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Computation of Total Income and Tax Liability

Section wise Study


Sections

Particulars

2(45)

Meaning of Total Income

14

Heads of Income

14A

No deduction for expenditure in respect of exempt income

80B(5)

Meaning of Gross Total Income

288A

Rounding off of total income

288B

Rounding off of tax, etc.



Heads of Income


As per section 14, all income, for purposes of charge of Income-tax and computation of total income, are classified under the following heads of income:

  • Salaries [Sections 15 to 17]
  • Income from house property [Sections 22 to 27]
  • Profits and Gains of Business and Profession [Sections 28 to 44DA]
  • Capital gains [Section 45-55A]
  • Income from other sources [Section 56-59]


No deduction for expenditure incurred in respect of exempt income against taxable income [Section 14A]



For the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

Method for allocating expenditure in relation to exempt income [Section 14A(2)]: The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act.


Rounding off of Total Income [Section 288A]

The total income, as computed above, shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored. Thereafter if such amount is not a multiple of ten, then, if the last figure is 5 or more, the amount shall be increased to the next higher multiple of 10 and if the last figure of Total Income is less than 5, the amount shall be reduced to the next lower multiple of 10.


Rounding off of tax, etc. [Section 288B]

The amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of the Income-tax Act, shall be rounded off to the nearest multiple of ten rupees and, for this purpose, where such amount contains a part of ten rupees then, if such part is five rupees or more, it shall be increased to ten rupees and if such part is less than five rupees it shall be ignored.


Amount

Amount to be Round off

Income Rs. 1,00,511

Income Rs. 2,38,478

Income Rs. 25,635

Tax Amount Rs. 910.20

Tax Amount Rs. 28,724.70

Tax Amount Rs. 32,481.50



How to Compute Total Income

The steps in which the Total Income, for any assessment year, is determined are as follows:

1. Determine the residential status of the assessee to find out which income is to be included in the computation of his Total Income.

2. Classify the income under each of the following five heads. Compute the income under each head after allowing the deductions prescribed for each head of income.

(a) Income from Salaries

Salary/Bonus/Commission, etc. ---
Taxable Allowance ---
Value of Taxable perquisites ---
Gross Salary ---
Less: Deductions under section 16 ---
Net taxable income from Salary ---

(b) Income from House Property
Net annual value of House Property ---
Less: Deductions under section 24 ---
Income from House Property ---

(c) Profit and Gains of Business and Profession
Net profit as per P & L Account ---
Less/Add: Adjustments required ---
to be made to the profit as per
provisions of Income-tax Act.
Net Profit and Gains of Business and Profession ---

(d) Capital Gains
Capital Gains as computed ---
Less: exemptions under section 54/54B/54D, etc.---
Income from Capital Gains ---
(e) Income from Other Sources
Gross Income ---
Less: Deductions ---
Net Income from Other Sources ---
---

Gross Total Income [(a) + (b) + (c) + (d) + (e)]
Less: Deduction available under Chapter VIA ---
(Sections 80C to 80U) ---
---
Total Income


Question: Income-tax is rounded off to:

  • nearest ten Rupees
  • nearest one Rupee
  • no rounding off of tax is done

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