Calculating income tax correctly is critical to file accurate returns and avoid issues with the tax authorities. Tax calculation is complex with factors like income level, investments, deductions and rebates impacting your tax liability. This is where using an online income tax calculator is useful. However, certain mistakes can lead to wrong results in the income and tax calculator. This blog looks at key errors to avoid when using a tax calculator to arrive at your correct tax liability.
1. Entering Inaccurate Income
The first step in using an income tax calculator is to enter your annual income from all sources such as salary, interest, capital gains etc. However, many taxpayers end up entering the wrong income amount. This could be unintentionally excluding specific income components or showing inflated/deflated figures. Wrong income will lead to major errors in the tax calculation.
You must therefore be very careful in aggregating income from the TDS certificates, bank statements, Form 16, capital gains records etc. Cross check figures against official documents before inputting them. Do not miss out on lesser known income types like interest on savings account, fixed deposits, bonds etc. At the same time, do not double count incomes already included in Form 16. Recheck your total income before accepting the tax calculator output.
2. Missing Out on Deductions
There are numerous tax deductions available under Section 80C like PF, PPF, life insurance premium, ELSS investments etc. Apart from this, deductions are allowed for housing loan interest, health insurance premium, NPS contributions etc. However, taxpayers often miss out on claiming these deductions in the tax calculator. This results in inflated taxable income and higher tax outgo.
Always keep handy documented evidence of all your Section 80C and other deductions for the financial year. Tally the annual amounts paid under each deduction category before inputting it in the tax calculator. Ensure you do not miss out on any eligible tax deduction as the benefit can be substantial. Use each deduction limit fully.
3. Claiming Wrong HRA Exemption
The HRA or house rent allowance exemption has specific calculation rules based on actual rent paid and place of residence. Taxpayers looking to save taxes often wrongly claim the entire HRA figure as exemption in the tax calculator. However, only the least of the following is allowed as exemption – actual HRA received, rent paid minus 10% of total income or 50% of HRA.
4. Not Considering Rebate and Cess
After computing tax liability, deducting rebate under Section 87A and adding cess are the final steps before arriving at total tax to be paid. But some taxpayers miss out on properly accounting for rebate and cess in the tax calculator.
5. Ignoring Surcharge and Marginal Relief
If your income crosses Rs. 50 lakhs, surcharge kicks in and applies on the tax liability. Surcharge slabs go up with rising incomes from 10% to 15% to 25% and 37% for very high incomes. However, many taxpayers ignore surcharge while calculating tax in the tool. This leads to underpayment of taxes.
An online income tax calculator is a powerful tool to compute your tax liability. However, feeding wrong income data, missing out on deductions, ignoring rebates and surcharge can provide incorrect results. Carefully evaluating inputs and every calculation step is crucial. Following the guidelines above will help avoid errors and arrive at accurate tax liability. Leading portals like 5paisa thoroughly validate the gst calculator output to provide reliable results. Use these tools wisely to plan taxes and file correctly.