How To Calculate Income Tax In Excel?

Income Tax

It is advisable for individuals to calculate their income tax at the beginning of a financial year for proper tax planning. 

Do you want to know your taxable income and the tax amount?

Consider calculating income tax in excel, which leaves minimal room for errors. Go through the following sections to know how to calculate income tax in excel.

Also Read: Section 115BA Of The Income Tax Act

Calculate Taxable Income and Income Tax

Suppose Mr. Singh earns a monthly income of Rs. 1,00,000. Thus, his yearly income will be Rs. 12,00,000. He also earns Rs. 5,000 monthly through rent. So, his yearly rental income will become Rs. 60,000. Apart from these, his yearly interest income is Rs. 4,500.

First off, let us calculate Mr. Singh’s total yearly income in excel. 

Step 1: Open Excel and enter these values one after another as shown in the image below:

Step 2: Select the box where you want to calculate the total income and type this formula —=SUM(C3:C5)

Step 3: Press Enter, and you will get his total income as Rs. 12,64,500.

Now, suppose Mr. Singh has made some investments towards —

• PPF – Rs. 2,00,000
• Home loan interest payment – Rs. 2,00,000
• Health insurance premium – Rs. 30,000

For such investments, he would be eligible to receive tax deductions under various sections, such as – 

• Section 80C, where the maximum deduction limit is Rs. 1,50,000
• Section 24B, where the maximum deduction limit is Rs. 2,00,000
• Section 80D, where the maximum deduction limit for individuals below the age of 60 years is Rs. 25,000.

Thus, for his investment of Rs. 2,00,000 towards Public Provident Fund (PPF), Mr. Singh will receive a maximum tax deduction worth Rs. 1,50,000. In the same way, he will get tax deductions worth Rs. 2,00,000 and Rs. 25,000 for home loan interest payments and health insurance premium payments, respectively.

Let us compute his total tax deductions in excel.

Step 4: Enter the various deductions in the excel sheet just below the income details, as shown in the image below:

Step 5: Calculate total tax deductions by applying this formula — 

=SUM(C11:C13)

Step 6: Press Enter, and you will get the total deductions as Rs. 3,75,000.

Step 7: In the next step, calculate Mr. Singh’s taxable income by applying this formula — =SUM(C8-C15)

Step 8: Press Enter to get Mr. Singh’s taxable income of Rs. 8,89,500.

To calculate Mr. Singh’s total tax liability, we will have to put in the tax slabs, taxable amount and the slab rates (which the government announces) in different columns, as shown below. 

Now, let us calculate the tax amount for each slab, considering the slab rates.

Step 9: For a taxable income between Rs. 0 and Rs. 2,50,000, the slab rate is 0%. Meanwhile, the taxable amount is Rs. 2,50,000 (2,50,000 – 0). 

To calculate the tax value, put in this formula —

 =H5*G5

Step 10: Press the Enter key, and you will get the tax amount as Rs. 0.

Step 11: In the same way, calculate the tax amount for the remaining tax slabs by applying the respective formulae given below:

• =H6*G6
• =H7*G7
• =H8*G8

You will get the following values:

Step 12: Up next, calculate Mr. Singh’s total tax liability by applying this formula — 

=I8+I7+I6+I5

Step 13: Press Enter, and you will see that Mr. Singh’s total tax liability is Rs. 87,400.

So, for a taxable income of Rs. 8,89,500, Mr. Singh will have to pay tax worth Rs. 87,400.

Also Read: Income Tax Rebate Under Section 87A

Final Word

This guide on how to calculate income tax in excel provides the various steps to calculate tax liability in Excel. Make sure to apply the formulae in the correct way for a hassle-free and quick calculation.

Frequently Asked Questions

1. What is the difference between the old and new tax regimes?

The tax slabs have been changed in the new tax regime. For example, individuals who earlier fell within the taxable income group of Rs. 5,00,000 – Rs. 7,50,000 has to pay income tax at a rate of 20%. In the new regime, such individuals will be taxed at 10%. In addition, the new tax regime cancelled around 70 deductions.

2. What are a few deductions and exemptions that are not applicable in the new tax regime?

Some tax deductions and exemptions not applicable in the new tax regime are as follows: 

• Leave travel allowance
• House rent allowance
• Rs. 50,000 standard deduction
• Entertainment allowance deduction
• Deductions under Section 24 of Income Tax Act
• Deductions from family pension under Section 57 of Income Tax Act

3. What are a few deductions retained in the new tax regime?

A few exemptions and deductions that were kept in the new tax regime are as follows: 

• Agriculture income
• Life insurance income
• Leave encashment or retirement
• Standard deduction on rent
• Retirement cum death benefits
• VRS proceeds of a maximum of Rs. 5,00,000

4. What are a few other ways to calculate income tax on salary?

You can also calculate income tax on salary manually by considering the various slab rates. However, manual calculations can lead to errors, which can impact your financial planning. Thus, you can also perform income tax calculations using an online calculator. 

5. How can I calculate income tax manually?

You can easily calculate income tax manually by computing your gross income. After that, calculate your taxable income by subtracting all deductions from your gross income. In the last step, calculate your tax liability according to the slab rates.

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.