Tax is an amount compulsory one need to pay to government and the same is used for countries development and other infrastructure activities.
But everyone need not pay same tax ,government is having some rules and regulation to deduct tax from income. Here we are going to discuss about personal tax system in India , remember there is another tax system i.e. corporates tax entirely different from personal tax.
How to calculate tax
Before going to calculation let us learn some terminology in it.Cost to Company
CTC(Cost to Company) – Total salary including insurance (If any),employer side PF, Gratuity along with gross salary.
Gross Salary – This includes taxable salary and excludes insurance (If any),employer side PF ,Gratuity etc..
Note: Few companies in India bare the employer side PF by themselves, in that case they won’t show it in CTC.
Taxable Salary – one should follow the below guidelines to calculate the taxable income , this will be there in form 16 provided by The Income Tax Department at end of the each year.
Taxable Salary = Gross Salary -(Investments and Insurances + HRA + Standard Deduction + Professional Tax)
Deduction = Income Tax +Provident Fund + Professional Tax etc..
Say Mr. Sathish CTC is Rs.10,00,000 /- and take home salary will be Rs.71,645. Here how it is calculated.
|A||Cost to Company||10,000,00|
|B||Employer Side PF||40,000|
|Gross Salary||Gross Salary =A - (B+C)||9,50,000|
|Taxable Income||Gross Salary -( D + E+ F+G+H+I)||6,67,600|
|J||Total tax on income||46,020|
|K||CESS 4% of J||1841|
|Tax per Month||Total Tax/12||3988|
|Take Home Salary||(Gross Salary(9,50,000)/12)-Tax per Month(3988) - PF per Month (=3333)- Profession Tax(200)||71645|