Computation of Income Tax Format in Excel For Individuals 2018 – 19. In the previous articles, we have given Heads of Income and Income Tax Rates for the A.Y 2019-20. Today we are providing how to comupte total income of a person (इनकम टैक्स कैलकुलेटर). If you want to file your income tax return then you first need to collect all the information required to file it. The next important step is to compute your total taxable income. After this, final tax payable or refundable is calculated by applying the applicable tax rates in force and then deducting taxes already paid by way of TDS/TCS or Advance tax from the tax due amount arrived at. Let’s check steps to computation of total income of a person 2018-19 with examples.
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Levy of Income Tax in India
Income-tax is a tax levied on the total income of the previous year of every person (Section 4).
A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc.
Total Income and Types of Taxable Income of a Person
Income-tax is levied on an assessee’s total income. Such total income has to be computed as per the provisions contained in the Income Tax Act, 1961.
Let us go step by step to understand the procedure for computation of total income of an individual for the purpose of levy of income-tax –
Steps to Computation of Total Income of a Person 2018-19
Income tax is a charge on the assessee’s income. Income Tax law lays down the provisions for computing the taxable income on which tax is to be charged. Computation of Total Income of a Person 2018-19 as the following manner:
- Determine the residential status of the person as per section 6 of the Act.
- Calculate the income as per the provisions of respective heads of income. Section 14 classifies the income under five heads:
- Income from salaries
- Income from House Property
- Profits and gains of business or Profession
- Capital Gains
- Income from other sources
- Consider all the deductions and allowances given under the respective heads before arriving at the net
under each head.
- Exclude the income exempt under section 10 of the Act.
- Aggregate of incomes computed under the 5 heads of income after applying clubbing provisions and making adjustments of set off and carry forward of losses is known as Gross Total Income.
- Deduct therefrom the deductions admissible under Sections 80C to 80U. The balance is called Total income.
- The total income is rounded off to the nearest multiple of Rupees ten. (Section 288A)
- Add agriculture income (if any) in the total income calculated in (6) above. Then calculate tax on the aggregate as if such aggregate income is the Total Income.
- Calculate income tax on the net agricultural income as increased by Rs.2,50,000/3,00,000/5,00,000 as the case may be, as if such increased net agricultural income were the total income.
- The amount of income tax determined under (9) above will be deducted from the amount of income tax determined under (8) above.
- Calculate income tax on capital gains under Section 112, and on other income at specified rates.
- The balance of amount of income tax left as per (10) above plus the amount of income tax at (11) above will be the income tax in respect of the total income.
- Deduct the following from the amount of tax calculated under (12) above: – Rebate under section 87A (if applicable). – Tax deducted and collected at source. – Advance tax paid. – Double taxation relief (Section 90 or 91).
- The balance of amount left after deduction of items given in (13) above, shall be the net tax payable or net tax refundable for the assessee. Net tax payable/refundable shall be rounded off to the nearest multiple of Ten rupees (Section 288B).
- Along with the amount of net tax payable, the assessee shall have to pay penalties or fines, if any, imposed on him under the Income-tax Act.
Step 1 – Determination of residential status
The residential status of a person has to be determined to ascertain which income is to be included in computing the total income.
The residential status as per the Income Tax Act, 1961 can be classified as under –
RESIDENTIAL STATUS UNDER THE INCOME TAX ACT, 1961
- RESIDENT AND ORDINARILY RESIDENT
- RESIDENT BUT NOT ORDINARILY RESIDENT
In the case of an individual, the duration for which he is present in India determines his residential status. Based on the time spent by him, he may be (a) resident and ordinarily resident, (b) resident but not ordinarily resident, or (c) non-resident.
The residential status of a person determines the taxability of the income. For e.g., income earned and received outside India will not be taxable in the hands of a nonresident but will be taxable in case of a resident and ordinarily resident.
Step 2 – Classification of income under different heads
Check – 5 Heads Of Income In India Under Income Tax Act 1961 – All Types Of Taxable Income Explained
The Act prescribes five heads of income. These are shown below –
There is a charging section under each head of income which defines the scope of income chargeable under that head. These heads of income exhaust all possible types of income that can accrue to or be received by the tax payer. Accordingly, the income is classified as follows:
- Salary, pension earned is taxable under the head “Salaries”.
- Rental income is taxable under the head “Income from house property”.
- Income derived from carrying on any business or profession is taxable under the head “Profits and gains from business or profession”.
- Profit from sale of a capital asset (like land) is taxable under the head “Capital Gains”.
- The fifth head of income is the residuary head. The income which is not taxable under the first four heads will be taxed under the head “Income from other sources”.
The tax payer has to classify the income earned under the relevant head of income.
Step 3– Computation of income under each head
Income is to be computed in accordance with the provisions governing a particular head of income.
Exemptions: There are certain incomes which are wholly exempt from income-tax e.g. agricultural income. These incomes have to be excluded and will not form part of Gross Total Income.
Also, some incomes are partially exempt from income-tax e.g. House Rent Allowance, Education Allowance. These incomes are excluded only to the extent of the limits specified in the Act. The balance income over and above the prescribed exemption limits would enter computation of total income and have to be classified under the relevant head of income.
Deductions: There are deductions and allowances prescribed under each head of income. For example, while calculating income from house property, municipal taxes and interest on loan are allowed as deduction. Similarly, deductions and allowances are prescribed under other heads of income. These deductions etc. have to be considered before arriving at the net income chargeable under each head.
Step 4 – Clubbing of income of spouse, minor child etc.
In case of individuals, income-tax is levied on a slab system on the total income. The tax system is progressive i.e., as the income increases, the applicable rate of tax increases. Some taxpayers in the higher income bracket have a tendency to divert some portion of their income to their spouse, minor child etc. to minimize their tax burden.
In order to prevent such tax avoidance, clubbing provisions have been incorporated in the Act, under which income arising to certain persons (like spouse, minor child etc.) have to be included in the income of the person who has diverted his income for the purpose of computing tax liability.
Step 5 – Set-off or carry forward and set-off of losses
An assessee may have different sources of income under the same head of income. He may have profit from one source and loss from the other. For instance, an assessee may have profit from his textile business and loss from his printing business. This loss can be set-off against the profits of textile business to arrive at the net income chargeable under the head “Profits and gains of business or profession”.
Similarly, an assessee can have loss under one head of income, say, Income from house property and profits under another heads of income, say, profits and gains of business or profession. There are provisions in the Income-tax Act, 1961 for allowing inter-head adjustment in certain cases.
However, there are also restrictions in certain cases, like business loss is not allowed to be set-off against salary income. Further, losses which cannot be set-off in the current year due to inadequacy of eligible profits can be carried forward for set-off in the subsequent years as per the provisions contained in the Act. Generally, brought forward losses under a particular head cannot be set-off against income under another head i.e., brought forward business loss cannot be set-off against income from house property of the current year.
Step 6 – Computation of Gross Total Income
The final figures of income or loss under each head of income, after allowing the deductions, allowances and other adjustments, are then aggregated, after giving effect to the provisions for clubbing of income and set-off and carry forward of losses, to arrive at the gross total income.
Step 7 – Deductions from Gross Total Income
There are deductions prescribed from Gross Total Income. These deductions are of three types –
DEDUCTION FROM TOTAL GROSS TOTAL INCOME
- Deductions in respect of certain payments
- Deductions in respect of certain incomes
- Deductions in respect of other income
Step 8 – Total income
The income arrived at, after claiming the above deductions from the Gross Total Income is known as the Total Income. It should be rounded off to the nearest multiple of ` 10. The process of computation of total income is shown hereunder –
Step 9 – Application of the rates of tax on the total income
The rates of tax for the different classes of assessees are prescribed by the Annual Finance Act.
For individuals, HUFs etc., there is a slab rate and basic exemption limit. At present, the basic exemption limit is ` 2,50,000 for individuals. This means that no tax is payable by individuals with total income of up to ` 2,50,000.
Those individuals whose total income is more than ` 2,50,000 but less than ` 5,00,000 have to pay tax on their total income in excess of ` 2,50,000 @ 5% and so on.
The highest rate is 30%, which is attracted in respect of income in excess of ` 10,00,000.
The tax rates have to be applied on the total income to arrive at the income-tax liability.
Step 10 – Surcharge / Rebate under section 87A
Surcharge: Surcharge is an additional tax payable over and above the income-tax. Surcharge is levied as a percentage of income-tax. In case where the total income of an individual/HUF/AOP/BOI exceeds Rs. 50 lakhs but does not exceed ` 1 crore, surcharge is payable at the rate of 10% of income-tax and in case total income exceeds ` 1 crore, surcharge is payable at the rate of 15% of income-tax.
Rebate under section 87A: In order to provide tax relief to the individual tax payers who are in the 5% tax slab, section 87A provides a rebate from the tax payable by an assessee, being an individual resident in India, whose total income does not exceed ` 3,50,000. The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of Rs. 2,500, whichever is less.
|Level of Total Income||Surcharge||Rebate u/s 87A|
|≤ Rs. 3,50,000||Not applicable||Income-tax on total income or Rs. 2,500, whichever is less|
|> Rs. 3,50,000 ≤ Rs. 50,00,000||Not applicable||Not applicable|
|> Rs. 50,00,000 ≤ Rs. 1,00,00,000||10% of income-tax||Not applicable|
|> Rs. 1,00,00,000||15% of income-tax||Not applicable|
Step 11 – Health and education cess on income tax
The income-tax, as increased by the surcharge or as reduced by the rebate under section 87A, if applicable, is to be further increased by an additional surcharge called health and education cess on income-tax @4% of income-tax plus surcharge, if applicable.
Step 12 – Advance tax and tax deducted at source
Although the tax liability of an assessee is determined only at the end of the year, tax is required to be paid in advance in four installments on the basis of estimated income i.e., on or before 15th June, 15th September, 15th December and 15th March. However, residents opting for presumptive taxation scheme can pay advance tax in one installment on or before 15th March instead of four installments. In certain cases, tax is required to be deducted at source from the income by the payer at the rates prescribed in the Income-tax Act, 1961 or the Annual Finance Act. Such deduction should be made either at the time of accrual or at the time of payment, as prescribed by the Act.
For example, in the case of salary income, the obligation of the employer to deduct tax at source arises only at the time of payment of salary to the employees. However, in respect of other payments like, fees for professional services, fees for technical services, interest made to residents, the person responsible for paying is liable to deduct tax at source at the time of credit of such income to the accounts of the payee or at the time of payment, whichever is earlier. Such tax deducted at source has to be remitted to the credit of the Central Government through any branch of the RBI, SBI or any authorized bank.
Step 13: Tax Payable/Tax Refundable
After adjusting the advance tax and tax deducted at source, the assessee would arrive at the amount of net tax payable or refundable. Such amount should be rounded off to the nearest multiple of Rs 10.
The assessee has to pay the amount of tax payable (called self-assessment tax) on or before the due date of filing of the return. Similarly, if any refund is due, assessee will get the same after filing the return of income.
Computation of Total Income of a Person 2018-19 Illustration 1
Mr. Ram who is a person with disability submit the following information. Compute (a) the Taxable Income (b) the Tax Payable for the assesment year 2019-2020.
- Salary (per annum) 3,00,000
- Rent received 48,000
- Dividend from Co-operative Society 1,000
- Interest on Savings Bank Deposits 18,000
- Interest on Government securities 1,000
- Winning from Lotteries (gross) 5,000
- NSC (VIII Issue) purchased during the year 10,000
- Deposit under PPF Scheme 30,000
He earned a long-term capital gain of ` 15,000 on sale of gold during the year
Computation of Total Income of a Person 2018-19 Illustration 2
Rahul who is a resident in India, is a person with disability. He provides the following particulars of his income for the year ended 31.3.2019.
(a) Salary for working as a cable operator (per month) 18,000
(b) Interest on government securites (gross) 45,000
(c) Dividend from Indian Company 5,000
(d) Honorarium from school of orphanage for giving his service 49,000
He has donated Rs.20,000 to the school for orphanage which is approved as a charitable institution and contributed Rs. 2,000 to Prime Minister National Relief Fund. He has also paid Rs.3,000 by credit card as premium of mediclaim policy. His father is also a person with disability and is dependent on him for medical treatment and rehabilitation. Rahul spends Rs.8,000 during the year on him.
Compute the Total Income for the Assessment Year 2019-20, assuming he has deposited Rs. 20,000 in Public Provident Fund Account.
We hope with the help of this article, now you understand what are the difference of total income, how to compute total income of a person, how to identify residential status of a person, clubbing of income, set-off, tax rates, surcharge and advance tax. Still, if you have any doubts regarding computation of total income, then you can ask in our Forum. Our experts and members will try to help you. You can also download income tax calculator (इनकम टैक्स कैलकुलेटर) for the year 2019-20 from our forum.