Setting up a business has its own set of challenges – and income tax calculation and settlement is certainly one of them. Although calculating taxes on your business income is made easy with an income tax calculator, as a business owner, you must first have a basic understanding of how business income is taxed in India. Here is all you need to know about an income tax calculator and the various aspects of business income tax calculations.
What Is Business Tax?
This is a type of tax applicable to all types of business structures excluding those owned in partnership. Most business owners file income tax returns each year based on their slab limit. In India, business taxation is directly proportional to the income brought on in a specific year. The tax levied varies depending on the income of the business. For instance, for a business owner earning an annual LTA of INR 25,000, the payable tax can be determined using an income tax calculator. This amount will vary for someone who makes more money, say an LTA of INR 30,000 annually. The tax amount is determined based on the earnings and age of an individual.
Business Income Tax: 3 Things to Keep in Mind
Before we get to tax calculations on business income, here are a few things that every business owner must be familiar with:
Provisions for Business Tax
One of the first things you must know about your business is the taxable income. There are two ways of calculating business income tax – one is the normal provisions and the other one is Presumptive taxation. Under the Normal provision, the cost of sold goods and expenses is deducted from the total sales to calculate the taxable income. Under Presumptive taxation, the taxable income amounts to a fixed percentage of the total sales. Nevertheless, according to the business income tax rules and regulations in India, this taxation scheme is only applicable to businesses making a turnover of over INR 2 Crores in a year.
Business Tax Rates in India
The next step involves determining the income tax slab you belong to. The tax slabs categorized based on age are as follows –
- Citizens under the age of 60 years
- Senior citizens between the ages of 60 years and 80 years
- Super senior citizens above the age of 80 years
For example, if you are a 50-year-old business owner, then your business income tax under Section 115BAC of the Income Tax Act will fall under any of these slabs depending on your earnings –
|Up to INR 2.5 Lakhs||NIL|
|INR 2.5-5 Lakhs||5%|
|INR 5-7.5 Lakhs||10%|
|INR 7.5-10 Lakhs||15%|
|INR 10-12.5 Lakhs||20%|
|INR 12.5-15 Lakhs||25%|
|Above INR 15 Lakhs||30%|
Cess and Surcharge
Cess is the amount calculated over and above the base tax whereas surcharge is charged only on the payable tax and not the overall income. For business owners earning between INR 5 Lakhs and INR 1 Crore annually, a 10% surcharge is levied on income tax. For those earning more than INR 1 Crore, the surcharge imposed is 15%. Additionally, a 4% cess is also charged.
Once you are well-versed with the above details, you can easily calculate your business income using an income tax calculator.
What Is an Income Tax Calculator?
The income tax calculator is a free, online tool that enables you to determine the total tax payable depending on your business income, age, investments, expenses, and interest paid on other loans, say home loans, according to the laws. Such a handy and easy-to-use tool provides you with accurate results instantly.
Steps to Use an Income Tax Calculator for the FY 2022-23
Listed below are the steps to use an income tax calculator for the financial year 2022-23:
- Access the online tool and select your age bracket
- Key in your annual income, status (Resident Indian/NRI) and type (Individual/HUF)
- Provide details of investments and deductions under the appropriate Income Tax Act Section
- Enter LTA and HRA exemptions
Income Tax Calculations: Old Regime V/s New Regime
There are two tax regimes in India as of FY 2022-23 – one is the old regime and another one is the new regime. Taxpayers can pick any of the two for the current financial year. The following example shows tax calculations on income under both regimes to give you a clearer idea.
Abhinav, a 35-year-old businessman based in Mumbai, makes an annual income of INR 12,50,000. After a standard deduction of INR 50,000 and a deduction of INR 1,50,000 under ITA Section 80C, his total income stands at INR 10,50,000.
Now, under the old tax regime, Abhinav’s total payable tax on business income with an additional 4% cess charge amounts to INR 1,32,600. However, under the new tax regime, the taxable amount becomes INR 1,30,000.
One must keep in mind that if an individual wish to alter the current tax regime, he/she can do so only during the next financial year.
Besides business income, an income tax calculator also works well for calculating tax benefits on home loans. For example, a home loan balance transfer calculator, as the name suggests, is designed to calculate the amount, which individuals can save by opting for a home loan balance transfer.
An income tax calculator is the easiest way to determine the payable tax on your income as it provides faster, accurate results in real time under both old and new tax regimes. Nevertheless, it is always a good idea to get in touch with an expert who can assist you with your tax calculations.