Here's all you need to know while calculating your taxable income
Taxable income are the final amount that you derive after making all adjustments on which income tax is levied as per the respective tax slab for an individual.
What we earn through hard-work is usually taxable, and we all need to report the same on our federal income tax return.
Every year, we submit our income declarations form and submit the documents related to our savings. Interestingly, most of us are not aware as to how income tax is actually calculated, therefore, end up relying on Chartered Accountants (CA).
Taxable income are the final amount that we derive after making all adjustments on which income tax is levied as per the respective tax slab for an individual.
There are five sources of income namely, income from salary, house property, business and profession, capital gains and other sources. However, some categories may have tax exemption on it, but others may not.
These incomes may include wages, pension, gratuity, fees, commission, perquisites, provident fund contribution, leave encashment, Central governments contribution to pension and compensation received for a service.
So it is very important to know what is taxable income and what is not, as these are further based on which income tax return form (ITR) will be filed.
As per the IT Act, income tax is applicable on a person who was in India for 182 days during the previous tax year or the person who was in India for at least 60 days during the previous tax year and for at least 365 days during the preceding 4 years will be taxed.
Here's how you can calculate your taxable income, as per BankBazaar report.
- Gather your salary slips along with Form 16 for the current fiscal year and add every emolument such as basic salary, HRA, TA, DA, DA on TA, and other reimbursements and allowances that are mentioned in your Form 16 (Part B) and salary slips.
- The bonus received during the financial year must be added for the income that is being calculated.
- The total is your gross salary, from which you will have to deduct the exempted portion of House Rent Allowance, Transport Allowance (for which the maximum exemption is Rs 19,200 per year), Medical reimbursement (for which the maximum exemption is Rs 15,000), and all other reimbursements provided the actual bills in respect of the expenses incurred.
- The result is your net income from salary.
Taxable income from salary
For calculating income from salary, a taxpayer will have 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.
Then 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.
Taxable income from House Property
In this category, a taxpayer will need to assess the received and expected rent from the property by considering the higher one out of fair market value and municipal valuation.
It may be noted that 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.
After this, the municipal tax will minus from the GAV to arrive at a net annual value (NAV).
Taxable income from Business and Profession
It can calculated as per stipulated rules under the Income Tax Act. Also, a person can utilize presumptive tax system, provided his/her business is eligible for it.
Taxable income from Capital Gain Income
Divide your long-term capital gain and short-term capital gain from various assets like equity shares or mutual funds. After that make adjustment for the applicable deductions under various Sections such as Sec 54 and 54EC to calculate your total capital gain.
Taxable income from other sources
All the monetary income, which does not come under the above mentioned headlines, is called as income from other sources, such as interest from savings account, dividend, income from FD, other interest income.