Taxation of Individuals _ Different Aspects

Taxation of salaried persons:

Simple Calculation of Salaried Person:
Illustration -1
Let Mr. X annual taxable salary is RS. 500,000/-. Compute his Tax Liability?
ANS:
Tax for a salaried person shall be calculated under two steps, i.e as normal rates and as per Marginal
Approach as follows: (Lower shall be tax)
Step-1 Tax @3.5% x 500,000/- (First Schedule of ITO2001)

17,500

Step -2 Under Marginal relief:

450,000 x 2.5 =
Marginal Amount (500,000- 450,000) 50,000 x 20% =
Total
500,000
=

11,250
10,000
21,250

See the Total Taxable income and apply the rate on the marginal amount as follows:
500,000
20%
1050,000
30%
2000,000
40%
4450,000
50%
4,450,000
60%
Tax payable = 17,500

Illustration -2
Compute tax for Mr. X and Mr. Y for the Tax year:

Person
Income

Total tax for the year

Mr. X
895,000

Mr. Y
905,000

Calculation of tax
As per slab rate
895,000X7.5%=67,125

Calculation of tax
As per slab rate:
905,000X9%=81450

As per marginal relief:

750,000X6%= 45,000
145,000X30%= 43,500
88,500
=
67,125

As per marginal relief:

900,000X9.5%=67,500
5,000X30%= 1500
69,000
69,000

Taxation of Individuals _ Different Aspects

Computation of Monthly Tax Deduction from the Salary

Tax is computed on the basis of expected annual salary of an employee and tax is deducted while
making payment on monthly basis. The amount which is deducted from the salary is computed by
dividing total tax on the remaining months.
Illustration -3
Using the data of illustration -2 the monthly tax and the amount payable or transferable shall be
computed as follows for Mr.X and Mr.Y

Person
Income
Tax
Monthly Tax
Salary Payable / Month

Mr. X
895,000
67,125
67,125/12= 5,594
(895,000/12) 74,583-5,594
= 68,989

Mr. Y
905,000
69,000
69,000/12= 5,750
(905,000/12) 75,417-5,750
= 69,667

Increment during the period

Illustration -4
Mr.X is an employee of XYZ Limited. It is the policy of the company to add increments in each
January of the year. The tax year is starting from July to June of each year. His salary was Rs.70,000/in last year and in next year Rs.10,000/- was added as increment in his salary. You are required to
compute tax and monthly payment to Mr.X during the tax year.
July to December
January to June

Rs. 70,000
Rs. 80,000

Computation from July to December

Expected Taxable Salary
70,000 x 12=
Tax on Rs. 840,000 x 7.50%=
Marginal Relief:
750,000 x 6% =
90,000 x 30% =

45,000
27,000
72,000

Lower is Tax payable Rs.63,000/Monthly Tax deductible (from July to December ) = 63,000 / 12 = Rs.5,250
Amount Transferable from July to December

840,000
63,000

= 70,000 5,250 = Rs. 64,750

Taxation of Individuals _ Different Aspects

Treatment after January:

Expected Taxable salary
July to December
January to June

i)

70,000 x 6 =
80,000 x 6 =

420,000
480,000
900,000

Tax on Rs. 900,000 x 7.50%

67,500

ii) Marginal Relief

750,000 x 6% =
150,000 x 30% =

45,000
45,000
90,000

Whichever is lower?
Tax on Rs. Rs. 900,000 x 7.50% =

67,500

Less: Tax already paid / deducted (July to December ) 5,250 x 6 =

Tax to be deducted in next 6 month (January to June)
Tax per month 36,000/6
Amount Transferable from July to December

(31,500)
36,000
6,000

= 80,000 6,000 = Rs. 74,000/-

Taxation of Individuals _ Different Aspects

Taxation of Individuals _ Different Aspects

INDIVIDUAL QUESTION
Total Tax is born by the employer
Salary Rs. 30,000 per month
Annual Salary 30,000 x 12 =

360,000

Tax
Marginal Relief (to be calculated
as per rule)
Lower

Salary
Tax
Total

360,000
+5,470
365,470

4,625

30,000 x 12 =

i)
ii)
1.

5,400
4,625

360,000
+4,625
364,625
5,470
5,550

360,000
4,625
364,625

Tax
Marginal Relief

Salary

30,000 x 12 =

360,000

30,000 x 12 =
Tax
Total

360,000
5,482
365,482

30,000 x 12 =
Tax

360,000
5,482

Tax
Total

2.

3.

Salary

Salary

360,000

360,000

Taxation of Individuals _ Different Aspects

Total

365,482
5,482
5,719
5,482

Tax 365,482 x 1.50% =

Marginal Relief
Lower
50% of the tax borne by the employer
Tax Free Salary
Commitment
Employer book
Salary
Marginal Relief
Salary
Tax (w-1)
Total Amount

= 90,000 pm
= 90,000 + X = 119,999
= 90,000 x 12
= 1,080,000
= 106,500
1,080,000
106,500
1,186,500

1,080,000
118,650
1,198,650

1,080,000
119,865
1,199,865

1,080,000
1119,987
1,199,987

Tax = 119,865
M.R = 153,960

Tax = 119,987
M.R =

Tax = 119,999

W-1
Tax = 118,650
M.R = 149,100
80% Tax is born by employer
20% tax is deducted from the Salary
1,080,000
1,080,000
1,080,000
1,080,000
106,500x80% = 85,200
116,520x80% = 93,216
117,321x80% = 93,587 117,386x80% = 93,908
Tax / MR
= 116,520
117,321
117,386
119,391

90,000 x 12
= 1,080,000
119,391 x 20% = 23,478
1,056,522