Direct and Indirect Speech

There two ways to convey a message of a person, or the words spoken by a person to other person. Direct speech and Indirect speech.

for example: 
Suppose your friend whose name is John tells you in school, “I will give you a pen”. You come to home and you want to tell your brother what your friend told you. There are two ways to tell him. 

Direct speech: John said "i will give you a pen".

Indirect speech: John said that he would give me a pen.

Fundamental rules for indirect speech.

1.  Reported speech is not enclosed in quotation marks.
2.  Use of word “that”: The word “that” is used as a conjunction between the reporting verb and reported speech.
3.  Change in pronoun: The pronoun (subject) of the reported speech is changed according to the pronoun of reporting verb or object (person) of reporting verb (first part of sentence). Sometimes the pronoun may not change.

In following example the pronoun of reported speech is “I” which will be changed in indirect speech into the pronoun (Subject) of reporting verb that is “he”.

Example.

Direct speech: He said, “I am happy”
Indirect Speech: He said that he was happy.
Direct speech: I said to him, “you are intelligent”
Indirect Speech: I said him that he was intelligent. (“You” changed to “he” the person of object of reporting verb).

1. Change in time: Time is changed according to certain rules like now to then, today to that day, tomorrow to next day and yesterday to previous day.

Examples.
Direct speech: He said, “I am happy today”
Indirect Speech: He said that he was happy that day.

1.  Change in the tense of reported speech: If the first part of sentence (reporting verb part) belongs to past tense the tense of reported speech will change. If the first part of sentence (reporting verb part) belongs to present or future tense, the tense of reported speech will not change.

Examples.
Direct speech: He said, “I am happy”
Indirect Speech: He said that he was happy. (Tense of reported speech changed)
Direct speech: He says, “I am happy”
Indirect Speech: He said that he is happy. (Tense of reported speech didn’t change).

Table for change in tense of reported speech for all TENSES.

TENSE CHANGE - IN - INDIRECT SPEECH
Present simple tense into Past simple
Present Continuous tense into Past continuous
Present Perfect tense into Pas perfect 
Present Perfect Continuous into Past perfect continuous
Past simple into Past Perfect
Past Continuous into Past Perfect Continuous
Past Perfect into Past Perfect
Future simple, will into would 
Future Continuous, will be into would be
Future Perfect, will have into would have

Note: The tense of reported speech may not change if reported speech is a universal truth though its reporting verb belongs to past tense.

Examples.
Direct speech: He said, “Mathematics is a science”
Indirect Speech: He said that mathematics is a science.
Direct speech: He said, “Sun rises in east”
Indirect Speech: He said that sun rises in east. (Tense didn’t change because  reported speech is a universal truth thought its reporting verb belongs to past tense)