Income Tax: it is not your favourite topic of discussion unless you want to complain about the amount of taxes you are paying each year. Yet, while you are drawing up a financial plan for your future, IT can be a useful tool for you to save money.
Income Tax and Tax Benefits
There are numerous investments and insurance policies that make you eligible to claim deductions. Tax-free bonds, PPF and other such investments, and Life Insurance premiums can all get you tax exemptions. Medical expenses, educational fees you pay for your child, house rent, and home loan EMIs can also give you tax benefits.
There are many Tax Calculator tools available online that can help you calculate your total effective income, your tax liabilities, your deductions, and savings.
Tax Calculators are now easily available on many websites, including the Income Tax e-filing website. Some of them are specialised, showing how much you can save by investing in certain instruments or in insurance policies. Some even let you calculate your monthly and fortnightly tax details, besides the actual relevant Annual Tax.
Features to Look For in a Full Tax Calculator Tool
Mostly, you use tax calculators to find your tax liabilities when you file your tax return. The calculator available at the IT website does a thorough job, asking for various details and calculating numerous others. There are similar tools in other websites, making it easy for you to accurately calculate your taxes.
What a Tax Calculator Should Ask From You
One of the most important details a full-fledged tax calculator should ask for is your personal information including your name, age, address, gender, and city. Age, gender, place of residence, and other parameters applicable to you can make a difference in tax rates
It should ask for your annual net income. Make sure you enter the actual take-home pay and not the gross income that you receive each year
Under this section, enter the details of your various investments and expenses that are eligible for deduction under various sections of the IT Act.
For instance, you can claim bank tax-saving FDs, PPFs, NSCs, and other similar investments, up to a total limit of Rs. 1.5 lakhs.
Under Section 80D, you can claim medical expenses for yourself and dependent family members, including parents. You can also claim deductions for medical insurance premiums. The total exemption allowed under this section is Rs. 35,000.
If you have applied for a home loan, the EMI you pay towards clearing the loan allows you to claim tax benefits. You can claim tax benefits on the principal as well as interest component of your EMI.
The rent you pay for your house also gives you tax benefits. However, this depends on various factors like where you live, the HRA amount you receive, and the actual rent you pay.
A good tax calculator uses all these inputs to give a detailed summary as well as a breakdown of your tax liabilities, the deductions you could receive, and other such details. Your tax is calculated according to your tax slab, depending on the total annual income you actually receive.