What tools and calculators can you use to save tax?
At the end of the fiscal year, every earner has only one thing on their mind: the tax return. For people with multiple sources of income, it can be difficult to calculate taxable income, let alone filing taxes. It’s common practice to try to save as much tax as possible to increase your disposable income. However, many people struggle to identify the different ways 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 while saving a large amount of tax in the process.
But first, calculate your gross income
In your quest for tax savings, it’s important to understand the steps involved in determining your gross income. Even as a salaried employee, you can earn money by renting out your home or earning dividends on your stocks. For an efficient calculation of gross income, the Income Tax Act has specified five heads of income:
Salary income: Includes the amount of salary you receive from your employer as well as any other benefits such as dearness allowance, annuity and gratuity benefits, transportation allowance, medical allowance, etc.
Business and professional income: Income earned through any business or profession in a personal capacity.
Capital gains income: All profits from the sale or transfer of fixed assets such as stocks, mutual funds, etc.
Income from rent on the property of the house: Any rental income from the rental of residential or commercial property.
Income from other sources: This includes any other income excluding the sources above, for example, dividends, gifts, lotteries, etc.
The total of these five heads is your gross income. The last remaining step is to calculate your total taxable income after subtracting the tax deductions mentioned below.
Tax deductions and tools you can use to save tax
Under the Income Tax Act, you can invest, save tax and increase your savings through various investment products. The following IT sections determine the tax saving tools you can invest a certain amount to save tax:
Section 80C: You can claim tax deductions up to Rs 1.5 lakh for your contribution/payments for tax saving tools such as insurance, tax saving FDs, ULIPs, EPF, the NPS, etc.
Section 80D: This section allows you to claim tax deductions up to Rs 25,000 (50,000 for the elderly) on the amount you pay as health insurance premium.
Item 80GG: You can save tax by claiming tax deductions from the housing allowance included in your salary. If you are not eligible for HRA, you can claim a tax deduction of Rs 60,000 on the rent you pay.
Section 24: This section allows you to benefit from a tax deduction on the interest payable on your mortgage. The limit under the section is up to Rs 2 lakh.
Once you have checked your tax deductions, you have arrived at the total taxable income on which income tax is applicable. However, this amount must be compared to the applicable tax brackets to determine your tax liability.
Income tax plates in India
Here are the current income tax slabs in India:
|Net income range (annual)||Income tax rate|
|Up to Rs 2,50,000||NONE (0%)|
|Rs 2,50,000 to Rs 5,00,000||5%|
|Rs 5,00,000 – Rs 7,50,000||ten%|
|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%|
What is a tax savings calculator?
The Income Tax Savings Calculator is a numerical simulation supported by advanced algorithms to calculate your taxable income and identify how much more you can invest in tax saving tools to save tax. The Income Tax Savings Calculator consists of a formula box, where you need to enter certain details such as your salary, income from other sources and current tax deductions to calculate your total taxable income .
How can you save tax with tax savings calculators?
Suppose your gross income (after adding together the incomes of the five income heads) is Rs 9,00,000. You benefit from the flat-rate deduction of Rs 50,000 but have not invested in any of the tax saving tools which entitle you to tax deductions under the articles of the IT law. 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 savings calculator, you can identify the different sections in which you can invest to benefit from tax deductions. If you 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 Rs 7,00,000 (Rs 9 00,000-50,000-1 50,000). Of this amount, you would have paid only 52,000 in tax, saving Rs 40,500.
How to use the tax savings calculator
There are many income tax savings calculators available online that you can use to calculate your current taxable income and identify potential tax-saving investments. Here are the steps for using a tax savings calculator:
Step 1: Visit the tax savings calculator and fill in basic details such as age range, type of city of residence, type of residence, occupation, etc.
Step 2 (For employees): Enter your salary details if you are a salaried employee, such as base salary, dearness allowance, etc.
Step 3: Enter details of any other income from the rest of the income, such as income from property, business or profession, capital gains and other sources.
Step 4: List the deductions you can claim under sections such as 80C, 80CCD, 80D, etc.
Step 5: Click the ‘Submit’ button to calculate your current tax liability and the amount you must pay as tax.
Benefits of using the tax savings calculator
Here’s why it’s always a good idea to use an income tax savings calculator before paying taxes at year-end:
You can quickly and efficiently calculate your current tax payable to deposit the correct amount.
As there are a multitude of tax deductions available, 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 in the different sections to identify the most suitable and tax-efficient investments.
You can save more by paying less of your salary in taxes. It can help you achieve your future financial goals.
Are there other tax savings calculators?
Yes, besides income tax savings calculators, there are many other calculators that can help you plan your tax and save as much tax as possible. Some common calculators are:
- EMI Home Loan Calculator
- HRA calculator
- mortgage calculator
- Financial Goal Planner
- FD Calculator
- EMI Personal Loan Calculator
- PF Calculator
- Child Education Planning Calculator
- SIP Calculator
- NPS Calculator
- salary calculator
- SSY Calculator
- LTC Calculator
- Lease Calculator
Which income tax calculator is right for you?
No one size fits all. This also applies when it comes to choosing tax savings calculators. There are many tools and calculators you can choose from, based on their user interface and functionality. Here are some things to consider when choosing a tax savings calculator:
If you are self-employed, you can choose a tax savings calculator designed to calculate the tax payable for these people.
If you are looking to identify potential tax-saving investments to reduce 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 savings calculators based on their price, user interface, simplicity and usability.
Tax planning is the most vital activity you can undertake to reduce your taxable income and increase your savings. Since many people have less knowledge about the different sections of income tax and the tax investments they offer, you end up paying more taxes, which is otherwise avoidable. Using income tax savings calculators can be very 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.