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Computation of Tax Liability

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44 views5 pages

Computation of Tax Liability

Uploaded by

Sairam
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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COMPUTATION OF TAX LIABILITY

There are 2 Regimes/ rates for paying tax for individuals.

A. DEFAULT REGIME – SECTION 115BAC {NEW REGIME}


OR;
B. OLD REGIME {REGULAR PROVISIONS} – Now this is OPTIONAL.

Rates of Tax under OLD REGIME {OPTIONAL}:


TOTAL INCOME Rate of Tax
Upto ₹2,50,000
Upto ₹3,00,000 {Resident Individual whose age is 60 or more than
60 during the P.Y. but not 80}
Upto ₹5,00,000 {Resident individual whose age is 80 or more than NIL
80 during the P.Y.}
₹2,50,000/ ₹3,00,000, as the case may be to ₹5,00,000 5%
₹5,00,000 to ₹10,00,000 20%
Above ₹10,00,000 30%

SURCHARGE AND REBATE:


Total Income {assuming that the same does not
include dividend, LTCG u/s 112A, 112 & STCG u/s SURCHARGE
111A}
> ₹50 lakhs < ₹1 crore 10% of Income tax
> ₹1 crore < ₹2 crore 15% of Income tax
> ₹2 crore < ₹5 crore 25% of Income tax
> ₹5 crore 37% of Income tax

NOTE:
Enhanced rates of surcharge @ 25% and 37% will not apply in respect of dividend
income, long term capital gains taxable u/s 112A, 112 and Short-Term Capital Gains u/s
111A.

Concept of Marginal Relief {See Illustrations}

Rebate u/s 87A: Rebate of upto ₹12,500 for RESIDENT INDIVIDUALS having total income
upto ₹5,00,000.
Note: This rebate u/s 87A is NOT AVAILABLE in respect of tax payable u/s 112A i.e. @
10% on LTCG on shares of listed companies.
Section 115BAC: Alternative Tax regime for individual/HUF:
{This will become default regime w.e.f. A.Y. 2024-25. If assessee wants, he may opt for
paying tax as per normal rates of tax}

Under this tax regime, income tax shall be computed at the option of assessee as per rate
given in the following table: -
Total Income Rate of Tax
Upto Rs.3,00,000 Nil
Rs.3,00,000 to Rs.6,00,000 5%
Rs.6,00,000 to Rs.9,00,000 10%
Rs.9,00,000 to Rs.12,00,000 15%
Rs.12,00,000 to Rs.15,00,000 20%
Above Rs.15,00,000 30%

Notes:
1. Exemption limit for any individual is Rs.2,50,000 under this alternative tax regime.
In short, the higher exemption limit of Rs.3,00,000 in case of resident senior citizen
and Rs.5,00,000 in case of resident senior citizen is not applicable.
2. Rebate under section 87A is applicable for resident whose taxable income does not
exceed Rs.5,00,000. It is to the extent of 100% of income tax or Rs.12,500, whichever
is lower.
3. Special income will be taxed at special rates and not as per slabs even if individual
has opted for the tax regime under section 115BAC.
4. Surcharge applicable under the existing tax regime is also applicable in the case of
alternative tax regime under section 115BAC.
{Except - See below what Jerry is saying!}

SURCHARGE FOR TAX SECTION 115BAC

Total Income:

Above ₹50 l - ₹1cr: 10% of tax

Above ₹1cr - ₹2cr: 15% of tax

Above ₹2cr: 25% of tax

Above ₹5cr: 37% is NOT APPLICABLE in 115BAC.


5. INCENTIVES NOT AVAILABLE if assessee opts for the alternative tax regime under
section 115BAC:

Assessee paying tax under section 115BAC is not entitled to take


exemptions/deductions of the following while computing total income: -
a. Leave Travel Concession under section 10(5)
b. House Rent Allowance
c. Special allowances of section 10(14)
d. Allowance to MP/MLA
e. Exemption upto Rs.1,500 available in case of clubbed income of minor child
f. Special Economic Zone (Section 10AA)
g. Standard Deduction u/s 16(ia)
h. Entertainment Allowance
i. Profession Tax
j. Interest on Housing Loan in case of one or two self-occupied properties
k. Additional depreciation
l. Investment Allowance under section 32AD
m. Tea/Coffee/Rubber development account (Section 33AB)
n. Site restoration fund
o. Deduction for scientific research under section 35
p. Capital expenditure pertaining to specified business
q. Agriculture extension project
r. Standard deduction in case of family pension
s. Deductions under section 80C to 80U {Except employer’s contribution
towards NPS under section 80CCD (2), deduction under section 80JJAA and
deduction under section 80LA(1A)}.

6. The total income of individual/HUF is calculated without adjusting brought forward


loss (and/or additional depreciation) from any earlier year if such loss/additional
depreciation pertains to any deduction under the aforesaid sections.
7. Brought forward loss/ depreciation as mentioned above shall be deemed to have
been given full effect to and no further deduction for such loss/ depreciation shall
be allowed for any subsequent year.
8. Alternate Minimum Tax (AMT) under section 115JC is not applicable for the assessee
opting for alternative tax regime of section 115BAC. Consequently, even AMT Credit
of earlier years cannot be adjusted against the tax liability which is computed under
section 115BAC.
9. In case the assessee has business or professional income, and no option is exercised, he
will be governed by the alternative tax regime.
The assessee can avail benefit of regular tax regime by exercising the option under section
115BAC (6). Such option can be exercised on or before the due date of submission of
return of income under section 139(1) and such option once exercised shall apply to
subsequent assessment year as well.
10. However, the option once exercised for any previous year can be withdrawn only once
for a previous year (other than year in which it was exercised) and thereafter the person
shall never be eligible to exercise the option of availing the benefit of regular tax regime
{except where such person ceases to have any income from business or profession.}
11. If assessee does not have business or professional income, the option under section 115BAC (6) i.e.
to opt for regular tax regime must be exercised along with return of income under section 139(1)
for every previous year.

REBATE while computing tax u/s 115BAC:


Applicable to: Resident Individual

Conditions to be satisfied: Total income of the assessee does not exceed ₹ 7,00,000.

Quantum of Rebate:

Lower of the following:

a. 100% of tax liability as computed above;


Or;
b. b. ₹ 25,000/-

*Marginal relief is available even total income exceeds ₹ 7,00,000 [available upto ₹ 7,27,770]
Marginal relief = Positive value of (Tax on income – Income in excess of ₹ 7,00,000).

EXAMPLES:
Particulars Case 1 Case 2 Case 3 Case 4
Assessee Individual Individual Senior Citizen Individual
Residential status Resident Resident Resident
Regime Default Default Default Default
Total Income (₹) 6,00,000 6,80,000 7,10,000 7,30,000
Tax on above 15,000 23,000 26,000 28,000
Rebate u/s 87A (15,000) (23,000) 16,000 Nil
Reason [₹ 26,000 – (₹ [₹ 28,000 – (₹ 7,30,000 - ₹ 7,00,000)],
7,10,000 - ₹ is negative
7,00,000)], is positive
Tax after rebate Nil Nil 10,000 28,000
MASTER ILLUSTRATION:

Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in the


Financial Year 2019-20 for production of washing machines.
The unit fulfills all the conditions of section 10AA of the Income Tax Act,
1961.
During the Financial Year 2022-23, he also set up a warehousing facility in
the district of Tamil Nadu for storage of agricultural produce. It fulfills all
the conditions of section 35AD. Capital expenditure in respect of
warehouse amounted to ₹75 lakhs (including cost of land: ₹10 lakhs). The
warehouse became operational with effect from 1st April, 2023 and the
expenditure of ₹75 lakhs was capitalized in the books on that date.

Relevant details for the Financial Year 2023-24 are as follows:


PARTICULARS Amount (₹)
Profit of unit located in SEZ 40,00,000
Export sales of above unit 80,00,000
Domestic Sales of above unit 20,00,000
Profits from operations of warehousing facility {Before
considering deduction u/s 35AD} 1,05,00,000

Compute Income Tax (including AMT u/s 115JC) liability of Mr.X for the
Assessment Year 2024-24 both as per regular provisions of the Income
Tax Act and as per section 115BAC for the Assessment Year 2024-25.
Advise Mr.X whether he should opt for section 115BAC.

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