Tuesday, August 2, 2016

Whether expenditure has anything to do with income tax payments?



Question:
I recently got a job opportunity at a private company in Pune where they are offering me a salary of Rs 12 lakhs per annum. I have investments totaling Rs 1 lakh annually. How much income tax would get deducted and would it get deducted on a monthly basis? Someone told me that since I have investments of Rs 1 lakhs, I would have to pay an income tax of 33% on 50,000 Rs, which is Rs.16,500 per month. Is that true? As I would be relocating to Pune from Mumbai, I would have other expenditures like rent and food. So can someone please explain how the income tax calculation would work?

Ans:
Your expenditure has nothing to do with income tax payments.
Income tax is related to your annual income subject to deduction of certain investments which are eligible for tax exemption.
Taking into consideration, that the investment of Rupees one lakh made by you is eligible for income tax rebate, I shall provide the following details
  • Total income - 1200000.00
  • Less investment eligible for tax exemption - 100000.00
  • Balance amount - 1100000.00
  • You are aged less than 60 years and for the first 250000.00 you need not pay income tax
  • Balance amount - 850000.00
  • Out of the above you have to pay income tax at ten percent for 250000.00 = 25000.00
  • The balance amount - 600000.00 and you have to pay 20 percent income tax for an amount of rupees 500000.00 = 100000.00
  • For the remaining amount of 100000.00 you have to pay thirty percent income tax - 30000.00
  • The total income tax payable = 25000 + 100000.00 + 30000 = 155000.00 and for this amount you have to pay educational cess at three percent of income tax = 4650
  • The total tax payable by you including educational cess is Rs. 159650.00 four annual income of rupees 1200000.00

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