How to Calculate Taxable Income: The Five Heads and What Comes Off
Rohit Menon
· Founder & Product Architect· 3 min read
Taxable income is not your salary and not your bank credits. It is a computed figure arrived at in a fixed sequence, and applying the slab rates to anything other than the final number produces the wrong answer.
- ✓Income is computed under five heads, then aggregated into gross total income.
- ✓Chapter VI-A deductions come off gross total income to give total income.
- ✓Slab rates apply to total income, not to gross salary.
- ✓The new regime permits almost none of the Chapter VI-A deductions.
The five heads
1. Salaries: including allowances and perquisites, less the standard deduction and, in the old regime, exemptions such as HRA.
2. Income from house property: annual value less municipal taxes, a thirty per cent standard deduction, and interest on borrowed capital.
3. Profits and gains of business or profession.
4. Capital gains: taxed at special rates under Sections 111A, 112 and 112A rather than at slab rates.
5. Income from other sources: interest, dividends, winnings and the residual.
The sequence
Compute income under each head. Set off losses as the rules permit, within and across heads. Aggregate to gross total income. Deduct Chapter VI-A deductions — 80C, 80D, 80CCD(1B), 80G and the rest — to reach total income. Apply the slab rates to that.
Capital gains taxed at special rates are excluded from Chapter VI-A deductions, which is a frequent error in self-prepared computations.
What the regimes change
The new regime allows the standard deduction of seventy-five thousand rupees, employer NPS under 80CCD(2), and little else. The old regime allows fifty thousand standard deduction plus HRA, LTA, 80C up to one and a half lakh, 80D, 80CCD(1B), home-loan interest and the rest.
That is the whole trade-off, and it is arithmetic rather than principle: compute both and take the lower.
Rounding and the rebate
Total income is rounded off to the nearest ten rupees under Section 288A, and tax payable to the nearest ten under Section 288B.
The Section 87A rebate then applies: up to twelve lakh rupees of total income in the new regime, five lakh in the old. The rebate reduces tax to nil within those limits, and marginal relief softens the cliff just above the new regime's threshold.
Frequently asked questions
### Is taxable income the same as gross salary?
No. Gross salary is one component of one head. Taxable income is arrived at after the standard deduction, any exemptions available in your regime, aggregation with other heads, and Chapter VI-A deductions.
### Are capital gains added to slab income?
They are aggregated into total income but taxed at their own special rates under Sections 111A, 112 and 112A rather than at slab rates, and they do not qualify for the Section 87A rebate.
### Which deductions survive in the new regime?
Principally the standard deduction of seventy-five thousand rupees for salaried taxpayers and pensioners, employer NPS contribution under 80CCD(2) up to fourteen per cent of basic, and the exemptions for gratuity and leave encashment. Most of Chapter VI-A does not apply.
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Frequently Asked Questions
Is taxable income the same as gross salary?
No. Gross salary is one component of one head. Taxable income is arrived at after the standard deduction, any exemptions available in your regime, aggregation with other heads, and Chapter VI-A deductions.
Are capital gains added to slab income?
They are aggregated into total income but taxed at their own special rates under Sections 111A, 112 and 112A rather than at slab rates, and they do not qualify for the Section 87A rebate.
Which deductions survive in the new regime?
Principally the standard deduction of seventy-five thousand rupees for salaried taxpayers and pensioners, employer NPS contribution under 80CCD(2) up to fourteen per cent of basic, and the exemptions for gratuity and leave encashment. Most of Chapter VI-A does not apply.
Rohit Menon
Founder & Product ArchitectArchitecting business document operating systems and automated billing workflows for Indian SMBs, agencies, and enterprises.