# Computing Tax Liability — The Standard Format
## The computation ladder
Every individual's final tax is built up in a fixed sequence:
| Step | Particulars | Amount |
|---|---|---|
| A | Basic Tax (per slab/special rates) | XXXX |
| B | Add: Surcharge | XXX |
| C | Sub-total (A + B) | XXXX |
| D | Less: Rebate u/s 87A / Marginal Relief | (XXX) |
| E | Sub-total (C − D) | XXXX |
| F | Add: Health & Education Cess @ 4% | XXX |
| G | Gross Total tax (E + F) | XXXX |
## The three components
1. Income Tax — charged on every person at rates prescribed by the Annual Finance Act or the Income-tax Act, 1961, or both.
2. Surcharge — an additional tax over and above income tax, computed as a percentage of the basic income-tax. It applies only when total income exceeds specified thresholds.
3. Health & Education Cess (HEC) @ 4% — levied on the **income tax plus surcharge** combined.
## Key points on HEC (frequent theory question)
- Rate is 4% of (income tax + surcharge).
- Applies to all assessees — individuals, HUF, AOP, BOI, artificial juridical persons, firms, local authorities, co-operative societies, and companies.
- Purpose: to fund quality health services and education.
## Sequence matters
Surcharge is added before cess (cess is 4% of tax and surcharge). Rebate/marginal relief is deducted before cess is applied.