Five Heads of Income & other important things that every accountant must know for Income Tax filing.

FIVE HEADS OF INCOME

1. Income from Salaries

2. Income from House Property

3. Profits & Gains of Business or Profession

4. Capital Gain

5. Other Sources

Below is the specimen for better understanding of how income tax should be calculated on various income.

Name of Assessee :-		Assessment Year :-
Residential Status:-		Previous Year :-
Sr. No	Particulars		Amount
1	Income From Salary		xxx
2	Income From House Property		xxx
3	Profit & Gains of Business or Profession		xxx
4	Income from Capital Gains		xxx
5	Income from Others Sources		xxx
	Gross Total Income		xxx
Less	Deductions under Section 80C to 80U		xxx
	Total Taxable Income		xxx
	Computation of Tax Liability:
	Tax on Total Income		xxx
Less	Tax Rebate u/s 87A (if applicable)		xxx
	Balance tax after rebate		xxx
	Add : Surcharge (if applicable)		xxx
	Balance tax after surcharge		xxx
Add	Health & Education Cess @4%		xxx
Less	Tax paid on Self- Assessment	xxx
	TDS	xxx
	Advance Tax Paid	xxx	xxx
	Tax Payable/ Tax Refundable		xxx

Note:

Section 115BAC:- Tax regime for the INDIVIDUALS & HUF (optional for Assessee)

1. Senior citizen exemption limit is 3 lakh and super senior citizen exemption limit is 5 lakh (only if assesse avail existing exemption limit)

2. Rebate u/s 87A is available in both cases if the total Income is upto 5 lakh.

Key Points:

The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other case (i.e. when the individual or the HUF has business income), the option once exercised for the previous year shall be valid for that previous year and all subsequent year.

Individual or HUF opting for taxation under section 115BAC shall not be entitled to the following exemptions / deduction:

1. Leave travel concession as contained in clause (5) of section 10

2. House rent allowance as contained in clause (13A) of section 10

3. Some of the allowance as contained in clause (14) of section 10

4. Allowance to MPs /MLA as contained in clause (17) of section 10

5. Allowance for income of minor as contained in clause (17) of section 10

6. Exemption for SEZ unit contained in section 10AA

7. Standard deduction, deduction for entertainment allowance and employment/ professional tax as contained in section 15

8. Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law)

9. Additional depreciation under clause (iia) or sub-clause (iii) of sub section(1) or sub-section (2AA) of section 35.

10. Deduction under section 35AD or section 35CCC

11. Deduction from family pension under clause (iia) of section 57

12. Any deduction under chapter VIA (Like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80cg, 80GGA, 80IA, 80IAB, 80IAC, 80IB, 80IBA). However deduction under sub-section (2) of section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment can be claimed.

SPECIFIC RATES OF TAX

In respect of certain types of income, The Income Tax Act has prescribed specific rates-

Sr No	Nature of Income	Rate of Tax
a	Long Term Capital Gains (other than specified at point b)	20%
b	Long Term Capital Gain on Transfer of
	- Equity share in a company	10% if LTCG > Rs. 1 Lac
	- Unit of an equity-oriented Fund
	- Unit of business trust
	Conditions
	- Securities Transaction Tax should have been paid
c	Short Term Capital Gain on Transfer of-
	- Equity share in a company	15%
	- Unit of an equity-oriented Fund
	- Unit of business trust
	Conditions
	- Such shares or unit sold on or after 1/10/2004
	- Securities Transaction Tax should have been charged on such sale.
d	Winning from-
	- Lotteries	30%
	- Crossword Puzzles
	- Race including horse races
	- Card games and other games of any sort
	- Gambling or betting of any form
e	Income by way of dividend exceeding Rs. 10 lacs in aggregate	10%
f	Unexplained money, investment, expenditure etc. deemed as income	60%

INCOMES EXEMPT FROM TAX ( SECTION 10)

There are certain income which are absolutely exempt from tax, and they do not form part of total income. Following are the incomes, which are exempt from tax-

• Agricultural Income

• Share of income from Partnership Firm

• Amount received by a member from HUF Income

• Gratuity

• Payments to MPs & MLAs

• Income of Register Trade Union

This list is illustrative only and may include some more income.

MARGINAL RELIEF

In case the total income of an individual exceeds Rs. 50 Lakhs, the total amount of income tax (including surcharge) on such income should not exceed the amount of income tax payable on Rs. 50 lakhs by more than the amount of income that exceeds Rs. 50 lakhs.

Illustration 1.

Total income of Mr. X (aged 53 years) is Rs. 51 Lakhs for the assessment year 2021-22. His tax liability can be calculated as follows-

A) Taxa payable including surcharges @10% on 51 lakhs      = 14,76,750

B) Tax payable on total income of Rs.50 lakhs                        = 13,12,500

Excess Tax payable (A-B)                                                            = 1,64,250

Marginal relief (1,64,250- 1,00,0000)

(being the amount in excesss of Rs 50 Lakhs)                             = 64,250

Tax Payable                                                                                  = 14,12,500

Add : H & E Cess @ 4%                                                              = 56,500

Tax Liability (rounded off)                                                        = 14,69,000

Note: The same rule is applicable in case the total income exceeds Rs. 1 crore and other assesses also.

TAX RATES FOR OTHERS (ASSESSMENT YEAR 2021-22)

A. Partnership Firms

30%  +  Health & Education Cess @ 4%   +  Surcharge – 12% if net income exceeds Rs. 1 Crore.

B. Domestic Companies

30% (25% where the total turnover or gross receipts during the previous year 2018-19 does not exceeds Rs. 400 Crore) + Health & Education Cess @ 4%

Surcharge

1. 7% if net income exceeds 1 Crore and upto Rs. 10 Crore

2. 12% if, net income exceeds Rs. 10 Crore

Will continue all heads of income in various blog, stay tuned!