Before you use the income tax calculator, you must know the difference between deduction and exemption. They sound rather similar, and many people confuse one for another. However, they are quite different. An exemption is granted for a specific purpose. For example, if you are a farmer, agricultural income is exempt from tax. If you have a bank savings account, interest income on the account is exempt from tax up to Rs 10,000 a year.

Deductions are earnings that are excluded from your taxable income under certain conditions. For example, if you invest Rs. 1.5 lakh in specified investments under Section 80C of the Income Tax Act, this amount will be deducted from your taxable income. If your total taxable income is Rs. 10 lakh and you invest Rs. 1.5 lakh in Public Provident Fund (PPF), your taxable income then gets reduced to Rs. 8.5 lakh. Since your taxable income is lower, your tax liability also reduces, translating into savings. There are various sections under the Income Tax Act offering such deductions like Section 80C, CCC, CCD, CCF, CCG, 80D, 80E and so on.

So, remember to incorporate all these exemptions and deductions in the income tax calculator to get accurate results.

The online income tax calculator is a great help, but you should have an idea of how to calculate income tax on your own.

Let's take the example or Mr Patel, who is 40, has an annual salary of Rs. 10 lakh and has invested Rs. 1.5 lakh in equity-linked savings schemes (ELSS). Mr Patel's interest income from savings accounts amount to Rs. 30,000 during the year. He also has a housing loan and pays EMIs of Rs 1 lakh a year (of which 50% is principal repayment and 50% is interest). His home is under construction, so he lives in a rented home, where he pays at rent of Rs 20,000 a month.

What would Mr Patel's taxable income and tax liability add up to?:

Mr. Patel gets a basic salary or Rs 8 lakh, house rent allowance of Rs 1 lakh, transport allowance of Rs 20,000, and Rs 80,000 in other allowances in a year.

• Actual HRA paid
• 50 percent of the basic salary for those living in metros, and 40% for those living in metros
• Actual rent paid minus 10% of basic salary

So, in Mr. Patel's case the HRA exemption would amount to Rs. 1 lakh, thus reducing his taxable income to Rs 9 lakh. His transport allowance is also exempt from income tax up to Rs. 19,200 a year, provided he submits bills. So Mr. Patel will have to pay income tax on only on Rs. 800 of his transport allowance of Rs 20,000. His total taxable salary would now be Rs. 880,800.

Mr. Patel has earned interest income of Rs. 30,000 from his bank savings account, of which Rs. 10,000 is exempt from income tax under Section 80TTA. So now Mr. Patel's taxable income would be Rs. 9 lakh.

Since Mr. Patel has invested Rs. 1.5 lakh in equity-linked savings schemes (ELSS), his taxable income would be reduced to that extent under Section 80C. It would now stand at Rs. 7.5 lakh.

ELSS is only one of the instruments that is covered under Section 80C. Investors can put their money in schemes like the Public Provident Fund (PPF), National Savings Certificates (NSC), Tax Saver Fixed Deposits in banks, ULIP, Sukanya Samriddhi Scheme, Post Office Term Deposit etc. The total investments across all these schemes in aggregate should not cross Rs. 1.5 lakh.

Mr. Patel has taken a home loan on which he pays annual EMIs of Rs. 1 lakh a year, which includes 50% as principal and 50% as interest. Under section 80C, he can claim home loan principal repayment as a deduction. However, since he already has investments worth Rs 1.5 lakh in ELSS, he does not claim this deduction. Under section 24, he can claim deduction up to Rs 2 lakh on interest paid on a home loan for a self-occupied property. Mr. Patel can therefore claim the Rs 50,000 he is paying towards interest of housing loan as a deduction, bringing down his taxable income to Rs. 7 lakh.

Mr. Patel also sold some equity mutual funds during the year, making short-term capital gains (STCG) of Rs. 1 lakh and long-term capital gains (LTCG) of Rs. 2 lakh. STCG on equity mutual funds is 15% and LTCG is at 10% for profits over Rs 1,00,000.

So, Mr Patel's total taxable income now stands at Rs 9,00,000 (Rs 7 lakh from Salary and Interest Income + Rs 1 lakh in STCG + Rs 1 lakh in LTCG).

So, Mr Patel will now be taxed according to his income tax slab. Since his taxable income is between 5,00,001 and 10,00,000, he falls in the 20% slab.

• Income up to 2,50,000 is exempt from tax
• Income between Rs 2.5 lakh Rs 5 lakh is taxed at 5%: Rs 12,500
• Income between Rs 5 lakh and 10 lakh is taxed at 20%: Since Mr Patel has an income of Rs 7 lakh from - Salary and Interest, his tax will be 20% of Rs 2 lakh or Rs 40,000
• STCG at 15% of Rs 1 lakh: Rs 15,000
• LTCG at 10% of Rs 1 lakh: Rs 10,000

His total income tax payable is Rs 77500. He will also have to pay a 4% health and education cess, which amounts to Rs 3100.

Mr Patel's income tax liability is, therefore, Rs 80,600.

If Mr. Patel were a senior citizen over 60, he would only have to pay a lower amount of tax due to the higher exemption limit. Senior citizens are exempt from tax up to income of 3,00,000. He would have ended up paying Rs 2500 less.

This example should it make it clear to you how to calculate income tax. You can always use the income tax calculator to make things easier for you. If you don't have a head for numbers, or are too busy, you can always rely on the services of a chartered accountant!

If your tax liability is more than Rs. 10,000 in a financial year, you will have to pay advance tax. You must calculate your estimated income tax and pay it in four instalments before the end of the financial year. Due dates are on or before 15^th^ June (15% of total tax due), 15^th^ September (45%), 15^th^ December (75%), 31^st^ March (100%).

If 90 percent of the income tax due is not paid before the due dates, you will have pay penal interest of 1% month.

Since income tax is deducted at source, the tax is paid by the office. However, if you have other income, you will have to pay income tax on that. So, make sure you disclose other income to your employer so that you pay all your taxes.

Yes, the Income Tax Department offers an online facility for paying income tax. Click on the online tax payment link. On that page, there are several options, which you can choose according to your category. If you are individual taxpayer, click on Income Tax (Other than Companies), and then Advance Tax. You can make the payment using Internet banking or debit card.

You can file income tax returns online by going to the e-Filing site of the Income Tax Department, and download the appropriate software. If you want to do it offline, you can fill the XML file generated, and upload it. You also have the option of entering data directly online. There are multiple ways of filing income tax returns.

In addition to income tax, the government also imposes a surcharge if income exceeds a certain limit. These are 10% of income tax for incomes between Rs.50 lakh and Rs. 1 crore, 15% for incomes between Rs. 1 crore and Rs. 2 crore, 25% for incomes between Rs. 2 crore and Rs. 5 crore, and 37% for incomes above Rs. 5 crore.

The government introduced a health and education cess of 4% in 2018 on the income tax liability of taxpayers.

Foreigners and NRIs resident in India have to pay income tax on income accrued in India. Any individual is considered a resident when he or she lives in India for a period of 182 continuous days, or 365 days or more in the past four years.

Income from agricultural activity is exempt from income tax. However, if farmers have non-agricultural sources of income, this will be subject to tax.

No, you do not have to submit any proof of income documents. You will, however, be asked for supporting documents if there's an income-tax scrutiny. So it's always better to maintain records of income, exemptions etc.