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Every year, you pay a certain portion of your income to the government as tax. This income tax is calculated on your total taxable income. While this includes your salary, capital gains from investments, income from business etc, it is often not a simple addition of your income from different sources. This is because many income sources are not taxable. This makes the whole process of calculating income tax complication. Familiarity with the process could make it easier.This is very
Income: Before calculating your income, you should be aware of what the government considers as ‘income’. There are five different heads of incomes under which a person a taxed:
a) Salaries: This includes commissions, perks, bonus, allowances, retirement benefits.
b) Profits and gains from business and profession: This includes income earned from your profession or business.
c) Income from property: This includes rental income from giving your house or property for residential or commercial usage.
d) Capital gains: Any profit or gain earned from an increase in the value of your investments. This includes real estate properties, equity investments, mutual fund holdings and so on. There are two kinds of capital gains – short-term and long-term. Short-term capital gains are usually taxed at a higher rate.
e) Income from other sources: This includes income that does not fall under the four categories above. For example, it could include interest income from bank deposits.