Taxable income is the portion of an individual’s income that is subject to taxation by the government. In South Africa, individuals are required to pay taxes on their taxable income. The taxable income is calculated by subtracting all allowable deductions and exemptions from an individual’s total income.
However, many people are not clear on what constitutes taxable income and how it is calculated.
This article aims to elaborate on what taxable income is, the difference between taxable income and income tax, as well as show how an individual’s taxable income is calculated.
The Difference Between Taxable Income and Income Tax
It is important to understand the difference between taxable income and income tax.
Taxable income refers to the amount of income that is subject to taxation by the government. It is calculated by subtracting all allowable deductions and exemptions from an individual’s total income. On the other hand, income tax is the actual amount of tax that an individual is required to pay on their taxable income.
In South Africa, income tax is calculated on a sliding scale based on an individual’s taxable income. The more taxable income an individual earns, the higher the percentage of income tax they will be required to pay to the government.
The income tax rates are updated annually by SARS and are based on the individual’s tax bracket.
Taxable income is simply the amount of income that is subject to taxation, whereas income tax is the actual amount of tax that an individual is required to pay on their taxable income.
By understanding the difference between taxable income and income tax, individuals can better manage their finances and ensure that they are paying the correct amount of tax.
How to Calculate Taxable Income
Calculating taxable income in South Africa is a relatively straightforward process. First, you will need to calculate your total income for the year. This includes all income from employment, investments, and other sources.
Next, you will need to subtract all allowable deductions and exemptions from your total income. (Allowable deductions include things like medical expenses, retirement annuity contributions, and travel expenses related to work. The first R87,300 of every South African worker’s income is also exempt from taxation).
After deducting all allowable deductions and exemptions, you are left with your taxable income. This is the amount on which you will be taxed.
Finally, you can use the tax tables provided by the South African Revenue Service (SARS) to calculate the taxes payable. The tax tables show the tax payable for different levels of taxable income. You need to find the tax bracket that your taxable income falls into and calculate the tax payable accordingly.
It is vital to note that the tax tables are updated annually, so you need to ensure that you are using the correct tables for the tax year in question.
Understanding how to calculate taxable income is important to ensure that you are paying the correct amount of tax and avoiding any penalties or fines for non-compliance.