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  • Category: Tax Planning

    How to calculate Net of tax for an employee

    Confused about tax calculations for an employee? Get your calculations right with expert advice right here.

    Can anyone guide me on how to calculate Net of tax for an employee? I want to pay, for example, 50K as an incentive but tax should not be deducted. I want to gross up and pay that amount.

    If I pay the amount of 50K, for that some amount of tax has been deducted depending upon the tax slab for the employee. Instead of that, I want to calculate tax for that 50K and add that 50k plus tax and pay him the gross amount i.e including tax.
  • Answers

    5 Answers found.
  • The income tax percentage of an individual depends on the net income of an individual in a financial year. Thinking that taxable income is more than 10,00,000/- rupees, you can add 30% of 50,000 rupees that is Rs.16,670/- and the total of Rs. 66,670/- can be paid by you. There may be a case wherein after adding this income he may go up to 30% slab. In such case how much extra he is paying is to be added to fifty thousand and pay. It is better to ask your accounts department to calculate the employee's taxable income and accordingly, you can add the extra tax he has to pay because of the addition of this Rs.50.00/- can be added and given. If you have to calculate your own you please go through https://incometaxindiaefiling.gov.in/. It will give a very easy method to calculate the tax.
    You can calculate his tax levels with the addition of Rs.50,000/- and without the addition of Rs.50000/- and the difference can be added to Rs.50.000/-.

    always confident

  • As per the new GST rules, a gift from the employer to the employee upto Rs 50,000.00 is exempt from GST. Extention of the gift amount, use of the buisness resources that can be treated as a service or a supply then it attract tax on the employer's part.

    As per the Finance Bill 2017, amendment to section 56(2). In a single tax year, if there is a monetary gift above Rs 50,000, then it is taxed, If a property above Rs. 50,000 is given to the employee without consideration or inadequate consideration, then it would be taxed.

    As far as I understand, If you can keep the value less than 50,000 in the concerned tax year period, then there shouldn't be any issues. But please inform the employees that if they have plans of claiming any gift from other sources for the same year that you are going to give them the money as an employer, then that would attract tax.


  • Ascertain in which tax slab the employee comes after including this 50 K also. If he comes in the 20% slab then he has to pay 20% of 50K as tax. Then he gets only 80% in hand net of tax. In that case you should do reverse calculation as: The amount to be given to employee (including his due tax component on 50 K )= 50 x 100/80. = it will be 62500.

    Now verify this if it is correct. 20%tax on 62500 is 12500. So 62500-12500= 50000. Correct. He can get 50 K in hand after paying tax.

    If the tax slab is 30% you have to calculate as 50000 x 100/70.

    (Here I have ignored the cess portion for ease of calculation) You have to add the cess also on the tax percentage.( for example if edu cess is 3% of tax then for 20% slab it will be 20 +20x3/100 i.e 20 +0.6 =20.6. Your calculation will be 50 x 100/20.6.

    So the first thing is to know in which slab he fall for IT. Or as a magnanimous gesture you can calculate at the maximum tax slab and give.

  • The tax depends on the income slab where the taxable income is figuring after all allowable deductions and rebates.
    If the taxable income is coming up in 30% slab then you have to top up the amount accordingly so that even after 30% tax deduction the employee gets 50000. That is a simple calculation which your finance executive can work out. You can even compensate for the small amount which is charged as educational cess.

    Thoughts exchanged is knowledge gained.

  • First of all when you say that the person to whom you want to give incentives is an employee then I presume that he is on roll employee of your company and in such case the tax slab will have to be considered for such incentive. This incentive will form part of total salary for the year and tax will be computed according to the slab of tax he falls in.
    You will need to disclose the amount of salary you are paying to him and also the investment declaration he has submitted to you in Form 12BB.

    Based on the investment declaration submitted by him actual tax that has been computed and deducted also must be available to finally find the exact Tax that needs to be deducted for paying him the gross amount.

    In case the employee is off roll or simply a consultant and not enjoying benefits of on roll employee like PF, medical insurance, Gratuity benefit or Earned leave, etc then in such case you can simply gross up the amount i. e. Rs. 50,000 by 10% and pay him net by paying the tax on his behalf to the Income Tax department. You need to pay Rs. 5,555/- as tax and pay your employee Rs. 50,000 as net incentive.
    You need to deposit Rs. 5,555 either under section 194J (Tds on professional service) or 194H (Tds on commission or brokerage) of the Income Tax Act, 1961 as TDS by filling in challan and returns for the same later on.

    In case you still want exact gross amount then you need to share few details as asked for.

    Live before you leave.

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