Income-tax Law: Basic Concepts
What this domain tests
Basic Concepts supplies the vocabulary for every later computation: the charging section, the year framework, who is a person, what counts as income, and the rate structure. Direct questions are usually short, but the same concepts are assumed in every case study.
Core rules
- Section 4 charges the total income of the previous year at the rates fixed by the Finance Act; the assessment year is the year immediately following the previous year.
- Person u/s 2(31) includes an individual, HUF, company, firm, AOP or BOI, local authority and artificial juridical person.
- Income u/s 2(24) is inclusive: profits, dividends, capital gains, winnings, gifts taxed under 56(2)(x) and similar receipts.
- Agricultural income u/s 2(1A) is exempt, but is partly integrated with non-agricultural income of individuals and HUFs whose income exceeds the basic exemption.
- The new regime u/s 115BAC is the default. Slabs: nil to Rs.3,00,000; 5% to Rs.6,00,000; 10% to Rs.9,00,000; 15% to Rs.12,00,000; 20% to Rs.15,00,000; 30% above.
Worked example
Total income Rs.8,00,000, no special-rate income, new regime. Tax is 5% of Rs.3,00,000 (Rs.15,000) plus 10% of Rs.2,00,000 (Rs.20,000), that is Rs.35,000. Rebate u/s 87A is nil because total income exceeds Rs.7,00,000. Add 4% cess of Rs.1,400, so tax payable is Rs.36,400.
Traps
- Naming the year of earning as the assessment year; the AY is always the next year.
- Applying old-regime slabs when the question is silent, although the new regime is the default.
- Adding exempt agricultural income to total income instead of using it only for rate purposes.
- Omitting cess, or applying rebate after cess instead of before it.