What is Taxable Income?

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.

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.

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.