Assessment of Individual with Computation of Tax Liability

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1. Assessment of Individual

An individual means a natural person i.e. human being. Individual includes a male, female, minor child and a lunatic or an idiot.

In the case of male/female who is a major, income-tax will be levied on his/her Total Taxable Income separately, unless the income is to be clubbed under provisions of sections 60-64.

As regards a minor child, the income of a minor after giving exemption upto ₹. 1,500 per minor child will be clubbed with the income of that parent whose Total Income, before clubbing such income, is greater. However, there are certain incomes which are not to be clubbed. Such income of the minor, which is not to be clubbed, will be assessable in the hands of the representative assessee on behalf of the minor.

Income of a lunatic or an idiot will be assessed in the hands of the representative assessee.

Assessment of Individual
Assessment of Individual

2.  An individual is liable to pay Tax in respect of the following Incomes:

(i) Income earned by an Individual himself:

i.e. incomes earned by an individual in his individual capacity.

(ii) Remuneration and Interest received by the Partner from a Firm or a Limited Liability Partnership (LLP):

Following incomes received by an individual as partner of a firm shall be taxable in his hand:

(a)           The remuneration by way of salary, bonus, commission, etc., received by a partner, is taxable as business income in the hands of a partner [Section 28(v)];

(b)          Interest on capital/loans to a firm or a limited liability partnership, in which he is a partner, is also assessed as income from business.

(iii) Income received as a Member of an Association of Persons, etc.:

Where an individual is member of an association of persons or body of individuals, his share of income from such AOP/BOI shall be taxed as under:

(a)           Where the income of AOP or BOI is taxed at normal rates i.e. the rates applicable to an individual: Share of income of a member from such AOP or BOI will be included in the taxable income of the individual only for rate purposes and a relief under section 86 shall be allowed.

(b)          Where no income-tax is chargeable on the income of the AOP or BOI: Share of income of a member from such AOP/BOI will be chargeable to tax as part of his Total Income.

(iv) Income of the Other Persons included in the Income of the Individual [Sections 60 to 65]:

As already discussed under the chapter on ‘clubbing of income’, the income of other persons will also be included in the individual’s Total Income under respective heads of income.

(v) Income from Impartible Estate of HUF:

Any income from an impartible estate of Hindu undivided family is taxable in the hands of the Karta.

3.  Incomes received from firm/AOP/HUF which are Exempt in the hands of an Individual

The following incomes received by the individual from the firm or HUF or AOP shall be exempt:

(a) Share of profit of the firm or limited liability partnership [Section 10(2A)]:

The share of profit from a partnership firm or a limited liability partnership is exempt from tax in the hands of the partner;

(b) Where the income of AOP or BOI is chargeable at maximum marginal rate [Proviso (a) to section 86]:

Share of income of a member from such AOP or BOI will not be included in his taxable income at all.

(c) Share of income from HUF [Section 10(2)]:

A HUF is a separate assessee. Therefore, any share of income received by a member from such HUF will be exempt in the hands of the individual and will not be included in his Total Income.

4. Computation of Total Income and Tax Liability

Step 1: Compute the income of an individual under 5 heads of income on the basis of his residential status.

Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under respective heads.

Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of income.

Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.

Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are part of gross total income.

Step 6: The balance income after allowing the deductions is known as total income which will be rounded off to the nearest ₹. 10.

Step 7: Compute tax on such Total Income at the prescribed rates of tax.

Step 8: Allow rebate of maximum ₹. 12,500 under section 87A in case of resident individual having total income upto ₹. 5,00,000. For details see below.

Step 9:  Add surcharge @ 10% on total income exceeding ₹50,00,000 and upto ₹1 crore, 15% of such income  tax in case of an individual having a total income exceeding ₹1 crore and upto ₹2 crore, 25% of such income tax  having a total income exceeding ₹2 crore and upto ₹5 crore and 37% of such income tax having a total income  exceeding ₹5 crore.  

Step 10: Add Health and Education cess @ 4% on the tax (including surcharge if applicable).

Step 11: Allow relief under section 89, if any.

Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.

5. Deductions under Chapter-VIA are available to an Individual for the Assessment Year 2020-21

SectionNature of DeductionTo which Individual Allowed
80CDeduction in respect of LIP. Provident Fund. etc.Resident and Non. Resident
80CCCContribution to certain pension fundsResident and Non. Resident
80CCDDeduction in respect of contribution to pension scheme of Central Governmentindividual employed by Central Govt.
80CCELimit on deduction U/S 80C, 80CC, and 80CCD
80DPayment of Medical Insurance Premia—Do—
80DDMaintenance including medical treatment of a dependent who is a person with disabilityResident only
80DDBExpenditure on Medical treatment of certain diseases—Do–—
80EInterest on loan taken for higher educationResident and Non. Resident
80EEDeduction to in respect of interest on loan taken from financial institutions for residential house property, if certain conditions are satisfied.Individual whether resident or non- resident
80EEADeduction in respect of interest on loan taken for certain house propertyIndividual
80EEBDeduction in respect of purchase of electric vehicleIndividual
80GDonations to certain funds/charitable institutions. etc.—Do—
80GGDeduction in respect of rents paid—Do—
80GGACertain donations for scientific research or rural development—Do—
80GGCDeduction in respect of contribution given by any person topolitical parties
80-IAProfits and gains of new industrial undertakings. etc.Resident and Non. Resident
80-IBProfits and gains from certain industrial undertaking other than infrastructure development undertakings.—Do-—
80-IBADeduction in respect of profits and gains from housing projects provided the project fulfils certain conditions.Any Assessee
80-IESpecial provisions in respect of certain undertakings in North-Eastern StatesResident and Non- Resident
80JJADeduction in respect of profits and gains from business of collecting and processing of bio-degradable wasteResident and Non. Resident
80JJAADeduction in respect of employment of new workmenAll Assessee
80QQBDeduction in respect of royalty income. etc., of authors of certain books other than text booksResident in India who is an author
80RRBDeduction in respect of Royalty on PatentsResident in India who is a Patentee
80TTADeduction in respect of Interest on Deposits in Savings AccountIndividual (other than a Senior Citizen) or HUF whether Resident or Non-Resident
80TTBDeduction in respect of Interest on Deposits in case of a Senior CitizenSenior Citizen only
80UDeduction in respect of a Person with DisabilityResident only

6. Rates of Income-Tax for Assessment Year 2020-21

ParticularsRate of Tax
(a)Winnings from lotteries, crossword puzzles or races including horse races or card games and other games of any sort or from gambling or betting of any form or nature whatsoever [Section 115BB]30%
(b)Short-term capital gain on equity shares in a company or units of an equity-oriented fund where the transaction is chargeable to securities transaction tax [Section 111A]15%
(c)Long-term capital gains (Section 112)20%
(d)Long-term capital gain referred to Section 112A10%

Rate of Tax on the Balance of Total Income in case of:

(A) an individual (man or woman), resident in India who is of the age of 80 years or more at any time during the previous year:

Upto Rs. 5,00,000Nil
Rs. 5,00,010 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

(B) an individual (man or woman). Resident in India who is of the age of 60 years or more at any time during the previous year.

Upto Rs. 3,00,000Nil
Rs. 3,00,010 to Rs. 5,00,0005%
Rs. 5,00,010 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

(C) An Individual, [other than mentioned above], HUF, AOP/BOI/ (other than a Co-operative Society).

Upto Rs. 2,50,000Nil
Rs. 2,50,000 to Rs. 5,00,0005%
Rs. 5,00,010 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

Surcharge for assessment year 2020-21 

The amount of income-tax shall be increased by a surcharge for the purposes of the Union calculated at the  following rates— 

(a) where the total income exceeds ₹50,00,000 but does not exceed ₹1 crore10% of such income-tax
(b) where the total income exceeds ₹1 crore but does not exceed ₹2 crore15% of such income-tax
(c) where the total income exceeds ₹2 crore but does not exceed ₹5 crore25% of such income-tax
(d) where the total income exceed ₹5 crore37% of such income-tax

Marginal relief:

Marginal relief has also been provided in all cases where surcharge is to be levied. 

In the case of persons mentioned in (A) above, where such income exceeds, — 

(a)           ₹50,00,000 but does not exceed ₹1 crore, the total amount payable on such income and surcharge thereon shall not exceed the total amount payable on a total income of ₹50,00,000 by more than the amount of income that exceeds ₹50,00,000; 

(b)          ₹1 crore but does not exceed ₹2 crore, the total amount payable on such income and surcharge thereon shall not exceed the total amount payable on a total income of ₹1 crore by more than the amount of income that exceeds ₹1 crore; 

(c)           ₹2 crore but does not exceed ₹5 crore, the total amount payable on such income and surcharge thereon shall not exceed the total amount payable on a total income of ₹2 crore by more than the amount of income that exceeds ₹2 crore; 

(d)          ₹5 crore, the total amount payable on such income and surcharge thereon shall not exceed the total amount payable on a total income of ₹5 crore by more than the amount of income that exceeds ₹5 crore. 

Health and Education Cess:

Health and Education Cess @ 4% on income-tax + surcharge, if any, shall be levied.

7.  Rebate of maximum ₹. 12,500 for Resident Individuals having Total Income up to ₹. 5,00,000 [Section 87A]

With a view to provide tax relief to the individual tax payers who are in lower income bracket, the Act has provided rebate from the tax payable by an assessee, if the following condition and satisfied:

(1) The assessee is an individual

(2) He is resident in India,

(3) His total income does not exceed ₹. 5,00,000.

Quantum of rebate:

The rebate shall be equal to:

(1) the amount i.e. 100% of income-tax payable on the total income for any assessment year, or

(2) ₹.  12,500,

whichever is less.

The tax rebate is limited to Rs 12,500. This means, if your total tax payable is less than Rs 12,500, then you will not have to pay any tax.

Do note that the rebate will be applied to the total tax before adding the health and education cess of 4%.

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