Assessment of Various Entities: formula sheet

Key formulas

Tax rate on firm or LLP

Tax = 30% of total income + surcharge (12% if total income exceeds ₹1 crore) + 4% health and education cess

Flat rate, with no slab or basic exemption limit. Marginal relief applies on surcharge near the ₹1 crore limit.

Book profit

Book profit = Net profit as per P&L (adjusted to business income rules) + partner remuneration debited

Make all the business-income adjustments first, such as tax depreciation and disallowances. Then add back the full remuneration debited, whether or not it was authorised. Income not taxable as business income, such as capital gains, is not part of book profit.

Maximum remuneration: book profit positive

Book profit up to ₹6,00,000: cap = higher of ₹3,00,000 or 90% of book profit. Book profit above ₹6,00,000: cap = ₹5,40,000 + 60% of the excess over ₹6,00,000

The 90% applies only to book profit up to ₹6,00,000, so the first-slab cap never exceeds ₹5,40,000. Above ₹6,00,000, add 60% of the excess to ₹5,40,000. Allowed remuneration is the lower of this cap and the amount authorised by the deed and actually debited.

Maximum remuneration: book profit is a loss

Cap = ₹3,00,000 or 90% of book profit, whichever is higher

The cap is ₹3,00,000 when book profit is negative or below ₹3,33,333, and 90% of book profit when that is higher.

Interest to partners

Allowed interest = simple interest at up to 12% a year, as authorised by the deed, for the period after the deed

Any rate above 12% is disallowed. Compound interest is not covered by the allowance.

Business income of the firm

Business income = Book profit − allowed remuneration

This holds when interest has already been dealt with in arriving at book profit. Add other heads of income separately to get total income.

Partner's taxation

Partner's business income = allowed remuneration + allowed interest − expenses attributable to earning them; share of profit = exempt

Expenses are deductible only up to the amount of interest and remuneration received.

Indeterminate or unknown shares

Tax = total income of AOP × MMR (or tax at normal slab rates, if higher) + surcharge, if any + 4% cess

MMR means the highest slab rate for an individual, i.e. 30%. Add surcharge and cess as applicable.

Determinate shares, no member with other income above the exemption limit

Tax = tax on total income of AOP at normal slab rates + surcharge, if any + 4% cess

Test each member's total income excluding his share from the AOP, against his own basic exemption limit.

Determinate shares, any member above the exemption limit

Tax = total income of AOP × MMR + surcharge, if any + 4% cess

One such member is enough to trigger MMR on the whole income of the AOP.

Member's share where AOP is taxed at slab rates

Share of member in AOP income = exempt in member's hands

This avoids double tax. It applies only to the share on which the AOP has paid tax.

Member's share where AOP is taxed at MMR

Exempt share = part of share relating to income taxed at a rate not exceeding the member's applicable rate; excess share = included in member's total income, with rebate

The member's applicable rate decides how much of the share is exempt. The excess is taxed in his hands, and he gets a rebate for the tax paid by the AOP on it.

Payments to members

Interest, salary, bonus, commission or remuneration paid by AOP/BOI to a member = not deductible (appropriation of profit); add back if charged in the books

The firm provisions that restrict such payments apply only to firms. They do not apply to an AOP or BOI.

Domestic company, regular regime

Tax = 30% × Total income (base rate); a lower 25% rate applies only where the company meets the turnover condition the Act sets for the year

No surcharge if income is ₹1 crore or less. Surcharge is 7% of tax for income above ₹1 crore up to ₹10 crore and 12% above ₹10 crore. Then add 4% cess. Use 25% only if the question says the turnover condition is met or gives the rate. Otherwise use 30%.

Domestic company, concessional regime

Tax = 22% × Total income; surcharge 10% of tax; cess 4% of (tax + surcharge); effective rate 25.168%

Surcharge is a flat 10% at every income level in this regime. Most incentive deductions are not available. Brought-forward losses and unabsorbed depreciation linked to the barred deductions (including additional depreciation) cannot be carried forward or set off. Brought-forward MAT credit cannot be set off. MAT does not apply. By contrast, the regular regime attracts no surcharge only when income is ₹1 crore or less.

Foreign company

Tax = 35% × Taxable income in India; plus surcharge (2% if income above ₹1 crore up to ₹10 crore, 5% above ₹10 crore); plus 4% cess

Special rates for royalty, fees for technical services and similar income apply separately; follow the question. MAT applies to a foreign company that has a place of business in India or must register under the Companies Act. It is outside MAT where it has no place of business in India and need not register, or where a treaty bars MAT, as the provision for the year states.

Book profit (MAT)

Book profit = Net profit per statement of profit and loss + prescribed additions − prescribed deductions

Additions include income-tax provision, reserves, provisions for unascertained liabilities, diminution in asset value, deferred tax and dividend provisions. Deductions include exempt income credited and the lower of (i) brought-forward loss (excluding unabsorbed depreciation) and (ii) unabsorbed depreciation, both as per books. If either is nil, nothing is deducted.

MAT payable

MAT = Rate × Book profit (use the rate given in the question), then surcharge and 4% cess

Confirm the MAT rate in the question or the Finance Act, 2026 text. The worked example uses 15% only as a hypothetical illustration. Pay the higher of regular tax and MAT.

MAT credit

MAT credit = MAT − Regular tax (before cess), in the MAT year

Carry forward for the period the Act allows for the year. Set-off = lower of available credit and (regular tax − MAT) in a later year.

Minimum application

Minimum application = 85% × income of the tax year (before application)

Income is computed commercially, without claiming the exemption. Corpus donations received with specific direction are excluded from this income.

Free accumulation

Amount that can be left unapplied without notice = 15% × income

Applying 85% means the other 15% can be left unapplied without notice or special investment. Only unapplied income above this 15% is taxable, unless accumulated by notice.

Shortfall in application

Shortfall = 85% × income − amount treated as applied

If the shortfall is positive, it is taxable unless the trust accumulates it by notice and invests it in permitted modes. Equivalent check: taxable = unapplied income − 15% × income.

Accumulation by notice

Accumulation period ≤ 5 years, in permitted modes, with notice to the Assessing Officer

Amounts not used within the period, or diverted, become taxable. Check the exact notice timing in your study material.

Donation to another trust

Treated as application = 85% × amount donated

This applies only where the donee is a registered or approved trust or institution. It is not full application for the donor. A donation to an unregistered donee is not application.

Registration validity

Provisional = 3 years; Regular = 5 years

Apply for the next registration or renewal well before expiry. Verify the periods and time limits in the Income-tax Act, 2025.

Commercial receipts limit (general public utility)

Business receipts incidental to object ≤ 20% of total receipts

Above 20%, or if the business is not incidental, the object is not treated as charitable.

Application outside India

Allowed only for objects promoting international welfare in which India is interested, with Board approval

Other foreign spending is not application.

Exempt income of a political party

Income from house property + income from other sources + capital gains + voluntary contributions = exempt, if all conditions are met

Business or professional income is not covered. A party that fails any condition loses the exemption.

Party condition 1: registration

Party registered with the Election Commission under section 29A of the Representation of the People Act, 1951

Unregistered bodies cannot claim this exemption. Income outside the four listed categories is taxable under normal rules.

Party condition 2: books and audit

Proper books and documents kept so that income can be properly deduced + accounts audited by an accountant if total income (without the exemption) exceeds the maximum amount not chargeable to tax

The audit condition applies only when the party's total income, computed without the exemption, exceeds the maximum amount not chargeable to tax.

Party condition 3: donation records

Record of each voluntary contribution exceeding ₹20,000, with the name and address of the donor + report to the Election Commission under section 29C of the Representation of the People Act, 1951

Contributions exceeding ₹20,000 need a named record.

Party condition 4: cash limit

No donation of ₹2,000 or more received otherwise than by account payee cheque, bank draft, electronic clearing system through a bank account or another permitted electronic mode (including electoral bond, where applicable)

A donation of ₹2,000 or more received in cash, or in any mode other than banking or permitted electronic modes, breaks this condition. The party then gets no exemption.

Party condition 5: return

Return of income filed by the due date

Even though income is exempt, the party must file the return on time.

Electoral trust: exemption

Voluntary contributions are exempt if the trust is approved and distributes at least 95% of the aggregate donations received during the tax year, as per the Electoral Trusts Scheme, to registered political parties in that year

The balance can be kept for administrative expenses. Contributions must come through banking channels and follow the scheme. The base is the donations received in the year. A surplus brought forward is not added unless the Act and the scheme expressly provide for it.

Electoral trust: minimum distribution

Minimum distribution = 95% × aggregate donations received during the year

Compare actual distribution with this figure. Shortfall means the condition fails.

Pass-through rule (business trust)

Interest / rent from directly held real estate: exempt in trust → taxable in unit holder in same nature. Dividend: same treatment only if the SPV has not opted for the concessional tax regime; if it has opted, dividend is taxed in the trust

Taxable in the unit holder for the tax year in which it is paid or credited. Always check whether the SPV has opted for the concessional regime before treating dividend as pass-through.

Pass-through rule (investment fund)

All income of Cat I / II AIF other than business income → exempt in fund → taxable in unit holder in the same nature

This covers interest, dividend, rent, capital gains and other non-business income. It is taxable in the unit holder whether or not it is distributed. Business income is taxed in the fund. Do not tax it again in the unit holder.

Unit holder's share

Unit holder's income = Pass-through income × (Units held ÷ Total units), by nature

For a business trust, use the actual amount paid or credited to the holder. For an investment fund, use the holder's share of the fund's pass-through income, whether or not it is distributed.

TDS on pass-through income

Resident unit holder: 10% on business trust interest and rent, and 10% on investment fund income. Non-resident unit holder: rate specified in the Act for that nature of income (a concessional rate applies to certain SPV interest on specified conditions); investment fund income at rates in force

The rate depends on the nature of income and residential status. TDS is deducted only on income actually paid or credited. For a non-resident, confirm the rate and its conditions from the Act instead of assuming a flat rate.

Non-pass-through income

Capital gains of a trust and business income of a fund → taxed in the vehicle at its applicable rates

For a fund's business income, the unit holder is not taxed again. For a trust's capital gains, the distribution received by the unit holder is not taxed again.

Losses

Fund's business loss: carried forward in the fund, not allocated to unit holders

Do not set off a fund's loss against a unit holder's income.

Quick revision

• Identify the entity first, because the rate and rules depend on it.
• Firm and LLP: partner remuneration and interest are deductible only within the stated limits and conditions.
• Always check that the partnership deed meets the conditions before allowing remuneration or interest.
• Partner's share of the firm's income is handled as the Act provides, so do not tax it twice in the partner's hands.
• AOP and BOI: check whether members' shares are determinate, as this can change the rate applied.
• Company: compare the regime options and check whether minimum alternate tax applies before concluding tax.
• Co-operative society: check which deductions are available and which rate regime is chosen.
• Trusts and institutions: registration and application of income are the core tests for exemption.
• Political parties and electoral trusts: exemption depends on meeting the stated conditions, including records and reporting.
• Business trusts and investment funds: identify the type of income and who is taxed on it, the trust or the holder.
• Compute step by step and show the conclusion in the last line of the answer.

Common mistakes

• Applying 60% to the whole book profit, or the 90% rule to the whole amount. Fix: Use the ₹6,00,000 first slab. Take ₹3,00,000 or 90% of book profit, whichever is higher. Apply 60% only to the excess over ₹6,00,000.
• Taking book profit as the P&L net profit without adjustments. Fix: Adjust the P&L to the business income rules first: tax depreciation instead of book depreciation, and the disallowances. Then add back the full remuneration debited.
• Applying slab rates whenever shares are given as a ratio. Fix: Always check each member's other income against his basic exemption limit before choosing slab rates.
• Allowing interest, salary or other remuneration paid to members as a deduction for an AOP or BOI, or applying the firm provisions to them. Fix: For an AOP/BOI, such payments to members are an appropriation of profit and are not deductible, so add back any amount charged in the books. The firm provisions cover firms only and do not apply to an AOP or BOI.
• Applying MAT to a company under the concessional regime. Fix: Check the regime first. A company that has opted for the 22% regime is outside MAT, so no book profit computation is needed.
• Applying 30% or 25% without checking the turnover condition. Fix: Use 30% as the base rate. Use 25% only where the company meets the turnover condition the Act sets for the year, or where the question states the rate. Write the condition in your answer.
• Treating 85% as a share of receipts instead of income. Fix: Deduct the expenses of earning the income first, exclude corpus donations, and only then take 85%.
• Counting a donation to another trust as full application. Fix: Check that the donee is a registered or approved trust or institution. Then count only 85% of the amount donated as application.
• Treating the cash limit for donations as ₹20,000. Fix: Link ₹20,000 with maintaining the donor's name and address. Link ₹2,000 with the cash rule, where ₹2,000 itself is already barred in cash.
• Exempting business income of a political party. Fix: Remember the four streams only: house property, other sources, capital gains and voluntary contributions.

Exam tips

• Show the book profit working as a separate table. Marks are usually given for the adjustments and for the cap, even if the final figure is wrong.
• Read the deed facts first. Questions often hide a trap, such as a non-working partner, a rate above 12%, or remuneration for a period before the deed.
• State your conclusion in words after the numbers: 'Remuneration allowed is ₹X as it is lower of the cap and deed amount'. This supports your answer if a figure slips.
• In MCQs on this topic, check the partner's side too. Share of profit is exempt, and interest and remuneration are business income.
• For the firm versus LLP difference, say that the tax computation is the same and the differences lie in legal status and liability.
• Write the provision before the number. The two-step test of determinate shares and members' other income is where the marks are.
• In case-scenario MCQs, read each member's income carefully. A member's salary or rental income is often hidden in the facts and decides the rate.
• Always add back interest, salary and remuneration paid to members of an AOP/BOI, and show it as a separate line. Give the reason: it is an appropriation of profit. Do not quote the firm provisions for an AOP/BOI.