Income-tax Law: Residential Status, Computation and Procedure
Paper 4 Part I tests the Income-tax Act, 1961 as applied to individuals and other assessees: residential status, computation under the five heads, Chapter VI-A deductions, rates and rebate, TDS/TCS, and procedural compliance. The exam favours computation with reasoning on classification.
Residential status decides scope
An individual is resident if in India at least 182 days in the previous year, or at least 60 days in the previous year and 365 days in the four preceding years. The 60-day limb becomes 120 days for an Indian citizen or PIO visiting India whose Indian income exceeds ₹15 lakh and who is not liable to tax elsewhere. Resident and ordinarily resident requires 730 days in the seven preceding years plus resident in two of ten. ROR is taxed on global income; RNOR and non-resident on Indian-source income only.
Heads and deductions
Salary allows standard deduction ₹50,000 in both regimes; HRA exemption is the least of actual HRA, 50%/40% of salary, and rent minus 10% of salary. House property allows 30% standard deduction on net annual value; self-occupied interest is capped at ₹2 lakh. Section 112A taxes LTCG on listed equity and equity mutual funds above ₹1 lakh at 10% without indexation. Chapter VI-A includes 80C ₹1.5 lakh, 80D ₹25,000/₹50,000 and 80TTA ₹10,000, mostly unavailable under the default new regime 115BAC, which has wider slabs and a ₹25,000 rebate under 87A up to ₹7 lakh total income.
Worked example
Salary ₹12,00,000 under the new regime. Standard deduction ₹50,000 gives total income ₹11,50,000. Tax: nil to ₹3,00,000; 5% on ₹3,00,000 = ₹15,000; 10% on ₹3,00,000 = ₹30,000; 15% on ₹2,50,000 = ₹37,500; total ₹82,500. Cess at 4% = ₹3,300, so liability is ₹85,800. Rebate 87A fails because income exceeds ₹7 lakh.
Traps
Surcharge on 111A/112A gains and dividends is capped at 15%. Rebate 87A cannot be set against 112A tax. A belated return cannot carry forward business losses, though house property loss can be carried forward. Advance tax applies when liability is ₹10,000 or more, with 234B and 234C interest.