bring down both high incomes and tds rates.
Income Tax Slab 2 - Ten Percent Tax
People earning between Rs. 1,60,001 to 5,00,000 fall in this category. Men have to pay 10 percent of the amount greater than Rs. 1,60,000 while women have to pay 10 percent of the amount between Rs. 1,90,001 and Rs. 5,00,000. Senior Citizens pay income tax TDS rates at 10 percent of the amount between 2,40,000 and Rs. 5 lakhs.
Income Tax Slab 3 - Twenty Percent Tax
Indian Citizens earning between Rs. 5,00,001 to 8,00,001 have to pay this income tax rate TDS. In this bracket, salaried men have to pay Rs 14,000 plus 20 percent of the amount between Rs. 5,00,000 and Rs. 8,00,000. The tax slab for women says that women pay Rs. 11,000 + 20 percent of the amount between Rs. 5 - 8 lakhs while senior citizens pay Rs. 6,000 plus 20 percent of the amount between Rs. 5 - 8 lakhs.
Income Tax Slab 4 - Thirty Percent Tax
All TDS India citizens who earn a salary of above Rs. 5,00,000 fall in this category. Men have to pay Rs.54,000 plus 30 percent of the amount greater than Rs. 5,00,000. Women salaried taxpayers have to pay Rs. 51,000 + 30 % of the income more than Rs. 5,00,000 while for senior citizens, the TDS rate is Rs. 46,000 plus 30 percent of the income above Rs.5 lakhs.
Education Cess - In addition to the income tax calculated according to the above income tax TDS rates, a 3% Education Cess will also be charged on the total Income tax paid (not on the total taxable income). If your taxable income exceeds Rs. 10 lacs, a 10% surcharge on the total income tax (not on the total taxable income) is also charged.
Best Tax Saving Investments For Deductions :
Tax Deductions Through Investments
According to Section 80C of the Income Tax Act, you can reduce your taxable income by Rs.1 lakh by investing in certain investments. These investment can be from any one source or a combination of sources such as Public provident fund, national savings certificate, tax saving mutual funds, pension plans, fixed deposits and life insurance policies. Since, the returns on investment, risk factors, term of deposit and entry load or commissions vary for each type of investment, here is some information about each type to help you select the best according to your needs. They are arranged as the best investments for young salaried tax payers as well as a enterprenuer in India according to the ones which they prefer the most –
1. Equity Linked Savings Scheme (ELSS) –
High Risk High Return, Also known as tax saving mutual funds, an ELSS has the lowest lock in period of 3 years. As the money invested in an ELSS is invested by mutual funds in diversified stocks in the stock market, there is no guaranteed return. Dividends and profits from redemption of units after the term period is Tax Free. Remember, in the long run, the stock markets always see a rise, and an Equity Mutual Funds have given highest returns compare to any other asset class.
2. Bank or Post Office Fixed Deposits –
Low Risk Low Return. Only investments made in scheduled banks for a period of five years or more can be counted as a Bank Fixed Deposit. The interest on such fixed deposits is around 6 to 8 percent. Income from interest is Taxable. Forms are available at bank and post office counters.
3. National Savings Certificate –
Low Risk Low Return. It comes in denominations of Rs.100, 500, 1000, 5000 and 10,000. The forms are available at any post office. The maturity period is six years while the interest rate is 8 percent compounded half yearly. If you pay in cash, you will be given the National Savings Certificate then and there. If you pay by cheque, you will have to wait a week before you can collect the NSC certificate from the post office. Interest is Taxable.
4. Life Insurance Policy –
If you are looking for life insurance cover along with savings, then you should choose one such Participating Policy that offers a decent return on maturity. If you have a huge loan to pay off and a family it is better to go for a Cheap Traditional Term Insurance where you don’t get the premium back but have a huge insurance cover in case of any untoward incident. Premiums can vary and may be paid monthly, quarterly, annually or in a lump sum depending on the policy you choose. Term of the policy can vary from five years till twenty years and more. Money received from an insurance company as proceeds of an insurance policy (by way of an insurance claim, or by maturity) is generally exempt from tax.
5. Infrastructure Bonds – (u/s 80ccf of Income Tax)
Low Risk Low Return. The major institutions that offer these bonds are IDFC, IFCI, L&T, LICI ETC. Term periods can range from Five to Ten years and interest may vary from 7 to 8 percent per annum. Forms for Tax Saving Infrastructure Bonds are available with us.
6. Public Provident Fund –
Low Risk Low Return.. The investment limit is Rs.500 to Rs.70,000 per year - in multiples of Rs.5. The main problem about this scheme, is that you have to remember to invest an amount of at least Rs.500 annually for 15 years or your account will become defunct. Interest rate is 8 percent per annum compounded while the lock in time period is15 years. Another negative point is that as interest rates are on the downside and they are routinely changed by the government they may see a further fall. As interest for the financial year is calculated on the lowest balance after March 5th, make sure you invest before that date. PPF Accounts may also be made in name of your spouse or kids for tax benefit. You can open a Public Provident Fund Account at main post offices, branches of the State Bank of India and some nationalised banks
7. Pension Plans
Moderate Risk Moderate Return. Life insurance companies such as LIC, Met Life, Tata AIG Life, Aviva, ICICI Prudential and Bharti Axa Life offer such pension plans. On maturity, the investor receives one-third of the amount while the remaining 2/3rd goes into an annuity that provides regular income in the form of pension. Only premiums till Rs.10,000 per year are eligible for deductions from total income. Like Unit Linked Insurance Plans (ULIP’s), a substantial amount of the money invested into Pension Plans goes into paying ‘fund charges’ and commissions. Plus, the annuity received by the insured investor is taxable. Terms can extend from 10 years upwards. Though some return may be guaranteed – a large part depends on the debt market, share market and inflation.
8. Unit Linked Insurance Plan –
Moderate Risk High Return. A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life insurance cover and the premium paid is invested in either debt or equity products or a combination of the two. In other words, it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. In the event of the insured person’s untimely death, his nominees would normally receive an amount that is the higher of the sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or products. ULIPs have been selling like proverbial ’hot cakes’ in the recent past and they are likely to continue to outsell their plain vanilla counterparts going ahead
9. Senior Citizens Saving Scheme –
– Only people over the age of 60 years and retired personnel over 55 years are allowed to invest in this scheme. This scheme is available at all public sector banks in the country. Investments have to be made in multiples of Rs.1000 till a maximum of 15 lakhs for a period of five years. The deposit made gets an interest of 9 percent per year from the date of deposit which is computed quarterly. Interest is taxable and is deducted at source
Tax Deductions For Expenses
Other than the investments above that qualify for a deduction from total income, there are also certain expenses that are tax deductible such as home loans, education loans, tuition fees, medical insurance premium and treatment for specified terminal diseases. Here is some information about the most common expenses which are tax deductible in India.
1. Home Loan –
If you are repaying such a home loan, the principal amount of the loan taken can be counted as a deduction under Section 80C of the Income Tax Act.
2. Tuition Fees of Children –
The tuition fees of upto two children at school, college and university level may also be taken as a deduction from total income thus reducing the amount on which tax will be calculated.
3. Interest on Home Loan -
According to Section 24, a tax exemption of up to Rs. 1,50,000 is allowed on the interest paid for a home loan in the current financial year.
4. Medical Insurance Premium -
Section 80 D - An amount of up to Rs.15,000 for individuals and Rs.20,000 for senior citizens as premium towards a medical insurance or mediclaim policy is tax deductible. This also includes medical insurance for dependents such as spouse, children or parents on the condition that you paid the premium.
5. Education Loan –
Section 80E - The yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans taken for higher education - fulltime studies in any graduate or post-graduate, professional, and pure and applied science courses - may claim deduction. The deduction will be available for a maximum of eight years starting from the day you start repaying the education loan.
6. Donations to a charity -
Section 80G – All donations to specific charitable organizations such as the Prime Minister’s Relief Fund, CARE and Help Age India are eligible for a 100 percent tax relief. Donations to other charitable institutions and trusts get only 50 per cent tax relief.
7. Other Deductions -
- Under Chapter VI , there are also other deductions available for handicapped people and medical treatment of disabled dependents (up to Rs.50,000). Also, deduction for medical treatment for specified diseases such as neurological diseases, cancer, AIDS and hemophilia are allowed up to Rs.40,000 for individuals and Rs. 60,000 for senior citizens.
There are other deductions also available on certain other expenses, but since they are not applicable to most tax payers in India, I have not mentioned them. After deducting all the above mentioned investments and expenses from your total gross income, you are left with your ’Net Taxable Income’. The next post will provide information on the tax slabs and tax calculation on net taxable income for different categories of people such as male salaried individuals, women and senior citizens.