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NISM XB Short Notes – Part 6: Taxation – Key Concepts (Module 9, Chapter 7)

12 Apr 2026 • NISM-Series-10B: Investment Advisor (Level 2) Mock Tests

NISM XB Short Notes – Part 6: Taxation – Key Concepts (Module 9, Chapter 7)

NISM Series X-B Investment Adviser Level 2 | Taxation Short Notes | PassNISM.in

Part 6 of the NISM XB short notes series covers Module 9: Taxation, beginning with Chapter 7 on fundamental concepts of the Indian Income Tax Act. Taxation is a major section of the NISM XB syllabus and carries significant exam weightage.

👉 Read Part 5: Retirement Products first

Key Concepts in Income Tax Previous Year and Assessment Year

  • Previous Year (PY): The financial year for which income tax is computed (e.g., April 1, 2024 to March 31, 2025 is PY 2024–25).
  • Assessment Year (AY): The financial year immediately following the previous year, in which the income of the previous year is assessed and taxed (e.g., AY 2025–26 is when PY 2024–25 income is filed and assessed).

Featured Snippet Answer: In Indian income tax, the Previous Year is the year in which income is earned, and the Assessment Year is the next year in which that income is reported, assessed, and taxed. Who Is a "Person" Under the Income Tax Act?

Section 2(31) of the Income Tax Act defines "person" to include:

  1. Individual
  2. Hindu Undivided Family (HUF)
  3. Company
  4. Partnership firm
  5. Association of Persons (AOP) or Body of Individuals (BOI)
  6. Local authority
  7. Artificial juridical person (not covered by the above categories)

Assessee

An assessee (Section 2(7)) is any person liable to pay taxes or any other amount under the Income Tax Act. A deemed assessee is a person who is assessed on behalf of another, such as a legal representative or an agent of a non-resident.

Definition of Income (Section 2(24))

The Income Tax Act gives an inclusive definition of income. For the NISM XB exam, the key items that qualify as income include:

  • Dividends
  • Capital gains
  • Gifts from non-relatives exceeding Rs 50,000 in a year
  • Movable or immovable property received below market value (under Section 56)
  • Certain perquisites from employment

Residential Status — Critical for Taxation

The tax treatment of income depends on the residential status of the assessee:

  • Resident in India
  • Non-Resident in India (NRI)

Resident individuals and HUFs are further classified as:

  • Resident and Ordinarily Resident (ROR) – Taxed on global income
  • Resident but Not-Ordinarily Resident (RNOR) – Limited tax on foreign income

Residential Status of a Company

  • Indian Company: Always treated as a resident in India regardless of where it is controlled or who owns it.
  • Foreign Company: Treated as resident in India if its Place of Effective Management (POEM) is in India during the relevant previous year.

Five Heads of Income

All income in India is classified under one of five heads for tax computation:

  1. Income from Salary
  2. Income from House Property
  3. Profits and Gains from Business and Profession (PGBP)
  4. Income from Capital Gains
  5. Income from Other Sources

Set-Off and Carry Forward of Losses

This is an important topic for investment advisers advising clients on tax planning:

Capital Loss

  • Short-term capital loss (STCL) can be set off against both short-term and long-term capital gains.
  • Long-term capital loss (LTCL) can be set off only against long-term capital gains.
  • Unabsorbed capital losses can be carried forward for up to 8 assessment years.

Business Loss (PGBP)

  • Speculative loss (e.g., losses from intraday equity trading) can be set off only against speculative income. Cannot be set off against salary or non-speculative business income.
  • Non-speculative business loss can be set off against any income except salary and gambling income.

Loss from House Property

  • Can be set off against income from another house property in the same year.
  • Unabsorbed loss from house property can be set off against any other head of income up to Rs 2 lakh per year and carried forward for 8 years.

Loss from Other Sources

  • Can be set off against any income (except gambling income) in the current year.
  • Cannot be carried forward to subsequent years — this is a key distinction from capital losses and business losses.

Deductions Under Chapter VI-A

Chapter VI-A of the Income Tax Act provides deductions from gross total income to arrive at total taxable income. These deductions serve two purposes:

  • Encourage savings and investment (e.g., Section 80C for EPF, PPF, life insurance premiums, ELSS)
  • Encourage socially desirable activities (e.g., Section 80G for donations)

Candidates must know the key deductions under sections 80C, 80CCC, 80CCD, 80D, 80E, 80G, and 80TTA for the NISM XB exam. These are covered in detail in the NISM workbook.

Round-Trip Financing

Round-trip financing is an arrangement where funds are transferred among related parties through a series of transactions that have no real commercial purpose except to obtain a tax benefit. Such arrangements are frowned upon and can be challenged by tax authorities.

Quick Revision Checklist — Taxation Concepts (NISM XB)

  • ☑ PY = year income earned; AY = next year when it's taxed
  • ☑ 7 types of "person" under Section 2(31)
  • ☑ ROR taxed on global income; NRI taxed only on India-sourced income
  • ☑ Foreign company = resident if POEM is in India
  • ☑ 5 heads of income
  • ☑ STCL can offset STCG + LTCG; LTCL can offset only LTCG
  • ☑ Speculative loss only offset against speculative income
  • ☑ Other sources loss: cannot be carried forward
  • ☑ Chapter VI-A deductions encourage savings and social activities

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Original educational content for NISM XB exam preparation at PassNISM.in. Refer to the official NISM workbook for complete authoritative content.