Computation of Tax — FAQs

Computation of Tax FAQs — clear, quick answers

Computation of Tax FAQs to help you move from income to tax payable without jargon. In one place you’ll find heads of income, gross total income vs total income, rounding-off rules, rebate 87A, surcharge & marginal relief, and MAT/AMT basics—kept practical and updated for Finance Act 2025 (FY 2025-26).

FAQ on Computation of Tax

Income tax is finally computed after the year ends, but you may have to pay during the year through three routes: (a) TDS deducted by the payer, (b) TCS on specific receipts, and (c) your own payments—advance tax and, if anything is still due, self-assessment tax before filing the return. This “pay-as-you-earn” flow avoids a big bill at year-end.

Five heads: Salaries, Income from House Property, Profits & Gains of Business or Profession, Capital Gains, and Income from Other Sources. Every receipt is first mapped to one of these heads; then you apply the rules for that head.

GTI is the sum of income computed under all five heads after set-off of losses, but before Chapter VI-A deductions (Sections 80C to 80U).

Total Income = GTI – Chapter VI-A deductions (like 80C, 80D, 80G, etc.). Tax is calculated on Total Income (subject to regime, rebate, surcharge and cess).

Under Section 288A, total income is rounded to the nearest ₹10. (Example: ₹6,73,274 becomes ₹6,73,270.)

No. Personal expenses (household bills, personal travel, family costs) aren’t deductible. Only expenses wholly and exclusively for earning income/business are allowed, plus specific deductions permitted by law (e.g., 80C, 80D).

Your income is computed before considering what you spend it on. Donations may qualify separately under Section 80G (subject to limits/eligible funds), but personal spending or charity doesn’t reduce the income itself.

Owner is taxed on house-property income. If she remains the owner, rent is taxable in her hands in India (even if tenants pay you). If she gifts/transfers the property to you, you become the owner and rent is taxable in your hands from the transfer date. (There’s no clubbing rule for gifts to parents; clubbing applies to spouse, minor child, etc.)

Taxability depends on the regime and rebates: the basic slab threshold applies first, then Section 87A may reduce tax to zero for resident individuals. For FY 2025-26, the new regime provides an enhanced 87A rebate up to ₹60,000, effectively making tax nil up to about ₹12 lakh (₹12.75 lakh for salaried when standard deduction is considered). Old-regime rebate remains up to ₹5 lakh. Always check which regime you choose and whether you have any income taxed at special rates.

  • Choose your tax regime (new or old, as applicable).
  • Compute income under each head → arrive at GTI → subtract Chapter VI-A deductions where allowed → get Total Income.
  • Apply slab rates/special rates → compute income-tax.
  • Add surcharge (if your total income crosses the specified thresholds), then 4% cess.
  • Reduce rebate u/s 87A if eligible and give credit for TDS/TCS/advance-tax. Balance = tax payable/refund.

Under Section 288B, the final amount of tax, surcharge, cess, interest or fee is rounded to the nearest ₹10.

A resident individual can claim a rebate 87A from tax. For FY 2025-26 under the new regime, rebate is up to ₹60,000, effectively making tax nil up to ₹12 lakh (≈₹12.75 lakh for salaried including standard deduction). Under the old regime, rebate remains up to ₹12,500 for income up to ₹5 lakh. Rebate is not available to non-residents or to entities like HUF/firm/company.

No. 87A is only for resident individuals. Firms, LLPs, HUFs, companies and AOP/BOIs cannot claim it.

No. The section applies to resident individuals only.

Surcharge is an extra % of tax applied when total income crosses specified levels (e.g., ₹50 lakh, ₹1 crore, etc.). Rates and exceptions vary by income type and regime (e.g., special-rate incomes). After computing tax as per slabs/special rates, you add surcharge (at the applicable slab) and then 4% cess. Use the latest official table for exact thresholds each year.

Marginal relief ensures that the extra tax (including surcharge) on crossing a threshold does not exceed the income by which you crossed that threshold. Compute tax with surcharge, compare the excess over the tax just below the threshold with the excess income; reduce tax to cap this difference.

If a company’s normal tax is low compared with its book profits, MAT u/s 115JB requires it to pay at least 15% of book profit (plus surcharge & cess). Certain IFSC units pay MAT at 9%. MAT credit may be carried forward as per law

AMT applies mainly to non-corporate taxpayers (e.g., LLPs/individuals) who claim specified deductions; where applicable, they must pay tax at least at the AMT rate (generally 18.5% of adjusted total income, plus surcharge & cess), subject to special cases provided in law.

Tip: Rules around surcharge thresholds, AMT/MAT scope, and the rebate 87A change over time. Always cross-check the current year’s official rate tables before filing.

Need more than Computation of Tax FAQs? See our TDS TCS FAQs, Presumptive Taxation FAQs (44AD 44ADA 44AE), and AIS TIS FAQs for step-by-step guidance.

Sources

Income Tax India -FAQ

Disclaimer: The information on this page is for general guidance only and is not tax, legal or professional advice. Laws and thresholds change, and application depends on your facts. While we aim to keep content current (Finance Act, 2025), errors or omissions may occur. Always refer to the Income-tax Act/Rules, CBDT notifications/circulars and consult a qualified advisor. If there is any conflict with the law, the official provisions prevail. TaxBizMantra and the authors accept no liability for actions taken or not taken based on this material; examples are illustrative and do not create a client–advisor relationship.