Computation of Tax for Individual

The income taxable in the hands of an individual and tax liability thereon shall be computed
according to his residential status. The income taxable under the Income-tax Act is computed
under the five heads of income, and tax thereon is computed as per the tax slab rates applicable
for that previous year.
Determination of residential status

Income-tax liability of an individual is calculated on the basis of his ‘Total Income’. His
residential status in India influences the income to be included in the taxable income. An
individual can be categorised into the following residential status during the previous year:
(a) Resident in India
(b) Resident but Not-ordinarily Resident
(c) Non-Resident in India
An individual, who is a resident in India, is liable to pay tax in India on his global income. On
the other hand, a non-resident person is liable to pay tax in India only on that income which
accrues or arises or is deemed to accrue or arise in India, and income received or deemed to be
received in India. However, if the income of an individual is taxable in India and outside India,
then he can claim a foreign tax credit in respect of such income.
Computation of income

Income tax is levied on the total income of an individual. Thus, the first step is to compute the
total income. The total income of an assessee is computed in the following steps:
Calculate income under 5 heads
In Income-tax Act, the income is computed in the following 5 heads of income:
(a) Salary
(b) House Property
(c) Profits and gains from business or profession
(d) Capital Gain
(e) Income from Other Sources.

Clubbing of income of any other person

An individual is generally taxed in respect of his own income, but in respect of certain income,
the Income-tax Act clubs the income of other persons in an individual’s income. Hence, an
individual has to add another person’s income to his own income if clubbing provisions apply in
his case.
Set off and carry forward of losses

[As amended by Finance Act, 2 0 23]

Where an individual has incurred losses under any head of income, then he is allowed to make
the following adjustments subject to relevant provisions relating to set-off and carry forward of
losses:
(a) Intra-head adjustment to set-off of losses from one source of income against income from
another source taxable under the same head of income.
(b) Inter-head adjustment to set-off of losses from one head of income against income taxable
under another head of income.

If losses cannot be set off in the same year due to inadequacy of eligible profits, then certain
losses are carried forward to the next assessment year.
Allowability of deductions under Chapter VI-A
The aggregate of income so computed as per aforesaid steps is called ‘Gross Total Income
(GTI)’, out of which various deductions are allowed to a taxpayer on account of investments and
savings made by him.
Determining total income
The balance income after allowing the deductions is called ‘Total Income’. The total income is
bifurcated into 2 parts - Normal Income and Special Income. The normal income of a taxpayer is
charged to tax as per applicable tax rates, and special income is charged to tax at special rates.
Computation of tax

To calculate an individual’s tax liability, income shall be first apportioned into normal income
and special income. The bifurcation is done as normal income is taxable at applicable slab rates.
However, where an individual opts for New Tax Regime as provided under Section 115BAC, the
tax on normal income shall be charged at the rates provided under the said section. Whereas
special income is taxed at special rates as prescribed under the Act.
An individual is liable to pay tax on normal income only if it exceeds the maximum exemption
limit.
Applicability of AMT
Every assessee (other than a company) is subject to Alternative Minimum Tax (‘AMT’) if he has
claimed any of the following deductions:
(a) Deduction under any provision (other than Section 80P) included in Chapter VI-A under
the heading ‘C- Deduction in respect of certain income’; or
(b) Deduction under Section 10AA; or
(c) Deduction under Section 35AD.
The alternative minimum tax is payable by the individual if the adjusted total income exceeds
Rs. 20 lakhs and the tax payable by him on his total income (computed as per normal provisions
of the Act) is less than 18.5% (or 9% in case of a unit in IFSC) of ‘adjusted total income’.

[As amended by Finance Act, 2 0 23]

 Computation of tax liability on total income Amount
AMT liability
Tax payable on deemed total income computed as per AMT provisions xxx
Add: Surcharge xxx
AMT after surcharge xxx
Add: Health and Education Cess xxx
Total tax payable as per AMT provisions (A) xxx
Normal tax liability
Tax on income at normal rates xxx
Tax on income at special rates xxx
Tax on Total Income xxx
Less: Rebate under Section 87A (xxx)
Tax payable after rebate xxx
Add: Surcharge xxx
Tax payable after surcharge xxx
Add: Health and Education Cess xxx
Total tax payable as per normal provisions (B) xxx
Gross tax payable [Higher of AMT liability (A) or Normal tax liability (B)] xxx
Less: Tax-deferred on perquisite value of ESOPs issued by eligible start-ups (xxx)
Gross tax payable (after excluding tax-deferred on perquisite value of ESOPs xxx
issued by eligible start-ups)
Less:
- AMT Credit (xxx)
- Relief under Section 89 (xxx)
- Foreign tax credit under Section 90, 90A or 91 (xxx)
Net tax liability xxx
Add:
- Interest under Section 234A, 234B, 234C xxx
- Fees for late filing of return under section 234F xxx
Aggregate tax liability xxx
Less: Taxes Paid
- TDS deducted (xxx)
- TCS collected (xxx)
- Advance tax paid (xxx)
- Self-Assessment Tax (xxx)
Total tax payable/ refundable xxx

Tax Rates for Individual

Normal Tax Rates (Old tax regime)

The normal tax rates are prescribed every year under the First Schedule of the Finance Act. The
tax rates in the case of an individual have been enumerated in the below table:
Net income range Resident Super Resident Senior Any other
Senior Citizen Citizen Individual

[As amended by Finance Act, 2 0 23]

 Up to Rs. 2,50,000 Nil Nil Nil
Rs. 2,50,001- Rs. 3,00,000 Nil Nil 5%
Rs. 3,00,001- Rs. 5,00,000 Nil 5% 5%
Rs. 5,00,001- Rs. 10,00,000 20% 20% 20%
Above Rs. 10,00,000 30% 30% 30%

‘Super senior citizen’ means an individual whose age is 80 years or more at any time during the
relevant previous year.

‘Senior citizen’ means an individual whose age is 60 years or more at any time during the
relevant previous year but less than 80 years on the last day of the previous year.

Normal Tax Rates (New tax regime)

Section 115BAC provides a new tax regime for individuals, which has reduced tax slabs.
However, to avail of the benefit of this tax regime, the assessee has to forgo specified
exemptions and deductions.

If an eligible assessee opts for this regime, the income shall be taxable at the following rate:
Total Income (Rs) Rate
Upto 3,00,000 Nil
From 3,00,001 to 6,00,000 5%
From 6,00,001 to 9,00,000 10%
From 9,00,001 to 12,00,000 15%
From 12,00,001 to 15,00,000 20%
Above 15,00,000 30%

The assessee opting for payment of taxes under Section 115BAC is required to satisfy the
following conditions:

(a) Total income of the assessee has to be computed without claiming the following specified
exemptions and deductions;
 Leave Travel concession [Section 10(5)];
 House Rent Allowance [Section 10(13A)];
 Official and personal allowances (other than those as may be prescribed) [Section
10(14)];
 Allowances to MPs/MLAs [Section 10(17)];
 Exemption for income of minor [Section 10(32)];
 Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];
 Entertainment Allowance [Section 16((ii)];
 Professional Tax [Section 16(iii)];
 Interest on housing loan (In case of property referred under section 23(2) i.e. self-
occupied house property) [Section 24(b)];
 Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];

[As amended by Finance Act, 2 0 23]

  Deduction for investment in new plant and machinery in notified backward areas
[Section 32AD];
 Deduction in respect of tea, coffee, or rubber business [Section 33AB];
 Deduction in respect of business consisting of prospecting or extraction or production of
petroleum or natural gas in India [Section 33ABA];
 Deduction for donation made to approved scientific research association, university,
college, or other institutes for doing scientific research which may or may not be related
to business [Section 35(1)(ii)];
 Deduction for payment made to an Indian company for doing scientific research which
may or may not be related to business [Section 35(1)(iia)];
 Deduction for donation made to a university, college, or other institution for doing
research in social science or statistical research [Section 35(1)(iii)];
 Deduction for donation made for or expenditure on scientific research [Section
35(2AA)];
 Deduction in respect of capital expenditure incurred in respect of certain specified
businesses, i.e., cold chain facility, warehousing facility, etc. [Section 35AD];
 Deduction for expenditure on agriculture extension project [Section 35CCC]; and
 Deduction under Sections 80C to 80U other than specified under Section 80JJAA,
Section 80CCD(2), Section 80CCH(2), and Section 80LA(1A) [Chapter VI-A].
(b) Total income of the assessee has to be computed without set-off of losses or depreciation
carried forward from earlier years if such loss or depreciation is attributable to any of the
specified exemptions and deductions;
(c) Total income of the assessee has to be computed without set-off of any loss under the head
“Income from house property” with any other head of income;
(d) Total income of the assessee has to be calculated after claiming depreciation in the prescribed
manner; and
(e) Total income of the assessee has to be computed without claiming any exemptions or
deductions for allowances or perquisites provided under any other law for the time being in
force.

Special Tax Rates

Income-tax Act prescribes the following special tax rates in respect of certain income:

Section Assessee Particulars Tax Rate

Section 111A Any Person Short-term capital gains arising from the 15%
transfer of equity shares or units of an
equity-oriented mutual fund or units of
business trust if the transfer of such
capital asset is chargeable to Securities
Transaction Tax (STT)

Any person Long-term capital gains arising from the 10%

Section 112 transfer of listed securities (other than a
unit) or zero-coupon bonds without

[As amended by Finance Act, 2 0 23]

 giving effect to the benefit of indexation.

Non-resident Long-term capital gains arising from the 10%

transfer of unlisted shares or shares of
closely held companies without giving
effect to the benefit of indexation and
currency translation.

Any Person Any other long-term capital gains 20%

Section 112A Any Person Long-term capital gains, in excess of Rs. 10%
1 lakhs, arising from the transfer of
equity shares, units of an equity-oriented
mutual fund, or units of business trust if
the transfer of such capital asset is
chargeable to Securities Transaction Tax
(STT)

Non-resident Interest received from Government or an 20%

Indian concern on monies borrowed or
debt incurred by such Government or the
Indian concern in foreign currency
Non-resident Interest received from notified 5%
Infrastructure Debt Fund as referred to
in Section 10(47)
Non-resident Interest received from an Indian Co. or  Interest
business trust as specified in Section payable in respect of
194LC, i.e., interest in respect of monies long-term bond or
borrowed by them in foreign currency or rupee-denominated
long-term infrastructure bonds or rupee- bonds listed on a
denominated bonds. recognised stock
Section 115A
exchange in IFSC-
4% if bonds are
issued before 01-07-
2023 and 9% if
bonds are issued on
or after 01-07-2023;
 In any other
case- 5%
Non-resident Interest on rupee-denominated bonds of 5%
an Indian Co. or Government Securities
or municipal debt securities as referred to
in Section 194LD
Non-resident Interest income distributed by business 5%
trust to its unit holders as referred to in

[As amended by Finance Act, 2 0 23]

 Section 194LBA.
Non-resident Dividend income 10% if the dividend
is received from a
unit in an IFSC
otherwise 20%

Non-resident Income received in respect of units of 20%

specified Mutual Funds or of UTI
purchased in foreign currency

Non-resident Income by way of royalty or fees for 20%

technical services received from Indian
concern or Government in pursuance of
an approved agreement made after 31-3-
1976. However, the benefit shall not be
available if royalty or fees for technical
services is connected with the assessee’s
Permanent Establishment (PE) in India.

Section 115AC Non-resident Long-term capital gains arising from the 10%
transfer of Bonds or GDRs of an Indian
Company or Public sector company
(PSU) purchased in foreign currency

Non-resident Interest on bonds of an Indian Company 10%

or Public Sector Company (PSU)
purchased in foreign currency
Non-resident Dividend on GDRs of an Indian 10%
Company or Public Sector Company
(PSU) purchased in foreign currency

Section Resident Long-term capital gains arising from the 10%

115ACA Individual transfer of GDRs issued by an Indian
company, engaged in specified
knowledge-based industry or service, to
its employees if such GDRs are
purchased in foreign currency and capital
gain is computed without taking benefit
of foreign exchange fluctuation and
indexation.

Resident Dividend on GDRSs issued by an Indian 10%

Individual company, engaged in a specified
knowledge-based industry or service, to
its employees if such GDRs are
purchased in foreign currency

[As amended by Finance Act, 2 0 23]

Section 115AD Foreign Short-term capital gains arising from the 15%
Institutional transfer of equity shares or units of an
Investors equity-oriented mutual fund or units of
business trust as covered under Section
111A

Short-term capital gains arising from the 30%

transfer of any other securities

Long-term capital gains in excess of Rs. 10%

1 lakh arising from the transfer of equity
shares or units of an equity-oriented
mutual fund or units of business trust as
covered under Section 112A

Long-term capital gains arising from the 10%

transfer of other securities provided
capital gain is computed without taking
benefit of foreign exchange fluctuation
and indexation.

Foreign Interest on rupee-denominated bonds of 5%

Institutional an Indian Company or Government
Investor Securities or municipal debt securities.
Foreign Interest income from other securities 20%
Institutional
Investor
Foreign Dividend income from securities (other 20%
Institutional than dividend from units of specified
investor mutual fund or units of UTI purchased in
foreign currency)

Foreign Income from securities (other than 20%

Institutional income from units of specified mutual
investor fund or units of UTI purchased in foreign
currency)

Section 115B Assessee Profit and gains of life insurance 12.5%

engaged in business
the life
insurance
business

Section 115BB Any person Income by way of winnings from 30%

lotteries, crossword puzzles, races
including horse races, card games, and

[As amended by Finance Act, 2 0 23]

 other games of any sort, or gambling or
betting of any form or nature whatsoever
(other than winnings from online games).
Non-resident Income of a sportsman: 20%
sportsman a) from participation in any game in
(foreign India;
citizen)
b) advertisement; or
c) from the contribution of articles
Section relating to any game or sport in India
115BBA in newspapers, magazines, or
journals

Non-resident Income of an entertainer from 20%

entertainer performance in India
(foreign
citizen)

Section Any person Anonymous donation 30%

115BBC
Section Any person Undisclosed income as referred to in 60%
115BBE Sections 68, 69, 69A, 69B, 69C, and 69D
Section Resident Income by way of royalty in respect of a 10%
115BBF person patent developed and registered in India

Section Any person Any income by way of transfer of carbon 10%

115BBG credits

Section Any Person Income from the transfer of any Virtual 30%
115BBH Digital Asset (VDA)

Section 115BBJ Any Person Income by way of winnings from Online 30%
Games

Section 115E Non-resident Long-term capital gains arising from the 10%
Indian transfer of specified assets purchased in
foreign currency

Non-resident Income from specified asset purchased in 20%

Indian foreign currency

Rebate under Section 87A

In the case of a resident individual, a rebate of up to Rs. 12,500 is allowed under Section 87A
from the amount of tax if the total income of such individual does not exceed Rs. 500,000.

[As amended by Finance Act, 2 0 23]

However, a resident individual paying tax as per the new tax regime under Section 115BAC shall
be allowed a higher amount of rebate under Section 87A if the total income is up to Rs. 7,00,000.
Further, if the total income of the resident individual marginally exceeds Rs. 7,00,000, he will be
eligible for the marginal rebate.
Rate of Surcharge
In respect of an individual, the rate of surcharge for the assessment year 2024-25 shall be as
under:
Range of Total Income
Up to More than Rs. More than More than Rs. More
Nature of Income Rs. 50 50 lakhs but Rs. 1 crore 2 crores but than Rs.
lakhs up to Rs. 1 but up to Rs. up to Rs. 5 5 crores
crore 2 crores crores
Short-term capital gain Nil 10% 15% 15% 15%
covered under Section 111A
or Section 115AD
Long-term capital gain Nil 10% 15% 15% 15%
covered under Section 112A
or Section 115AD or Section
112
Dividend income (not being Nil 10% 15% 15% 15%
dividend income chargeable to
tax at a special rate under
sections 115A, 115AB,
115AC, 115ACA)
Unexplained income 25% 25% 25% 25% 25%
chargeable to tax under
Section 115BBE
Any other income (if opted for Nil 10% 15% 25% 37%
the old tax regime)
Any other income (if opted for Nil 10% 15% 25% 25%
the new tax regime of Section
115BAC)

Health and Education Cess

Every person is liable to pay health and education cess at the rate of 4% on the amount of income
tax plus surcharge.

MCQs on Computation of tax for individual

Q1. A non-resident person is liable to pay tax in India on __________.

(a) Global Income

(b) Income which accrues or arises or deemed to accrue or arise in India

[As amended by Finance Act, 2 0 23]

(c) Income received or deemed to be received in India
(d) Both (b) and (c)

Correct answer: (d)

Explanation: An individual, who is resident in India, is liable to pay tax in India on his global
income. On the other hand, a non-resident person is liable to pay tax in India only on that
income which accrues or arises or is deemed to accrue or arise in India, and income received or
deemed to be received in India.

Q2. In the case of an individual, Alternate Minimum Tax (AMT) is payable at the rate of
_______.

(a) 18.5%
(b) 15%
(c) 10%
(d) 25%

Correct answer: (a)

Explanation: The alternative minimum tax is payable by the individual if the adjusted total
income exceeds Rs. 20 lakhs and the tax payable by him on his total income (computed as per
normal provisions of the Act) is less than 18.5% (or 9% in case of a unit in IFSC) of ‘adjusted
total income’.

Q3. The Basic exemption limit for a resident Super Senior citizen is ________.

(a) Rs. 2,50,000

(b) Rs. 3,00,000
(c) Rs. 5,00,000
(d) None of the above

Correct answer: (c)

Explanation: The Basic exemption limit for a resident super senior citizen is Rs. 5,00,000, for a
resident senior citizen is Rs. 3,00,000, and for any other individual is Rs. 2,50,000.

Q4. The Basic exemption limit for a resident Super Senior citizen is ________ for the
assessment year 2024-25. (in case the assessee opts for taxation under section 115BAC).

(a) Rs. 2,50,000

(b) Rs. 3,00,000
(c) Rs. 5,00,000
(d) None of the above

Correct answer: (b)

[As amended by Finance Act, 2 0 23]

Explanation: For A.Y. 2024-25, the basic exemption limit under Section 115BAC is Rs. 3,00,000,
irrespective of the classification of the individual.

Q5. Short-term capital gains arising from the transfer of equity shares, chargeable to
Securities Transaction Tax (STT), are taxable at the rate of ______.

(a) 20%
(b) 15%
(c) 30%
(d) Slab rate

Correct answer: (b)

Explanation: Short-term capital gains arising from the transfer of equity shares or units of an
equity-oriented mutual fund or units of business trust, if the transfer of such capital asset is
chargeable to Securities Transaction Tax (STT) is taxable at the rate of 15%.

Q6. A person having income by way of winnings from lotteries, or crossword puzzles, is
taxable at the rate of _____.

(a) 20%
(b) 15%
(c) 30%
(d) Slab rate

Correct answer: (c)

Explanation: Income by way of winnings from lotteries, crossword puzzles, races including horse
races, card games, and other games of any sort, or gambling or betting of any form or nature
whatsoever (other than winnings from online games) is taxed at the rate of 30%.

Q7. Which of the following deduction are allowed to an individual if he opts for the new tax
regime of Section 115BAC?

(a) Section 80C

(b) Section 80D
(c) Section 80CCD(2)
(d) Section 80G

Correct answer: (c)

Explanation: If an individual has opted for new tax regime of Section 115BAC, the total income
of such individual has to be computed without claiming the deductions under Sections 80C to
80U other than specified under Section 80JJAA, Section 80CCD(2), Section 80CCH(2), and
Section 80LA(1A).

[As amended by Finance Act, 2 0 23]

Q8. Whether set-off of losses under the head “Income from house property” with any other
income is allowed to an individual if he opted for the new tax regime of Section 115BAC?

(a) Yes
(b) No

Correct answer: (b)

Explanation: If an individual has opted new tax regime of Section 115BAC, the total income of
the assessee has to be computed without set-off of any loss under the head “Income from house
property” with any other head of income.

[As amended by Finance Act, 2 0 23]