Key concepts

Taxable income is the portion of an individual’s gross total income that remains after allowing for all eligible deductions under the Income‑Tax Act, 1961. Gross total income includes salary, house property, business/profession, capital gains, and other sources such as interest and dividend.

The personal tax slabs for FY 2024‑25 (old regime) are: up to ₹2.5 L – nil, ₹2.5 L‑₹5 L – 5 %, ₹5 L‑₹10 L – 20 %, and above ₹10 L – 30 %. The new regime offers lower rates but removes most deductions. Candidates must know which regime the question refers to.

Exam relevance: Many questions ask to compute tax liability after applying deductions like Section 80C. Remember to first calculate gross total income, then subtract deductions, and finally apply the correct slab rate.

• Common mistake – treating gross salary as taxable without accounting for standard deduction, professional tax, or HRA exemption.
• Memory aid – “G‑D‑H‑E‑S” (Gross, Deductions, HRA, Exemptions, Salary) to remember the order of calculation.

Capital gains arise when a capital asset is sold for more than its cost of acquisition. The tax treatment depends on the holding period of the asset.

Short‑term capital gains (STCG) are realised when the asset is held for ≤12 months for equities (listed) and ≤36 months for debt or immovable property. STCG on listed equities is taxed at 15 % (plus surcharge & cess), while STCG on debt is added to total income and taxed as per the individual's slab.

Long‑term capital gains (LTCG) apply when the holding period exceeds the short‑term limit. For listed equities, LTCG above ₹1 L is taxed at 10 % without indexation. For debt, LTCG is taxed at 20 % with indexation benefit, which adjusts the purchase cost for inflation using the Cost Inflation Index (CII).

Exam relevance: Questions often provide sale price, purchase price, and holding period. Identify the correct category, apply the appropriate rate, and remember the indexation benefit for debt LTCG.

From FY 2020‑21 onward, the Dividend Distribution Tax (DDT) was abolished. Dividends received by shareholders are now taxable in the hands of the investor as part of total income.

Dividends up to ₹10,000 are exempt under Section 10(34) for resident individuals, but the exemption is removed for non‑resident Indians (NRIs). Any dividend exceeding ₹10,000 is added to taxable income and taxed at the applicable slab rate.

Financial institutions deduct Tax Deducted at Source (TDS) at 10 % on dividend payments exceeding ₹5,000 in a financial year. The investor can claim this TDS as a credit while filing the return.

Exam tip: Remember the ₹10,000 exemption threshold and the 10 % TDS rule. Questions may ask to compute net dividend after TDS or total tax liability including dividend.

Securities Transaction Tax (STT) is levied on the purchase and sale of listed securities. The rate is 0.1 % on the value of the transaction for equity delivery trades and 0.025 % for intraday trades. STT is payable by the broker, but the cost is passed on to the investor.

Interest earned on fixed‑income instruments such as bonds, debentures, and bank fixed deposits is subject to Tax Deducted at Source (TDS). The TDS rate is 10 % if the interest exceeds ₹40,000 in a financial year for resident individuals.

Both STT and TDS are considered when computing the net return on an investment. For exam calculations, include STT as a cost before calculating capital gains, and deduct TDS from interest income before adding it to total income.

Section 80C allows a maximum deduction of ₹1.5 L per financial year for investments such as Public Provident Fund (PPF), Employees' Provident Fund (EPF), Equity‑Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and life‑insurance premiums.

Additional deductions are available under Section 80CCD(1B) for the National Pension System (NPS) up to ₹50,000, which is over and above the ₹1.5 L limit of Section 80C. Section 80D provides deduction for health‑insurance premiums up to ₹25,000 (₹50,000 for senior citizens).

Advisers should match client risk‑profile with appropriate tax‑saving instruments. ELSS offers the dual benefit of equity exposure and tax saving, while PPF and NPS provide safety and guaranteed returns.

Exam relevance: Questions may ask to compute total deduction when a client invests in multiple instruments, ensuring the ₹1.5 L cap for 80C is not exceeded.

An Investment Adviser must assess a client’s current tax bracket, sources of income, and future financial goals. By aligning asset allocation with tax efficiency, the adviser can enhance after‑tax returns.

Key steps include: (1) calculating the client’s projected taxable income, (2) identifying unused deduction space under Sections 80C, 80D, etc., (3) recommending tax‑efficient products (e.g., ELSS for equity exposure, NPS for retirement), and (4) advising on timing of transactions to optimise capital‑gain tax (e.g., holding debt funds for >3 years to avail indexation).

Common exam mistake: Assuming that all mutual‑fund returns are tax‑free. Remember that equity‑linked funds attract LTCG tax after ₹1 L, and debt funds are taxed as per holding period.