As per the income tax laws, the total taxable income is divided into five parts:
a) salary income
b) income from house property
c) Income from Capital Gains
d) Income from business and profession
e) Income from other sources
Once the sources of income are determined, one must ensure to file ITR for FY 2021-22 (AY 2022-23) using the correct income tax return form.
- Income under the head ‘Salaries’
The total taxable income under the head ‘Salaries’ can be easily calculated through one’s Form 16. It is a TDS certificate containing details of tax deducted salary income In each quarter, the total salary paid, income tax regime chosen, tax exemptions and deductions claimed (if old income tax regime is opted for).
Form 16 has to be compulsorily issued by the employer if tax is deducted during the financial year
Read also:
What to check in Form 16 for ITR filing?
Note that there are certain tax exemptions and deductions that can be claimed only from salary income. Further, these tax exemptions and deductions can be claimed only if the individual opts for the old income tax regime. Submission of documentary proof is mandatory for claiming tax exemption and deduction.
Some examples of tax exemptions and deductions are tax exemption on house rent allowance, leave travel concession and standard deduction of Rs 50,000.
However, what if you have not received Form 16 from your employer? In this case, your salary slip will help you in computing your taxable salary income.
If you are a pensioner, pension received from the employer will be taxable under the head ‘Income from salary’.
- income from house property
To know the income under this head, one has to understand three concepts first:
a) self-occupied property
b) rental property
c) deemed to go out
Self-occupied property is property that is occupied by the individual himself. For income tax purpose, any person can choose any house as self-occupied house, irrespective of whether he is residing in it or not. Income from self-occupied property will be nil.
A person can claim any two houses as self-occupied property if he has more than two houses. An amendment was announced with effect from FY 2019-20. With effect from 1st April 2019, if a person has two or more houses, then either of the houses can be treated as self-occupied property and no tax will be payable. Till the financial year 2018-19, if a person had a second house, then such second house would be taxed on the basis of deemed rent.
Note that if the home loan is running against a self-occupied property, a deduction of up to Rs 2 lakh on interest payment and up to Rs 1.5 lakh on principal payment of the home loan can be claimed.
The property let out during the financial year is called rental property. A property which is vacant and does not qualify as ‘self-occupied property’, then such property will be said to be ‘deemed to be taken out’.
Abhishek Soni, CEO, Tax2Win.in – an ITR Filing The website explains how to calculate income from house property:
step 1: Calculate the fair rent (i.e., the expected rent from the same property) and town value (assessed as per the municipal authorities). Take the higher value of both. This higher price is called the expected rent.
step 2: Compare the actual rent received/receivable for the year with the estimated rent calculated in Step 1. The higher value will be the Gross Annual Value (GAV) of the home. Remember, if a property is covered under the Rent Control Act, the expected rent cannot exceed the standard rent.
step 3: Calculate Net Annual Value (NAV) by subtracting municipal taxes paid during the year from the GAV. Remember, the GAV for self-occupied property will be zero. No deduction of municipal taxes is allowed for self-occupied property.
step 4: Deduct the standard deduction of 30 per cent from the NAV. This standard deduction is given to cover the expenses incurred for the maintenance of the house. It is a direct deduction which does not require any documentary proof. This standard deduction is different from the deduction allowed under the head ‘Income from salary’. This deduction is not available for self-occupied property.
Step 5: Deduct the total amount of interest, if any, paid on the home loan taken for the purchase of the said house. This deduction is available for all properties. The last figure that comes up at this step will give you income from house property. This can be a positive or negative value.
In case of self-occupied property, the GAV will be treated as zero and the maximum deduction of interest paid will be limited to Rs.2 lakh. In case of rental property, there is no ceiling on the maximum deduction on the amount of interest paid. It may be noted that the set-off of loss under the head House property from other heads of income will be limited to Rs.2 lakh.
- income from capital gains
Capital gains arise from the sale of assets such as houses, mutual fund units, equity shares, etc. There are two types of capital gains – short-term capital gains (STCG) and long-term capital gains (LTCG). The type of capital gain depends on how long the asset has been held by the individual. The holding period is different for each asset class. There are different income tax rates for capital gains.
Income Tax Rate of Capital Gains for Different Asset Classes
| asset class | Income Tax Rate for Short-Term Capital Gains | Rate of Income Tax for Long Term Capital Gains |
| Equity Shares on which STT was paid | 15% if shares are sold before completion of one year | 10% (without index) if shares are sold after one year* |
| Equity Mutual Fund | 15% if mutual fund is sold before completion of one year | 10% (without indexation) if mutual fund is sold after one year* |
| debt mutual fund | As per applicable income tax slab rates, if money is redeemed before completion of three years | 20% (with index), if the fund is redeemed after completion of three years |
| Property | As per applicable income tax slab rates, if the property is sold before completion of two years | 20% (with index), if the property is sold after completion of two years |
| Sleep | As per applicable income tax slab rates, if gold is sold before completion of three years | 20% (with indexation), if gold is sold after completion of three years |
| foreign company shares | As per applicable income tax slab rates, if money is redeemed before completion of three years | 20% (with index), if shares are sold after three years |
| International Equity Fund | As per applicable income tax slab rates, if money is redeemed before completion of three years | 20% (with index), if the fund is redeemed after completion of three years |
* LTCG up to Rs 1 lakh in a financial year is exempt from tax.
(The above tax rates are excluding cess and surcharge.)
- income from business and profession
Individuals having their income from business or profession such as lawyers, CAs, freelance writers etc. are required to report their income under the head ‘Income from business and profession’. Any profit/gain or loss arising from running the business is required to be reported.
Soni says, “Persons having income from business and profession can claim many expenses for running a business which are not allowed to a salaried person. Some examples are travel expenses, fixed expenses, overhead expenses etc.”
- income from other sources
Any income that does not fall under the income heads mentioned above is required to be reported under the last head, ‘Income from other sources’. Generally the income reported under this head is interest income from bank accounts, post office savings scheme, bank fixed deposits, family pension, pension received from insurance company, etc. Dividend received from shares and mutual funds are also required to be reported under this head.
final tax liability amount
Once the income from all the sources mentioned above is added up, you will arrive at your ‘gross taxable income’ for the financial year.
From the gross taxable income, a person would be required to claim deduction under section 80C, 80D etc, provided he continues with the existing, old income tax regime. However, if a person opts for the new, concessional income tax regime, he will have to avoid around 70 tax exemptions and deductions.
After claiming the deduction, the individual comes to the net taxable income. Tax liability will be calculated on net taxable income.