To calculate tax on the income of an individual taxpayer, it has to be bifurcated into two groups – normal income and special income. Normal income is that income which may arise regularly to an individual like, salary income, interest income, rental income, etc. Special income is that income which is generally irregular in nature like, lottery income, profit from the sale of the investment, etc.
Normal incomes are taxable as per slab rates and special incomes are taxable at a flat rate. The aggregate of normal tax and special tax is reduced by rebate under Section 87A and increased by surcharge and cess. The tax is calculated as per the following formula.
|Tax on normal income as per slab rate|
(+) Tax on special income
(-) Rebate under Section 87A
|Tax after rebate|
(+) Surcharge (Nil to 37%)
|Tax after surcharge|
(+) Health and Education Cess (4%)
|Total tax liability||xxx|
Slab rates for Normal Income
An Individual taxpayer pays tax according to the slabs of his normal income. The rate of tax goes up with every increase in the slab of income. However, he is not liable to pay tax if his normal income is up to the maximum exemption limit or basic exemption limit.
The applicable slab rates for every year is announced by the Govt. through Union Budget. The rates for calculation of tax on the income earned during the financial year 2019-20 were announced in the Union Budget, 2019-20 presented by Finance Minister Smt. Nirmala Sitharaman.
The Income-tax Act provides some concession in the rate of tax to senior citizen (born between 02-04-1939 and 01-04-1959) and super senior citizen (born on or before 01-04-1939).
The tax rates for financial year 2019-20 (Assessment Year 2020-21) are as under:
|Net income range||Resident Super Senior Citizen||Resident Senior Citizen||Younger Individual|
|Age 80 years or above||Age 60 years or above but below 80 years||Age less than 60 years|
|Up to Rs. 2,50,000||Nil||Nil||Nil|
|Rs. 2,50,001- Rs. 3,00,000||Nil||Nil||5%|
|Rs. 3,00,001- Rs. 5,00,000||Nil||5%||5%|
|Rs. 5,00,001- Rs. 10,00,000||20%||20%||20%|
|Above Rs. 10,00,000||30%||30%||30%|
The tax so computed can be reduced up to Rs. 12,500 by claiming the rebate under Section 87A. This rebate is allowed to an individual if he is resident in India and his income is below Rs. 5,00,000.
Tax rates for Special Income
|Nature of Income||Tax rate|
|Long-term capital gains from transfer of listed equity shares (or units of equity-oriented mutual fund or units of a business trust) if such transfer is chargeable to Securities Transaction Tax (STT)||10%|
|Long-term capital gains from transfer of listed securities (other than a unit) or zero-coupon bonds without giving effect to benefit of indexation.||10%|
|Short-term capital gains from transfer of listed equity shares (or units of equity-oriented mutual fund or units of a business trust) if such transfer is chargeable to Securities Transaction Tax (STT)||15%|
|Any other long-term capital gains||20%|
|Lottery Income, gambling income or betting income||30%|
The rate of surcharge on normal income shall be as under:
|Taxable Income||Surcharges Rate|
|Up to Rs. 50 lakh||Nil|
|More than Rs. 50 lakh but up to Rs. 1 crore||10%|
|More than Rs. 1 crore but up to Rs. 2 crore||15%|
|More than Rs. 2 crores but up to Rs. 5 crore||25%|
|More than Rs. 5 crores||37%|
The rate of surcharge on Capital gains as mentioned in point no. (2) and (3) above shall be as under:
|Range of Income||Rate of surcharge|
|Up to Rs. 50 lakhs||Nil|
|Rs. 50 lakhs to Rs. 1 crore||10%|
|Rs. 1 crore to Rs. 2 crore||15%|
|Above Rs. 2 crore||15%|
When an individual taxpayer is liable to pay the surcharge, he is allowed some marginal relief to reduce his tax liability. This relief is allowed when taxable income is beyond the threshold limit after which surcharge is payable, but the net income in excess of threshold limit is less than the amount of surcharge.
Health and Education Cess
The health and education cess is levied at the rate of 4% on the amount of income tax plus surcharge
Q. How the age of an individual is calculated under Income-tax?
Age of an individual taxpayer is important because the tax rates for senior citizens and super senior citizens are lower than the tax rate applicable in case of a younger individual.
The age of an individual is computed at any time during the relevant financial year. Example, if Mr. A turns 60 on the last date of the financial year 2019-20 (31-03-2020), he can apply the tax rates applicable in the case of senior citizens.
A person born on 1st April is considered to have attained a particular age on 31st March, the day before the anniversary of his birthday. In simple words, in the financial year 2019-20 an individual shall become:
- Super Senior Citizen if he is born on or before 01-04-1939
- Senior Citizen if he is born between 02-04-1939 and 01-04-1959
- Younger individual if he is born on or after 0204-1959