90  Income-tax: Basic concepts; Residential status and tax incidence; Exempted incomes; Agricultural income; Computation of taxable income under various heads; Deductions from Gross total income; Assessment of Individuals; Clubbing of incomes

90.1 Concept and Constitutional Basis

Income-tax is a direct tax on income earned by individuals, HUFs, firms, companies, AOPs, BOIs, and other persons, governed by the Income-tax Act, 1961, the Finance Act (annual), and Income-tax Rules 1962. Constitutional basis: Entry 82 — Union List (Schedule VII) read with Article 246. The Central Board of Direct Taxes (CBDT) administers the law. Tax rates are prescribed every year by the Finance Act (Schedule I).

90.2 Important Definitions (§ 2)

Tip§ 2 Definitions
  • § 2(7) — Assessee — person liable to pay tax / any sum.
  • § 2(31) — Person — 7 categories: Individual; HUF; Firm; Company; AOP/BOI; Local authority; Artificial juridical person.
  • § 2(9) — Assessment Year — period of 12 months commencing 1 April.
  • § 3 — Previous Year (PY) — financial year immediately preceding the AY.
  • § 2(24) — Income — inclusive definition: profits & gains, dividend, voluntary contributions, perquisites, capital gains, winnings, gift, etc.
  • § 2(45) — Total income.

90.3 Heads of Income (§ 14)

TipFive Heads of Income
  • Salaries (§§ 15-17).
  • Income from House Property (§§ 22-27).
  • Profits & Gains from Business or Profession (PGBP) (§§ 28-44DB).
  • Capital Gains (§§ 45-55A).
  • Income from Other Sources (§§ 56-59).

90.4 Residential Status (§ 6)

90.4.1 Basic Conditions (§ 6(1))

An individual is resident in India in PY if either:

TipBasic Conditions
  • (a) Stay in India ≥ 182 days in PY; OR
  • (b) Stay in India ≥ 60 days in PY AND ≥ 365 days in 4 preceding PYs.

(Exception for Indian citizens leaving India for employment, or Indian-origin visitors: only 182-day test in (b); but post 2020 — 120 days where Indian-source income > ₹15 lakh.)

90.4.2 Additional Conditions (§ 6(6))

A resident becomes Ordinarily Resident (ROR) only if BOTH satisfied:

TipROR Conditions
  • Resident in India in at least 2 out of 10 preceding PYs.
  • Stay in India ≥ 730 days in 7 preceding PYs.

Otherwise → Resident but Not Ordinarily Resident (RNOR).

90.4.3 Deemed Resident (§ 6(1A))

Indian citizen with Indian-source income > ₹15 lakh and not taxable in any other country → deemed resident (RNOR).

90.4.4 Scope of Total Income (§ 5)

TipScope by Status
Status Indian income Foreign income
ROR Taxable Taxable
RNOR Taxable Taxable only if business controlled / profession set up in India
NR Taxable Not taxable

90.5 Exempted Incomes (§ 10)

TipKey § 10 Exemptions
  • § 10(1) — Agricultural income.
  • § 10(2) — HUF share.
  • § 10(2A) — Partner’s share in firm.
  • § 10(10) — Gratuity.
  • § 10(10A) — Commuted pension.
  • § 10(10AA) — Leave encashment.
  • § 10(10C) — VRS.
  • § 10(10D) — Life-insurance maturity.
  • § 10(13A) — HRA.
  • § 10(14) — Special allowances.
  • § 10(15) — Interest on specified securities.
  • § 10(38) — earlier LTCG on listed shares with STT (now §112A).
  • § 10(34) — Earlier dividend (taxed from FY 2020-21 onwards).

90.6 Agricultural Income

Defined in § 2(1A): rent or revenue from agricultural land in India, income from agriculture, income from farm building. Exempt under § 10(1); but used for partial integration / aggregation when computing tax on non-agri income if (a) net agri income > ₹5,000 and (b) non-agri income > basic exemption.

90.7 Salaries (§§ 15-17)

TipComponents of Salary
  • Basic pay, DA, bonus, commission, gratuity (§ 10(10)), pension (§ 17), leave salary, allowances (HRA, LTA, etc.), perquisites (§ 17(2)), profits in lieu of salary (§ 17(3)).
  • Standard deduction: ₹50,000 (FY 2023-24 onwards under both regimes).
  • Professional tax: deductible under § 16(iii).
  • Entertainment allowance: only for govt employees (§ 16(ii)).

90.8 Income from House Property (§§ 22-27)

TipHouse Property
  • Annual value = higher of Municipal value, Fair rent, Standard rent — subject to actual rent received.
  • Less: Municipal taxes paid by owner → NAV.
  • Less: § 24 deductions — Standard deduction 30 % + Interest on borrowed capital (up to ₹2 L self-occupied; no cap let-out).
  • Self-occupied property: NAV NIL; only interest deduction.
  • Let-out / Deemed let-out: as above.
  • Co-ownership (§ 26); Composite rent; Recovery of unrealised rent.

90.9 Profits & Gains of Business/Profession (§§ 28-44DB)

TipPGBP — Key Provisions
  • Allowable: §§ 30-37 — rent, repairs, depreciation (§ 32 — block of assets, WDV method), bonus to employees, bad debts, etc.
  • Disallowed: § 40(a) — TDS default; § 40A(3) — cash expense > ₹10,000; § 43B — actually-paid basis; § 36 — specific deductions.
  • Presumptive taxation: § 44AD (business — 8 %; 6 % digital), § 44ADA (profession — 50 %), § 44AE (goods carriage).
  • Audit: § 44AB — turnover > ₹1 cr (₹10 cr if cash ≤ 5 %); profession > ₹50 L.

90.10 Capital Gains (§§ 45-55A)

TipCapital Gains
  • Capital asset (§ 2(14)) — includes stock-in-trade exclusion etc.
  • Short term / Long term — based on period of holding (12 mo listed shares/MF; 24 mo unlisted shares/immovable; 36 mo others — recently rationalised post Budget 2024 to 24 months for all unlisted/immovable + 12 months for listed financial assets).
  • Indexed cost (§ 48) — for LTCG (other than listed shares).
  • § 112A: LTCG on listed shares > ₹1 L (raised to ₹1.25 L from FY 2024-25) — 12.5 % (Budget 2024).
  • § 111A: STCG on listed shares — 20 % (raised from 15 % in 2024).
  • § 50C: Stamp duty value as consideration for immovable property.
  • Exemptions: § 54 (residential house), § 54EC (NHAI/REC bonds — ₹50 L), § 54F (sale of any LTCA → invest in house).

90.11 Income from Other Sources (§§ 56-59)

Dividend (taxable since FY 2020-21), interest, lottery, gifts (§ 56(2)(x)), family pension, rent of plant.

90.12 Deductions from Gross Total Income (Chapter VI-A)

TipCommon Deductions (Old Regime)
Section Provision Max
§ 80C LIC, PF, PPF, ELSS, NSC, principal home loan, tuition, etc. ₹1.5 L
§ 80CCC Pension fund Within §80CCE ₹1.5 L
§ 80CCD(1) NPS (employee) Within ₹1.5 L cap
§ 80CCD(1B) Additional NPS ₹50,000
§ 80CCD(2) Employer NPS 14 % govt / 10 % others
§ 80D Health insurance premium ₹25k (₹50k senior)
§ 80DD/DDB/U Disabled dependant / specified illness / self disability varies
§ 80E Education loan interest No cap, 8 yrs
§ 80EE / EEA Home loan interest add-on ₹50k / ₹1.5 L
§ 80G Donations 50/100 %
§ 80TTA / TTB Savings interest ₹10k / ₹50k seniors

90.13 Assessment of Individuals — Old vs New Regime

TipNew Regime (§ 115BAC) — FY 2023-24 onwards
Slab (annual) Rate
Up to ₹3 L Nil
₹3-7 L 5 %
₹7-10 L 10 %
₹10-12 L 15 %
₹12-15 L 20 %
> ₹15 L 30 %

Rebate § 87A: ₹25,000 (new regime, income up to ₹7 L); ₹12,500 (old, up to ₹5 L). Standard deduction ₹75,000 in new regime (from FY 2024-25); ₹50,000 old. Surcharge: 10 % (₹50 L-1 cr), 15 % (1-2 cr), 25 % (2-5 cr); 37 % capped at 25 % in new regime. Cess: 4 % Health & Education.

90.14 Clubbing of Income (§§ 60-65)

TipClubbing Provisions
  • § 60 — Transfer of income without transfer of asset.
  • § 61 — Revocable transfer of asset.
  • § 64(1)(ii) — Salary, commission, fees from substantial-interest company to spouse without technical qualification.
  • § 64(1)(iv) — Asset transferred to spouse without adequate consideration (income clubbed).
  • § 64(1)(vi) — Asset transferred to son’s wife.
  • § 64(1)(viii) — Asset transferred to AOP for benefit of spouse.
  • § 64(1A) — Income of minor child (other than skill/manual income or income of disabled minor) — clubbed with higher-earning parent; §10(32) exemption ₹1,500 per child.
  • § 64(2) — Conversion of self-acquired property to HUF.

90.15 Other Important Concepts

  • Set-off and carry forward (§§ 70-80): intra-head, inter-head, carry forward (4-8 yrs depending on loss type).
  • Marginal relief.
  • Alternate Minimum Tax (AMT) — § 115JC (LLPs, etc.).
  • Pre-paid taxes — TDS, TCS, advance tax, self-assessment.
  • PAN — § 139A; Aadhaar-PAN linking mandatory.

flowchart TB
  IT[Income Tax 1961] --> R[Residence §6<br/>ROR · RNOR · NR]
  IT --> H[5 Heads §14<br/>Sal · HP · PGBP · CG · OS]
  IT --> D[Deductions VI-A<br/>80C-80U]
  IT --> A[Assessment<br/>Old vs New regime §115BAC]
  IT --> Cl[Clubbing §§60-65]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

NoteDistractor warning

PYQ trap: PY → AY; 5 heads § 14; Residence § 6 — basic (182/60+365); ROR additional (2/10 + 730/7). §10(1) agri exempt; aggregation if agri > ₹5,000 + non-agri > basic exemption. Standard deduction ₹50k old / ₹75k new (FY 2024-25).

90.16 Practice Questions

Q 01HeadsEasy

Number of heads of income:

  • A3
  • B4
  • C5
  • D6
View solution
Correct Option: C
**§ 14 — 5 heads**.
Q 02ResidenceMedium

An individual is resident if he stays in India in PY for:

  • A≥ 60 days only
  • B≥ 182 days OR ≥ 60 days + ≥ 365 days in last 4 PYs
  • C≥ 90 days
  • D≥ 100 days
View solution
Correct Option: B
**§ 6(1)** basic conditions.
Q 03RORHard

Additional conditions for ROR (§ 6(6)) — stay in 7 preceding PYs:

  • A≥ 365 days
  • B≥ 730 days
  • C≥ 1,095 days
  • D≥ 1,500 days
View solution
Correct Option: B
**730 days** in 7 prior PYs + resident in 2 of 10 prior PYs.
Q 04AgriMedium

Agricultural income is exempt under:

  • A§ 10(1)
  • B§ 10(10)
  • C§ 14
  • D§ 80C
View solution
Correct Option: A
**§ 10(1)** — agri exempt; aggregated for rate purposes.
Q 0580CEasy

Maximum deduction under § 80C:

  • A₹50,000
  • B₹1 lakh
  • C₹1.5 lakh
  • D₹2 lakh
View solution
Correct Option: C
**₹1.5 lakh** under § 80CCE.
Q 0680DMedium

Section 80D deduction (self & family, non-senior):

  • A₹15,000
  • B₹25,000
  • C₹50,000
  • D₹1 lakh
View solution
Correct Option: B
**₹25,000** (₹50,000 if senior).
Q 07HPMedium

Standard deduction under § 24(a) for house property:

  • A20 %
  • B30 % of NAV
  • C50 %
  • DNo std deduction
View solution
Correct Option: B
**30 %** of NAV.
Q 08SOPMedium

Interest deduction on self-occupied housing loan:

  • A₹30,000
  • B₹1,50,000
  • C₹2,00,000
  • DNo limit
View solution
Correct Option: C
**₹2 lakh** for SOP under § 24(b).
Q 09112AHard

LTCG on listed equity above threshold is taxed (Budget 2024) at:

  • A10 %
  • B12.5 %
  • C15 %
  • D20 %
View solution
Correct Option: B
**§ 112A — 12.5 %** (from FY 2024-25); ₹1.25 L threshold.
Q 1087AMedium

Rebate § 87A under new regime is up to:

  • A₹2,500
  • B₹12,500
  • C₹25,000
  • D₹50,000
View solution
Correct Option: C
**₹25,000** new regime; ₹12,500 old regime.
Q 1180CCD(1B)Medium

Additional NPS deduction is:

  • A₹10,000
  • B₹50,000
  • C₹1 lakh
  • D₹2 lakh
View solution
Correct Option: B
**§ 80CCD(1B) — ₹50,000**.
Q 12Std deductionMedium

Salary standard deduction (FY 2024-25, new regime):

  • A₹50,000
  • B₹75,000
  • C₹1 lakh
  • DNo std deduction
View solution
Correct Option: B
**₹75,000 new regime** (from FY 2024-25); ₹50k old.
Q 13ClubbingMedium

Minor child's income is clubbed under:

  • A§ 60
  • B§ 64(1A)
  • C§ 64(2)
  • D§ 10(32)
View solution
Correct Option: B
**§ 64(1A)**; exemption ₹1,500/child under § 10(32).
Q 14115BACMedium

Default tax regime since FY 2023-24:

  • AOld regime
  • BNew regime (§ 115BAC)
  • CComposition
  • DOptional only
View solution
Correct Option: B
**§ 115BAC — New regime default**.
Q 15PGBPMedium

Tax audit threshold for business:

  • A₹40 lakh
  • B₹1 cr (or ₹10 cr if cash ≤ 5 %)
  • C₹2 cr
  • D₹5 cr
View solution
Correct Option: B
**§ 44AB** — ₹1 cr / ₹10 cr (digital).
Q 1644ADMedium

Presumptive profit under § 44AD (digital):

  • A6 %
  • B8 %
  • C10 %
  • D50 %
View solution
Correct Option: A
**6 % digital; 8 % cash** under § 44AD.
Q 17CGHard

For listed equity to qualify as LTCG holding period must exceed:

  • A12 months
  • B24 months
  • C36 months
  • D60 months
View solution
Correct Option: A
**12 months** for listed equity / units.
Q 18GiftsMedium

Gifts above ₹50,000 from non-relatives are taxable under:

  • A§ 17(2)
  • B§ 56(2)(x) — Other sources
  • C§ 80C
  • D§ 80G
View solution
Correct Option: B
**§ 56(2)(x)** — Income from Other Sources.
Q 19CessMedium

Health & Education cess rate:

  • A2 %
  • B3 %
  • C4 %
  • D5 %
View solution
Correct Option: C
**4 %** since 2018.
Q 20MatchMedium

Match section with provision:

Section Provision
(i) § 6 (a) Heads of income
(ii) § 14 (b) Residence
(iii) § 80C (c) Health insurance
(iv) § 80D (d) LIC, PF, ELSS, etc.
  • A(i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(c), (ii)-(d), (iii)-(b), (iv)-(a)
  • D(i)-(d), (ii)-(c), (iii)-(a), (iv)-(b)
View solution
Correct Option: A
Direct mapping.

90.17 Quick Recall

ImportantQuick recall
  • Act 1961, Rules 1962, Finance Act annual; CBDT.
  • Person §2(31) — 7 categories; AY = PY + 1.
  • 5 heads §14: Salary, House Property, PGBP, Capital Gains, Other Sources.
  • Residence §6: basic 182 / (60+365); ROR additional 2/10 + 730/7.
  • §5 scope: ROR — global, RNOR — Indian, NR — Indian only.
  • Agri exempt §10(1); partial integration if net agri > ₹5,000 + non-agri > basic.
  • Salary §16: std deduction ₹50k old / ₹75k new (FY 2024-25).
  • House property §24: 30 % + interest (₹2 L SOP).
  • PGBP: §44AB audit ₹1 cr/₹10 cr; presumptive §44AD 8/6 %, §44ADA 50 %.
  • CG: STCG §111A 20 %; LTCG §112A 12.5 % above ₹1.25 L.
  • Chapter VI-A: 80C ₹1.5 L; 80CCD(1B) ₹50k; 80D ₹25k/₹50k; 80G; 80E; 80TTA/TTB.
  • New regime §115BAC default; rebate §87A ₹25k (new) / ₹12.5k (old).
  • Clubbing §§60-65; minor §64(1A) + ₹1,500 §10(32).