Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Computation of Total Income of an Individual Under Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

Computation of total income means working out income under each of the five heads, applying clubbing, setting off and carrying forward losses, adding the heads to get gross total income, and then subtracting allowed deductions. The result is total income, on which tax is calculated. Follow a fixed order every time.

Understand Computation of Total Income of an Individual

Tax is charged on total income, not on your receipts. Total income is built in layers. You first decide the person's residential status, because it decides which incomes are in scope. Then you compute income head by head: salary, house property, business or profession, capital gains and other sources.

Next you add income that must be clubbed in the individual's hands, such as certain income of a spouse or minor child. Then you set off losses. Within a head, a loss is first set off against other income of the same head. Then it is set off against income under other heads, as the Act allows. What cannot be set off is carried forward.

The total of all heads after set-off and brought-forward loss adjustments is gross total income. From it you subtract the deductions allowed under the Act, such as those for savings, medical expenses or donations. Deductions cannot create a loss and cannot exceed gross total income. The balance is total income, rounded as the Act requires.

The carry-forward rules are tested often. Under section 110, a house property loss that cannot be set off against other heads is carried forward and set off only against house property income, for no more than eight tax years after the year the loss was first computed. Under section 112, a business loss (other than speculation loss) is carried forward and set off against business or profession profits, again for no more than eight tax years.

Under section 113, a speculation loss is set off only against profits of another speculation business. It is carried forward for no more than four tax years after the year the loss was first computed. Always keep these three loss types separate in your working.

Key rules to remember

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.

How to solve Computation of Total Income of an Individual questions

Use the same sequence for every computation question. It protects you from missing items and shows the examiner a clear structure.

1Read the facts and note the individual's residential status, as it decides which incomes are taxable in India.
2Compute income under each head separately, using the head's own rules for deductions and exemptions. Show a short working for each.
3Add clubbed income, such as income of a spouse or minor child, to the correct head in the individual's hands.
4Set off current-year losses: first within the head, then against other heads where allowed. Note that speculation loss is set off only against speculation profit.
5Set off brought-forward losses only against permitted income. Check the eight-year and four-year limits. Record unabsorbed losses to carry forward.
6Add the heads to get gross total income.
7Deduct the allowed deductions, limited to gross total income, and state total income.
8Add a one-line conclusion giving total income and the losses carried forward.

Quickest way: Head-wise table with loss tracker

When to use it: Use it in the exam when a question has many items, several losses and a deduction.

Write the five heads in a column and put each figure next to its head.
Mark each loss as house property, business or speculation before doing anything else.
Set off current-year losses first, and tick off each set-off in a side column.
Test each brought-forward loss against its time limit and its permitted income type.
Subtotal to gross total income, deduct deductions, and draw a line under total income.
List carried-forward losses at the end.

Common mistakes in Computation of Total Income of an Individual

Setting off speculation loss against ordinary business profit.
Students treat all business loss as one.
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.
Students rush to the carry-forward rule.
Fix: Section 110 carries forward only the loss that could not be set off under section 109. Do the current-year set-off first.
Setting off a brought-forward house property loss against salary or business income.
Students confuse current-year and brought-forward rules.
Fix: A carried-forward house property loss is set off only against house property income, as section 110 says.
Ignoring the time limit on carry forward.
Students forget to count years from the year the loss was first computed.
Fix: Business and house property losses last no more than eight succeeding tax years. Speculation losses last no more than four. Count from the first year.
Deducting deductions from each head instead of from gross total income.
Students mix head-wise deductions with chapter deductions.
Fix: Head-wise allowances are used within the head. The other deductions are subtracted once from gross total income.
Omitting clubbed income.
The clubbing fact is buried in the question.
Fix: Scan the facts for spouse, minor child and transfers before computing, and add the income to the right head.

Worked examples

Example 1

Mr. Rohan Mehta, a resident individual, has the following for the tax year: salary income ₹6,00,000; loss from house property ₹1,50,000; profit from business ₹2,00,000; interest from bank savings ₹30,000 (income from other sources). He has a brought-forward business loss of ₹50,000 from an earlier year, within the time limit. He is allowed a deduction of ₹40,000. Compute his total income.

Show the solution

Heads before set-off: Salary ₹6,00,000; House property (₹1,50,000); Business ₹2,00,000; Other sources ₹30,000.
Current-year set-off comes first. The house property loss of ₹1,50,000 is set off against income under other heads. The set-off of a house property loss against other heads is capped at ₹2,00,000 for the year. Here the loss is within the cap.
We set off the loss against salary: ₹6,00,000 − ₹1,50,000 = ₹4,50,000. The loss is wholly absorbed, so nothing is carried forward under section 110. (If you set it off against business income instead, the gross total income comes to the same figure.)
Brought-forward losses come next. The brought-forward business loss of ₹50,000 is set off against business profit under section 112: ₹2,00,000 − ₹50,000 = ₹1,50,000.
Gross total income = ₹4,50,000 + ₹1,50,000 + ₹30,000 = ₹6,30,000.
Less deduction ₹40,000. Total income = ₹5,90,000.

Answer: Total income is ₹5,90,000. No loss is carried forward.

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.

Practice questions from Computation of Total Income and Tax Liability of various Entities

Computation of Total Income of an Individual 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 of an Individual: frequently asked questions

What is the difference between gross total income and total income?

Gross total income is the sum of income under the five heads after clubbing and set-off of losses. Total income is gross total income minus the deductions allowed under the Act.

Can I set off a house property loss against salary?

Yes, a current-year house property loss that arises under that head can be set off against income under other heads as the Act's set-off section allows. Only the unabsorbed part is carried forward, and it is then set off only against house property income.

For how long can a business loss be carried forward?

Under section 112, a business loss that is not a speculation loss can be carried forward for no more than eight tax years immediately after the year the loss was first computed. It is set off against business or profession profits.

Where can I set off speculation loss?

Under section 113, speculation loss is set off only against profits of another speculation business. Any balance is carried forward for no more than four succeeding tax years.