How to Calculate Income Tax a Complete Guide 2025: Income tax refers to the tax levied on the earning of a taxpayer.
There are various sources of earning such as
Salary:
The amount received by an employee in return for his employment, whether it is a fixed salary, daily wage, overtime, bonus or pension. Apart from this, house rent, TA/DA, utility and medical allowance are also considered as part of salary.
However, there will be no deduction of expenses on salary the salary you receive will be considered taxable in its entirety.
Property Income:
If a person rents out his property of any kind house, flat, building or land etc the amount received in return is called rental income.
Capital Gain:
The profit earned on the purchase and sale of a capital asset (such as land, house, jewellery gold) are also taxable.
Business Income:
The profit earned from any business, whether it is manufacturing, trading or providing services such as doctors, lawyers, contractors, accountants, etc.
What constitute business its depends which is your ordinary course of business.
For example, if a real estate company buys a property and rents it out, it will not be considered property income but business revenue.
Here, “income” refers to net profit, that is, the amount left over after deducting all expenses. For example, the profit remaining after deducting all business-related expenses is the only one that will be subject to tax.
How Much Annual Income Is Taxable?
The annual exemption limit is Rs. 600,000. This means that if your total annual earning is up to Rs 600,000, no tax will be applicable on you.
Withholding Tax (WHT)
Meaning that the taxes are withheld or deducted from the recipient’s money at the time of payment.
The deduction of withholding tax does not depend on whether the income of the person whose tax is being deducted is less than or more than six lakh rupees, except for salary, which is deducted only if your annual salary is more than six lakh rupees.
In most of cases taxes are deducted on a transaction basis, meaning that whenever you make a specific transaction, tax will be deducted on it.
For example: Tax is deducted on
Purchase and sale of property,
Cash withdrawals from the bank,
Bank profits.
How Withholding Tax Is Adjusted?
The taxes deducted can either adjusted against final liability or refunded when you file your tax return.
Tax Slab
The lower slab is taxed at a fixed rate. If your earning exceeds the limit of that slab, the excess amount will be taxed at the rate of the next (higher) slab.
For example, if you earned from a business is up to Rs. 12 lakh, then Rs. 6,000 will be taxed, but if your earning is more than Rs. 12 lakh, then the difference between Rs. 12 lakh and the upper limit will be taxed at a progressive rate, and the total liability will be determined by adding Rs. 6,000 as fixed tax to this amount.
Salaried Slab
If 75% or more of the total income consists of salary, then the salary slab will be applicable means that rate of tax is which is applicable on salaried Peron.
| Exceed | but does not exceed | |||
| S.NO | Lower Slab Limit | Upper Slab Limit | Fixed Amount | Plus |
| 1 | 600,000 | 1,200,000 | – | |
| 2 | 1,200,000 | 2,200,000 | 6,000 | 11% |
| 3 | 2,200,000 | 3,200,000 | 116,000 | 23% |
| 4 | 3,200,000 | 4,100,000 | 346,000 | 30% |
| 5 | 4,100,000 | 616,000 | 35% | |
Business Class Slab:
If your source of income is NOT salary but any other sources like business, property, bank profit etc then business slab is applicable.
| Exceed | but does not exceed | |||
| S.NO | Lower Slab Limit | Upper Slab Limit | Fixed Amount | Plus |
| 1 | 600,000 | 1,200,000 | – | |
| 2 | 1,200,000 | 1,600,000 | 90,000 | 20% |
| 3 | 1,600,000 | 3,200,000 | 170,000 | 30% |
| 4 | 3,200,000 | 5,600,000 | 650,000 | 40% |
| 5 | 5,600,000 | 1,610,000 | 45% | |
How to Calculate Income Tax a Complete Guide 2025?
Tax is levied on the total annual income, which is formed by adding up the net income from all of sources.
For example
Salary: Rs 600,000
Property income: Rs 300,000
Capital gain: Gold bought for Rs 1 Million, sold it for Rs 1.5 Million and earned profit of Rs 500,000
Total Income = Rs 14,00,000
How to Calculate Tax Payable?
Since the salary is less than the total income, individual business rates will be applicable. The amount payable will be calculated as follows:
As per slab rate number 3, when the taxable income is between Rs. 1,200,001 and Rs. 1,600,000, the total liability is Rs. 90,000 + 20% (amount exceed Rs. 1,200,000).
In this example:
Taxable Amount = Rs. 1,400,000
Excess Amount = Rs. 1,400,000 – 1,200,000 = Rs. 200,000
20% calculation = Rs. 200,000 × 0.2 = Rs. 40,000
Amount Payable = Rs. 90,000 + 40,000 = Rs. 130,000
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