How to calculate Total Income?

Total income of an assessee is gross

total income as reduced by the amount
permissible as deduction under the
sections 80C to 80U.

The scheme of computation of total

income and tax liability thereon can be
easily understood with the help of the
following chart:
 COMPUTATION OF INCOME FOR AN
ASSESSMENT YEAR:

Income from
1 Salaries:

Income from
salary
Income by way of
allowances
Taxable value of
perquisites

Gross Salary under

section 16
Less:
Entertainment
Allowances
Professional
Tax

Income from
Salaries
2 Income from house property:

Adjusted net annual value

Less:
Deductions under section 24

Income from house property

3 Profits and gains of business or profession:

Net profits as per profit and loss account

Add:

Amounts which are debited to P/L A/c but are not allowable

as deductions under the Act

Less:

Expenditure which are not debited to P/L Account but are allowable as
deductions under the Act

Less:

Income which are credited to P/L a/c but are exempt under section

10 or are taxable under other heads of income

Add:

Those income which are not credited to P/L A/c but are taxable

under the head "Profits and gains of business or profession"

Profits and Gains of business or profession

4 Capital Gains:

Amount of capital Gains

Less:

Amount exempt under sections 54, 54B, 54D, 54EC, 54F, 54G,
54GA and 54H

Income from Capital Gains

5 Income from other sources:

Gross Income
Less:
Deduction under section 57(any sum spent
for earning of income)

Income from other sources

Total
( 1+2+3+4+5)
Less:

Adjustment on account of set off and carry forward of

losses

Gross total
income

Less:

Deductions under section 80C to

80U

Total income or net income rounded off

Computation of Tax liability

Tax on net income

Less:
Rebate under section 88E (STT)

Balance

Add: Surcharge

Tax & surcharge

Add: Education cess: ( 3% of tax and

surcharge)

Less: Rebate under section 89, 90 (Double

Taxation relief) and 91 (Unilateral tax
exemptions)

Tax
Tax

Less:

Prepaid taxes

Tax paid on self-assessment

Tax deducted or collected at source

Tax paid in advance

Tax liability rounded off

An Illustration:

X (age: 30 Years) is a salaried employee in . He gets the following emoluments

from his employer during
the previous year ending March 31,
2009:

(Rs.)

Basic Salary 180000

Bonus 30000
Commission
(Fixed) 48000

House Rent Allowances) 36000

Employer's contribution towards recognized
PF 23400

During the previous year 2008-09, the employer has provided a laptop
computer
for using it for official and private purpose. Ownership is not transferred.
Further the employer

provides club facility to X.

He owns a house property which is used by him for his own
residence. Municipal valuation
of the house property is Rs.30000 whereas the standard rent under the
rent control act is
Rs.20000. He makes the following expenditure in respect of house
property: Municipal
taxes : Rs.3000, repairs : Rs.1000, interest on Capital borrowed to pay
municipal tax: Rs.150
and insurance : Rs.600.

During the previous year, 2008-09, he makes the following

expenditure and investments:
(Rs.)
Contribution towards recognized
PF 30000
Payment of insurance premium on own
life policy 4000

Donation to National Defense

Fund 3200
Other income
(interest) 89000
Determine the net income and tax liability of X for the assessment
year 2009-10.
Solution:

1) Income from Salary: (Rs.) (Rs.)

Basic Salary 180000
Bonus 30000
Commission 48000
House Rent Allowance: 36000
Less: Nil 36000
Exempt from tax, being the least of the
following three
a) Rs.90000 (being 50% of salary)
b) Rs.36000 ( being the house rent all.
Received)
c) Nil (being excess of rent paid (i.e Nil minus 10% of
salary)

Employer contribution of Salary excess of 12% of

salary (Basic) 1800
(Rs.23400 - Rs.21600)  

Gross Salary 295800

Gross Salary 295800
Less: Standard Deduction Nil
Income from salary 295800

(Note that the perquisites in respect of use of computer and

Club facility is not chargeable to tax.)

2) Income from House Property:

Income NIL
(Since house is used for the purpose of own residence,
nothing would be chargeable to tax under section 23(2)(a).
Interest on capital borrowed to pay municipal tax is not
deductible)
3) Income from other sources:

Bank Interest 89000

Gross Total
Income 384800

Less : Deductions under Section 80C

to 80U

Under section 80 ( C) ( own cont. to PF and

Insurance) 34000

Under section 80 (G) in respect of donation to

NDF (100%) 3200

No deduction for 80L for Bank

Interest nil
 

Net Income 347600

 34760
Net Income 0

Tax on Net
Income: 24520

Add: Surcharge (not applicable since NI less

than Rs. 10 Lacs) nil

Tax and
surcharge 24520

Education cess
+ Add. (3%) 736
Tax payable 25256