Direct Tax Laws and International Taxation · Assessment of Individuals including Non-residents

Computation of Total Income and Tax Liability of Individuals

Updated 11 October 2026 · Fact-checked

Computing an individual's tax means taking income under each head, applying clubbing and set-off, deducting what the chosen regime allows, and applying slab rates. Then you subtract the rebate, add surcharge and 4% cess. Under the Income-tax Act, 2025, the new regime in section 202 applies unless the assessee opts out.

Understand Computation of Total Income and Tax Liability of Individuals

Tax on an individual is built in layers. First you find income under each head: salary, house property, business or profession, capital gains and other sources. A non-resident includes only income that is taxable in India for that person, so residential status comes first.

Next you apply clubbing (income of spouse or minor child taxed in the hands of the person the law names), then inter-head and intra-head set-off, then carry-forward rules. The result is Gross Total Income. After the deductions the regime allows, you reach total income.

Since the new regime in section 202 is the default, you must check what it switches off. Section 202(2) says total income is computed without many exemptions and deductions, without set off of losses that relate to those deductions, and without set off of a house property loss against any other head. Allowances and perquisites given under any other law also get no exemption. The old regime remains available only if the assessee exercises the option under section 202(4). A person with business or profession income must opt by the return due date, and the option can be withdrawn only once.

Then you apply slab rates. Under section 202(1) the first ₹4,00,000 is nil, and the next slabs of ₹4,00,000 each are taxed at 5%, 10%, 15%, 20% and 25%. Income above ₹24,00,000 is taxed at 30%. After slab tax you apply the rebate under section 156, which is only for a resident individual. Last, you add surcharge (if income is high) and 4% health and education cess.

The order never changes: heads, clubbing, set-off, deductions, slab tax, rebate, surcharge, cess. If you follow it every time, you lose very few marks.

Key rules to remember

Total income: Total income = Gross Total Income − deductions allowed under the chosen regime; Round off as the law requires. Under the new regime, check section 202(2) before claiming any deduction.
Slab tax under 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%; Cumulative tax at the top of each slab: ₹20,000 at ₹8 lakh, ₹60,000 at ₹12 lakh, ₹1,20,000 at ₹16 lakh, ₹2,00,000 at ₹20 lakh, ₹3,00,000 at ₹24 lakh.
Rebate, total income up to ₹12,00,000 (section 156(2)(a)): Rebate = lower of (tax payable, ₹60,000); Only for a resident individual whose income is taxed under section 202(1). Tax at ₹12 lakh is exactly ₹60,000, so tax becomes nil.
Rebate, total income above ₹12,00,000 (section 156(2)(b)): Rebate = Tax − (Total income − ₹12,00,000), if Tax exceeds that excess; This works as marginal relief. Your tax after rebate equals the income above ₹12 lakh. Section 156(3) limits the rebate to tax at section 202(1) rates.
Old regime rebate, section 156(1): Rebate = lower of (tax payable, ₹12,500), if total income ≤ ₹5,00,000; For a resident individual. Use it only when the question says the assessee has opted out of section 202(1).
Surcharge and cess: Tax payable = (Tax after rebate + surcharge) + 4% cess on (tax + surcharge); Surcharge applies at the Finance Act rates only when income crosses the stated thresholds, and marginal relief applies at each threshold. Use the rates given in the question.
Limits of section 202(2)(b): House property loss: no set off against other heads under the new regime; Loss or depreciation from an earlier year that is attributable to the switched-off deductions cannot be set off (section 202(2)(b)(i)).

How to solve Computation of Total Income and Tax Liability of Individuals questions

Use this order for any individual computation question, whether the assessee is resident or non-resident.

1Read the facts and fix residential status. For a non-resident, list only income that is taxable in India for that person.
2Check which regime applies. Treat section 202(1) as the default unless the question says the assessee has opted out under section 202(4).
3Compute income under each head separately. Apply the head-wise rules and clubbing provisions, and show each head even where the result is nil or a loss.
4Do set-off and carry forward. Under the new regime, do not set off a house property loss against other heads, and do not set off disallowed brought-forward losses.
5Deduct only the deductions the regime allows to reach total income. List the deductions you reject, with a reason.
6Compute slab tax on normal income. Add tax on any special-rate income (such as capital gains) at its own rate.
7Apply the section 156 rebate if the assessee is a resident individual, then add surcharge with marginal relief if income is high, then add 4% cess.
8State the final tax liability, rounded as the question asks. Then add one line on credits (TDS, advance tax) if figures are given.

Quickest way: Cumulative-tax shortcut for the new regime

When to use it: Use it for objective questions and for the slab-tax step of long problems, where you want the tax in under a minute.

Memorise the cumulative tax at each slab top: ₹20,000, ₹60,000, ₹1,20,000, ₹2,00,000, ₹3,00,000 at ₹8, 12, 16, 20 and 24 lakh.
Find the slab where total income falls. Take the cumulative tax at the lower boundary and add the slab rate on the excess.
For total income up to ₹12 lakh (resident, normal income only), tax is nil after rebate. Stop there.
For income slightly above ₹12 lakh, compare the tax with the excess over ₹12 lakh. Tax payable (before cess) is the lower of the two. Check the quick test: the tax equals the excess only while 60,000 + 15% of the excess is more than the excess, which holds up to ₹12,70,588 (approx.).
Add 4% cess last. Multiply the final tax by 1.04.

Common mistakes in Computation of Total Income and Tax Liability of Individuals

Setting off a house property loss against salary under the new regime.
The old-regime habit of setting off up to a limit stays in your memory.
Fix: Read section 202(2)(b)(ii). Under the new regime, a loss under house property is not set off against any other head. Show it as carried forward.
Claiming deductions that section 202(2) switches off.
Students copy the usual list of deductions from old-regime problems without checking which regime applies.
Fix: Check the regime first. Claim only what the question or the law allows under section 202, and write a short note for each disallowed item.
Giving the section 156 rebate to a non-resident.
Students apply the rebate automatically to every individual.
Fix: Section 156 applies to an individual resident in India. For a non-resident, compute slab tax with no rebate.
Giving the full ₹60,000 rebate when income is above ₹12 lakh.
Students remember '60,000' and forget the marginal relief condition in section 156(2)(b).
Fix: Rebate = tax − excess over ₹12 lakh, when tax exceeds that excess. Tax after rebate equals the excess.
Adding cess before surcharge, or charging cess on tax before rebate.
The order of the last steps is not fixed in the student's mind.
Fix: Tax after rebate, then surcharge, then cess on the sum of tax and surcharge.
Forgetting to apply clubbing or to treat a special-rate income separately.
Students rush to the slab table once salary is done.
Fix: Re-read the facts for gifts to spouse, income of minor children and capital gains. Add or tax them at the right rate before the final tax figure.

Worked examples

Example 1

Mr. Arvind Menon, a resident individual, has a total income of ₹12,50,000 for tax year 2026-27, all taxed under section 202(1). Compute his tax liability, including health and education cess at 4%.

Show the solution

Slab tax: up to ₹12,00,000 gives ₹60,000 (5% of 4,00,000 = ₹20,000 plus 10% of 4,00,000 = ₹40,000).
Add 15% on ₹50,000 (12,00,001 to 12,50,000) = ₹7,500. Tax = ₹67,500.
Total income exceeds ₹12 lakh, so check section 156(2)(b). Excess over ₹12 lakh = ₹50,000. Tax ₹67,500 exceeds ₹50,000, so rebate applies.
Rebate = 67,500 − 50,000 = ₹17,500. Tax after rebate = ₹50,000.
No surcharge applies at this income.
Cess = 4% of 50,000 = ₹2,000. Total = ₹52,000.

Answer: Tax liability = ₹52,000 (tax ₹50,000 after rebate plus cess ₹2,000).

Example 2

Ms. Kavya Reddy, a resident individual who has not opted out of section 202(1), has for tax year 2026-27: income from salary (computed) ₹18,00,000; loss from a let-out house property ₹1,50,000; interest on bank deposits ₹1,00,000. Compute her total income and tax liability.

Show the solution

Heads of income: salary ₹18,00,000; house property loss (₹1,50,000); other sources ₹1,00,000.
Under section 202(2)(b)(ii), the house property loss cannot be set off against any other head. It is carried forward under the general rules, to be set off only against house property income of later years.
Gross total income = 18,00,000 + 1,00,000 = ₹19,00,000. No deductions are claimed, because none are allowed here. Total income = ₹19,00,000.
Slab tax: up to ₹16,00,000 = ₹1,20,000. Add 20% on ₹3,00,000 (16,00,001 to 19,00,000) = ₹60,000. Tax = ₹1,80,000.
Rebate under section 156(2): income exceeds ₹12 lakh and the excess is ₹7,00,000, which is more than the tax of ₹1,80,000. Rebate = nil.
No surcharge (income below the first threshold). Cess = 4% of 1,80,000 = ₹7,200. Total = ₹1,87,200.

Answer: Total income = ₹19,00,000; tax liability = ₹1,87,200; house property loss of ₹1,50,000 is carried forward.

Exam tips

Start every long problem with a one-line statement of residential status and regime. Examiners award marks for stating the basis.
Show the head-wise working in a table-like list, and give one line of reasoning for each item you disallow or exclude.
Write the section 156(2) rebate working in full. Even if you slip on a number, the method earns marks.
Apply the order surcharge, then cess, and give the final tax in rupees as asked. In MCQs, check whether the question asks for tax before or after cess.
Section 202 and section 156 are in the Income-tax Act, 2025. Use these section numbers, not those of the 1961 Act.

Practice questions from Assessment of Individuals including Non-residents

Computation of Total Income and Tax Liability of Individuals in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Computation of Total Income and Tax Liability of Individuals: frequently asked questions

Is the new tax regime the default for individuals?

Yes. Section 202(1) says tax is computed at the table rates unless the person exercises the option under section 202(4). A person with business or profession income must opt by the return due date. That option, once exercised, can be withdrawn only once.

Who gets the rebate under section 156?

Only an individual resident in India. For income taxed under section 202(1), the rebate is the lower of the tax or ₹60,000 when total income is up to ₹12,00,000. Above that, marginal relief applies under section 156(2)(b).

Does a non-resident individual compute tax differently?

The slab rates are the same. The difference is in the scope: a non-resident is taxed on Indian income only, and gets no section 156 rebate as it is limited to residents. Always fix residential status first.

Can I set off a house property loss under the new regime?

Not against other heads. Section 202(2)(b)(ii) bars set off of a house property loss with any other head of income. Carry it forward under the general rules.