{"id":5979,"date":"2022-02-28T12:35:29","date_gmt":"2022-02-28T07:05:29","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=5979"},"modified":"2022-02-28T20:26:46","modified_gmt":"2022-02-28T14:56:46","slug":"how-to-calculate-income-tax-on-salary","status":"publish","type":"post","link":"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/","title":{"rendered":"How to Calculate Income Tax on Salary With Example"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Calculating income tax on employee salary is a complex process. If not done correctly, it can lead to errors and inaccurate tax filing at the year-end.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you don\u2019t know how to calculate income tax on salary, you have landed at the right place. This blog post will discuss the various aspects of income tax computation on employee salary with an example. Let\u2019s dive right into it.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69dfe2f37772a\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69dfe2f37772a\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#Income-tax-slab-for-salaried-individuals\" >Income tax slab for salaried individuals<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#What-is-income-from-salary\" >What is income from salary?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#Various-deductions-to-calculate-income-tax-on-salary\" >Various deductions to calculate income tax on salary<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#1-House-Rent-Allowance-HRA\" >1. House Rent Allowance (HRA)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#2-Leave-Travel-Allowance-LTA\" >2. Leave Travel Allowance (LTA)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#3-Standard-Deduction\" >3. Standard Deduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#4-Section-80C-80CCD-1-and-80CCC\" >4. Section 80C, 80CCD (1), and 80CCC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#5-Deductions-Against-Loans\" >5. Deductions Against Loans<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#How-to-calculate-income-tax-on-salary-with-example\" >How to calculate income tax on salary with example<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#Calculate-employee-salaries-with-just-a-few-clicks\" >Calculate employee salaries with just a few clicks\u00a0<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/payroll\/learn\/how-to-calculate-income-tax-on-salary\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Income-tax-slab-for-salaried-individuals\"><\/span><b>Income tax slab for salaried individuals<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">During the Union Budget 2020, the central government announced a new tax regime for the taxpayers. The new tax regime has relatively lower slab rates than its predecessor, and it eradicates most of the deductions available in the previous version. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This year, the income tax rates remain unchanged for taxpayers. Nevertheless, employees can choose between the new tax regime and the old one. The table provided below shows a brief comparison between the two tax systems.<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong><img decoding=\"async\" class=\"aligncenter wp-image-5993 size-large\" src=\"https:\/\/razorpay.com\/learn-content\/uploads\/2022\/02\/Facebook-post-16-1024x538.png\" alt=\"how to calculate income tax on salary with example\" width=\"1024\" height=\"538\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-16-1024x538.png 1024w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-16-300x158.png 300w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-16.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/>* Rs. 50,000 deduction is only available in the old regime<\/strong><\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tax Rebate u\/s 87A of the Income Tax Act, 1961 is the lower of Rs. 12,500 or the actual tax payable. It is only applicable to individuals with taxable income up to Rs. 5 lacs per annum.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-is-income-from-salary\"><\/span><b>What is income from salary?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Income from salary is the compensation received by an employee for their services. However, this amount is considered income under the <\/span><a href=\"https:\/\/www.incometaxindia.gov.in\/pages\/acts\/income-tax-act.aspx\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><span style=\"font-weight: 400;\">Income Tax Act<\/span><\/a><span style=\"font-weight: 400;\"> only if there is an employer and employee relationship between the person who makes the payment and the person who receives the compensation. Typically, income from salary includes:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Basic salary as per the terms of employment<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Allowance for meeting personal expenses<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Fees, commission, bonus, etc.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Various-deductions-to-calculate-income-tax-on-salary\"><\/span><b>Various deductions to calculate income tax on salary<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Here is a list of the various deductions considered under income tax laws to calculate income tax on salary.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"1-House-Rent-Allowance-HRA\"><\/span><b style=\"color: #111111; font-family: Roboto, Arial, sans-serif;\">1. House Rent Allowance (HRA)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Employees staying in rented accommodations can claim deductions for the same under the old tax regime. The income tax deductions are the least of the following:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Total HRA paid<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Actual rent paid less than 10% of basic salary<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">50% of salary for metro cities or 40% of salary for non-metro cities<\/span><\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"2-Leave-Travel-Allowance-LTA\"><\/span>2. Leave Travel Allowance (LTA)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Employees can claim LTA up to the amount of actual expense incurred (bills to be produced), twice in a block of four years. The LTA covers domestic travel only. Further, it doesn\u2019t cover expenses incurred for personal reasons, such as leisure, food expenses, shopping, or entertainment.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3-Standard-Deduction\"><\/span><b>3. Standard Deduction<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">In the interim budget of 2019, the total limit of standard deduction under income tax has been increased to Rs. 50,000.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"4-Section-80C-80CCD-1-and-80CCC\"><\/span><b>4. Section 80C, 80CCD (1), and 80CCC<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">There are tax savings options wherein salaried employees can invest and claim an income tax deduction on salary up to Rs. 1.5 lacs. Some of the investments covered under the sections mentioned above include <a href=\"https:\/\/razorpay.com\/payroll\/learn\/employee-provident-fund-epf-scheme\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Employee Provident Fund (EPF)<\/a>, Life Insurance Premium, Equity Linked Savings Scheme (ELSS), Pension schemes, etc. There are also many other government savings schemes included under these sections.<\/span><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/learn\/section-80-80c-deductions-income-tax\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><span style=\"font-weight: 400;\">Read more in our blog post \u201cIncome Tax Deductions Under Section 80 For Individuals\u201d<\/span><\/a><\/p>\n<h3><span class=\"ez-toc-section\" id=\"5-Deductions-Against-Loans\"><\/span><b>5. Deductions Against Loans<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The principal and interest paid towards the home loan are eligible for deduction under section 80E subject to a maximum limit of Rs. 1.50 lacs. Employees can claim deductions for interest paid on home loans for up to Rs. 2.0 lacs under section 24.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How-to-calculate-income-tax-on-salary-with-example\"><\/span><b>How to calculate income tax on salary with example<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let us look at an example to understand the calculation of income tax on salary under both tax regimes. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Rakesh, a 29-year-old, is working with ABC Technologies, earning Rs. 20.60 lacs per annum. He made investments under Section 80C of Rs. 1.5 lacs, claimed LTA of Rs. 20,000, and paid rent of Rs. 3,00,000 during the year. Let\u2019s determine the payable tax amount under the new and old tax regimes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><img decoding=\"async\" class=\"aligncenter wp-image-5984 size-large\" src=\"https:\/\/razorpay.com\/learn-content\/uploads\/2022\/02\/Facebook-post-15-1-1024x538.png\" alt=\"how to calculate income tax on salary with example\" width=\"1024\" height=\"538\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-15-1-1024x538.png 1024w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-15-1-300x158.png 300w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-15-1.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><strong>* Rs. 50,000 deduction is only available in the old regime<\/strong><\/span><\/p>\n<p><span style=\"font-weight: 400;\">The HRA deduction is the least of<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Total HRA received, i.e., Rs. 600,000<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Actual rent paid less than 10% of basic salary, i.e. Rs. 300,000 \u2013 10%\u00a0 \u00d7 1,200,000 = Rs. 180,000<\/span><\/li>\n<li><span style=\"font-weight: 400;\">40% of basic salary for non-metro cities, i.e. 40% \u00d7 Rs. 1,20,000 = Rs. 480,000<\/span><\/li>\n<\/ul>\n<h2><b><img decoding=\"async\" class=\"aligncenter wp-image-5985 size-large\" src=\"https:\/\/razorpay.com\/learn-content\/uploads\/2022\/02\/Facebook-post-17-1024x908.png\" alt=\"how to calculate income tax on salary with example\" width=\"1024\" height=\"908\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-17-1024x908.png 1024w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-17-300x266.png 300w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/Facebook-post-17.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/b><\/h2>\n<p><strong>So, the payable tax amount under the new tax regime will be Rs. 369,720 while that under the old tax regime will be Rs. 307,320 which is Rs. 62,400 lower than the new tax regime.<\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Calculate-employee-salaries-with-just-a-few-clicks\"><\/span><b>Calculate employee salaries with just a few clicks\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Calculating employee salaries manually is cumbersome and extremely error-prone. Your HR team will have to spend hours every month to keep up with compliance and calculate salaries considering several factors. All these hours could be used to contribute to growing your business.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Say hello to <\/span><a href=\"https:\/\/razorpay.com\/payroll\/?r=blog_incometaxonsalary\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><span style=\"font-weight: 400;\">RazorpayX Payroll<\/span><\/a><span style=\"font-weight: 400;\">,<\/span><span style=\"font-weight: 400;\"> intuitive software that helps split employee salary into various components, such as HRA, Flexi benefits, etc. automatically. It also allows your employee to choose their preferred tax regime at the time of their investment declaration for the financial year. And does verifications of tax deductions at year-end.<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><img decoding=\"async\" class=\"aligncenter wp-image-5988 size-large\" src=\"https:\/\/razorpay.com\/learn-content\/uploads\/2022\/02\/payroll-tax-1024x564.png\" alt=\"RazorpayX Payroll\" width=\"1024\" height=\"564\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/payroll-tax-1024x564.png 1024w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/payroll-tax-300x165.png 300w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2022\/02\/payroll-tax-1536x845.png 1536w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/>Not just that, employees can also see their projected taxes based on their income and regime so that they can make an informed decision.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It will automatically compute the salary components and disburse them in the employee bank accounts based on the selected tax regime.\u00a0<\/span><\/p>\n<p><strong>The entire payroll process takes just 3 clicks and less than 10 minutes.<\/strong><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/payroll.razorpay.com\/signup?r=blog_incometaxonsalary\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Try it for Free!<\/a><\/div>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Also, let\u2019s not forget about the payroll compliances such as PF, PT, TDS, etc., that your HR and finance team has to compute and file every month. RazorpayX Payroll not only automatically calculates them but also files them for you, making the entire process fuss-free.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">See why 2000+ leading Indian startups trust RazorpayX Payroll. We don\u2019t even require your credit card details for the sign-up.<\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/payroll.razorpay.com\/signup?r=blog_incometaxonsalary\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Get Started Now<\/a><\/div>\n<h3><span class=\"ez-toc-section\" id=\"FAQs\"><\/span><b>FAQs<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\t\t\t<div id=\"rank-math-rich-snippet-wrapper\" class=\"\">\n\n\t\t\t\t\n\t\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<p>Calculating income tax on employee salary is a complex process. This blog post discusses the various aspects of income tax computation on employee salary with an example.<\/p>\n","protected":false},"author":151156494,"featured_media":5987,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3404],"tags":[],"class_list":{"0":"post-5979","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-payroll"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/5979","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156494"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=5979"}],"version-history":[{"count":9,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/5979\/revisions"}],"predecessor-version":[{"id":5994,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/5979\/revisions\/5994"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/5987"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=5979"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=5979"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=5979"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}