Assessment Year [Sec 2(9)] (A.Y.

•
Assessp,ent year is defined as "th )
on 31st March every year". e Period of twelve months starting from 1st of April and ending
The Income of the previous
assessmentyear1s2024 _25 . year is assessed to tax In the assessment year. The present
A financial year means the
the accounting year of the G period of l2 months from 1st April to the following 31st March. This is
taxed In the next financial ovemment. The income earned by a person during one financial year is
next year in which the . year. The year in which the Income Is earned Is called -previous year ~nd the
during the financial •ncom~ 1s taxed is called assessment year. Thus the total income of a person
year) _ _ year (previous year) 2023-24 will be taxed In the next financial year (assessment
2024 2025

Previous Year [Sec 3) (P.Y.) .

Previous year is the financial year immediately preceding the assessment year. In other·words,
the year in which income is earned is known as previous year. The previous year for the assessment
year 2024-25 is 2023-24 ..
Note: The previous year in case of newly setup business shall be reckoned from the date of setting
up of the business and end with. the said financial
.
year.
.
•
1. Previous Year of Continuing Source of Income: In case of continuing source of income
whether salary, business/profession, House property etc. the previous year is the financial year
immediatelyprecedlngtheassessmentyear(l .4.2023to31.3.2024).
2. Previous of New Source of Income: It may so happen that a new busin~ or profession ls set
up or a new source of income com~s into existence in any financial year. In such a case, its first
previous year will be the period beginning with the date of setting up new business or profession or
the date on which the new sources of income comes into existence and ending on the 31st March
next of that financial year. •

Person [Sec. 2(31)]

The term •personn includes ~e following:
1. An Individual: It means a natural person or human being, who may be male, female, minor, child
ora lunatic.
2. A Hindu Undivided Family (HUF): It means a Hindu family which conslsts all persons lineally
descended from common ancestor indudtng their wives and unmarried daughters.
3. A Company: It may be defined as an artificial person created by law, whether Indian or foreign,
public or private, otherwise deemed as company. .
4. A Firm: It means a partnership firm which is defined und~r Partnership Act.
s. An Association of Persons (AOP): It means a group of persons who have come together for a
joint venture for the purpose of earning income. It consist two or more persons. But, A body of
 tndtvtduals (B01) means a group of Individuals who Jointly share an Income, lrresPetti
whetherthelr tttle and Interest Is dlvlslble or not. The BOI will consist oftwo or more individuai"~ or
6. A Local Authority: It Includes muntclpallty, municipal corporations, district board etc. s.
7. An Artlflclal Jurldlcal Person: A public corporation which Is establl~h~ under SPecial A
legislature. For example: Idols of gods and goddesses or deities, universities, UC, a Bar C ct of
etc. ouncu

Assessee [Sec. 2(7)]

1. An assessee Is a person:
(a) who Is liable to pay any tax; or
(b) who ls Hable to pay any other sum of money under this Act (interest, fine or penalty); or
(c) in respect of whom any proceeding under this Act has been ~ken for assessment of h
income; . ls
( d) in respect of whom any proceeding under this Act has been ta~en for assessment of th
income of any other person in respect of which he is assessable or ' e
( e) in respect of whom any proceeding under this Act has been taken for the· assessment of
10
sustained by him orby such other person; or • ss
(f) in respect of whom any proceeding under this Act has been taken for the amount of refund
due to him orto such other:person. • .
2. Deemed Assessee: A person who Is deemed to be an assessee for some other person is called
'Deemed Assessee~. It includes legal representatives, agent of a non-resident , guardian or
manager of an infant and lunatic, trustees and administrato rs etc. In other words a person who is
liable to pay tax not only his own income [Link] the income acaued to a_nother.
3. Assessee in Default: When a person is responsible for deducting tax at source under the Act and
he fails to do it, he is called "Assessee in Default". For instance, if the employer fail to deduct tax at
source from salary income of the er:nployee and pay the same to government within the specified
time limit, employer shall be con~idered as deemed to be an assessee in default.

Assessm ent
Assessment indudes computation of taxable income and tax liability as per the provisions of the
Income Tax Act.

Income (Sec. 2(24)] •

Income is a periodical monetary return, which comes to a person during a fixed period of time. The
te~•income •indudesth~ following:
1. Profits and Gains of business.
2. Dividends.
3. Voluntary Contribution s received by a Trust or an Institutions.
4. Perquisites or profits in lieu of salary.
5. Any special allowanc~s.
6. Other allowances.
7. Value of any benefits.
8. [Link] paid byth~compa ny in the interest of the assessee.
9. Any profits on sale of a license granted under the Import Control Order of 1955.
10. Any .cash assistance received from government of India.
11. Any ~uty or excise against .exports to be received.
f1l the
12. Any interest, salary, bonus, commission or remuneratio n due or received by a partner
fro
firm.
13. Any Capital Gains.
14. Insurance profit. .
15. Any_incomefrom other sources.
f uch
16. Any sum received under a Keyman Insurance Policy including the sum by way of 0 5
bonus
policies.
 :3
u 1( [Link]
ln tro du (·t io n to Itl r·o
~-
1

Diversion of In co m e sessee, It
. .
,s o,v ers
•
,on
f
°
Where by an oble. lig af . before ft reaches the as
d no t tax ab •on, •f income Is diverted
income an
I

n of In co m e
I

Essentials of A pp lic at io
I
I
Assessee.
l. Inc om e accrues to the I

2 • Inc om e reaches the Assessee.

I
I
.
discharge an obligation
3. In co ~e is applied to
taxable.
4. Such rncome is fully
) (Sec. 14]
Gross T ot al In co m e (GTI of the incomes compute
d un de r various heads
of inc om e
the aggregate BOC to BOU.
~r os s Total Inc om e is x Ac t be for e ma king an y deduction u/s
s ofthe Inc om e Ta
accordrng to the provision it includes: •
Gross Total Income and
Section 14 deals wi th the ies.
1) Inc om e fro m Salar
Ho us e Property.
2) Inc om e from n.
of siness or Professio
Bu
3) Profits and Gains
al Gains.
4) Inc om e from Capit
r Sources.
5) Inc om e from Ot he
•
T ot al In co m e [Sec. 5] e aft er making deductions U/
5 BOC to BOU.
ssee is Gross Total Incom
Total income of an asse
is
Casual In co m e It is un an tic ipa ted , it
inc om e. if it contains the following features: to ea rn su ch
sual ecific eff or ts were pu t
in
An income becomes ca 1
unknown source, No sp
tur e, it arises fro m an
•non-recurring in na
income.
For example: y/Horse race.
(i) Winning from lotter mes.
word pu_zzles and card ga
(ii) Winning from cross
drivers.
(iii ) Tips given to tax i
er, in case of
Tax tre atm en t: head incom e fro m ot he r sources. Furth
ly taxable unde r the exceeding f
Casual incomes are ful ceeding t 10 ,00 0 an d winnings fro m races
, crossword puzzles ex
winnings from lotteries • •
at3 0% .
10 ,00 0a re su bje ctt oT DS
en t Year 2024-25
Rate of T ax fo r A ss es sm Artificial Pe rs on s
ua ls, HUF, AOP, SO I &
Tax Ra te fo r an y In di vid
Ex is tin g Ta x Regime: ho is below 60 years) an y no
n- re sid en t ind ivi du I •
a, every
individual (W
1. For an y oth er resident ridicalperson: '
HUF/AOP/BO1/attificialju
I

MODULE

In tro du ct io n .
• tim e dun ng the ~-Y.
The pro fit/ gai ns fro m bus·mess ?r Profession carried on by the assessee at any
are assessed to tax und th pro fits or gains
inc om e from bus iness or profession. Further, the
shall be com ute d er e hea d assessee. Again, if
rd tho d of acc oun ting regularly employed by the
acco ing to the me poi nt of vie w, such
th p fit & 1P ed by the ass ess ee is not computed from income tax
oss acc oun t pre par the cor rec t tax abl e
e ro
ed fro m inc om e tax poi nt of view, In order to ascertain
account ha~ to be adj ust or profession.
profits or gains fro m business d the me ani ng
ion s of Sec tions 28 to 44, it is imp ort ant to understan
Before kno ~in g the tax pro vis m business or
sio n, Voc ation and for ma t for computing taxable income fro
of the ter ms Business, Profes • ,
profession.
Bu sin es s [S ec tio n 2(1 3)] any tra de, com me rce
n 2( 13) of the Inc om e Tax Act, the term Business means
According to Se ctio nuf act ure .
ent ure or con cern in the nat ure of trade, commerce or ma
or ma nuf act ure or an y adv
Pr of es sio n [S ec tio n 2(3 6)] , where inte llec tua l ski ll and
6) Pro fes sion refers to an occupation
According to Se ctio n 2(3 Lawyer, Doctor, Au dit or are
ise in a spe cifi ed fiel d is acq uired for earning a livelihood.
technical expert ludes Vocation.
fession. Further, Profession inc
the some of the examples of Pro of his tim e to acquire
y upo n wh ich a person spends the ma jor por tion
Vocation means an act ivit ute the voc atio n of
ma kes his livin g. Mu sic, Dancing, Writing books etc. con stit
skills and ou t of which he
an assessee.
bl e In co m e fro m Bu sin es s
Fo rm at of Co m pu ta tio n Ta xa able Inc om e fro m Business
Fo rm at of Computation Tax

XXX
/c
Net Profit or Loss as per P& LA XXX
es deb ited to P & LA /c
Add: 1. Inadmissible expens XXX
toP &L A/c .
2. Bu sin ess inc om eno tcr edi ted XXX
ck
3. Overvaluation of opening sto XXX
ck
4. Undervaluation of closing sto
XXX XXX
5. Notional los s*
XXX
ited to P& L A/c XXX
less: 1. Admissible expenses not deb
P/L account XXX
2. Tax-free incomes credited to
d to P& LA /c
3. Non-Business Income credite
XXX
~ Prof its and Gain s of I~us iness and Prol'
• . ,
.l~Ss1oi1
4. Unde rvalu ation of open ing stock •
XXX
S. Over valua tion of closin g stock XXX
6. Notio nal profi t*
XXX
Taxa ble Inco me from Busi ness xxx
I
*Note : 1. No perso n can make profit by tradin g with
hims elf In anoth er capac ity. For instanc . >0cl(
amou nt of sales , which is credi ted to Profi t & Loss
acco unt, includ es a sum of t e, if the
repre senti ng the value of good s withd rawn for the use
of asses see's famil y membe~O,oo?
these good s were purch ased at a cost of, 10,00 0, there
is notio nal profi t to the ext aod if
10,00 0 (20,0 00 - 10,00 0) and this profi t shou ld be dedu
cted from net profit , as tax i=~t ~f ~
on real profit s but not notio nal profit s. On the othe r hand
, if there is a notio nal loss it ~vied
adde d back to the net profit .
' s 0 utd
2. Inste ad of net profit , if net loss is given In the probl em,
the abov e rules shafl be reversed.
items to be adde d shall be dedu cted and those to be dedu
cted shall be adde d. • i.e.,
Tax Trea tmen t
Ina dmi ssib le Exp ens es
Inadm issibl e expe nses are those expe nses, which are
not allow ed unde r the Act. If such expense
are de~it ed to Profi t & Loss acco unt by the asses see,
they shou ld be adde d back to the net profit
Follow mg are some of the exam ples of inadm issibl e expe
nses: •
1. Family plann ing expe nses.
2. Fines and pena lties
3. Fring e bene fit tax.
4. Inter est on capit al.
5. Illega l expe nses.
6. Lega l expe nses to acqu ire a title orto cure a defec t in the
assessee's title of asset s.
7. Loss from disco ntinu ed busin ess.
8. Gifts and prese nts(n on publi city).
9. GST, custo m duty, local taxes of the prem ises used for
busin ess not paid on or befor e the due date.
10. Any busin ess expe nse paid in cash excee ding
, 10,00 0, 1000/o of such paym ent shall be
disall owed . (The mone tary limit of, 10,00 0 has been
raise d to, 35,00 0 in the case of payment
made for plyin g, hiring or leasin g good s carria ges.)
11. Salar y or inter est on loan paya ble outsi de India witho
utTD S.
12. Spec ulatio n losse s.
13. Bad debts still recov erabl e.
14. Bette rmen t charg es paid to corpo ration unde rTown
Plann ing Act.
15. Empl oyer' s contr ibutio n to the provi dent fund not
paid on or befor e the due date of filing returns.
16. Expe nses relati ng to other head s of incom e like muni
cipal taxes of hous e prope rty let out.
17. Excess depre ciatio n.
18. Expe nses incur red to earn tax-f ree incom es like
cultiv ation expen ses.
19. Exce ssive and unrea sona ble paym ents ( relate d to
busin ess) made to the relatives. rnent of
20. Direc t taxes like incom e tax, adva nce incom e
tax, intere st on loan taken for the paY
incom e tax etc.
21. Differ ence· in trial balan ce.
22. Capit al losse s like loss on sale of mach inery , loss
on sale of car etc.
23. Char ities and dona tions . rd
24. Capit al expe nses like purch ase of mach inery , exten ent sign b0 a
sion of build ing, Cost of perman
fixed in the office prem ises.
 o f B us i n<~~s
: . J>i·oflt~ .in d (i.:ii ns
''"
"'f,
fw el fa te fu nd .
_ co nt rib ut io n to st af ut io n.
25 co gn ize d fu nd co nt rib
• un ap pr ov ed or un re pu rc ha se d:
2·6 s/ Te ch ~l ~I kn ow -h ow nt s I co py rig ht s / Tech
nfcal know-how
. Pa te nt s/ co py rig ht 32 @ 25 % fo r Pa te
27 precratron U/ S
As5essee ca n cla im de ev io us year. m em be r
purchased du rin g th e pr
ra nc e pr em iu m pa id on ow n life or an y
l In su bonus
na l ex pe ns es or losses lik e Li fe / m ed ica PP F, Pr op rie to r's salarv, Proprietor
Pe rso In NSS, NS C, expenses , 0;
28• of assessee's fa mi ly, Am ou nt In ve st ed fo r self, ca su al he lp, ho us e ho ld exp~nses,
sid en ce , re nt pa id _
Drawings, th ef t fro m re
rty et c.
arranging pe rs on al pa t
mi na ry ex pe ns es : e pr ep ar at io n of fe as i~ ilit y re po rt, pr oj ec
Pr eli la tin g to th ess) or 50 ~ of
29 es (i. e. , ex pe ns es re in g to assessee's busin
• Preliminary expens y ot ~e r su rv ey ":f at d of fiv e years
ke t su rv ey ~r an lm en ts ov er th e pe rio
report, co nd uc tin g m ~r ctr ble In eq ua l in st al
rch ev er les s, rs de du ex pe ns es we re inc ur re
d.
cost of th e pr oj ec t, wh us ye ar In wh ich su ch l de bt s et c.
pr ev io on fo r ba d an d do ub tfu
commencing fro m th e fu tu re los se s, Pr ov isi
lik e Reserve fo r
Provisions an d re se rv es
30. _
m pl es o f B u si n es s In co ~ es su ch in co m es sh ou ld
be ad de d to
E xa it an d los s ac co un t,
ar e so m e of th e
e no t cr ed ite d to pr of m bu sin es s. Fo llo wi ng
If business inc om es ar e he ad In co m e fro
e ta xa bl e un de r th
net profit, to ge t inc om
om es :
examples of business inc
plo ye es .
1. Rent received fro m em .
fo r de la ye d pa ym en ts
2. In te re st fro m de bt or s
license.
3. Pr of ito n sale of im po rt ce ive d.
mm iss ion I su nd ry re ce ip ts I Di sc ou nt re
4. Sa le s/ Co m e of
s. Speculation incomes .
ss ee ag ai ns t ex po rts . un de r an y sc he
ive d by th e asse
6. ca sh assistance re ce
ex po rt inc en tiv es .
Go ve rn me nt ofIn di a or de du ct io n.
e du tie s re co ve re d bu t ea rli er al lo we d as
7. Custom/excis
go ne by th e cr ed ito r.
8. Amo_unt of lia bil ity fo re
t al lo we d earlier.
9. Bad debts recovered bu

A dm is si bl e E xp en se s , wh ich ar e al lo we d un de r th e Ac t. If su ch
ex pe ns es ar e
ng ar e so m e
e th os e ex pe ns es th e ne t pr of it. Fo llo wi
Admissi~le expenses ar ou ld be de du ct ed fro m
t by th e assessee, it sh
not debited to P/L accoun ssible ex pe ns es : po liti ca l
of the examples of admi t gi ve n in m ag az in es or so uv en ir of a
en
Advertisements exe) penses. (A dv er tis em •
1.
pa rty is inadmissibl .
2. Auditfees.
3. Bank commission.
4. Bad debts.
5. Bank cash transaction ta x. ur ce s.
d I d og ra m an d co ns er va tio n of na tu ra l re so
6. Contribution to war: s ru ra ev el op m en t pr •
7. cOst ut Co st of pu cc a we ll is in ad m iss ib le ). •
ll (b
of ~a ch a well, bonretawe
8. Commo drty transactio x.
ays.
9. D~murrage paid to railw
10 . s as pe r IT Ac t.
D1scou~t ~nd allowance
11. Deprecratton allowable
12. Establishment expense~
13 . Expenditure on • ho m e fa cil ity .
guest ho us e or ho lid ay
 14. Elect ricity bill/la nd reven ue/re pairs /Fire Insurance prem
ium/r ent of the premises, Which .
used for busin ess. 15
15. Enter talnm entex pens es.
16. Expe nditu re on camp aign again st natio naliza tion.
17. Expe nditu re on scien tific resea rch. (Exis ting Tax
Regi me)
(I) Revenue expe nditu re on resea rch carrie d on by the asses
resea rch relate s to the assessee's busin ess. see is fully deductible "f
1
• ' such
(ii) Capit al expe nditu re on resea rch carrie d on by
the assessee is fully deductible 'f
resea rch relate s to the assessee's busin ess. Dedu ction
is availa ble even if the'~ suc_h
not put Into use for resea rch by the assessee durin g the
previ ous year. sset 1s
(iii) Cont ributi on to an appro ved unive rsity, colleg e or
other Instit ution s for the purpo
resea rch in socia l science or statis tical resea rch is dedu
ctible at the rate of
actua l contr ibutio n. [35(1 )(iii)] 100~ of
of
(iv) Cont ributi on to natio nal labor atory Is dedu ctible
at the rate of 100% of actual
contr ibutio n. [35(2 AA)]
(v) Cont ributi on to appro ved resea rch assoc iation
, appro ved university/college/othe
Instit ution s is dedu ctible at the 100 perce nt of actua l contr
ibutio n. [35(1 )(ii)] r
(vi) Cont ributi on to a comp any to be used by such comp
any in scien tific research under
Secti on 35(1 )(il)/( iia) a Dedu ction of 100% is availa ble.
Unde r Alte matl ve Tax Regi me Dedu ction for scien
tific researc;h unde r Section 35(1)(ii)/(iia)/
(iii), 35(2A A) isBloc ked.
18. Festi val expe nses. {

19. Gene ral expe nses.

20. Gifts and prese nts not made in perso nal capac ity.
21. Incom e tax expe nses. (IT proce eding expen ses, expen
ses on filing IT return s)
22. Loss of stock due to theft by an empl oyee .
23. Lega l expe nses for filing incom e tax appe al.
24. Lega l expe nses to defen d an existi ng title to a capita
l assets.
25. Muni cipal taxes of quart ers let out to empl oyee s
and other expen ses incur red according to
the provi sions of law.
26. Posta ge and teleg rams .
27. Printi ng and statio nary.
28. Profe ssion al tax paid.
29 .. Railway freig ht and octro i expen ses.
30. Servi ces charg es.
31. Subs cripti on to a trade or profe ssion ~I assoc iation .
32. Salar ies/w ages /perq uisite s/allo wanc es to emplo yees.
33. Staff welfa re expenses·.
• 34. Secu rity trans actio n tax .
35. Tour name nt expe nses. 't
36. Telep hone insta llatio n charg es unde r OYT schem e.
37. Trave ling expe nses relate d to busin ess.
38. Train ing expen sesr
39. Welfa re expe nses.

Tax Fre e Inc ome s

h incomes should be
If incom es which are exem pted from tax, are eredite d to P/L account, sue
dedu cted from ~et profi t, to get incom e taxab le unde d. from business. Follow,•ng are
r the hea incom e
some of the exam ples of tax free incom es:
( > ITR 579 (Allahabad),
1. Dharm ada, mand ir and gaush ala receip ts (CIT vs. Chann oo Lal Oas, 1978 , 113
2. Refu nd from UC.
3. Withd rawl from PPF.
 .Prof it~ and Gain s of Bufii n~~s and Prof essi~ n

4. Inter est from PO savings bank account.

s. Incom e tax refund.
6. Gift from fathe r/rela tives.
1. custo m duty/ excis e duty recovered but disallowed earlier.
8. Agric ultura l Incom e.
9. Bad debts recovered but disallowed earlier.
and Gain s of busl
Business Inco me not taxa ble unde r the head Profi ts nea or Profession:
1. Rental incom e in the case of deale r in prope rty.
2. Dividend on shares in the case of a deale r in shares.
3. Winnings from lotter ies etc.
ion.
4. Inter est received on comp ensa tion or enhanced compensat

Spe cula tive Tra nsa ctio n [Se ctio n 34 (5)] .

fluctu ation s in prices of securities or
speculative trans actio n is one wher e profit Is earne d by
commodities.
Example of Adm issib le or Ina dmi ssib le Exp ens es
Admissible
1. Sales tax paid durin g the year? 15,00 0
Inadm issibl e
2. Intere st on capital t' 5,000
Inadm issibl e
3. Donation to political party , 10,00 0
Admissible
4. Loss dueto theftt ' 20,00 0
Inadm issibl e
s. Life insurance prem ium t' 3,000 Inadm issibl e
6. Income tax paid t' 20,00 0
t' 30,00 0 Admissible
7. Outstanding sales tax of previ ous years paid durin g the year
Inadm issibl e
s. Interest paid on loan taken for daug hter's marriage t' 10,00 0
goods
9. Penalty paid to custo m autho rities for impo rting prohi bited Inadm issibl e
from Australia t' 1,80, 000
ions
10. Loss off 1,20, 000 snatched away from the cashiers posit Admissible
while going to Bank to depo sit the amou nt
Admissible
11. Brokerage paid for raising a loan off 10,00 ,000
Admissible
12. Commission oft' 50,00 0 paid to secur e a business order
prem ature
13. Compensation oft' 2,00, 000 paid to an empl oyee for Admissible
termination of his service
Example:
ssible/inadmissible:
State with reasons wheth er the follow ing expenses are admi
1. Travelling expenses include a sum oft' 15,00 0 incur red by a direc tor for travelling abroa
d for

negotiating the purchase of plant and mach inery .

red by a direc tor for travelling abroad for
Ans: Travelling expenses include a sum off ·1s,ooo incur
al expe nditu re, hence disallowed.
negotiating the purchase of plant and mach inery is a capit
2
• Amount paid to the union leade r to call off the strike .
will be disall owed as it is paid again5t public
Ans: Am~unt paid to the union leade r to call off the strike '
pohcy.