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| How is Your Salary Taxed? Understanding Taxability and Computation |
Introduction
Salary income is a significant source of income for many individuals in India. Understanding how this income is taxed is crucial for proper financial planning. This article will delve into the key aspects of salary income taxation, including taxability concepts, applicable tax slabs, TDS, and tax refunds.
Taxability of Salary Income: Due Basis vs. Receipt Basis
- Due Basis: Under this principle, salary income becomes taxable as soon as it becomes due to the employee, regardless of whether it has been actually received. This means if your salary is payable on a specific date, it is considered taxable income on that date, even if you receive it later.
- Receipt Basis: In some specific cases, salary income may be taxed on a receipt basis. This typically applies to certain allowances and perquisites.
Income Tax Slabs and Rates
The Indian Income Tax Act outlines different tax slabs and rates for individuals based on their age and income. Here's a simplified overview:
- For Individuals Below 60 Years of Age
- Up to ₹2,50,000: Nil
- ₹2,50,001 - ₹5,00,000: 5%
- ₹5,00,001 - ₹7,50,000: 10%
- ₹7,50,001 - ₹10,00,000: 15%
- ₹10,00,001 - ₹12,50,000: 20%
- ₹12,50,001 - ₹15,00,000: 25%
- Above ₹15,00,000: 30%
- For Senior Citizens (60-80 Years)
- Up to ₹3,00,000: Nil
- ₹3,00,001 - ₹5,00,000: 5%
- ₹5,00,001 - ₹7,50,000: 10%
- ₹7,50,001 - ₹10,00,000: 15%
- ₹10,00,001 - ₹12,50,000: 20%
- ₹12,50,001 - ₹15,00,000: 25%
- Above ₹15,00,000: 30%
- For Very Senior Citizens (80 Years and Above)
- Up to ₹5,00,000: Nil
- ₹5,00,001 - ₹7,50,000: 5%
- ₹7,50,001 - ₹10,00,000: 10%
- ₹10,00,001 - ₹12,50,000: 15%
- ₹12,50,001 - ₹15,00,000: 20%
- ₹15,00,001 - ₹15,00,000: 25%
- Above ₹15,00,000: 30%
Tax Deductions at Source (TDS)
- TDS is a mechanism where the employer deducts income tax directly from your salary at source.
- This deducted amount is then deposited with the government on your behalf.
- TDS helps ensure that the tax liability is met in a timely manner.
- The employer is responsible for calculating and deducting TDS based on your income, investments, and other relevant factors.
Tax Refunds
- If the TDS deducted by your employer exceeds your actual tax liability, you are eligible for a tax refund.
- You can claim this refund by filing your income tax return.
- The Income Tax Department will assess your return and process the refund accordingly.