Income Tax 2025

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CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

A.—Incomes not to be included in total income

Section 11: Incomes not included in total income. ​

11(1) ​

In computing the total income of any person for a tax year under this Act, any income enumerated in Schedules II, III, IV, V, and VI shall not be included, subject to fulfilment of conditions specified therein.

11(2) ​

Wherever the conditions referred to in the Schedules referred in sub-section (1) are not satisfied in any tax year in respect of any income enumerated in the said Schedules, such income shall be charged to tax under this Act for that tax year.

11(3) ​

The persons enumerated in Schedule VII shall, subject to fulfilment of the conditions specified therein, not be chargeable to tax under this Act for a tax year.

11(4) ​

Wherever the conditions referred to in Schedule VII are not satisfied in respect of the persons enumerated in the said Schedule, the income of such person shall be charged to tax under the provisions of this Act.

11(5) ​

The Central Government may make rules or issue notifications for the purposes of this section as specified in the Schedules II, III, IV, V, VI and VII.

Explanation

1. Section Summary ​

Section 11 of the new income tax law outlines specific types of income and categories of persons that are exempt from being included in total income for tax purposes, provided certain conditions are met. These exemptions are detailed in Schedules II, III, IV, V, VI, and VII. The section also clarifies that if the conditions for exemption are not met, the income or person becomes taxable under the Act. Additionally, the Central Government is empowered to issue rules or notifications to implement this section.

2. Key Changes ​

  • New Structure: The new law consolidates exemptions under specific Schedules (II to VII), making it clearer which incomes and persons qualify for exemptions.
  • Conditional Exemptions: Unlike the previous law, where some exemptions were absolute, the new law ties exemptions to the fulfilment of specific conditions outlined in the Schedules.
  • Central Government Authority: The Central Government now has explicit authority to issue rules or notifications to clarify or modify the conditions for exemptions.

3. Practical Implications ​

  • For Taxpayers: Taxpayers must carefully review the conditions in the relevant Schedules to determine if their income or status qualifies for exemption. Failure to meet these conditions will result in the income being taxed.
  • For Businesses: Businesses receiving income that may qualify for exemption (e.g., grants, donations, or specific types of revenue) must ensure compliance with the conditions to avoid unexpected tax liabilities.
  • For Compliance Processes: Taxpayers and businesses will need to maintain detailed documentation to prove that the conditions for exemption are met.

4. Critical Concepts ​

  • Schedules II to VII: These are detailed lists specifying the types of income (e.g., agricultural income, dividends) and categories of persons (e.g., charitable institutions, specific government bodies) that may qualify for exemption.
  • Conditions for Exemption: Each Schedule outlines specific criteria that must be met for the exemption to apply. For example, a charitable institution may need to use its income solely for charitable purposes.
  • Interaction with Other Laws: This section works alongside other provisions of the Income Tax Act, such as those governing deductions, tax rates, and reporting requirements.

5. Compliance Steps ​

  1. Identify Applicable Schedule: Determine which Schedule applies to your income or status.
  2. Review Conditions: Carefully review the conditions specified in the relevant Schedule to ensure eligibility for exemption.
  3. Maintain Documentation: Keep records to prove that the conditions are met (e.g., proof of charitable activities for a nonprofit).
  4. File Returns Accurately: Ensure that exempt income is correctly reported in tax returns, with supporting details.
  5. Monitor Government Notifications: Stay updated on any rules or notifications issued by the Central Government that may affect your exemption status.

6. Examples ​

  • Example 1: A charitable trust receives donations and uses the funds solely for educational purposes. If the trust meets the conditions in Schedule VII, its income is exempt. However, if it uses the funds for non-charitable purposes, the income becomes taxable.
  • Example 2: A farmer earns income from agricultural activities. If this income is listed in Schedule II and the conditions are met, it is exempt. If the farmer also earns rental income from urban property, that income is not exempt and must be taxed.

This section simplifies the process of determining tax-exempt income and statuses but places greater emphasis on compliance with specific conditions. Taxpayers and businesses must be diligent in understanding and meeting these requirements to avoid unintended tax liabilities.