How to calculate income tax
Every individual under 60 years with an annual income of more than Rs 2.5 lakh is required to file Income Tax Return (ITR) as per the Income Tax Act. For seniors between 60 and 80 years, this limit is above Rs 3 lakh, and for super seniors above 80 years, it is above Rs 5 lakh. In fact, even people falling under the nil tax bracket are advised to file ITR.
To successfully and accurately file ITR, one should first know his/her total taxable income for the year. The annual income will decide the tax slab an individual falls under and the rate at which the tax will be calculated. So, how to calculate income tax? Here are the things you should know.
According to the IT Act, an individual can have five different sources of income. They are:
- Salary – Income earned through salary
- House property – Generally consists of rental income earned from house property
- Business or profession – Income earned from business or profession
- Capital gains – Long-term and short-term capital gains from the sale of capital assets
- Other sources – All the other incomes, like interest, dividends, taxable gifts, etc. that cannot be categorised under the four sources listed above
Any income an individual earns can only be categorised under these five sources.
Computing gross total income and claiming deductions
The Gross Total Income (GTI) is calculated by setting off any losses under any of the income heads and then adding the income from all the five sources. Once you have the GTI, the next step is to claim relevant deductions from the income.
Chapter VI-A of the IT Act offers a wide range of deductions from Section 80C to Section 80U. You can claim deductions under relevant sections, and this will help you reduce your GTI and the income tax you are required to pay.
Understanding income tax slabs
The GTI left after claiming deductions will be your total taxable income for the year. Income tax slabs in India are divided based on income in the financial year. The income range also differs for different age groups. There are three different age groups:
- Under 60 years
- Between 60 and 80 years
- Above 80 years
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