When it comes to the BIG T there are many jokes circulating on the internet. This one is my personal favourite. It’s about a CA advising his clients that their money is not their own but belongs to the Govt.
In India, we pay taxes, in the form of Salary Tax, Tax on investments, Cess Tax, Vat Tax on purchases etc. For a full list of taxes click here. So when it comes to family financial planning it is good to have a general idea about it.
In this article and in a series of posts to follow, we will discuss these Major Taxes, Deductions and Exemptions.
One of the major rules of Personal Finance is to plan your Taxes by investing your income in the right schemes as they will help you save money in the long run.
Right now we will be looking into the key elements that will help us understand better the Indian Tax system.
Calculating your annual income is the first thing in determining your tax liability.
Some of the major sources of income are:
Income from Salary:
This is normally given by the company in your Form 16 format. This clearly states the total salary income including bonus earned by you.
Income from Real Estate Holdings:
If you have an extra house/property on rent other than your self-occupied one, then rental income should be added to your income.
Income from Business or Profession:
If you have a business or if you are self-employed then your income should be added to this category.
Income from Capital Gains (short term or long term):
If you have investments in short-term capital gain, then tax is applicable for investments done in less than 36 months. Anything greater than 36 months will fall under the long-term capital gain tax category.
Income from other sources:
Any income received from investments other than the ones above will fall in this category.
Exemptions or Deductions :
In order to find out more about Tax exemptions and/or deductions we will first look into the different exemptions provided by the Govt. under different heads. Most of these fall under Section 80C.. The total deduction that can be availed under this section is Rs.1,50,000. This amount is dependent on the Budget declaration every year and keeps fluctuating.
Calculate your tax (The step by step process)
- Calculate all your Income
- Then calculate all your Deductions.
- Calculate your taxable Income (1-2)
- Finally your tax as per the applicable tax slab .
And this is how you calculate your tax liability.
Note: This article is written for informational purposes only. For professional advice please contact a certified Chartered Accountant.
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