Wednesday 11 April 2012

Computation [Calculation] of Income Tax


Computation [calculation] of Income tax is based on the net total income of the tax assessee. The computation has a varied gradient which can be very simple, and can get complicated depending on the type of Incomes received and other specified factors.

Salient features for computing the Income Tax are as follows;
  • The tax payable is normally computed after the end of the financial year and paid in the subsequent financial year [also called as 'Assessment Year' or simply 'AY' ], within a stipulated time in order to avoid late payment penalty and other applicable additional levies.
  • Also note, that the taxpayer/assessee may liable to pay Income tax in advance [known as 'Advance Tax'], if the net Income tax payable exceeds Rs.10,000/- for any financial year. Refer below table;
    Status By 15th June  By 15th Sept  15th Dec  15th March
    Corporate 15% 45% 75% 100%
    Non-Corporate  nil 30% 60% 100%
  • Tax for income from sources such as salaried and other remunerated incomes, from most organisations nowadays deduct the Income tax at source and paid on your behalf to the ITD. This process is termed as 'Tax Deducted at Source' [TDS].
  • To keep the economy running, the Income Tax Act also has provisions for various deduction benefits from the taxable income. These deductions are mostly in the form of Financial investments like Life-Insurance, Government bonds, Savings Certificate, even certain Education-fees, Housing-loans, to name a few.
  • Additional benefits also can be availed if the taxpayer decides to donate to certain charitable institutions, which are registered under the Income Tax Act.
As mentioned in the advance tax table above, there is a hint of split/category of two basic units under which Income Tax are calculated, i.e., for Individuals/HUF and Business units. Therefore, slab Rates for the FY 2012-13 [i.e. AY 2013-14] as announced during Union Budget [ 2012] are divided into following Categories.
  1. Individuals & H.U.F
  2. Businesses

A. For Individual & H.U.F, the sources of Income fall as into the below five listed;
  1. Income from Salary
  2. Income from House property
  3. Income from Business or Profession
  4. Income from capital gains
  5. Income from other sources
Incomes are normally imposed in slabs under the net income from all the sources for Individual and HUF, and is normally flat rates for other assessee's. For clear understanding on the rate of Income tax, refer the below table for precise understanding.

Income Range General (non-senior citizens) Category Senior Citizens (Men and Women above 60 years of age), but below 80 years Very Senior Citizens (Men and Women above 80 years of age)
Upto Rs. 2,00,000 Nil Nil Nil
Rs. 2,00,001 to Rs. 2,50,000 10% * Nil Nil
Rs. 2,50,001 to Rs. 5,00,000 10% * 10% * Nil
Rs. 5,00,001 to Rs. 10,00,000 20% 20% 20%
Above Rs. 10,00,000 30% ** 30% ** 30%**

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Freelance Consultant, serving the needy.


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