Find ways to compute your Net Taxable Income for ITR Filing

Before calculating the Net Taxable Income you need to first calculate the Gross Taxable Income. Gross Income has been divided into five parts. After calculating income from each part and summing those up you will arrive at gross total income. Then after claiming deductions from (sections 80C to 80U) gross taxable income you achieve your Net Taxable Income. Following which you select the appropriate ITR filing form depending on your sources of income.

Net Taxable Income

As stated earlier gross income has been divided into following five parts under the Indian taxation laws: -

1) Income from house property

2) Income from business and profession

3) Income from salary

4) Income from capital gains

5) Income from other sources

Income from House Property

If your house has been rented then the income from rent needs to be reported irrespective of the number of houses you have rented. If you have one house and you reside in the same house, income in such case will be reported as nil or zero. If there is an outstanding loan of such property then rebate of up to Rs 2 lack is available on interest paid on the loan which can be claimed.

If there are two or more self-occupied houses then any of the two houses can be claimed as self-occupied and no tax has to be paid. Income from house property can be calculated by following the steps below:

1) Calculate the Expected Rent from a similar property and Municipal Valuation. Select the larger value of the two. This value is your Expected Rent.

2) Comparison between the actual rent received and expected rent is required. The larger value of the two will be the Gross Annual Value (GAV). The expected rent cannot exceed the standard rent if the property is covered under the Rent Control Act.

3) Net Annual Value (NAV) can be calculated by deducting the municipal taxes paid during the year from GAV.

4) 30 per cent deduction from the NAV is the next step. This 30% is offered against the maintenance of the property, which does not require any documented proof.

5) Now deduct the amount of interest paid on a loan if any, for the said property. This final figure is the income from house property which may be positive or negative.

Income from Business and Profession

Income from business and profession (such as accountant, CA, lawyer etc.) are also reported for Income Tax filing. Incomes and gains from undertaking transactions in stock market derivatives (futures and options) also need to be reported.

Method of accounting in case of income from business or profession can be chosen by the taxpayer. There are namely two types of methods of accounting, (a) cash system and (b) accrual system.

All incomes and expenses are accounted as and when they are received under the cash system. On the other hand, in the accrual system, all incomes and expenses are accounted as and when they become due whether they have been received or not.

Income from Salary

Taxable income from salary can be calculated through Form 16. This form is a TDS (Tax deducted at Source) certificate available with the employer. Form 16 brings two things to light. First, tax deducted from salaried income. Secondly, the total taxable salaried income.

However, total taxable salaried income equals salaried income fewer exemptions for which documented proof has been provided to the employer by the employee. Exemptions include leave travel allowance (LTA), house rent allowance (HRA), standard deductions etc.

If form 16 is unavailable, taxable salaried income can be calculated manually with the help of salary receipts. Salary receipts include the break-up of the total salary paid.

Income from Capital Gains

Income from capital gains includes profits earned from the sale of assets such as the sale of mutual funds, equity shares, land, house etc. Capital gains can be classified as long term capital gains (LTCG) and short term capital gains (STCG) depending upon the time period of holding such assets.

If equity shares and equity mutual funds are sold after one year of holding they come under LTCG and will be taxed at 10 per cent without any indexation. Also to be noted that LTCG up to Rs 1 lakh is exempted from taxation. And if sold before one year they fall into STCG and taxed at 15 per cent. The taxation of equity mutual fund is different from debt mutual fund units.

Income from Other Sources

Income from the dividend, fixed deposits, interest from the bank savings account, commission income, recurring deposits, taxable gifts etc. fall under income from other sources.

Conclusion

After calculating income from each of the above sources, sum them up to arrive at Gross Taxable Income. Net taxable income can be achieved by claiming deductions (sections 80C to 80U) from the Gross Taxable Income. Income tax payable can be calculated by the tax slab provided by the government under which your Net Taxable Income is applicable for the financial year. Pay the tax due and now you are ready to file your ITR (Income Tax Return).