Understand 5 heads of income for calculating income tax 2021
Your salary falls into this category if you are an employee. Your business will deduct TDS based on your tax bracket and remit it to the government. This simply assimilates any remuneration that an employee receives in exchange for services rendered within the framework of an employment contract. It is only if there is an employer-employee relationship between the payer and the recipient that this amount is eligible for tax matching.
The gross salary is taxed as such after the calculation of the total amount of income.
TDS will be deducted from all gratuities, pensions, annuities, commissions, fees, vacation payouts and benefits you receive from your employer, in addition to your base salary.
In terms of Indian tax law, the term “salary” could be defined as follows:
Home ownership income
The second category of income tax is income from real estate. Sections 22-27 of the Income Tax Act 1961 are devoted to procedures for calculating a person’s total standard income from owning the house or land they own. The Information Technology Act specifies the various provisions for calculating the income of a person who owns property or land, from article 22 to article 27.
It’s critical to understand that tax is based on the land or property, not how much rent you get on it, unless the property is leased to a business.
Rental income from properties is included in this category. The property in which you are staying and not receiving any rental income can give you tax advantages. This benefit comes in the form of interest deductions on home loans.
Rental income will be taken into account if the property is used for rental in the ordinary course of business.
Income from company profits
Income from the profits of a business or profession is taken into account in calculating total income under the third heading of income tax, Income from corporate profits. The difference between the revenue collected and the expenses will be invoiced. Any income from commerce, manufacturing, trade or profession is taxed in the business income category. To determine your profits, subtract your expenses from your income, then apply income tax under this heading.
Here is a list of income that is taxed under this heading:
Profits made during the tax year by the assessor
Profits from an organization’s income
Profits from the sale of a specific license
Money received as a result of an individual’s export under a government program
Profit, income or bonus earned as a result of business collaboration
Benefits obtained by working for a company.
Profits or gains obtained by a valued person from the sale or transfer of a capital asset held as an investment are called capital gains. Capital gains are defined as any property held by an appraised person for the purposes of his business or profession. Capital gains are all gains or profits made by moving or selling fixed assets that were previously held as investments.
This includes investments in stocks, mutual funds, real estate, and a variety of other assets. Capital gains tax is calculated based on the length of time the asset is held. Long-term capital gains (LTCG) and short-term capital gains (STCG) are the two types of capital gains (STCG).
Inome from another source
Income from other sources is the last of the five income tax categories. This income category includes any type of income that does not fit into any of the other categories.
Horse racing or lottery winnings, gifts received, dividend income, and interest on government bonds and stocks are all examples. Other forms of income sources that fall under the “other income” category include:
Income from the Contingency Fund
Income from games such as lottery, horse racing, etc.