Taxable Income: Definition and Calculation
Table of Contents
What is Taxable Income?
Taxable income refers to the amount of income that is subject to taxation by the government after deductions, exemptions, and adjustments are taken into account. Generally, income tax is obtained after making all the other necessary deductions such as PF, pension, etc.; hence, it is also known as adjusted gross salary. Apart from those earnings that are tax exempted, all other incomes are considered to be taxable incomes.
Salary structures in India comprise basic salary, allowances, and statutory contributions. With continued refinement of income tax rules, the tax calculations are simplified. There are just a few partly taxable and non-taxable allowances. All other allowances are considered as income and are taxed as per applicable tax slabs for the individual. Allowances paid to the below category of employees are non-taxable:
- Government Employees Abroad
- UNO Employees
- Judges of HC & SC
Calculation Of Taxable Income
Since the introduction of a new set of rules in 2020 - called the new regime - for calculating tax for salaried employees (personal tax in general), understanding taxable income has been much easier. The old regime is also in force and can be opted by individuals for various reasons. Understanding what taxable income is will allow you to plan and invest in timely tax-saving schemes sponsored or recognized by the government.
Generally, the payroll software generates payslips for regular employees, which contain all the information regarding earnings and deductions and the amount deposited in the employee’s bank account. The income tax department of the Indian government has a taxable income calculator tool that helps accurately calculate tax liability based on several inputs you can provide. Calculating taxable income in the new regime is simple, as most allowances are now treated as part of the income(see FAQs below).
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FAQs
How much income is tax-free in India?
Revised Income Tax Slab Rate FY 2023-24 (AY 2024-25) – For New Regime
| Sr No. | Income Slabs | Income Tax Rates FY 2023-24 (AY 2024-25) |
|---|---|---|
| 1 | Up to Rs 3,00,000 | Nil |
| 2 | Rs 3,00,000 to Rs 6,00,000 | 5% on income which exceeds Rs 3,00,000 |
| 3 | Rs 6,00,000 to Rs 9,00,000 | Rs. 15,000 + 10% on income more than Rs 6,00,000 |
| 4 | Rs 9,00,000 to Rs 12,00,000 | 15% (15% of Rs 12,00,000 less Rs 9,00,000) |
| 5 | Rs 12,00,000 to Rs 15,00,000 | 20% (20% of Rs 15,00,000 less Rs 12,00,000) |
| 6 | More than Rs 15,00,000 | 30% (30% of Rs 20,42,000 less Rs 15,00,000) |
Which income is not taxable in India?
Below allowances are allowed under section 10(14) of the Act:
- Transport allowance provided to a “divyang” (differently abled) employee meant for commuting expenditure between the place of residence and place of duty.
- Conveyance allowance that is strictly for meeting travel expenses required for performing official duties.
- Any allowance granted to meet the cost of travel while on an official tour or transfer of job location.
- Allowance is paid to meet the daily expenses of an employee who is temporarily in a different location to perform official work.
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