Common Error of Logic – Section 112 vs Section 111A vs Section 112A

The Common Error of Logic – Section 112 vs Section 111A vs Section 112A of Income Tax Act, 1961.

One may consider the following simple scenario of an income tax calculation.

One may try to calculate the income tax amount with the details mentioned in the table shown above.

Almost all income tax computation softwares (including government utility) would give the answer as Rs. 6671 including cess @ 4% (Rounded off to Rs. 6670).

How they would calculate the amount of Rs. 6671/- as ultimate tax is explained as under.

The common logic applied by almost all the programmers is to utilise income under section 112 (Taxable @20% special rate), then income under section 111A (Taxable @15% special rate) and then income under section 112A (Taxable @10% special rate) again unutilised slab of income (Here unutilised slab amount means the differential amount in the situation where the income taxable at normal rates is less than the maximum amount which is not chargeable to tax). Prima Facie this logic is correct also, but sub-section (6) of Section 112A changes the entire picture in certain cases. Let’s know about that.

Proviso to Section 112(1), Proviso to Section 111A(1) and Proviso to Section 112A(2) says a common thing that the income taxable under these sections would be reduced to the extent of total amount available as unutilised slab amount in case of resident Individuals and HUFs.

And sub section (6) of Section 112A denies the benefit of rebate u/s 87A against the tax on income u/s. 112A.

So, how the tax in above mentioned example can be brought to Zero legitimately?

Let’s check the computation given as under now.

So, in such cases, order of utilization amongst income u/s. 112, 111A and 112A against unutilised slab amount should have to be changed accordingly to deal with the limitation given under section 112A(6) and in the most beneficial manner for a taxpayer.

The present ITR filing utility of income tax department does not permit the user to change this sequence by auto populating the figures in Schedule SI. The same is the case with almost every private income tax computation software.

So, immediate change in this programming logic should have to be implemented in govt. ITR filing utility and also by the concerned software developers.