Taxation: formula sheet

Key formulas

Basic conditions for an individual to be resident

Resident if: (a) stay in India ≥ 182 days in the previous year, OR (b) stay ≥ 60 days in the previous year AND ≥ 365 days in the 4 years before it

Satisfying any one condition makes the person resident. If neither is met, the person is non-resident.

Relaxation: 60 days becomes 182 days

Indian citizen leaving India for employment abroad, or as crew of an Indian ship: condition (b) needs 182 days, not 60

The same relaxation applies to an Indian citizen or person of Indian origin visiting India, where total income other than foreign-source income is ₹15,00,000 or less.

Relaxation: 60 days becomes 120 days

Indian citizen or PIO visiting India with Indian income > ₹15,00,000: condition (b) needs ≥ 120 days AND ≥ 365 days in the 4 preceding years

Such a person who is resident is treated as RNOR, not ROR.

Deemed resident

Indian citizen with Indian-source income > ₹15,00,000 and not liable to tax in any other country is treated as resident (RNOR)

This applies even if the day-count tests are not met.

ROR test (both must be met)

Resident in India in at least 2 of the 10 preceding years AND stay in India ≥ 730 days in the 7 preceding years

If either fails, the resident is RNOR.

HUF

Resident if control and management is wholly or partly in India; non-resident if wholly outside India

A resident HUF is ROR only if its manager (Karta) meets both ROR conditions. Otherwise it is RNOR.

Company

Indian company: always resident. Foreign company: resident only if its place of effective management (POEM) is in India in that year

Companies have no ROR/RNOR split.

Scope of tax by status

ROR: global income. RNOR: Indian income + foreign income from business controlled or profession set up in India. NR: Indian income only

Income received in India is taxable for every status.

Capital gain

Capital gain = Sale value (units × redemption NAV) − Cost of acquisition

A negative result is a capital loss. Deduct any transfer expenses if the question gives them.

Equity-oriented fund: holding period

Long-term if held > 12 months; short-term if held ≤ 12 months

Applies to funds with at least 65% in domestic equity.

Equity-oriented fund: tax rates

STCG = 20%; LTCG = 12.5% on gains above ₹1,25,000 in a financial year

The ₹1,25,000 is an exemption limit on total LTCG from such assets in the year. Surcharge and cess extra.

Specified mutual fund (Section 50AA)

Transfer on or after 1 April 2025 of units of a fund with 35% or less in domestic equity: gain is deemed short-term, taxed at slab rate, whatever the purchase date

No long-term benefit, whatever the holding period. Earlier test (Finance Act 2023): more than 65% in debt and money market instruments, covering units bought on or after 1 April 2023. Revised test (Finance Act 2024): 35% or less in domestic equity, for transfers from 1 April 2025, with no purchase-date condition. Under the revised test, gold and international funds with 35% or less in domestic equity are specified mutual funds. Under the old test they were not covered and were taxed as non-equity funds under the other provisions.

Other funds (not equity-oriented and not specified; e.g. balanced hybrids with more than 35% but under 65% domestic equity)

Unlisted units: long-term if held > 24 months, LTCG = 12.5% without indexation; listed units: long-term if held > 12 months, LTCG = 12.5%; short-term gain taxed at slab rate

Apply the Section 50AA test first, and check the fund's domestic equity exposure and classification. Check whether the units are listed or unlisted.

Indexed cost (older rule)

Indexed cost = Cost × CII of year of sale ÷ CII of year of purchase

Not available for transfers on or after 23 July 2024.

Set-off of capital losses

Short-term loss: set off against short-term or long-term gain. Long-term loss: set off only against long-term gain. Capital losses cannot be set off against income under other heads. Unabsorbed loss carried forward 8 years

Capital losses can be set off only against capital gains, never against salary, business or other income. Carry-forward requires the return to be filed on time.

Cost for equity units bought before 1 February 2018 (grandfathering)

Cost = higher of (actual cost) and (lower of FMV on 31 January 2018 and sale value)

Prevents tax on gains made up to 31 January 2018.

Tax on IDCW in investor's hands

Taxable IDCW = IDCW received (gross, before TDS)

Taxed at the investor's slab rate as income from other sources. TDS withheld does not reduce the taxable income.

TDS on IDCW to a resident (section 194K)

TDS = 10% of IDCW, if IDCW in the financial year exceeds the threshold

The threshold was ₹5,000 until 31 March 2025 and is ₹10,000 from 1 April 2025. If your workbook edition shows ₹5,000, check the date of the question. Once the limit is crossed, TDS applies on the whole amount, not just the excess.

TDS on IDCW to a non-resident

TDS at 20% plus applicable surcharge and cess

A tax treaty (DTAA) may give a lower rate, subject to conditions. No yearly threshold of the resident type is applied.

Additional tax payable

Additional tax = Tax at slab rate − TDS already deducted

If slab rate is below 10%, the excess TDS is refunded or adjusted when you file your return.

Deduction against IDCW income

Interest expense deduction ≤ 20% of IDCW income

Only interest paid on money borrowed to invest is allowed, up to 20% of the dividend income. No other expenses are deductible.

Growth vs IDCW

Growth: tax on redemption (capital gains). IDCW: tax when paid (slab rate).

IDCW payout and IDCW reinvestment are taxed the same way.

STT on equity fund redemption

STT = Redemption value × 0.001%

Paid by the investor on sale of equity-oriented units. Nil on purchase and nil on debt fund redemption.

STT on purchase of units

Nil

No STT is charged when you buy equity-oriented fund units from the AMC.

Resident TDS on dividend (IDCW)

10% if dividend > ₹10,000 in a financial year

20% if PAN is not furnished. No TDS on resident capital gains.

NRI TDS on equity fund gains

Short-term 20%; Long-term 12.5%

Plus applicable surcharge and cess. AMC deducts at redemption.

NRI TDS on non-equity fund gains

Short-term 30%; Long-term 12.5%

Plus surcharge and cess. Always check the rate in the Finance Act in force.

NRI TDS on dividend

20% plus surcharge and cess

Deducted by the AMC before paying IDCW.

Fund-level exemption

Income of SEBI-registered mutual fund → exempt under Section 10(23D)

Applies to the fund's income. It does not make the investor's gains tax-free.

Two levels of tax

Fund level: no income tax on scheme income | Investor level: tax on capital gains and IDCW

Most exam traps mix these two levels.

Transaction levy on fund trades

STT applies on equity transactions on exchanges

STT is not income tax on the fund's income. It is a transaction cost of dealing in securities.

Fund of funds

Fund of funds = mutual fund scheme investing in other schemes → exempt at fund level

Investor taxation depends on the category rules for the units held.

Section 80C ceiling

Maximum deduction = ₹1,50,000 per financial year

This is the combined cap across all 80C items (EPF, PPF, life insurance premium, ELSS and others), not a cap per item.

ELSS lock-in

Unlock date = allotment date of each unit + 3 years

Each SIP instalment has its own lock-in. The lock-in is not counted from the first instalment.

Tax saved by 80C

Tax saved = Eligible deduction × Marginal tax rate

Eligible deduction = lower of the amount invested in 80C items and ₹1,50,000. Ignore cess unless the question includes it.

Regime condition

80C deduction available only under the old tax regime

Not available under the new regime (Section 115BAC), which is the default.

ELSS asset rule

Equity and equity-related instruments ≥ 80% of assets

ELSS is an equity-oriented scheme for tax purposes.

Who can claim

Individuals and HUFs

Companies and firms cannot claim the 80C deduction.

Short-term capital loss (STCL) set-off

STCL → against STCG and LTCG

Can be set off against both short-term and long-term capital gains of the same year.

Long-term capital loss (LTCL) set-off

LTCL → against LTCG only

Cannot be set off against short-term capital gains. Cannot be set off against any other head of income.

Carry forward of capital loss

Carry forward period = 8 assessment years

Allowed only if the loss was reported in a return filed by the due date. Carried-forward loss is set off only against capital gains. A long-term loss carried forward is set off only against long-term gains.

Dividend stripping rule

Buy ≤ 3 months before record date AND sell ≤ 9 months after (for mutual fund units) → loss ignored up to the dividend received

Only the loss up to the amount of dividend or income received is disallowed. The rest of the loss is allowed.

Bonus stripping rule

Buy ≤ 3 months before record date of bonus AND sell original units ≤ 9 months after → loss on original units ignored

The ignored loss is added to the cost of the bonus units. Bonus units have nil cost, so this can reduce a later gain.

Switch

Switch = redemption from scheme A + purchase in scheme B

Capital gains tax applies on the redemption side. Holding period of the new units starts from the switch date.

SIP holding period and FIFO

Each instalment: own purchase date and cost; units sold = earliest purchased first

The holding period of each unit is counted separately from its own instalment date.

Equity-oriented fund rates and exemption

STCG (up to 12 months) 20%; LTCG (over 12 months) 12.5% on gains above ₹1,25,000 a year

Rates are those in force after the July 2024 Budget. Check your current workbook edition for any change. The ₹1,25,000 limit is for the year, across all eligible LTCG.

Grandfathering for equity units

Cost = higher of (actual cost, lower of (value on 31 Jan 2018, sale value))

Applies to equity-oriented units bought on or before 31 January 2018.

Quick revision

• Classify the fund first: equity-oriented or not decides the rate and the holding period.
• Capital gain = sale value − cost of acquisition. Tax arises on redemption, switch-out or transfer, not on holding.
• Equity-oriented funds have a 12-month cut-off between short-term and long-term gains.
• Long-term equity gains get an annual exemption limit; confirm the amount in your current workbook.
• Certain debt-oriented funds are taxed at the investor's slab rate regardless of how long you hold them.
• IDCW is taxed in the investor's hands at slab rate, and TDS applies above a threshold for residents.
• STT is charged on redemption of equity-oriented fund units, not on purchase.
• The scheme itself is exempt from income tax on its income; the investor bears the tax.
• ELSS has a 3-year lock-in and qualifies for Section 80C, with an overall limit of ₹1,50,000.
• Short-term capital loss can be set off against short-term or long-term gains; long-term capital loss only against long-term gains.
• Unabsorbed capital losses can be carried forward for 8 assessment years.
• NRI redemptions attract TDS on capital gains; check the current rates in the workbook.

Common mistakes

• Treating either 182 days or 60 days as enough on its own. Fix: Write condition (b) as one unit: 60 days AND 365 days. Only condition (a) stands alone.
• Using 60 days for an Indian citizen who leaves for employment abroad or visits India. Fix: Read for the words "citizen", "employment abroad", "crew" and "visiting". If present, change the 60-day figure before testing.
• Using 36 months as the long-term period for debt funds Fix: Treat specified mutual fund units (such as debt funds) as always short-term for transfers on or after 1 April 2025, whatever the purchase date. For 'other' funds, use 24 months for unlisted units and 12 months for listed units.
• Taxing the whole equity LTCG at 12.5% Fix: Subtract ₹1,25,000 first, then apply 12.5% to the balance. The exemption is for the whole year, not per fund.
• Saying the mutual fund pays dividend distribution tax before paying IDCW. Fix: Remember that DDT is gone. IDCW is taxed in the investor's hands at slab rate.
• Believing no tax is due if TDS was not deducted. Fix: TDS is only a collection method. IDCW is taxable whether or not TDS was deducted, and you must report it.
• Charging STT on purchase of equity fund units. Fix: For fund units bought from the AMC, STT is nil on purchase. It applies only on redemption of equity-oriented units.
• Applying STT to debt fund redemption. Fix: STT applies to equity-oriented funds only. Debt fund redemptions carry no STT.
• Saying equity funds are exempt but debt funds are taxed at fund level. Fix: The fund-level exemption does not depend on equity or debt. Category affects how investors are taxed.
• Believing the exemption means investors pay no tax. Fix: Exemption covers only the fund's income. Investors pay tax on gains and IDCW.

Exam tips

• Expect direct questions on the 182-day and 60-day plus 365-day tests. Memorise them word for word.
• Watch for trap options that swap the 2-of-10 years and 730-days-in-7-years figures, or offer 90 days or 180 days in place of the real numbers.
• Negative marking applies in many NISM papers, but V-A has none. So attempt every question and use elimination.
• Questions on company status usually test one idea: an Indian company is always resident, while a foreign company needs POEM in India.
• Learn the scope of tax for each status. Many questions ask which income an NRI or RNOR is taxed on.
• Always read the fund type before the holding period. The same 14 months gives a long-term gain in an equity fund and a slab-taxed gain in a specified fund, such as a debt fund transferred on or after 1 April 2025.
• Memorise the pairs: equity is 12 months with 20% and 12.5%; other funds (more than 35% but under 65% equity) are 24 months if unlisted and 12 months if listed, with slab for short-term and 12.5% for long-term; specified mutual funds transferred on or after 1 April 2025 are slab only.
• For the ₹1,25,000 limit, check whether the question gives other long-term gains in the same year. The exemption is shared.