Skip to content

CS Executive · Tax Laws and Practice

Incomes Which Do Not Form Part of Total Income

Some incomes are listed in the Income-tax Act, 2025 as not included in total income, so they are not taxed if the stated conditions are met. Section 11 points to Schedules II to VII, section 12 covers political parties and electoral trusts, and section 14 bars deduction of expenditure on such income. Check the condition first, then the section.

What this chapter covers

This chapter answers one question: which incomes stay out of the total income of a tax year, and on what terms. Under the Income-tax Act, 2025, section 11 says incomes listed in Schedules II, III, IV, V and VI are not included in total income, subject to the conditions given there. Section 11 also says persons listed in Schedule VII are not chargeable to tax on total income, again subject to conditions.

The key idea is that every exemption is conditional. If the conditions are not met in a tax year, the income is charged to tax for that year. Section 11 states this for the incomes in Schedules II to VI and for the persons in Schedule VII. Section 12 applies the same logic to political parties and electoral trusts, using Schedule VIII.

This chapter connects to the rest of Paper 7 Part I. Before you compute income under any head, you must know which receipts are outside total income. Section 14 then links exempt income to deductions: expenditure incurred in relation to income that does not form part of total income is not allowed as a deduction. Section 14 also lets the Assessing Officer determine that expenditure by a prescribed method when the claim looks incorrect.

This chapter is short, rule-based and easy to answer in the ICSI style: state the provision, apply the facts, conclude. Questions often test the conditions of an exemption, such as the conditions for a political party or an electoral trust, and the disallowance rule in section 14. If you know the conditions exactly, you can score well here and also avoid errors in later chapters on heads of income and deductions, where one wrongly included or excluded receipt changes the whole computation.

Incomes which do not form part of Total Income: topics in the order to study them

  1. 1Concept of Exempt Income and Total IncomeStart here, because you need the idea of total income and of a condition-based exclusion before reading any section.
  2. 2Incomes Not Included in Total Income (Section 11)This is the main rule: Schedules II to VII, the conditions, and the consequence when conditions fail.
  3. 3Exemptions for Political Parties and Electoral TrustsStudy this after section 11, as section 12 and Schedule VIII apply the same idea to specific persons with detailed conditions.
  4. 4Expenditure Related to Exempt Income (Section 14)Take this last, since it needs you to know what exempt income is before you can see why related expenditure is disallowed.

How to prepare Incomes which do not form part of Total Income

Treat this chapter as a set of rules with conditions. Your aim is to recall each rule and its conditions without mixing them up.

  1. Read sections 11, 12 and 14 slowly and write each in one or two lines of your own words.
  2. For section 11, learn the split: Schedules II to VI cover incomes, Schedule VII covers persons. Note that failed conditions mean the income is taxed for that tax year.
  3. For political parties, list the conditions in Schedule VIII one by one: books of account, records of contributions above ₹20,000, audit by an accountant, the ₹2,000 limit on donations other than by prescribed modes, the report under the Representation of the People Act, and filing the return on time.
  4. For electoral trusts, learn the two conditions: distributing 95% of aggregate donations plus any brought-forward surplus to registered political parties, and functioning as per the Central Government's rules.
  5. For section 14, learn the three parts: no deduction for expenditure on exempt income, the Assessing Officer's power to determine expenditure by a prescribed method, and the rule that it applies even if the income has not accrued or been received in that year.
  6. Practise short answers in the ICSI format: provision, facts, conclusion, with the section cited. Do a few small case-style questions on failed conditions.
  7. Revise by writing the conditions from memory and checking them against the text.

Common mistakes in Incomes which do not form part of Total Income

  • Treating an exemption as unconditional

    Fix: Always ask what the condition is. Remember sections 11 and 12 say the income is taxed for that tax year if the conditions fail.

  • Mixing up Schedule VII with Schedules II to VI

    Fix: Schedules II to VI list incomes. Schedule VII lists persons whose total income is not chargeable to tax.

  • Writing section 11 for political parties

    Fix: Use section 12 and Schedule VIII for political parties and electoral trusts.

  • Muddling the ₹20,000 and ₹2,000 limits

    Fix: The ₹20,000 limit is for keeping records of voluntary contributions and donor details. The ₹2,000 limit is for how donations above that are received.

  • Allowing expenditure on exempt income as a deduction

    Fix: Apply section 14: no deduction for expenditure in relation to income outside total income, even if that income is not yet received in the year.

  • Confusing section 136 and 137 with the exemption rules

    Fix: Sections 12 and Schedule VIII exempt the party's income. Sections 136 and 137 give the contributor a deduction, and not for cash contributions.

Last-day revision: Incomes which do not form part of Total Income

  • Section 11(1): incomes in Schedules II, III, IV, V and VI are not included in total income, subject to conditions.
  • Section 11(3): persons in Schedule VII are not chargeable to tax on total income, subject to conditions.
  • If conditions are not met in a tax year, the income or the person's income is taxed for that year.
  • Section 11(5): the Central Government may make rules or notifications for the section.
  • Section 12 deals with political parties and electoral trusts, using Schedule VIII.
  • A political party must be registered under section 29A of the Representation of the People Act, 1951.
  • Political party: record and donor details for voluntary contributions above ₹20,000, other than electoral bonds.
  • Political party: no donation above ₹2,000 except by account payee cheque or draft, electronic clearing, prescribed electronic mode or electoral bond.
  • Political party: accounts audited by an accountant and return filed by the due date.
  • Electoral trust: distribute 95% of aggregate donations plus brought-forward surplus to registered parties, and function as per the rules.
  • Section 14: no deduction for expenditure related to income not forming part of total income.
  • Section 14(2): if the Assessing Officer is not satisfied with the expenditure claim or a nil claim, he determines the amount by a prescribed method.
  • Section 14(3): the rule applies even if the exempt income has not accrued, arisen or been received in that tax year.

Incomes which do not form part of Total Income practice questions

Incomes which do not form part of Total Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Incomes which do not form part of Total Income: frequently asked questions

What does income not forming part of total income mean?

It means the income is listed in the Act as not included when you compute total income for a tax year. It is excluded only if the stated conditions are met. If they are not met, the income is charged to tax.

Which section lists incomes not included in total income?

Section 11 of the Income-tax Act, 2025 covers it, pointing to Schedules II, III, IV, V and VI for incomes and Schedule VII for persons. Political parties and electoral trusts are covered separately in section 12 and Schedule VIII.

What is the rule in section 14?

No deduction is allowed for expenditure incurred in relation to income that does not form part of total income. If the Assessing Officer is not satisfied with the claim, he determines the expenditure by a prescribed method. It applies even if the income has not accrued or been received in that tax year.

What must an electoral trust do to claim exemption?

It must distribute 95% of the aggregate donations received in the tax year, along with any surplus brought forward from earlier years, to registered political parties. It must also function as per the rules made by the Central Government.