Filing income tax returns (ITR) is a legal duty for all citizens. It is required for everyone whose income is more than the exemption limit. There is a common perception among the salaried class. They think there is no obligation to pay tax since it has already been deducted from their salary. But every employee has to compulsorily file ITR. Form 16 received from the employer is not your ITR.

How to calculate income tax: Making a beginning

Calculating income tax can seem difficult. How much tax do you need to pay? It depends on the tax slab applicable to your income.

For example:

Rishav is a techie. He recently passed out of college. He has been earning well by working in an IT firm for over a year. Rishav knows he is legally bound to pay taxes. A friend told him that filing ITR is simple. He can just log on to the Income Tax Department website and file ITR. This is how Rishav filed his ITR.

Step 1

Rishav noted the tax rates. He would be filing ITR for the assessment year 2016–17. This is for the financial year beginning 1 April and ending 31 March. This helped Rishav understand the tax slabs. Tax slabs are the most important feature for filing returns.

Tax slab

AY 2016–17

Up to Rs 2.5 lakh

No tax

Rs 2.5 lakh to Rs 5 lakh

10%

Rs 5 lakh to Rs 10 lakh

20%

Rs 10 lakh and above

30%

For senior citizens (above 60 years) the exemption limit is Rs 3 lakh. For those above 80 years, the exemption limit is Rs 5 lakh.

Step 2

Rishav has to consider his cost-to-company (CTC). Several categories are exempt from tax. These include house rent allowance (HRA) and medical reimbursements. He has to fill these in using the following tax calculator format.

Salary heads

Amount (Rs)

Exemption (Rs)

Taxable (Rs)

Basic salary

6 lakh

6 lakh

HRA

3 lakh

1.80 lakh

1.20 lakh

Conveyance

96,000

19,200

76,800

Special allowance

60,000

60,000

LTA

20,000

12,000 (bills)

8,000

Medical

15,000

15,000

Gross Income

8,64,800

Rishav also needs to take into account his income from various interests. These include fixed deposits and savings bank account.

Step 3

Rishav collects Form 16 from his office. This is proof of his gross income. He then calculates the interest he earned on his investments. The total is his gross income.

Step 4

He then has to calculate his deductions. This includes donations he had made during the year. It also includes investments in Public Provident Fund (PPF). There are also premiums paid in life insurance policies and so on.

Step 5

Rishav’s taxable income is his total gross income minus the net total deductions. He has to put it in the appropriate tax slab. Then he can use an income tax calculator to find out his dues.

Why is filing ITR important?

Filing ITR is compulsory under the Indian income tax laws. It keeps your record straight as a law-abiding Indian citizen. It also shows that you have paid taxes to the government. You can go to jail for not filing ITR. Also, ITR is mandatory whenever you approach a bank for a loan.

Documents needed for ITR

Some documents are essential to prove your income and deductions. This is necessary whether you are e-filing ITR or getting professional help for it. Here is the checklist.

1. Copy of your PAN card.

2. Form 16A and Form 16B. Your employer provides these. They explain various heads under which tax has been deducted.

3. Cancelled cheque documenting your bank account details. This is in case you have paid more tax and you are filing for a refund.

Summing up

Filing ITR is mandatory under the law. Calculating tax liability is not too complicated. Follow the simple steps outlined above. You will know what you need to do.