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:


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


Income from house property:

Adjusted net annual value

Less: Deductions under section 24

Income from house property


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


Capital Gains:

Amount of capital Gains


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

Income from Capital Gains


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


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 Bonus Commission (Fixed) House Rent Allowances) Employer's contribution towards recognized PF 180000 30000 48000 36000 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 Payment of insurance premium on own life policy Donation to National Defense Fund 30000 4000


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

Solution: 1) Income from Salary: Basic Salary Bonus Commission House Rent Allowance: Less: 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) (Rs.23400 - Rs.21600) Gross Salary 295800 1800 36000 Nil 36000 (Rs.) (Rs.) 180000 30000 48000

Gross Salary Less: Standard Deduction Income from salary (Note that the perquisites in respect of use of computer and Club facility is not chargeable to tax.) 2) Income from House Property: Income (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)

295800 Nil 295800


3) Income from other sources: Bank Interest Gross Total Income Less : Deductions under Section 80C to 80U 89000 384800

Under section 80 ( C) ( own cont. to PF and Insurance) Under section 80 (G) in respect of donation to NDF (100%) No deduction for 80L for Bank Interest

34000 3200 nil

Net Income


Net Income


Tax on Net Income: Add: Surcharge (not applicable since NI less than Rs. 10 Lacs) Tax and surcharge Education cess + Add. (3%) Tax payable






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