Calculating taxable income involves summing up various sources of income, applying deductions, and determining your final taxable income. Here's a step-by-step guide to calculating taxable income under the Indian Income Tax Act:
1. Aggregate Total Income
Add up all sources of income. This includes:
- Income from Salary: Basic salary, allowances, bonuses, and perquisites.
- Income from House Property: Net Annual Value from rental income or deemed rental income for self-occupied properties.
- Income from Capital Gains: Short-term and long-term capital gains from the sale of assets.
- Income from Other Sources: Interest income, dividends, winnings from lotteries, etc.
2. Apply Deductions
From the total income, subtract eligible deductions to calculate the gross taxable income. Some common deductions are:
- Under Section 80C: Investments in Provident Fund (PF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), etc. The maximum deduction limit is ₹1.5 lakh per annum.
- Under Section 80D: Premiums paid for Mediclaim (Health Insurance) policies. Deductions up to ₹25,000 (₹50,000 for senior citizens) for self, spouse, and dependent children, and an additional ₹25,000 (₹50,000 for senior citizens) for parents.
- Under Section 24(b): Interest on housing loan, up to ₹2 lakh per annum for self-occupied property.
- Under Section 10(14): House Rent Allowance (HRA) exemptions, if applicable.
- Under Section 80E: Interest on educational loans.
- Under Section 80TTA: Up to ₹10,000 deduction for interest on savings account.
- Under Section 80TTB: For senior citizens, up to ₹50,000 on interest income from savings accounts, fixed deposits, etc.
3. Calculate Net Taxable Income
Subtract the total deductions from your total income:
[
\text{Net Taxable Income} = \text{Total Income} - \text{Deductions}
]
4. Apply Tax Rates
Apply the income tax slabs to the net taxable income. Tax slabs vary for different types of income (e.g., salary, capital gains) and for different age groups (e.g., individuals, senior citizens). For example:
5. Add Cess and Surcharge
Calculate the Health and Education Cess at 4% on the total tax.
- Surcharge: Applicable for income exceeding ₹50 lakh. For incomes over ₹1 crore, a higher surcharge rate applies.
[
\text{Total Tax} = \text{Income Tax} + \text{Cess} + \text{Surcharge (if applicable)}
]
6. Compute Final Tax Liability
Deduct any Tax Deducted at Source (TDS), Advance Tax paid, or Prepaid Taxes from the total tax liability.
[
\text{Final Tax Liability} = \text{Total Tax} - \text{TDS} - \text{Advance Tax} - \text{Prepaid Taxes}
]
Summary Example
Total Income:
Deductions:
80C (Investments): ₹1,50,000
80D (Health Insurance): ₹25,000
24(b) (Interest on Housing Loan): ₹2,00,000
80TTA (Savings Account Interest): ₹10,000
Total Deductions = ₹3,85,000
Net Taxable Income:
[
\text{Net Taxable Income} = ₹9,70,000 - ₹3,85,000 = ₹5,85,000
]
Income Tax Calculation:
Income up to ₹2.5 lakh: Nil
Income from ₹2.5 lakh to ₹5 lakh (₹2.5 lakh): 5% = ₹12,500
Income from ₹5 lakh to ₹5.85 lakh (₹85,000): 20% = ₹17,000
Total Tax = ₹12,500 + ₹17,000 = ₹29,500
Cess:
[
\text{Health and Education Cess} = 4\% \text{ of } ₹29,500 = ₹1,180
]
Final Tax Liability:
[
\text{Total Tax} = ₹29,500 + ₹1,180 = ₹30,680
]
If TDS or advance tax was paid, subtract those amounts to determine the final amount payable or refundable.
Note: Tax laws and rules can change, so always check the latest updates or consult a tax professional to ensure accurate calculation.
