CS Executive · Tax Laws and Practice

Basic Concept of Income Tax: formula sheet

Full chapter guide

Key formulas

Tax year: Tax year = twelve months of the financial year commencing on 1 April (1 April to 31 March); Stated in section 3(1) of the Income-tax Act, 2025. It replaces the previous year and assessment year of the 1961 Act.
Tax year of a new business or source: Tax year = date of setting up (or date source comes into existence) to 31 March of that financial year; Stated in section 3(2). Count from the actual date, not from 1 April.
Person and assessee: Every assessee is a person; a person becomes an assessee only if tax or any sum is payable by them, or a proceeding is taken against them, or they are a deemed assessee or an assessee in default; Use this to answer the 'difference between person and assessee' question.
Categories of person: Individual, HUF, company, firm, AOP/BOI, local authority, artificial juridical person; Write the full list in exams. A person can be a person even if it has no income.
Charging rule (section 4(1) and (2)): Income-tax = total income of the tax year × rates fixed by the Finance Act; Total income is computed under the Income-tax Act, 2025. Rates come from the Central Act for that tax year.
Who is charged: Every person, on total income of the tax year; Section 4(2). The word 'person' is wide, as defined in the Act.
Additional income-tax: Income-tax includes any additional income-tax, by whatever name called, levied under the Act; Section 4(3).
Non-tax-year periods: If the Act charges income of a period other than the tax year, tax is charged accordingly; Section 4(4).
Collection of the charge: Tax is deducted or collected at source or paid in advance as provided in the Act; Section 4(5).
Interim position without a Finance Act: On 1 April, if no charging Act exists, apply the preceding year's provision or the Bill's proposal, whichever is more favourable to the assessee; Section 530.
Advance tax computation (section 405(1)): A = B – C; A is advance tax payable, B is tax on the specified sum at rates in force, C is tax deductible or collectible at source on qualifying income.
Basic conditions for an individual (section 6(2)): Resident if (a) in India 182 days or more in the tax year; OR (b) in India 60 days or more in the tax year AND 365 days or more in the 4 preceding years; Meeting either one makes the individual resident. If neither is met, the individual is non-resident.
Relaxation for 60-day test (section 6(3)): Citizen who leaves India as crew of an Indian ship or for employment outside India: only condition (a) applies; The 60-day plus 365-day test is not available, so 182 days is needed to be resident.
Relaxation for visiting citizens or persons of Indian origin (section 6(4) and (5)): Visiting citizen or person of Indian origin: if total income (other than foreign-source income) is ₹15,00,000 or less, only the 182-day test applies. If it exceeds ₹15,00,000, the test is 120 days or more in the tax year AND 365 days or more in the 4 preceding years; With income up to ₹15,00,000, the 60-day test is not applied at all, so under 182 days means non-resident under section 6(2). With income above ₹15,00,000, 120 days replaces 60 days, but the 365-day condition still has to be met.
Deemed resident citizen (section 6(7)): Citizen + not liable to tax in any other country by reason of domicile, residence or similar criteria + total income (other than foreign-source) above ₹15,00,000 = deemed resident; Does not apply if the person is already resident under section 6(2) to (6). A deemed resident under this rule is NOR.
Not ordinarily resident (section 6(13)): Resident individual is NOR if (i) non-resident in 9 of the 10 preceding tax years; OR (ii) in India 729 days or less in the 7 preceding tax years; OR the special cases below; Special cases: citizen or person of Indian origin with non-foreign income above ₹15,00,000 and 120 to 181 days in India; and a citizen deemed resident under section 6(7). Otherwise the resident is ROR.
Scope of total income (section 5): ROR: received in India + accrued in India + accrued outside India. NOR: received + accrued in India, plus foreign income only from business controlled in or profession set up in India. Non-resident: received + accrued in India only; Deemed receipt and deemed accrual are included in the Indian categories.
HUF, firm, AOP and other persons: Resident unless control and management is situated wholly outside India in the tax year; An HUF is NOR if its manager meets the NOR conditions. A company is resident if Indian or its place of effective management is in India.
One resident source, all sources: Resident for any source of income = resident for all other sources in that tax year; Section 6(12). Status is single for the year.
Total income: Total income = Gross total income − Chapter VIII deductions; Always compute gross total income first. Deductions cannot take total income below zero.
Gross total income: Gross total income = Salary + House property + Business or profession + Capital gains + Other sources (after permitted set-off, and including clubbed income); Exempt income is not part of it. Losses are set off only as the Act allows.
Five heads of income: Salary | Income from house property | Profits and gains of business or profession | Capital gains | Income from other sources; Learn the order. Residuary items go to other sources only if no earlier head applies.
Receipt test: Revenue receipt = taxable income (unless exempt); Capital receipt = not income (unless a capital gain arises on transfer of an asset); A loan, share capital and the cost portion of an asset sale are capital receipts.
Special-rate income, sections 193 and 209: Special-rate income is taxed at its own rate; the balance (Total income − special-rate income) is taxed at rates in force. If gross total income also has other income, it is reduced by the special-rate income and deductions are allowed on the reduced figure: under any provision of the Act for s.193(2)(b); under Chapter VIII for s.209(2)(b). If gross total income consists only of special-rate income: s.193(2)(a) allows no deduction under any other provision when it is only GDR dividend; s.209(2)(a) allows no deduction under ss.28 to 58, 60, 61, 93(1)(a) or (e) or Chapter VIII when it is only interest or dividend on the specified bonds or GDRs.; Section 193 covers a resident employee of a specified knowledge-based company: 10% on GDR dividend, 12.5% on long-term capital gains on those GDRs. Section 209 covers a non-resident: 10% on interest on specified bonds and on dividend on specified GDRs, 12.5% on long-term capital gains on those bonds or GDRs.
Rebate under section 156(1): Rebate = lower of (tax payable before rebate, ₹12,500), if total income ≤ ₹5,00,000; For a resident individual. Total income must not exceed ₹5,00,000.
Rebate under section 156(2)(a): Rebate = lower of (tax payable before rebate, ₹60,000), if total income ≤ ₹12,00,000; Applies where total income is chargeable to tax under section 202(1). A resident individual only.
Marginal relief under section 156(2)(b): Rebate = Tax before rebate − (Total income − ₹12,00,000), if total income > ₹12,00,000 and tax > (Total income − ₹12,00,000); Tax after rebate equals the excess of total income over ₹12,00,000. If tax is not more than the excess, no rebate arises.
Overall cap: Rebate ≤ tax computed before the rebate; Sections 155(2) and 156(3). Rebate cannot create a refund or negative tax.
Capital gains under section 198: Rebate is allowed from tax on (total income − LTCG taxed under section 198); Section 198(7). The 12.5% tax on such LTCG above ₹1,25,000 is not reduced by the rebate.
Section 190 relief: Deduction = Average rate × Income on which no tax is payable; The deduction is made from the income-tax charged on total income.
Average rate of tax: Average rate = (Tax on total income ÷ Total income) × 100; Compute tax on the full total income first, including the non-taxable part.
Partial integration: conditions: Net agricultural income > ₹5,000 AND non-agricultural income > basic exemption limit; Applies to individuals, HUF, AOP, BOI and artificial juridical persons. If either condition fails, agricultural income is ignored for rate purposes.
Partial integration: tax: Tax = Tax on (Non-agricultural income + Net agricultural income) − Tax on (Basic exemption limit + Net agricultural income); Add surcharge and cess on the result, if the question asks for them.
Classes of authorities (section 236): CBDT → Principal DG/Principal CC → DG/CC → Principal Director/Principal Commissioner → Director/Commissioner/Commissioner (Appeals) → Additional → Joint → Deputy → Assistant → Income-tax Officer → Tax Recovery Officer → Inspector; Twelve classes, (a) to (l). Remember the order from the top down.
Appointment (section 237): Central Government appoints; may authorise the Board and senior officers to appoint authorities below Deputy/Assistant Commissioner; The delegation is subject to service rules and orders. Staff appointment is by an authority authorised by the Board.
Criteria for jurisdiction (section 241(4)): Territorial area; persons or classes of persons; incomes or classes of income; cases or classes of cases; Four criteria. Learn them as a list of four.
Concurrent jurisdiction (section 241(7)): Lower-ranking Assessing Officer acts as the higher one directs; references to the Assessing Officer mean the higher authority; Applies where Assessing Officers of different classes exercise powers concurrently.
Faceless scheme (section 245): Central Government notifies scheme; laid before each House of Parliament; Aims: remove interface, use resources by functional specialisation, team-based work with dynamic jurisdiction.

Quick revision

Section 13 lists five heads: Salaries, Income from house property, Profits and gains of business or profession, Capital gains, Income from other sources.
Section 5(1): a resident is taxed on income received or deemed received in India, accruing or arising in India, and accruing or arising outside India.
A not ordinarily resident is taxed on foreign income only if it is derived from a business controlled in or a profession set up in India.
Section 5(2): a non-resident is taxed only on income received or deemed received in India, or accruing or arising in India.
Income accruing outside India is not treated as received in India merely because it is shown in a balance sheet prepared in India (section 5(3)).
Income already included as accrued or arisen is not taxed again as received in India (section 5(4)).
Rebate under section 156 is only for a resident individual.
Section 156(1): the rebate is the lower of 100% of tax or ₹12,500, if total income does not exceed ₹5,00,000.
Section 156(2)(a): for income taxed under section 202(1), the rebate is the lower of 100% of tax or ₹60,000, if income does not exceed ₹12,00,000.
Above ₹12,00,000, the rebate equals tax minus the excess of income over ₹12,00,000, so net tax does not exceed that excess.
Rebate cannot exceed the income-tax computed before the rebate (section 155(2)).
Section 256 lets senior authorities, down to Joint Commissioner, make enquiries with the powers of an Assessing Officer.

Common mistakes

Using 'previous year' and 'assessment year' as the tax periods under the 2025 Act. Fix: Use 'tax year' for June 2027. Mention previous year and assessment year only when contrasting with the 1961 Act.
Treating 'person' and 'assessee' as identical. Fix: Remember that person is the wider class. A person becomes an assessee only when tax or a sum is payable, or a proceeding is taken, and so on.
Saying the Income-tax Act itself fixes the tax rates. Fix: Write that rates are enacted by a Central Act, the Finance Act, for each tax year, and section 4(1) makes the charge subject to them.
Stating that tax is charged on income of the previous year. Fix: Use the Income-tax Act, 2025 language: tax is charged on total income of the tax year.
Treating citizenship as residence, such as calling every Indian citizen a resident. Fix: Apply section 6 day counts. Citizenship matters only for the special rules, such as employment abroad and deemed residence.
Using 60 days plus 365 days for a citizen who left India for employment abroad. Fix: For such a citizen or ship crew member, only the 182-day test applies.
Treating every capital receipt as non-taxable. Fix: Remember that a profit on transfer of a capital asset is taxed under capital gains. The sale price is not tax-free; only the cost portion is not income.
Ignoring agricultural income completely because it is exempt. Fix: Exclude it from total income, but check if it must be added notionally to fix the rate for an individual, HUF or similar person. State the exemption and the rate effect both.
Giving the rebate to an HUF, a firm or a non-resident individual. Fix: Write 'resident individual' as the first line of your answer and confirm it from the facts.
Comparing gross total income, or salary, with the ₹12,00,000 or ₹5,00,000 limit. Fix: Deduct everything allowed first. The test applies to total income as defined in the Act.

Exam tips

Write 'tax year' in every answer for June 2027, and mention the older terms only for contrast.
Learn section 3 well, because both sub-sections can be tested through short date-based problems.
Give the full list of persons and the full meaning of assessee. Short answers lose marks here.
For 'difference' questions, use two or three clear points with a one-line example for each.
Name the Income-tax Act, 2025 in your opening line, then give the rule and a short conclusion.
Quote section 4(1) and 4(2) by number in every answer on the charge. Examiners look for the section and the key words: Central Act, tax year, total income, every person.
Always separate the Income-tax Act from the Finance Act. One line on this earns credit in theory answers.
Learn section 530 as a pair: preceding year or the Bill, whichever is more favourable to the assessee.