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Income Tax and Taxable Income

Income Tax and Taxable Income

Income-tax is charged on the Total Income of a Previous Year at the rates prescribed for the Assessment Year. ‘Assessment Year’ means the period of 12 months commencing on April 1, every year. ‘Previous Year’ is the financial year immediately preceding the assessment year.

A ‘resident’ tax payer is charged income tax on his global income, subject to a double taxation relief in respect of foreign incomes taxed abroad.

In the case of a non-resident, income-tax is charged only on incomes received, accruing or arising in India or which are deemed to be received, accrued or arisen in India.

For the purpose of computing total income and charging tax thereon, income from various sources is classified under the following heads:

  1. Salaries
  2. Income from House Property
  3. Profits and Gains of business or profession
  4. Capital Gains
  5. Income from Other Sources

These five heads of income are mutually exclusive. If any income falls under one head, it cannot be considered under any other head. Income under each head has to be computed as per the provisions under that head. Then, subject to provisions of set off of losses between the heads of income, the income under various heads has to be added to arrive at a gross total income. From this gross total income, deductions under Chapter VIA are to be allowed to arrive at the total income.

On this total income tax is calculated at the rates specified in the relevant Finance Act or the rates given in the Income Tax Act itself {as in the case of long term capital gains]. From this tax, rebates and reliefs, if any, allowable under Chapter VIII are allowed to arrive at the total tax payable by the assessee. The above procedure is summarized below:

Gross Total Income=A+B+C+D+E

Total Taxable Income=Gross Total Income – Deductions allowable from Income.

Total Tax Payable=Tax on Total Income – Rebates and relief allowable from Income Tax.

Income Tax and Taxable Income



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