Every individual has to calculate its taxable income to pay income tax and people are confused about how to calculate taxable income and what actually is a taxable income? We have a tendency to leave the calculation of tax on the Chartered Accountant. Basically, taxable income is the final amount which is arrived after calculating and taking into consideration all the exemptions and deductions available to that individual and the tax rule applicable to the the income tax payee.
To calculate the income of a company or individual, there are five sources of income:
- Income from salary
- Income from House Property
- Income from Business and Profession
- Income from Capital Gain
- Income from Other Sources
Income from Salary:
In order to calculate income from the salary, a taxpayer have to add basic salary, commission and allowances such as House rent allowance, dearness allowance, travel allowance and other allowances. He also have to include bonuses to come to gross salary. From the Gross Salary, so calculated, deduct reimbursement like medical reimbursement and exemptions allowed to the taxpayer.
Income from the 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).
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 the presumptive tax system, provided your business is eligible for it. Get the help from your chartered accountant to calculate the business and income tax payable correctly. This is one of the challenging task to calculate income from Business and Profession out of all the five sources.
Income from Capital Gain:
There is difference between short term and long term capital gain assets, so first differentiate that like equity shares and mutual funds. After that make adjust all the possible and applicable deductions under various section like 54 AND 54EC to come to total capital gain.
Income from Other Sources: There are many items which doesn’t fall into any of the above category like interest from saving, dividend, income from fixed deposit, other interest income. It also includes following items:
- Winning from lotteries
- Horse Races
- Gambling and Betting
- Card Games
As per the Indian tax laws, tax payer can compute income from salary using TDS certificate in form 16 issued by your employer.
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