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CA Intermediate · Taxation · Income Tax Liability - Computation and Optimisation

Arjun Nair, a resident individual under the default (new) regime, has for tax year 2026-27 normal income of ₹8,00,000 (after standard deduction) and short-term capital gains of ₹2,00,000 on sale of listed equity shares on which securities transaction tax was paid, taxable at 20%. Total income is ₹10,00,000. What is his tax liability including 4% cess?

His tax liability is ₹41,600. The rebate covers only tax on normal income, which is ₹20,000 on ₹8,00,000. The ₹2,00,000 equity short-term gain is taxed at 20%, giving ₹40,000 without rebate, and 4% cess makes it ₹41,600.

  1. A₹41,600Correct
  2. B₹62,400
  3. CNil
  4. D₹40,000

Explanation

Tax on normal income of ₹8,00,000 = ₹20,000, which is fully covered by the rebate. The rebate is not available against tax on short-term gains taxed at the special 20% rate, so that tax is ₹40,000. Cess at 4% gives ₹41,600. Nil wrongly applies the rebate to the whole income, and ₹62,400 ignores the rebate on normal income.

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