While calculating our tax, we are often confused about what constitutes our taxable income. As most of us are presented our salaries in a cost-to-company (CTC) format, we leave the tax calculation to our CAs, without being aware of our taxable income.
So what is taxable income? It is the final amount arrived after making all the adjustments on which income tax is levied as per the respective slab rate of the individual. Income sources have been segregated into 5 parts i.e. Income from Salary, house property, business and profession, capital gains and other sources. While some of these categories have some level of exemptions, the others may not. So let us see how incomes are categorised into different sources, which is further tabulated to calculate the actual taxable income, based on which income tax return (ITR) will be filed.
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Income From Salary
This component includes basic salary, bonuses, commissions and all allowances. To calculate the income from salary, you need to add basic salary, allowances such as dearness allowance, travelling allowance, House Rent Allowance (HRA), commissions and other allowances. Also, add any bonuses to arrive at the gross salary. From gross salary, you need to deduct the HRA exemption amount, travelling allowance exemption and reimbursements like medical as per actual bills subject to a maximum ceiling.
Income from House Property
The rental income one earns when they let out properties as well as deemed to get from a self-occupied property are part of this income.
To calculate the income from property, assess the received and expected rent from the property by considering the higher one out of fair market value and municipal valuation. Now, between the actual rent received and the expected rent, whichever is higher will be considered as the gross annual value (GAV) of your let-out housing property. The municipal tax will then be subtracted from the GAV to arrive at a net annual value (NAV). There may be positive or negative income from the let-out property by deducting the interest paid on loan for such property from 30% of NAV (30%of NAV ‘Less’ Interest).
Income From Business and Profession
You can calculate income from business and profession as per stipulated rules under the Income Tax Act. You can also use presumptive tax system, provided your business is eligible for it. Get the help from your CA to calculate the business and income figure correctly.
Capital Gain Income
Bifurcate long-term capital gain and short-term capital gain for various items. Then make the adjustment for the applicable deductions under various sections such as Sec 54, 54EC etc to calculate your total capital gain.
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Income From Other Sources
Any monetary income that does not come under any of the above heads is included in income from other sources. This normally includes income, such as interest from Savings Account, dividend, income from FD, other interest income.
Calculate Gross Income
Add all incomes from 5 sources to arrive at gross income. You will need to separately calculate and add the income from securities with short-term capital gain, which is taxed at a 15 % rate and income from lottery, gambling etc which is taxed at a 30 % rate.
Calculate Taxable Income
To calculate taxable income, subtract the deductions allowed Sec 80 C to Sec 80 U of IT Act from the gross total income. It should include deduction benefits allowed for investments such as PPF, ELSS, tax saving FD, health insurance premium, and all eligible donations, etc. Once you are ready with the taxable income, then you can apply the tax as per your respective slab rate to get the final tax liability.
|Income tax calculation(For salaried individual)|
|Detail||(Amt in Rs)|
|Income from other sources||30000|
|Sec 80 (C)||150000|
|Sec 80 (D)||20000|
|Sec 80 (CCD)||10000|
|Sec 80 (TTA)||5000|
|Up to Rs 2.5 Lac||NIL|
|Rs 2.5 Lac to Rs 5 Lac (5% of the amount)||12500|
|Rs 5 Lac to Rs 10 Lac (20% of the amount) i.e.
20% of (Rs 745000-Rs 5 Lakh)
|Above Rs 10 Lakh (30% of the amount)||NIL|
|CESS at 3% (3% of 12500+49000)||1845|
|Total tax amount (Rs)||63345|
Make sure you declare all types of income as the income tax department can send you a notice in case you fail to pay tax. For detailed information, you should consult with your tax advisor and include all the minute details in your ITR.
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