Illustration:

Mr. X who is 35 years old and employed in M/s ABC Ltd., has the following details relating to his income and investment during financial year 2016-17:-

  • Basic pay                                                                                         Rs. 300000/=
  • Commission on sales                                                                     Rs.100000/=
  • House rent allowance                                                                     Rs.150000/=
  • Contribution by Mr. X to Provident Fund                                         Rs.36000/=
  • Amount deposited in PPF account 50000/=
  • House rent paid for residence in Delhi                                           Rs.72000/=
  • LIC premium paid                                                                           Rs.10000/=
  • Medical insurance premium paid for self                                       Rs.16000/=
  • Interest received from Saving Bank Account                                 Rs.12000/=

Calculate income tax liability of Mr. X.

Solution:

COMPUTATION OF TAXABLE INCOME

Income from Salary

Basic Pay                                                   Rs.300000/=

Commission on sales                                Rs.100000/=

House Rent Allowance  Rs.150000/=

Less: Exempt (see notes)Rs.42000/=      Rs.108000/=                          Rs.508000/=

Income from other sources

Interest received from saving bank account                                              Rs.12000/=

Gross Total Income                                                                                    Rs.520000/=

Less:  Deduction under Chapter VI-A

Under Section 80C

Contribution to Provident Fund        Rs.36000/=

Deposit in PPF Account                  Rs.50000/=

LIC Premium paid                            Rs.10000/=          Rs.96000/=

Under Section 80D

Medical Insurance Premium Paid                                 Rs.16000/=

Under Section 80TTA

Interest from saving bank account                                Rs.10000/=          Rs.122000/=

Taxable Income                                                                                           Rs.398000/=

Income Tax payable on Rs.398000/=                                                          Rs.14800/=

Less: Rebate under section 87A                                                                  Rs.5000/=

Net tax payable                                                                                             Rs.9800/=

Add: Education Cess 2%                                                                         Rs.196/=

Add: Secondary & Higher Education Cess 1%                                        Rs.98/=

Total Tax Liability                                                                                            Rs.10094/=

Notes:-

  1. Amount of HRA exempt is the least of following:-

(i) Actual HRA received                                  Rs.150000/=

(ii) Rent paid – 10% of salary i.e

(72000-30000)                                                  Rs.42000/=

(iii) 50% of salary                                              Rs.150000/=

  1. Medical Insurance Premium is allowed up to Rs.25000/= as deduction under section 80D.
  2. Deduction under section 80TTA is allowed up to Rs.10000/= in respect of interest received from saving bank accounts.
  3. A rebate of income tax is allowed under section 87A in respect of resident individual whose taxable income is up to Rs.500000/=. The amount of rebate will be Rs.5000/= or actual income tax payable, whichever is less.

Illustration:

Mr. Y submits the following information in respect of his property for financial year 2016-17:-

Rent received                                                                                Rs.240000/=

Municipal taxes paid                                                                       Rs.20000/=

Expenditure on repair                                                                     Rs.15000/=

Insurance charges paid for building                                                Rs.6000/=

Ground rent paid                                                                              Rs.2000/=

Interest paid against loan taken to purchase above-

Property                                                                                          Rs.20000/=

Compute the income under the head ‘Income from House Property’ for assessment year 2017-18?

Solution:

Computation of Income from House Property

Rent received                                                                 Rs.240000/=

Less: Municipal Tax                                                       Rs.20000/=

Net Annual Value                                                            Rs.220000/=

Less: Standard Deduction 30% u/s 24                    Rs.66000/=

Less: Interest against loan                                            Rs.20000/=

Income from house property                                         Rs.134000/=

Notes:-

  1. No deduction is allowed in respect of repair, insurance and ground rent etc. while calculating the income from house property. Only standard deduction % is allowed from net annual value i.e. rent minus municipal tax.
  2. Deduction in respect of interest paid on loan taken for purchasing or construction of the building is allowed.

Illustration:

Mr. A purchased a residential house on 05.06.2012 for Rs.2000000/=. He sold the same house on 15.7.2016 for Rs.3000000/=. Calculate the capital gain. Cost Inflation Index for F.Y. 2012-13 is 852 and for F.Y. 2016-17 is 1125.

Solution:

Purchase cost of the house as on 05.06.12                             Rs.2000000/=

Indexed Cost of Acquisition =  2000000 x 1125/852                 Rs2640845/=

Sales consideration                                                                    Rs.3000000/=

Long Term Capital Gain                                                              Rs.359155/=

Illustration:

Mr. X who is 40 year old, submits following information for F.Y. 2016-17. Calculate his income tax liability:-

Income from business                                                                   Rs.400000/=

Rent from house property                                                              Rs.200000/=

Municipal Tax paid for above house                                               Rs.20000/=

Bank interest from fix deposits                                                       Rs.40000/=

Life Insurance Premium paid                                                         Rs.15000/=

Medical Insurance Premium paid for self                                      Rs.20000/=

Solution:

Computation of Taxable Income

Income from Business or Profession

Income from Business                                                                   Rs.400000/=

Income from House Property

Rent received                                                    Rs.200000/=

Less: Municipal Tax                                           Rs.20000/=

Net annual value                                                Rs.180000/=

Less: Standard Deduction 30%                   Rs.54000/=

Net Income from house property                                                  Rs.146000/=

Income from Other Sources

Interest from fix deposits                                                                 Rs.40000/=

Gross total income                                                                         Rs.586000/=

Less: Deduction under Chapter VI-A

Deduction u/s 80C

Life insurance premium paid                       Rs.15000/=

Deduction u/s 80D

Medical Insurance Premium paid               Rs.20000/=                 Rs.35000/=

Net taxable income                                                                        Rs.551000/=

Income tax on income                                                                   Rs.35200/=

Add: Education Cess 2%                                                           Rs.704/=

Add: Secondary & Higher Education Cess 1%                          Rs.352/=

Total tax liability                                                                                Rs.36256/=

Notes:- Income tax slab for individual is :- up to Rs.250000/= nil, Rs.250001/= to Rs.500000/= % and Rs.500001/= to Rs.1000000/= 20%.

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