CruxIncome Tax Law and Practice

Gross total income (GTI) is total income computed under the five heads, with clubbing and set-off done, but before any deduction under Chapter VIII (s. 122(10)). The Chapter VIII deductions are allowed from GTI (s. 122(1)); what is left is total income.

General rules:

• Never beyond GTI. All deductions together cannot exceed GTI (s. 122(2)): they can bring total income down to nil, not below.
• Not from special-rate income. Short-term gains on listed equity (s. 196), long-term capital gains (s. 197) and long-term gains on listed equity (s. 198) are taken out of GTI before the deductions are allowed (ss. 196(4), 197(5), 198(6)). Winnings from lotteries, crosswords, races, card games and betting take no expense or allowance (s. 94(4)), and s. 194(1) taxes their whole amount at 30%, so no deduction lowers the tax on them.
• Each section's own conditions. Most deductions are for sums the assessee paid in the tax year, some only if paid otherwise than in cash; a few rest on income earned (deposit interest) or on a status (disability).
• No double claim. A sum allowed under one section cannot be deducted again under another (for example ss. 124(5), 133(3), 151(7)).
• Income-linked deductions (Part C of the Chapter: authors' and patent royalties, business deductions) are allowed only if the return is furnished by the due date under s. 263(1) and the deduction is claimed in it (s. 122(5)).
• Default regime. Under the default regime of s. 202, which applies unless the individual opts out for the old regime (IT13), only three deductions survive (sub-topic 11).

An individual or HUF may deduct the sums listed in Schedule XV that are paid or deposited in the tax year, up to ₹1,50,000 in all (s. 123). For an individual the main items are:

The list also has ULIPs of UTI and of LIC Mutual Fund, NABARD bonds, notified deposit schemes of the National Housing Bank and of housing authorities, pension funds of mutual funds, eligible issues of equity shares or debentures, a Central Government employee's deposit for at least three years in his additional pension account, and a deduction from a Government employee's salary for a deferred annuity (up to 20% of salary).

Premium ceiling (para 2). A premium counts only up to a share of the actual capital sum assured, the least amount payable under the policy, leaving out bonus and any premiums to be returned:

Housing payments (para 3). The loan must come from the Central or a State Government, a bank (co-operative banks included), LIC, the National Housing Bank, a housing finance company, a public company or co-operative society that finances house building, or an employer that is a statutory body, a public company, a public sector company, a university, a college, a local authority or a co-operative society. Not counted: interest (deductible under s. 22), the admission fee or share money paid to join a society, and additions, alterations, repairs or renovation made after completion or after the house is occupied or let.

Deduction taken back (para 4). All deductions allowed so far for the item are taxed as income of the year in which the assessee:

• ends a life policy, or allows it to lapse, before two years' premiums are paid (a single-premium policy: within two years of its start);
• stops a ULIP before five years' contributions are paid;
• transfers the house before five years have passed from the end of the tax year of possession, or gets back any sum paid for it;
• sells eligible shares or debentures within three years of acquiring them.

An amount withdrawn from a Senior Citizens' Savings Scheme account or a five-year post office deposit within five years is taxed in the year of withdrawal; interest already taxed is left out (para 5).

Contributions to the pension scheme notified by the Central Government (the National Pension System) give three separate deductions:

• Salary for these limits is basic salary, with dearness allowance if the terms of employment so provide, and no other allowance or perquisite (s. 124(13)(b); para 1(y)(i)).
• The employer's contribution is first included in salary (s. 16(k)) and then deducted.
• The same rupee cannot be deducted under both para 1(y) and s. 124(3) (s. 124(5), (10)).
• For the 20% of GTI ceiling, GTI is taken after removing the long-term gains (s. 197(5)) and other special-rate gains.
• What is received later on closing or leaving the scheme, and the pension from an annuity bought on closure, is taxed in the year of receipt (s. 124(6)), except that a payment from the National Pension System Trust on closure or opting out is left out of total income up to 60% of the amount then payable (Schedule II, Sl. No. 6), and a partial withdrawal up to 25% of his own contributions (Schedule III, Sl. No. 4); a nominee's receipt on the subscriber's death is not (s. 124(7)), and money used to buy an annuity in the same year is not treated as received (s. 124(9)).

Agnipath Scheme (s. 125). An Agniveer (an individual enrolled in the Agnipath Scheme) who has subscribed, from 1 November 2022, to the Agniveer Corpus Fund:

• deducts the whole of what he pays into his account in the Fund during the year (s. 125(1));
• has the Central Government's contribution to his account included in salary (s. 16(l)) and then deducted in full (s. 125(2)).

Neither has a ceiling, and neither counts towards the ₹1,50,000. Under the default regime only the Government's contribution is deducted (s. 202(2)(a)(xii)), so the Agniveer's own deposits are taxed. The payment he finally receives from the Fund is not included in total income (Schedule II, Sl. No. 7).

An individual may deduct these payments made in the tax year out of income chargeable to tax (s. 126(1)-(2)):

• Senior citizen: a resident individual aged 60 or more at any time during the tax year (s. 2(100)).
• Check-ups count inside the group limits, and only up to ₹5,000 for both groups together (s. 126(3)).
• Mode. Premiums, scheme contributions and medical expenditure must be paid otherwise than in cash; only a check-up may be paid in cash (s. 126(9)).
• Medical expenditure. For a senior citizen on whose health no insurance premium is paid, medical expenditure on him counts instead, within the same ₹50,000 for the group (s. 126(2)(c)-(d), (4), (7)).
• Premium for several years. A lump sum paid for cover of more than one year is spread equally over the years of cover (s. 126(8)(b), (10)).
• Insurer. The insurance must be under a scheme of the General Insurance Corporation approved by the Central Government, or of an insurer approved by the Insurance Regulatory and Development Authority (s. 126(11)).
• HUF. An HUF may claim for insurance on its members on the same lines: ₹25,000, or ₹50,000 for a senior citizen member (s. 126(5)-(6)).

• Person with disability has the meaning in s. 2(t) of the Persons with Disabilities Act, 1995 or s. 2(j) of the National Trust Act, 1999; disability includes autism, cerebral palsy and multiple disability (s. 127(9)(c), (f); s. 154(3)).
• Severe disability is 80% or more of one or more disabilities, or a severe disability under the National Trust Act, 1999 (s. 127(9)(g)).
• Certificate. A copy of the medical authority's certificate, in the prescribed form, goes with the return. If the certificate says the disability must be reassessed, nothing is allowed after it expires until a new certificate is obtained (s. 154(2); s. 127(6)-(7)).
• Dependant (s. 127): the spouse, children, parents, brothers and sisters (for an HUF, a member) wholly or mainly dependent on the assessee; not one who claims s. 154 himself (s. 127(8), (9)(b)).
• Scheme (s. 127(2)). It must pay an annuity or lump sum for the dependant on the subscriber's death, or when he reaches 60 and stops paying, and the dependant, or a person or trust for him, must be the nominee. If the dependant dies first, the amount deposited is taxed as the assessee's income when he gets it back (s. 127(4)).

Education loan (s. 129). An individual deducts the whole of the interest he pays in the tax year on a loan:

• from a financial institution (a bank, or an institution the Central Government notifies) or an approved charitable institution;
• for the higher education of himself, his spouse or children, or a student of whom he is the legal guardian; higher education is any course after the senior secondary examination;
• paid out of income chargeable to tax.

Only interest counts, never the principal, and there is no ceiling. The deduction runs for the tax year in which he starts paying interest and the seven years after it, or until the interest is fully paid, whichever is earlier (s. 129(2)).

House and vehicle loans. Three more interest deductions continue only for loans sanctioned within closed windows. Interest allowed under any of them cannot be deducted under any other provision (ss. 130(4), 131(3), 132(4)).

s. 133 allows a deduction for sums of money donated in the tax year, at one of four levels:

Qualifying limit (s. 133(2)). Donations in the last two rows count only up to 10% of the adjusted gross total income: GTI less any part of it on which no tax is payable and less every deduction under the other sections of Chapter VIII (s. 133(7)(a)). Special-rate gains are already out of GTI for this purpose (sub-topic 1).

1. Adjusted GTI = GTI − special-rate capital gains − tax-free income inside GTI − deductions under other sections.
2. Qualifying donations = the donations in the last two rows, but not more than 10% of adjusted GTI.
3. Deduction = the first two rows at 100% or 50% + the qualifying donations at their own rate.

Conditions:

• Only a sum of money counts; gifts in kind (blankets, books, food) get nothing (s. 133(4)).
• A cash donation of more than ₹2,000 gets nothing (s. 133(5)).
• A donation to an approved fund or institution is allowed on the information the donee files with the department, subject to verification (s. 133(6)).

Other contribution deductions:

• Scientific and social-science research (s. 135). The whole sum paid to an approved research association, university, college or institution for scientific research, or for research in social science or statistics; not open to anyone whose GTI includes business or professional income, nor for cash above ₹2,000; not lost if the donee's approval is later withdrawn; allowed on the donee's information.
• Political parties (s. 137). The whole amount contributed, otherwise than in cash, to a party registered under s. 29A of the Representation of the People Act, 1951, or to an electoral trust; a local authority and a Government-funded artificial juridical person cannot claim it.

An assessee who pays rent for furnished or unfurnished accommodation he occupies for his own residence may deduct the least of (s. 134(1)-(2)):

1. rent paid minus 10% of total income;
2. ₹5,000 a month;
3. 25% of total income.

Total income here means total income before this deduction, that is, after every other deduction (s. 134(5)). Nothing is allowed where (s. 134(4)):

• he has an exempt house rent allowance (Schedule III, Sl. No. 11); or
• he, his spouse, his minor child or his HUF owns residential accommodation at the place where he ordinarily resides, works or carries on business or profession; or
• he owns a house elsewhere that he occupies and that is valued as self-occupied (s. 21(6) or (7)(a)).

Any further conditions the rules prescribe, having regard to the place of the accommodation, must also be met (s. 134(3)).

The deduction is for interest included in GTI on deposits with a bank, a co-operative bank (a co-operative land mortgage or land development bank included) or a post office (s. 153(1)):

• A senior citizen has only the ₹50,000 deduction, not both.
• Time deposits are deposits repayable at the end of a fixed period (s. 153(5)).
• Interest on a deposit held by or for a firm, AOP or BOI gives nothing to its partners or members (s. 153(3)-(4)).

These are Part C deductions, so the return must be filed by the due date and the deduction claimed in it (s. 122(5)). Each comes from the income concerned, as computed for GTI (s. 122(9)), and that income is not deducted again elsewhere.

The deduction under s. 146 is one of the three the default regime keeps.

Under the default regime, total income is computed without any Chapter VIII deduction except three (s. 202(2)(a)(xii)): the employer's pension contribution (s. 124(1)-(2)), the Central Government's contribution to an Agniveer's account (s. 125(2)) and the deduction for additional employee cost (s. 146).

1. Compute the income under each of the five heads, with each head's own exemptions and deductions. Gross up any income received after tax deducted at source (TDS, IT14).
2. Club the income of others where Chapter V requires; set off losses within and across heads and bring forward earlier losses as Chapter VII allows. Under the default regime a house-property loss cannot be set against other heads (s. 202(2)(b)(ii)).
3. The total is GTI (s. 122(10)).
4. Subtract the Chapter VIII deductions (IT12). The result is total income, rounded to the nearest ₹10 (s. 516).
5. Tax the special-rate incomes at their own rates and the rest at the slab rates of the regime that applies; use partial integration where there is agricultural income.
6. Subtract the rebate under s. 156 (resident individuals only).
7. Add surcharge where total income exceeds ₹50,00,000, with marginal relief.
8. Add health and education cess at 4% of tax plus surcharge (Finance Act, 2026, s. 3(15)).
9. Subtract relief under s. 157 (arrears of salary) and s. 159 or s. 160 (tax paid abroad). The result is the tax liability.
10. Subtract tax deducted or collected at source and advance tax paid (s. 266(2)). What remains is tax payable, or a refund, rounded to the nearest ₹10 (s. 516).

Alternate minimum tax (s. 206(2)). An individual taxed outside the default regime who claims a Part C deduction (such as s. 146, 151 or 152) or the s. 46 deduction, and whose adjusted total income exceeds ₹20 lakh, must pay at least 18.5% of that adjusted total income. Adjusted total income is total income with those deductions added back (the s. 46 deduction less the depreciation that would otherwise have been allowed). Where he pays this higher tax, the excess over his regular tax becomes a credit for later years, without interest (s. 206(2)(e)-(f)).

The default regime (the new tax regime of older papers) applies to every individual, HUF, AOP (other than a co-operative society), BOI and artificial juridical person for each tax year unless he opts out (s. 202(1)). One table serves every individual, whatever his age or residence:

The old regime (the optional regime) applies to one who opts out. Its rates are in the Finance Act, 2026, First Schedule, Part I-B, Paragraph A (s. 3(1) of that Act), in three tables by age; an age counts if it is reached at any time during the tax year:

Ready reckoner: under the old regime the tax on ₹5,00,000 is ₹12,500 (₹10,000 at 60 to 79; nil at 80 or more) and on ₹10,00,000 it is ₹1,12,500 (₹1,10,000; ₹1,00,000). Under the default regime the tax on ₹8,00,000 is ₹20,000; on ₹12,00,000 it is ₹60,000; on ₹16,00,000 it is ₹1,20,000; on ₹20,00,000 it is ₹2,00,000; on ₹24,00,000 it is ₹3,00,000.

What the default regime takes away (s. 202(2)), for an individual:

• the Chapter VIII deductions, except the three kept (IT12, sub-topic 11);
• exempt house rent allowance, leave travel concession, most special allowances except those the rules keep, legislators' daily and constituency allowances, and the ₹1,500 exclusion for each minor child's clubbed income (Schedule III, Sl. Nos. 5 to 8, 11, 12, 13 and 17), and allowances exempt under other laws (s. 202(2)(c));
• the deduction for professional tax (s. 19(1), Table: Sl. No. 1);
• interest on a loan for a self-occupied house (s. 22(1)(b), for houses valued under s. 21(6));
• additional depreciation and several business deductions (s. 202(2)(a)(vi)-(xi));
• setting off a house-property loss against another head, and bringing forward any loss that came from a deduction it bars (s. 202(2)(b)); such a loss is treated as already used up (s. 202(3)).

In return its slabs are wider, its standard deduction from salary is ₹75,000 against ₹50,000 (s. 19(1), Table: Sl. No. 2), its rebate covers income up to ₹12,00,000, and its top surcharge is 25%.

An individual leaves s. 202(1) for a year only by exercising the option, in the prescribed manner (s. 202(4)). How depends on whether he has income from business or profession:

Some incomes are cut out of total income and taxed at a flat rate; the rest is taxed at slab rates as if it were the whole total income (ss. 194(1), 196(1), 197(1), 198(2)). The rates apply in both regimes (rate details: U3 for capital gains, U4 for winnings).

Short-term gains on other assets (gold, land, unlisted shares) are taxed at slab rates with the rest of the income.

Agricultural income (meaning and exclusion: U1) is not part of total income (s. 11, Schedule II, Sl. No. 1), but it raises the rate on the other income. Where an individual, HUF, AOP, BOI or artificial juridical person has net agricultural income above ₹5,000 and total income above the basic exemption limit, the tax is found in three steps (Finance Act, 2026, s. 3(2)):

1. tax on total income + net agricultural income, at the slab rates;
2. tax on net agricultural income + the basic exemption limit, at the same rates;
3. tax on total income = step 1 − step 2; then rebate, surcharge and cess as usual.

The basic exemption limit for step 2 is ₹2,50,000 (old regime, below 60 or non-resident), ₹3,00,000 (resident 60 to 79), ₹5,00,000 (resident 80 or more) or ₹4,00,000 (default regime).

• The rebate comes before surcharge and cess, and can never exceed the tax (s. 155(2)).
• The limit is tested on total income after deductions, rounded; agricultural income is not part of it.
• Non-residents and HUFs get no rebate.
• Average-rate relief (s. 190). Where total income includes an amount on which no tax is payable, tax at the average rate on that amount comes off the tax.

Surcharge is an addition to income-tax for high incomes. For an individual:

• The 25% and 37% bands are tested on total income without dividends and the capital gains of ss. 196 to 198, and the surcharge on the tax on that dividend and capital-gains part is never more than 15%.
• Marginal relief. Just above each threshold, tax plus surcharge cannot exceed the tax plus surcharge on the threshold amount plus the income above the threshold (Paragraph F, Table 2; Finance Act, 2026, s. 3(5)).
• Cess. Health and education cess is 4% of income-tax plus surcharge (Finance Act, 2026, s. 3(15)), in both regimes and on tax at special rates too.

Salary is taxed in the year it is due or received, whichever is earlier, so arrears or an advance can push a year's income into a higher slab. Where total income is assessed at a higher rate because of any of these receipts, the Assessing Officer grants relief on the assessee's application (s. 157(1)):

• arrears or advance of salary;
• salary for more than twelve months received in one tax year;
• profits in lieu of salary (s. 18(1));
• arrears of family pension.

The relief is for the extra tax that the higher rate causes; the way it is worked out is laid down in the rules. No relief is given on any amount for which the voluntary-retirement compensation deduction (s. 19(1), Table: Sl. No. 12) has been claimed, for that or any other year (s. 157(2)). An employee of the Government, a company, a co-operative society, a local authority, a university or a similar body may give the particulars to the employer, who then allows the relief while deducting tax from salary (s. 392(4)(a)(ii)).

Foreign retirement accounts (s. 158). Income accruing in a retirement-benefit account kept in a notified country, by a resident who opened it while he was non-resident in India and resident there, is taxed in the manner and year the rules prescribe; such an account is one whose income that country taxes on withdrawal, not as it accrues.

Where India has an agreement with the other country or territory, relief is as the agreement provides, and the Act applies to the assessee only so far as it is more beneficial to him (s. 159(1), (4)). A non-resident claiming the agreement needs a certificate of residence from that country (s. 159(8)).

Where there is no agreement (s. 160(1)), a person resident in India who proves that he paid tax in that country on income that accrued there (and is not deemed to accrue in India) deducts from Indian tax, on that doubly taxed income:

• tax at the Indian rate or the foreign rate, whichever is lower; or
• tax at the Indian rate, where the two rates are equal.

Each rate is an average: the Indian rate is Indian income-tax (after other reliefs, before this one) divided by total income; the foreign rate is the tax actually paid abroad, after all reliefs there except double-tax relief, divided by the income assessed there (s. 160(3)).

Ms. Ira (40, resident) is salaried. For tax year 2026-27: basic pay ₹8,00,000, other taxable allowances ₹6,20,000 and her employer's NPS contribution ₹80,000 (10% of basic), so gross salary ₹15,00,000; savings-bank interest ₹8,000 and fixed-deposit interest ₹40,000. She pays, by bank transfer: PPF ₹1,10,000; a life premium of ₹40,000 on a 2020 policy with sum assured ₹5,00,000; her own NPS contribution ₹50,000; health insurance of ₹22,000 for herself and her husband and ₹40,000 for her parents, both over 60.

Workings: old regime ₹1,12,500 + 30% of ₹1,48,000 = ₹1,56,900. Default regime ₹60,000 + 15% of ₹1,93,000 = ₹88,950; no rebate, as the income above ₹12,00,000 (₹1,93,000) is more than the tax.

The default regime saves her ₹70,670, and she need do nothing to stay in it. The old regime would win only if her deductions exceeded ₹6,15,750.

An individual must furnish a return of his income for a tax year if any of these holds (s. 263(1)(a)-(b)):

• his total income, computed before the Chapter VIII deductions and before the capital-gains exemptions of ss. 82 to 88, exceeds the basic exemption limit;
• he has a loss under business or profession, or under capital gains, that he wants to carry forward;
• he is resident and ordinarily resident and, at any time in the year, holds (beneficially or otherwise) or benefits from an asset or financial interest outside India, or can sign on an account outside India, whatever his income;
• he meets any other condition the rules lay down.

Exceptions:

• A specified senior citizen, a resident aged 75 or more whose only income is pension and interest from an account in the bank that pays the pension, and who gives that bank a declaration so that it deducts his tax, need not file (s. 263(8)(b); s. 402(39)).
• The Central Government may exempt a class of persons by notification (s. 263(3)).

Apart from these duties, the Assessing Officer may call for a return by notice: from one who has not filed within the time allowed, before assessment (s. 268(1)(a)), and where income has escaped assessment (s. 280(1)).

Due dates fall in the financial year after the tax year (s. 263(1)(c), as substituted by the Finance Act, 2026, s. 66):

Before filing, any tax still due on the return, with interest and fee, is paid as self-assessment tax, and proof of payment goes with the return (s. 266(1)).

Filing after the due date costs:

• for a person required to file, a fee of ₹1,000 if total income is up to ₹5,00,000, and ₹5,000 otherwise (s. 428(a), as substituted by the Finance Act, 2026, s. 96);
• the Part C deductions, such as those for authors' and patent royalties (s. 122(5));
• the right to carry forward a business, speculation or capital-gains loss of the year, which needs a return under s. 263(1) (s. 121); a house-property loss is not affected;
• for a person without business income, the option for the old regime (s. 202(4)(b)).

The Board prescribes the return forms, the way a return is verified, and which classes of persons must file electronically (s. 263(2)(a)). The forms change from year to year, and the conditions printed on each decide who may use it. In broad terms an individual chooses by the kind of income he has:

Filing online, in outline:

1. Log in to the department's e-filing portal with your PAN.
2. Check the department's statement of tax deducted, collected and paid, and its record of your transactions, against your own figures.
3. Choose the form, and the regime if you are opting out; fill or import the details and let the utility compute the tax.
4. Pay any tax still due, with interest and fee, and enter the payment details (s. 266(1)).
5. Submit the return and verify it in the manner prescribed, usually online.

Defective return (s. 263(7)). If the Assessing Officer finds a return not in order, he may tell the assessee and allow fifteen days (or a longer period on application) to correct it. If it is not corrected in time the return is invalid, as if none had been filed; a correction made later but before assessment may be accepted by condoning the delay.

Tax return preparers (s. 264). Under a scheme of the Board, specified classes of persons may prepare and furnish their returns through an authorised tax return preparer.

Tax deducted at source (TDS) is tax that the payer of certain incomes deducts when he pays or credits them and pays to the Government; once paid, it counts as tax paid on behalf of the payee (s. 390(1), (5)). Where the Act provides no deduction, or tax was not deducted, the payee pays the tax directly (s. 391(1)).

The payer must:

• obtain a tax deduction and collection account number (TAN) and quote it; a person who deducts only on rent under s. 393(1), Table: Sl. No. 2(i), on buying immovable property (Sl. No. 3(i)) or on payments under Sl. No. 6(ii) need not (s. 397(1)(c)), and from 1 October 2026 nor need a resident individual or HUF who deducts on buying immovable property from a non-resident (Finance Act, 2026, s. 87);
• deduct at the time of credit or of payment, whichever is earlier (s. 393(1)(c)), or of payment for salary and winnings (ss. 392(1), 393(3)(c));
• pay the tax to the Government in the prescribed time (s. 397(3)(a)) and deliver the prescribed statements of tax deducted (s. 397(3)(b)), correcting them, if need be, within two years from the end of the tax year (s. 397(3)(f));
• issue each payee a certificate of the tax deducted and the rate (s. 395(4)).

The payee must give his PAN (PAN itself: U1); without it, tax is deducted at the higher of the normal rate and 20% in most cases (on rent under Sl. No. 2(i), not more than the last month's rent), his nil-tax declaration is invalid, and no lower-deduction certificate is issued to him (s. 397(2)). A payer who does not deduct, or deducts and does not pay, is treated as an assessee in default for that tax, besides other consequences (s. 398(1)); for a business payer these include the expense disallowance of s. 35 (U3).

• The employer deducts at the time of payment, at the average rate of tax on the employee's estimated salary income for the year, at the rates in force for that year (s. 392(1)); so nothing is deducted if that income is not taxable.
• The employee may report his salary from other employers, a house-property loss, other income, relief under s. 157 and tax deducted elsewhere, and these raise or lower the deduction; no loss other than a house-property loss can reduce it (s. 392(4)).
• The employer obtains evidence of the employee's claims, gives him a statement of perquisites, and may adjust any excess or shortfall during the year (s. 392(5)).
• The employer may choose to pay the tax on non-monetary perquisites himself (s. 392(2)); that tax is not added to the employee's income (s. 396).
• The trustees of the Employees' Provident Fund deduct 10% from an accumulated balance of ₹50,000 or more that is taxable because the conditions for exemption are not met (s. 392(7)).

The rates marked "rates in force" come from the Finance Act, 2026, First Schedule, Part II (10% on interest, 30% on winnings, 2% on insurance commission, for a resident other than a company). A specified person is anyone other than an individual or HUF, or an individual or HUF whose business turnover exceeded ₹1 crore (professional receipts ₹50 lakh) in the previous year (s. 402(37)).

Where the payer bears the tax, the payment is grossed up so that the net amount equals the sum agreed (s. 393(10)). Payments to non-residents follow a separate table with their own rates (s. 393(2)).

• Exempt payments (s. 393(4)). Among others: interest on savings and other non-time deposits with a bank; dividends paid to an individual otherwise than in cash, up to ₹10,000 in the year; contract and professional payments by an individual or HUF for purely personal purposes.
• Declaration of nil tax (s. 393(6)). A resident individual whose estimated total income for the year bears no tax may give the payer a written declaration, so that no tax is deducted from interest, dividends, rent, mutual fund income, insurance commission and similar sums. It is not open where these incomes for the year exceed the basic exemption limit, unless he is 60 or more.
• Certificate (s. 395(1)). The Assessing Officer, satisfied that the payee's total income justifies it, issues a certificate for deduction at a lower rate or none, which the payer follows while it is valid.

The payee includes the gross income in his return, because the tax deducted is treated as income received (s. 396), and subtracts the TDS from his tax liability (s. 266(2)(b)). Two amounts are not added to income: tax an employer pays on non-monetary perquisites, and TDS on cash withdrawals (s. 396). Credit is given in the manner, and for the tax year, that the rules lay down (s. 390(6)), on the strength of the deductor's certificate (s. 395(4)) and statements. If the tax deducted exceeds the liability, the excess is refunded.