How To Calculate Taxable Income?
Income tax refers to a tax that individuals pay on their income. The government imposes an income tax on persons who stayed in India for 182 days in the preceding tax year.
Furthermore, the income of persons who stayed in India for a minimum of 60 days in the preceding fiscal year and at least 365 days in the previous four years will be taxable. Keep reading this article to get an insight into how to calculate taxable income.
Step-by-step Guide to Calculate Taxable Income for FY 2022-23
You can use an instant online tax calculator to compute your income tax liability. The steps below will help you to estimate taxable income:
Step 1: Select the fiscal year under which you will compute your taxes.
Step 2: Income tax is different for different age groups in India. So, choose your age accurately.
Step 3: Next, furnish the taxable salary, that is, salary, after subtracting multiple tax benefits such as standard deduction, LTA and HRA (in case you want to estimate income tax under the old tax regime).
Otherwise, furnish your salary, that is, salary without opting for deductions such as professional tax, standard deduction, LTA and HRA (in case you wish to compute income tax under the new tax regime).
Step 4: In addition to taxable salary, you should provide other data such as loan interest payable for self-occupied house property, home loan interest payable for rented property, rental income and interest income.
Step 5: In case of earnings from digital assets, furnish your net income (value of sale consideration – the cost of acquisition); these earnings will be taxable at the rate of 30% along with the applicable cess and surcharge.
Step 6: If you want the computation of income tax under the old tax regime, provide your tax-saving options under Sections 80TTA, 80G, 80E, 80D and 80C.
Step 7: Choose the ‘Calculate’ button to get your income tax amount.
An online calculator also offers you a comparison of the tax liability as per new income tax slabs and old income tax slabs. If any field is not applicable for you, select ‘0’.
New Income Tax Slabs for FY 2022-23
Following are the tax slabs for individuals under the new tax regime:
- Individuals (except for super senior citizens and senior citizens)
| Income Range | Tax Rate |
| Up to Rs. 2.5 lakh | – |
| Above Rs. 2.5 lakh – Rs. 5 lakh | 5% |
| Above Rs. 5 lakh – Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
- Senior citizens
| Up to Rs. 3 lakh | – |
| Above Rs. 3 lakh – Rs. 5 lakh | 5% |
| Above Rs. 5 lakh – Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
- Super senior citizens
| Up to Rs. 5 lakh | – |
| Above Rs. 5 lakh – Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
Computation of Taxable Income for Salaried Individuals
Salary income is the summation of basic pay + transport allowance + special allowance + HRA + other allowances. Further, some salary components are tax-exempt such as leave travel allowance and telephone bills reimbursement. If you are staying on rent and getting HRA, you can opt for tax exemption on HRA.
Besides these exemptions, Union Budget 2018 introduced Rs. 40,000 as a standard deduction. This amount was raised to Rs. 50,000 in Budget 2019. Such tax benefits are not applicable under the new tax regime.
Also Read: Income Tax: Allowances, Exemptions, Deductions
Illustration
Go through the following example to understand taxable income calculation under the new tax regime (optional) and old tax regime:
The basic monthly salary of Ravi is Rs. 1.5 lakh. He stays in Bangalore and pays Rs. 50,000 as rent. He receives Rs. 50,000 as HRA, Rs. 20,000 as annual LTA and Rs. 20,000 as a monthly special allowance.
| Particulars | Amount (in Rs.) | Deduction/Exemption (in Rs.) | Taxable Amount in Rs. (New Regime) | Taxable Amount in Rs. (Old Regime) |
| Basic Salary | 18,00,000 | – | 18,00,000 | 18,00,000 |
| Less: Standard Deduction | – | 50,000 | – | – 50,000 |
| LTA | 20,000 | 12,000 (for bills provided) | 20,000 | 8,000 |
| Special Allowance | 240,000 | – | 2,40,000 | 2,40,000 |
| House Rent Allowance | 600,000 | 3,60,000 | 6,00,000 | 2,40,000 |
| Gross Income from Ravi’s Salary | 2,660,000 | 2,238,000 |
To compute tax, include your income from the following sources:
- Salary
- Profession/business
- Capital gains
- House property
- Other income sources such as interest payables from bonds, interests from fixed deposits and savings account interest
Ravi has earned Rs. 8,000 as savings account interest and Rs. 12,000 as fixed deposit interest in the FY. Ravi’s contribution in EPF = Rs. 1.5 lakh x 12 x 12% = Rs. 2,16,000.
He will avail tax benefits from the following investment and expenses:
- Health insurance premium = Rs. 12,000
- LIC premium = Rs. 8,000
- ELSS funds = Rs. 20,000
- PPF deposit = Rs. 50,000
Under the old tax regime, Ravi can claim the following tax deductions:
| Particulars | Maximum Deduction | Applicable Expenses/Investments | Amount that Ravi Claimed |
| Section 80TTA | Rs. 10,000 | Rs. 8,000 (savings account interest) | Rs. 8,000 |
| Section 80D | Self: Rs. 25,000; Parents: Rs. 50,000 | Rs. 12,000 (health insurance) | Rs. 12,000 |
| Section C | Rs. 1.5 lakh | Rs. 2,16,000 (EPF contribution), Rs. 8,000 (LIC premium), Rs. 20,000 (ELSS funds), Rs. 50,000 (PPF deposit) | Rs. 1.5 lakh |
Computation of gross total income under the new tax regime
Following is the taxable income calculation for Ravi under the new tax regime (after availing taxation under Section 115BAC):
| Particulars | Amount (in Rs.) | Sum Total (in Rs.) |
| Salary Income | 26,60,000 | |
| Other Sources of Income | 20,000 | |
| Total Gross Income | 26,80,000 | |
| Tax Liability (including cess) | 5,63,160 |
Computation of gross total income under the old tax regime
Here is the taxable income computation for Ravi under the old tax regime:
| Particulars | Amount (in Rs.) | Sum Total (in Rs.) |
| Salary Income | 22,38,000 | |
| Other Sources of Income | 20,000 | |
| Total Gross Income | 22,58,000 | |
| Tax Deductions: | ||
| 80TTA | 8,000 | |
| 80D | 12,000 | |
| 80C | 1,50,000 | 1,70,000 |
| Gross Taxable Income | 20,88,000 | |
| Tax Liability (including cess) | 4,56,456 |
Also Read: Deductions Under Chapter 6A Of The Income Tax Act
Final Word
You should declare your annual investments at the start of an assessment year so that the computation of taxable income is accurate. The returns and deductions help a taxpayer to build a proper financial foundation.
Keep in mind that furnishing wrong information and paying incorrect taxes are punishable offences. So, make sure to be a responsible taxpayer!
FAQs On Calculation Of Taxable Income
Ans: You will need the following details while filing ITR:
Details related to tax payments such as advance tax payments and TDS
Deductions claimed under Chapter VI-A or Section 80
Income proof such as earnings from investments (savings account, fixed deposits) and salary details
Bank account details for a fiscal year
Basic data such as your address, Aadhaar card details and PAN
Ans: If your income is less than the tax exemption limit (Rs. 2.5 lakh), then you need not file your income tax returns. However, in case your income is below the exemption limit, but you want to claim a tax refund, you’ll have to file your ITR. For all other cases, ITR filing is mandatory.
Ans: Chapter VIA deductions are not applicable under the new tax regime. This means it doesn’t cover deductions from Sections 80-IBA, 80-IB, 80-IAC, 80-IAB, 80IA, 80GGC, 80GGA, 80GG, 80G, 80EEB, 80EEA, 80EE, 80E, 80DDB, 80DD, 80D, 80CCD, 80CCC, and 80C. However, deductions under Sections 80JJAA and 80CCD(2) are applicable.
Ans: From the viewpoint of the IT department, FY (financial year) refers to a year in which an individual earns his/her income. Assessment year (AY) is a year that follows a financial year. Individuals need to evaluate their preceding year’s income during an AY and pay the taxes.
Ans: The tax exemption limit for senior citizens (from 60 years to below 80 years) is Rs. 3 lakh. Besides, this basic limit has been increased to Rs. 5 lakh for super senior citizens (individuals aged above 80 years).
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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