Direct Tax Laws and Practice
What the paper tests
Direct Tax Laws and Practice tests computation and procedure: residential status and scope of total income, heads of income, Chapter VI-A deductions, capital gains, presumptive schemes, TDS/TCS, advance tax, MAT and the concessional regimes, assessment and appeal timelines.
Core rules
- Section 6: 182 days in the previous year, or 60 days plus 365 days in the preceding four years, makes a resident; the 60-day limb relaxes to 182 for citizens leaving for employment or as crew. Deemed residency applies at 120 days with Indian income above ₹15 lakh.
- Section 5 taxes residents on global income; RNOR is taxed on Indian income plus business controlled from India.
- Presumptive: section 44AD at 8% (6% for digital receipts) up to ₹2 crore turnover, ₹3 crore where cash receipts are 5% or less; 44ADA at 50% for professionals up to ₹50 lakh, ₹75 lakh on the same cash condition.
- Capital gains: transfers on or after 23 July 2024 are generally long-term taxed at 12.5% without indexation; listed equity keeps the ₹1.25 lakh exemption, with 20% short-term.
Worked example
A resident individual under the default 115BAC regime has salary income of ₹12,00,000 after the ₹75,000 standard deduction and long-term capital gain of ₹3,00,000 on listed shares. Salary is taxed at slab rates; the equity gain is reduced by the ₹1.25 lakh threshold, leaving ₹1,75,000 at 12.5% = ₹21,875. The basic exemption limit cannot be set against section 112A gains, and the 87A rebate is unavailable at this income.
Traps
- Claiming business expenses again once presumptive income is offered.
- Counting days of stay without applying the statutory exclusion for the day of departure.
- Treating TDS credit as separate income rather than tax already paid.