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Introduction to Taxes
Meaning, Purpose and objective of Taxes
Country is run by the Government to run the country government needs funds and these funds are
collected by govt. from various sources and one of the main sources of revenue to the government
is taxes.
Kinds of Taxes
Direct Taxes Indirect Taxes
Person pays tax from own pocket Person collects tax from customer &
pays to the government

(Income Tax) (GST and Customs)

Direct Taxes Indirect Taxes
Direct Taxes are paid by the person Indirect Taxes are those taxes which the
(Taxpayer) directly to the Government. The taxpayer pays indirectly. The person paying
person paying the taxes cannot shift its burden the taxes can recover it from another person.
on some other person.

Power to levy and collect Income Tax

Constitution of India under Article 246 has given power to central and state government to collect
taxes with the help of 3 lists (i.e., Union List, State List and Concurrent List) as given in the
Schedule VII.
Entry No. 82 of the Union List i.e., List-I of the Schedule VII to Article 246 of the Constitution of
India has given power to the Central Government to make laws on Income Tax other than
agricultural income. Entry No. 46 of the State list i.e., List-II give power to the state government
to make law on agricultural income.

Structure of Income Tax

Chapter Headings Sections
Chapter 1 Basic Concepts 1–4
Chapter 2 Residential Status 5–9
Chapter 3 Exempted Incomes 10 – 13
Chapter 4 Salary Income 15 – 17
Chapter 5 Income from House Property 22 – 27
Chapter 6 Business Income (PGBP) 28 – 44
Chapter 7 Capital Gains 45 – 55
Chapter 8 Income from Other Sources (I.O.S) 56 – 59
Chapter 9 Clubbing of Income 60 – 65
Chapter 10 Set off and carry forward & set off of losses 70 – 80
Chapter 11 Deductions from Total Income 80C – 80U
Chapter 12 Assessment of Individuals
Chapter 13 Returns
Chapter 14 Miscellaneous

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Introduction to Income Tax
Section 1 – Section 4

Section 1 (Scope and Applicability) – The Act is to be called as “The Income Tax Act. 1961” and
it extends to whole of India. It came into force on 1st day of April 1962.

Section 4 – Charging Section of Income Tax

Every person (sec. 2(31)) whose total income (sec 2(45)) during the previous year (sec. 3) exceeds
maximum amount not chargeable to tax is an assessee (sec. 2(7)) and he is liable to pay tax at the
rate or rates prescribed in the Finance Act/Income Tax for the relevant assessment year (sec. 2(9)).
Scope of total income (sec. 5) shall depend upon Residential Status (sec. 6) of an assessee.

Some Important Definitions [Section 2]:

1). Person [sec.2(31)]: Person includes
(i) An Individual (i.e., natural person e.g., male, female, third gender, minor, or person of
unsound mind).
(ii) Hindu undivided family (HUF)
Note:
 HUF is not defined under Income Tax Act. HUF is treated as separated entity for the
purpose of taxation. It can earn income and pay tax separately
 HUF is defined under Hindu law as a family consists of all males lineally descended from
a common ancestor and includes their wives and unmarried daughters.
 Coparcener is that member of the family who has a right to partition. Hindu Succession
(Amendment) Act, 2005 provides that female members (daughters) shall have equal rights
as that of male members (Sons).
 Coparcener includes both sons and daughters up to four degree including head of the family
means Karta, his or her children, grandchildren, and great grandchildren.
Concept of HUF is also applicable to Jain, Sikh and Buddhists & Parsi also.
(iii) Company (all types of companies whether Pvt. or Public, whether domestic or foreign)
(iv) Firm (Both partnership firm as well as LLP)
 LLP is an alternative corporate business form that gives benefits of limited liability of a
company and the flexibility of partnership.
 LLP is a separate legal entity and liability of its partners is limited to their agreed
contribution in the LLP.
 Since, LLP contains elements of both corporate structure as well as partnership firm. LLP
is a hybrid of company and a partnership.

(v) Association of persons (AOP) or body of individuals (BOI)

AOP means two or more persons join hands to earn income without constituting partnership or a
company. Two or more persons may be individual or other equities.
BOI means two or more individuals join hands with the objective of earning income e.g., Societies
or legal heirs continuing the business without forming partnership.
An AOP may consist of non-individuals, but a BOI consist of any individuals.

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(vi) Local authority- Local authority means
(a) Panchayat
(b) Municipality
(c) Cantonment Board
(vii) Artificial Juridical Person (AJP)
AJP means entities which are not natural persons but are separate entities in the eyes of law and
can be sued through person managing them.
e.g. - Gods, Idols, and deities etc. Universities also fall in this category. Bar councils, corporations
are also AJP.
2) Assessee [sec. 2(7)]: - Assessee means any person by whom any tax or any other sum of money
(i.e. interest, fine or penalty etc.) is payable under the Act and includes
(i) A person in respect of whom any proceedings has been taken under the act
(a) for the assessment of his income or income of any other person in respect of whom
he is assessable; or
(b) to determine the loss sustained by him or by such other person; or
(c) the amount of refund due to him or such other person.
(ii) Deemed Assessee: A person who is deemed to be on assessee (agent of a non-resident)
(iii) Assessee in Default: A person who is deemed to be an assessee in default (a person liable
to pay advance tax but fails to pay or a person liable to deduct tax (TDS) but fails to deduct
or fails to deposit).
3. Assessment Year [sec. 2(9)]
Assessment year means the period of 12 months commencing on 1st day of April every year.
Therefore, assessment year start from April and ends on March 31 of next year.
Assessment year (A.Y.) is always of 12 months
Assessment Year 24-25 means period of 1-4-24 to 31-3-2025 income earned in a previous year is
taxable in the assessment year.

4. Previous year (Sec. 3) means financial year immediately preceding assessment year. Previous year
of a newly set up business or profession or new source of Income comes into existence shall be
reckoned from the date of setting up of the business/profession/newly source and ending on 31st
March of that financial year.

Previous Year Rule and its Exceptions [Section 172 to 176]

Exceptions when Income of the previous year is assessed in the previous year itself
As per section 4 Income of previous year is chargeable to tax in the immediately succeeding
assessment year. But the following are the exceptions. Therefore, in the following cases the
previous year and assessment year are same.

Exceptions when Income of the previous

year is assessed in the previous year itself

Shipping Business Persons leaving AOP/BOI/AJP Persons likely to Discounted

of non-resident India permanently formed for a transfer property Business [Sec.
[Sec. 172] [Sec. 174] particulars event to avoid tax [Sec. 176(3A)
[Sec. 174A] 175]

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1). Shipping business of non-resident [sec. 172]
(a) Where a non-resident is engaged in shipping business and deriving income through freight
from carrying passengers, livestock, mail or goods from a port in India.
(b) 7.5% of the freight paid or payable to the owner or charterer or any person on his behalf,
whether in or outside India, shall be deemed to be his total income and shall be taxed at the
rate applicable for foreign company i.e. @ 40% (plus surcharge and health & education cess).
2). Persons leaving India [sec. 174]
(a) When it appears to the assessing officer that any individual may leave India during an
assessment year or shortly after its expiry and has no present intention of returning to India
(b) the total Income of such individual from 1st April of that assessment year up to the probable
date of his departure from India is chargeable to tax in that assessment year.
3). Income of an AOP or BOI or an artificial juridical person formed for a particular event [sec.
174A]
(a) Where any AOP or BOI or an artificial juridical person formed for a particular event or
purpose and is likely to be dissolved in the assessment year in which it is formed,
(b) the total income of such assessee from 1st April of that assessment year up to the date of
its dissolution shall be chargeable to tax in the same assessment year at the rates applicable
to that assessment year.
4). Persons likely to transfer property to avoid tax [sec. 175]
(a) Where it appears to the assessing officer that a person is likely to transfer his property to
avoid tax then
(b the total income from 1st April of that assessment year to the date when the Assessing
Officer commences proceedings under this section shall be chargeable to tax in that
assessment year itself at the rates applicable to that assessment year.
5). Discontinued business or profession [sec. 176(3A)]
(a) Where any business is discontinued in any year,
(b) The total income from 1st April of that assessment year upto the date of discontinuance
shall be taxable in the year of discontinuance at the discretion of Assessing Officer.
Note : In first 4 cases it is mandatory for the Assessing Officer to assess the income in the year in
which it is earned. However, in 5th case it is at discretion of the Assessing Officer to assess
the income in the year in which it is earned or in the next year.
Average Rate of Tax [Section 2(10)]
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥 𝑜𝑛 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑡𝑎𝑥 = × 100
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒
Average rate of tax is significant in relation to rebate under section 110 in the assessment of
members of an AOP.
Maximum Marginal Rate of Tax (MMR) [Section 2(29C)]
MMR is the rate of income-tax (including surcharge, if any) applicable in relation to the highest slab
of income, specified in the Finance Act for the relevant year, in the case of the following persons,
(a) an Individual; or
(b) an AOP or Body of Individuals.
MMR for A.Y. 2024-25 is 42.744% (being tax @ 30% + 37% surcharge + 4% health and education
cess (HEC) on Income-tax).

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Tax Rates or Surcharge and Cess Etc.,
Rates of Income Tax are specified at two places:
(1) General rates are given in the Finance Act; and
(2) Special rates are given in the Income Tax Act itself.

1. General Tax rates given by the Finance Act:

There are two types of rates or tax regimes.
(A) Default tax regime and
(B) Alternate or Old or Normal Tax regime;
Note: Further Rebate u/s 87A; Surcharge; and Marginal Relief are also applicable sometimes.

(A) Default Tax Regime [115BAC]: (Concessional tax rates)

Default tax regime (concessional tax rates):
Assessee Individuals/ HUF/ AoPs/ BoIs or artificial juridicial persons, other than those
who exercise the option to opt out of this regime under section 115BAC(6), have
to pay tax in respect of their total income (other than income chargeable to tax at
special rates) at the following concessional rates, subject to certain conditions
specified under section 115BAC(2)
Tax Rate Total Income Rate of tax
Upto ₹3,00,000 Nil
From ₹3,00,001 to ₹6,00,000 5%
From ₹6,00,001 to ₹9,00,000 10%
From ₹9,00,001 to ₹12,00,000 15%
From ₹12,00,001 to ₹15,00,000 20%
Above ₹15,00,000 30%
Note: Special Income (111A, 112, 112A etc) are taxable at their respective rates.
Rebate In case of Resident Individual having total income upto ₹7,00,000 will be allowed
rebate of (a) 100% of tax payable or (b) ₹25,000 whichever is lower.
Surcharge Surcharge @ 10%/15%/25% will be charged depending upon the total income but
37% rate is not applicable even if total income is more than 5 crore.
Cess Health and Education cess will be levied in all case @ 4% of Income Tax.
AMT Alternate Minimum Tax (AMT) shall not be applicable to assessee opting this
regime. Also any brought forward AMT credit cannot be claimed u/s 115BAC.

Conditions to be satisfied:
Certain deductions/exemptions not allowable [115BAC(2)]: while computing total income,
the following deductions/exemptions would not be allowed:
Section Exemption / deduction
Income under the head Salary
1. 10(5) Leave Travel Concession
2. 10(13A) House Rent Allowance
3. 10(14) Other Allowances
4. 16 [(ii) & (i) Entertainment Allowance; and
(iii)] (ii) Professional tax
Note: Standard Deduction is allowed.
Income under the head House Property
5. 24(b) Interest on Loan in the case of self-occupied property.
Note: Interest on loan on property let out is fully allowed.
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Income under the head PGBP (Profits and gains from business or profession)
6. 10AA Exemptions for SEZ unit
7. 32(1)(iia) Additional Depreciation (Ch. PGBP)
8. 35(1)(ii) Deduction for contribution to notified approved research association /
university/ college / other institutions for social or statistical research.
9. 35(1)(iia) Deduction for contribution to Indian Company for scientific research.
10. 35(1)(iii) Deduction in respect of contribution to notified approved research
association / university/ college / other institutions for scientific research.
11. 35(2AA) Donation for scientific research to National Lab /Univ/I.I.T
12. 35(AD) Deduction in respect of specific Business
Income under the head other sources
13. 10(17) Allowances to M.Ps/M.L.As (Daily / constituency allowance)
Clubbing of Income
14. 10(32) Exemption in respect of income of minor child.
Deductions
15. 80C – 80U Deductions except 80CCD(2), 80CCH(2) & 80JJAA
Set off and carried forward of losses
16. Certain losses not allowed to be set off: without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or
depreciation is attributable to any of the ineligible deductions mentioned above;
(b) (Inter-head set-off): under the head "Income from house property" with any
other head of income; (But Carried forward of such loss is allowed)
17. Depreciation or additional depreciation:
 Depreciation u/s 32 is to be determined in the prescribed manner.
 Depreciation in respect of any block of assets entitled to more than 40%, would be
restricted to 40% on the written down value of such block of assets.
 Additional depreciation u/s 32(1)(iia), however, cannot be claimed.; and
18. No exemption or deduction for allowances or perquisite, by whatever name called,
provided under any other law for the time being in force.
Time limit for exercising the option to shift/opt out of the default tax regime
(i) In case of an assessee having no income from business or profession can exercise an
option to shift out/opt out of the default tax regime at the time of furnishing the return of
income u/s 139(1).
This Option can be availed every year: Assessee having no PGBP can exercise this
option of shifting out of the default tax regime in every previous year.
(ii) In case of an assessee having income from business or profession can exercise an
option to shift out/opt out of the default tax regime at the time of furnishing the return of
income u/s 139(1). Option once exercised, would apply to subsequent assessment years.
Such an option of shifting out of the default tax regime once exercised can be
withdrawn only once. Thereafter, such person shall never be eligible to exercise option
under this section, except where such person ceases to have any business income.

Rebate to resident individual paying tax under default tax regime u/s 115BAC:
(a) If total income of such individual does not exceed ₹ 7,00,000,
the rebate shall be
(i) 100% of income-tax payable or
(ii) ₹ 25,000,
whichever is less.
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(b) Marginal Relief (on account of rebate) if total income is more than ₹7,00,000:
If total income of such individual exceeds ₹ 7,00,000 and income-tax payable on such total
income exceeds the amount by which the total income is in excess of ₹ 7,00,000, the rebate
would be as follows.
Step 1 – Total income (-) ₹ 7 lakhs (A)
Step 2 – Compute income-tax liability on total income (B)
Step 3 – If B>A, rebate under section 87A would be a B – A.
The amount of rebate under section 87A shall not exceed the amount of income-tax (as
computed before allowing such rebate) on the total income of the assessee.

(B) Normal or Regular or Old Tax Regime:

Individual/HUF/AOP/BOI/Artificial Juridical Person, who has exercised the option of shifting
out of the default tax regime, are as follows:
(I) In case of every individual (II) In case of resident (III) In case of resident
[other than those covered by individual of age 60 years or individual of age 80 years or
(II) to (III)], HUF, AOP, BOI, more but less than 80 years at more at any time during the
and every artificial juridical any time during the previous previous year
person year
Income Rate Income Rate Income Rate
Upto ₹2,50,000 Nil Upto ₹3,00,000 Nil Upto ₹5,00,000 Nil
Next ₹2,50,000 5% Next ₹2,00,000 5% --
Next ₹5,00,000 20% Next ₹5,00,000 20% Next ₹5,00,000 20%
Balance 30% Balance 30% Balance 30%
Note: CBDT has through circular 28/2016 dt 27/7/2016 clarified that a person born on 1st April
would be considered to have completed a particular age on 31st March i.e., preceding date of his
birth anniversary.

Health and education cess (HEC): In the case of every person amount of tax payable shall be
increased by 4% of amount of tax including surcharge.

Rebate to residents opting for optional or old tax regime (normal provisions of the Act) [87A]:
If total income of such individual does not exceed ₹ 5,00,000, the rebate shall be equal to:
 the amount of income-tax payable on his total income for any assessment year or
 ₹ 12,500,
whichever is less.
Note: The amount of rebate under section 87A shall not exceed the amount of income-tax.
Health and Education Cess shall be calculated after adjusting rebate.
Marginal Relief due to rebate is not applicable for normal tax regime.
Rebate is not allowed against LTCG u/s 112A.

Surcharge applicable on both tax regimes

(i) Default tax regime: In case the Individual/HUF/AoP//BoI and Artificial Juridical Person pays tax
under default tax regime under section 115BAC Income-tax computed in accordance with the
provisions of section 115BAC and/ or section 111A or section 112 or section 112A or 115BBE or
section 115BBJ would be increased by surcharge given under the following table:

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The amount of income tax shall be increased by a surcharge at the following rates:
Income Rate
(a) Where Total Income (including the income by way of dividend or the No
income under u/s 111A, 112 & 112A) is upto ₹ 50,00,000 Surcharge
(b) Where the total income (including the income by way of dividend or the 10% of
income under u/s 111A, 112 & 112A) exceeds ₹50,00,000 but does not income tax
exceed ₹1 crore
(c) Where the total income (including the income by way of dividend or the 15% of
income under u/s 111A, 112 & 112A) exceeds ₹1 crore but does not income tax
exceed ₹2 crore
(d) Where the total income is more than ₹2 crores but total income 15% of
(excluding the income by way of dividend or the income under u/s 111A, income tax
112 & 112A) does not exceed ₹2 crore
(e) Where the total income (excluding the income by way of dividend or the 25% of
income under u/s 111A, 112 & 112A) exceeds ₹2 crore but does not income tax
exceed ₹5 crore
Note: Surcharge on the income by way of dividend or the income under u/s 111A, 112 &
112A cannot exceed 15%.
Note: In the case of default tax regime maximum rate of surcharge is capped at 25% means
37% surcharge as applicable in the case of old or normal rate is not applicable in default tax
regime.

(ii) Surcharge in the case of old or optional tax regime.

In the case of old or normal tax regime the amount of income tax shall be increased by a
surcharge at the following rates:
Income Rate
(a) Where Total Income (including the income by way of dividend or the No
income under u/s 111A, 112 & 112A) is upto ₹ 50,00,000 Surcharge
(b) Where the total income (including the income by way of dividend or the 10% of
income under u/s 111A, 112 & 112A) exceeds ₹50,00,000 but does not income tax
exceed ₹1 crore
(c) Where the total income (including the income by way of dividend or the 15% of
income under u/s 111A, 112 & 112A) exceeds ₹1 crore but does not income tax
exceed ₹2 crore
(d) Where the total income (excluding the income by way of dividend or the 15% of
income under u/s 111A, 112 & 112A) does not exceed ₹2 crore income tax
(e) Where the total income (excluding the income by way of dividend or the 25% of
income under u/s 111A, 112 & 112A) exceeds ₹2 crore but does not income tax
exceed ₹5 crore
But on the income by way of dividend or capital gain u/s 111A, 112 and 15% of
112A income tax
(f) Where the total income (excluding the income by way of dividend or the 37% of
income under u/s 111A, 112 & 112A) exceeds ₹5 crore income tax
But on the income by way of dividend or capital gain u/s 111A, 112 and 15% of
112A income tax

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Marginal Relief due to Surcharge (applicable on both default as well as Alternate regime):
In case of Individual, H.U.F, A.O.P / B.O.I, or AJP: When there is marginal increase in the
income over ₹50 lakhs or ₹1 crores or ₹2 crores or ₹5 crores as the case may be, surcharge gets
attracted and due to surcharge increase in the amount of tax (including surcharge) may sometimes
be more than the increase in income.
If the increase in the tax (including surcharge) is more than the increase in the income, then such
excess tax over excess income shall be waived off by the way of marginal relief.
Steps for calculating Marginal Relief:
A. Calculate increase in the income over ₹50,00,000 or ₹1 crore or ₹2 crore or ₹5 crore as the case
may be; and
B. Calculate increase in the tax including the surcharge levied as the case may be;
C. If Step2 is More than Step 1 than Marginal Relief = [amount of Step2 – amount of Step 1]

2. Special rates of Tax: Tax Rate specified in Income tax Act (tax on special Income)
These tax rates are same for all category of persons. Whether individual/HUF/Firm/Company etc.
Section Nature of Income Rate of
Tax
111A Short-term capital gains from transfer of Equity shares in a company, 15%
Unit of an equity oriented fund and Unit of business trust on which STT
has been charged
112 Long-term Capital gains (other than taxable u/s 112A) 20%
112A Long-term capital gains on transfer of – 10%
Equity share in a company [on
Unit of an equity oriented fund LTCG
Unit of business trust, above 1
where STT has been paid. LTCG upto ₹1 lakh is exempt and above lakh]
that is taxable @ 10%.
115BB Winning from lotteries, crossword puzzles, races including horse races, 30%
card games and other games of any sort or from gambling or betting of
any from or nature whatsoever.
Note: Basic Exemption limit is not allowed.
115BBJ Net winnings from online games 30%
115BBE On income u/s 68 (unexplained cash credit) or Sec. 69 (unexplained 60%
investments), sec. 69A (unexplained money) or sec. 69B (unexplained
investment), u/s 69C (unexplained expenditure), u/s 69D (Amt
borrowed or repaid on hundi)
Note: Surcharge @ 25% + HEC @ 4% total = @ 78%.
115BBF Income by way of royalty in respect of patent developed and registered 10%
in India in respect of person who is resident in India.

Income Statement and tax computation

Particulars ₹
1. Income from salary (sec. 15-17) ×××
2. Income from house property (sec. 22-27) ×××
3. Income from business profession (sec. 28-44) ×××
4. Income from capital gains (sec. 56-59) ×××
5. Income from other sources (sec. 56-59) ×××
(Note: Above incomes should be adjusted for clubbing as well as set off of losses)
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Gross Total Income (GTI) [1+2+3+4+5] ×××
Less: Deductions u/s 80C to 80U ×××
Note: Total income should be rounded off to multiple of ₹10 (sec. 288A) ×××
Computation of tax liability
Tax on normal income (as per slab rates) ×××
Tax on special income (as per Income tax act) ×××
×××
Less: Rebate u/s 87A (if applicable) ×××
Add: Surcharge (if applicable) ×××
Less: Marginal relief (if applicable) ×××
×××
Add: Health and Education Cess @ 4% ×××
Tax payable ×××
Tax payable (Rounded off) ×××
Note: As per sec. 288B taxes shall be rounded off to multiple of ₹10.
AGRICULTURAL INCOME
Section 10(1) exempts ‘agricultural income’ from income tax chargeable under this Act.
However, it is chargeable to income-tax at state-level as per state laws. As per section 2(1A),
agricultural income means:-
(1) Rent or Revenue derived from land [Section 2(1A)(a)]: Any rent or revenue should be derived
from land, which is situated in India and is used for agricultural purposes. The Supreme Court
in CIT v. Raja Benoy Kumar Sahas Roy [1957], has held that, agricultural activity is divided into
two parts:
(i) Basic operations: It means application of human skill & labour upon the land, prior to
germination E.g. Tilling, sowing, planting and similar operations.
(ii) Subsequent operations: It means operations which fosters the growth and preserves the
produce, for rendering the produce fit for sale in market, and which are performed after the
produce sprouts from the land, like weeding, digging the soil, removal of undesirable
undergrowth’s, prevention of crop from insects and pests, depredation from outside,
cutting, pruning etc.
Both basic and subsequent operations are to be performed to constitute agriculturist activities. One
cannot disassociate the basic operations from the subsequent operations.
Note: The term ‘agriculture’ cannot be extended to all activities which have some distant relation
to land like dairy farming, breeding and rearing of live stock, butter and cheese making and poultry
farming.

(2) Income derived from agricultural land by agricultural operations [Section 2(1A)(b)]: This
includes–
(i) Income derived from such land by agriculture.
(ii) Income derived by cultivator or receiver of rent in kind, for any process ordinarily
employed to render the produce raised, fit to be taken to the market.
(iii) Income derived from sale of agricultural produce is also agricultural income.

(3) Income from farm building [Section 2(1A)(c)]: If a building satisfies the following conditions,
then income from such building shall be treated as agricultural income –
(i) Building must be occupied by the cultivator or receiver of rent in kind;
(ii) It is on or in the immediate vicinity of land situated in India and used for agricultural
purposes;
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(iii) The building is occupied as a dwelling house, storehouse or other out-building; and
(iv) Land is either assessed to land revenue or local rate, or it is situated in a rural area**.
Note: “Rural area” means any area which is outside the jurisdiction of a municipality or a cantonment
board and which has a population of 10000 or more and which does not fall within distance (to be
measured aerially) given below –

Surplus from transfer of urban agricultural land: Any surplus arising from transfer of “urban
agricultural land” is not treated as revenue derived from land. [Explanation 1]

(5) Income from non-agricultural use of farm-building – Not agricultural income: However,
income derived from any such building or land from its use for non-agricultural purposes
(including letting for residential purpose or for the purpose of any business or profession) shall not
be agricultural income. [Explanation 2]

(6) Income from plant nursery – Deemed agricultural income: Any income derived from saplings
or seedlings grown in a nursery shall be deemed to be agricultural income. [Explanation 3]

DISINTEGRATION OF PARTLY AGRICULTURAL & PARTLY BUSINESS INCOME:

(1) In case of rubber, coffee and tea business:
Rule Apportionment of income in certain cases Agricultural Business
Income Income
7A Income from sale of rubber products derived from rubber 65% 35%
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 the seller in 60% 40%
India
8 Income from sale of tea grown and manufactured by the 60% 40%
seller in India

(2) In case of any other business [Rule 7]: The following mode will be adopted –
(i) Agricultural Income = (Market value of agricultural produce used as raw material for
business + Sale proceeds from direct sale of agricultural produce) – Cost of Cultivation.
(ii) Business income = Sale proceeds of processed goods – Market value of agricultural
produce used as raw material for business – Expenses for processing.

PARTIAL INTEGRATION OF AGRICULTURAL INCOME FOR RATE PURPOSES

(1) Partial integration of agricultural income for rate purposes: Under constitution, the power of
levy tax on agricultural income vests in states. However, Parliament has provided for integration
of agricultural income for determining income-tax rate on total income.

(2) Conditions for applicability of partial integration: This partial integration is applicable only if –
(a) The taxpayer is a HUF, an Individual, BOI or an AOP or artificial juridical person;
(b) The non-agricultural income exceeds the maximum amount not chargeable to tax; and
(c) Agricultural income exceeds ₹5,000.

(3) Computation of tax:

Step 1: Net agricultural income is to be computed as if it were income chargeable to income tax.
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Step 2: Compute tax on (Agricultural + Non-agricultural income).
Step 3: Compute tax on (Net agricultural income + Maximum amount not chargeable to tax).
Step 4: Compute [Amount calculated in (Step 2) – Amount calculated in (Step 3)].
Step 5: Total income tax payable = Tax as computed under Step 4 – Tax rebate

Compiled by Gagan Kapoor 12 98115-95823