Procedure for Computation of Income Tax Liability for an Individual

Procedure for Computation of Income Tax Liability for an Individual

Calculating your tax liability can seem complicated, but when broken into steps, it becomes a straightforward process. This guide will help you Procedure for Computation of Income Tax Liability for an Individual is being given step by step.

Step 1: Identify Your Income Sources

Income is the starting point for computing tax liability. For an individual, income is categorized into five heads:

 1. Income from Salary: Includes basic salary, allowances, bonuses, and perquisites.

2. Income from House Property: Rental income or loss from owning property.

3. Income from Business or Profession: Profits or losses if you run a business or practice a profession.

4. Income from Capital Gains: Earnings from the sale of assets like property, stocks, or mutual funds.

5. Income from Other Sources: Includes interest from savings accounts, fixed deposits, dividends, or any other miscellaneous income.

Step 2: Calculate Gross Total Income (GTI)

Add income from all sources to calculate your Gross Total Income (GTI). For example:

- Salary Income: Rs. 10,00,000

- Rental Income: Rs. 2,00,000

- Interest Income: Rs. 50,000

Gross Total Income = 10,00,000 + 2,00,000 + 50,000 = Rs. 12,50,000

Step 3: Claim Deductions and Exemptions

Reduce your Gross Total Income by claiming applicable deductions and exemptions. Some common deductions under Section 80C to 80U are:

- Section 80C: Investments in PPF, EPF, NSC, life insurance premiums, ELSS (Limit: Rs. 1.5 lakh).

- Section 80D: Medical insurance premiums.

- Section 80TTA: Interest on savings accounts (up to Rs. 10,000).

- Section 80G: Donations to eligible charities.

 For example, if you have investments of Rs. 1.5 lakh under Section 80C and Rs. 30,000 in medical insurance under Section 80D, your total deductions would be:

Deductions = Rs. 1,50,000 + Rs. 30,000 = Rs. 1,80,000

Net Taxable Income = Gross Total Income - Deductions

Net Taxable Income = Rs. 12,50,000 - Rs. 1,80,000 = Rs. 10,70,000

Step 4: Compute Tax on Taxable Income

Apply the applicable tax rates to your Net Taxable Income. Tax rates for individuals (as of FY 2023-24) are as follows:

Income Slab	Tax Rate
0-250000	Nil
250001- to 500000	5%
500001 to 100000	30%

 For senior citizens (60-80 years), the basic exemption limit is Rs. 3,00,000. For super senior citizens (above 80 years), it is Rs. 5,00,000.

Calculation

1. Income up to Rs. 2,50,000: No tax.

2. Income between Rs. 2,50,001 and Rs. 5,00,000: 5% of Rs. 2,50,000 = Rs. 12,500.

3. Income between Rs. 5,00,001 and Rs. 10,00,000: 20% of Rs. 5,00,000 = Rs. 1,00,000.

4. Income above Rs. 10,00,000: 30% of Rs. 70,000 = Rs. 21,000.

Total Tax = 0 + Rs. 12,500 + Rs. 1,00,000 + Rs. 21,000 = Rs. 1,33,500

Step 5: Add Applicable Cess

Add Health and Education Cess at 4% of the total tax liability:

Cess = 4% of Rs. 1,33,500 = Rs. 5,340

Total Tax Liability = Rs. 1,33,500 + Rs. 5,340 = Rs. 1,38,840

Step 6: Subtract Tax Rebates or Relief

If eligible, reduce your tax liability further by claiming rebates or relief. For example:

- Section 87A: If your taxable income is up to Rs. 7,00,000, you can claim a rebate of up to Rs. 12,500.

Step 7: Consider Advance Tax and TDS

If you have paid Advance Tax or tax has been deducted at source (TDS) by your employer or others, subtract these amounts from your total tax liability. For example:

- Advance Tax Paid: Rs. 50,000

- TDS: Rs. 60,000

Tax Payable = Total Tax Liability - (Advance Tax + TDS)

Tax Payable = Rs. 1,38,840 - (Rs. 50,000 + Rs. 60,000) = Rs. 28,840

Step 8: Pay Balance Tax or Claim Refund

If the tax payable is positive, pay the balance using challan ITNS 280 through the income tax portal. If the tax payable is negative, claim a refund.

Step 9: File Your Income Tax Return (ITR)

Finally, file your Income Tax Return online through the income tax e-filing portal. Ensure all details match the documents like Form 16, bank statements, and TDS certificates.

Key Points to Remember

- Keep records of all income, investments, and tax payments.

- File your ITR within the due date to avoid penalties.

- Use online tax calculators for assistance.

By following these steps, you can accurately compute your tax liability and stay compliant with tax laws.