How to Calculate Income Tax for FY 2022-23?

With the ever-changing tax laws and technical terminologies like tax rebates, tax exemptions, tax savings, etc., many of us find income tax an overwhelming concept. To be precise, at times, we are even unaware of what portion of our income is being taxed. 

It is important to realize that the financial world must change in order to adapt to the ever-evolving world of technology and science. However, in order to get the hang of the ever-changing rules of income tax, it is important to first know what exactly an income tax is, and how to calculate income tax. 

What is Income Tax and Taxable Income?

Income tax is defined as the tax imposed on the income generated by businesses and individuals. These taxes work as revenue for the Government, which they use to fund public services, pay government officials, and more. 

Taxable income refers to the income per year that is subject to tax after exemptions and deductions. Taxable income, for both individuals and businesses, is usually lesser than their gross income. A few examples of taxable income are salaries, commissions, wages, etc.

Being aware of one’s taxable income is important because it helps a person determine the amount of tax payable or refundable by applying the appropriate tax rates and then deducting the taxes that are already paid. 

Different Incomes that are Taxable in India

Salary or Pension

This category usually involves a person’s salary, taxable allowances, and even the profit that they are making out of their salary. Therefore, the pension that one receives on one’s retirement would also be taxed under income tax. 

Income Generated Through House Property

Many of us prefer owning more than one housing property and renting it with the purpose of generating income. However, since the ownership still lies with the original owner of the house, they have to pay tax on the money they earn as rent. This means that any kind of income generated, or loss incurred would be accordingly added or deducted from the income of the other properties. 

Lottery 

A lot of people do not know that the income obtained through lottery and betting is added to the total income they are generating, and hence is taxable. However, these types of income are charged with different forms of tax rate.

Capital Gain

Capital gains are generated through the sale of certain assets. For instance, selling properties, mutual funds, gold, sticks, and more falls under capital gain. Moreover, they are classified as either long-term or short-term capital gains, which are calculated based on what type of asset it is, how long you have had it, and the profits that are incurred from them.

How to Calculate Income Tax?

The new income tax calculations were announced by FM Sitharaman on 1st February 2022. According to this new budget, the taxpayers can shift back and forth between the old tax regime and the new tax structure. However, this flexibility is only provided to salaried individuals and not business people.

Your income tax is calculated based on the applicable income tax slab as well as your net income. Read on to learn how to calculate income tax for the financial year 2022-23.

1. Calculate your Gross Income

Firstly, write down your annual gross salary, which includes all the components of your salary. For instance, Leave Travel Allowance (LTA), House Rent Allowance (HRA), and other special allowances. 

Now, subtract the exemptions provided on your salary. However, it is important to note that you can only claim HRA if you live in a rented house and can submit valid proof for the same. Moreover, HRA is fully taxable if you have your own accommodation.

Add the income that you might have generated from other sources such as rental income, capital gains, and more. After this, the amount you get is your gross total income. 

2. Claim the Tax Deductions and Other Exemptions

Tax deductions are helpful in reducing your taxable income. You must be wondering how many types of tax exemptions there are to deduct from your gross income. 

It is preferable to deduct Rs. 50,000 (every salaried employee can deduct this amount). Furthermore, subtract the expenses and investments that are eligible under Section 80C. Investments in EPFs, PPFs, and ELSS Mutual Funds are a few ways to claim this deduction. 

3. Determine the Net Taxable Income

Deduct the exemptions, allowances, and deductions that you have calculated in the previous step from the gross income. This will give you your net taxable income for the year. Your payable tax will be calculated on the amount you will get in this step.

4. Calculate Your Taxes

Calculate the tax payable at the applicable income tax slab for the financial year 2022-23. Moreover, determine the taxes that you have already paid during the concerned fiscal year, such as advance tax, TDS, etc., to get your net payable tax.

Any kind of tax, be it GST or income tax, is important for a country to reach global heights. India, being a developing country, can really grow if the citizens pay their taxes in time and enjoy the public services they receive in return. 

So, now that you know how to calculate income tax, you can visit the official website of the Income Tax Department and calculate it. Enter the necessary details to find out the total tax liability. Your timely payment of tax could help the country keep up with other nations and grow further.