How to determine taxable income for FY

How to determine taxable income for FY: ITR Filing: Only by determining the correct taxable income, the individual can know the correct income tax amount to be paid by them. An income can come from various sources like salary, rent, capital gains from shares and mutual funds, etc. The total taxable income is divided into 5 categories as per the Income Tax laws.

How to determine taxable income for FY

New Delhi: Filing an Income Tax Return (ITR) for a salaried individual is an annual exercise that must be done with caution, to avoid attracting any notice from the income tax (I-T) department. To do this, the most basic yet important thing for an individual is to calculate their total taxable income.

Only by determining the correct taxable income, the individual can know the correct income tax amount payable by them. An income can come from various sources like salary, rent, capital gains from shares and mutual funds, etc. The total taxable income is categorised as following as per the Income Tax laws:

How to calculate taxable income for FY 2021-22 to file an income tax return (ITR)

Income under the head ‘Salary’

This income can easily be computed using one’s Form 16. It is a TDS certificate containing details of the tax deducted from the salary income in each quarter, total salary paid, income tax regime chosen, tax exemptions, and deductions claimed (if opted for the old income tax regime). This document is to be issued by the employer if tax has been deducted during the financial year.

Individuals can claim some tax exemptions and deductions from this income in case they have chosen the old tax regime. For this, submission of documentary proof is mandatory.

How to determine taxable income for FY

In the case of pensioners, the pension received from the employer will be taxable under the head, ‘Income from salary.

Income from house property

To know income under this head, the individual must be well-acquainted with the following concepts:

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a) Self-occupied property

As the name suggests, the self-occupied property is the property that is occupied by the individual himself/herself. Income from the self-occupied property will be nil. If a taxpayer has more than 2 houses, they can claim any two houses as self-occupied property. Moreover, the individual can claim deductions of up to Rs 2 lakh if the property has an ongoing home loan.

b) Rental property

Property that has been given on rent during the financial year is called rental property.

c) Deemed to be let out

This is the property that is empty and does not qualify as ‘Self-occupied property’.

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Here’s how to calculate income from house property:

Step 1: Compute the Fair Rent (i.e., expected rent from a similar property) and Municipal Value (valuation as per municipal authorities). Take the higher value of the two. This higher value is termed expected rent.

Step 2: Compare the actual rent received/receivable for the year with the expected rent computed in Step 1. The higher value will be the Gross Annual Value (GAV) of the house. Remember, if a property is covered under the Rent Control Act, then expected rent cannot exceed the standard rent.

Step 3: Calculate the Net Annual Value (NAV) by deducting municipal taxes paid during the year from GAV. Remember, GAV will be nil for self-occupied property. No deduction of municipal taxes is allowed for self-occupied property.

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Step 4: Deduct 30 percent standard deduction from NAV. This is offered to cover the expenses made for house maintenance and doesn’t require documentary proof. Note that this deduction is not available for self-occupied property.

Step 5: Deduct the total amount of interest paid on the home loan taken, if any, to purchase the said house. This deduction is available for all the properties. The final figure arrived at this step will give you an income from house property. This may be a positive or negative value.

In the case of self-occupied property, the GAV would be taken as nil and the maximum deduction of interest paid would be limited to Rs 2 lakh. In the case of rental property, there is no limit on maximum deduction on the amount of interest paid. Do keep in mind that the set-off of losses under the head of house property from the other heads of income will be restricted to Rs 2 lakh.

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Income from capital gains

Gains made from the sale of assets such as a house, mutual fund units, equity shares, etc. are capital gains. These are of two types – short-term capital gains (STCG) and long-term capital gains (LTCG). The type of capital gains that occurred depends on how long the asset has been held by the individual. The holding period for each asset class varies. There are different income tax rates for capital gains.

Income from business and profession

Individuals having their income from business or profession such as lawyers, CAs, freelance writers, etc. are required to report their income under this category. Individuals can claim several expenses to run a business that is not allowed to a salaried individual like traveling expenses, stationary expenses, overhead expenses, etc.

ITR filing: Here’s how to determine taxable income for FY 2021-22

Income from other sources

Any income which does not fall under the income heads mentioned above is required to be reported under the final head, ‘Income from other sources. These generally include interest income from bank accounts, post office savings schemes, bank fixed deposits, family pension, pension received from insurance companies, etc. Dividends received from shares and mutual funds are also required to be reported under this head.

Tax liability amount

Once you are done calculating the income from all the sources, you will arrive at your ‘Gross taxable income’ for the financial year. From the gross taxable income, you will be required to claim deductions under sections 80C, 80D, etc., provided you have chosen the old regime. After claiming deductions, you may arrive at net taxable income. The tax liability will be calculated on this.

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Nature of Property: When loan was taken

Self-Occupied: On or after 1/04/1999

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