Direct Tax at a Glance: formula sheet

Key formulas

Direct tax test

Person who pays to government = Person who bears the burden

This identifies a direct tax. In an indirect tax the burden is passed on to the buyer.

Flow of the Act

Charge → Residential status → Heads of income → Deductions and set-off → Total income → Tax → Procedure

Use this sequence to structure any answer on scheme of the Act.

Depreciation on a block (section 33(3)(a))

Depreciation = prescribed percentage × written down value of the block

Applies to a block of assets. Half the prescribed rate applies if the asset is acquired in the tax year and used for less than 180 days (section 33(4)).

Treaty relief (section 159(4))

Provisions of the Act apply to the extent they are more beneficial to the assessee

Applies where an agreement is in force. Under section 159(6), Chapter XI applies even if it is not beneficial.

Non-resident claiming treaty relief (section 159(8))

Residency certificate from the foreign Government + other prescribed documents and information

Both are needed before the relief can be claimed.

Tax year

Tax year = 1 April to 31 March (12 months)

For a newly set up business or new source of income, the first tax year runs from the date of setting up or coming into existence to the next 31 March.

Tax year 2026-27

1 April 2026 to 31 March 2027

Income earned in this period is taxed for the same tax year. There is no separate assessment year in the 2025 Act.

Old terms contrast

1961 Act: previous year → assessment year; 2025 Act: tax year only

Use this only when the question asks for a comparison.

Person

Person = individual, HUF, company, firm, AOP/BOI, local authority, artificial juridical person

AOP or BOI counts as a person whether or not it is incorporated.

Assessee

Assessee = person liable to pay tax or any other sum (including deemed assessee and assessee in default)

A person against whom any proceeding is taken is also an assessee.

Charge of tax

Tax = rate in force × total income of the tax year

Total income depends on residential status, the heads of income, exemptions and deductions.

Appointment of authorities (section 237(1))

Central Government may appoint such persons as it thinks fit to be income-tax authorities

The starting power of appointment lies with the Central Government.

Delegated appointment (section 237(2))

Board / Principal Director General or Director General / Principal Chief Commissioner or Chief Commissioner / Principal Director or Director / Principal Commissioner or Commissioner may appoint authorities below the rank of Deputy Commissioner or Assistant Commissioner

Needs authorisation by the Central Government and is subject to service rules and orders.

Appointment of staff (section 237(3))

Authority authorised by the Board may appoint executive or ministerial staff to assist it

Subject to Central Government rules and orders on conditions of service.

Control (section 238)

Board, by notification, may direct that specified authority shall be subordinate to other specified authority

Subordination is created by notification of the Board.

Direct payment rule (section 391(1))

Tax payable directly by assessee if (a) no TDS provision exists for that income, OR (b) tax has not been deducted as required

Either condition is enough. The two conditions are joined by 'or'.

Bar on direct demand (section 401)

No direct demand on assessee to the extent tax has been deducted at source from that income

Applies only where tax is deductible at source under the Chapter. Balance not deducted can still be demanded.

Payer in default (section 391(3))

Deductor/employer fails to deduct or pay + assessee has also failed to pay directly → deductor is deemed assessee in default under section 398(1)

Both failures must exist: the payer's and the assessee's. This is in addition to other consequences.

Start-up share income (section 391(2))

Section 17(1)(d) income from eligible start-up (section 140) → direct payment per section 289(3)

Remember it as a special route. Do not go into details beyond the section references unless asked.

Quick revision

• Paper 7 for June 2027 follows the Income-tax Act, 2025 as amended by the Finance Act, 2026.
• Section 236 lists the classes of income-tax authorities, starting with the Central Board of Direct Taxes.
• Section 238: the Board may notify that one authority is subordinate to another.
• Section 245: the Central Government may notify a faceless scheme to reduce the interface between authority and assessee, to the extent technologically feasible.
• Section 391: tax is payable directly by the assessee if no provision exists to deduct it, or if it has not been deducted.
• Section 401: the assessee cannot be called on to pay tax to the extent it has been deducted at source.
• Section 391(3): a person who fails to deduct or pay, where the assessee has also not paid, is deemed an assessee in default.
• Section 411(1): demand is payable within thirty days of service of notice, or a shorter period with the Joint Commissioner's previous approval in specified cases.
• Section 411(3): simple interest at 1% for every month or part of a month after the due period.
• Section 411(5): the Assessing Officer may extend time or allow instalments if the assessee applies before the due date; a default in one instalment makes the whole outstanding amount default.
• Section 412: penalty cannot exceed tax in arrears, needs a hearing, and is not levied for good and sufficient reasons.
• Section 412(4) and (5): paying tax before penalty does not remove liability; penalty is cancelled if the tax is wholly reduced by a final order.

Common mistakes

• Calling GST a direct tax because the seller deposits it with the government. Fix: Apply the burden test. The buyer bears GST, so it is indirect.
• Quoting Income-tax Act, 1961 sections as current law. Fix: Use the Income-tax Act, 2025 for June 2027. Mention the 1961 Act only when contrasting.
• Using assessment year in an answer on the 2025 Act. Fix: Write tax year. Mention previous year and assessment year only when comparing the two Acts.
• Saying every person is an assessee. Fix: Say an assessee is a person by whom tax or any other sum is payable, or against whom proceedings are taken, or who is deemed so.
• Saying the Board appoints all income-tax authorities Fix: Section 237(1) gives the power to the Central Government. The Board only appoints where authorised, and only for ranks below Deputy Commissioner or Assistant Commissioner.
• Claiming delegated authorities can appoint a Deputy Commissioner Fix: Delegated appointment covers only ranks below Deputy Commissioner or Assistant Commissioner.
• Saying income is not taxable because the payer did not deduct tax. Fix: State that under section 391(1)(b) the tax is payable directly by the assessee when it has not been deducted.
• Writing that section 401 bars all demand on the assessee. Fix: Say the bar applies only to the extent tax has been deducted from that income. Any balance can be demanded.

Exam tips

• For 'scheme of the Act' questions, answer in the order charge, residential status, heads, deductions, total income, tax, procedure.
• Always write Income-tax Act, 2025 as the governing law. Use the 1961 Act only for contrast.
• Use side-by-side points in distinction questions and add one example for each side.
• Do not attach a section number unless you are certain of it. A correct provision in words earns marks.
• Keep a rupee example ready, as short numerical illustrations make theory answers stronger.
• Use the words tax year in every answer. Use previous year and assessment year only in comparison questions.
• Short questions often ask to define person or assessee. Give the full list of persons and one line on the assessee.
• In a new business question, always compute the first tax year from the start date to 31 March.