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Income Tax Calculation

Income Tax Calculation

Introduction​​​​​ of Income tax calulation

The taxes on income can be finalized only on the completion of the previous year. However, to enable a regular flow of funds and for easing the process of collection of taxes, Income-tax Act has provisions for payment of taxes in advance during the year of earning itself or before completion of previous year. It is also known as Pay as your earn concept.

Taxes are collected by the Government through the following means:

  1. Voluntary payment by taxpayers into various designated Banks such as Advance tax, Self-Assessment tax, etc.
  2.  Taxes deducted at source
  3.  Taxes collected at source ​​
  4.  Equalisation Levy​ ​​

 

Under how many heads the income of a taxpayer is classified?​​​​​​ ​​​​

S​ection 14​ of the Income-tax Act has classified the income of a taxpayer under five different heads of income, viz.:

  • Salaries
  • Income from house property
  • Profits and gains of business or profession
  • Capital gains
  • Income from other sources​​

 

What is the difference between gross total income and total income?

​​​Total Income is the income on which tax liability is determined. It is necessary to compute total income to ascertain tax liability. secti​on 80C to 80U p​rovides certain deductions which can be claimed from Gross Total Income (GTI).

After claiming these deductions from GTI, the income remaining is called as  Total Income.

In other words, GTI less Deductions (under secti​on 80C to 80U) = Total Income (TI). Total income can also be understood as taxable income. Following table gives a better understanding of the difference between GTI and TI :

 

Computation of gross total income and Taxable Income

Particulars Amount
Income from salary XXXXX
Income from house property XXXXX
Profits and gains of business or profession XXXXX
Capital gains XXXXX
Income from other sources XXXXX
Gross Total Income XXXXX
Less : Deductions under Chapter VI-A (i.e. under s​ection 80C to​​​ 80U) (XXXXX)
Total Income (i.e., taxable income) XXXXX

Note : Inter source losses, inter head losses, brought forward losses, unabsorbed depreciation, etc., (if any) will have to be adjusted (as per the Income-tax Law) while computing the gross total income. ​​

Note: If the eligible assessee has opted for concessional tax regime under section 115BAA, 115BAB, 115BAC, 115BAD and 115BAE the total income of assessee is computed without claiming specified exemptions or deductions:

 

How to compute the total tax liability?

​​​​​​After ascertaining the total income, i.e., income liable to tax, the next step is to compute the tax liability for the year. Tax liability is to be computed by applying the rates prescribed in this regard. Following table will help in understanding the manner of computation of the total tax liability of the taxpayer.

Computation of total income and tax liability for the year

Particulars Amount
Income from salary XXXXX
Income from house property XXXXX
Profits and gains of business or profession XXXXX
Capital gains XXXXX
Income from other sources XXXXX
Total of head wise income XXXXX
Set off of losses​​​ XXXXX
Gross Total Income XXXXX
Less : Deductions under Chapter VI-A (i.e., under section 80C to 80U)) (XXXXX)
Total Income (i.e., taxable income) XXXXX
Tax on total income to be computed at the applicable rates (for rates of tax, refer “Tax Rate” section) XXXXX
Less : Rebate under section 87A (XXXXX)
Tax Liability After Rebate XXXXX
Add: Surcharge XXXXX
Tax Liability After Surcharge XXXXX
Add: Health & Education cess @ 4% on tax liability after surcharge XXXXX
Tax liability before rebate under sections 86, section 89, sections​ 90, 90A and 91 (if any) (*) XXXXX
Less : Rebate under sections 86,  section 89, sections​ 90, 90A and 91(if any) (*) (XXXXX)
Tax liability for the year before pre-paid taxes XXXXX
Less: Prepaid taxes in the form of TDS, TCS and advance tax (XXXXX)
Tax payable/Refundable XXXXX

(*) Rebate under section 86 is available to a member of association of persons (AOP) or body of individuals (BOI) in respect of income received by such member from the AOP/BOI.

Rebate (i.e., relief) under section 89 is available to a salaried employee in respect of sum received towards arrears of salary, gratuity, etc.

Rebate under sections90, 90A and 91​ is available to a taxpayer in respect of double taxed income, i.e., income which is taxed in India as well as abroad.

Note : For provisions relating to Minimum Alternate Tax (MAT) in case of corporate taxpayers and Alternate Minimum Tax (AMT)  in case of non-corporate taxpayers refer tutorial on “MAT/AMT”. ​

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What is rebate under section 87A for F.Y 2023-24 and who can claim it?

​​​​​​​​​​​An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A​.Rebate under section 87A is available in the form of deduction from the tax liability.

Rebate under section 87A​ will be lower of 100% of income-tax liability or Rs. 12,500.

In other words, if the tax liability exceeds Rs. 12,500, rebate will be available to the extent of Rs. 12,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.


Further, a maximum rebate of Rs. 25,000 is allowed under section 87A​, If the total income of an resident individual, who is opting for the new tax scheme under Section 115BAC(1A), is up to Rs. 7,00,000.

Further, if the total income of the resident individual (opting section 115BAC(1A) exceeds Rs. 7,00,000 and the tax payable on such income exceeds the difference between the total income and Rs. 7,00,000,

he can claim a rebate with marginal relief to the extent of the difference between the tax payable on such total income and the amount by which it exceeds Rs. 7,00,000

 

What is surcharge and how it is computed?

​Surcharge is an additional tax levied on the amount of income-tax. In case of individuals/HUF/AOP/BOI/artificial juridical person, surcharge is levied @ 10% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh but doesn’t exceeds Rs. 1 crore.

Surcharge is levied @ 15% of income-tax where the total income of the taxpayer exceeds Rs. 1 crore but doesn’t exceeds Rs. 2 crore.(*).

Surcharge is levied @ 25% of income-tax where the total income of the taxpayer exceeds Rs. 2 crore but doesn’t exceeds Rs. 5 crore(*).

Surcharge is levied @ 37% of income-tax where the total income of the taxpayer exceeds Rs. 5 crore(*).

Notes:

(a) The surcharge rate for AOP with all members as a company, shall be capped at 15%.

(b) The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112 112A and 115AD.

(c) The surcharge rate is nil if the total income of a ‘specified fund’ as referred to section 10(4D) includes any income in respect of securities as given under section 115AD(1)(a).

(d) If assessee opted for tax regime under section 115BAC(1), the enhanced surcharge rate of 37% isn’t levied. In other words, f the total income of an assessee exceeds Rs. 5 crores, the surcharge rate will be 25% instead of 37%.

​In case of Firm, and local authority surcharge is levied at 12% if total income exceeds Rs 1 crore.

In case of co-operative society, surcharge is levied at 7% if total income exceeds Rs 1 crore but doesn’t exceeds Rs. 10 crore and surcharge is levied at 12% if total income exceeds Rs 1 crore.

In case where a co-operative society opted for the alternative tax regime under section 115BAD or 115BAE, the surcharge is levied at a rate of 10% on total income of Rs. 1 crore or more.

In case of a domestic company surcharge is levied @ 7% on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% on the amount of income-tax if total income exceeds Rs. 10 crore (*).

In case where a domestic company opted for alternative tax regime under section 115BAA or section 115BAB, the surcharge is levied at a rate of 10% on total income of Rs. 1 crore or more.

In case of a foreign company surcharge is levied @ 2% on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 5% on the amount of income-tax if total income exceeds Rs. 10 crore (*).

(*) A taxpayer can claim marginal relief from the amount of surcharge, subject to certain conditions.

Illustration for better understanding

Mr. Kapoor is a doctor, his total income for the year amounted to Rs. 44,00,000. Will he be liable to pay surcharge, if yes, then how much?

** Surcharge is additional tax levied on the amount of income-tax. In case of individuals surcharge is levied @ 10​% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 50 lakh. In this case, total income of Mr. Kapoor is below Rs. 50 lakh, hence, he will not be liable to pay surcharge. ​​

Is there any limit of income below which I need not pay tax?

At this moment Individual, HUF, AOP, and BOI having income below Rs. 2,50,000 need not pay any Income-tax. In respect of resident individuals of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000 and in respect of resident individuals of 80 years and above, the limit is Rs. 5,00,000.

For other categories of persons such as co-operative societies, firms, companies and local authorities, no basic exemption limit exists and, hence, they have to pay taxes on their entire income chargeable to tax.

Further, if an individual, HUF, AOP, BOI, and AJP opted for new tax regime under section 115BAC, threshold limit of Rs. 3,00,000 shall be applicable to them. (applicable w.e.f. Assessment Year 2024-25)

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