Income Tax Calculator - Its Features and Attributes
Assessment year, financial year and previous year - have you ever been utterly confused by these income tax jargons? Before one can start evaluating their tax payable, it is very important to understand what these terms essentially stand for.
Assessment Year: When your income for a certain financial year is assessed in the coming financial year, it is referred to as an assessment year.
Financial Year: The period between the current year’s April 1st and the following year’s March 31st. This is the time period wherein you are required to collate all your documents and submit your investment proofs.
Previous Year: The financial year that acts as a precursor to the following assessment year. Your income for the current year is assessed in the next year (assessment year).
Tax Calculator - Step-by-Step Guide to Calculating Tax
As per the rules and regulations stated by the Income Tax Department of India, an individual is allowed, at all points of time, to have 5 sources namely, salary income, capital gains, house property income, business income and income from other sources. Generation of any kind of income will be taxable, provided you (the tax-assessee) categorise each income under the aforementioned sources.
Income from Salary
The Income Tax Department of India lists 5 sources of income under which each person can designate their income. One such source is your income from salary. You can make efficient use of your income tax calculator to evaluate the entire value.
Your income from salary can be calculated by using the TDS certificate, that is a part of Form 16. Note that, your employer is supposed to provide you with a Form 16. This can be achieved in the following ways:
- Gather all your salary slips and the essential Form 16 of the ongoing financial year. Add up all your stipends and allowances (this includes your basic salary, TA, DA, HRA, DA on TA, reimbursements) that is listed in your payslip and the Form 16 (Part B). Once this is done, add your bonus.
- The total value that you get after computing all this will be termed as your gross income.
- Make the following deductions from your gross income - HRA exemption and allowance for transportation (the exemption limit is Rs.19200 p.a.)
- The total result will act as your net income.
Income from House Property
House property incomes are those which the assessee receives every month in the form of rental payment. In case, the tax-assessee has the possession of only one house, and that too is self-occupied then also he has to compute his income through property.
Calculate the GAV (Gross Annual Value) of your rented house property in the following ways:
- Take into consideration the Fair Market Value (FMV) and the valuation estimated by municipal authorities (Municipal Valuation). Take the amount that is higher in value and this shall be your expected rent.
- Compare the rent you receive (the Actual Rent) with the aforementioned expected rent and you have your Gross Annual Value for the house.
- You can compute the Net Annual Value (NAV) by deducting the already paid municipal taxes during the GAV year. Deduct the same from the NAV to comprehend the loss or income from your housing property. 30% of NAV - Interest paid annually on the loan amount (if taken to buy the said house)
Income from Capital Gains
The nature and number of transactions usually determine the computation of income from capital gains. It can be attained in the following manner:
- Calculate your long-term capital gains from your total sales of assets.
- Calculate your short-term capital gains from the total sales of capital assets.
- Deductions are to be claimed after this.
Steps for Tax Calculation
- First and foremost, ascertain your adjusted gross income.
- Thereafter, compute your federal taxable income and the consequent tax. This encompasses establishing your itemized deductions, calculating the said deductions and then finally subtracting them.
- Carry out the computation of final tax and exemptions. In this, you first compute the exemptions that you are allowed, then ascertain your gross income tax for the present financial year and finally, exclude any credits that you might be eligible for.
There are a thousand different components in each of these steps. It is always advisable to conduct thorough research before one starts calculating his/her tax.