How to calculate taxable income?
Income tax is the direct form of taxation which is levied directly on the personal income. Income tax has been one of the oldest sorts of taxes. Under the Income-tax, the tax is levied on the basis of tax slabs. To determine a tax slab, you should consider your net income which comes after subtracting all the available exemptions and deductions. But it should also include any extra income and un-exempted capital gains. Calculating taxable income is a systematic procedure in which one is required to follow the following steps.
Steps to determine taxable income:
- First of all, determine the gross salary of the individual earned throughout the year. Once the gross salary is been ascertained, subtract the exemptions of house rent allowance, conveyance and medical expenses from the gross salary.
- Apart from the gross salary, all the income from other sources including extra income of interest, commission, and bonuses, if any are required to be added.
- Any income from the house property, be it rental income or income from deemed to be let out house property, if any, is required to be added.
- Add the capital gains arising from the sale of assets, if any.
- There are certain deductions and exemptions which are allowed under the Income Tax Act. These deductions are permissible to be deducted from the taxable income. Subtract the deductions available under section 80C, Section 80D and other deductions under Chapter VI to ascertain the net amount of income.
After calculating income from all the above sources and allowing the necessary deductions, the resultant income should be net taxable income. The income tax slab should be applied on this final income. So to comprehend how much tax liability you’ll incur this year, examine your net taxable income and then calculate the tax for distinctive categories.