Over the last many years, not only has India simplified the tax rules and laws, but also largely made things online and brought millions under the tax net. That is evident from the rising tax revenues of the government. The recent change that went live from FY2023-24 is a simplified dual tax regime, wherein people can opt for a lower tax regime by forfeiting a slew of exemptions. The idea is to make the entire tax structure simpler and more transparent. In this segment, let us look at the nuances of the Income tax calculator, specifically at the process flow of how to calculate income tax.
What you need to know about Income Tax
Income tax is the tax payable on income earned. Broadly, under the Income Tax Act, income includes salary/pension/commission income, Interest income, dividend income, long-term capital gains, short-term capital gains, rental income, business income, miscellaneous income, speculative income etc.
Why is this classification important?
For example, speculative income is charged income tax at a higher rate. In the case of business income and rental income, there are expense exemptions available since there is a cost involved in earning such income. For salary earners, this is given as a fixed standard deduction. Incomes like interest, dividends and other sources of income are treated as other income and taxed at the peak marginal rate. Capital gains tax is paid on the net amount after adjusting for losses, if any. Business income is a separate income tax return filing altogether.
How to Calculate Income Tax Online?
Today not only the Income Tax Department, but most brokers and banks also offer online income tax calculator facility. Some even offer the facility wherein you can download the pre-stored Excel file and make your tax calculations in that. The online tax calculator helps calculate the income tax liability for the full year.
Moreover, apart from working out your tax obligations for the year, the income tax calculator also helps you plan to reduce your tax payout through appropriate investments.
How can an income tax calculator be beneficial to you?
There are several benefits that accrue to you from the use of an online Income tax calculator. For starters, it tells you how to calculate income tax and how to save to reduce your taxes. Here are the benefits stack in detail:
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Accuracy
Once you put the right inputs into the system such as income, exemptions, savings etc, the machine does the rest. Since it is a machine-driven calculation of your income tax liability, it eliminates human error, resulting in more accuracy.
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Speed
Due to its machine-driven approach, the online tax calculator is quicker and also more flexible. Once you put the inputs, your output is there in a second. It also allows for easy simulations of different options based on your affordability; for example, whether you can afford to do a larger ELSS SIP or take a bigger life policy, you can instantly simulate the impact on tax liability.
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Convenience
The output in an income tax calculator can be saved for future reference in an excel format, which can be used when you are actually filing the tax returns. Also, this can directly be ported into the tax filing system on the website of the Income Tax Department. That way, you do not have to enter the full details all over again while filing the tax returns.
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Planning
It is a good tool for planning. If you input the data and calculate the income tax, you can simulate different levels of savings and exemptions and strategize to minimize your tax outflows. That way, you can also plan your expenses accordingly well in advance.
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Security
Anything stored digitally has a longer life. Keeping it in a secure file in a secure folder, is much safer than writing it on a piece of paper that is accessible to anybody. You can also manoeuvre the data and store it to your liking. Therefore, using an online income tax calculator not only tells you how to calculate income tax, but also ensures data privacy and greater flexibility for financial planning.
To sum it up, you must make use of the Income tax calculator available online to simulate possibilities, plan savings & investments and to grasp how to calculate income tax. Eventually, all this leads to better financial planning and a smoother journey towards your financial goals. That is the bottom line.