This is how an Individual and Hindu undivided family (HUF) can calculate their tax liability.
Before we start, you need to be familiar with the assessment year and the previous year.
Assessment Year: Total income is to be computed for the current assessment year i.e 2020-21.
Previous Year: Previous years mean the financial year ‘previous’ to the assessment. The financial year 2019-20 is the previous year relevant to the current assessment year 2020-21. The Total Income earned by a person from whatever source during the period from 1st April 2019 to 31st March 2020 will be taxed in the current assessment year.
To calculate tax liability, we need to understand how we calculate Taxes.
Taxes calculate under five different heads, such as income from salary, income from house property, income from business and profession, income from capital gain, and income from other sources. Each of these heads has different exemptions and rules.
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After calculating income from these five heads, we arrive at Gross total income. After deductions of chapter VIA, we arrive at the Net Amount. We calculate tax liability on Net Taxable Income.
Net Taxable income = Gross Total Income – Deductions under Chapter VIA
Interest to know more about Deductions under Chapter VIA, comment down below.
Content: 1) How to compute Tax Payable 2) Normal Rates of Tax 3) Rates of tax for every individual, who is of the age of sixty years or more but less than eighty years 4) Rate of tax for every individual, who is of the age of eighty years or more 5) Surcharge on Income Tax 6) Rebate from Tax (Section 87A) 7) Health and Education Cess on Income Tax
How to compute Tax payable
Once the net taxable income computes, the next step is to compute the final Tax payable. The final tax payable computes as follows:
Taxable Income x Prescribed Rate of Tax = Gross Tax Payable
Add: Surcharge if any, on net tax
Compute Tax Payable (1+2)
Add: Education Cess on Tax (4% on Tax Payable)
Compute Final Tax Payable (3+4)
Note that Winning from lotteries, crossword puzzles, races, card games, gambling, etc. is tax at a special rate of 30%. Other income (“Adjusted Net Income”) charges at a normal rate.
Higher-income is tax at a higher rate and vice versa.
Rates of Tax
Rates of tax for every individual, resident in India, who is of the age of sixty years or more but less than eighty years at any time during the financial year:
In case of every individual being resident in India, who is of the age of eighty years or more at any time during the financial year:
Surcharge on Income Tax
A surcharge — or additional charge — is essentially a tax levied on a tax. It is calculated on payable tax, not on income generated.
Rebate from Tax (Section 87A)
An assesses, being an individual resident in India, whose total income does not exceed Rs 5,00,000 rupees, shall be entitled to a deduction under section 87 of income Tax Act 1961.
Rebate is available only to resident individuals and not available to non-resident.
Health and Education Cess on Income Tax
The amount of income tax shall be increased by health and Education Cess (HEC) on Income Tax at the rate of 4% of the income-tax.
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