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TYBCom Five Heads Theory 89 Pgs

TYBCom Five Heads Theory 89 Pgs

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CONTENTS

CHAPTERS PAGE NO.S (1.) BASIC INTRODUCTION AND DEFINITIONS ………………….02 TO 05 (2.) RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME…. 06 TO 10 (3.) INCOMES EXEMPT FROM TAX ………………………………. . 11 TO 16 (4.) HEADS OF INCOME……………………………………………… 17 TO 17 (5.) INCOME FROM SALARY ………………………………………...18 TO 41 (6.) INCOME FROM HOUSE PROPERTY …………………………..42 TO 52 (7.) PROFITS AND GAINS OF BUSINESS OR PROFESSION ….…53 TO 61 (8.) CAPITAL GAINS……………………………………………..……..62 TO 78 (9.) INCOME FROM OTHER SOURCES ...…………………….….… 79 TO 83 (10.) DEDUCTIONS UNDER CHAPTER VI-A …………………………84 TO 89

Prof. J. Nihit Kishore—98202 25728

TYBCom- INCOME TAX

CH-1 BASIC INTRODUCTION AND DEFINITIONS
Those taxes, the final incidence or burden of which is borne by the person paying the tax, are known as “DIRECT TAXES”, for e.g.: Income Tax, whereas, those taxes, the final incidence of which is passed to someone else by the person paying the tax, are called as “INDIRECT TAXES”, for e.g.: SALES TAX, EXCISE DUTY, CUSTOMS DUTY, SERVICE TAX, etc. All taxes, whether direct or indirect are levied by the government, hence, are finally to be deposited with the government. Those Indirect taxes, which are paid to the government first and recovered from others later, are called “DUTIES”, for e.g.: Excise Duty, Customs Duty, etc. whereas, those which are collected first and later on deposited with the government, are known as “TAXES” for e.g.: Service Tax, Sales Tax, etc. as they are collected from customers first and later on deposited on with the government. Therefore, one can say that all duties are necessarily indirect taxes, but all indirect taxes are not duties.

INCOME TAX ACT, 1961
‘Income Tax’ is a tax charged on income earned during the year, i.e. it is an annual charge on income. It is payable on a yearly basis. “Constitution” is the Parent Law and all the Acts enacted in India are subject to the overall framework of the constitution of India and norms laid down therein. Constitution of India has empowered the ‘Central Government’ of India to levy tax on income and by virtue of this power; the Central Government has enacted Income Tax Act, 1961, by replacing the earlier act called Income Tax Act, 1922. According to Section 1 of the Income Tax Act, 1961, the act is to be called as “Income Tax Act, 1961” and it extends to the whole of India. It came into force with effect from 01st April, 1962. It is implemented and administered through the rules laid down in the act, circulars issued by the Central Board of Direct Taxes (CBDT) and High Court / Supreme Court decisions on various issues. Section 2 of the Income Tax Act, 1961 defines various terms and expressions used in the act, but before that one must understand certain terminologies used in these definitions. (a.) “MEANS”: When a definition uses a term “means”, then the definition is self explanatory and exhaustive. It implies that the term so defined means only what is defined therein and nothing beyond that. For e.g.: Definition of “Assessment Year”. (b.) “INCLUDES”: When an exhaustive definition is not possible or Legislature wants

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Prof. J. Nihit Kishore—98202 25728

TYBCom- INCOME TAX

to widen the scope of the definition, it uses the term “includes”, in order to give an inclusive definition or an illustrative definition. For e.g.: Definition of “Income” or definition of “Person”. (c.) “MEANS AND INCLUDES”: When Legislature intends to define a term and also include certain items, it includes both the terms “means and includes”. For e.g.: definition of “Assessee”.

DEFINITIONS
[A.] “ASSESSEE”:Section 2 (7) of the act, defines the term “assessee” to mean a Person by whom any tax or any other sum of money is payable under the act and includes : (i.) Every person in respect of whom, any proceeding under the act has been taken up, whether in respect of assessment of his own income or income of any other person, (ii.) A person who is deemed to be an assessee under any provision of the act. For e.g.: Representative assessee, Agent of Non-Resident, etc. (iii.) A person who is deemed to be ‘an assessee in default’ under any provision of the act. For e.g.: An employer who fails to deduct tax at source from salary paid by him to his employee. [B.] “PERSON”: As per Section 2 (31), Person includes :(i.) An Individual, (ii.) A Hindu Undivided Family (H.U.F.), (iii.) A Company, (iv.) A Firm, (v.) An Association of Persons (A.O.P.) (e.g.:‘Navjeevan Co.Op. Housing Society’ is an A.O.P.) or Body of Individuals (B.O.I.), whether incorporated or not, (vi.) A Local Authority (e.g.: MUMBAI MUNICIPAL CORPORATION) (vii.) Every Artificial Juridical Person not falling in any of the above (e.g. UNIVERSITY OF MUMBAI) The term ‘Person’ has been defined in an inclusive manner. If one observes the definitions of the terms “assessee” and “person” both, then one will find that every ‘assessee’ is necessarily a ‘person’, but every ‘person’ need not necessarily be an ‘assessee’. The term ‘Association of Persons (A.O.P.)’ or ‘Body of Individuals (B.O.I.)’ has not been defined anywhere in the Act, but in general sense would mean coming together of more than one person or more than one individual for some common purpose or goal. There are mainly two basic differences between an AOP and BOI. An AOP can

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) Voluntary contributions received by Charitable or Religious Trust or Institution.): The financial year in which the income is earned is known as Previous Year (and the year in which it is taxed is known as assessment year). the very first Previous Year would begin on the date on which business/profession is set up. Assessment Year will be 2010-2011. of the next year. (a. For e. which is known as ‘Assessment Year’. but it would mean evaluating or computing the income and determining the income tax liability of an assessee. wherein the term ‘person’ would mean the same as defined by section 2(31) and on the other hand BOI can be formed by two or more ‘individuals’ only. BOI may be for non-income earning purposes also. includes ‘reassessment’. For e.Prof.Y. J. 2009 and end on 31st March. [Though the term ‘income’ includes ‘dividend’.INCOME TAX be formed by two or more persons. then first previous year would begin on 17th October.) Profits and Gains. Upto Assessment Year 1988-89. certain dividends are exempt from income tax under section 10(34)] (c. Income Tax Act. But for a Business or a Profession newly set up. 2009 and ending on 31st March. Previous Year would be 2009-2010 i. 2010 and thereafter. For e. [C. but from Assessment Year 1989-90 onwards this liberty was withdrawn and now all assesses are required to follow ‘Financial Year’ as their Previous Year. (b.) Dividend. has defined the term in Section 3 as ‘The financial year.: If a business is set up on 17th October.g. [D. the Financial Year beginning on 01st April. For e. the term ‘assessment’.g.: Legal Heirs of a deceased person. Therefore. 2009.] “ASSESSMENT”: The term assessment has not been defined by the act.] “INCOME”: The term ‘Income’ has been defined by Section 2 (24) of the act in a n illustrative manner. [E. whereas such intention is not necessary in case of BOI. 2010. immediately preceding the assessment year’. According to Section 2 (24). [F.] “ASSESSMENT YEAR” (A. coming together to receive income from the estate/property belonging to the deceased. ‘income’ includes. According to Section 2 (8) of the act. assessees were allowed to follow any year as their previous year. it would begin on 01st April every year and end on 31st March. one can say that ‘Assessment’ is quantification of Income and Income Tax Liability of an assessee.g.] “PREVIOUS YEAR” (P.g. Nihit Kishore—98202 25728 TYBCom. to mean ‘A Financial Year. And second difference is that an AOP is formed for the purpose or desire to earn income.: For Financial Year 2009-2010.): Assessment Year has been defined by Section 2 (9). will be said to have formed Body of Individuals.Y. Income of one financial year is taxed in the next year. 4 .e.: For the Assessment Year 2010-2011. which immediately succeeds the relevant Previous Year’.

For e. Trademark. 5 .) Any Interest. # Points to be noted: (1. (3.) Capital Gains. (l. Races including Horse Races. or for her personal expenses. any other game of any sort or from Gambling or Betting of any nature. (f.) Value of any perquisite.) Gifts of personal nature is not an income. (2. Salary. Profit in lieu of salary. it may even be in ‘kind’. Card Games. or an award or trophy received by a sportsman like cricketer is also an income chargeable to tax. Patent. Commission or remuneration received by a partner of a firm from the firm. (h.) Winnings from Lotteries. (k.) Any sum received by the assessee from his employees towards Welfare Fund. But gifts received in the course of profession is an income.) is not treated as income of wife. etc. For e. etc.: Gifts received on Birthday or on occasion of Marriage or Festival gifts. Nihit Kishore—98202 25728 TYBCom. Compensation for not sharing any intangible asset such as Know-how.g.) Income need not be in ‘cash’. etc. (4. Crossword Puzzles. Provident Fund.g.INCOME TAX (d. etc.g. on such policy. (j. Bonus. J.) ‘Pin money’ (an amount received by wife from her husband towards household expenses. Special Allowance or any other benefit received by an employee from his employer.) Export Incentive (e. (i.: Duty Drawback).: Gift received by a doctor from his patient in addition to his professional fees for conducting a successful operation is an income and is taxable. (5. (e.) Income from ‘Illegal activities’ is also an income and hence. is taxable.Prof. as loss is a negative income.) Income includes ‘Loss’ also.) Any sum received under KEYMAN INSURANCE POICY including any Bonus if any. Superannuation Fund.) Non-Compete Fees. (g.) Any sum referred to in section 56 (2)(v).

O. J.) He/She stays in India for 182 days or more during the relevant Previous Year.R. Residential Status is to be determined on a year to year basis. [A.R.)’ in India. residential status of an assessee plays an important role. Nihit Kishore—98202 25728 TYBCom. Therefore.) in India.O.) Residential Status of an Individual is determined by Section 6 of the act.R.O. could be Resident (R. This can be better explained with the help of the following chart:INDIVIDUAL RESIDENT (R) NON-RESIDENT (NR) RESIDENT AND ORDINARILY RESIDENT (R.INCOME TAX CH-2 RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME (SECTION 6) The incidence of tax of an assessee depends upon his residential status.R. if he/she satisfies at least one out of the following two ‘Basic’ conditions :BASIC CONDITIONS :1. An Individual is called ‘Resident’. Residential status is different from citizenship/nationality. as it may change every year. If he is Resident in India.O.) RESIDENT BUT NOT ORDINARILY RESIDENT (R. then he/she could be ‘Resident and Ordinarily Resident (R.)’ or he/she could be ‘Resident but Not Ordinarily Resident (R. limit will be 182 days only) 6 .N. a person may be Resident in one year and Non-Resident in the other year.) in India or Non-Resident (N. (whether it’s a Leap year or not.N.R.] Residential Status of an Individual Assessee: An assessee being an individual.Prof.

if both the additional conditions mentioned below are satisfied. a Resident. limit will be 60 days only) and (b.) He has been Resident in India (based on two basic conditions mentioned above) in at least 2 out of last 10 Previous Years immediately preceding the relevant Previous Year.In the following two cases. will be treated as a Resident for that Previous Year and person who does not satisfy both the basic conditions will be treated as Non-Resident (N.) An Indian Citizen. J. else. Nihit Kishore—98202 25728 TYBCom. business or profession also) outside India or leaves India for employment as a crew member of an Indian Ship. he/she will be a Non-Resident for that Previous Year. for the purpose of employment (employment includes job. who leaves India during the previous year.) An Indian Citizen or a person of Indian origin.) He/She is in India for 60 days or more during the relevant Previous Year (whether it’s a Leap year or not.) He/She is in India for 365 days or more during the last four Previous Years. but comes to India for a visit during the relevant Previous Year. otherwise he/she will be treated as ‘Not Ordinarily Resident (RNOR)’ in India :1. Residential Status is to be determined on a year to year basis. hence. the second basic condition as given above is not applicable :1.) He/She has been in India for a period of 730 days or more during the last 7 Previous Years. A person who satisfies either of the two basic conditions mentioned above. Therefore. immediately preceding the relevant Previous Year. But in case of two exceptions. where unndivided India would mean India. 2.R. EXCEPTIONS TO THE ABOVE CONDITIONS :. we can say that 7 . who stays abroad. as it may change every year. AND 2. ADDITIONAL CONDITIONS : Under Section 6(6). immediately preceding the relevant previous year. the second basic condition is not applicable at all. (A person is said to be of Indian Origin if he himself or any of his/her parents or grandparents were born in undivided India.) (a. Pakistan and Bangladesh of toady’s time).INCOME TAX OR 2. such persons will be Resident only if he/she satisfies the first basic condition of ‘182 days or more’ during the relevant Previous Year.Prof.) for that Previous Year. is called as ‘Ordinarily Resident (ROR)’ in India.

). then physical presence shall be counted on hourly basis. Taxable Taxable N.N.R. R. Nihit Kishore—98202 25728 TYBCom. namely. 2004. etc.R.: 2008. (Territorial Water limits of India = water limit upto a distance of 20 Nautical Miles from the land of India). who satisfies at least one of the two basic conditions plus both the Additional conditions.) and Non-Resident (N.R. 1992. it could be at any place or places of India. There are 365/366 days in a year. shall also be treated as stay in India.) FOREIGN INCOME : a. 6. 2. shall be counted as stay in India.e. A person may become resident in India by staying for 182 days in India and for rest of the year he may stay in another country and may become resident of that country also. who does not satisfy any of the basic conditions.O. who satisfies at least one of the two basic conditions and does not satisfy either both or anyone of the Additional conditions.) A person may be resident in more than one country in the same year. So.: Stay in a Boat moored or anchored within territorial waters of India.R.O. but within the territorial waters of India.) February month has 29 days in case of a leap year. J.) Stay in India need not be continuous. 2000.R. N. 5. as well as the date of leaving India. Resident but not Ordinarily Resident (R. Note : 1. 3.) Stay need not be at the same place in India. 7.O. Taxable Taxable R.) There can not be different residential status for different source of income falling within the same Previous Year i.g. it would be wrong to say that a person who is resident in India is non-resident in all other countries. (Leap year is that year.) The Date of entering India.) INDIAN INCOME 2. : An Assessee. 1996.R. if an assessee is Non-Resident for one income. For e.O. This can be better explained with the help of the following table:Particulars 1. SCOPE OF TOTAL INCOME: As we discussed at the beginning of this chapter.R. stay in India is not for the whole day.).) Income from Business controlled from R. : An Assessee.N. as residential status is to be determined for a particular year and not for a particular income. Where. let us now understand the tax implication of an income of an assessee under different residential status. : An Assessee.Prof.). 1988.R. then he is Non-Resident for all the incomes within the same year.) Stay outside the soil (land) of India. Taxable Not Taxable 8 .INCOME TAX R.R. depends upon his/her residential status. Resident and Ordinarily Resident (R.g.O.O. that the tax incidence of an assesee. which is divisible by ‘four’ for e.N. 4.

but has accrued or is deemed to have accrued or has arisen or is deemed to have arisen in India.: If an income is received by Mr. X in U. In other words. but has accrued or is deemed to have accrued.g.) Other Foreign Incomes Taxable Not Taxabl e Not Taxable Indian Income means the following : 1. i. Foreign Income means the following : An Income which is received outside India.) In India Outside India In India Outside India Outside India In India In India Outside India Indian Income Indian Income Indian Income Foreign Income Therefore.) Place of Receipt of income and ii. namely. Note: A.INCOME TAX India or a Profession set up in India b.) 2. OR 2. then one will find that the line of distinction between the two depends upon two things.) 3.) An Income received in India. The meaning of both the terms can be better understood with the help of the following :PLACE OF ACCRUAL PLACE OF RECEIPT INDIAN/FOREIGN INCOME 1. as well as accrued or deemed to have accrued or has arisen or is deemed to have arisen outside India.) 4. as well as has accrued or is deemed to have accrued.A. an income is a ‘foreign income’ only if the place of accrual.) An Income received outside India. it will be an Indian income.) Place of accrual of income.Prof. or has arisen or is deemed to have arisen outside India. OR 3. J.S. Nihit Kishore—98202 25728 TYBCom.) Receipt of Income: In order to decide whether an income is received in India or abroad. or has arisen or is deemed to have arisen in India. 9 . For e. if either of them is in India. only the first place of receipt shall be considered. as well as the place of its receipt both are outside India. subsequent remittance to India shall be ignored. otherwise. If one observes the meaning of ‘Indian Income’ as well as ‘Foreign Income’.) An Income received in India.

) Capital Gains LOCATION OF SOURCE OF INCOME Location of Place of ‘Employment (Job)’ Location of House Property Place of set up of Business/Profession Location of Asset in case of an Immoveable asset or Place of exchange of an asset in case asset is a Moveable asset 5. B.) Accrual of Income: Place of accrual of income depends upon the location of ‘source’ of income.A. If source is located in India. the ‘source’ of an income depends upon the type of income. which is as follows :- TYPE OF INCOME 1. As per section 9 of the Act.) Income from Bank Interest 7.Prof. only and not in India. then such income will be considered to have been received in U.) Dividend Location of company paying it Location of Bank Account Location of company paying it 10 .) Income from House Property 3.) Interest on Debentures/Bonds 6. Nihit Kishore—98202 25728 TYBCom. then income is said to have accrued outside India. but if source is located in foreign country.INCOME TAX and later on remitted by him to his family members in India.) Income from Business/Profession 4. J.) Income from Salaries 2.S. then income has accrued in India.

then it would amount to double taxation. even Agricultural Income from a NonAgricultural Land in India or an urban land in India is fully taxable. Under Income Tax Act. In other words Section 10 exempts certain incomes from chargeability to tax. However.] Section 10(7): Allowances or Perquisites received by a Citizen of India being an employee of Government of India: received outside India from Government of India for services rendered outside India.] Section 10(1): Agricultural Income: Under this section “Agricultural Income” from “an Agricultural land” in India is exempt from tax. separate from its members and being an assessee.INCOME TAX CH-3 EXEMPT INCOME (SECTION 10) Section 10 o the Income Tax Act. received by partner from the firm). [6. deals with incomes.U.] Section 10(3): Casual Income: Exemption under this section is now no more available with effect from Assessment Year 2003-2004. The following are the incomes which are exempted under section 10:[1. exempts the share of partners in the profits of the firm received by the partner. Nihit Kishore—98202 25728 TYBCom.): Share in income of HUF received by an individual being a member of that HUF is exempt in the hands of that individual under this section. which do not form part of an assessee’s total income.] Section 10(5): Amount received as ‘Leave Travel Concession’: Will be separately dealt with in the Chapter on ‘Income from Salaries’. [3. exempts such income in the hands of member of HUF. Therefore. [4. [2. bonus. If partners also have to pay tax on their share in the profits of the firm. therefore. interest on capital. Partnership Firm is also an ‘Assessee’ separate from its partners and has to pay tax on its profits. Section 10 (2A). it pays income tax on its own income separately.F. then it would amount to double taxation. Agricultural Income from Agricultural Land outside India is not exempt. which are already taxed in the hands of HUF. HUF is an ‘Assessee’. The same income would be taxed twice.] Section 10(2): Share of a member in the income of a Hindu Undivided Family (H. But Salary received by such an Indian Citizen from Government of India for services 11 . section 10 (2). [5.] Section 10(2A): Share of a Partner in the profits of the Partnership Firm: Just like HUF in the above case.Prof. are fully exempt from tax in India under section 10 (7). J. (Only share of profit is exempt and not any other remuneration like salary. commission. If a member of HUF also has to pay tax on his share in the profits of the HUF.

[14. (Here.] Section 10(11) / (12):Receipts from ‘Provident Fund’: Will be separately dealt with in the Chapter on ‘Income from Salaries’. exemption is available only on tax paid by employer on non-monetary perquisites and not on tax paid by him on monetary or cash perquisites). Such tax as is paid by the employer shall not be allowed to the employer as a deduction on account of business expenditure under section 40. whose ‘Annual Premium’ exceeds 20 % of the ‘Sum Assured’. provided policy was issued on or after 01st April.] Section 10(10): Amount received as ‘Gratuity’: Will be separately dealt with in the Chapter on ‘Income from Salaries’. refer to Chapter – I ) With effect from Assessment Year 2004-2005. though accrued as well as received outside India. [13. he or his family members would receive 12 .] Section 10(10CC): Tax on Non-Monetary Perquisites paid by Employer: If tax on non-monetary or non-cash perquisites received by an employee is paid by his employer. [7. [8.] Section 10(10A): Amount received as ‘Commuted Pension’: Will be separately dealt with in the Chapter on ‘Income from Salaries’. as it is exempt from tax in his hands under section 10 (10CC) with effect from Assessment Year 20032004. [9. maturity proceeds of a ‘Keyman Insurance policy’ or any Bonus on such policy is not exempt from tax. this exemption is not applicable on maturity proceeds of that Life Insurance policy or any Bonus thereon.INCOME TAX rendered outside India.] Section 10(10AA): Amount received as ‘Leave Salary’: Will be separately dealt with in the Chapter on ‘Income from Salaries’.] Section 10(13):Receipts from ‘An Approved Superannuation Fund’: When an employee retires from his service. [12. [10. deemed to have accrued in India and is accordingly taxable in India. issued from the day one of the Previous Year 2003-2004. is however. Nihit Kishore—98202 25728 TYBCom. (For meaning of ‘Keyman Insurance policy’ and its taxability. due to his retirement age or his ill health or due to his incapacitation to work more or due to his death. which pertains to Assessment Year 2004-2005).Prof. 2003 (i.] Section 10(10B): Amount received as ‘Retrenchment Compensation’: Will be separately dealt with in the Chapter on ‘Income from Salaries’. [15. then such tax shall not be added in the income of that employee.] Section 10(10C):Compensation received under ‘Voluntary Retirement Scheme’: Will be separately dealt with in the Chapter on ‘Income from Salaries’.] Section 10(10D): Maturity Proceeds of a ‘Life Insurance Policy’: Any sum received by a Policyholder or his Legal Heirs as a maturity proceeds of a Life Insurance policy or any Bonus on such policy from an Insurance Company is fully exempt from tax in the hands of either a Policyholder or his Legal Heirs under section 10 (10D).e. However. [11. J.

[18. received will thus be taxable in his hands) a) Actual H.5 % Tax Free Bonds issued by HUDCO. Mumbai or Kolkata or 40 % of salary if rented house is situated at any other place other than Chennai.A. towards paying rent of a house is exempt from tax in the hands of that employee subject to the least of the followings:.A. the least of (a).] Section 10(13A):Amount received as ‘House Rent Allowance’ (H.5 % Tax Free Bonds issued by National Hydroelectric Power Corporation. forms part of Retirement Benefits otherwise only ‘Basic Salary’] OR c) Excess of rent paid over 10 % of Salary [Here also. Nihit Kishore—98202 25728 TYBCom. notified ‘Relief Bonds’.  10.INCOME TAX an amount from ‘Superannuation Fund’. (b) and (c) will also be NIL and nothing will be exempt under section 10 (13A). if rented house is situated at Chennai. whether received by an employee at the time of his retirement or by his family members or his legal heirs at the time of his death.A.A. of only three months only shall be considered here and not for the whole year) OR b) 50 % of the salary.  National Plan Savings Certificates.R. Any amount received from an approved ‘Superannuation Fund’ is exempt from tax under section 10 (13). Gold Deposit Bonds. Delhi.  National Plan Certificates. (If House was rented only for three months during the year. If an employee resides in his ‘own house’ or he does not pay any rent for the house where he resides. Delhi. notified bonds issued by ‘Local Authority’ and interest received from following notified bonds.’ of only that many months shall be considered during which the house was rented and not ‘Basic Salary and D.] Section 10(14): ‘Special Allowance’ received: Will be separately dealt with in the Chapter on ‘Income from Salaries’.): An amount of fixed monthly allowance received by an employee from his employer.A.R.Prof. received by the employee from his employer for that many number of months for which the house was rented by him. As a result of this entire amount received by employee as H.)’ only if D.’ of the whole year.(Balance H.)’ only if D.  12 Year National Savings Annuity Certificates.A.R. [16.A.R. Mumbai or Kolkata [Here.A.  Treasury Savings Deposit Certificates. J. then answer to point (c) above will be NIL and therefore.A. [17. 13 . then H.A. securities or certificates are fully exempt from tax under section 10 (15): National Defence Gold Bonds.A. ‘Salary’ would mean ‘Basic Salary’ plus ‘Dearness Allowance (D. the term ‘Salary’ would mean ‘Basic Salary’ plus ‘Dearness Allowance (D.] Section 10(15): Interest on certain securities: Interest received from 7 % Capital Investment Bonds. will become taxable in his hands as a Salary. forms part of Retirement Benefits otherwise only ‘Basic Salary’] In (b) and (c) above ‘Basic Salary and D.  10.R.

to meet the ‘cost of education’ is fully exempt from tax in the hands of the recipient assessee under section 10 (16).L. Special Bearer Bonds. Special Deposit Schemes. then it will be taxable and taxable as a ‘Salary’ income. Members of Legislative Assembly (M. 1999 and notified by Central Government. Gold deposit Bonds issued under Gold deposit Scheme. • Kennedy International Award. Bonds issued by Local Authority and notified by Central Government.P. Post Office Savings Account. [19.L.C. etc.] Section 10(16): Educational Scholarships: Educational Scholarship received by an assessee.Prof. Also. • Pope John XIII Award. N. if an award is received by an employee from his employer. it is always taxable as ‘Income from Other Sources’ and not as ‘Income from Salary’. as MPs / MLAs / MLCs are not employees of Government. J. Post Office Cash Certificates.] Section 10(17A): Awards: Any award received by an assessee whether in cash or in kind. ‘cost of education’ does not mean only ‘Tuition Fees’. • Sir Jagdish Chandra Bose Award. Nihit Kishore—98202 25728 TYBCom. but also any other incidental expenses to acquire education. it is called as ‘Salary’. Educational Scholarship is awarded to meet the cost of education and will be exempt from tax under this section. Few examples of such exempt awards are:• Sir C. Bonds-1988 issued by State Bank of India. The term ‘Education’ is not restricted to only those courses leading to a degree.25 % Tax Free Bonds issued by Rural electrification Corporation Ltd. 14 . But Salary received by MPs / MLAs / MLCs is not exempt. issued to him in ‘Public Interest’ by ‘Central / State Government’ or by any body / Institution / organization approved by Central / State Government is fully exempt from tax in the hands of the recipient assessee under section 10 (17A). N. • Ramon Magsaysay Award. [21. Bonds (Second series) issued by State Bank of India.s) is fully exempt from tax under section 10 (17). [20. But if an award is received from any individual or any private organization then exemption under section 10 (17A) is not available on such award.I.INCOME TAX            9.A. even if it is not entirely spent for meeting the cost of education.R. Though.R. Here. (RECL).I. Raman Award.s). V. it is taxable. Notified Bonds.] Section 10(17): Daily Allowances received by MPs / MLAs / MLCs: Daily Allowances received by Members of Parliament (M.s) or Members of Legislative Council (M. Post Office Cumulative Time Deposits (CTD). being a student from any person including Government.

but does not include an ‘Illegal Child’ or a child born as a result of an illegal marriage.) An equity share acquired by way of a Public Issue (I. the income of Minor Child is included / clubbed. Minor Child includes a ‘Step Child’ as well as an ‘Adopted Child’. An ‘Eligible equity share’ would mean either (1.500/. 1. provided such eligible equity shares were acquired on or after 01st March.T. 15 .I. etc. [23.INCOME TAX • Bhartiya Janpith Award. 2003. is exempt from tax under section 10(35). It would be worth to note here that under section 10(34) what is exempt from tax is dividend from an Indian domestic company. [Earlier it was covered by Section 10(33)].) There is no restriction on the number of minor children. It will always be taxable and will be taxable as ‘Income from Other Sources’. per annum. [25. 2004 and held for a period of 12 months before their transfer and sold through a recognized Stock Exchange in India.per minor child. J. other than Capital Gains received by an assessee from units of a Mutual Fund.-Operative Society will not be exempt.) on or after 01st April.] Section 10(32): Income of Minor Child: Minor Child is not taxable in respect of his / her own income. 2004. Minor Child’s income is taxable in the hands of either of his parents.T.P. provided units of US-64 were held as Capital Asset. 2003 as a BSE-500 INDEX companies on Mumbai Stock Exchange. (Here.) An Equity share of a company. whichever is lower. [22.] Section 10 (36): Long Term Capital Gains on transfer of eligible Equity Shares: Long Term Capital Gain arising on transfer of eligible equity shares shall be exempt from tax by virtue of section 10(36). 2002 shall be exempt by virtue of section 10(33).] Section 10(33): Capital Gain on transfer of Units of US-64 of UTI: Any Capital Gain arising on transfer of units of US-64 Scheme of Unit Trust of India (U. That parent in whose income. • Cash reward for passing Hindi Examinations. including units of Unit Trust Of India (U.). Therefore. • National Award for Films. 2003 but before 01st March. but exemption will be restricted to Rs. • Dr.I. but before 01st March.per Minor Child.] Section 10(35): Income from ‘Units of a Mutual Fund’: Any income.O.Prof. Nihit Kishore—98202 25728 TYBCom. which is listed as on 01st March. by virtue of section 64(1A) on ‘Clubbing of Income’.] Section 10(34): Dividend from a ‘Domestic Company’: Any amount received by an assessee as a Dividend or as an Interim Dividend from shares (whether equity shares or preference shares) of an ‘Indian Company’ (whether Public Company or a Private Company) is fully exempt from tax by virtue of section 10(34) [earlier this exemption was covered by section 10(33)].) on or after 01 st March. [24. Exemption under section 10(32) is restricted to actual income of Minor Child clubbed in the hands of that parent or Rs. is entitled to this exemption under section 10(32). or (2. [26. dividend received from a Foreign Company or from a Co. Rajendra Prasad Award. 1.500/.

T.INCOME TAX [27. 10(34).] Section 10(37): Income from Capital Gain on Transfer of Agricultural Land: Only in the case of an assessee being an Individual or a Hindu Undivided Family. which have arisen on sale consideration received on or after 01st April. 10(5).Prof. This exemption was being introduced with effect from Assessment Year 2005-2006 and exempts only those Capital Gains. 10(11) / (12). provided such sale transaction attracts Securities Transaction Tax (S. or Equity Oriented Units of Mutual Fund shall be exempt by virtue of Section 10(38). 16 . Examination Hint: Important sections from examination point of view are – Section 10(1). 10(10).] Section 10(38): Long Term Capital Gain on transfer of Listed Securities: Any Long Term Capital Gain (Only Long Term Capital Gains and not Short Term Capital Gains) arising on transfer of Equity Shares listed on a Recognized Stock Exchange in India.). and 10(38). Section 10(38) has been introduced with effect from Assessment Year 2005-2006. provided impugned Agricultural Land was compulsorily acquired by Government under any Law in force or sale consideration of such Agricultural Land was determined by Reserve Bank of India (RBI) or by Central Government. J. 10(10AA). 10(2A). shall be exempt from its chargeability to Income Tax under section 10(37). 10(13A).T. 2004. any Capital Gain arising on transfer of an Agricultural Land situated in a specified area and used by that individual or his/her parents or by HUF for agricultural purposes. 10(2). 10(14). 10(35). 10(10A). Nihit Kishore—98202 25728 TYBCom. [28.

T.I. Expenditure incurred in relation to exempt income: Section 14A: Deductibility of an actual expenditure incurred to earn an income. (2.INCOME TAX CH-4 HEADS OF INCOME (SECTION 14) For the purpose of computing total income of an assessee and income tax thereon. (3.) Profits and Gains of Business or Profession. which is discussed with each head of income separately. J. But Section 14A of the act requires that under no circumstances. all actual expenditures incurred to earn that income shall be allowed to be deducted. we shall discuss all the five heads individually with the help of practical illustrations. 17 .) Capital Gains and (5. whereas for an income chargeable to tax under the head income from House Properties. (4. section 14 of the act requires all the incomes of an asseessee to be classified under the following five heads of income:(1.: For an income chargeable to tax under the head Profits and Gains of Business or Profession. all actual expenditures are not allowed to be deducted. expenditure incurred to earn an exempt income shall be allowed to be deducted. Any expenditure incurred to earn such dividend income shall be ineligible as to its deductibility from other taxable income by virtue of section 14A. depends upon the head of income under which that income is chargeable to tax.g.) Income from Other Sources. but certain percentage of such income is allowed to be deducted.) and in the following chapters.) Income from House Properties.Prof.: Dividend from an Indian Company is exempt by virtue of section 10 (34). For e.) Income from Salaries.g. For e. Total of incomes under all the five heads of income is known as Gross Total Income (G. Nihit Kishore—98202 25728 TYBCom.

g. any amount due to or received by an employee from his employer or his ex-employer and coming within the purview of the meaning of the term ‘salary’. According to section 15 the followings are chargeable to tax under this head:(a. we shall discuss the first head of income i. (b. Servant works under direct control and supervision of his master unlike an agent who controls and supervises his work on his own and therefore an agent’s remuneration is known as ‘commission’ and is 18 .) ‘Arrears of Salary’ – Earlier year’s salary.) Any salary received by an employee. Now a question arises is that what is the definition of the term ‘salary’ as given by section 17 (1)? But before we jump to the definition. Under section 17 (1). Nihit Kishore—98202 25728 TYBCom. Now in this chapter. It explains the basis of charge. In other words. the term ‘salary’ would mean a fixed monthly remuneration received from employer for work done.) Any salary due to an employee. An employer-employee or master-servant relationship is in contrast to Contractor-Contractee relationship or Principal-Agent relationship.: Advance Salary.e. but has become due to him.INCOME TAX CH-5 INCOME FROM SALARIES (SECTION 15 TO SECTION 17) In earlier chapter we discussed that there are five heads of income.Prof. as defined under section 17 (1) is chargeable to tax under the head ‘salary’. the term ‘salary’ has been specifically defined in an inclusive manner. one has to keep in mind the following norms. To a common man or a layman. whether due or not – this means that salary is taxable even if it has not become due to him but has been received by him. In order to understand the meaning of the term salary. income from ‘Salaries’. which has now become due to him and now received by him. For e. (c. (a.) Existence of Employer-Employee Relationship or Master-Servant Relationship: In order to charge an income under this head there must exist an employer-employee or master-servant relationship between the person liable to pay and person entitled to receive remuneration. but from Income Tax Act point of view the term ‘salary’ would mean ‘salary’ as defined under section 17 (1). J. These norms will simplify the understanding of the definition of the term salary. whether received by him or not – this means that salary is taxable even if not received by employee. let us understand certain essential norms of the salary income. Section 15 of the act talks about the chargeability of an item to tax under this head as ‘salary’.

g.g.) is paid by Government and is called salary.). Termination Bonus.P.C. whereas “Wages” are paid for manual work. On the other hand.: A Professor who is an employee of XYZ College. Tax paid by employer is treated as a perquisite in the hands of the employee under section 17(2). then what is taxable in the hands of employee is not only the salary. then its not an income from salary. etc.L. 2. 29.L. both are paid for work done.: Overtime salary.000/.000/. 29. (g. but every person who is employed by another need not be an employee.: Join-in Bonus.50.i. (i. Normally.000/. For e.g.: Pension. For e.g.of tax paid. is also taxable. For e. Nihit Kishore—98202 25728 TYBCom.A.) Only Individuals can have a salary income: Only an Individual assessee can have employer-employee relationship with the other.: Remuneration to Member of Parliament (M.000/. whether tax is paid by employer voluntarily or under contract or agreement. For e. 2. For e. Rs. Therefore. but also the tax paid on it by his employer.) Every person who is employed need not be an Employee: Every person who is an employee. / M. receives a payment for setting/correcting examination papers. Income Tax Act views no difference between salary and wages.L.P. Salary from future or prospective employer is also taxable just like salary from present employer.g.21.g. if same remuneration is received from any other person for the same work. – If received from college. Wages are normally. J.L. though employeremployee relationship is no more in existence.+ Rs.: If an employee is being paid a tax free salary of Rs.: A Lawyer employed to file a legal suit or a Doctor employed to operate a patient are though employed by their clients to carry out some work are not their employees. then ‘Income from other sources’. Member of Legislative Assembly (M.) Net of Tax Salary: If an employee is being offered a Net of tax salary. between employer and employee.000/.Prof.) or Member of Legislative Council (M.) Any payment received from employer: Once employer-employee relationship is established then any payment received by an employee from his employer is a salary like fees.21. Even though it is called as salary it is not taxable as salary but is taxable as income from other 19 . For e. 2.21. (f. / M. (h. though employer-employee relationship is yet to be developed. Salary is paid for nonmanual work. (b.C.) Salary from past / prospective employer: Salary from past employer or exemployer is taxable just like salary from present employer.e. but if received from University. (d.A.INCOME TAX chargeable to tax under the head ‘Profits and gains of Business or Profession’ unlike ‘salary income’ in the hands of a servant or an employee.but Rs.) “Salary” v/s “Wages”: “Salary” and “Wages” are conceptually not different from each other.) Additional Salary: Salary received in addition to normal salary though not contracted before. only individuals can have salary income unlike partnership firm or a company.000/. (e. paid on daily basis whereas salary is normally paid on monthly basis. 2.then what is taxable as salary in the hands of employee is not only Rs. is necessarily employed by another.) Salary of M.and tax paid by the employer on this salary is Rs. commission received from employer. both are taxed at the same rate and are taxed under the same head as ‘income from salary’. then ‘Salary income’. (c.

Method of Accounting followed by assessee is irrelevant. Salary once taxed on due basis will not be taxed again on receipt basis and similarly.: Salary for the month of April.) Arrears of Salary: Arrears of salary is earlier year’s salary which is now being received by the employee.) Salary of a Partner of a Partnership Firm: Salary./M.P. but will be taxable as ‘income from other sources’. It is basically not a salary in its real nature. Nihit Kishore—98202 25728 TYBCom. on the other hand.L. For e. One must understand here that ‘Advance Salary’ is different from ‘Advance against salary’. salary is taxable on due or receipt basis whichever is earlier.) Pension: Monthly or periodical Pension received by the assessee after his Retirement. (o.) Salary in ‘Kind’: Salary is taxable whether received in ‘Cash’ or in ‘Kind’. then his remuneration will be taxable either as ‘Profits and Gains of Business or Profession’ or as ‘Income from other sources’. J. In other words.INCOME TAX sources as there is no employer-employee relationship between Government and M. Even if a Director is an employee of a company.Prof. In other words. but has now become due and is now being received by him.) Advance against salary: As we discussed earlier in point (p. whichever is earlier. (s.A. (n. but is just an appropriation of profits of the firm and again no partner can be called as an employee of the firm. (q. as it is like a loan taken against security of salary.g. He may or may not be an employee.g. 2009 is if received in March. Same Pension received by the Family members/Legal Heirs of the assessee upon death of the assessee is taxable in the hands of his/her family members or legal heirs as ‘Family Pension’ and is taxable as ‘income from other sources’ under section 56 and not as ‘salary’. of Rice is received as a salary then market value of rice will be taxable as salary.C. 2009 then it will be taxable as salary of the year 2008-2009. such commission or fees as is received by him will not taxable as ‘salary’. but is taxable as ‘Profits and Gains of Business or Profession’. is taxable as salary till he/she is alive. arrears of salary is that salary which was never due to employee earlier. but if he is not an employee of the company. if he receives any commission from his employer company for arranging any loan for the company or for his standing as a guarantor of his company for the loan taken by his company.: If 25 Kg.) Salary to a Director of a Company: Every director of a company is not necessarily an employee of the company. (r. though it should have been normally taxable in the year 2009-2010. salary received in advance will be taxable on receipt basis. For e. Bonus. It is taxable only on receipt basis in the year of receipt just like Bonus or Commission or Leave Salary and not on due basis. other than interest on capital received by a partner from partnership firm is not taxable as salary. If as per the agreement with the employer company he is an employee of the company then his remuneration will be taxable as ‘salary’./M.L. (t. hence is not taxable.) above. salary once taxed on receipt basis will not be taxed again on due basis. there will be no double taxation of the same salary. Advance Salary is taxable on receipt basis. It is taxable as 20 . (p. whereas ‘Advance against salary’ is not an income only. Commission or any other remuneration by whatever name called.) Method of Accounting: Salary is taxable on ‘due’ or ‘receipt’ basis.

Arrears of Salary.N.000/. 7) Balance to the credit of Employee’s ‘Recognized Provident Fund’ [After claiming exemption U/S 10 (11)]. Place of Accrual of Salary: Salary is deemed to accrue or arise at the place where services are rendered. whichever year is earlier. he/she is offered a salary in a particular Grade/Scale.) Grade of Salary: When a candidate applies for a job or employment.N. is not taxable at all. Commission.000/.000/(v. Nihit Kishore—98202 25728 TYBCom. Under section 9(1) of the act. 13. (u. Profits in lieu of or in addition to salary or wages. For e. 5) Advance Salary. 12. 12.p.000 : this means that he/she is appointed at a monthly salary of Rs. But all perquisites and allowances received by such person from Government of India outside India are exempt from tax under section 10(7). till his/her monthly salary reaches Rs.scale with retrospective effect’ or due to ‘court’s order to increase the pay with retrospective effect’.m. and thereafter there will be no increment in the salary.g.e.O.000/per month and second year salary will be Rs.) Salary from UNITED NATIONS ORGANIZATION: Salary received from United Nations Organization (U. There is only one exception to this rule.per month in the third year of his service and so on till monthly salary reaches the level of Rs. Perquisites.) or any other Allowances or Perquisites or Pension received from U. 21 . His first year salary will be Rs.Prof. 1.and it will be increased by Rs. 18. Salary received by an Indian Citizen from Government of India for services rendered outside India is deemed to have accrued or arisen in India (even though services are not rendered in India).000/. Arrears of salary may arise due to ‘revision in pay.m. According to it Salary includes:1) 2) 3) 4) Wages. 18. Thereafter.O.000 – 1000 – 18. Fees. Year of Chargeability of Salary: Salary is chargeable to tax in that year in which either it has become due or it is received. 14.: Salary is in the Grade of Rs. Commission. Leave Salary are chargeable to tax as salary only on receipt basis i.p.000/.000/. at the end of every year. Section 17 (1) defines the term ‘Salary’ in an inclusive manner and it includes eight items. 6) Leave Salary [After claiming exemption U/S 10 (10AA)]. Salary for services rendered in India are deemed to accrue or arise in India. Pension or Annuity [After claiming exemption U/S 10 (10A)].12. Gratuity [After claiming exemption U/S 10 (10)]. Definition of Salary: Let us now understand the meaning of the term ‘Salary’ as defined by section 17 (1) of the act. only in that year in which these are actually received and not in the year in which they have become due. it will be increased to Rs.INCOME TAX ‘income from salary’ only.per month if he continues his job. J. This rule of chargeability is however subject to certain exceptions like Bonus.

O.50.A. [B. A/C with current employer) [After claiming exemption U/S 10 (12)].G.O. then it is fully taxable as salary and no exemption under section 10(10) is available from it.A. but under exceptional circumstances it may be paid during the service period also.26 days X drawn X year of service or salary* a part thereof in excess of 6 months (ii.). Rs.A.INCOME TAX 8) Transferred balance to the credit of Employee’s ‘Recognized Provident Fund Account’ (R.) For those not covered by P. 3.F. J.: The Least of the following will be exempt: 15 days Last Each Completed 1 .G.G.O.] In case of Non-Government employees: Non-Government employees are divided in two categories: (i. Amount notified by Govt. 2 X on salary* of X (any excess last 10 months thereof shall be salary ignored) OR OR 2. A/C with previous employer to employee’s R. Gratuity actually received.F. Let us now understand the meaning of certain terminologies included in the above eight items as well as exemption from tax under section 10 available on few of these eight items.O. 3.Prof.50.] In case of Government Employees: If Gratuity is received by a Government employee (Employee of Central Government / State Government or of a Local Authority only and not employee of any Statutory Corporation) after or at the time of retirement. then it is fully exempt from tax under section 10 (10). It is normally paid by the employer to employee at the time of his retirement.) For those covered by P.) Those who are not covered by Payment of Gratuity Act (P. Exemption to these Non-Government employees under section 10 (10) is available as follows:(i. 2.000/OR 3.P. Nihit Kishore—98202 25728 TYBCom.) Those covered by Payment of Gratuity Act (P.) Gratuity [Section 10(10)]: Gratuity is a Retirement Benefit. 22 .P.: The Least of the following will be exempt: Avg. monthly Each complete 1 salary based year of service 1.A.000/OR 3.G.) and (ii. It is a gratuitous payment in the nature of loyalty bonus. But if Gratuity is received after or at the time of retirement. (1. A/C) (transferred from employee’s R. If it is received during the service period whether received by a Government employee or a Non-Government employee. Gratuity actually received.F. Amount notified by Govt. then exemption under section 10(10) is available as follows:[A.P. Rs.

whether in the same Previous Year or otherwise.A.A. Gratuity received while in service is always taxable irrespective of whether the employee is a Government employee or a Non-Government employee.) whether D. (2. Nihit Kishore—98202 25728 TYBCom.) Commuted Pension. ‘Basic Salary’ + Dearness Allowance (D. Gratuity received by Family Members or Legal Heirs of the employee upon death of that employee is not taxable at all in the hands of Family Members or Legal Heirs of that employee. shall be ignored while calculating last 10 months’ salary) # Points to be noted about ‘Gratuity’:    If Gratuity is received from more than one employer. then calculation of exemption under section 10(10) on Gratuity received from other employer will be done as above only. (The month in which employee retires.) Uncommuted Pension is a monthly or periodical pension received by an employee after his/her retirement from his/her employment. forms part of Retirement Benefits + Commission only if based on turnover (T/O) achieved by the employee.A. 3.(a. forms part of Retirement Benefits or not.e. Rs. Uncommuted 23 . Basic Salary + Dearness Allowance for a period of one month upto the date of retirement.000/.50. Salary last drawn: means one month’s salary as above i. but amount notified by Government i.INCOME TAX *Meaning of ‘Salary’: Salary here would mean *Meaning of ‘Salary’: Salary here.) only if D.e. Salary of last 10 months: Actual Salary as above of last ten months. would mean ‘Basic Salary’ + Dearness Allowance (D. immediately preceding the month of retirement.) Pension [Section 10(10A)]: There are two types of Pension:.A.Prof.)Uncommuted Pension and (b. No exemption under section 10(10) will be available on it.in above calculation will be reduced by any exemption claimed earlier on Gratuity received from any earlier employer. (a. J.

[B.00. 10.) Commuted Pension on the other hand is a lump sum payment in lieu of periodical payments.D.000/.as earlier [i.as balance in his Pension Fund Account and on that he receives Rs. If he gets 30 % of his pension commuted. No exemption under section 10 (10A) is available on Uncommuted Pension.000/. Exemption under section 10(10A) is available only on ‘Commuted Pension’.e. Nihit Kishore—98202 25728 TYBCom.000/.INCOME TAX Pension is always taxable whether the recipient assessee is a Government employee or a Non-Government employee and is always taxable as ‘Salary’. (b.as commuted pension.D. For e. In the same way if one commutes the pension. 30 % of Rs. Pension Fund is just like a Bank Fixed Deposit (F. Rs.Prof.D. the uncommuted pension will be received by his Family Members or his Legal Heirs.per month as an uncommuted monthly pension.000/-)].D. ‘Commuting’ a pension means. commutation of pension is just like withdrawing some amount from Bank F. though uncommuted pension is fully taxable. his uncommuted pension will proportionately reduce. commuted pension is fully exempt under section 10(10A). Assessee can commute the pension or in other words can withdraw a lump sum amount from his Pension Fund at any time and for any number of times.as monthly pension instead of Rs. withdrawing a lump sum amount from Pension Fund of an employee. interest is taxable as an income. then he will receive a lump sum amount of Rs.D. whereas.: Mr.00. Where. 10. X. The way Bank F. but on the other hand his uncommuted monthly pension will proportionately reduce by 30 % and from now onwards Mr. 10.00.) Those who are in receipt of Gratuity in addition to commuted pension and (ii.] In case of Non-Government Employees: Non-Government Employees are divided into two categories:.000/.000/.000/. uncommuted pension is also taxable as salary. 10.e. employee dies. has Rs. Exemption from tax on an amount received as ‘Commuted Pension’ is available under section 10(10A) and is as follows:[A.minus (30 % of Rs.) and uncommuted pension (monthly/periodical pension) is just like interest on such Bank F. then interest receivable thereon will proportionately be reduced.) For those employees who are in receipt of Gratuity in addition to commuted pension: Amount exempt will be equal to one third (1/3rd) of the total pension 24 . 10. 3. 10.g. If one withdraws any amount from his Bank F.i. as definition of ‘Salary’ as is given by section 17 (1) includes ‘Pension’. 7.(i.) Those who are not in receipt of any Gratuity in addition to commuted pension. Exemption to these Non-Government employees under section 10(10A) is available as follows:(i. J. Such uncommuted pension received by his Family Members or his Legal Heirs is called “Family Pension” and is taxable in their hands under section 56 as ‘income from other sources’ and not as ‘salary’.] In case of Government Employees: In case of Government Employees.000/. till the time there is some balance lying in his Pension Fund Account. X will receive only Rs.

If uncommuted pension is received from an Insurance Company under a ‘Pension Policy’. In other words. If leave salary is encashed while in service.). then it is taxable as ‘income from other sources’ and not as ‘salary’. then he/she will not be paid for those excess days of leave. whether received a by Government Employee or a Non-Government Employee. [A. without having to loose any salary during the period of leave. Any commuted pension received from an Insurance Company under a ‘Pension Policy’ is not an income and hence is not taxable at all. whichever is less. an employee gets various types of paid leaves like Casual Leave.Government employee. (3. Nihit Kishore—98202 25728 TYBCom. Maternity Leave.] In case of Government Employees: Leave salary received by a Government employee after or at the time of retirement (and not while in service) is fully exempt under section 10 (10AA). # Points to be noted about ‘Pension’:     Pension received from United Nations Organization (U.) Leave Salary encashment: [Section 10(10AA)]: As per service rules. If employee goes on leave beyond that many number of days in a year. Sick Leave. J. then the balance unutilized leave can be either be carried forward to the next year and utilized in the next year or will lapse.Prof. which are allowed to him/her.) if entire balance lying in Pension Fund Account was commuted or actual amount received as commuted pension. For those who are not in receipt of any Gratuity in addition to commuted pension: Amount exempt will be equal to one half (1/2 or 50 %) of the total pension if entire balance lying in Pension Fund Account was commuted or actual amount received as commuted pension. it is taxable and is taxable as ‘salary’ whether received by a Government employee or a Non. 25 . the term ‘Pension’ is restricted only to pension received from employer or ex-employer.O. If he/she does not go on leave for the number of days allowed. then is exempt from tax under section 10 (10AA) subject to certain limitations as follows. whichever is less. then that leave will be credited to his/her account. At the time of retirement if an employee has some unutilized leave standing to his credit then such leave can be encashed by that employee. that employee will be paid salary equivalent to the unutilized leave standing to his/her credit.N. Here. Uncommuted Pension is always taxable.INCOME TAX (ii. whether Commuted or Uncommuted is not taxable at all. Balance Pension will be taxable and will be taxable as salary. Such encashment of leave is called ‘leave salary’. But if it is encashed after or at the time of retirement. etc. An employee is allowed to go on for leave for that many number of days. depending upon the service rules. If employee is allowed to carry forward the unutilized leave.

Here also the term salary would mean Basic Salary + Dearness Allowance (D. If Leave salary is received from more than one employer. forms part of Retirement Benefits + Commission only if based on turnover (T/O) achieved by the employee. Leave salary received by Legal Heirs or Family Members of an employee upon death of employee. would mean Basic Salary + Dearness Allowance (D. then amount of exemption will be calculated as above only. whether received by a Government employee or a Non-Government employee.) Actual amount received as Leave salary encashment.A.e.A. (whether Government employee or a Non-Government employee) is not taxable at all in the hands of Legal Heirs or Family Members of that employee. Nihit Kishore—98202 25728 TYBCom. J.) Total salary of last ten months immediately preceding the date of retirement.INCOME TAX [B.] In case of Non-Government Employees: Leave salary received by a NonGovernment employee after or at the time of retirement (and not while in service) is exempt under section 10 (10AA) subject to the least of the followings :(i.A. last ten months shall be taken into consideration upto the date of retirement. Rs. if any on Leave salary received from any previous employer. Leave salary received at the time of or after the retirement is taxable only in the case of Non-Government employees. 3.) only if D. OR (ii.000/. 3. whether in the same previous year or in different previous years.) only if D.) Cash equivalent of the leave standing to the credit of the employee at the time of his retirement = (Average salary of last 10 months immediately preceding the date of his retirement) X leave standing to the credit of employee Here. Salary here.00.) Amount notified by Government which presently is Rs. but the amount notified by Government i. 26 .00.000/Whichever is less will be exempt and balance will be taxable as salary. subject to availability of exemption under section 10 (10A).A.Prof. for last ten months salary. # Points to be noted about ‘Leave Salary’:     Leave salary received during the service is always taxable.will be reduced by any exemption already claimed earlier. OR (iii. forms part of Retirement Benefits + Commission only if based on turnover (T/O) achieved by the employee. OR (iv.

) (iii.) Amount notified by Government which is Rs 5.000/Amount calculated as per prescribed guidelines of the scheme. whether in one previous year or in different previous years.R. salary would mean last drawn (Basic salary + Dearness Allowance).) Compensation received under ‘Voluntary Retirement Scheme’ (V.) (ii.)’ or ‘Voluntary Separation Scheme’ compensation is exempt from tax under section 10(10C) subject to the least of the followings:(i.will be reduced by the amount of exemption claimed earlier. OR (b. under Industrial Disputes Act. it can not be claimed again by that assessee in any other assessment year. Exemption under section 10(10C) is once in a life-time exemption. Such compensation is exempt in the hands of that employee at the least of the followings:(i.R. 5.): [Section 10(10C)]: An amount received by an employee from his employer upon his/her retiring voluntarily from employment which is known ‘Voluntary Retirement Scheme (V. then exemption will be calculated as above only.e.00. (5.Prof.000/-. OR (ii.) Amount calculated as per provisions of Industrial Disputes Act. OR (iii.INCOME TAX (4. # Points to be noted about ‘Retrenchment Compensation’:   If Retrenchment Compensation is received from more than one employer. Whichever is less will be exempt under section 10(10B) and balance will be taxable and taxable as ‘salary’. as it is exempt from tax in his hands under section 10(10CC) with effect from Assessment Year 2003- 27 . Rs. In other words. (6. J. then such tax shall not be added in the income of that employee. which shall not exceed the lower of the followings: (a. then employer may have to compensate him for early termination of his employment.S. if any on Retrenchment Compensation received from any earlier employer.) Three months salary for each completed year of service. once it is claimed by an assessee. then exemption amount shall be lower of Actual amount received or amount notified by Government.) Amount actually received as V.) Actual salary for balance months of service left.) Amount actually received as Retrenchment Compensation.S. 1947. Nihit Kishore—98202 25728 TYBCom.) Retrenchment Compensation: [Section 10(10B)]:If an employee is retrenched or removed by his employer. 1947 is not given in the exam. Compensation OR Amount notified by Government which is Rs. Here.R. but the amount notified by Government i.00. If amount calculated as per provisions of Industrial Disputes Act. 1947. 5.S.) Tax on Non-Monetary Perquisites paid by Employer: [Section 10(10CC)]: If tax on non-monetary or non-cash perquisites received by an employee is paid by his employer.000/.00.

Auto-Rickshaw charges. Such tax as is paid by the employer shall not be allowed to the employer as a deduction on account of business expenditure under section 40. Rail Fare. 1990-1993. Exemption is available only in respect of traveling expenses i. year beginning on 01st January and ending on 31st December). though may have been incurred by employee and reimbursed by employer are not entitled for exemption. No distinction is made between Government employee or Non-Government employee. This means that exemption under section 10(5) is available only two times in a block of four calendar years. Exemption is available with respect to only shortest route to the destination. otherwise exemption will not be available. was received while in service or after retirement.T. In order to claim exemption. Exemption is available for L.T. Scooter charges. exemption is available only on tax paid by employer on non-monetary perquisites and not on tax paid by him on monetary or cash perquisites).Prof.) Actual amount of Leave Travel Concession or Passage money received. # Points to be noted about ‘Leave Travel Concession’:     Exemption under section 10(5) is available irrespective of whether L. brothers and sisters. where four years’ block is predefined by the act as beginning from 1982 and ending on 1985 and so on. (Here. Nihit Kishore—98202 25728 TYBCom. Any other expenses. other than the shortest route. J. Family members for this purpose means spouse and two children (whether dependent or not) and dependent parents. otherwise exemption under section 10(5) will not be available).e. like 1986-1989. OR Amount prescribed for exemption by Central Board of Direct Taxes (CBDT) in this behalf. etc. Exemption under section 10(5) is available with respect to only two journeys performed in a block of four calendar years (Calendar year and not financial year i.) Value of any Leave Travel Concession: [Section 10(5)]: An employee may receive Leave Travel Concession or Passage money from his present employer or his exemployer for himself and his family members in connection with his proceeding (journey) to any place in India (journey must be at any place in India only and not outside India.C.g. journey shall be performed at any place within India only. 1994-1997. 20022005. OR Amount spent for the purpose. Exemption under section 10(5) will be the least of the following:(i.   28 . 1998-2001. of employee as well as of his Family members. though employee may adopt any other route. In any case exemption shall be restricted to the actual expenditure incurred.e.C. For e.INCOME TAX 2004. Bus Fare or Fare of Recognized Public transport System only. (7. Food charges. Journey may be performed while in service or after retirement. Lodging and Boarding charges. for Air Fare.: Hotel Accommodation charges.) (iii.) (ii.

T.) Contribution of Accountholder and (ii. who already maintains a SPF/RPF/URPF A/c may open a PPF A/c in addition to that. contribution of employer and employee and interest thereon. basically to promote compulsory savings. A/c is paid to him at the time of his retirement or is transferred to his new P.F. Its only an employer and an employee who can contribute to SAF/RPF/URPF and not an outsider.F.INCOME TAX (8. Accumulated balance in PPF A/c is repaid together with interest. Funds of PPF are invested in some interest yielding securities. The balance in employee’s P. # Tax treatment of Provident Funds and Exemption under Section 10(11): It can be better explained with the help of the following table:PARTICULARS (1.) Employer’s contribution. Exempt R. Scheme is developed by Government.e.F.P.) Interest on Employee’s own contribution. SPF/RPF/URPF A/c balance comprises of four things as discussed earlier i.000/. PPF A/c of the accountholder is credited with a predetermined rate of interest every year on balance lying in the account (current rate of interest is 8 % per annum).) Recognized Provident Fund (R.but maximum Rs. Exempt * P.P. Nihit Kishore—98202 25728 TYBCom. (iii. A/c comprises of four elements.F. namely. (iii.F.in a year.T.) Provident Funds (P. 5/.I. unless account is extended by accountholder. P.P. J.F.F Employer does not contribute 29 .) Public Provident Fund (P.F. which is a P.) is a retirement benefit scheme. after 15 years of maturity period. a fixed sum is deducted from employee’s salary as his contribution and generally. Central Government has also established a scheme called Public Provident Fund (P.P.) and (iv.R.) Unrecognized Provident Fund (U. Any person. it cannot a have contribution from employer and accordingly.) Employer’s Contribution S.in multiples of Rs. if he/she takes up a new employment with a new employer. Recognized Provident Fund is a Provident Fund.). one has to compulsorily contribute a minimum of Rs.).) Interest on Employer’s contribution. by opening a PPF A/c with State Bank of India or any of its subsidiaries or any Nationalised Bank.) Statutory Provident Fund (SPF). 500/. Unrecognized Provident Fund is a Provident Fund.P. question of interest on employer’s contribution does not arise. employer also contributes a similar sum as his contribution.).R.). whereas PPF A/c balance can comprise of only two things.) Employee’s own contribution.Prof.) Interest on accountholder’s contribution. Basically. Such funds are then invested in interest yielding securities and they earn interest on it. Under this.F. which is not so recognized by Commissioner of Income Tax (C.F. (i.). 500/every year to the scheme or more than Rs. Scheme open to general public at large.): [Section 10(11)]: Provident Fund (P. Even a salaried employee.P.I. whether Salaried or Self-employed can participate in the PPF Scheme.F. a balance in employee’s P. viz.F.F.F.F. namely (i. Exempt upto 12 % of employee’s salary (excess taxable as ‘Salary’) U.P. (ii. So. In order to maintain a PPF A/c. (ii. and (iv. whereas.P. A/c with a new employer. 70. (i. which is recognized by Commissioner of Income Tax (C. there are four types of Provident Fund Accounts.

).  The term Salary shall mean Basic Salary + D.) Allowances: ‘Allowances’ means a fixed sum paid by employer to employee for various purposes or to meet various cost of employee. (10. Exempt Not Available Exempt Available on Accountholder’s contribution # Point to be noted about Pension Fund:  Employee’s own contribution or Accountholder’s own contribution in case of PPF A/c. Nothing is taxable in the hands of Legal Heirs or Family Members of the employee.F. when balance in URPF A/c is repaid back to employee.a.F.) Fully taxable Allowances: The following Allowances are fully taxable as ‘Salary’:- 30 .F. two types of allowances viz. provided S.R. is an approved fund. qualifies for tax rebate under section 88. Superannuation Fund (S.) Employee’s Contribution (4. above. contribution from employer – employee and interest thereon. but it becomes taxable as ‘salary’.A.): [Section 10(13)]: Just like Recognized Provident Fund. Nihit Kishore—98202 25728 TYBCom. Employee’s own contribution to approved S. forming part of retirement benefits + Commission based on fixed Turnover achieved by the employee.  Deduction under section 80C is dealt with separately in the chapter on ‘Deductions under Chapter VI-A’. There are basically.A. then tax treatment is just like U. if any amount is received by them from S.A.Prof. (excess taxable as ‘Salary’) Exempt Available on employee’s contribution Exempt * N.F.P.F. (3) in the above table. Deduction Under Section 80C Exempt Available on employee’s contribution Exempt upto 9. but is just an appropriation of his/her income. is not an income of Employee.A.A. J.F. upon death of employee.INCOME TAX (2. (a. without considering the actual expenditure. As far as its tax treatment is concerned it’s exactly the same as R. but it becomes taxable as ‘salary’. when balance in URPF A/c is repaid back to employee.) Those which are partly taxable and partly exempt.) Interest on Contribution Exempt (3.P.F.) balance comprises of four things.5 % p.) Those which are fully taxable and (b. is not approved. as shown in item no.F. (a.) Approved Superannuation Fund (S.  * Employer’s contribution to URPF is exempt in the hands of employee at the time of contribution.(T/O)] (9. [Basic + DA(R) + Commn.A. it therefore can not be taxable in any case.A. nothing is taxable in the hands of employee.  * Interest on contribution to URPF is exempt in the hands of employee at the time it is credited to the account. If S.A.

3) Dearness Pay. then its not an allowance.C. then it is fully taxable. the taxability of which is separately discussed under the head ‘perquisites’. 8) Overtime (O/T) Allowance: An allowance paid by employer to employee for doing overtime work or for working beyond certain contacted number of hours is called overtime allowance and is fully taxable. then it is fully taxable. to meet the rise in consumer durables due to rise in inflation. 6) Medical Allowance: If a fixed sum is given every month by employer as medical allowance. It is fully taxable. 14) Water. then are called ‘perquisites’ and are discussed separately. a deduction is allowed u/s 16(ii) to Government Employees on account of Entertainment Allowance) 31 . then he may be paid an additional amount per month by his employer to meet the additional cost of living in city of employment. 5) Tiffin/Meal/Lunch Allowance: If a fixed sum is given every month as an allowance. then it’s a perquisite. Water are provided by employer. etc is employed by employee and salary of such servant is reimbursed or is directly paid by employer then it is fully taxable as an allowance.Prof. Sweeper.INCOME TAX 1) City Compensatory Allowance (C. Gas. 7) Domestic Servant’s Allowance: If a domestic servant like Watchman. if lunch itself is provided by employer free of cost. 13) Extra Shift Allowance. then it’s not an allowance but is a perquisite. is called as Entertainment Allowance. Nihit Kishore—98202 25728 TYBCom. Such compensation is known as ‘City Compensatory Allowance (C. 9) Family Allowance. but instead of giving cash.): is an allowance given by employer to employee above and over his normal salary. the taxability of which is separately discussed under the head ‘perquisites’. 12) Deputation Allowance. Electricity. 10) Marriage Allowance. But instead of that if such servant is employed by employer only and is provided to the employee. but is a perquisite. which is costlier than his own city/town of residence. J.A.C.): When an employee is transferred from his own city or town of residence to another city for employment.A. 11) Project Allowance. 16) Entertainment Allowance: A fixed amount given by employer to his employees for entertaining clients. is fully taxable.A. 2) Dearness Allownace (D. but instead of that if medical facilities are provided by the employer or actual medical expenses of employee are reimbursed by the employer . Electricity charges Allowance: Instead of giving an allowance for these expenses. the taxability of which is separately discussed under the head ‘perquisites’.A. if actual cost is reimbursed by the employer or Gas. 15) Conveyance Allowance: An allowance given by employer to employee for meeting cost of journey between his/her residence and place of work. 4) High Cost of living Allowance.)’ and is fully taxable. (However. D.

per month per child subject to a maximum of two children only.A.A.)’ only if D. (Step child as well as an Adopted child are eligible for exemption but not a child resulting out of an illegal marriage) 4. Delhi. Delhi. if rented house is situated at Chennai.A.A. Nihit Kishore—98202 25728 TYBCom. If an employee resides in his ‘own house’ or he does not pay any rent for the house where he resides. received will thus be taxable in his hands) d) Actual H.) Children’s Hostel Expenditure Allowance: is an allowance received by an employee from his employer for meetng cost of Hostel expenditure of his children and is exempt to the extent of the lower of the following two:- 32 .’ of the whole year.A. of only three months only shall be considered here and not for the whole year) OR e) 50 % of the salary.R. As a result of this entire amount received by employee as H.)’ only if D.’ of only that many months shall be considered during which the house was rented and not ‘Basic Salary and D.) Children’s Education Allowance: is an allowance received by an employee from his employer for meeting cost of education of his children and is exempt to the extent of the lower of the following two:(a. will become taxable in his hands as a Salary. forms part of Retirement Benefits otherwise only ‘Basic Salary’] In (b) and (c) above ‘Basic Salary and D.R.A. 3.) Rs.Prof. Mumbai or Kolkata or 40 % of salary if rented house is situated at any other place other than Chennai.) Section 10(5): Leave Travel Concession: Already discussed in this chapter.R. forms part of Retirement Benefits otherwise only ‘Basic Salary’] OR f) Excess of Rent paid over 10 % of Salary [Here also.R. 2. then H. towards paying rent of a house is exempt from tax in the hands of that employee subject to the least of the followings:.INCOME TAX (b. the least of (a).A.(Balance H. (b) and (c) will also be NIL and nothing will be exempt under section 10(13A). the term ‘Salary’ would mean ‘Basic Salary’ plus ‘Dearness Allowance (D. (If House was rented only for three months during the year.) Section 10(13A): House Rent Allowance (H.R.A. Mumbai or Kolkata [Here.A.): (Read with Rule 2A): An amount of fixed monthly allowance received by an employee from his employer. received by the employee from his employer for that many number of months for which the house was rented by him. ‘Salary’ would mean ‘Basic Salary’ plus ‘Dearness Allowance (D.) Actual amount of Children’s Education Allowance received OR (b. 100/.A. Few of them are partly exempt upto the limits provided by Rule 2A to Rule 2BB and few of them are exempt to the extent they are actually spent by the employee:1. J. then answer to point (c) above will be NIL and therefore.) Allowances which are partly taxable and partly exempt: The following allowances are partly taxable and partly exempt.A.

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(a.) Actual amount of Children’s Hostel Expenditure Allowance received OR (b.) Rs. 300/- per month per child subject to a maximum of two children only. (Step child as well as an Adopted child are eligible for exemption but not a child resulting out of an illegal marriage). Exemption is allowable only for those months during which the child stays in a Hostel, therefore no exemption is allowed if child does not stay in a Hostel. 5.) Allowance for employees working in a Transport system: An allowance received by an employee working in a transport system like Pilot of an Aircraft, Conductor of a Train, Captain of a Ship, received from employer being a Transport Undertaking, for meeting personal expenditures is exempt to the extent of the lower of the following two:(a.) 70 % of such allowance. OR (b.) Rs. 6,000/- per month 6.) Transport Allowance: is an allowance received by an employee from his employer for meeting cost of transport, other than journey between his place of residence and place of work. It is exempt upto the lower of the following two:(a.) Actual Allowance received OR (b.) Rs. 800/- per month This limit of Rs. 800/- per month is increased to Rs. 1,600/- per month, if employee is orthopaedically / physically handicapped or is Blind (Enhanced limit is only for physically handicapped or blind employees and not for employees suffering from any other disability like ‘deafness’, ‘dumbness’ or ‘mental retardation’) (If it is received for meeting cost of journey between his/her residence and place of work, then it is called ‘Conveyance Allowance’ and is fully taxable), 7.) Uniform/Dress Allowance: Where an employee is mandatorily required to wear a certain type of dress or uniform like watchman, Army or Navy officials, or is required to follow a certain type of Dress Code like compulsory wearing of a Neck Tie or Blazer at the place of employment, then he may be given an allowance by his employer for wear and tear, ironing or for purchase of that uniform/dress. Such Allowance is exempt to the extent the amount of allowance is spent for the purpose for which it was given. Balance shall be taxable under the head ‘Salary’. (11.) Perquisites: [Section 17 (2)]: The term ‘Perquisite’, popularly known amongst us as ‘Perks’, has not been properly defined by the act. It has been defined by the act in section 17 (2) in an inclusive manner. According to Section 17 (2) “The term ‘Perquisite’ includes the followings…..”, but no technical definition is given by the act. In common parlance the term ‘perquisite’ can be understood as some benefit above and over the salary received by an employee. It can be a monetary (cash) benefit or a non-monetary (non-cash) benefit i.e. a benefit in kind. But as far as taxability of perquisites is concerned, we divide them into three different categories:A.] Those Perquisites which are not taxable at all in the hands of any employees, B.] Those Perquisites which are taxable in the hands of all employees,

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C.] Those Perquisites which are taxable in the hands of ‘Specified’ employees only. Let us now understand perquisites under all the three categories and their valuation rules as given by the Income Tax Act. Let us first take up those perquisites which are not taxable at all in the hands of any recipient employee. A.] Those Perquisites which are not taxable at all in the hands of any employees: The following perquisites are totally exempt: 1.) Use of Telephone or Mobile phone provided by employer including telephone or mobile bill paid/payable by employer, 2.) Use of employer’s Computer or Laptop for official as well as personal purposes by employee, whether Computer or Laptop is owned by the employer or not, 3.) Accommodation provided on transfer of an employee in a Hotel for a period not exceeding 15 days in aggregate (the term ‘Hotel’ shall include Hotel, Motel, Guest house as well as Rest house), 4.) ‘Conveyance Facility’ provided by the employer to an employee for covering journey between his/her residence and place of work. For e.g.: Employer’s own Bus coming to pick up employees from their residence, just like School Bus. (However, instead of conveyance facility, if employer provides a fixed sum for commuting between residence and place of work, then it is called ‘Conveyance Allowance’ and is not a perquisite and is fully taxable), 5.) An amount spent by employer on Training of employees, whether training is provided at the place of employment or somewhere else, like at training center. Even amount spent by employer on ‘Management Refresher Course’ is also not a taxable perquisite, 6.) Free meals provided by employer to employee, either at the place of employment or by way of vouchers (usable at ‘eating joints’ only), are not taxable if cost to employer is not more than Rs. 50/- per meal. If cost to employer is more than Rs. 50/- per meal then taxable value of this perquisite = Cost to employer in excess of Rs. 50/- per meal less amount recovered from employee, 7.) One time Corporate Membership Fees or Institutional Membership Fees paid by employer, wherein an employee can enjoy membership benefits only till the time he is an employee of that employer (However, instead of one time Corporate Membership Fees, if annual fees is paid/ payable by employer every year, then it is fully taxable perquisite), 8.) Free Transport Facility in a vehicle owned by employer being a Transport Undertaking: For e.g.: Western Railway providing free transport in a Train to any of its employees or Indian Airlines providing free transport by aircraft owned by it to its employees, 10.) Free use of a Health Club or a Sports Club or any similar facility maintained by employer, 11.) Gift in kind. However, gift in cash is always taxable. 12.) Goods manufactured by employer and sold to employee at concessional price, 13.) Employees’ Group Medical Insurance (Mediclaim) Premium paid by

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employer, 14.) Employees’ Personal Accident Insurance Premium paid by employer, 15.) Periodicals/Magazines/Journals/Newspaper, etc. provided by employer free of cost in the office to the employee,

B.] Those Perquisites which are taxable in the hands of all employees: The following Perquisites are taxable in case of all employees (in case of a non-monetary perquisite, valuation to be done as per rules given in the act, ignoring its fair market value or any other justifiable method):1.) Valuation of Rent Free Unfurnished Accommodation: is taxable whether provided to a Government Employee or to a Non-Government Employee. (a.)In the hands of a Government Employee: Valuation to be done as per rules framed by Central Government in this regard. (b.)In the hands of a Non-Government Employee : The Taxable Value will be given in the question. However, just for the sake of knowledge of students, the valuation to be done as per provisions of Income Tax Act, as follows:Accommodation is provided in a place where population (A.) is < 10 Lacs* Where Accommodation is owned by Employer Taxable Value = 7.5 % of Salary of employee Where Accommodation is not owned by Employer Taxable Value = (a.) 15 % of salary of the employee OR (b.) The amount of Lease Rent paid or payable, by employer, (a) or (b) whichever is lower

(B.) is > 10 Lacs* but < 25 Lacs* (C.) > 25 Lacs*

Taxable Value = 10 % of Salary of employee Taxable Value = 15 % of Salary of employee

* Population as per Census of the year 2001. If the Accommodation is provided in a Hotel or a Motel, then the taxable value will be the lower of the following two:(a.) 24% of the Salary, OR (b.) Actual Charges paid or payable by the employer Here, Salary = Basic Salary + D.A. (If considered for retirement benefits) + Bonus + Commission (whether based on turnover achieved by employee or not) + all other

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Prof. J. Nihit Kishore—98202 25728

TYBCom- INCOME TAX

taxable perquisites but excluding any non-monetary perquisite and taxable portion of Employer’s Contribution to Employees’ Provident Fund. 2.)Valuation of Rent Free Furnished Accommodation: In point (1.) above we discussed about rent free unfurnished accommodation, now what if furnished accommodation is being provided to the employee. Value of furnished accommodation comprises of two components, i.e. value of ‘unfurnished accommodation’ plus value of ‘furniture’ provided along with it. Value of ‘unfurnished accommodation’ shall be determined as in point (1.) above, as usual, whereas value of ‘furniture’ to be included in taxable value of rent free furnished accommodation, shall be determined as follows:(a.) If furniture is owned by employer: taxable value of furniture shall be 10 % of original cost of furniture. (b.) If furniture is not owned by employer: taxable value of furniture shall be the actual rental charges paid or payable by the employer for furniture. 3.) Value of Accommodation provided by employer at concessional rent: In point (1.) and (2.) above, we discussed about value of ‘Rent free accommodation’, but what if some rent was being charged by employer from employee, i.e. value of accommodation provided at a concessional rent to employee. Taxable value of an accommodation provided by employer to employee at concessional rent will be the value of rent free accommodation as calculated in (1.) or (2.) above, as applicable less any amount of rent recovered by employer from employee. 4.) Any obligation of employee met by employer: This is a monetary perquisite; therefore its valuation is not required. Any payment of cash, which primarily is an obligation or duty of employee to pay, is if made by employer, amounts to an extra benefit received by that employee above and over his/her salary and is therefore taxable as a perquisite in the hands of all employee. 5.) Payment of Life Insurance Premium or any Annuity by employer on the life of employee: If any premium on life insurance policy of an employee is paid by his/her employer or an annuity of employee is paid by employer, then it is an extra benefit received by employee in addition to his/her salary and is therefore taxable as a perquisite in the hands of all employees. (This is also a monetary perquisite and therefore its valuation is not required). 6.) Valuation of any other notified fringe benefits: Value of the following notified fringe benefits are taxable in the hands of all employees (If valuation of any perquisite is required to be done, then valuation is to be done as per rules provided by the act and in no other way, even if any other method of computation is more justified):

Interest free loan of more than Rs. 20,000/-: If any interest free loan is given or any loan at concessional rate of interest is given by an employer to employee, other than ‘Medical Loan’ and average monthly outstanding balance of loan is more than Rs. 20,000/- then amount of notional interest on

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Prof. J. Nihit Kishore—98202 25728

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 

that loan is taxable in the hands of that employee as a perquisite. Notional interest in such case shall be computed by applying the rate of interest of State Bank of India (SBI) prevailing on the very first day of the relevant previous year for the loan of the same purpose. For e.g.: If rate of interest on 1st day of relevant previous year charged by SBI for Housing loan is 7.25 % and employee has taken a housing loan from his employer, then notional interest shall be calculated by applying 7.25 % on entire outstanding balance of loan (and not only on loan amount in excess of Rs. 20,000/-), provided outstanding balance of loan is more than Rs. 20,000/-. Taxable value of perquisite in this case shall be Notional interest calculated as above less any interest charged by employer to employee. Note: No other method of valuing notional interest shall be followed, how much justifiable it may be. For e.g.: If in the above example, employer lends money for housing purpose, to general public at the rate of interest of 8.5 % or say at 6.25 % then also notional rate of interest shall be calculated applying the rate of interest charged by SBI only and not by applying 8.5 % or 6.25 % though these rates may seem more appropriate. Free Meals costing more than Rs. 50/- per meal: If employer provides free Tea, Coffee, Non-Alcoholic Beverages/Drinks during office hours, then it is not taxable at all. If meals (Lunch/Dinner) are provided to employees free of cost in the office or non-encashable coupons or vouchers are provided by employer to employees free of cost, which can be used only at ‘eating joints’, then such meals are not taxable in case of any employee if cost to employer does not exceed Rs. 50/- per meal. But if cost to employer exceeds Rs. 50/per meal, then it becomes taxable in the hands of employee and taxable value = Cost to employer in excess of Rs.50/- per meal less amount recovered from employee, if any. Gift, Voucher, Token: If given in cash, then fully taxable, but if given in kind then fully exempt. Cash gift is not required to be valued. Use of Moveable Asset: Where any moveable asset of employer (whether owned by employer or not) other than Computer and Laptop is given by employer (given and not sold) to employee for using it for personal purposes of employee, then it becomes taxable in the hands of that employee as a perquisite. Taxable value = 10 % of the original cost of the moveable asset, where asset is owned by the employer or actual rental charges or hire charges of the asset where asset is not owned by the employer less any amount recovered from the employee by employer. Free use of Computer or Laptop is specifically exempted. Equity or Preference shares in the employer company offered to an employee at a price lower than the market price of such shares under “Employees’ Stock Option Plan/Scheme” (ESOP/ESOS), Taxable Value = (Fair Market Value F.M.V. of such shares as on the date of Allotment to employee) less (Amount paid by employee to acquire such shares) Sale of Moveable Asset at concessional rate: If any moveable asset (including Computer and Laptop) owned by employer is sold by employer to employee either at concessional rate or free of charge, then taxable value thereof is included in the income of the employee as a perquisite. Taxable

37

Instead of this if domestic servant is employed by employee himself and salary of such servant is either directly paid by employer or is paid by employee and then employer reimburses employee for such salary.) method. 38 . Depreciation shall be charged only for each completed year for which asset was owned by the employer. Taxable value of this perquisite = salary of such domestic servant paid/payable by employer.) method. 2) Transport Facility provided to employees. J.V. An employee. depreciation for any incomplete year shall not be considered.V. An employee.D. *Depreciation shall be charged at the rates as given below:On Electronic Items including Computer and Laptop – at 50 % per annum under Written Down Value (W. C.] Those Perquisites which are taxable only in the hands of ‘SPECIFIED’ Employees only: These are those perquisites which are taxable in the hands of only ‘Specified’ employees.000/. then salary of such servant is taxable in the hands of all employees (and not only in the hands of specified employees) as ‘an obligation of employee met by employer’.D. Taxable value of this perquisite = Value at which such transport facility is offered by employer to general public or if it is not being offered by employer to general public.  On any other moveable asset – at 10 % per annum under Straight Line Method. excluding taxable value of any non-monetary perquisite and before claiming any deduction towards Standard Deduction. who holds ‘substantial interest’ in the organization of his employer (holding ‘substantial interest’ means holding 20 % or more of voting rights or ‘profit sharing rights’ either individually or jointly with relatives). etc. Nihit Kishore—98202 25728 TYBCom. 50. 3. other than employees of Transport Undertaking: is taxable as a perquisite in the hands of specified employees only.Prof. Entertainment Allowance or Professional Tax. An employee. then cost to the employer less any amount recovered from the employee. Sweeper. Before dealing with any of these perquisites.INCOME TAX Value = (Cost of the asset less depreciation* thereon) less any amount recovered from the employee by the employer towards the cost of the asset. who is a ‘Director’ in the employer company. are employed by employer and are provided to employee free of charge. then salary paid/payable by employer to such domestic servant is taxable in the hands of specified employee as a perquisite. The following employees are called ‘specified’ employees:1.  On Motor Car – at 20 % per annum under Written Down Value (W. 2.per annum. who draws a gross salary of more than Rs. let us understand the meaning of the term ‘Specified’ employee. Gardener.  The following Perquisites are taxable in the hands of specified employees only:1) Provision of free Domestic Servant: If domestic servant like Watchman.

taxable in the hands of all employees.) If a fixed medical allowance is given. brothers. Water is in the name of employee and either employer makes a direct payment of bill or employee makes the payment and employer reimburses the employee for such expenses. then it shall be a taxable as a perquisite. taxable in the hands of only specified employees. then it is a taxable perquisite.Prof. 15. Clinic.) If Mediclaim Insurance Premium on health of employee is paid by employer. taxable only in the hands of specified employees and is exempt upto Rs. sisters. But if an employee or any of his family member is medically treated in any other hospital other than the above four and medical bill is paid by or is reimbursed by the employer. (b.000/per annum.000/. the term ‘Family’ means spouse. it is not taxable in case of any employee. 4) Provision of Medical Facilities: (a. Electricity. Nursing Home. Taxable value of this perquisite = cost to the employer less any amount recovered from the employee. It will be fully exempt. Nihit Kishore—98202 25728 TYBCom.) Cost of Medical Treatment of Taxability/Exemption Exempt to the extent of an amount 39 . or  A Hospital maintained by Local Authority.) But if medical facility is provided to an employee. etc. then taxable value of such perquisite shall be determined as follows (whether Medical Bill is issued in the name of employer or is issued in the name of employee makes no difference) (whether employer makes the direct payment of Medical Bill or it is first paid by employee and then employer reimburses the bill amount to the employee. J. (Amount of this perquisite in excess of Rs. (B. then it is fully taxable in the hands of all employees.INCOME TAX 3) Supply of Gas. or  A Hospital maintained by Central/Sate Government. then it is ‘an obligation of employee met by employer’ and is therefore. or  A Hospital approved by Chief Commissioner of Income Tax (CCIT) and medical bill is paid by or reimbursed by the employer. children. Taxability shall be as follows:Types of Costs incurred (1.only shall be taxable) Here. makes no difference):(A. also.) If Medical Facility is provided outside India: If an employee or his family member is provided with a ‘medical facility’ outside India by employer.) If Medical Facility is provided in India: If an employee or any of his family member is medically treated in –  A Hospital maintained or owned by employer. then nothing shall be taxable in the hands of any employee. (c. Water: provided by employer to employee is taxable as a perquisite in the hands of specified employees only. Electricity. whether dependant on employee or not and the term ‘Hospital’ includes Dispensary. If connection of Gas. 15.

However.) Cost of Travel of patient and one attendant accompanying the patient outside India. 2. is fully taxable in case of all employees as ‘an obligation of employee met by employer’.) If Fixed Education Allowance for Children of employee is given. (3.) Actual Reimbursement or Direct payment of School Fees of employee’s children. without any restriction on number of children. whether at place of work or at the Training Center. then it shall amount to a perquisite and shall be taxable in the hands of only specified employees. educational facility provided to Govt.) Cost of stay abroad of patient and 1 attendant accompanying the patient outside India. then it is fully exempt in case of all employees. whether Monetary or Non-Monetary.Prof. 5. otherwise fully taxable. then it is fully exempt in case of all employees. Exempt to the extent of an amount permitted by Reserve Bank of India (R.  If provided to any other family member of employee (other than children of employee): Taxability shall be as above only but without any exemption i.Y. (e. 40 . (Even Grand Children or Great Grand Children of employee are included in this category). No exemption is allowed in this case.) Free Education Facility: (a. then it is exempt upto Rs.) If Education Facility is provided by employer free of cost in an Institute owned/maintained by employer.) If ‘Scholarship’ is given by employer to employee’s children on merit basis. 2006-2007.000/. (b. This perquisite is exempt upto Rs. (2. shall not be taxable.per month per child subject to a maximum of two children.e.e. 100/. what we get is known as “GROSS SALARY”.INCOME TAX Patient (Employee or his Family Member) outside India. Fully exempt if GROSS TOTAL INCOME of that employee.B. 1.00. Balance is taxable in case of all employees. From ‘Gross Salary’ so computed.I. Nihit Kishore—98202 25728 TYBCom. the following amounts can be claimed as deduction under section 16:(1.000/-. (d. employees by Govt.).). i. Permissible Deductions from Gross Salary under Section 16: After taking total of all the above.I.B.) If training is provided to an employee by employer. total of Basic Salary + Dearness Allowance + Dearness Pay + Bonus + Commission + All Taxable Allowances + All Taxable Perquisites.) Standard Deduction: [Section 16(i)]: No more available with effect from A. permitted by Reserve Bank of India (R. (c.per month per child. J. Taxable value = Cost of such education in a similar educational institute in a nearby locality less any amount recovered from the employee. does not exceed Rs. The taxability of this perquisite is explained as follows: If provided to children of employee: Taxable value = Cost of such education in a similar educational institute in a nearby locality less any amount recovered from the employee.

it is taxable to the extent not spent for the official purposes. but is available only to Government employees.) is an allowance which is exempt to the extent spent by the employee for official purposes.) Entertainment Allowance under section 16(ii) (Only in case of Government Employees) (2. as no benefit is derived by the employee in addition to his/her salary. FORMAT OF COMPUTATION OF INCOME FROM ‘SALARIES’: PARTICULARS Basic Salary (whether received or receivable) Dearness Allowance / Dearness Pay Advance Salary / Arrears of Salary Bonus Commission All Taxable Allowances All Taxable Perquisites (Whether Monetary or Non-Monetary) GROSS SALARY LESS: Deductions Under Section 16: (1.) Entertainment Allowance (E.) Professional Tax/Employment Tax under section 16(iii) NET TAXABLE SALARY AMOUNT XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX (XXX) XXX 41 .A. 5.000/. (Allowed to be deducted only to the extent Professional Tax or Employment Tax actually paid).): [Section 16(ii)]: Entertainment Allowance (E. The taxable amount of E. But if it is either paid by employee himself or it is paid by employer on behalf of employee.A. OR  Amount notified for this purpose – Rs. Deduction under section 16 (ii) is available against such allowance. without any ceiling limits from salary under section 16 (iii).A. No deduction under this section is available Non-Government Employees. then nothing shall be added in the salary. whether ‘Specified Employee’ or not.A. taxable in case of all employees. J. Nihit Kishore—98202 25728 TYBCom.Prof. is fully allowed to be deducted. In both the above cases Professional Tax paid. Deduction shall be available to the extent of least of the following three: 1/5th or 20 % of the ‘Basic Salary’. then it is treated as ‘an obligation of employee met by employer’ and is added in the salary as a taxable perquisite.) Professional Tax or Employment Tax: [Section 16(iii)]: If Professional Tax or Employment Tax is paid by the employer out of his pocket.) received (3.maximum.INCOME TAX (2. is taxable in case of all employees. Under section 16 (ii). in other words. OR  Actual amount of Entertainment Allowance (E.

1.) (SECTION 22 TO SECTION 27) An income is chargeable to tax under this head U/S 22. there should be either a ‘house’ or ‘a house and land adjoining the house’ and not only the ‘land’ or ‘vacant plot of land without a house/building’.P.) As a House Property.) The property should not be used by the assessee for his Business/Profession.) Unrealized rent of property will become taxable in the year of receipt of such rent. then that rent will be charged to tax as income from other sources (as a rent from sublet property) and not as income from H. 2. without adequate consideration. Points to be noted:1. etc. Nihit Kishore—98202 25728 TYBCom. namely..P. by letting out H. whether a Legal owner or a Deemed owner. even if the assessee is no more the owner of the said H. if he has sold off the H. 3.) Income from vacant plot of land would be chargeable to tax as ‘income from other sources’ or as ‘income from Business/Profession’ and not under this head of income.INCOME TAX CH-6 INCOME FROM HOUSE PROPERTY (H.) If the assessee receives a composite rent. like used as Office.e. only if the following three conditions are satisfied.P.) The Assessee should be the owner that house property. i. then that part of the rent. J.Prof. but he is not the owner. etc.) If the assessee is in receipt of rent from H. together with some other assets like Furniture.P. godown. Refrigerator. (If the Assessee has transferred the property to his/her spouse or a Minor child. Air conditioner. then he still continues to be the deemed owner of that property. shop. will be charged under this head. 2.P. 3. which is attributable to the other assets will be chargeable to tax as ‘Income from other sources’. 42 . which is attributable to H. but is a tenant.P. whereas that part of the rent.P.

It is also known as ‘Vacancy Allowance’ or ‘Vacancy Loss’.) (f.) Municipal Valuation * (b.O.) = Higher of (f.) Standard Rent (If Rent Control Act is applicable) *** (e.P):(a.) *Municipal Valuation: is the value of a H. then it is not to be considered in this chapter. then the entire composite rent will be chargeable to tax either as ‘income from Business/Profession’ or as ‘income from other sources’ as the case may be and not as ‘income from H. J.P.P.determined by the Local Municipality. even if it is possible to bifurcate the composite rent into ‘rent from H.O.)the property is given by the owner on hire to somebody for rent.e.P. If S.P. What is taxable as an income from H.# if any (g. whether for residential purpose or for commercial purpose (such properties are called Let out properties. ***Standard Rent: is a maximum rent that a landlord can demand for a property.A.P.) Fair Rent ** (c. A Self occupied property could be used either for residential purpose or for commercial purpose i.O. ‘letting out H.INCOME TAX 4.’.) Actual Rent receivable for the whole year minus Unrealized Rent ## minus Loss due to vacancy of property. ##Unrealized Rent: is that part of the receivable rent of the property. is not the ‘actual rent received minus actual expenditure incurred’.) and (b. but the taxable income is to be calculated in the following way :[A. either as a residence or as an office.) or (ii. #Loss due to vacancy of property: is the actual Rent of those months during which the property could not be let out or property was vacant.P.O. shop or godown.# if any (h. without letting out of the other assets.) In case of composite rent if. **Fair Rent: is an annual rent that a similar property in a similar locality fetches.e. which could not be realized by the landlord from his tenant. is not acceptable to the other party.)the property is used by the owner for his own residence or for the residence of his family members (such properties are called Self Occupied Properties – S.O.’ only. either (i. is used for commercial purposes i.) Expected Rent = Lower of (c. In this chapter we shall consider only those S.P. 43 .V.P. Nihit Kishore—98202 25728 TYBCom. which are used for residential purpose.) for a Let Out Property (L.) = Higher of (a.L.P.P.) (d.Prof.V.A.) Gross Annual Value (G. There are mainly two possibilities in case of a H. due to any reason.] CALCULATION OF INCOME FROM LET OUT HOUSE PROPERTY: # Calculation of Gross Annual Value (G. as an office.) and (d. to which ‘Rent Control Act’ is applicable.).) and (g.) = Expected Rent minus loss due to vacancy of property.’ and ‘rent from other assets’.

000/. Mr.000 N. # Calculation of Income from House property from a Let Out Property (L. 52.V. 56.000/.whichever higher. 56.P.000/-. actually paid during the relevant Previous Year) (XXX) NET ANNUAL VALUE (N. Illustration 1. GAV is Rs.) Standard Deduction u/s 24(a) (30 % of NAV) XX 2.A. Compute the Gross Annual Value (GAV) of the house properties. Renewal.000/.whichever higher.000/. Hence. House II: Rs. GAV is Rs. J. GAV is Rs.000/-.000 56. 52.000/. 58. Nihit Kishore—98202 25728 TYBCom. deduction available on due basis (Borrowal/Loan should be for the purpose of Purchase.000/-. PARTICULARS (a) (i) Municipal valuation (ii) Fair rent (iii) Standard rent under rent control Act.) XX (XXX) INCOME FROM LET OUT HOUSE PROPERTY XXX 44 .or Rs. 60. that particular item to be not applicable for the valuation.000 56.INCOME TAX Note: Municipal Valuation. Fair Rent and Standard Rent (If Rent Control Act is applicable) will be readily given in the question. 48. or Repair of the H.000 House II 40. actually paid by the assessee/owner of the H.000 52.000 N.000/.) XXX LESS: Deductions U/S 24: 1.whichever higher. but shall be completely ignored. assuming. (Only if.000 52.000 52.000/-. (b) Rent received/receivable House I 40. Reconstruction. 60.whichever higher.000 House III 40.e.A.Prof. Hence.P):Particulars Amount GROSS ANNUAL VALUE as calculated above XXX LESS: Municipal Taxes. if not given then shall not be assumed to be NIL.000 Solution : Applying the above formula to details of all the four houses as given in the above table.000 House IV 44.) Interest on Borrowed Capital u/s 24(b) whether paid or not paid i.000 48. X owns four houses at different parts of India with following details. House III: Rs.P.O. 58.or Rs. we get the following Gross Annual Values:House I: Rs.000 60. Hence.000 56.000/. 48.or Rs. 52.A. GAV is Rs. House IV: Rs. 48. Construction. 58. 52.or Rs. Hence.000/.

000 32.) If the capital is borrowed for purposes other than those mentioned above. Rent collection charges.Y. Detail / Houses No. Illustration 2.] Annual Value of Houses not Covered by Rent Control Act. if the taxes of P.000 ----III Rs. interest on interest. which is paid by the Tenant will not be allowed to be deducted.) Only interest on loan is allowed to be deducted. Determine their Net Annual Value (N..): Houses No.) Interest on borrowed capital is allowed to be deducted on accrual basis.e.000 26. Society maintenance charges of H. then interest will not be allowed to be deducted. is located outside India. (c.. 2009-2010. For e.000 34.: Interest on loan taken for marriage of assessee’s daughter by mortgaging house property – will not be allowed as a deduction u/s 24(b). 24. She pays local taxes @ 10 % of their Municipal Valuation. even if it is not paid during the year. J.000 32. except of those mentioned above will be allowed to be deducted.A. then Municipal Taxes levied by the Government of that country will be allowed to be deducted. (g.P.g.) No other expenses.P. then that part of the taxes. II Rs.g. etc.) Interest on ‘new loan’ taken for discharging the ‘old loan’ is allowed to be claimed.000 34. i.000 28. then will be allowed to be deducted in P.P. Nihit Kishore—98202 25728 TYBCom. I Rs. Municipal valuation Fair Rent Actual Rent received Standard Rent Solution: Mrs. (h. (f. (d.: Insurance charges of H.) Those Municipal Taxes are allowed to be deducted. Mrs. (b.000 32. 2008-2009 are paid in 2009-2010. even if taxes paid are not for the relevant Previous Year i.) If Municipal Taxes are paid by the Tenant. IV Rs. Houses I and III are covered by Rent Control Act. X [A.e. For e. (e. X is the owner of four houses.000 ---- 45 . 24.Y. 24.) If the H.000 II Rs..000 IV Rs.000 32. which are actually being paid by the assessee being the owner of the H.Prof.V.P.000 26.INCOME TAX Points to be noted: (a. or interest on delayed repayment of loan is not allowed to be deducted.000 28. 24. will not be allowed to be deducted.

INCOME TAX (a.) Higher of Municipal Value or Fair Rent (b.P):Particulars GROSS ANNUAL VALUE LESS: Municipal Taxes (Whether paid or not paid) NETANNUAL VALUE (N.) I Rs.000 28. Reconstruction.or Rs.) Higher of Actual Rent and (b. Renewal.) above will be G.400) 31.O.) (Max.V.V.P.V.O.P.e. (whichever is higher) will be G.): # Calculation of Income from House property for a Self Occupied Property (S.A.) Interest on Borrowed Capital U/S 24 (b) whether paid or not paid i. Nihit Kishore—98202 25728 TYBCom.000 (2.V.000 34. 32. (a.) above.000/-) Net Annual Value (N. deduction available on due basis (Borrowal/Loan should be for the purpose of Purchase.000 (2. (c.V. Detail / Houses No.000/.000 28.] Annual Value of Houses Covered by Rent Control Act. 28.A.600 III Rs.) Municipal Value or Fair Rent (whichever is higher) (b.) Actual rent or (a.) 26.) LESS: Deductions U/S 24: 1.600 [B.400) 29. J. 1.) Standard Deduction U/S 24 (a) NIL 2.) Lower of Standard Rent under Rent Control Act or (a.50.) above.600 34.000 (2.A. of the House Less: Local taxes @ 10 % of Municipal valuation (10 % of Rs.000 (2. or Repair of the H. 24.A.000 34.000/-) XX INCOME FROM SELF OCCUPIED HOUSE PROPERTY Amount NIL NIL NIL (XXX) XXX 46 . 30.400) 25. Construction.A.000 32.Prof. 24. Rs.000/-) Net Annual Value (N.] CALCULATION OF INCOME FROM SELF OCCUPIED HOUSE PROPERTY (S. of the House Less: Local taxes @ 10 % of Municipal valuation (10 % of Rs.000 32.400) 31.600 [B.

000/.) Borrower must purchase the H. NAV of such property will always be NIL.for S. (h.O. (c.Prof. but anyone condition is not satisfied. No deduction is allowable towards Municipal Taxes. within three years from the end of the financial year in which the capital was borrowed or loan was taken. or interest on delayed repayment of loan is not allowed to be deducted..O.will not be available and therefore. For e. if all the three following conditions are satisfied :(1. then benefit of higher limit of Rs. 1999. 2007 and period of three years from the end of financial year in which loan was taken.will be applicable) (3. shall be completed by 31st March. Therefore. (g.O.) Interest on capital borrowed is allowed subject to maximum of Rs.whichever is lower.g.P. then interest will not be allowed to be deducted. 2010 in this example.000/.P.P. which are used for commercial purposes by assesee are not to be considered here. 2006 then the financial year in which loan is taken expires on 31st March.will not be available.) No other expenses.P and not to L.) Only interest on loan is allowed to be deducted. limit of Rs. Those S. Rent collection charges.P.P. Nihit Kishore—98202 25728 TYBCom.) In case of S.O. (f. i.: If the loan was taken on 27th June. Gross Annual value of the property is always to be taken as NIL.O.: Interest on loan taken for marriage of assessee’s daughter by mortgaging house property – will not be allowed as a deduction U/S 24 (b). (b. expires on 31st March.) above. interest on interest. that means deduction will be the actual amount of interest for the year or Rs.P. For e. Hence. a higher limit of Rs.50. 30.O. 30. (j.) If the capital is borrowed for purposes other than those mentioned above.g. or construct the H.g. 2010. there may be a negative income from S. Society 47 .) Instead of Rs.000/. then higher deduction limit of Rs.. 1. in order to claim higher deduction. (Such limit is applicable only to S. Even if two conditions are satisfied. purchase or construction of H.INCOME TAX Points to be noted: (a.) Interest on ‘new loan’ taken for discharging the ‘old loan’ is allowed to be claimed. due to GAV/NAV being NIL and interest on borrowed capital allowed to be claimed as a deduction. Standard Deduction U/S 24 (a) will also be NIL.: Insurance charges of H.000/. 30. (d.. All the three conditions must be satisfied.000/is available.) Only those Self Occupied Properties are considered which are self occupied for the purpose of residence of assessee or assessee’s family members.e. whether paid or not paid.P.P.50. 30.P. (Even if capital is borrowed for the purpose of repair.) Capital is borrowed or Loan is taken on or after 01st April.000/.as explained in (e. 1. (e.. renewal or reconstruction of H.P.) Since.For L.50. J.P. except of those mentioned above will be allowed to be deducted. without any maximum ceiling limit). (2.O. actual interest is allowed to be deducted. For e. (i.000/.) In case of S.O. 1. NAV of such property is NIL.P.) Capital is borrowed only for the purpose of purchase or construction of house property and for no other purpose.

O. etc. 2008. ⇒ Pre-construction period in this case would begin on 25th April. for the entire pre-construction period.O. immediately preceding the date of completion of construction. 2008. Nihit Kishore—98202 25728 TYBCom.L. 2009 = 31st March. properties.) and are treated at par with Let out properties. (f.O.O. It may so happen that the loan is taken. Therefore. What will happen to the interest on loan for the period between the date of the loan and the date on which it’s construction is completed (such period is known as pre-construction period)? Will it lapse? Answer is No! It will be allowed to be claimed as a deduction U/S 24 (b) in the following way :(a. or (ii. then as per the provisions of the act.L.P.) For e. 31st March.P. (e. 2008. Such S. 2008 or 31st March.g.) In case of S.INCOME TAX maintenance charges of H.P.) Now find out the total interest paid/payable during the pre-construction period as above. 48 .: (1.000/.P. on 31st March. at the option of the assessee can be treated by him as a Self Occupied Property and all such other properties. the date on which the pre-construction period expires will be either 13th May. J. 2006 and end either on (i.) Loan is fully repaid on 13th May. immediately preceding 28th March. 2006 and (2. or L.) Construction of the property is completed on 28th March.. INTEREST DURING PRE-CONSTRUCTION PERIOD: Whether.) the date of repayment of loan i.s which are even though not let out but are considered to have been let out are called ‘DEEMED LET OUT PROPERTIES’ (D.50.000/. 1. [C. whichever is earlier i. will not be allowed to be deducted. but the construction of the property is completed only after few years from the date of the loan.O.P. 2008. either on the date on which the loan is fully repaid or on 31st March.P. Interest on loan is allowed to be deducted from H. whichever date is earlier..O.) Pre-construction period ends. it can be put to use for the purpose of residence or for letting out. immediately preceding the date of completion of construction i. only if the construction of the property is completed. (d. on 13th May. will be considered as let out. Pre-construction period interest is also subject to ceiling limit of Rs.) 1/5th of the Total pre-construction period interest is allowed to be deducted every year.e. which are not let out by him.e. though not let out. any one of such properties.] DEEMED LET OUT PROPERTY (D.) If loan is taken on 25th April.) on 31st March. 30. (c. All the provisions of the act that are applicable to a let out property are equally applicable to such D. income only when the property is put to use which is possible only when the construction of the property completed.as the case may be.L.or Rs. 2008 (As it comes before 13th May.Prof.O.P. 2008).) Pre-construction period begins on the date on which the loan is taken.P. 2009 and (3. property is S. during the post-construction period for five years.): If the assessee has more than one property.e.P. (b.

then both Part A and B will be treated as two separate properties.P.000 8./S.INCOME TAX Illustration 3. both of which are Self-Occupied. One part of the property is let out by the assessee.00.78.000 (paid during the year) Mr.000 NIL 8.P. Compute the Net Annual Value of the two houses for the Assessment Year 2009-2010.) 8. the entire property will be treated as comprising of two properties. due but not paid Net Annual Value (NAV) HOUSE II (Self Occupied) Gross Annual Value Less: Municipal Taxes Net Annual Value (NAV) Amount (in Rs.O.000 NIL NIL NIL [D. In such cases.80.: If one property is divisible into two parts. J. whereas. Mr.) 7. whereas the other part is self occupied by the assessee.A. as Part A and Part B and Part A is let out. Nihit Kishore—98202 25728 TYBCom. Rajesh Ganatra has opted to treat the second house as Self-Occupied. Part B is used by the assessee for his own residence. The Particulars of the houses are as under: PARTICULARS Municipal Value Fair Rental Value Standard Rent Municipal Taxes House I (Rs. Solution: Mr. shall be applicable to both such independent parts respectively as if they are two different properties.000 N. For e. Rajesh Ganatra Computation of Net Annual Value Particulars HOUSE I (Deemed to be let out) Gross Annual Value Less: Municipal Taxes.78.Prof. which is self occupied. will be treated as an independently ‘Self Occupied property’ and all the provisions of the act. 24. Part A will be treated as 100 % 49 .44.000 (due but not paid) House II (Rs. That part of the property which is let out.] PARTLY LET OUT AND PARTLY SELF OCCUPIED PROPERTY: It may so happen that a property is divisible into two parts.50.) 10. Rajesh Ganatra has two houses.000 14.000 29. whereas that part of the property.000 20.O.78.g. will be treated as an independently ‘Let Out property’. that are applicable to L.

P] as a loss due to vacancy which is popularly known as ‘vacancy loss’ or ‘vacancy allowance’. and all the provisions of the act regarding L. when second condition enumerated at the beginning of this chapter is violated. TREATMENT OF UNREALIZED RENT RECOVERED IN THE CURRENT PREVIOUS YEAR :.O. the rent of H. For e. the rent for the period during which the property was self occupied will be allowed to deducted [In Step no. even if it was let out only for a single day during the entire relevant Previous Year) [F. And then the income so computed shall be divided amongst each such co-owner in the ratio in which they had agreed to share such H. which could not be realized in that year. due to some reasons.It may so happen that the assessee receives in the current Previous Year. [E.P. Such unrealized rent of earlier year. The taxability of such unrealized rent can be explained as follows:Amount of Unrealized Rent now recovered LESS: Amount of Unrealized Rent not allowed as a deduction in that year Amount chargeable to tax in the year of receipt of Unrealized Rent XXX (XXX) XXX Note: No further deduction for any expenses will be allowed from the taxable amount calculated as above. income amongst themselves.O. 50 .P. will be applicable to Part B.P will be applicable to Part A and all the provisions of the act regarding S.INCOME TAX L.O.: Deduction towards legal charges to recover such rent.] PROPERTY JOINTLY OWNED BY TWO OR MORE PERSONS: (COOWNERSHIP) (Section 26): If any property (whether SOP or LOP). becomes taxable in the year of its receipt and becomes taxable under this head only even if assesse is not the owner of the said H.P.) and (g.Prof. then it should be assumed to be ‘equal ratio’) .P. (if no such ratio is given in the question. In such cases.P. will be applicable to such property. in the year of its receipt i. (Such Property will be treated as L.O.O. J.P.e. Nihit Kishore—98202 25728 TYBCom.] PROPERTY LET OUT FOR PART OF THE YEAR AND SELF OCCUPIED DURING THE REMAINING PART OF THE YEAR: It may so happen that one single property is used by the assessee for his residence for a part of the year say for 9 months and the same property is let out by him for the remaining part of the year say for 3 months. the entire property will be treated as having been let out all throughout the year and all the provisions of the act regarding L. etc.O.P.O. Rent for three months i.g. as if the property is owned by one person only.P whereas Part B will be treated as 100 % S. pertaining to some earlier Previous Year. then income from such property shall be computed in a normal way. (f. is jointly owned by two or more persons.. collection charges.e.) of Calculation of GAV of a L.

Nihit Kishore—98202 25728 TYBCom. is called ‘Arrears of Rent’ or ‘Rent in Arrear’.20. 2007 till today is known as Arrears of rent and not unrealized rent. 10. 12. For e. under the head Income from House Property for the Assessment Year 2009-2010. Exercise: Illustration 4. A for Business purposes.000 48. with retrospective effect from 1st April.For e.000 3. irrespective of the year to which such arrear of rent pertains :Arrears of Rent received LESS: Standard Deduction U/S 24 (a) @ 30 % of Arrears of Rent Amount chargeable to tax in the year of receipt of Arrears of Rent XXX (XXX) XXX Note: No further deduction for any expenses will be allowed from the taxable amount calculated as above.m. collection charges. Mr.000 3. Determine the taxable income of Mr.INCOME TAX TREATMENT OF ARREARS OF RENT RECEIVED IN THE CURRENT PREVIOUS YEAR :.P. 1998 51 . one of which is Let Out to ABC Ltd. That rent which was due but not received due to some reasons is called ‘Unrealized Rent’ whereas that rent which was not due.p.000/.000 28. and the other one is Let Out to Mr. John Abraham.400 66. March.m. irrespective of whether the assessee is the owner of that H.: Due to High Court judgement. but has now become due.64. rent of property per month is increased from Rs. John Abraham owns two houses. etc.000 7.22. to Rs. 1996 House – 2 Amount 3.000 15.000 Let-out to ABC Ltd.26.m.p. just like Unrealized Rent.000 36. Increased rent of Rs. 2.68.000 1. as Standard Deduction @ 30 % is allowed to be claimed there from.p. No actual expenditure incurred will be allowed to be deducted.A for Business April.70. Such Arrears of Rent are taxable in the year of their receipt.600 -----Let-out to Mr.: Deduction towards legal charges to recover such rent.000 6.Prof. from 01st April.g. after taking into account the following information relating to the property income: Particulars Fair rent (Rent Control Act is not applicable) Actual Rent Municipal Valuation – Annual Value Municipal Taxes paid Repairs Insurances Premium on Building Land revenue Ground rent Interest on Capital borrowed by mortgaging House-1 (funds are used for construction of House –2) Nature of occupation Date of completion of Construction House – 1 Amount 1.000 15.000/.000 1.000 80.g. 2007.000/. But the amount taxable will be as follows.000 8. J.000 15. in the year of receipt or not and is taxable under this head of income only.

:___________ Particulars Income from House property: House – 1 (Let-out for residence): Gross Annual Value (being maximum of Municipal Valuation.400 NIL (29. JOHN ABRAHAM Computation of Taxable Income from House Property Status: Individual Previous Year: 2009-10 Res. 2.000 87.600 3.67.A.23. Fair Rent and Actual Rent) Less: Municipal Taxes Net annual value Less : (i) Statutory Deduction @ 30 % of NAV U/S 24 (1) (ii) Interest u/s 24 (2): (as the funds are utilized for House –2. Nihit Kishore—98202 25728 TYBCom.35.400) 68. it is deductible even if House-1 is mortgaged] Net Taxable Income from House Property. J. Fair Rent and Actual Rent) Less: Municipal tax Net Annual Value Less: (i) Deductions U/S 24(1) Standard Deduction (30 % of N.600 52 .000) 2.90.A. Amount Amount Amount 1.000 2.000 (80.000 29.No. it is not deductible from House – 1 House –2 (Let-out business): Gross Annual Value (being maximum of Municipal Valuation. of Rs.000 (28.000 ) 1.000 (1.INCOME TAX Solution: MR. Status: R & OR Assessment Year: 2010-2011 P.90.26.000 36.70.000) 98.Prof.000/-) (ii) Interest on funds borrowed U/S 24(2) – (as the amount is borrowed for construction of House -2.V.

Plumber. Even if all the above conditions are satisfied. Cobbler. Income Tax Act. There’s no need to explain the term ‘Business’. income from both are taxed at the same rates and in a similar way.) Profession and (iii. Carpenter. Commerce or Manufacture.) Business or Profession should be carried on by the assessee. the term ‘Profession’ has been defined to include any ‘Vocation”. but it does recognize the difference between ‘Business’ and ‘Profession’. According to section 2(36).Prof. The terms ‘Profession’ and ‘Vocation’ are very similar to each other.) There should be either Business or Profession ( Profession includes Vocation) (2. does not recognize any difference between Profession and Vocation. the only difference is that ‘Vocation’ requires ‘natural abilities’. the following conditions are required to be satisfied in order to charge an income under this head:(1. Chartered Accountant. whereas examples of vocation would include. Commerce or Manufacture or any Adventure or Concern in the nature of Trade.) Vocation. J. act recognizes the difference between the two. Doctor. the following incomes are not chargeable to tax under this head (they may be chargeable under some different head of income):- 53 . As per Section 28 of the Income Tax Act. as it is very much selfexplanatory. Though. etc. (i. Barber. according to it both vocation and profession are one and the same. Nihit Kishore—98202 25728 TYBCom. (3.) Business or Profession should be carried on during the previous year. namely. Lawyer are examples of profession. whereas ‘Profession’ requires some kind of ‘educational qualification’. According to section 2(13). (ii.INCOME TAX CH-7 PROFITS AND GAINS OF BUSINESS/PROFESSION (SECTION 28 TO SECTION 44D) In all. The term ‘Profession’ has been defined in a very narrow manner. the term ‘Business’ is defined to include any Trade.) Business. there are three concepts.

(2. For e. It is always chargeable to tax as income from House Property. (5.) Gift received by the assessee. or any other Natural Calamities.) Duty Drawback of excise duty upon exporting goods. (3.g.) Compensation received for terminating ‘Agency’ continued by the assessee or compensation received for modification of any agreement. Bonus. whether in cash or in kind.Prof. (9. etc. (7. Dividend income is always taxable as Income from Other Sources. (2. (5. (6.) Loss due to negligence or dishonesty of employees.Income from ‘Illegal business’ is also chargeable to tax and is chargeable under this head only. etc. with whom assessee has an account.I. Interest on Capital or any other remuneration received by a partner from partnership firm. Accident. then it is not chargeable to tax as an income under any head).) Income from Speculative business. Gambling or Betting of any sort. Flood. Fire.). Nihit Kishore—98202 25728 TYBCom.) Salary.) Maturity proceeds of a Key-man Insurance Policy (K. J.) Dividend income.(Generally allowable Losses) (1. (3. Such incomes are always taxable as income from other sources. (3. # Following Incomes are chargeable to tax under this head:(1. (8. provided such payment was allowed to the firm as a deduction from its income.INCOME TAX (1. Card Game or any other game of any sort or nature.) Loss of Cash by theft.) Rent from House Property. related to his Business or Profession (if gift is in the nature of a ‘Personal gift’. Crossword.: Subsidy received from Government. (2.) Sale proceeds of an Import License or an Export License. if any (for meaning of ‘Key-man Insurance Policy’ refer to Chapter. even though it is a business of the assessee.) Winnings from Lotteries. Commission. # Following Losses are allowed to be deducted from above incomes under this head:.) Profits and Gains of Business or Profession carried on by the assessee.) Fall in the value of stock-in-trade due to devaluation in the market price of stockin-trade.I of this book). 54 . (4. Puzzles. including bonus therein.) Loss due to insolvency of a Banker or a Banking Company.) Loss of Stock due to Tsunami. Races including Horse Races.P. (4.) Cash assistance received from Government. Note:.

For e.g.INCOME TAX (6. either entirely on his own or jointly with others. which ultimately could not be set up.e. (4. For e.(Expressly allowable Expenses): (1.) Section 31 : Repairs and Insurance of Plant. 10 % in this case (10 % of balance W.(Generally disallowable Losses) (1. (3. # Following Losses are not allowed to be deducted :.V.) Loss should be in the nature of a ‘Revenue Loss’ and not in the nature of a ‘Capital Loss’.V.) Apart from the above any other loss will be allowed to be deducted from the above income. if following conditions are satisfied:(a. J. (c. as such losses are not actual loses but are all future anticipated or expected losses. Rates.V.) Asset must have been used during the Previous Year.) Loss in the nature of ‘Capital Loss’ or a loss due to damage or destruction of a capital asset. Nihit Kishore—98202 25728 TYBCom.D.g. (3. (2.) Section 32 : Depreciation on assets – if following conditions are satisfied:Conditions:(a. # Expenses Expressly allowed to be deducted:. but at least for one single day) Depreciation is not charged on an individual asset.: Provision for Bad Debts or Doubtful Debts. Repairs of a Building.: Expenditure on conducting research or a survey before setting up a new business. available for charging depreciation XXX (-) Depreciation at the rate applicable to the block i.) Assessee should be the owner of the asset.) Asset must be used in the Business or Profession of the assessee.V. (not necessarily for the whole year.Prof.D.D.D. (b.) Anticipated future losses.) Loss not related to Business or Profession.) Expenditure incurred to set up a new Business or Profession.) Section 30 : Rent. as defined by section 2 (11) and is computed as follows:BLOCK OF ASSET WITH DEPRECIATION @ 10 % AMOUNT Opening W. Machinery and Furniture. of the block XXX (+) Cost of any new asset within the same block purchased during the year XXX (-) Selling Price of any asset of the block sold during the year (XXX) Balance W. but is charged on a “Block of Assets”. Taxes. as calculated above) (XXX) Closing W. of the block XXX 55 . (b. (2.) Loss should be incidental to or related to the Business or Profession of the assessee. (c.) Loss should have been incurred during the Previous Year.

1975 and 31st March. Nihit Kishore—98202 25728 TYBCom. where selling price of all the assets of the block is less than the opening W.D.Prof. Illustration 1. of the block (+) Cost of any new asset within the same block purchased during the year). J. Building Plant Rs. Depreciation is always chargeable.e.V. But depreciation on imported cars will be allowed (even if imported car was purchased during the above period).00.D.V. 1961 and the rates of depreciation are provided by Appendix – I and II of Income Tax Rules. (It is possible only when any of the asset/s within the same block is sold during the year and its/their selling price is equal to or more than the Opening W.  As per provisions of the Income Tax Act. where all the assets of the block are sold off but still some balance W. when all the assets belonging to the block are sold off. except in case of an assessee being a Power Generating or Distributing Unit/Company. 1961.00.000 Additions during the year Sales during the year 3.000 NIL 2. In other words.000 10. W. if any. in respect to the Previous Year relevant to the Assessment Year 2010-2011. ascertain the depreciation admissible under section 32 of the Income Tax Act. in the following exceptional cases: Imported car is used in India for ‘Tourism Business’.  No depreciation is allowed when block become empty i.00. Rs. is left out in the block. From the following particulars. as charging of depreciation is not optional to the assessee. 1961 and other liabilities.  Imported car is used outside India for Business or Profession in foreign country.INCOME TAX Points to be noted about Depreciation: No depreciation is allowed when W. at the beginning of the year 2.V. Assessee has to charge the depreciation year after another. applying “Written Down Value Method”. whether he wants to claim depreciation or not. 2001.D.  Charge of Depreciation is mandatory.V.000 6. who are allowed to follow “Straight Line Method” for charging depreciation  Depreciation on ‘Imported Cars’: No Depreciation is allowable on imported cars purchased between 01st March.000 56 .50.V.  If an asset is newly purchased during the Previous Year and is used for less than 180 days (its 180 days and not 182 days as in case of ‘Residential Status’) then only half year’s depreciation is allowed. of block of assets become zero or negative.D. (+) cost of new addition to the block)  Depreciation is allowable at the rates prescribed by the Income Tax Act and not at the rates prescribed by the Companies Act or as per wear and tear of the asset or as per normal practice followed by the assessee. (This is applicable mainly. Depreciation is always to be charged as per provisions of the Income tax Act.D.00.

(10. (14. (4.000) NIL 8.) Section 36(1)(vi): Employer’s contribution to an approved Gratuity Fund. whether revenue or capital is allowable only to ‘Companies’ and not to any other assessee) (13.INCOME TAX Solution: Computation of Depreciation Allowable under section 32 of the act. Super-annuation Fund (S.) Section 36(1)(iii): Bonus. 2. (7.F.P.) Section 36(1)(i): Insurance Premium paid/payable on Stock-in-trade. provided it is paid by Cheque.000 Therefore. (12.50.20.00. relevant to Assessment Year 2010-2011 is Rs.) Section 36(1)(iv): Interest on loan taken or capital borrowed for Business purpose. etc. J. Addition during the year Less: Sales during the year Short term Capital Gains Balance W.).D.50.00.D. (11.V.) Section 36(1)(xv): Securities Transaction Tax (STT) paid in the business of dealing in Securities.P.00.).) only if paid within the due date for such payment.000 NIL 10.000 (6.000 Less: Depreciation for the year @ 10% (80. paid to employees or to partners.) Section 36(1)(v): Contribution by employer to Employees’ Provident Fund (E. otherwise deduction will not be allowed. Depreciation admissible under section 32 of the Income Tax Act.000) 50.) Section 36(1)(ii): Insurance Premium paid/payable on health (health and not on life) of employees.A.) Section 36(1)(viii): Actual Bad Debts (and not provision for bad debts).000) Closing W. 80. of the Assets Building Rs.00. (However. Particulars Opening W.000 3.000/-. 1961 for the Previous Year.) Section 36(1)(xvi): Commodities Transaction Tax (CTT) paid in the business of dealing in Commodities.D.V.00.F. 10. (6.F.000 5.V. subject to maximum limit specified by section 40(b). 57 .000 (2. but if it is a Capital expenditure then 1/5th of such capital expenditure will be allowed as a deduction every year for five years.00. subject to provisions of section 43B. (9. (5. Commission. this deduction on account of promoting Family Planning amongst employees. Nihit Kishore—98202 25728 TYBCom. Recognized Provident Fund (R.) Section 36(1)(ix): Revenue expenditure on promoting Family Planning amongst employees is fully allowed. (8.) Section 36 (1)(vii): Write Off allowance for animals/cattle used as stock-in-trade for business or profession carried on by assessee.Prof.000 Plant Rs. NIL 7.

S. fees for technical service paid/payable outside India whether to a resident Indian or non-resident Indian or to any other person.S.  It should not be a Personal expenditure. brochures. without deducting tax at source (T.D.:If any salary is paid or is payable outside India without deducting T. ‘Excise Duty’.D. ‘Service Tax’. Interest. then deduction can be claimed in that subsequent year in which T. J.D.: Any Royalty.  ‘Wealth Tax’ and ‘Income Tax’ ‘Fringe Benefit Tax’ are not allowed to be deducted. apart from expressly allowed deductions. Commission.S. (But ‘Sales Tax’.Prof. etc without deducting tax at source (T. If the T. then deduction can be claimed in that subsequent year in which T.D. 3) Section 40(a)(ia): Payments in India without T.INCOME TAX # Expenses generally allowed to be deducted:.) is not allowed as deduction. is deducted and deposited with the Central Government. like Royalty. pamphlets.D. 5) Section 40(a)(5): Tax on non-monetary perquisites given by employer to employee: If employer provides any tax-free non-monetary perquisite to any employee.) is not allowed as deduction.) is not allowed as deduction.D. is deducted and deposited with the Central Government. then deduction can be claimed in that subsequent year in which T.(Expressly disallowable Expenses): 1) Section 37(2)(b): Advertisement given in ‘Political Souvenirs’ : Any expenditure incurred by assessee on advertisement in any souvenir.D. If T. Intrest. ‘Value Added Tax – VAT’ ‘Professional Tax’.D.: Certain payments made to any person in India.S. other general expenses are also allowed to be deducted subject to followings: It should not be a Capital expenditure. Fees foe technical Services.D. is deducted in subsequent year and deposited with the Central Government. 58 . is deducted and deposited with the Central Government.S.(Generally allowable Expenses): As per Section 37(1). ‘Entertainment Tax’ ‘Securities Transaction Tax (STT)’ are allowed to be deducted) # Expenses Expressly disallowed to be deducted:. Professional Fees. then tax paid by employer on such perquisite is not allowed as a deduction to employer from his taxable income.S. ‘Octroi Duty’. is deducted in subsequent year and deposited with the Central Government.D.S.S.S.S. is deducted in subsequent year and deposited with the Central Government.D. 2) Section 40(a): Payment outside India without T. 4) Section 40(a)(3): Salary payable outside India without T.S. which is an ‘offence’. ‘Customs Duty’.D.  It should have been incurred during the Previous Year.  It should not have been incurred for any purpose.S. without deducting tax at source (T.  It should be in respect of Business or Profession carried on by the assessee.S.D. tracts of any political party whether directly or indirectly is entirely disallowed. there from. If the T. Nihit Kishore—98202 25728 TYBCom.

having regard to ‘fair market value’ or ‘legitimate needs’ of the business of the assessee.000/. (Fees here would mean legal fees in the form of tax) Contribution to any Recognized Provident Fund (R.INCOME TAX 6) Section 40A(2): ‘Excessive’ payments to ‘Relative’: An payment made by an assessee relative or any person having a ‘substantial interest’ in the business of the assessee. Superanuation Fund (S. (Bonus/Commission does not include any other incentives given to employees.) Section 40A(7): Provision for Gratuity on retirement: Any amount debited to P & L A/C as a ‘Provision for Gratuity on retirement’.) or ay other Employees’ Welfare Fund. So any incentive other than bonus/commission is not 59 . they are deductible only if they are actually paid during the year. Cess. o Limit of Rs.000/. it’s just a contingent liability) 9.prescribed above is applicable to payment made to any single person in any one day and is not a ‘yearly’ limit.e. o Section 40A(3) is subject to exceptions enumerated under Rule 6DD of the Income Tax Act.P. 20. (Because provision for gratuity on retirement is not an actual liability of the assessee.000/-: If any ‘Revenue expenditure’ paid by the assessee during the Previous Year is in excess of Rs.by any mode other than by way of a ‘crossed cheque’. Here. if found to be excessive or unreasonable according to assessing officer. is not allowed as a deduction. Following is the list of such expenditures:   Any Tax. o The ‘entire’ expenditure will be disallowed and not the amount in excess of Rs. (only that part of the expenditure will be disallowed as a deduction.000/o Section 40A(3) is applicable only to deductible expenditures and not to those expenditures which are not deductible only.Prof. 20.). Duty. 10. 8. the act has specified only bonus/commission. Bonus or Commission to ‘employees’. which is found to be unreasonable or excessive) (excessive payment to a non-related person or to a person not having any substantial interest will not be disallowed) (substantial interest means holding of 20 % or more of voting rights or equity shares or profit sharing rights). payable to employees on their retirement. Points to be noted:o Section 40A(3) is applicable only to ‘Revenue expenditures’ and not to ‘Capital expenditures’.F. Fees payable under any law. i.) Section 43B: Unpaid Statutory Liability: Certain expenses are allowed to be deducted only on actual payment basis.) Section 40A(9): Contribution by employer to a Non-Statutory Fund is not allowed as a deduction to the employer. Nihit Kishore—98202 25728 TYBCom. then the entire amount of such expenditure will be disallowed.A.F. 20. J. 20. 7) Section 40A(3): Cash payment in excess of Rs. will not be allowed as a deduction to the assessee.

.)……………………………. TAXABLE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AMOUNT XXX XXX XXX XXX AMOUNT XXX XXX XXX XXX XXX (XXX) ______ XXXX 60 ... 3..)…………………………….] PROFESSIONAL EXPENDITURES: 1.)……………………………. 2. ‘Leave Salary’ paid to an employee either during his service or at the time of his retirement.g.. etc. Interest on any term loan or an advance taken from any ‘Scheduled bank’. e. otherwise it will not be allowed to be deducted in the year in which such expenditure was due. IDBI.)……………………………. we are talking about bonus/commission to ‘employees’ only and not to any other person. we are not concerned with bonus/commission paid/payable to an agent) Any sum payable as an interest on loan from any ‘Public Financial Institution’ like ICICI.] PROFESSIONAL INCOMES: 1..)…………………………….Prof. 4. 3.. LESS: B.)……………………………. HDFC. IFCI.INCOME TAX    subject to any restriction imposed by section 43B) (Here. Such expenditure can then be claimed only in that year in which its actual payment is being made.... Nihit Kishore—98202 25728 TYBCom.. 2.)……………………………. 4. All the above expenses will be allowed to be deducted only if actually paid either during the Previous Year or at any time after the end of the financial year but on or before the due date for filing of the Income Tax Return for that Previous Year.. J. # FORMAT OF COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION: [I] WHEN INCOME AND EXPENDITURE ACCOUNT OR RECEIPTS AND PAYMENTS ACCOUNT IS GIVEN (NORMALLY IN CASE OF PROFESSIONAL INCOMES): PARTICULARS A.)…………………………….

LESS:EXPENSES ALLOWED BUT NOT YET DEBITED TO PROFIT AND LOSS A/C: 1. 4. TAXABLE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AMOUNT AMOUNT XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX (XXX) XXX XXX XXX XXX (XXX) XXX XXX XXX XXX XXX ______ XXXX 61 . 3.)……………………………. J.... 3...INCOME TAX [II] WHEN PROFIT AND LOSS ACCOUNT IS GIVEN (NORMALLY IN CASE OF BUSINESS INCOME): PARTICULARS NET PROFIT OR LOSS AS GIVEN ADD:EXPENSES DISALLOWED BUT DEBITED TO PROFIT AND LOSS ACCOUNT: 1...)……………………………. 2..)…………………………….. 4.)…………………………….)…………………………….)…………………………….)…………………………….)…………………………… LESS: INCOME NOT CHARGEABLE BUT STILL CREDITED TO PROFIT & LOSS A/C: 1. 2..Prof.)…………………………….)……………………………. 2. 2.)……………………………. Nihit Kishore—98202 25728 TYBCom. 3.. ADD: INCOME CHARGEABLE BUT NOT YET CREDITED TO PROFIT AND LOSS A/C: 1.)……………………………. 4.)……………………………..)…………………………… 4.)……………………………. 3.)…………………………….

Patent. moveable or immoveable. should not be exempt from tax under section 54 of the act.) Such Profit or Gain arising on transfer of capital asset. though the following six assets are capital assets. only if all the following five conditions are satisfied:(1.g. they are specifically being excluded from the definition of ‘Capital Assets’:- 62 . whereas. Trade Mark. (1.) Such Capital Asset must be transferred during the Previous Year. that these conditions are subject to certain exceptions. In other words. (4. If all the above five conditions are satisfied.8 INCOME FROM CAPITAL GAINS (SECTION 45 TO SECTION 55) Under Section 45 (1). (2. then such profit or gain arising on transfer of a capital asset is chargeable to tax under this head. It would be worthwhile to note here. are examples of intangible capital assets. (5. which will be dealt with as and when we come across such exceptional cases. Nihit Kishore—98202 25728 TYBCom. etc.) As a result of transfer of capital asset.: Land.Prof. Profits and Gains arising on transfer of a Capital Asset is chargeable to tax under this head of income. Building.INCOME TAX CH .) The capital asset must be ‘Transferred’. are examples of tangible capital assets. has been defined by Section 2 (14) as ‘A Property of any kind. whether tangible or intangible. An income is chargeable to tax under this head of income. whether connected with his Business or Profession or not. there should be a ‘Profit’ or ‘Gain’ arising thereon. held by the assessee. Machinery. Copy Right. the following Capital Assets from its purview.) There must be a ‘Capital Asset’: The term ‘Capital Asset’. etc. Goodwill. (3. Let us now try and understand all the five conditions mentioned above.) There must be a ‘Capital Asset’. Vehicles. Plant. But section 2 (14) excludes. J. fixed or circulating’ For e.

A.g. even if it is used for agricultural purposes. is not considered as a part of his ‘personal effect’ and is therefore. any moveable property of the assessee. was completely destroyed by fire and that machine was fully insured and insurance claim was being lodged by Mr.) Compulsory Acquisition of a Capital Asset. Archaeological Collections.: Assessee’s own personal Residential House. X’s 50 % right in joint property. car is certainly. (e. X. When an asset ceases to exist. Raw Materials held for Business or Profession of the assessee. considered as a ‘capital asset’ and any gain arising on transfer of a such residential house is chargeable to tax as capital gain. they are not to be considered as ‘Personal Effect’. 1999. 7 % Gold Bonds. though used by him for his personal residence. National Defence Bonds.) Relinquishment of a Capital Asset. then it amounts to transfer of Mr.: If ‘Agricultural Land’ is situated in rural area in India. then such land shall be treated as capital asset. such assets will be considered as capital assets. For e. even though these are asseessee’s personal effect. for example a ‘car’ may be a capital asset for others. exchanges his old car for a new one. under any law. i. 1980.) Extinguishment of a Capital Asset.) Goodwill of a Profession (and not Goodwill of a Business) (2.e. For e. etc.) 6 ½ % Gold Bonds. it amounts to transfer of his old car. For e.) Sale of a Capital Asset. it is called extinguishment of that asset. X.) Exchange of a Capital Asset. Nihit Kishore—98202 25728 TYBCom. Even any Immoveable Property held by assessee is capital asset even if held for personal use. Drawings. gold. In other words.) of the assessee. Precious or Semi-Precious Metal or any Alloy of such Metal are considered to be Capital Asset. (d. 63 . X in favour of insurance company.g.: Mr.: when Mr.g. (e. stock-intrade. Consumables Stores. Y.) Any ‘Personal effects’ (excluding jewellery.INCOME TAX (a. in favour of his brother Mr. 1977.Prof. Any Jewellery. whether for cash or otherwise.) Any Rural ‘Agricultural Land’ situated in India. (c. then that agricultural land is excluded from the purview of ‘capital assets’.) Gold Deposit Bonds. it amounts to transfer of that machinery by Mr.: If some Machinery being a capital asset. belonging to Mr. including any wearing apparel or furniture held for personal use of the assessee or for use of any of his family members who are dependent on him. Gold. X relinquishes his 50 % right in a joint property. Whether a particular asset is stock-intrade or not depends on the business of the assessee. for e. Precious or Semi-Precious Stones (Stones – whether sewn into any wearing apparel or studded in any furniture or otherwise). Paintings. though meant for ‘personal purpose’. without any cash consideration.) Any Stock-in-trade. As defined by section 2(47) the term transfer includes the followings:- (a. but for an assessee who is a dealer of cars. (b. However. Ornaments. (b. (d.) The capital asset must be ‘Transferred’: Such capital asset must be transferred. 1991. (c. withdrawing the ownership in an asset or surrendering an asset. Profit on sale of such stock-in-trade will be chargeable as Profits and Gains of Business or Profession of the assessee.) Special Bearer Bonds. issued by Central Government. therefore. issued under Gold Deposit Scheme.g. J. (g. Sculptures. (f. But if agricultural land is situated ‘outside India’ or is situated in ‘an urban area in India’ or ‘outside India’.

In such a case.e.) Conversion of Debentures into Equity or Preference Shares. (ii. (h. irrespective of the date of receipt of the sale consideration. or Moveable or Immoveable. TYPES OF CAPITAL ASSETS: From students’ point of view. (b. a Capital Asset may either be Tangible or Intangible. But from Income Tax Act point of view. In such a case capital gain arising on transfer of such asset is not chargeable to tax in the year of transfer of the asset. Nihit Kishore—98202 25728 TYBCom.) Conversion of a Capital Asset in to ‘Stock-in-Trade’. can become long term capital asset.H. if held by assessee for some more period of time. character of an asset is dependent on the period of holding (P.) Any other transaction. the year of transfer of the capital asset is the year in which the capital gain arising thereon is chargeable to tax.) An asset transferred by way of ‘Will’. if a capital asset is held for a period upto 36 months. whether selling price is received in that year or not. Capital Assets are of two types. i. i. namely. (a. J. The following transactions are not regarded as ‘Transfer’. (g. An asset.Prof. Short Term or Long Term. In other words. If compensation is received from Government in part or in installment.) Such Capital Asset must be transferred during the Previous Year: Capital Gains are chargeable to tax on accrual basis. as his capital contribution. Fixed or Circulating. Let us now understand these two types of Capital Assets.e.) A case of transfer. which is a short term capital asset.INCOME TAX (f. (c. where a Capital Asset of the assessee is converted by assessee into ‘Stock-in-Trade’.) LONG TERM CAPITAL ASSET: If a Capital Asset is held by the assessee for a period of more than 36 months. the capital gain will be taxable in that year in which the converted asset is finally sold as stock-in-trade and not in the year in which it is converted into stock. some transactions are not regarded as transfer. to say that capital gains are chargeable to tax in the year in which the asset is transferred. then it is called ‘Long Term Capital Asset’. There are two exceptions to this general condition (i.) Transfer of Goodwill of ‘Profession’ (only of a Profession and not of Business) (3.) Transfer of property under section 53A of the Transfer of Property Act.) of that asset by the assessee. transfer of physical possession of the property in part performance of contract of selling the property.o. (b. few exceptions to the definition of ‘Transfer’.) In a case. then capital gain will be taxable in that year in which the first installment is received by the assessee. (d. then it is called ‘Short Term Capital Asset’. Short Term and Long Term Assets are not two separate assets. where a capital asset of an assessee is compulsorily acquired by Government under ‘Compulsory Acquisition’ under any law. In other words.) SHORT TERM CAPITAL ASSET: If a Capital Asset is held by the assessee for a period not exceeding 36 months (3 Years) is called ‘Short Term Capital Asset’.e. CAPITAL ASSET 64 . which has an effect of transferring the immoveable property belonging to the assessee.) An asset transferred or given to somebody by way of ‘Gift’. but is taxable in that year in which the assessee receives the compensation (sale consideration) from the Government. hence no capital gain tax liability will arise in case of following transactions:(a. i. Even method of accounting followed by the assessee is irrelevant. (i. In other words. There are however.) Introduction of a Capital Asset by a partner in his partnership firm. upon death of assessee.

then they shall be called as long term capital asset. whichever is earlier.) Amalgamation [Section 49(2)]: If two or more companies amalgamate and form a new company. because of difference in the chargeability of gain on transfer of these capital assets to tax. (b. iii. Period of holding plays an important role. shall be substituted by 12 months.) Units of a Mutual Fund or units of UTI (UNIT TRUST OF INDIA).Prof. immediately on the date on which that company goes into liquidation. ii.) Listed Debentures or Government Securities.) (a. the period of holding of these shares shall come to an end. then they are called short term capital asset. Now a question that arises. The following points shall be borne in mind while calculating the period of holding of an asset:- i. the period starting from the date on which the asset was acquired by the assessee and ending on the date of transfer of the asset by the assessee or the date on which the calculation of such period is made. EXCEPTION TO THE ABOVE RULE: In the following three cases. as discussed above. a capital asset is called as short term upto first 36 months of its period of holding. then from the very next day after completion of 36 months’ period. the same asset will be called as long term capital asset. is why such bifurcation of capital assets into short term and long term? We need to bifurcate all capital assets into short term and long term. whether listed on any recognized Stock Exchange or not. In all the three cases above. as it can change the character of the asset from short term to long term and can thereby change the taxability of the gain arising on its transfer. Gain arising on transfer of a Short Term Capital Asset is added to other normal incomes and chargeable to tax at normal rates of tax.) Liquidation of a Company: Where equity or preference shares are held in a company and that company goes into Liquidation. only if listed on any recognized Stock Exchange. the period of holding of 36 months. J. for determining whether the asset is short term or long term. whereas. if they are held for a period of more than 12 months. whereas.INCOME TAX SHORT TERM If PoH < 36 Months LONG TERM If PoH > 36 Months In other words. whether listed on any recognized Stock Exchange or not. under a scheme of Amalgamation and a shareholder (assessee) of an amalgamating company is issued new shares in amalgamated company in lieu of his/her 65 . Nihit Kishore—98202 25728 TYBCom. In other words period subsequent to the date of liquidation of the company shall be ignored while computing the period of holding of shares. gain arising on transfer of a Long Term Capital Asset is chargeable to tax at a flat rate of tax of 20 % under section 112. PERIOD OF HOLDING: Period of holding means. if they are held by the assessee for a period upto 12 months. Equity or Preference Shares. whether such units are quoted or not.

A.) Right Shares: When an offer is made by a company to its existing shareholders to subscribe for right shares. etc. the period of holding of Bonus Shares shall be calculated from the date of issue of such bonus shares. (c. it is known as ‘Right Entitlement’. like Brokerage. J.) Issue of Bonus Shares: When an assessee is being issued Bonus Shares as a result of his/her holding original shares.) Demerger: In a similar way.) Section 49(1) Transactions: Transactions. Period of holding of such right entitlement shall be calculated from the date on which the company made such offer to subscribe for right shares. provided that the resulting company is an Indian company. it is known as ‘Renouncement of Right Entitlement’ and one will have to calculate the profit or gain arising on transfer of such right entitlement. which is known as ‘Right Entitlement’ and shareholder subscribes for shares offered under right offer and such right shares are allotted to him/her. which are covered by section 49 (1) i.) (Whether Actual or Notional) (2. under a scheme of Demerger. Commission. The period of holding of these new shares in the amalgamated company shall include the period of holding of old shares in amalgamating company. FORMAT OF COMPUTATION OF SHORT TERM CAPITAL GAINS: PARTICULARS Full Value of Sale Consideration (Received + Receiveable) Less: Transfer Expenses. (Wholly and exclusively in connection with transfer) Net Sale Consideration Less: (1.) Cost of Improvement (C. Such entitlement is also a capital asset.Prof.INCOME TAX shares in amalgamating company. The period of holding of original shares. provided that the amalgamated company is an Indian company (As if no new shares were allotted and assessee continued holding old shares in that amalgamating company and calculation is being made for those old shares only). the period of holding of these new shares in resulting company shall include period of holding of shares in demerging company. the period of holding of such equity shares shall be calculated from the date of their conversion from debenture and shall not include the period of holding of those debenture or debenture stock.) Conversion of Debentures: When Debentures or Debenture Stock or such Deposits held by assessee are converted into Equity Shares. A Shareholder may either subscribe to such right shares offered or he may sell off that right entitlement in the market.O. (d.I. when an assessee is being issued with shares in a resulting company in lieu of his/her shares in a demerging company.) Right Entitlement: When a ‘Right’ offer is made by a company to its existing shareholders. (g. the period of holding of such right shares shall be calculated from the date of allotment of such right shares and not from the date on which the right offer is made by the company.) Cost of Acquisition (C. The period of holding of original shares shall not be added in the period of holding of right shares. transactions where a capital asset becomes the property of the assessee otherwise than by way of purchase.) (Additions/Alterations to the Asset) AMOUNT AMOUNT XXX (XXX) XXX XXX XXX (XXX) 66 . If he/she sells off such right entitlement.e. shall not be included in period of holding of bonus shares. (e. the period of holding of the current owner (Assessee) shall include the period for which the asset was held by its previous owner. Nihit Kishore—98202 25728 TYBCom. (f. (h.O. The Cost of acquisition of right entitlement shall be NIL.

 In case of transactions covered by section 49(1). (1. paid while acquiring a house property. Will. For Income Tax purpose Capital Gains are chargeable to tax on accrual basis. Expenses shall be real ones. shall be the cost of acquisition to the previous owner of that asset.per share (i. then market value of what is received in kind shall be treated as a full value of sale consideration.) of such asset as on 01st April. are allowed to be deducted from the full value of consideration. incurred in connection with the transfer of the asset. If it is received in kind. Travelling and Conveyance Charges.000/. 1981.e. Goodwill of a Business (of Business only and not a Goodwill of a Profession) or Copyright. then cost of acquisition of such asset in the hands of the assessee shall be the actual amount paid by the assessee towards acquiring it. For e.) Transfer Expenses: Tansfer Expenses incurred by an assessee wholly and exclusively in connection with the transfer of the capital asset. Nihit Kishore—98202 25728 TYBCom. Right to Carry on Business. (3.: Stamp Duty. a case where capital asset is received by assessee free of cost by way of Gift.e. the Cost of Acquisition in the hands of the current owner of the asset i. Inheritance. In case where.e. For e. Rs. no double deduction of any expense is allowed. Stamp Charges.: If assessee acquired 1. or interest on capital borrowed for acquiring a property (only interest incurred upto the date of acquiring the property) are all part of actual cost of acquisition of that property. ABC Ltd. provided such expenses are not deductible under any other head of income. Trademark. 10. whether received immediately or receivable after some time. 10/.: Commission.M. if such intangible asset is Self-Generated (Self-Developed) then the cost of acquisition is always to be taken as NIL or ZERO.total investment made). Brokerage.g.) Full Value of Sale Consideration: means what one receives when an asset is being transferred. Notional Expenses are not allowed to be deducted.] As per section 55(2a). It does not mean the market value of the asset transferred.e. Adequacy or inadequacy of the consideration is also irrelevant.V. etc. Brand Name. amalgamated with 67 . Right to Manufacture any Article or a Thing. etc. @ Rs. The following additional points regarding cost of acquisition shall be worth noting: Cost of Acquisition of an ‘Intangible Asset’: [like Patent.  As per section 49(2). the previous owner acquired such asset before 01st April.) Cost of Acquisition: is the price for which a capital asset is acquired by the assessee.000 shares in ABC Ltd. Legal expenses incurred in connection with acquisition of an immoveable property is allowed to be capitalized. It even includes expenses of a capital nature for completing or acquiring a title or ownership of a property. then cost of acquisition in the hands of the current owner shall be either the cost of acquisition of that asset in the hands of the previous owner of that asset or Fair Market Value (F. in the hands of the assessee. shall be same as the cost of acquisition of shares of amalgamated company (old company). 1981. i.g. Brokerage. the Cost of acquisition of shares in an Amalgamated Company (New Company) received by the assessee in lieu of his shares in Amalgamating Company (Old Company) under a scheme of amalgamation.INCOME TAX SHORT TERM CAPITAL GAIN / (LOSS) XXX Now let us try to understand the various terminologies used in the above format. But if these assets are not self-generated and are purchased by the assessee from somebody. For e. Tenancy Rights. Commission. J. (2.Prof. Loom Hours. etc.g. It may be received in cash or in kind. i. Book entries are irrelevant for the purpose. irrespective of the method of accounting followed by the assessee. whichever is higher. Registration Charges.

But if such right shares are not being subscribed for. Debenture Stock or Deposit Certificates. Brand-name. the Cost of acquisition of a Capital Asset acquired before 01st April. (2. 50 Lacs in 1992. no double deduction is allowed. Debenture is converted into 5 equity shares and balance 40 % is redeemed for cash. the Cost of Acquisition of Right Shares in the hands of the assessee. then the cost of acquisition of right shares in the hands of such person shall be the amount actually paid him/her to the company towards right shares plus amount paid by him/her to the transferor of right entitlement towards right entitlement. allotted before 01st April. Cost of Improvement is allowed to be deducted only if it is not deductible under any other head of income.I. or a Right to Manufacture or Produce any Article or a Thing. 1981. As per section 55(2aa).O. This option of substituting original cost by Fair Market Value as on 01st April. Debenture Stock or Deposit Certificates. If these Debentures. i. and 500 shares of XYZ Ltd.Rs. or any intangible asset like Goodwill of Business. or Rectification to the tangible asset. the cost of acquisition of these new shares shall be same as the cost of acquisition of Debentures. 8 Lacs and constructed the fourth floor.) Cost of Improvement [C. But if Bonus Shares are being allotted on or after 01st April.) Right to carry on any business. 1981.60/.000 shares in ABC Ltd.I in relation to any tangible asset means all expenses of a capital nature. shall be the amount actually paid by him/her to the company for acquiring such right shares. Debenture Stock or Deposit Certificates are partly converted into Equity or Preference Shares and balance part is redeemed for cash. Cost of Acquisition of shares received upon conversion of Debentures: As per section 49(2). Nihit Kishore—98202 25728 TYBCom. shall be Rs.in total or Rs.INCOME TAX      XYZ Ltd.] [Section 55(1)]: C. 1981 shall be the Fair Market Value of such shares as on 01st April.g.: If 60 % of a 100/. 60 % of the cost of acquisition of one debenture. Alteration.g.I. 12/. 1981. As per section 55(2aa). Debenture Stock or any Deposit Certificates are converted into Equity or Preference Shares. 10.) Goodwill of a Business (and not a Goodwill of a Profession) whether self-generated or not and (ii. irrespective of the market price of shares of XYZ Ltd. Loom Hours. the Cost of Acquisition of Bonus shares. Route permit. 20/. whichever is higher. For e. transferee of the right entitlement. 8 Lacs is the cost of improvement. then the cost of acquisition of such Bonus shares shall always be taken as NIL. In other words. incurred in connection with an Addition. As per section 55(2aa).O. whereas Rs. is 68 . In this case Rs. 1981. C.000/.O.: A Building consisting of three floors was acquired by an assessee for Rs. The cost of acquisition of 500 shares in XYZ Ltd. were issued to the assessee in exchange of 1. of two Intangible Assets viz. subscribes for right shares. but are renounced by the assessee in favour of another person and when such other person i. the Cost of Acquisition of Right Entitlement shall be NIL.only or Rs. is however not applicable in case of Depreciable Assets (u/s 50A). 50 Lacs is the cost of acquisition of the building. For e. Modification.e. Trademark. then cost of acquisition of new shares shall be the proportionate cost of acquiring Debentures. then cost of acquisition of these 5 shares shall be Rs. As per section 55(2b).Prof. where Debentures. Tenancy Rights.per share. 1981 shall be either the actual cost of acquisition or its Fair Market Value as on 01st April. Stage Carriage permit. J.e. (i..per share of XYZ Ltd. In 1995 assessee spent Rs.

In other words. 1981 ALWAYS NIL ACTUAL COST OF IMPROVEMENT FORMAT OF COMPUTATION OF LONG TERM CAPITAL GAINS: PARTICULARS Full Value of Sale Consideration (Received + Receivable) Less: Transfer Expenses. Tenancy Rights.) Indexed Cost of Acquisition (I. Trademark.Prof. Copyright.INCOME TAX always to be taken as NIL or ZERO.) Indexed Cost of Improvement (I. etc. Brand Name. Nihit Kishore—98202 25728 TYBCom.) (Whether Actual or Notional) (2. This can be better explained with the help of the following chart:- SECTION 55(1) COST OF IMPROVEMENT IN CASE OF GOODWILL OF A BUSINESS/ RIGHT TO CARRY ON BUSINESS.I. Cost of Improvement for any asset incurred before 01st April. Route Permit. shall be the actual cost of improvement incurred on such assets. shall always be taken as NIL. 1981 INCURRED ON OR AFTER 1ST APRIL.A. C.C. 1981.O. Loom Hours. issued by the Central Government in this behalf by way of 69 . In case of a Long Term Capital Asset. but shall be adjusted for rise in the rate of inflation in the country from the year of incurring the cost of acquisition or cost of improvement till the year of transfer of such Long Term Capital Asset.C. MFG.I. Commission. Stage/Carriage Permit. (Wholly and exclusively in connection with the transfer) Net Sale Consideration Less: (1. Whereas. of any other intangible assets like Patent./ PRODUCE ANY ARTICLE OR A THING IN ANY OTHER CASE ALWAYS NIL INCURRED BEFORE 1ST APRIL.O. like Brokerage. the original Cost of Acquisition or original Cost of Improvement of a Long Term Capital Asset shall not be taken at their respective original values. the Cost of Acquisition or Cost of Improvement is required to be indexed.) (Additions/Alterations to the Asset) LONG TERM CAPITAL GAIN / (LOSS) AMOUNT AMOUNT XXX (XXX) XXX XXX XXX (XXX) XXX INDEXATION: Indexation is only for the purpose of calculating Long Term Capital Gain/Loss and shall not be used for calculating Short Term Capital Gain/Loss. as per the Index numbers for each such relevant Previous Years. J.O. However.

) numbers. Such Index numbers are called “Cost Inflation Index” (C.I.Prof. The Cost Inflation Index (CII) numbers issued up till now are as follows:Previous Year 1981-1982 1982-1983 1983-1984 1984-1985 1985-1986 1986-1987 1987-1988 1988-1989 1989-1990 1990-1991 1991-1992 1992-1993 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 Cost Inflation Index (C.I. J.I.INCOME TAX a notification in the Official Gazette. having regard to 75 % of average rise in the consumer price index of urban non-manual employees for the immediately preceding Previous Year. Such Cost Inflation Index numbers are issued by Central Government. Nihit Kishore—98202 25728 TYBCom.) Number 100 109 116 125 133 140 150 161 172 182 199 223 244 259 281 305 331 351 389 406 70 .I. Concept of Indexation was introduced by the Central Government for the first time with effect from Assessment Year 1993-1994. by considering Previous Year 1981-1982 as the Base Year. Such Cost Inflation Index numbers are issued for Previous Years or Financial Years and not for Assessment Years.

while finding out Indexed Cost of Improvement.I.e.INCOME TAX 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 426 447 463 480 497 519 551 582 632 Note: Such C.which is required to be indexed as the period of holding of the house property is more than 36 months and 71 . number would be provided in the examination.I. For any other year C. J. Calculate the Capital Gain/Loss for Mr. starting form the Year 1981-1982.I.000/-. Cost Inflation Index numbers are applicable to the whole financial year. numbers are issued for Previous Years or Financial Years. where the term ‘Cost of Acquisition’ used in the above formula will be replaced by the term ‘Cost of Improvement’.I. X had acquired a House Property in the year1984-1985. X if CII for 1984-85 is 125 and for 2003-2004 is 463.and sold it off in the year 2003-2004 for Rs. for the first and the last year and not for any other year.00. Therefore ‘Indexation’ is considered to be a benefit given to the assesees by the Income Tax Act.Prof. irrespective of the date of acquisition or transfer of the asset. can be found out by applying the following formula:- CII of the year of transfer of the asset Indexed Cost of Acquisition = Cost of Acquisition X CII of the year of acquisition of the asset Indexed Cost of Improvement can also be found out by applying the same formula.I. 1961. the cost of acquisition or cost of improvement increases as compared to its original value and thereby it reduces the Long Term Capital Gain and as a result of this the tax on Long Term Capital Gain also gets reduced. 1. Cost Inflation Index numbers are generally notified by the central government within few months from the declaration of the Financial Budget of the relevant financial year. Answer: In this example the original cost of acquisition of the asset is Rs.I.000/. number only for the years 1981-1982 and for the year 2009-2010 i.00. Students are expected to remember the C. for Rs.000/. Nihit Kishore—98202 25728 TYBCom. As an impact of allowing indexation. Formula for finding out Indexed Cost of Acquisition or Indexed Cost of Improvement: Indexed Cost of Acquisition of a Long Term Capital Asset or its Indexed Cost of Improvement.00. which is the Base Year. 1. Example of Indexation: Mr. 5.

where asset was acquired by its previous owner before 01st April. This can be better explained with the help of the following table:- 72 . Students shall note the fact that if the benefit of indexation was not available. Except of the above three exceptions. (E. (D.00.600/-. 1981.000/. without indexing the Cost of Acquisition or Cost of Improvement:- (1. Therefore the Indexed cost of acquisition will be Rs. (B.) Capital Asset is acquired by assessee from its previous owner under transactions covered by section 49 (1).= Rs. 1. then Long Term Capital Gain in this case would have been the difference between the Sale Proceeds and the original coat of acquisition of the asset i. though the asset is a Long Term Capital Asset.000/.00. 1981 but assessee acquired from previous owner on or after 01st April.70.) Depreciable Assets as are governed by Section 50A of the act. the benefit of Indexation will be available in case all the Long Term Capital Assets.400/And Long Term Capital Gain will be the difference between the Sale Proceeds and the Indexed Cost of Acquisition i. 3.) Capital Asset acquired by assessee himself/herself before 01st April. 1981. Exceptions to the concept of Indexation: In the case of following Long Term Capital Assets. 1981. 1. 1981. J.000/. whether listed on any recognized Stock exchange or not.= Rs. Depending upon the situation. Rs. The basic formula of indexation remains the same.000/as compared to Rs. (2. 1. the calculation of any gain/loss thereon will be computed just like the way it would be computed had it been a Short Term Capital Asset. where asset was acquired by its previous owner after 01st April. the benefit of Indexation shall not be available. In other words.e. Rs. 1981 and assessee also acquired from previous owner before 01st April. issued by Central Government. 4. where asset was acquired by its previous owner before 01st April.X 463/125 = Rs. (C. the formula for indexing the cost of acquisition would differ:- (A.29.) Capital Asset acquired by assessee himself/herself on or after 01st April. This cost of acquisition will be indexed by applying the above formula. 5. (to be dealt with separately) (3. Nihit Kishore—98202 25728 TYBCom. except of Capital Indexed Bonds. Different Formulas for Indexation: An asseessee may have acquired a capital asset under following five different situations. 1981 and assessee also acquired from previous owner after 01st April.00.) Any Bonds or Debentures.400/.70.as computed above.Prof.00.) Capital Asset is acquired by assessee from its previous owner under transactions covered by section 49 (1).INCOME TAX the asset is a Long Term Capital Asset. but the numerator and denominator for CII would differ under all the five situations mentioned as above.less Rs.) Capital Asset is acquired by assessee from its previous owner under transactions covered by section 49 (1).less Rs. 1. 1981.00.) Transfer of entire Undertaking or an entire Division of the assessee by way of “Slump Sale” as governed by Section 50B.e. 5.29.000/.600/. 3.

1981 CII of the year __of Transfer_ CII of the year of _ transfer___ CII of 1981-1982 CII of the year of improvement (B) Capital Asset acquired by the assessee on or after 01/04/1981 Actual Cost of X Acquisition CII of the year of __Transfer_ _ CII of the year of improvemen t Actual Cost of Improvement X CII of the year of __Transfer_ _ CII of the year of improvemen t (C) Capital Asset acquired by Previous Owner as well as by Assessee both before 01/04/1981 F. Nihit Kishore—98202 25728 TYBCom. of the Asset as on 01/04/1981 OR Cost of its X acquisition to the Previous Owner.V. which-ever is higher CII of the year __of Transfer_ CII of the year in which the Asset was acquired by the Assessee Actual Cost of Improvement (ignoring any cost of X improvement incurred before 01/04/1981) CII of the year __of Transfer_ CII of the year of improvement CII of the year __of Transfer_ CII of the year of improvement 73 . but acquired by assessee after 01/04/1981 F.Prof. of the Asset as on 01/04/1981 OR Cost of acquisition to the Previous X Owner whichever is higher CII of the year of _ transfer_ CII of 1981-1982 Actual Cost of Improvement (ignoring any cost of X improvement incurred before 01/04/1981) CII of the year __of Transfer_ CII of the year of improvement (D) Capital Asset acquired by Previous Owner before 01/04/1981.M. No. of the Asset as on 01/04/1981 OR Cost of acquisition of the asset X whichever is higher INDEXED COST OF IMPROVEMENT Actual Cost of Improvement (ignoring any cost of X improvement incurred before 01/04/1981) (A) Capital Asset acquired by the assessee before 01st April.V.V. SITUATION INDEXED COST OF ACQUITION F.M.INCOME TAX SR.M. J.

]Computation of Capital Gain/Loss in case of Depreciable Assets: [Section 50A]: Capital Gain/Loss on transfer of a Capital Asset. shall be calculated not for an individual asset transferred. but for the whole Block of Assets to which. [2. which is a Depreciable Asset. CALCULATION OF CAPITAL GAIN IN SOME SPECIAL SITUATIONS: [A.] Section 10(38): Long Term Capital Gain on transfer of Listed Securities: Any Long Term Capital Gain (Only Long Term Capital Gains and not Short Term Capital Gains) arising on transfer of Equity Shares of a Company listed on a Recognized Stock Exchange in India or Units of Equity Oriented Mutual Fund. but on the entire block of assets. This exemption was being introduced with effect from Assessment Year 2005-2006 and exempts only those Capital Gains. The Cost of Acquisition of a Depreciable Asset shall not be the actual cost of acquisition of the transferred asset but it shall be determined as follows:PARTICULARS Opening Written Down Value (WDV) of the entire Block of Asset ADD: Actual Cost of acquisition of any new asset.] Section 10 (37): Income from Capital Gain on Transfer of Agricultural Land: Only in the case of an assessee being an Individual or a Hindu Undivided Family.T.). J. the way Depreciation under section 32 is charged not on an individual asset. provided impugned Agricultural Land was compulsorily acquired by Government under any Law in force or sale consideration of such Agricultural Land was determined by Reserve Bank of India (RBI) or by Central Government. provided transfer has taken place through a Recognized Stock Exchange and such transaction of sale attracts Securities Transaction Tax (S. shall be exempt by virtue of Section 10(38). shall be exempt from its chargeability to Income Tax under section 10 (37). whether Long Term or a Short Term Capital Asset shall always be treated as a Short Term Capital Gain/Loss. The Capital Gain/Loss so arising on transfer of any Depreciable Asset. falling within The same Block.T.Prof. which have arisen on sale consideration received on or after 01st April. 2004. any Capital Gain arising on transfer of an Agricultural Land situated in a specified area (Urban Area) and used by that individual or his/her parents or by HUF for agricultural purposes. such transferred asset belongs.INCOME TAX Cost of Capital Asset acquired by Previous Owner as well as by Assessee both on or after 01/04/1981 acquisition to the X Previous Owner of The Asset CII of the year __of Transfer_ (E) CII of the year in which the Asset was acquired by the Assessee Actual Cost of Improvement incurred by the Assessee as well X incurred by its Previous Owner Exemptions applicable in case of Capital Gains: The following exemptions are available in respect of Capital Gains Income:[1. Section 10(38) has been introduced with effect from 01/10/2004. acquired during the relevant Previous Year AMOUNT XXX XXX 74 . Nihit Kishore—98202 25728 TYBCom.

the following points shall be kept in mind. 50 Lacs to Rs.) The Cost of Acquisition will not be the actual cost of acquisition of the block. Assuming the Indexed cost of acquisition of the said property to be Rs. J.)’ of the entire block [B. For e. 7 Lacs only (Rs. (2. Commission.) No Indexation Benefit will be available. but will be equal to the ‘Written Down Value (W. (4.D.] Stamp Duty Valuation: [Section 50C]: This section applies only to transfer of ‘Land’. 50 Lacs but entered into agreement with the buyer of the property for an amount of Rs.) Gain or Loss to be computed not for the asset sold. The cost of acquisition here will be the cost of acquisition of the entire Block as shown above.) Cost of Acquisition (C. 13 Lacs. while calculating Capital Gain in case of Depreciable Assets:- (1. the assessee is liable to pay tax on Capital Gain of Rs.) (As computed in the Above table = W. 20 Lacs less Rs.D. etc.INCOME TAX Closing Written Down Value / Cost of Acquisition of the Block XXX The only thing that is different here is the cost of acquisition of the asset (asset here would mean the entire Block and not only that individual asset that is being transferred). 7 Lacs).Prof.: An assessee sold his House Property for Rs. Many assesses were found to be evading Income Tax. 20 Lacs. of the Block of Assets) (But restricted to the maximum of the amt. ‘Building’ or both and not to any other asset transferred. 20 Lacs and balance Rs. (3. 37 Lacs (Rs. 13 Lacs) but he would compute his Long Term Capital Gain as Rs. in their Income Tax Return and thereby reducing their Capital Gain and Income Tax on such Capital Gains. by declaring lower ‘sale consideration’ on sale of their House Property.) No distinction to be made between Short Term and Long Term. Nihit Kishore—98202 25728 TYBCom. 37 Lacs less Rs. 30 Lacs was accepted by him by way of cash which was not declared by him.V. He accepted the cheque for Rs. The Gain or Loss arising on transfer of a Depreciable asset shall always be Short Term Capital Gain/Loss irrespective of whether the asset or the Block was held for a period of 36 months or less before it was being transferred. of Net Sale Consideration. The Gain or Loss from transfer of a depreciable asset will always be called as Short Term.O. unless all the assets of the Block are sold off) (2. Both to be treated at par.) Cost of Improvement (C. like Brokerage. section 50 C 75 . 50 Lacs less Rs.A. 13 Lacs) and thereby he would evade tax on capital gain of Rs. In order to curb such tax evasion practices followed by assesses. The Capital Gain/Loss will be computed as shown below:PARTICULARS Full Value of Sale Consideration (Received + Receiveable) Less: Transfer Expenses.V.O.) (Additions/Alterations to Asset) SHORT TERM CAPITAL GAIN / (LOSS) AMOUNT AMOUNT XXX (XXX) XXX XXX NIL (XXX) XXX In simple words. In this case he suppressed his sale consideration from Rs. but for the entire ‘Block of Assets’ to which such asset belongs. 20 Lacs only.g. (Wholly and exclusively in connection with transfer) Net Sale Consideration Less: (1.I. 30 Lacs (Rs.

51 Lacs. the matter is being referred to the valuation officer. But Income Tax Act has taken care of such situations also. it amounts to transfer of that asset. whether the asset is a Long Term Asset or a Short Term Asset. [D.INCOME TAX was introduced to standardize the amount of sale consideration in case of transfer of Land or Building or both. the value reported by such officer in his report or the Stamp Duty Value. 51 Lacs to be the sale consideration of the property. This section has a very harsh implication on genuine taxpayers. which was never received by him/her. then also he/she will have to end up paying income tax on a higher capital gain. the value adopted by Stamp Value Authority will be higher than the actual market value of the property. (Generally. Assessee will have to pay tax even on an amount. the year of conversion will be considered as the year of transfer. which will be lower than the Stamp Duty Value. In the above example. (2) The ‘Sale Consideration’ will be deemed to be equal to the amount of ‘Fair Market Value (FMV)’ of such asset as on the date of its conversion into stock. (5) However. irrespective of the actual amount of sale consideration of that asset. Valuation done by Stamp Value Authorities is not updated on a time-to-time basis. if the value of the House Property adopted by Stamp Value Authority is Rs. determined by the Stamp Value Authorities. In such a case where. even if the asset has not yet been sold. In such a situation if an assessee sells his/her property at market price. irrespective of the market value of that property). According to section 50 C. then assessee will have to calculate Capital Gain/Loss. (6) When such converted asset is ultimately being sold in the form of stock. the sale consideration should have been ‘NIL’ as the asset has not yet been sold. but then also it will be assumed to be equal to the FMV as on the date of conversion) (3) The period of Holding of such asset will begin from the date of its acquisition and will end on the date of it’s conversion into stock. In a case. (4) For the purpose of Indexation. Section 50 C is the deeming provision of the act. J. considering Rs. whichever is less. Capital Gain on the same will have to be computed having regard to the following points:(1) Capital Gain is to be computed in the year of its conversion into stock. Such business income will be = Actual Sale Consideration less FMV of the asset as on the date of its conversion into stock.] TRANSFER OF A CAPITAL ASSET BETWEEN FIRM AND PARTNER: 76 . then based on the claim of the assessee. who shall investigate in the matter and submit his valuation report to the assessing officer. (Stamp Duty is required to be paid as a percentage on a predetermined value of the property. shall be adopted as the value of the property. [C. the value of sale consideration of an asset being Land. there would be some business income generated. which would be calculated applying Stamp Duty Value. This is applicable. the Assessing Officer may refer the entire valuation to an Officer of the Department called “Valuation Officer”. Nihit Kishore—98202 25728 TYBCom.] CONVERSION OF A CAPITAL ASSET INTO STOCK-IN-TRADE: Whenever a Capital Asset is converted into Stock-in-Trade. where an assessee claims that the sale consideration received by him/her or the market value of the asset is less than the value adopted by Stamp Value Authorities. 50 Lacs only. irrespective of the fact that he actually sold the property for Rs. the Capital Gain (whether Long Term or Short Term) so computed shall be chargeable to tax in the year in which such asset is ultimately sold as Stock and not in the year in which it is converted into stock.Prof. Eventually in a Bullish Economic Trend. building or Land plus Building shall be deemed to be the value of that asset adopted for the purpose of payment of Stamp Duty on that asset.

) For Initial Compensation: ♦ Capital Gains are normally taxed in the year in which the asset is ‘transferred’. ♦ Since. Capital Gain will have to be computed in the hands of the partner. i. till the year of transfer. i. then it will be taxed in the hands of his Legal Heirs or Successors. the partner is not receiving anything from the firm for transferring the asset. upon its Dissolution or otherwise: [Section 45(4)]: ♦ It amounts to transfer of Capital Asset for the Firm Capital Gain will have to be computed in the hands of the Firm. the ‘Sale Consideration’ will be missing.) When a Firm transfers or distributes a Capital Asset to Partner.e. the firm is not receiving anything from the partner for transferring the asset. the firm is transferring the asset to its partners free of cost.) When a Partner transfers a Capital Asset to the Firm as his capital contribution: [Section 45(3)]: ♦ Introducing a Capital Asset by a partner to the firm. [E. However.Prof. J. (a. partner is transferring his asset to the firm free of cost as his capital contribution. then such enhanced compensation will be taxable as follows: ♦ Such Enhanced Compensation will be taxable in the year of its actual receipt. ♦ Since. ♦ The FMV of the asset as on the date of its transfer will be deemed to be the ‘Sale Consideration’ in the hands of the Firm.e. Nihit Kishore—98202 25728 TYBCom. ♦ However. i. (b. 77 . for the purpose of indexation. ♦ The Amount recorded by the firm in its Books of Accounts will be assumed to be the Sale Consideration of such Asset. the year of compulsory acquisition is to be taken into account as the year of transfer.) For Enhanced Compensation: If the Original amount of compensation increased / enhanced by any Court or any Higher Authority. as would have otherwise been computed.] COMPENSATION ON COPULSORY ACQUISITION: These provisions shall apply only in a case where there’s compulsory acquisition of a Capital Asset by Government under any Law in force. in case of compulsory acquisition the Capital Gains will be taxable in the year in which the compensation (or a part of compensation) is received and not the year in which the asset was transferred. as his capital contribution amounts to transfer of that asset.INCOME TAX (a. (b. ♦ The period of Holding will be calculated from the date of its acquisition till the date of its compulsory acquisition by Government.e. though the capital gain is taxable in the year of receipt of compensation and not in the year of transfer. ♦ The Capital Gain will be computed in a normal way only. the ‘Sale Consideration’ will be missing. ♦ If assessee is not alive to receive it.

Nihit Kishore—98202 25728 TYBCom. Earthquake or any other Natural Calamity or Riot. 78 . ♦ Such Capital Gain. as these costs were already allowed as a deduction from the initial compensation. ♦ The Capital Asset may have damaged due to Fire.Prof. then the capital shall be computed in the following manner (only for NonResidents):- (a. Typhoon. a Non-Resident assessee brings foreign currency into India.) In case of Shares and Debentures of Indian Companies: ♦ The Capital Gain or Loss will have to be computed in foreign currency.] RECEIPT OF INSURANCE CLAIM: When an Insurance Claim is received or compensation is received from the Insurance Company for ‘Damage’ or ‘Destruction’ to any Capital Asset. then such compensation so received shall be taxable under the head Capital Gains. prevailing as on the date of transfer. We will get Sale Consideration in foreign currency. ♦ Similarly convert the ‘Transfer Expenses’ also in foreign currency. [F. ♦ The Capital Gain shall be computed in a normal way. ♦ Convert the ‘Sale Consideration in Indian Currency’ into ‘Sale Consideration in Foreign Currency’ applying the Average of ‘Buying’ and ‘Selling’ Telegraphic Transfer Rate (T/T Rate) offered by State Bank of India as on the date of transfer of such asset.] CAPITAL GAINS IN THE HANDS OF NON-RESIDENT: Whenever. by applying the ‘Buying’ T/T Rate of SBI as on the date of transfer. J. whether Long Term or Short Term. but by applying Average of ‘Buying’ and ‘Selling’ T/T Rate of SBI prevailing as on the date of acquisition. ♦ Similarly. ♦ Such Capital Gain will be Short Term or Long Term depending upon whether the original capital gain was short term or long term. but is in kind. then the FMV of the asset or a thing received as compensation (FMV as on the date of its receipt) shall be deemed to be the sale consideration. Action of enemy whether with or without declaring a War. ♦ Calculate the Capital Gain / (Loss) in a normal way. ♦ No Indexation Benefit will be available in such scenario. ♦ If the compensation is not in cash. Tsunami. Hurricane. but without availing the benefit of Indexation. applying Average of ‘Buying’ and ‘Selling’ T/T Rate of SBI. ♦ The amount of compensation received from the Insurance Company shall be considered as ‘Sale Consideration’. [G. litigation / legal expenses incurred to get the compensation enhanced will be allowed as a deduction in the form of ‘Transfer Expenses’. ♦ Reconvert such ‘Capital Gain in Foreign Currency’ into the ‘Capital Gain in Indian Currency’. acquires an asset out of that and sells that asset and derives capital gains. War. Civil Disturbance. convert the ‘Cost of Acquisition in Indian Currency’ into the ‘Cost of Acquisition in Foreign Currency’. ♦ However.INCOME TAX ♦ The Cost of Acquisition and the Cost of Improvement will be taken as NIL. Flood. will be in terms of foreign currency. or an action taken in combating with an enemy.

it is a ‘Residual’ head of income. Section 56 (2): Under Section 56 (2). or 45. the way it would have been calculated otherwise for a resident assessee. Furniture.) above.Prof. Rent from Letting out of Plant & Machinery. J. (If they are held as Stock-in-Trade. Thus. the Capital Gains shall be computed in an absolutely normal way. The Capital Gain or Loss shall be computed in Indian Currency only. any income not taxable under the head Income from Salary. There shall be no requirement to convert the Sale Consideration or the Cost of Acquisition from Indian Currency to Foreign Currency. is chargeable to tax as Income from Other Sources.INCOME TAX (b. Nihit Kishore—98202 25728 TYBCom. 22. 28. then interest therefrom will be chargeable to tax as income from Business or Profession and not as income from Other Sources). will be chargeable to tax as Income from Other Sources (IFOS) i.) In case of any other Asset other than Shares and Debentures of Indian Company acquired by Non-Resident: In case of any other Asset other than Shares and Debentures of Indian Company acquired by Non-Resident. shall not apply.e. 2. Interest on Securities. House Property. Business/Profession or Capital Gains. (a. CH-9 INCOME FROM OTHER SOURCES (SEC 56 AND 57) Any income which is not chargeable to tax under Section 15. provided Securities are held as Investment and not as Stock-intrade. The benefit of Indexation will be available for other assets. 79 . the above-mentioned procedure mentioned in point no. the items that are mentioned as taxable under this head are as follows:1.

For e.000/. it becomes an income in his hand and later on when he deposits such sum in the respective fund. where the term ‘Relative’ would mean: 4.000/. following receipts of cash shall not be regarded as an income: (a. Dividend from shares of a Foreign Company or from shares of a Co-Operative Society. X.INCOME TAX 3. 5. A. (b. For e.each from his three friends Mr. However. Puzzles.g. then entire amount of Rs. Any Gift in cash (only cash and no other asset whether moveable or immoveable) exceeding Rs. (d. without any consideration from any person.(and not only the amount in excess Rs. 17. 80 .000/. 50. Θ Parents of the Individual.) Cash received from any person on occasion of Marriage (only Marriage and no other function like Birthday Party or Engagement).g. Θ Any lineal ascendant or descendant of the individual. Composite Rent (Combined Rent) from Letting out of Building.: Composite rent from letting out of a Cinema Building together with chairs. Θ Spouse of Brother or Sister of the Spouse of the Individual. Winnings from Lotteries. Nihit Kishore—98202 25728 TYBCom. but will be separately taxable as income from Business /Profession).) Cash received under a Will or Inheritance. Θ Spouse of Brother or Sister of the Individual. (Only Winnings from such activities and not business income generated out such activities. 6.: Mr.g. Card games.received by an Individual or a Hindu Undivided Family on or after 01-09-2004. it is allowed as a deduction to him from his income as an allowable business expenditure. 51. Y and Z on 12/09/2009. Crosswords. or their spouse. Θ Brother or Sister of the Individual.) Cash received in contemplation death of the donor. Any sum received under a ‘Keyman Insurance Policy (KIP)’ including any Bonus therein. then it would have been chargeable to tax as income from Other Sources. Θ Spouse of any lineal ascendant or descendant of the individual For e.Prof. 7. Initially when an employer receives any contribution from his employees towards any Staff Welfare Scheme. 8. Θ Brother or Sister of the Spouse of the Individual. subject to the provisions of section 43B. Races including Horse Races or from Betting or Gambling. Θ Brother or Sister of the Parents of the Individual. J. [Dividend from shares of an Indian Company is exempt from tax by virtue of section 10 (34).) Cash received from a Relative. Θ Spouse of the Individual.000/-) will be chargeable to tax in the hands of Mr. under the head Income from Other Sources. projectors and other furniture will be entirely chargeable as income from Other Sources. (c. any other game of any sort.] Any sum received as contribution by assessee from his employee towards any Staff Welfare Scheme. A received Rs. along with Plant & Machinery or other assets.: Income from Agency Commission on selling of Lottery Tickets will not be taxable as IFOS. 50. if it was not exempt.

: Mr.— (i) the value of movable property shall be the fair market value as on the date of receipt in accordance with the method prescribed. (If the stamp duty value of immovable property is disputed by the assessee. This amendment will take effect from 1st October.000/. 50.f.000/-) will be chargeable to tax in the hands of Mr. Anything which is received in kind having ‘money’s worth’ i.) If a movable property is received for a consideration which is less than the FMV of such property and the difference between the two exceeds Rs. the whole of the stamp duty value of such property shall be taxed as the income of the recipient. J. 2009 and will accordingly apply for transactions undertaken on or after such date.000/. irrespective of the business of the assessee. then entire amount of Rs.Prof. 51. 50. will be taken as income from other sources only when the same is not taxable under any of the other four heads of income.from his friend Mr.e. A. Archaeological Collections.INCOME TAX For e.) One shall borne in mind that all the incomes discussed above.) In a case where movable property is received without consideration and the aggregate fair market value (FMV) of such property exceeds Rs. Jewellery.] [A. A received Rs. Therefore Section 56 was amended w. X on 12/09/2006.[Such properties will include immovable property being Land or Building or both. the provisions of existing section 50C and sub-section (15) of section 155 of the Income Tax Act shall. 50.000/-. the Assessing Officer may refer the valuation of such property to a Valuation Officer.e.g. Dividend and Winnings are always taxable as Income from Other Sources. to provide that the value of any property received without consideration or for inadequte consideration will also be included in the computation of total income of the recipient as follows:. apply for determining the value of such property.000/. the whole of the FMV of such property shall be taxed as the income of the recipient. as far as may be. Shares and Securities. except of Dividend income and Winnings from Lotteries. 50.] In case of an Immovable Property: (i. etc. the value of the property shall be the ‘stamp duty value’ of the property. 81 .00/-. 51. for an inadequate consideration).000/. 01/10/2009. (ii. Drawings. Puzzles. Betting. under the head Income from Other Sources. then the excess of the FMV of such property over such consideration shall be taxed as the income of the recipient.e. NOTE: (1. exceeds Rs.] In case of a Movable Property: (i. Nihit Kishore—98202 25728 TYBCom. (ii. It is also proposed to provide that. Property was outside the purview of the existing provisions.(and not only the amount in excess Rs. 50. Card Games.) [B.) In a case where an immovable property is received without consideration and the stamp duty value of such property exceeds Rs. then the excess of stamp duty value of such property over such consideration shall be taxed as the income of the recipient.(i.(an inadequate consideration). In such cases. Sculptures or any Work of Art.) If an immovable property is received for a consideration which is less than the stamp duty value of such property and the difference between the two. Paintings. Gambling. and (ii) in the case of an immovable property.

whereas rent received from Subletting of a House Property is chargeable to tax as income from Other Sources) (‘Subletting’ means letting out of a property by Tenant of that property or by a person who is not an owner of that property) 14. 12. such remuneration is not chargeable to tax as ‘Salary’ because Members of Parliament are not treated as Government Servant. 17. irrespective of the method of accounting followed by the assessee. 6. 2. 11. Commission received by a Director from his/her Employer Company for underwriting the Shares of that Employer Company.) All those incomes. (Rent received from Letting out of a House Property is chargeable to tax as income from House Property.000/-) (‘Family Pension’ is an un-commuted monthly/periodical pension received by Family Members or Legal Heirs of a deceased Employee after his/her death) 13. are chargeable to tax either on ‘Due’ basis or on ‘Receipt’ basis.15. Interest on Bank Fixed Deposits and Loans given. Casual and Non-Recurring Incomes other than Capital Gains. Dividend income is always chargeable to tax on ‘Due’ basis. 5. Agricultural income received from a Land situated outside India. Annuity (Annual Receipt) received under a Will or a Trust deed. Royalty income. Rent from Letting out of a vacant Plot of Land. 10. if Building is also present. 8. Income from an Undisclosed Source. (Though it is called as ‘Salary’. Amount received under Family Pension. Compensation received on business asset.: Royalty received for writing Books. 16. 9. who is engaged in ‘Owning & Maintaining’ Horse Race. 3. They do not have any employer and due to lack of employer-employee relationship. depending upon the method of accounting regularly followed by the assessee. which will be lower of 1/3rd of such Family Pension or Rs.Prof. which are chargeable to tax as income from Other Sources. (Only from a vacant Plot of Land without having any Building constructed thereon. except of ‘Dividend’ income. OTHER INCOMES CHARGEABLE UNDER THIS HEAD: 1.INCOME TAX (2. 82 . their remuneration can not be charged to tax as ‘Salary’) 15. Salary received by Members of Parliament. Ground Rent. Commission received by a Director from his/her Employer Company for standing as Guarantor of a loan taken by his/her Employer Company. 18. (If he/she were an employee Director. then such Gratuity would be chargeable to tax as Salary and not as income from Other Sources). Any Income received by an assessee. 4. Nihit Kishore—98202 25728 TYBCom. Income on any Investment. Income from Subletting of a House Property. (Subject to Standard Deduction u/s 57 (2)(a). Director’s Sitting fees (Directorship Fees). For e.g. Gratuity received by a Director from the Company provided he/she is not an employee of that company. then such rent would be chargeable to tax as income from House Property and not as income from Other Sources) 7. J.

(4. Section 10(15): Any Interest on Post Office Saving A/c or from notified Securities. 15. Section 10(17): Allowances to MLA or MP. provided income generated out of that asset is chargeable to tax as Income from Other Sources. are all allowed to be deducted.) Section 57(2)(a): Standard Deduction in case of Family Pension allowed to be deducted at either Rs. (6. 2. Current repairs in respect of Building as per Section 30. Section 10(1): Agricultural income from Agricultural Land in India. Building.Prof. # List of incomes exempted from tax under section 10 from this head: 1.000/. (b.) Section 57(1): Commission or Remuneration paid for realizing Dividend or Interest on Securities. in the hands of the person who is in receipt of the amount under Family Pension.) Section 57(2): Repairs and Depreciation in case of letting out of the Plant and Machinery. Nihit Kishore—98202 25728 TYBCom.) Section 57(3): Any other expenses for earning income from Other Sources is allowed to be claimed as deduction if. (3. 6. is allowed to be deducted from Income from Other Sources. 4.) Expense is incurred wholly and exclusively for earning the income. 3. (5. Section 10(16): Any Educational Scholarship received. (2. Section 10(17A): Any Award received from Central/State Government. Furniture.) Expense is not a Personal expenditure.) Expense is not a Capital Expenditure.or 1/3rd of Family Pension received. the Principal amount of Income Tax Refund is not taxable – only interest on such refund is taxable) PERMISSIBLE DEDUCTIONS FROM INCOME FROM OTHER SOURCES: Section 57: The following Deductions are permissible under the head Income from Other Sources (IFOS): (1.) Depreciation as per Section 32: Depreciation as per section 32 of the Act.) Expense is incurred in the Previous Year. 8. (c. Section 10(12): Any amount due from Provident Fund A/C. J. Repairs on the Plant and Machinery and on the Furniture along with the Insurance Premium as per Section 31. whichever is less. 7.INCOME TAX 19. Section 10(11): Interest or any Amount due from Public Provident Fund. provided that the contribution is credited to the fund before the due date of filing the Income Tax Return by Employer. Insurance Premium on the Premises. (d. such: (a. 83 . Section 10(13): Any amount due from an Approved Superannuation Fund. received from Income Tax Department.) Section 57(1)(a): Deduction in respect of Employees’ Contribution towards Staff/Employees’ Welfare Scheme. Interest on Refund of Income Tax. for the risk of Damage or Destruction. (However. 5.

Section 10(10D): An amount received from Life Insurance Policy including any Bonus therein. deductions available from each individual head of income are called ‘specific deductions’.INCOME TAX 9. which are popularly known as deductions from Section 80C to section 80U. These deductions are called ‘general deductions’.Prof.e. from total of income of all the five heads of income. issued by any Insurance Company in India. Nihit Kishore—98202 25728 TYBCom. CH-10 DEDUCTIONS UNDER CHAPTER VI A (SECTION 80C TO SECTION 80U) Apart from specific deductions available under each respective head of income (just like Standard Deduction available under the head income from ‘Salary’). J. there are few more deductions available from Gross Total Income i. 10. 11. provided annual premium payable on such policy. does not exceed 20 % of the Sum Assured of such Policy. whereas. Section 10(34): Any Dividend received from an Indian Domestic Company. but we have only five deductions 84 . In all there are many deductions available under this Chapter. These ‘general deductions’ are governed by Chapter VI-A of the act. Section 10(35): Any income from units of UTI or from units of a Mutual Fund.

Gambling. what is the maximum deductible amount under each section?  Any other specific condition attached to each section subject to fulfillment of which deduction shall be available.Prof. 23. For e.INCOME TAX applicable for our syllabus. 85 . in any of the followings:Θ Any amount paid towards Premium of Life Insurance Policy of an Insurance Company.’]. Θ Amount deposited in a Pension Plan or an Annuity Plan of an Insurance Company in India. etc.shall lapse. where annual premium of the policy does not exceed 20 % of the Sum Assured (Sum Assured is nothing but the amount for which the policy is taken out)..I. total of deductions shall not exceed the Adjusted Gross Total Income and Gross Total Income shall not become negative due to deductions. Nihit Kishore—98202 25728 TYBCom. While dealing with any of the above five deductions.g. It would be worth noting here that the same Pension Plan or Annuity Plan may be eligible for Deduction under section 80CCC.T. 3. (3) u/s 80D.000/and balance Rs. Such premium may be paid by the assessee on the life of Self or Spouse or Children. where ‘Adjusted Gross Total Income’ would mean [Gross Total Income i. then amount of premium in excess of 20% shall be ignored for the purpose of deduction under this section. then deduction under this section will be available for only Rs. (1) u/s 80C. whether dependent on the assessee or not. (1. Betting. (2) u/s 80CCC. (4) u/s 80DD.)’ also?  What is the quantum of the deduction i.O. but not both. Certain deductions are based on ‘Incomes’ whereas.e. married or unmarried. The total of all the deductions under this chapter shall be restricted to the maximum of ‘Adjusted Gross Total Income’. (5) u/s 80E and (6) u/s 80U.if the annual premium is Rs.000/-.O.000/.e. etc. No Double Deduction is allowed under the act. In other words.] less [‘Long Term Capital Gains’ and ‘Winnings from Lotteries. 1. G. Puzzles. whether the deduction is available to ‘Resident and Ordinarily Residents (R. J. Crossword.)’ only or is it available to ‘Resident but not Ordinarily Resident (R. 20.R.) Under Section 80C: Deduction on account of payment / deposit / investment.R. There is no limit on the number of children and a child may be minor or major. If the annual premium exceeds 20% limit.00. but an assessee may either claim deduction under section 80CCC or may claim deduction under this section. few are based on ‘Expenses’. male or female. namely.000/. Let us now consider all the six deductions separately to have a better understanding of all of them. one must mainly observe the following points regarding each deduction. There shall be no ‘Refund of Tax’ arising due to deductions.N. i.R. so that one can easily remember all of them: What should be the Residential Status of the Assessee in order to be eligible for the deduction.)’ and ‘Non-Residents (N.e.: For a Life Insurance Policy of Rs.

S.S.) of a notified Mutual Fund. Amount contributed by an employee to a Recognized Provident Fund. Contribution to Equity Linked Savings Scheme (E.I.L.S. VII and VIII Series.S.I.per annum. Amount contributed by an employee to an Approved Superannuation Fund. J. Contribution to a Fund set up by National Housing Bank (NHB).C.) VI. Any Payment towards Cost of Purchase or Construction of a Residential Property (It even includes any payment made for Stamp Duty or Registration charges to register the Property) including any Repayment of any Loan (only Loan and not Interest). for a Full Time Educational Course.per annum. Investments in National Savings Scheme (N. College or an Educational Institution in India (but not to any Coaching Class or to any Private Tutor). 2004 Bonds of National Bank for Agricultural and Rural Development (NABARD) The amount of deduction under this section shall be the lower of the following two:• The total of the amount actually Paid / Deposited / Invested in all or any of the above. Investments in Debenture. 10. taken from Government or any Bank or Life Insurance Corporation (L. for a maximum of two children.000/.00.T. for an amount not exceeding Rs.per annum. Contribution to 5 Years.) or National Housing Bank or from an Employer where Employer is a Public Company or a Public Sector Company or University or a Co. Library fees. Amount contributed by an assessee to a Public Provident Fund for an amount not exceeding Rs.Prof.T.). 70.) Scheme of Post Office. Unit Linked Insurance Plan (U. 10 Years or 15 Years Cumulative Time Deposit (C.INCOME TAX Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Θ Amount contributed by an employee to a Statutory Provident Fund. Nihit Kishore—98202 25728 TYBCom. Investments in National Savings Certificates (N. VII and VIII Series.D. for an amount not exceeding Rs. Investment in units of a notified Mutual Fund.000/.) or any other Mutual Fund.-Operative Society Payment of Tuition Fees of children. (other than any Donation or Development Fees.S. Bus Fees or any such payment of a similar nature) to any University.) VI.000/.I.C. 5 Years’ Term Deposit with any Scheduled Bank. Accrued Interest on National Savings Certificates (N. Bonds or Equity Shares of an approved Public Sector Company or a Public Financial Institution engaged in providing Infrastructure Facilities in India.L. 10.I.C.C.) or Life Insurance Corporation of India (L.P.) of Unit Trust of India (U. Investments in units of an approved Mutual Fund engaged in providing Infrastructure Facilities in India.000/- 86 . 1. or • Rs. Gymkhana Fees.S. Senior Citizen’s Savings Scheme. School.

other than those mentioned above whether dependent upon the assessee or not. If a person on whose health the mediclaim premium is being paid is a Resident Senior Citizen. 1.000/-.Prof.e. the maximum amount of deduction permissible under section 80C + 80CCC combined shall not exceed Rs. 15. but shall be Rs. Note: Contribution to Pension Plan is covered by section 80C as well as by section 80CCC also. whether he/she is a Citizen of India or not. However. J. • Parents whether dependent upon the asseessee or not or • dependent Children. Amount of deduction shall be the lower of the following two:• The amount deposited under such plan. 20. then such amount shall not be eligible for the deduction. (3) Under Section 80D: Deduction on account of payment of Mediclaim Premium: This deduction is available upon payment of ‘Mediclaim Insurance Premium’.00.00.000/This deduction is available to ‘Individuals’ as well as to “Hindu Undivided Families’ but not to any other assessee. whether Spouse is dependent upon the asseessee or not. 2 Lacs (i. The amount of deduction shall be the lower of the following two:• The actual amount of mediclaim premium paid. this deduction is restricted to maximum of Rs. 1 Lac only. ‘Pension’ or ‘Annuity’ received at the time of maturity of such policy.00.000/. though ‘Contribution to Pension Plan’ is covered twice with Rs.g. Rs. For e.per annum. or • Rs. 1 Lac). 1 Lac of ceiling limit under both the sections. This deduction is available to ‘Individuals’ only.: If mediclaim premium is paid by the assessee on the health of his dependent brother. 1. Individuals can pay mediclaim premium on the health of • Self or • Spouse. by assessee on the health of self and/or family members. shall be taxable as income from Other Sources. or • Rs. 1 Lac + Rs. the deductible amount shall not be Rs. as per section 80CCE. Individuals or Hindu Undivided Family may be Resident or Non-resident.whichever is less. 1. Nihit Kishore—98202 25728 TYBCom. then the quantum of deduction under this section shall be the amount of mediclaim premium paid or Rs. If mediclaim premium is paid by assessee on the health of any other family member or persons. shall not be eligible for deduction under this section.INCOME TAX (2.000/In other words.000/. Eligible assessee may be Resident in India or may be a Non-Resident. In simple words. In such a 87 .) Under Section 80CCC: Deduction on account of payment of Pension plan Premium: This Deduction is available upon depositing a sum under an ‘Annuity Plan’ or a ‘Pension Plan’ of Insurance Company in India.

whether out of taxable income of the current year or out of the taxable income of any other year.000/. (‘Senior Citizen’ means. (e. • Mediclaim Premium should have been paid by way of any mode other than by way of Cash.Blindness. a deduction of Rs.Physical Handicappness.f. (whether dependent upon him or not). -.00.or Rs.as the case may be or the actual amount of Mediclaim Premium paid for parents. -.flat. then the amount of deduction will be Rs.u/s 80D.000/.) If the percentage of disability has not been specified in the question.flat (Rs.INCOME TAX case. J. • W. (b.000/-. then it shall be assumed to be more than 40% but less than 80%. then he will get an additional deduction of Rs. 1. 15.000/.Cerebral Palsy.) If the disability is more than 80% (popularly called as ‘Severe Disability’) (as certified by a Medical Practitioner working with any Government Hospital). (f.Autism. Nihit Kishore—98202 25728 TYBCom.instead of Rs. 2009-10.Y. If parents are Senior Citizen. as certified by a Medical Practitioner working with any Government Hospital. (Naturally.000/.) The disability should be at least 40% or more. And accordingly. the assessee himself/herself need not be a senior citizen or a resident.e.shall be allowed. incurred by assessee for his relative who is dependant on him and is suffering from a specified disability. this additional deduction will be either Rs.Y.) The amount of deduction will be Rs. If it is paid out of cash. A. (c. 88 .000/. whichever is less) (4.000/. 20.000/. 15.000/. 50. -.) This deduction is available for expenditure incurred on Medical Treatment and Maintenance charges.) Under Section 80DD: Deduction on account of maintenance of a dependant relative suffering from a disability: (a. 15. if assessee pays Mediclaim Premium for his parents. irrespective of any expenditure actually incurred on maintenance of such dependant relative. then the amount of additional deduction will be Rs.Low Vision.Leprosy (d. only the person on whose health the medicalim premium is being paid shall be a resident senior citizen.) The dependant relative should be suffering from any of the following: -.upto A. a person who is at least of 65 years of age. 75. -. 2009-10). 50.) This deduction is available only to a Resident Individual or HUF.Prof. (g. then no deduction under this section shall be available. -. 20. at anytime during the Previous Year) The following further points shall be noted in this regard:• Mediclaim Premium should have been paid out of taxable income of the assessee.

then no deduction under this section shall be available. no deduction will be allowed if interest on educational loan has just accrued. (b.INCOME TAX (5. If interest for the current year amounts to Rs. the deduction is allowable only for a period of eight consecutive (continuous) years starting from the year in which assessee starts paying interest for the first time. • Low Vision. • Cerebral Palsy. (d. (c. (only for payment of ‘interest’ and not for repayment of ‘Principal’ amount of loan).000/. If the disability 89 . It will be allowed as a deduction only if it has been paid during the given year. Statistics. 82.000/-. Medicine. out of which only Rs. J. unlimited amount of deduction can be claimed. Mathematics. but has not yet been paid. Information Technology. Management. Assessee should be suffering from any of the following specified disability by at least 40% :• Blindness. 50.) This deduction is allowable on payment basis only.) Under Section 80E: Deduction on account payment of Interest on Loan taken for Higher Education: (a. incurred by assessee for himself or herself. whether in India or outside India. • Autism. (Even any ‘vocational course’ or a ‘Diploma course’ will also be eligible). (6.) Under Section 80U: Deduction on account of Specified Disability: Deduction under this section is available on expenditure incurred on Medical Treatment and Maintenance charges. whether it leads to any degree or not. (e. In simple words.) The loan should have been taken from any Bank or a notified Financial Institution or any approved Charitable Institution.) There’s no upper limit on the amount of deduction.) The Loan should have been taken by assessee:-.for children (h. Nihit Kishore—98202 25728 TYBCom. This deduction is available only to Resident ‘Individuals’.has been paid.flat irrespective of the amount of expenditure incurred by assesssee. The amount of deduction available under this section is Rs.) This deduction is available on account of payment of interest on Loan taken for Higher Education. 50. it is not available to any other assessee. Therefore.for Self.000/. Applied/Pure Science. It should be in the field of Engineering. (g. (i. • Physically or Orthopaedical Handicappness. 50.) However. • Mental Retardedness.Prof. then deduction under this section will be only for Rs.) The Loan should have been taken for ‘Higher Education’. (f. • Leprosy If the disability is less than 40 %.for his/her spouse.) ‘Higher Education’ means any full time educational course after HSC (XIIth).) This deduction is available only to ‘Individuals’ whether Resident or Non-Resident. or -. or -.000/-.

Nihit Kishore—98202 25728 TYBCom.00.000/. And accordingly.shall be allowed. then the amount of deduction available under this section shall be Rs. • If the percentage of disability has not been specified in the question. The following further points shall be noted in this regard:• A Certificate from Medical Authority shall have to be obtained by the assessee.000/. certifying the fact that he/she is either Blind or Physically Handicapped and such Certificate shall be attached with the Return of Income of the assessee. a deduction of Rs. 1.upto A. then it shall be assumed to be more than 40% but less than 80%. (Rs.INCOME TAX specified above is more than 80 % (Severe Disability). 75. J.flat.Y. 50.000/. 2009-10) irrespective of the amount of expenditure incurred by the asseseee. 90 .Prof.

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