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Direct and Indirect Taxation · Taxation of Individuals (including AMT) and HUF

Computation of Total Income and Tax Liability of Individuals

Updated 10 October 2026 · Fact-checked

Computation of tax liability means turning total income into tax payable. Apply the slab rates to total income, add tax at special rates, deduct rebate, add surcharge (with marginal relief), deduct any relief, then add 4% cess. Under the Income-tax Act, 2025, the default is the new regime in section 202(1), unless you opt out.

Understand Computation of Total Income and Tax Liability

Tax liability is the last step of the income computation. You first find total income after the five heads, clubbing, set off of losses and deductions. Then you convert that figure into tax.

Under the Income-tax Act, 2025, section 202(1) is the default regime for an individual, HUF, AOP (other than a co-operative society), BOI and artificial juridical person. It applies unless the person exercises the option under section 202(4). In this regime the total income is computed without many exemptions and deductions listed in section 202(2), and without set off of house property loss against other heads. Check the list before you compute total income.

The slab rates in section 202(1) are: up to ₹4,00,000 nil; ₹4,00,001 to ₹8,00,000 at 5%; ₹8,00,001 to ₹12,00,000 at 10%; ₹12,00,001 to ₹16,00,000 at 15%; ₹16,00,001 to ₹20,00,000 at 20%; ₹20,00,001 to ₹24,00,000 at 25%; above ₹24,00,000 at 30%. Each rate applies only to the part of income in that band.

If the person opts out, the older regime applies, with its own slabs and with the deductions available in it. For an individual below 60 years these slabs are nil up to ₹2,50,000, 5% to ₹5,00,000, 20% to ₹10,00,000 and 30% above. Senior citizens have higher exemption limits, so read the age in the question. Under section 156(1), a resident individual with total income up to ₹5,00,000 gets a deduction of the lower of 100% of tax or ₹12,500.

After the slab tax come the other layers. These are rebate under section 156, surcharge on high incomes, marginal relief, relief for foreign tax, and health and education cess at 4% on tax plus surcharge. Cess has no marginal relief. Surcharge and cess rates are not in the section text supplied, so learn them from your study material and the Finance Act.

Key rules to remember

New regime slabs, section 202(1)
Nil up to ₹4L | 5% to ₹8L | 10% to ₹12L | 15% to ₹16L | 20% to ₹20L | 25% to ₹24L | 30% above ₹24L
Rates apply band by band. Section 202(1) applies unless the option under section 202(4) is exercised.
Cumulative tax at slab tops (new regime)
₹8L: ₹20,000 | ₹12L: ₹60,000 | ₹16L: ₹1,20,000 | ₹20L: ₹2,00,000 | ₹24L: ₹3,00,000
Above ₹24L, tax = ₹3,00,000 + 30% of income above ₹24,00,000.
Rebate, income up to ₹12 lakh, section 156(2)(a)
Rebate = lower of tax payable or ₹60,000
For a resident individual whose total income is chargeable under section 202(1). Total income up to ₹12L means nil tax on slab tax of ₹60,000 or less.
Rebate, income above ₹12 lakh, section 156(2)(b)
If tax > (income − ₹12,00,000): Rebate = Tax − (Income − ₹12,00,000)
Tax after rebate then equals the income above ₹12 lakh. The rebate cannot exceed the tax payable, section 156(3).
Rebate, income up to ₹5 lakh, section 156(1)
Deduction = lower of 100% of tax or ₹12,500
For a resident individual with total income not above ₹5,00,000. This is the rebate used for the optional (old) regime.
Marginal relief on surcharge
Tax + surcharge after relief ≤ Tax on threshold income + (Income − threshold)
Applies where income just crosses a surcharge threshold. Compute both amounts and take the lower.
Cess
Cess = 4% × (Tax after rebate + surcharge − relief)
Health and education cess. Added last, with no marginal relief.
Surcharge thresholds for individuals (new regime)
10% above ₹50L | 15% above ₹1 crore | 25% above ₹2 crore
Learn from your study material. The older regime has an additional higher rate above ₹5 crore. Surcharge on dividend and capital gains incomes is capped at 15%.

How to solve Computation of Total Income and Tax Liability questions

Use this order for any computation question. Note the regime, residential status and age first, because they decide the slabs and the rebate.

  1. 1Identify the person (individual, HUF), residential status, age and regime. If nothing is said, use the default section 202(1) regime.
  2. 2Take the total income as given or computed. In the section 202 regime, make sure no excluded exemption or deduction was claimed and that house property loss was not set off against other heads.
  3. 3Separate income taxable at special rates (such as certain capital gains or casual income) from income taxable at slab rates. Tax each part at its own rate.
  4. 4Compute slab tax band by band. Round total income to the nearest ₹10 if the question follows that rule.
  5. 5Deduct the rebate under section 156 if conditions are met. Check the income limit and that the person is a resident individual.
  6. 6Add surcharge if income crosses a threshold. Test marginal relief if income is only slightly above the threshold.
  7. 7Deduct relief for foreign tax, if given. Then add 4% cess on the balance.
  8. 8Show total tax liability. If TDS or advance tax is given, deduct it to show tax payable or refundable.

Quickest way: Cumulative slab-top method

When to use it: Use it for new regime questions with income above ₹8 lakh, where band-by-band work wastes time.

  1. Learn the slab tops: ₹8L = ₹20,000, ₹12L = ₹60,000, ₹16L = ₹1,20,000, ₹20L = ₹2,00,000, ₹24L = ₹3,00,000.
  2. Find the slab top just below the income. Add the rate of the next band times the excess.
  3. For income up to ₹12 lakh, check section 156(2)(a): tax up to ₹60,000 is fully rebated.
  4. For income just over ₹12 lakh, tax payable after rebate is simply income minus ₹12,00,000, if that is lower than the slab tax.
  5. For surcharge, compute the threshold tax with the same method and test marginal relief at once.

Common mistakes in Computation of Total Income and Tax Liability

  • Applying the top slab rate to the whole income.

    Students treat slabs like a flat rate.

    Fix: Apply each rate only to its band, or use the cumulative slab-top figure plus the rate on the excess.

  • Claiming rebate for an income above ₹12 lakh as full nil tax, or ignoring marginal relief.

    Students remember only 'no tax up to ₹12 lakh'.

    Fix: Above ₹12 lakh, tax after rebate is the lower of the slab tax and the excess over ₹12,00,000, as section 156(2)(b) provides.

  • Computing surcharge but forgetting marginal relief.

    Surcharge looks mechanical, so the threshold test is skipped.

    Fix: When income is slightly above ₹50 lakh, ₹1 crore or ₹2 crore, compare tax plus surcharge with threshold tax plus the excess income. Take the lower.

  • Charging cess before surcharge, or giving marginal relief on cess.

    The order of the layers is not memorised.

    Fix: The order is: tax, less rebate, plus surcharge, less relief, plus 4% cess on the result.

  • Using old regime deductions in a section 202(1) computation.

    Students carry habits from the earlier law.

    Fix: Check the exclusions in section 202(2) before using any deduction. Allow them only if the question says the person opted out.

  • Using old regime slabs for a senior citizen without checking age, or using the wrong rebate.

    Basic exemption limits differ by age in the optional regime.

    Fix: Underline the age and regime in the question. Under the optional regime, the rebate is up to ₹12,500 for income up to ₹5,00,000.

Worked examples

Example 1

Mr. Arvind Nair, a resident individual, has total income of ₹12,70,000 for tax year 2026-27. He is taxed under section 202(1). Compute his tax liability.

Show the solution
  1. Slab tax: ₹4,00,001 to ₹8,00,000 is ₹4,00,000 × 5% = ₹20,000.
  2. ₹8,00,001 to ₹12,00,000 is ₹4,00,000 × 10% = ₹40,000.
  3. ₹12,00,001 to ₹12,70,000 is ₹70,000 × 15% = ₹10,500. Total slab tax = ₹70,500.
  4. Income exceeds ₹12,00,000 by ₹70,000. Tax ₹70,500 is more than ₹70,000, so section 156(2)(b) applies.
  5. Rebate = ₹70,500 − ₹70,000 = ₹500. Tax after rebate = ₹70,000.
  6. No surcharge, since income is below ₹50 lakh.
  7. Cess = 4% × ₹70,000 = ₹2,800.

Answer: Total tax liability = ₹72,800.

Example 2

Ms. Kavya Rao, a resident individual, has total income of ₹50,50,000 for tax year 2026-27, all taxable at slab rates under section 202(1). Surcharge is 10% where income exceeds ₹50,00,000. Compute her tax liability after marginal relief.

Show the solution
  1. Tax up to ₹24,00,000 = ₹3,00,000 (20,000 + 40,000 + 60,000 + 80,000 + 1,00,000).
  2. Income above ₹24,00,000 = ₹26,50,000 × 30% = ₹7,95,000. Slab tax = ₹10,95,000.
  3. No rebate, as income is above ₹12 lakh and the slab tax is far above the excess over ₹12 lakh.
  4. Surcharge at 10% = ₹1,09,500. Tax plus surcharge = ₹12,04,500.
  5. Tax at ₹50,00,000 = ₹3,00,000 + ₹26,00,000 × 30% = ₹10,80,000.
  6. Maximum allowed = ₹10,80,000 + excess income ₹50,000 = ₹11,30,000.
  7. Marginal relief = ₹12,04,500 − ₹11,30,000 = ₹74,500.
  8. Tax plus surcharge after relief = ₹11,30,000.
  9. Cess = 4% × ₹11,30,000 = ₹45,200.

Answer: Total tax liability = ₹11,30,000 + ₹45,200 = ₹11,75,200.

Exam tips

  • Write the slab table once in the answer sheet and compute band by band. Step marks go to visible workings.
  • Always show the order: tax, rebate, surcharge, marginal relief, cess. Missing a layer loses marks even if the final figure is close.
  • State the regime in your first line. Name section 202(1) for the default regime and section 156 for the rebate.
  • In MCQs, test the rebate and marginal relief boundary first. Options often differ by exactly these effects.
  • If the question gives special-rate income along with slab income, tax the two separately and add them before surcharge.

Practice questions from Taxation of Individuals (including AMT) and HUF

Computation of Total Income and Tax Liability 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: frequently asked questions

Is the new regime the default under the Income-tax Act, 2025?

Yes. Section 202(1) applies unless the person exercises the option under section 202(4). A person with business income must opt by the due date of the return, and the option once exercised applies to later years, subject to the withdrawal rules in the section.

How does rebate work when income is slightly above ₹12 lakh?

Under section 156(2)(b), if the slab tax exceeds the amount by which income exceeds ₹12 lakh, the rebate equals that difference. Tax after rebate then equals the income above ₹12 lakh. The rebate cannot exceed the tax payable.

What is marginal relief on surcharge?

It stops your tax plus surcharge from rising by more than the extra income above a surcharge threshold. Compute tax plus surcharge, and compare it with threshold tax plus the excess income. The lower amount is payable.

Is cess charged before or after surcharge?

After. Cess is 4% of tax after rebate plus surcharge, less any marginal relief and foreign tax relief. The cess itself gets no marginal relief.