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What is Taxable Income?

Updated on August 6, 2022 , 747 views

Taxable Income is referred to as the income amount that is used to assess how much tax a company or an individual has to pay to the government in a year. Also, while filing Taxes, businesses don’t report revenue as a form of income.

Taxable-Income

Instead, they deduct the business expenditure from revenue to compute the business income. And then, the deductions are subtracted to calculate the Taxable Income. Generally, taxable income is described as Adjusted Gross Income (AGI). This adjusted gross income is calculated by subtracting exemptions or deductions allowed in a tax year by the total income. In a way, taxable income comprises:

  • Unearned income
  • Investment income
  • Tips
  • Bonuses
  • Salaries
  • Wages

Explaining Taxable Income

As mentioned above, taxable income includes a variety of them. Out of the list, unearned income is the one that gets undivided attention. This category includes:

  • Cancelled debts
  • Alimony payments
  • Child support
  • Government benefits
  • Lottery payments

Apart from this, the taxable income also has Earnings gained from appreciated assets that are capitalized or sold in a year along with the income from interest and dividends. The income tax Department of India (ITD) allows taxpayers to claim standard deductions or itemized deductions.

The concept of standard deductions is quite clear that it is a pre-set amount that taxpayers can claim if they don’t have itemized items. Itemized deductions, on the other hand, are the ones that include interest on mortgages, medical expenses, contribution to retirement accounts, and other expenditures.

In 2018, the finance minister of India announced a standard Deduction of Rs. 40,000, which can change with the change of the ruling party.

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Taxable Income, Partially Taxable and Non-taxable Income

The ITD regards almost every kind of income as taxable. However, there is a number of streams, though small, but are considered non-taxable. In India, the following incomes come under the taxable, partially taxable and non-taxable categories.

Taxable Income
Dearness allowance
Entertainment allowance
Overtime allowance
City compensatory allowance
Interim allowance
Project allowance
Meals / tiffin allowance
Uniform allowance
Cash allowance
Non-practising allowance
Warden allowance
Servant allowance

 

Partially Taxable Income
Dearness allowance House rent allowance (except if qualified for exemption under section 10)
Fixed medical allowance
Special allowance (children hostel allowances, children education allowance)
Conveyance allowance that is above Rs. 19,200/year
Entertainment allowance

 

Non-taxable Income
House rent allowance that is up to 40% of the salary
Conveyance allowance up to Rs. 1,600/month or Rs. 19,200/year
Payments to government employees who are posted abroad
UN employees' allowance
Sumptuary allowance paid to judges of the high and supreme courts
Compensatory allowance paid to judges of the high and supreme court
Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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