Computing taxable income to file returns

The time to file income tax returns is here. Individuals need to compute total income in accordance with the provisions of the Income Tax Act. Every individual and Hindu Undivided Family (HUF) has to furnish returns if the total income before deductions exceeds the amount not chargeable to income tax (Rs 1 lakh in case of HUF and men below 65 years of age, Rs 1.35 lakhs in case of women below 65 years of age, and Rs 1.85 lakhs in case of individuals who are 65 years of age or more at any time during the financial year 2006-07). It is important to note that losses, if any, cannot be carried forward unless the return has been filed on or before the due date. Here are some relevant points for assessees: Years The 'previous year' is the financial year (April 1 to the following March 31) during which the income in question has been earned. 'Assessment year' is the financial year immediately following the previous year. Computing total income To compute total income, classify all items of income under these heads of income: • Salary • Income from house property • Capital gains • Income from other sources There may be no income under one or more of these heads of income. Computing taxable income Compute taxable income of the current year (i.e., the previous year) under each head of income separately in the schedules as per provisions of the Income Tax Act. The statutory provisions decide what is to be included in income, what one can claim as an expenditure or allowance, and how much, and also what one cannot claim as an expenditure / allowance. Setting off losses Set off current year's headwise losses against current year's head-wise income as per procedures prescribed by the law. A separate schedule is provided for such set off. Also, set off, as per procedures prescribed, losses or allowances of earlier assessment years brought forward. Compute losses and allowances that could be set off in future and is to be carried forward as per procedures prescribed. Gross total income Aggregate the head-wise end results to get gross total income. From the gross total income, subtract, as per procedures prescribed, deductions mentioned in Chapter VIA of the Income Tax Act. The result will be the total income. Arriving at tax liability Then come the computation of income tax, surcharge, education cess and interest on income chargeable to tax. Compute income tax payable on the total income. Special rates of tax are applicable to some specified incomes. You need to include agricultural income for rate purposes, in the tax computation procedure. • Add surcharge on the tax payable • Add education cess on the tax payable, plus surcharge • Claim reliefs as prescribed on account of arrears or advances of salary received during the year or of double taxation, and calculate balance tax and surcharge payable • Add interest payable as prescribed to reach total tax, surcharge and interest payable • Deduct the amount of prepaid taxes, if any, like 'tax deducted at source' The result will be the tax payable (or refundable) by the assessee.