Breaking India State Business Entertainment Biography Lifestyle

Employed persons must calculate their taxable income in this way, this is the step-by-step method.

Sagar Patel

By Sagar Patel

Published on:

Calculation of taxable incomeImage credit source: Unsplash

The last date for filing Income Tax Returns (ITR), July 31, is almost here. If you are a salaried employee and are having difficulty calculating taxable income to file returns, let us tell you the complete process.

First of all, it is important to know that your salary or the amount you earn in a year is not the entire income subject to tax. You get many types of tax breaks on this. When you deduct it, your actual taxable income comes out.

To calculate the taxable base, it is also necessary to determine whether the ITR is filed under the new tax regime or the old one. Let’s understand this mathematics of taxable income…

read this too

What income is subject to taxes?

If your income comes from salary only, then taxable income will be calculated only from that after deductions. Otherwise, according to the Income Tax Act, apart from salary, rent from a house or a business, capital gains earned from investments in the stock market or money from self-employment and income from any other professional service also fall within the ambit of tax. From this total income, you also get the benefit of tax deduction on different types of savings.

If you are filing ITR under the new tax regime, then all your income will be added up and you will get the benefit of standard deduction of only Rs 50,000. However, the tax-free income limit under this regime is Rs 7 lakh and after including standard deduction, it becomes Rs 7.50 lakh.

Calculation of taxable income under the old tax regime

Actually, their office helps a lot in calculating the taxable income of the salary class. If TDS or advance tax is deducted from your salary, then their office calculates your tax deduction and gives you Form-16. But even if Form-16 is not available, they can still calculate your taxable income by downloading AIS (Annual Income Tax Return) from Income Tax site. Not only this, many times your rental income, capital gains and self-employment income are not calculated in Form-16. So you can follow this step-by-step process…

  1. To calculate your taxable income, you must first deduct the rent allowance from your salary. If you have taken out a mortgage loan, you will not get the benefit of this exemption, but you will get a tax break on the interest paid on the mortgage loan.
  2. After this, you can deduct the child education allowance from your salary. There is a fixed limit.
  3. In addition, you receive a travel allowance. This is also part of the tax deduction.
  4. After this, you can calculate the savings made under 80C, health insurance premium and other tax saving deductions and deduct them from your total income.
  5. If you rent out any of your properties, you can claim exemption from the tax paid to the municipality in addition to the standard deduction.
  6. Now comes the turn of capital gain, if you have made a short term capital gain (investment of less than a year) in stock trading then you will get 15% and for a long term capital gain (investment of more than a year) you will have to pay 10% tax. The only advantage you get from this is that you can offset the losses incurred in the stock market with your capital gain.
  7. Apart from this, if you invest money in NPS every year, you can claim an additional tax exemption of Rs 50,000. The benefit of standard deduction is also available under this scheme. After removing all these deductions, you will have to pay tax on the remaining income as per your tax slab.
Sagar Patel

Sagar Patel

I am Sagar Patel, specializing in business news reporting. With a keen focus on economic trends, market analysis, and corporate developments,

Related Post

Leave a comment

x