What is Taxable Income in India? All You Need to Know

Taxable income in India refers to the portion of your income on which you are required to pay taxes. It is calculated by deducting certain exemptions, deductions, and allowances from your total income. But why should you care? Well, understanding your taxable income is key to managing your finances better and even saving money through legal tax-saving options.

Let us break it down step by step in simple terms.

Sources of income considered for taxation

The Indian Income Tax Act, 1961, classifies income into five main categories. Here is a quick look:

• Income from salary: If you are an employee, your salary forms a big part of your taxable income. This includes basic pay, allowances, bonuses, and perquisites.
• Income from house property: Do you own a house and rent it out? The rent you earn, minus any standard deductions, falls under this category.
• Income from business or profession: If you are a business owner or a freelancer, your profits from these activities are considered taxable income.
• Income from capital gains: Earnings from the sale of assets like property, gold, or stocks are taxed as capital gains.
• Income from other sources: Any income that does not fit into the above categories, like interest from savings accounts or lottery winnings, falls here.

How is taxable income calculated?

To calculate taxable income, follow these simple steps:

1. Add up your total income: Combine income from all the sources mentioned above.

2. Claim exemptions: Certain components of your income are tax-free. For instance, the House Rent Allowance (HRA) or Leave Travel Allowance (LTA) may be exempted if you meet specific conditions.

2. Deduct deductions under sections like 80C, 80D, etc.:

• Investments in instruments like Public Provident Fund (PPF), Employees’ Provident Fund (EPF), and National Savings Certificates (NSC) can help you claim deductions under Section 80C (up to Rs. 1.5 lakh annually).
• Premiums paid for health insurance policies qualify for deductions under Section 80D.
• Do not forget about deductions for education loans (Section 80E) or donations to charity (Section 80G).

3. Subtract standard deduction and other allowances:
Salaried individuals get a flat Rs. 50,000 deduction. Senior citizens can also claim higher exemptions.

4. Compute tax liability using slabs: Apply the applicable income tax slab rates to your taxable income.

How taxable income impacts your life

Understanding your taxable income is not just about paying taxes. It is about:

• Planning finances better: Knowing your taxable income helps you budget your expenses and savings.
• Saving through tax benefits: With tools like home loans and Section 80C investments, you can bring down your taxable income and save money.
• Avoiding penalties: Filing taxes on time ensures you do not face penalties or interest charges.

Can home loans reduce taxable income?

One of the smartest ways to reduce your taxable income is by taking a home loan. Here is how it works:

• Tax deduction on principal amount (Section 80C): The repayment of the principal amount on a home loan qualifies for deductions up to Rs. 1.5 lakh under Section 80C.
• Tax deduction on interest paid (Section 24): The interest paid on a home loan is deductible up to Rs. 2 lakh annually under Section 24.
• Additional deductions under Section 80EE or 80EEA: If you are a first-time homebuyer, you can claim an extra deduction of up to Rs. 50,000 under Section 80EE or Rs. 1.5 lakh under Section 80EEA, subject to conditions.

Taxable income slabs in India (FY 2023-24)

Here is a quick look at the tax slabs for individuals under the new and old tax regimes:

New tax regime

Income slabs	Tax rate
Up to Rs. 3,00,000	Nil
Rs. 3,00,001 to Rs. 7,00,000	5%
Rs. 7,00,001 to Rs. 10,00,000	10%
Rs. 10,00,001 to Rs. 12,00,000	15%
Rs. 12,00,001 to Rs. 15,00,000	20%
Above Rs. 15,00,000	30%

Old tax regime

Total income	Individuals below 60 years	Individuals aged below 60 years to 80 years	Individuals above 80 years
Up to Rs. 2,50,000	Nil	Nil	Nil
Rs. 2,50,001 to Rs. 3,00,000	5%	Nil	Nil
Rs. 3,00,001 to Rs. 5,00,000	5%	5%	Nil
Rs. 5,00,001 to Rs. 10,00,000	20%	20%	20%
Above Rs. 10,00,000	30%	30%	30%

Key tax-saving tips

• Invest wisely: Choose tax-saving instruments like ELSS funds, PPF, or fixed deposits.
• Plan for retirement: Contributions to schemes like the National Pension System (NPS) offer additional deductions.
• Use home loan benefits: A home loan not only helps you own a house but also gives significant tax benefits.
• Claim all allowable exemptions: Make sure you do not miss exemptions like HRA or LTA if applicable.

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