What is taxable income?
Taxable income is the amount upon which an individual is liable to pay tax. Income Tax Act specifies different heads for taxable income. Some of them are:
-Salary
-Income from house property
-Profits and gains of business or profession
-Capital gains
-Dividend income on equity shares held in a company for more than 12 months
-Loan or interest income
-Interest in securities like debentures, bonds, etc.
-Gains from transfer of equity share in a company (Long term capital gains)
-Royalties for books, inventions, etc.
-Ancestral property which is transferred to you after the death of the previous owner (no other heads fall within the ambit of income)
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How to calculate taxable income?
Individuals can club together their various sources of income to figure out which head it falls under so they can pay the exact amount due accordingly. Income not falling under any of these heads has to be clubbed with salary income to figure out the tax liability thereof.
For example, an individual has a rental income of Rs. 1 lakh and dividends income of Rs. 1 lakh in a year. Total annual income is Rs. 2 lakhs. Taxable income = (Salary + Rental Income) – exemptions claimed or just Salary Income – exemptions claimed. In the given example, Rs. 1 lakh rental income is clubbed with salary income to find out taxable income so tax will be levied on Rs. 2 lakhs instead of Rs. 3 lakhs.
How to reduce taxable income?
Taxable income can be reduced by various deductions allowed under Section 80C or other sections as well as investments in tax saving instruments, which are explained below.
Taxable income is used to determine the tax liability of an individual. Individuals can reduce their taxable income using deductions allowed under Section 80C or other sections as well as investments in tax saving instruments.
Here are some deductions allowed under various sections:
- Deduction on interest paid on home loan
- Deduction on payment of premium for life insurance
- Deduction up to Rs. 20,000 on contribution to the pension fund
- Deductions on health insurance premium paid by an individual and his family
These deductions are allowed under Section 80C and other sections as well. However a maximum deduction of Rs. 150,000 is allowed under Section 80C, which means an individual can claim this benefit only once.
A further deduction of Rs. 25,000 on account of interest paid on a home loan can be claimed under both these sections so the total exemption limit is Rs. 275,000 provided the taxpayer has opted for house property, in case he chooses not to pay the house property tax will be levied on the entire salary income.
What is ITR Filing?
It is important to know that there are different types of taxable income for both individuals and companies. Having an understanding of the differences between them can help you to determine whether or not you are required to file ITR with the Income Tax Department. You should note that even if your salary is tax-free, you still need to file ITR annually with the taxation department.
ITR filing is the process of putting together a report of all your earnings over the year and determining which type of income it falls under. You then file this form with the relevant government body, depending on what type of income you have declared.
How to file ITR?
To avoid fines for late filing of your ITR documents, you should ensure that it is filed on time. If you are late in submitting your ITR documents, this can result in heavy fines or other penalties. The amount of fines that are imposed depends on the nature of the delay and whether it was intentional or not.
The first step to filing your ITR is to have all the relevant information ready to hand before doing so. This includes your company registration number, tax exemption number (if applicable), and the address of your registered office. With all these details at hand, you are then ready to file your ITR.
If you use online forms or software packages to file ITR documents, it is important that they are submitted before the deadline set for this purpose. If you are unclear about what this deadline is, it is best to file your ITR as early as possible. The taxation department usually provides the relevant information on their website for you to refer to in order to avoid confusion.
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