WAYS TO CALCULATE INCOME TAX IN INDIA

 

Ways to calculate tax under income tax act in India

To calculate tax liability of an assessee under the Income Tax Act in India we need first to calculate the taxable income of the assessee, it involves following procedure:

Need to calculate Gross Total Income of the assessee

Gross Total Income includes five type of income earned by the assessee that is Income from  salary, income from house property(rental income), income from business or profession, income from capital gains, and any residuary income which does not fall in above four heads will be consider income from other sources. To calculate gross total income we will not consider exempt income under section 10 and non taxable income like capital receipt.

Need to deduct allowable deductions under chapter VIA.

There are certain deductions are allowed under chapter VIA of the Income Tax Act, such as deductions for investments in tax-saving instruments, medical insurance, tuition fee for two children, education loan repayments, donation to the institute registered under section 80G etc. Need to deduct these allowable deductions from assessee’s gross total  income to arrive at your taxable income or total income.

Determine your tax slab as applicable

After calculating assessee’s taxable income, determine the tax slab which are applicable to the assessee based on his/her age and income level. The tax slabs are revised by the government every year in the annual budget and also consider the regime there are two regime applicable one is old regime and another is new regime.

Need to calculate tax liability

After determining the tax slabs applicable to the assessee, use the tax rates applicable to the assessee to calculate tax liability. The tax rates differ for different income levels.

Need to  add surcharge and cess as applicable

If taxable income of the assessee is above a certain level, there is an applicability of surcharge in addition to the regular tax. Additionally, a cess is charged on the total tax amount. Need to add the applicable surcharge and cess to arrive at your final tax liability.

It is recommended to consult a chartered accountant or tax consultant or refer to the latest guidelines and provisions of the Income Tax Act while calculating assessee’s tax liability because Income Tax Act is subject to frequent revisions, and the tax rates, deductions, and exemptions may change from year to year.

CA KHALID REHMAN

(M.Com, Chartered Accountant)