CA SHREY RATHI COMPUTATION OF TOTAL INCOME & TAX LIABILITY 16.

SACHIN TENDULKAR

CHAPTER 16
COMPUTATION OF TOTAL INCOME
& TAX LIABILITY

" When people throw stones at you,

convert them into milestones”

SCOPE OF THIS CHAPTER

❖ Understanding the roadmap from of computation of total income.
❖ Determining the tax liability of an assessee.
❖ Understanding the concept of Alternate Minimum Tax.

COMPUTATION OF TOTAL INCOME

STEP 1: Determination of Residential Status

STEP 2: Computation of income under each head

STEP 3: ADD: Clubbing of income of spouse, minor child etc.

STEP 4: LESS: Set-off or carry forward and set off of losses

STEP 5: Gross Total Income (STEP 2 + STEP 3 - STEP 4)

STEP 6: LESS: Deductions from Gross Total Income

STEP 7: Total Income (STEP 5 – STEP 6)

CA SHREY RATHI COMPUTATION OF TOTAL INCOME & TAX LIABILITY 16.2

STATEMENT SHOWING COMPUTATION OF TAX ON TOTAL INCOME

1. Tax on Winnings from Lotteries etc.: (@ 30% without any exemption or slab rate) XXX
2. Tax on Other Incomes (In case of Individual / HUF)
Upto ₹ 2,50,000 Nil
From ₹ 2,50,001 to ₹ 5,00,000 5% XXX
From ₹ 5,00,001 to ₹ 10,00,000 20% XXX
Above ₹ 10,00,000 30% XXX XXX
Note: Basic limit of ₹ 2,50,000 will change to ₹ 3,00,000 / ₹ 5,00,000 in case of senior citizen or super senior citizen as the
case may be. The slab rate will change where the assessee follows Section 115BAC.
➢ The slab rate will change if the assessee wishes to pay tax as per Section 115BAC.
3. Tax on Long Term Capital Gains @ 20% XXX
4. Tax on Short Term Capital Gains on Sale of Listed Shares @ 15% u/s 111A XXX
5. Tax on Long-term Capital Gains u/s 112A @ 10% on income exceeding ₹ 1,00,000 XXX
TOTAL TAX XXX
Add: Surcharge (if the total income exceeds ₹ 50 lakhs / ₹ 1 crore) XXX
Less: Rebate of maximum ₹ 12,500 u/s 87A (if the total income is upto ₹ 5,00,000) XXX
XXX
Add: Health and Education Cess @ 4% XXX
XXX
Less: Advance Tax, TDS & TCS, Relief u/s 89(1) & Tax credit u/s 115JD XXX
NET TAX PAYABLE XXX

Notes:
1. First exemption of ₹ 2,50,000 / ₹ 3,00,000 / ₹ 5,00,000 shall be given for other incomes and balance exemption, if any
shall be given to LTCG and the balance to STCG on listed shares u/s 111A in a manner which is more beneficial to the
assessee. Non-residents shall not avail the benefit of balance exemption.
2. Any tax payable and refund due shall be rounded off to the nearest multiple of ten rupees u/s 288B.

Q 1: Mr. Sanjay (aged 61 years – resident) has earned an income of ₹ 4,00,000 from LTCG on sale of property & ₹ 40,000
as interest on fixed deposit. His tax liability assuming that he does not opt for the provisions of 115BAC for the A/Y 2023-
24 shall be:
(a) ₹ 7,800 (c) ₹ 20,800
(b) ₹ 16,120 (d) ₹ 18,200 [Ans: (a)]

Q 2: Mr. Pawan (aged 33 years - resident) has earned income of ₹ 9,50,000 from business & ₹ 4,00,000 from STCG on sale
of listed equity shares (STT paid). He further deposited ₹ 1,40,000 in PPF & paid ₹ 30,000 as life insurance premium. His
tax liability assuming that he opts for the provisions of 115BAC for the A/Y 2023-24 shall be:
(a) ₹ 1,37,800 (c) ₹ 1,69,000
(b) ₹ 1,24,800 (d) ₹ 1,09,200 [Ans: (b)]

Q 3: Mr. Karan (aged 65 years – non-resident) has received rent of ₹ 6,20,000 from let-out of house property. He further
earned ₹ 3,00,000 from sale of seedling & saplings grown in a nursery. His tax liability assuming that he does not opt for
the provisions of 115BAC for the A/Y 2023-24 shall be:
(a) ₹ 25,270 (c) ₹ 38,270
(b) ₹ 14,870 (d) ₹ 27,870 [Ans: (c)]
CA SHREY RATHI COMPUTATION OF TOTAL INCOME & TAX LIABILITY 16.3

ALTERNATE MINIMUM TAX (AMT) [SECTION 115JC]

AMT is a minimum tax that is leviable alternative to normal tax.

AMT is applicable to all assessee (other than company) who has claimed any deduction under:
• Section 80H to Sec. 80RRB (other than Sect. 80P); or
• Section 10AA
• Section 35AD

At intermediate level, AMT is limited with respect to deduction u/s 10AA, Section 35AD and deduction u/s 80JJAA, 80QQB & 80RRB only.

AMT is applicable where the regular income-tax payable by an assessee (other than company) for a previous year
computed as per the provisions of the Income-tax Act, 1961 is less than the AMT payable for such previous year, the
adjusted total income shall be deemed to be the total income of the person. Such person shall be liable to pay income-tax
on the adjusted total income @ 18.5% [Section 115JC].
However, in case of Co-operative Society, alternate minimum tax would be 15% instead of 18.5%. Surcharge (if
applicable) & HEC @ 4% shall be separately charged.

Note: The provisions of AMT would not apply to an individual or HUF opting for concessional rates of tax
under section 115BAC and co-operative society opting for section 115BAD.

Exception:
The provisions of AMT shall not apply to an individual or a HUF or an AOP or a BOI, whether incorporated or not, or an
artificial juridical person, if the adjusted total income of such person does not exceed ₹ 20 lakh. [Section 115JEE(2)]
Author’s view: The exception is not applicable in case of Firm and Limited Liability Partnership. That means, AMT is
applicable on LLP / Firm (claiming deduction under aforesaid section) even though adjusted total income does not exceed
₹ 20 lakhs.

COMPUTATION OF TAX LIABILITY UNDER NORMAL PROVISIONS V/S ALTERNATE MINIMUM TAX
Step 1 Compute regular income tax liability (before HEC) of the assessee covered under A ***
these provisions
Step 2 Compute Adjusted Total income of the assessee i.e. ***
Total income of the assessee *** B
Add:
• Deduction claimed u/s 80H to sec. 80RRB (other than sec. 80P) *** C
• Deduction claimed u/s 35AD less Depreciation u/s 32 *** D
• Deduction u/s 10AA *** E
Adjusted Total Income *** F
Note:
(i) If ‘C’, ‘D’ and ‘E’ is zero, then these provisions are not applicable to any assessee.
(ii) If ‘F’ does not exceed ₹ 20 lakhs, then these provisions are not applicable in case of an
individual/HUF/AOP/BOI/Artificial juridical person. However, the provision is applicable
on LLP/ Firm.
Step 3 Compute Alternate Minimum Tax (AMT) [Being 18.5% of Adjusted Total G = F* 18.5% ***
Income
Step 4 Income Tax Liability Higher of A & G ***
Add: Surcharge (if applicable)
Add: Health & Education Cess @ 4% ***
Tax liability after Cess ***
 CA SHREY RATHI COMPUTATION OF TOTAL INCOME & TAX LIABILITY 16.4

TAX CREDIT FOR AMT [SECTION 115JD]

Where AMT is payable by the assessee, then the amount paid in excess of the normal tax liability shall be allowed as credit
for the upcoming years.
Mathematically, tax credit available = Tax paid u/s 115JC - Regular Tax Payable
Such tax credit shall be carried forward and set-off against income-tax payable in the later year to the extent of excess of
regular income-tax payable under the provisions of the Act over the AMT payable in that year. The balance tax credit, if
any, shall be carried forward to the next year for set-off in that year in a similar manner.
For e.g.: Where the income tax payable for the F/Y 2021-22 under the regular provisions of the Act is ₹ 1,00,000, whereas
AMT is ₹ 1,40,000. Then the assessee will have to pay tax as per Section 115JC. Tax credit = ₹ 1,40,000 – ₹ 1,00,000 = ₹
40,000, which shall be carried forward to the next F/Y.
Now, let’s say for the F/Y 2022-23, the income tax payable under the regular provisions of the Act is ₹ 1,90,000 whereas
AMT is ₹ 1,74,000. Since the regular income tax payable is higher than AMT, it shall be payable. Further, the tax credit of ₹
40,000 shall be adjusted against ₹ 1,90,000. However, the tax credit shall be restricted to 16,000, being the amount of
excess regular income tax above AMT. In other words, the excess of regular tax over AMT u/s 115JC is the amount of
maximum set off permissible.
The balance (unexhausted tax credit) of ₹ 24,000 shall be carried forward to the next F/Y.

❖ AMT credit can be carried forward for set-off up to a maximum period of 15 assessment years succeeding the
assessment year in which the credit becomes allowable.
❖ Tax credit is allowable even if Adjusted Total Income does not exceed ₹ 20 lakhs in the year of set-off. [Section
115JEE(3)]

Examples for better clarification

Particulars Mr. W Mr. X Mr. Y A LLP B LLP
Gross Total Income being Business Income 15,00,000 25,00,000 27,00,000 32,00,000 8,00,000
Deduction u/s 80C 1,00,000 1,00,000 1,00,000 Nil Nil
Deduction u/s G 25,000 1,00,000 Nil 1,00,000 1,00,000
Deduction u/s 80JJAA 7,75,000 Nil 8,00,000 Nil 2,00,000
Total Income 6,00,000 23,00,000 18,00,000 31,00,000 5,00,000
Regular Tax 32,500 5,02,500 3,52,500 9,30,000 1,50,000
Adjusted Total Income 13,75,000 23,00,000 26,00,000 31,00,000 7,00,000
Whether Sec. 115JC is applicable or not No1 No2 Yes No2 Yes
1. As adjusted total income does not exceed
₹ 20 lakhs
2. As no deduction is claimed u/s 80H to
80RRB (other than sec. 80P) or u/s 10AA or
35AD
Alternate Minimum Tax (AMT) u/s 115JC NA NA 4,81,000 NA 1,29,500
[18.5% of adjusted total income]
Tax (Higher of Regular Tax and AMT) 32,500 5,02,500 4,81,000 9,30,000 1,50,000
Add: Health & Education Cess 1,300 20,100 19,240 37,200 6,000
Tax and Cess Liability (Rounded off) 33,800 5,22,600 5,00,240 9,67,200 1,56,000

Q 4: Mr. Kunal (aged 42 years – resident) has income u/h PGBP of ₹ 22,00,000. He is eligible for deduction of ₹ 9,00,000
u/s 80JJAA. He wishes to opt for 115BAC. What shall be his tax liability?
(a) ₹ 4,13,400 (c) ₹ 4,23,280
(b) ₹ 2,10,600 (d) ₹ 5,96,440 [Ans: (a)]
CA SHREY RATHI COMPUTATION OF TOTAL INCOME & TAX LIABILITY 16.5

QUICK REVISION BEFORE EXAMS

Section Particulars
Computation of Total Income & Tax Liability
Step 1: Calculate the total income under 5 heads & deduction from GTI depending upon the residential
status.
Step 2: Determine the tax liability according to the provision stated in the question. Remember the rates of
special income / surcharge / limit u/s 87A.
115JC Alternate Minimum Tax
An assessee (other than company) claiming deduction u/s 10AA, 35AD, 80JJAA, 80QQB or 80RRB and having
adjusted total income > ₹ 20,00,000 shall be liable to the provisions of AMT. The limit of 20 lakhs does not
apply to firm / LLP.
Rate of Tax: 18.5% of Adjusted Total Income (15% in case of co-operative society). Surcharge (if applicable) +
HEC shall be separately applicable.
Adjusted Total Income = Total Income + Deductions u/s 10AA, 35AD, 80JJAA, 80QQB or 80RRB Less
depreciation if deduction is claimed u/s 35AD.
115JD AMT Credit = AMT – Normal Tax. It can be carried forward for 15 years.

NOTES FOR STUDENTS

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