Unit 3
Computation of Total Taxable Income and Tax Liability
Q1) What are the deductions U/S 80 C, 80 CCC TO 80U?
A1) Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]
The aggregate of income computed under each head, after giving effect to the provisions for clubbing of income and set off of losses, is known as "Gross Total Income". In computing the total income of an assessee, certain deductions are permissible under sections 80C to 80U from Gross Total Income.
These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
These deductions are of two types:
- Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
- Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q2) What are the basic Rules of Deductions [Sections 80A/80AB/80AC]?
A2) 1. Deductions cannot exceed Gross Total Income [Section 80A (2)]:
The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.
- Deduction not allowed to members if allowed to AOP/BOI [Section 80A (3)]:
If a deduction is allowed under the above sections to the AOP or BOI then deductions for the same payment/income will not be allowed to the members of the AOP/BOI. [Section 80A (3)].
2. Double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]:
Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
3. Deduction allowed only when it is claimed by the assessee [Section 80A (5)]:
Where the assessee fails to make a claim in his return of income for any deduction under section 10AA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e., sections 80-IA to 80RRB), no deduction shall be allowed to him thereunder.
4. Profit or gain to be recomputed if inter unit or inter business transfer is not at market value [Section 80A (6)]
5. Assessee's duty to place relevant material:
If an assessee approaches a statutory authority for obtaining a concession under the taxing statute, he should in fairness place all the material before the said authority and be also in a position to satisfy the said authority that he was entitled to obtain the concession.
6. Deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]:
Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
7. Benefits of certain deductions not to be allowed in cases where return is not filed within the specified time limit [Section 80AC]:
Where in computing the total income of an assessee, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under section 139(1).
Q3) What are the types of Taxable Income?
A3) The types of Taxable Income are-
Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:
1. Employee compensation and benefits
These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.
2. Investment and business income
For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.
3. Miscellaneous taxable income
This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insurance, and cancelled debts. Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.
Q4) How do you compute total income and tax liability of an individual?
A4) According to section 2(45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 5 of the act provides scope of total Income-
(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Q5) What is the procedure for computation of total income and tax liability of an individual?
A5) The stepwise procedure for computation of total income and tax liability of an individual are stated below-
Step 1: Compute the income of an individual under 5 heads of income on the basis of his residential status.
Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under respective heads.
Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of income.
Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.
Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are part of gross total income.
Step 6: The balance income after allowing the deductions is known as total income which will be rounded off to the nearest Rs. 10.
Step 7: Compute tax on such Total Income at the prescribed rates of tax.
Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual having total income up to Rs. 3,50,000. For details see below.
Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and up to Rs. 1 crore and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.
Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if applicable).
Step 11: Allow relief under section 89, if any.
Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.
Q6) What is Education cess and higher secondary education cess?
A6) For the education cess the rate is 2% of the tax payable and for the Secondary and Higher Education Cess the rate is 1% of the tax payable. Together they form the education cess rate of 3% of the tax payable.
An education cess is an additional levy that is applied on the basic tax liability by the Government to generate additional revenue to fund primary, secondary and higher education. Apart from individuals, even corporations are required to pay this cess every year at rates determined during the annual budgets.
This money is used by the Government in improving the existing educational infrastructure and in providing increased access to quality education within the country. Educational cess is used to fund expenses such as midday meals, opening of new Government schools & colleges, educational loans for deserving candidates from low-income background, salaries for staff and faculties working in Government-funded educational institutions, for funding specialized schemes etc.
Q7) How to Calculate Education Cess?
A7) Let us take the example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Sam Riddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.
Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:
Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e., Rs. 65,000.
Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.
This means that the total education cess that will be payable will be Rs. 1,950 which means that the income tax due for Aneesh is Rs. 66,950.
However, it needs to be remembered that since the education cess is only payable on the tax due so if your income falls in the non-taxable bracket of the income tax slab, you won’t have to pay this cess
Q8) How is Education Cess Used?
A8) As the name suggests, this is a cess that is collected to enable the government to run education programs and schemes that can help improve the quality and access to education in the country. The money that has been collected by the government is earmarked for the following expenses:
- The cess is used to provide students with the mid-day meals.
- It is also used for setting up government aided schools and colleges.
- The staff of the government schools and colleges are also paid their salaries using this money.
- The government can also use this money to set up education loans that are provided at lower rates to students to help them pay the fee for higher education.
- It can also be used to fund special schemes like the Rastriya Madhyamik Shiksha Abhiyan that aims at making secondary education more accessible.
- The money may also be used to fund premier institutes like IIT and IIM in the setting up of more branches in states that still don’t have access to these institutes.
- If the government plans on expanding the number of educational facilities for children, then the money collected as education cess can be used to fund the programs.
Q9) What is Surcharge?
A9) A surcharge is an extra fee, tax or fee added to the cost of a good or service in addition to the initial price. A surcharge is added to the existing tax and is not a part of the initially quoted price of a good or service.
In the Income Tax Act, there is a provision of a surcharge on income tax for those taxpayers whose income falls under the upper tax slab of 30%. You are liable to pay an additional surcharge on your Income Tax liability if your income falls under the 30% tax slab.
The surcharge on income tax is the additional tax liability that you need to pay if you earn a higher income i.e., income above a certain limit.
Q10) What are the Surcharge Rates Applicable to Different Taxpayers?
A10) The rate of the surcharge for individuals is different from those of other taxpayers. Here is a table showing the rates of surcharge on income tax for various types of taxpayers:
Type of the Taxpayer | Net Income threshold | Rate of Surcharge on income tax |
Individual / HUF / AOP / BOI | From Rs. 50 Lakhs to Rs. 1 Crore | 10% |
Individual / HUF / AOP / BOI | From Rs. 1 Crore to Rs. 2 crores | 15% |
Individual / HUF / AOP / BOI | From Rs. 2 Crore to Rs. 5 crores | 25% |
Individual / HUF / AOP / BOI | Above Rs. 5 Crore | 37% |
Firm / LLP / Local Authorities / Co-operative Society | Above Rs. 1 Crore | 12% |
Domestic Companies | From Rs. 1 Crore to Rs.10 Crores | 7% |
Domestic Companies | Above Rs. 10 Crores | 12% |
Here, it is important to note that if your income is more than Rs.1 crore but less than Rs. 2 crores, the surcharge on income tax will be levied at the rate of 15%.
As per the provisions of the Income Tax Act, you can get a marginal relief, if your income is above Rs.50 lakhs. The Marginal relief will be the difference between the excess tax payable (including the surcharge for individuals) and the amount exceeding Rs.50 Lakhs.
Q11) What is an Income tax calculator?
A11) An income tax calculator is a tool that will help calculate taxes one is liable to pay under the old and new tax regimes. The calculator uses necessary basic information like annual salary, rent paid, tuition fees, interest on child’s education loan, and any other savings to calculate the tax liability of an individual.
It gives the total tax payable under the old and new scheme. Also, it suggests investment opportunities for the individual based on the tax liability. The online income tax calculator is a convenient tool and is free to use. It is simple to understand and can be used by anyone to calculate their tax liability.
Q12) How to use an Income tax calculator?
A12) Scrip box’s Income tax calculator helps anyone in determining their tax outflow
For the financial year. The online tax calculator requires some data concerning income, investments, and expenses of the taxpayer to calculate taxes online.
Let us now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q13) How to calculate Income tax?
A13) The Income Tax is calculated on the basis of the income tax slab applicable to the taxpayer, and the net income. You can follow the following steps to calculate the income tax for any financial year 2021-22:
Step-1: Calculate the Gross Total Income
You must calculate the gross total income under the different heads of income.
Income From Salary- Add the total gross salary received from the employer during the financial year. In your Form 16 your gross salary will be mentioned. Your employer will issue a Form 16 after the end of the financial year
- Income from capital gains – Add the long term and short-term capital gains to your gross income. Not all capital gains are taxable at a slab rate. Hence, you must be careful about the rate of tax applicable.
- Income from house property– Add your net rental income for a let-out property to your gross income. Make sure you claim the deduction for municipal taxes paid, standard deduction, interest on repayment of home loan etc.
- Income From Business or Profession: Add your income earned by running a business or pursuing a profession. Make sure you claim the expenses related to such business or profession while calculating the income under this head.
- Income from other sources: Add the income earned from any other sources. Income such as interest income on fixed deposit, savings bank interest, etc are covered under income from other sources.
Step- 2: Claim the Exemptions and Tax Deductions
From the gross income now deduction all the exemptions, allowances, and deductions available to you w.r.t. The income earned.
- Salary income exemptions, allowances and deductions
- Leave travel concession as contained in clause (5) of section 10;
- House rent allowance as contained in clause (13A) of section 10;
- Some of the allowance as contained in clause (14) of section 10;
- Standard deduction, the deduction for entertainment allowance and employment/ professional tax as contained in section 16;
2. Rental income
- Interest paid on home loan under section 24. Deduction against interest on home is applicable in respect of self-occupied or vacant property.
- Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per existing law
3. Deduction from business or profession income
Expense incurred in relation to running such business or profession
- Depreciation on assets, and additional depreciation on such assets.
- Deduction for donation for or expenditure on scientific research
- Rent, Rates, Taxes, Repairs, and Insurance of building
- Any bonus or commission paid to the employees
- A contribution made to the employees recognized provident fund or approved superannuation fund or approved gratuity fund.
4. Deductions from Gross Income
- Section 80C deduction against Public Provident Fund (PPF), Employees’ Provident Fund (EPF), the premium paid towards life insurance policies, principal repayment of a home loan. Section 80C includes investment in National Savings Certificate (NSC), investment in Equity Linked Savings Scheme (ELSS mutual fund), children tuition expenses, etc
- Contribution to National Pension Scheme (NPS)
- Medical insurance policies for self, spouse & dependent children.
- Repayment of education loan
- Contribution for a charitable purpose
Step-3: Calculate the Net taxable Income
Deduct the exemptions, allowances, and deduction from the gross income. This will be your net taxable income for the financial year. You need to calculate the tax payable on such net taxable income.
Step-4: Calculate the Tax Payable
Calculate the tax payable for the financial year at the applicable income tax slab rate for FY 2021-22. Calculate the taxes already paid during the financial year such as TDS, advance tax, self-assessment tax. Deduct the taxes already paid from the total tax payable, this will be your net tax payable for the financial year.
Income Tax Slab for New and Old Regime FY 2021-22
Income range per annum | Tax Rate as per Old Regime | Tax Rate as per New Regime |
Upto Rs 2.50 Lakh | No Tax | No tax |
Rs 2.50 Lakh – Rs 5 Lakh | 5% | 5% |
Rs 5 Lakh – Rs 7.50 Lakh | 20% | 10% |
Rs 7.50 Lakh – Rs 10 Lakh | 20% | 15% |
Rs 10 Lakh – Rs 12.50 Lakh | 30% | 20% |
Rs 12,50,000 – Rs 15,00,000 | 30% | 25% |
Above Rs 15,00,000 | 30% | 30% |
Q14) What is Taxable income?
A14) Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.
Q15) How one can make use of the Scrip box’s Income Tax calculator online?
A15) We can now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q16) From which incomes Deductions to be made in Computing Total Income are not allowed?
A16) These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
Q17) What are the types of Deductions to be made in Computing Total Income?
A17) The types of deductions to be made in computing total income are-
1. Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
2. Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q18) Discuss deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]?
A18) Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
Q19) Illustrate double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]?
A19) Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
Q20) Discuss deductions cannot exceed Gross Total Income [Section 80A (2)]?
A20) The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.
Unit 3
Computation of Total Taxable Income and Tax Liability
Q1) What are the deductions U/S 80 C, 80 CCC TO 80U?
A1) Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]
The aggregate of income computed under each head, after giving effect to the provisions for clubbing of income and set off of losses, is known as "Gross Total Income". In computing the total income of an assessee, certain deductions are permissible under sections 80C to 80U from Gross Total Income.
These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
These deductions are of two types:
- Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
- Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q2) What are the basic Rules of Deductions [Sections 80A/80AB/80AC]?
A2) 1. Deductions cannot exceed Gross Total Income [Section 80A (2)]:
The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.
- Deduction not allowed to members if allowed to AOP/BOI [Section 80A (3)]:
If a deduction is allowed under the above sections to the AOP or BOI then deductions for the same payment/income will not be allowed to the members of the AOP/BOI. [Section 80A (3)].
2. Double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]:
Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
3. Deduction allowed only when it is claimed by the assessee [Section 80A (5)]:
Where the assessee fails to make a claim in his return of income for any deduction under section 10AA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e., sections 80-IA to 80RRB), no deduction shall be allowed to him thereunder.
4. Profit or gain to be recomputed if inter unit or inter business transfer is not at market value [Section 80A (6)]
5. Assessee's duty to place relevant material:
If an assessee approaches a statutory authority for obtaining a concession under the taxing statute, he should in fairness place all the material before the said authority and be also in a position to satisfy the said authority that he was entitled to obtain the concession.
6. Deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]:
Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
7. Benefits of certain deductions not to be allowed in cases where return is not filed within the specified time limit [Section 80AC]:
Where in computing the total income of an assessee, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under section 139(1).
Q3) What are the types of Taxable Income?
A3) The types of Taxable Income are-
Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:
1. Employee compensation and benefits
These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.
2. Investment and business income
For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.
3. Miscellaneous taxable income
This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insurance, and cancelled debts. Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.
Q4) How do you compute total income and tax liability of an individual?
A4) According to section 2(45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 5 of the act provides scope of total Income-
(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Q5) What is the procedure for computation of total income and tax liability of an individual?
A5) The stepwise procedure for computation of total income and tax liability of an individual are stated below-
Step 1: Compute the income of an individual under 5 heads of income on the basis of his residential status.
Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under respective heads.
Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of income.
Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.
Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are part of gross total income.
Step 6: The balance income after allowing the deductions is known as total income which will be rounded off to the nearest Rs. 10.
Step 7: Compute tax on such Total Income at the prescribed rates of tax.
Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual having total income up to Rs. 3,50,000. For details see below.
Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and up to Rs. 1 crore and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.
Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if applicable).
Step 11: Allow relief under section 89, if any.
Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.
Q6) What is Education cess and higher secondary education cess?
A6) For the education cess the rate is 2% of the tax payable and for the Secondary and Higher Education Cess the rate is 1% of the tax payable. Together they form the education cess rate of 3% of the tax payable.
An education cess is an additional levy that is applied on the basic tax liability by the Government to generate additional revenue to fund primary, secondary and higher education. Apart from individuals, even corporations are required to pay this cess every year at rates determined during the annual budgets.
This money is used by the Government in improving the existing educational infrastructure and in providing increased access to quality education within the country. Educational cess is used to fund expenses such as midday meals, opening of new Government schools & colleges, educational loans for deserving candidates from low-income background, salaries for staff and faculties working in Government-funded educational institutions, for funding specialized schemes etc.
Q7) How to Calculate Education Cess?
A7) Let us take the example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Sam Riddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.
Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:
Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e., Rs. 65,000.
Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.
This means that the total education cess that will be payable will be Rs. 1,950 which means that the income tax due for Aneesh is Rs. 66,950.
However, it needs to be remembered that since the education cess is only payable on the tax due so if your income falls in the non-taxable bracket of the income tax slab, you won’t have to pay this cess
Q8) How is Education Cess Used?
A8) As the name suggests, this is a cess that is collected to enable the government to run education programs and schemes that can help improve the quality and access to education in the country. The money that has been collected by the government is earmarked for the following expenses:
- The cess is used to provide students with the mid-day meals.
- It is also used for setting up government aided schools and colleges.
- The staff of the government schools and colleges are also paid their salaries using this money.
- The government can also use this money to set up education loans that are provided at lower rates to students to help them pay the fee for higher education.
- It can also be used to fund special schemes like the Rastriya Madhyamik Shiksha Abhiyan that aims at making secondary education more accessible.
- The money may also be used to fund premier institutes like IIT and IIM in the setting up of more branches in states that still don’t have access to these institutes.
- If the government plans on expanding the number of educational facilities for children, then the money collected as education cess can be used to fund the programs.
Q9) What is Surcharge?
A9) A surcharge is an extra fee, tax or fee added to the cost of a good or service in addition to the initial price. A surcharge is added to the existing tax and is not a part of the initially quoted price of a good or service.
In the Income Tax Act, there is a provision of a surcharge on income tax for those taxpayers whose income falls under the upper tax slab of 30%. You are liable to pay an additional surcharge on your Income Tax liability if your income falls under the 30% tax slab.
The surcharge on income tax is the additional tax liability that you need to pay if you earn a higher income i.e., income above a certain limit.
Q10) What are the Surcharge Rates Applicable to Different Taxpayers?
A10) The rate of the surcharge for individuals is different from those of other taxpayers. Here is a table showing the rates of surcharge on income tax for various types of taxpayers:
Type of the Taxpayer | Net Income threshold | Rate of Surcharge on income tax |
Individual / HUF / AOP / BOI | From Rs. 50 Lakhs to Rs. 1 Crore | 10% |
Individual / HUF / AOP / BOI | From Rs. 1 Crore to Rs. 2 crores | 15% |
Individual / HUF / AOP / BOI | From Rs. 2 Crore to Rs. 5 crores | 25% |
Individual / HUF / AOP / BOI | Above Rs. 5 Crore | 37% |
Firm / LLP / Local Authorities / Co-operative Society | Above Rs. 1 Crore | 12% |
Domestic Companies | From Rs. 1 Crore to Rs.10 Crores | 7% |
Domestic Companies | Above Rs. 10 Crores | 12% |
Here, it is important to note that if your income is more than Rs.1 crore but less than Rs. 2 crores, the surcharge on income tax will be levied at the rate of 15%.
As per the provisions of the Income Tax Act, you can get a marginal relief, if your income is above Rs.50 lakhs. The Marginal relief will be the difference between the excess tax payable (including the surcharge for individuals) and the amount exceeding Rs.50 Lakhs.
Q11) What is an Income tax calculator?
A11) An income tax calculator is a tool that will help calculate taxes one is liable to pay under the old and new tax regimes. The calculator uses necessary basic information like annual salary, rent paid, tuition fees, interest on child’s education loan, and any other savings to calculate the tax liability of an individual.
It gives the total tax payable under the old and new scheme. Also, it suggests investment opportunities for the individual based on the tax liability. The online income tax calculator is a convenient tool and is free to use. It is simple to understand and can be used by anyone to calculate their tax liability.
Q12) How to use an Income tax calculator?
A12) Scrip box’s Income tax calculator helps anyone in determining their tax outflow
For the financial year. The online tax calculator requires some data concerning income, investments, and expenses of the taxpayer to calculate taxes online.
Let us now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q13) How to calculate Income tax?
A13) The Income Tax is calculated on the basis of the income tax slab applicable to the taxpayer, and the net income. You can follow the following steps to calculate the income tax for any financial year 2021-22:
Step-1: Calculate the Gross Total Income
You must calculate the gross total income under the different heads of income.
Income From Salary- Add the total gross salary received from the employer during the financial year. In your Form 16 your gross salary will be mentioned. Your employer will issue a Form 16 after the end of the financial year
- Income from capital gains – Add the long term and short-term capital gains to your gross income. Not all capital gains are taxable at a slab rate. Hence, you must be careful about the rate of tax applicable.
- Income from house property– Add your net rental income for a let-out property to your gross income. Make sure you claim the deduction for municipal taxes paid, standard deduction, interest on repayment of home loan etc.
- Income From Business or Profession: Add your income earned by running a business or pursuing a profession. Make sure you claim the expenses related to such business or profession while calculating the income under this head.
- Income from other sources: Add the income earned from any other sources. Income such as interest income on fixed deposit, savings bank interest, etc are covered under income from other sources.
Step- 2: Claim the Exemptions and Tax Deductions
From the gross income now deduction all the exemptions, allowances, and deductions available to you w.r.t. The income earned.
- Salary income exemptions, allowances and deductions
- Leave travel concession as contained in clause (5) of section 10;
- House rent allowance as contained in clause (13A) of section 10;
- Some of the allowance as contained in clause (14) of section 10;
- Standard deduction, the deduction for entertainment allowance and employment/ professional tax as contained in section 16;
2. Rental income
- Interest paid on home loan under section 24. Deduction against interest on home is applicable in respect of self-occupied or vacant property.
- Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per existing law
3. Deduction from business or profession income
Expense incurred in relation to running such business or profession
- Depreciation on assets, and additional depreciation on such assets.
- Deduction for donation for or expenditure on scientific research
- Rent, Rates, Taxes, Repairs, and Insurance of building
- Any bonus or commission paid to the employees
- A contribution made to the employees recognized provident fund or approved superannuation fund or approved gratuity fund.
4. Deductions from Gross Income
- Section 80C deduction against Public Provident Fund (PPF), Employees’ Provident Fund (EPF), the premium paid towards life insurance policies, principal repayment of a home loan. Section 80C includes investment in National Savings Certificate (NSC), investment in Equity Linked Savings Scheme (ELSS mutual fund), children tuition expenses, etc
- Contribution to National Pension Scheme (NPS)
- Medical insurance policies for self, spouse & dependent children.
- Repayment of education loan
- Contribution for a charitable purpose
Step-3: Calculate the Net taxable Income
Deduct the exemptions, allowances, and deduction from the gross income. This will be your net taxable income for the financial year. You need to calculate the tax payable on such net taxable income.
Step-4: Calculate the Tax Payable
Calculate the tax payable for the financial year at the applicable income tax slab rate for FY 2021-22. Calculate the taxes already paid during the financial year such as TDS, advance tax, self-assessment tax. Deduct the taxes already paid from the total tax payable, this will be your net tax payable for the financial year.
Income Tax Slab for New and Old Regime FY 2021-22
Income range per annum | Tax Rate as per Old Regime | Tax Rate as per New Regime |
Upto Rs 2.50 Lakh | No Tax | No tax |
Rs 2.50 Lakh – Rs 5 Lakh | 5% | 5% |
Rs 5 Lakh – Rs 7.50 Lakh | 20% | 10% |
Rs 7.50 Lakh – Rs 10 Lakh | 20% | 15% |
Rs 10 Lakh – Rs 12.50 Lakh | 30% | 20% |
Rs 12,50,000 – Rs 15,00,000 | 30% | 25% |
Above Rs 15,00,000 | 30% | 30% |
Q14) What is Taxable income?
A14) Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.
Q15) How one can make use of the Scrip box’s Income Tax calculator online?
A15) We can now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q16) From which incomes Deductions to be made in Computing Total Income are not allowed?
A16) These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
Q17) What are the types of Deductions to be made in Computing Total Income?
A17) The types of deductions to be made in computing total income are-
1. Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
2. Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q18) Discuss deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]?
A18) Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
Q19) Illustrate double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]?
A19) Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
Q20) Discuss deductions cannot exceed Gross Total Income [Section 80A (2)]?
A20) The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.
Unit 3
Computation of Total Taxable Income and Tax Liability
Q1) What are the deductions U/S 80 C, 80 CCC TO 80U?
A1) Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]
The aggregate of income computed under each head, after giving effect to the provisions for clubbing of income and set off of losses, is known as "Gross Total Income". In computing the total income of an assessee, certain deductions are permissible under sections 80C to 80U from Gross Total Income.
These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
These deductions are of two types:
- Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
- Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q2) What are the basic Rules of Deductions [Sections 80A/80AB/80AC]?
A2) 1. Deductions cannot exceed Gross Total Income [Section 80A (2)]:
The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.
- Deduction not allowed to members if allowed to AOP/BOI [Section 80A (3)]:
If a deduction is allowed under the above sections to the AOP or BOI then deductions for the same payment/income will not be allowed to the members of the AOP/BOI. [Section 80A (3)].
2. Double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]:
Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
3. Deduction allowed only when it is claimed by the assessee [Section 80A (5)]:
Where the assessee fails to make a claim in his return of income for any deduction under section 10AA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e., sections 80-IA to 80RRB), no deduction shall be allowed to him thereunder.
4. Profit or gain to be recomputed if inter unit or inter business transfer is not at market value [Section 80A (6)]
5. Assessee's duty to place relevant material:
If an assessee approaches a statutory authority for obtaining a concession under the taxing statute, he should in fairness place all the material before the said authority and be also in a position to satisfy the said authority that he was entitled to obtain the concession.
6. Deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]:
Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
7. Benefits of certain deductions not to be allowed in cases where return is not filed within the specified time limit [Section 80AC]:
Where in computing the total income of an assessee, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under section 139(1).
Q3) What are the types of Taxable Income?
A3) The types of Taxable Income are-
Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:
1. Employee compensation and benefits
These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.
2. Investment and business income
For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.
3. Miscellaneous taxable income
This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insurance, and cancelled debts. Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.
Q4) How do you compute total income and tax liability of an individual?
A4) According to section 2(45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 5 of the act provides scope of total Income-
(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Q5) What is the procedure for computation of total income and tax liability of an individual?
A5) The stepwise procedure for computation of total income and tax liability of an individual are stated below-
Step 1: Compute the income of an individual under 5 heads of income on the basis of his residential status.
Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under respective heads.
Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of income.
Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.
Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are part of gross total income.
Step 6: The balance income after allowing the deductions is known as total income which will be rounded off to the nearest Rs. 10.
Step 7: Compute tax on such Total Income at the prescribed rates of tax.
Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual having total income up to Rs. 3,50,000. For details see below.
Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and up to Rs. 1 crore and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.
Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if applicable).
Step 11: Allow relief under section 89, if any.
Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.
Q6) What is Education cess and higher secondary education cess?
A6) For the education cess the rate is 2% of the tax payable and for the Secondary and Higher Education Cess the rate is 1% of the tax payable. Together they form the education cess rate of 3% of the tax payable.
An education cess is an additional levy that is applied on the basic tax liability by the Government to generate additional revenue to fund primary, secondary and higher education. Apart from individuals, even corporations are required to pay this cess every year at rates determined during the annual budgets.
This money is used by the Government in improving the existing educational infrastructure and in providing increased access to quality education within the country. Educational cess is used to fund expenses such as midday meals, opening of new Government schools & colleges, educational loans for deserving candidates from low-income background, salaries for staff and faculties working in Government-funded educational institutions, for funding specialized schemes etc.
Q7) How to Calculate Education Cess?
A7) Let us take the example of Aneesh. He has an annual income of Rs. 8 lakhs out of which he invests Rs. 30,000 in life insurance and contributes Rs. 40,000 towards a PPF account. He also makes a contribution to the Sukanya Sam Riddhi Account to the tune of Rs. 20,000 and invests Rs. 30,000 in a pension scheme. This means that his total investments amount to Rs. 1 lakh in a year which brings his taxable income down to Rs. 7 lakhs.
Based on his investments, the tax that he will have to pay is Rs. 65,000. On this tax he will pay education cess of:
Primary Education Cess: Rs. 1,300 at a rate of 2% of the tax payable, i.e., Rs. 65,000.
Secondary and Higher Education Cess: Rs. 650 at a rate of 1% of the tax payable.
This means that the total education cess that will be payable will be Rs. 1,950 which means that the income tax due for Aneesh is Rs. 66,950.
However, it needs to be remembered that since the education cess is only payable on the tax due so if your income falls in the non-taxable bracket of the income tax slab, you won’t have to pay this cess
Q8) How is Education Cess Used?
A8) As the name suggests, this is a cess that is collected to enable the government to run education programs and schemes that can help improve the quality and access to education in the country. The money that has been collected by the government is earmarked for the following expenses:
- The cess is used to provide students with the mid-day meals.
- It is also used for setting up government aided schools and colleges.
- The staff of the government schools and colleges are also paid their salaries using this money.
- The government can also use this money to set up education loans that are provided at lower rates to students to help them pay the fee for higher education.
- It can also be used to fund special schemes like the Rastriya Madhyamik Shiksha Abhiyan that aims at making secondary education more accessible.
- The money may also be used to fund premier institutes like IIT and IIM in the setting up of more branches in states that still don’t have access to these institutes.
- If the government plans on expanding the number of educational facilities for children, then the money collected as education cess can be used to fund the programs.
Q9) What is Surcharge?
A9) A surcharge is an extra fee, tax or fee added to the cost of a good or service in addition to the initial price. A surcharge is added to the existing tax and is not a part of the initially quoted price of a good or service.
In the Income Tax Act, there is a provision of a surcharge on income tax for those taxpayers whose income falls under the upper tax slab of 30%. You are liable to pay an additional surcharge on your Income Tax liability if your income falls under the 30% tax slab.
The surcharge on income tax is the additional tax liability that you need to pay if you earn a higher income i.e., income above a certain limit.
Q10) What are the Surcharge Rates Applicable to Different Taxpayers?
A10) The rate of the surcharge for individuals is different from those of other taxpayers. Here is a table showing the rates of surcharge on income tax for various types of taxpayers:
Type of the Taxpayer | Net Income threshold | Rate of Surcharge on income tax |
Individual / HUF / AOP / BOI | From Rs. 50 Lakhs to Rs. 1 Crore | 10% |
Individual / HUF / AOP / BOI | From Rs. 1 Crore to Rs. 2 crores | 15% |
Individual / HUF / AOP / BOI | From Rs. 2 Crore to Rs. 5 crores | 25% |
Individual / HUF / AOP / BOI | Above Rs. 5 Crore | 37% |
Firm / LLP / Local Authorities / Co-operative Society | Above Rs. 1 Crore | 12% |
Domestic Companies | From Rs. 1 Crore to Rs.10 Crores | 7% |
Domestic Companies | Above Rs. 10 Crores | 12% |
Here, it is important to note that if your income is more than Rs.1 crore but less than Rs. 2 crores, the surcharge on income tax will be levied at the rate of 15%.
As per the provisions of the Income Tax Act, you can get a marginal relief, if your income is above Rs.50 lakhs. The Marginal relief will be the difference between the excess tax payable (including the surcharge for individuals) and the amount exceeding Rs.50 Lakhs.
Q11) What is an Income tax calculator?
A11) An income tax calculator is a tool that will help calculate taxes one is liable to pay under the old and new tax regimes. The calculator uses necessary basic information like annual salary, rent paid, tuition fees, interest on child’s education loan, and any other savings to calculate the tax liability of an individual.
It gives the total tax payable under the old and new scheme. Also, it suggests investment opportunities for the individual based on the tax liability. The online income tax calculator is a convenient tool and is free to use. It is simple to understand and can be used by anyone to calculate their tax liability.
Q12) How to use an Income tax calculator?
A12) Scrip box’s Income tax calculator helps anyone in determining their tax outflow
For the financial year. The online tax calculator requires some data concerning income, investments, and expenses of the taxpayer to calculate taxes online.
Let us now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q13) How to calculate Income tax?
A13) The Income Tax is calculated on the basis of the income tax slab applicable to the taxpayer, and the net income. You can follow the following steps to calculate the income tax for any financial year 2021-22:
Step-1: Calculate the Gross Total Income
You must calculate the gross total income under the different heads of income.
Income From Salary- Add the total gross salary received from the employer during the financial year. In your Form 16 your gross salary will be mentioned. Your employer will issue a Form 16 after the end of the financial year
- Income from capital gains – Add the long term and short-term capital gains to your gross income. Not all capital gains are taxable at a slab rate. Hence, you must be careful about the rate of tax applicable.
- Income from house property– Add your net rental income for a let-out property to your gross income. Make sure you claim the deduction for municipal taxes paid, standard deduction, interest on repayment of home loan etc.
- Income From Business or Profession: Add your income earned by running a business or pursuing a profession. Make sure you claim the expenses related to such business or profession while calculating the income under this head.
- Income from other sources: Add the income earned from any other sources. Income such as interest income on fixed deposit, savings bank interest, etc are covered under income from other sources.
Step- 2: Claim the Exemptions and Tax Deductions
From the gross income now deduction all the exemptions, allowances, and deductions available to you w.r.t. The income earned.
- Salary income exemptions, allowances and deductions
- Leave travel concession as contained in clause (5) of section 10;
- House rent allowance as contained in clause (13A) of section 10;
- Some of the allowance as contained in clause (14) of section 10;
- Standard deduction, the deduction for entertainment allowance and employment/ professional tax as contained in section 16;
2. Rental income
- Interest paid on home loan under section 24. Deduction against interest on home is applicable in respect of self-occupied or vacant property.
- Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per existing law
3. Deduction from business or profession income
Expense incurred in relation to running such business or profession
- Depreciation on assets, and additional depreciation on such assets.
- Deduction for donation for or expenditure on scientific research
- Rent, Rates, Taxes, Repairs, and Insurance of building
- Any bonus or commission paid to the employees
- A contribution made to the employees recognized provident fund or approved superannuation fund or approved gratuity fund.
4. Deductions from Gross Income
- Section 80C deduction against Public Provident Fund (PPF), Employees’ Provident Fund (EPF), the premium paid towards life insurance policies, principal repayment of a home loan. Section 80C includes investment in National Savings Certificate (NSC), investment in Equity Linked Savings Scheme (ELSS mutual fund), children tuition expenses, etc
- Contribution to National Pension Scheme (NPS)
- Medical insurance policies for self, spouse & dependent children.
- Repayment of education loan
- Contribution for a charitable purpose
Step-3: Calculate the Net taxable Income
Deduct the exemptions, allowances, and deduction from the gross income. This will be your net taxable income for the financial year. You need to calculate the tax payable on such net taxable income.
Step-4: Calculate the Tax Payable
Calculate the tax payable for the financial year at the applicable income tax slab rate for FY 2021-22. Calculate the taxes already paid during the financial year such as TDS, advance tax, self-assessment tax. Deduct the taxes already paid from the total tax payable, this will be your net tax payable for the financial year.
Income Tax Slab for New and Old Regime FY 2021-22
Income range per annum | Tax Rate as per Old Regime | Tax Rate as per New Regime |
Upto Rs 2.50 Lakh | No Tax | No tax |
Rs 2.50 Lakh – Rs 5 Lakh | 5% | 5% |
Rs 5 Lakh – Rs 7.50 Lakh | 20% | 10% |
Rs 7.50 Lakh – Rs 10 Lakh | 20% | 15% |
Rs 10 Lakh – Rs 12.50 Lakh | 30% | 20% |
Rs 12,50,000 – Rs 15,00,000 | 30% | 25% |
Above Rs 15,00,000 | 30% | 30% |
Q14) What is Taxable income?
A14) Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.
Q15) How one can make use of the Scrip box’s Income Tax calculator online?
A15) We can now see the step-by-step process of how one can make use of the Scrip box’s Income Tax calculator online.
Step 1 Annual return of income – Provide the details of the income earned under various heads of income such as salary, interest income from deposits, capital gain, rent from house property, and other taxable income.
Step 2 Enter Exemptions-Provide the details of exemptions available against the income earned during the financial year. Such exemption can be against salary, self-occupied property, and let-out property.
Step 3 Tax Deductions- Provide the details of deduction available under section 80C investments and expenses, health insurance, NPS, education loan, and donations.
Step 4 Basic Details- Provide your age and taxes paid during the financial year. Your age will help in determining the tax payable.
Step 4 Tax Breakdown- In this step, the calculator calculates the total tax as per the new scheme as well as per the old scheme. Also, it determines how much more needs to be invested for effective tax saving. Furthermore, taxpayers can go back at any step and change the values as required. Additionally, the calculator suggests the best investment options to save tax further.
Q16) From which incomes Deductions to be made in Computing Total Income are not allowed?
A16) These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income:
- Long-term capital gains.
- Short-term capital gain on transfer of equity shares and units of equity-oriented fund through a recognised stock exchange i.e., short-term capital gain covered under section 111A.
- Winnings of lotteries, races, etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
Q17) What are the types of Deductions to be made in Computing Total Income?
A17) The types of deductions to be made in computing total income are-
1. Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
2. Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
Q18) Discuss deduction to be allowed in respect of net income included in Gross Total Income [Section 80-AB]?
A18) Where any deduction is required to be made or allowed under any section in respect of any income then for the purpose of computing the deduction under that section, the net income computed in accordance with the provisions of the Income-tax Act (before making any deduction under this chapter i.e., Chapter VIA) shall alone be regarded as the income received by the assessee and which is included in his Gross Total Income. [Section 80AB].
Q19) Illustrate double deduction not allowed and deduction cannot exceed the profit of the particular undertaking or unit or enterprise, etc. [Section 80A (4)]?
A19) Notwithstanding anything to the contrary contained in section 10AA or in any provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes" (i.e. deductions under sections 80-IA to 80RRB), where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
Q20) Discuss deductions cannot exceed Gross Total Income [Section 80A (2)]?
A20) The aggregate number of deductions under sections 80C to 80U i.e., under Chapter VI-A shall not, in any case, exceed the "Gross Total Income" (exclusive of long-term capital gains, short-term capital gain covered under section 111A, winnings of lotteries, crossword, puzzles, etc. and income referred to in sections 115A to 115AD and 115D) of the assessee. Therefore, the total income after deductions will either be positive or nil. It cannot be negative due to deductions. If the "Gross total income" is negative or nil, no deduction can be permitted under this Chapter.