INCOME TAX RULES AND EXEMPTIONS:-

1. CLASSIFICATION OF INCOMES:

(A)Income exempted from tax.

(B)Taxable income:-

(i)Casual incomes: It is taxed at a flat rate of 30 % (without giving basic

exemption).

(ii)Special incomes: It is taxed at a flat rate (Basic exemption is given)

Long term capital gain 20%

Short term capital gain 15%

(iii)Normal incomes: It is taxed on slab basis (Basic exemption is given)

2. BASIC EXEMPTION LIMIT OF INCOME (in Rs.)

PARTICULARS RESIDENT NON-RESIDENT

NON-SENIOR CITIZEN Rs., 2,50,000 Rs., 2,50,000

SENIOR CITIZEN Rs., 3,00,000 Rs., 2,50,000

SUPER SENIOR CITIZEN Rs., 5,00,000 Rs., 2,50,000

3. Elements of Tax liability:

For the Assessment year 2024-25, tax liability of an “Individual: is in three elements.

(a)Income tax

(b)Surcharge

(c )Health & Education Cess.

Note: (i) Basic Income Tax (+) Surcharge = Total Income Tax.

(ii) Total Income Tax (+) Health and education cess = Tax Liability (

Health and Education cess @4% shall be calculated on Total Income Tax.
If surcharge is not there then the cess is calculated on total income tax.)

(iii) Tax due /Refund = Tax Liability (-) Tax deducted at source (T.D.S) (-)

Advance tax paid.

[Link] of Surcharge:

Surcharge means additional tax. It is levied on basic income tax, hence surcharge is

defined as tax on tax.

(a) If the total income of an individual exceeds rupees Rs.50Lakhs upto 1 Crore in a

year, then surcharge is levied @10%.

(b) If the total income exceeds Rs.1 crore but up to 2 crores in a year, then surcharge

is levied @ 15%.

(c) If the total income exceeds Rs.2 crores but upto Rs.5 crores in a year, then

surcharge is levied @25%.

(d) If the total income exceeds Rs.5 Crores in a year, then surcharge is levied @ 37%

on basic income tax.

(Note: If the total income is exactly Rs.50, 00,000 then surcharge is not levied.)

Special Note: Surcharge is calculated before health and education cess.

5. Health and Education Cess: Cess is a form of additional tax levied by the

Government of India in order to facilitate health and education and its related facilities

in India. It is collected by the Government of India. Under this policy this cess is used

to fund books, midday meals and other essentials to students who cannot afford the

same. The rate of Health and Education cess is 4% on Income tax and surcharge.

(Note: Charging Health and Education cess is statutory)

[Link] Rebate U/S 87A: Tax Rebate means concession in tax payment. Tax rebate is

allowed to lower income persons. The maximum rebate under section87A for the AY
2024-2025 is Rs.25,000.

Rebate amount: Least of the following two amounts.

(a) Actual Income Tax

(b) Rs.25,000.

7. Types of tax rates:- The rates of income tax are of two types:

(a)Flat rate:- Under this method the entire income is taxed with one rate. The

following incomes are taxed at flat rate.

(i)Casual Income is taxed at a flat rate of 30%.

(ii) Short term capital gain arising on account of transfer of equity shares and units of

equity oriented mutual funds is taxed at flat rate of 15%.

(iii) Long term capital gain on other assets (other than shares and units of mutual

funds etc.,) is taxed at a flat rate of 20%.

Special note:-In all above cases assessee has to pay Surcharge, plus Health and

education cess.

(b)Slab Rate:- Under this, taxable income is divided into different parts known as

“slab” and each part or slab of income is taxed with different rate of tax.

(c) Tax for casual income:- Incomes may come on account of services rendered

or from an asset or from an investment or from any economic activity or from an

element of chance.

If income is earned due to an element of chance then such income is known as casual

income. Income from horse races, winning from lotteries, crossword puzzles, card

games or gambling or betting, winning from T.V programmes or lucky dips

conducted by business .These incomes are taxed at a flat rate of 30%. [Plus surcharge

and (+) health and education cess].

Special note:-For tax on casual income no rebate is allowed.

(d)Tax for special incomes:- Special Incomes are taxed at concessional or lower

rates tax, these incomes are taxed at a flat rate. While calculating tax the assessee is

allowed the basic exemption of income. These incomes are :

(i) Short term capital gain on transfer of securities and units of mutual funds.

(ii) Long term capital gain on other assets.

(iii) Long term capital gain on other assets – It is taxed at a flat rate of 20% i.e. this

income is not clubbed with the income from other heads.

(e)TAX FOR NORMAL INCOME:- An income which cannot be treated as casual

income or special income is considered as normal income. For normal income basic

exemption is given.

The aggregate of all heads of income (except long term capital gain on other

assets short term capital gain on shares or units of mutual funds) is taxed on “Slab

basis”.

The tax rates applicable to an assessee whose status is an “Individual” for the

Assessment year 2024-25 are as :

[Link] the case of Resident “Non-Senior citizen”(Whose age is below 60years)

INCOME IN Rs., TAX RATE

First 2,50,000 NIL

2,50,001 to 5,00,000 5%

5,00,001 to 10,00,000 20%

10,00,001 and above 30%

[Link] case of Resident “ Senior citizen”(Whose age is 60 or more but less than

80 years)
 INCOME IN Rs., TAX RATE

First 3,00,000 NIL

3,00,001 to 5,00,000 5%

5,00,001 to 10,00,000 20%

10,00,001 and above 30%

[Link] case of Resident “Super senior citizen”(Whose age is more than 80 Years)
INCOME IN Rs., TAX RATE

First 5,00,000 NIL

5,00,001 to 10,,00,000 20%

10,00,001 and above 30%

NOTE :- If needed details are not given in the problem then make an assumption as
suggested below.
MISSING INFORMATION ASSUMPTION

Nature of Income (Casual /special/normal) NORMAL

Residential status (Resident /Non- Resident) RESIDENT

Age of person (Senior/Super senior/Non-Senior) NON-SENIOR

Place of income (India or Foreign country) In INDIA

COMPUTATION OF TOTAL INCOME AND TAX LIABILITY

[Link] INCOME = Gross Total Income (-) Deductions U/S 80C to

80U.

[Link] TOTAL INCOME = Income from salary (+) Income from House

property (+) Income from Business/Profession (+) Income from Capital Gain
(+) Income from other sources (+) Income under the provisions of clubbing (-)

Set off of losses.

Important terms:-

(i)Tax liability: Amount payable by an assessee to the Income Tax Department

on taxable income of a previous year is known as “TAX LIABILITY”. (ii)Tax

due: Net amount payable by an assessee to the Income Tax