Income Tax Basics – Salary

What income am I taxed for?income-tax-logo_640257f

Your income is not equal to your salary. You could earn income from several other sources other than your salary income.

Your total income, according to the Income Tax Department, could be from house property, profit or loss from selling stocks or from interest on a savings account or on fixed deposits.

All these numbers get added up to become your gross income.

 

Income from Salary All the money you receive while rendering your job as a result of an employment contract
Income from House Property Income from house property you own; property can be self-occupied or rented out.
Income from other sources Income accrued from Fixed Deposits and Savings Account come under this head.
Income from Capital Gains Income earned from sale of a capital asset, say mutual funds or house property.
Income from business and profession Income/loss arising as a result of carrying on a business or profession. Freelancers income come under this head.

How much tax do I have to pay?

Add up all your income from the heads listed above. This is your gross total income. From your gross total income, deductions under Section 80 are allowed to be claimed. The resulting number is the income on which you have to pay tax.

Your employer deducts tax from your salary and pays it to the I-T Department on your behalf.

It’s called TDS. TDS is tax deducted at source. Your employer cuts a portion of your salary every month and pays it to the Income Tax Department on your behalf.

Based on your total salary for the whole year and your investments in tax-saving products, your employer determines how much TDS has to be cut from your salary each month.

For a salaried employee, TDS forms a major portion of an employee’s income tax payment. Your employer will provide you with a TDS certificate called Form 16 typically around June or July showing you how much tax was deducted each month.

Your bank may also deduct tax at source when you earn interest from a fixed deposit. The bank deducts TDS at 10% on FDs usually. A 20% TDS is deducted when the bank does not have your PAN information.