Beginners guide on Income Tax 2021: How to calculate payable Income tax?

Income Tax may sound simple and one may easily define it as a tax imposed on income. Although it is true, there are many regulations involved in this tax and hence calculation of payable Income tax is somewhat complicated. It is a tax that every working person has to pay based on the generated income, but the how, when, and who are some questions that require guidance from experts before filing income tax.

If you are the one who will be filing the income tax for the first time, then you should contact the best income tax consultants in Delhi or India for help. Let’s discuss the basics so that you have an idea of what this tax is all about and how to calculate the payable tax.

What is Income Tax?

It is a type of tax that is imposed on the individuals or entities as per the profits earned in the financial year. The tax rate depends on the type of income and taxpayer. Moreover, the calculation of income tax keeps on changing as per the guidelines presented in the budget by the union government. All the jurisdictions of this tax are in compliance with the Income Tax Act of 1961.

What does it mean by financial year (FY)?

A financial year is also known as the previous year and is the tax year which commences from 1st April of each year and ends on 31st March. So it doesn’t matter when you started your job or business, but you have to pay your income tax by 31st March of every year and file its return in the assessment year. For example, you started your job in October 2019, then you need to pay income tax on the generated income till 31st March for the FY 2019-2020.

What is the assessment year (AY)?

Apart from FY, another term that you should know is assessment year. This is the year after the financial year. That means, if you have filed income tax for FY 2019-2020, then the assessment year will be AY 2020-2021. In this year you will assess and file the Income-tax return for the FY. This way, you can claim your tax deductions and get a return on your paid tax (if applicable in your case).

Meaning of taxable income and its sources

Taxable income does not only covers your salary, but also the incomes gained from other resources as well. Moreover, the breakout of the salary can also affect the total taxable income. For instance, you are receiving House Rent Allowance and you’re living on a rental property, then you don’t need to pay taxes on that allowance.

Apart from salary, other sources of taxable income are:

• Income from House Property:

Income generated from the building or house. You may have rented, owned, or self-occupied this property

• Income generated from capital gains:

Profit or loss that you have earned after selling a capital asset (tangible or intangible) like stock, car, property, etc.

• Income from business or professional services:

Profit or loss that you gain in your business or by providing your professional services to anyone.

• Income from other sources

Interest received on the savings account, fixed deposits, bonuses, monetary gifts, etc is considered as an income on which you have to pay tax.

So the total taxable income is the difference between the tax deductions and total income (sum of salary and other incomes from all the above sources).

What are tax deductions?

Tax deductions are the amounts that the authorities have allowed to reduce the taxable income, save taxes, and reduce liabilities. The more you make use of allowed deduction while filing ITR, the lesser tax you have to pay.

What is TDS?

TDS refers to Tax Deducted at Source and is the tax deducted by the person or entity that has initiated the payment. The deducted amount depends on the guidelines declared by the Income Tax department. For example, when you earn interest on an FD, the bank deducts the TDS.

How to calculate payable tax?

The final payable tax is the difference between the tax payable on the total taxable income (as per the slab) and TDS that is already deducted.

So this is how you can calculate your payable income tax. It is necessary to make the right calculations while filing it. Hence, you should take professional help to avoid mistakes. You can consult Inside Tax, the best income tax consultants in Delhi and India. They can help in filing income tax and income tax returns without making any mistakes. Moreover, they can provide assistance in saving taxes.