By the end of every financial year, most of the employees have only one thing on top of their heads and that is the income tax. As the name implies, income tax is a type of direct tax that is levied on the income of an individual that he or she earns in a financial year. The tax earned is used by the government for various types of purposes such as public welfare projects, building pubic infrastructure, and others.
No matter, whether you are working for a company or operating your business, it is significant to pay tax on income earned and file it every year.The payment of income tax has relied on various parameters such asage, investments, income & its sources, and exemptions that are eligible for a deduction of the tax. Let us delve into this to know how it exactly works. It is better to use an income tax calculator.
Calculation of gross income with income sources
There are various sources of income and it is divided into five categories below. Let us know which category describes your income well.
Income from Salary
This is the regular income that is received from the employer with whom the employee works. The amount of salary can involve the following components, which we have mentioned below.
- Basic Salary
- Any special allowances received
- Dearness Allowance (DA)
- Allowances on transport, medical expenditure, etc.
- Any annuity as well as gratuity received during the financial year
The aggregate of all the above-mentioned income is called as gross income.
Income from business or profession
This is the income that a person earned from the business or profession. The portion of such income is taxable.
Income from capital gains
Any gain that is received after the buying and selling of capital assets like Mutual funds, Equity, Shares, Real estate, etc. is taxable under the capital gain taxes.The gains are further split into Short term capital gains and Long-term capital gains.
Income from rent on House property
It includes all types of rental or property income that a person has earned from either a residential or commercial property. All this income comes under this head and is subjected to taxation.
Income from other sources
The income that is not categorized under any of the above head, then this will cover all such incomes or salaries.
All of these above-mentioned components come all together and are comprised ofGross Income. It can be calculated with an income tax calculator.
What do you know about the income tax calculator?
In simple words, it is an easy to use online tool that assistsyou to get an estimate of the taxes based on the income earned after the Union Budget has presented the bill. These tools require some details about HRA, PF, standard deduction, professional tax, LTA, and so on to calculate the income tax and taxable income of a person or a business. It will get updated to provide people with allthe essential components.