Question

How to calculate income tax on business income?

Answer 1

Information Needed to Calculate Estimated Business Taxes. To calculate estimated business taxes from Schedule C, you will need to combine this business income with information on other income, tax withholding, deductions, and credits on your personal tax return

Answer 2

Answer is given below....

Lets begin by knowing the meaning of two words.

*Assessment Year* & *Previous year*

Do you know ??there are two years ..

Not assessment and previous year 

*Calendar year* and *Financial year*
Calendar year = 1 January to 31 December 
Financial year = 1 April to 31 March

In taxation, year means financial year and not calendar year 

1 April 2018 to 31 March 2019 is the Assessment Year 

1 April 2017 to 31 March 2018 is the Previous year (As Per Income Tax Act, 1961 )

So income tax is Paid on the income earned in the previous year .


Suppose income earned during 1 April 2017 - 31st March 2018 (previous year) is 40Lakhs then we have to pay income tax for that amount in this year ..That is 1 April 2018 - 31 March 2019.. We will assess/calculate tax on previous year in this year ..This is why it is called as *Assessment Year*

If we earn 40 lakhs during this year (1 April 2018 - 31 March 2019).. Then we must pay income tax on this amount in the next year (1 April 2019 - 31 March 2020)
Then 1 April 2018 - 31 March 2019 will be the Previous year and 1 April 2019 - 31 March 2020 will be the Assessment Year at that time..

Now how to calculate ''Income''

Simple ! add all the money you recieve in the previous year..

Income from Salary, Business, Profession, House property, Capital gain(money recieved after selling some property) ,other income etc .. add everything ...U will get an amount "it will be the income earned in the previous year" Suppose we got 49 lakhs after Adding everything.

Now Lets calculate Income Tax ..

*Income tax Slab rates* -

0 - 2,50,000 = nil

2,50,000 - 5,00,000 = 5%

5,00,000 - 10,00,000 = 10%

Above 10,00,000 = 20%

..Now Lets calculate tax on 49,00,000

49,00,000 is above 10,00,000 so rate is 20%

49,00,000×20% = 9,80,000 will be the income tax..

If u think this is the way to calculate tax then you were fooled successfully.

*Income tax Slab rates* not *Income tax flat rates* If its a flat rate then u can do like this..

Flat rate is for companies ; Slab rate is for people 

If a company earns 100 crores then tax will be @ 30% flat rate ; 30 crores will be tax :joy::joy: (excluding surcharge)

But for people its slab rate 

49,00,000 - Income 

Income tax Slab rates -

0 - 2,50,000 = nil

2,50,000 - 5,00,000 = 5%

5,00,000 - 10,00,000 = 10%

Above 10,00,000 = 20%

Means those who earn till 2,50,000 Per year need not pay any income tax :point_left: 

Lets calculate..49,00,000

Above 10,00,000 = 20% 

How much amount in 49000000 is above 10,00,000 .

4900000 - 1000000 = 3900000 is above 1000000. So 3900000×20% = 7,80,000 

Not done yet ! First 10,00,000:point_up_2: is still there 

In that first 10,00,000 ; 0 - 2500000 = Nil tax = 0

Next 2,50,000 - 5,00,000 = 5 % ;how much amount is there in between 2,50,000 and 5,00,000 = 250000 × 5% = 12500 

Next 5,00,000 - 10,00,000 = 10% ; how much amount is there in between 5,00,000 and 10,00,000 = 5,00,000 × 10% = 50000

Four slabs:- 0 + 12,500 + 50,000 + 7,80,000 = 8,42,500 is the tax

Confused??? Suppose income is 9,00,000

0 - 2,50,000 = nil = 0

2,50,000 - 5,00,000 = 5% ; 2,50,000 × 5% =12500

5,00,000 - 10,00,000 = 10%; 4,00,000 × 10% = 40000 

Tax = 0 + 12500 + 40000 = 62500

Suppose income - 8,00,000

0 - 2,50,000 = nil = 0

2,50,000 - 5,00,000 = 5% = 250000×5% = 12500

5,00,000 - 10,00,000 = 10% = 3,00,000× 10% = 30000

Tax = 0 + 12500 + 30000 = 42500

Suppose income - 4,00,000

0 - 2,50,000 = nil = 0

2,50,000 - 5,00,000 = 5% = 150000 × 5% = 7500

Tax = 0 + 7500 = 7500

Suppose income is 2,50,100

0 - 2,50,000 = nil = 0

250000 - 5,00,000 = 5% = 100×5% = 5

Tax = 0 + 5 = 5

Apart from this tax we need to pay Education cess of 3% which is calculated on the income tax amount.

Money on which tax is not Paid is called *Black Money*

Do u know ?? only 4 - 5% indians pay income tax.. Means only 53 lakh people inthis Country earn more than 2,50,000 Per year