MODULE 2

IMPORTANT
DEFINITIONS
Assessee (Section 2(7) Of IT Act 1961)

As per Section 2(7) of the Income Tax Act, 1961, the term “assessee”
means a person by whom any tax or any other sum of money is payable
under this Act, and includes,-
• (a) every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income or assessment of fringe
benefits or of the income of any other person in respect of which he
is assessable, or of the loss sustained by him or by such other person,
or of the amount of refund due to him or to such other person;
• (b) every person who is deemed to be an assessee under any provision
of this Act;
• (c) every person who is deemed to be an assessee in default under any
provision of this Act.
Deemed Assessee
A person may be liable not only for his own income but also income of
other persons.
The person is responsible for assessment of such persons is called
deemed assessee.
For instance, Guardian of a minor, agent of non-resident etc.
Assessee in Default
• Assessee-in-default is a person who has failed to fulfill his statutory
obligations as per the Income Tax Act such as not paying taxes to the
government or not file his income tax return.
• For example, an employer is supposed to deduct taxes from the salary
of his employees before disbursing the salary. He is, then, required to
pay the deducted taxes to the government by the specified due date. If
the employer fails to deposit the tax deducted, he will be considered as
an assessee-in-default.
PERSON 2(31)

Person has
• an individual
been • a HUF
defined •
•
a Company
a Firm
under Sec • an Association of Persons or a Body of Individuals
• a local authority
2(31). It • Every artificial juridical person
includes:
Identify the category of persons for the
following:
• Reliance Industries Limited.
• Punjab National Bank.​
• Madras University.
• Calcutta Municipal Corporation.
• A partnership firm with A, B and C partners.
• A family consisting of Mr. A, his brother B, Mrs. A and B doing ancestral business
• Kalyani Publishers Ltd.
• Reserve Bank of India.
• Life Insurance Corporation of India.
• Mr. Narendra Modi, Prime Minister of India.
• A Village Panchayat.
• Markfed (Cooperative Society)
 Assessment Year (Section
2(9))
 Assessment year is period of 12 months, commencing
from 1st April every year and ending on 31st March the
following year.
 The Present assessment year is 1st April 2023 to
31st March 2024 .
This is the period during which previous year’s income is
assessed.
 Previous Year (Section
3)
 It is a period of 12 months beginning from 1st April and
ending on 31st March, immediately preceding the
assessment year.
 The previous year is 1st April 2022 to 31st March 2023 for
the Assessment Year 2023-2024.
 This is the period during which the assessee earns the
income.
Exceptions to the General Rule of Previous
Year
The general rule of the previous year is that the income of the previous year is assessed in
the assessment year, but there are certain exceptions to this rule, where
the assessee is suppose to file his returns in the same year itself. These exceptions are:
1. Section 172 : Shipping business income of non-resident ship-owners
2. Section 174 : In cases of persons leaving India either permanently or temporarily
3. Section 174A : Assessment of any association of persons, body of individuals or
Artificial Juridical person formed or established only for a limited period
4. Section 175 : In case of persons who are likely to transfer their assets to avoid
tax.
5. Section 176 : In case of discontinued business
Income (Sec 2(24))

INCOME 2(24)
It is a monetary periodical return with
regularity or expected regularity.
It may be recurring in nature.
It may be broadly defined as the true
increase in the amount of wealth of a
person.
Income (Sec 2(24)) Features / Broad Principles which clarify the
concept of Income
Diversion of
Regular and Tainted/ Illegal income Vs Temporary or
Definite source income application of permanent
income

Disputes regarding Income is money Gift to constitute

Voluntary receipts
title or money’s worth income

Income includes Same income

Pin money is not
Loss (Plus income cannot be taxed
an income
and minus Income) twice
Gross Total Income (GTI) (Sec 14)
Gross Total Income is the aggregate of Incomes computed under
various heads of income according to the provisions of Income Tax Act
before making any deductions u/s 80C to 80U.
Section 14 deals with GTI and it includes:
1. Income from Salaries
2. Income from House Property
3. Profits and Gains of Business or Profession
4. Income from Capital Gains
5. Income from Other Sources
Total Income/Taxable Income (Sec 5)
Total Income of an assessee is Gross Total Income as
reduced by the amount permissible as deductions
u/s 80C to 80U.

Total Income = GTI minus Deductions

Taxable Income
Taxable income is the base income upon which tax is levied. It
includes some or all items of income and is reduced by expenses and
other deductions.
The amounts included as income, expenses, and other deductions
vary according to the country and the system in the country.
Usually, all income is considered as taxable income, but some income
have tax exemptions and deductions and hence won’t be included
under taxable income.
 COMPUTATION OF TAXABLE INCOME
Assessee: Assessment Year: 2023-2024 Status:
Previous Year: 2022-2023
Rs.
Taxable Income from Salary xxx
Taxable Income from House Property xxx
Taxable Income from Business and Profession xxx
Taxable Income from Short term capital assets xxx
Taxable Income from Other Sources (Other than Casual Income ) xxx
Other Gross Total Income (OGTI) XXX
Less: Deductions from 80C to 80U xxx
Other Taxable Income XXX
Add: Taxable Long term capital gain xxx
Add: Casual Income xxx
Taxable Income XXX
Less : Rebate 12500 (if applicable)
Add : Surcharge (if applicable)
Add: Health & Edu Cess at 4%
Exempted Incomes
Exempt Incomes are the incomes that are not chargeable to tax as per
Income Tax law i.e. they are not included in the total income for the
purpose of tax calculation while taxable Incomes are chargeable to tax
under the Income Tax law.

Example : Agricultural Income

Income Tax Rebate
An income tax rebate can simply be understood as a form of refund
on taxes that you receive from the Income Tax Department under
certain circumstances.
An individual is liable to receive a tax rebate in the event that he or
she pays more taxes in a financial year than they owe to the
government.
 In order to avail a tax rebate, you must make sure to accurately
compute your tax liability and file your tax returns within a particular
time period.
Differences between Tax Exemption, Deduction
and Rebate
Tax exemption
Expenditure, income or
investments on which no tax is
levied to reduce the overall taxable
income.
Tax exemptions are to be claimed
only from a specific source of
income and not from the total
income. For example, exemptions
under the salary head are not
allowed to be claimed from any
other head.
Example : Agricultural Income,
House Rent Allowance (HRA)
Tax Deduction Tax Rebate
Tax deductions are allowed to be A Tax rebate is a refund on taxes
claimed only if the taxpayer has when an individual has lower tax
incurred the specified expenditure liability than the taxes paid. In
or made tax-deductible other words, it is a refund of
investments. money received for the taxes paid
in the previous year.
This is a reduction from gross Under section 87A of the
income as a result of expenses such constitution a tax rebate of up to
as medical, tuition, transportation an amount of Rs. 12,500 is given to
etc. This aims to reduce the those that have a total income of
amount of income on which tax is around Rs. 5 lakhs after certain
being levied. deductions have been made.
Section 80G for donations.
Rounding off of Income
The taxable income shall be rounded off to the nearest multiple of ten rupees and paise is
ignored.

If the last figure is less than 5, the amount shall be reduced to the next lower amount which is
a multiple of ten.

Example: 142 is rounded off to 140

If the last figure is more than 5, the amount shall be reduced to the next higher amount
which is a multiple of ten.

Example : 188 is rounded off to 190

Tax Slabs In case of an Individual (resident or non-resident) or HUF or Association of Person or Body of
Individual or any other artificial juridical person
Individuals
(Other than senior and super senior citizen)
Net Income Range Rate of Income-tax
Assessment Year 2023-24
Up to Rs. 2,50,000 -
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
Senior Citizen
(who is 60 years or more at any time during the previous year)
Net Income Range Rate of Income-tax
Assessment Year 2023-24
Up to Rs. 3,00,000 -
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
Super Senior Citizen
(who is 80 years or more at any time during the previous year)
Net Income Range Rate of Income-tax
Assessment Year 2023-24
Up to Rs. 5,00,000 -
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
 Slabs Rate
0 - 250000 NIl
New Rates of Income 250000 - 500000 5%
Tax (New Regime / 500001 - 750000 10%
Alt Regime)
750001 - 1000000 15%
1000001 - 1250000 20%
1250001 - 15,00,000 25%
Above 15,00,000 30%
 Surcharge is a tax on tax.
Hence surcharge is calculated on
the tax payable and not on
the income earned.
• Surcharge is charged separately and doesn’t
form a part of Income tax slab rates.
Surcharge

• The intention of the law in levying surcharge

is to tax the privileged ones who fall in the
high income bracket and use it for the
upliftment of the less privileged.
• It is basically shifting the burden of tax from
poor class to high end of the society.
Surcharge rates

Net Income Range Surcharge(as% of

Income Tax)
Individuals 0 – Rs. 50 Lakh Nil
Rs.50 lakh – Rs. 1 10%
crore
Rs. 1 crore – Rs. 2 15%
crore
Rs. 2 crore – Rs. 5 25%
crore
Above Rs. 5 crore 37%
Health and Education Cess &
Rebate u/s 87A

• Health and Education Cess : Health and

Education Cess is levied at the rate of 4% on the
amount of income-tax plus surcharge.
• Note: A resident individual (whose net income
does not exceed Rs. 5,00,000) can avail rebate
under section 87A. It is deductible from income-
tax before calculating education cess.
• 87 A- The amount of rebate is 100 per cent of
income-tax or Rs. 12,500 whichever is less.
 Agricultural Income
Types of agricultural incomes are:
• Any income received as rent or revenue from
agricultural land
• Income derived from Agriculture
• Any income accruing to the person by the
performance of any process to render the
produce marketable
• Any income received by the person by the sale
of produce raised or received as rent-in-kind
• Income from buildings used for agriculture

Test (a) – Income derived from land

Test (b) – Land is used for agricultural purposes
Test (c)—Land is situated in India
Examples of Agricultural Income

• Income from sale of seeds.

• Rent received for agricultural land
• Income derived from sale of replanted trees..
• Income from growing flowers(floriculture)
and creepers.
• Profits received from a partner from a firm
engaged in agricultural produce or activities.
• Interest on capital that a partner from a firm,
engaged in agricultural operations, receives.
• Compensation from insurance company for
damage caused by hail storm to the green
leaf farming.
 Examples of Agricultural Income

• If nursery is maintained by carrying out basic

operations and subsequent operations carried out in
pots in continuation of basic operations.
• Income from sale of dried tobacco leaves in which
green tobacco leaves are dried by using some process.
• Amount received as compensation for dispossession
of agricultural land—when an agriculturist assessee
gets compensation from a person who was keeping
unlawful possession of land owned by assessee as the
compensation is for the agricultural income assessee
would have earned.
• Grazing fees realized from piece of land which was
used for grazing animals used for agricultural
purposes.
• Sale of standing crop by a cultivator.
 Examples of non-agricultural income:
• Income from poultry farming.
• Income from bee hiving.
• Any dividend that an organization/company pays from its
agriculture income.
• Income from the sale of spontaneously grown trees.
• Income from dairy farming.
• Income from salt produced after the land has flooded with sea
water.
• Income from butter and cheese making.
• Receipts from TV serial shooting in farm house.
• Income from sale of gur or refined sugar acquired by using some
manufacturing process.
Examples of non-agricultural
income:

• Income from fisheries

• Income from growing various types of hybrid/ germ plasm seeds after conducting
agricultural research costing crores of rupees, income earned on sale of such
seeds.
• Income from sale of fruits of trees of spontaneous growth is not agricultural
income.
• Remuneration received by a person for managing agricultural property is not
agricultural income.
• Royalty income from mines and brick making.
• Interest on arrears of rent of agricultural land
• Income from ginned cotton.
 The concept of
partial integration
has been
Partial introduced to
Integration ensure that non-
agricultural
income is taxed at
a higher slab rate
Condition/Scheme for Partial Integration of
Non-agricultural income with Agricultural
Income
1) Individuals, HUFs, AOPs, BOIs and artificial juridical persons have
to compulsorily calculate their taxable income using this method.
Thus Company, firm/LLP, co-operative society and local authority are
excluded from using this method.
2) Net agricultural income is greater than Rs. 5,000 during the year;
and
3) Non-agricultural income is:
• Greater than Rs. 2,50,000 for individuals below 60 years of age
and all other applicable persons
• Greater than Rs. 3,00,000 for individuals between 60 – 80 years
of age
• Greater than Rs. 5,00,000 for individuals above 80 years of age
In simple terms, the non-agricultural income should be greater than
the maximum amount not chargeable to tax (as per the slab rates).
 Computation of tax in cases covered by the Scheme of Integration

How to Integrate?
1. Net Agricultural income is added.
2. Tax is calculated on this total at current rates of tax.
3. Net Agricultural income is added with the exempted limit, i.e. Rs.2,50,000/Rs.
3,00,000/Rs 5,00,000 (as the case may be)
4. Tax is calculated on this total at current rates of tax.
5. Tax calculated at point (4) is deducted out of tax calculated at point (2) above.
• Add surcharge, if any
• Add Health & Education cess @ 4%.
• Total is tax.
• Tax payable to be rounded off to the nearest multiple of ten.
Computation of tax in cases covered by the Scheme of Integration
 Tax treatment of Income which is partly agricultural and partly
from business

Income Agricultural Non-

Income Agricultural
income

1) Growing and manufacturing tea in India 60% 40%

2) Rubber manufacturing business 65% 35%

3) Sale of coffee grown and cured by seller 75% 25%

4) Sale of coffee grown, cured, roasted and grounded by seller in India 60% 40%
with or without mixing chicory or other flavouring ingredients

5)In case of other commercial crops, if agricultural produce is used as Market value of Balance
raw material the produce Amount
Classify Agricultural and Non-Agricultural
Income
 Income from sale of forest trees of spontaneous growth
 Income from agricultural activities in Sri Lanka
 Income derived from land used as stone quarries
 Rent from house property situated in village
 Sale of plants from nursery
 Lease rent received from lands given to tenants for agricultural operations
 Remuneration received as a manager of an agricultural farm house
 Income from dairy farm, poultry farming etc.
 Income from lease of land for grazing cattle required for agricultural
pursuits
Illustration - 1
1) Compute Net Agricultural income from cultivation of land:

Sale proceeds of agricultural produce ₹ 1,60,000

Labour charges ₹ 6,000
Cost of seeds ₹ 24,000
Cost of fertilizers ₹ 3,000
Electricity Charges ₹ 12,000
Depreciation of equipment used for agriculture ₹ 6,000
Computation of Net Agricultural Income

Particulars ₹ ₹
Sale Proceeds 1,60,000
Less: Expenses related to agriculture
Labour Charges - 6,000
Cost of seeds - 24,000
Cost of fertilizers - 3,000
Electricity Charges - 12,000
Depreciation on equipment - 6,000
Net Agricultural Income 1,09,000
Illustration 2

Mrs. X (42 years) is a resident in India for the AY 2023-2024. For the

previous year 2022-23, her income chargeable to tax in India is

₹10,30,000. Find out tax liability.

Computation of Tax liability of Mrs. X
Assessee name : Mrs.X AY : 2023-2024
Residential Status : Resident PY : 2022-2023
Age : 42 yrs Person type : Individual

Income Rate of Tax Tax Amount

First ₹2,50,000 (250000-0) Nil Nil
Next ₹ 2,50,000 ( 5,00,000 – 2,50,000) 5% 12,500
Next ₹5,00,000 (10,00,000 – 5,00,000) 20% 1,00,000
Balance ₹30,000 (10,30,000 -10,00,000) 30% 9,000
1,21,500
Less: Rebate ( If applicable) NIL
Add: Surcharge (If applicable)
Add: Health and education cess at 4% 4% 4860
Tax Liability 1,26,360
Illustration - 3
For the assessment year 2023-24, net agricultural
income of Mrs. X (age 37 years) is Rs. 8,10,000 and
non-agricultural income is Rs.4,78,300.
Mrs. X pays Rs. 20,000 as life insurance premium (sum
assured : Rs.3,00,000) on the life of her major son.
Determine her tax liability.
 Computation of Tax Liability
WN 1: Computation of Net Income (Net Non-Agricultural income)
Assessee name : Mrs.X (37 yrs) AY – 2023 - 24
Residential status: Resident PY : 2022 - 23

Particulars Amount ₹
Non-ag Income (GTI) 4,78,300

Less : Deduction u/s 80 C (LIC premium) (20,000)

Net Income (Net non-agricultural Income) 4,58,300
Working Note 2 (Step 1)
Computation of Tax on (Net AG Inc + Net Non-Ag Income)
Computation of tax on (810000 + 458300) = 12,68,300
Rate of Tax Tax Amount
First 2,50,000 Nil Nil
Next 2,50,000 (5L-2.5L) 5% 12,500
Next 5,00,000 (10L – 5L) 20% 1,00,000
Bal 2,68,300 (12,68,300-10,00,000) 30% 80,490
Tax Liability 1,92,990
Working Note 3 (Step 2)
Computation of Tax on (Net Agricultural income + Ex. Slab rate)
Computation of Tax on (810000 + 250000) = 10,60,000
Rate of tax Tax Amount
First 2,50,000 Nil Nil
Next 2,50,000 (5L-2.5L) 5% 12,500
Next 5,00,000 (10L – 5L) 20% 1,00,000
Bal 60,000 (10,60,000 -10,00,000) 30% 18,000
Total tax 1,30,500
 Tax liability calculation – Partial Integration
Particulars Amount ₹
1) Tax on (Agricultural Income + Non-Agricultural Income) =Tax on (8,10,000 + 4,58,300)Tax on 12,68,300 –WN 2 1,92,990
2) Tax on (Agricultural income + Exempted Slab) (1,30,500)
Tax on (8,10,000 + 2,50,000)
Tax on 10,60,000–WN 3
3) Income Tax computed at step 1 – Income Tax computed at step 2 62,490
( 1,92,990- 1,30,500)

4) Less : Rebate u/s 87 A (if applicable) (Net NON-Ag income/Net income is less than ₹5,00,000 ) – WN 1 (12,500)
Tax after Rebate 49,990
5) Add: Surcharge (if applicable) (if Net Non-Ag Income is more than 50lakhs) N/A

6) Add: Health and Education cess at 4% (49,990 x 4%) --- Mandatory 2000

7) Tax Liability 51,990

Illustration 4
1. Income from sale of refined sugar, converted by sugarcane grown by
sugar mill - ₹2,00,000
2. Income from rubber manufacturing business ₹2,50,000
3. Income arising from manufacture and sale of coffee grown and cured
₹3,00,000
4. Income derived from sale of coffee grown, cured, roasted and grounded
by the seller in India, with or without mixing chicory or other flavouring
ingredients ₹5,00,000
5. Income arising from manufacture and sale of tea ₹10,00,000
Compute Agricultural Income & Non-Agricultural Income
 Computation of Agricultural & Non-
Agricultural Income
Particulars Agricultural Non-Agricultural
Income Income
Income from sale of refined sugar, converted by sugarcane grown by ----------- 2,00,000
sugar mill - ₹2,00,000

Income from rubber manufacturing business ₹2,50,000 1,62,500 87,500

250000 x 65% -- Ag ; 250000 x 35% -- Non ag
Income arising from manufacture and sale of coffee grown and cured 2,25,000 75,000
₹3,00,000 (75% -- Ag ; 25% -- Non ag)
Income derived from sale of coffee grown, cured, roasted and grounded 3,00,000 2,00,000
by the seller in India, with or without mixing chicory or other flavouring
ingredients ₹5,00,000 (60% - Ag, 40% - Non Ag)
Income arising from manufacture and sale of tea ₹10,00,000 6,00,000 4,00,000
60% - Ag, 40% - Non Ag)
TOTAL 12,87,500 9,62,500
Illustration 5
For the AY 2023-24, X, an Individual(age 62years), submits the following
information:
a) House property Income (Computed) ₹6,25,000
b) Income from business of growing and ₹5,00,000
manufacturing coffee in India
(roasted & Grounded) (Gross)
c) Expenditure on earning coffee income ₹2,000

Determine the tax liability of X for the AY 2023-24 on the assumption that he
contributes ₹60,000 towards Public Provident Fund.
Wn 1: Computation of Net Ag Income & Net Non-Ag
Income
Agricultural Non-Agricultural
Income Income
House Property Income (computed) -------------------- 6,25,000
Income from growing and manufacturing Coffee in India (roasted & 2,98,800 1,99,200
grounded)
(Gross Income – Expenditure on Growing Coffee)
(5,00,000- 2000) = 498000
498000 x 60% = 298800– Ag. Income
498000 x 40% = 199200 – Non. Ag Income

TOTAL/ Gross 2,98,800 8,24,200

Less: Deductions u/s 80 C (PPF) (Applicable only for Non Ag. Income) ---------- (60,000)
Net Income 2,98,800 7,64,200
Working Note 2 (Step 1)
Computation of tax on (Net Agricultural Inc + Net Non-Ag Income)
Computation of tax on (2,98,800 + 7,64,200) = 10,63,000
Rate of Tax Tax Amount
First 3,00,000 ( Age of X = 62 yrs) Nil Nil
Next 2,00,000 (5,00,000- 3,00,000) 5% 10,000

Next 5,00,000 (10,00,000- 5,00,000) 20% 1,00,000

Bal 63,000 (10,63,000 – 10,00,000) 30% 18,900
TOTAL 1,28,900
Working Note 3 (Step 2)

Computation of Tax on( Net Agricultural income + Ex. Slab )

Computation of Tax on (2,98,800 + 3,00,000) = 5,98,800
Rate of Tax Tax Amount
First 3,00,000 Nil Nil
Next 2,00,000 (5,00,000-3,00,000) 5% 10,000
Balance 98,800 (5,98,800 – 20% 19,760
5,00,000)
TOTAL 29,760
 Tax liability calculation – Partial Integration Method
Particulars Amount ₹
1)Tax on (Agricultural Income + Non-Agricultural Income) 1,28,900
Tax on (2,98,800 + 7,64,200) = 10,63,000 – WN 2
2) Tax on (Agricultural income + Exempted Slab rate) (29,760)
Tax on (2,98,800 + 3,00,000) = 5,98,800 – WN 3

3) Income Tax computed at step 1 – IT computed at step 2 99,140

(1,28,900 – 29,760)

4) Less : Rebate u/s 87 A (if applicable) (Non-Ag income/Net income is less than ₹5,00,000) N/A

5) Add: Surcharge (if applicable) N/A

6) Add: Health and Education cess at 4% (99,140 x 4%) = 3965.6 = 3,966 3,966

7) Tax Liability 1,03,106

Tax liability of ₹1,03,106 is rounded off to ₹1,03,110
Illustration 6
Mr. Ani (52 years) is a resident in India for the AY 2023-
2024. For the previous year 2022-23, his income
chargeable to tax in India is ₹12,50,000. Find out tax
liability according to old tax and new tax regime.
 Computation of Tax Liability according to Old Tax
Regime
Rate of tax Tax Amount
First 2,50,000 Nil Nil
Next 2,50,000 (5L-2.5L) 5% 12,500
Next 5,00,000 (10L – 5L) 20% 1,00,000
Bal 2,50,000 (12,50,000 -10,00,000) 30% 75,000
Total tax before rebate, surcharge and cess 1,87,500
Less: Rebate (if applicable) Nil
Add: Surcharge ( if applicable) Nil
Add: HEC @ 4% 4% (187500 x 4%) 7,500
Tax Liability – Old Regime 1,95,000
Computation of Tax Liability according to New Tax Regime (115 BAC)

Rate Tax Amount

0 - 250000 Nil Nil
250000 – 500000 (Next 250000) 5% 12,500
500001 – 750000 (Next 250000) 10% 25,000
750001 – 1000000 (Next 250000) 15% 37,500
1000001 – 1250000 (Next 250000) 20% 50,000
1250001 - 15,00,000 25% N/A
Above 15,00,000 30% N/A
Total tax before rebate, surcharge and cess 1,25,000
Less: Rebate (if applicable) N/A
Add: Surcharge ( if applicable) N/A
Add: HEC @ 4% 4% (4% x 1,25,000) 5,000
TAX LIABILITY 1,30,000