Income Tax Basics – CM A Foundation
Business Law & Taxation – Study Notes
1. Simple Explanation
Income tax is a direct tax levied by the Government of India on the income earned by individuals, companies, firms and other entities. The tax is governed by the Income‑Tax Act, 1961 and is collected through a system of filing returns, advance tax, TDS (Tax Deducted at Source) and self‑assessment.
Key Idea:
Income tax is what you pay on the money you earn (after allowed deductions and exemptions).
2. Key Points
| # | Topic | Why it matters for a CMA professional |
|---|---|---|
| 1 | Taxable Person | Individuals, HUFs, companies, firms, LLPs, trusts, etc. |
| 2 | Sources of Income | 1) Salary, 2) House Property, 3) Business/Profession, 4) Capital Gains, 5) Other Sources (interest, dividends, etc.) |
| 3 | Gross Total Income (GTI) | Sum of all incomes before deductions. |
| 4 | Deductions (Section 80) | 80C (investments), 80D (health insurance), 80G (charity), 80E (education loan), 80TTA/80TTB (savings interest), etc. |
| 5 | Exemptions & Rebates | 80G, 80U, 80RRB, 87A rebate, etc. |
| 6 | Taxable Income | GTI – Deductions – Exemptions. |
| 7 | Tax Rates (FY 24‑25) | • Individual < ₹2.5 L: 0% • ₹2.5–5 L: 5% • ₹5–10 L: 20% • >₹10 L: 30% • Senior/Very‑Senior: lower slabs (installment basis). |
| 8 | Rebate – 87A | ₹12 000 if taxable income ≤ ₹5 L. |
| 9 | Advance Tax | 15%/25%/50%/75% of estimated tax liability paid in installments (April, July, Oct, Jan). |
| 10 | TDS & TCS | Employer deducts TDS from salary; banks deduct TCS on interest. |
| 11 | Self‑Assessment Tax | Balance tax after TDS/TCS is paid by filing return. |
| 12 | Penalties & Prosecutions | Late filing, under‑reporting, non‑payment of advance tax, etc. |
| 13 | Tax Planning | • Maximise deductions (80C, 80D etc.) • Split income between spouse/HUF • Use tax‑efficient investments (ELSS, PPF) • Structure business as LLP/Company for lower rates |
| 14 | Recent Amendments | 2023 Budget: Higher tax rate (30%) from ₹10 L, new surcharge, changes in deduction limits. |
| 15 | Relevance to CMA | Accurate tax calculations affect financial statements, compliance, audit, and advisory services. |
3. Worked Example
Scenario
| Item | Amount (₹) |
|---|---|
| Salary | 15,00,000 |
| Capital Gains (long‑term) | 2,00,000 |
| Other Income (interest) | 50,000 |
| Deductions | |
| • 80C (investments) | 1,50,000 |
| • 80D (health insurance) | 25,000 |
| • 80E (education loan interest) | 30,000 |
| • 80TTA (savings interest) | 5,000 |
| Rebate 87A | 12,000 (applicable) |
Step‑by‑Step Calculation
| Step | Calculation | Result (₹) |
|---|---|---|
| 1. Gross Total Income (GTI) | Salary + Capital Gains + Interest | 15,00,000 + 2,00,000 + 50,000 = 17,50,000 |
| 2. Total Deductions | 80C + 80D + 80E + 80TTA | 1,50,000 + 25,000 + 30,000 + 5,000 = 2,10,000 |
| 3. Taxable Income | GTI – Deductions | 17,50,000 – 2,10,000 = 15,40,000 |
| 4. Compute Tax (FY 24‑25) | ||
| • First ₹2.5 L | 0% → ₹0 | |
| • ₹2.5–5 L |