Section 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
FAQs
Home/ FAQs
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Income Tax Return ( ITR ) Filing
Income Tax Return (ITR) Filing
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Saving Taxes
Saving Taxes
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Salary Income
Salary Income
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Income from House Property
Income from House Property
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Capital Gains
Capital Gains
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Set Off and Carry Forward of Losses
Set Off and Carry Forward of Losses
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Clubbing of Income
Clubbing of Income
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Computation Of Tax
Computation Of Tax
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Senior Citizens
Senior Citizens
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Non Resident / NRI
Non Resident / NRI
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Gifts received by an individual or HUF
Gifts received by an individual or HUF
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Tax Deducted at Source (TDS)
Tax Deducted at Source (TDS)
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Financial Planning
Financial Planning
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TAN
TAN
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Permanent Account Number(PAN)
Permanent Account Number (PAN)
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Assessments Under the Income Tax
Assessments Under the Income Tax
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Income Declaration Scheme 2016
Income Declaration Scheme 2016
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Goods and Services Tax (GST)
Goods and Services Tax (GST)
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Financial Transactions and Reportable Accounts
Financial Transactions and Reportable Accounts
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Tax audit
Tax audit
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Tax on Presumptive Taxation Scheme
Tax on Presumptive Taxation Scheme
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TDS Processing
TDS Processing
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Provisions useful for Non Resident
Provisions useful for Non Resident
Frequently Asked Questions For Computation Of Tax
Under how many heads the income of a taxpayer is classified?
Total income of a taxpayer from all the heads of income (as discussed in previous FAQ) is referred to as Gross Total Income.
Section 80C to 80U provides 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 section 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
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.
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 section 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.
As per section 288A, total income computed in accordance with the provisions of the Income-tax Law, shall be rounded off to the nearest multiple of ten. Following points should be kept in mind while rounding off the total income:
• First any part of rupee consisting of any paisa should be ignored.
After ignoring paisa, if such amount is not in multiples of ten, and last figure in that amount is five or more, the amount shall be increased to the next higher amount which is in multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is in multiple of ten and the amount so rounded off shall be deemed to be the total income of the taxpayer.
Illustration for better understanding
If the taxable income of Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, i.e., 0.99 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the total income is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).
• First any part of rupee consisting of any paisa should be ignored.
After ignoring paisa, if such amount is not in multiples of ten, and last figure in that amount is five or more, the amount shall be increased to the next higher amount which is in multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is in multiple of ten and the amount so rounded off shall be deemed to be the total income of the taxpayer.
Illustration for better understanding
If the taxable income of Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, i.e., 0.99 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the total income is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).
No, you cannot claim deduction of personal expenses while computing the taxable income.
While computing income under various heads, deduction can be claimed only for those expenses which are provided under the Income-tax Act.
While computing income under various heads, deduction can be claimed only for those expenses which are provided under the Income-tax Act.
What is done after the income is earned by you will not give you tax exemption. However, contribution to approved institutions will give you the benefit of deduction from taxable income under section 80G subject to limits specified therein.
Rental income is charged to tax in the hands of the owner of the property. Your daughter is the owner of the house and, therefore, she is liable to pay tax, even though you receive rent. If the house is transferred to you, then you will become the owner and you will have to pay Income-tax on the rental income.
At this moment (i.e., for the financial year 2016-17) 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.
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. For rates of tax, refer "Tax Rate" section. Following table will help in understanding the manner of computation of the total tax liability of the taxpayer.
(*) 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 sections 90, 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".
| 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 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 (discussed in later FAQ) | (XXXXX) |
| Tax Liability After Rebate | XXXXX |
| Add: Surcharge (discussed in later FAQ) | XXXXX |
| Tax Liability After Surcharge | XXXXX |
| Add: Education cess @ 2% on tax liability after surcharge | XXXXX |
| Add: Secondary and higher education cess @ 1% 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 sections 90, 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".
As per section 288B, tax payable by the taxpayer or tax refundable to the taxpayer shall be rounded off to the nearest multiple of ten, following points should be kept in mind while rounding off the tax :
• First any part of rupee consisting of any paisa should be ignored.
• After ignoring paisa, if such amount is not a multiples of ten, and the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the tax payable by the taxpayer or refundable to the taxpayer.
Illustration for better understanding
If the tax liability or refund due to Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, (i.e., 0.99 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the tax liability or refund due is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).
• First any part of rupee consisting of any paisa should be ignored.
• After ignoring paisa, if such amount is not a multiples of ten, and the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the tax payable by the taxpayer or refundable to the taxpayer.
Illustration for better understanding
If the tax liability or refund due to Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, (i.e., 0.99 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the tax liability or refund due is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).
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. 5,000. In other words, if the tax liability exceeds Rs. 5,000, rebate will be available to the extent of Rs. 5,000 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.
Illustration for better understanding
Mr. Raja (age 35 and resident in India) is a salaried employee. His taxable salary for the year 2016-17 amounted to Rs. 5,84,000. He has deposited Rs. 94,000 in public provident fund untitled for deduction under section 80C. The employer has deducted tax of Rs. 19,570 from his salary. What will be his tax liability for the year?
**
(*) The tax rates for the financial year 2016-17 applicable to an individual below the age of 60 years are as follows :
• Nil upto income of Rs. 2,50,000
• 10% for income above Rs. 2,50,000 but upto Rs. 5,00,000
• 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
• 30% for income above Rs. 10,00,000.
Apart from above, education cess @ 2% and secondary and higher education cess @ 1% will be levied on the amount of income-tax. Applying the above normal tax rates, tax on income (before cess) will come to Rs. 24,000.
(**) Rebate under section 87A will be Rs. 5,000, being lower of following :
(a) Tax on total income, i.e., Rs. 24,000; or
(b) Rs. 5,000
($) Surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, the total income is below Rs. 1 crore and, hence, no surcharge will be levied.
Illustration for better understanding
Mr. Kapoor (age 35 years and resident in India) is running a medical store. Taxable business income for the year amounted to Rs. 5,84,000. He does not have any other income. He deposited Rs. 50,000 in public provident fund. Can he claim rebate under section 87A?
**
Rebate under section 87A is available to an individual who is resident in India and whose total income does not exceed Rs. 5,00,000. In this case, the gross total income of Mr. Kapoor is Rs. 5,84,000 and he has deposited Rs. 50,000 in PPF and, hence, total income i.e. taxable income will come to Rs. 5,34,000 (Rs. 5,84,000 less Rs. 50,000). Rebate under section 87A is available only if the total income does not exceed Rs. 5,00,000. In this case, the total income exceeds Rs. 5,00,000 and, hence, he cannot claim rebate under section 87A.
Illustration for better understanding
Mr. Raja (age 35 and resident in India) is a salaried employee. His taxable salary for the year 2016-17 amounted to Rs. 5,84,000. He has deposited Rs. 94,000 in public provident fund untitled for deduction under section 80C. The employer has deducted tax of Rs. 19,570 from his salary. What will be his tax liability for the year?
**
| Particulars | Amount |
|---|---|
| Income from salary | 5,84,000 |
| Income from house property | Nil |
| Profits and gains of business or profession | Nil |
| Capital gains | Nil |
| Income from other sources | Nil |
| Gross Total Income | 5,84,000 |
| Less : Deductions under section 80C on account of investment in PPF | 94,000 |
| Total Income (i.e., taxable income) | 4,90,000 |
| Tax on taxable income to be computed by applying the applicable rates (*) | 24,000 |
| Less : Rebate under section 87A (**) | 5,000 |
| Tax Liability After Rebate | 19,000 |
| Add: Surcharge ($) | Nil |
| Tax Liability After Surcharge | 19,000 |
| Add: Education cess @ 2% on tax liability after surcharge | 380 |
| Add: Secondary and higher education cess @ 1% on tax liability after surcharge | 190 |
| Tax liability before rebate under sections 86, section 89, sections 90, 90A and 91 (if any) | 19,570 |
| Less : Rebate under sections 86, section 89, sections 90, 90A and 91 (if any) | Nil |
| Tax Liability for the Year Before Pre-paid Taxes | 19,570 |
| Less: Prepaid taxes in the form of TDS | 19,570 |
| Tax payable/Refundable | Nil |
(*) The tax rates for the financial year 2016-17 applicable to an individual below the age of 60 years are as follows :
• Nil upto income of Rs. 2,50,000
• 10% for income above Rs. 2,50,000 but upto Rs. 5,00,000
• 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
• 30% for income above Rs. 10,00,000.
Apart from above, education cess @ 2% and secondary and higher education cess @ 1% will be levied on the amount of income-tax. Applying the above normal tax rates, tax on income (before cess) will come to Rs. 24,000.
(**) Rebate under section 87A will be Rs. 5,000, being lower of following :
(a) Tax on total income, i.e., Rs. 24,000; or
(b) Rs. 5,000
($) Surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, the total income is below Rs. 1 crore and, hence, no surcharge will be levied.
Illustration for better understanding
Mr. Kapoor (age 35 years and resident in India) is running a medical store. Taxable business income for the year amounted to Rs. 5,84,000. He does not have any other income. He deposited Rs. 50,000 in public provident fund. Can he claim rebate under section 87A?
**
Rebate under section 87A is available to an individual who is resident in India and whose total income does not exceed Rs. 5,00,000. In this case, the gross total income of Mr. Kapoor is Rs. 5,84,000 and he has deposited Rs. 50,000 in PPF and, hence, total income i.e. taxable income will come to Rs. 5,34,000 (Rs. 5,84,000 less Rs. 50,000). Rebate under section 87A is available only if the total income does not exceed Rs. 5,00,000. In this case, the total income exceeds Rs. 5,00,000 and, hence, he cannot claim rebate under section 87A.
Rebate under section 87A is available only to an individual, hence, any person other than an individual cannot claim rebate under section 87A.
Rebate under section 87A is available only to an individual who is resident in India, hence, non-residents cannot claim rebate under section 87A.
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 @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore (*).
In case of Firm, co-operative society and local authority surcharge is levied at 12% if total income exceeds Rs 1 crore.
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 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. Refer to next FAQ for concept of marginal relief.
Illustration for better understanding
Mr. Kapoor is a doctor, his total income for the year amounted to Rs. 84,00,000. 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 @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Kapoor is below Rs. 1 crore, hence, he will not be liable to pay surcharge.
In case of Firm, co-operative society and local authority surcharge is levied at 12% if total income exceeds Rs 1 crore.
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 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. Refer to next FAQ for concept of marginal relief.
Illustration for better understanding
Mr. Kapoor is a doctor, his total income for the year amounted to Rs. 84,00,000. 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 @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Kapoor is below Rs. 1 crore, hence, he will not be liable to pay surcharge.
The concept of marginal relief is designed to provide relaxation from levy of surcharge to a taxpayer where the total income exceeds marginally above Rs. 1 crore or Rs. 10 crore, as the case may be. Thus, while computing surcharge, in case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) having total income of more than Rs. 1 crore, marginal relief shall be available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
In case of a company, surcharge is levied @ 7% (2% in case of foreign company) on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% (5% in case of foreign company) on the amount of income-tax if total income exceeds Rs. 10 crore. Hence, in case of company whose total income exceeds Rs. 1 crore but does not exceeds Rs. 10 crore, marginal relief will be computed as discussed above, but in the case of company having total income above Rs. 10 crore marginal relief is available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore.
Illustration for better understanding
Mr. Raja is businessman (age 35 years). His total income for the year 2016-17 amounted to Rs. 1,01,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Raja exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :
(1) Normal tax liability (i.e. without marginal relief)
(*) The normal tax rates for the financial year 2016-17 applicable to an individual below the age of 60 years are as follows :
• Nil upto income of Rs. 2,50,000
• 10% for income above Rs. 2,50,000 but upto Rs. 5,00,000
• 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
• 30% for income above Rs. 10,00,000.
Apart from above rates, cess will be computed separately.
(2) Tax liability under marginal relief (i.e. after marginal relief
Conclusion Normal tax liability (i.e. without marginal relief) comes to Rs. 32,83,250 and tax liability under marginal relief comes to Rs. 29,25,000. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 29,25,000 will be the tax liability before cess. Total tax liability will be computed as follows :
(*) In this case, surcharge paid by Mr. Raja will be Rs. 70,000 computed as follows :
Illustration for better understanding
Mr. Karan is a businessman (age 35 years). His total income for the year 2016-17 amounted to Rs. 1,07,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Karan exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :
(1) Normal tax liability (i.e., without marginal relief)
(*) Tax rates are discussed in previous illustration.
(2) Tax liability under marginal relief (i.e. after marginal relief)
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 34,90,250 and tax liability under marginal relief comes to Rs. 35,25,000. It can be observed that normal tax liability (i.e. without marginal relief) is lower and, hence, Rs. 34,90,250 will be the tax liability before cess. Total tax liability will be computed as follows :
In case of a company, surcharge is levied @ 7% (2% in case of foreign company) on the amount of income-tax if the total income exceeds Rs. 1 crore but does not exceed Rs. 10 crore and @ 12% (5% in case of foreign company) on the amount of income-tax if total income exceeds Rs. 10 crore. Hence, in case of company whose total income exceeds Rs. 1 crore but does not exceeds Rs. 10 crore, marginal relief will be computed as discussed above, but in the case of company having total income above Rs. 10 crore marginal relief is available in such a manner that the net amount payable as income-tax and surcharge shall not exceed the total amount payable as income-tax and surcharge on total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore.
Illustration for better understanding
Mr. Raja is businessman (age 35 years). His total income for the year 2016-17 amounted to Rs. 1,01,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person), surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Raja exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :
(1) Normal tax liability (i.e. without marginal relief)
| Tax on total income before surcharge (*) | 28,55,000 |
| Add: Surcharge (@ 15% on the amount of income-tax of Rs. 28,55,000) | 4,28,250 |
| Tax liability after surcharge (i.e., normal tax liability) | 32,83,250 |
(*) The normal tax rates for the financial year 2016-17 applicable to an individual below the age of 60 years are as follows :
• Nil upto income of Rs. 2,50,000
• 10% for income above Rs. 2,50,000 but upto Rs. 5,00,000
• 20% for income above Rs. 5,00,000 but upto Rs. 10,00,000
• 30% for income above Rs. 10,00,000.
Apart from above rates, cess will be computed separately.
(2) Tax liability under marginal relief (i.e. after marginal relief
| Tax on Rs. 1 crore (at the above discussed rates) | 28,25,000 |
| Add: Income above Rs. 1 crore | 1,00,000 |
| Tax liability under marginal relief | 29,25,000 |
Conclusion Normal tax liability (i.e. without marginal relief) comes to Rs. 32,83,250 and tax liability under marginal relief comes to Rs. 29,25,000. It can be observed that tax liability under marginal relief is lower and, hence, Rs. 29,25,000 will be the tax liability before cess. Total tax liability will be computed as follows :
| Tax liability after marginal relief (*) | 29,25,000 |
| Add: Education cess @ 2% | 58,500 |
| Add: Secondary and higher education cess @ 1% | 29,250 |
| Tax liability | 30,12,750 |
(*) In this case, surcharge paid by Mr. Raja will be Rs. 70,000 computed as follows :
| Tax liability (before cess) on Rs. 1,01,00,000 after considering the provisions of marginal relief | 29,25,000 |
| Tax liability (before cess) at normal rates on Rs. 1,01,00,000 if surcharge is not levied | 28,55,000 |
| Surcharge (i.e. increase in tax liability) | 70,000 |
Illustration for better understanding
Mr. Karan is a businessman (age 35 years). His total income for the year 2016-17 amounted to Rs. 1,07,00,000. Will he be liable to pay surcharge, if yes, then how much and will he get the benefit of marginal relief?
**
Surcharge is additional tax levied on the amount of income-tax. In case of taxpayers (i.e. Individuals/HUF/AOP/BOI/artificial juridical person) surcharge is levied @ 15% on the amount of income-tax where the total income of the taxpayer exceeds Rs. 1 crore. In this case, total income of Mr. Karan exceeds Rs. 1 crore and hence he will be liable to pay surcharge. Marginal relief is available in cases where the total income is slightly above Rs. 1 crore. The computation of normal tax liability (i.e. liability without marginal relief) and tax liability under marginal relief (i.e. liability after marginal relief) will be as follows :
(1) Normal tax liability (i.e., without marginal relief)
| Tax on total income before surcharge (*) | 30,35,000 |
| Add: Surcharge (at 12% on the amount of income-tax of Rs. 29,80,000) | 4,55,250 |
| Tax liability after surcharge (i.e., normal tax liability) | 34,90,250 |
(*) Tax rates are discussed in previous illustration.
(2) Tax liability under marginal relief (i.e. after marginal relief)
| Tax on Rs. 1 crore (at the rates discussed in previous illustration) | 28,25,000 |
| Add: Income above Rs. 1 crore | 7,00,000 |
| Tax liability under marginal relief | 35,25,000 |
Conclusion
Normal tax liability (i.e. without marginal relief) comes to Rs. 34,90,250 and tax liability under marginal relief comes to Rs. 35,25,000. It can be observed that normal tax liability (i.e. without marginal relief) is lower and, hence, Rs. 34,90,250 will be the tax liability before cess. Total tax liability will be computed as follows :
| Normal tax liability i.e. tax liability after surcharge of Rs. 4,55,250 | 34,90,250 |
| Add: Education cess @ 2% | 69,805 |
| Add: Secondary and higher education cess @ 1% | 34,902.5 |
| Tax liability | 35,94,958.50 |
For details on minimum alternate tax (MAT) refer to tutorial on “Minimum Alternate Tax and Alternate Minimum Tax” in the tutorial section.
For details on alternate minimum tax (AMT) refer to tutorial on “Minimum Alternate Tax and Alternate Minimum Tax” in the tutorial section.
