You have unalienable rights as a citizen of India. Your rights, however, only show one side of the story. Rights and obligations are mutually exclusive. For example, paying income tax on your salary and other earnings is a requirement regardless of whether you’re a corporation or an individual.
All of the money you make within a particular fiscal year is subject to income tax. For salaried professionals to proprietary concerns or large corporations, the income tax calculation needs to account for, from the five major sources of income. Further, calculating exemptions and deductions is another component of determining income. For some individuals, the tax calculation could be challenging.
The best thing to do is use an accurate online income tax calculator to compute income tax online. But let’s first understand the different Sources of Income and the income tax two different regimes.
Sources of Income & Calculation of Gross Income
Your income is categorized under five major sub-heads, the details of which are given below:
- Income from Salary:
If you are a salaried individual, your income from salary for any given financial year should be filed under this head. The various components of your salary can include the below. Your gross salary is the total of the incomes mentioned therein.
- Basic Salary
- House Rent Allowance
- Benefits from annuities and gratuities, if paid during that fiscal year
- Transportation, medical, and other allowances
- Special Allowances, if any
- Standard Deduction of flat ₹ 50,000/- which is allowed as a deduction from your total salary income, thus reducing your overall tax outgo.
- Income from House Property:
The next head, Income from House Property, contains the taxation policy on the house that you’re residing in or any other investment property from which you might be earning rental income.
If you’ve purchased the self-occupied house on a housing loan, then you are eligible to claim a deduction of up to ₹200,000/- per annum on the interest component of the loan. However, if you own a property that you have let out on rent, such rental income is taxed under this head. 30% of the net annual rent is allowed as deduction to arrive at the income taxable from house property.
- Profits and Gains of Business or Profession:
A person’s business or professional income is also subject to taxation and the net profits from your business are taxed under this head.
- Income from Capital Gains:
Capital gains refer to any profit or revenue that results from the sale or transfer of capital assets. Capital gains are broadly classified as Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG). You can read more about this here in depth.
- Income From Other Sources:
Any income that you earn and cannot be classified under the other four heads mentioned above should be reported as income from other sources. Examples of income from other sources include, but not limited to, Interest income, Commissions, Winnings from Lottery or crossword puzzles, etc.
The sum of net incomes from all of the five heads above gives you your Gross Taxable Income. The deductions, for instance Section 80C or others, that can be deducted from your gross taxable income differs based on the tax regime that you opt for in a given year.
The Two-Income Tax Regimes
There was just one income tax system in India up till FY 2019–20. Based on their gross income and age, individuals were subject to different tax rates under this system. Under this system, a variety of exclusions and discounts were offered. The Indian Finance Minister Nirmala Sitharaman did, however, unveil a new tax structure for investors in the 2020 Budget statement. More tax slabs and lower tax rates are available under the new system. However, the new approach would not allow for any exemptions or discounts.
The new tax system is optional, according to the finance minister. You can switch to the new system as a taxpayer if it provides you with better benefits. Otherwise, you can keep paying your yearly taxes using the previous method. If you want to further read about the two different income tax regimes you can check out our blog here:
How to Calculate Your Tax Dues?
Once you opt in for a particular tax regime, you can arrive at your Net Taxable Income which is
Gross Taxable Income – Applicable Deductions = Net Taxable Income
Once you determine your Net Taxable Income, it’s easy for you to calculate the tax dues for a given Financial Year. Let’s have a look at Tax Slabs under both the regimes.
Tax Slabs and Rates Under the Old vs New Regime:
|Annual Income (₹)||Old Tax Rate||New Tax Rate|
|Up to ₹ 2.5 lakhs||Nil||Nil|
|₹2.5 lakhs – ₹5.0 lakhs||5%||5%|
|₹5.0 lakhs – ₹7.5 lakhs||20%||10%|
|₹7.5 lakhs – ₹10.0 lakhs||20%||15%|
|₹10.0 lakhs – ₹12.5 lakhs||30%||20%|
|₹12.5 lakhs – ₹15.0 lakhs||30%||25%|
|₹15.0 lakhs and above||30%||30%|
Here’s a standard example to put this into perspective:
Harsh a salaried professional earns ₹10 lakhs from salary. He has an ancestral property from which he earns ₹3 lakhs as annual rent and pays ₹30,000 in Property Taxes. He also invested in some mutual funds 3 years back on which he earned ₹50,000 as LTCG while trading in shares generated an STCG of ₹20,000. In his free time, he uses his professional skills to freelance projects from which he earned ₹100,000. Lastly, he made some investments in LenDenClub’s P2P lending FMPP® from where he generated interest income of ₹50,000/-.
So let’s first calculate Harsh’s net taxable income under the old regime:
- After the standard deduction of ₹50,000/-, Harsh’s gross salary income becomes ₹950,000/-
- Income from House Property after the deduction of 30% stands at [(300,000 – 30,000) x 0.70] = ₹189,000
- Further, his LTCG earned him ₹50,000/- which won’t be taxed due to the exemption limit of up to ₹100,000/- per financial year in LTCG from equities. However, the STCG of ₹20,000/- will be taxed entirely at a special rate of 15%.
- The Business Income from his Freelancing projects will be ₹100,000
- And lastly, his income from other sources – P2P lending investments will be ₹50,000/-
Adding this up, his Gross Taxable Income Liable at Normal Tax rates under the old regime stands at ₹12,89,000/-
STCG at special tax rate of 15% – ₹20,000/-
And LTCG exempt up to ₹100,000/- and 10% thereafter – ₹50,000/
Now, he can claim various deductions and accordingly, Harsh invests ₹150,000/- in ELSS plans. So his net taxable income goes down to ₹1,139,000/-
Accordingly, the income tax liability for a given financial year for Harsh stands at ₹163,488 after adding 4% health and education cess.
On the other hand, under the new regime, Harsh won’t be allowed Standard Deduction of ₹50,000/- in Salary and ₹150,000/- 80C deduction.
So his Gross Taxable shoots up to ₹13,39,000. But due to lower tax rates, his overall tax liability comes to 156,260/-
But if you still find these calculations to be tedious, the Income Tax Department provides you with an easy to use income tax calculator tool that allows you to calculate your income tax liability. All you need to do is fill out the various fields and your incomes under the respective heads and your income tax liability is calculated automatically based on the tax regime that you have selected.
How Can An Online Income Tax Calculator Help You?
FIND THE BEST TAX REGIME THAT SUITS YOUR NEEDS
The Ministry of Finance has provided taxpayers with an exceptional opportunity to select between the new and old tax regimes in the Union Budget 2020. You can choose whatever regime best suits you as a result. In addition, you can take the help of an income tax calculator to plan your taxes, maximize your tax benefit, account for all potential deductions and exemptions, and do an online calculation of your income tax.
ENTER BASIC DETAILS FOR STRESS-FREE INCOME TAX COMPUTATION
Income tax calculator allows you to calculate taxes online using simple but crucial information. Use the online income tax calculator to quickly calculate your taxes if you have information on your annual salary, rent and insurance payments, tuition and school costs, interest paid on student loans, and any savings you may have made in FY 2021–22 (AY 2022–23). You may quickly and easily calculate your income tax online by entering some simple information and understanding your overall tax burden.
MAKE THE MOST OF THIS ONLINE INCOME TAX CALCULATOR
Utilizing an online income tax calculator is cost-free. Without worrying about using the correct income tax calculation formula, you may use it to calculate income tax from salary, total income, deduction and exemption tax, and income tax interest. A tax-saving calculator that performs everything for you and is also free is an income tax calculator. This online income tax calculator provides the total tax payable amounts under the new and previous tax regimes. In addition, anyone can use this straightforward and practical tool to quickly determine their tax liability because the online income tax calculator handles the ITax calculation.
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