Taxable income is the adjusted gross income that is used to calculate how much income tax needs to be paid by an individual or company to the government. It is required while filing an income tax return (ITR).
According to Daphne Anand, CTO, IndiaFilings, the taxpayer needs to sum up all the earnings of the financial year from all income sources and deduct the exempted portion of House Rent Allowance (HRA), transport allowance, medical reimbursements, tax-saving investments from the total gross income to compute the total taxable income.
Also read: Here are the key things to keep in mind while filing ITR
"One could get this information from relevant documents like Form 16, interest certificate, Form 26AS, etc," says Sandeep Sehgal, Director-Taxes and Regulatory AKM Global, a consulting firm states.
Kapil Rana, Founder & Chairman, HostBooks Ltd explains this in detail. According to him, gross total income can be divided into five heads of income as follows:
Income from Salary
Gross salary after deducting eligible exemptions i.e House Rent Allowance (HRA), conveyance allowance, etc. and deductions i.e. standard deduction, professional tax, etc.
Income from House Property
Rental Income from house property after deducting Standard Deduction at 30 percent, interest from house property, etc.
Income from Capital Gains
Long term or Short Term Capital Gain arising from the sale of a capital asset after deducting eligible deductions, during the previous year relevant to the assessment year for which return is being filed.
Also read: Tax on long term capital gains? Here's the ITR form you should use Income from Business or Profession
Income from business or profession after reducing eligible deductions.
Income from Other Sources
Income that does not fall under any heads of income described as income from other sources such as interest from deposits, family pension, etc.
Gross total income is the sum of all the above heads of income.
In order to arrive at total taxable income, as Rana says, deductions under chapter VI-A such as 80C, 80CCD, 80D, 80G, 80U etc. are required to be reduced from gross total income i.e. total taxable income = gross total income (-) deductions under Chapter VI-A.
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