Income from salary is the most common income that individuals earn. It is the total of your basic salary and will include House Rent Allowance (HRA), Special Allowance, Transport Allowance and any other allowances. However, there are components of your salary that are exempt from tax. These include telephone bills reimbursement, leave travel allowance, etc. If you don’t have a house of your own and you live on rent, you can get an exemption on your HRA.
There is the standard deduction of Rs. 40,000 was introduced in budget 2018 that you can claim as exemption. This deduction has been increased to Rs. 50,000 in the Union Budget 2019. If you wish to opt for the new tax regime, the standard deduction exemption will not be available to you.
Income tax calculation
Here are the income tax calculations under the present tax regime and the new tax policies (optional). Let’s say Rahul gets a basic salary of Rs 1,17,000 per month. The HRA that he gets is Rs. 45,000. He gets a special allowance of Rs. 21,000 per month and LTA of Rs. 16,000 annually. Rahul pays a rent of Rs. 40,000 and lives in Chennai.
| Income | Amount (Rs.) | Exemption/Deduction (Rs.) | Taxable income (Old regime) | Taxable income (New regime) |
| Basic Salary | 14,04,000 | – | 14,04,000 | 14,04,000 |
| HRA | 5,40,000 | 3,60,000 | 1,80,000 | 5,40,000 |
| Special Allowance | 2,52,000 | – | 2,52,000 | 2,52,000 |
| LTA | 16,000 | 13,000 (amount for which bills were submitted) | 3,000 | 16,000 |
| Standard Deduction | – | 50,000 | 50,000 | – |
| Gross Total Income from Salary | 18,89,000 | 22,12,000 |
Once you have your income from salary, you need to include other income. These include income from house property, income from capital gains, income from business/profession, income from other sources like saving account interest income, fixed deposit interest income and interest income from bonds.
For income from house property, calculate the Gross Annual Value (GAV) of your rented house property. For this, take into consideration the Fair Market Value (FMV) of your property and the valuation as estimated by municipal authorities. The amount that is higher in value can be taken as expected rent.
You need to compare the rent that you receive with the expected rent and you will have the GAV for the house. Then, you need to compute the Net Annual Value (NAV) of your property by deducting the municipal taxes that you paid during the year.
Deduct the amount from the NAV to see if there is income from your housing property. Note that 30% of the NAV will be the interest paid annually on the housing loan amount (if you had taken a loan to purchase the property).
For calculating income from capital gains, you need to understandthe nature and number of transactions that involved capital gains. First, you need to calculate the long-term capital gains from the total sale of assets. Then, you need to calculate the short-term capital gains from the total sale of capital assets. You can claim deductions and indexation benefit for long term capital gains for some capital assets. Calculate that tax to be paid on the capital gains.
You need to provide all the relevant income in your income tax form. Tax Deducted at Source (TDS) will be available on your income tax return. This will get deducted from the actual taxes you need to pay. You can claim refund of TDS if you are in the lower tax bracket.
If you need help calculating your taxes, get in touch with a Chartered Accountant. You can claim exemptions on investments such as tax saving mutual funds when you file your taxes.
