4.6 Calculation of Assessable Income, Deductions and Allowances

The computation ladder (reproduce exactly — the examiner's favourite): ``` Income from employment X Income from business Y Income from investment Z Income from other sources W = Aggregate head income exclusions / exemptions the Act allows = ASSESSABLE INCOME deductions (approved donations, etc.) = TAXABLE INCOME x rates (the Finance Act's slabs) credits / rebates = TAX PAYABLE TDS / instalments already paid = Balance due / (refund) ``` Deductible: expenditure incurred in the production of the income; trading expenses; depreciation; bad debts satisfying the Act's tests; contributions to approved retirement funds within limits. Not deductible: capital expenditure (except via depreciation); private and domestic expenses; fines and penalties; expenditure of exempt income; items the Act expressly disallows. Allowances and rebates: the approved-donation deduction (within the Act's caps); credits the law grants (foreign tax paid, within double-taxation-relief rules and treaty limits). Losses: business losses carried forward and set off within the Act's period; unabsorbed depreciation follows its own rules; investment losses generally stay within investment income.