To calculate one’s income tax liability or income tax refund with respect to the details mentioned in the form 16, one needs to take into account all the details mentioned in the form 16. This includes the basic salary, perquisites, profit in lieu of salary, allowances, deductions (Profession Tax) and any other income earned by employee (interest on fixed deposits). One must not forget to calculate the exemptions u/s 10 of the income tax act, from the various allowance that make a part of the employee’s salary structure.
Deductions under chapter VI-A (sec. 80C, 80CCC, 80CCD, 80E, 80G etc.) must be reduced from the gross total income of the employee. On this figure, the tax liability of the employee must be calculated on the basis of the tax slabs for the relevant assessment year. For assessment year 2015-16, following are the tax slabs.
The income tax slabs for the financial year 2014-15 (assessment year 2015-16) for resident individual not being senior citizens (i.e. below the age of 60) –
0 to 2,50,000 – NIL, 2,50,001 - 5,00,000 - 10%, 5,00,001 - 10,00,000 - 20% and 10,00,001 and above - 30%
After having arrived at the basic tax liability figure, the taxpayer must add an education cess of 3 per cent to the same. Surcharge shall be applicable if the total income is greater than INR 1 Crore. From this figure, tax deducted at source by the employer and other persons (For eg. Banks) must be deducted. Together with that advance tax, if any, paid by the taxpayer must also be deducted.
After reducing the tax credits liable to be received by the employee, if there is any outstanding tax left, then the same shall have to be paid by the employee by means of self assessment tax.
More often than not, the tax liability of an employee is correctly calculated by the employer. This is because the employer adheres to all of the above mentioned practices. Therefore once anybody receives his/her form 16; he/she most likely shall not have a tax liability as long as all of the incomes of the employee have been reported to the employer.
However an employee shall be liable to pay tax if he/she does not disclose all of the incomes earned by him/her during the financial year. The tax liability shall also arise if the employee switches jobs during the year and does not disclose to his current employer, the salary income received from the previous employer. This is because the current employer shall deduct tax at source, thinking that the salary paid by him to his employee is the only income earned by him/her during the financial year. Therefore at the time of filing of income tax return, when both the salary incomes earned by the employee are offered for tax, a tax liability is incurred as both the salary incomes added together are usually liable to be taxed in a higher tax bracket as opposed to when these incomes are taxed individually. For more on this, watch this video - https://www.makemyreturns.com/income-tax-videos/overview-of-the-indian-tax-system.aspx