Categories: Income TaxOthers

How to Calculate Income Tax Liability in India

How to Calculate Income Tax Liability in India: A Comprehensive Guide


If you are filing ITR for the first time, it can be really overwhelming to understand the ITR form and the different terms used. As simple as it may get, you can get jumbled if you do not know which field to use and how to do calculations. Therefore, here is a guide to understanding everything about calculating your income tax liability. Read on to know the details.

Different Income Sources for ITR Filing

Before you learn how to calculate your tax liabilities during ITR filing, it is imperative to understand the different sources of income. If you think your income source is only limited to your salary, it is much more than that. You will need to include all your income sources for calculating the liability. Here are the different income sources for your reference:

  1. Income from your salary
  2. Income from your property
  3. Any income from capital gains
  4. If you have additional income in the form of business or profession
  5. Any other income source

Formula For Calculating Tax Liability

Since you know the different income sources that need to be included during ITR tax filing, you should look at the formula for calculating your liability. Let’s look at the simple formula that can assist you.

First, calculate your total earnings by adding your income from all the above sources. Then, follow the simple calculations:

Taxable Income = Total Income – Total Deductions

Now, let’s understand each income and what all components are added in detail, along with the deductions that need to be included.

1.     Income From Salary

When calculating income from salary, you should include all allowances that include HRA, DA, TA, Medical, etc. It will also include the reimbursements you may have received and any bonuses. Additionally, if you have any HRA or TA/DA exemptions, you can deduct them first and then add the balance to your salary income.

2.     Income from Property

Here you will need to include all your rental income that you may have. It could be from your residential property or commercial unit. It is where people make the most mistakes and miss on adding their rental income.

3.     Capital Gain Income

If you have sold any bonds, stocks, or properties in the assessment year, it will be considered capital gains. When calculating your income, you should include all the capital gains as a part of it. Remember, these capital gains are irrespective of whether long-term or short-term.

4.     Business or Any Other Professional Income

These days it’s common for people to indulge in secondary sources of income to manage their expenses. If you also have some different businesses running along with your primary source of income, consider that while doing your ITR calculations. To calculate your income, you must add all profits and deduct all expenditures and other applicable deductions.

5.     Other Sources Income

Again a point that most people miss. All other sources of income will include your dividends, interest received on savings or fixed deposits, family pension, monetary gifts, lottery, etc. Add all these together and then reach your total other sources of income.

6.     Deductions

Once you have the total earnings, you must calculate your total deductions. All the investments you may have done under sections 80 C to 80 U, such as provident funds, LIC, Life Insurance, etc., will be a part of the deductions. You can also include tuition fees for children and any ULIPs, NPS, and other saving instruments here.

Now, you will get your total earnings and total deductions. As per the formula mentioned above, you can calculate your taxable income. It is the income on which you will need to pay the tax, either through the old or new tax regime.

Bottom Line

Managing tax-related work is often daunting and exhausting since a single mistake can result in a significant problem. Therefore, referring to a guide or checklist is important to ensure you follow the steps properly. You can keep this article as your guide for knowing the different income sources to include when calculating your tax liability.

New Tax Regime Vs Old Tax Regime

Tags: Income Tax
Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

Recent Posts

Statutory Compliance Due date for the April 2024

Statutory Compliance Due date for the April 2024 Read More

2 weeks ago

Analyze a company in less than 5 minutes via using Ratio

How to do a company analysis in less five minutes: Examine the following ratios: 💡Efficiency Ratios • Inventory Turnover:   Cost… Read More

3 weeks ago

Late fees under Goods and Services tax law for GSTR-9

How to calculate the late fees under Goods and Services tax law for GSTR-9 To calculate the late fees under… Read More

3 weeks ago

Compliance Checklist at yearend Closing at 31st March, 2024

Compliance Checklist to be done at yearend Closing at 31st March, 2024 The company must ensure that the appropriate TDS,… Read More

4 weeks ago

Action take by regulators on using offshore crypto platforms

What Possible action can be take by Indian regulators on using offshore platforms? It is needed to understand the implications… Read More

1 month ago

TRC is the valid document for determining treaty advantages

Tax Residency Certificate is the valid document for determining treaty advantages. ITAT- Delhi - M/s Sarva Capital LLC (ITA No.… Read More

1 month ago
Call Us Enquire Now