There are various types of expenses and income shown in profit and loss account but as per the Income Tax Act these income will be classified under different heads of income, such as income from business or profession, income from capital gains, income from house property etc. for computation of tax liability.
Let us understand with an example & various adjustments that need to be made while computing the total income:-
1. Income from business or profession:-
a. Profit before tax as per P&L
Add:-
| Sr. No | Particulars |
| 1 | Depreciation as per books of accounts |
| 2 | Loss on sale of assets |
| 3 | Loss on sale of securities |
| 4 | Employee contribution in ESI if paid after the due date mentioned in ESI Act |
| 5 | Employee contribution in PF if paid after the due date mentioned in PF Act |
| 6 | Employer contribution in ESI if not paid up-to the due date of ITR |
| 7 | Employer contribution in PF if not paid up-to the due date of ITR |
| 8 | Provision for gratuity or leave encashment |
| 9 | If TDS not deducted on payment made to resident then 30% of expense will be added |
| 10 | If TDS not deducted on payment made to non-resident then 100% of expense will be added |
| 11 | Penalty paid under any Act |
| 12 | Interest paid to MSME for non-payment of consideration on time |
| 13 | Unrealised loss in case of foreign exchange fluctuation |
| 14 | Any notional expense or interest as per Indas |
| 15 | Provision for doubtful debts etc. |
Less:-
| Sr. No | Particulars |
| 1 | Depreciation computed as per IT Act |
| 2 | Fixed deposit interest |
| 3 | Interest on income tax refund |
| 4 | Profit on sale of assets |
| 5 | Profit on sale of securities |
| 6 | Unrealised gain in case of foreign exchange fluctuation |
| 7 | Notional interest income as per Indas 116 on security deposit |
| 8 | Employer contribution in ESI of previous year paid after the due date of ITR |
| 9 | Employer contribution in PF of previous year paid after the due date of ITR |
| 10 | Payment of Gratuity & leave encashment |
| 11 | If TDS deducted then 30% disallowance of expense will be allowed as deduction in the year of deduction of TDS |
| 12 | If TDS deducted then 100% disallowance of expense will be allowed as deduction in the year of deduction of TDS |
| 13 | Actual bad debts |
| 14 | Dividend received on shares |
| 15 | Interest received on debentures etc. |
b. Income from Capital Gain:-
| Sr. No | Particulars |
| 1 | STCG on sale of depreciable assets |
| 2 | STCL on sale of depreciable assets |
| 3 | STCG on sale of securities covered u/s 111A |
| 4 | STCL on sale of securities covered u/s 111A |
| 5 | LTCG on sale of securities covered u/s 112A |
| 6 | LTCL on sale of securities covered u/s 112A |
| 7 | Gain on sale of immovable property |
| 8 | Any other capital gain or loss etc. |
When computing the total income of capital gains, the set- off provisions needs to be considered.
- On the sale of depreciable assets, there will always be a short term capital gain or loss. There can be no long term capital gain on sale of depreciable assets.
- STCL u/s 111A can be set off against LTCG u/s 112A.
- LTCL u/s 112A can-not be set off against STCG u/s 111A etc.
c. Income from other sources:-
| Sr. No | Particulars |
| 1 | Fixed deposit interest |
| 2 | Interest on income tax refund |
| 3 | Dividend received on shares |
| 4 | Interest received on debentures etc. |
We have calculated the Gross Total Income (GTI) after making several adjustments such as allowances and disallowances of expenses. Now, we will calculate the final Total Income.
| Particulars | Amount in Rs. |
| Gross total income as per IT Act | *** |
| Less: | |
| Chapter: VI A deduction | *** |
| Total Income | *** |
Now, total income will be rounded off u/s 288A nearest to ten rupees.
| Particulars | Amount in Rs. |
| Total Income | *** |
| Total income will be rounded off u/s 288A | *** |
Here we will calculate the total tax liability after rounding off of total income:
| Particulars | Amount in Rs. |
| Income tax | *** |
| Add: | |
| Surcharge | *** |
| Cess @4% | *** |
| Total Tax | *** |
Now, there are several taxes that we have paid earlier, which will be adjusted against the total tax liability.
| Particulars | Amount in Rs. |
| Total Tax | *** |
| Less: | |
| TDS | *** |
| TCS | *** |
| Advance tax | *** |
| Foreign tax credit etc. | *** |
| Net tax payable (Assumed) | *** |
Now, we will calculate the applicable interest liability, if any, under sections 234A, 234B, and 234C & late fees.
Add:-
| Particulars | Amount in Rs. |
| Net tax payable (Assumed) | *** |
| Add: | |
| Interest u/s 234A | *** |
| Interest u/s 234B | *** |
| Interest u/s 234C | *** |
| Late fees u/s 234F | *** |
| Total payable | *** |
After adjusting TDS, TCS, advance tax, interest under various sections, etc. the final amount will either by payable or refundable. This amount will be rounded off nearest to ten u/s 288B.
| Particulars | Amount in Rs. |
| Total payable | *** |
| Total payable will be rounded off u/s 288B | *** |
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Disclaimer: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation. Author will not accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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