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Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University : In order to file your income tax return you first need to collect all the information required to file it. The next important step is to compute your total taxable income. After this, final tax payable or refundable is calculated by applying the applicable tax rates in force and then deducting taxes already paid by way of TDS/TCS or Advance tax from the tax due amount arrived at.

Taxable income is computed under the respective heads (para 1.2.4) after allowing from gross receipts admissible deductions for cost and expenses. The net income under each of these heads is then aggregated to arrive at the ‘Gross total Income’. Computation of income under individual heads is explained in paragraphs following.

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Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

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Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University : 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 to income-tax on his global income, subject to a double taxation relief in respect of foreign incomes taxed abroad. In the case of a ‘non­resident’, 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:

A. Salaries
B. Income from House Property
C. Profits and Gains of business or profession
D. Capital Gains
E. 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.

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University :  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.

COMPUTATION OF TOTAL INCOME

The above procedure is summarized below:

Gross Total Income = A + B + C + D + E
Total Income = Gross Total Income — Deductions under chapter VIA
Total Tax Payable = Tax on Total Income — Rebates and reliefs under Chapter VIII

COMPUTATION OF TOTAL INCOME

COMPUTATION OF TOTAL INCOME
Particulars
a)      Income from Salaries
Basic Salary xx
Taxable Allowances xx
Taxable Value of Perquisites xx
          Gross Salary xx
Less : Entertainment Allowance (xx)
           Professional Tax xx xx
 b)      Income From House Property
Gross Annual Value xx
Less: Municipal Taxes paid (xx)
            Annual Value xx
Less: Deduction u/s 24 (xx) xx
 c)      Profits and Gains of Business or Profession
      Net Profit as per P/L A/c xxx
      Add: Amount shown as expenses but not allowed xx xxx
      Less: Expenses allowed but not claimed. (xx )
      Add: Incomes not shown in the P/L A/c but taxable xxx
      Less: Incomes shown in the P/L A/c but not taxable (xx) xxx
d)      Capital Gains
Sale Consideration xxx
Less: Expenses on transfer (xx)
Net Sale Consideration xxx
Less: Cost of acquisition/improve. (xx)
            Capital Gains xxx
Less: Exemptions (if any) (xx)
xxx
e)      Income From Other Sources  xx
Gross Total Income   xxx
Less: Deduction u/s 80CCC to 80U (xx)
            Total Income   xxx

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University :  How much tax you should pay depends upon the tax slab applicable to your income. Income tax is calculated on the basis of these tax slabs.

Income Tax Rates for taxpayers under 60 years of age in FY 2017-18

Income Slab Tax Rate
Up to Rs.2,50,000 No Tax
Rs.2,50,000 – Rs.5,00,000 5%
Rs.5,00,000 – Rs.10,00,000 20%
Rs.10,00,000 and beyond 30%

Income Tax Rates for taxpayers under 60 years of age in FY 2016-17, FY 2015-16, FY 2014-15 are below.

Income Slab Tax Rate
Up to Rs.2,50,000 No Tax
Rs.2,50,000 – Rs.5,00,000 10%
Rs.5,00,000 – Rs.10,00,000 20%
Rs.10,00,000 and beyond 30%
Income Tax Rates for taxpayers under 60 years of age in FY 2013-14 are below.
Income Slab Tax Rate
Up to Rs.2,00,000 No Tax
Rs.2,00,000 – Rs.5,00,000 10%
Rs.5,00,000 – Rs.10,00,000 20%
Rs.10,00,000 and beyond 30%

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University : Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance. Some components of your salary are exempt from tax, such as medical reimbursements, telephone bills reimbursement. If you receive HRA and live on rent, you can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator

Transport allowance is given to employees as part of their salary to meet travel expenses from residence to work & back. Starting financial year 2015-16, limit of exemption on transport allowance is 1,600 per month or Rs 19,200 per annum. For example – if you receive Rs 2,000 as transport allowance every month, Rs 1600 shall be exempt from tax and remaining Rs 400 per month or Rs 4,800 per annum shall be taxed as salary income.

Let’s understand income tax calculation by way of an example. Neha receives a Basic Salary of Rs 50,000 per month. HRA of Rs 25,000. Transport Allowance of Rs 8,000 per month. Special Allowance of Rs 5,000 per month. LTA of Rs 20,000 annually. Neha pays a rent of Rs 20,000 and lives in Delhi.

Nature Amount Exemption/Deduction Taxable
Basic Salary 6,00,000 6,00,000
HRA 3,00,000 1,80,000 1,20,000
Transport Allowance 96,000 19,200 76,800
Special Allowance 60,000 60,000
LTA 20,000 12,000 (bills submitted) 8,000
Medical Bills 15,000 15,000(bills submitted)
Gross Total Income from Salary 8,64,800

To calculate income tax, include income from all sources. Include:

  • Income from Salary (salary paid by your employer)
  • Income from house property (add any rental income, or include interest paid on home loan)
  • Income from capital gains (income from sale purchase of shares or house)
  • Income from business/profession (income from freelancing or a business or profession)
  • Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)

Neha has income from interest from savings account of Rs 8,400 and a fixed deposit interest income of Rs 10,000 during the year. Neha has made some investments to save income tax. PPF investment of Rs 50,000. ELSS purchase of Rs 20,000 during the year. LIC premium of Rs 8,000. Medical insurance paid of Rs 12,000. Here are the deductions Neha can claim.

Nature Maximum Deduction Eligible investments/expenses Amount claimed by Neha
Section 80C Rs.1,50,000 PPF deposit Rs 50,000, ELSS investment Rs 20,000, LIC premium Rs 8,000. EPF deducted by employer(Neha’s contribution) = Rs 50,000 *12% *12 = 72,000 Rs 1,50,000
Section 80D Rs 25,000 for self Rs 30,000 for parents Medical insurance premium Rs 12,000 Rs 12,000
Section 80TTA 10,000 Savings account interest 8,400 Rs. 8,400

Calculation of gross taxable income in India

Nature Amount Total
Income from Salary 8,64,800
Income from Other Sources 18,400
Gross Total Income 8,83,200
Deductions
80C 1,50,000
80D 12,000
80TTA 8,400 1,70,400
Gross Taxable Income 7,12,800

How to calculate income tax in India for Neha

Up to Rs 2,50,000 Exempt from tax 0
Rs 2,50,000 to Rs 5,00,000 10% (10% of Rs 5,00,000 less Rs 2,50,000) 25,000
Rs 5,00,000 to Rs 10,00,000 20% ( 20% of Rs 7,12,800 less Rs 5,00,000) 42,560
More than Rs Rs 10,00,000 30% (nil) 0
Cess 3% of total tax (3% of Rs 25,000 + Rs 42,560) 2,026
Total Income Tax Rs 25,000 + Rs 42,560 + 2,026 Rs 69,586.80

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University : The above stated principles of computation of business income apply uniformly to all forms of business activities. However, there exist certain special provisions under the Act which deal exclusively with taxation of business income from certain specific activities. These provisions make departure from the normal manner of computing income as explained above and prescribe for working out the taxable income on presumptive
basis as per the norms laid down. These are:-

Further there are special provisions for computing presumptive income in the case of non-residents engaged in the business of shipping, exploration, etc. of mineral oils, operation of aircraft and civil construction etc. in certain turnkey power projects. Such provisions also exist for taxation of income from certain dividends, interest and units derived by a non-resident or a foreign company and from royalty or fees for technical services derived by a foreign company. A detailed discussion about such provisions is made in Chapters VIII and X.

Unit IV Total Income And Tax Computation For Income Tax Laws Bcom Sem 3 Delhi University Notes

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Important Note – Preparing for BCom?
CAKART provides Indias top faculty each subject video classes and lectures – online & in Pen Drive/ DVD – at very cost effective rates. Get video classes from CAKART.in. Quality is much better than local tuition, so results are much better.
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