There is no progress without proper support. This is even truer for something as big as a city. If there are no government-backed investments, there will be no proper roads, transportation systems, water, electricity, and housing systems. In short, every citizen living in the city will have an inconvenient life.
This is why income taxes exist. They ensure that every citizen contributes their own part towards building a better city for themselves. So, if you consider yourself a responsible citizen, you should be aware of how to calculate income tax. We have gathered all the necessary wisdom you need on this topic below. Take a look.
How Many Types of Tax Exist?
Every citizen who is earning an income is expected to pay a certain income tax to the government. The government uses this money to build better infrastructure and provide better services to all citizens. Needless to say, it is crucial that you understand how to calculate income tax and learn to pay them dutifully.
However, before you learn how to calculate income tax, it is also important that you learn the different taxable heads of your income sources. Broadly speaking, your income can be deducted under the following categories:
- Income from Salaries: If you are a working professional who receives a steady income, then under Section 192 A of the Income Tax Act, your employer can deduct the necessary tax as per government guidelines. A Form 16 will enlist all the tax deductions and gross salary given to an employee.
- Income from Capital Gains: If you own capital assets and are receiving profits on them, then you are liable to pay taxes on them as well. If you are wondering what all capital assets include, know that they can be anything from buildings, bonds, equities and more.
- Income from Business: if you own a business that provides a product or services, then under Section 30 to 43D of the Income Tax Act, you are expected to pay taxes.
- Income from other Sources: This category includes income from dividends, bonds, stocks, pension, rent, and interest given by the government. All of them demand a tax deduction.
How to Calculate Income: Add All Sources of Income
The first step in learning how to calculate income tax is taking the aggregate sum of all your income sources. This means, you take the following income sources in place:
- Income from Salary
- Income From Capital Gains
- Income From Businesses
- Income From Other Sources
How to Calculate Income Tax: Different Income Tax Rates
|Annual Income||Income Tax Rate For 2022-23|
|Below Rs. 2,50,000||NIL|
|Between Rs. 2,50,000 & Rs 5,00,000||5%|
|Between Rs 5,00,000 & Rs 10,00,000||20%|
|More than Rs. 10,00,000||30%|
These income tax rate slabs were introduced during the fiscal budget of 2021-22, by the finance minister. Refer to this new system of taxation when you are calculating the total taxable income.
How to Calculate Income Tax: Using the Income Tax Calculator in India
If you want to know how to calculate income tax, you can use a very effective tool available online: income tax calculator. you can use it by following the steps listed below:
- Select the year for which the income tax is meant to be calculated.
- After this, you need to provide details of your age. This is important because income tax rates are different as per different ages.
- In the section where you must enter your income, write the gross net salary without any deductions. You also have to provide other important details like the annual income that you receive from your other sources.
- Once you are done with this, you need to provide the details of expected deductions.
- You would also be asked to provide interest rate details on a savings account as well as educational loans.
- If you have any HRA exemption, then you need to provide the details of such information as well.
- Once you are done filling in the details of all the above, you need to choose the metro city. Metro cities have different tax rates, and so accordingly, your tax liability will differ.
Every Indian citizen with a steady income has a moral responsibility to pay their share of income tax. After all, this is how the government ensures that the city and the country are equipped with the necessary resources for a better standard of living. This is why you should know how many types of taxes exist and how to calculate income tax.