What is After-Tax Income?
After-tax income is the income net of taxes, i.e., after deduction of all the direct taxes levied by the government of respective countries and also be referred to as the income which is left for personal disposal of the Individual or companies.
Components of After-Tax Income
There are various components of after-tax income. Earnings from various modes in a financial year subject to income tax for the whole year is treated as income after tax.
Various Components of After-tax Income are as follows:-
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For eg:
Source: After-Tax Income (wallstreetmojo.com)
#1 – Income from Salary
Income from Salary is the portion of earnings that is earned by working in any organization during the financial year. It may be possible that during a financial year there is two or more than two organization from which the income is being earned. The total under this component is to be added to get the final After-Tax Income.
#2 – Income from House Property
Income from House Property includes that part of income, which is earned from the letting out of an immovable property, be it a residential house property for residential purposes and commercial purposes. Income from letting out apart from the regular business is to be treated as income from House Property. The income from the letting of immovable property is to be added to Salary along with other components to get the final after-tax income.
#3 – Income from Business & Profession
Income from the business and profession is to be added under this head. Various rules and regulations are governing the Income from Business & Profession, which are essential to take into consideration while adding to the income to get the after-tax income. It is one of the significant head of income as the Government authorities collect maximum tax through this head.
#4 – Income from Capital Gains
Income from Capital Gains means the gains which are not regular but adds sufficient amount to the after-tax income and taxes of the assessee as these may be of high values from which both assessee and government adds to their incomes. These incomes are generally earned by selling off the capital assets of the assessee, as the name itself suggests. This income is to be added to get to after-tax profitAfter-tax ProfitProfit After Tax is the revenue left after deducting the business expenses and tax liabilities. This profit is reflected in the Profit & Loss statement of the business.read more, along with the Incomes from above 3 heads.
#5 – Income from Other Sources
Other Sources Income is that income, which again is not the regular income but is of the nature of a substitute and extra earning of the assessee from various modes such as interest income, lottery income, etc. The major part of this head income is the total of those earnings, which are generally from the savings of the assessee over the years. The income of this head is added to all the other 4 heads to get to after-tax income.
#6 – Deductions
While reaching to the After-tax Income of the assessee, the government also provides the exemptions/deductions from the total income for the various investments, donations made by the assessee during the financial year to various funds formed by the government, investments for the insurances and other many deductions. The total of this head is to be subtracted from the total of all the above 5 heads, which would give us the Pre-tax Income.
#7 – Income Tax/Direct Taxes
This tax is the Income Tax on the Gross Total Income earned by the assessee during the whole financial year. It is that part of income which belongs to the Central Government of the country. This tax is the only part of assessee income which do not belong to the assessee but belongs to the government. It is calculated based on the prevailing tax rates in that financial year by the government on the Gross Total Income of the assessee. After deducting the Taxes from the Gross Total Income, we would finally be able to get the After-tax income.
How to Calculate After-Tax Income?
The formula for calculating after-tax income is easy; the tricky part was to calculate the value of the components of the After-Tax Income. After getting the value of its components, the formulae for arriving at After-tax Income is as follows:-
| Particulars | Amount |
|---|---|
| Income Under Head Salary | XXX |
| (+) Income under head Business & Profession | XXX |
| (+) Income under head House Property | XXX |
| (+)Income under head Capital Gains | XXX |
| (+)Income under head Other Sources | XXX |
| Gross Total Income | XXX |
| (-) Deductions | (XXX) |
| Net Taxable Income | XXX |
| (-) Income Tax | (XXX) |
| After-Tax Income | XXX |
After-Tax Income Calculation Example
An Individual named Mr. N. Jonas, have computed Income from Profession of Singing of $ 856 million for the FY 2018-19. Also, he has several other incomes from Interest on deposits, which adds up to $44 million. He has let out one of his apartments in New York City and another apartment in LA from which he earns a total net taxable income of $109 million. He has also sold one of his apartments of Spain for $550 million (computed) to a Superstar in this Financial Year.
He has made an investment that is eligible for deductions from Total taxable Income, which adds up to $45 million. The total Tax rate prevailing in his country is 15% of the Net Taxable Income.
You are required to calculate the After-tax Income of Mr. N. Jonas.
Solution:-
Statement showing Income of Mr. N. Jonas for the FY 2018-19 under various Income Heads:
| Particulars | Amount ($ millions) |
|---|---|
| Income from Salary | – |
| (+) Income from Profession | 856 |
| (+) Income from House Party | 109 |
| (+) Income from Other Sources | 44 |
| (+) Income from Capital Gains | 550 |
| Gross Total Income | 1,559 |
| (-) Deductions | 45 |
| Net Taxable Income | 1,514 |
| (-) Income Tax (15% of $1,514 million) | 227.10 |
| After-Tax Income | 1,286.90 |
The After-Tax Income of Mr. N. Jonas for the FY 2018-19 would be $ 1,286.90 million.
Taxes paid by Mr. N. Jonas for the FY 201-19 is $ 227.10 million.
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