NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2)

Concepts in Taxation: formula sheet

Full chapter guide

Key formulas

Direct tax: Impact (legal liability) and incidence (burden) fall on the same person; Examples: income tax, corporate tax. Burden cannot be shifted.
Indirect tax: Impact on the seller or importer; incidence on the final consumer; Examples: GST, customs duty. Burden can be shifted through price.
Canons of taxation (Adam Smith): Equity, Certainty, Convenience, Economy; Remember the order as ECCE or make your own memory cue. All four are tested.
Progressive tax: Rate rises as income rises; Income tax slabs are progressive. A proportional tax uses one flat rate. A regressive tax takes a larger share from lower incomes.
Charge of income tax: Income of previous year is taxed in the assessment year; The previous year is the financial year before the assessment year. Exceptions exist, so check the question.
Previous year: PY = 1 April to 31 March (the year in which income is earned); Normally the 12 months ending on 31 March. For a business newly set up, it runs from the date of setting up to the following 31 March.
Assessment year: AY = the 12 months starting 1 April right after the PY; Income of PY 2024-25 is assessed in AY 2025-26.
Assessee vs person: Every assessee is a person; not every person is an assessee; An assessee has a tax liability, a return duty, or proceedings against them.
Tax year: Tax year = 12 months, 1 April to 31 March; one year replaces PY and AY; Under the Income-tax Act, 2025, effective 1 April 2026.
Persons covered: Individual, HUF, company, firm, AOP/BOI, local authority, other artificial juridical person; Learn this list; options often add a wrong entity or drop a valid one.
Basic conditions for 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 preceding years; Satisfying either one is enough. If neither is met, you are a non-resident.
Relaxation of the 60-day test: Indian citizen or person of Indian origin: 60 days becomes 182 days if (i) leaving India for employment abroad or as crew of an Indian ship, or (ii) visiting India during the year; Only the 60-day limb changes. For visiting citizens or persons of Indian origin whose Indian-source income exceeds ₹15 lakh, 60 days becomes 120 days, and the person is then RNOR.
ROR test (both must be met): Resident in at least 2 of the 10 preceding previous years AND stay ≥ 730 days in the 7 preceding previous years; Meet both and you are ROR. Fail either and you are RNOR.
RNOR test (either one): Non-resident in 9 or more of the 10 preceding previous years, OR stay ≤ 729 days in the 7 preceding previous years; This is the mirror of the ROR test. A deemed resident (Indian citizen, Indian income above ₹15 lakh, not taxable in any other country) is also treated as RNOR.
Scope of total income: ROR: Income received or deemed received in India + income accruing or arising in India or deemed to + income accruing or received outside India; Global income is taxable.
Scope of total income: RNOR: Income received or deemed received in India + income accruing or arising in India or deemed to + income from business controlled in or profession set up in India, even if arising abroad; Other foreign income, received abroad, is not taxable.
Scope of total income: non-resident: Income received or deemed received in India + income accruing or arising in India or deemed to; Foreign income received abroad is not taxable.
Five heads of income: Salaries + House property + PGBP + Capital gains + Other sources; Every taxable income must fall under one of these heads.
Gross total income: Income under all heads (after clubbing and set-off of losses) = Gross total income; Gross total income is the sum of income under all heads, after clubbing and after intra-head and inter-head set-off of current-year losses.
Total income: Total income = Gross total income − Chapter VI-A deductions; Tax is calculated on total income, rounded as per the Act.
Order of loss set-off: Intra-head set-off first, then inter-head set-off, then carry forward; Remember the key restrictions below.
Capital loss restrictions: Long-term capital loss: set off only against long-term capital gain. Short-term capital loss: against short-term or long-term capital gain; Capital losses cannot be set off against any other head.
Speculative business loss: Set off only against speculative business income; Can be carried forward for 4 assessment years, but only if the return is filed within the due date. Only house property loss and unabsorbed depreciation are exempt from this filing condition.
Carry forward of capital losses: Carry forward up to 8 assessment years; Allowed only if the return is filed within the due date.
House property loss: Inter-head set-off of house property loss is capped at ₹2,00,000 per year; Unabsorbed loss carries forward for 8 assessment years, against house property income only. A return filed within the due date is not a condition for this carry forward.
Total income: Total income = Gross total income − Chapter VI-A deductions; Deductions cannot exceed gross total income. Most are not allowed against special-rate capital gains.
Tax payable: Tax payable = (Tax on total income − Rebate u/s 87A) + Cess; The rebate comes before cess. Cess is charged on tax after rebate (and surcharge, if any).
Section 80C overall limit: 80C + 80CCC + 80CCD(1) ≤ ₹1,50,000; 80CCD(1B) gives a separate additional ₹50,000 for NPS.
Section 80D limits: Self, spouse, children: ₹25,000 (₹50,000 if senior citizen). Parents: another ₹25,000 (₹50,000 if senior citizen).; Preventive health check-up of ₹5,000 sits within these limits. Payment must not be in cash, except for the check-up.
Section 87A rebate: Old regime: income ≤ ₹5,00,000, rebate up to ₹12,500. New regime FY 2025-26: income ≤ ₹12,00,000, rebate up to ₹60,000.; Only for resident individuals. Not against special-rate capital gains tax.
Interest deductions: 80TTA: ₹10,000 (non-seniors, savings account). 80TTB: ₹50,000 (senior citizens, deposit interest).; A senior citizen claims 80TTB, not 80TTA.
New regime slabs (individual, FY 2025-26): Up to ₹4,00,000: nil | ₹4–8 lakh: 5% | ₹8–12 lakh: 10% | ₹12–16 lakh: 15% | ₹16–20 lakh: 20% | ₹20–24 lakh: 25% | Above ₹24 lakh: 30%; Same slabs for all ages. Rebate under section 87A makes tax nil for resident individuals with taxable income up to ₹12,00,000 (rebate capped at ₹60,000). Standard deduction for salaried people is ₹75,000.
Old regime slabs (below 60 years): Up to ₹2,50,000: nil | ₹2.5–5 lakh: 5% | ₹5–10 lakh: 20% | Above ₹10 lakh: 30%; Basic exemption is ₹3,00,000 for resident seniors (60 to below 80) and ₹5,00,000 for super seniors (80 and above). Rebate of up to ₹12,500 applies if taxable income is up to ₹5,00,000.
Surcharge rates on income tax (old regime): Income above ₹50 lakh to ₹1 crore: 10% | above ₹1 crore to ₹2 crore: 15% | above ₹2 crore to ₹5 crore: 25% | above ₹5 crore: 37%; In the new regime the 37% band does not apply; the top rate is 25%. No surcharge up to ₹50 lakh.
Cess: Cess = 4% × (income tax + surcharge); Charged after surcharge and after marginal relief.
Marginal relief on surcharge: Tax plus surcharge payable ≤ tax on threshold income + (total income − threshold); Relief = (tax + surcharge) − that limit, when the result is positive. Apply it before cess.
Total tax liability: Slab tax − rebate + surcharge (after relief) + 4% cess; Follow this order every time.

Quick revision

Previous year is the year in which income is earned; assessment year is the year after, in which it is assessed.
Residential status is decided for each previous year, and it decides the scope of taxable income.
A resident is taxed on global income; a non-resident is taxed only on income received or accruing in India, or deemed to do so.
Total income is computed under heads: salary, house property, business or profession, capital gains and other sources.
Deductions under Chapter VI-A are made from gross total income to reach total income.
Apply slab rates to taxable income first, then add surcharge if applicable, then cess on the total.
Cess is charged on the tax plus surcharge, not on income.
TDS is tax deducted at source by the payer and credited against the payee's final tax liability.
Advance tax is paid in instalments during the year for those whose tax liability crosses the prescribed threshold.
Always check the order of steps: scope, head, deduction, rate, surcharge, cess.
Rates and limits change with each Finance Act, so use the figures in your current workbook.

Common mistakes

Calling a tax direct because it is paid directly to the government. Fix: Judge by who bears the burden. GST is paid to the government by the seller but is still indirect, as the buyer bears it.
Mixing up certainty and convenience. Fix: Certainty is about clear rules, amount and date. Convenience is about timing and manner of payment.
Treating every person as an assessee Fix: Remember assessee is narrower. It needs tax liability, a return duty, or proceedings.
Mixing up previous year and assessment year Fix: Income is earned first (PY), assessed later (AY). The AY is always one year after the PY.
Using citizenship to decide residential status Fix: Status depends on days of stay in the previous year and earlier years. A citizen abroad for most of the year can be a non-resident.
Applying the 60-day limb to someone who left India for employment abroad Fix: Check for employment abroad or Indian ship crew first. For them, 182 days is needed, so a stay below 182 days means non-resident.
Setting off a long-term capital loss against short-term capital gain. Fix: Long-term loss only against long-term gain. Short-term loss against either.
Setting off capital loss against salary or business income. Fix: Capital losses stay within capital gains. Never set them off against other heads.
Treating a rebate as a deduction from income, or the reverse. Fix: A deduction is subtracted before computing tax. A rebate is subtracted after computing tax.
Claiming 80C above ₹1,50,000 or counting 80CCD(1B) inside the 80C limit. Fix: Cap 80C and its linked sections at ₹1,50,000. Treat the extra ₹50,000 for NPS under 80CCD(1B) as separate.

Exam tips

Learn the four canons in order and attach one keyword to each.
Always decide direct or indirect by who bears the burden, not by who pays the government.
Expect simple classification MCQs, so list three direct and three indirect taxes from memory.
Watch for options that swap previous year and assessment year.
Negative marking applies, so answer only when you can eliminate at least two options.
Questions often test the link 'every assessee is a person, but not every person is an assessee'. Learn it word for word.
When given a financial year, convert it to AY by adding one year. Do it before reading the options.
Watch for options that wrongly say income is assessed in the year it is earned, and check whether the question uses the older frame or the tax year concept.