Module 1

What is Finance?
Finance is defined as the management of money and includes activities like investing,
borrowing, lending, budgeting, saving, and forecasting.
Finance is a simple task of providing the necessary funds (money) required by the business of
entities like companies, firms, individuals and others on the terms that are most favorable to
achieve their economic objectives.

Financial System:
There are areas or people with surplus funds and there are those with a deficit. A financial
system or financial sector functions as an intermediary and facilitates the flow of funds from
the areas of surplus to the areas of deficit.
Characteristics of Financial System:
1. It links the savers and investors. It helps in mobilizing and allocating the savings
efficiently and effectively. It plays a crucial role in economic development through the
savings-investment process. This savings – investment process is called capital
formation.
2. It helps to monitor corporate performance.
3. It helps in lowering the transaction costs and increasing returns. This will motivate people
to save more.
4. It provides a mechanism for managing uncertainty and controlling risk.
5. It provides a mechanism for the transfer of resources across geographical boundaries.
6. It promotes the process of capital formation.
7. It promotes the process of financial deepening and broadening.

Functions of the Financial System:

1. Saving function: Savings are transformed into investments
2. Liquidity function: Converted into cash or money easily without loss of value.
3. Payment function: Convenient mode of payment for goods and services
4. Risk function : Protection against life, health and income risks.
5. Information function :Disseminate information for enabling participants to develop an
informed opinion about investment, disinvestment, reinvestment or holding a particular
asset.
6. Transfer function: Transfer of the resources across geographic boundaries.
7. Reformatory functions: Developing, introducing innovative financial assets / instruments
services and practices and restructuring the existing assets, services etc.
8. Other functions: selection of projects to be financed and performance of such projects
periodically. It also promotes the process of capital formation by bringing together the
supply of savings and the demand for investible funds.
Components of the Financial System:

Financial Institutions:
Financial institutions are the business organizations that act as mobilizers of savings and as
purveyors of credit or finance. This means financial institutions mobilize the savings of savers
and give credit or finance to the investors.
Financial institution is the intermediary that facilitates smooth functioning of the financial
system by making investors and borrowers meet productive activities that promise a better rate of
return for both of them.
Financial institutions are the participants in a financial market.
They buy and sell financial instruments. They generate financial instruments as well. They deal
in financial assets. They accept deposits, grant loans and invest in securities.
Financial institutions may be classified as:
1. Organized vs Unorganized Sector
2. (a) Regulatory and promotional institutions,
(b) Banking institutions, and
(c) Non-banking institutions.
Organized vs Unorganized Sector:
The organized sector consists of the RBI, commercial banks, financial intermediaries such as the
Life Insurance Corp. of India, Cooperative Banks, Insurance Companies etc. and perform their
activities under various regulators.
The unorganized sector is largely made up of indigenous bankers, money lenders, traders,
commission agents etc., some of whom combine money lending with trade and other activities.
This sector is essentially unregulated.
1. Indigenous bankers: private firms which operate as banks and provide deposits and give
loans.
2. Money lenders: give money of their own on high rate of interest

Regulatory and Promotional Institutions:

Financial institutions, financial markets, financial instruments and financial services are all
regulated by regulators like Ministry of Finance, the Company Law Board, RBI, SEBI, IRDA,
Dept. of Economic Affairs, Department of Company Affairs etc.
The two major Regulatory and Promotional Institutions in India are Reserve Bank of India (RBI)
and Securities Exchange Board of India (SEBI).
RBI is the apex of all financial institutions in India. The financial markets are under the control
of SEBI.
Both RBI and SEBI administer, legislate, supervise, monitor, control and discipline the entire
financial system. They have laid down several policies, procedures and guidelines. These
policies, procedures and guidelines are changed from time to time so as to set the financial
system in the right direction.

Banking Institutions:
Banking institutions mobilize the savings of the people. They provide a mechanism for the
smooth exchange of goods and services. They extend credit while lending money. They not only
supply credit but also create credit.
There are three basic categories of banking institutions.
- Commercial banks,
- Co-operative banks : A credit co-operative society formed by a group of people of the
same class to fulfill economic requirements.
These institutions can be classified into two broad categories: (a) Rural credit societies
which are primary agriculture. (b) Urban credit societies which are primarily
non-agriculture.
- Regional Rural Banks: Set by Government sector + some commercial banks. It provides
banking services to rural people.
- Foreign Banks: Banks of different countries which perform banking operations in india.
They have head offices in their home country and branches in other countries.
Example: citi bank
Non-Banking Institutions:
The non-banking financial institutions also mobilize financial resources directly or indirectly
from the people. They lend the financial resources mobilized. They lend funds but do not create
credit.
Companies like LIC, GIC, UTI, Development Financial Institutions, Organization of Pension
and Provident Funds etc. fall in this category.
Non-banking financial institutions can be categorized as investment companies, housing
companies, leasing companies, hire purchase companies, specialized financial institutions
(EXIM Bank etc.) investment institutions, state level institutions etc.

Classification:
Commercial Banks:
1. Definition: Commercial banks are financial institutions that offer a wide range of banking
services to individuals, businesses, and governments, including accepting deposits, making
loans, and providing payment services.
2. Services: They provide checking and savings accounts, personal and business loans,
mortgages, and credit cards.
3. Regulation: Commercial banks are regulated by government agencies like RBI to ensure
financial stability and protect depositors' interests.
4. Revenue: Their primary revenue sources are the interest rate spread between deposits and
loans, as well as fees for various services.
5. Role: They play a crucial role in the economy by facilitating transactions, providing credit,
and supporting economic growth.
DIvided into two types:
Scheduled Banks- These are the banks that have been included in the Schedule-II of the RBI Act,
1934. The banks included in this category should fulfill two conditions,
i. The paid up capital and collected fund of the bank should not be less than Rs. 5 lac.
ii. Any activity of the bank will not adversely affect the interests of the depositors.
Non-scheduled Banks–The banks that are not included in the list of the scheduled banks are
called the Non Scheduled Banks.

Investment-Merchant Banks:
1. Definition: Investment or merchant banks specialize in providing financial services related to
investment banking, such as underwriting, advisory services, and mergers and acquisitions.
2. Services: They offer services like capital raising, financial advisory, underwriting of new
issues, and market making.
3. Clients: Their clients typically include large corporations, governments, and institutional
investors.
4. Revenue: They earn through fees for advisory services, underwriting, and trading activities.
5. Role: They play a key role in facilitating capital markets, advising on financial strategy, and
supporting large-scale financial transactions.

Stock Exchanges:
1. Definition: Stock exchanges are organized marketplaces where securities, such as stocks and
bonds, are bought and sold.
2. Purpose: They provide a platform for companies to raise capital by listing their shares and for
investors to trade these securities.
3. Examples: Notable stock exchanges include the New York Stock Exchange (NYSE),
NASDAQ, and the London Stock Exchange (LSE).
4. Regulation: Stock exchanges are regulated by financial authorities to ensure fair trading
practices and protect investors.
5. Mechanism: Transactions on stock exchanges are facilitated through a centralized system
where buyers and sellers execute trades, with prices determined by supply and demand.

Financial Market:
Financial markets are the centers or arrangements that provide facilities for buying and selling of
financial claims and services.
Financial market deals in financial securities (or financial instruments) and financial services.
Financial markets exist wherever financial transactions take place. Financial transactions include
issue of equity stock by a company, purchase of bonds in the secondary market, deposit of
money in a bank account, transfer of funds from a current account to a savings account etc.
Financial markets are the backbone of the economy. This is because they provide monetary
support for the growth of the economy. The growth of the financial markets is the barometer of
the growth of a country’s economy.
Characteristics:
1. Liquidity
2. Transparency
3. Regulation
4. Diversity of Instruments
5. Risk and Return
Functions of financial markets are:
(i) Creation and allocation of credit and liquidity
(ii) To serve as intermediaries for mobilization of savings.
(iii) To assist the process of balanced economic growth.
(iv) To provide financial convenience.
(v) To cater to the various credit needs of the business houses.
Classification of Financial Market:
1. Classification on the basis of the type of financial claim
Debt market: This is the financial market for fixed claims like debt instruments.
Equity market: This is the financial market for residual claims, i.e., equity instruments.
2. Classification on the basis of maturity of claims
Money Market: Short term claim
Capital Market: Long term claim
3. Classification on the basis of seasoning of claim
Primary Market: deals in new securities
Secondary Market: deals in existing securities
4. Classification on the basis of structure or arrangements
Organized and unorganized markets
5. Classification on the basis of timing of delivery
Cash/Spot Market
Forward/Future Market
6. Other types of financial market
Foreign exchange market
Derivatives market

Types:
Capital Market:
1. Definition: The capital market is a segment of the financial market where long-term securities,
such as stocks and bonds, are traded.
2. Purpose: It provides a platform for raising capital for long-term investments and funding for
businesses and governments.
3. Types: It includes both primary markets (where new securities are issued) and secondary
markets (where existing securities are traded).
4. Participants: Key players include investors, financial institutions, corporations, and
governments.
5. Instruments: Common instruments in the capital market are equities (stocks) and fixed-income
securities (bonds).

Money Market:
1. Definition: The money market deals with short-term borrowing and lending, typically with
maturities of one year or less.
2. Purpose: It provides liquidity and short-term funding for businesses and governments and
helps manage short-term interest rates.
3. Instruments: Key instruments include Treasury bills, commercial paper, certificates of deposit,
4. Participants: Major participants include banks, financial institutions, corporations, and
government entities.
5. Characteristics: Money market instruments are typically low-risk and highly liquid, offering
lower returns compared to capital market instruments.

Foreign Currency Market:

1. Definition: Also known as the forex market, it is a global marketplace for trading national
currencies against one another.
2. Purpose: It facilitates international trade and investment by allowing currency conversion and
hedging against currency fluctuations.
3. Participants: Major participants include banks, central banks, financial institutions,
corporations, and individual traders.
4. Instruments: Common instruments include spot contracts, forward contracts, futures contracts,
and currency swaps.
5. Characteristics: The forex market operates 24 hours a day, five days a week, and is the largest
and most liquid financial market in the world.

Primary market: Primary markets are those markets which deal in the new securities.
Therefore, they are also known as new issue markets. These are markets where securities are
issued for the first time.
In other words, these are the markets for the securities issued directly by the companies. The
primary markets mobilize savings and supply fresh or additional capital to business units.
In short, the primary market is a market for raising fresh capital in the form of shares and
debentures.
Price of share remains fixed
Secondary market: Secondary markets are those markets which deal in existing securities.
Existing securities are those securities that have already been issued and are already outstanding.
Secondary market consists of stock exchanges. Stock exchanges are self regulatory bodies under
the overall regulatory purview of the Govt.
Price of share depends on supply and demand.

Cash / Spot market: This is the market where the buying and selling of commodities happens or
stocks are sold for cash and delivered immediately after the purchase or sale of commodities or
securities.
Forward/Future market: This is the market where participants buy and sell
stocks/commodities, contracts and the delivery of commodities or securities occurs at a
predetermined time in future.
Derivatives market: The derivatives are most modern financial instruments in hedging
risk. The individuals and firms who wish to avoid or reduce risk can deal with the others
who are willing to accept the risk for a price. A common place where such transactions
the place is called the derivative market. It is a market in which derivatives are traded.
The important types of derivatives are forwards, futures, options, swaps, etc

Financial Instruments:
Financial instruments are instruments through which a company raises finance. Financial
instruments are contracts that represent assets or liabilities, including stocks, bonds, and
derivatives.
Functions:
- Capital Raising
- Investment Opportunities
- Provision of Liquidity
- Price Provision
- Risk management

Characteristics:
1. Liquidity: Financial instruments provide liquidity. These can be easily and quickly converted
into cash.
2. Marketing: Financial instruments facilitate easy trading on the market. They have a ready
market.
3. Collateral value: Financial instruments can be pledged for getting loans.
4. Transferability: Financial instruments can be easily transferred from person to person.
5. Maturity period: The maturity period of financial instruments may be short term, medium term
or long term.
6. Transaction cost: Financial instruments involve buying and selling cost. The buying and
selling costs are called transaction costs. These are lower.
7. Risk: Financial instruments carry risk. This is because there is uncertainty with regard to
payment of principal or interest or dividend as the case may be.
8. Future trading: Financial instruments facilitate future trading so as to cover risks due to price
fluctuations, interest rate fluctuations etc.

Financial instruments may also be classified as,

Cash instruments: Cash instruments are financial instruments whose value is
determined directly by markets
Derivative instruments: Derivative instruments are financial instruments which derive their
value from some other financial instrument or variable.
Financial instruments can also be classified as:
Primary instruments: Directly issued by the ultimate investors to the ultimate savers
.e.g. shares and debentures
Secondary instruments: Issued by the financial intermediaries to the ultimate savers.
For example, UTI and mutual funds issue securities in the form of units to the public.

Types:
a. Equity Shares:
1. Ownership and Liability: Equity shares represent fractional ownership in a company,
with shareholders assuming the highest entrepreneurial liability.
2. Voting Rights: Equity shareholders have the right to vote and elect the company's
management, giving them control over the company's decisions.
3. No Fixed Dividend: The dividend rate for equity shares is not fixed; it depends on the
company's surplus capital and profits.
4. Perpetual Capital: Equity share capital remains with the company permanently and is
only returned if the company is liquidated.
5. Demerits: Companies may face challenges like over-capitalization, and equity
shareholders can potentially hinder management decisions by organizing themselves.

b. Preference Shares:
1. Fixed Dividend: Preference shareholders receive a set dividend amount, which is paid
before equity shareholders get their dividend.
2. No Voting Rights: Unlike regular shareholders, preference shareholders usually don’t
have voting rights, so they don't get to influence company decisions.
3. Convertible and Redeemable: Some preference shares can be converted into ordinary
shares, while others are redeemable, meaning the company can repay them when the
money is no longer needed.
4. Safe for Cautious Investors: They are appealing to conservative investors who want a
steady return without the risk of losing their capital.
 5. No Asset Impact: Preference shares don’t put a claim on the company’s assets, so the
company can use those assets for loans or other financial needs later.
6. Downsides: The company must pay the fixed dividend even if profits are low, they
aren’t attractive to risk-takers, and preference shareholders don’t share in extra profits or
have control over company decisions.

c. Bonds:
1. Definition: A bond is a fixed income instrument representing a loan from an investor to
a borrower, typically used by corporations or governments to raise money.
2. Key Features: Bonds have a face value (amount repaid at maturity), a coupon rate
(interest paid), and a maturity date (when the loan is fully repaid).
3. Bond Pricing: Bond prices move inversely to interest rates. When interest rates rise,
bond prices fall, and when rates drop, bond prices increase.
4. Types of Bonds: Common categories include corporate, municipal, and government
bonds, with varieties like zero-coupon, convertible, and junk bonds.
5. Risks and Stability: Bonds offer stable, regular payments and principal repayment, but
carry risks like default risk (failure to repay) and interest rate risk (value decline with
rising interest rates)

d. Debentures
1. Definition: A debenture is a debt instrument used by governments or companies to
raise loans, typically for more than 10 years, without securing it with collateral.
2. Certificate of Debt: Debentures come with a certificate of debt, known as a Debenture
Deed, that specifies the repayment amount and date of redemption.
3. Fixed Interest: Debentures pay a fixed interest rate, which is usually paid annually or
semi-annually to the debenture holders.
4. No Voting Rights: Debenture holders do not have voting rights, as these instruments
represent debt, not equity in the company.
5. Purpose: Companies or governments use debentures to raise funds for expansion or
large projects, relying on their creditworthiness to issue them.

e. Certificate of Deposit
1. Definition: A Certificate of Deposit (CD) is issued by a bank to an individual
depositing money for a fixed period at a specified interest rate.
2. Safe and Secure: CDs are a secure form of time deposit, where the deposited money
must remain in the bank for a certain period to earn a guaranteed return.
3. Eligibility: Only commercial banks or financial institutions authorized by the RBI can
issue CDs. Cooperative and rural banks cannot issue them.
4. No Loans Against CD: Banks do not provide loans against CDs since they have a fixed
term without flexibility for early withdrawal.
 5. Advantages and Disadvantages: CDs offer higher interest rates than savings accounts,
but your money is locked for the term. Early withdrawal leads to penalties, and you may
miss other investment opportunities.

f. Treasury Bills
1. Short-Term Debt Instrument: Treasury bills (T-bills) are issued by the government for
short-term funding needs, with maturities of 91, 182, or 364 days, and are categorized as
money market instruments.
2. Zero Coupon Securities: T-bills do not pay interest. Instead, they are issued at a
discount and redeemed at face value. For example, a T-bill with a face value of Rs 100
might be issued at Rs 98.20 and redeemed at Rs 100.
3. Return Calculation: The return for investors is the difference between the redemption
value and the purchase price. This means the return is effectively the discount received on
the purchase price.
4. Auction System: The Reserve Bank of India typically conducts weekly auctions on
Wednesdays to issue T-bills, making them accessible to investors through this regular
process.
5. Risk Profile: T-bills are considered free of credit risk but are subject to interest rate
risk, meaning their value can fluctuate with changes in interest rates.

g. Trade Credits
- Trade credit is a short-term financing arrangement where a buyer is allowed to pay for
goods or services at a later date, typically 30, 60, or 90 days after delivery.
- It helps businesses manage cash flow by deferring payments, allowing them to use
available funds for other operational needs.
- Trade credit is typically extended based on the buyer's creditworthiness and the
supplier's terms and conditions.
- It often does not involve formal interest charges but may include discounts for early
payment or penalties for late payment.
- Trade credit can strengthen supplier relationships and improve a company's negotiating
position for better terms or pricing.

Financial Services
Efficiency of an emerging financial system largely depends upon the quality and variety of
financial services provided by financial intermediaries. The term financial services can be
defined as “activities, benefits connected with the sale of money, that offer to users and
customers, financial related value
Two types of financial services are:
1. Fund based/ Asset based
a. Leasing:
It is an arrangement that provides a firm with the use and control over assets
without buying and owning the same. It is a form of renting assets. However, in
making an investment, the firm need not own the asset. It is basically interested
in acquiring the use of the asset. Thus, the firm may consider leasing of the asset
rather than buying it
b. Hire Purchase:
It means a transaction where goods are purchased and sold on the terms that
(i) Payment will be made it installments,
(ii) The possession of the goods is given to the buyer immediately,
(iii) The property ownership in the goods remains with the vendor till the last
installment is paid,
(iv) The seller can repossess the goods in case of default in payment of any
installment,
(v) each installment is treated as hire charges till the last installment is paid
c. Venture Capital
d. Insurance Services
2. Fee based/ Advisory Services
a. Merchant Banking
Act as Financial Engineer for Business
Banking Services+Consultancy Services
b. Credit Rating
c. Stock Broking
Module 2

Historical return refers to the past performance or realized gains and losses of an investment over
a specific period.
Annuity: A series of consecutive payments occurring over a specified number of equidistant
periods.
Types of Annuity:
Ordinary Annuity : Payments or receipts occur at the end of each period.
Annuity Due : Payments or receipts occur at the beginning of each period
Sources of Risk:
- Business risk
- Purchasing Power Risk
- Financial Risk
- Interest Rate Risk
- Liquidity risk
Module 3

Financial Statement: A financial statement is a formal record of the financial activities, and
position of a business, person, or other entity.

Components of Financial Statements:

1. Balance Sheet:
- Shows the Statement of Financial Position.
- Includes the entity's assets, liabilities, and stockholders’ equity.
- Reflects the financial status as of the report date.

2. Profit and Loss Account(Income Statement):

- Shows the Statement of Comprehensive Income, Statement of Revenues and
Expenses, and Profit/Loss Report.
- Includes items such as revenues, expenses, gains, and losses.
- Reflects the performance of a firm over a specific period.
- Provides information on the operations carried out by the enterprise.

3. Cash Flow Statement:

- Shows changes in the entity’s cash flows including operating, investing, and
financing activities during the reporting period.
- Provides information about the sources and uses of cash over the reporting
period.

4. Explanatory notes:
- These include explanations of various activities, additional detail on some
accounts, and other items.

Functions of a Financial Statement:

1. To examine the ability of a business to generate cash and the sources and utilization of
that cash.
2. To make sure whether a business has the capability to pay back its debts.
 3. To help track financial results on a trend line to spot any looming profitability issues.
4. To help derive financial ratios from the statements that can indicate the condition of
the business.
5. To investigate the particulars of certain business transactions, as mentioned in the
disclosures that accompany along with the statements.

Topics from PPT to be done

Balance sheet:

1. Liabilities:
a. Share Capital
b. Reserve and Surplus
c. Secured loans
d. Unsecured loans
e. Current liabilities and Provisions
2. Assets:
a. Fixed Assets
b. Investments
c. Current assets, loans and advances
d. Miscellaneous Expenditure and Losses

Profit and Loss Account:

1. Net Sales
2. Cost of Goods sold
3. Gross Profit
4. Operating Expenses
5. Operating Profit
6. Non-operating gains and losses
7. Profit before Interest and Taxes
8. Profit before Tax
9. Interest
10. Tax
11. Profit after Tax
12. Amount available for appropriation
13. Appropriation
14. Balance Carried Forward

Cash Flow Statement:

1. Cash Inflows and Outflows

2. Operating, Financing and Investing Activities
Module 4

4.1
Indian Taxation
- Complex system governed by the Income Tax Department of India
- Designed to raise revenue for the government, which is then used to fund public
services like education and healthcare
- Based on the principle of “ progressive taxation” - those who earn more, pay more.
- Tax laws are comprehensive and include all kinds of income - salaries, business profits,
real estate profits, etc.

Objectives of the Indian Taxation System

1. Revenue Generation:
a. To generate revenue for the government to fund public services like healthcare,
education, and infrastructure.
b. This ensures the well-being of the nation and its citizens.
2. Economic growth:
a. Taxes can influence economic activity by encouraging certain behaviors.
b. For example, tax incentives for investments in renewable energy can increase the
growth of this sector.
3. Regulation:
a. Taxes can discourage certain activities like smoking and gambling through higher
taxes on these goods and services, promoting public health and responsible
consumption.
4. Social Equity:
a. The tax system aims to promote social equity by redistributing wealth.
b. Progressive tax rates ensure that those with higher incomes contribute a larger
proportion of their earnings towards public welfare.
Financial Year:
The financial year in India runs from April 1st to March 31st of the following year.

Assessment Year:
The assessment year refers to the year in which the income is assessed.
It follows the financial year system i.e exists between April 1st and March 31st.
Example: The assessment year 2024-25 corresponds to the financial year 2023-24. This means
the income earned during the financial year 2023-24 is assessed in the assessment year 2024-25.

Previous Year:
The previous year refers to the financial year immediately preceding the assessment year.
This is the period for which income is assessed.
For the assessment year 2024-25, the previous year would be the financial year 2023-24. This
means the income earned during the financial year 2023-24 will be assessed in the assessment
year 2024-25.

Person in Indian Taxation:

1. Individual:
An individual is a natural person, like you and me. They are taxed on their income from
various sources, including salaries, business profits, and investments.

2. Hindu Undivided Family(HUF):

A HUF is a family unit recognized for tax purposes. It's treated as a separate entity and
can earn income and pay taxes. HUFs are typically governed by Hindu law.

3. Company:
Companies, whether private or public, are legal entities that earn income and are subject
to corporate tax rates.

4. Association of Person:
AOPs are groups of individuals who come together for a common purpose. They are
taxed on their income earned collectively.

Type of Person in Indian Taxation:

1. Resident
Individuals and entities that have a significant connection to India, either by staying in
 India for a certain period or by deriving income from Indian sources.
An individual is considered a resident Indian if they have stayed in India for at least 182
days during the financial year. Alternatively, if they've been in India for at least 60 days
during the financial year and have stayed for a total of 365 days in the four previous
financial years, they're also considered a resident.

2. Non-Resident
Individuals and entities that don't meet the criteria of residency. They may have limited
ties to India, such as a temporary stay or income from a foreign source.
An individual is considered a non-resident Indian if they have stayed in India for less
than 182 days during the financial year and don't meet the criteria for residency. They
may have limited ties to India, such as a temporary stay or income from a foreign source.

3. Not Ordinarily Resident

Individuals who are not residents but have resided in India for a significant period in the
past and meet certain other conditions. They enjoy some benefits but are still subject to
taxation on their Indian income.
An individual is considered not ordinarily resident if they have resided in India for at
least 730 days in the four previous financial years, but their total stay in India during the
current financial year and the previous financial year is less than 182 days.

All possible income streams:

1. Salaries
Income received from employment, including basic salary, allowances, and bonuses.
2. Income from House Property
Income earned from renting out a property or from the use of a property for personal
purposes.
3. Business Income
Income earned from running a business or profession, including profits and gains.
4. Capital Gains
Income earned from the sale of assets like shares, real estate, and other capital assets.
5. Other Sources
Any income not falling under the above categories, including interest income, dividends,
lottery winnings, and gifts.
Exemptions and Deductions:
Exemptions
Exemptions refer to certain income that is not taxed. For example, agricultural income is
generally exempt from taxation. This allows for the promotion of agriculture, which is a vital
sector in India.

Deductions
Deductions allow individuals to reduce their taxable income. There are various deductions
available, including those for home loans, health insurance premiums, and contributions to
retirement funds. This helps reduce the tax burden on individuals and encourages certain
behaviors like saving for retirement.

Tax Benefit
Exemptions and deductions play a crucial role in minimizing the tax burden on individuals and
businesses. By strategically utilizing these provisions, individuals and companies can lower their
tax liabilities and maximize their after-tax income.

4.2

● Assessee: A person (individual, company, etc.) liable to pay tax or file a return under tax
laws.
● Assessment: The process of calculating and verifying the tax liability of an assessee by
tax authorities.
● Income: Any earnings (salary, business profits, rent, capital gains, etc.) that are taxable
under the Income Tax Act.

4.3

● Gross Total Income (GTI): The sum of all income earned from various sources before
deductions under Section 80C to 80U.
● Total Income: The income remaining after deductions from GTI; this is the taxable
income.
● Scheme of Charging Income Tax: Refers to the rules and structure for levying tax on
income, including tax slabs, rates, exemptions, and deductions as per the Income Tax Act.
Tax in Old Regime:

Tax in New Regime: