What is income tax?
Income tax is a form of direct taxation levied by the government on individuals' earnings. The Income Tax Act of 1961 mandates that the Central Government collects this tax. The government can change income tables and tax rates annually in its Union budget. Income does not mean only money earned in the form of wages. It also includes income from property ownership, profit from the business, occupational profits (such as a bonus), income from capital gains other sources. The government also often provides some discretion so that multiple deductions are made from an individual's income before calculating the tax to be imposed.
Income tax return
The basis for income tax calculation is the Income Tax Return (ITR) form. This statement shows a person's status, income sources, deductions, and the tax due or any tax refund.
Income tax slabs
A person’s income tax rate depends on what area they fall into. The government has categorized the income into groups like – up to Rs 250,000, Rs 250,000 – Rs 5,00,000, Rs 5,00,000 – Rs 1 million and above Rs 1 million. Rates on different boards may vary depending on age groups.
Income tax calculate
It is essential for an individual to calculate income tax so they know the correct amount of income tax to pay. A person can get income from various sources; including salary, rent, capital gains from shares and mutual funds, etc. Individual taxpayers must ensure that all sources of income are accounted for when they file income tax returns online. Here's how to calculate total taxable income for FY 2021-22 (AY 2022-23) for filing ITR.
As per the income tax law, if you file an income tax return online, then all of your income received is categorized into five broad categories. Here, we will discuss how to calculate taxable income and how to file income tax returns online. But before that, let’s discuss the types of income-
1 Income received as salary
The total taxable income under the head 'Salary' can be easily income tax calculate using Form 16. It is a TDS certificate containing details of tax deducted from the salary income in each quarter, total salary paid, income tax regime chosen, tax exemptions, and deductions claimed (if the old income tax regime was selected). It is compulsory for the employer to issue Form 16 if any tax has been deducted during the financial year.
Certain tax exemptions and deductions can only be claimed on wage income. Furthermore, these tax exemptions and deductions can only be claimed if the individual opts for the old income tax regime. To claim exemption from tax and assumptions, it is mandatory to submit documentary evidence. Some examples of tax exemptions and deductions are - Tax exemption on house rent allowance, holiday allowance, and standard deduction of Rs.50,000. But what happens if you don't receive Form 16 from your employer? In such a case, payslips will help you calculate taxable income. If you are a pensioner, then the pension received from the employer will be taxable under the heading "Income from wages.”
2 Income under the head house property
If you want to understand which income comes under the house property head, you need to understand three terms – self-occupied property, rental property, and deemed to be let out.
Owner-occupied property is a property that is occupied by an individual alone. For income tax calculation, an individual can choose any house as a self-occupied one; regardless of whether they live in it, the Income from the self-use property will be zero.
Individuals can claim any two houses as self-occupied property if they have more than two houses. The amendment was announced with effect from the fiscal year 2019-20. From 1 April 2019, if an individual owns two or more homes, then any of the two houses can be considered self-occupied property and will not have to pay any tax. Until FY 2018-19, if an individual had a second house, the tax would be paid on the deemed rent of such a second house.
Please note that if the property you own has an ongoing home loan, deductions on the interest payment of up to ₹ 2 lakh and Rs 1.5 lakh on the principal refund of the home loan can be claimed. A property that has been let out during the financial year is called a rental property. A vacant property that does not qualify for 'Occupied Property’ such property will be referred to as 'Deemed to be Let.’
3 Income under the head capital gains
Capital earnings are generated from the sale of assets like a house, mutual fund units, shares, etc. There are two kinds of capital gains – STCG(short-term capital gains) and LTCG(long-term capital gains). The capital gains depend on how long the individual has held the asset. The holding period for each asset class is different. Distinct tax rates are applicable to capital gains. For example, in the case of equity mutual funds, a 15% income tax is applicable if the funds are sold before one year and 10% if the funds are sold after one year.
4 Income from business and profession
Individuals who have income from a business or profession, like lawyers, CAs, freelance writers, etc., are required to report their income under the heading 'Income from business and work.' Any profits/gains or losses arising from the company’s running must be registered.
5 Income from other sources
Any income not falling under the above items must be reported under the last heading, "Income from other sources.” Income usually reported under this item is interest income from bank accounts, postal savings, bank fixed deposits, family pensions, pensions received from the insurance company, etc. Dividends received from shares and mutual funds must also be reported under this head.
Income tax calculates the final amount of tax liability.
Once the income from all the above sources is added, you arrive at your "Gross Taxable Income" for the fiscal year. From the gross taxable income, the individual will be required to claim deductions under sections 80C, 80D, etc., if he continues in the existing income tax system. However, if a person opts for the new, preferential income tax regime, they will have to give up around 70 tax exemptions and deductions.
Filing income tax returns online, and income tax calculation can be a very daunting task and not possible for everyone to do. There are many companies and agencies that can file income tax returns online on your behalf. Lawgical India is one such company in the field of legal services that can help you file income tax returns online without any hassle or mistake. Lawgical India has expert professionals who have extensive knowledge about the sections and acts in income tax law. They will help you calculate taxable income and do all the jobs on your behalf.
