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Computation of total income and rates of tax

5.1 All accruals and receipts in the nature of income, other than those enumerated in the Second Schedule, will be classified into independent sources from which the income is derived. Each of these sources would be a "special source" or an "ordinary source".

5.2 The special sources are sources of income specified in the Fourth Schedule. The income from these sources will be liable to tax at a scheduler rate on gross basis. No deduction is allowed for any expenditure and the gross amount is subject to tax, generally at a lower rate. This is the application of presumptive taxation.

5.3 All other sources of income will be ordinary sources.

5.4 The accruals or receipts relating to "ordinary sources" will be further classified under five different heads :

A. Income from employment

B. Income from house property

C. Income from business

D. Capital gains

E. Income from residuary sources.

5.5 A person may have many sources under each head. The first step will be to compute the income in respect of each of these sources. This could either be income or loss (negative income). For example, if a person carries on several businesses, the income from each and every such business will have to be separately computed. The second step will be to aggregate the income from all the sources falling within a head to arrive at the figure of income assessable under that particular head. The result of such computation may be a profit or a loss under that head. The aforesaid two steps will be followed to compute the income under each head. The third step will be to aggregate the income under all the heads to arrive at the "current income from ordinary sources". The fourth step will be to aggregate the current income with the unabsorbed loss at the end of the immediate preceding financial year, if any, to arrive at the "gross total income from ordinary sources". If the result of aggregation is a loss, the "gross total income from ordinary sources" shall be "nil" and the loss will be treated as the "unabsorbed current loss from ordinary sources" at the end of the financial year. The various outcomes of this aggregation are presented in the Table below  :

Table

(Amount in rupees)

Description	Case - I	Case - II	Case - III	Case - IV	Case - V
Current income from ordinary sources	1000	1000	1000	(-)1000	(-)1000
Unabsorbed preceding year loss from ordinary sources	Nil	(-)500	(-)1500	Nil	(-)1500
Gross total income from ordinary sources, of the financial year	1000	500	Nil	Nil	Nil
Unabsorbed current loss from ordinary sources of the financial year	Nil	Nil	(-)500	(-)1000	(-)2500

5.6 The "gross total income from ordinary sources", so arrived, will be further reduced by incentives in accordance with sub-Chapter I of Chapter III. The resultant amount will be "total income from ordinary sources".

5.7 A person may have many special sources. The first step will be to compute the income in respect of each of these special sources in accordance with the provisions of the Fourth Schedule. The income so computed with respect to each of such special sources shall be called "current income from the special source". The second step will be to aggregate the "current income from the special source" with the unabsorbed loss from that special source at the end of the immediate preceding financial year, if any. The result of such aggregation shall be the "gross total income from the special source". If the result of aggregation is a loss, the "gross total income from the special source" shall be "nil" and the loss will be treated as the "unabsorbed current loss from the special source", at the end of the financial year. The "gross total income from the special source" shall be computed with respect to each of the special sources. The third step will be to aggregate the gross total income from all such special sources and the result of this addition shall be the "total income from special sources".

5.8 The "total income from ordinary sources" will be aggregated with the "total income from special sources" to arrive at the "total income" of the taxpayer.

5.9 The loss under the head "Capital gains" shall be ring-fenced and such loss shall not be allowed to be set off against income under other heads. Similarly the loss from speculative business will also be ring-fenced.

5.10 The losses will be allowed to be indefinitely carried forward for set off against profits in the subsequent financial years.