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Income tax is a direct tax on income as provided by the applicable Indian income-tax law. The amount payable is not calculated simply by multiplying every receipt by one rate. First identify the person, year, nature and source of income, the applicable computation rules and the permitted reliefs.

1. Identify the taxable person (for example, individual, HUF, firm or company).
2. Identify the relevant tax year or legacy assessment year for the problem.
3. Determine the heads of income and compute each under the applicable law.
4. Apply any permitted aggregation, adjustments, set-offs, deductions and reliefs.
5. Apply the relevant rates and tax credits for that year.

For income arising from 1 April 2026 onward, the Income-tax Act, 2025 introduced the expression ‘tax year’. Earlier cases under the Income-tax Act, 1961 use the paired terms ‘previous year’ and ‘assessment year’. CMA learners must identify which statutory framework and examination term an illustration uses before applying a provision.

1. Legacy example: income earned in financial year 2025–26 is linked with assessment year 2026–27 under the earlier framework.
2. Current example: income earned during financial year 2026–27 is referred to as tax year 2026–27 under the 2025 Act.
3. Earlier years may continue under transitional provisions. Never silently convert old section numbers to new ones.

Classification under the correct head determines how income is computed. The broad heads are salaries, income from house property, profits and gains of business or profession, capital gains, and income from other sources. The correct treatment depends on the facts and applicable statute.

1. Salary: income from an employer–employee relationship.
2. House property: qualifying income attributable to property, subject to statutory rules.
3. Business or profession: trading or professional income determined under applicable provisions.
4. Capital gains: gain on qualifying transfer of a capital asset, subject to statutory definitions.
5. Other sources: residual items taxable under that head when applicable.

The distinction between capital and revenue receipts is important but not conclusive by itself. A receipt arising from recurring operations often has revenue character, whereas a receipt from a structural or capital transaction may be capital in nature. Statutes can nevertheless charge particular capital gains or other receipts.

1. Look at the origin and purpose of the receipt, not only its description.
2. Examine whether the receipt substitutes trading profits, disposes of a capital asset or represents another statutory category.
3. Apply charging provisions and exemptions after determining the character.

A clear working note is as important as the final figure. Put the examination term, law, taxpayer facts and assumptions above your computation. Carry each taxable head into a total-income working before proceeding to tax liability.

1. Step 1 — Write tax year/assessment year and the person's category.
2. Step 2 — Prepare a separate working for each relevant head.
3. Step 3 — Add or adjust income only as allowed by the applicable provisions.
4. Step 4 — Apply eligible loss set-offs, deductions and reliefs.
5. Step 5 — Compute liability using tax-year-specific rates and credits; show the rounding and assumptions.