• Ascertain the 'total income' of the company by aggregating incomes falling under following four heads:-
  
  
• Income from House Property, whether residential or commercial, let-out or self-occupied. However, house property used for purpose of company's business does not fall under this head.


• Profits and Gains of Business or Profession.


• Capital Gains.


• Income from other sources including interest on securities, winnings from lotteries, races, puzzles, etc.

Also, income of other persons may be included in the income of the company. But, income under the head 'Salary' is not included under company.

• To the total income so obtained, 'current and brought forward losses' should be adjusted for set off in subsequent assessment years to arrive at the gross total Income. Thus the total income so computed is the 'gross total income'. The 'set off ' means, adjustment of certain losses against the incomes under other sources/heads (Section 79). This section applies to all losses including losses under the head 'Capital Gains'.

Unabsorbed depreciation may be carried-forward for set-off indefinitely. But carry back of losses or depreciation is not permitted. However, business losses can be carried forward for eight consecutive financial years and can be set off against the profits of subsequent years.

• From the gross total income, prescribed 'deductions' under Chapter VI A are made to get the 'net income'.

Generally, all expenses incurred for business purposes are deductible from taxable income, given that the expenses must be wholly and exclusively incurred for business purposes and also that the expenses must be incurred/paid during the previous year and supported by relevant papers and records. But expenses of personal or of capital nature are not deductible.

Capital expenditure are deductible only through depreciation or as the basis of property in determining capital gains/losses. Deductions shall also be allowed in respect of depreciation, as per Section 32 of Income Tax Act, of tangible assets such as machinery, buildings, etc and non-tangible assets such as know-how, patents, etc, which are owned by assessee and used for the purpose of business/profession. Depreciation is deducted from the written-down value of the block of assets mentioned under Section 43 of the Act. However, where an asset is acquired by assessee during the previous year and is put to use for business/profession purpose for a period of less than 180 days, the deduction in respect of such assets shall be restricted to 50% of the normal value prescribed for all block of assets.

But no deduction shall be allowed in respect of any expenditure incurred in relation to income which does not form part of total income.

• Tax liability is computed on the 'net income' that is chargeable to tax. It is done either on accrual basis or on receipt basis (whichever is earlier). However if an income is taxed on accrual basis, it shall not be taxed on receipt basis.

From the tax so computed, tax rebates or tax credit are deducted.