MODULE-1 BASIC CONCEPTS OF INCOME TAX

An Overview of Income Tax Act, 1961

The taxes are the basic source of revenue for the Government. Revenue raised
from the taxes are utilized for meeting expense of Government like, provision for
education, infrastructure facilities such as roads, dams etc. Taxes are broadly
divided into two parts i.e. direct taxes and indirect taxes. The tax that is levied
directly on the income or wealth of a person is called direct tax. Income tax is one
of form of direct taxes. The levy of income tax in India is governed by the Income
Tax Act, 1961 and Income Tax Rules, 1962. It is charged on the Total Income and
to derive the total income one must know certain concepts of the Income Tax Act.
The administration of the Income Tax Act, 1961 is done by the Central Board of
Direct Taxes (CBDT), which works under the supervision of the Ministry of
Finance. The CBDT is charged with the duty of framing rules for the administration
of the Income Tax Act. These rules, known as the Income Tax Rules, 1962, contain
various forms and miscellaneous details. The Government has set up a separate
income tax department for this purpose. Income tax is an important source of
income for the Central Government. The process of framing rules is a very
elaborate one, it involves notifying the rule first for public deliberation, and then
for adoption. They are also placed on the tables of the House for information.
These Rules are changed as and when the situation warrants.
Meaning of tax: The tax is a compulsory payment that has to be made by
individual or other persons to central government, state government or local
government. Tax is based on certain will establishment rules or criteria such as
income earned, property owned or expenditure made.
Objectives of levying tax: The reason for levy of taxes is that they constitute the
basic source of revenue to the Government. Revenue so raised is utilized for
meeting the expenses of Government like defense, provision of education,
health-care, infrastructure facilities like roads, dams etc.
The main motives of levying taxes are:
a. To achieve social justice by introducing progressive tax structure
b. Main source of revenue to the government-The income tax revenue can be
used by the government to ensure the economic development of the country.
c. To strengthen the defense sector.
Types of taxes:
Direct Taxes: If tax is levied directly on the income or wealth of a person, then,
it is a direct tax. The person who pays the tax to the Government cannot
recover it from somebody else i.e. the burden of a direct tax cannot be shifted.
E.g. Income- tax.
Indirect Taxes: If tax is levied on the price of a good or service, then, it is an
indirect tax e.g. Goods and Services Tax (GST) or Custom Duty. In the case of
indirect taxes, the person paying the tax passes on the incidence to another
person.

Key Differences between Direct Tax and Indirect Tax

1. Direct Tax refers to the tax which is paid directly to the government by the
person on whom it is imposed. On the other hand, Indirect tax is a form of
tax that is paid by the taxpayer to the government, but the amount of tax is
recovered from another person, who gets the benefits, i.e. the final
consumer.
2. The Central Board of Direct Taxes (CBDT) functioning under the
Department of Revenue is the authority that administers Direct Taxes in
India. Conversely, the Central Board of Indirect Taxes and Customs (CBIC) is
the authority responsible for the administration of Indirect Taxes.
3. While Direct tax is levied on the assessee, which may include Individual,
HUF, Company, AOP, BOI, etc. Indirect Tax is paid by the final consumer.
4. Direct Tax is progressive in nature, as it is based on the percept of ability to
pay. So, the tax is imposed more on the rich and less on the poor.
Oppositely, Indirect Tax is regressive in nature, as every person contributes
equally to the payment of taxes.
5. Direct Tax is one in which the incidence and impact of the tax fall on the
same person, whereas Indirect tax is a tax in which the incidence and
 impact of the tax fall on different persons. Here incidence refers to the
liability for the payment of tax, and impact means actual payment of tax.
6. In the case of a direct tax, it is the taxpayer who bears its burden, i.e. it
cannot be shifted to or recovered from another person. Conversely, in
indirect taxes, the burden of tax can be shifted to another person.
7. Direct taxes are when the assessee on whom the tax is imposed, is liable for
its payment. Contrastingly, indirect taxes is when the person receiving the
benefits is liable for its payment and not the person on whom it is imposed.
8. Tax evasion is a practice of deliberately avoiding the payment of taxes
while taking recourse to unlawful means. In the case of direct taxes, tax
evasion is possible, whereas, in the case of indirect taxes, tax evasion is not
possible as the amount of tax is hidden in the price of the goods and
services itself.
9. Direct taxes are imposed on and collected from assessees, which includes
individuals, HUF, companies, etc. whereas indirect taxes are imposed on
and collected from consumers of goods and services but paid and
deposited by the assessee to the government.
10.Direct tax is charged on individuals, HUF, and business entities, and the
burden cannot be shifted to others. As against, Indirect tax is charged on
commodities and services, and its burden can be shifted to others.
11.The taxable event in the case of direct tax, when the income of the
assessee reaches the maximum limit specified under the law, the exceeding
amount will become taxable. Contrarily, whenever there is a
purchase/sale/manufacture of goods and provision of services, it is a
taxable event in the case of indirect taxes.
12.Talking about administrative cost, the administrative cost of direct tax is
greater in comparison to indirect taxes.

Legal Frame work

The Constitution of India, in Article 265 lays down that “No tax shall be levied or
collected except by authority of law.” Accordingly for levy of any tax, a law
needs to be framed by the government.
Constitution of India gives the power to levy and collect taxes, whether direct or
indirect, to the Central and State Government. The Parliament and State
Legislatures are empowered to make laws on the matters enumerated in the
Seventh Schedule by virtue of Article 246 of the Constitution of India.
Seventh Schedule to Article 246 contains three lists which enumerate the
matters under which the Parliament and the State Legislatures have the
authority to make laws for the purpose of levy of taxes.
The following are the lists:
a. Union List: Parliament has the exclusive power to make laws on the matters
contained in Union List.
b. State List: The Legislatures of any State has the exclusive power to make
laws on the matters contained in the State List.
c. Concurrent List: Both Parliament and State Legislatures have the power to
make laws on the matters contained in the Concurrent list.
Every year, the Finance Minister of the Government of India introduces the
Finance Bill in the Parliament’s Budget Session. When the Finance Bill is passed by
both the houses of the Parliament and gets the assent of the President, it
becomes the Finance Act. Amendments are made every year to the Income-
tax Act, 1961 and other tax laws by the Finance Act.
The administration of direct taxes is looked after by the Central Board of Direct
Taxes (CBDT).
The CBDT is empowered to make rules for carrying out the purposes of the
Act.
a. For the proper administration of the Income-tax Act, 1961, the CBDT frames
rules from time to time. These rules are collectively called Income-tax Rules, 1962.
b. Rules also have sub-rules, provisos and Explanations. The proviso to a
Rule/Sub-rule spells out the exception to the limits, conditions, guidelines, basis
of valuation, as the case may be, spelt out in the Rule/Sub-rule. The Explanation
gives clarification for the purposes of the Rule.
c. It is important to keep in mind that along with the Income-tax Act, 1961,
these rules should also be studied.

Cannons of taxation-
Meaning:
Canons of taxation refer to the characteristics or qualities which a good tax
system must have. Canons refer to the qualities of an isolated tax and not to the
tax system as a whole. A good tax system should have a proper combination of all
kinds of taxes having different canons. A popular economist Adam Smith came
up with four canons of taxation (1776), i.e. equality or equity, certainty,
convenience and economy. Other economists including Bastable added a few
more canons. Some of them are: elasticity, productivity, simplicity, diversity,
flexibility and comprehensibility.

Adam Smith’s four canons of taxation:

1. The Canon of Equality: - According to this, “The citizens of every state must
contribute for the aid of government in proportion to their ability, means in
proportion of that income whose enjoyment; they receive in security of state. By
following this principle, the equality of taxation can be received and by neglecting
this, the principle of inequality. Taxation tells clearly that government have to
receive accordingly from each citizen for the fulfilment of their expenditure.”

2. Canon of Certainty: - According to this, “Every individual who pays taxes, must
be certain. The time of payment of tax, method of payment and amount of
payment etc., must be clear to taxpayer and each other individual. In the matter
of tax, the payment which is paid to any individual, its certainty is very important
that on the basis of experience of all countries, but my view is that the inequality
of large amount is not so dangerous so that the certainty of less amount.”

3. Canon of Convenience: - According to this canon, “Every tax must be paid at

such time and according to such ritual that the payment of this is more
convenient for the taxpayer.” Adam Smith stressed on tax: “ought to be levied
at time or the manner in which it is most likely to be convenient for the
contributor to pay it.” Its meaning is that the tax must be imposed in such a way
and must be imposed at such a time when the taxpayer can pay it more
conveniently.

4. Canon of Economy: -The fourth and last canon of Smith is canon of economy.
According to this, “Every tax must be imposed and received in such a way so that
the money which comes by it in the treasure of state, people must have to pay
less for it.” The objective of this canon is that the administrative cost of tax
payment must be kept minimum, means there must be minimum difference
between the money coming from the pocket of people and money deposited in
treasure.

Canons Introduced by Bastable and others:

a) Elasticity: Taxation should be elastic in nature in the sense that more revenue
is automatically fetched when income of the people rises. This means that
taxation must have built-in flexibility. Whenever the government needs money,
it must be able to extract as much income as possible without generating any
harmful consequences through raising tax rates. Income tax satisfies this
canon.

b) Productivity: According to a well-known classical economist in the field of

public finance, Charles F. Bastable, taxes must be productive or cost-effective.
This implies that the revenue yield from any tax must be a sizable one.
Further, this canon states that only those taxes should be imposed that do not
hamper productive effort of the community. A tax is said to be a productive
one only when it acts as an incentive to production.

c) Simplicity: Simplicity implies that the tax system should be fairly simple, plain
and intelligible to the tax taxpayer. If it is complicated and difficult to understand
it can lead to malpractices such as evasion and avoidance. A complicated tax
system is expensive in the sense that even the most honest educated
taxpayers will have to seek advice of the tax consultants. Ultimately, such a
tax system has the potentiality of breeding corruption in the society.

d) Diversity: A good tax system should incorporate a broad taxpayer base and
sources of income e.g. from employment, from investments etc. Taxation must
be dynamic. This means that a country’s tax structure ought to be dynamic or
diverse in nature rather than having a single or two taxes. Diversification in a
tax structure will demand involvement of the majority of the sectors of the
population.

If a single tax system is introduced, only a particular sector will be asked to

pay to the national exchequer leaving a large number of population
untouched. Obviously, incidence of such a tax system will be greatest on
certain taxpayers. A dynamic or a diversified tax structure will result in the
allocation of burden of taxes among the vast population resulting in a low
degree of incidence of a tax in the aggregate.

e) Flexibility: It should be easy for tax authorities to revise the tax structure
(coverage and rates) to suit the changing requirements of the economy.

f) Comprehensibility: The tax system must be understood by the taxpayer.

Important Definition:
1. Assessee [Section 2(7)]: “Assessee” means a person by whom any
tax or any other sum of money is payable under this Act. In addition,
it includes –
 Every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income; or
 the income of any other person in respect of which he is assessable; or
 the loss sustained by him or by such other person; or
 the amount of refund due to him or to such other person.
 Every person who is deemed to be an assessee under any
provision of this Act;
 Every person who is deemed to be an assessee-in-default
under any provision of this Act.

2. Assessment [Section 2(8)]: This is the procedure by which the income of an

assessee is determined. It may be by way of a normal assessment or by way of
reassessment of an income previously assessed. Assessment Procedure will be
dealt with in detail at the Final level.
3. Assessment Year [Section 2(9)]. This means a period of 12 months
commencing on 1st April every year. The year in which income is earned is the
previous year and such income is taxable in the immediately following year
which is the assessment year. Income earned in the previous year 2022-23 is
taxable in the assessment year 2023-24. [A.Y 1-4-2024 to 31-03-
2025]
4. Previous year [Section 3]: The term has been defined “ the financial year
immediately preceding the assessment year. As mentioned earlier, the income
earned during the previous year is taxable in the assessment year.
[P.Y 1-4-2023 to 31-03-2024]

Exceptions to this rule:

The income of an assessee for a previous year is charged to income-tax in the
assessment year following the previous year. For instance, the income of the
previous year 2023-24 is assessed during 2024-25. Therefore, 2024-25 is the
assessment year for assessment of income of the previous year 2023-24.
This rule does not apply and the income is taxed in the previous year in which it is
earned. These exceptions have been made to protect the interests of revenue.

Cases where the income of a previous year is assessed in the

previous year itself:

1) Persons Leaving India [Sec.174 of I.T Act] : Where it appears to the A.O
(Assessing Officer) that any individual may leave India during the current
assessment year or shortly after its expiry and he has no present intention of
returning to India, the total income of such individual for the period from the
expiry of the respective previous year up to the probable date of his departure
from India is chargeable to tax in that assessment year.
Example: - Mr. is leaving India for UAE on 10.09.2023 and it appears to the A.O
that he has no intention to return. Before leaving India, Mr. X will be required to
pay income tax on the income earned during the P.Y.2023-24.
2) Shipping business of Non-Resident [Sec.172 of I.T Act]: Where a ship,
belonging to or chartered by a non-resident, carries passengers, livestock, mail or
goods shipped at a port in India, the ship is allowed to leave the port only when
the tax has been paid or satisfactory arrangement has been made for payment
thereof @7.5% of the freight paid or payable to the owner or the charterer or to
any person on his behalf, whether in India or outside India on account of such
carriage is deemed to be his income which is charged to tax in the same year in
which it is earned.
Ex: - Mr. Abraham of USA engaged in the business of shipping operation
carrying goods. His ship Titanic is effectively engaged in carrying goods from
Visakhapatnam Port to Texas Port and from this operation, he received Rs.40
Lakhs as his Income. By applying the provisions of Sec.172, his deemed income
under PGBP head will be 7.5% of 40 Lakhs i.e. Rs.3 Lakh.
Now Mr. Abraham has to make a tax payment to the credit of Central
Government on his income of Rs.3 lakh before he is allowed to leave India .

3) Discontinued business [Sec.176 of I.T Act] : Where any business or profession is

discontinued in any assessment year, the income of the period from the expiry of
the previous year up to the date of such discontinuance may, at the discretion of
the Assessing Officer, be charged to tax in that assessment year.
4) Persons likely to transfer property to avoid tax [Sec.175 of I.T Act]: During the
current assessment year, if it appears to the Assessing Officer that a person is
likely to charge, sell, transfer, dispose of, or otherwise part with any of his assets
to avoid payment of any liability under this Act, the total income of such person
for the period from the expiry of the previous year to the date, when the
Assessing Officer commences proceedings under this section is chargeable to tax
in that assessment year
5) AOP/ BOI/ Artificial Juridical Person formed for a particular event or purpose
[Sec.174A of I.T Act]: If an AOP/ BOI /AJP is formed or established for a particular
event or purpose and the Assessing Officer apprehends that the AOP/ BOI/AJP is
likely to be dissolved in the same year or in the next year, he can make an
assessment of the income up to the date of dissolution as income of the relevant
assessment year.

Person [Section 2(31)]:

person" includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
 (v) an association of persons or a body of individuals, whether
incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding
sub-clauses.
Explanation—For the purposes of this clause, an association of persons or a body
of individuals or a local authority or an artificial juridical person shall be deemed
to be a person, whether or not such person or body or authority or juridical
person was formed or established or incorporated with the object of deriving
income, profits or gains;
Income [Section 2(24)]
Definition; The definition of income as per the Income-tax Act, 1961
begins with the words “Income includes”. Therefore, it is an inclusive
definition and not an exhaustive one. Such a definition does not
confine the scope of income but leaves room for more inclusions within
the ambit of the term.
Section 2(24) of the Act gives a statutory definition of income. At
present, the following items of receipts are specifically included in
income:—
1. Profits and gains;
2. Dividends;
3. Voluntary contributions received by a trust/institution created wholly or
partly for charitable or religious purposes or by certain research
association or universities and other educational institutions or hospitals
and other medical institutions or an electoral trust;
4. The value of any perquisite or profit in lieu of salary taxable under section
17(2)/(3);
5. Any special allowance or benefit, other than the perquisite included above,
specifically granted to the assessee to meet expenses wholly, necessarily
and exclusively for the performance of the duties of an office or
employment of profit;
6. Any allowance granted to the assessee to meet his personal expenses at
the place where the duties of his office or employment of profit are
 ordinarily performed by him or at a place where he ordinarily resides or
to compensate him for the increased cost of living;
7. The value of any benefit or perquisite whether convertible into money or
not, obtained from a company either by a director or by a person who has a
substantial interest in the company or by a relative of the director or such
person and any sum paid by any such company in respect of any obligation
which, but for such payment would have been payable by the director or
other person aforesaid;
8. The value of any benefit or perquisite, whether convertible into money or
not, which is obtained by any representative assessee or by any
beneficiary and any amount paid by the representative assessee for the
benefit of the beneficiary which the beneficiary would have ordinarily been
required to pay.
9. Deemed profits chargeable to tax under section 41 or section 59;
10.Profits and gains of business or profession chargeable to tax under section
28;
11.Any capital gains chargeable under section 45;
12.The profits and gains of any insurance business carried on by Mutual
Insurance Company or by a cooperative society4 or any surplus taken to
be such profits and gains by virtue of the provisions contained in the First
Schedule to the Act;
13.The profits and gains of any banking business (including providing credit
facilities) carried on by a co-operative society with its members;
14.Any winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling, or betting
of any form or nature whatsoever. For this purpose,
15.“Lottery” includes winnings from prizes awarded to any person by draw
of lots or by chance or in any other manner whatsoever, under any
scheme or arrangement by whatever name called;
16.“Card game and other game of any sort” includes any game show, an
entertainment programme on television or electronic mode, in which
people compete to win prizes or any other similar game;
17.Any sum received by the assessee from his employees as contributions
 to any provident fund (PF) or superannuation fund or Employees State
Insurance Fund (ESI) or any other fund for the welfare of such employees;
18.Any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy will constitute income;
19.“Keyman insurance policy” means a life insurance policy taken by a
person on the life of another person where the latter is or was an
employee of former or is or was connected in any manner whatsoever with
the former’s business. It also includes such policy which has been assigned
to a person with or without any consideration, at any time during the
term of the policy.
20.Any sum referred to in section 28(va). Thus, any sum, whether received or
receivable in cash or kind, under an agreement for not carrying out any
activity in relation to any business or profession; or not sharing any know-
how, patent, copy right, trade-mark, licence, franchise, or any other
business or commercial right of a similar nature, or information or
technique likely to assist in the manufacture or processing of goods or
provision of services, shall be chargeable to income tax under the head
“profits and gains of business or profession”;
21.Fair market value of inventory which is converted into, or treated as a
capital asset [Section 28(iva)];
22.Any consideration received for issue of shares as exceeds the fair market
value of the shares [Section 56(2)(viib)];
23.Any sum of money received as advance, if such sum is forfeited
consequent to failure of negotiation for transfer of a capital asset [Section
56(2)(ix)];
24.Any sum of money or value of property received without consideration
or for inadequate consideration by any person [Section 56(2)(x)];
25.Any compensation or other payment, due to or received by any person, in
connection with termination of his employment or the modification of the
term and conditions relating thereto [Section 56(2)(xi)];
26.Assistance in the form of a subsidy or grant or cash incentive or duty
drawback or waiver or concession or reimbursement, by whatever name
called, by the Central Government or a State Government or any authority
or body or agency in cash or kind to the assessee is included in the
 definition of income.
27.However, subsidy or grant or reimbursement which has been taken into
account for determination of the actual cost of the depreciable asset in
accordance with Explanation 10 to section 43(1) shall not be included in the
definition of income.
Concept of Income under the Income-tax Act, 1961
 Regular receipt vis-a-vis casual receipt: Income, in general, means
a periodic monetary return which accrues or is expected to accrue
regularly from definite sources. However, under the Income-tax Act,
1961, even certain casual receipts which do not arise regularly are
treated as income for tax purposes e.g., Winnings from lotteries,
crossword puzzles.
 Revenue receipt vis-a-vis Capital receipt: Income normally refers
to revenue receipts. Capital receipts are generally not included within
the scope of income in general parlance. However, the Income-tax Act,
1961 has specifically included certain capital receipts within the
definition of income e.g., Capital gains i.e., gains on sale of a capital
assets like land.
 Net receipt vis-a-vis Gross receipt: Income means net receipts and not
gross receipts. Net receipts are arrived at after deducting the
expenditure incurred in connection with earning such receipts. The
expenditure which can be deducted while computing income under each
head is prescribed under the Income-tax Act, 1961. Income from
certain eligible businesses/ professions is also determined on
presumptive basis i.e., as a certain percentage of gross receipts.
 Due basis vis-a-vis receipt basis: Income is taxable either on due
basis or receipt basis. For computing income under the heads “Profits
and gains of business or profession” and “Income from other sources”,
the method of accounting regularly employed by the assessee should
be considered, which can be either cash system or mercantile system.
Some receipts are taxable only on receipt basis, like, income by way
of interest received on compensation or enhanced compensation.

Casual income: Casual income, is non-recurring in nature. It's an income

which is earned by chance and not likely to occur again in a year. This earning is
neither anticipated nor provided for in any agreement. The frequency of casual
income is uncertain and not fixed. Apart from these, any income which is
unanticipated and unplanned is also called casual income.
Examples: winnings, such as lottery jackpots, quiz shows, poker games, successful
sports betting, crossword or other puzzle-solving, and various other stimulating
games of chance. Lotteries offer an opportunity for individuals to strike it rich by
claiming prizes through draws or sheer luck.
A flat tax rate of 30% gets charged on your casual income. After adding cess, the
rate amounts to 31.2%.

Gross Total Income: Gross Total Income is the aggregate of all the income
earned by you during a specified period. According to Section 14 of the Income
Tax Act 1961, the income of a person or an assessee can be categorized under
these five heads;

 Income from Salaries (Section 15)

 Income from House Property (Section 22)
 Profits and Gains of Business and Profession (Section 28)
 Capital Gains (Section 45)
 Income from Other Sources (Section 56)
Total Income: Total Income is the income on which tax liability is determined. It
is necessary to compute total income to ascertain tax liability. Section 80C to 80U
provides certain deductions that can be claimed from Gross Total Income (GTI).
After claiming these deductions from GTI, the remaining income is called as Total
Income.
In other words, GTI less Deductions (under section 80C to
80U) = Total Income (TI). Total income can also be understood
as taxable income.
Specimen of Total Income (Old Regime)

Particulars Amount

Income from salary XXXXX

Income from house property XXXXX

Profits and gains of business or profession XXXXX

 Capital gains XXXXX

Income from other sources XXXXX

Gross Total Income XXXXX

Less: Deductions under Chapter VI-A (i.e., under section 80C to 80U) (XXXXX)

Total Income (i.e., taxable income) XXXXX

Agricultural Income [Section 10(1)]

As per section 10(1), agricultural income earned by the taxpayer in India is
exempt from tax.
Agricultural income is defined under section 2(1A) of the Income-tax Act. As per
section 2(1A), agricultural income generally means:
(a) Any rent or revenue derived from land which is situated in India and is used
for agricultural purposes.
(b) Any income derived from such land by agriculture operations including
processing of agricultural produce so as to render it fit for the market or sale of
such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain
conditions specified in this regard in section 2(1A). Any income derived from
saplings or seedlings grown in a nursery shall be deemed to be agricultural
income.

Definition of agricultural income [Section 2(1A)]

This definition is very wide and covers the income of not only the cultivators but also the
land holders who might have rented out the lands. Agricultural income may be received in cash
or in kind.
Agricultural income may arise in any one of the following three ways: -
1. It may be rent or revenue derived from land situated in India and used for agricultural
 purposes. The amount received in money or in kind, by one person from another for
right to use land is termed as Rent. The rent can either be received by the owner of
the land or by the original tenant from the sub-tenant. It implies that ownership of land
is not necessary. Thus, the rent received by the original tenant from sub-tenant would
also be agricultural income subject to the other conditions mentioned above. The scope
of the term “Revenue” is much broader than rent. It includes income other than rent.
For example, fees received for renewal for grant of land on lease would be revenue
derived from land.
2. It may be income derived from such land by;
a. agriculture or
b. the performance of a process ordinarily employed by a cultivator or receiver
of rent in kind to render the produce fit to be taken to the market or
c. the sale, by a cultivator or receiver of rent in kind, of such agricultural
produce raised or received by him, in respect of which no process has been
performed other than a process of the nature mentioned in point (b) above.
income derived from such land is derived by-
Basic Operations: Those operations by agriculturists which are absolutely necessary for the
purpose of effectively raising produce from the land are the basic operations.
Subsequent Operations: Operations to be performed after the produce of sprouts from the land
(e.g., weeding, digging etc.) are subsequent operations. These subsequent operations would
be agricultural operations only when taken in conjunction with and as a continuation of the
basic operations
(iii) Lastly, agricultural income may be derived from any farm building required for agricultural
operations.
Income from a farmhouse is exempt from tax if it meets certain criteria defined in
section 2(1A) of the Income Tax Act:
 The farmhouse should be situated on or near the agricultural land, and
 The agricultural land should not fall within the specified area, which is:

Aerial distance from municipality Population

Within 2 km 10,000 to 1,00,000

Within 6 km 1,00,000 to 10,00,000

 Aerial distance from municipality Population

Within 8 km 10,00,000

Partial agricultural incomes:

Income comprises of both agricultural as well as non-agricultural income. Such a
situation arises in case of certain ‘Agro based industries where agricultural
produce is used as raw material and it (i.e., raw material) is produced by the same
person (i.e., industrialist) who manufactures industrial product by using such raw
material. Such industries (i.e., persons), earn income by selling the industrial
product manufactured from self-grown agricultural raw material.

Rul Apportionment of income in certain cases Agricultural Business Income

e Income
7A Income from sale of rubber products derived 65% 35%
from rubber plant grown by the seller in India
7B Income from sale of coffee

- grown and cured by the seller in India 75% 25%

- grown, cured, roasted and grounded by 60% 40%

the seller in India
8 Income from sale of tea grown and 60% 40%
manufactured by the seller in India

Examples for Agricultural incomes

a. Income from the sale of trees from the forests where the trees were
replanted and subsequent operations in forestry were carried out. [C.LT. v.
Raja Benoy Kuinar Sahas Roy].
b. Sale of fruits and vegetables Through human intervention.
 c. Income from sale of dried tobacco leaves in which green tobacco leaves are
dried by using some process.
d. 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.
[Commissioner of Income-tax v. Manna Bamji & Co. 86 I.T.R. 29]
e. Grazing fees realized from piece of land which was used for grazing animals
used for agricultural purposes. [C.l.T. v. Raja Shamsherjang Bahadur]
f. Income from growing of flowers i.e., floriculture by a landlord or a
cultivator.
g. Sale of standing crop by a cultivator.
h. Interest on capital and share of profit received by a partner from a firm
engaged in agricultural activities.
i. Income derived from sale of seeds. derived on account of cultivation by the
assessee.
j. Income of nursery by carrying out basic operations.
k. Compensation received from an insurance company for damage to
crop in a typhoon, flood etc..
l. income from plants and creepers.

Examples of Non Agricultural Incomes:

a. Incomes from sale of trees from a forest where no tilling or other basic
operations were carried and trees are of spontaneous growth
b. Income from the sale of wild grass.
c. Income from sale of gur or refined sugar acquired by using some
manufacturing process.
d. Income from sale of ginned cotton.
e. Interest received by money-lender in the form of agricultural produce.
f. Share of agricultural produce received by a person for supply of water.
g. Remuneration received for managing agricultural farm.
 h. A Zamindar obtains promissory note from a defaulting tenant in respect of
arrears of rent due to him, any interest which accrues on such note shall
not be agricultural income.
i. Commission received by the landlord for selling the agricultural produce of
his tenants.
j. Profit from sale or harvest of an agricultural crop, purchased by the
assessee as standing crop, may be called as profit from trading operations.
k. Income from sale of fruits of trees of spontaneous growth is not agricultural
income
l. Any annuity received (from agricultural land exchanged for annuity) is not
agricultural income.
m. Remuneration received by a person for managing agricultural property is
not agricultural income.
n. Income from fisheries.
o. Royalty income from mines and brick making.
p. Interest on arrears of rent of agricultural land.
q. Income from producing cheese and butter.
r. Income from the dairy industry.
s. Income from royalties of mines,
t. Income from salt produced by flooding the land with sea water and then
extracting salt therefrom.
u. Income from interest to money lender received in form of agricultural
produce.
v. From supply of water.
w. Income from market, fairs and exhibition.
x. Income from stone quarries.
y. Income from sale of earth clay.

Partial integration of agricultural incomes with non-agricultural

incomes:
Agricultural Income is exempt from tax under section 10(1) subject to conditions
mentioned in the definition clause of section 2(1A) of the Income Tax Act, 1961.
However, the Income-tax Act has laid down a method to indirectly tax such
income. This method or concept may be called as partial integration of
agricultural income with non-agricultural income. The purpose behind this
method is to tax non-agricultural income at higher rates of tax.
This method is applicable only to individuals, HUF, AOPs, BOIs and artificial
juridical person, when the following conditions are satisfied:
(1) The net agricultural income is greater than ₹5,000 during the year; and
(2) Non-agricultural income (i.e., total income excluding net agricultural income)
is above the basic exemption limit.

SCHEME OF CHARGING INCOME TAX:

Income tax is a tax on the total income of an assessee for a particular assessment
year. This implies that;
 Income-tax is an annual tax on income
 Income of previous year is chargeable to tax in the next following assessment
year at the tax rates applicable for the assessment year.
 Tax rates are fixed by the annual Finance Act and not by the Income-tax Act.
For instance, the Finance Act, 2022 fixes tax rates for the assessment year 2023-
24
 Tax is charged on every person if the gross total income exceeds the minimum
income chargeable to tax

Tax Rates Applicable For A.Y 2024-2025

 1. 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 2024-25
Up to Rs. 2,50,000 -
Rs. 2,50,001 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 2024-25
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 o r more at any time during the previous year)
Net Income Range Rate of Income-tax
Assessment Year 2024-25
Up to Rs. 5,00,000 -
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
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. The amount of rebate is 100 per cent of income-
tax or Rs. 12,500, whichever is less.
 The tax rates under the new tax regime are as under:
Income Tax Slabs Under New Tax Regime for A.Y 2024-25
Range of Income (Rs.) Tax Rate

Up to 3,00,000 Nil

3,00,000-6,00,000 5%

6,00,000-9,00,000 10%

9,00,000-12,00,000 15%

12,00,000-15,00,000 20%

Above 15,00,000 30

Changes announced in the new tax regime in Budget 2023

Given below are the changes that were announced in the new tax regime in Budget
2023 for FY 2023-24:
 New income tax regime is the default tax regime. Thus, unless an individual
specifically opts for the old tax regime, their incomes will be taxed at the new tax
regime's slabs and rates
 Rebate under Section 87A increased to taxable income of Rs 7 lakh (tax rebate of
25,000) from 5 lakh (tax rebate of Rs 12,500). This effectively means that any
individual opting for the new tax regime with taxable income of up to Rs 7 lakh
will not pay any taxes. Earlier, this tax rebate was available till taxable income of
Rs 5 lakh
 Basic exemption limit hiked to Rs 3 lakh from Rs 2.5 lakh in the new tax regime
 The number of income tax slabs under the new tax regime reduced to five from six
 Standard deduction of Rs 50,000 introduced under the new tax regime for salaried
and pensioners
 Family pensioners can also claim standard deduction of Rs 15,000 under the new
tax regime
 Highest surcharge rate of 37% reduced to 25% under the new tax regime
Rate of Surcharge (OLD REGIME/EXISTING REGIME)

Assessment Year 2024-25

Range of Income

Rs. 50 Lakhs to Rs. 1 Crore to Rs. 2 Crores Rs. 2 Crores to Rs. 5 Crores above Rs. 5 crore
Rs. 1 Crore

10% 15% 25% 37%

Note:(1) The enhanced surcharge of 25% & 37%, as the case may be, is not
levied, from income chargeable to tax under
sections 111A, 112, 112A and 115AD. Hence, the maximum rate of
surcharge on tax payable on such incomes shall be 15%.
However, marginal relief is available from surcharge in following manner-
i) in case where net income exceeds Rs. 50 lakh but doesn't exceed Rs. 1 Crore,
the amount payable as income tax and surcharge shall not exceed the total
amount payable as income tax on total income of Rs 50 Lakh by more than the
amount of income that exceeds Rs 50 Lakhs.
(ii)in case where net income exceeds Rs. 1 crore but doesn't exceed Rs. 2 crore,
marginal relief shall be available from surcharge in such a manner that the
amount payable as income tax and surcharge shall not exceed the total amount
payable as income-tax on total income of Rs. 1 crore by more than the amount of
income that exceeds Rs. 1 crore.
( iii) in case where net income exceeds Rs. 2 crore, marginal relief shall be
available from surcharge in such a manner that the amount payable as income tax
and surcharge shall not exceed the total amount payable as income-tax on total
income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2
crore.

Health and Education Cess: Health and Education Cess is levied at the rate of 4% on
the amount of income-tax plus surcharge.
Exemption under section 10 vis-a-vis Deduction under Chapter VI-A
The various items of income referred to in the different clauses of section 10 are excluded from
the total income of an assessee. These incomes are known as exempted incomes. Consequently,
such income shall not enter into the computation of taxable income.
Moreover, there are certain other incomes which are included in gross total income but are
wholly or partly allowed as deductions under Chapter VI-A in computation of total income.
Students should note a very important difference between exemption under section 10 and the
deduction under Chapter VI-A.

Agricultural income [Section 10(1)] [already explained].

Share income of a partner [Section 10(2A)] This clause exempts from tax a partner’s
share in the total income of the firm. In other words, the partner’s share in the total income of
the firm determined in accordance with the profit-sharing ratio will be exempt from tax.
It should be of such a nature or magnitude as to be beyond the coping capacity of the
community of the affected area.
Leave travel concession [Section 10(5)]: An employee can claim exemption under
section 10(5) in respect of Leave Travel Concession.
Exemption undersection 10(5) is available to all employees (i.e. Indian as well as
foreign citizens).
Exemption is available in respect of value of any travel concession or assistance
received or due to the employee from his employer (including former employer)
for himself and his family members in connection with his proceeding on leave to
any place in India.
Other provisions to be kept in mind in this regard are as follows:
Where journey is performed by air: Amount of exemption will be lower of
amount of economy class air fare of the National Carrier by the shortest route or
actual amount spent.
Where journey is performed by rail: Amount of exemption will be lower of
amount of airconditioned first class rail fare by the shortest route or actual
amount spent. The same rule will apply where journey is performed by any other
mode and the place of origin of journey and destination are connected by rail.
Where the place of origin and destination are not connected by rail and journey
is performed by any mode of transport other than by air: The exemption will be
as follows:
(a) If recognized public transport exists: Exemption will be lower of first class or
deluxe class fare by the shortest route or actual amount spent.
(b) If no recognized public transport exists: Exemption will be lower of amount of
airconditioned first class rail fare by the shortest route (considering as if journey is
performed by rail) or actual amount spent.
Family: Family will include spouse and children of the individual, whether
dependent or not and parents, brothers, sisters of the individual or any of them
who are wholly or mainly dependent on him.

Exemption is restricted to only 2 surviving children born after October 1, 1998

(multiple births after first single child will be considered as one child only),
however, such restriction is not applicable to children born before October 1,
1998.

Death-cum-retirement gratuity received by Government servants

[Section 10(10)(i)] Section 10(10)(i) grants exemption to gratuity received by
Government employee (i.e., Central Government or State Government or local
authority).
Gratuity received by a non-Government employee covered by Payment of
Gratuity Act, 1972 [Section 10(10)(ii)] As per section 10(10)(ii), exemption in
respect of gratuity in case of employees covered by the Payment of Gratuity Act,
1972 will be lower of following:
 15 days’ salary × years of service.

 Maximum amount specified, i.e., Rs. 20,00,000*.

 Gratuity actually received.

Note: 1) Instead of 15 days’ salary, only 7 days salary will be taken into
consideration in case of employees of seasonal establishment.
2) 15 days’ salary = Salary last drawn × 15/26
3) Salary for this purpose will include basic salary and dearness allowance only.
Items other than basic salary and dearness allowance are not to be considered.
4) In case of piece rated employee, 15 days’ salary will be computed on the basis
of average of total wages (excluding overtime wages) received for a period of
three months. immediately preceding the termination of his service.
5) Part of the year, in excess of 6 months, shall be taken as one full year.

Gratuity received by a non-Government employee not covered by

Payment of Gratuity Act, 1972 [Section 10(10)(iii)] As per section 10(10)
(iii), exemption in respect of gratuity in case of employees not covered by the
Payment of Gratuity Act, 1972 will be lower of following :
Half month’s salary for each completed year of service, i.e., [Average monthly
salary × ½] × Completed years of service.

Rs. 10,00,000.

Gratuity actually received.

Note:
1) Average monthly salary is to be computed on the basis of average of salary for
10 months immediately preceding the month of retirement.
2) Salary for this purpose will include basic salary, dearness allowance, if the
terms of service so provide and commission based on fixed percentage of
turnover achieved by the employee.
3) While computing years of service, any fraction of a year is to be ignored.

Pension [Section 10(10A)]: As per section 10(10A ), any commuted

pension, i.e., accumulated pension in lieu of monthly pension received by a
Government employee is fully exempt from tax. Exemption is available only in
respect of commuted pension and not in respect of un-commuted, i.e., monthly
pension.
Exemption in respect of commuted pension in case of a non-Government
employee will be as follows:
 If the employee receives gratuity, one third of full value of commuted pension
will be exempt from tax under section 10(10A).

 If the employee does not receive gratuity, one half of full value of commuted
pension will be exempt from tax under section 10(10A).

Leave salary [Section 10(10AA)] As per section 10(10AA), leave

encashment by a Government employee at the time of retirement (whether on
superannuation or otherwise) is exempt from tax.
In the hands of non-Government employee exemption will be least of the
following:
1. Period of earned leave standing to the credit in the employee’s account at the
time of retirement (*) × Average monthly salary .

2. Average monthly salary × 10 (i.e., 10 months’ average salary).

3. Maximum amount as specified by the Government, i.e., Rs. 3,00,000.

4. Leave encashment actually received at the time of retirement.

Note:
• Leave credit to the account of the employee at the time of
retirement should be restricted to 30 days per year of
service if leave entitlement as per service rules exceeds 30
days per year of actual service.
• Salary for the above purpose means average salary drawn in
the past ten months immediately preceding the retirement
(i.e., preceding the day of retirement) and
• salary include basic salary, dearness allowance (if
considered for computing all the retirement benefits) and
commission based on fixed percentage of turnover achieved
 by the employee.
• Apart from the above items, salary for this purpose does not
include any other allowances or perquisites

Retrenchment compensation [Section 10(10B)] As per section 10(10B),

compensation received at the time of retrenchment is exempt from tax to the
extent of lower of the following:
(a) An amount calculated in accordance with the provisions of section 25F(b) of
the Industrial Dispute Act, 1947; or

(b) Maximum amount specified by the Central Government (Rs. 5,00,000);

(c) Actual amount received. Under the Industrial Dispute Act, a workman is
entitled to retrenchment compensation, equal to 15 days’ average pay for each
completed year of continuous service or any part in excess of six months.
Compensation in excess of aforesaid limits is taxable as salary.
However, the aforesaid limit is not applicable in cases where compensation is paid
under any scheme approved by the Central Government.

Payment at the time of voluntary retirement [Section 10(10C)] As per

section 10(10C), any compensation received at the time of voluntary retirement
or termination of service is exempt from tax, if the following conditions are
satisfied:
 Compensation is received at the time of voluntary retirement or termination (or
in the case of an employee of public sector Company, at the time of voluntary
separation). Compensation is received in accordance with the scheme of
voluntary retirement/separation, which is framed in accordance with guidelines
prescribed under Rule 2BA of Income-tax Rules, 1962*.

 Maximum amount of exemption is Rs. 5,00,000.

the amount receivable on account of voluntary retirement or voluntary

separation of the employee does not exceed the amount equivalent to - 3 months
salary* for each completed year of service or – salary at the time of retirement
multiplied by the balance months of service left before the date of his retirement
*Salary for this purpose will include basic salary, dearness allowance, if the terms
of service so provide and commission based on fixed percentage of turnover
achieved by the employee.

Tax on perquisites paid by the employer [Section 10(10CC)]: Perquisites

to employees mean any facility provided by the employer to the employees.
There are two types of perquisites, viz., monetary and non-monetary.
Value of perquisite is charged to tax in the hands of the employees, however, the
employer may at his will pay tax (on behalf of employees) on such perquisites. In
such a case, the amount of tax paid on such perquisites by the employer on behalf
of the employees will be treated as income of the employees and is charged to
tax in his (i.e., in employee’s) hands.
However, by virtue of section 10(10CC) tax paid by employer (on behalf of
employee) on non-monetary perquisites will be exempt from tax in the hands of
employees. Such tax paid by the employer shall not be allowed as a deductible
expenditure in the hands of employer under section 40.
Section 10(10CC) provides exemption only in respect of tax on nonmonetary
perquisites. In other words, this section does not provide exemption in respect of
perquisites or tax paid on monetary perquisites.

Exemption in respect of amount received from public provident

fund/statutory provident fund/ recognized provident fund/ un-
recognized provident fund [Section 10(11)/ (12)]: The tax treatment of
various items in case of different provident funds is as follows:
Statutory Provident Fund:
Employer’s Contribution Employer’s contribution to such fund is not treated as
income of the employee.
Interest credited to such fund is exempt in the hands of the employee.

Amount received at the time of termination Lump sum amount received from
such fund, at the time of termination of service is exempt in the hands of
employees.
Recognized Provident Fund:
Employer’s Contribution Employer’s contribution to such fund, up to 12% of
salary is not treated as income of the employee.

Interest credited to such fund up to 9.5% per annum is exempt in the hands of the
employee, interest in excess of 9.5% is charged to tax in the hands of the
employee.

Amount received termination at the time of If certain conditions are satisfied,

then lump sum amount received from such fund, at the time of termination of
service, is exempt in the hands of employees.

Employer’s Contribution Employer’s contribution to such fund is not treated as

income of the employee.

Interest credited to such fund is exempt in the hands of the employees.

Amount received at the time of termination is tax free.

Public Provident Fund

Employer’s Contribution Employers do not contribute to such fund.
Interest credited to such fund is exempt.
Amount received at the time of termination Lump sum amount received from
such fund at the time of termination of service is exempt from tax.

Note: Salary for this purpose will include basic salary, dearness allowance, if the
terms of service so provide and commission based on fixed percentage of
turnover achieved by the employee.

Amount paid on life insurance policy [Section 10(10D)] As per section

10(10D), any amount received under a life insurance policy, including bonus is
exempt from tax. Exemption is available only in respect of amount received from
life insurance policy.

Payment from account opened in accordance with the Sukanya

Samriddhi Account Rules, 2014 [Section 10(11A)] As per section 10(11A),
any payment from an account opened in accordance with the Sukanya Samriddhi
Account Rules, 2014 made under the Government Savings Bank Act, 1873 is
exempt from tax. In other words, interest and withdrawals from such account will
be exempt from tax under section 10(11A).

Payment from the National Pension System Trust to an employee

[Section 10(12A)] Any payment from the National Pension System Trust to an
assessee on closure of account or his opting out of the pension scheme referred
to in section 80CCD, to the extent it does not exceed 40 % of the total amount
payable to him at the time of closure or his opting out of the scheme, is exempt
from tax. With effect from April 01, 2020, 60 % of the amount payable shall be
exempt from tax.

Partial withdrawal from NPS [Section 10(12B)] To provide relief to an

employee withdrawing partial amount from National Pension System (NPS) Trust.
A new clause (12B) is inserted under section 10 with effect from assessment year
2018-19 to provide that the withdrawal from NPS will not be chargeable to tax if
the following conditions are satisfied: -
1. Amount of withdrawal should not exceed 25% of total contribution made by an
employee in NPS.
2. Partial withdrawal should be made in accordance with the terms and conditions
specified under the Pension Fund Regulatory and Development Authority Act,
2013 and the regulations made thereunder.
 House rent allowance [Section 10(13A)] As per section 10(13A), read with
rule 2A, the exemption in respect of HRA will be lower of the following amounts:
(1) 50% of salary, when residential house is situated at Mumbai, Kolkata, Delhi or
Chennai and 40% of salary where residential house is situated at any other place.

(2) HRA actually received by the employee in respect of the period during which
rental accommodation is occupied by the employee during the previous year.

(3) Rent paid in excess of 10% of salary.

Salary will include basic salary, dearness allowance forming part of salary while
computing all retirement benefits and commission based on fixed percentage of
turnover achieved by the employee.
Apart from this, salary for this purpose does not include any other
allowances/perquisites.
Salary for this purpose shall be computed on due basis in respect of period during
which the accommodation is occupied by the employee in the previous year.
Hence, any payments not pertaining to the previous year or not pertaining to the
period of occupation of the accommodation shall be excluded.

Prescribed allowances or benefits [Section 10(14)]

As per section 10(14), read with rule 2BB following allowances granted to an
employee are exempt from tax subject to certain limit:
Allowa Exemption Limit
nces
Children Education Allowance Up to Rs. 100 per month per child
up to a maximum of 2 children is
exempt
Hostel Expenditure Allowance Up to Rs. 300 per month per child up
to a maximum of 2 children is
exempt
Transport Allowance granted to an Rs. 3,200 per month for blind and
employee to (who is a blind and handicap) handicapped employees is exempt
meet expenditure on commuting between
place of residence and place of duty
Allowance granted to an employee working Amount of exemption shall be lower
in any transport business to meet his of following:
personal expenditure during his duty a) 70% of such allowance; or
performed in the course of running of such b) Rs. 10,000 per month.
transport from one place to another place
provided employee is not in receipt of daily
allowance.
Conveyance Allowance granted to meet the Exempt to the extent of expenditure
expenditure on conveyance in performance incurred for official purposes
of duties of an office
Travelling Allowance to meet the cost of Exempt to the extent of expenditure
travel on tour or on transfer incurred for official purposes
Daily Allowance to meet the ordinary daily Exempt to the extent of expenditure
charges incurred by an employee on incurred for official purposes
account of absence from his normal place
of duty
Helper/Assistant Allowance Exempt to the extent of expenditure
incurred for official purposes
ResearchAllowance granted for Exempt to the extent of expenditure
encouraging the academic research and incurred for official purposes
other professional pursuits
Uniform Allowance Exempt to the extent of expenditure
incurred for official purposes
Special compensatory Allowance (Hilly Amount exempt from tax varies from
Areas) (Subject to certain conditions and Rs. 300 to Rs. 7,000 per month.
locations)
Border area, Remote Locality or Disturbed Amount exempt from tax varies from
Area or Rs.
Difficult Area Allowance (Subject to certain 200 to Rs. 1,300 per month.
conditions and locations)
Tribal area allowance in (a) Madhya Up to Rs. 200 per month
Pradesh(b) Tamil Nadu (c) Uttar Pradesh (d)
Karnataka (e)Tripura (f) Assam (g) West
Bengal (h) Bihar (i)Odisha
Compensatory Field Area Allowance. If this Up to Rs. 2,600 per month
exemption is taken, employee cannot claim
any exemption in respect of border area
allowance (Subject to certain conditions
and locations)
Compensatory Modified Area Allowance. If Up to Rs. 1,000 per month
this exemption is taken, employee cannot
claim any exemption in respect of border
area allowance (Subject to certain
conditions and locations)
Counter Insurgency Allowance granted to
members of Armed Forces operating in
areas away from their permanent locations. Up to Rs. 3,900 per month
If this exemption is taken, employee cannot
claim any exemption in respect of border
area allowance (Subject to certain
conditions and locations)
Underground Allowance to employees Up to Rs. 800 per month
working in
uncongenial, unnatural climate in
underground mines
High Altitude Allowance granted to armed a) Up to Rs. 1,060 per month (for
forces operating in high altitude areas altitude of 9,000 to 15,000 feet)
(Subject to certain conditions and locations) b) Up to Rs. 1,600 per month (for
altitude above 15,000 feet)
Highly active field area allowance granted Up to Rs. 4,200 per month
to members of armed forces (Subject to
certain conditions and locations)
Island Duty Allowance granted to members Up to Rs. 3,250 per month
of armed forces in Andaman and Nicobar
and Lakshadweep group of Island (Subject
to certain conditions and locations)
Daily allowance to a Member of Parliament [Section 10(17)]
Following allowances are exempt from tax in the hands of a Member of
Parliament and a Member of State Legislature—
Daily allowance received by a Member of Parliament or by a Member of State
Legislature or by member of any committee thereof.
Any other allowance received by a Member of Parliament under the Members of
Parliament (Constituency Allowance) Rules, 1986.
Any Constituency allowance received by a Member of State Legislature.
Awards [Section 10(17A)] Any payment received in pursuance of following
(whether paid in cash or in kind) is exempt from tax:
Any award instituted in the public interest by the Central Government or State
Government or by any other body approved by the Central Government in this
behalf.
Any reward by the Central Government or any State Government for such
purpose as may be approved by the Central Government in this behalf in the
public interest
Pension to gallantry award winner [Section 10(18)] Pension received by
an individual who was employee of the Central Government or State Government
and who has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or
any other notified gallantry award is exempt from tax.Family pension received
by any member of such individual is also exempt.
Family pension received by the family members of armed forces
[Section 10(19)]From the assessment year 2005-06, family pension received by
the widow or children or nominated heirs, of a member of armed forces
(including paramilitary forces) of the Union, is exempt from tax in the hands of
such family members, if the death of such member of armed forces has occurred
in the course of operational duty in prescribed circumstances and subject to such
conditions as may be prescribed (see rule 2BBA for prescribed circumstances
and conditions).
Income of pension fund [Section 10(23AAB)] Any income of a fund set-up
by the Life Insurance Corporation of India on or after August 1, 1996 or any other
insurer to which contribution is made by any person for receiving pension from
such fund, and which is approved by the Controller of Insurance or the Insurance
Regulatory and Development Authority, is exempt from tax.
Income from Khadi or village industry [Section 10(23B)] Income of an
institution constituted as a public charitable trust or society which is established
for the development of khadi and village industries (not for profit purpose) is
exempt from tax, if following conditions are satisfied:
1) Income is attributable to the business of production, sale, or
marketing, of khadi or products of village industries.
 2) Institution applies its income, or accumulates it for application, solely
for the development of khadi or village industries or both
3) Institution is approved by the Khadi and Village Industries Commission.

Income of Khadi and Village Industries Boards [Section 10(23BB)] Any

income of Khadi and Village Industries Boards is exempt from tax under section
10(23BB).

Income of Educational Institutions [Section 10(23C)(iiiab)/(iiiad)/(vi)]

Section 10(23C)(iiiab) Income of any university or other educational
institution existing solely for educational purposes and not for purposes of profit,
and which is wholly or substantially financed by the Government would be
exempt under section 10(23C)(iiiab).
Section 10(23C) (iiiad) Income of any university or other educational institution
existing solely for educational purposes and not for purposes of profit would be
exempt under section 10(23C)(iiiad) if the aggregate annual receipts of such
university or educational institution do not exceed Rs. 5 Crores.
Note: W.e.f. Assessment Year 2022-23, the Finance Act, 2021 has increased the
limit of aggregat annual receipts from Rs. 1 crore to Rs. 5 crores.
Section 10(23C) (vi)Income of any university or other educational institution
existing solely for educational purposes and not for purposes of profit, other than
those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be
approved by the Principal Commissioner or Commissioner. An application in the
prescribed form and manner has to be made to the Principal Commissioner or
Commissioner, for grant of approval.

Income of Charitable Institution or Fund [Section 10(23C)(iv)]Any

income of a charitable institution or fund which is approved by the Principal
Commissioner or Commissioner having regard to its objects and its importance
throughout India or throughout any State or States is exempt from tax.
An application in the prescribed form and manner has to be made to the Principal
Commissioner or Commissioner, for grant of approval.
Income of religious/charitable trust [Section 10(23C)(v)]Income of any
trust (including any other legal obligation) or institution formed wholly for public
religious purposes or wholly for public religious and charitable purposes, which is
approved by the Principal Commissioner or Commissioner having regard to the
manner in which the affairs of the trust or institution are administered and
supervised for ensuring that the income accruing thereto is properly applied or
the objects thereof, is exempt from tax.
An application in the prescribed form and manner has to be made to the Principal
Commissioner or Commissioner, for grant of approval.

Reference: Income Tax Department website, updated for A.Y

2023-24.