INCOME: - SECTION 2(24)

it may be periodical monetary payments received from one person to another coming in with some
sort of regularity from a definite source.

"Income" is a broad term that generally refers to money or its equivalent that an individual,
business, or entity receives over a certain period, typically as a result of work, investment, or other
sources.

Income not only includes what is explicitly listed in sec 2(24) but also includes those things that the
term income signifies in its general meaning.

Items listed in sec 2(24)

1) Profits and gains

2) Dividends
3) Voluntary Donations received by institutions
4) Value of perquisite
5) Special allowances taxable under sec 17
6) Salary

GROSS TOTAL INCOME section 80b (5) / 5 HEADS OF INCOME TAX: -

1) Income from Salaries

2) Income from House or property
3) Income from business or profession
4) Income from capital gains
5) Income from other sources

TOTAL INCOME SECTION 2(45)

total income means the amount left after making the deductions under section 80C to 80U from the
gross total income.

CASUAL INCOME Any receipt which is of a casual and non-recurring nature is called casual income.

• Lottery winnings
• Winning from races
• Winning from gambling, betting etc.
• Winning from card games or any other games. Etc.
 NORMAL INCOME SPECIAL INCOME
Any receipts which is recurring in nature. 1) Casual income
Includes all 5 heads of income tax 2) Long term capital gains
1) Salaries 3) Long term capital gains on equity
2) Income from house or property
3) Income from business or profession
4) Income from capital gains
5) Income from other sources

SPECIAL INCOME FLAT RATES

1) Casual income: - 30%

2) L.T.C.G on other assets: - 20%
3) L.T.C.G on equity shares (exempted): - nil
4) Short term capital gains on shares (listed shares): - 15%
5) L.T.C.G on listed shares u/s 112 A: - 10%

Note: - short term capital gains come under normal income and all other assets which does not
come under special income comes under normal income. Except for shares

ASSESSMENT YEAR SECTION 2(9)

It refers to the period starting from April 1 and ending on march 31 of the next year. Income of the
previous year of the assessee is taxed in the assessment year.

PREVIOUS YEAR SECTION 3

The year in which the income is earned is referred to as previous year. The year immediately
preceding the assessment year is known as previous year.

Exceptions to the general rule that previous year’s income is taxable during the assessment year

In the following situations income of an assessee is liable to be assessed to tax in the same year in
which he earns the income:

a. Income of non-residents from shipping;

b. Income of persons leaving India either permanently or for a long period of time;
 c. Income of bodies formed for short duration;

d. Income of a person trying to alienate his assets with a view to avoiding payment of tax;

e. Income of a discontinued business.

Person: Section 2(31)

The term “person” includes:

1) An individual
2) Hindu undivided family (HUF)
3) Company
4) Firm
5) An association of persons or a body of individuals, whether incorporated or not
6) A local authority
7) Every artificial juridical person not falling with in any of the preceding categories.

Assessee: Section 2(7)

The term assessee refers to any person or entity that is subject to assessment under the Income Tax
Act, 1961. The assessee is the person or entity who is liable to pay any tax, interest, penalty, or other
sum of money under the provisions of the Act.

Types of assessee: -
1) Deemed Assessee: A person who is deemed to be an assessee for some other person is
called “Deemed Assessee”.
2) Assessee in default: If a person or entity fails to comply with tax obligations, such as
deducting tax at source or paying taxes on time, they can be treated as an "assessee-in-
default."
3) Assessee ordinary: An "ordinary assessee" refers to a taxpayer who is subject to taxation
under the normal provisions of the Income Tax Act, 1961.

CATEGORIES FOR INDIVIDUAL ASSESSEE (OLD REGIME)

1) Below 60 years of age (normal person)
 2) Above 60 years of age (senior person)

3) Above 80 years of age (super senior person)

NEW RIGIME section 115 BAC all individuals, HUF or association of persons
(other than cooperative society), or body of individuals, whether incorporated or not or an
artificial juridical person are taxed based on this slab rate regardless of their age.
SURCHARGE
It is an additional tax levied on the tax amount due if his or her total income is over 50 lakhs
1) DOES NOT EXCEED 50L: - NIL
2) 50L TO 1 CR : - 10%
3) 1CR TO 2CR : - 15%
4) 2CR TO 5CR : - 25%
5) 5CR+ : - 37%

HEALTH AND EDUCATION CESS

It is also an additional tax levied compulsorily on the total tax amount, it collected to meet
the educational and health expenditures of the country @4%.
TAX LIABILITY = GROSS INCOME – DEDUCTIONS + TAX ON SPECIAL INCOMES +
SURCHARGE + CESS
REBATE SECTION 87A OLD REGIME
Incase the total income of an individual does not exceed 5,00,000 a rebate shall be allowed
out of tax as under:
1) Rs 12,500
2) Tax calculated on total income as per prescribed rates, whichever is less.

REBATE NEW REGIME

Rebate shall be allowed to these individuals assesses whose total income does not exceed rs
7,00,000 p.a.
1) Rs 25,000
2) Tax calculated on total income as per prescribed rates whichever is less.

Note: - rebate is allowed only to individuals who are residents of India.

CAPITAL & REVENUE RECEITPS AND EXPENDITURE
RESIDENTIAL STATUS of individual section 6(1)
an individual is said to be a resident of India if they satisfy any one of the basic conditions.
And If an individual fails to satisfy both the conditions he is a non-resident.

Exceptions to Residential Status

- In the event an individual who is a citizen of India leaves India as a member of the
crew of an Indian ship or for the purpose of employment during the FY, he will
qualify as a resident of India only if he stays in India for 182 days or more in the P.Y
- Indian citizen or person of Indian origin who stays outside India comes on a visit to
India during the relevant previous year. However, such a person having a total
income, other than the income from foreign sources which exceeds Rs.15 lakhs
during the previous year will be treated as a resident in India if –
o he stays in India during the relevant previous year for 182 days or more in the
P.Y, or
o he stayed in India for 365 days or more during the previous 4 years and has
been in India for at least 120 days in the previous year.

ADDITIONAL CONDITIONS SECTION 6(6) A&B

A) Assessee should be there in India for at least 2 out of 10 years immediately
preceding the relevant previous year [ sec 6(6) a].
B) Assessee should stay in India for 730 days in 7 years immediately preceding the
relevant previous year. [ sec 6(6) b].
An assess who satisfies both the conditions is said to be a ordinary resident and if an
assessee does not satisfy any one or none of the conditions he is a non- ordinary resident.
RESIDENTIAL STATUS of HUF section 6(2)

RESIDENTIAL STATUS of Other persons section 6(2)

RESIDENTIAL STATUS of company section 6(3)
RESIDENTIAL STATUS of artificial juridical person section 6(4)

AGRICULTURAL INCOME SECTION 10(1)

Section 10(1) of income tax act 1961 provides that agricultural income is exempted from
tax. The following conditions are to be satisfied to treat an income as agricultural income: -
1) Land be situated in India
2) Land should be used for agricultural purpose
3) Rents or revenue to be received from such land used for agricultural purpose.

Examples of agricultural income

1) Rent or other revenue from agricultural land
2) Income from sale of trees
3) Income from growing flowers
4) Income from land used for grazing etc.

Examples of incomes related to agriculture but not treated as agricultural income and hence
are not exempted: -
1) Salary of farm manager.
2) Income from sale of salt.
3) Interest income of money lender.
4) Income from dairy and poultry.
5) Income from sale of rubber.
6) Sale of fruit of natural growth.
Kinds of agricultural income
1) Rent or other revenue from agricultural land
2) Income derived from agricultural land by applying agricultural operation
3) Income derived from agricultural land by performance of any operation like
converting the produce to a saleable condition eg: - curing coffee, curing tobacco,
ginning cotton etc.
4) Income from nursery operations
5) Income from farmhouse

CLUBBING OF INCOME
What is an Accrued Income?
Accrued profit has been obtained but is not yet receivable. By definition, mutual funds or
other pooled assets which accumulate income over some time but only payout to
shareholders once a year accrue their income. Personal companies can also receive revenue
without necessarily earning it, which is the basis for accrual accounting.

Many companies are using accrual accounting. This is the alternative to a cash accounting
system, and businesses that sell goods or offer credit services to consumers need to do so.

Any income earned, received, accrued in India is taxable.

Calculations of gross salary of individuals based on residential

status
SALARY
Salary includes incomes received by an employee from the employer during the previous
year it includes: -
1) Wages
2) Basic pay (BP)
3) Gratuity
4) Any fee, commission, bonus
5) Leave salary
6) Overtime remuneration
7) Employer’s contribution to RPF
8) Interest credited to RPF
9) DP (dearness allowance entering into retirement benefit)
Note: - DA is dearness allowance which does not enter into retirement benefit and DP is
dearness allowance which enters in to retirement benefit., if question is silent it is to be
assumed as DP.
CONDITIONS FOR ANY INCOME TO BE INCLUDED UNDER THE HEAD SALARY
1) There should be employer and employee or master servant relationship
2) A salary maybe from present, past or future employer
3) Salary may be received from more than one employer (excluding salary received as a
MP or member of state legislature as it is not included under salary but it is taxable
under the head income from other sources).

ALLOWANCES
Allowance is a fixed monetary amount paid by the employer to the employee (over and above basic
salary) for meeting certain expenses, whether personal or for the performance of his duties. These
allowances are generally taxable and are to be included in gross salary unless specific exemption is
provided in respect of such allowance

ALLOWANCES
1) FULLY TAXABLE
I) Dearness allowance
II) Dearness pay
III) City compensatory allowance
IV) Tiffin/lunch allowance
V) Deputation allowance
VI) Overtime allowance
VII) Fixed Medical allowance
VIII) Entertainment allowance received by non govt employees

2) PARTIALLY TAXABLE
i) House rent allowance (HRA)
ii) Travelling allowance
iii) Daily allowance
iv) Conveyance allowance
v) Helper allowance
vi) Research allowance
vii) Uniform allowance
viii) Children education allowance
ix) Children hostel allowance
x) Transport allowance
xi) Tribal allowance
xii) Underground allowance

3) EXEMPTED ALLOWANCE
i) Foreign allowance
ii) Allowance to high court and supreme court judges
iii) Allowances from uno organizations to its employees

HOUSE RENT ALLOWANCE

The monetary benefit given by employer to an employee
Conditions for claiming exemption on HRA: -
1) Employee should live in a rented house
2) Employee should pay rent of the house
3) Employee should’ve opted for old regime
Calculation of amount of exemption: -
Least of the following is considered as exemption amount: -
I) Actual HRA received
II) Rent paid – 10% of salary
III) 50% of salary (if residing in Kolkata, Mumbai, Chennai, Delhi).
IV) 40% of salary (if residing anywhere else).

Taxable portion = actual HRA – exemption amount

Salary = base pay + DP + commission %on turnover
Note: - incase the employee is living in his own house then the entire amount received as
HRA is taxable.

CHILDREN EDUCATION ALLOWANCE

Exemption up to 100rs p.m. per child allowed only for two (hence maximum exemption limit
is 2400)
CHILDREN HOSTEL ALLOWANCE
Exemption up to 300rs p.m. per child allowed only for two (hence maximum exemption limit
is 7200)

TRIBAL AREA ALLOWANCE

Exemption up to 200rs p.m. (hence maximum exemption limit is 2400)

DISTURBED/UNDERGROUND AREA ALLOWANE

Exemption up to 800rs p.m. (hence maximum exemption limit is 2400)

TRANSPORT ALLOWANCE
Transport allowance for normal employees is fully taxable
Transport allowance for handicapped employees is exempted up 3200rs p.m.

PROVIDENT FUND
RPF
Employers’ contribution = taxable in excess of 12% of salary
Employee contribution = fully qualified for deduction under sec 80c
Int credited to rpf contribution = 9.5% exempted

SPF
Employers’ contribution = fully exempted
Employee contribution = fully qualifies for deduction
Int credited to sfp = fully exempted

URPF
All three aspects ignored