The Indian Income Tax Act, 1961 encompasses all aspects of administration, levy, collection, and recovery of Income Tax in India. But this is not a layman's cup of tea. Simply because of the technicalities of the provisions, rules, and regulations make them difficult to interpret and apply. The laymans are not able to understand: How to file an Income Tax Return (ITR)? Where to file the ITR? What are the consequences of non-filing? What is the ITR Form? What is the ITR Computation? and likewise.
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The Tax Expert plays a vital role in making any assessee a Tax Compliant assessee. Today the Tax Experts are not just restricted to their regular offices but can be found and taken help from anywhere at any time. One such expert-driven help is provided by TaxBuddy. In this article, we will understand the basics of ITR Computation and the Role of TaxBuddy in making you a Tax Compliant assessee.
ITR Computation: Meaning
To ‘compute’ means to ‘calculate’. Computation of Income is the process of calculating an assessee’s income and determining the applicable tax for the financial year under consideration. Income Tax Return (ITR) Computation is a summary which presents the taxable and exempt incomes, deductions and tax liabilities and tax payment details of an assessee. Moreover, the assessee’s personal information like: name, address, email id, mobile number, date of birth, PAN, aadhaar number, and bank details, are also included in the ITR Computation sheet.
Heads of Income
Chapter IV: Computation of Total Income of the Income Tax Act, 1961, specifies Section 14 and Section 14A for computing the total income of the assessee. To be specific, Section 14 provides the ‘Heads of Income’ whereby the various sources of income of the assessee can be classified under five broad categories. As per Section 14, an assessee’s income will be classified in any of the following categories of income:
Income from Salary: If an assessee is working as an employee during the financial year for which he is filing his ITR, the income earned by him from his employer will be taxed under the head ‘Income from Salary’.
Income from House Property: If an assessee earns income by way of rent from a let out of a property owned by him, such rental income will be taxed under the head ‘Income from House Property’. The let out property may be a residential building, flat, shop, or land attached to it.
Income from Capital Gains: An income earned from the sale of capital assets is taxed under the head ‘Income from Capital Gains’. This head includes not only gains arising from the sale of capital assets, but also losses arising from its transfer.
Income from Profits and Gains from Business and Profession: If an assessee is engaged from any business or profession during the financial year, an income arising from such business or profession is taxed under the head ‘Income from Profits and Gains from Business and Profession’.
Income from Other Sources: This is the residual head of income whereby income that is not chargeable under any of the four heads is taxed under the head ‘Income from Other Sources’. Examples of income taxable under the ‘Income from Other Sources’ are: interest income, income from dividends, winnings from lotteries, income by way of gifts, and so on.
Format of ITR Computation
Below image is a typical format of how an ITR Computation looks like of an assessee: