Income Tax: Finding hard to calculate taxable income? Here's a simple way

Income Tax Return filing dates are coming nearer with each passing days. While many taxpayers are focussing on the rollout of new tax regime, Goods and Service Tax (GST), do not ignore filing the ITR on time.

Frequently, while reading about ITR forms and anything related to tax, one term which is regularly used on salary slips is "taxable income". 

CALCULATE INCOME TAX HERE

What is taxable income?

Taxable income is the total of all incomes excluding all exemptions and deductions.

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Then what is income? Archit Gupta, Founder & CEO ClearTax, explains the term by breaking it into five categories:

• Income from salary - The money received as a result of an employment contract
• Income from house property - income from property owned in the form of rent 
• Profit or gains from business or profession - Income/loss arising as a result of carrying on a business or profession 
• Capital gains - Income earned from the sale of a capital asset (mutual funds or house property).
• Income from other sources - Income accrued from fixed deposits and savings account come under this head.

"The sum of all the income from these five different sources is called gross total income of an individual. All the money that is exempt is excluded from income while calculating total income. Examples of exempt income are agricultural income, gift from relatives, House rent allowance and other allowances exempt from tax", Gupta said.

The income amount thus arrived at, after deductions, is called taxable income. An individual’s tax is calculated on this amount.

How to calculate it?

The calculation of taxable income is very important to know if you are a salaried person. If you look at your monthly salary slip, there are some deductions that can be claimed from the total income,  Bankbazaar said.

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Following is the procedure for the calculation of taxable income on salary:

• Gather your salary slips along with Form 16 for the current fiscal year and add every emolument such as basic salary, HRA, TA, DA, DA on TA, and other reimbursements and allowances that are mentioned in your Form 16 (Part B) and salary slips.
• The bonus received during the financial year must be added for the income that is being calculated.
• The total is your gross salary, from which you will have to deduct the exempted portion of House Rent Allowance, Transport Allowance (for which the maximum exemption is Rs.19,200 per year), Medical reimbursement (for which the maximum exemption is Rs.15,000), and all other reimbursements provided the actual bills in respect of the expenses incurred.

The result is your net income from salary.

Once your net income has been calculated, you can check which tax slabs it is applicable.

ClearTax, gives an example. For instance, your basic salary is Rs 50,000 per month. HRA of Rs 25,000. Transport Allowance of Rs 8,000 per month. Special Allowance of Rs 5,000 per month. LTA of Rs 20,000 annually. Apart from this, you are pay rent of Rs 20,000. 

Including all the natures, your gross total income from salary will be Rs 8,64,800. 

Now, to calculate the income tax that you need to pay will be like this: