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.

Resident Senior Citizen <-
FY 2020-21 (AY 2021-22)
Particulars Amount (Rs.)
Pension Income 3,56,676
Interest Income from Bank FDRs 86,198
Section 111A Income 77,417
Section 112A Income (Amount is before before 1 lakh exemption) 1,84,533
Other STCG Normal Rate 9,318
Section 80C Deduction 1,50,000
Section 80TTB Deduction 50,000

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.

Normal rated Income (Amount Rs.) Special Rated Income (Amount Rs.)
Pension after Std. Deduction 3,06,676 1,84,533 112A Taxable @10%
FDR Interest 86,198 77,417 111A Taxable @15%
Normal rated STCG 9,318
Total 4,02,192 2,61,950
112A basic exemption 1,00,000
80C 1,50,000
80TTB 50,000
Net Income after deductions 2,02,192 1,61,950
Slab 3,00,000
Unutilised Slab 97,808
Less: 111A Income 77,417
20,391
Less: Part of 112A Income 20,391
So, 112A remains as 64,142 <= [Rs. 1,84,533 – Rs. 1,00,000 – Rs. 20,391]
Tax @10% on 112A income 6,414 Though net income is below Rs. 5 lakhs, 87A rebate is not available against tax on this income due to Section 112A(6) provision
So, Cess 4% 257
Total Tax 6,671

Common Error of Logic - Section 112 vs Section 111A vs Section 112AThe 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.

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

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

Let’s check the computation given as under now.

Normal rated Income (Amount Rs.) Special Rated Income (Amount Rs.)
Pension after Std. Deduction 3,06,676 1,84,533 112A Taxable @10%
FDR Interest 86,198 77,417 111A Taxable @15%
Normal rated STCG 9,318
Total 4,02,192 2,61,950
112A basic exemption 1,00,000
80C 1,50,000
80TTB 50,000
Net Income after deductions 2,02,192 1,61,950
Slab 3,00,000
Unutilised Slab 97,808
Less: 112A Income 84,533 <= [Rs. 1,84,533 – Rs. 1,00,000 ]
Balance 13,275
Less: Part of 111A Income 13,275
So, 111A remains as 64,142 <= [Rs. 77,417 – Rs. 13,275]
Tax @15% on 111A income 9,621 Net income is below Rs. 5 lakhs, 87A rebate is available against this tax
Less: 87A Rebate 9,621
So, Net Tax 0

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.

Author Bio

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He is Chartered Accountant by profession plus Song Writer, Composer, Piano player and Singer. One of his hobbies is to share technological knowledge . He was President of Bhavnagar C. A. Association for two consecutive terms. His Youtube Channel is "CA. Tejas Andharia" which contains videos on vario View Full Profile

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3 Comments

  1. SACHI SUBRAHMANYAM DHULIPALA says:

    I tried uploading the LTCG details as a schedule in excel format as mentioned.It is showing an error message 1.to give the correct ISIN no of the scrip 2.Column 1 a choose from the drown down option.but the format does not have a drop down option. and I have meticulously checked.
    How do I clear this.How do I put this in the grievances?

  2. Shankar K says:

    Sir, you are doing good work.
    And sharing knowlege is great thing.
    God bless you.
    Shankar-. K – Just became a senior citizen – lost my oppurtunity to do professional studies – but very happy seeing others excelling and putting efforts and sharing knowledge with clarity.
    You wl go a great way👍👍

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