Income-tax: basics and computation

Income tax is charged on a person's total income for a previous year at the rates in force for the assessment year. The computation follows a fixed order: classify income under five heads, aggregate it, apply set-off and carry-forward of losses, deduct the permitted deductions, and then apply the rate. Worked example: if gross total income is ₹8,00,000 and eligible deductions total ₹1,00,000, total income is ₹7,00,000 — deductions reduce total income, not the tax directly, which is why a ₹1,00,000 deduction saves only the tax on that slice at the applicable rate.