After computing the total income, next step is to compute the tax liability. Detailed treatment of computation of tax and rates of tax are given in Chapter 5 part III of this book. Briefly these steps are :
1. Round off total income to the nearest multiple of 10.
2. Divide the total income into four parts
(a) Long term capital gain. Calculatetax at the rate of 20%.
(b) On short term capital gains on shares subject to SiT—Calculate tax @15%.
(c) Winning from lotteries, puzzles, races, cardgamnes, gambling and betting. Calculate tax at the rate of 30%.
(d) Balance is total income which will be rounded off Calculate tax at scheduled rates.
3. Tax calculated as above is added up.
4. On balance tax, surcharge is to be levied in following manner
(a) If total income of the individual does not exceed Rs. 10,00,000 NIL
(b) If total income exceeds -Rs. 10,00,000 10%
(c) In case total income exceeds Rs. 10,00,000—the amount of surcharge payable cannot exceed the difference between total income and Rs. 10,00,000. Marginal relief is allowed.
5. On the amount of tax calculated above, add
(i) Education cess @ 2% of tax and surcharge, if any.
(ii) Secondary and Higher education cess @ 1% of tax and surcharge, if any.
6. After adding surcharge and education cess following rebates are allowed
(a) Rebate u/s 86 for share from AOP :
(b) Relief u/s 89(1): For arrears
7. Balance is tax payable which will be rounded off to the nearest multiple of 10.