Computation of Total Income and Tax Liability of Individuals
What this domain tests
This is the computation question. You build gross total income from the heads, allow Chapter VI-A deductions, apply the slab, adjust rebate, surcharge and cess, and finally deduct taxes already paid to arrive at tax payable. Marks are lost in sequencing, not in arithmetic.
Core rules
- Step 1: compute income under each head after head-specific deductions.
- Step 2: set off and carry forward losses, then aggregate into gross total income.
- Step 3: deduct Chapter VI-A items - 80C up to ₹1,50,000, 80D medical insurance, 80TTA savings interest up to ₹10,000, 80G donations. Deductions cannot exceed gross total income.
- Step 4: apply the slab rates prescribed for the relevant assessment year and check whether the rebate applies.
- Step 5: add surcharge where total income crosses the prescribed threshold, applying marginal relief, then add health and education cess at 4%.
- Step 6: deduct TDS, TCS and advance tax, then round off as required.
Worked example (illustrative rates)
Salary income after standard deduction ₹7,00,000; house property income after 30% standard deduction and interest ₹1,20,000; bank interest ₹40,000. Gross total income = ₹8,60,000. Deductions: 80C ₹1,50,000 + 80D ₹25,000 = ₹1,75,000, so total income = ₹6,85,000. Using the illustrative slabs quoted earlier: tax = 15,000 (5% of ₹3,00,000) + 8,500 (10% of ₹85,000) = ₹23,500; cess at 4% = ₹940; total ₹24,440. If TDS of ₹20,000 has already been deducted, the balance payable is ₹4,440.
Traps
- Claiming 80C on the full amount invested without applying the ₹1,50,000 cap.
- Deducting home loan interest before computing net annual value instead of after the 30% deduction.
- Forgetting cess, or adding surcharge when income is below the threshold.
- Ignoring marginal relief on surcharge and stating tax without rounding off.