Assessment of Individuals

An individual means a natural person i.e. human being. Individual includes a male, female, minor child and a lunatic or an idiot.

In the case of male/female who is a major, income-tax will be levied on his/her Total Taxable Income separately, unless the income is to be clubbed under provisions of sections 60-64.

Assessment of an individual involves the practical application of the various provisions of the Income-tax Act, in a given situation, So far the earlier Chapters have dealt with the treatment and computation of the assessee’s income under the individual heads. This Chapter shows, with reference to various assessment problems, the cumulative impact of the provisions on an individual’s assessment having various kinds of income and outgoings.

An Individual is liable to pay tax in respect of the following incomes.

Income earned by an individual himself; i.e. income earned by an individual in his individual capacity.

Income earned as a partner of a firm assessed as firm: Following types of incomes can be earned by an individual as partner of a firm;

Share of profit of the firm; The share of profit from a partnership firm, assessed as such, is exempt from tax at the time of individual assessment of the partner; (section 10(2A).

The remuneration by way of salary, bonus, commission, etc., received by a partner, is taxable as business income in the hands of a partner (section 28(v);

Interest on capital/loans to a firm, in which he is a partner, is also assessed as income from business.

Income earned as a member of an association of persons.

Where an individual is a member of an AOP/BOI, his share of income from AOP/BOI shall taxed as under :

(a) Where the income of AOP/BOI is chargeable at maximum marginal rate : share of income of a member from such AOP/BOI will not be included in his taxable income at all.

(b) Where the income of AOP/BOI is taxed at normal rates i.e.the rates applicable to an individual : share of income of a member from such AOP/BOI will be included in the taxable income of the individual only for rate purposes and a relief u/s 86 shall be allowed.

Where no income tax is chargeable on the income of the AOP/BOI : share of income of a member from such AOP/BOI will be chargeable to tax as part of his total income.

(iv) Share of income from HUF: A HUF is a separate assessee. Therefore, any share of income received by a member from such HUF will be exempt in the hands of the individual and will not be included in his Total Income. [Section 10(2)].

(v) Income from impartible estate of HUF: Any income from an impartible estate of Hindu undivided family is taxable in the hands of the Karta.

(vi) Income of the other persons included in the income of the individual (Sections 60 to 65): As already discussed under the Chapter on “clubbing of income”, the income of other persons will also be included in the individual’s Total Income under respective heads of income.

Computation of total income and tax liability

Step 1    :    Compute the income of an individual under 5 heads of income on the basis of his residential status. 

Step 2    :    Income of any other person, if includible u/s 60 to 64, will be included under respective heads.

Step 3    :    Set off of the losses if permissible, while aggregating the income under 5 heads of income.

Step 4    :    Carry forward and set off of the losses of past years, if permissible, from such income.

Step 5    :    The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under Sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from long-term capital gain/winning of lotteries, shorterm capital gain u/s111A etc., through these incomes are part of gross total income.

Step 6    :    The balance income after allowing the deductions is known as Total Income which will be rounded off to the nearest Rs. 10.

Step 7    :    Compute tax on such Total Income at the prescribed rates of tax.

Step 8    :    Add education cess @ 2% and SHEC @ 1% of tax.

Step 9    :    Allow relief under section 89(1), if any.

Step 10  :    Deduct the TDS and advance tax paid for the relevant assessment year. The balance is the net tax payable which must be rounded of to the nearest ten rupees. This tax has to be paid as self-assessment tax before submitting the return of income.

Rates of income-tax for assessment year 2010-11

          Particulars                                                                                                   Rate of tax

(a)      Winnings from lotteries, crossword puzzles or races including horse races or card games and other games of any sort or from gambling or betting of any form or nature whatsoever (Section 115BB)   30%

(b)      Long term capital gains (Section 112)  20%

(c)      Short term capital gain on equity shares in a company or units of an equity oriented fund where the transaction is chargeable to STT (sec.111A) 15% 

ILLUSTRATION  1

From the following information,compute the total income and the tax payable by      an individual for the assessment year 2010-11.

            (a)        Salary @ Rs. 24000 p.m.

            (b)        He contributes 20% of his salary to a recognized provident fund.

            (c)        Employer’s contribution to provident fund is 14%.

            (d)        Interest @ 12 % p.a. credited to provident fund, Rs. 24000.

            (e)        Interest from an Indian company, Rs. 1,00,000 (gross).

            (f)        Life insurance premium paid Rs. 8000.

SOLUTION:

            Computation of Total Income of an Individual for the Assessment Year 2010-11.

                                                                                    Rs.                               Rs.

            (i)         Income from Salary :

                        Salary  (24000 x 12)                           2,88,000

                        Contribution to RPF by employer

                        in access of 12%(288000 x 2/100)          5,760          

                        Interest in access of 9.5%                        5,000

                                                Gross Salary               2,98,760

                                    Less: deduction u/s 16                                     Nil     

                                                                                                                   2,98,760   

(ii)        Income from other sources:

                        Interest from Indian company                                       1,00,000

                                                Gross Total Income                          3,98,760

Less: deduction u/s 80C

                                                (8000+57600)                                        65,600

                                                Total Income                                      3,33,160

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