Assessment of an Individual

What is Assessment?

Assessment under the Income Tax Act, 1961 refers to the process by which the Income Tax Department examines the income tax returns filed by an individual to ensure that the income, deductions, and tax liabilities are correctly calculated and reported as per the law. The goal is to determine the accurate tax liability of the individual for a given financial year.

Types of Assessments

The Act provides for several types of assessments, each serving a distinct purpose:

1. Self-Assessment (Section 140A)

• • The taxpayer computes their own income, claims deductions, and calculates the tax due.
  • Any balance tax must be paid before filing the return.
  • This is the initial step before the Income Tax Department reviews the return.

2. Summary Assessment (Section 143(1))

• • The Income Tax Department carries out a preliminary check of the return.
  • It verifies arithmetical errors, incorrect claims, and mismatches with data such as Form 26AS.
  • No detailed scrutiny or personal interaction with the taxpayer at this stage.

3. Scrutiny Assessment (Section 143(3))

• • A detailed examination is conducted if the case is selected for scrutiny.
  • The Assessing Officer may request additional documents and explanations.
  • The aim is to ensure the taxpayer has not understated income or claimed excessive deductions.
  • An order is passed accepting or modifying the return, possibly resulting in additional tax demand or refund.

4. Best Judgment Assessment (Section 144)

• • Invoked if the taxpayer fails to file a return, does not respond to notices, or does not cooperate.
  • The Assessing Officer determines the taxable income based on available information and his best judgment.

5. Income Escaping Assessment (Sections 147–153)

• • If the Assessing Officer believes some income has escaped assessment, a reassessment is initiated.
  • Notice is issued to the taxpayer, and the escaped income is brought to tax after due process.
  • This can be triggered by new information or evidence of underreported income.

Key Steps in the Assessment Process

• Filing of Return: Individual reports all sources of income, deductions, and taxes paid.
• Verification: The Department cross-checks information with its records and other data sources.
• Notice/Intimation: Taxpayer may receive intimation of acceptance, demand for additional tax, or notice for scrutiny.
• Final Order: After review or hearing, the Department passes an order determining the final tax liability or refund.

Important Points

• The assessment is based on the individual’s residential status and total income for the previous year.
• Deductions, exemptions, and tax rates as per the Act are applied to compute the taxable income.
• If dissatisfied, the taxpayer can seek rectification, revision, or appeal against the assessment order

1.  Incomes Received from Firm/AOP/HUF which are Exempt in the hands of an Individual.

Under the Income Tax Act, 1961, certain incomes received by an individual from a Firm, Association of Persons (AOP), or Hindu Undivided Family (HUF) are exempt from tax in the hands of the recipient. Below is a detailed breakdown of these exemptions:

1. Share of Profit from a Firm (Partnership Firm)

• Exemption: An individual’s share of profitfrom a partnership firm is exempt under Section 10(2A) .
  • Reason: The firm itself pays tax on its profits, so the same income is not taxed again in the hands of the partner.
  • Condition: The firm must be a registered partnershipunder the Indian Partnership Act, 1932.
  • Tax Treatment:
    • The firm pays tax on its total income.
    • The partner includes the exempt share in their total income only for rate purposes(i.e., to determine the applicable tax slab) but does not pay tax on it .

2. Share of Income from an AOP/BOI

• Exemption: An individual’s share of incomefrom an AOP (Association of Persons) or BOI (Body of Individuals) is exempt under Section 86 if:
  • The AOP/BOI has paid tax on its income(either at normal rates or maximum marginal rate).
  • The individual’s share is determinate and known.
• Exceptions (Where Taxable):
  • If the AOP/BOI has not paid any tax(e.g., due to losses or exemptions), the individual’s share becomes taxable in their hands .
  • If the AOP/BOI is taxed at maximum marginal rate (30% + cess) or higher, the individual’s share remains exempt .
  • If the AOP/BOI’s income is exempt(e.g., charitable trust income), the individual’s share is taxable .

3. Income Received from HUF

• Exemption:
  • Gifts from HUF: If an individual receives giftsfrom their HUF, they are exempt (since HUF and its members are treated as one entity for tax purposes).
  • Share of Income: If the HUF has paid taxon its income, the individual’s share is not taxed again (similar to partnership firms) .
• Taxable Cases:
  • If the HUF distributes income without paying tax, the individual may be taxed on their share.
  • Salary/Remunerationpaid by HUF to a member is taxable as “Income from Other Sources” (not exempt) .

4. Key Provisions Governing Exemptions

SOURCE	EXEMPTION SECTION	CONDITIONS	EXCEPTIONS (WHERE TAXABLE)
Firm (Partnership)	Section 10(2A)	Firm must have paid tax	Salary/Interest from firm is taxable
AOP/BOI	Section 86	AOP must have paid tax	If AOP is tax-exempt, share is taxable
HUF	No specific section	HUF must have paid tax	Salary/remuneration is taxable

5. Tax Implications for Different Scenarios

(A) If Firm/AOP/HUF Pays Tax

• Individual’s Share: Exempt (included only for rate calculation).
• Example:
  • A firm earns ₹10 lakh, pays tax @30%.
  • Partner (individual) receives ₹2 lakh as profit share → Exempt7.

(B) If Firm/AOP/HUF Does Not Pay Tax (e.g., Loss-Making)

• Individual’s Share: Taxable in their hands.
• Example:
  • An AOP has ₹5 lakh income but claims deductions, resulting in zero tax.
  • Member’s ₹1 lakh share → Taxable.

(C) Salary/Interest from Firm/AOP

• Not Exempt:
  • Salary, bonus, or interest paid by a firm/AOP to a member is taxableunder “Income from Other Sources” or “Profits & Gains from Business”

2.  [Section 115BAC]- New Tax Regime for Individuals

Introduced in Budget 2020 and made default from FY 2023-24 (AY 2024-25), Section 115BAC provides an alternative tax regime for Individuals and HUFs with lower tax rates but fewer deductions/exemptions.

Key Features

1. Applicability

• For: Individuals & HUFs
• Optional: Taxpayers can choose between:
  • New Tax Regime (Section 115BAC)
  • Old Tax Regime (Normal Slabs + Deductions)

2. Tax Slabs (New Regime – AY 2025-26)

Income Range (₹)	Tax Rate
Up to 3,00,000	Nil
3,00,001 – 6,00,000	5%
6,00,001 – 9,00,000	10%
9,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

3. Rebate Under Section 87A

• • Income ≤ ₹7 lakh→ Full tax rebate (Zero tax liability).
  • Applicable only in the New Tax Regime.

4. Surcharge & Cess

• • Surcharge:
    • 10%if income > ₹50 lakh
    • 15%if income > ₹1 crore
    • 25%if income > ₹2 crore
  • Health & Education Cess: 4%on total tax + surcharge.

Deductions & Exemptions NOT Allowed

Under Section 115BAC, taxpayers cannot claim:

1. Standard Deduction (₹50,000)(Allowed from AY 2024-25).
2. HRA Exemption (Section 10(13A))
3. Chapter VI-A Deductions (80C, 80D, 80G, etc.)(Except Section 80CCD(2) – Employer NPS Contribution)
4. Leave Travel Allowance (LTA)
5. Interest on Home Loan (Section 24(b))for self-occupied property
6. Deduction for Professional Tax (Section 16(iii))

Who Should Opt for New Regime?

SCENARIO	RECOMMENDED CHOICE
Salaried with fewer investments	New Regime (Lower rates)
High deductions (HRA, 80C, 80D, Home Loan, etc.)	Old Regime (Better savings)
Freelancers/Business with minimal exemptions	New Regime
Senior Citizens (High medical expenses deduction)	Old Regime (80D benefit)

How to Choose Between Old & New Regime?

1. Salaried Employees: Employer asks for choice at the start of the FY (via Form 12BB).
2. Others (Business/Freelancers): Decide while filing ITR.
3. Default Option (AY 2024-25): New Regime(Must manually opt for Old Regime if preferred).

Example Calculation (New vs Old Regime)

PARTICULARS	NEW REGIME	OLD REGIME
Gross Income	₹12,00,000	₹12,00,000
Less: Standard Deduction	₹50,000	₹50,000
Less: 80C (PPF, LIC, etc.)	Not Allowed	₹1,50,000
Less: HRA Exemption	Not Allowed	₹1,20,000
Taxable Income	₹11,50,000	₹8,80,000
Tax Liability	₹78,000	₹78,600
Final Tax (After Rebate if applicable)	₹78,000	₹78,600

Verdict:

• New Regime betterif deductions < ₹3.5 lakh.
• Old Regime betterif claiming HRA, 80C, home loan, etc.

3.  [Section 87A] – Tax Rebate for Resident Individuals

Section 87A provides a tax rebate to resident individual taxpayers with lower incomes, reducing their tax liability. It was introduced to offer relief to middle and low-income earners by making their effective tax burden zero if their income falls below specified thresholds.

Key Features (FY 2025-26 / AY 2026-27)

• Applicability: Only for resident individuals(not NRIs, HUFs, firms, or companies).
• Tax Regimes:
  • New Tax Regime (Default): Rebate of ₹60,000if income ≤ ₹12 lakh.
  • Old Tax Regime: Rebate of ₹12,500if income ≤ ₹5 lakh.
• Result: Zero tax liabilityif income is within the rebate limit.

Eligibility Criteria

1. Resident Status: Only Indian residentsqualify (NRIs excluded).
2. Income Thresholds:
   • New Regime (FY 2025-26): Up to ₹12 lakh.
   • Old Regime: Up to ₹5 lakh.
3. Age Restrictions:
   • Senior Citizens (60–80 years): Eligible.
   • Super Senior Citizens (80+ years): Not eligible(higher basic exemption applies).

Rebate Calculation & Examples

New Regime (FY 2025-26)

• Rebate: ₹60,000 (if income ≤ ₹12 lakh).
• Tax Liability: Zero(after rebate).
• Example:
  • Income = ₹12 lakh→ Tax before rebate = ₹60,000 → Rebate = ₹60,000 → Net Tax = ₹0.
  • Income = ₹12.1 lakh→ Tax = ₹61,500 → Marginal relief applies (tax capped at ₹10,000).

Old Regime (FY 2025-26)

• Rebate: ₹12,500 (if income ≤ ₹5 lakh).
• Example:
  • Income = ₹5 lakh→ Tax = ₹12,500 → Rebate = ₹12,500 → Net Tax = ₹0.

Exclusions & Special Cases

• Capital Gains:
  • LTCG (Equity/MFs): No rebate(taxed separately under Section 112A).
  • STCG (Equity): Previously allowed, but post-July 2024, rebate disallowed(may trigger tax notices).
• Other Incomes:
  • Dividends, lottery winnings, crypto gains: Not eligible for rebate.

How to Claim the Rebate?

1. Calculate Taxable Income: Deduct eligible investments (80C, 80D, etc.) under the old regime(no deductions in new regime except standard deduction).
2. File ITR:
   • Declare income and claim rebate (automatically applied in e-filing if eligible).
3. Documents:
   • PAN, Form 16, investment proofs (for old regime).

Recent Changes (Budget 2025)

• New Regime Rebate Increased: From ₹25,000 (₹7L income) to ₹60,000 (₹12L income).
• Standard Deduction (₹75,000): Combined with rebate, makes income up to ₹12.75L tax-free.

Comparison with Previous Years

FY	OLD REGIME (INCOME ≤ ₹5L)	NEW REGIME (INCOME ≤ ₹7L/₹12L)
2023-24	₹12,500	₹25,000
2024-25	₹12,500	₹25,000
2025-26	₹12,500	₹60,000

4.  Alternate Minimum Tax (AMT) on Non-Corporate Taxpayers [Sections 115JC to 115JF]

The Alternate Minimum Tax (AMT) under Sections 115JC to 115JF of the Income Tax Act, 1961, ensures that non-corporate taxpayers (such as individuals, HUFs, firms, LLPs, AOPs, and BOIs) claiming certain deductions pay a minimum tax, even if their regular tax liability is reduced to zero or negligible amounts. Below is a detailed breakdown of AMT provisions:

1. Applicability of AMT

AMT applies to non-corporate taxpayers (other than companies) if:

• They claim deductions under:
  • Sections 80H to 80RRB(except Section 80P for co-operative societies).
  • Section 10AA(SEZ unit profits).
  • Section 35AD(specified business capital expenditure).
• Their adjusted total income (ATI) exceeds ₹20 lakh(for individuals, HUFs, AOPs, BOIs, and artificial juridical persons).
  • LLPs and firmsare subject to AMT regardless of income level.

Exemptions:

• Taxpayers opting for the new tax regime (Section 115BAC/115BAD).
• Those with ATI ≤ ₹20 lakh(except LLPs/firms).

2. Calculation of AMT

Step 1: Compute Adjusted Total Income (ATI)

PARTICULARS	AMOUNT (₹)
Total Income (Normal Provisions)	XXX
Add: Deductions under Sections 80H–80RRB (except 80P)	+XXX
Add: Deduction under Section 10AA	+XXX
Add: Deduction under Section 35AD (minus regular depreciation)	+XXX
Adjusted Total Income (ATI)	XXX

Step 2: Compute AMT Liability

• AMT Rate: 5% of ATI(plus surcharge & cess).
  • Reduced to 9%for units in International Financial Services Centres (IFSC) earning forex income.
• Compare with regular tax liability:
  • If AMT > Regular Tax, pay AMT.
  • Else, pay regular tax.

3. Key Features

(A) AMT Credit Mechanism

• Excess AMT paid (over regular tax) can be carried forward for 15 years.
• Credit is set offin years where regular tax > AMT.
• No interestis paid on AMT credit.

(B) Compliance Requirements

• Form 29C: A CA-certified reportmust be filed with the ITR, verifying ATI and AMT calculations.
• Advance Tax: AMT liabilities attract advance tax and interest (Sections 234A/B/C).

(C) Impact on Tax Planning

• Entities relying on LTCG (12.5% tax)may face higher liability (18.5% AMT) if deductions are claimed.
• LLPsare always subject to AMT, even without deductions.

4. Illustrative Example

PARTICULARS	FY 2025-26 (₹)
Total Income	25,00,000
Deduction (Section 80IA)	5,00,000
Adjusted Total Income	30,00,000
AMT @18.5%	5,55,000
Regular Tax (Slab Rate)	4,50,000
Tax Payable	5,55,000 (AMT)
AMT Credit (Carry Forward)	1,05,000

5. Recent Changes (Budget 2025)

• Proposal to consolidate MAT & AMTunder Section 206, but retain distinct computation methods.
• Threshold remains ₹20 lakhfor individuals/HUFs (no change).
• Potential expansion: AMT may apply to non-corporates not claiming deductions(e.g., LTCG earners), increasing liability from 12.5% to 18.5%.

6. Comparison with MAT (for Companies)

PARAMETER	AMT (NON-CORPORATES)	MAT (COMPANIES)
Tax Base	Adjusted Total Income	Book Profit
Rate	18.5% (9% for IFSC)	18.5% (9% for IFSC)
Threshold	₹20L (excl. LLPs/firms)	None
Credit Carry forward	15 years	15 years

5.  Computation of Total Income and Tax Liability for an Individual (AY 2025-26)

This guide explains how to calculate total taxable income and tax liability for an individual taxpayer under both the old and new tax regimes, including applicable deductions, exemptions, and rebates.

Step 1: Determine Residential Status

Before computing income, check residential status (ROR, RNOR, or NR) as it affects taxability:

• Resident and Ordinarily Resident (ROR): Taxed on global income.
• Non-Resident (NR) / RNOR: Taxed only on Indian-sourced income.

Step 2: Calculate Gross Total Income (GTI)

Income is classified under five heads (Section 14):

INCOME HEAD	CALCULATION METHOD
1. Income from Salary	Basic + DA + HRA + Allowances – Exemptions (e.g., Standard Deduction ₹50,000)
2. Income from House Property	GAV – Municipal Taxes – Standard Deduction (30% of NAV) – Home Loan Interest (Section 24)
3. Profits from Business/Profession	Revenue – Expenses – Depreciation
4. Capital Gains	STCG: Sale Price – Cost – Expenses LTCG: Sale Price – Indexed Cost – Expenses
5. Income from Other Sources	Interest (FD, Savings), Dividends, Gifts > ₹50K, Lottery (30% flat)

Gross Total Income (GTI) = Sum of all five heads

Step 3: Apply Deductions (Chapter VI-A)

Under Old Tax Regime (Not Allowed in New Regime)

DEDUCTION	SECTION	MAXIMUM LIMIT (₹)
Life Insurance, PPF, ELSS	80C	1,50,000
NPS (Additional)	80CCD(1B)	50,000
Medical Insurance (Self/Family)	80D	25,000 (₹50,000 for seniors)
Home Loan Interest (Self-Occupied)	24(b)	2,00,000
Donations (Charity)	80G	50%–100% of donation
Education Loan Interest	80E	No limit (8 years)

Total Deductions = Sum of all applicable deductions
Taxable Income (Old Regime) = GTI – Deductions

Under New Tax Regime (Default from AY 2024-25)

• Only Standard Deduction (₹50,000 for salaried)
• No other deductions (80C, HRA, LTA, etc.)
• Taxable Income = GTI – Standard Deduction (if applicable)

Step 4: Apply Tax Slabs

(A)  Old Tax Regime Slabs (AY 2025-26)

INCOME RANGE (₹)	TAX RATE
Up to 2,50,000	Nil
2,50,001 – 5,00,000	5%
5,00,001 – 10,00,000	20%
Above 10,00,000	30%

Rebate (Section 87A):

• Up to ₹5 lakh income → ₹12,500 tax rebate (zero tax liability).

(B)  New Tax Regime Slabs (AY 2025-26)

Income Range (₹)	Tax Rate
Up to 3,00,000	Nil
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

Rebate (Section 87A):

• Up to ₹7 lakh income → ₹25,000 rebate (zero tax liability).

Step 5: Add Surcharge & Cess

• Surcharge:
  • 10%(Income > ₹50 lakh)
  • 15%(Income > ₹1 crore)
  • 25%(Income > ₹2 crore)
• Health & Education Cess: 4%on (Tax + Surcharge).

Step 6: Final Tax Liability

Example Calculation (Old vs New Regime)

PARTICULARS	OLD REGIME (₹)	NEW REGIME (₹)
Gross Salary	12,00,000	12,00,000
Less: Standard Deduction	50,000	50,000
Less: 80C (PPF, LIC, etc.)	1,50,000	Not Allowed
Less: HRA Exemption	1,20,000	Not Allowed
Taxable Income	8,80,000	11,50,000
Tax Before Rebate	87,600	78,000
Rebate (87A)	12,500	25,000
Tax After Rebate	75,100	53,000
Add: Cess (4%)	3,004	2,120
Total Tax Payable	78,104	55,120

Verdict:

• New regime betterif deductions < ₹3.5 lakh.
• Old regime betterif claiming HRA, 80C, home loan, etc.

Step 7: Adjust for TDS/Advance Tax

• Check Form 26ASfor TDS deducted.
• Pay balance taxbefore filing ITR (if applicable).

Conclusion

1. Compute Gross Total Income(5 heads).
2. Apply deductions(old regime only).
3. Calculate taxusing applicable slab rates.
4. Add cess & surcharge.
5. Compare old vs new regimefor optimal savings.