rd

CA/CMA FINAL

DIRECT TAX
THE ULTIMATE SOLUTION
(May 2025 & Nov 2025)

(Amended as per FA 2024)

CA SHUBHAM SINGHAL
© [2024] [Shubham Singhal]. All rights reserved. No part of this publication may be
reproduced, distributed, or transmitted in any form or by any means, including photocopying,
recording, or other electronic or mechanical methods, without the prior written permission
of the Author, except in the case of brief quotations embodied in critical reviews and certain
other noncommercial uses permitted by copyright law.

Any legal disputes arising from this publication will be resolved under the jurisdiction of the
courts in Pune, India.
 Mann ki baat
Haanji Doston, kya haal hai :)

6 months of dedicated hard work can give you this prestigious

degree of CA. 6 months is all it takes. And imagine, this book
is a result of 10 months of hard work to bring the best book in
the market. Just one notch better than the rest of the books.

I can assure you that I have given my 100% energy, time, heart
and soul to make this book useful for you. And you will fall in
love with this once you realise how much effort has been put
to summarise each and every section of your ICAI Module :)

This book is named “The Ultimate Solution” for a reason. I

understand the challenges you face while learning Direct Tax
i.e., Volume! And keeping that in mind, this book is an attempt
to summarise the whole ICAI module in least no. of pages
possible. This book is all you need to nail your exams. And when
I say nail, I mean bare minimum EXEMPTION.

I am aware that there is always a scope for improvement and

hence, I promise you that with time, this book will only get
better. Meanwhile, use this to ace your exams.

-The Ranker’s Way

With Love!
Your CA Buddy
 Shortforms Used

Short Full Form Short Full Form

AIF Alternative Investment Fund PFI Public Financial Institution
AO Assessing officer PSR Profit Sharing Ratio
B/P Business or Profession RAY Relevant Assessment Year
BEL Basic Exemption Limit i.e., Maximum RDB Rupee Denominated Bond
amount which is not chargeable to IT
CG Central Government ROI Return of Income
CTT Commodity Transaction Tax RSE Recognised Stock Exchange
DSC Digital Signature SAF Superannuation Fund
EOM End of month SCN Show Cause Notice
ESI Employee State Insurance SDV Stamp Duty Value
FII Foreign Institutional Investors SFC State Financial corporation
FMV Fair Market Value SGB Sovereign Gold Bonds
FTS Fees for Technical Service SH Shareholder
GDR Global Depository Receipts SIIC State Industrial Investment
Corporation
HUF Hindu Undivided Family SIT Stock in trade
ICDS Income Computation Disclosure STCA Short term capital asset
Scheme
ITA Income Tax Authority STCG Short term capital Gain
ITO Income Tax officers STT Securities Transaction Tax
LTCA Long term capital asset TI Total income
LTCG Long term capital Gain TPO Transfer Pricing Oficer
MBJV money, bullion, jewellery, valuables TTBR Telegraphic Transfer Buying Rate
MF Mutual Fund TTSR Telegraphic Transfer Selling Rate
N.A. Not applicable UAD Unabsorbed Depreciation
NFAC National Faceless Assessment Centre ULIP unit linked insurance policy
NSC National Saving Certificate VC Venture capital
OCOB Ordinary Course of Business VCF Venture Capital Fund
OG Official Gazette VO Valuation Officer
PF Providend Fund w.r.t. With respect to
 Chapter-wise Index and Weightage (as per ICAI)

SN Name of Chapter No. of Pages Weightage

1 Basic Concepts 10
2 Exempt Income -
3 Profits & Gains of B/P 50
4 Capital Gains 33
5 IFOS 11 20-23 marks
6 Clubbing of Income 3
7 Set-off or c/f of Losses 8
8 Deductions from GTI 12
9 Assessment of Various Entities 16
10 Assessment of Trusts, etc & Special Entities 19
11 Tax Planning, Avoidance & Evasion 7 20-22 marks
12 Taxation of Digital Transactions 7
13 Deduction, Collection and Recovery of tax 37
14 Income-tax Authorities 11
15 Assessment Procedure 31
16 Appeals and Revision 11 20-30 marks
17 Dispute Resolution 3
18 Miscellaneous Provisions 7
19 Counteracting Unethical Tax Practices 10
20 Tax Audit and Ethical Compliances 7
21 Non-resident Taxation 26
22 Double Taxation Relief 5
23 Advance Rulings 2
24 Transfer Pricing 22 30-35 marks
25 Fundamentals of BEPS
26 Application and Interpretation of Tax Treaties
-
27 Overview of Model Tax Conventions
28 Latest Developments in International Taxation
348 Pages

For detailed index of this book for the purpose of Paper 6 IBS,
kindly scan the QR code given in Next Page
If you come across any errors or omission, kindly share those points with me via gmail
therankerway@[Link]
 Chapter 1:
Basic Concepts

Topics covered in this Chapter:

Ü Overview of Income Tax Law
Ü Important Definitions
Ü Previous Year and Assessment Year
Ü Tax Rates

Overview of Income Tax Law:

Ü Article 265 of Constitution: “No tax shall be levied or collected except by authority of Law.”
Ü Entry 82 of Union List (List 1) in the Seventh Schedule of Article 246 gives power to CG to make law
on taxes on income other than agricultural income.
Ü It extends to whole of India and came into force on 1st April 1962
Ü Section 1 to 298 and Schedule I to XIV
Ü Introduction to Finance Act and parts thereof.
Ü Income Tax Law = IT Act + Finance Act + IT Rules + Circulars + Notifications + Case Laws

General Rule of Taxation

Income of PY is assessed in the AY following the PY.

Exception (i.e., Income of PY is assessed in that PY itself) [LE TDS]

1. Shipping business of NR [Sec 44B and 172]
2. Person Leaving India (in opinion of AO)
3. AOP/BOI or Artificial Juridical person formed for particular Event or purpose.
4. Person likely to Transfer property to avoid tax.
5. Discontinued business

Definitions:
1. Person (Section 2(31)):

Individual HUF Firm (incl. LLP) Company AOP/BOI

Artificial Juridical Person Local Authority

HUF :
HUF has not been defined under this Act. However, as per Hindu Law, it is a family, which consists of
all males lineally descended from a common ancestor and includes their wives and daughters.

Note – There need not be more than 1 male member to form an HUF [Gowli Buddanna v. CIT]

2. Income (Section 2(24) Income inter-alia includes:

Sub- Provision
clause
iia Voluntary contributions received by charitable or religious trusts, etc.
iii Value of perquisite or profit in lieu of salary taxable u/s 17(2) and (3)
ix Winning from lotteries, puzzles, races, card games or other sort of gambling or betting
x Sum received from his employees as contribution to any PF or SAF or any other fund.

Basic Concepts 1.1

 xi Sum received under Keyman insurance policy including sum allocated as bonus thereon
xvi Consideration received for issue of shares as exceeds FMV of shares u/s 56(2)(viib)
[N.A. w.e.f. 01.04.2025]
xviii Assistance in form of subsidy or grant or cash incentive or duty drawback or waiver
or concession or reimbursement by CG or SG or other auth. in cash or kind, other than:
Ü Subsidy or grant or reimbursement for determination of actual cost as per
Explanation 10 to Sec 43(1),
Ü Subsidy or grant by CG for corpus of a trust or institution established by CG or SG.

Salary and House Property Basic Deductions

Deductions under Salary Head:

Deductions: Sec 115BAC (Default) Normal Tax Regime

Standard Deduction u/s 16 75,000 [w.e.f. PY 24-25] 50,000
50,000 [For PY 23-24]
Entertainment allowance N.A. Lower of:
(only for Government employees) Ü Rs. 5,000
Ü 1/5th of basic salary
Ü Actual amount
Professional Tax N.A. Actual amount

Computation of House Property income:

Computation Sec 115BAC Normal Regime

Gross Annual Value: XX XX
Higher of:
Ü Expected Rent (Fair Rent or Municipal Value – Higher,
subject to Standard Rent)
Ü Actual Rent
Less: Municipal Taxes XX XX
Net Annual Value XX XX
Sec 24(a) – Standard Deduction 30% of NAV (XX) (XX)
Sec 24(b) – Interest on borrowed capital – Let out property Full amt. Full amt.
Sec 24(b) – Intt. on borrowed capital – Self occupied prop. Not Allowed Max. Rs. 2 lakhs
Income from House Property XX XX

Notes
1. In case of Self Occupied Property, NAV = NIL (for upto 2 house properties)
2. In case of absence of info. of fair rent, municipal value, etc, GAV = Actual Rent.
3. Where the Assessee is a company, and opts for tax u/s 115BAB, no deductions shall be allowed and
therefore, even municipal taxes and 30% of NAV is also not allowed as deduction.

1.2 Basic Concepts

 Undisclosed sources of Income [Section 68 to 69D]

Section 68: Cash Credit: 12

Where any sum is credited to books of Assessee, and Assessee:
Ü Offers no explanation about nature and source thereof, or
Ü Explanation offered is not satisfactory in opinion of AO.
Such sum may be charged as income of Assessee of that PY.

Unexplained loan or borrowing:

Where sum credited consists of loan/borrowings, explanations offered is deemed satisfactory only if:
(a) the lender of such loan offers explanation about nature and source of such sum, and
(b) In opinion of AO, such explanation is found to be satisfactory.

Unexplained share application money, share capital and share premium:

Where Assessee is a closely held company, and sum so credited consists of share application money or
share capital or share premium, explanations offered shall be deemed to be satisfactory only if:
(a) Resident person in whose name such amt. is credited explains the nature and source, and
(b) In opinion of AO, such explanation is found to be satisfactory.

Above explanation of loans or share capital, etc. shall not apply in case where such sum is credited in name
of a VCF registered with SEBI.

Section 69: Unexplained investment

Where in any PY, Assessee has made investment which are not recorded in books, and Assessee:
Ü Offers no explanation about nature and source thereof, or
Ü Explanation offered is not satisfactory in opinion of AO,
value of such investments is taxed as deemed income of such PY.

Section 69A: Unexplained money, etc.

Where in any PY, Assessee is found to be owner of any money, bullion, jewellery or other valuables
(MBJV) and same is not recorded in books and the Assessee offer no explanation or unsatisfactory
explanation about nature and source thereof, value of such MBJV may be deemed to be income.

Note – Ownership is important. Mere possession is not enough.

Section 69B: Amounts of investments, etc. not fully disclosed in books

Where in any PY Assessee has made investments or is found to be owner of MBJV and AO finds that
amount actually spent exceeds the amount recorded in books, and Assessee offers no explanation or
unsatisfactory explanation, such excess may be deemed to be income of that PY.

Section 69C: Unexplained expenditure 10 13

Where in any PY, an Assessee has incurred any expenditure and he offers no explanation or
unsatisfactory explanation about source of such expense, AO can treat it as income of that PY.
Note – Such unexplained expenditure shall not be allowed as deduction under any head.

Basic Concepts 1.3

 Section 69D: Amounts borrowed or repaid on Hundi: 9
Ü Where any amount is borrowed on a hundi, or any amount due thereon is repaid
Ü otherwise through an A/C payee cheque drawn on bank,
Ü amount so borrowed or repaid = Deemed income.

Note – In case if amount borrowed is deemed income, the same amount shall not be assessed again as
income on repayment thereof.

Tax liability on such cash credits or unexplained income:

115BBE Tax rate = 60%.

No expense shall be allowed as deduction. Moreover, no set off of losses.
Mandatory surcharge @ 25% and cess @ 4%.
271AAC Penalty @ 10% of such tax amount (subject to certain exemption).
Levied by JC(A) or C(A).

Income Tax Rates and Surcharge

(Relevant AY 2025-26)

For Individuals, HUF, AOP, BOI and Artificial Juridical Person:

I. Where the Assessee opts out of the default tax regime u/s 115BAC:
(1) Individual [other than (2) and (3) below] or HUF or AOP or BOI or Artificial Juridical Person, whether
Resident or not:
Where total income: Rate of Tax
<= Rs. 250,000 Nil
> 250,000 but <= 500,000 5%
> 500,000 but <= 10,00,000 20%
> 10,00,000 30%

(2) Resident Individual (age 60 years or more but less than 80 years):
Where total income: Rate of Tax
<= Rs. 300,000 Nil
> 300,000 but <= 500,000 5%
> 500,000 but <= 10,00,000 20%
> 10,00,000 30%

(3) Resident Individual (age 80 years or more):

Where total income: Rate of Tax
<= Rs. 500,000 Nil
> 500,000 but <= 10,00,000 20%
> 10,00,000 30%

1.4 Basic Concepts

Clarification – A person who has attained age of 60 years or 80 years on 1st April of 2024 shall be eligible
for higher basic exemption limit starting from PY 2023-24 itself i.e., AY 2024-25.

Therefore, if a person is born on 1st April 1965/1945, then he shall get slab benefit of Rs. 3 lakhs/Rs. 5
lakhs in PY 2024-25.

Concept clarity check:

For Mr. John aged 83 years, the basic exemption limit will be?
If Mr. John is a NR, then Rs. 250,000 but if Mr. John is R, then Rs. 500,000. Rates given in point (1) above
is applicable for both R and NR whereas rates given in point (2) and (3) applies only to R.

Surcharge:
Where total income (excluding Dividend Income, 111A, 112, 112A): Rate of Tax
Upto 50 lakhs NIL
> 50 lakhs but <= 1 crore 10%
> 1 crore but <= 2 crores 15%
> 2 crores but <= 5 crores 25%
> 5 crores 37%

Note –
1. In case where the total income including dividend income, 111A, 112 or 112A exceeds Rs. 2 crores, the
rate of surcharge shall be as follow:
Particulars of Income Surcharge
On dividend income, 111A, 112 or 112A incomes 15%
On the balance income (excluding 111A etc.)
Upto 2 crores 15%
2 crores – 5 crores 25%
Above 5 crores 37%
Maximum rate of surcharge on dividend income, Sec 111A, 112 and 112A income shall be 15%.

2. In case of AOP consisting of ONLY companies as its member, surcharge shall not > 15%

3. Illustration for understand surcharge in case of special income:

Surcharge % on:
Case Special Income Normal Income Total Income
Special income Normal income
1 20L 20L 40L - -
2 80L 80L 1.60 cr. 15% 15%
3 1.20 cr. 1.10 cr. 2.30 cr. 15% 15%
4 1.30 cr. 2.30 cr. 3.60 cr. 15% 25%
5 1.40 cr. 70L 2.1 cr. 15% 15%
6 1.60 cr. 45L 2.05 cr. 15% 15%
7 50L 6.00Cr. 6.50Cr. 15% 37%

Basic Concepts 1.5

 II. Where the Assessee does not opt out of the default tax regime of Sec 115BAC 11

For PY 24-25
Where total income: Rate of Tax
<= Rs. 300,000 Nil
> 3,00,000 but <= 7,00,000 5%
> 7,00,000 but <= 10,00,000 10%
> 10,00,000 but <= 12,00,000 15%
> 12,00,000 but <= 15,00,000 20%
> 15,00,000 30%

Note:
1. Sec 115BAC is default tax regime and assessee may choose to opt out.
2. Where Assessee opts for Sec 115BAC, max surcharge shall be 25% (instead of 37%)

Concept of partial integration of taxes:

Where an assessee's total income includes net agricultural income:

Assessee Individual, HUF, AOP or BOI.

Condition Net agricultural income > Rs. 5,000 AND non-agricultural income > BEL.
Net Agricultural income = Agriculture income – expenses for earning such income.
Steps to A. Calculate tax on [Net agricultural income + Non-agricultural income]
calculate B. Calculate tax on [Net agricultural income + Basic exemption limit]
tax liab: C. Tax liability = (A-B) increased by surcharge and cess and adjusted for 87A (if any)

For Co-operative society

Where total income: Rate of Tax
<= 10,000 10%
> 10,000 but <= 20,000 20%
> 20,000 30%

Surcharge:

Where total income: Rate of Tax

> 1 crore but <= 10 crore 7%
> 10 crores 12%
Section 115BAE inserted w.e.f. FA 2023 for benefit of manufacturing co-op society. Where co-op society
opts for sec 115BAE, surcharge = Flat 10% [Discussed later]

For Firms and Local Authorities

On the whole of the total income, tax rate = 30%.
If total income exceeds Rs. 1 crore, surcharge = 12%.

1.6 Basic Concepts

For Companies
(1) In case of a domestic company:
Where total turnover or gross receipt in PY 2022-23 does 25%
not exceed Rs. 400 crores
Other cases 30%

(2) In case of company other than domestic company (foreign company):

On so much of total income consisting of: 25%
(a) Royalties from Government or Indian concern in pursuance of agreement
made between 1/4/1961 to 31/3/1976.
(b) Fees for technical services received from Government or Indian concern in
pursuance of agreement made between 1/3/1964 to 31/3/1976
On the balance income 40% 35%

Surcharge:
Where total income: Domestic Company Foreign Company
> 1 crore but <= 10 crore 7% 2%
> 10 crores 12% 5%

However, the rate of surcharge in case of a company opting for taxability u/s 115BAA or Section 115BAB
shall be 10% irrespective of amount of total income. [Discussed Later]

Special Tax Rates

Sec Income Tax Rate
112 LTCG (other than LTCG taxable u/s 112A) 12.5%
[Discussed in detail later] (20% if trf made
before 23/07/24)
112A LTCG (in excess of Rs. 1.25 lakh) on transfer of: 12.5%
Ü Equity shares in a company (10% if trf made
Ü Units of equity-oriented fund before 23/07/24)
Ü Units of business trust

Provided that, STT has been paid on such capital assets.

111A STCG on transfer of: 20%
Ü Equity shares in a company (15% if trf made
Ü Units of equity-oriented fund before 23/07/24)
Ü Units of business trust

Provided that such sale is made on or after 01.10.2004 and STT has been
paid on such capital assets.
115BB Winnings from Lotteries, crossword puzzles, race including horse races, 30%
card games, gambling, or betting of any form.
115BBE Unexplained money, investment, expenditure, etc. 60%

Basic Concepts 1.7

 Concept of Marginal Relief
In case of surcharge (in case of old regime):
Where total But does not
In case of: income exceed Surcharge shall be restricted to:
exceeds
(Tax on Rs. 50 lakhs) + (Total income – Rs. 50
Rs. 50 lakhs Rs. 1 crore
lakhs)
(Tax on Rs. 1 crore with surcharge 10%) +
Individual and HUF Rs. 1 crore Rs. 2 crores
(Total income – Rs. 1 crore)
(opting out of Sec
(Tax on Rs. 2 crores with surcharge 15%) +
115BAC) Rs. 2 crores Rs. 5 crores
(Total income – Rs. 2 crores)
(Tax on Rs. 5 crores with surcharge 25%) +
Rs. 5 crores -
(Total income – Rs. 5 crores)
Local authority and co- (Tax on Rs. 1 crore) + (Total income – Rs. 1
Rs. 1 crore -
operative society crore)
Domestic or Foreign (Tax on Rs. 1 crore) + (Total income – Rs. 1
Rs. 1 crore Rs. 10 crores
Co. crore)
(Tax on Rs. 10 crores with surcharge 7%) +
Domestic company Rs. 10 crores -
(Total income – Rs. 10 crore)
(Tax on Rs. 10 crores with surcharge 2%) +
Foreign Company Rs. 10 crores -
(Total income – Rs. 10 crore)

Example of marginal relief: (under new regime)

Assume case of Resident individual of age 32 years in PY 24-25:
Case Total income Income Tax Surcharge Total Restricted to
1 50,00,000 11,90,000 - 11,90,000 -
2 50,10,000 11,93,000 1,19,300 13,12,300 12,00,000
3 1,00,00,000 26,90,000 2,69,000 29,59,000 -
4 1,01,00,000 27,20,000 4,08,000 31,28,000 30,59,000

Author's Note: There is no marginal relief on income above 5 crores in new tax regime as the
surcharge rate is capped at 25% (above Rs. 2 crores)

Section 87A: Rebate in case of Individual Resident

Resident Individual Only Limit on TI Rebate upto

Normal tax regime 5 lakhs Rs. 12,500
Default Tax Regime – 115BAC 7 lakhs Rs. 25,000

Marginal relief under new tax regime (u/s 115BAC)

Where total income exceeds Rs. 7 lakhs and the income tax payable on such total income exceeds (Total
income less Rs. 7 lakhs)
Assessee shall be eligible for a deduction of: [Tax payable – (Total income – Rs. 7 lakhs)]

1.8 Basic Concepts

Example:
Particulars Case 1 Case 2 Incremental
Total income 7,00,000 7,05,000 5,000
Tax Payable 20,000 20,500 -
Rebate u/s 87 20,000 0 -
Marginal Relief - 15,500 -
Net Tax Payable - 5,000 5,000
Note
1. Rebate is provided on income tax before adding cess.
2. Rebate is not available w.r.t. tax payable u/s 112A @ 12.5%.
3. While slab rates are revised in FA 2024, amount of rebate is still 25,000.

Health and Education Cess: 4% of (Tax + Surcharge)

Rounding off: Total income and tax payable shall be rounded off to nearest multiple of 10.
Example= Rs. 10,004 becomes Rs. 10,000 and Rs. 11,205 becomes Rs. 11,210.

Revenue Receipt vs Capital Receipt

Ü Revenue receipts are considered as income and taxable under this Act. (E.g., Profit on sale of goods,
interest income, etc.)
Ü Capital receipts are taxable only to extent specifically mentioned in the Act (such as cap. gain)
Ü Other capital receipts not specifically mentioned are not taxable in this act.
Example – Compensation for delay in delivery of capital asset.

Note:
1. As all capital receipts are not taxable, all capital expenditures are not allowed as well.
For E.g., where expenditure is incurred for a project not related to the existing business and the
project was abandoned without creating a new asset, the expenses are capital in nature.
2. Security deposit foregone in case of a lease agreement by the lessee cannot be claimed as deduction
as it is in the nature of capital expenditure.

Application of income vs Diversion of income 5 6 7

Income when diverted (by overriding title) at source is called as diversion of income, whereas when the
income is applied after it accrues to Assessee, either due to contractual obligation or exercise of
discretion, it is called as application of income.

Note: Application of income is taxable in the hand of Assessee whereas diversion of income is not.

Example:
1. I paid my first month salary to a relative – This is the case of application of income as there is no
contractual obligation.
2. R, A and M are partners in a firm. R was asked to resign. As per the terms of the resignation, it was
included in the deed that 10% of the profit of the firm will be given to Mrs. R. This is case of diversion
of income and such 10% shall not be taxable in hands of firm.

Basic Concepts 1.9

 3. In case of a lottery, as per the lottery agreement certain percentage of the first prize is to be paid to
the state government and the lottery agent. In this case, the lottery income is subject to a legal
obligation and therefore the amount paid to the state government and lottery agent is on account of a
legal obligation. Therefore, the said amount is not taxable in the hands of winner.

Significant case laws

CIT vs Saurashtra Cement Ltd. (2010 – SC)

Issue Whether Liquidated damages received by company from supplier for failure to supply
machine within stipulated time is capital receipt or revenue receipt?
Decision Ü Damages are directly linked with capital assets (i.e., cement plant)
Ü It was not a receipt in course of profit earning process.
Ü Therefore, such receipt is not in OCOB hence it is a capital receipt.
Author's Section 28(ii)(e) shall not apply here as compensation is neither due to termination nor
Note due to modification of original contract. The original contract still holds good and hence
this compensation is not taxable.

Honda Siel Cars India Ltd. v CIT (2017 – SC)

Issue Whether technical fee paid under agreement for setting up JV in India is revenue or
capital expenditure where upon termination of agreement, JV would come to an end?
Decision It is capital expenditure in nature.

CIT v M. Venkateswara Rao (2015)

Issue Can capital contribution of individual partner in the books of firm be taxed as cash credit in
hands of firm where partners have admitted their contribution but failed to explain the
source of such receipts in individual hands?
Decision Ü Section 68 cannot be pressed against the firm.
Ü At most, enquiry can be made against individual partner and not firms when partners
have admitted capital contribution.
Ü In the absence of any material to indicate that they are profits of the firm, cash
credits cannot be assessed in hands of the firm though it may be assessed in hands of
the individual partner.

What you lack in talent can be

made up with desire, hustle and
giving 110% all the time.

1.10 Basic Concepts