UNIT 12 COMPUTATION OF TOTAL

INCOME
Structure
Objectives
Introduction
Steps in Computation of Total Income
Headwise Computation of Income
Computation of Gross Total Income
Deductions Under Chapter VIA
Some Illustrations
Let Us Sum Up
Terminal Qestions/Exercises

12.0 OBJECTIVES
After studying this unit you should be able to:
b compute income under individual heads;
e compute Gross Total Income;
e calculate the losses to be set off and carried forward and set off irr succeeding years,
and finally;
6 compute the total income.

You know the assessee is put to tax on the basis of his residential status. Income tax
is chargeable on the 'total income' of the previous year at the rate prescribed in the
Annual Finance Act for the assessment year relevant to that previous year. 'Total
income' is defined as the income computed under the provisions of Income Tax Act,
1961. The same forms the basis for computing the tax payable by or refundable to
the assessee. In this unit you will study how the income from different heads is
computed, what deductions are allowed and how the income chargeable to tax ,
calculated.

12.2 STEPS IN COMPUTATION OF TOTAL INCOME

The following stages are involved in the computation of total incon!;::
i) Computation of taxable income from each source under a particulsv head;
ii) Computation of-taxable income under each head;
iii) Computation of gross total income;
iv) Ascertaining the amount of deductions admissible under Chapter VIA; and
v) Arriving at the Total Income.

12.3 HEADWISE COMPUTATION OF INCOME

Under the scheme of Indian Income Tax Act, the income of a tax-payer falls in one
or more of the following heads of in'come :
e Income from salaries
e Income from house property
Profits 'and gains of business or profession
@ Income from capital gains

Income from other sources.

 Specific provisions are contained in the Act for computation of income under each CompuhUon of Total l ~ c p m e
head of income. As a broad general priniiple, in the absence of any specific mention
of allowances or disallowances, income under each head is computed by deducting
from the gross profitlreceipts the expenses of revenue nature which are incidental to
business (Section 37) in case of business income and which are incidental to earning .
the income in other cases.
(For detailed discussion refer to Units 5 to 10).
Income from different sources under each 'head of income' is to be separately
computed. For example, a person may be the owner of more than one business in
which case, the profit of each business will be computed separately :and total of all
will be the income under the head 'profits and gains from business or profession'.
Similarly, a person may earn capital gains from more than one transaction in which
case gains arising from each transfer is to be separately computed and the total of
such gains will come under the head 'Capital gains'.
If there is income from one source and loss from another source falling within the
same head of income the loss will be adjusted (technically known as set off) against
the incorn; of another source and only the net figure will be the income under the
head. If, for example, there is profit of Rs. 50,000 from business 'A' and loss of
Rs. 30,000 from business 'B', it is only Rs. 20,000 after such intra-head adjustment
that will be 'profit from business'.
Speculation loss is, however, allowed to be set off only out of profit from another
speculation business and not from the profit of any other business.

12.4 COMPUTATION OF GROSS TOTAL INCOME

Having computed income under individual heads (refer 12,4above), the next step is
the aggregation of income under all the heads.
If the income computed under any head or heads is a loss, such loss is allowed to be
adjusted against the income under other heads. For example, if the computation
under the head 'Profit and gdn of business' is a profit of Rs. 1,00,000 and there is a
loss of Rs. 30,000 under the head 'inco'me from house property' the loss cafl be
adjusted against the business income with the result that there will be profit from
business Rs. 70,000 only.
As mentioned in Para 5 of 12.3, the loss arising from speculation business cannot be
set off either out of profit of any other business or income under any 0 t h ~ .head.
After the inter-head set off mentioned in Para 1 above, the [Link] is to allaw set
off of the past losses under business and capital gains which could not be set off in
i earlier years and hence carried forward in those years. Such a set off is, however,
subject to the following conditions:
I - . loss carried forward can be set off against income under the same head, if any.
1 carried forward speculation loss can be set off against speculation profits only.
E
h
t @ business loss can be set off against the business income only if the same business
fl
i is not disco~itinued.
1 loss under the head business can be carried forward to eight succeeding assessment
years only but unabsorbed depreciation can be carried forward without any
limitation as to time. Thus, if the loss is carried for an assessment year beyond
eight years, no set off is permitted.
@ loss arising from long-term capital gain can be carried forward to eight succeeding

assessment years for set off against income under the head 'capital gains' only.
i In the above example if there was a carried forward business loss of Rs. 60,000, it
I will be set off against business income of Rs. 70,000 thus reducing the income under
Y
4 this head is Rs. 10,000 only.
L

1F In case the carried forward business loss was Rs, 70,000 the entire loss would have
been resulted in nil income under the business head. If the carried forwarb business
j loss was Rs. 80.000, it would have been set off to the extent of Rs. 70,000 and the
 kwssrnent Sf Individual remaining loss of Rs. 10,000 carried forward for set off in succeeding years. This
\ presumes that the same business is still continued in this year and the carried forward
loss IS not more than eight years old.
The income of each head after ~nter-headset off and set off o f carried forward losses
I
I ~nentionedin Paras 2 and 3 is then aggreg~itedto give Gross Total Income.

12.5 DEDUCTIONS UNDER CHAPTER VIA

Next step for calculation of taxable income is the deduction. The Gross Total Income
is reduced by the deductions mentioned in Chapter VIA. I t is important to note that
such deductions cannot exceed the Gross Total Income. Fdr detailed discussion of
such deductions refer to Unit 11;
After the deductions are made the resulting figure is total income which is subjected
to tax at the rate or rates mentioned in the Finance Act.

- -~
-

12.6 SOME ILLUSTRATIONS

Let US now study a few illustrations for clear understanding of computation of total
taxable income of an individual.

The detail of X's income during the previous year 1989-90 are as under:
1) Salary from a public limited company Rs. 7,000 per month. In addition he was
in receipt of conveyance allowance of Rs. 1,000 per month which is claimed to
be totally spent for the purpose. He was also allowed free use of a car (16 RP)
owned by the employer. '
2) He owned two properties -
i) Property 'A' was a commercial one let out at Rs. 2,000 per month. He paid
Rs. 6,000 as municipal taxes for this property, spent Rs. 600 for collecting
rent and Rs. 6,000 as interest on the amount borrowed for construction.
ii) Property 'B'was a residential unit construction of which was con~pletedin the
year 1988. It was let out at Rs. 1,500 per month. Municipal taxes were
Rs. 3,500. He incurred expenditure on repaits Rs. 500 and paid Rs. 8.000 as
interest on the amount borrowed for construction.
Calculate his' income under the relevant heads and the Gross Total Income for the
year 1990-91.

Solution
Rs. Rs.
Salary-B'asic
Perquisite value of car 300 x' 12

Less standard deduction

Income from Properties

Rs.
A) Rental value 24,000
Less : Taxes 6,000

ALV
, Less : 1/6 for
Repairs
Interest
 . ,
CompuYtlon of Total Income
Collection Charges
(being less than 6%) -
600
9,600 8,400
B) Rental value
Less : taxes

Less : for new unit

ALV 11,400
' Less : 116% for
Repair 1,900 .
Interest 8,000
9,900 1,500
- 9,900
Gross Total Income 85,500
I

Illustration 2
'X' is a government employee getting a basic salary of Rs. 3,500 and D.A.
Rs. 1,400 per month: He is allotted a government accommodation for his residence
the markkt rent of which is Rs. 1,500 per monthbut he is charged Rs. 100 per month
only.
Daring the year he purchased 1000 units of the Unit Trust of India at Rs. 13, got a
divide-nd of Rs. 1,800 and sold them at Rs. 10 per unit. He also purchased 500 .
Reliance Shares a t Rs. 150 and sold them at Rs. 250 per share.
He has an ancestral house property which is used by his family for self-residence.
Compute the income under relevant heads for the assessment year '1990-91.
Solution .
Rs. Rs.
Salary - Basic 42,000
D.A. 16,800
Perquisite value ~f House nil.

Less : standard deduction

'
Property -There is no Annual Value for self-occupied property nil
Other sources-Dividend from UTI 1,800
Capital Gains - Short-term capital gains
Loss on Units of UTI (-) 3 ,m
Gain on Reliance shares 5,000
2,m
Gross Total Income 50,600
- . *

Illustration 3
'X' is a professor in a college getting Rs. 4,500 per month as basic salary. He earned
Rs. 3,500 from examinership. He had purchased 200 shares in 1987 at Rs. 90 per
share which he disposed of at Rs. SO during the year. Hi: also earned a short-term
capital gain of Rs. 13,000 in another transaction of shares.
'
He also indulged in forward trading of ACC shares in which he incurred a loss of
Rs. 7,000.
-
He has an old residential property in Alwar, his home town which he has neither
let out nor is he occupying it by reason of his employment in Delhi. The fair rental i
value of the property is Rs. 600 per month. He paid Rs. 1,200 as Municipal Tax and I
Rs. 1,000 as interest on money borrowed for improvements made in the property in i
1987. @

1
Work out the income under relevant heads for the assessment year 1990-91. . 29 1
 Asserrmen1 of Pndlvidunl Solution
Rs. Rs.
I, Salary-Basic i4.000
Less standard deduction 12.000
32.000
Business-Speculation in share (7). 7,000
Other sources - Examinership 3,500
Capital Gains
Long-term ldss on sharc
Less deduction u/s 48(2)

short-term gain on shares

Gross Total Inconic 58.500

N.B.- 1) The Annual Value of property of this type is Nil and there can be no loss
computed in respect of such properties (Sec. 23(3) ).
2) The speculation loss can be set off duly against speculation profit. Hcncc
not deducted in working out Gross Total lncomc.

Illustration 4
'X' is a salaried employee in a private sector enterprise in Delhi getting K \ 4.000 pcr
month. He was also provided with a free furnished rcsiderlcc which wa\ [Link] the
employer at Rs. 3,000 per month. The cost of furnishing was'Rs. 50,000. 111 addition
he was allowed free the services of a watchman, a gardener and a swccpcr who wcrc
paid Rs. 2,400, 2,400 and 1,800 per yeiii respectively hy thc employer.
He earned a capital gain (short-term) of Ks. 10,000 from sale of ?I plot of land, In
1985 he had incurred a short-term capital loss, out of which Ks. 6,000 was carried
forward.
Find his Gross Total Income.
I

Solution
Rs. Rs.
Salary 48,000
Perquisite value of house 17,000
Perquisite value of Watchman 2,400.
Perquisite value of Gardener 2,400
Perquisite value of Sweeper 1 ,XOO

Less standard deduction

Income from Business or Profession

Consultancy charges
Capital Gains
Short-term 1 0.000
Less set off of carried forward loss 6,000
4.000

Gross Total lncomc 88,600

Illustratio~n5
The following are the particulars of income of 'x'.
1) He is employed in a public sector undertaking on a salary of Rs. 10,Oo() per
month.
2) He was allowed arrears of salary amounting to Rs. 20,000 which rclntcs to the past
30 two years.
 3) During the year he availed of leave travel concession for going to Goa and Second Compulstion of Total lnconie

Class AC farc nmountiq to Rs. 5,600 was rcirnburscd by the cmploycr f o r him
and his family.
4) He was paid Rs. 4.000 as prcrnium on medical.
5) He paid profession tax to the State Government amounting to Rs. I,o()O.
6) He is insured for Rs. 50,000 and pays a life insurance premium of Rs. 7,000 per
annum.
7) He contributcd Rs. 3,000 per month t o the Provident Fund.
Work out the total inconrc for the assessment ycar 1900-01. What woulrl have bccn
the position of the above details were for assessment year 1991-92.

Solution
Rs. Rs.
Sal;iry-Basic 1.20:000
Arrcars 30 .ooo
Medical Ins. Premium 4,000

Less standard deduction

Less Profession tax

Gross Total Income 1,31,000

Less deductions
UlS 80-D 3,000
UIS 80-C
LIP 5,000
PF 36,000

41,000 restricted to 40.0(10

First 6000 - 100rX, 6,000
N C X ~6000- SO'%, 3,000
Next 28000- 40'X) 11,200 . '

Total Income 1,07.800

Assessment Year 1991 -92

Rs.
Gross total incornc as workcd above 1,31,000
Lcss deduction uls 80-D 3,000

Total Income 1,28,000

Tax will bc calculated o n Rs. 1,28,00(). Out of the tax so calculated, rebate of
Rs. 8,200 (20% of 41,000) will be allowed.
N.B. Thc asscsscc could have claimed relief under Section 89 in respect of arrears of
salary.

, Illustration 6
Mr. 'Y' who was an employee with a private sector enterprise on a monthly salary of ,
Rs. 7,500 plus dearness allowance of Rs. 1,500 retired after 20 years of completed
service on 31st August, 1989 and received the following amount on retirement.
i) a) Accumulated balance in Recognised Provident Fund including employer's
contribution and interest thereon Rs. 3,60,000.
b) Encashment of four months accumulated leave Rs..30,000.
I
! A~sessrnent of Indi\idual C) Gratuity amounting to Rs. 1,00,000.

ii) He owned a residential property which was constructed in May 1987: The same
was let out at Rs. 4,000 per month. He paid Rs. 12,000 as municipal taxes and
spent Rs. 3,000 on collection of rent.
iii) During the year he deposited Rs. 2O,(X)Ounder the National Saving Scheme of
the Government of India.
li iv) He has a handicapped son and spcnt Rs. [Link] on his medical treatment.
v) He made the following donations during the year -
Nationai Defence Fund .... Rs. 5.000
Bombay Hospital #.... Rs. 10,000
I
i
I
Find out his total income for the assessment year 1991-92.

11
l1 Solution
Basic (Apr.-Aug.)
D.A. (Apr.-Aug.)
Gratuity
Lessexempt - 112 months salary for
20 years 7500 x 1.0

Less standard deduction

Income from House Property
Rs. Rs.
Rental value 48,000
Less Tax 12,000

Less for new construction

ALV
Less 116 for repairs 5400
Less collection charges
(Ltd. to 6%) -
1944 7,344 25,056
Gross Total Income 83,056
Less deductions
UIS 80-CCA -deposit under NSS 20,000
UIS 80-DD -exp, on handicapped son' 6,000
UIS 80-G --donation N.D.F.
Bomaby Hospital 2500
(Qualifying amount reitricted to 10% of
83056 - ,26000, i .e., 5706) -
2,853
Total Incomc 51,703
Rounded off to 51,700

~llustration7
The proprietor of Amrit Kirana Store has a profit of Rs. 13,800 from business. He
is owner of several properties, the details of which arc givcn below:
i) Property 'A' is a shop which is let out at Rs. 2,000 per month. Municipal tax paid .
Rs. 4,000.
ii) Property 'B' is residential unit construction in 1987 let out n t Rs, 3,OOU per
month. Muncipal taxes paid Rs. 12,000, The property remained vacant in the last
three months.
iii) Froperty 'C'is seIf-occupied constructed in April, 1988, municipal asscss~ncntof
this property is Rs. 25,000 per month. Taxes paid are Rs. 10,000. ~nterestpayable
on amount borrowed for construction'is Rs. 7,000.
During the year part re-payment of Rs. 15,000 was made to the Bank towards loan
taken for property 'B'.
 He contributed Rs. 1,000 per month to the Public Provident Fund. He also Computation of Total Income
contributed R s 5,000 towards 'Jiwan Dhara' annuity policy of LIC.
He made a donation of Rs. 5,001 to the National Children's Fund.
Find out his total income for thc assessment year 1990-91. What will be the total
income if the abovc details rclatc to assessment ycar 1991-92.

Solution
Income from properties
Rs. Rs. Rs.
Prop. .A- Rental value 24,000
Less tax 4,000

20,00()
Lcss 1/61for repairs 3.333 16.667
Prop. B- Rental value
Less tax paid

Less for new unit

ALV 20,400
Less 116 for repair 3,400
-
Less vacancy allowance 3712 of 20400 5,100 8,500 11,900
Prop. C - Annual Value Nil
~ c s intercst
s (-)loo0 (-)5,000 23,567

'Income from business

Profit from Amrit Kirana

Gross Total Income 37,367

Less deduction
U/S 80-C -Refund of Loan 10,000
P.P.F. 12,000

4000 - 1 0OC)/o ... 6,000

6000 - 50% ... 3,000
!Ow0- 40°/o ... - 4,000 13,000 13,000
U/S 80-CCA -Contribution to Jiwan Dhara 5,000
U/S 80-G - 50% of 5001 -
2,500 20,500
t. Total Incomc for 1990-91 16,867
(Rounded, off to 16,870)
For assessment year 199 1-92
Gross total income 37,367
Less deduction
U/S 80-CC A 5.000

(Rounded off to 29,870)

A

N.B. -'Tax will be computed on 29870 and a rebate up to an amount equal to 20%
of 22,000, i.e., Rs, 4,400 will be allowed. Since the tax on Rs. 29,870 will be
less than Rs. 4,400, no tax will be payable neither any refund will be allowed.
~llustkation8
A has following investments:
i) Fixed deposit of Rs. 50,(MH) @ 11% in a bank.
j Assesrmenl of Individual
ii) 1000 Units of UTI of Rs. 10 each. Dividend declared 18%.
iii) Fixed deposit of Rs. 1.00,OOO with D.C.M. Ltd. at I-!'% per annum.
iv) Deposit of Rs. 50,000 under National Saving Scheme yielding interest at 11%.
v) National Savings Certificate VI Issue of the face value of Rs, 90,000 purchased
in earlier years. Interest accrued during thc ycar Rs. 14,000.
vi) 2000 shares of G.E. Shipping of Rs. 10 each. Dividend declared ?Or%.
Find his total income for the year 1091-92.
Solution
Income from other sources
Int. on F.D. in Bank
Int. on F.D. with DCM
Int. on NSC
Div. from UTI
Div. from G.E. Shipping
Gross Total Income
Less deduction u/s 80-L
7000 + 1800 + 3000

Total Incomc 27,500

N.B. - Rebate of an amount equal to 20'8, of Rs, 14,000 (accumulated

interest on N.S.C. VI issue) will be allowed u/s 88 out of the tax
computed on the above total income. Since the tax on 27500 is
less than Rs. 2800, there will be neither ;my tax payat?lc nor
refund allowable to the assessee.

12.7 LET US SUM UP

I
The assessee pays tax on his total income. This [Link] is nothing but the
aggregate of taxable income from each head i.e,, salaries, house property, business
and profession, capital gains and income from other source.
From this aggregate income the carried forward losses are set off and the permissible
deductions u/s 80 are allowed. The resulting figure is the taxable income of the-
assessee.

12.8 TERMINAL QUESTIONS/EXERCISES

Questions
1) What [Link] involved in calculation of total taxable income of an individual'?

Exercises
1) 'X'is employed with ABC.(P) Ltd., Delhi on a monlhly salaryof Rs. 4,600 and
D.A. Rs. 1,400. He has been providid with a freeunfurnished residence
belonging to employer and also the services of a gardener. He is entitled to free
medical treatment in a dispensary maintained by the Company and free
refreshment during working hours. He also gets conveyance allowance of
Rs. 1,000 per month which he claims to spend for company's work.
He contributes Rs. 2,000 per month to a recognized provident fund. During the
year, he purchased National Savings Certificate VIII issue of Rs. 5,000. H e has
a handicapped son whose capacity to be engaged in gainful employment is
substantially affected.
Find out his total income for €he assessment year 1990-91 and the tax rebate
admissible to him.
(Answee: Salary income Rs, 65,520. total i n c o m ~Rs. 54,90()). I
2) 'X' is the owner of several properties the details of which are given below: Computation or .rotill Income

i) Property A - constructed in 1987 - used for self-residence - Municipal

rental value Rs. 4,000 per month -Municipal tax paid Rs. 10,000 -Interest
paid on money borrowed for construction Rs. 12,000.
ii) Property B - Ancestral - Let out at Rs. 2,000 per month for residential
purpose -Municipal rental talue Rs. 1,000 per month -Tax paid Rs. 2,000-
Insurance premium Rs. 2,000.
iii) Property C - Office premises - Constructed in 1988 - Let out at
Rs. 5,000 per month. Taxes paid Rs. 15,000 - Interest paid on money
borrowed for construction Rs. 40,000. Property remained vacant for last two
months.
He contributed Rs. 2,000 per month to the Public Provident Fund and deposited
Rs. 20,000 under the National Savings Scheme. He made a donation of
Rs. 5,000 to the National Defence Fund.
Work out his total income for 1990-91 and the tax rebate admissible to him.
(Answer: Income from house property Rs. 1,333).
3) 'X' is employed in a public sector undertaking on salary of Rs. 7,000 and a
dearness allowance of Rs. 1,000 per month. He was provided with a rent free
accommodation (hired by the employerat 4,500 per month), free use of furniture
costing Rs. 1,00,000, free gas and electricity and free use of a chauffer driven
ambassador car.
H e had a deposit of Rs. 1,00,000 in the bank at 11%, shares of the face value of
50,000 on which 15% dividend was declared, Units of UTI of the value of
Rs. 70,000 on which 18% dividend was declared and NSCs purchased two years
back on which interest of Rs. '1 1,000 accrued.
H e invested Rs. 30,000 in the purchase of shares which formed part of the new
eligible issue of a manufacturing company.
Work out his total income for 1990-91 and 1991-92 (presuming that the facts
remain the same) as also the tax rebate admissible for 1990-91.
(Answer: Taxable income Rs. 76,300 for 1990-91 and Rs. 84,800 for 1991-92).
4) 'X' is a 40% partner in a firm where his share was determined at 1,12,000.
He also runs a poultry farm from where a profit of Rs. 66,000 accrued.
He is living in a rented house paying Rs. 4,000 per month as rent.
He contributed Rs. 10,000 towards the 'Jiwan Dhara' annuity plan of th'e LIC
and deposited Rs. 35,000 under the National Savings Scheme.
H e also purchased NSCs VIII issue of the value of Rs. 10,000.
Find out the total income for the assessment year 1990-91 and on thksame facts
for 1991-92 as also the tax rebate admissibIe for 1990-91.
(Answer: Taxable income for 1990-91 Rs. 1,06,000 and for 1991-92 Rs. 1,04,000)

Note : These questions wil1,help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University.
These are for your practice only.
7