Income Tax Law

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Minor From Vocational MN2
Income Tax, Computation & Return Filing
1. Income tax Law
Income-tax is a tax levied on the total income of an assessee, being a person charged
under the provisions of this Act, for the relevant previous year.
For understanding Income tax law in India, the following components need to be studied
carefully:
(1) Income-tax Act, 1961
(2) Annual Finance Acts
(3) Income-tax Rules, 1962
(4) Notification and Circulars, issued from time to time
(5) Judicial Decisions
Income-tax is a tax levied on the total income of an assessee, being a person charged
under the provisions of this Act, for the relevant previous year.
1.1 Income-tax Act, 1961

The levy of income-tax in India is governed by the Income-tax Act, 1961 which extends
to whole of India and came into force on 1 st April, 1962. The Act contains 298 sections and
XIV schedules. It contains provisions for determination of taxable income, tax liability,
assessment procedures, appeals, penalties and prosecutions. These undergo changes
every year with additions and deletions brought by the Annual Finance Act passed by the
Parliament.
1.2 Annual Finance Acts
Every year, Finance Bill is introduced by the Finance Minister of the Government of India
in the Parliament’s Budget Session. When the Finance Bill is passed by both the Houses
of the Parliament and gets the assent of the President, it becomes the Finance Act.
Amendments are made every year to the Income-tax Act, 1961 and other tax laws by the
Finance Act. Finance Bill also mentions the Rates of Income tax and other taxes given in
various schedules which are attached to it. Therefore, though Income-tax Act is a settled
law, the operative effect is given by the Annual Finance Act.
1.3 Income-tax Rules, 1962
Prof. Snehal Goswami

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Central Board of Direct Taxes (CBDT) looks after the administration of direct taxes and
is empowered u/s 295 of the Income Tax Act, to make rules for carrying out the purposes
of the Act and thereby it frames various rules from time to time for the proper
administration of the Income-tax Act, 1961. These rules were first framed in 1962 and
are thereby collectively called Income-tax Rules, 1962. It is important to read these rules
along with the Income-tax Act, 1961. The power to make rules under this section shall
also include the power to give retrospective effect, but not earlier than the date of
commencement of this Act. However, such retrospective effect shall not be given so as to
prejudicially affect the interests of the assessees.
1.4 Circulars and Notifications
Circulars are issued by the CBDT from time to time to deal with certain specific problems
and to clarify doubts regarding the scope and meaning of the provisions. These circulars
are issued for the guidance of the officers and/or assessees. These circulars are binding
on the department and not on the assessee and therefore the assessee can take advantage
of beneficial circulars.
Notifications are issued by the Central Government to give effect to the provisions of the
Act. For example, u/s 10(15)(iv)(h), interest on bonds and debentures are exempt by the
Central Government subject to such conditions through Notifications. The CBDT is also
empowered to make and amend rules for the purposes of the Act by issue of notifications.
For example, u/s 35CCD, the CBDT is empowered to prescribe guidelines for notification
of skill development project.
1.5 Judicial Decisions
Judicial decisions are an important and unavoidable part of the study of income-tax law.
For the Parliament, it is not possible to provide for all possible issues that may arise in
the implementation of any Act and hence the judiciary will have to consider various
cases between the assessees and the department and give decisions on various
issues. The Supreme Court is the Apex Court of the country and the law laid down by
the Supreme Court is the law of the land. In case, where the apparently contradictory
decisions are given by benches having similar number of judges, the principle of the later
decision would be applicable. The decisions given by various High Courts will apply
in the respective states in which such High Courts have jurisdiction.
2. Charge of Income-tax: [Sec. 4]
Tax cannot be levied or collected in India except under the authority of Law. Section 4 of the
Income- tax Act, 1961 gives authority to the Central Government for charging income tax.
This is the charging section in the Income-tax Act, 1961 which provides that:
(i) Tax shall be charged at the rates prescribed for the year by the Annual Finance Act;
(ii) The charge is on every person specified under section 2(31);

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(iii) Tax is chargeable on the total income earned during the previous year and not the
assessment year. (There are certain exceptions provided by sections 172, 174, 174A, 175
and 176);
(iv) Tax shall be levied in accordance with and subject to the various provisions contained
in the Act.
This section is the backbone of the law of income-tax insofar as it serves as the most
operative provision of the Act. The tax liability of a person springs from this section.
3. Assessment year: [Sec. 2(9)]
Assessment year means a period of 12 months commencing on 1 st April every year. The total
income earned by the assessee during the previous year shall be chargeable to tax in the next
year; which is termed as the assessment year. For example, for the previous year 2022-23,
the relevant assessment year shall be 2023-24 (1.4.2023 to 31.3.2024).
4. Previous year: [Sec. 3]
The year in which income is earned, i.e. the financial year immediately preceding the
assessment year, is called the previous year and the tax shall be paid on such income in the
next year which is called the assessment year. This means that the tax is levied on the
income in the year in which it is earned; referred as previous year and the tax on such income
will be paid in the assessment year. All assessees are required to follow a uniform previous
year i.e. the financial year starting from 1 st April and ending on 31st March.
5. Person: [Sec. 2(31)]
As the income tax is levied on the total income of the previous year of every ‘person’, it
becomes important to understand the term ‘Person’. The term ‘person’ includes the
following seven categories:
(i) an individual,
(ii) a Hindu Undivided Family (HUF),
(iii) a company,
(iv) a firm,
(v) an Association of Persons (AoP) or a Body of Individuals (BoI), whether incorporated or

not,
(vi) a local authority, and
(vii) every artificial juridical person not falling within any of the preceding sub-clauses e.g., a
university or deity.
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As per Explanation to Sec. 2(31), an AoP/BoI/Local authority or any artificial juridical

person shall be deemed to be a person, irrespective of whether they were formed or
established with the purpose of earning or deriving profits or not.
6. Assessee: [Sec. 2(7)]
Assessee means a person by whom any tax or any other sum of money is payable under
this Act. It also includes the following:
(i) Every person in respect of whom any proceeding under this Act has been taken for
the assessment of his income;
(ii) Every person who is deemed to be an assessee under any provisions of this Act.
Sometimes, a person becomes assessable in respect of the income of some other persons. In
such case also, he is considered as an assessee. For example, legal representative of a
deceased person;
(iii) Every person who is deemed to be an assessee in default under any provision of this
Act. For example, where a person making any payment to other person is liable to deduct tax
at source, and if he has not deducted tax at source or has deducted but not deposited the tax
with the government; he shall be deemed to be an assessee in default.
7. Certain Principles relating to Income under Income-tax Act
The following are the important principles relating to income:
• Income generally refers to revenue receipts, but however under the Income-tax Act, 1961, certain capital
receipts have also been specifically included within the definition of income for example capital
gains i.e. gains on sale of a capital assets like land.
• The income to be considered for tax purpose shall be net receipts and not gross receipts.
Net receipts are arrived at after deducting the expenditure incurred in connection with earning such
receipts.
• Income is taxable either on due basis or receipt basis, as provided under the respective head of income.
For the purpose of computing income under the heads ‘Profits and gains of business or profession’ and
‘Income from other sources’, the method of accounting which is regularly followed by the assessee
should be considered, which can be either cash system or mercantile system.
• Income earned during the year i.e. the previous year shall be chargeable to tax in the next year i.e. the
assessment year e.g. the income of the P.Y. 2022-23 shall be chargeable in the A.Y. 2023-24. But, there
are certain exceptions to this principle (i.e. Accelerated assessment u/s 172, 174, 174A and 175)
which are discussed in the Chapter ‘Liability in Special Cases’.
8. Income: [Sec. 2(24)]
The definition of ‘Income’ given under section 2(24) is inclusive and not
exhaustive and therefore it may be possible that certain items may be considered as income
under this Act according to its general and natural meaning, even if it is not included under
section 2(24). The term ‘Income’ includes the following:
• Profits and gains;

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• Dividend;
• Voluntary contributions received by a trust which is created wholly or partly for charitable or religious
purposes; or by educational institutions, hospitals or electoral trust;
• The value of any perquisite or profit in lieu of salary taxable u/s 17;
• Any special allowance granted to the assessee to meet expenses wholly, necessarily and exclusively for
the performance of office or employment duties;
• The value of any benefit or perquisite, whether converted into money or not, obtained from a company
either by a director or by a person who has substantial interest in the company or by a relative of the
director or such person, and any sum paid by any such company in respect of any obligation which,
otherwise, would have been payable by the director or other person aforesaid;
• The value of benefit or perquisite to a representative assessee like a trustee appointed under a trust;
• Any sum chargeable to income-tax under clauses (ii) and (iii) of sec. 28 or sec. 41 or sec. 59;
• Any sum chargeable to income-tax under clauses (iiia), (iiib), (iiic), (iv), (v), (va) and (via) of sec. 28;
• Any capital gains chargeable u/s 45;
• The profits and gains of any insurance business carried on by a mutual insurance company or by a co-
operative society, computed in accordance with section 44 or any surplus taken to be such profit and gains
by virtue of provisions contained in the First Schedule;
• The profits and gains of any of banking business (including providing credit facilities) carried on by a co-
operative society with its members;
• Winnings from lottery, crossword puzzles, races (including horse races), card games or other games of
any sort or from gambling or betting;
• Any sum received by the assessee from his employees as contributions to any provident fund or
superannuation fund or any fund set up under Employees’ State Insurance Act, 1948 or any fund for the
welfare of such employee; [Sec. 2(24)(x)]
• Any amount received under the Keyman insurance policy including the sum allocated by way of
bonus; [Sec. 2(24)(xi)]
• Any sum chargeable to income-tax u/s 56(2)(v), (vi);
• Any sum of money or specified movable or immovable properties received without consideration or
inadequate consideration as provided u/s 56(2)(vii), (via);
• Any consideration received for issue of shares as exceeds the FMV of shares referred to in section
56(2)(viib);
• Any sum of money received as advance in the course of negotiation for transfer of a capital asset, if such
sum is forfeited as the negotiation do not resulted in transfer of the asset 56(2)(ix);
• Any sum chargeable to income-tax u/s 56(2)(x);
• Any compensation or other payment referred to in Sec. 56(2)(xi);
• Income shall include assistance received in the form of a subsidy or grant or cash incentive or duty
drawback or waiver or concession or reimbursement (by whatever name called) from the Central
Government or a State Government or any other authority or body or agency in cash or kind to the
assessee other than:
(a) the subsidy or grant or reimbursement which is taken into account for determination of
the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1)
of section 43,
(b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust
or institution established by the Central Government or the State Government, as the case
may be.
9. Heads of Income: [Sec. 14]
For the purpose of computation of total income under the Income-tax Act, 1961, all the
incomes shall be classified under the following 5 heads of income:
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(i) Salaries [Secs. 15 to 17]
(ii) Income from House Property [Secs. 22 to 27]
(iii) Profits and Gains of Business or Profession [Secs. 28 to 44DB]
(iv) Capital Gains [Secs. 45 to 55A]
(v) Income from Other Sources [Secs. 56 to 59]
Gross Total Income means aggregate of income computed under the above five heads, after
making clubbing provisions and adjustments of set off and carry forward of losses.
10. Total Income and Computation of Tax Liability
Total income of an assessee means the Gross Total Income (GTI) as reduced by the amount
of deduction available under sections 80C to 80U.
1. Income from Salaries
Income from salary ……..
Add: Taxable allowances ……..
Add: Taxable perquisites ………
Gross Salary ……..
Less: Deductions u/s 16
– Standard deduction
– Entertainment allowance ……..
– Professional tax ……..
Taxable Income under the head ‘Salaries’ ……..

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2. Income from House Property
Net Annual Value ……..
Less: Deductions u/s 24 ……..
Taxable Income under the head ‘Income from House Property’ ……..
3. Profits and Gains of Business and Profession
Net profit as per Profit and Loss Account ……..
Add: Amounts debited to P & L A/c but are not allowable as deduction u
……..
nder the Act
Add: Amounts not credited to P & L A/c but are taxable under the head P
……..
GBP
Less: Amounts credited to P & L A/c but are exempt u/s 10 or are taxabl
……..
e under other heads of income
Less: Amounts not debited to P & L A/c but are allowable as deduction u
……..
nder the Act
Taxable Income under the head ‘Profits and Gains of Business and Profe
……..
ssion’
4. Capital Gains
Amount of Capital gains u/s 48 ……..
Less: Exemption u/ss 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, 54GB, 5
……..
4H
Taxable Income under the head ‘Capital gains’ ……..

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5. Income from other sources
Gross income ……..
Less: Deductions u/s 57 ……..
Taxable Income under the head ‘Income from other sources’ ……..
Total [1 + 2 + 3 + 4 + 5] ……..
Less: Adjustment of set off and carry forward of losses ……..
Gross Total Income ……..
Less: Deductions under sections 80C to 80U [Chapter VI-A] ……..
Net Taxable Income ……..
Computation of Tax Liability:
Tax on Net income ……..
Less: Rebate u/s 87A (Available if resident individual is having net taxab
……..
le income of ` 5,00,000 or less)
Income Tax after rebate ……..
Add: Surcharge, if applicable ……..
Tax and surcharge ……..
Add: Health and Education cess ……..
Less: Rebate u/ss 86, 89, 90, 90A and 91 ……..

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Less: Prepaid taxes, if paid
Self assessment tax paid (SAT) ……..
Tax Deducted or Collected at Source (TDS and TCS) ……..
Advance tax ……..
Total Net Tax liability ……..
11. Exemption and Deduction in respect of income
• Exemption in respect of any income means that such income shall not form part of any head
of income and therefore not to be included in computation of total income. Whereas,
deduction in respect of any income means that such income shall be first included under the
respective head of income for the computation of gross total income and thereafter
deduction can be claimed on such income under the respective head or from the gross total
income. Deduction may also be allowed for making certain specified payments or
contributions.
• For e.g. Section 10 provides exemption in respect of certain incomes; sections 54, 54b, 54d,
54ec, 54f, 54g, 54ga, 54gb, 54H provides exemption in respect of capital gains of the assessee.
Section 16 [i.e. standard deduction, entertainment allowance and professional tax] provides
deduction from gross salary, section 24 provides standard deduction and deduction for
interest of loan borrowed under the head ‘Income from House Property’. Further, Chapter VI-
A [i.e. sections 80C to 80U] provides deduction from gross total income of the assessee.
• Exemption cannot exceed the taxable income; but deduction can exceed taxable income.
12. Rounding off of Income: [Sec. 288A]
The total income computed in accordance with the provisions of this Act shall be rounded
off to the nearest multiple of ` 10.
If the last figure in that amount is five or more, the amount shall be increased to the next
higher amount which is multiple of 10 and if the last figure is less than five, the amount shall
be reduced to the next lower amount which is multiple of 10.
13. Rounding off of Tax: [Sec. 288B]
The total amount of income tax payable and the amount of refund due, computed in
accordance with the provisions of this Act shall be rounded off to the nearest multiple of ` 10.

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If the last figure in that amount is five or more, the amount shall be increased to the next
higher amount which is multiple of 10 and if the last figure is less than five, the amount shall
be reduced to the next lower amount which is multiple of 10.
14. Section 14 of the Income Tax Act – Heads of Income
As per Section 14 of the Income Tax Act of 1961, an individual can earn income from several
means. The computation of income tax is important and must be calculated according to a
person's income. For a hassle-free income tax computation, the Act classifies the income into
different categories of heads. The provisions and rules are mentioned in the Income Tax Act.
At the end of each financial year, the taxpayer must classify their earnings under these heads
of income for accurate tax calculation. Thus, it is essential to know which falls under what
category or head. The 5 heads of income stated in this section as explained in detail in the
below article.
It is not necessary that every earning individual will have income from all these 5 heads of
income. However, classifying one's income on the basis of these heads of income would make
ITR filing easier to calculate how much income tax will accrue on them.
15. Heads of Income Tax
15.1. The 5 heads of income are:
i. Income from salary

ii. Income from house property
iii. Income from profits and gain of business or profession
iv. Income from capital gains
v. Income from other sources
These above-mentioned heads of income inform when the tax is to be charged and the
requirement to be fulfilled for taxation liabilities. Each of these heads of income has its
separate conditions that are needed to be fulfilled to make the income generated from these
sources taxable. These conditions are mentioned in different Sections of the Income Tax Act.
I. Income from Salary
The first head of income is income from salary. If there exists a relationship between payer
and payee in a firm or agreement, and the relationship is between employer and employee
where the employee is being paid a certain amount of remuneration for their services, then
the income can be charged under this head of income. A salary could be any sort of monetary
compensation. This could be any basic and normal wage, annuity, pension, gratuity, leave
encashment, etc.
After making a total aggregate of the total amount of income excluding the exemptions if, at
all present, the total amount of gross salary is then charged under this head of income.
All basic salaries along with commissions and bonuses are completely liable to taxation.
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Under this head of income, some allowances are exempt from tax under some conditions.
Allowances are: As per the Act, a fixed amount of money paid to an employee concerning the
labor and service are made by him. The allowance is generally included with the salary
unless specific exemptions are mentioned. Every employer must deduct TDS from the
salaries of their employees.
An important point to note while calculating taxable salary, the salary is taxable on the 'due
basis' or 'receipt basis,' whichever is earlier.
For example, if a person receives a salary for March 2022 in April 2022, this salary is taxable
in the previous year 2021-2022 as this salary was due in March 2022. Likewise, if the
employers give an advance salary of April and May 2022 in March 2022, this salary too is
taxable in March 2022.
• House Rent Allowance (HRA): Employees can claim exemption from HRA after meeting
the conditions related to: rent paid, salary, and the location of the residence whether metro
or non-metro cities.
• Leave Travel Allowance (LTA): Employees can claim exemption from travel expenses
incurred while on leave. The maximum deduction can be allowed for two trips within a
four-year period.
• Conveyance Allowance: An exemption can be claimed towards the conveyance allowance
up to INR 19,200 per annum or INR 1,600 per month.
• Education Allowance: Employees can claim exemption from education allowance subject
to limits specified per child for a maximum of two children.
Medical allowance: Up to a limit of rupees 15,000 per annum, medical allowance is tax-free,
and you can bear the bill and your family.
Conveyance allowance: You can get a monthly tax exemption of up to Rs.800.
These are some of the many types of allowances and their clauses for tax deductions. Other
monetary payments made to employees by an employer also have their methods of taxation.
II. Income from House Property
Another head of the Income Tax Act is income from house property. This part sheds light and
detail about the taxation policy on the house or real estate that you, as a taxpayer, are
residing in. Vacant house property is considered as 'self-occupied' in regards to the purpose
of income tax. In the situation that a taxpayer owns more than a single self-occupied house,
then only one house is treated and considered as a single self-occupancy house property.
Rest is considered to be let out.
The second head of the Income Tax Act is dedicated to sections 22 to 27, which correspond
to the computation and calculation of the total standard amount of income by a person in the
house or property that they rightfully own. The tax amount charged is not acquired from the
amount of rent that is received but rather from the property or land as a whole. Nonetheless,
if the; and or property is being used for a normal course of business, then the income
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generated from the rent will also be included to be charged for tax income. All commercially
owned residents or properties owned are also subjected to taxes.
For income from house property to be taxable, a few conditions must be satisfied and
fulfilled.
The house property has to consist of a house, building, or any land appurtenant.
The taxpayer should be the owner of the house property.
The house property must not be used for any business or professional venture done and
carried out by the taxpayer. It can only be used for residential purposes.
Having these conditions met, the income generated by house property thereby becomes
chargeable and liable to tax deduction as per the Income Tax Act.
Income from House Property is charged to tax on a notional basis. Tax under this head of
income does include income from letting out house property, commercial properties, and
any other types of properties. Several deductions like standard deduction, the deduction for
interest on home loans (if any), and deduction for municipal taxes paid are also allowed
under this head of income.
TDS on rent also needs to be deducted if the value of rent is more than a specified limit.
III. Income from Profits and Gain of Business or Profession
This is the third head of income under the Income Tax Act. A business includes any kind of
trade, commerce, manufacturing, or any nature of trade. Profession implies the acquisition
of specific or special knowledge in a particular field after a period of education and verified
examination. Under this head of income, profits and gains made during the tenure of
business are subjected to complete and total taxation. Profits incurred on the sale of imports,
incentives, any interest or form of salary or bonus, and a commission from a firm are all
taxable under this head of income in the Income Tax Act. For an income to be charged under
the head of income from profits and gains from business or profession, there are some rules
and conditions that must be fulfilled according to Section 28 of the Income Tax Act.
For income to be charged, a business or profession must exist in the first place.
The business or profession must be carried out by the taxpayer or assessed by themselves.
The profession or business whose income is to be charged must be operational and be

carried on for a greater part of the previous year.
The tax charge is based on the profits and gains made by the business during its running and
operating time of the previous year.

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The charge made can be extended to any and all business or profession that is ongoing or
being carried on by the assessee.
Only if these conditions are applicable, then the income from profits and gains generated can
be taxed under the Income Tax Act. It is important to note that to be charged under this head
of income, the business or profession need not be operational throughout the entire previous
year. As long as it has been carried on by the assessee for some time during the previous
year, it is chargeable.
There are a few types of income that are chargeable under this head of income are:
i. Profits generated from the sale of a certain license

ii. Gains earned by the business during an assessment year
iii. The profits that an organization makes on its income
iv. Cash received on the export of a government scheme
v. The benefits that a business receives
vi. Gains, bonuses, or salary that an individual receives due to a partnership with a firm
IV. Income from Capital Gains
Being the fourth head of income under the Income Tax Act, income gained from any capital
asset, be it movable or immovable, is deemed taxable. Capital gains are divided into two
parts: long-term capital gains and short-term capital gains. These gains are taxed under the
head of income – income from capital gains.
When a person sells his capital assets after holding them for 36 months or more, they will
fall under long-term capital gain. The applicable tax rate is 20% in the case of LTCG.
Alternatively, if he sells capital assets within 36 months, it will be termed as short-term
capital gain, and the rate of tax will be 15%. In the case of securities, this is applicable if one
sells his holdings within 12 months from the purchase date.
Capital gain is exempt from tax under sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G, or 54GA.
V. Income from Other Sources
The fifth and last head of income under the Income Tax Act is income from other sources.
Any income derived from sources other than the previously mentioned four heads is
considered to be under this category of income. Some examples of income from other
sources include interest gained from bank deposits, winning in the lottery, or even any sum
of money which is more than Rs. 50,000 received from another individual who does not form
a part of the taxpayer relative, spouse or if the money is acquired via inheritance or will. All
these sources, even if it is gambling or even card games, are chargeable for tax under Section
56(2) of the Act.
Section 145 of the Income Tax Act states the details for the computation and income tax
calculator generated from other sources. As per the Section, income from other sources shall

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be computed and calculated by the regular accounting method which is followed by whoever
the assessee is. This can be either in cash or in a mercantile accounting system.
16. Which Types of Income Come Under Income from Other Source?
Section 56(2) of the Income Tax Act enlists certain incomes which are taxable under this
head of income, that is, Income from Other Sources. Some of these incomes include:
i. Dividend income
ii. Interest income
iii. Family pension income
iv. Gifts received
v. Royalty income
17. 115JC of the Income Tax Act
The Government had introduced profit-linked deductions and incentives to encourage

investment and growth in various industries. Many taxpayers misused this provision and
became zero tax by paying marginal tax, although they were capable of paying normal tax.
Thus, MAT (Minimum Alternate Tax) was introduced for the companies, and AMT
(Alternative Minimum Tax) was introduced for taxpayers other than companies under
section 115JC of the Income Tax Act. The rate of Alternative Minimum Tax is 18.5% of the
Adjusted Total income. Surcharge and CESS are applicable in addition to 18.5%.
The provisions of Alternative Minimum Tax apply to the following category of taxpayers:
Individual, HUF, AOP (Association of Persons), or BOI (Body of Individuals) if the adjusted
total income exceeds INR 20 lacs
Any other taxpayer (other than the company), irrespective of the total income.
The AMT provisions apply to the above category of taxpayers only if:
The taxpayer claims a deduction under Section 80H to Section 80RRB (except Section 80P)
Claims a deduction under Section 35AD.
Claims a deduction under Section 10AA.
A taxpayer should obtain a report from a chartered accountant if the provisions of AMT apply
to him. As per a report under Section 115JC of the Income Tax Act, the CA certifies that the
Adjusted Total Income and AMT are calculated as per the provisions of the Income Tax Act.
18. Deductions allowed from Gross Total Income
Under the Income Tax Act, 1961 in India, several deductions are allowed from gross total
income to calculate the taxable income. Here are some key deductions:
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1. Section 80C: Deductions up to ₹1.5 lakh per financial year for investments and
expenditures such as:
- Life Insurance Premium
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Certificates (NSC)
- Equity-Linked Savings Scheme (ELSS)
- Principal repayment on home loan
- Tuition fees for children’s education
- Sukanya Samriddhi Yojana
- Tax-saving Fixed Deposits
2. Section 80CCC: Contributions to pension funds.
3. Section 80CCD: Contributions to the National Pension Scheme (NPS) under:
- 80CCD(1): Up to ₹1.5 lakh, which is included under Section 80C.
- 80CCD(1B): An additional deduction up to ₹50,000 for NPS contributions.
4. Section 80D: Deductions for premiums paid on health insurance policies for:
- Self, spouse, and children (up to ₹25,000 per annum; ₹50,000 for senior citizens)
- Parents (up to ₹25,000 per annum; ₹50,000 for senior citizens)
5. Section 80E: Interest on loans taken for higher education.

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6. Section 80G: Donations to charitable institutions. The deduction can be 50% or

100% of the donation amount, depending on the institution.
7. Section 80TTA: Deduction up to ₹10,000 on interest earned from savings accounts

with banks, post offices, and co-operative societies.
8. Section 80TTB: For senior citizens, a deduction up to ₹50,000 on interest earned

from savings accounts, fixed deposits, and recurring deposits.
9. Section 24(b): Deduction up to ₹2 lakh on interest paid on home loans for a self-
occupied property.
10. Section 10(14): Allowances like house rent allowance (HRA), conveyance
allowance, etc., are exempt from tax under certain conditions.
11. Section 80GGA: Donations for scientific research or rural development.
12. Section 80GGB: Contributions to political parties by companies.
13. Section 80GGC: Contributions to political parties by individuals (not eligible if

made in cash exceeding ₹2,000).
14. Section 80U: Deduction for persons with disabilities (₹1.25 lakh or ₹1.5 lakh,
depending on the severity).
15. Section 80DDB: Deduction for medical treatment of specified diseases (up to
₹40,000 or ₹1 lakh for senior citizens).
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These deductions help reduce the taxable income and, consequently, the tax liability.
Always check the latest provisions and limits, as tax laws can be updated.
The tax liability of individuals in India is determined based on their income, which is
classified into various categories under the Income Tax Act, 1961. Here’s an overview
of how individual tax liability is computed:
19. Tax Liability on Individuals
Income Classification
Income is classified into the following heads:
- Income from Salary: Includes basic salary, allowances, bonuses, etc.
- Income from House Property: Income from renting out property or deemed rent for self-
occupied property.
- Income from Business or Profession: Profits earned from a business or profession.
- Income from Capital Gains: Profits from the sale of capital assets like property, shares,
etc.
- Income from Other Sources: Includes interest income, dividends, lottery winnings, etc.
20. Calculation of Gross Total Income

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Add up income from all sources to get the Gross Total Income.
Taxable Income: After deductions, you get the Taxable Income. This is the amount on which
tax is calculated.
21. Tax Slabs and Rates
Tax is calculated based on the applicable tax slabs and rates. As of FY 2023-24, the income
tax slabs for individual taxpayers below 60 years are:
Old Regime Tax Slabs
- Up to ₹2.5 lakh: Nil
- ₹2.5 lakh to ₹5 lakh: 5%
- ₹5 lakh to ₹10 lakh: 10%
- Above ₹10 lakh: 30%
New Regime Tax Slabs (Optional)
- Up to ₹3 lakh: Nil
- ₹3 lakh to ₹6 lakh: 5%
- ₹6 lakh to ₹9 lakh: 10%

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- ₹9 lakh to ₹12 lakh: 15%
- ₹12 lakh to ₹15 lakh: 20%
- Above ₹15 lakh: 30%
Additional Cess: 4% Health and Education Cess is added on the total tax calculated.
22. Tax Calculation
Calculate the tax based on the slabs and add the cess. For instance:
- If taxable income is ₹12 lakh:
- Tax = (₹2.5 lakh * 5%) + (₹5 lakh * 10%) + (₹7 lakh * 30%)
- Tax = ₹12,500 + ₹50,000 + ₹2,10,000 = ₹2,72,500
- Add 4% cess on ₹2,72,500 = ₹10,900
- Total Tax = ₹2,72,500 + ₹10,900 = ₹2,83,400
23. Rebates and Reliefs
- Section 87A: Rebate up to ₹12,500 for individuals with taxable income up to ₹5 lakh.
- Section 89: Relief for salary arrears or pension received in a financial year.
24. Advance Tax and Self-Assessment Tax
Individuals need to pay taxes through advance tax (if their tax liability exceeds ₹10,000) and
self-assessment tax (if there is any additional tax liability at the time of filing the return).
25. Filing of Income Tax Return (ITR)
Individuals must file their income tax returns by the due date to report income, claim
deductions, and compute their tax liability.

20
Understanding these components helps in accurately calculating tax liability and ensures
compliance with tax regulations. For specific scenarios or updates to tax laws, consulting a
tax professional is recommended.
26. Permanent Account Number (PAN)
What is PAN?
- Permanent Account Number (PAN) is a unique 10-digit alphanumeric code issued by the
Income Tax Department of India.
- It serves as a universal identification key for taxpayers and is required for various financial
transactions.
Purpose of PAN
- Tax Identification: PAN is used to track all financial transactions and tax obligations of an
individual or entity.
- Tax Return Filing: PAN is mandatory for filing income tax returns (ITRs).
- Financial Transactions: Required for high-value transactions like purchasing property,

opening a bank account, or investing in stocks.
How to Obtain PAN
- Application: Apply for PAN through the Income Tax Department’s website, or through
authorized agents and centers.
- Documents Required: Proof of identity, proof of address, and a photograph.
- Due Date for Filing Income Tax Returns
Thus, PAN Card is a:
- Unique ID for taxpayers
- Required for filing returns and major financial transactions
Filing on Time Matters
- Avoid Penalties: Late filing may attract penalties and interest on unpaid taxes.
- Carry Forward Losses: Filing on time allows you to carry forward certain losses to future
years, which can be used to offset future tax liabilities.
21
Due Dates
The due dates for filing income tax returns (ITRs) in India vary based on the type of taxpayer
and the nature of their income. As of the latest updates:
1. For Individuals (below 60 years) and HUFs (Hindu Undivided Families):
- For FY (Financial Year) 2023-24:
- For individuals not required to get their accounts audited: The due date is July 31, 2024.
- For individuals required to get their accounts audited: The due date is September 30,
2024.
2. For Senior Citizens (60 years and above):
- For FY 2023-24:
- The due date is also July 31, 2024.
3. For Companies and Firms:
- For FY 2023-24:
- The due date for companies is generally September 30, 2024.
4. For Taxpayers under the presumptive taxation scheme (Section

44AD/44AE/44ADA):
- For FY 2023-24:
- The due date is October 31, 2024.
Extension of Due Dates
- Government Notifications: The government sometimes extends the due dates due to
various reasons (e.g., natural calamities, system upgrades, etc.). Always check for the latest
notifications from the Income Tax Department.
Filing Process
1. Gather Documents: Collect all relevant documents including Form 16/16A, bank
statements, proof of deductions, and any other income details.
22
2. Choose the Correct ITR Form: Based on your income sources and eligibility, select the
appropriate ITR form.
3. File Online: Most individuals file their returns online through the Income Tax
Department’s e-filing portal.
4. Verification: After filing, verify your return through e-Verification or by sending a physical
signed copy of ITR-V to CPC, Bengaluru.
Consequences of Late Filing
- Penalties: Late filing penalties under Section 234F can be up to ₹5,000.
- Interest: Interest under Sections 234A (for late filing), 234B (for underpayment of advance
tax), and 234C (for deferment of advance tax) may be applicable.
- Ineligible for Refund: You might not be eligible for a refund if the return is filed late.
By adhering to the due dates and maintaining PAN details, you can ensure smooth
compliance with tax regulations and avoid unnecessary penalties.
Why Timely Filing Matters?
- Avoid Penalties: Late filing can incur penalties and interest.
- Carry Forward Losses: Filing on time allows you to carry forward losses to future years.
Summary
1. PAN is crucial for tax filing and major financial transactions.
2. Due Dates vary based on the type of taxpayer and need to be adhered to avoid penalties
and ensure accurate tax filing.
3. Income Tax Return Due Dates:
- Regular Individuals: July 31
- Individuals with Audit: September 30
- Senior Citizens: July 31

23
- Companies: September 30
- Presumptive Scheme Taxpayers: October 31
27. Exempted Income Under the Income Tax Act, 1961
The Income Tax Act, 1961 of India provides certain types of income that are exempt from
tax. These exemptions reduce the taxable income and, therefore, the overall tax liability.
Here's an easy-to-understand explanation of some common types of exempted income:
1. Agricultural Income
- Income earned from agricultural activities like farming, gardening, etc.
- Exemption: Completely exempt from tax, provided it is genuinely derived from agricultural
activities.
2. Dividends from Indian Companies
- Income received as dividends from shares of Indian companies.
- Exemption: Tax-free up to ₹10 lakh per year. Beyond this, dividends are taxable.
3. Interest on Savings Accounts
-Interest earned from savings bank accounts.
- Exemption: Up to ₹10,000 under Section 80TTA for individuals below 60 years; up to

₹50,000 under Section 80TTB for senior citizens.
4. Long-Term Capital Gains (LTCG) from Equity Shares
- Profit from the sale of equity shares or units of equity-oriented mutual funds held for more
than one year.
- Exemption: Tax-free up to ₹1 lakh; beyond this, subject to 10% tax without indexation.
5. House Rent Allowance (HRA)

24
- Allowance received from an employer for renting a house.
- Exemption: Partial exemption based on the rent paid and the city of residence. Calculated
as the minimum of the following:
- Actual HRA received
- Rent paid minus 10% of basic salary
- 50% of basic salary for metro cities or 40% for non-metro cities.
6. Gratuity
- Payment received from an employer at the time of retirement or resignation.
- Exemption: Up to ₹20 lakh (for government employees, it is fully exempt).
7. Maturity Proceeds from Life Insurance Policies
- What is it?: Amount received from life insurance policies on maturity.
- Exemption: Fully exempt under Section 10(10D), provided the policy meets certain
conditions.
8. Income from Scholarships
- What is it?: Scholarships received for educational purposes.
- Exemption: Fully exempt from tax.
9. Compensation for Personal Injury
- What is it?: Compensation received for physical injury or damages to health.
- Exemption: Fully exempt from tax.
10. Rent Received by a Landlord for Property in a Special Economic Zone (SEZ)
- What is it?: Rent earned from property located in SEZs.

25
- Exemption: Fully exempt if the property is used for SEZ purposes.
Absolutely! Let’s break down e-filing in simpler terms:
What is E-Filing?
E-filing is a way to submit your tax return online using the internet. Instead of filling out
paper forms and mailing them to the tax office, you do everything electronically from your
computer or smartphone.
Merits of E-Filing
1. Convenience:
- Anytime, Anywhere: You can file your taxes anytime you want, as long as you have
internet access. No need to visit an office.
- No Paper Forms: You don’t have to print out forms or mail them. Everything is done
online.
2. Speed:
- Quick Processing: Your return is processed faster because it goes directly into the system.
- Instant Confirmation: As soon as you submit, you get a confirmation that your return was
received.
3. Accuracy:
- Fewer Mistakes: Online systems often help you avoid mistakes by checking your entries
and calculations automatically.
- Automatic Help: Software can guide you through the form and tell you what to fill in.
4. Record Keeping:
- Digital Copy: You get an electronic copy of your tax return, which is easy to save and find
later.

26
- Easy Access: You can access your past tax returns quickly without having to dig through
paperwork.
5. Cost-Effective:
- No Postage Costs: You save money because you don’t need to buy stamps or pay for
mailing.
- Less Expensive: Sometimes, it can be cheaper than hiring someone to file for you.
6. Eco-Friendly:
- Paperless: Since you’re not using paper, it’s better for the environment.
Demerits of E-Filing
1. Technical Problems:
- System Issues: Sometimes, the online system might have problems or be down.
- User Mistakes: If you’re not familiar with using the internet or the software, you might
make mistakes.
2. Internet Dependency:
- Connection Needed: You need a good internet connection to file your taxes online.
- Tech Skills: If you’re not comfortable with technology, it might be challenging.
3. Security Concerns:
- Data Safety: Your personal and financial information is online, so there’s a risk it could be
hacked or stolen if not properly protected.
- Privacy Risks: It’s important to use secure websites to avoid privacy issues.

27
4. Complexity for Some:
- Difficult Forms: Some forms might be hard to understand if you’re not familiar with tax
rules or the software.
- Technical Language: Instructions and help might be confusing for people who are not
tech-savvy.
5. Lack of Personal Help:
- No Face-to-Face Assistance: If you have questions or problems, you might not get the
immediate personal help you would if you went to an office.
Visual Summary
Imagine e-filing like this:
- Benefits: Think of it as using a convenient app on your phone to handle your taxes quickly,
saving paper and money, and getting fast feedback.
- Drawbacks: It’s like dealing with potential tech issues and needing to be careful about your
online security, plus not having a person to directly help you if you get stuck.
By using e-filing, you’re making the tax process easier and faster, but you need to be prepared
to handle some technical aspects and ensure your information stays safe online.

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Minor From Vocational MN2

Income Tax, Computation & Return Filing

1. Income tax Law

(1) Income-tax Act, 1961

(2) Annual Finance Acts

(3) Income-tax Rules, 1962

(4) Notification and Circulars, issued from time to time

(5) Judicial Decisions

1.1 Income-tax Act, 1961

1.2 Annual Finance Acts

1.3 Income-tax Rules, 1962

Prof. Snehal Goswami

1.4 Circulars and Notifications

1.5 Judicial Decisions

2. Charge of Income-tax: [Sec. 4]

(ii) The charge is on every person specified under section 2(31);

Prof. Snehal Goswami

3. Assessment year: [Sec. 2(9)]

4. Previous year: [Sec. 3]

5. Person: [Sec. 2(31)]

(ii) a Hindu Undivided Family (HUF),

(v) an Association of Persons (AoP) or a Body of Individuals (BoI), whether incorporated or

(vi) a local authority, and

As per Explanation to Sec. 2(31), an AoP/BoI/Local authority or any artificial juridical

6. Assessee: [Sec. 2(7)]

7. Certain Principles relating to Income under Income-tax Act

The following are the important principles relating to income:

8. Income: [Sec. 2(24)]

• Profits and gains;

9. Heads of Income: [Sec. 14]

(i) Salaries [Secs. 15 to 17]

(ii) Income from House Property [Secs. 22 to 27]

(iii) Profits and Gains of Business or Profession [Secs. 28 to 44DB]

(iv) Capital Gains [Secs. 45 to 55A]

(v) Income from Other Sources [Secs. 56 to 59]

10. Total Income and Computation of Tax Liability

1. Income from Salaries

Income from salary ……..

Add: Taxable allowances ……..

Add: Taxable perquisites ………

Gross Salary ……..

Less: Deductions u/s 16

– Entertainment allowance ……..

– Professional tax ……..

Taxable Income under the head ‘Salaries’ ……..

Prof. Snehal Goswami

2. Income from House Property

Net Annual Value ……..

Less: Deductions u/s 24 ……..

3. Profits and Gains of Business and Profession

Net profit as per Profit and Loss Account ……..

Amount of Capital gains u/s 48 ……..

Taxable Income under the head ‘Capital gains’ ……..

Prof. Snehal Goswami

5. Income from other sources

Gross income ……..

Less: Deductions u/s 57 ……..

Less: Adjustment of set off and carry forward of losses ……..

Gross Total Income ……..