How to Figure Out Your Income Tax?
Mohammad Owais
Founder & CEO | Expert in Accounting, Tax, Compliance & Legal Services
Calculating your income tax accurately is essential for compliance and optimal financial planning. Here’s a streamlined approach to help you determine your tax liability effectively.
Steps to Calculate Your Income Tax:
Identify All Sources of Income:
- List all your income sources, including salary, rental income, capital gains, interest income, or business profits.??
Exclude Exempt Incomes:
- Exclude incomes that are legally exempt, such as Long Term Capital Gains (LTCG) on listed equity shares up to ?1 lakh per financial year, and agricultural income.??
Claim Applicable Deductions:
- Claim deductions for each source of income. For example, a standard deduction of ?50,000 from salary income, municipal taxes from rental income, and business-related expenses from business turnover.??
Claim Applicable Exemptions:
- Use exemptions under each income head. For instance, reinvestment in another house property can be claimed as an exemption from capital gains income.??
Apply Section 80 Deductions:
- Deduct applicable amounts under Sections 80C to 80U from your gross total income. This includes deductions like 80C for investments, 80D for medical insurance, 80TTA for interest on savings accounts, and 80TTB for senior citizens.??
Adjust for Taxes Paid
Account for taxes already paid, such as advance tax and Tax Deducted at Source (TDS).??
Apply Rebates and Reliefs:
- Apply the rebate under Section 87A and reliefs under Sections 89, 90, and 91 to determine the net income tax payable.??
Determine Taxable Income:
- After accounting for all deductions, exemptions, and reliefs, calculate your taxable income.??
Check the Tax Slab:
- Determine your income tax liability based on the applicable tax slab for the financial year. Stay updated with the latest Budget announcements as tax slabs and benefits may change.??
By following these steps, you can accurately compute your income tax liability, ensuring you make the most of available exemptions and deductions while staying compliant with tax regulations.