What tools and calculators can you use for tax saving?
At the end of the financial year, every earning individual has one thing on their mind: income tax filing. For people with multiple income sources, it can be a hectic thing to calculate the taxable income, let alone file taxes. It is a common practice to try to save as much tax as possible to increase your disposable income. However, many people struggle with identifying the various means through which you can save tax.
This may be due to the fundamental lack of understanding of the tax system in India. Once you understand how the tax system works, you can use tax-saving tools and tax-saving calculators to understand your tax liability and still save a hefty amount of tax in the process.
But first, calculate your Gross Income
In your quest for tax saving, it is important to understand the steps necessary to determine your gross income. Even as a salaried employee, you can earn by renting your house or earning dividends on your shares. For effective calculation of gross income, the Income Tax Act has specified five heads of income:
Income from Salary: Includes the salary amount you get from your employer along with any other benefit such as dearness allowance, annuity & gratuity benefits, transport allowance, medical allowance, etc.
Income from business and profession: Income earned through any business or profession in a personal capacity.
Income from Capital Gains: Any profits earned from the sale or transfer of capital assets such as stocks, mutual funds, etc.
Income from rent on House Property: Any rental income earned from renting out residential or commercial property.
Income from Other Sources: This includes any other income exclusive of the above sources—for example, dividends, gifts, lotteries, etc.
The total from all these five heads constitutes your gross income. The last step left is to calculate your total taxable income after subtracting the tax deductions mentioned below.
Tax Deductions and tools you can use for tax saving
Under the Income Tax Act, you can invest, save tax and increase your savings through various investment products. The following I-T sections determine the tax-saving tools that you can invest a certain amount to save tax:
Section 80C: You can claim tax deductions up to Rs 1.5 lakh towards your contribution/payments for tax savings tools such as insurance, tax-saving FDs, ULIPs, EPF, NPS, etc.
Section 80D: This section allows you to claim tax deductions up to Rs 25,000 (50,000 for senior citizens) towards the amount you pay as a health insurance premium.
Section 80GG: You can save tax by claiming tax deductions on the House Rent Allowance included in your salary. If you do not qualify for HRA, you can claim a tax deduction of Rs 60,000 on the rent you pay.
Section 24: This section allows you to claim a tax deduction on the payable interest of your home loan. The limit under the section is up to Rs 2 lakh.
Once you verify your tax deductions, you have arrived at the total taxable income on which Income Tax is applicable. However, this amount needs to be compared with the applicable tax slabs to determine your tax liability.
Income Tax Slabs in India
Here are the current income tax slabs in India:
|Net Income Range (Annually)||Rate of income tax|
|Up to Rs 2,50,000||NIL (0%)|
|Rs 2,50,000 to Rs 5,00,000||5%|
|Rs 5,00,000- Rs 7,50,000||10%|
|Rs 7,50,000- Rs 10,00,000||15%|
|Rs 10,00,000- Rs 12,50,000||20%|
|Rs 12,50,000- Rs 15,00,000||25%|
|More than 15,00,000||30%|
What is a Tax Saving Calculator?
Income tax saving calculator is a digital simulation backed by advanced algorithms to calculate your taxable income and identify how much you can invest further in tax saving tools to save tax. The income tax saving calculator consists of a formula box, where you need to enter certain details such as your salary, earnings from other sources, and current tax deductions to calculate your total taxable income.
How can you save tax through tax-saving calculators?
Suppose your gross income (after summing up earnings from all the five income heads) totals Rs 9,00,000. You have the standard deduction of Rs 50,000 but have not invested in any of the tax-saving tools that qualify for tax deductions under the sections of the I-T Act. By using the tax-saving calculator, and after filling in all the details including income, the final taxable income, in this case, would be Rs 8,50,000 (9,00,000 - Rs 50,000). On this amount, you will have to pay Rs 92,500 as tax.
However, using the tax-saving calculator, you can identify the various sections under which you can invest to claim tax deductions. If you have invested in any of the tax-saving tools under section 80C, you could have claimed Rs 1.5 lakh as a tax deduction, reducing your taxable income to 7,00,000 (Rs 9,00,000-50,000-1,50,000). On this amount, you would have only paid 52,000 as tax, saving Rs 40,500.
How to use Tax Saving Calculator
There are numerous Income tax saving calculators available online that you can use to calculate your current taxable income and identify potential tax-saving investments. Here are the steps you should follow to use a tax saving calculator:
Step 1: Visit the tax-saving calculator and fill in the basic details such as age bracket, residence city type, residence type, occupation, etc.
Step 2 (For salaried employees): Enter your salary details if you are a salaried employee, such as basic pay, dearness allowance, etc.
Step 3: Enter details of any other earnings from the remaining from income heads such as income from house property, business or profession, capital gains, and other sources.
Step 4: List the deductions that you can claim under sections such as 80C, 80CCD, 80D, etc.
Step 5: Click on the ‘Submit’ button to calculate your current tax liability and the amount you have to pay as tax.
Benefits of using tax saving calculator
Here is why it is always advisable that you use an income tax saving calculator before paying taxes at the end of the financial year:
You can quickly and effectively calculate your current tax liability to file the correct amount.
As there are a host of tax deductions available to choose from, you can hypothetically select them to see how much tax you can save if you invest in the tax-saving tools.
You can compare and analyze various tax-saving investments under the different sections to identify the most suitable and tax-effective investments.
You can save more by paying a lesser portion of your salary as taxes. It can allow you to achieve your future financial goals.
Are there more tax-saving calculators?
Yes, apart from income tax saving calculators, numerous other calculators can help you in tax planning and saving the highest amount of tax. Some common calculators are as follows:
- Home Loan EMI Calculator
- HRA Calculator
- Mortgage Calculator
- Financial Goal Planner
- FD Calculator
- Personal Loan EMI Calculator
- PF Calculator
- Child Education Planning Calculator
- SIP Calculator
- NPS Calculator
- Salary Calculator
- SSY Calculator
- LTCG Calculator
- Lease Calculator
Which Income Tax Calculator is the best for you?
No size fits all. This is also applicable when it comes to choosing tax-saving calculators. There are numerous tools and calculators you can choose, depending on their UI and features. Some points to consider while choosing a tax-saving calculator include:
If you are a self-employed person, you can choose a tax-saving calculator that is designed to calculate income tax liability for such individuals.
If you are looking to identify potential tax-saving investments to lower your taxable income, you can choose an income tax calculator that offers to choose tax deductions other than section 80C.
You can also analyze different tax saving calculators based on their price, UI, simplicity, user-friendliness
Tax Planning is the most vital activity you can undertake to lower your taxable income and increase your savings. As many people have less knowledge about the various income tax sections and the tax-saving investments they offer, you end up paying more tax which is otherwise avoidable. Making use of income tax saving calculators can prove highly beneficial in the tax planning process. They can identify gaps in your tax planning that you can fill with wealth-creating investments.
We advise you, to use an income tax calculator to save tax and pay your taxes on time.