Income Tax Notes RAE 2025-26 Practice Flashcards

Comprehensive practice flashcards for the Income Tax Revenue Audit Examination (RAE) 2025-26, covering all 12 modules from General Concepts to MAT/AMT and ICDS.

Income-tax Act, 1961

The principal legislation governing the levy, collection, and administration of income tax in India.

Date of Commencement

The Income-tax Act, 1961, came into force on $1\,April\,1962$.

Annual Finance Acts

Legislation that modifies tax rates and specific provisions of the Income-tax Act every year.

Person (Section 2(31))

An inclusive definition covering $8$ categories: Individual, HUF, Company, Firm, AOP, BOI, Local Authority, and Artificial Juridical Person.

Individual

A natural person, such as Mr. Ramesh Kumar, categorized as a person under $\text{Section } 2(31)$.

Hindu Undivided Family (HUF)

A type of 'person' for tax purposes, such as Sharma HUF.

Firm

Includes a partnership firm, such as ABC \& Co., as a 'person' under the Act.

Association of Persons (AOP)

A group of persons pooling resources for a specific purpose; includes cooperative societies.

Body of Individuals (BOI)

A group of individuals formed for a joint venture, considered a 'person' under $\text{Section } 2(31)$.

Local Authority

An entity like Pune Municipal Corporation qualifying as a 'person' for tax purposes.

Artificial Juridical Person (AJP)

A residual category of person including entities like the Bar Council of India or Universities.

Assessee (Section 2(7))

A person by whom any tax, penalty, interest, or other sum is payable under the Act.

Deemed Assessee

A person whose income is assessable in another's hands, such as the guardian of a minor.

Assessee in Default

A person who fails to fulfill statutory obligations like $TDS$ or $TCS$.

Income (Section 2(24))

An inclusive definition including profits, dividends, voluntary contributions, perquisites, capital gains, and lottery winnings.

Assessment Year (AY) (Section 2(9))

A period of $12\,months$ commencing on $1\,April$ every year, during which the income of the Previous Year is taxed.

Previous Year (PY) (Section 3)

The financial year immediately preceding the Assessment Year, normally from $1\,April$ to $31\,March$.

Short Previous Year

A period less than $12\,months$ for a newly started business or profession.

Charge of Income Tax (Section 4)

The charging section without which no tax can be levied; income is charged at rates prescribed by the Finance Act.

Scope of Total Income (Section 5)

Taxability defined by residential status: ROR (Global), RNOR (India + foreign business controlled in India), and NR (India only).

Resident & Ordinarily Resident (ROR)

An individual taxable on global income (Indian and Foreign income).

Resident but Not Ordinarily Resident (RNOR)

Taxable in India on Indian income and income from a foreign business controlled in India.

Non-Resident (NR)

A person taxable in India only on income received, accrued, or arising in India.

Basic Condition 1 (Section 6)

Individual stayed in India for $182\,days$ or more during the Previous Year.

Basic Condition 2 (Section 6)

Individual stayed in India for $60\,days$ or more in the PY and $365\,days$ or more in the $4$ preceding PYs.

120-Day Rule Exception

Replacement of the $60\text{-day}$ rule for Indian citizens or PIO leaving for employment abroad.

Deemed Resident (Section 6(1A))

Indian Citizen with Indian income exceeding $₹15\,lakh$ and not liable to tax in any other country.

Indian-Sourced Income Threshold (Section 6(1A))

The total income (excluding foreign source income) must exceed $₹15\,lakh$ for deemed residency.

ROR Additional Condition A

Resident in India in at least $2$ out of $10$ preceding Previous Years.

ROR Additional Condition B

Stayed in India for $730\,days$ or more in the $7$ preceding Previous Years.

Section 9

Deals with income deemed to accrue or arise in India even without physical presence.

Section 9(1)(i)

Covers income from business connections, property, assets, or sources in India.

Section 9(1)(ii)

Salary earned in India regardless of where it is paid.

Section 9(1)(iii)

Salary paid by the Government to an Indian citizen for services outside India.

Section 9(1)(iv)

Dividends paid by an Indian company outside India.

Section 9(1)(v)

Interest payable by the Indian Government or a resident (subject to exceptions).

Section 9(1)(vi)

Royalty payable by the Indian Government or a resident for use of rights outside India.

Section 9(1)(vii)

Fees for Technical Services (FTS) payable by the Indian Government or a resident.

Agricultural Income (Section 2(1A))

Includes rent/revenue from agricultural land in India and income from agricultural operations.

Section 10(1)

Section under which agricultural income is exempt from tax.

Partial Integration

The 'rate method' used to calculate tax when an assessee has both agricultural and non-agricultural income.

Section 15

Basis of charge for salary; taxable on due or receipt basis, whichever is earlier.

Employer-Employee Relationship

A mandatory condition for any payment to be taxed under the head 'Salaries'.

Director Sitting Fees

Fees paid for attending board meetings; taxed as 'Income from Other Sources', not Salary.

Advance Salary

Taxable in the year of receipt even if not yet due.

Arrears of Salary

Taxable when received, with relief available under $\text{Section } 89$.

House Rent Allowance (HRA) (Section 10(13A))

Allowance for rent; exemption is the least of: actual received, Rent - $10\%$ of salary, or $50\%/40\%$ of salary.

Salary for HRA

Basic Salary + DA (forming part of retirement benefit) + Commission (percentage of turnover).

Metro Cities (HRA Rule)

Mumbai, Delhi, Chennai, and Kolkata for the $50\%$ salary exemption limit.

Children Education Allowance

Partly exempt allowance of $₹100$ per child per month, max $2$ children.

Hostel Allowance

Partly exempt allowance of $₹300$ per child per month, max $2$ children.

Section 10(7)

Exempts allowances and perquisites paid by the Government to employees posted outside India.

Standard Deduction (Old Regime)

A flat deduction of $₹50,000$ for salaried employees and pensioners.

Standard Deduction (New Regime)

Increased to $₹75,000$ starting from $AY\,2025\text{-}26$ under Finance Act 2024.

Entertainment Allowance (Section 16(ii))

Deduction allowed only for Government employees; least of $₹5,000$, $20\%$ of basic, or actual.

Professional Tax (Section 16(iii))

Deduction allowed on the basis of actual payment made by the employee.

Perquisites (Section 17(2))

Benefits or amenities provided by an employer to an employee.

Interest-Free Loan Perquisite

Taxable benefit based on $SBI\,Prime\,Lending\,Rate$ if loan exceeds $₹20,000$.

Gratuity (Government Employee)

Fully exempt retirement benefit for Government employees.

Gratuity Limit (Non-Government)

Notified ceiling of $₹20\,lakh$ for tax exemption.

Commuted Pension Exemption

Exempt up to $1/3rd$ if gratuity is received or $1/2$ if no gratuity is received.

Uncommuted Pension

Pension received periodically; fully taxable for all employees.

Leave Encashment at Retirement (Non-Govt)

Exempt up to a ceiling of $₹25\,lakh$ or calculated based on average salary.

VRS Exemption (Section 10(10C))

Exemption for Voluntary Retirement Scheme payments up to $₹5\,lakh$.

Section 22

Basis of charge for House Property; annual value of building or land appurtenant.

Land Appurtenant

Land connected to a building; its income is taxed under 'House Property'.

Deemed Owner (Section 27)

Situations where a person who is not the legal owner is treated as owner for tax purposes.

Impartible Estate

Property not legally divisible; the holder is the deemed owner u/s 27.

Self-Occupied Property (SOP) Annual Value

The Annual Value is taken as $NIL$ for up to $2$ properties.

Deemed Let Out Property (DLOP)

Owned properties beyond the initial $2\,SOPs$; treated as if they were rented.

Gross Annual Value (GAV)

Higher of Expected Rent or Actual Rent received/receivable.

Expected Rent Calculation

Higher of Municipal Value or Fair Rent, restricted by the Standard Rent.

Municipal Value

The value of the property as determined by the municipal authorities for tax purposes.

Fair Rent

The rent that similar properties in the same locality would fetch.

Standard Rent

The maximum rent fixed under the Rent Control Act.

Municipal Taxes Deduction

Deductible from GAV only if actually PAID by the owner during the PY.

Net Annual Value (NAV)

GAV minus Municipal Taxes paid by the owner.

Section 24(a) Standard Deduction

Fixed deduction of $30\%$ of NAV for Repairs and Maintenance.

Section 24(b)

Deduction for interest on borrowed capital for acquisition, construction, or repair of a house property.

SOP Interest Limit (Acquisition/Construction)

Limit of $₹2,00,000$ for loans taken after $1\,April\,1999$ if completed within $5\,years$.

SOP Interest Limit (Repairs)

Maximum deduction of $₹30,000$ for loans taken for property repairs.

Pre-construction Interest

Deductible in $5$ equal annual installments from the year of construction completion.

Inter-head Set-off Cap (HP Loss)

Loss from House Property can only be set off against other heads up to $₹2,00,000$ per year.

Unabsorbed House Property Loss

Carried forward for $8\,Assessment\,Years$ for set-off only against House Property income.

Section 25A

Taxability of arrears of rent or unrealised rent in the year of receipt.

Vacant Land Income

Income from land without a building; taxed as PGBP or Other Sources, not House Property.

Section 28

Basis of charge for Profits and Gains of Business or Profession (PGBP).

Export Incentives

Incentives or subsidies received during business; taxable under PGBP head.

Speculative Business Income

Income derived from transactions where contract is settled otherwise than by actual delivery.

Section 37(1)

Residuary deduction for revenue expenditure laid out wholly and exclusively for business.

CSR Expenditure (Section 37(1))

Corporate Social Responsibility expenses; specifically disallowed as a business deduction.

Section 32

Allows depreciation for assets owned and used for business or profession.

Block of Assets

A group of assets of the same class for which a common rate of depreciation is prescribed.

Half-Year Rule (Depreciation)

The rule applying $50\%$ of normal depreciation if the asset is used for less than $180\,days$ in the PY.

Section 40A(3)

Disallows payments exceeding $₹10,000$ made in cash per person per day (subject to exceptions).

Transport Payment Cash Limit

The threshold for cash payment disallowance is raised to $\text{Section } ₹35,000$ for transporters.

Rule 6DD

Prescribes exceptions where cash payments exceeding limits are allowed from disallowance.

Section 43B

Expenses like taxes, PF, and bonus are allowed as deductions only on an actual payment basis.

Presumptive Taxation (Section 44AD)

Available to Resident Individual/HUF/Firm (not LLP) with turnover up to $₹2\,crore$ ($₹3\,crore$ if digital).

Digital Receipt Rate (44AD)

The presumed income rate is $6\%$ for digital or banking channel receipts.