How to calculate Total Income?

Total income of an assessee is gross total income as reduced by the amount

permissible as deduction under the sections 80C to 80U.

The scheme of computation of total income and tax liability thereon can be easily understood with the help of the

following chart:

COMPUTATION OF INCOME FOR AN ASSESSMENT YEAR:

1Income from Salaries:

Income from salary

Income by way of allowances

Taxable value of perquisites

Gross Salary under section 16

Less:

Entertainment Allowances

Professional Tax

Income from Salaries

2 Income from house property:

Adjusted net annual value

Less:

Deductions under section 24

Income from house property

3 Profits and gains of business or profession:

Net profits as per profit and loss account

Add:

Amounts which are debited to P/L A/c but are not allowable

as deductions under the Act

Less:

Expenditure which are not debited to P/L Account but are allowable as

deductions under the Act

Less:

Income which are credited to P/L a/c but are exempt under section

10 or are taxable under other heads of income

Add:

Those income which are not credited to P/L A/c but are taxable

under the head "Profits and gains of business or profession"

Profits and Gains of business or profession

4 Capital Gains:

Amount of capital Gains

Less:

Amount exempt under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54H

Income from Capital Gains

5 Income from other sources:

Gross Income

Less:Deduction under section 57(any sum spent for earning of income)

Income from other sources

Total ( 1+2+3+4+5)

Less:

Adjustment on account of set off and carry forward of losses

Gross total income

Less:

Deductions under section 80C to 80U

Total income or net income rounded off

Computation of Tax liability

Tax on net incomeLess:Rebate under section 88E (STT)

Balance

Add: Surcharge

Tax & surcharge

Add: Education cess: ( 3% of tax and surcharge)

Less: Rebate under section 89, 90 (Double Taxation relief) and 91 (Unilateral tax exemptions)

Tax

Tax

Less:

Prepaid taxes

Tax paid on self-assessmentTax deducted or collected at source

Tax paid in advance

Tax liability rounded off

An Illustration:

X (age: 30 Years) is a salaried employee in . He gets the following emoluments from his employer during

the previous year ending March 31, 2009:

(Rs.)

Basic Salary 180000

Bonus 30000

Commission (Fixed) 48000

House Rent Allowances) 36000

Employer's contribution towards recognized PF 23400

During the previous year 2008-09, the employer has provided a laptop computer

for using it for official and private purpose. Ownership is not transferred. Further the employer

provides club facility to X.

He owns a house property which is used by him for his own residence. Municipal valuationof the house property is Rs.30000 whereas the standard rent under the rent control act is Rs.20000. He makes the following expenditure in respect of house property: Municipaltaxes : Rs.3000, repairs : Rs.1000, interest on Capital borrowed to pay municipal tax: Rs.150

and insurance : Rs.600.

During the previous year, 2008-09, he makes the following expenditure and investments:

(Rs.)Contribution towards recognized PF 30000Payment of insurance premium on own life policy 4000

Donation to National Defense Fund 3200Other income (interest) 89000Determine the net income and tax liability of X for the assessment year 2009-10.

Solution:

1) Income from Salary: (Rs.) (Rs.)

Basic Salary 180000

Bonus 30000

Commission 48000

House Rent Allowance: 36000

Less: Nil 36000

Exempt from tax, being the least of the following three

a) Rs.90000 (being 50% of salary)

b) Rs.36000 ( being the house rent all. Received)

c) Nil (being excess of rent paid (i.e Nil minus 10% of salary)

Employer contribution of Salary excess of 12% of salary (Basic) 1800

(Rs.23400 - Rs.21600)  

Gross Salary 295800

Gross Salary 295800

Less: Standard Deduction Nil

Income from salary 295800

(Note that the perquisites in respect of use of computer and

Club facility is not chargeable to tax.)

2) Income from House Property:

Income NIL

(Since house is used for the purpose of own residence,

nothing would be chargeable to tax under section 23(2)(a).

Interest on capital borrowed to pay municipal tax is not

deductible)

3) Income from other sources:

Bank Interest 89000

Gross Total Income 384800

Less : Deductions under Section 80C to 80U

Under section 80 ( C) ( own cont. to PF and Insurance) 34000

Under section 80 (G) in respect of donation to NDF (100%) 3200

No deduction for 80L for Bank Interest nil

 

Net Income 347600

Net Income34760

0

Tax on Net Income: 24520

Add: Surcharge (not applicable since NI less than Rs. 10 Lacs) nil

Tax and surcharge 24520

Education cess + Add. (3%) 736

Tax payable 25256