Income-tax calculator: How the Income Tax Dept will decide your tax liability in ITR for AY 2026-27

When you file your income-tax return (ITR), the Income Tax Department calculates your total income and tax liability. You can complete the ITR filing process only after clearing any pending tax liability.

For AY 2026-27, the calculation will be as per the provisions of the Income-tax Act, 1961. As the ITR filing due date is just a few weeks away, this article explains how this calculation is done by the tax department. You can also use the following income-tax calculator to get an estimate of your tax liability for AY 2026-27 (FY 2025-26):

Income Tax Calculator

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Tax Department's calculation process

For the calculation of the tax liability, the tax department uses a statutory procedure, which broadly involves three stages:

• Ascertaining the residential status and category of the assessee

• Computation of total income

• Computation of tax liability.

The taxable income of an individual can vary based on his/her residential status. As per the Income Tax Department's website, residents are taxed based on their global income, while non-residents are taxed only on the income "received, deemed to be received, or accruing or arising" in India.

The total income of a taxpayer is calculated in the following steps:

First, the department calculates income under five heads: Salaries, House Property, Profits and Gains from Business or Profession, Capital Gains, and Other Sources.

Second, wherever applicable, the clubbing of the income of another person is done.

Third, the set-off and carry forward of losses, including intra-head and inter-head adjustments, are done.

Fourth, eligible deductions are reduced by the gross total income.

Fifth, the total income is determined, and it is bifurcated into normal income and special income. While normal income is taxed at applicable slab or standard rates, special income is taxed at special rates. The aggregation of agricultural income is also done for rate purposes. However, it remains exempt from tax.

The total tax liability is calculated on total income, which, as mentioned above, is bifurcated into normal and special incomes.

For individual taxpayers, normal income is taxed at applicable rates or as per their tax regime. For deciding the final tax liability, taxes already paid, including advance tax, TDS, TCS, self-assessment tax, etc., are reduced from the gross liability. Interest and late fees, if applicable, are also added to the net liability. At last, the tax liability is adjusted for surcharge and cess.