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Taxation Revisionary Series

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CA Intermediate

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May, 2024

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Lecture 13 – Income Tax Liability –

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Computation and Optimization
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CA Nishant Kumar
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Income Tax Revision Schedule

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Date Day Topic

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01-02-2024 Thursday L1 - Basics of Taxation and General Tax Rates
03-02-2024 Saturday L2 - Residence and Scope of Total Income
06-02-2024 Tuesday L3 - Income from Salaries

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08-02-2024 Thursday L4 - Income from House Property

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10-02-2024 Saturday L5 - Profits and Gains from Business or Profession
13-02-2024 Tuesday L6 - Capital Gains
15-02-2024 Thursday L7 - Income from Other Sources

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17-02-2024 Saturday L8 - Clubbing of Income
20-02-2024 Tuesday
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L9 - Set Off; Carry Forward of Losses
22-02-2024 Thursday L10 - Deductions from Gross Total Income
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02-03-2024 Saturday L11 - Return Filing and Self Assessment
03-03-2024 Sunday L12 - TDS, TCS, Advance Tax
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04-03-2024 Monday L13 - Income Tax Liability - Computation and Optimization

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GST Revision Schedule

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Date Day Topic

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05-03-2024 Tuesday L1 - Supply Under GST
07-03-2024 Thursday L2 - Charge Under GST; Composition Levy
09-03-2024 Saturday L3 - Place of Supply

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12-03-2024 Tuesday L4 - Exemptions from GST

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14-03-2024 Thursday L5 - Time of Supply
16-03-2024 Saturday L6 - Value of Supply

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19-03-2024 Tuesday L7 - Input Tax Credit
21-03-2024 Thursday L8 - Registration Under GST
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23-03-2024 Saturday L7 - Tax Invoice; Credit and Debit Notes; E-Way Bill
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26-03-2024 Tuesday L8 - Accounts and Records; TDS & TCS
28-03-2024 Thursday L9 - Payment of Tax
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30-03-2024 Saturday L10 - Returns Under GST

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 Chapter 13 – Income Tax Liability –
Computation and Optimization
Meaning of Total Income

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Component Description
Total Income The amount calculated by subtracting deductions outlined in Chapter VI-A from
the Gross Total Income.
Gross Total The sum of income from five distinct categories. This calculation includes
Income (GTI) adjustments for income clubbing and provisions for the set-off and carry
forward & set-off of losses.

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Income to be Considered While Computing Total Income of Individuals
Income Type Description

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Personal Income (under 5 This includes salaries, income from house property, business or
income categories) professional profits and gains, capital gains, and other sources of
income.
Income as a Partner in a • Salaries, bonuses, etc., received by a partner are taxed as
Firm/LLP business income.
• Interest on capital and/or loans to the firm/LLP is also taxed as
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the partner's business income.
• The above incomes are taxable only to the extent they are
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permitted as deductions for the firm.

• A partner's share of profit in the firm is tax-exempt [Section
10(2A)].
Income as a Member of • A member's share of HUF income is exempt [Section 10(2)].
an HUF (Hindu Undivided • Income from an impartible estate of HUF is taxable to the
Family) estate's holder, typically the eldest HUF member.
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• Income from self-acquired property converted to joint family

property without adequate consideration.
Income of Other Persons • Income transferred without asset transfer is included in the
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Included in an Individual's transferor's income.

Income • Income from a revocable asset transfer is also included in the
transferor's income.
• Spouse's income as per section 64(1)(ii)/(iv), including income
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from assets transferred without adequate consideration to

anyone for the spouse's benefit [Section 64(1)(vii)].
• Income from assets transferred without adequate
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consideration to the son's wife or for her benefit [Section

64(1)(vi)/(viii)].
• Income of a minor child as mentioned in section 64(1A).
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Computation of Total Income and Tax Payable by an Individual

Step Action Details
1 Determination of • Identify residential status to decide the portion of income for
Residential Status tax calculation.

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 Step Action Details
• Influenced by presence in India and includes categories like
Resident and ordinarily resident, Resident but not ordinarily
resident, and Non-resident.
• If an individual, who is an Indian citizen, earns more than
₹ 15 lakh during the past year (excluding income from
foreign sources) and is not liable to pay taxes in another
country due to their domicile, residence, or similar criteria,

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they are deemed a resident in India for that previous year.
This deemed resident is categorized as “resident but not
ordinarily resident” in India for that year.
2. Classification of Income classified under Salaries, Income from house property,
Income Under Profits and gains of business or profession, Capital Gains, and Income

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Different Heads from other sources. Specific charging and deeming provisions apply.
3. Computation of Calculate income for each category, applying relevant provisions,
income under each excluding exempt income, including allowable deductions, and
head choosing between the default or optional tax regime.

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4. Clubbing of income Include income transferred to or generated by certain individuals in
of spouse, minor the taxpayer's income for tax computation, with specific exemptions
child, etc. available.
5. Set-off or carry Adjust losses within the same income category or across different
forward and set-off categories, with provisions for carrying forward unabsorbed losses.
of losses Restrictions apply based on the type of loss and income head.
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6. Computation of Combine income from all categories, applying clubbing rules and
Gross Total Income adjusting for losses, to determine GTI.
(GTI)
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7. Deductions from Apply deductions under Chapter VI-A and section 10AA to calculate
Gross Total Income total income, considering specific payments, certain incomes, and
other incomes, with limitations based on the tax regime chosen.
8. Total income Calculate total income by deducting allowable deductions from GTI,
rounding off to the nearest ₹10, and prepare for tax calculation.
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9. Application of the Determine tax liability using concessional tax rates in the default tax
rates of tax on the regime or regular provisions under the optional tax regime, applying
total income specific tax rates to certain incomes and general slab rates to the
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rest.
10. Surcharge and Aspect Detail
Rebate Surcharge Surcharge is an extra tax levied on the income-
Overview tax payable. It is calculated as a percentage of
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the income tax.

Surcharge for • Total income > ₹50 lakhs but ≤ ₹1 crore:
A.Y. 2024-25 10% surcharge on income-tax
under Section • Total income > ₹1 crore but ≤ ₹2 crore:
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115BAC 15% surcharge on income-tax

• Total income > ₹2 crore (excluding
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dividend income and capital gains under

sections 111A, 112, 112A): 25%
surcharge on income-tax
• Total income > ₹2 crore (including
dividend income and capital gains under
sections 111A, 112, 112A, not covered
above): 15% surcharge on income-tax
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 Step Action Details
• Surcharge on dividend income and
capital gains under sections 111A, 112,
112A: Not exceeding 15%
Surcharge • Total income > ₹50 lakhs but ≤ ₹1 crore:
when opting 10% surcharge on income-tax
out of Section • Total income > ₹1 crore but ≤ ₹2 crore:
115BAC 15% surcharge on income-tax

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• Total income > ₹2 crore but ≤ ₹5 crore
(excluding dividend income and capital
gains under sections 111A, 112, 112A):
25% surcharge on income-tax
• Total income > ₹5 crore (excluding

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dividend income and capital gains under
sections 111A, 112, 112A): 37%
surcharge on income-tax
• Total income > ₹2 crore (including

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dividend income and capital gains under
sections 111A, 112, 112A, not covered
above): 15% surcharge on income-tax
• Surcharge on dividend income and
capital gains under sections 111A, 112,
112A: Not exceeding 15%
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Marginal Marginal relief is available under both tax
Relief regimes to ensure that the increase in tax
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payable (including surcharge) due to an increase

in total income beyond prescribed limits does
not exceed the increase in total income.
Rebate under • For individuals under default regime
Section 87A (Section 115BAC) with total income ≤
₹7,00,000: Rebate equal to income-tax
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payable or ₹25,000, whichever is less.

• For individuals under default regime
with total income > ₹7,00,000: Rebate
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equals the difference between income-

tax payable and the excess of total
income over ₹7,00,000, provided the
income-tax payable exceeds this excess.
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• For individuals under optional tax

regime with total income ≤ ₹5,00,000:
Rebate equal to income-tax payable or
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₹12,500, whichever is less.

• Rebate not available for tax payable
@10% on long-term capital gains under
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Section 112A for individuals under

optional regime.
11. Health and • The income-tax is increased by 4% as HEC on income-tax plus
Education Cess (HEC) surcharge/minus rebate under section 87A, wherever
on Income-tax applicable.
• Payable by all assessees liable to pay income-tax, regardless
of total income level.
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 Step Action Details
• Total Tax Liability = Tax on Total Income at applicable rates +
Surcharge (if total income > ₹50 lakhs) + HEC @ 4% or –
Rebate u/s 87A.
12. Alternate Minimum Discussed Subsequently
Tax (AMT)
13 Tax Regime Choice • Persons without business or professional income should
(a). for Assessees compare total income and tax liability under both the default

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Without Business or regime (Section 115BAC) and regular provisions, including
Professional Income AMT if applicable.
• This comparison helps decide the more beneficial option and
whether to opt out of the default regime.
• Flexibility to choose tax under the default regime one year

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and opt out in another.
• Decision to remain in or opt out of the default regime can be
made annually.
• Crucial to calculate total income and tax liability under both

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13 Tax Regime Choice
(b). for Assessees With regimes (including AMT) to ascertain the more advantageous
Business or option.
Professional Income • Option to opt out of the default tax regime is available.
• Decision must be made by the due date for submitting the
income return under section 139(1) for that year.
• Once opted out, the decision applies to subsequent years but
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can revert to the default regime only once.
• After reverting once, cannot choose this option again, except
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if no longer have business income.

14 Credit for Advance • Tax deducted at source from payments such as salary, rent,
Tax, TDS, and TCS etc., and tax collected at source from selling specific goods.
• Advance tax payable in installments or in full by 15th March
for those under presumptive provisions (section 44AD or
44ADA).
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• Tax Payable = Total Tax Liability – TDS – TCS – Advance tax

paid.
• Both businesses and non-business taxpayer individuals must
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pay advance tax if payable amount surpasses ₹10,000.

15 Tax Payable/Tax • Net tax payable or refundable is determined after adjusting
Refundable advance tax, TDS, and TCS.
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• Amount rounded off to the nearest multiple of ₹10.

• Tax payable at the time of filing the return is termed as self-
assessment tax.
• If a refund is due, it is processed after filing the return of
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income.

Alternate Minimum Tax

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• The assessees who avail the profit linked deductions (SEZ, etc.), and investment linked
deductions (Section 35AD) are subject to something known as Alternate Minimum Tax.
• Government of any country needs regular inflow of tax to work for the welfare of the country,
and therefore, the concept of Alternate Minimum Tax has been introduced.
• Alternate Minimum Tax = 18.5% of Adjusted Total Income

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 • Adjusted Total Income is calculated as follows:

Particulars ₹
PGBP xxx
Add: Deduction u/s 10AA xxx
Add: Deduction u/s 35AD xxx
Add: Deductions u/s 80JJAA, 80QQB, 80RRB xxx
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Less: Depreciation u/s 32 on assets on which deduction u/s 35AD was claimed xxx
Adjusted Total Income xxx

Important Notes
• This concept is applicable to all the assessees except companies.

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• Alternate Minimum Tax is applicable only when the Adjusted Total Income of the assessees
exceeds ₹20 lakhs.

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Adjustments While Computing PGBP Income
PGBP Adjustments - Expenditures
S. Transaction Treatment
No. If Debited to P&L Otherwise
1 Rent Paid for Residential House Add Back to Net Profit No Action Required
2 Depreciation Always Add Back; Compute Compute and Deduct in
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fresh and deduct in the end the end
3 Municipal Taxes Paid for House Add Back to Net Profit; Subtract while
Property Subtract while computing computing IFHP
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IFHP
4 Contribution to Outsiders for No Action Required Subtract from Net Profit
Scientific Research (Old Scheme)
5 Contribution to Outsiders for Add Back to Net Profit No Action Required
Scientific Research (New Scheme)
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6 Payment exceeding ₹10,000 in Add Back to Net Profit (Full No Action Required
cash to Non-Transporters Amount)
7 Payment exceeding ₹35,000 in Add Back to Net Profit (Full No Action Required
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cash to Transporters Amount)

8 Undervaluation of Opening Stock Subtract from Profit
9 Unreasonable Payment to Add Back No Action Required
Relatives
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10 Car used for Personal as well as Add back personal portion of No Action Required
for Business Use car expenditure
11 Drawings Add Back to Net Profit No Action Required
12 Investment in NSC Add Back to Net Profit; Subtract from GTI
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Subtract from GTI

13 Bonus to Staff not paid till Due Add Back to Net Profit No Action Required
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Date of Return Filing

14 Advertisement in the souvenir of Add Back to Net Profit No Action Required
political party
15 Payment/Donation to a Political Add Back to Net Profit; Subtract from GTI
Party Subtract from GTI
16 Penalty/Fee for Delayed Filing of Add Back to Net Profit No Action Required
Returns
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 PGBP Adjustments - Expenditures
S. Transaction Treatment
No. If Debited to P&L Otherwise
17 Penalty for non-fulfilment of No Action Required No Action Required
delivery conditions
18 Interest/Commission Paid Add Back 30% of Interest to No Action Required
without TDS Profit
19 Interest paid on late payment of No Action Required No Action Required

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GST
20 Income Tax Paid Add Back to Net Profit No Action Required
21 Interest on Loan for Personal Add Back to Net Profit No Action Required
Purpose
22 Advertisement in a souvenir Add Back to Net Profit No Action Required

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published by local political party
23 Purchase of Furniture or Any Add Back to Net Profit; Consider in Block and
Other Capital Asset Consider in Block and Provide Provide Depreciation

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Depreciation
24 Family Planning Expenditure (for Add Back to Net Profit No Action Required
Non-Corporate Assessees)

PGBP Adjustments - Incomes

S. Transaction Treatment
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No. If Credited to P&L Otherwise
1 Income Tax Refund Subtract from Profit No Action Required
(Principal)
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2 Income Tax Refund Subtract from Profit; Include in Include in IFOS

(Interest) IFOS
4 Dividend Subtract from Profit; Include Include Gross Value in IFOS
Gross Value in IFOS
5 Winnings from Game Subtract from Profit; Include Include Gross Value in IFOS
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Show Gross Value in IFOS

6 Rent Received from House Subtract from Profit; Consider in Consider in IFHP
Property IFHP
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7 Income from UTI Subtract from Profit; Include Include Gross Value in IFOS
Gross Value in IFOS
8 Honorarium Subtract from Profit; Include in Include in IFOS
IFOS
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9 Benefits Received from No Action Required Add to Profit

Clients (for Profession)
10 Undervaluation of Closing Add to Profit
Stock
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11 Interest on Debentures Subtract from Profit; Include Include Gross Value in IFOS
Gross Value in IFOS
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12 Profit from Sale of Subtract from Profit; Treated as Treated as Capital Gains
Scientific Research Asset Capital Gains
13 Sale of Goods to Relative No Action Required No Action Required
at less than MRP
14 Royalty on Patents Subtract from Profit; Include in Include in IFOS
IFOS

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 PGBP Adjustments - Incomes
S. Transaction Treatment
No. If Credited to P&L Otherwise
15 Bad Debts Recovered Subtract the unreasonable Add to Profit only the
(Credited Unreasonably) portion reasonable portion
16 Warehousing Charges Subtract from Profit; Taxed as Taxed as Specified Business
Specified Business Income Income
17 Interest on FDs Subtract from Profit; Include Include Value in IFOS

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Value in IFOS
18 Interest on PPF Subtract from Profit; Include Include Value in IFOS
Value in IFOS
19 Interest on Savings Bank Subtract from Profit; Include Include Value in IFOS
Value in IFOS

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20 Interest on National Subtract from Profit; Include Include Value in IFOS
Savings Certificates VIII Value in IFOS
Issue

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Important Questions: Questions 3, 4, 5, 8, 9, 10, 17, 18, 19, 20, 21, 23, 24, 26
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