¶ How Income Tax works in Accu360
First create Income Tax Slab, then Salary Structure and then Employee Tax Exemption Declaration.
Income tax deduction in accu360 is calculated whenever the salary slip is created (generally monthly wise). Tax is affected to only those earning components in which Is Tax Applicable is checked.
¶ Income Tax Slab :
Standard Tax Exemption Amount as per Income Tax Act in India is Rs 2,50,000 , which have been set in the Income Tax Slab in the field Standard Tax Exemption Amount.
¶ Salary Structure :
Flexible Benefit component - Benefit is added in the Salary Structure with the maximum amount set as Rs 100,000 in the Max Benefits(Amount) field. The flexible benefit is offered by the company to the employees with this salary structure.
¶ Salary Structure Assignment :
The given employee’s monthly salary is Rs 80,000 which have been set in Base field. Also do not forget to add the Income Tax Slab in the Salary Structure Assignment.
¶ Employee Tax Exemption Declaration :
Since the employee has a Life Insurance policy plan which under section 80C as per Income Tax Act is totally tax exempted for a maximum amount upto Rs 1.5 Lakhs. So the declared amount has been given as the maximum amount. Also as per HRA Exemption, the monthly house rent that the employee pays is Rs 10,000. So as per HRA Exemption rule of India the Annual HRA Exemption Amount comes to Rs 81,600. So the total amount as per declaration is Rs 1.5 Lakhs + Rs 81,600 = Rs 2,31,600.
¶ Other Income :
The employee has also declared Rs 30,000 from her house rent business income annually as Other Income apart from salary. This other income is not tax exempted.
¶ Employee Benefit Application :
Since the employee has been offered with Flexible Benefit, in order to let the company know that she wants to have the privilege, she needs to create Employee Benefit Application with amount upto the maximum amount.
The Benefit component has been marked as tax exempted (as Is Tax Applicable field is unchecked, see the below image), so tax won’t be calculated on this amount. Since Pay Against Benefit Claim is not checked, so the benefit amount is divided into Total Number of Payrolls within the Payroll Period i.e 100000/12 = 8333.33 and is paid to the employee via salary.
¶ Affect in Salary Slip :
Formula 1 ) Total Taxable_Earnings of a particular month = Previous Taxable_Earnings + Current Taxable_Earnings + Future Taxable_Earnings + Current Additional Earnings + Other Incomes + Benefits – Total Exemption_Amount
where, Taxable_Earnings = Gross Salary (summation of taxable earning components from salary structure)
Previous Taxable_Earnings = Taxable_Earnings * No. of previous months within the Payroll Period.
Current Taxable_Earnings = (Taxable_Earnings of that month/total no. of working days) * total no. of payment_days
Future Taxable_Earnings = Taxable_Earnings * No. of future months within the Payroll Period.
Other Incomes = On giving Employee Other Income within the payroll period, the amount is included in calculation for income tax.
Current Additional Earnings = If Additional Salary/Employee Incentive is added, then that amount is included.
Benefits = The amount used as Flexible Benefit.
Total Exemption_Amount = Total Exemption Amount from Employee Tax Exemption Declaration + Standard Tax Exemption Amount from Income Tax Slab.
In figures,
Total Taxable_Earnings of a particular month = 0 + 80000 + 880000 + 0 + 30000 + 0 - (250000 + 231600) = 508400
Formula 2) Annual_Taxable_Salary = Total Taxable_Earnings of a particular month – Current Additional_Earnings_with_Full_Tax
where, Current Additional_Earnings_with_Full_Tax = If Additional Salary is created with Deduct Full Tax on Selected Payroll Date checked, then that amount is included or else it is 0.
In figures,
Annual_Taxable_Salary = 508400 - 0 = 508400
Compare the Annual_Taxable_Salary as mentioned in Income Tax Slab conditions. If the Annual_Taxable_Salary match a particular slab then starting from the 1st slab till the matching slab, the amount should be summed up according to the condition given below.
Formula 3)
if Annual_Taxable_Salary >= From_Amt and Annual_Taxable_Salary < To_Amt:
tax_amount += ( Annual_Taxable_Salary - From_Amt + 1) * Percentage *.01
elif Annual_Taxable_Salary >= From_Amt and Annual_Taxable_Salary >= To_Amt:
tax_amount += ( To_Amt - From_Amt + 1) * Percentage * .01
or
if not To_Amt and Annual_Taxable_Salary >= From_Amt:
tax_amount += (Annual_Taxable_Salary - From_Amt + 1) * Percentage *.01
where From_Amt = From Amount from Income Tax Slab
To_Amt = To Amount from Income Tax Slab
Percentage = Percent Deduction from Income Tax Slab
Starting from the First Slab the Annual_Taxable_Salary -> 508400 does not falls under this slab, so the calculation according to the condition in Formula 3 is
(500000-250001+1) * 5 * 0.01 = 12500
Next going to the Second Slab, the Annual_Taxable_Salary -> 508400 falls under this slab. Now the calculation for this slab according to the condition in Formula 3 is
(508400-500001+1) * 10 * 0.01 = 840
So summing up the two slabs amount, the total tax amount is
12500+840 = 13340
Formula 4)
Tax_In_Salary_Slip = (tax_amount – Previous Total Paid Taxes)/ Remaining Periods
where, Tax_In_Salary_Slip = Income Tax component’s amount deducted in salary slip.
Previous Total Paid Taxes = Income Tax component’s total amount deducted in previous periods salary slips within the Payroll Period.
Remaining Periods = Total number of periods from current period to end of the period within the Payroll Period.
In figures,
Tax_In_Salary_Slip = (13340 - 0)/12 = 1111.67
Hence, for the first month of the Payroll Period 2022-2023, the Income Tax deducted is Rs 1111.67 as shown in the image below.
Similarly for every month until the end of the Payroll Period the tax amount would get calculated based on the 4 formulas.
Now before creating the salary slip for the end month of the Payroll Period, let us assume for
Case 1 : Declaration Proof is submitted. ( Employee Tax Exemption Proof Submission)
So on submission of declaration proof, it means that the declaration is correct and tax for the end month of the Payroll Period is calculated accordingly summing up to Rs 13340.00 as shown in the image below.
In the below image you can see the tax amount validated with the Income Tax Calculator from the official site Income Tax Portal of India (https://incometaxindia.gov.in/pages/tools/income-tax-calculator.aspx).
Case 2 : Declaration Proof is not submitted.
When declaration proof is not submitted, at the last month of the Payroll Period all the tax exempted as per declaration is deducted using the given 4 formulas.
-
Formula 1 :
Total Taxable_Earnings of a particular month = 880000 + 80000 + 0 + 0 + 30000 + 0 - (250000 + 0)
= 740000 -
Formula 2 :
Annual_Taxable_Salary = 740000 - 0 = 740000 -
Formula 3 :
Slab 1 = not matching = 12500
Slab 2 = matching = (740000-500001+1) * 10 * 0.01 = 24000Total Tax Amount = 12500 + 24000 = 36500
-
Formula 4 :
Tax_In_Salary_Slip (Last Month) = (36500 - 12228.34)/ 1 = 24271.66
