CS Executive · Tax Laws and Practice

Computation of Total Income and Tax Liability of various Entities: formula sheet

Full chapter guide

Key formulas

Gross total income: GTI = Salary + House property + Business/profession + Capital gains + Other sources (after clubbing, set-off and brought-forward losses); Compute each head first, then club, then set off, then add.
Total income: Total income = GTI − Deductions allowed under the Act; Deductions cannot exceed GTI and cannot create a loss.
House property loss carry forward (s.110): Unabsorbed loss → set off only against house property income; up to 8 tax years after the year of loss; Only the part not set off against other heads under section 109 is carried forward.
Business loss carry forward (s.112): Unabsorbed business loss (not speculation) → set off against business or profession profits; up to 8 tax years; It can be set off against any business or profession profit, not only the same business.
Speculation loss (s.113): Speculation loss → set off only against speculation profits; carry forward up to 4 tax years; It cannot be set off against non-speculation business income.
Order for carried-forward losses: Current year set-off first, then brought-forward losses; Brought-forward house property and business losses are set off only against their own type of income.
Core rule: Deduction year = tax year of actual payment (items in section 37(2)); Applies irrespective of the accounting method and the year the liability was incurred.
Relief for late payment: Paid after year-end but on or before due date under section 263(1) → allowed in the liability year; Does not apply to the micro or small enterprise item in section 37(2)(g).
Micro or small enterprise payments: Allowed only when paid, if owed beyond the section 15 MSMED Act time limit; Payment after year-end, even before the return due date, does not bring it back to the earlier year.
Interest converted into loan or debenture: Conversion of interest into a deferred-payment instrument ≠ actual payment; Under section 37(4); the deduction waits for real payment.
No double deduction: Already allowed in the liability year → not allowed again on payment; Section 37(5).
Employee contribution: Section 37 does not apply; allowed under section 29(1)(e) if credited to the employee's fund account on or before the due date under section 263(1); Applies to contributions received from employees under section 2(49)(o).
Specified financial entities: Public financial institution, State Financial Corporation, State Industrial Investment Corporation, notified NBFC class, scheduled bank, co-operative bank (other than PACS and primary co-operative agricultural and rural development bank); Section 37(7). Interest to others is not covered by clause (e).
Trigger for section 191: Balance included in total income + paragraph 8 of Part A, Schedule XI not applicable → section 191 applies; Both conditions must be present. If paragraph 8 applies, the balance is not taxed and section 191 is not needed.
Who computes the tax: Assessing Officer calculates the total of the various sums of tax as per paragraph 9; The section itself gives no rate. The method sits in paragraph 9, so cite both in your answer.
Nature of the result: Tax = Σ (various sums of tax computed under paragraph 9); Think of it as an aggregate of separate tax amounts, not a single slab computation on the whole balance.
Tax on a firm or LLP: Tax = 30% × Total income; then add surcharge (if any) and 4% cess; Flat rate, no slab and no basic exemption. Surcharge applies only when total income exceeds ₹1 crore.
Tax on an HUF: Tax = slab rates for individuals on Total income + cess; Basic exemption applies under the rate regime in the question. Use the slabs given in the question. No rebate for HUF.
Book profit: Book profit = Net profit as per P&L + partners' remuneration debited (+ other business-head adjustments); Compute it as the business head requires, before deducting remuneration.
Maximum remuneration to working partners: On first ₹3,00,000 of book profit (or loss): higher of ₹1,50,000 or 90% of book profit. On balance: 60%; Only to working partners, and only if the partnership deed authorises it. Allowed amount is the lower of actual and maximum.
Interest to partners: Allowed interest = lower of actual interest and 12% simple per annum on capital or loan; Must be authorised by the deed. Excess is added back.
Business income of firm: Business income = Book profit − Allowed remuneration; Allowed interest is already deducted in arriving at book profit.
Interest deduction for an HUF: Deduction = lower of savings account interest and ₹10,000; Applies to savings deposits with a bank, co-operative bank or Post Office. Time deposits are excluded for an HUF.
Cash payment rule: Payment above ₹10,000 in a day to one person, not through specified banking or online mode: not deductible; ₹35,000 for plying, hiring or leasing of goods carriages.
MAT payable: MAT = 14% × Book profit; 9% for an IFSC unit earning solely in convertible foreign exchange. Add surcharge and cess as applicable.
When MAT applies: If tax on total income < MAT, tax payable = MAT; Book profit is deemed to be total income. Otherwise normal tax is payable.
Book profit: Book profit = Profit per statement of profit and loss + additions under section 206(1)(c) − deductions under section 206(1)(c) ± adjustments in section 206(1)(d); Start from the profit prepared as per Schedule III (or the Act governing the company).
Main additions: Income-tax and its provision + transfers to reserves + provision for unascertained liabilities + provision for losses of subsidiaries + dividends paid or proposed + depreciation + deferred tax + provision for diminution in value of assets; Add only if debited to the statement of profit and loss.
Main reductions: Withdrawal from reserves or provisions (already added earlier) + depreciation (excluding that on revaluation) + withdrawal from revaluation reserve (up to revaluation depreciation) + deferred tax credited + lower of brought forward loss (excluding depreciation) and unabsorbed depreciation; If either the loss or the unabsorbed depreciation is nil, nothing is reduced under this item. The loss and depreciation are taken as per the books.
Brought forward credit: domestic company with concessional option: Set-off in a year ≤ 25% × tax payable on total income; For credit brought forward as on 31 March 2026. The balance is carried forward, up to the fifteenth tax year after the year it first arose.
Brought forward credit: foreign company: Set-off ≤ Regular tax − MAT for that year; Allowed only when regular tax exceeds MAT, within the same 15-year limit.
Rate for AOP, BOI and artificial juridical person (section 202(1)): Up to ₹4,00,000: Nil | ₹4,00,001-₹8,00,000: 5% | ₹8,00,001-₹12,00,000: 10% | ₹12,00,001-₹16,00,000: 15% | ₹16,00,001-₹20,00,000: 20% | ₹20,00,001-₹24,00,000: 25% | Above ₹24,00,000: 30%; Applies unless the option under section 202(4) is exercised. Co-operative societies are excluded from the AOP limb of clause (c).
Balance to be shared (section 309(2)(a)): Balance = Total income of AOP/BOI − interest, salary, bonus, commission, remuneration paid to members; Applies where members' shares are determinate and known. 'Paid' means paid or incurred as per the method of accounting (section 309(5)).
Member's share in income (section 309(2)(b)): Share = Apportioned balance + member's own remuneration (if apportioned amount is a profit); if a loss, remuneration is adjusted against it; The share is then spread across heads of income in the same manner as the AOP's income was determined (section 309(3)).
Member's borrowing cost (section 309(4)): Interest on capital borrowed by member to invest in the AOP is deducted from the member's share under 'Profits and gains of business or profession'; Deduction is against that share, in the member's own computation.
Event-based body (section 318(1)): Income from first day of the tax year to date of dissolution is taxed in that tax year; Applies where the Assessing Officer finds a body formed for a particular event or purpose is likely to be dissolved in that year or immediately after.
Option to opt out (section 202(4)): With business income: exercise by due date under section 263(1); once exercised it continues; can be withdrawn only once. Without business income: exercise along with the return.; After withdrawal the person is never again eligible, unless business income ceases.

Quick revision

Follow the sequence: income under heads, clubbing, set-off and carry forward, gross total income, deductions, total income, tax.
Use the Income-tax Act, 2025 for June 2027, as amended by the Finance Act, 2026 (tax year 2026-27).
Rates differ by entity, so check the entity type first.
HUFs and firms follow the individual format with their own rates and allowed deductions.
Companies have their own adjustments and rates, so do not apply individual rules.
Some deductions are allowed only on actual payment, so check the payment date against the due date in the facts.
Section 191: tax on the accumulated balance of a recognised provident fund applies when paragraph 8 of Part A of Schedule XI is not applicable.
Under Section 191, the Assessing Officer calculates the total of the various sums of tax as per paragraph 9 of Schedule XI.
Show working notes for every item you add or disallow.
Round total income as the law requires before applying rates.
End every answer with a clear statement of total income and tax liability.

Common mistakes

Setting off speculation loss against ordinary business profit. Fix: Under section 113, speculation loss is set off only against profits of another speculation business. Track it separately.
Carrying forward house property loss without first trying set-off against other heads. Fix: Section 110 carries forward only the loss that could not be set off under section 109. Do the current-year set-off first.
Allowing accrued tax, duty or fee because the books are on mercantile basis. Fix: Remember section 37(1)(b): the method of accounting is irrelevant for listed items. Only payment counts.
Applying the return-due-date relief to dues owed to micro or small enterprises. Fix: Section 37(3) excludes clause (g). Such dues are allowed only in the year of actual payment.
Taxing every recognised PF withdrawal Fix: Always test paragraph 8 first. Section 191 comes in only when it does not apply.
Applying plain slab rates to the whole balance Fix: Section 191 sends you to paragraph 9, which gives a total of various sums of tax.
Allowing interest to partners at the rate in the deed without checking the 12% cap Fix: Always compute 12% simple on the capital or loan. Add back the excess to profit.
Allowing remuneration to non-working partners Fix: Allow remuneration only to working partners, and only if the deed authorises it.
Using 15% as the MAT rate. Fix: For tax years from 1 April 2026 use 14% under section 206(1)(b)(ii), and 9% only for the IFSC unit case.
Starting book profit from taxable income instead of the profit in the statement of profit and loss. Fix: Begin with the accounting profit as per Schedule III and then make the section 206 adjustments.

Exam tips

Always lay out the five heads in a table, even when the question gives only a few. Marks go for structure and conclusion.
Treat loss questions as a mini-classification: house property, business or speculation. Decide the type before you set off.
Quote the section number for carry-forward rules: 110, 112 and 113, plus the eight-year and four-year limits.
Check the facts for clubbing and brought-forward items before you start. They are easy to miss.
Finish with one line stating total income and the losses carried forward.
Write the provision first: name section 37, state it is a timing rule, and then apply it. ICSI answers reward provision, analysis, conclusion.
Always compare the payment date with two dates: year-end and the due date under section 263(1). Write both dates in your answer.
Mention exceptions explicitly: micro or small enterprise dues, interest conversion and employee contributions. These are common question hooks.