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1. INTRODUCTION TO INCOME TAX

Applicable Finance Act: Finance (No. 2) Act, 2024.
(Applicable for P.Y 24-25 A.Y 25-26)
Amendments: Changes done to income tax act are called Amendments.
Effective date of amendments:

Amendments

Amendments effecting Amendments which are

computation of total income. procedural in nature.

Amendments as on 1st April of the A.Y

(as on 01-04-2025) will apply for Applicable from date of
computation of T.I and T.L for previous amendments
year (P.Y 24-25)

E.g. Change of ITR form name

E.g. Change in Depreciation rate from ITR-1 to ITR-1A

A) Basic Exemption Limit (Maximum income not chargeable to tax)

CATEGORY OF PERSON BEL (₹)
a) Resident Individuals (Men or Women) (< 60 years), Non-resident 2,50,000/-
Individual (Men or Women) (irrespective of age limit), HUF, AOP/BOI,
AJP (except co-operative society) [Optional regime]
b) Resident Individuals (Men or Women) ( > 60 years but < 80 3,00,000/-
years) (Senior citizens) [Optional regime]
c) Resident Individuals (Men or Women) ( > 80 years) (Very Senior 5,00,000/-
citizens) [Optional regime]
d) Individual / HUF / AOP / BOI / AJP (except co-operative society) 3,00,000/-
[irrespective of age limit/ residential status] [Default regime]
e) Companies & Partnership firm Nil
f) Co-operative societies Nil
g) Local authorities Nil

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TAX RATES FOR A.Y 25-26

Individual/ HUF / AOP / BOI / AJP

(except Co-operative society)

Default tax regime Optional tax regime

a) Up to ₹3,00,000 Nil
b) From ₹3,00,001 to ₹7,00,000 5%
c) From ₹7,00,001 to ₹10,00,000 10%
d) From ₹10,00,001 to ₹12,00,000 15%
e) From ₹12,00,001 to ₹15,00,000 20%
f) Above ₹15,00,000 30%

Person Total Income Tax (%)

a) Resident Individual (<60 years), All Non-resident Up to ₹2,50,000 Nil
individuals (No Age Limit), HUF, AOP/BOI & AJP ₹ 2,50,001 - ₹ 5,00,000 5%
(except Co-operative Society) ₹ 5,00,001 - ₹ 10,00,000 20%
Above ₹10,00,001 30%
b) Resident Individual’s ( > 60 years but < 80 years) Up to ₹3,00,000 Nil
(Senior Citizen) ₹ 3,00,001 - ₹ 5,00,000 5%
₹ 5,00,001 - ₹ 10,00,001 20%
Above ₹10,00,001 30%
c) Resident Individual’s ( > 80 years) (very senior citizen) Up to ₹5,00,000 Nil
₹ 5,00,001 - ₹ 10,00,000 20%
Above ₹10,00,001 30%
Notes:
 Where an assessee wants to shift from default tax regime to alternative/optional tax regime,
then he should exercise the option in the prescribed manner;

i) Where the person is not Every year he may choose to pay tax under default tax regime
having PGBP income u/s 115BAC(1A) or can exercise the option to shift out of default
tax regime u/s 115BAC (6) along with filing return of income
u/s 139(1).
ii) Where the person has  Generally, default tax rates are applicable.
income from business or  However, assessee can exercise the option u/s 115BAC (6)
profession within the due date for filing the returns of income specified
u/s 139(1) to shift out of default tax regime and
 such option once exercised shall apply to subsequent
assessment years.
 Such person who has exercised the above option shall be
able to withdraw such option only once and pay tax under
the default tax regime u/s 115BAC(1A) for a previous year

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other than the year in which it was exercised.

 Thereafter, such person shall never be eligible to exercise
this option, except where such person ceases to have any
business income in which case, option (i) above would be
available.

 Marginal relief is also available in case of Person paying tax under Default tax regime u/s
115BAC. (Refer total income chapter).
 Resident Individual whose 60th birthday/ 80th birthday falls on 01.04.2025 would be considered
to have attained a particular age on 31st March preceding the anniversary of his birthday,
hence eligible for higher basic exemptions limit of 3 Lakhs/ 5 Lakhs under optional tax regime.

FOLLOWING DEDUCTIONS/EXEMPTIONS ARE NOT ALLOWABLE IF ASSESSEE PAYS

TAX UNDER DEFAULT TAX REGIME UNDER SEC 115BAC:
Reference chapter Exemption/ Deduction
a) SALARIES  Deductions u/s 16 except standard deduction.
 Leave travel concession – Section 10(5).
 House rent allowance – section 10(13A).
 Specified allowances exempt u/s 10(14) other than
a) Transport allowance, transfer allowance and conveyance
allowance for official purposes.
b) Transport allowance of ₹ 3,200 per month to a handicapped
employee.
b) IFHP  Interest in respect of SOP u/s 24(b).
c) PGBP  Additional depreciation – section 32(1)(iia).
 Deduction for specified business u/s 35AD.
 Deduction for specific research [Sec 35(1)(ii)(iia)/(iii), 35(2AA)]
d) CLUBBING OF  Exemption up to ₹ 1,500 available in the case of clubbing income of
INCOME a minor child [Sec 10(32)]
e) SET OFF AND  Inter-head set-off of loss under the head IFHP u/s 71.
CARRY FORWARD
f) CHAPTER VIA  All deductions except 80CCD (2), 80CCH(2) and 80JJAA.
g) EXEMPTIONS  Allowances to MP’s/MLA’s section 10(17).
 Exemption for unit in SEZ – Section 10AA.
**Alternate Minimum Tax under (ATM) u/s 115JC is not applicable if the assessee pays tax under
default tax regime u/s 115BAC. Consequently, AMT tax credit of earlier years cannot be adjusted
against tax liability which is computed u/s 115BAC.

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INCOME CHARGEABLE AT SPECIAL TAX RATES (APPLICABLE FOR ALL

CATEGORY OF PERSONS)

Income Tax Rate

Sec 112A (LTCG) In excess of 1,25,000 would be taxable
- Before 23-07-24 - @ 10% flat rate, if transfer is before 23-7-24
- On or after 23-7-24 - @12.5% flat rate, if transfer is on or after 23-7-24
Note: Overall exemption allowed u/s 112A
during P.Y 24-25 is 1.25 lakhs.
Sec 112 (LTCG)
- Before 23-07-24 20% flat rate (with indexation)
- On or after 23-7-24 12.5% flat rate (without indexation)
Sec 111A (STCG)
- Before 23-07-24 15% flat rate
- On or after 23-7-24 20% flat rate
Sec 115BB (Lottery) 30% flat rate
Sec 115BBE (Deemed Income) 78% (Flat 60% + Surcharge @25% +HEC @4%)
Sec 115BBJ (Net winning from online games) 30% flat rate

Note: The above tax rates are applicable even if assesses opts to pay tax u/s 115BAA
/115BAB/115BAC/ 115BAD/115BAE.
SURCHARGE:
 It is always calculated on tax amount (Tax on tax).
 For Individuals (Irrespective of age limit)/HUF/AOP (Other than AOP only consisting of
companies as members)/BOI/AJP (except Co-operative society) – Irrespective of residential
status.

Total Income Surcharge Rate

Up to 50 lakhs No Surcharge
> 50 lakhs but < 1 crore 10% of Income Tax
> 1 Crore but < 2 Crore 15% of Income Tax
> 2 Crore but < 5 Crore 25% of Income Tax
> 5 Crore 25% (under Default tax regime) / 37% (under
Optional tax regime)

 For AOP (Consisting only companies as members)

Total Income Surcharge Rate
> 50 lakhs but < 1 Crore 10% of Income Tax
> 1 Crore 15% of Income Tax

a) LTCG U/S 112

c) STCG U/S 111A
b) LTCG U/S 112A
d) Dividend
For above 4 incomes, 25% and 37% surcharge rate is not applicable i.e., maximum surcharge rate
applicable is 15%.
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HOW TO CHOOSE SURCHARGE RATE ?
Total Income

Not having 4 Having 4

Incomes Incomes

S/C rate S/C rate

applicable for applicable for
Up to 50L = No S/C
Total Income is Total Income is
> 50L - 1Cr = 10% 25% or 37%
10% or 15%
> 1Cr - 2Cr = 15%
> 2Cr - 5Cr = 25%
4 Incomes Other Incomes
> 5Cr = 25% (Default) / Apply 10%
or 15%
37% (Optional)
S/C rate
S/C rate for
10% or 15%
S/C rate is Other Income
applicable (or)
15%

Question:
From the following information of an Individual ascertain the applicable surcharge if he opt out
from default tax regime. ₹ in lakhs.

Income Case-I Case-II Case-III Case-IV Case-V Case-VI

Dividend 10 10 60 60 55 80
STCG u/s 111A 20 60 54 50 60 90
LTCG u/s 112A 25 65 55 65 55 75
Other Income 40 50 300 600 111 56
Total Income 95 185 469 775 281 301

Solution:

Case-I: @ 10% on Income-tax computed on total Income of 95 lakhs.

Case-II @ 15% on income-tax computed on total income of 1.85 crores

Case-III Surcharge @ 15% would be levied on income-tax on:

 Dividend income of 60 lakhs.
 STCG of 54 lakhs chargeable to tax u/s 111A; and
 LTCG of 55 lakhs chargeable to tax u/s 112A
Surcharge 25% on other income of 300 Lakhs.

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Case IV Surcharge @ 15% would be levied on income-tax on:

 Dividend income of 60 lakhs. 
 STCG of 50 lakhs chargeable to tax u/s 111A &
 LTCG of 65 lakhs chargeable to tax u/s 112A.
Surcharge @ 37% on 6 crores included in total income

Case V @15% on income-tax computed on total income of 2.81 crore

Case VI @15% on income-tax computed on total income of 3.01 crore

REBATE U/S 87A

 The assessee is an Individual &
 He is resident in India (ROR or RNOR)

Amount of Rebate

Optional tax regime Default regime u/s 115BAC

If the total income is If the total Income is

When total > 7,00,000 < 7,00,000
income is < 5L

S1: Tax on T.I 100% of tax

100% of tax S2: T.I – 7 lakhs Or
Or S3: If S1 > S2, then 20,000
₹ 12,500 Rebate = S1 – S2,
If S1 < S2, Rebate = 0

Note:
 Rebate u/s 87A should be calculated before adding H & EC.
 Rebate u/s 87A is not available in respect of tax payable on incomes taxable at special tax rates
under default tax regime.
 Rebate u/s 87A is not available in respect of tax payable on LTCG u/s 112A under optional tax
regime.

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HEALTH & EDUCATION CESS (APPLICABLE FOR ALL ASSESSES)

 Rate: 4% of (Tax + Surcharge - Rebate)

ROUNDING OFF OF TOTAL INCOME (SEC 288A) AND TAX LIABILITY (SEC 288B)
 After calculation of total income and tax liability, if there is any decimal, ignore the decimal.
 Consider the last digit
 If last digit is 5 or > 5, round off to next multiple of 10.
 If last digit is < 5 (i.e., 1/2/3/4), round off to previous multiple of 10.

MARGINAL RELIEF
 This topic will be discussed clearly in T.I chapter.

PARTNERSHIP FIRM/ LLP/ LOCAL AUTHORITY

 Tax rate: 30% flat rate.
 Surcharge: 12% of Tax, if T.I > 1 crore. (If T.I is up to 1 crore, no surcharge)

COMPANY/CO-OPERATIVE SOCIETY
Assesse Tax Surcharge
Rate
Regular Provision Total Income
 Where the total turnover or gross  < 1Cr – No surcharge
receipt in the previous year 2022-23 25%  > 1 Cr up to 10 Cr – 7%
does not exceed 400 crores.  > 10 Crores – 12%
 In case of other domestic companies. 30%
Note: If t/o of PY 22-23 is not given,
consider 30%.
Optional Provisions Sec 115BAB:
Domestic
 Domestic company & 15%
Company
 Manufacturing Business &
 It was set up and registered on or after (Eff rate 10%
1st October 2019 & –
 Manufacture articles or things before 17.16%)
31-03-2024
Sec 115BAA: In case of other Domestic 22%
companies which cannot choose 115BAB
Foreign
Total Income
Company
 < 1cr – No Surcharge
Tax rate on Total Income 35%
 >1Cr up to 10 Cr- 2%
 > 10 crores – 5%

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Regular Provisions Total Income

 Up to 10,000 10%  < 1cr – No Surcharge
 10,001 – 20,000 20%  > 1Cr up to 10 Cr - 7%
 Above 20,000 30%  > 10 crores – 12%
Co - Optional Provisions Sec 115BAE:
operative
 Co-operative Society &
Society 15%
 Manufacturing Business &
 It was set up and registered on 01-04-
2023 & (Eff rate 10%
 Manufacture articles or things before –
31-03-2024 17.16%)
Sec 115BAD:
 In case of other resident Co-operative 22%
Societies which cannot choose 115BAE

Note: For Sec 115BAD, 115BAB, 115BAA & 115BAE Surcharge rate is always 10%.
The concessional rates u/s 115BAB/115BAA/115BAD/115BAE are applicable only if the assessee do
not avail certain exemptions/ Deductions like 10AA, 35AD, 80IA to 80RRB except 80JJAA,
additional depreciation etc…

ASSESSEE: Every person who pays the tax or any other sum under the provisions of income tax
act is treated as an assessee.

CLASSIFICATION OF ASSESSEE

Representative
General Assessee Defaulted Assessee
Assessee

Every person in respect If a person fails to comply A person who

whom any proceeding with duties imposed upon files ROI on
has been taken for the him under the act behalf of others
assessment of his income/ E.g. If employees fails to E.g. Agents in
loss/ refund claimed. make TDS and (or) fails India of NR
to deposit with Govt.

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IMPORTANT CONCEPTS:

•It gives clarification to the provision contained in that

EXPLANATION section/ sub-section/ clause.

•It gives exception to the provision contained in

PROVISION respective section / sub-section/ clause.

•Issued by CBDT
CIRCULARS •Issued for guidance of officers (or) assessees.
•Circular are not binding on assesses.

•Issued by CG
NOTIFICATIONS •CBDT is also empowered to issue notification.

•Those items which do not form part of total income

EXEMPTION are known as exemptions.
•E.g. Agriculture income u/s 10(1)

•These items are first included in gross total income

and then deducted from GTI in order to arrive total
DEDUCTIONS income.
•E.g. Interest on Savings A/c is added in GTI and later
allowed as deduction u/s 80TTA.

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SURCHARGE RATES

Ind/HUF/BOI/AJP/ AOP only Domestic

AOP (other than consist of Partnership Company / Foreign
AOP only consisting companies as Firm Co-operative Company
of companies as members society
members)

Total Income Total Income: Total Income:

Total Income:
Total Income: > 50lakhs - Nil Upto 1Cr - Nil > 1Cr - Nil
> 1Cr - Nil
> 50lakhs - Nil > 50L < 1Cr - 10% > 1Cr - 12% > 1Cr < 10Cr - 2%
> 1Cr < 10Cr - 7%
> 50L < 1Cr - 10% > 1Cr - 15% > 10Cr - 5%
> 10Cr - 12%
> 1Cr < 2Cr - 15%
> 2Cr < 5Cr - 25%
> 5Cr - 25% (Def) /
- 37% (Opt)

NOTE:
1) 115BAB/115BAA/115BAD/115BAE – 10%
2) Maximum Surcharge rate applicable.

QUESTION: Mr. Agarwal aged 40 years and a resident in India, has a total income of ₹
6,50,00,000, comprising long term capital gain taxable under section 112 on 9-12-24 of ₹55,00,000,
short term capital gain taxable under section 111A on 7-4-24 of ₹65,00,000 and other income of
₹5,30,00,000. Compute his tax liability for A.Y.2025-26 under the default tax regime and optional
tax regime as per the normal provisions of the Act assuming that the total income and its
components are the same in both tax regimes.
SOLUTION:
a) Computation of tax liability of Mr. Agarwal for the A.Y.2025-26 under default tax regime.
Particulars (₹) (₹)
Tax on total income of ₹ 6,50,00,000
Tax @ 12.5% on LTCG u/s 112 of ₹ 55,00,000 6,87,500
Tax @ 15% on STCG u/s 111A of ₹ 65,00,000 9,75,000 16,62,500
Tax on other income of ₹ 5,30,00,000
₹ 3,00,000 - ₹ 7,00,000 @ 5% 20,000
₹ 7,00,000 - ₹ 10,00,000 @10% 30,000
₹ 10,00,000 - ₹ 12,00,000 @ 15% 30,000
₹ 12,00,000 - ₹ 15,00,000 @ 20% 60,000
₹ 15,00,000 - ₹ 5,30,00,000 @ 30% 1,54,50,000 1,55,90,000
TAX AMOUNT 1,72,52,500
Add: Surcharge @ 15% on ₹16,62,500 2,49,375
@ 25% on ₹ 1,55,90,000 38,97,500 41,46,875
TAX + SURCHARGE 2,13,99,375
Add: Health and education Cess @4% 8,55,975 8,55,975
TOTAL Tax Liability 2,22,55,350

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b) Computation of tax liability of Mr. Agarwal for the A.Y.2025-26 under optional provisions of the Act

Particulars (₹) (₹)

Tax on total income of ₹ 6,50,00,000
Tax @ 12.5% on LTCG u/s 112 of ₹ 55,00,000 6,87,500
Tax @ 15% on STCG u/s 111A of ₹ 65,00,000 9,75,000 16,62,500
Tax on other income of ₹ 5,30,00,000
₹ 2,50,000 - ₹ 5,00,000 @ 5% 12,500
₹ 5,00,000 - ₹ 10,00,000 @ 20% 1,00,000
₹ 10,00,000 - ₹ 5,30,00,000 @ 30% 1,56,00,000 1,57,12,500
1,73,75,000
Add: Surcharge @ 15% on ₹ 16,62,500 2,49,375
@ 37% on ₹ 1,57,12,500 58,13,625 60,63,000
2,34,38,000
Add: Health and education cess @ 4% 2,34,38,000 9,37,520 9,37,520
Tax Liability 2,43,75,520

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