Taxable Income of Individuals

Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.

Types of Taxable Income

Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:

1. Employee compensation and benefits

These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.

2. Investment and business income

For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.

3. Miscellaneous taxable income

This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insurance, and canceled debts. Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.

Taxable vs. Non-Taxable Income

Taxable income includes all types of compensation, whether they are in the form of cash or services, as well as property. Unless a particular income is expressly exempted by law from tax liability, every income is taxable and should be reported in the income tax return. Examples include:

• Salary
• Wages
• Interest received from banks
• Stock options
• Dividends
• Unemployment compensation
• Notes received
• Rents from personal property

Non-taxable income, on the other hand, refers to income that is received but that is not subject to taxation. However, even if such forms of compensation cannot be taxed, they still need to be reflected in the tax return. Examples of non-taxable income are:

• Gifts
• Inheritance
• Cash rebates from items bought
• Child support payments
• Welfare benefits
• Meals and lodging

Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance. Some components of your salary are exempt from tax, such as telephone bills reimbursement, leave travel allowance. If you receive HRA and live on rent, you can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator.

On top of these exemptions, a standard deduction of Rs 40,000 was introduced in budget 2018. This has been increased to Rs 50,000 in budget 2019.

To calculate Income tax, include income from all sources. Include:

• Income from Salary (salary paid by your employer)
• Income from house property (add any rental income, or include interest paid on home loan)
• Income from capital gains (income from sale purchase of shares or house)
• Income from business/profession (income from freelancing or a business or profession)
• Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)