The Union Budget for 2020-21 introduced a new concessional tax regime that does not provide 70 exemptions and tax deductions still available under the old tax regime. However, taxpayers can claim deductions under ITA’s Section 80CCD if employers contribute to employees’ NPS accounts.
It must be noted that under the new income tax regime, individuals are not required to pay any tax on an annual income of up to Rs.5 lakh. Salaried taxpayers have the option to choose either of the two tax regimes while filing ITR for 2020-2021.
Irrespective of the tax regime, individuals must be careful when it comes to calculating income tax on earnings. Since computing income tax is already quite complicated, individuals may consider using an efficient financial tool like income tax calculator to simplify the process. Nonetheless, to make the most of it, one must learn how to use it correctly.
How is income tax computed?
Before calculating income tax, it is essential to note that there are 5 sources of income, and they are factored in while computing income tax.
These sources are –
- Salary income.
- Income from housing property.
- Capital gains.
- Business and profession.
- Income from investments.
The computation of tax on annual income involves four simple steps, which are discussed in a nutshell below –
Step 1 – Total income is calculated by adding all sources of revenue.
Step 2 – All applicable exemptions like Standard Exemptions and HRA exemptions and deductions like – tax benefits for an under-construction property, deductions on medical insurance, among others.
Step 3 – Relevant income tax slab for ay 2020-21 and tax rate are identified.
Step 4 – Applicable TDS, TCS, and advance tax are deducted.
Since there are a series of steps and complex calculations involved, using an income tax calculator is the best alternative.
Steps to use an income tax calculator 2020-21
By following these steps, one can compute the income tax on earnings –
Step 1 – Go to the e-portal of the income tax department’s website.
Step 2 – Navigate to the income tax calculator 2020-21.
Step 3 – Select the relevant assessment year for which you need to file tax returns.
Step 4 – Provide details like type of taxpayer, residential status and suitable age group.
Step 5 – Click on ‘Next Step’.
Step 6 – In case one continues to follow the old tax regime, he/she should enter the taxable salary after subtracting deductions including – LTA, HRA, and others as applicable under relevant tax slab. Alternatively, those who wish to switch to the new regime should enter their salary without accounting for deductions.
Step 7 – Provide details like interest income, rental income, and interest paid on home loan for rented or self-occupied property.
Step 8 – Proceed to click on ‘Go to Next Step’.
Step 9 – Those who will be filing tax under the old slab will also be required to provide tax saving investment instruments that come under the purview of 80C, 80D, 80E, 80G and 80TTA.
Step 10 – Proceed to click on ‘Calculate’.
Once these steps are followed accurately, individuals will be able to compare their tax liability under both the new and old tax regime. Notably, whichever field does not apply to the user must be filled with a ‘0’.
With the help of the online tax calculator, users will be able to understand the difference in tax burden under the two regimes. Also, it will help them to compute their income tax burden correctly and will help to minimise the risks related to underreported or misreported income.
One must note that there are several home loan tax exemptions and benefits that apply to both new and existing home loan borrowers. So, to lower the tax burden to a great extent and manage ITR filing, homebuyers should find out the exemptions they qualify for and claim them accordingly.
To lower the housing loan burden further, intending borrowers should avail a home loan from financial institutions that levy a competitive rate of interest and are transparent about charging additional fees.
Generally, they offer customised pre-approved offers to customers to facilitate a smooth experience of availing financial assistance. These offers are available on financial products like home loans, loan against property, etc. Check your pre-approved offer online with the help of your name and contact details.
Besides calculating the tax burden using an income tax calculator 2020-21, individuals should also find out the steps involved in income tax e-filing. Doing so, taxpayers will be able to streamline the process better and minimise the scope of making any mistakes as such.