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INCOME TAX ACT 1961 –AY 2024-2025

Evolution & Origination

As we are going to discuss INCOME TAX ACT 1961 it does not means that
income tax came into to force from 1961, the concept of tax collection is
very old [when kings & queens were there], initially it was in the nature of
“LAGAAN” which has been charged by the King of a particular kingdom from
its people/public in kind and/or in the form of money and that regime is
converted in to systematic structure is called TAX nowadays.

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 CHAPTER COVERAGE

Basic Concepts

Components of Steps for computation Important Basis of charge

Income-tax Law of Total Income (TI) Definitions
and tax liability & rates of tax

Charge of
Income-tax Assessee
Income-tax
Act, 1961 Determination of
residential status

Rates of
Annual Finance
Income-tax
Act Classification of income Assessment
under different heads

Income-tax
Rules Person
Computation of income
under each head

Circulars and
Notifications Income
Clubbing of income of
spouse, minor child etc.

India
Legal decisions Set off or carry forward

& set off of losses

Assessment
Year
Computation of Gross
Total Income (GTI)

Previous Year

Deductions from GTI

Agricultural
income

Computation of TI

Computation of tax
liability

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What is the meaning of tax?

Let us begin by understanding the meaning of tax.

Article 366(28) of the Constitution of India defines the term “Taxation” as follows –

“Taxation includes the imposition of any tax or impost, whether general or local or special,
and tax shall be construed accordingly."
Taxes are considered to be the “cost of living in a society”. Taxes are levied by the
Governments to meet the common welfare expenditure of the society. There are two
types of taxes - direct taxes and indirect taxes.

Types of taxes

Direct Taxes: If tax is levied directly on the income or wealth of a

person, then, it is a direct tax. The person who pays the tax to the
Government cannot recover it from somebody else i.e. the burden of a
direct tax cannot be shifted. e.g. Income- tax,The black money
[undisclosed foreign income & assets] and imposition of tax act 2015.
Indirect Taxes: If tax is levied on the price of a good or service, then, it is
an indirect tax e.g. Goods and Services Tax (GST) or Custom Duty. In
the case of indirect taxes, the person paying the tax passes on the
incidence to another person.

INCOME TAX

DIRECT TAXES
TAX ON UNDISCLOSED
FOREIGN INCOME AND
ASSETS
TYPE OF TAXES
GOODS AND
SERVICES TAX (GST)
INDIRECT TAXES

CUSTOMS DUTY

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 Constitution of India
Originator of
INCOME TAX ACT 1961

Why are taxes Levied?

The reason for levy of taxes is that they constitute the basic source of
revenue to the Government. Revenue so raised is utilized for meeting the
expenses of Government like defence, provision of education, health-
care, infrastructure facilities like roads, dams etc.

Background
Income-tax is the most significant direct tax. Entry 82 of the Union List
i.e., List I in the Seventh Schedule to Article 246 of the Constitution of
India has given the power to the Parliament to make laws on taxes on
income other than agricultural income.

The power to impose tax on agriculture income is delegate to the state

governments.

Income tax came in force from the 1st day of April 1962 and applicable
whole of India.

Power to levy taxes

The Constitution of India, in Article 265 lays down that “No tax shall be
levied or collected except by authority of law.” Accordingly for levy of
any tax, a law needs to be framed by the government.

Constitution of India gives the power to levy and collect taxes, whether
direct or indirect, to the Central and State Government. The
Parliament and State Legislatures are empowered to make laws on the

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matters enumerated in the Seventh Schedule by virtue of Article 246 of
the Constitution of India.

Seventh Schedule to Article 246 contains three lists which enumerate the
matters under which the Parliament and the State Legislatures have
the authority to make laws for the purpose of levy of taxes.

The following are the lists:

1] Union List: Parliament has the exclusive power to make laws on the
matters contained in Union List.

2] State List: The Legislatures of any State has the exclusive power to
make laws on the matters contained in the State List.

3] Concurrent List: Both Parliament and State Legislatures have the

power to make laws on the matters contained in the Concurrent list.

1.Overview of Income-tax law in India-

In this material, we would be introducing the students to the Income-tax
law in India. The income-tax law in India consists of the following
components –

COMPONENTS OF INCOME TAX LAW

INCOME ANNUAL INCOME CIRCULARS/ LEGAL DECISIONS

TAX ACT FINANCE ACT TAX RULES NOTIFICATIONS OF COURTS

The various instruments of law containing the law relating to

income-tax are explained below:

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 Income-tax Act, 1961
The levy of income-tax in India is governed by the Income-tax Act,
1961. In this book, we shall briefly refer to this as the Act.
 It extends to the whole of India.

 It came into force on 1st April, 1962.

 It contains sections 1 to 298 and schedules I to XIV.
 A section may have sub-sections or clauses and sub-clauses.
o When each part of the section is independent of each other and one is not related with
other, such parts are called a “Clause”.

o “Sub section”, on the other hand refers to such parts of a section where each part is related
with other and all sub sections taken together completes the concept propounded
(proposed) in that section.
 Example
o The clauses of section 2 define the meaning of terms used in the Income-tax Act, 1961.
Clause (1A) defines “agricultural income”, clause (1B) defines “amalgamation” and so on.
Each one of them is independent of other clause of the same section.
Section 5 defining the scope of total income has two sub- sections (1) and (2). Sub-
section (1) defines the scope of total income of a resident and sub-section (2) defines
the scope of total income of a non-resident. Each sub section is related with the other in the
sense that only when one reads them all, one gets the complete idea related with scope of
total income.
 A section may also have Provisos and Explanations.
 The proviso spells out the cases where the provision contained in the respective section/
sub-section/ clause would not apply or where the provision would apply with certain
modification.
 The Explanation to a section/ sub-section/ clause gives a clarification relating to the
provision contained in the respective section/ sub-section/ clause.
 Example
Sections 80GGB and 80GGC provides for deduction from gross total income in respect of
contributions made by companies and other persons, respectively, to political parties or an
electoral trust.
o The proviso to sections 80GGB and 80GGC provide that no deduction shall be allowed
under those sections in respect of any sum contributed by cash to political parties or
an electoral trust. Thus, the provisos to these sections spell out the circumstance when

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 deduction would not be available thereunder in respect of contributions made.
The Explanation below section 80GGC provides that for the purposes of sections 80GGB
and 80GGC, “political party” means a political party registered under section 29A of the
Representation of the People Act, 1951. Thus, the Explanation clarifies that the political
party has to be a registered political party.

3) IT is charged on every Person.

The Finance Act

Every year, the Finance Minister of the Government of India introduces the Finance
Bill in the Parliament’s Budget Session. When the Finance Bill is passed by both the
houses of the Parliament and gets the assent of the President, it becomes the
Finance Act. Amendments are made every year to the Income-tax Act, 1961 and
other tax laws by the Finance Act.

The First Schedule to the Finance Act contains four parts which specify the rates of tax -
 Part I of the First Schedule to the Finance Act specifies the rates of tax applicable
for the current Assessment Year. Accordingly, Part I of the First Schedule to the Finance
(No. 2) Act, 2023 specifies the rates of tax for F.Y. 2022-23.
 Part II specifies the rates at which tax is deductible at source for the current Financial
Year. Accordingly, Part II of the First Schedule to the Finance Act, 2023 specifies the
rates at which tax is deductible at source for F.Y. 2023-24
 Part III gives the rates for calculating income-tax for deducting tax from income
chargeable under the head “Salaries” and computation of advance tax for F.Y. 2023-24
where the assessee exercises the option to shift out of the default tax regime provided
under section 115BAC(1A).
 Part IV gives the rules for computing net agricultural income.

Income-tax Rules, 1962

The administration of direct taxes is looked after by the Central Board

of Direct Taxes (CBDT).
 The CBDT is empowered to make rules for carrying out the purposes of the Act.
 For the proper administration of the Income-tax Act, 1961, the CBDT frames rules
from time to time. These rules are collectively called Income-tax Rules, 1962.

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 Circulars and Notifications

Circulars
1]Circulars are issued by the CBDT from time to time to deal with certain specific
problems and to clarify doubts regarding the scope and meaning of certain provisions
of the Act.
2]Circulars are issued for the guidance of the officers and/or assessees.

3]The department is bound by the circulars. While such circulars are not binding on the
assessees, they can take advantage of beneficial circulars.
Notifications
Notifications are issued by the Central Government to give effect to the provisions of
the Act. The CBDT is also empowered to make and amend rules for the purposes of
the Act by issue of notifications which are binding on both department and
assessees.

Case Laws

Case Laws refer to decision given by courts. The study of case laws is an important
and unavoidable part of the study of Income-tax law. It is not possible for Parliament
to conceive and provide for all possible issues that may arise in the
implementation of any Act. Hence the judiciary will hear the disputes between the
assessees and the department and give decisions on various issues.
The Supreme Court is the Apex Court of the Country and the law laid down by the
Supreme Court is the law of the land. The decisions given by various High Courts
will apply in the respective states in which such High Courts have jurisdiction.

Note – Case laws are dealt with at the Final level.

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CHARGE OF INCOME TAX
Section 4 of the Income-tax Act, 1961 is the charging section which provides that:
(i) Tax shall be charged at the rates prescribed for the year by the Annual
Finance Act or the Income-tax Act, 1961 or both.
(ii) The charge is on every person specified under section 2(31);
(iii) Tax is chargeable on the total income earned during the previous year and not
the assessment year. (There are certain exceptions provided by sections 172, 174, 174A,
175 and 176);
(iv) Tax shall be levied in accordance with and subject to the various provisions
contained in the Act.

This section is the back bone of the law of income-tax in so far as it serves as the most
operative provision of the Act. The tax liability of a person springs from this section.
A person includes an individual, Hindu Undivided Family (HUF), Association of Persons
(AOP), Body of Individuals (BOI), a firm, a company etc.

Total Income & Tax Payable-1

PROCESS TO CALCULATE
GROSS TOTAL INCOME AND
TOTAL INCOME

Step 1 – Determination of residential status

The residential status of a person has to be determined to ascertain
which income is to be included in computing the total income - Will
discuss details in Chapter - 2

Step 2 – Classification of income under

different heads

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 HEADS OF INCOME

INCOME FROM PROFITS AND

SALARIES CAPITAL INCOME FROM
HOUSE GAINS FROM
BUSINESS OR GAINS OTHER SOURCES
PROPERTY
PROFESSION

1-SALRY INCOME -IT CONSIST INCOME FROM JOB

Ex- Mr. A doing job in Reliance

Co. so payment from reliance
co. to Mr. A will fall as salaries
income of Mr. A

2. IFHP- IT CONSIST INCOME FROM BUILDING AS RENT.

Ex- Mr. Sudeep let out his building to

Mr. Vinod so now Mr. Sudeep will get
rent from Mr. vinod will be treated as
IFHP in the hands of Mr. Sudeep.

3. PGBP-INCOME FROM BUSINESS AND PROFESSION

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 Ex- Mr. B is a shop keeper and generates
Net Profit of Rs 8lac now this income will
be treated as business income.

Mr. A a CA in practice generate 20lacs surplus

from his practice work that will be treated as
profession income and will included in PGBP
head.

But if MR. A is doing job as a CA in TATA co. than

he will get Salary and it will comes under Salary
head.

4. CG-INCOME FROM TRANSFER OF CAPITAL ASSETS

Ex- If MR. W sold his house

/jewellery /Land
/Shares/Paintings/Drawings etc.
and earn profit this is called Capital
Gain.

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5. IFOS-ANY OTHER INCOME NOT INCLUDED IN ABOVE.

All incomes which do not fall under any

other heads of income will become
under IFOS.

Exm - Dividend Income,Bank

Intt.,Lottery Incomes etc.

Step 3– Computation of income under each head

Income is to be computed in accordance with the provisions governing
a particular head of income.
Exemptions: There are certain incomes which are wholly exempt from
income-tax
e.g. agricultural income. These incomes have to be excluded and will
not form part of Total Income.
Also, some incomes are partially exempt from income-tax e.g. House
Rent Allowance, Education Allowance.

Step-4-Deductions:
There are deductions and allowances prescribed under each head of
income.
Type 1- Those deductions liable to be deducted from respective heads of
income. Municipal Tax deductions from IFHP etc.
For details, refer to Different head of incomes

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 Step 5– Clubbing of income of spouse, minor
child etc.
For detailed discussion, refer to Chapter 4 : Income of other persons
included in assessee’s total income.

Step 6 – Set-off or carry forward and set-off of

losses
For detailed discussion, refer to Chapter 5 : Aggregation of income,
set-off and carry forward of losses.

Step 7 – Computation of Gross Total Income

The final figures of income or loss under each head of income, after
allowing the deductions, allowances and other adjustments, are then
aggregated, after giving effect to the provisions for clubbing of
income and set-off and carry forward of losses, to arrive at the gross
total income.

Step 8 – Deductions from Gross Total Income

There are deductions prescribed from Gross Total Income. For details,
refer to Chapter 6: Deductions from Gross Total Income.

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 DEDUCTIONS FROM GROSS TOTAL INCOME

(in case of an assessee opting out of the default tax regime)

DEDUCTION UNDER
DEDUCTIONS UNDER CHAPTER-VIA
SECTION 10AA

DEDUCTIONS IN DEDUCTIONS IN DEDUCTIONS OTHER

PAYMENTS

OTHER INCOME
CERTAIN INCOMES

Examples
Examples
Examples Deduction in
1. Life Insurance Premium paid
case of a
2. Contribution to 1. Interest on
1. Employment of new person with
Provident Fund/ deposits in disability,
employees
Pension Fund saving account
2. Royalty income etc. of
3. Medical insurance 2. Interest on
authors of certain books
premium paid deposits in case
other than text books
4. Payment of interest on loan of senior citizens
3. Royalty on patents
taken for higher education
5. Payment of interest on loan
taken for residential house
6. Payment of interest on loan
taken for purchase of electric
vehicle
7. Rent paid
8. Donation to certain funds,
charitable institutions, etc.
9. Contributions to political
parties

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Step 9 – Total income
The income arrived at, after claiming the above deductions from the Gross
Total Income is known as the Total Income. It should be rounded off to the
nearest multiple of ` 10 as per section 288A.
However, under the default tax regime under section 115BAC, only select deductions
are permissible.

For detailed discussion, refer to Chapter 6: Deductions from Gross Total Income.

A-CALCULATION OF GROSS TOTAL INCOME AND TOTAL INCOME.

B] GROSS TOTAL INCOME AND TOTAL INCOME

1. INCOME UNDER THE HEAD SALARY xxxx

2. INCOME UNDER THE HEAD HOUSE PROPERTY xxxx

3. INCOME UNDER THE HEAD BUSINESS & PROFESSION xxxx

4. INCOME UNDER THE HEAD CAPITAL GAIN xxxx

5. INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES xxxx

[Each head income will be calculated after exemptions, allowance and

Deductions belong to respective heads]

GROSS TOTAL INCOME (After clubbing & set off provisions) xxxx

Less:- Deductions u/s 80C-80U xxxx

TOTAL INCOME/TAXABLE INCOME/INCOME CHARGEABLE TO TAX xxxx

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Step 10 – Application of the rates of tax on the total
income
The rates of tax for the different classes of assessee are prescribed by
the Annual Finance Act.
Rates prescribed under section 115BAC of the Income-tax Act for default tax regime

Rates prescribed by the Annual Finance Act under the optional tax regime

Details will be discussed later in this chapter.

Step 11 - Surcharge / Rebate under section 87A

Details will be discussed later in this chapter.

Step 12 – Health and education cess on income-tax

Details will be discussed later in this chapter.

Step 13 – Alternate Minimum Tax (AMT)

For detailed discussion, refer to Chapter 9: Income-tax liability – Computation and
Optimisation.

Step 14 – Examine whether to pay tax under the default tax

regime under section 115BAC or pay tax under the optional tax
regime as per the regular provisions of the Act
For detailed discussion, refer to Chapter 9: Income-tax liability – Computation and
Optimisation.

Step 15 – Advance tax and tax deducted at source

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For detailed discussion, refer to Chapter 7: Advance tax, tax deduction at
source and introduction to tax collection at source.

Step 16: Tax Payable/Tax Refundable

After adjusting the advance tax and tax deducted/ collected at source, the assessee would
arrive at the amount of net tax payable or refundable. Such amount should be rounded
off to the nearest multiple of ` 10 as per section 288B.
The assessee has to pay the amount of tax payable (called self-assessment tax) on or
before the due date of filing of the return. Similarly, if any refund is due, assessee will get
the same after filing the return of income.

2-Return of Income
The Income-tax Act, 1961 contains provisions for filing of return of income. Return of
income is the format in which the assessee furnishes information as to his total income
and tax payable. The format for filing of returns by different assessees is notified by the
CBDT. The particulars of income earned under different heads, gross total income,
deductions from gross total income, total income and tax payable by the assessee are
required to be furnished in the return of income. In short, a return of income is the
declaration of income by the assessee in the prescribed format.
The Act has prescribed due dates for filing return of income in case of different
assessees. Companies and firms have to mandatorily file their return of income before
the due date. Other assessees are required to file a return of income subject to fulfilling of
certain conditions.-Will discuss in detail later.

IMPORTANT DEFINITIONS
3.1 Assessee [Section 2(7)]
“Assessee” means a person by whom any tax or any other sum of money is
payable under this Act. In addition, it includes –
 Every person in respect of whom any proceeding under this Act has
been taken for the assessment of
 his income; or
 the income of any other person in respect of which he is assessable; or

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  the loss sustained by him or by such other person; or
 the amount of refund due to him or to such other person.
 Every person who is deemed to be an assessee under any provision
of this Act;
 Every person who is deemed to be an assessee-in-default under any
provision of this Act.

 Every assessee is a ‘person’, but every ‘person’ need not be an assessee.

3.1 Assessment [Section 2(8)]

This is the procedure by which the income of an assessee is determined. It may be by way
of a normal assessment or by way of reassessment of an income previously assessed.
Assessment Procedure will be dealt with in detail at the Final level.
3.2 Person [Section 2(31)]
The definition of ‘assessee’ leads us to the definition of ‘person’ as the former is closely
connected with the latter. The term ‘person’ is important from another point of view also
viz., the charge of income-tax is on every ‘person’.

Individual

Artificial
HUF
juridical
person

Person
Local
Company
Authority

AOP/BOI Firm

We may briefly consider some of the above seven categories of person each of which
constitutes a separate unit of assessment or a separate tax entity.

(i) Individual
The term ‘individual’ means only a natural person, i.e., a human being.
 It includes both males and females.

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 It also includes a minor or a person of unsound mind. But the assessment in such a case
may be made1 on the guardian or manager of the minor or lunatic who is entitled to
receive his income. In the case of deceased person, assessment would be made on
the legal representative.
(ii) HUF

Under the Income-tax Act, 1961, a Hindu undivided family (HUF) is treated as a
separate entity for the purpose of assessment. It is included in the definition of the term
“person” under section 2(31). The levy of income-tax is on “every person”. Therefore,
income-tax is payable by a HUF.
"Hindu undivided family" has not been defined under the Income-tax Act, 1961. The
expression is, however, defined under the Hindu Law as a family, which consists of all males
lineally descended from a common ancestor and includes their wives and daughters.
Some members of the HUF are called co-parceners. They are related to each other and to
the head of the family. HUF may contain many members, but members within four
degrees (generations) including the head of the family (Karta) are called co-parceners. A
Hindu Coparcenary includes those persons who acquire an interest in joint family property
by birth. Earlier, only male descendants were considered as coparceners. With effect from
6th September, 2005, daughters have also been accorded coparcenary status. It may be
noted that only the coparceners have a right to partition.
A daughter of coparcener by birth shall become a coparcener in her own right in the
same manner as the son. Being a coparcener, she can claim partition of assets of the
family. The rights of a daughter in coparcenary property are equal to that of a son.
However, other female members of the family, for example, wife or daughter- in-law of a
coparcener are not eligible for such coparcenary rights.
The relation of a HUF does not arise from a contract but arises from status. There need
not be more than one male member or one female coparcener w.e.f. 6th September,
2005 to form a HUF. The Income-tax Act, 1961 also does not indicate that a HUF as an
assessable entity must consist of at least two male members or two coparceners.
Under the Income-tax Act, 1961, Jain undivided families and Sikh undivided families would
also be assessed as a HUF.

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 Schools of Hindu Law

Dayabaga school Mitakshara school

Rest of India except West

West Bengal and Assam
Bengal and Assam

The basic difference between the two schools of Hindu law with regard to
succession is as follows:

Dayabaga school of Hindu law Mitakshara school of Hindu law

Prevalent in West Bengal and Assam Prevalent in rest of India

Nobody acquires the right, share in the One acquires the right to the family
property by birth as long as the head of property by his birth and not by
family is living. succession irrespective of the fact
Thus, the children do not acquire any that his elders are living.
right, share in the family property, as Thus, every child born in the family
long as his father is alive and only on acquires a right/share in the family
death of the father, the children will property.
acquire right/share in the property.
Hence, the father and his brothers would
be the coparceners of the HUF.
(i) Company [Section 2(17)]
For all purposes of the Act, the term ‘Company’, has a much wider connotation than that
under the Companies Act, 2013. Under the Act, the expression ‘Company’ means:
(1) any Indian company as defined in section 2(26); or
(2) any body corporate incorporated by or under the laws of a country outside India, i.e.,
any foreign company; or
(3) any institution, association or body which is assessable or was assessed as a company for
any assessment year under the Indian Income-tax Act, 1922 or for any assessment year
commencing on or before 1.4.1970 under the present Act; or

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 any institution, association or body, whether incorporated or not and whether Indian or non-
Indian, which is declared by a general or special order of the CBDT to be a company for
such assessment years as may be specified in the CBDT’s order.
Classes of Companies

(1) Domestic company and Foreign Company: Companies can be classified into two
categories, viz. (1) Domestic company and (2) Foreign company.
Domestic company [Section 2(22A)] - It means an "Indian company" or any other company
that has made the necessary arrangements to declare and pay dividends (including those on
preference shares) within India from its income that is subject to income tax.
Indian company [Section 2(26)] - A company is considered an "Indian company"
under section 2(26) of the Income-tax Act, 1961 if it meets two key conditions:

1. Formation and Registration: The company should have been formed and registered
under the Companies Act, 19562.
2. Office Location: The company's registered or principal office should be in India.
Additionally, the term "Indian company" also includes the following provided their
registered or principal office in India:
 Corporation established by or under a Central, State, or Provincial Act, such as Financial
Corporation or State Road Transport Corporation.
 Institution, association, or body declared by the Board to be a company under section
2(17)(iv).
 Company formed and registered under any law in force in any part of India, excluding
Jammu and Kashmir and specific Union territories.
 Company formed and registered under any law in force in Jammu and Kashmir.
 Company formed and registered under any law in force in Union territories like Dadra and
Nagar Haveli, Daman and Diu, Pondicherry, or the State of Goa.
Foreign company [Section 2(23A)] - Foreign company means a company which is not a
domestic company

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 Classes of companies

Domestic company Foreign company

Indian Company which has made A company which

company arrangement for declaring and is not a domestic

paying dividend within India out of company
the income chargeable to tax in
India.

(2) A company is further classified into two primary categories based on public
interest:
Widely Held Company (Company in which public are substantially interested): A
company is considered to have substantial public interest if it meets any of the following
criteria as outlined in section 2(18) of the Income- tax Act, 1961:

(a) Government or RBI Ownership or participation: A company owned by the Central or

State Government or the Reserve Bank of India (RBI), or where at least 40% of the shares are
held (whether singly or taken together) by the Government or the RBI or a corporation owned
by the RBI.
(b) Company registered under section 25 of the Companies Act, 1956: A company
registered under section 25 of the Companies Act, 19563, which is formed to promote
commerce, art, science, education, research, social welfare, charity, environmental
protection, etc., and does not distribute dividends to their members.

(c) Companies with No Share Capital and declared by the CBDT: A company which
does not have share capital and is declared by the CBDT to be a company in which the
public are substantially interested for specified assessment years.

(d) Mutual Benefit Finance Company (Nidhi or Mutual Benefit Society):

A company that primarily accept deposits from its members and is declared by the
Central Government under Section 620A of the Companies Act, 19564, to be a Nidhi or
Mutual Benefit Society.
(e) Cooperative Society ownership: A company whose equity shares carrying at least 50% of
the voting power are unconditionally allotted or acquired by one or more cooperative
societies and held throughout the relevant previous year.

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(f) Public Limited Company: A company which is not a private company as defined in the
Companies Act, 19565 and which fulfills any of the following conditions:
- its equity shares were listed in a recognized stock exchange in India as on the last day of
the relevant previous year; or

- its equity shares carrying at least 50% (40% in case of an Indian company in ship
construction business or in the manufacture or processing of goods or in mining or in
generation or distribution of electricity or any other form of power) voting power have
been unconditionally allotted to or acquired by and should have been beneficially held
throughout the relevant previous year by
(a) Government or
(b) a Statutory Corporation or
(c) a company in which public are substantially interested or

(d) any wholly owned subsidiary of company mentioned in (c).

Closely Held Company (Company in which public are not substantially interested): Any
company that does not meet the criteria for being classified as widely held company is
considered closely held company. Thus, all private limited companies will be treated as
companies in which public are not substantially interested.

(iii) Firm [Section 2(23)]

The terms ‘firm’, ‘partner’ and ‘partnership’ have the same meanings as assigned to them
in the Indian Partnership Act, 1932. In addition, the definitions also include
the terms limited liability partnership and a partner of limited liability partnership as
they have been defined in the Limited Liability Partnership Act, 2008.
In an LLP, since liability of the partners is limited to their agreed contribution
therein, it contains elements of both a corporate structure as well as a partnership firm
structure.

However, for income-tax purposes a minor admitted to the benefits of an existing

partnership would also be treated as partner.

Firm

As defined
As defined
under the
under the Limited
Partnership Liability
Act, 1932 Partnership
Act, 2008

Income Tax Basics – By CA Ankit Sharma Page 23

 A partnership is the relation between persons who have agreed to share the profits of
business carried on by all or any of them acting for all. The persons who have entered into
partnership with one another are called

individually ‘partners’ and collectively a ‘firm’.

(i) Association of Persons (AOP)

When persons combine together for promotion of joint enterprise they are assessable
as an AOP, if they do not in law constitute a partnership. In order to constitute an
association, persons must join for a common purpose or action and their object must
be to produce income; it is not enough that the persons receive the income jointly. Co-
heirs, co-legatees or co-donees joining together for a common purpose or action would
be chargeable as an AOP.

For e.g., Mr. Yash, AB & Co. (Firm) and X (P) Ltd. join together to carry on construction
activity otherwise than as a partnership firm, such an association will be recognized as an
association of persons.
(iv) Body of Individuals (BOI)
It denotes the status of persons like executors or trustees who merely receive the income
jointly and who may be assessable in like manner and to the same extent as the
beneficiaries individually. Thus, co-executors or co-trustees are assessable as a BOI as
their title and interest are indivisible. Income-tax shall not be payable by an assessee in
respect of the receipt of share of income by him from BOI and on which the tax has already
been paid by such BOI. For e.g., mutual trade associations, members club, etc.
Section 2(31) further explains that an association of persons or a body of individuals shall
be treated as a person, whether or not it was formed with the object of deriving
income, profits or gains. Accordingly, even if such entities have been formed not for
earning any income/ profit still they are "person" for the purpose of the Act and are
covered by the provisions of the Act.
Difference between AOP and BOI:
In case of a BOI, only individuals can be the members, whereas in case of AOP, any person
can be its member i.e. entities like company, firm etc. can be the member of AOP but
not of BOI.

In case of an AOP, members voluntarily come together with a common will for a
common intention or purpose, whereas in case of BOI, such common will may or may
not be present.
(v) Local Authority
The term “Local Authority” means a municipal committee, district board, body of port
commissioners or other authority legally entitled to or entrusted by the Government with
the control or management of a municipal or local fund.

Income Tax Basics – By CA Ankit Sharma Page 24

 Note: A local authority is taxable in respect of that part of its income which arises from
any business carried on by it in so far as that income does not arise from the supply of a
commodity or service within its own jurisdictional area. However, income arising from
the supply of water and electricity even outside the local authority’s own jurisdictional
area is exempt from tax.

(vi) Artificial Juridical Persons

Artificial Juridical Persons are the entities which are not natural persons but are
separate entities in the eyes of law. This is a residual category could cover all artificial
persons with a juristic personality not falling under any other category of persons. Deities,
Bar Council, Universities are some important examples of Artificial Juridical Persons.

3.3 India [Section 2(25A)]

The term 'India' means –
(i) the territory of India as per Article 1 of the Constitution,
(ii) its territorial waters, seabed and subsoil underlying such waters,
(iii) continental shelf,
(iv) exclusive economic zone or
(v) any other specified maritime zone and the air space above its
territory and territorial waters.

Specified maritime zone means the maritime zone as referred to in the Territorial Waters,
Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976.

PREVIOUS YEAR AND ASSESSMENT YEAR

Previous Year 2023-24 Assessment Year 2024-25

4.1 Assessment year

The term has been defined under section 2(9). This means a period of 12 months
commencing on 1st April every year. The year in which income is earned is the
previous year and such income is taxable in the immediately following year which is the
assessment year. Income earned in the previous year 2023-24 is taxable in the

Income Tax Basics – By CA Ankit Sharma Page 25

 assessment year 2024-25.

Assessment year always starts from 1st April and it is always a period of 12 months.

4.2 Previous year

The term has been defined under section 3. It means the financial year immediately
preceding the assessment year. As mentioned earlier, the income earned during the
previous year is taxable in the assessment year.
Business or profession newly set up during the financial year - In such a case, the
previous year shall be the period beginning on the date of setting up of the business
or profession and ending with 31st March of the said financial year.

If a source of income comes into existence in the said financial year,

then, the previous year will commence from the date on which the
source of income newly comes into existence and will end with 31st March
of the financial year.

Examples:

A is running a business from 1993 onwards. Determine the previous year for the
assessment year 2024-25.

Ans. The previous year will be 1.4.2023 to 31.3.2024.

A chartered accountant sets up his profession on 1st July, 2023. Determine the
previous year for the assessment year 2024-25.

Ans. The previous year will be from 1.7.2023 to 31.3.2024.

Income Tax Basics – By CA Ankit Sharma Page 26

 General Rule

Income of a previous year is assessed in the assessment year following the

previous year

Exceptions to this rule

Cases where income of a previous year is assessed in the previous year itself

Shipping AOP/ BOI/ Artificial Persons likely

Persons
business of Juridical Person to transfer Discontinued
leaving formed for a
non-resident India property to
particular event or avoid tax business
purpose

1.Non resident shipping business u/s 172- A NR who is carrying on a

shipping business come to India & earn income for that than before
leaving India income tax is charged on such person or such person has to
made prescribed arrangement for payment of such income tax.
In this case 7.5% of the amount of freight/ charges earn in India shall be
deemed to be his profit & income tax will be charged on such income in
the same year in which such income is earned.
2.Assessment of person leaving India u/s 174- When it appears to the
AO that any individual may leave India during the P/Y & has no intention
to came back in to India then the total income of such individual of that
PY will be taxable in same year (on actual or estimated basis).
Exm-
Suppose Mr. X is leaving India for
USA on 10.6.2023 and it appears
to the Assessing Officer that he
has no intention to return. Before

Income Tax Basics – By CA Ankit Sharma Page 27

leaving India, Mr. X may be asked to pay income-tax on the income
earned during the P.Y. 2023-24 as well as on the total income earned
during the period 1.4.2023 to 10.06.2023.

3. Assessment of AOP/BOI/AJP formed for a particular event or

purpose U/S174A-

If it appears to know the AO that any

AOP/BOI/AJP is form a particular
event & will dissolved in the year of
formation than their income will charge
in the same year in which it is
formed/earned income.

4. Assessment of person trying to transfer his asset with a view to

avoid tax U/S175- If it appears to the AO that any person is likely to
charge sell,transfer his asset to avoid tax on his total income than the total
income of such individual of P/Y shall be chargeable to tax in the same
P/Y.
5. Discontinued Business U/S 176- Where any B/P discontinued in any
P/Y the income from the START of the P/Y up to date of such
discontinuance may be assessed to tax in the same year.Any person
discontinue any business or profession shall give AO a notice of such
discontinuance within 15 days thereof.

Income Tax Basics – By CA Ankit Sharma Page 28

UNDISCLOSED SOURCES OF INCOME

Amount

borrowed or
Cash repaid on hundi
[Section 69D] Unexplained
Credits
[Section expenditure
68] [Section 69C]
Undisclosed

sources of
income
Unexplained Investment etc.

Investments not fully

[Section 69] disclosed
Unexplained [Section 69B]

money
[Section 69A]

Previous Year for unexplained Cash Credits, Investments, etc.-

[Cases where Earning year & PY is different]
In case of white money-PY=EY
In case of Black money-PY & EY different.

1.Cash Credits U/s 68- Where any sum is found credited in the books of
an assessee maintained for any PY, & assee. has no explanation about
the nature & source thereof or the explanation offered by him is not in the
opinion of the AO is satisfactory then such sum may be charged to IT as
the income of the assee. of that PY.[if any cash entry found in any
register,book,copy etc. with the assee. and if assessee was not able to
explain than it can be treated as black money].

2. Unexplained Investments U/s 69- The assee has made investments

which are not recorded in the books of account & assee has no
explanation about the nature & source of the investments or not a
satisfactory as per AO then value of such investment may deemed as
income & charged to IT of that PY.

Income Tax Basics – By CA Ankit Sharma Page 29

3. Unexplained Money U/s 69A- Assee. is found the owner of any
money, bullion , Jewellery or other valuable articles & such are not
recorded in the books of accounts has no explanation about the nature &
source of the such money, bullion etc or not a satisfactory as per AO then
value of such money, bullion etc. may deemed as income & charged to IT
of that PY.

4. Amount of investment etc. not fully disclosed in the books of

accounts U/s 69B- Assee. is found the owner of any money, bullion,
Jewellery or other valuable articles & assee. has made investments & AO
finds that the amount expended on making such investments, Or in such
money , bullion etc. exceeds the amount recorded in the books of
accounts & assee. has no explanation or not a satisfactory as per AO
then excess value may deemed as income & charged to IT of that PY.
Exm-
If the assessee is found to be the owner of say 300 gms of gold
(market value of which is ` 25,000) during the financial year ending
31.3.2024 but he has recorded to have spent ` 15,000 in acquiring
it, the Assessing Officer can add ` 10,000 (i.e,. the difference of
the market value of such gold and ` 15,000) as the income of
the assessee, if the assessee offers no satisfactory explanation
thereof.
5. Unexplained Expenditure U/s 69C- An assee incurred any
expenditure & he offers no explanation about the source of such expn. Or
not satisfactory in the opinion of AO than such amount of expn. Or part
thereof may deemed income for that PY.

6-Amount borrowed or repaid on Hundi U/s 69D- Where any amount

borrowed on Hundi or any amount due thereon has been repaid other
than an account payee cheque drawn on a bank the amount so borrowed
or rapid will be treated as the deemed income of the person borrowing or
repaying such amount in the previous year of borrowing or repaying as
the case may be. But if any amount has been deemed as his income on

Income Tax Basics – By CA Ankit Sharma Page 30

 borrowing then it will not again treated as income at the time of
repayment. The amount repaid shall include the amount of interest.
Special Rate -
1. Unexplained credits, money, investment, expenditure, etc., which has
been deemed as income under section 68, section 69, section 69A,
section 69B, section 69C,69D at the rate of 60% (plus 25% surcharge &
4%CESS= TOTAL EFFECTIVE RATE -78%]
2. No deduction/exemption in respect of any expenditure or allowance
shall be allowed to the assessee under any provision of the Act in
computing deemed income under the said sections.
3. Such income will be liable to tax & tax will be recovered as prescribed.

CONCEPT & DEFINITION OF INCOME-

Concept Of income-
Income word covers receipts in the shape of money or money’s worth
which arise with certain regularity or expected regularity from a definite
source.
Under income tax even any receipts which arise not from any definite
source and not regular is treated under the definition of income as capital
receipts.

Characteristics of Income-
1-Concept of Income under the Income-tax Act, 1961
 Regular receipt vis-a-vis casual receipt: Income, in general, means a periodic monetary
return which accrues or is expected to accrue regularly from definite sources. However,
under the Income-tax Act, 1961, even certain casual receipts which do not arise regularly
are treated as income for tax purposes e.g. Winnings from lotteries, crossword puzzles.
 Revenue receipt vis-a-vis Capital receipt: Income normally refers to revenue receipts.
Capital receipts are generally not included within the scope of income in general parlance.
However, the Income-tax Act, 1961 has specifically included certain capital receipts
within the definition of income e.g., Capital gains i.e., gains on sale of capital assets like

Income Tax Basics – By CA Ankit Sharma Page 31

 land, jewellery.
 Net receipt vis-a-vis Gross receipt: Income means net receipts and not gross
receipts. Net receipts are arrived at after deducting the expenditure incurred in
connection with earning such receipts. The expenditure which can be deducted while
computing income under each head is prescribed under the Income-tax Act, 1961.
Income from certain eligible businesses/
professions is also determined on presumptive basis i.e., as a certain percentage of gross
receipts. [We will discuss in detail in Unit 3 of Chapter 3: Profits and gains of business or
profession].

 Due basis vis-a-vis receipt basis: Income is taxable either on due basis or receipt basis.
For computing income under the heads “Profits and gains of business or profession” and
“Income from other sources”, the method of accounting regularly employed by the
assessee should be considered, which can be either cash system or mercantile system.
Some receipts are taxable only on receipt basis, like, income by way of interest
received on compensation or enhanced compensation.
 Application of Income vis-a-vis Diversion of Income: Application of income means to
discharge an obligation (which is gratuitous or self- imposed) after such income reaches
the assessee. Where by virtue of an obligation by overriding title, income is diverted
before it reaches the assessee, it is known as diversion of income. In case of the former, the
income would be taxable in the hands of the person who applies it, whereas in the case
of the latter, it is not taxable (i.e., even if the assessee were to collect the income he does so
on behalf of the person to whom it is payable).
2-Concept of revenue and capital receipts-Will discuss in details under different heads of Incomes
[PGBP,CG,IFOS etc.]
Students should carefully study the various items of receipts included in the definition of
income. Some of them like capital gains are not revenue receipts. However, since they
have been included in the definition, they are chargeable as income under the Act.
The Act contemplates a levy of tax on income and not on capital and hence it is very
essential to distinguish between capital and revenue receipts. Capital receipts cannot be
taxed, unless they fall within the scope of the definition of “income” and so the distinction
between capital and revenue receipts is material for tax purposes.
Certain capital receipts which have been specifically included in the definition of income
are compensation for modification or termination of services, income by way of capital
gains etc.
It is not possible to lay down any single test as infallible or any single criterion as
decisive, final and universal in application to determine whether a particular receipt
is capital or revenue in nature. Hence, the capital or revenue nature of the receipt must be
determined with reference to the facts and circumstances of each case.
The concept of revenue and capital receipts will be discuss in different heads on income in
Income Tax Basics – By CA Ankit Sharma Page 32
detail.

Income [Section 2(24)] -Definition of Income

The definition of income as per the Income-tax Act, 1961 begins with
the words “Income includes”. Therefore, it is an inclusive definition and
not an exhaustive one. Such a definition does not confine the scope of
income but leaves room for more inclusions within the ambit of the term.
Section 2(24) of the Act gives a statutory definition of income. At
present, the following items of receipts are specifically included in
income:—

1-Profits and gains.-REFER PGBP

2-Dividends.-REFER IFOS

3-Voluntary contributions received by a trust/institution created wholly or

partly for charitable or religious purposes or by certain research
association or universities and other educational institutions or hospitals
and other medical institutions or an electoral trust.-REFER TRUST
PROVISONS

4-The value of any perquisite or profit in lieu of salary taxable under

section 17(2)/(3).-REFER SALARY

5-Any special allowance or benefit, other than the perquisite included

above, specifically granted to the assessee to meet expenses wholly,
necessarily and exclusively for the performance of the duties of an
office or employment of profit.-REFER SALARY

6-Any allowance granted to the assessee to meet his personal

expenses at the place where the duties of his office or employment of
profit are ordinarily performed by him or at a place where he ordinarily
resides or to compensate him for the increased cost of living.-REFER
SALARY

7-The value of any benefit or perquisite whether convertible into money

or not, obtained from a company either by a director or by a person who has
a substantial interest in the company or by a relative of the director or
such person and any sum paid by any such company in respect of any
Income Tax Basics – By CA Ankit Sharma Page 33
obligation which, but for such payment would have been payable by the
director or other person aforesaid.-DEPENDS ON THE CIRCUMSTANCES
OF THE CASE.

8-The value of any benefit or perquisite, whether convertible into money

or not, which is obtained by any representative assessee or by any
beneficiary and any amount paid by the representative assessee for the
benefit of the beneficiary which the beneficiary would have ordinarily been
required to pay.-DEPENDS ON THE CIRCUMSTANCES OF THE CASE.

9- Deemed profits chargeable to tax under section 41 or section 59.-

REFER PGBP

10-Profits and gains of business or profession chargeable to tax under

section 28.-REFER PGBP

11-Any capital gains chargeable under section 45.-REFER CG

12-The profits and gains of any insurance business carried on by

Mutual Insurance Company or by a cooperative society or any surplus
taken to be such profits and gains by virtue of the provisions
contained in the First Schedule to the Act.- DEPENDS ON THE
CIRCUMSTANCES OF THE CASE.

13-The profits and gains of any banking business (including providing

credit facilities) carried on by a co-operative society with its members.
DEPENDS ON THE CIRCUMSTANCES OF THE CASE.

14-Any winnings from lotteries, crossword puzzles, races including

horse races, card games and other games of any sort or from gambling,
or betting of any form or nature whatsoever. For this purpose,

(i)“Lottery” includes winnings from prizes awarded to any person by draw

of lots or by chance or in any other manner whatsoever, under any
scheme or arrangement by whatever name called;

(ii)“Card game and other game of any sort” includes any game show,
an entertainment programme on television or electronic mode, in
which people compete to win prizes or any other similar game.- REFER

Income Tax Basics – By CA Ankit Sharma Page 34

IFOS-

15-Any sum received by the assessee from his employees as

contributions to any provident fund (PF) or superannuation fund or
Employees State Insurance Fund (ESI) or any other fund for the
welfare of such employees.-REFER PGBP

16-Any sum received under a Keyman insurance policy including the

sum allocated by way of bonus on such policy will constitute income.

“Keyman insurance policy” means a life insurance policy taken by a

person on the life of another person where the latter is or was an
employee of former or is or was connected in any manner whatsoever
with the former’s business. It also includes such policy which has
been assigned to a person with or without any consideration, at any
time during the term of the policy.- DEPENDS ON THE
CIRCUMSTANCES OF THE CASE.

17- Any sum referred to in section 28(va). Thus, any sum, whether
received or receivable in cash or kind, under an agreement for not
carrying out any activity in relation to any business or profession; or
not sharing any know- how, patent, copy right, trade-mark, licence,
franchise, or any other business or commercial right of a similar nature,
or information or technique likely to assist in the manufacture or
processing of goods or provision of services, shall be chargeable to
income tax under the head “profits and gains of business or profession”.-
RFER PGBP

18-Fair market value of inventory which is converted into, or treated as a

capital asset [Section 28(iva)].-REFER PGBP

19-Any consideration received for issue of shares as exceeds the fair

market value of the shares [Section 56(2)(viib)].-REFER IFOS.

20-Any sum of money received as advance, if such sum is forfeited

Income Tax Basics – By CA Ankit Sharma Page 35

consequent to failure of negotiation for transfer of a capital asset
[Section 56(2)(ix)]-RFER IFOS.

21-Any sum of money or value of property received without

consideration or for inadequate consideration by any person [Section
56(2)(x)].-REFER IFOS.

22-Any compensation or other payment, due to or received by any

person, in connection with termination of his employment or the
modification of the term and conditions relating thereto [Section
56(2)(xi)].

[For details, refer : Income from Other Sources]

23-Assistance in the form of a subsidy or grant or cash incentive or duty

drawback or waiver or concession or reimbursement, by whatever
name called, by the Central Government or a State Government or any
authority or body or agency in cash or kind to the assessee is included in
the definition of income.

However, subsidy or grant or reimbursement which has been taken

into account for determination of the actual cost of the depreciable
asset in accordance with Explanation 10 to section 43(1) shall not be
included in the definition of income.

DEPENDS ON THE CIRCUMSTANCES OF THE CASE.

Income Tax Basics – By CA Ankit Sharma Page 36

Income Tax Basics – By CA Ankit Sharma Page 37
“Some r destined to succeed & some r determined to
succeed”

RATES OF TAX, SURCHARGE & CESS

Income-tax
Income-tax is to be charged on every person at the rates prescribed for the year by the
Annual Finance Act or the Income-tax Act, 1961 or both.
Surcharge
Surcharge is an additional tax payable over and above the income-tax. Surcharge is levied as a
percentage of income-tax. Surcharge is presently being levied beyond a particular threshold of
income for different persons.
Also, higher rates of surcharge are prescribed for higher thresholds of income. However,
under the special tax regimes for domestic companies and co-operative societies, a uniform
surcharge is prescribed irrespective of the level of total income.

CA ANKIT SHARMA Page 1

“Health and Education cess” on Income-tax

The amount of income-tax as increased by the union surcharge, if applicable,

should be further increased by an additional surcharge called the “Health and
Education cess on income-tax”, calculated at the rate of 4% of such income-tax and
surcharge, if applicable. Health and education cess is leviable in the case of all
assessees i.e. individuals, HUF, AOPs/BOIs, Artificial Juridical Persons, firms, local
authorities, co-operative societies and companies.
It is leviable to fulfill the commitment of the Government to provide and finance
quality health services and universalised quality basic education and secondary and
higher education.

OPTIONAL TAX REGIME

RATES OF TAXES:-ASSESSMENT YEAR 2024-25

Rates In Case of any other For Resident Senior For Resident Senior
Individual(M/F,<60Yr Resident & Citizen 60yrs(M/F) or Citizen 80yrs(M/F)
All NON resident M/F<>60yr) and more but less than or more at any time
HUF,AOP, BOI, AJP. 80yrs at any time in PY. in PY.
1) NIL First=250000 First=300000 First=500000
2) 5% Next=250000 Next=200000 NA
3) 20% Next=500000 Next=500000 Next=500000
4) 30% Balance Balance Balance

Special Rate of Tax-

In respect of certain types of income, as mentioned below, the Income-tax Act, 1961 has
prescribed specific rates. The special rates of tax have to be applied on the respective
component of total income irrespective of the tax regime and the slab rates have to be
applied on the balance of total income after adjusting the basic exemption limit.

Note – For detailed discussion on taxability of capital gains, please refer Unit 4: Capital Gains of
Chapter 4: Heads of Income.

CA ANKIT SHARMA Page 2

 Clarification regarding attaining prescribed age of 60 years/ 80 years on 31st
March itself, in case of senior/very senior citizens whose date of birth falls on 1st
April [Circular No. 28/2016, dated 27-07-2016]
The CBDT has clarified that a person born on 1st April would be considered to have attained a
particular age on 31st March, the day preceding the anniversary of his birthday. In particular,
the question of attainment of age of eligibility for being considered a senior/very senior
citizen would be decided on the basis of above criteria.
Therefore, a resident individual whose 60th birthday falls on 1st April, 2025, would be treated as
having attained the age of 60 years in the P.Y.2024-25 and would be eligible for higher basic
exemption limit of ` 3 lakh while computing his tax liability for A.Y.2025-26 under the optional tax
regime as per the normal provisions of the Act. Likewise, a resident individual whose 80th birthday
falls on 1st April, 2025, would be treated as having attained the age of 80 years in the P.Y.2024-25,
and would be eligible for higher basic exemption limit of ` 5 lakh in computing his tax liability for
A.Y.2025-26 under the optional tax regime as per the normal provisions of the Act.

1-REBATE U/S 87A=

Rebate of Rs.12500 or amount of tax ] lower If TI=< Rs.5lakh [only for INDIVIDUALS
RESIDENT].
Under Optional Tax Regime.

CALCULATION OF TAX FORMAT-

1= CALCULATE TAX AS PER RATES= 0000

2=LESS- REBATE U/S 87A [IF APPLICABLE]= - 0000
3=ADD+ SURCHARGE [IF APPLICABLE]= + 0000
TOTAL [A] 0000
4=ADD+ CESS 4% IN ALL CASES ON TOTAL[A] +0000
TOTAL =FINAL TAX[Round off in multiple of 10Rs] 0000

CA ANKIT SHARMA Page 3

 Example- Individuals <60yrs Resident-

1.Total Income is Total Tax Will be-

Rs- 260000 Tax= 500
Total 500
Credit/Rebate 500
Tax NIL

2.Rs-269500 Tax = 975

Total 975
Max Credit/Rebate 975
Tax NIL

3.Rs-350000 Tax = 5000

Total 5000
Max Credit/Rebate 5000
Tax NIL

4.Rs-500000 Tax = 12500

Max Credit/Rebate 12500
Tax NIL

5.Rs-600000 Tax=32500
Total 32500[Exceeding 5lacs Rebate NA]
EC & HC 4% 1300
Tax 33800

6.Rs-270000 Tax =1000

Total Credit/Rebate 1000
Tax NIL

In case of Senior Citizen equal or more 60yr but less than 80Yr
1.Rs-330000 Tax = 1500
Total 1500
Max Credit/Rebate 1500
Tax 0

2.Rs-400000 Tax = 5000

Total 5000
Max Credit/Rebate 5000
Tax NIL

CA ANKIT SHARMA Page 4

 In case of Senior Citizen equal or more 80yr –
Up to 5lac free so no Rebate normal tax will be calculated.

Important Notes-
1.Rebate will be provided before calculating Cess.

2.Surcharge 10% on Tax, if Total income >50lacs upto 1cr.

3.Surcharge of 15% on Tax if Total income >1cr. Upto 2cr.

4.Surcharge of 25% on Tax if Total income >2cr. Upto 5cr

5.Surcharge of 37% on Tax if Total income >5cr.

6.EC 2% & SHEC 1% & 1% Health Cess in all cases.

REFER SURCHARGE CHART

DEFAULT TAX REGIME UNDER SECTION 115BAC

Individual/Hindu Undivided Family (HUF)/Association of Persons

(AOP)/Body of Individuals (BOI)/Artificial Juridical Person
Income-tax
Individual/HUF/AoP/BoI and Artificial Juridical Persons can pay tax at concessional rates under
the default tax regime under section 115BAC.
However, he/it has to forego certain exemptions and deductions under this regime.
Alternatively, he/it can exercise the option to shift out of the default tax regime and pay tax
under the optional tax regime as per the regular provisions of the Act at the tax rates
prescribed by the Annual Finance Act of that year.

Default tax regime under section 115BAC of the Income-tax Act, 1961

CA ANKIT SHARMA Page 5

I. Concessional tax rates
Individuals/ HUF/ AoPs/ BoIs or artificial judicial persons, other than those who exercise the
option to opt out this regime under section 115BAC(6), have to pay tax in respect of their total
income (other than income chargeable to tax at special rates under Chapter XII such as
section 111A, 112, 112A, 115BB, 115BBJ etc.) at the following concessional rates, subject to
certain conditions specified under section 115BAC(2) –

(i) Upto ` 3,00,000 NIL

(ii) From ` 3,00,001 to ` 6,00,000 5%
(iii) From ` 6,00,001 to ` 9,00,000 10%
(iv) From ` 9,00,001 to ` 12,00,000 15%
(v) From ` 12,00,001 to ` 15,00,000 20%
(vii) Above ` 15,00,000 30%

I. Conditions to be satisfied
The following are the conditions to be satisfied:

S. Particulars
No.
(1) Certain deductions/exemptions not allowable: Section 115BAC(2)
provides that while computing total income, the following
deductions/exemptions would not be allowed:
Section Exemption/Deduction
10(5) Leave travel concession
10(13A) House rent allowance
10(14) Exemption in respect of special allowances or
benefit to meet expenses relating to duties or
personal expenses (other than those as may be
prescribed for this purpose)
10(17) Daily allowance or constituency allowance of MPs
and MLAs

CA ANKIT SHARMA Page 6

 10(32) Exemption in respect of income of minor child
included in the income of parent
10AA Tax holiday for units established in SEZ
16 (i) Entertainment allowance
(ii) Professional tax
24(b) Interest on loan in respect of self-occupied property
32(1)(iia) Additional depreciation

35(1)(ii),(iia),(iii) Deduction in respect of contribution to

or 35(2AA) - notified approved research association/
university/college/other institutions for scientific
research [Section 35(1)(ii)]
- approved Indian company for scientific research
[Section 35(1)(iia)]
- notified approved research association/
university/college/other institutions for research
in social science or statistical research [Section
35(1)(iii)]
- An approved National laboratory/university/IIT/
specified person for scientific research
undertaken under an approved programme
[Section 35(2AA)]
35AD Investment linked tax incentives for specified
businesses
80C to 80U Deductions under Chapter VI-A (other than
employers contribution towards NPS under section
80CCD(2), Central Government contribution
towards Agnipath Scheme under section 80CCH(2)
and deduction in respect of employment of new
employees under section 80JJAA).

CA ANKIT SHARMA Page 7

 (2) Certain losses not allowed to be set-off: While computing total
income, set-off of any loss -
(i) carried forward or depreciation from any earlier assessment year,
if such loss or depreciation is attributable to any of the deductions
referred to in (1) above; or
(ii) under the head house property with any other head of income;
would not be allowed.
(3) Depreciation or additional depreciation: Depreciation u/s 32 is to be
determined in the prescribed manner. Depreciation in respect of any
block of assets entitled to more than 40%, would be restricted to 40%
on the written down value of such block of assets. Additional
depreciation u/s 32(1)(iia), however, cannot be claimed.
(4) Exemption or deduction for allowances or perquisite: While
computing total income, any exemption or deduction for allowances or
perquisite, by whatever name called, provided under any other law for
the time being force in India would not be allowed.
Additional points:
Loss or depreciation referred to in (2) above would be deemed to have been already
given effect to and no further deduction for such loss or depreciation shall be
allowed for any subsequent year.
Where income-tax on total income of the assessee is computed under this section
and there is a depreciation allowance in respect of a block of asset from an earlier
assessment year attributable to additional depreciation u/s 32(1)(iia), which has
not been given full effect to prior to A.Y. 2024-25 and which is not allowed to be
set-off in the A.Y.2024-25 due to section 115BAC, corresponding adjustment shall
be made to the WDV of such block of assets as on 1.4.2023 in the prescribed
manner i.e., the WDV as on 1.4.2023 will be increased by the unabsorbed
additional depreciation not allowed to be set-off.

Surcharge
In case the Individual/HUF/AoP 6/BoI and Artificial Juridical Person pays tax under default tax
regime under section 115BAC

Income-tax computed in accordance with the provisions of section 115BAC and/ or section 111A
or section 112 or section 112A or 115BBE or section 115BBJ would be increased by surcharge.

REFER SURCHARGE CHART FOR 115BAC

CA ANKIT SHARMA Page 8

II. Time limit for exercising the option to shift out of the default tax regime

(i) In case of an assessee having no income from business or profession: Where

such individual/HUF/AoP/BoI or Artificial Juridical person is not having income from
business or profession, he/it can exercise an option to shift out/opt out of the default tax
regime under this section and such option has to be exercised along with the return of
income to be furnished under section 139(1) for a previous year relevant to the assessment
year. In effect, such individual/HUF/AoP/BoI or Artificial Juridical person can choose whether
or not to exercise the option of shifting out of the default tax regime in each previous year.
He/it may choose to pay tax under default tax regime under section 115BAC in one year and
exercise the option to shift out of default tax regime in another year.
(ii) In case of an assessee having income from business or profession: Such
individual/HUF/AoP/BoI or Artificial Juridical person having income from business or profession
has an option to shift out/ opt out of the default tax regime under this section and the
option has to be exercised on or before the due date specified under section 139(1) for
furnishing the return of income for such previous year and once such option is exercised, it
would apply to subsequent assessment years.
Such person who has exercised the above option of shifting out of the default tax regime for any
previous year shall be able to withdraw such option only
once and pay tax under the default tax regime under section 115BAC for a
previous year other than the year in which it was exercised.
Thereafter, such person shall never be eligible to exercise option under this section, except
where such person ceases to have any business or professional income in which case, option
under (i) above would be available.
AMT liability not attracted: Individual/HUF/AoP/BoI or Artificial Juridical person paying tax
under default tax regime under section 115BAC is not liable to alternate minimum tax u/s 115JC.
Such person would not be eligible to claim AMT credit also.

Note: It may be noted that in case of Individual/HUF/AoP/BoI or Artificial Juridical

person not having income from business or profession, the total income and tax
liability (including provisions relating to AMT, if applicable under normal provisions) may
be computed every year both in accordance with the regular provisions of the Income-tax
Act, 1961 and in accordance with the provisions of section 115BAC, in order to determine
which is more beneficial and accordingly such person may decide whether to pay tax
under default tax regime under section 115BAC or exercise the option to shift out and
pay tax under normal provisions of the Act for that year.

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 [Total Cess=4%]
2- In case of Partnership Firm & Limited Liability Partnership---30%
(SURCHARGE 12% IF TOTAL INCOME>1CRORE)

Special rates for capital gains under sections 112, 112A and 111A would be applicable
to Firm/ LLP/ local authority also.

Marginal Relief
Marginal relief is available in case of such persons having a total income exceeding 1 crore i.e., the
total amount of income-tax (together with surcharge) computed on such income should not
exceed the amount of income-tax computed on total income of ` 1 crore by more than the
amount of income that exceeds ` 1 crore.

3-Co-operative Society---------------------------------- (SURCHARGE

12% IF TOTAL INCOME>1CRORE)
First Rs10000 10%
Next Rs10000 20%
PROVISIONS FOR SURCHARGE(TAX ON TAX)=
Balance 30%
Note-- Education cess @2% & 1% Secondary & higher education cess on & 1%
Health Cess (Tax + Surcharge) if any, in all cases.

Note – A manufacturing co-operative society, resident in India, can opt for

concessional rates of tax under section 115BAE and other co-operative societies,
resident in India, can opt for concessional rates of tax under section 115BAD.
Tax rate in case of a manufacturing co-operative society, resident in India (set up and
registered on or after 1.4.2023 and commences manufacture of article or thing before
31.3.2024) opting for concessional tax regime u/s 115BAE

15% of income derived from or incidental to manufacturing or production of an

article or thing

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10
 Tax rate in case of other resident co-operative society opting for concessional tax regime
u/s 115BAD:

22% of total income

Note - Co-operative society, resident in India, can opt for concessional rate of tax
u/s 115BAD or 115BAE, as the case may be, subject to certain conditions. The total
income of such co-operative societies would be computed will be dealt with in
detail at Final level.

Surcharge
(a) In case of a co-operative society (other than a co-operative society
opting for section 115BAD or section 115BAE), whose total income >1 crore but
is ≤ ` 10 crore
Where the total income exceeds ` 1 crore but does not exceed ` 10 crore, surcharge is
payable at the rate of 7% of income-tax computed.
Marginal Relief
Marginal relief is available in case of such co-operative societies i.e., the total amount of
income-tax (together with surcharge) computed on such income should not exceed the
amount of income-tax computed on total income of ` 1 crore by more than the amount of
income that exceeds ` 1 crore.

(b) In case of a co-operative society (other than a co-operative society opting for section
115BAD or section 115BAE), whose total income is >10 crore

Where the total income exceeds ` 10 crore, surcharge is payable at the rate of 12% of income-tax
computed.
Marginal Relief

Marginal relief is available in case of such co-operative societies i. e., the total amount of
income-tax (together with surcharge) computed on such income should not exceed the
amount of income-tax and surcharge computed on total income of ` 10 crore by more than
the amount of income that exceeds
` 10 crore.
(c)In case of a co-operative society opting for section 115BAD or section 115BAE

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11
Surcharge @10% of income-tax computed under section 115BAD or section 115BAE
would be leviable. Since there is no threshold limit for applicability of surcharge,
consequently, there would be no marginal relief.

3-In case of Domestic Co. –

Tax=25% of the total income [if Total Turnover/Gross receipt in PY
21-22 <=400cr.]

In any other cases- 30% of the total income

If the total turnover or gross receipt in the 25% of the total income
P.Y.2021-22 ≤ ` 400 crore
In any other case 30% of the total income
Notes –
• In case of a domestic manufacturing company (set up and registered on or after
1.10.2019 and commences manufacture of article or thing8 before 31.3.2024)
exercising option u/s 115BAB: 15% of income derived from or incidental to
manufacturing or production of an article or thing
• In case of a domestic company exercising option u/s 115BAA: 22% of total
income
These sections will be dealt with in detail at Final Level.

Special rates for capital gains under sections 112, 112A and 111A would be applicable to domestic
company also.
Surcharge
(a) In case of a domestic company (other than a domestic company
opting for section 115BAA or section 115BAB), whose total
income > ` 1 crore but is ≤ ` 10 crore
Where the total income exceeds ` 1 crore but does not exceed ` 10 crore, surcharge is
payable at the rate of 7% of income-tax computed in accordance with the rates given
above.

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12
 Marginal Relief
Marginal relief is available in case of such companies i.e., the total amount of income-tax
(together with surcharge) computed on such income should not exceed the amount of income-
tax computed on total income of ` 1 crore by more than the amount of income that exceeds ` 1
crore.
(b) In case of a domestic company (other than a domestic company opting for section 115BAA or
section 115BAB), whose total income is > ` 10 crore
Where the total income exceeds ` 10 crore, surcharge is payable at the rate of 12% of income-
tax computed in accordance with the rates given above.
Marginal Relief

Marginal relief is available in case of such companies i.e., the total amount of income-tax
(together with surcharge) computed on such income should not exceed the amount of income-
tax and surcharge computed on total income of ` 10 crore by more than the amount of income
that exceeds ` 10 crore.
(c) In case of a domestic company opting for section 115BAA or section 115BAB
Surcharge @10% of income-tax computed under section 115BAA or section 115BAB would be
leviable. Since there is no threshold limit for applicability of surcharge, consequently, there
would be no marginal relief.

Foreign Company
Royalties and fees for rendering technical services (FTS) received from 50%
Government or an Indian concern in pursuance of an agreement,
approved by the Central Government, made by the company with the
Government or Indian concern between 1.4.1961 and 31.3.1976 (in case
of royalties) and between 1.3.1964 and 31.3.1976 (in case of FTS)
Other income 35%

Special rates for capital gains under sections 112, 112A and 111A would be applicable
to foreign company also.

Surcharge
(a) In case of a foreign company, whose total income > ` 1 crore but is
≤ ` 10 crore
CA ANKIT SHARMA Page
13
 Where the total income exceeds ` 1 crore but does not exceed ` 10 crore, surcharge is
payable at the rate of 2% of income-tax computed in accordance with the rates given
above.
Marginal Relief
Marginal relief is available in case of such companies i.e., the total amount of income-tax
(together with surcharge) computed on such income should not exceed the amount of
income-tax computed on total income of ` 1 crore by more than the amount of income
that exceeds ` 1 crore.
(b) In case of a foreign company, whose total income is > ` 10 crore

Where the total income exceeds ` 10 crore, surcharge is payable at the rate of 5% of
income-tax computed in accordance with the rates given above.
Marginal Relief

Marginal relief is available in case of such companies i.e., the total amount of income-tax
(together with surcharge) computed on such income should not exceed the amount of
income-tax and surcharge computed on total income of ` 10 crore by more than the
amount of income that exceeds ` 10 crore.

REBAT FOR RESIDENT INDIVIDUALS [SECTION 87A]

In order to provide tax relief to the individual tax payers, section 87A provides a rebate from
the tax payable by an assessee, being an individual resident in India.
Rebate to resident individual paying tax under default tax regime u/s 115BAC
(i) If the total income of the resident individual is chargeable to tax under section 115BAC and the
total income of such individual does not exceed ` 7,00,000, the rebate shall be equal to the
amount of income-tax payable on his total income for any assessment year or an amount of `
25,000, whichever is less.

The amount of rebate under section 87A shall not exceed the amount of income-tax (as
computed before allowing such rebate) on the total income of the assessee with which he is
chargeable for any assessment year.

(i) If the total income of the resident individual is chargeable to tax under section 115BAC and the
total income of such individual exceeds ` 7,00,000 and income-tax payable on such total

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14
income exceeds the amount by which the total income is in excess of ` 7,00,000, the rebate
would be as follows.

Step 1 – Total income (-) ` 7 lakhs (A)

Step 2 - Compute income-tax liability on total income (B)

Step 3 - If B>A, rebate under section 87A would be a B – A.

The amount of rebate under section 87A shall not exceed the amount of income-tax (as
computed before allowing such rebate) on the total income of the assessee.

Mr. Pawan aged 35 years and a resident in India, has a total income of
7,15,000, comprising his salary income and interest on bank fixed deposit. Compute his
tax liability for A.Y.2025-26 under default tax regime under section 115BAC.

Computation of tax liability of Mr. Pawan for A.Y. 2025-26

Particulars `
Step 1: Total Income of ` 7,15,000 - ` 7,00,000 15,000 (A)
Step 2: Tax on total income of ` 7,15,000
Tax@10%of ` 15,000 + ` 20,000 21,500 (B)
Step 3: Since B>A, rebate u/s 87A would be B-A
[` 21,500 - ` 15,000] 6,500
15,000
Add: HEC@4% 600
Tax Liability 15,600

S.NO. TI TAX BEFORE EXCESS INCOME EXCESS OF TAX REBATE NET TAX
REBATE 87A OVER 700000 OVER INCOME U/S 87A AFTER
EARNED ABOVE REBATE
[B] [A] Lower of
700000.[B-A]
2 and 4

1 2 3=[1-7LAC] 4=[2-3] 5 6=[2-5]

1 715000 21500 15000 6500 6500 15000

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15
 Rebate to a resident individual paying tax under optional tax regime (normal
provisions of the Act)
If total income of such individual does not exceed ` 5,00,000, the rebate shall be
equal to the amount of income-tax payable on his total income for any assessment
year or an amount of ` 12,500, whichever is less.
The amount of rebate under section 87A shall not exceed the amount of
income- tax (as computed before allowing such rebate) on the total income of
the assessee with which he is chargeable for any assessment year.

Mr. Piyush, aged 35 years and a resident in India, has a total income of `
4,15,000, comprising his salary income and interest on bank fixed deposit.
Compute his tax liability for A.Y.2025-26 if he exercises the option to shift out of
the default tax regime.
SOLUTION
Computation of tax liability of Mr. Piyush for A.Y. 2025-26

Particulars `
Tax on total income of ` 4,15,000
Tax@5%of ` 1,65,000 8,250
Less: Rebate u/s 87A (Lower of tax payable or ` 12,500) 8,250
Tax Liability Nil

 Rebate under section 87A is allowed from income-tax

computed before adding Health and education cess on income-
tax.
Rebate under section 87A is, however, not available in
respect of tax payable on long-term capital gains taxable u/s 112A.
Rebate to a resident individual paying tax under optional tax regime (normal provisions of the
Act)
If total income of such individual does not exceed ` 5,00,000, the rebate shall be equal to the

CA ANKIT SHARMA Page

16
 amount of income-tax payable on his total income for any assessment year or an amount of `
12,500, whichever is less.

The amount of rebate under section 87A shall not exceed the amount of income- tax (as
computed before allowing such rebate) on the total income of the assessee with which he is
chargeable for any assessment year.

Concept of Marginal Relief-

In certain cases due to Surcharge effect excess of tax can exceed the excess of
income ,but as a General Rule “Tax can not exceed Income” ,so in those cases this
general rule overrule so to nullify that excess MR is applicable.
Marginal relief will applicable in case of-MR means if Tax exceed Income
than such excess will be allowed as discount out of tax so calculated.MR
may apply when-

A]Individual, HUF,AOP,BOI,AJP if Total Income exceed 50lacs and

B]In case of Partnership Firm, Domestic CO., Local Authority, Co-

operative Society if Total income >(1 Crore).

How to calculate Marginal Relief-

Details TOTAL TAX
INCOME
Step1=Calculate tax on TI 0000 0000
of such person as given in
Question.[without cess]

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17
 Step2=Calculate tax on TI 0000 0000
of such person for such
limit Surcharge not
applicable/SC rate
change on such person.
[Without cess]
Step 3=Difference of 0000 0000
Step 1-Step 2 of TI & Tax

A]If Difference of Total Tax > Difference of TI then MR will be =Difference of

tax-Difference of TI.
Final Tax liability will be =Tax as per Step 1-MR=New Tax +Cess= Final Tax.

B] If Difference of Total Tax <= TI then NO MR.

Final Tax= Tax as per Step 1 +Cess=Final Tax

EXM-CALCULATE TAX OF MR. SUDEEP IF HIS TOTAL INCOME IS 5150000

AND HIS AGE IS 42YEAR AND HE IS A RESIDENT OF INDIA.[optional tax regime]

SOLUTION- TOTAL INCOME TAX SC TOTAL TAX

STEP 1- 5150000 1357500 135750 1493250
STEP 2- 5000000 1312500 NA 1312500

STEP 3-DIFF. 150000 180750

Difference of Tax is more than income so MR will be =Diff. of tax-diff. of income

180750-150000=30750.
Final Tax liability =1493250-30750=1462500
+4% cess= 58500
Total tax 1521000

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18
 CA ANKIT SHARMA
Page 19
 AGRICULTURAL INCOME U/S 2(1A)

Agricultural income is exempt from

tax if as per section 2(1A) U/s 10(1)

Agricultural income means-

i)Any rent or revenue derived from land which is situated in India & used for agricultural purpose.
Note- Any rent received from use of agricultural land for agricultural purpose whether in kind or
money will be deemed as agriculture income in the hand of landlord.
Exm. Share of agricultural produce received by a landlord is though in kind but it is rent & thus
agricultural income in the hands of landlord.

Agriculture-
1]The term “Agriculture” has not been defined in the Act. However, cultivation of a field involving
human skill and labour on the land can be broadly termed as agriculture.
“Agriculture” means tilling of the land, sowing of the seeds and similar operations. It involves
basic operations and subsequent operations.

2]Process ordinarily employed to render the produce fit to be taken to the

market: Sometimes, to make the agricultural produce a saleable commodity, it
becomes necessary to perform some kind of process on the produce. The income
from the process employed to render the produce fit to be taken to the market
would be agricultural income. However, it must be a process ordinarily employed by
the cultivator or receiver of rent in kind and the process must be applied to make the
produce fit to be taken to the market.

3] Sale of such agricultural produce in the market: Any income from the sale of any produce

CA ANKIT SHARMA Page 1

to the cultivator or receiver of rent-in kind is agricultural income provided it is from the land
situated in India and used for agricultural purposes. However, if the produce is subjected to any
process other than process ordinarily employed to make the produce fit for market, the income
arising on sale of such produce would be partly agricultural income and partly non-agricultural
income.

ii] Income from “farm building”-means

a) The building should be on the immediate vicinity of the agricultural land.
b) Building should be occupied by the cultivator.
c) The land is situated outside the urban area.
d) Cultivator should required the building as dwelling house or as store house.

Note-Urban area means Any area within the jurisdiction of a municipality or cantonment board having
a population of equal or more than 10000 & within such municipality.

Rural Area- If population more than 10000 to 100000 than upto 2 km from municipality limit, if
population more than 100000 to 1000000 than upto 6km from municipality limit and if population
more than 10lact than up to 8km from municipality limit will be urban area. Area outside that area will
be treated as rural area.

Shortest aerial Population according to the last preceding

distance from the local census of which the relevant figures have been
limits of a municipality published before the first day of the previous
or cantonment board year
referred to in item a.
(i) ≤ 2 kms > 10,000
(ii) >2 kms but ≤ 6 kms > 1,00,000
(iii) >6 kms but ≤ 8kms > 10,00,000

CA ANKIT SHARMA Page 2

 Example:

Area Shortest aerial Population Would income derived from

distance from according to the farm building situated in
the local limits of last preceding this area be treated as
a municipality or census of which the agricultural income?
cantonment relevant figures
board referred to have been
in item a. publishe
d before the first
day of the previous
year
(i) A 1 km 9,000 Yes
(ii) B 1.5 kms 12,000 No

(iii) C 2 kms 11,00,000 No

(iv) D 3 kms 80,000 Yes
(v) E 4 kms 3,00,000 No
(v) F 5 kms 12,00,000 No
(vi) G 6 kms 8,000 Yes
(vii) H 7 kms 4,00,000 Yes
(viii) I 8 kms 10,50,000 No
(ix) J 9 kms 15,00,000 Yes

iii)“Agricultural income includes income from nursery operations”- any income derived from
sapling or seedling grown in a nursery shall be deemed to be agricultural income. Accordingly,
irrespective of whether the basic operations have been carried out on land, such income will be
treated as agricultural income, thus qualifying for exemption under section 10(1) of the Act.

iv)Composite Business-Any income derived from such land by agricultural operations including
processing of agricultural produce so as to render it fit for market.

Would income arising from transfer of agricultural land situated in urban area be
agricultural income?
No, as per Explanation 1 to section 2(1A), the capital gains arising from the transfer
of urban agricultural land would not be treated as agricultural income under section 10
but will be taxable under section 45.

CA ANKIT SHARMA Page 3

 Example : Suppose A sells agricultural land situated in New Delhi for ` 10 lakhs and
makes a surplus of ` 8 lakhs over its cost of acquisition. This surplus will not constitute
agricultural income exempt under section 10(1) and will be taxable under section 45.

Indirect connection with -land

We have seen above that agricultural income is exempt, whether it is received by

the tiller [someone who tills land without ownership] or the landlord. However, non-
agricultural income does not become agricultural merely on account of its indirect
connection with the land. The following examples will illustrate the above point.

Example: X was the managing agent of a company. He was entitled for a

commission at the rate of 10% p.a. on the annual net profits of the company. A part of
the company’s income was agricultural income. X claimed that since his
remuneration was calculated with reference to income of the company, part of
which was agricultural income, such part of the commission as was proportionate to
the agricultural income was exempt from income tax.
Since, X received remuneration under a contract for personal service calculated on the amount
of profits earned by the company; such remuneration does not constitute agricultural income.

Example 5: Y owned 100 acres of agricultural land, a part of which was used as pasture
[grassland] for cows. The lands were purely maintained for manuring and other purposes
connected with agriculture and only the surplus milk after satisfying the assessee’s needs was
sold. The question arose whether income from such sale of milk was agricultural income.
The regularity with which the sales of milk were effected and quantity of milk sold showed that
the assessee carried on regular business of producing milk and selling it as a commercial
proposition. Hence, it was not agricultural income.

Example 6: In regard to forest trees of spontaneous growth which grow on the soil unaided by
any human skill and labour there is no cultivation of the soil at all. Even though operations in the
nature of forestry operations performed by the assessee may have the effect of nursing and
fostering the growth of such forest trees, it cannot constitute agricultural operations.
Income from the sale of such forest trees of spontaneous growth does not, therefore, constitute
agricultural income.

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 Examples of Agricultural income and Non-agricultural income

For better understanding of the concept, certain examples of agricultural income

and non-agricultural income are given below:

Example 7: Agricultural income

 Income derived from the sale of seeds.
 Income from growing of flowers and creepers[climbing plants].
 Rent received from land used for grazing of cattle required for agricultural
activities.
 Income from growing of bamboo.

Example 8: Non-agricultural income

 Income from breeding of livestock.
 Income from poultry farming.
 Income from fisheries.
 Income from dairy farming.

INTEGRATION OF

AGRICULTURAL INCOME

WITH

NON AGRICULTURAL INCOME

Conditions to be satisfied-
1.Applicable only for individual, HUF,AOP,BOI & AJP.
2.Agricultural income must > 5000RS.
CA 3.Non
ANKIT SHARMA
agricultural income must exceed maximum amount not chargeable to tax Page 5
300000 for 115BAC & for optional (250000/300000/500000) as the case may be.
If all of the above conditions r satisfied then integration will be done as follows-

Step 1.Computation of Tax on Total Income including agricultural income.

Step2. Computation of Tax on Agricultural Income+ Maximum amount not
chargeable to tax.
Step 3.Tax liability = [Step 1-Step 2 ]
Apply Rebate u/s 87A provisions [if applicable] + 4% Cess

Note- Step 1 n step 2 tax calculation without Rebate us 87A of 12500/25000

and Rebate of 12500/- /25000 will be available after step 3 tax liability if
Normal Total Income upto 5lacs or 700000 [Till that TI rebate applicable
727780/- approx. as per (ii) point of 115BAC rebate prov.]

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 DETERMINATION OF AGRICULRURAL INCOME IN CASE OF
[COMPOSITE BUSINESS]

1]Rubber(Rule 7A) 2]Coffee Beans(Rule 7B) 3]Coffee Roasted/Tea (Rule8)

35% 65% 25% 75% 40% 60%

Non Agr Agr Non Agr Agr Non Agr Agr

4]Other Composite Business(R7)

Market Value of Ag. Produce utilized will Be deducted from the sale price of Finished
Goods

Ex.(Rule7) Cost of cultivation of sugarcane Rs1000000,processing cost Rs1500000 ,sale of sugar

Rs5000000,FMV of sugarcane utilized Rs2500000.

CA ANKIT SHARMA Page 7

 NEW SURCHARGE PROVISIONS FOR INDIVIDUAL/HUF/AOP/BOI/AJP-OPTING OUT OF DEFAULT SCHEME

CASE-I CASE-II
IF TI DOES NOT CONSIST LTCG 112A,112 IF TI CONSISTING LTCG 112A,112 &/OR STCG 111A &/OR
STCG 111A, DIVIDEND. DIVIDEND.

THEN SURCHARGE AS FOLLOWS THEN SURCHARGE AS FOLLOWS

A] B] C]
IF TI INCLUDING 112A,111A, IF TI INCLUDING 112A,111A,112 IF TI WITHOUT CONSIDERING
>50LACS UPTO >1CR. UPTO 2CR. >2CR UPTO 5CR. >5CR. 112,DIVIDEND IS UPTO 2CR. DIVIDEND IS >2CR/>5CR[SAME PROV.] [EXCLUDING]112A,111A,112
1CR. DIVIDEND IS >2CR/>5CR
[NOT FALLING IN A/B CASE]
10% ON TAX 15% ON TAX 25% ON TAX 37% ON TAX.

SURCHARGE SURCHARGE 15%FIXED

ON TAX OF ALL INCOMES SURCHARGE
IF TI >50LACS UPTO 1CR IF TI > 1CR. UPTO 2CR.
10% ON TAX. 15% ON TAX.

ON 112A,112,111A,DIVIDEND-TAX
15% SC ALWAYS
[>2CR/>5CR] ON OTHER INCOMES

>2CR UPTO 5CR >5CR

25% OF TAX OF 37% OF TAX ON

OTHER INCOMES OTHER INCOMES
EXAMPLES-
PARTICULARS 1 2 3 4 5 6 7
OTHER INCOMES 70LACS 80LACS 90LACS 1.30CR. 4CR. 6CR. 4CR.
DIVIDEND/LTCG NIL 1.90CR 80LACS 2CR. 1CR. 2CR. NIL
111A,/STCG 112A
TOTAL INCOMES 70LACS 2.70CR 1.70CR 3.30CR 5CR 8CR. 4CR.
CASE AS PER ABOVE I II [B] II [[A] II [B] II [C] II [C] I
SC 10% 15% 15% 15% 15% ON 1CR. 15% ON 2CR. 25% ON 4CR.
25% ON 4CR. 37% ON 6CR.
 NEW SURCHARGE PROVISIONS FOR INDIVIDUAL/HUF/AOP/BOI/AJP-DEFAULT SCHEME-115BAC

CASE-I CASE-II
IF TI DOES NOT CONSIST LTCG 112A,112 IF TI CONSISTING LTCG 112A,112 &/OR STCG 111A &/OR
STCG 111A,112,DIVIDEND. DIVIDEND.

THEN SURCHARGE AS FOLLOWS THEN SURCHARGE AS FOLLOWS

A] B] C]
IF TI INCLUDING 112A,111A, IF TI INCLUDING 112A,111A,112 IF TI WITHOUT CONSIDERING
>50LACS UPTO >1CR. UPTO 2CR. >2CR UPTO 5CR. >5CR. 112,DIVIDEND IS UPTO 2CR. DIVIDEND IS >2CR [EXCLUDING]112A,111A,112
1CR. DIVIDEND IS >2CR
[NOT FALLING IN A/B CASE]
10% ON TAX 15% ON TAX 25% ON TAX 25% ON TAX.

SURCHARGE SURCHARGE 15%FIXED

ON TAX OF ALL INCOMES SURCHARGE
IF TI >50LACS UPTO 1CR IF TI > 1CR. UPTO 2CR.
10% ON TAX. 15% ON TAX.

ON 112A,112,111A,DIVIDEND-TAX
15%
ON OTHER INCOMES

>2CR

25% OF TAX OF
OTHER INCOMES

*THE ONLY DIFFRENCE IS UDNER DEFAULT TAX REGIME THERE IS NO PROVISION OF 37% SC RATE IF INCOME >5CR. THAT MEANS MAXIMUM SC RATE IS 25% UNDER DEFAULT TAX
REGIME IF TI> 2CR IN CASE-II B CASE.
 Previous Year for unexplained Cash Credits, Investments, etc.-

CC -68 UI - 69 UM-69A Investment UE-69C Hundi-69D

not fully disclosed -69B

If there is If assessee If assessee if found If amount of investment etc. If any expenditure If any amnt.
Any cash is found owner owner of money,bullion, not fully disclosed made be assee . is borrow or
Entry not of Investment jewellery and not [under value] to IT Deptt. Which does not repaid on
Reported not disclosed disclosed to deptt. Then such difference as appropriate with Hundi
To IT deptt . To IT deptt . May be treated undisclosed his income and otherwise
& no explanation income. No explanation than account
Provided than provided . payee
It may be treated cheque than
As undisclosed amount
Income. So borrowed or repaid
will be treated as
undisclosed income.

Examples-
1]Us/s 68= If cash credit entry found in Mr. books of accounts Rs1000000 but reported to Deptt. Only 100000 than
900000 may be treated as his undisclosed income.

2]U/s 69= If assessee has shown investment in Books of accounts For Rs. NIL in the year 2015-16 but documents
for investment in Land,building,shares etc. found in the year 2020-2021 Rs.5000000 and he didn’t offer any
explanation for the same then such income will be undisclosed income and earing year will be 2015-16 but PY will
be 2020-2021.

3]U/s 69C- If assessee has incurred expenditure on purchase of a CAR Rs 5000000 but he disclosed his capital to
Deptt. Rs3000000 so this is an expenditure which doesn’t matched with his capital so if he was not able to give
any explanation than such difference of Rs 2000000 may be treated as undisclosed income.
 Cases in which income of P/Y is assessed in the same year
or
Exception of the rule that income of PY always taxed in AY

U/s 172 U/s - 174 U/s-174A U/s 175 U/s 176

NR shipping business Assessment in same PY Assessment of AOP/ Assessment of In case of

Than income will be 7.5% If a person leaving India BOI/AJP formed for person who want every
Of Receipts from India. and no intention to came. Particular event will to avoid tax will business
Assessment in same PY Back be in same PY. Be in same PY. Which is
Closed,
Assessment
in same PY.
 Date: 26-9-2024

LIVE VIRTUAL REVISIONARY CLASSES

BOARD OF STUDIES, ICAI

CA INTERMEDIATE

PAPER 3A :INCOME TAX LAW”

TOPIC NAME – BASIC CONCEPTS
Faculty Name: CA ANKIT SHARMA
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q1-Which entry and article of the constitution of India given

the power to the parliament to make law on Income tax-
A] Entry 84 Article 246.
B] Entry 82 Article 276.

C
C] Entry 82 Article 246.
D] Entry 84 Article 276.

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 2

 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q2-Which list give power to both State & Parliament –

A]State List
B]Union List
C]Concurrent List
D]None
C
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 3
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q3-Who is empower to make Rules for carrying out the

purpose of the act-
A]Finance Minister
B]CBDT

B
C]Parliament
D]None of the above

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 4

 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q4-Mr. Sudeep let out his building to Mr. Vinal for 200000Rs
per annum. Mr. Sudeep deposits such Rs.200000 in his bank
account and also earns bank interest Rs15000. In which head
Rs200000 & 15000 will fall-
A]IFHP & PGBP
B]Interest & IFHP
C]IFOS & CG D
D]IFHP & IFOS

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 5

 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q5-Which is not included in the definition of Person-

A]Individual
B]AOP
C]Robot
D]None
D
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 6
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q6-Which of the following statement is true-

A]PY always of 12months
B]PY always less than 12 months
C]AY can be less than 12 months
D]AY always of 12 months.
D
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 7
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q7-If Business start on 10-5-2023 what will be the PY for

such business income-
A]From 1-5-2023 till 31-3-2024
B]From 1-4-2023 till 31-3-2024

C
C]From 10-5-2023 till 31-3-2024
D]None

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 8

 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q8-Income tax act 1961 came in to force from-

A]From 1-4-1961
B]From 1-4-1962
C]From 1-4-1963
D]None
B
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 9
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q9-Income tax is charged on every -

A]Person
B]Individual
C]HUF
D]JHF
A
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 10
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q10-Which of the following is binding on both assessee &

Department -
A]Circulars
B]Notification

B
C]Both
D]None

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 11

 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q11-Total Income of Mr. Sudeep Jain is 5080000 from salary

(computed) compute tax under both regime 115BAC &
OPTIONAL-
A]1290000/1402500
B]1349700/1473450
C]1331200/1448200
D]None
C
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 12
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q12-Total Income of Mr. Sudeep Jain is 10100000 from IFHP

(computed) compute tax under both regime 115BAC &
OPTIONAL-
A]3192800/3321500
B]3139500/3268875
C]3193750/3070000
D]None
A
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 13
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q13-Total Income of Mr. Sudeep Jain is 20400000 from

Salary,HP (computed) compute tax under both regime 115BAC
& OPTIONAL-
A]7257550/7379125
B]7233200/7367750
C]7055000/6984375
D]None
B
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 14
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q14-Total Income of Mr. Sudeep Jain aged 60yrs resident is

950000 from Salary,HP (computed) compute tax under both
regime 115BAC & OPTIONAL-
A]54060/103290
B]51945/99260
C]54600/104000
D]None
C
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 15
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q15-Total Income of Mr. Sudeep Jain aged 40yrs resident is

1600000 from Salary,HP (computed) compute tax under both
regime 115BAC & OPTIONAL-
A]187000/304000
B]187200/304200
C]160300/298500
D]None
B
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 16
 MCQ QUESTIONS CHAPTER -1 BASIC CONCEPTS

Q16-Total Income of Mr. Sudeep Jain aged 59yrs resident is

1120000 from Salary,HP (computed) compute tax under
OPTIONAL REGIME -
A]148500
B]154440
C]112500
D]None
B
27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 17
 THANK YOU

27 September 2024 © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 18