FAQs on Computation of Tax | Bhavya Sharma & Associates

 

Question 1. When do I have to pay the taxes on my income?

Answer: 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 the 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 

Question 2. Under how many heads the income of a taxpayer is classified?

 Answer: The income of a taxpayer under five different heads of income, viz.:

1. Salaries

2. Income from house property

3. Profits and gains of business or profession

4. Capital gains

5. Income from other sources

Question 3. What is the gross total income and what is the difference between gross total income and total income?

Answer: Total income of a taxpayer from all the heads of income (as discussed in the previous FAQ) is referred to as Gross Total Income.

Difference between gross total income and total income:

Total Income is the income on which tax liability is determined. It is necessary to compute the total income to ascertain tax liability 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.

 The 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 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. 

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

Question 4. How to round off total income before computing tax liability?

Answer: 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 the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is in multiples 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 Ram is Rs. 2,52,844.99, then first paisa shall be ignored, i.e., 0.99 paise shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since the 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).

Question 5. Can I claim a deduction for my personal and household expenditure while calculating my taxable income or profit?

Answer: No, you cannot claim the deduction of personal expenses while computing the taxable income.

While computing income under various heads, the deduction can be claimed only for those expenses which are provided under the Income-tax Act.

Further, 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.

Question 6. Is there any limit of income below which I need not pay tax?

Answer: At this moment (i.e., for the financial year 2020-21) 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.

Question 7. How to compute the total tax liability?

Answer: 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. The 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	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

(*) 

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

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

3. 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. 

Question 8. How to round off the tax liability?

Answer: Tax payable by the taxpayer or tax refundable to the taxpayer shall be rounded off to the nearest multiple of ten, the 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 multiple 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 Ram 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 the 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).

Question 9. What is rebate under section 87A for F.Y 2020-21 and who can claim it?

Answer: 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 a 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.

Rebate under section 87A is available only to a resident individual, hence, any person other than a resident individual cannot claim rebate under section 87A. 

Rebate under section 87A is available only to an individual who is resident in India and non-residents cannot claim rebate under section 87A.

Question 10. What is a surcharge and how it is computed?

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

A surcharge is levied @ 15% of income-tax where the total income of the taxpayer exceeds Rs. 1 crore but doesn't exceed Rs. 2 crores.

A surcharge is levied @ 25% of income-tax where the total income of the taxpayer exceeds Rs. 2 crores but doesn’t exceed Rs. 5 crores.

A surcharge is levied @ 37% of income-tax where the total income of the taxpayer exceeds Rs. 5 crores.

In the case of Firm, co-operative society and local authority surcharge are 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 crores and @ 12% on the amount of income-tax if total income exceeds Rs. 10 crores.

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 crores and @ 5% on the amount of income-tax if total income exceeds Rs. 10 crores.

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

Illustration for better understanding

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

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

Article By: Ms Bhavya Sharma, a Practising Company Secretary from Delhi. In case you need any assistance in tax computation, compliance, advisory services and return filing services you can connect with us. You can contact us at legal@bhavyasharmaandassociates.com or for more details you can visit: www.bhavyasharmaandassociates.com

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