A Handy Guide to ITR Computation: Simplify Your Tax Filing

To ‘compute’ essentially means to ‘calculate.’ The computation of income involves calculating an assessee’s income and determining the applicable tax for the specific financial year. Income Tax Return (ITR) Computation is a summarised document that outlines the assessee’s taxable and exempt incomes, deductions, tax liabilities, and tax payment details. Additionally, it includes the assessee’s personal details, such as name, address, email ID, mobile number, date of birth, PAN, Aadhaar number, and bank account information.

Heads of income

Chapter IV of the Income Tax Act, 1961, outlines the computation of total income under Sections 14 and 14A. Section 14 specifically categorises the different sources of an assessee's income into five broad heads. These classifications are used to compute the total income for tax purposes. Below are the five heads of income as per Section 14:

• Income from salary: This head includes income earned by an assessee as an employee during the financial year. Any salary, allowances, or benefits received from an employer are taxed under this category.
• Income from capital gains: Income arising from the sale or transfer of capital assets is taxed under this category. This includes both profits and losses resulting from the transfer of such assets.
• Income from business or profession: For an assessee engaged in a business or profession, income earned during the financial year from such activities is taxable under this head.
• Income from house property: If an assessee owns a property and earns rental income from letting it out, such income is taxed under this head. The property can be a residential building, flat, shop, or land appurtenant to the property.
• Income from other sources: This head acts as a residual category, covering income not included in the other four heads. Examples include interest income, dividends, winnings from lotteries, gifts, and other miscellaneous sources of income.

Each head ensures the proper classification of income, facilitating accurate computation of total taxable income.

Components of ITR computation

An Income Tax Return (ITR) computation sheet typically contains the following details about an assessee:

• Basic details of the assessee: Includes personal and financial details such as name, PAN, Aadhaar number, address, email ID, mobile number, financial year, assessment year, type of return filed, residential status, and bank account details.
• Sources of income: Reflects the income earned by the assessee from different sources like salary, business, capital gains, house property, or other sources.
• Gross Total Income (GTI): The sum of all income from various sources before applying deductions or exemptions.
• Total taxable income: The income remaining after subtracting deductions from the gross total income, which forms the basis for tax calculation.
• Deductions under Chapter VIA: Details of eligible deductions claimed under Chapter VIA of the Income Tax Act, such as Section 80C, 80D, and others.
• Tax payable: The tax liability calculated on the total taxable income based on applicable tax slabs and rates.
• Rebate under Section 87A: A rebate applicable to individuals with taxable income below a specified threshold, reducing their tax liability.
• Tax after rebate: The tax amount remaining after applying the rebate under Section 87A.
• Surcharge: An additional tax levied on individuals or entities with income exceeding certain thresholds.
• Higher education cess (HEC): A 4% cess levied on the total tax liability, including surcharge, for funding education and healthcare initiatives.
• Relief under Sections 89 to 91: Adjustments for specific cases like arrears of salary (Section 89) or relief for double taxation (Sections 90 and 91).
• Gross tax payable: The total of tax after rebate, surcharge, and cess, representing the overall tax liability before considering reliefs.
• Net tax payable after relief: The final tax liability after factoring in reliefs under applicable sections.
• Interest and fees under Section 234: Includes interest for late tax payment (Section 234A, 234B, 234C) and penalties for delayed filing (Section 234F).
• Total tax payable: The sum of net tax liability and applicable interest or fees.
• Refund due: If taxes paid exceed the computed liability, this section calculates the refund amount.
• Bank account details: Provides details of operational bank accounts during the financial year for processing refunds, if applicable.
• Taxes paid: Displays information about taxes paid, including self-assessment tax, advance tax, TDS (Tax Deducted at Source), and TCS (Tax Collected at Source).
• Advance tax and self-assessment tax: Shows advance tax paid based on estimated income and any remaining tax paid as self-assessment tax.

Difference between ITR computation and ITR form

It is common for individuals to mistakenly view ITR computation and ITR Form as identical. However, there is a subtle distinction between the two. The table below highlights the key differences between ITR computation and ITR Form:

Significance of ITR computation

The income tax computation sheet holds greater practical value than the complete ITR form for an individual. Here is why having an ITR computation is important:

• For loan applications: Banks typically require the previous year’s ITR computation summary, along with the ITR filing acknowledgement, to process loan applications.
• For credit card applications: The ITR computation summary can be submitted when applying for a credit card. It helps banks assess the applicant's income sources and evaluate their financial standing.
• For visa applications: When applying for a visa to certain countries, proof of ITR filing has become a mandatory requirement. Alongside the ITR acknowledgement, the ITR computation sheet is often requested as part of the documentation.

Preparing ITR computation in excel

ITR computation can be efficiently prepared in Excel by following these steps:

• Input basic details: Start by entering the assessee's basic information such as name, PAN, address, Aadhaar number, date of birth, and residential status.
• Specify the relevant years: Include the financial year, assessment year, and the type of return being filed.
• List sources of income: Document all sources of income along with details and the amount earned from each source.
• Add exemptions: Enter exemption details accurately to ensure correct calculations.
• Calculate total income: Combine all income sources and apply exemptions, deductions, and set-offs to determine the total income.
• Compute tax liability: Use the applicable tax rates to calculate the tax liability on the total income.
• Apply rebate under Section 87A: Deduct the eligible rebate amount from the gross tax payable.
• Include surcharge and cess: Add the applicable surcharge and a 4% higher education cess (HEC) to the tax after the rebate.
• Factor in reliefs: Account for reliefs under Sections 89 to 91, as applicable.
• Add interest and fees: Incorporate interest and fees as specified under Section 234 into the computation.
• Determine aggregate tax liability: Calculate the total tax liability by summing up the tax, interest, and fees.
• Adjust for taxes paid: Subtract the taxes already paid (such as TDS, TCS, advance tax, and self-assessment tax) from the aggregate liability to find the net tax payable.

By organising and automating these calculations in Excel, you can ensure accuracy and streamline the ITR preparation process.

Key takeaways for first-time taxpayers

If you are filing your ITR for the first time, here are some tips:

• Start early: Do not wait until the last date to file your ITR.
• Use tax calculators: Online tools like income tax calculators and TDS calculators can help simplify calculations.
• Consult a professional: If you are unsure, consult a chartered accountant or use a tax-filing platform.

Planning for the future

Tax filing is not just a task; it is an opportunity to plan for a better financial future. Consider these steps:

• Invest in tax-saving instruments: Explore options like PPF, ELSS, and health insurance for tax savings under sections like 80C and 80D.
• Plan for big expenses: If you are considering buying a home, a home loan offers low interest rates and tax benefits.
• Track your finances: Use tools like budget planners and EMI calculators to stay on top of your finances.

Explore Bajaj Housing Finance Home Loan

Tax planning and financial stability go hand in hand. If you are planning to buy a home, a Bajaj Housing Finance Home Loan can make your dream come true.

Here is why you should consider it:

1. High loan amount: Secure funding up to Rs. 15 crore* to turn your dream home into reality.

2. Low interest rates: Enjoy interest rates starting 8.25%* p.a, and EMIs as low as Rs. 741/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a top-up loan with better terms.

Do not just plan for your future—make it financially smart and tax-efficient by choosing a home loan with Bajaj Housing Finance today.