Income Tax Law & Practice Notes
Subject Overview
Income Tax Law & Practice is the practical, computation-heavy paper on how individuals and entities are actually taxed in India. You'll cover the basic concepts (previous year, assessment year, residential status), computation of income under all five heads — salaries, house property, business or profession, capital gains, and other sources — and then set-off/
Subject at a glance
4
Units
28
Topics
6
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Definitions
- concept of income
- previous year and assessment year
- distinction between capital and revenue
- residential status
- basis of charge and scope of total income
- incomes not forming part of total income
- 1Income under five heads
Salary, house property, business, capital gains, other sources
- 2Gross total income
Add all heads after set-off
- 3Deductions
Allowable deductions
- 4Total income
Taxable income
- 5Tax
Apply slab rates, then rebate and cess
Study guide
This unit lays the foundation of income tax: key definitions, the concept of income, previous year and assessment year, capital versus revenue receipts, residential status, the basis of charge, scope of total income and incomes exempt from tax. Learn the residential status tests with an example for each category. Note that the syllabus follows the structure of the Income-tax Act, 1961; the Income-tax Act, 2025 replaces it from 1 April 2026 and uses the term tax year, so confirm with your faculty which law your exam follows.
- Income from salaries
- income from house property
- profits and gains of business or profession
- capital gains
- income from other sources
- clubbing and aggregation of income
Salaries
Pay, allowances, perquisites
House property
Annual value of property
Business or profession
Profits and gains
Capital gains
Profit on sale of capital assets
Other sources
Interest, dividends, lottery
Study guide
You compute income under each head: salaries, house property, profits and gains of business or profession, capital gains and income from other sources, along with clubbing and aggregation of income. Practise one full computation for each head; computation problems carry most of the marks.
- Set-off and carry-forward of losses
- deductions from total income
- taxation of individuals
- Hindu Undivided Family
- firms and association of persons
Meaning
Adjust a loss against income in the same year
Take the unadjusted loss to future years
Scope
Within the same head or across heads
Only certain losses, within time limits
Example
Loss in one business vs profit in another
Business loss carried up to eight years
Study guide
This unit covers set-off and carry-forward of losses, deductions from total income and the taxation of individuals, Hindu Undivided Families, firms and associations of persons. Learn the main deduction sections with their limits, as these change with the Finance Act each year.
- Tax and special provisions for companies
- collection and recovery of tax
- TDS and TCS
- advance tax
- assessment procedure
- appeals
- revisions
- settlement of cases
- penalties
- e-filing
Paid by
Payer deducts at source
The taxpayer directly
When
At the time of payment
In instalments during the year
Example
Salary, interest, rent
Business income, capital gains
Purpose
Collect tax as income arises
Pay tax as you earn
Study guide
The final unit covers company taxation, collection and recovery of tax, TDS and TCS, advance tax, assessment procedure, appeals, revisions, settlement of cases, penalties and e-filing. Understand the sequence of the assessment procedure and the due dates of filing returns.
Why Income Tax Law & Practice Matters
Income tax knowledge is a practical skill for every working person and is essential for accounting, audit, taxation and finance careers. It is also a major subject in CA, CMA and CS studies, and tax-filing skills are valued by employers and in freelance practice.
How to Prepare for Income Tax Law & Practice
- Practise full tax computations for an individual, a firm and a company.
- Check the current Finance Act figures and slabs before the exam.
- Learn TDS rates and due dates with a simple table.
Income Tax Law & Practice: Frequently Asked Questions
What is the difference between previous year and assessment year?
Under the older terminology, the previous year is the year in which income is earned and the assessment year is the following year in which it is assessed. The Income-tax Act, 2025 replaces both with the single concept of the tax year.
What is residential status?
Residential status classifies a person as resident, resident but not ordinarily resident or non-resident for a year, and decides which income is taxable in India.