Future Generali

A basic guide to calculating your income tax liability

You can calculate income tax by keeping a few simple things in mind. First, add up your earnings to arrive at your total gross income and then subtract applicable deductions.

Here is a brief guide to help you calculate taxable income:

  • Salary income: Collect all your salary slips as well as Form 16. Add all allowances (HRA, TA, DA, medical etc) and reimbursements, including any bonuses to arrive at your gross salary. Deduct the applicable exemption amounts of HRA, LTA and medical expenses, if any. Keep in mind that you are allowed standard deductions of ₹40,000 on your annual salary.
  • House income: Firstly, calculate the net income you receive from your property, mainly the rental income. Profit from a self-occupied house will also need to be computed (although, it will generally be nil or negative value).
  • Income from capital gains: Capital gains is any income you get from the sale of stocks, bonds, or property. Your capital gains may either by short term (36 months or less) or long term (36 months or more). So, the third step is to calculate both your short term capital gains and long term capital gains. Also claim any deductions under section 54, 54G, 54ec, if they apply. What remains after this is your capital gains income.
  • Business income: To calculate the taxable income from your business, take the net profit made in the financial year as the base value. Add all the deductions allowed as per the IT act and subtract all the expenditures as per income tax laws.
  • Income from other sources: Income from interest earned on fixed deposits or saving accounts, dividend from mutual fund schemes, any income from gifts, family pension, lottery or horse races are classified under this category. Add them up and subtract any deductions to arrive at your net income.
  • Gross total income: Add up all your earnings from the sources above. That equals your total gross income. Set off losses if any when you calculate income tax.
  • Deductions under Chapter VI A: Such deductions apply to investments made in ELSS, PPF, ULIPs, NPS, VPF, NSC, tuition fees, mediclaim policy, life insurance policy or donations to NGOs under Section 80C to 80U of the Income Tax Act.
  • To calculate taxable income, you finally need to subtract Step 7 from Step 6. Now apply the tax rates under which your income falls. The result is the final income tax amount you’ll be required to pay.
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