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CHAPTER – 1 COMPUTATION OF TAX LIABILITY

Tax rates for Assessment Year 2021-22:
Up to Rs.2,50,000 : Nil
Rs.2,50,000 to Rs.5,00,000 : 5%
Rs.5,00,000 to Rs.10,00,000 : 20% plus Rs.12,500
Above Rs.10,00,000 : 30% plus Rs.1,12,500

Tax rates for RESIDENT SENIOR CITIZEN for Assessment Year 2021-22:
Up to Rs.3,00,000 : Nil
Rs.3,00,000 to Rs.5,00,000 : 5%
Rs.5,00,000 to Rs.10,00,000 : 20% plus Rs.10,000
Above Rs.10,00,000 : 30% plus Rs.1,10,000

Note: In case of a non-resident senior citizen, basic exemption is restricted to Rs.2,50,000.

Tax Rates for RESIDENT SUPER SENIOR CITIZEN for Assessment Year 2021-22:
Up to Rs.5,00,000 : Nil
Rs.5,00,000 to Rs.10,00,000 : 20%
Above Rs.10,00,000 : 30% plus Rs.1,00,000

Note: In case of a non-resident very senior citizen, basic exemption is restricted to Rs.2,50,000.

Important points:
• Total income and tax should be rounded off to the nearest ten rupee.

• A maximum rebate of Rs.12,500 under section 87A for RESIDENT INDIVIDUALS in case
TAXABLE INCOME does not exceed Rs.5,00,000 during the previous year.

• A SURCHARGE of 10% (tax on tax) in case taxable income exceeds Rupees Fifty lakhs but
does not exceed Rupees One crore

• A SURCHARGE of 15% in case taxable income exceeds Rupees ONE CRORE

• A SURCHARGE of 25% in case taxable income exceeds Rupees TWO CRORES

• A SURCHARGE of 37% in case taxable income exceeds Rupees FIVE CRORES

• HEALTH & EDUCATION CESS of 4% to be charged. Cess is to be calculated on the total tax
including surcharge.

• MAXIMUM MARGINAL TAX RATE: 42.744% (30% + 37% + 4%)

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• SENIOR CITIZEN: An Individual who has attained the age of 60 years or more

• VERY SENIOR CITIZEN: An Individual who has attained the age of 80 years or more

• “MARGINAL RELIEF” is available in case taxable income exceeds Rupees FIFTY LAKHS
but does not exceed Rs.51,95,900 (Rs.51,95,520 in the case of a senior citizen and
Rs.51,94,030 in the case of a very senior citizen).

• “MARGINAL RELIEF” is also available in case taxable income exceeds Rupees ONE CRORE
but does not exceed Rs.1,02,14,700 (Rs.1,02,14,500 in the case of a senior citizen and
Rs.1,02,13,740).

• Similarly marginal relief is also available in case where taxable income of an assessee
exceeds Rs.two crores or Rs.five crores respectively.

• A person born on 1st April would be considered to have attained a particular age on 31st
March, the day preceding the anniversary of his birthday. CBDT Circular

(e.g. A person born on 1st April, 1941 would be considered to have attained 80 years on 31 st
March, 2021 and shall be treated as “Very Senior Citizen” for P.Y.2020-21).

• If basic exemption is not fully exhausted against slab rate income, the unexhausted
exemption can also be adjusted against incomes taxable at special rates. This benefit is
not available for a non-resident individual. (refer sum no.8)

• In addition to basic exemption of Rs.2,50,000; long-term capital gain on sale of listed

shares through the stock exchange shall be taxed at a special rate of 10% after availing an
exemption of Rs.1,00,000.

• Incomes taxed at special rates:

✓ Long term capital gains (all capital assets except listed shares) 20%
✓ Long term capital gain on sale of listed shares exceeding Rs.1 lakh 10%
✓ Short term capital gain on sale of listed shares 15%
✓ Casual Incomes (e.g. winnings from lottery) 30%

Important: Higher surcharge of 25% and 37% not applicable for capital gains on sale of listed
shares & dividend from domestic companies. Thereby, surcharge applicable on
other income (e.g. salary, hp, business income) is as follows:

If total income excluding capital gains on sale of listed shares & dividend income:
a. Is above Rs.2 crores and up to 5 crores 25%
b. Above 5 crores 37%
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1. Find out the tax liability in each case separately of Mr.X (age 30) if his total income for the
previous year 2020-21 (Assessment Year 2021-22) is:-

• Rs.2,10,000 Rs.3,50,000 Rs.5,00,000

• Rs.8,36,265 Rs.10,00,000 Rs.50,00,000

2. Mr.D (age 45) is a businessman. His income for the previous year 2020-21 (Assessment Year
2021-22) is as follows: Compute his tax liability in each case separately:-

• Rs.1,00,00,000 Rs.1,80,00,000
• Rs.4,10,00,000 Rs.9,10,00,000

3. Find out the tax liability in each case separately of Mr.Y (resident senior citizen) if his total
income for the previous year 2020-21 (Assessment Year 2021-22) is:-

• Rs.2,90,000 Rs.5,00,000 Rs.10,00,000

• Rs.70,00,000 Rs.1,40,00,000 Rs.3,50,00,000

What difference it would make if he had been a non-resident for A.Y.2021-22.

4. Mr.A is a senior citizen and a resident for the previous year 2020-21. His taxable income for the
assessment year 2021-22 is Rs.5,00,000. Compute his tax liability. What will be your answer if
he had been a non-resident for the relevant previous year.

5. Find out the tax liability in each case separately of Mr.R (a resident) (born on 01.04.1941) if his
total income for the previous year 2020-21 (Assessment Year 2021-22) is:-

• Rs.3,00,000 Rs.5,00,000 Rs.10,00,000

• Rs.1,00,00,000 Rs.4,10,00,000

6. Compute tax liability in each separately of Mr.B (a resident) (age 40 years) if his taxable income for
the previous year ending 31st March 2021 (Assessment Year 2021-22) is:

• Rs.50,00,000 Rs.50,00,100 Rs.50,10,000

• Rs.51,00,000 Rs.1,01,00,000 Rs.2,01,00,000
• Rs.5,01,00,000
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7. Mr.C has salary income (computed) of Rs.10,00,000; Long-term capital gain on sale of listed shares
through stock exchange Rs.3,00,000 and winning from lottery (gross) amounting to Rs.10,00,000 for
the previous year 2020-21. Determine his tax liability for Assessment Year 2021-22.

8. Mr.X, a resident, declares the following incomes for the previous year 2020-21:
a) Income from other sources of Rs.2,00,000; and
b) Long-term capital gain on sale of listed shares through the stock exchange Rs.5,00,000.

Compute his tax liability for the Assessment Year 2021-22. Will your answer differ if Mr.X had been
a non-resident for the relevant assessment year.

Additional Problems:

1. What is section 111A and section 112A of the IT Act?

Short-term capital gain on sale of listed shares through the stock exchange is taxed at 15% u.s.111A

Long-term capital gain on sale of listed shares through the stock exchange is taxed at 10% u.s.112A
after claiming exemption of Rs.1 lac.

The above gains are not subject to higher surcharge of 25% and 37% respectively.

2. Mr.X an individual furnishes the following for the previous year 2020-21. He wants to know the
applicable surcharge rate on his income:

Case A: Other income Rs.60,00,000

LTCG u.s.112A Rs.51,00,000
STCG u.s.111A Rs.60,00,000
Total Income Rs.1,71,00,000

Answer: Higher surcharge of 25% and 37% are not applicable for LTCG u.s.112A and STCG
u.s.111A. Therefore, what shall be the surcharge rate on other income? Total income excluding
LTCG u.s.112A and STCG u.s.111A does not exceed Rs.2 crores, hence surcharge will be 15% on
other income.

Case B: Other income Rs.2,50,00,000

LTCG u.s.112A Rs.3,01,00,000
STCG u.s.111A Rs.1,00,00,000
Total Income Rs.6,51,00,000

Answer: Higher surcharge of 25% and 37% are not applicable for LTCG u.s.112A and STCG
u.s.111A. Therefore, what shall be the surcharge rate on other income? Total income excluding
LTCG u.s.112A and STCG u.s.111A exceeds Rs.2 crores but does not exceed Rs.5 crores, hence
surcharge will be 25% on other income and 15% on LTCG u.s.112A and STCG u.s.111A.
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Important terms:

Previous Year: Section 3: & Assessment Year: Section 2(9):

Income earned in a year is taxable in the next year. The year in which income is earned is known
as previous year and the next year in which income is assessed is known as the Assessment Year.
For students appearing for the coming examination, the relevant previous year is 2020-21 and
relevant assessment year is 2021-22.

Assessee:
"assessee" means a person by whom income-tax is payable under this Act, and includes every
person in respect of whom any proceeding under this Act has been taken for assessment of his
income or of the amount of refund due to him

Heads of Income:
5 heads of income. Salaries, house property, business or profession, capital gains and other
sources

Gross Total Income:

“Gross total income” means the aggregate income earned from all the heads before allowing
deductions under Chapter VIA of the Income-tax Act.

Total Income:
“Total Income” is the income on which tax is payable by the assessee. It is computed after
allowing deductions under Chapter VIA of the Income-tax Act.

Tax Rates vary for different assesses:

Tax rates vary for different category of assesses. For firms it is 30% flat rate. For companies the
applicable tax rates can be 15% or 22% or 25% or 30% or 40%. Similarly surcharge rates are
also different for different assesses.

Exemptions:
Incomes that are not included while computing total income of an assessee are called exempted
incomes. Exempted incomes are given u.s.10 of the Income Tax Act. E.g. Agricultural income is
exempt from tax u.s.10(1).

Deductions:
Incomes that are included while computing total income of an assessee and later allowed as
deduction. E.g. Deductions under chapter VIA of the Income Tax Act. Section 80C to Section 80U.
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I. COMPUTATION OF GROSS TOTAL INCOME & TOTAL INCOME OF AN ASSESSEE:

Income from salaries xxx

Income from house property xxx
Profits and gains of business or profession xxx
Capital gains xxx
Income from other sources xxx
Gross Total Income xxx
Less: Deductions under section 80C to 80U xxx
Total Income xxx

II. COMPUTATION OF TAX LIABILITY:

Tax on total income xxx
Add: Surcharge (if applicable) xxx
xxx
Add: Health and education cess xxx
Total tax xxx
Less: TDS & TCS xxx
Less: Advance tax xxx
xxx
Add: Interest u.s.234A, 234B & 234C xxx
Add: Late fee (for delay in filing return of income) xxx
xxx
Less: Self-assessment tax paid xxx
Final tax payable nil