Computation of Total Income and Tax liability of an individual

Computation of Total Income and

Tax liability of an individual

Computation of total income need to

assess income tax under Income Tax Act 1961.

 Computation of Total income we need all income earned during the previous year by a person which is taxable under Income Tax Act 1961.

Step.1 Compute total income of an individual from head of income (Section -14)

  1. Income from Salaries.
  2.  Income from house property.
  3. Profit and gain of business or profession.
  4. Capital gains.
  5. Income from other sources.

 Income from salaries (Section 15 to 17)

 Income from salaries.

Less: Deductions allowable under the head salaries.

 Income from House property (Section 22 to 27)

Income from house property.

Less: deductions allowable under the head of house property.

Income from Profit and Gains of Business or profession (Section 28 to 44AD)

Income Business or Profession.

Less: Deduction’s allowable under the head Business or Profession.

Income from Capital Gains (Section 45 to 57)

Income from capital gains.

Less: Deductions allowable under the head capital gain.

Income other sources (Section 58 to 59)

Income from other sources.

Less: Deductions allowable under the head Income from Other Sources.

Step-2 Add Income of other person included in assesses total Income

 Step-3

A – less allowable Set off and carry forward of loss of relevant assessment year.

B- Less allowable set off and carry forward of past years loss.

Step-4 Income computed according above three step is known as gross total income

Step-5 Less deductions allowable under chapter VI A (Section 80 C to 80 U)

          Main deductions commonly claim

          Life insurance premium

         Tuition fee

         House loan Repayment (Principal amount)

         Mutual Find investment

         Fixed Deposit

          Contribution to Provident Fund

       Contribution to Public Provident Fund

       Contribution to certain pension funds

        Health Insurance

       Donation

Note: Deduction under chapter VI A is allowable under old Tax Regime only

 Step: 6 Compute Income Tax on such total income   after step 5 at prescribed rate of income tax according to respective assessment year

 Now there are two Income Tax Regime

 Income Rs. Old Income Tax Regime Deduction  under Chapter VI A is available New Income Tax Regime Deduction  under Chapter VIA is not available
 Up to  2,50,000 Nil Nil
 2,50,001 to  5,00,000 5% 5%
5,00,001 to 7,50,000 20% 10%
7,50,001 to 10,00,000 20% 15%
10,00,001 to 12,50,000 30% 20%
12,50,0001 to 15,00,000 30% 25%
15,00,001 30% 30%
Conclusion: Income Tax Act 1961 levy and collect Income Tax from citizen of India to generate revenue from Central Government and State Governments. Income Tax Act provide various steps simple step for computation of total income and tax liability. Income earned during the previous of respective assessment year by a person is taxable if income exceeded which is not chargeable to Income Tax after deduct allowable various deduction. Income Tax compute on such total income at prescribed rate of income tax for respective assessment year.

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