Basic Questions on Computation of Income Tax

When do I have to pay the taxes on my income?

​​​​​The taxes on income can be finalized only on the completion of the previous year. However, to enable a regular flow of funds and for easing the process of collection of taxes, Income-tax Act has provisions for payment of taxes in advance during the year of earning itself or before completion of the previous year. It is also known as Pay as your earn concept.

Taxes are collected by the Government through the following means:

1. Voluntary payment by taxpayers into various designated Banks such as Advance tax, Self-Assessment tax, etc.
2. Taxes deducted at source
3. Taxes collected at source ​​
4. Equalisation Levy​

What is the difference between gross total income and total income?

Total Income is the income on which tax liability is determined. It is necessary to compute the total income to ascertain tax liability. Section 8​0C to 80U provides certain deductions that can be claimed from Gross Total Income (GTI). After claiming these deductions from GTI, the income remaining is called as Total Income. In other words, GTI fewer Deductions (under section 80C to 80U) = Total Income (TI). Total income can also be understood as taxable income. The following table gives a better understanding of the difference between GTI and TI :

Computation of gross total income and Taxable Income

Note: Inter source losses, inter head losses, brought forward losses, unabsorbed depreciation, etc., (if any) will have to be adjusted (as per the Income-tax Law) while computing the gross total income. ​

Note: If the eligible assessee has opted for concessional tax regime under section 115BAA, 115BAB, 115BAC and 115BAD, the total income of assessee is computed without claiming specified exemptions or deductions:

How to round off total income before computing tax liability?

​As per section 288A​​, total income computed in accordance with the provisions of the Income-tax Law, shall be rounded off to the nearest multiple of ten. The following points should be kept in mind while rounding off the total income:

• First any part of rupee consisting of any paisa should be ignored.

After ignoring paisa, if such amount is not in multiples of ten, and last figure in that amount is five or more, the amount shall be increased to the next higher amount which is in multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is in multiple of ten and the amount so rounded off shall be deemed to be the total income of the taxpayer.​

Illustration for better understanding

If the taxable income of Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, i.e., 0.99 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the total income is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).​

What is rebate under section 87A for F.Y 2020-21 and who can claim it?

​An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A​. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A​ will be lower of 100% of income-tax liability or Rs. 12,500. In other words, if the tax liability exceeds Rs. 12,500, rebate will be available to the extent of Rs. 12,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.

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