Computation of Tax for Individual for AY 2025-26
The income taxable in the hands of an individual and tax liability thereon shall be computed according to his residential status. The income taxable under the Income-tax Act is computed under the five heads of income, and tax thereon is computed as per the tax slab rates applicable for that previous year.
Determination of residential status
Income-tax liability of an individual is calculated on the basis of his ‘Total Income’. His residential status in India influences the income to be included in the taxable income. An individual can be categorised into the following residential status during the previous year:
(a) Resident in India
(b) Resident but Not-ordinarily Resident
(c) Non-Resident in India
An individual, who is a resident in India, is liable to pay tax in India on his global income. On the other hand, a non-resident person is liable to pay tax in India only on that income which accrues or arises or is deemed to accrue or arise in India, and income received or deemed to be received in India. However, if the income of an individual is taxable in India and outside India, then he can claim a foreign tax credit in respect of such income.
Computation of income
Income tax is levied on the total income of an individual. Thus, the first step is to compute the total income. The total income of an assessee is computed in the following steps:
Calculate income under 5 heads
In Income-tax Act, the income is computed in the following 5 heads of income:
(b) House Property
(c) Profits and gains from business or profession
(d) Capital Gain
(e) Income from Other Sources.
Clubbing of income of any other person
An individual is generally taxed in respect of his own income, but in respect of certain income, the Income-tax Act clubs the income of other persons in an individual’s income. Hence, an individual has to add another person’s income to his own income if clubbing provisions apply in his case.
Set off and carry forward of losses
Where an individual has incurred losses under any head of income, then he is allowed to make the following adjustments subject to relevant provisions relating to set-off and carry forward of losses: (a) Intra-head adjustment to set-off of losses from one source of income against income from another source taxable under the same head of income.
(b) Inter-head adjustment to set-off of losses from one head of income against income taxable under another head of income.
If losses cannot be set off in the same year due to inadequacy of eligible profits, then certain losses are carried forward to the next assessment year.
Allowability of deductions under Chapter VI-A
The aggregate of income so computed as per aforesaid steps is called ‘Gross Total Income (GTI)’, out of which various deductions are allowed to a taxpayer on account of investments and savings made by him.
Determining total income
The balance income after allowing the deductions is called ‘Total Income’. The total income is bifurcated into 2 parts – Normal Income and Special Income. The normal income of a taxpayer is charged to tax as per applicable tax rates, and special income is charged to tax at special rates.
To calculate an individual’s tax liability, income shall be first apportioned into normal income and special income. The bifurcation is done as normal income is taxable at applicable slab rates. However, where an individual opts for New Tax Regime as provided under Section 115BAC, the tax on normal income shall be charged at the rates provided under the said section. Whereas special income is taxed at special rates as prescribed under the Act.
An individual is liable to pay tax on normal income only if it exceeds the maximum exemption limit.
Applicability of AMT
Every assessee (other than a company) is subject to Alternative Minimum Tax (‘AMT’) if he has claimed any of the following deductions:
a) Deduction under any provision (other than Section 80P) included in Chapter VI-A under the heading ‘C- Deduction in respect of certain income’; or
(b) Deduction under Section 10AA; or
(c) Deduction under Section 35AD.
The alternative minimum tax is payable by the individual if the adjusted total income exceeds Rs. 20 lakhs and the tax payable by him on his total income (computed as per normal provisions of the Act) is less than 18.5% (or 9% in case of a unit in IFSC) of ‘adjusted total income’.
Computation of tax liability on total income
| Computation of tax liability on total income | Amount |
|---|---|
| AMT liability | |
| Tax payable on deemed total income computed as per AMT provisions | XXX |
| Add: Surcharge | XXX |
| AMT after surcharge | XXX |
| Add: Health and Education Cess | XXX |
| Total tax payable as per AMT provisions (A) | XXX |
| Normal tax liability | |
| Tax on income at normal rates | XXX |
| Tax on income at special rates | XXX |
| Tax on Total Income | XXX |
| Less: Rebate under Section 87A | (XXX) |
| Tax payable after rebate | XXX |
| Add: Surcharge | XXX |
| Tax payable after surcharge | XXX |
| Add: Health and Education Cess | XXX |
| Total tax payable as per normal provisions (B) | XXX |
| Gross tax payable [Higher of AMT liability (A) or Normal tax liability (B)] | XXX |
| Less: Tax-deferred on perquisite value of ESOPs issued by eligible start-ups | (XXX) |
| Gross tax payable (after excluding tax-deferred on perquisite value of ESOPs issued by eligible start-ups) | XXX |
| Less: | |
| – AMT Credit | (XXX) |
| – Relief under Section 89 | (XXX) |
| – Foreign tax credit under Section 90, 90A or 91 | (XXX) |
| Net tax liability | XXX |
| Add: | |
| – Interest under Section 234A, 234B, 234C | XXX |
| – Fees for late filing of return under section 234F | XXX |
| Aggregate tax liability | XXX |
| Less: Taxes Paid | |
| – TDS deducted | (XXX) |
| – TCS collected | (XXX) |
| – Advance tax paid | (XXX) |
| – Self-Assessment Tax | (XXX) |
| Total tax payable/ refundable | XXX |
Normal Tax Rates (Old tax regime)
The normal tax rates are prescribed every year under the First Schedule of the Finance Act. The tax rates in the case of an individual have been enumerated in the below table:
| Net income range | Resident Super Senior Citizen | Resident Senior Citizen | Any other Individual |
|---|---|---|---|
| Up to Rs. 2,50,000 | Nil | Nil | Nil |
| Rs. 2,50,001- Rs. 3,00,000 | Nil | Nil | 5% |
| Rs. 3,00,001- Rs. 5,00,000 | Nil | 5% | 5% |
| Rs. 5,00,001- Rs. 10,00,000 | 20% | 20% | 20% |
| Above Rs. 10,00,000 | 30% | 30% | 30% |
‘Senior citizen’ means an individual whose age is 60 years or more at any time during the relevant previous year but less than 80 years on the last day of the previous year.
Normal Tax Rates (New tax regime)
Section 115BAC provides a new tax regime for individuals, which has reduced tax slabs. However, to avail of the benefit of this tax regime, the assessee has to forgo specified exemptions and deductions. If an eligible assessee opts for this regime, the income for assessment year 2025-26 shall be taxable at the following rate:
| Total Income (Rs) | Rate |
|---|---|
| Upto 3,00,000 | Nil |
| From 3,00,001 to 7,00,000 | 5% |
| From 7,00,001 to 10,00,000 | 10% |
| From 10,00,001 to 12,00,000 | 15% |
| From 12,00,001 to 15,00,000 | 20% |
| Above 15,00,000 | 30% |
- Leave Travel concession [Section 10(5)];
- House Rent Allowance [Section 10(13A)];
- Official and personal allowances (other than those as may be prescribed) [Section 10(14)];
- Allowances to MPs/MLAs [Section 10(17)];
- Exemption for income of minor [Section 10(32)];
- Deduction for units established in Special Economic Zones (SEZ) [Section 10AA];
- Entertainment Allowance [Section 16((ii)];
- Professional Tax [Section 16(iii)];
- Interest on housing loan (In case of property referred under section 23(2) i.e. self-occupied house property) [Section 24(b)];
- Additional depreciation in respect of new plant and machinery [Section 32(1)(iia)];
- Deduction for investment in new plant and machinery in notified backward areas [Section 32AD];
- Deduction in respect of tea, coffee, or rubber business [Section 33AB];
- Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India [Section 33ABA];
- Deduction for donation made to approved scientific research association, university, college, or other institutes for doing scientific research which may or may not be related to business [Section 35(1)(ii)];
- Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business [Section 35(1)(iia)];
- Deduction for donation made to a university, college, or other institution for doing research in social science or statistical research [Section 35(1)(iii)];
- Deduction for donation made for or expenditure on scientific research [Section 35(2AA)];
- Deduction in respect of capital expenditure incurred in respect of certain specified