ITR filing: How to calculate taxable income for salaried, professional, freelancers and others Once you have calculated the gross total income from various heads of income, you can claim deductions to reduce your net tax payable. Read here to know more
As the deadline for submitting income tax returns (ITR) nears (July 31, 2024), it is important for individuals to ascertain their final tax liability before initiating the ITR filing procedure. Understanding the method to calculate total taxable income from all sources is crucial in determining the total tax liability. This is essential because income sources are categorised under five heads of income, and any income from these sources must be appropriately recorded.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} This becomes critical if you are filling out the ITR form independently without assistance.
The five heads of income are:
Income from salaryIncome from house propertyIncome from capital gainsIncome from business and professionIncome from other sourcesThe gross total taxable income will be calculated by adding the gross income calculated under each income head.
To get the net taxable income, you need to adjust any deduction from your gross income.
However, before doing so, you need to select the income tax regime - new tax regime or old tax regime. Once you have made this selection, fill up the data in the correct ITR form under the respective heads of income and then claim the deductions available in the chosen tax regime.
Here's how an individual can calculate the net taxable income under each head of income and arrive at the net taxable income:
Income from salary
If you received a salary or pension in FY 2023-24 (April 1, 2023, to March 31, 2024) such income is taxable under this head of income. If your employer has deducted tax deducted at source (TDS) from your salary, Form 16 is issued. Form 16 has all the information regarding how much TDS was deducted from your salary, total salary paid, tax regime chosen, tax exemptions availed, deductions claimed, etc."If no TDS has been deducted from the employee's salary, there might be no Form 16 generated and hence the employee will not find any Form 16 related to salary TDS on the TRACES website or elsewhere. Form 16 is issued only when TDS has been deducted and deposited with the income tax department," says Dr. Suresh Surana, a practising chartered accountant.
As per Surana, in such cases where no TDS is deducted, you can still file your ITR based on your salary slips and bank statements. "However, it is pertinent to note that if the employer voluntarily fills in the salary details of the employee in their TDS return (irrespective of no TDS liability), Form 16 may be generated in such cases with the salary details," says Surana.
Except for standard deduction, all other allowances and deductions require you to have the ability to produce documentary evidence if asked by the tax department. You can claim standard deduction under both tax regimes.
Here's a table showing some of the important tax deductions that salaried employees can claim under the old tax regime:
Name of the allowance/deduction
Quantum of tax exemption
House rent allowance (HRA)
Least of the following:
a)Actual HRA received
b)40% of Salary (50%, if house situated in Mumbai, Kolkata, Delhi or Chennai)
c)Rent paid in excess of 10% of salary
* Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission
Children education allowance
Up to Rs 100 per month per child up to a maximum of 2 children (maximum benefit of Rs 2,400)
Children hostel expenditure allowance
Up to Rs 300 per month per child up to a maximum of 2 children (maximum benefit of Rs 7,200)
Leave travel allowance (LTA)
Lower of the following:
I. If journey is by Air:
(a)Economy class fare by the shortest route to the place of destination
(b)Actual amount spent
II. If journey is by Rail:
(a)AC first class rail fare by the shortest route to the place of destination
(b)Actual amount spent
III. If journey is by a recognised public transport system where rail is not connected:
(a)1st class or deluxe class fare by the shortest route to the place of destination
(b)Actual amount spent
It is pertinent to note that such travel should be in India. LTC can be claimed twice in a block of 4 calendar years (Current Block is: 1 January 2022 to 31 December, 2025)
Exemption can be claimed for travel expenses incurred by employee on himself and on his family (which includes spouse and children; parents, brothers and sisters who are wholly or mainly dependent on the taxpayer)
Source: Dr. Suresh Surana, a practising chartered accountant
The old tax regime allows for various deductions under Sections 80C (Deductions such as Life Insurance Premium, Investment in Fixed deposit, ELSS, etc.), 80D (Mediclaim Insurance premium), 24 (Interest on Home loan), etc.
Also read: Deductions available under new and old tax regime
Income from house property
If you have taken a home loan and want to claim a deduction on interest paid on such a loan, you need to claim a deduction under the house property heads of income. If you have any rental income or are liable to pay income tax on deemed rental income, then also you need to calculate your income under this head.A house property can be categorised as one of the following:
a) Self-occupied property
b) Rental property
c) Deemed to be let out
The first category is self-occupied property, which is occupied by you or your family. You can claim up to two houses as self-occupied. For self-occupied property purchased using a home loan, a deduction of up to Rs 2 lakh on interest paid can be claimed.
The second category is rental property which, as the name suggests, is a house which has been rented out.
The third category is deemed to be let out. An empty house property that does not qualify as self-occupied will be deemed to be let out.
You can claim standard deduction of 30% and municipal taxes paid as deductions on rental or deemed rental property, apart from the deduction of interest paid on home loan.
A new amendment was introduced for FY 2023-24 (AY 2024-25) specifically in case of deduction for interest on home loan. "The amendment is now, deduction of interest on borrowed capital for house property is not to be considered for computing acquisition cost. Section 48 was amended to provide that the 'cost of acquiring the asset' or the 'cost of improvement' will not include the amount of interest claimed under section 24(b) or the provisions of Chapter VIA," says Surana.
Income from capital gains
Income under capital gains head of income arises when you have realised any profit from the sale of specified capital assets like land, house, mutual funds, shares, gold etc. There are two types of capital gains depending upon the asset's holding period - short-term capital gains (STCG) and long-term capital gains (LTCG). The income tax rates vary for STCG and LTCG depending on the assets.There has been an amendment specifically for income under the heads of income-capital gains for FY 2023-24 (AY 2024-25). "Now the limit of claiming capital gain exemption on transfer of long-term capital asset would be restricted to Rs 10 crore (10,00,00,000) under section 54 and 54F," says Surana.
Deduction under section 54 or 54F can be availed on long-term capital gains by investing proceeds of such gains in residential property.
Table showing the income tax rate of capital gains for different asset class For FY 2023-24 (AY 2024-25)
Asset
Income tax rate for STCG
Income tax rate for LTCG
Equity shares on which STT paid (listed)
15% if shares are sold on or before 12 months of purchase
10% (without indexation) on capital gains exceeding Rs 1 lakh if shares are sold after 12 months
Equity mutual funds
15% if mutual fund is sold on or before 12 months of purchase
10% (without indexation) on capital gains exceeding Rs. 1 lakh if mutual fund unit is sold after 12 months*
Specified mutual funds* acquired on or after 1st April 2023
Short term capital gains on sale of a debt mutual funds are taxable at the applicable income-tax slab rates
Long term capital gains on sale of a debt mutual funds are taxable at the applicable income-tax slab rates
Debt mutual funds acquired before 1st April 2023
As per the income tax slab rates applicable, if funds are redeemed before 36 months
20% (with indexation), if funds are redeemed after 36 months
House Property
As per the income tax slab rates applicable, if property is sold on or before 24 months
20% (with indexation), if property is sold after 24 months
Gold
As per the income tax slab rates applicable, if gold is sold on or before 36 months
20% (with indexation), if gold is sold after 36 months
Foreign company shares
As per the income tax slab rates applicable, if funds are redeemed on or before 24 months
20% (with indexation), if shares are sold after 24 months
*not more than 35% of the total proceeds are invested in equity shares of domestic companies. Source: Dr. Suresh Surana, a practising chartered accountant
Any gains from the sale of debt mutual funds from April 1, 2023 are taxable as per the income tax rates applicable to the individual. Indexation benefit is not available for debt mutual funds.
"Pre-budget 2023, investors could save tax by holding their investments in debt funds for over 3 years. As a result, the LTCG on debt mutual funds after applying the indexation benefit was taxed at 20%. On the other hand, any capital gain on an investment of less than 3 years was categorised as short-term capital gain (STCG) and taxed as per the investor's income tax slab," says chartered accountant Sandeep Agrawal, co-founder, TeamLease Regtech.
Income from business and profession
If you have traded in futures and options (F&O) or are a freelancer or a professional (doctor, lawyer, etc) then you may have to report your income under the head - income from business or profession.Income from other sources
Any residual income not reported under any of the heads mentioned above is to be reported under income from other sources heads of income. A new amendment was introduced for FY 2023-24 (AY 2024-25) in respect to income from online winnings. "A new section 115 BBJ relating to tax on winnings from online games was introduced. Under the said section, in cases of any income by way of winnings from any online game, the income-tax payable is to be levied at 30% rate," says Surana.
A recent amendment in tax law has been implemented concerning the taxation of gifts to non-resident and non-ordinarily resident (RNOR). "Section 9(1)(viii) was amended to extend the deeming provision for accrual of income in respect of any sum of money received as gift exceeding Rs 50,000 to non-residents and RNOR by a resident in India," says Surana.
Gross total income
The total income arrived from the addition of all the incomes under the five heads of income is called gross total income. You can claim deductions under various sections to reduce your gross total income amount, and by doing this, you will arrive at net taxable income. The tax liability will be calculated on the net taxable income. Regarding tax liability, you will also have to calculate cess and surcharge (if applicable).#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
