Computation of Total Income
The Word 'income'
has special meaning with reference to income-tax. It inter alia includes gains
derived on transfer of a capital asset. Since these are not annual accruals,
these are treated on a different footing for taxation purpose!
The basic concepts
and provisions relating to computation of taxable capital gains
are briefly explained in this monograph.
The law contained
in this publication is as per Income tax Act, 1961 as amended by
Finance Act, 2001 and applicable to Assessment Year 2002-2003.
COMPUTATION OF TOTAL 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 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.
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
Income |
= |
Gross
Total Income — Deductions under
chapter VIA |
| Total
Tax Payable |
= |
Tax
on Total Income — Rebates and
reliefs under Chapter VIII |
|
