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he way the Income Tax department calculates the tax on each slab can be confusing.
For instance, a young reader who earns an annual income of Rs 450,000 asked whether his tax rate of 30% would entail dishing out Rs 135,000. The answer is: No.
Here, we show you how the percentages are levied according to each income slab.
Note, this does not take into account the following:
- Tax deductions by investing in certain instruments.
- Standard deduction.
This is just to indicate how percentages are calculated on the tax slabs.
Also: when we say current year, we refer to the current financial year (April 1, 2004 - March 31, 2005). When we speak of next year, we refer to the next financial year -- April 1, 2005 to March 31, 2006.
| Income slabs and tax rates | ||
| Current year | Next year | Tax rates |
Rs 0 - 50,000 | Rs 0 - 100,000 | No tax |
Rs 50,001 - Rs 60,000 | Rs 100,001 - 150,000 | 10% |
Rs 60,001 -150,000 | Rs 150,001 - 250,000 | 20% |
Above Rs 150,000 | Above Rs 250,000 | 30% |
Taxable income more than Rs 850,000 | Taxable income more than Rs 10,00,000 | Surcharge 10% |
TAX YOU WILL PAY FOR THE CURRENT YEAR
Annual income = Rs 450,000
Education cess @ 2 % = Rs 2,180
Total tax payable = Rs 109,000 + 2,180 = Rs 111,180
| Income slab | Tax rates | What it means for the tax payer |
Rs 0 - 50,000 | No tax | - |
Rs 50,001 - 60,000 | 10% | Since no tax is levied up to Rs 50,000, tax in this case is calculated on Rs 10,000 (Rs 60,000 - Rs 50,000). Rs 10,000 x 10% = Rs 1,000 |
Rs 60,001 - 1,50,000 | 20% | Since you have already paid tax on Rs 60,000, you now pay tax on Rs 90,000 (Rs 1,50,000 - Rs 60,000). Rs 90,000 x 20% = Rs 18,000 |
Above Rs 1,50,000 | 30% | You have already paid tax on Rs 1,50,000, so you now pay tax on Rs 3,00,000 (Rs 4,50,000 - Rs 1,50,000). (Rs 3,00,000 x 30%) = Rs 90,000 |
TAX YOU WILL PAY FOR THE NEXT YEAR
Annual income = Rs 450,000
Total tax = Rs 85,000
Income slab | Tax rates | What it means for the tax payer |
Rs 0 - 100,000* | No tax | - |
Rs 100,001 - 150,000 | 10% | Since no tax is levied up to Rs 100,000, tax in this case is calculated on Rs 50,000 (Rs 150,000 - Rs 100,000). Rs 50,000 x 10% = Rs 5,000 |
Rs 150,001 - 250,000 | 20% | Since you have already paid tax on Rs 150,000, you now pay tax on Rs 100,000 (Rs 250,000 - Rs 150,000). Rs 100,000 x 20% = Rs 20,000 |
Above Rs 250,000 | 30% | You have already paid tax on Rs 250,000, so you now pay tax on Rs 200,000 (Rs 450,000 - Rs 250,000). (Rs 200,000 x 30%) = Rs 60,000 |
* The slab for women is Rs 125,000 and Rs 150,000 for senior citizens.
A surcharge of 10% will be levied once the taxable income is more than Rs 10 lakh (Rs 1 million). Currently the surcharge is 10% if the income is more than Rs 850,000.
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