Q: How it works, step by step

The section of law behind each step is shown beside it. 1 Classify by head of income s.11 Salary, property, business, capital gains and other sources are computed separately. 2 Compute each head s.15A, s.20 Deduct the expenses each head allows (s.15A for rent, s.20–s.29 for business). 3 Total income s.10, s.56–s.59 Add the heads. Set off losses (except speculation and capital losses against other heads). 4 Taxable income s.9, s.60 Subtract deductible allowances: Zakat (s.60), Workers' Welfare and Participation Funds (s.60A/60B), education expense (s.60D), house loan profit (s.64A). 5 Apply the rate First Schedule Div I, II; s.4AB Salaried slabs if salary is over 75% of taxable income; business slabs otherwise; corporate rates for companies. Add the s.4AB surcharge where it applies. 6 Subtract tax credits s.61–s.65 Donations (s.61), shares and insurance (s.62), pension fund (s.63), and other credits. 7 Subtract tax already paid s.168, s.170 Adjustable withholding and advance tax are credited. The balance is paid with the return or refunded.

Question 1

Where it applies

Accepted Answer

Salary (s.12); pension is separate: 0% up to Rs 10 million a year from a former employer, 5% above, nil at age 70+ (s.12(2A)) Business and profession income (s.18) Rental income of individuals and AOPs (s.15), taxed with other income since 2021 Income from other sources (s.39) not covered by a final regime Companies' business income (Div II)

Question 2

How it works, step by step

Accepted Answer

The section of law behind each step is shown beside it.

1
Classify by head of incomes.11
Salary, property, business, capital gains and other sources are computed separately.
2
Compute each heads.15A, s.20
Deduct the expenses each head allows (s.15A for rent, s.20–s.29 for business).
3
Total incomes.10, s.56–s.59
Add the heads. Set off losses (except speculation and capital losses against other heads).
4
Taxable incomes.9, s.60
Subtract deductible allowances: Zakat (s.60), Workers' Welfare and Participation Funds (s.60A/60B), education expense (s.60D), house loan profit (s.64A).
5
Apply the rateFirst Schedule Div I, II; s.4AB
Salaried slabs if salary is over 75% of taxable income; business slabs otherwise; corporate rates for companies. Add the s.4AB surcharge where it applies.
6
Subtract tax creditss.61–s.65
Donations (s.61), shares and insurance (s.62), pension fund (s.63), and other credits.
7
Subtract tax already paids.168, s.170
Adjustable withholding and advance tax are credited. The balance is paid with the return or refunded.

Question 3

Rates and rules

Accepted Answer

Case Rate / rule Law Salaried individual 0% up to Rs 600,000, rising to 35% above Rs 7 million (TY2027) Div I(1) Business individual / AOP 0% up to Rs 600,000; 15%, 20%, 30%, 40%, then 45% above Rs 5.6 million Div I(1) Surcharge 10% of tax for non-salaried individuals and AOPs with taxable income over Rs 10 million s.4AB Company 29% general; small company 20%; banking company 42% (TY2027) Div II

Question 4

Worked example

Accepted Answer

Salary Rs 2.4 million and business profit Rs 1 million: salary is 70.6% of the total, below 75%, so the business slabs apply to the whole Rs 3.4 million. Tax under the business slabs comes to about Rs 730,000.

Question 5

Points to watch

Accepted Answer

Rent withheld by tenants under s.155 is adjustable, not final. Salary withholding under s.149 is adjustable against the final liability. Minimum tax (s.113) can apply on top for businesses with high turnover.

Case	Rate / rule	Law
Salaried individual	0% up to Rs 600,000, rising to 35% above Rs 7 million (TY2027)	Div I(1)
Business individual / AOP	0% up to Rs 600,000; 15%, 20%, 30%, 40%, then 45% above Rs 5.6 million	Div I(1)
Surcharge	10% of tax for non-salaried individuals and AOPs with taxable income over Rs 10 million	s.4AB
Company	29% general; small company 20%; banking company 42% (TY2027)	Div II