How Is the Tax Calculated on CTC in India?

 

Several individuals find it quite complex to calculate the income tax on their salary. However, a basic idea about tax calculation on CTC in India among such individuals is crucial. With a clear understanding of the whole concept of income tax on salary, they can plan their finances more efficiently. For this, one has to keep in mind a few factors such as applicable tax rates, taxable salary, etc.

In this blog, we will walk you through a comprehensive guide on how to calculate tax on CTC. Keep reading to explore more about it. 

What Is Income Tax on CTC?

As per the IT Act of 1961, a salaried individual has to pay an amount of their salary to the Government of India. The amount which you pay from your salary is known as the income tax. There are several subsections with numerous provisions stating in-depth details regarding deductions, computations, and tax payments. 

How Tax Is Calculated on CTC With Example?

Refer to the below-given steps to get a simplified explanation of how you can easily do tax calculations on your CTC.

Step 1: Start calculating your gross salary which comprises allowances, basic salary, bonuses, etc.

Step 2: Identify all the exemptions or components that do not fall under income tax deductions like LTA (Leave Travel Allowance), HRA (House Rent Allowance), etc. 

Step 3: Subtract these exemptions from your gross salary to get the taxable salary. 

Step 3: Calculate all the deductions which come under the varied sections of the IT Act like Section 80D, Section 80C, Section 24b, etc.

Step 4: Subtract these deductions from your taxable salary to get the net taxable income. 

Step 5: Based on your taxable income, identify the tax sla you fall under and determine the applicable tax. 

Step 6: Calculate the tax liability for each slab followed by adding them up to identify your total tax liability.

Step 7: Consider the applicable rebates or surcharges based on any specific circumstances (if any). 

Step 8: Add the Health and Education Cess (currently 4%) to your tax liability. 

Step 9: After you get to determine your final income tax liability, consider the TDS and Advance Tax deductions.

Step 10: File your ITR (Income Tax Return) with the income tax department.

Let us now understand the process of tax calculation with the help of an example. 

Example-

An individual gets a gross salary of ₹15,00,000. Whereas, the net salary he or she gets is ₹12,50,000 after excluding various exemptions. Refer to the below table explaining the tax calculation.

Tax Calculation	Tax Amount
Gross salary	₹15,00,000
HRA and LTA deduction	₹2,50,000
Standard deduction	₹50,000
Net salary	₹12,00,000
Income other Sources	₹10,000
Gross taxable income	₹12,10,000
Under Section 80C (ELSS + EPF)	₹1,50,000 (deduction)
Under Section 80CCD (1) for NPS (National Pension Scheme)	₹50,000 (deduction)
Under Section 80D for health insurance premium	₹15,000
Under Section 80TTA for interest on the bank account	₹10,000
Total taxable income	₹9,85,000

Considering the applicable tax rate on amounts ₹5 lakh to ₹9.85 lakh is 20%, the amount of 

tax liability will stand at ₹97,000. 

How to Use Salary Calculators?

Salary Calculators offer a straightforward way to calculate your annual and monthly take-home pay, along with detailed breakdowns of yearly and monthly deductions. This user-friendly tool requires minimal input and delivers accurate results.

Step 1: Navigate to an online ‘Salary Calculator’ tool.

Step 2: Enter the CTC (Cost to Company).

Step 3: Enter the bonus included in your CTC (in %).

Step 4: Provide the monthly professional tax.

Step 5: Enter the monthly employer and employee PF. 

Step 6: In case of any monthly additional deduction, enter the amount. 

Afterwards, you will get to see the results on the screen.

What Is the Eligibility to File An Income Tax?

In case one’s gross income is more than the below-stated amounts, he/she is liable to pay the income tax. 

For residents under age 60 

• ₹2,50,000 (according to the old regime)
• ₹3,00,000 (new regime post-budget 2023)

For senior citizens (between 60 and 80 years) 

• ₹ 3,00,000

For super-senior citizens (80 years and above) 

• ₹ 5,00,000

Besides, if an individual meets the following criteria, he/she is eligible to file an ITR. 

• One spends more than ₹2,00,000 on international travel
• Upon spending more than ₹1,00,000 on an electricity bill
• If total business and professional gross receipts exceed ₹60 lakh and ₹10 lakh
• Upon depositing more than ₹1 crore in current accounts
• If an individual deposits more than ₹50 lakh in 1 or more savings accounts annually

The Bottom Line

Every individual wants to earn more while paying less income tax. There are a few effective tax-saving methods like investing in PPF (Public Provident Fund), ULIP (Unit-linked Insurance Plan), ELSS (Equity-linked Savings Scheme), etc. Regardless, utilizing a salary calculator is essential when it comes to assessing accurate tax calculations on CTC in India.