q4xRQ-4 Resources 5848 DT CMA Final Part 2 2020-21 Lyst2690

Tax by CMA Rajesh Kumar
CMA Final
AY : 2020-21
CMA Rajesh Kumar
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CMA Rajesh Kumar Tax Classes

Laxmi Nagar , Delhi
Vaishali, NCR Delhi
Direct Taxation [Part 2]

CMA – Final
(Assessment year 2020-21)
CMA RAJESH KUMAR

9958757172
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INDEX FOR THE CURRENT PART
Deductions from GTI 5
Relief u/s 89 36
Computation of Individual's Total Income (Assessment of Individual) 40
AMT 70
Assessment of HUF 74
Assessment of Firm 81
AOP and BOI 89
Cooperative Societies 95
Exemptions 102
Return of Income 128
Assessment procedure 146
Advance tax 152
Deduction and collection of Tax at source, Interest 154
Interest 171
Trust 176
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DEDUCTIONS FROM GROSS TOTAL INCOME
 No ded. Under chapter VI A shall be available from :
 Casual incomes u/s 115BB e.g. lottery etc
 LTCG u/s 112, 112A
 STCG on which STT is paid u/s 111A
 Deduction under chapter VI A cannot exceed GTI
Ded. u/s 80 C : applicable to Individual and HUF

1. Any sum paid by Individual as Tuition fee paid up to 2 children of the individual for full
time education in university, college, school or other educational institution situated within
Indian.
2. Any payment by Individual/HUF for purchase .or construction of residential house

property, such payment shall be towards:
 Instalment under self-financing scheme
 Any instalment to co-operative society, company where the assessee is a member for the
cost of the house allotted to him.
 Re payment of principal amount of loan borrowed for residential house
 Stamp duty, registration fee or other expenses for transfer of such house property
3. Any sum deposited in FDR not less than 5 years under a scheme framed and notified by
Central Government. Or in a scheduled bank.
4. Subscription in the bonds of NABARD
5. Any deposit in an account under the Senior Citizens Savings Scheme, Rule, 2007.
6. Any sum deposited in FDR not less than 5 years with Post office.
7. LIC Premium for self, spouse or any child( major or minor) upto 20% of sum insured, but if
policy is taken on or after 1-4-12, upto 10%. On or after 1-4-13, if policy is taken on life of
a disabled or diseased, upto 15%.
8. Cont. to SPF, RPF, PPF Max deposit in PPF is raised to Rs 1.5 Lacs.
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9. Purchase of NSCs
10. Investment in infrastructure Bonds or securities.
11. Sukanya smridhi Account Scheme.
DEDUCTION : MAX. RS 1.50 LACS.
Deduction under section 80CCC: Deduction in respect of contribution to annuity pension

plan of LIC or other insurer.
This deduction is available only to an individual upto Rs. 150000/- along with deduction under
section 80-C with respect to payment for annuity plan of LIC or other insurer for receiving
Pension.
Deduction under section 80CCD: Ded. In respect of contribution to pension scheme : This
deduction is allowed to an Individual, being employee or self employed person for contribution in
Pension scheme up to 10% of Salary (B.S. + DA (R) ) , and equal contribution by employer or
14% of Gross total income of a self employed person. This deduction is available upto Rs 50000
or upto Rs. 150000/- along with deduction under section 80-C and 80CCC. The Date of joining
in case of pvt sector employee not relevant for claiming tax benefits in respect of New
Pension scheme,
Sec 80 CCE : The cumulative ded. u/s 80c +80ccc + 80ccd shall be 1.5 lacs.
Deduction under section 80CCG: Ded. In respect of investment made under Equity saving
scheme : This deduction is available to Resident Individual on investment in listed shares or listed
eqity oriented funds.
Ded : Min. of : 50% of amount invested in equity shares or Rs 25000
GTI of the assesse should not exceed Rs 12 Lacs
DEDUCTION UNDER SECTION 80-D:
 This deduction is allowed to Individual ( may be resident, non-resident, Indian citizen, foreign
citizen)/HUF
 payment is made other than cash mode and out of the income chargeable to tax for insurance
premium of policy taken on the health such as mediclaim insurance policy and for CGHS.
 up to 25000/- in case of Individual along with family members (himself, spouse and
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dependent children of the assessee) and
 another up to Rs. 25000/- on the health of the parents (may be dependent or independent) and
another up to Rs. 5000/- where any of the person being senior citizen. Further, In case the
insurance is taken for resident Senior Citizen including very senior citizens (>= 60 years), then
deduction shall be Rs. 50000 .
 ♦ Preventive health check-up : Expenditure incurred on preventive health check-up within above
limit can be Rs. 5,000.
 ♦ Permitted mode of payment : The payment shall be made otherwise than by Cash. Payment in
cash for preventive health check-up is permissible.
 To HUF: Deduction allowable for any family member upto Rs. 50,000 (check-up not allowed)
Note : For preventive health check ups of assessee, his family, or parents , maximum amt
allowed is 5000 and that too within the overall limit of Rs 25000.
DEDUCTION UNDER SECTION 80DD:
 This deduction is available to Resident Individual/HUF in respect of maintenance including

medical treatment of a dependent being a person with disability or payment made to LIC or
any other insurer approved by the Board for a scheme for maintenance of dependent with
disability.
 Dependent here means, spouse, children, parents, brothers, sister of an individual and any
member in case of HUF.
 Fixed Deduction allowed is Rs. 75000/- in case of disability ranging between 40% to 80% and
Rs. 125000/- where the disability exceeds 80%.
 Where the dependent predeceases the taxpayer, the amount paid or deposited in a scheme of
insurance shall be deemed to be the income of the previous year in which such amount is
received by the assessee.
DEDUCTION UNDER SECTION 80DDB:
 This deduction is allowed to resident individual/HUF,
 where the expenses are incurred on medical treatment on the assessee himself or on the
dependent parents, wife, children, sisters, brothers.
 The amount of deduction shall be up to Rs. 40000/- depends upon the expenditure incurred for
treatment.
 The amount of deduction shall be up to Rs.100000/- (in case of dependent being Senior
citizen( 60 yrs or more) or very senior citizen ( 80 yrs or more))
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 Deduction under this section shall be reduced by the amount received; if any, under an
insurance from an insurer or reimbursement by the employer, for medical treatment of the
dependent person or of himself.
DEDUCTION UNDER SECTION 80-E:
 This deduction is available to Individual on interest on loan taken from Financial institutions,
approved charitable trusts etc for education to self or for relatives (spouse, any child or
student for whom the tax payer is a legal guardian).
 Deduction shall be allowed up to interest paid on such loan in the assessment year in which
the tax payer started payment of such loan and further for 7 assessment years.
DEDUCTION UNDER SECTION 80-EE in respect of loan taken for residential house
property:
 This deduction is available to Individual who has taken a loan of Max. 35 lacs from Bank or
housing finance co. for acquiring a RHP.
 The assesse must not own any RHP on date of loan sanction and
 the value of the RHP shall not exceed 50 lacs.
 Ded. : Min of : Interest payable on such loan or Rs 50000 .
 The assesse may claim 80EE over and above 24(B).
NEW SECTION 80EEA : an assessee, being an individual not eligible to claim deduction
under section 80EE, may avail for a deduction of up to Rs. 1.50 lakhs for interest on
loan taken from any financial institution for acquisition of a residential house property
whose stamp duty value does not exceed Rs. 45 lakhs. The assessee should not own any
residential house property on the date of sanction of loan.
NEW SECTION 80EEB has been inserted to provide for a deduction of Rs. 1.5 lakhs in respect of
interest on loan taken for purchase of an electric vehicle from any financial institution.
DEDUCTION UNDER SECTION 80-G:
 This deduction is available to any person on monetary donations given to funds and
institutions. 100% deduction when the donation is given to certain funds (there are 23 such
funds ),
 50% deduction is available where donation is given to certain funds (there are 4 such funds),
100% of (10% of adjusted total income) deduction is allowed where the donation is to
Government or to approved local authority for family planning or by company to institutions
for development of sports.
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 And 50% of (10% of adjusted total income) where donation is given to certain approved
funds.
 Adjusted total income means: GTI minus LTCG, STCA u/s 11lA, Deductions U/s 80-C to
80U except 80-G.
 Donation above 10000 shall be in a mode other than cash.
 Swatch Bharat Kosh, Clean Ganga fund and National fund for control of Drug abuse are
inserted wef A Yr 2020-21 with 100% Deduction.( Table I).
(a) Funds eligible for 100% deduction without any qualifying limit —
(i) National Defence Fund set up by Government;
(ii) The Prime Minister’s National Relief Fund;
(iii) The Prime Minister’s Armenia Earthquake Relief fund;
(iv) The Africa (Public Contribution-India) Fund;
(v) The National Children’s Fund.
(vi) National Foundation for Communal Harmony;
(vii) A university or any educational institution of national eminence as may be approved by
the prescribed authority in this behalf;
(viii) The Maharashtra Chief Minister’s Earthquake Relief Fund;
(ix) Any fund set up by the State Government of Gujarat exclusively for providing relief to
the victims of earthquake in Gujarat;
(x) Any Zila Saksharta Samiti constituted for the purpose of improvement of primary
education in villages and towns in such district and for literacy and post-literacy
activities;
(xi) The National Blood Transfusion Council or any State Blood Transfusion Council;
(xii) Any fund set up by a State Government to provide medical relief to the poor;
(xiii) Army Central Welfare Fund or Indian Naval Benevolent Fund or Air Force Central
Welfare Fund;
(xiv) National Illness Assistance Fund;
(xv) Chief Ministers Relief Fund or Lieutenant Governor’s Relief Fund of any State or Union
territory;
(xvi) National Sports Fund set up by the Central Government;
(xvii) National Cultural Fund set up by the Central Government;
(xviii) Fund for Technology Development and Application set up by Government;
(xix) Andhra Pradesh Chief Ministers Cyclone Relief Fund;
(xx) National Welfare Trust for persons with Autism, Cerebral Palsy Mental Retardation and
Multiple Disabilities.
(xxi) Swachh Bharat Kosh
(xxii) Clean Ganga Fund
(xxiii) National Fund for control of Drug abuse
(b) Funds eligible for 50% deduction without any qualifying limit –
(i) The Jawaharlal Nehru Memorial Fund;
(ii) The Indira Gandhi Memorial Trust;
(iii) The Prime Minister’s Drought Relief Fund;
(iv) The Rajiv Gandhi Foundation;
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(c) Funds eligible for 100% deduction subject to qualifying limit: 100% deduction shall
be allowed subject to the qualifying amount, if donations are made –
(i) to the Government or to any such local authority, institution or association as may be
approved in this behalf by the Central Government, to be utilised for the purpose of
promoting family planning; or
(ii) to the Indian Olympic Association or to any other association or institution established in
India, as the Central Government may, having regard to the prescribed guidelines, by
notification in the Official Gazette, specify in this behalf. (Deduction is available only to
company assessee)
( d ) Funds eligible for 50% deduction subject to qualifying limit: 50% deduction shall be
allowed subject to the qualifying amount if donations are made –
(i) to the government or any local authority, to be utilised for any charitable purpose other
than the purpose of promoting family planning;
(ii) to approved charitable institution, which satisfies the conditions of Section 80G(5);
(iii) for the renovation or repair of any such temple, mosque, gurdwara, church or other place as
is notified by the Central Government in the Official Gazette to be of historic,
archaeological or artistic importance or to be a place of public worship of renown
throughout any State;
(iv) to an authority constituted in India by or under any law enacted either for the purpose of
dealing with and satisfying the need for housing accommodation or for the purpose- of
planning, development or improvement of cities, towns and villages, or for both;
(v) Corporation for promoting interests of minority community as given under section
10(26BB).
Qualifying Limit: The maximum limit is 10% of adjusted gross total income.
“Adjusted gross total income” means “Gross total income” as reduced by —
(a) Deduction allowable under section 80C to 80U other than 80G;
(b) LTCG
(c) STCG 111A
(d) Incomes included in the gross total income on which no tax is payable;
(e) Incomes referred under sections 111A, 112, 115BB, 115A(1)(a), 115AC, 115ACA, 115AD,
115BBA, 115BBD, 115BBE and 115D which is included in the gross total income.
DEDUCTION UNDER SECTION 80-GG: This deduction is available to an individual being

employee not in receipt of HRA and any other self employedperson who paid rent for residential
house, he shall be allowed deduction for the least of the following:
 Rs. 5000 p.m.
 Rent paid minus 10% of adjusted total income
 25% of the adjusted total income
Adjusted total income means: GTI minus LTCG, STCA u/s 111A, Deductions U/s 80-C to 80U
except 80-GG.
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Provided that the following persons do not have any house near his place of work or where he
resides:
a Taxpayer
a.His/her spouse
b.His/her minor child(including minor step child or minor adopted child)
c.HUF of which the taxpayer is a member.
Moreover if the assessee is having a residential house other than the places as mentioned above
then the same house should not be treated as SOP. Deduction can be claimed only when the
taxpayer files a declaration in Form No. 10BA.
DEDUCTION IN RESPECT OF CERTAIN DONATIONS TO SCIENTIFIC RESEARCH

OR RURAL DEVELOPMENT U/S 80GGA:
Assessees not having income from business &profession, if gives donation to the following
institutions, gets deduction @ 100% of the donations:
 Scientific research associations or research associations or to an approved university, college

or other institution to be used for scientific research,
 Approved associations, institutions having object of undertaking of any Programme of rural

development.
 Approved associations or institution which has its object, the training of persons for
implementing programme of rural development.
 Public sector company local authority or an association or institution approved by National

Committee for carrying out any eligible project.
 National fund for rural development
 National Urban Poverty Eradication Fund.
[ Donation above 10000 shall be in a mode other than cash].
DEDUCTION IN RESPECT OF DONATIONS TO POLITICAL PARTIES OR

ELECTROAL TRUST: SECTION 80GGB AND 8OGGC:
Any amount (Not by Cash) contributed to political party or electoral trust by an Indian company or
any other assessee qualify for 100% deduction. This deduction is not available to local authority or
artificial juridical person, which is wholly or mainly funded by government.
DEDUCTION UNDER SECTIN 80-IA: Deduction under section 80-IA is allowed from the
profit of the undertaking. This deduction is allowed for the following undertakings:
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1. Undertaking engaged in infrastructure facility
2. Undertaking engaged in power generation, transmission and distribution or substantial

renovation and modernization of existing distribution line.
UNDERTAKING ENGAGED IN INFRASTRUCTURE FACILITY: An Indian Company is

allowed a deduction if the following conditions are satisfied:
1. It should provide infrastructure facility
2. There should be an agreement of company with the Government (central/state or local

authority) for the same.
3. It starts operation on or after 1.4.1995
4. Deduction to be claimed in the return of income, which is filed in time.
DEDUCTION ALLOWED:100% of profit 10 consecutive years out of 15 years starting from

the initial year in case of ports, airports, inland waterways. In case of any other facility 100% of
profit 10 consecutive years out of 20years starting from the initial year
UNDERTAKING ENGAGED IN POWER GENERATION AND DISTRIBUTION:
In order to get a deduction, these undertakings must fulfill certain conditions:
1. It should be new undertaking
2. It is setup in any part of India
3. It should not be formed by transferring old plant and machinery
4. Undertaking should start operation of generation between 1.4.1993 to 31.3.2017 and should
start distribution between 1.4.2000 to 31.3.2017.
5. Undertakes substantial renovation and modernization any time during 1.4.2004 to

31.03.2017. Substantial renovation means an increase of plant & machinery by atleast 50 %
of the book value of such P&m as on 1.04.2004.
6. Deduction to be claimed in the return, which is to be filed in time.
DEDUCTION ALLOWED:100% of profit 10 consecutive years out of 15/20* years starting

from the initial year. (* 20 for other than port, inland waterways, airports, channels in sea)
UNDERTAKING ENGAGED IN RE-CONSTRUCTION OF POWER UNITS:In order to

get a deduction, these undertakings must fulfill certain conditions:
1. It is owned by Indian company
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2. It must be notified by the central government before31.3.2007.
3. It start generating,transmitting etc. Before 31.3.2013
4. Deduction to be claimed in the return,which is to be filed in time.
DEDUCTION ALLOWED: 100% of profit 10 consecutive years out of 15 years starting from
the initial year.
UNDERTAKING ENGAGED IN LAYING, OPERATING CROSS COUNTRY

NATURAL GAS DISTRIBUTION NET WORK:
In order to get a deduction, these undertakings must fulfill certain conditions:
1. It is owned by Indian company
2.It is approved by Petroleum and Natural Gas Regulatory Board and notified by Central
Government.
3. 1/3rdpipeline capacity shall be available for use as common carrier basis.
4. It starts functioning after 1.4.2009
5. It should be new and not by splitting old one
DEDUCTION ALLOWED:100% of profit 10 years out of 15 years starting from the initial year.
DEDUTION IN RESPECT OF PROFITS AND GAINS BY AN UNDERTAKING OR

ENTERPRISES ENGAGED IN DEVELOPMENT OF SEZ (SECTION 80-IAB):In order to
get a deduction under this section, these undertakings must fulfill the following conditions:
1. Taxpayer is a developer of SEZ
2.The gross total income of the taxpayer includes profit and gain from the business of
developing of SEZ.
3. Such SEZ is notified on or after 1.4.2005.
4. Books of accounts-of the taxpayer are audited
DEDUCTION ALLOWED: 100% of profit 10 consecutiveyears out of 15 years starting from the
initial year.
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SECTION 80-IAC : Ded for eligible business of eligible start up wef 2020-21
Section 80-IAC of the Income tax Act, 1961 provides 100% deduction to start-ups for 3 consecutive years
out of seven years if it is incorporated between 01.04.2017 to 31.03.2019 and the turnover is upto
INR 25 crores per year between 01.04.2017 to 31.03.2021.
Ded : 100 % of the profits for 3 consecutive assessment year out of 7 years.
An amendment in order to provide that start-ups incorporated between 01.04.2020 to 31.03.2021 can also
avail the benefit of this Section. Further, turnover limit of INR 25 crores is applicable for first seven
years from start date. Start-up can be of such type which can generate employment or create wealth
substantially.
DEDUCTION INRESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL

UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVElOPMENT .
UNDERTAKINGS (SECTION 80-IB):
Undertakings which are engaged in the following activities. are allowed deduction under this
section:
1. Production of mineral oil
2. The business of processing, preservation and packaging of fruits or vegetables or integrated

handling, storage and transportation of food grain units;
3. Operating and maintaining a hospital in rural area
4. Hotels located in certain areas
BUSINESS OF INDUSTRIAL UNDERTAKING: Deduction under this section is to be

available to an industrial undertaking, which is mainly engaged in the business of construction of
ships or in the manufacture or processing of goods or in mining, must fulfill the following
conditions:
1. It should be new undertaking. But in case of business is re-established, re-constructed or

revived by the same assessee carried on in India is discontinued due to flood, typhoon,
hurricane, cyclone, earthquake or other convulsion of nature or riot, civil disturbance or
accidental fire or explosion or action by any enemy, re-established business is treated as new
one.
2. It should not be formed by transfer of old plant and machinery
3. It should produce/manufacture article other than mentioned in schedule eleven.
4. Manufacture/production should be started within the stipulated time limit
5. It should employ 10/20 workers
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6. Deduction should be claimed in return, which is to be filed in time.
DEDUCTION: 100% for first 5 years and 30% for next 5 years
HOTEL INDUSTRY:Deduction shall be available only on fulfillment of the following

conditions:
1. This should be a new business, it should not be formed by splitting or reconstruction of

already existing business.
2. It is owned- by Indian company having paid up capital Rs. 500000/-
3. The business of the hotel is located in hilly area, rural area or a place of pilgrimage or -
such other place as the Central government may specify for the purpose.
4. It starts functioning between 1.4.1990 to 31.3.1994 and in places other than Calcutta,
Chennai, Delhi and Mumbai between 1.4.1998 to 31.3.2004.
5. It is approved by the prescribed authority
6. Deduction must be claimed in the return, which is to be filed in time.
DEDUCTION:50% of profit for first 10 years where the hotel is situated in the above areas and
30% for first 10 years where the hotel is situated in any other area.
COMPANIES ENGAGED IN INDUSTRIAL RESEARCH:Deduction shall be available only

on fulfillment of the following conditions:
1. Tax payer is a company registered in India
2. Main object of the company should be industrial research and development
3. It is approved- by the Secretary, Department of Scientific and Industrial research
4. It should employ 10/20 workers
5. Deduction must be claimed in the return,which is to be filed in time.
DEDUCTION:100% of the profit for first 7 years commencing with the year In which the
undertaking commences commercial production of mineral oil or refining of mineral oil
DEVELOPING AND BUILDING HOUSING PROJECTS: SEC 80IBA
Deduction shall be available only on fulfillment of the following conditions:
1. Project should be approved by authority after 1.6.2019 but before 313.2020
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2. Size of plot of land should be minimum of 1000 sq mtr located within delhi, Mumbai,
Chennai, Kolkatta or within 25 Kms range. Otherwise 2000 sq mtrs.
3. The project must be completed within 3 yrs.
4. Shops and other commercial area should not exceed 3% of the total built up area.
5. Built up area per unit should be 30 sq mtr if located in DMKC or within 25 km otherwise 60
sq mtr.
6. Only one residential unit is to be allotted to an individual or other persons.
7. Deduction should be claimed in the return, which is to be filed in time.
DEDUCTION: 100% of the profit is deductible.
With a view to align the definition of “affordable housing” under section 80-IBA with the definition under
GST Act, it is proposed to amend the said section so as to modify certain conditions regarding the
housing project approved on or after 1st day of September, 2019. The modified conditions are as
under:
(i) the assessee shall be eligible for deduction under the section, in respect of a housing project if a
residential unit in the housing project have carpet area not exceeding 60 square meter in
metropolitan cities or 90 square meter in cities or towns other than metropolitan cities of Bengaluru,
Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad,
Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region);
and
(ii) the stamp duty value of such residential unit in the housing project shall not exceed forty five lakh
rupees;
The existing provisions of the section 80-IBA of the Act, inter alia, provide that where the gross total
income of an assessee includes any profits and gains derived from the business of developing and
building housing projects, there shall, subject to certain conditions, be allowed, a deduction of an
amount equal to hundred per cent of the profits and gains derived from such business.
These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to
assessment year 2020-21 and subsequent assessment years.
OPERATING AND MAINTAING A HOSPITAL IN RURAL AREA:Deduction shall be

availableon fulfillment of the following conditions:
1. Assessee derives profit from operating and maintaining a hospital in rural area
2. It is constructed between 1.10.2007to 31.3.2014
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3. It has at least 100beds for patients
4. Construction of the hospital is according the regulations of the local authority
S. Deduction should be claimed in the return, which is to be filed in time.
DEDUCTION:100% profit for five years, from the assessment year relevant to the previous year
when it begins to provide medical services.
FIVE YEARS TAX HOLIDAY TO HOSPITALS LOCATED IN CERTAIN AREAS:
With effect from A.Y. 2009-10, deduction of 100% of profits for 5 years from the A.Y. relevant to
previous year in which hospital starts functioning subject to fulfillment of the following conditions:
1. Hospital is located in area other than excluded areas. Excluded area means, an area
comprising the urban agglomeration of Greater Mumbai, Delhi, Kolkata, Chennai,Hyderabad,
Banglore, Ahmedabad, the districts of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar
and Gandhinagar and the city of Secunderabad.
2. It should be constructed and commenced services between 1.4.2014to 31.3.2019
3. It has at least 100 beds for patients
4. Construction must be according to the bye-laws of the local authority
5. Tax payer should submit audit report in form lOCCBD
6. Deduction should be claimed in the return, which is to be filed in time.
DEDUCTION IN RESPECT OF CERTAIN UNDERTAKINGS IN NORTH-EASTERN

STATES (SEC. 80-IE):
This deduction can be claimed on fulfillment of following conditions:
1. Tax payer begins manufacture or production of goods or providing eligible services from
1.4.2007 to 31.3.2019.
2. It should be functioning In North-Eastern States ( i.e. Arunachal Pradesh, Assam, Manipur,

Meghalaya, Mizoram, Nagaland, Sikkim and Tripura)
3. It is not formed by splitting or reconstruction of existing business
4. It is not to use old plant and machinery
5. Audit report should be-submitted
ELIGIBl.E SERVICES:Eligible Services for this purpose are hotel ( 2 star or above), nursing home
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( 25 beds or more), old age homes, vocational training institutes ( such as hotel management,
catering entrepreneurship development, nursing and paramedical, civil aviation related training,
fashion designing and industrial training), IT related training centres, IT hardware units and bio-
technology.
AMOUNT OF DEDUCTION:
100% of profit for 10 years starting from the assessment year relevant to the previous year in
which it starts manufacturing.
DEDUCTION IN RESPECT OF PROFITS FROM BUSINESS OF PROCESSING OF

BIO-DEGRADABLE WASTE (SECTION 80JJA): The deduction is allowed subject to the
following conditions:
1. Gross total income of the assessee includes any profit from business of collecting,
processing or treating of bio-degradable waste for generating power or producing bio-
fertilizers, bio-pesticides or other biological agents or for producing bio-gas or making
pellets or briquettes for fuel or organic manure.
2. 100% of the profit for 5 years from the assessment year relevant to the previous year in
which business commences.
3. Deduction must be claimed in the return, which is to be filed in time.
DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW EMPLOYEES: (SECTION

80JJAA) Amended:
The deduction is allowed to any assesse having PGBP income and require to get his Accounts
books audited u/s 44 AB.
DEDUCTION: 30% of additional employee cost paid to additional employees employed in the
previous year for three years.
Deduction is allowed only if the following conditions are satisfied:

 There should be an increase in number of employees in current year vis-à-vis preceding financial
year. [Total Ee at the last day of the preceding yr]
 Salary or wage shall be paid other than cash mode.
 Only those employees will be treated as additional employees:
 Whose salary [Total Emoluments] is upto INR 25,000; AND
 Contributing in provident fund; AND
 Employed for 240 days or more in the year (150 days or more for apparel, shoes, and
leather industry). Further, Employed days (240/150) can be completed subsequent to
joining year also.
"emoluments" means any sum paid or payable to an employee but does not include—
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(a) any contribution paid or payable by the employer to any pension fund or provident fund or
any other fund for the benefit of the employee
(b) any lump-sum payment paid or payable to an employee at the time of termination of his
service or superannuation or voluntary retirement, such as gratuity, severance pay, leave
encashment, voluntary retrenchment benefits, commutation of pension and the like.
DEDUCTION IN RESPECT OF INCOME OF A CO-OPERATIVE SOCIETY: (

SECTION 80-P}:
In case of Co-operative society, the following amounts are allowed as deductions:
100% of the profit from the following activities of the co-operative:
 Activity of banking business or providing credit facility to its members
 Activity of cottage industry
 Marketing of the agricultural produce grown by its members
 Purchase of agricultural implements, seeds, livestock or other articles intended for

agriculture for the purposes of supplying them to its members
 Processing, without the aid of power, of the agricultural produce of its members
 Collective disposal of the labour of its members
 Fishing or allied activities, that is to say, catching, curing, processing, preserving, storing
or marketing of fish or the purchase of materials and equipment in connection therewith.
 Primary society engaged in supplying milk, oil seeds, fruits or vegetables raised or grown
by its members to a federal co-operative society or to the Government or local authority or
a Government company or a corporation established under the central, state or Provincial
act.
 Letting of godowns or warehouses for storage, processing or facilitating the marketing of

commodities.
 Income from Investment with co-operative societies.
 FOR ANY OTHER ACTIVITY: the income out of such other activities shall have a
deduction as follows :
Rs. 50000/- whether such activity is being independently taken or along with the above
mentioned activities.
Rs 100000 if such Co-operative society is a consumer co-operative society.
 If the co-operative society’s entire income is by way of interest on securities or from
18
House property and its GTI does not exceed Rs 20000, 100% of such income shall be
allowed as deduction provided such cooperative is not a Housing society or an urban
cosumer society or a society carrying on a transport business or engaged in any
operation with the aid of power.
Deductions from Income of Farm Producer Companies : Sec 80PA

♦ A new Section 80PA has been inserted under the Act in order to provide that 100% of the gross total
income of Producer Company from the eligible business shall be exempt if following conditions are
satisfied:
 Turnover in the relevant previous year is less than Rs. 100 crores;
 Eligible Business : Marketing, processing of agricultural produce of members, purchase of
agricultural implements, seeds, livestock for the use of members.
 Deduction can be taken from FY 2020-20 to FY 2024-25.
Important Points
 Producer Company means a body corporate having objects or activities in relation to production,
marketing, selling, export of agriculture produce of member, providing machinery, education, consultancy
to members in relation to production activities.
 A separate chapter governs the formation and operations of a Producer Company under Indian Company
Law.
 A producer company is a hybrid between a private limited company and a cooperative society.
 It combines the goodness of a cooperative enterprise and the vibrancy and efficiency of a company.
 Name of the company shall end with the words “Producer Company Limited”.
 The members have necessarily to be primary producers
 Minimum No. of 10 member (individual).
 Producer Company can carry only those activities prescribed under the Act.
DEDUCTION IN RESPECT OF ROYALTY INCOME OF AUTHORS: (SECTION 80-QQB):
This deduction is allowed subject to the following conditions:
1. Resident individual may be R &OR or R &NOR, Indian citizen or foreign citizen.
2. He should be author or joint author of book other than the text book for schools.
3. Form No. 10CCD to be obtained by the author from the publisher and to be attached with
the return of income.
4. Deduction to be claimed in the return of income.
DEDUCTION:Rs. 300000/~ or royalty received, whichever is less.
Where the amount is received not in lumpsum, then royalty snail be taken upto 15% of the gross
amount of royalty for deduction purposes. Over and above 15% shall be ignored.
DECUTION IN RESPECT OF ROYALTY ON PATENTS U/S 80-RRB:
19
The following conditions should be satisfied in order to claim deduction under this section:
a. Deduction is allowed to resident individual ( R & OR and R & NOR)
b. Income is from royalty from patent
c. Furnish- form No. 10CCD
d. Deduction is to be claimed in return of income
Deduction- is upto the amount of royalty received subject to Rs. 300000/- whichever is less.
DEDUCTION IN RESPECT OF INTEREST ON SAVING ACCOUNT U/S 80TTA:
Deduction allowed is a Maximum of Rs 10000 /=
Section 80TTA has been amended to exclude the assessees covered by section 80TTB from availing
deduction u/s 80TTA also
 SECTION 80TTB Senior Citizens are allowed a deduction of upto INR 50,000 in respect of Income
earned by such Senior Citizens from Deposits (Saving Account, Fixed Deposits and Time Deposits).
 Further, in case of Senior Citizens, TDS will be deducted if the Income exceeds INR 50,000. (Amendment
made in Section 194A).
 No deduction under Section 80TTA shall be allowed to such Senior Citizens.
 Only those deposits are covered which are held with Banking Company, Post Office or Cooperative
Societies.
DEDUCTION IN THE CASE OF PERSON, RESIDENT INDIVIDUAL, WITH

DISABILITY U/S 80-U:
The deduction is available on fulfillment of the following conditions:
a. Deduction is available to resident individual ( R &OR and R &NOR)
b. Person with disability: Blindness, low vision, leprosy-cured, hearing impairment,
b. locomotor disability, mental retardation, mental illness.
c. Certified by Medical authority
d. Deduction shall be Rs. 75000/- in case the disability is ranging between 40% to 80% and
where the severe disability i.e. the disability exceeding 80%, then Rs. 125000/-.
DEDUCTIONS FROM GROSS TOTAL INCOME
20
1. Deduction u/s 80C : From the following particulars in respect of Adarsh,find out the deduction
allowable to him under section 80C for the assessment year 2020-21 (Amount in Rs.) :
Life insurance premium (on his own life) 20000
Sum assured on the above policy 200,000
Contribution to unrecognized provident fund 1,000
Contribution to public provident fund 25,000
Subscription to National Savings Certificates 8,000

VIII issue
Life insurance premium on his mother’s life 5,000

policy
Repayment of bank loan borrowed for the 21,000

construction of the house
Sol.1.Computation of deduction allowable to Adarsh under section 80C
Life insurance premium on his own life (fully allowed as premium is less than 20,000
10% of sum assured )
Contribution to PPF 25,000
Subscription to national savings certificates VIII issue 8,000
Accrued interest for one year completed NSC VIII issue – it is reinvested, 8000
hence, eligible
Repayment of bank loan borrowed for the construction of the house 21,000
Total 82,000
Note: life insurance premium on mother’s life policy is not eligible for deduction u/s 80C.
2. Deduction u/s 80C: From the following, compute total income of Shri Mangal for the assessment
year 2020-21 (All amount in Rs.) :
Profits and Gains of Business or Profession 500,000
21
Capital Gains (Long term) 100,000
Winnings from lottery (gross) 25,000
Interest on listed securities (gross) 35,000
Loss from House Property -460,000
Shri Managal has made the following payments:
(a) Time deposit of 5 years with Post Office 20,000
(b) Life Insurance Premium (Mrs. Mangal’s life) – Sum 37,500

Assured Rs.1,50,000
(C) Subscription to notified bonds NABARD 30,000
(d) Unit linked Insurance Plan of UTI 10,000
Sol.2.Computation of total income of Sh. Mangal for the assessment year 2020-21
(All amounts in Rs.)
Income from house property (loss) -4,60,000
Profits and gains of business or profession 5,00,000
Capital gains (long term) 100000
Income from other sources (winnings from 60,000

lottery + interest on securities)
Gross total income 2,00,000
Less: deduction under section 80C
(a) time deposit of 5 years with post office 20,000
(b) life insurance premium (cannot exceed 10 15,000

% of 1,50,000)
(c) subscription to notified bonds of NABARD 30,000
(d) unit linked insurance plan of UTI 10,000 75,000
Total income 1,25,000
22
Note: the house property loss shall be first set off against long term capital gains, and balance against
profits and gains of business or profession, so that deduction under section 80C shall be available
from the balance income. No deduction shall be allowed from winnings from lottery.
3. Section 80 CCC and 80 D : For the previous year 2020-21, the salary income of Manish is
Rs.4,00,000. During the year, he pays the medical insurance premium by cheque under a scheme
framed by GIC as follows:
Insured Person Rs.
(i) Manish (Self) 6000
(2) Mrs Manish (not dependant upon Manish) 4500
(3) Minor Son (dependant upon Manish) 1800
(4) Major son (dependant upon Manish) 1500
(5) Father (age : 70 years) (resident in India not dependant upon 4000
Manish)
(6) Mother (age : 67 years) (non resident in India but dependant 24000
upon Manish)
(7) Grand Parents (dependant upon Manish) 500
(8) Parents of Mrs. Manish (dependant upon Manish) 700
(9) Bother (dependant upon Manish) 900
Besides, Mr. Manish pays Rs.30,000 towards pension fund of LIC.
Find out the Total income of Manish for the assessment year 2020-21.
Sol.3.Computation of total income of Mr. Manish for the assessment year 2020-21
Salary income/gross total income 4,00,000
Less: deduction u/s 80CCC. In respect of 30,000

payment towards pension fund of LIC
Deduction u/s 80D (see note) 41,800 71,800
Note: the amount of deduction under section 80D is computed as followed –
23
(A) health insurance of self, spouse and dependant children

being lower of -
(a) total sum paid as above (6,000 + 4,500 + 1,800 + 1,500) 13,800
(b) statutory limit 25,000 13,800
(B) health insurance of parents (father is senior, while mother is 28,000

not a senior citizen as she is not resident in India), being
the lower of -
(a) sum paid (4,000 + 24,000) 28,000
(b) statutory limit for parents 50,000 28,000
Total deduction (A + B) 41,800
4 Section 80 DD: Discuss the allow ability of the following:
1) Rajan has to pay to a Hospital for Treatment Rs.52,000 and spend nothing for Life Insurance or for
maintenance of dependant with disability.
2) Rajan has insured for treatment Rs.Nil in the previous year and deposited Rs.25,000 with LIC for
maintenance of dependants with disability.
3) Rajan has incurred Rs.20,000 for treatment and Rs.25,000 was deposited with LIC for maintenance
of dependants with disability.
Sol.4. Since Mr. Rajan has incurred expenditure for medical treatment of dependant with disability (or
deposited the sum with LIC for such purpose), hence, in all the three cases, he will be allowed deduction
u/s 80DD to the extent of Rs.75,000 (irrespective of amount of expenditure incurred) for the previous year.
Further, if dependant of whom the aforesaid expenditure has been incurred is suffering from server
disability, then, the amount of deduction for the previous year shall be Rs.100000 irrespective of the
amount of expenditure incurred by Mr. Rajan.
5. Section 80 CCC, 80D, 80 DD and 80 DDB: From the following, compute total income of Mr.
Narendra for assessment year 2020-21:
Salary 340000
Loss from self occupied house property -150000
24
Long term capital gains 1,00,000
He had made the following payments in the previous year
(a) Contribution towards pension fund in LIC 12000
(b) Medical insurance premium paid on life of dependant father

(being a senior citizen) Rs.4000 and Rs.15000 on himself.
These payments are made by cheque.
(c) Medical treatment of dependant brother with severe disability 2500
(d) Medical treatment of “his dependant father (resident 80,000

Individual of age 66 years) suffering from prescribed
disease (Sum received from insurer Rs.5000 and sum
reimbursed by employer Rs.15,000)
Sol.5.Computation of total income of Shri Narendra for the Assessment Year 2020-21
Rs. Rs.
Salary 3,40,000
Income from self occupied house (50,000)
Long-term capital gains 1,00,000
Less: deductions under section-
i 80CCC, in respect of pension fund of LIC 12,000
ii 80D, medical insurance premium (15,000 for himself + 19,000

4,000 for father)
iii 80DD, medical treatment of dependant brother with 125000

severe disability.
iv 80DDB, medical treatment of prescribed disease of

dependant father being senior citizen (100,000 -
20,000 being sum received from insurer and employer) 80,000 2,36,000
25
6. Section 80D, 80DD and 80 DDB : Discuss allowability or otherwise of the following in the
hands of Rasikbhai, who is aged 67 years:-
(i) He paid insurance premium of Rs.18,000 (Rs.15,000 by cheque and Rs.3,000 by cash) under medi-
claim policy to new India Insurance Company covering himself and his wife.
(ii) He spent a sum of Rs.55,000 during September 2019 towards medical treatment of his wife who
suffered from blindness;
(iii) His younger brother who is fully dependant him, suffered from chronic renal failure for which he
spent a sum of Rs.75,000 towards medical treatment.
Sol.6.
i. Deduction u/s 80D = Rs.15,000;

ii. Deduction u/s 80DD in respect of medical treatment of person with severe disability (assuming that
blindness of Rasikbhai’s wife is severe disability) = Rs.125000;
iii. Chronic renal failure is specified disease for the purposes of section 80DDB. Hence, deduction u/s
80DDB = Rs.40,000 (if he is below 60 yrs), Rs 100000 (if he is 60 yrs o above).
7. Deduction u/s 80G: Compute total income of Mr. A from the following:
(Amt in Rs.)
(a) Salary income 320000
(b) Long term Capital Gains 50,000
(c) Term Deposit with a scheduled bank for 5 years in 20,000

accordance with notified scheme
(d) Contribution to national defence fund 10,000
(e) Contribution to approved educational institution of 8,000

national eminence
(f) Donation to trust for benefit of particular religious 15,000

community
(g) Payment to State Government for family planning 22,000
(h) Clothes given to approved charitable institution for 20,000

distribution to poor.
(i) Payments to approved charitable institution. 18,000
Sol.7. Computation of total income of Mr. A
26
(Amount in Rs.)
Salary income 3,20,000
Long-term capital: gains 50,000

8. Deduction u/s 80GG: Anand is retired Government Officer aged 65 years, who derived the following income in resp
Less: deduction under section SOC in respect of term deposit for 5 years 20,000
(
Less: deduction under section 80G (see note) A 44,000
m
Total income o 3,06,000
u
Note: computation of deduction under section 80Gn -
100% of contribution to national defense fund t 10,000
i
100% of contribution to approved educational institution of national eminence. 8,000
Deduction qualifying subject to maximum n of 10% of adjusted gross
total income
R
(adjusted gross total income = 3,70,000 – LTCG s 50,000 – deduction u/s 80C
20,000) .
)
Donation to state government for family planning 22,000
P
Payment to approved charitable institution 18,000
e
n 40,000
s
iThe qualifying amount shall be limited to 10% of 3,00,000 i.e. Rs.30,000 out of
o limit of 30,000, Rs. 22,000 relate to family planning donation and
n Rs.8,000 to other, donations, therefore, amount of deduction shall be -
100% of family planning donation of 22,000 22,000
50% of other donations of Rs.8,000 4,000
Total deduction under section 80G 44,000
Contribution to trust established for particular religious community and

contribution in kind (clothes) to approved charitable institutions are not
9 eligible for deduction under section 80G
0
000
Interest from Bank deposit 55000
Gross Total Income 145000
27
He has paid Rs.18,000 as premium to effect an insurance on his health and his dependant parents (senior
citizens). He pays a rent of Rs.3,000 pm in respect of furnished accommodation. What is his eligibility for
deduction under section 80GG? Also, compute his total income.
Sol.8.Computation of total income of Mr. Anand for the assessment year 2020-21
(amounts in Rs.)
Pension 90,000
Interest from bank deposits 55,000
1,45,000
Less: deduction u/s 80D for medical insurance premium 18,000
Deduction u/s 80GG (see note) 23,300
Note: adjusted total income = Rs.1,45,000 – deduction u/s 80D Rs.18,000 = Rs.1,27,000. Deduction under
section 80GG shall be the lowest of the following –
(1) rent paid – 10% of adjusted total income 23,300
(2) Rs.2,000 per months 24,000
(3) 25% of adjusted total income 31,750
9. Computation of total income: Compute the total income of Mr. Kamal for the assessment year 2020-
21 (All amount in Rs.):
Salary received 180000
Rent received from let out property 120000
Long term capital gains 240000
Short term capital loss 80000
Agricultural income from Nepal 100000
He has made the following payments:
Donation to Scientific research association 50000
28
Repayment of loan taken for his higher education (Interest 124000

included Rs.80,000)
Donation to National Children’s fund 10000
Donation to approved charitable institution 15000
Donation to Prime Minister’s National Relief Fund 8000
Payment by cheque to General Insurance Corporation for 15000

insuring health of his dependant father, being a
senior citizen
Expenses on medial treatment of his dependant disabled 3000

mother (severe disability)
Sol.10.Computation of total income of Shri Kamal for the assessment year 2020-21
Rs. Rs.
Salary received 1,80,000
Income from house property (1,20,000 – 30% of 1,20,000) 84,000
Capital gains:
Long term capital gains 2,40,000
Short term capital loss (80,000) 1,60,000
Income from other sources (agricultural income from Nepal ) 1,00,000
Less: deduction under chapter VI A
(a) 80D for payment to GIC 15,000
(b) 80DD (medical treatment off disabled mother) 100,000
(c) 80E (interests on loan taken for higher education) 80,000
(d) 80GGA (donation to scientific research association) 50,000
(e) 80G (see note) 18850 263850
29
Note: deduction u/s 80G = 50% of 10,000 + 100% of 8,000 + {50% of lower of – (a) 15,000 or (b) 10% of
(5,24,000 – 1,60,000 – 15,000 – 100000 – 80,000 – 50,000)} = 5,000 + 8,000 + 50% of 11700 =
Rs.18850
11 Deduction under section 80JJ AA: VP Ltd. owns an industrial undertaking engaged in production
work since 2006. The profits of the undertaking for the year ended 31st March 2019 before deduction
of salaries and wages are Rs.150 lakh. The managerial persons are entitled to salary of Rs.15,000 per
month while all other workmen are entitled to wages of Rs.5,000 each.
(1) Workmen as on 31.3.2019 (out of which 4 were managerial persons and 4 were casual workmen or
contract labour). 68
(2) New Employment given during the previous year 2020-20
(a) Workmen employed w.e.f 1st June 2019 40
(b) Workmen employed w.e.f 1st Dec 2019 20
Sol.11.Computation of total income of VP Ltd. for assessment year 2020-21
Profits for the year before deduction of salary and wages 1,50,00,000
Less: deduction under section 37(1) on account of salaries and wages [(4) x 69,60,000
15,000 x 12] + (64*12*5000)+{40 x 5,000 x 10} + {20 x 5,000 x 4}
Profit and gains of business of profession/gross total income 80,40,000
Less: deduction under section 80-JJ AA [30% of (40 x 5,000 x 10)] 6,00,000
P.12 Deduction U/S 80P : Haryana Co-Operative Society was constituted on 31st July, 1958. The society
derived the following incomes during the previous year ended on 31st march, 2020:
Income from letting of godowns 50,000
30
Dividends from other co-operative societies 10,000
Agency business 56,000
Processing of agriculture produce grown by its members 60,000
Interest from members on delayed payment of the price of goods 10,000

purchased
Income from house property 35,000
Compute the total income of Haryana co-operative society for the assessment year 2020-21.
Note that society is processing the agricultural produce without the aid of power.
Sol.12.Computation of total income of Haryana co-operative society
Income from letting of godowns 50,000
Dividends from other co-operative societies 10,000
Agency business 56,000
Processing of agriculture produce grown by its mambers 60,000
Interest from members on delayed payment of the price of goods 10,000

purchased
Less: deduction u/s 80P-
(1) income from processing of agriculture produce grown by its 60,000

members without the aid of power (section 80P (2)(a)(v))
(2) income from other activities (56000+10000 agency business, int on 50,000
delay section 80P(2)(c)) upto Rs 50000
(3) dividend from other co-operative society (section 80P(2)(d)) 10,000
(4) income from letting of godowns (section 80P(2)(e) 50,000
Total income 51,000
31
Note:
(1) Interest from members on delayed payment of the price of the goods purchased is eligible for
deduction u/s 80P, as such interest is not from the credit facilities provided to the member.
Since the gross total income of the society exceeds Rs. 20,000, hence, it is not eligible for deduction u/s
80P in respect of its income from house property.
13 Deduction u/s 80 QQB: Smt. Aruna had authored the following boods and had received the
following royalties pertaining to previous year 2019-20. Compute her total income for the
assessment year 2020-21 in light of the following information:
Description of the Book Art of living My India Text Book of

Class X
Royalty earned on Books 1,80,000 1,00,000 10,00,000
Expenditure incurred on earning royalty 21000 10,000 2,00,000
Royalty % (value of books sold) 18% 16% 15%
Whether royalty earned in foreign country Yes No No
Royalty received in convertible foreign 125000 - -

exchange upot 30th September 2019
Sol.13. Royalty from text book for class X is not eligible for deduction. Since the royalty from other books
is not a lumpsum consideration for transfer of all rights, the deduction shall be computed as follows:-
Computation of total income (in Rs.)
Royalty from authority of books 12,80,000
Less: expenditure incurred on earning royalty 2,31,000
Less: deduction u/s 80QQB (see computation below) 1,91,250
Computation of deduction under section 80QQB (in Rs.)
32
Art of My India
Royalty earned on books (A) 1,80,000 1,00,000
Royalty computed @15% of value of books sold (B) 1,50,000 93,750
Royalty for deduction purposes [lower of (A) or (B)] (C) 1,50,000 93,750
Amount received inconvertible foreign exchange (D) 1,25,000 0
Gross eligible income [lower of (C) or (D) (E)] 1,25,000 93,750
Less: expenditure attributable to deductible income (see note) 17,500 10,000
Deduction under section 80-QQB [E-F] 1,07,500 83,750
Note: section 80QQB provides that where gross royalty exceeds 15% of value of books sold, the excess
shall be ignored for the purposes of deduction. Hence, for the limited purposes of computing
deduction, it will be assumed as if the excess so ignored had never been earned. The expenditure
‘will be deductible after such excess has been so ignored. Therefore, in case of ‘my India’, the
expenditure will be fully deducted.
Furthers, in case of book “Art of living”, the amount received in convertible foreign exchange will only
qualify for deduction. The expenses will be attributed to such amount. Accordingly, the expenses incurred
on that book will be deductible to the extent of Rs.17,500 (21,000 x 1,25,000 / 1,50,000).
14. Total income: Compute the total income of Mr. monu (blind from birth) for the assessment year
2020-21, after taking into account the following information : Amt in Rs.
(1) Salary from a publishing house for working as an artist (no allowances 96,000
received)
(2) Income from sale of paintings made by self 3,00,000
(3) Winnings from lottery 60,000
(4) Dividend from a foreign company 10,000
(5) Fixed deposit with scheduled Bank in accordance will notified scheme 10,000
(6) Payment of rent of self occupied house 50,000
(7) Donation to PM’s National Relief Fund 4,000
33
It was found during the year that he is suffering from cancer. Monu spent Rs.30,000 for treatment of
cancer, out of which Rs10000 were reimbursed by his employer.
Sol.14.Computation of net income of Sonu for the assessment year 2020-21
(amounts in Rs.)
Income from salary 96,000
Business income (sale of paintings made by self) 3,00,000
Income from other sources:
Winning from lottery 60,000
Dividend from a foreign company 10,000 70,000
Less: deductions under chapter VIA -
Under section 8OC (FD with bank in accordance with 10000

notified scheme)
Under section 8ODDB (medical treatment of 20,000

cancer)(30,000 – 10,000)
Under section 80G(100% of Rs.4,000) 4,000
Under section 80GG (see note) 22,800
Under section 80U 100000 1,56,800
Total income 3,09200
Note: deduction under section 80GG shall be the least of the following –
(a) 2,000 x 12 24,000
(b) rent paid – 10% of Adj. GTI = 50,000 – 10% of (4,66,000 – 60,000
– 10,000 – 20,000 – 4,000 – 100,000) = 50,000 – 10% of 2,72,000 = 22800
(c) 25% of GTI i.e. 2,72,000 68000
34
RELIEF [SEC. 89]
An assessee, who is in receipt of any of the following and due to such receipt, Total income of the assessee
is assessed at a rate higher than that at which it would otherwise have been assessed, can claim relief
as per rule 21A.
 Arrear salary or Advance salary or in any other way is in receipt, in any one financial year, of
salary for more than 12 months; or
 Profit in lieu of salary u/s 17(3) e.g. gratuity, commuted pension, Leave encashment during service
etc.; or
 Family pension, being paid in arrears.
Computation of Relief when salary is paid in arrears or in advance :
1. Compute the tax payable for RPY on Total income including additional salary
2. Compute the tax payable for RPY on Total income excluding additional salary
3. Compute the tax payable for the PY to which such additional salary relates including additional
salary.
4. Compute the tax payable for the PY to which such additional salary relates excluding additional
salary.
5. Add tax Computed on 1 and 4 ie Total Tax for all the years on receipt basis
6. Add tax Computed on 2 and 3 ie Total Tax for all the years on accrual basis
7. Relief u/s 89 is [5 - 6] ie Tax on receipt basis – Tax on accrual basis
Que 1 : Mr X’s Total Income, which includes only Salary income, for the last previous year was Rs 8 lacs.
During the current previous year, his salary was increased to Rs 12 lacs p.a. with retrospective effect
from October last year. Compute Relief u/s 89(1).
Ans : Computation of Relief u/s 89(1)
Step 1 : Current year’s Tax on TI + AS ie [1200000 + 200000] = 241800
Step 2 : Current year’s Tax on TI ie 1200000 = 179400
Step 3 : Last year’s Tax on TI + AS ie [800000 + 200000] = 117000
Step 4 : Last year’s Tax on TI ie 800000 = 75400
Step 5 : Total Tax on Receipt basis ie on [241800 + 75400] = 317200
Step 6 : Total Tax on Accrual basis ie on [179400 + 117000] = 296400
Therefore Relief under section 89(1) is 317200 – 296400 = 20800
Relief applicable on receipt of taxable gratuity :
35
 Where past services extend over a period of fifteen years

 Where past services extend over a period of 5 years but does not exceed 15 years
 Where past services does not extend over five years Relief u/s 89 is not applicable.
Where past services extend over a period of fifteen years :
1 Calculate total income and tax liability considering taxable gratuity of the relevant previous year.
2 Calculate total income and tax on total income in respect of each of the 3 previous years immediately
preceding the relevant previous year, adding 1/3rd of the taxable gratuity in each of the 3 years.
3 Calculate average rate of tax for each year. Average rate of tax (in %) = Tax/TI × 100
4 Calculate average of “average rate of tax” of 3 previous years immediately preceding the relevant
previous year.
5 Calculate tax on taxable gratuity by applying average rate of tax of the relevant previous year.
6 Calculate tax on taxable gratuity by applying average of average rate of tax (as computed in step 4)
7 Relief u/s 89 = Tax as per Step 5 – Tax as per Step 6
Que 2 : Mr X (serving from last 18 years) has Rs 10 Lacs of Salary Income for the current previous year.
He also received Rs 6 lacs as his Gratuity (not included in TI of Rs 10 lacs) during the year out of
which 1.5 lacs is exempted. His TIs for the last 3 immediate previous years are 8 lacs, 7 lacs and
6.5 lacs respectively. Compute the amount of relief u/s 89. [ Assume Tax rates for all years are same
as of current year’s]
Ans : Computation of Relief u/s 89
Income 1000000 800000 700000 650000

Gratuity 450000 150000 150000 150000
TI 1450000 950000 850000 800000
Tax on TI 257400 106600 85800 75400
Avg Tax
rat 17.75 11.22 10.09 9.43
e
Avg of previous three years 30.74 10.25

3
Tax on Gratuity applying current yr Avg Tax rate
36
450000 17.75 79875
Tax on Gratuity applying Avg Tax rate of last 3 yrs tax rates
450000 10.25 46125
Relief u/s 89 33750
Where past services extend over a period of 5 years but does not exceed 15 years :
Computation of relief u/s 89 is same as in case of service extending over 15 years, with only exception that
instead of taking average of tax-rate of 3 years, take average tax-rate of 2 years. Similarly, taxable gratuity
shall be divided in past 2 years rather than 3 years.
Que 3 : Suppose in Que no. 2, he served only for 12 years, then what would be the amount of relief?
Ans : Computation of Relief u/s 89
Income 1000000 800000 700000

Gratuity 450000 225000 225000
TI 1450000 1025000 925000
Tax on TI 257400 124800 101400
Avg Tax rate 17.75 12.18 10.96
Avg of previous three years 23.14 11.57

2
Tax on Gratuity applying current yr Avg Tax rate
450000 17.75 79875
Tax on Gratuity applying Avg Tax rate of last 3 yrs tax

rates
450000 11.57 52060
Relief u/s 89 27815
Where past services does not extend over five years Relief u/s 89 is not applicable.
37
Relief when payment is in the nature of compensation on termination of employment
Any compensation received by the assessee from his employer on termination of his employment is eligible
for relief u/s 89 subject to following conditions –
a. Employment is terminated after continuous service for not less than 3 years; and
b. The unexpired portion of term of employment is also not less than 3 years.
Computation of relief u/s 89 is same as in case of gratuity (where service extends over 15 years). However,
where assessee claims exemption u/s 10(10C), relief u/s 89 is not available to the assessee for such
compensation.
Relief when payment is in the nature of commutation of pension
In this case also Computation of relief u/s 89 is same as in case of gratuity (where service extends over 15
years).
38
COMPUTATION OF INDIVIDUAL'S TOTAL INCOME

The computation of individual's total income and tax liability needs knowledge of the provisions
studied so far.
Income of an individual includes the following:

 Income earned by the tax payer
 Share of profit from HUF
 Share of profit from Partnership firm
 Share of profit from as AOP /BOI
 Income earned by others and included in the income of the taxpayer
COMPUTATION OF TAXABLE INCOME AND TAX PAYABLE : Taxable income of an

assessee shall be calculated in the following manner :
1. Determine the residential status of the person as per section 6 of the Act.
2. Calculate the income as per the provisions of respective heads of income. Section 14 classifies the
income under five heads.
(i) Income from salaries
(ii) Income from House Property
(iii) Profits and gains of business or Profession
(iv) Capital Gains
(v) Income from other sources
3. Consider all the deductions and allowances given under the respective heads before arriving at the net
under each head.
4. Exclude the income exempt under section 10 of the Act.
5. Aggregate of incomes computed under the 5 heads of income after applying clubbing provisions and
making adjustments of set off and carry forward of losses is known as Gross Total Income.
6. Deduct therefrom the deductions admissible under [Sections 80C to 80U]*. The balance is called Total
income.
7. The total income is rounded off to the nearest multiple of Rupees ten. (Section 288A)
8. Add agriculture income (if any) in the total income calculated in (6) above. Then calculate tax on the
aggregate as if such aggregate income is the Total Income.
9. Calculate income tax on the net agricultural income as increased by Rs. 2,50,000/3,00,000/5,00,000 as
the case may be, as if such increased net agricultural income were the total income.
10. The amount of income tax determined under (9) above will be deducted from the amount of income tax
determined under (8) above.
11. Calculate tax on capital gains under Section 112, 112A, 111A and on other income at specified rates.
12. The balance of amount of income tax left as per (10) above plus the amount of income tax at (11) above
will be the income tax in respect of the total income.
39
13. Deduct the following from the amount of tax calculated under (12) above.
– Rebate under section 87A (if applicable).
– Tax deducted and collected at source.
– Advance tax paid.
– Double taxation relief (Section 90 or 91).
14. The balance of amount left after deduction of items given in (13) above, shall be the net tax payable or
net tax refundable for the assessee. Net tax payable/refundable shall be rounded off to the nearest
multiple of Ten rupees (Section 288B).
15. Along with the amount of net tax payable, the assessee shall have to pay penalties or fines, if any,
imposed on him under the Income-tax Act.
Sections Amount
Computation of Tax Liability
1.Income from Salary 15 to 17 XXX
Less : Deductions U/s 16ia. Standard
Deduction of Rs. 50,000 or Gross
Salary, whichever is lower.
ii. Entertainment Allowance
iii.Professional Tax PAID
2. Income from House property 22 to 27 XXX
Less : Deduction U/s 24
Standard Deduction
Interest on House Property Loan
3. Income from Profits and gains 28 to 44 XXX
from business and profession
4. Income from Capital Gains 45 to 55A XXX
Less : Deduction U/s 54
5. Income from Other Sources 56 to 59 XXX
Add/Less : Apply Clubbing and Set Off & Carry Forward Provisions
Gross Total Income [GTI] XXX
Less : Deductions under Chapter VIA* 80C to 80U ( XXX )
TOTAL INCOME (R/ off to nearest Rs.10 U/s 288A) XXXXXX
Tax on Total Income XXXX
Add : Surcharge on Total Tax (if applicable)[adj MR ] XXX
Less : Rebate U/s 87A (XXX)
Add : 4% Health & Education Cess on [Total tax + XXX
Surcharge – Rebate]
Net Tax Liability XXXXX
Less : (i). TDS (ii). Advance Tax (iii). Relief u/s 89 (XXX)
Balance tax payable on Self Assessment U/s 140A XXXXXX
40
*From the GTI, the following deductions are available for AY 2020-21:
Section Nature of deduction
80C Payment of Insurance Premium, Contribution to PF etc.
80CCC Contribution to certain pension funds
80CCD Contribution to Pension scheme of the Central government
80 CCE limit of Rs 1.5 lacs for 80 C, 80CCC, 80 CCD
80 CCG Investment in equity
80D Payment to medical insurance premium
80DD Maintenance including medical treatment of dependent disabled.
80DDB Medical treatment expenditure
80E Payment of Interest on loan taken for higher education
80 EE House loan repayment
80EEA Int on loan taken RHP
80EEB Int on loan taken for electronic vehicle
80G Donations to charitable institutions and funds
80GG Rent paid
80GGA Donations for Scientific research or rural development
80GGC Contribution given to Political parties
80-IA Profit from industrial undertakings engaged in industrial infrastructure
80-IAB Profit by an undertaking engaged in development of SEZ
80-IB Profit from certain industrial undertakings 80 IBA Housing projects
80JJA Profit from business of collecting and processing of bio-degradable waste
80QQB Royalty income of authors
80RRB Royalty on patents
80TTA Interest in saving bank account
80TTB Interest in saving bank account, FD FOR SR CITIZENS
80U Income of person with disability
Rounding off: The TI AND TL should be rounded off to the nearest Rs. 10.
ASSESSMENT OF INDIVIDUALS
Que 1 From the following details and information. Compute the total income of X (date of birth : march
20,1953), on individual, for the assessment year 2020-21:
Profit and loss account for the year ending March 31,2019
Rs. Rs.
Staff salaries, bonus, etc. 6,32,000 Trading profits 22,60,000
41
Drawing for household expenses 4,10,000 Rent from potion let 4,80,000
Life insurance premium paid 25,000 Interest on fixed deposit with banks 70,000
Contribution to public provident fund 15,000 Income on units from unit trust of 15,000
India
Depreciation on assets used in 91,000 Gold coins received on Diwali 2019 46,000
business from a family friend Y
Advertisement expenses 26,000
Printing and stationery 31,000
Interest on loan 42,000
Net income for the year 15,99,000
28,71,000 28,71,000
Further details –
1. Interest was on a loan of Rs. 4,00,000 taken in June 2019 for purpose of purchase of shares in a
public limited company. The company did not declare any dividends after purchase of shares by X.
2. an analysis of the fixed assets ledger revealed the following:
a. X had purchased an accounting machine in June 2009 for Rs. 86,000. Its written down value, as per
income-tax records, as on April 1,2019 was Rs. 54,000. In October 2019, it was sold for Rs. 98,000.
b. Depreciated value of other assets on April 1,2019 is Rs. 6,54,000 (rate of depreciation: 15 per cent).
3. Included in salaries was salary of Rs. 96,000 drawn by X and a payment of Rs. 1,08,000 to his
brother’s son, who was a student of the tenth standard and did not attend to X’s business.
4. X owned two house properties. The first floor of the first property was used half for running the
business and the other half was let out at Rs. 40,000 per month. The second property was wholly
used as a residence by X. municipal taxes for the two properties were the same at Rs. 48,000 per
annum. The business and the let out premises were insured againsed loss by fire and the annual
insurance premium was Rs. 12,000. The payment of municipal taxes and the insurance premium was
included in household expenses.
5. Included in advertisement expenses were donations of Rs. 5,000 to the Prime Minister’s national
relief fund.
6. During the year 2019-16, X has given a donation of Rs. 2,15,000 to Bhartiya Vidya Bhavan, an
Organisation Recongnised under section 80G of the income – tax act. It is not included in the above
profit and loss account.
42
7. Value of gold coins given in the profit and loss account is cost of the gold coins purchased by Y in
2000. However, the fair market value of these coins on Diwali 2019 and March 31,2019 is Rs.
1,40,000 and Rs. 1,55,000 respectively.
Solution: computation of income of X for the assessment year 2020-21 –
Rs. Rs.
Income from house property [see note1] 3,19,200
Profits and gains of business or profession [see note 2] 16,58,500
Income from other sources:
- Interest on fixed deposit 70,000
- Units (exempt) nil
- Gift – in – kind (market value on the date of gift is considered) 1,40,000 2,10,000
Gross total income

21,87,700
Less: deductions
Under section 80C (Rs. 25,000 + Rs. 15,000) 40,000
Under section 80 G [see note 4] 1,12,385 1,52,385
Net income (rounded off)

20,35,320
Note –
1. computation of income under the head “income from house property” –
First property (let out) portion: Rs.
Gross annual value 4,80,000
Less: municipal taxes (50% of Rs. 48,000) 24,000
Net annual value 4,56,000
Less: deductions
Standard deduction (30% of Rs. 4,56,000) 1,36,800
Insurance premium (not deductible) nil
43
Income from first property (let out portion) 3,19,200
Income from first property (used for carrying on business) nil
Income from second property (self-occupied) nil
Income under the head “income from house property” 3,19,200
2. computation of business income –
Net profit as per profit and loss account 15,99,000
Adjustment
Add: drawings 4,10,000
Add: life insurance premium 25,000
Add: contribution to provident fund 15,000
Add: depreciation (taken separately) 91,000
Less: rent (-) 4,80,000
Less: interest from deposits (-) 70,000
Less: interest on units (exempt) (-) 15,000
Less: gold coins (-) 46,000
Add: interest on loan 42,000
Less: depreciation [see note 3] (-) 91,500
Add: salary of X 96,000
Ass: salary to brother’s son 1,08,000
Add: donation taken separately 5,000
Less: municipal tax in respect of building used for business (50% of Rs. 48,000) (-) 24,000
Less: fire insurance premium (-) 6,000
Business income 16,58,500
3. computation of depreciation –
Depreciated value of assets on April 1,2019 (i.e., Rs. 6,54,000+rs.54,000) 7,08,000
Less: sale consideration of accounting machine 98,000
Written down value 6,10,000
44
Depreciation @ 15% of Rs. 6,10,000 91,500
4. computation of amount deductible under section 80C –
Less: amount deductible under sections 80C to 80U (but not section 80G) 40,000
Adjusted gross total income 21,47,700
10% of adjusted gross total income (a) 2,14,770
Amount donated to a notified charitable institute under section 80G(b) 2,15,000
Net qualifying amount [(a) or (b), whichever is lower] 2,14,770
Amount deductible (50% of Rs. 2,14,770) 1,07,385
Add: 100% of donation given to Prime Minister’s national relief fund 5,000
Amount deductible under section 80G 1,12,385
P 2 X (63 year), a civil surgeon, was in government service till June 30,2019. He joined as an
adviser (part time) from October 1,2019 in a charitable dispensary on an honorarium of Rs. 60,000
per month. He owns a house property. Ground floor is occupied by him for his residence, the
annual value of which is Rs. 6,00,000. First floor was built by him and was let out from June
1,2019 on a monthly rent of Rs. 55,000, after its completion on may 31,2019. He is also a visiting
surgeon to various hospitals. From the following further information furnished for the year ending
March 31,2019, find out his income and tax liability for the assessment year 2020-21.
Rs.
Salary from government service 9,60,000
House rent allowance 1,10,000
Gratuity received 8,30,000
Leave at credit encashment 4,48,000
Provident fund 11,75,000
Commuted pension 7,30,000
Pension 2,70,000
45
Gross receipts from various hospitals as visiting surgeon 31,34,000
Car hire charges (car is used only for visiting various hospitals and hire charges
Are paid without deduction of tax at source under section 194-l) 2,10,000
Salary of driver 56,000
Car maintenance expenditure 72,000
Books and periodicals [eligible for depreciation @ 100 per cent] 40,000
Donation to Prime Minister’s national relief fund 30,000
Amount withdrawn from national savings scheme, 1987 (principal
Rs. 10,000 and interest Rs. 15,000) 25,000
Royalty received on the text books authored by him and recommended as text
Book for Pune university 3,20,000
Municipal tax on house property
Ground floor 40,000
First floor paid on April 15,2019 60,000
Repayment to housing development finance corporation ltd. (paid in June
2019- principal Rs. 74,000+ interest Rs. 45,000 on loan taken for construction
of first floor)
Deposit into public provident fund account 70,000
Cont to govt’s provident fund from April 1,2019 to June 30,2019 60,000
Solution: computation of income of X –
Salaries [see note1] 15,60,000
Income from house property [see note 2] 3,40,000
Income from profession [see note3] 27,56,000
Income from other sources (i.e., royalty : Rs. 3,20,000+ Rs. 25,000, being amount
withdrawn from national savings scheme) 3,45,000
46
Less: deductions
Under section 80C (Rs. 70,000+ Rs. 60,000 but subject to a maximum of
Rs. 150,0000) 1,30,000
Under section 80G (i.e., 100% of Rs. 30,000) 30,000
Under section 80QQB 3,00,000
Net income
46,41,000
Tax on net income
Income – tax including cess 4% 12,50,390
Notes –
1. computation of salary income
Rs.
Salary from government 9,60,000
House rent allowance[as X resides in his house, exemption under section
10(13A) is not available] 1,10,000
gratuity [exempt under section 10(10)(i)] nil
leave encashment at time of retirement [exempt under section 10(10AA)(i)] nil
provident fund (exempt under section 10) nil
commuted pension [exempt under section 10(10A)(i)] nil
pension from government 2,70,000
salary from charitable dispensary (Rs. 60,000 x 6) 3,60,000
gross salary 16,00,000
less standard Deduction 40000
net salary 15,60,000
2. computation of property income –
let out portion
gross annual value [i.e., Rs. 55,000 x 10] 5,50,000
47
less: municipal taxes nil
net annual value 5,50,000
less: deductions under section 24
standard deduction [i.e.,30% of Rs. 5,50,000] 1,65,000
interest on loan taken from HDFC (it is assumed that interest of Rs. 45,000
pertains to the previous year 2020-21, though it is paid during June 2019) 45,000
income from house property (a) 3,40,000
self-occupied portion
gross annual value

nil
less: municipal taxes nil
net annual value

nil
less: deductions under section 24
standard deduction nil
interest nil
income from house property (b) nil
income from house property (a) + (b) 3,40,000
3. computation of income from profession –
receipts from different hospitals 31,34,000
less: expenses
car hire charges (it is deductible even If tax is not deducted at source. The
provisions of section 194-l are applicable in the case of an individual only
when his books of account are required to be audited in the immediately
preceding year. In this case, in the immediately preceding year, X did not
have any professional income and, consequently, provisions of section 194-l
are not applicable) (-)2,10,000
salary of driver (-)56,000
48
car running and maintenance (-)72,000
books and periodicals (-) 40,000
income from profession 27,56,000
P3 X (62 years) submits the following information pertaining to the assessment year 2020-21 –
1. X is a chartered accountant by profession and employed with a company as its chief accountant. He is
paid a gross monthly salary of rs. 80,000 (inclusive of a house rent allowance of rs. 10,000). He gets Rs
40000 as annual bonus. He contributes rs. 8,000 per month to a recongnised provident fund, to which
his employer also contributes an equal sum.
2. With the permission of his employer, X teaches law at an evening college for which he is paid a
remuneration of rs. 20,000 per month along with the reimbursement of conveyance expenses of rs.
3,000 per month.
3. X lives in his own house, built by him in 2009 and occupied from October 1,2011. The construction
was financed by, among other things, loan taken by him from the housing development Finance
Corporation Ltd., to whom he pays an installment of rs. 15,000 per month towards principal. The
interest on the loan fo rthe previous year works out to rs. 96,000. The annual value of the property, as
assessed by the municipality, is rs. 3,20,000 and the annual municipal taxes rs. 25,000.
4. In September 2019, he purchased for rs. 1,000 a ticket for a lottery conducted by the government of
Tamil Nadu and at the draw held in October 2019, this ticket won a prize money of rs. 10,00,000. The
director of the State Raffles deducted rs. 3,00,000 from this sum towards income-tax and paid the
balance to X.
5. X paid in the year life insurance premia of rs. 20,000 on policies of rs. 80,000 taken on his life, rs.
7,500 paid on a policy for rs. 25,000 taken by him on his wife’s life and rs. 8,000 on an endowment
policy for rs. 20,000 taken on the life of his son who became a major on may 15,2019.
6. He paid in the year ra. 14,000 as premia to effect an assurance on the health of his wife, his dependent
children and himself.
7. During the year, he made the following deposits –
a. rs. 80,000 as fixed deposit (eligible for deduction under section 80C) with a scheduled bank;
b. rs. 10,000 in saving accounts in the joint names of his wife and himself with post office;
c. rs. 70,000 to the credit of a public provident fund account with the state bank of india.
8. in the year, he earned interest on the following accounts:
a. rs. 35,500 from the scheduled bank on his fixed deposits;
b. rs. 8,000 from the post office on the savings account with it;
49
c. rs. 1,30,000 from the state bank of india on the public provident fund account.
9. on april 1,2019, X’s minor son get a gift of rs. 1,50,000 from a family friend who is non-resident in
india. This amount is invested in a business and business income for the year ending march 31,2019 is
rs. (-) 40,000.
10. On october 10,2019, X purchases an oil painting from a cousin of his grandfather for rs. 40,000. This
painting is not available for less than rs. 3,00,000 in any art gallery.
11. On January 10,2012, X transferred a long-term house property on which he got long-term capital gain
of rs. 15,00,000. To claim exemption under section 54, X purcahsed a house property in delhi for rs.
10,00,000 on may 3,2012. However, this property is transferred on april 6,2019 for rs. 9,00,000.
Determine the amount of net income and tax liability of X for the assessment year 2020-21
Solution:
Rs. Rs.
Salary
From company (rs. 80,000 x 12) + bonus 40000 10,00,000
From college (rs. 20,000 x 12, conveyance allowance is exempt
as it is used for official purposes) 2,40,000
Less Std Ded 40000 12,00,000
Income from property (-)96,000
Business income (business income of minor son will be clubbed
in the hands of X) (-)40,000
Capital gains
Sale consideration of New Delhi property 9,00,000
Less: cost of acquisition (rs. 10,00,000 – exemption availed in the
assessment year 2011-2012 under section 54, as he has transferred
this property within 3 years) nil
Short-term capital gain 9,00,000
Income from other sources
Winnings from lottery (expenditure on purchase of lottery ticket
is not deductible) 10,00,000
50
Bank interest 35,500
Interest from post office savings account (rs. 8,000 – exemption:
rs. 3,500) 4,500
Interest from public provident fund (exempt) nil
Gift received by minor son (rs. 1,50,000 – exemption of rs. 1,500)
(it is income of minor son which will be clubbed in the hands of X) 1,48,500
Purchase of painting for inadequate consideration (rs. 3,00,000 –
rs. 40,000) 2,60,000 14,48,500
Less: deductions
Under section 80C(rs. 8,000 x 12 + rs. 15,000 x 12 + 10% of rs. 80,000 +
10% of rs. 25,000 + 10% of rs. 20,000 + rs. 80,000 + rs. 70,000, subject
to a maximum of rs. 1,50,000) 1,50,000
Under section 80D 14,000
Net income 33,48,500
Tax on net income
Income-tax (30% of rs. 10,00,000 + normal tax on the balance) 8,14,550
Add: cess @4% 32582
Tax liability (rounded off) 8,47,130
P4 X (57 years) is a salaried employee in Delhi. He gets the following emoluments from his employer
during the previous year 2020-20 :
Basic pay : Rs.8,00,000; dearness pay : Rs.35,000; bonus and commission: Rs.80,200; house rent
alllownac: Rs.1,90,000; and employer’s contribution to provident fund: Rs.80,000. Besides the employer
provides a free motor car (1999cc) for official and personal use of X and provides holiday home facility at
shimla (Rs.28,500). During 2020-20, the employer has sold a fridge to X for Rs.6,000(cost of the fridge to
the employer when purchased in 2007: Rs,42,000).
X owns a small house in Delhi since 1990 which issued by him for his own residence. Municipal valuation
of the house property is Rs. 1,80,000, whereas its standard rent under the Delhi rent control act is Rs.
51
40,000. During the previous year, he pays repairs expenditure of Rs.3,000 and interest (capital borrowed in
1990 for acquiring house) Rs.1,60,000.
Besides, he has received Rs. 94,000 (gross) as interest on FD from a bank and Rs.2,10,000 as dividend
from a foreign company. He has withdrawn Rs. 70,000 from the national savings scheme, which includes
interest of Rs. 20,000. He has received a gift of Rs. 62,000 from a friend on august 3,2019 and Rs. 45,000
from Mrs. X on march 1,2019.
Determine the net income and tax liability of X for the assessment year 2020-21, on the assumption that he
contributes Rs.97,000 towards recongnised provident fund and deposits Rs.3,000 in the national savings
scheme,1993.
Solution:
Rs.
Basic pay 8,00,000
Dearness pay 35,000
Bonus and commission 80,200
House rent allowance (exemption is not available as he resides
in his own house) 1,90,000
employees’ contribution towards recognized provident fund (not
chargeable to tax as it does not exceed 12% of salary) nil
free car (Rs.1800 x 12) 21,600
free holiday tour (fully taxable) 28,500
sale of fridge (original cost: Rs.42,000 – normal wear and tear @ 10%
per annums – Rs.6,000) nil
salary income after standard deduction of 40000 11,15,300
income from house property (-)30,000
income from other sources (Rs.94,000 + Rs.2,10,000 + Rs.70,000 +
Rs.62,000) 4,36,000
Less: deduction under section 80C 1,00,000
52
Tax on net income 2,38,890
Add: Health & education cess 4% 9,556
Tax payable (rounded off) 2,48,450
P 5 For the assessment year 2020-21, X(50 years) furnishes the following information: basic pay :
Rs.15,00,000; special pay : Rs.100,000; perquisite in respect of free car facility only for private purposes:
cost to the employer : Rs.94,000; free watchman : Rs.60,000; free gardener: Rs.72,000; employer’s
contribution towards unrecongnised provident fund : Rs.70,000.
Share of profits from a firm : Rs.2,00,000; a Hindu undivided family : Rs.90,000.
Income from a commission agency business : Rs.1,12,000
Winnings from camel racing : Rs.8,000
Gift from A, a collegue on December 5,2019 : Rs.54,000
Payments and investments:
Own contribution to unrecognised provident fund : Rs.72,000
Contribution to public provident fund: Rs.46,000
Donation to the prime minister’s national relief fund :Rs.20,000
Determine the net income and tax liability of X for the assessment year 2020-21. on June 17,2019, he has
been allotted 800 equity shares by the employer-company @ Rs.40 per share (market value: Rs.400 per
share) under employees stock plan. Paid up equity capital of the employer company is Rs.200 crore.
Solution:
Rs.
Basic salary 15,00,000
Special pay 100,000
Car (fully taxable) 94,000
Free watchman 60,000
Free gardener 72,000
Employer’s contribution towards unrecognized provident fund
53
(not taxable in the year of contribution) nil
Shares allotted under ESOP (Rs. 360 x 800) 2,88,000
Salary income less standard Deduction 40000 20,74,000
Business income (share of profit from a firm/ Hindu undivided family
is exempt from tax) 1,12,000
Income from other sources (Rs.8,000 + Rs.54,000) 62,000
Less: deductions
Under section 80C (contribution towards unrecognized provident fund
is not eligible) 46,000
under section 80G 20,000
net income 21,82,000
tax on net income (on Rs.8,000 @30% + normal tax on the balance of
Rs. 21,74,000) 4,67,100
Add: cess 4% 18684
P 6 X (32 years), a part-time college lecturer at Bombay, furnishes the following particulars for the
assessment year 2020-21:
Basic salary : Rs.40,000 per month ; Bonus 40000, dearness pay : Rs.2,000 per month; wardenship
allowance: Rs.2,600 per month; special allowance : Rs.200 per month ; examinership remuneration from
the madras university : Rs.84,000; royalty on book for university students : Rs.1,92,000; income from
house property : Rs.2,10,000; long-term capital gain : Rs.2,15,000; short-term capital gain: Rs.1,10,000;
interest on government securities: Rs.48,000; bank interest: Rs.20,000; income from tutions: Rs.1,15,000;
contribution of X to statutory provident fund: Rs.46,000; contribution to public provident fund : Rs.41,000;
expenditure on mediclaim insurance premium of dependent grandmother who is resident: (age 67 years):
Rs.26,000 and donation to government for the purpose of promoting family planing : Rs. 1,24,000.
Determine the net income and tax liability of X for the assessment year 2020-21.
Solution
Rs. Rs.
54
Basic salary (Rs.40,000 x 12) 4,80,000
Bonus 40000
Dearness allowance (Rs.2,000 x 12) 24,000
Wardenship allowance (Rs.2,600 x 12) 31,200
Special allowance (Rs.200 x 12) 2,400
Salary income 5,77,600
Less Std Ded 40000
Net salary 537600
Income from house property 2,10,000
Profit and gains of business or profession (royalty income) 1,92,000
Capital gain
Long-term 2,15,000
Short-term 1,10,000 3,25,000
Interest on government securities 48,000
Bank interest 20,000
Income from tuition 1,15,000
Examiner-ship of madras university 84,000 2,68,000
15,32,600
Gross total income
Less: deductions
Under section 80C (Rs..46,000 + Rs.41,000) 87,000
Under section 80D (insurance premium on the health of
grandmother is not deductible) nil
under section 80G [see note] 1,03,860
under section 80QQB (it is assumed that all conditions are
satisfied) 1,92,000
3,82,860
55
11,49,740
net income
tax on net income (on Rs.2,15,000 @ 20% + normal tax on the
balance of Rs.9,34,740)
add: education cess
add: secondary and higher education cess
tax payable (rounded off)
Note – donation to the government of india for promoting family planning is eligible for deduction at the
rate of 100% under section 80G. however, if the quantum of donation exceeds 10% of adjusted
gross total income
Note- donation to the government of india for promoting family planning is eligible for deduction at the
rate of 100% under section 80G. gowever, if the quantum of donation exceeds 10% of adjusted gross total
income, the excess amount is not taken into consideration. In this case, adjusted gross total income is
Rs.10,38,600(i.e., Rs.15,32,600 – Rs. 87,000 – Rs. 1,92,000 – Rs.2,15,000). 10% of adjusted gross total
income is Rs. 10,38,600. Amount of donation is Rs.1,24,000. Amount deductible under section 80G is
100% of Rs.1,03,860.
P 7 Mrs. X (age:39 years) furnishes the following information for the assessment year 2020-21:
Income from salary from A Ltd. Rs.
Bonus 1,80,000
High cost of living allowance 90,000
City compensatory allowance 20,000
Car facility only for private use at concessional rate:
 Expenditure by the employer 80,000
 Amount recovered from mrs. X by the employer 62,000
Gift-in-kind 14,000
Use of employer’s camera (cost to employer : Rs.17,000, mrs. X
has used it for private purpose from December 1,2019) 40,000
Interest on listed debentures (gross)
56
Dividends (declared during april 2019) from:
 B (Pvt.) Ltd., an indian company 15,000
 A Ltd., (mrs. X holds 0.2 per cent equity share capital in A Ltd.,
an indian company) 12,000
besides, mrs. X. owns a house property in bombay (erection of which was completed on april 14,1995). It
is let out to a tenant for commercial puposes at ra. 40,000 per month. the standard rent of the house
according to the bombay rent control act Rs.3,00,000. Mrs. X incurs the following expenses in respect of
house property : municipal taxes : Rs.35,000; repairs: Rs.6,000; interest on capital borrowed for the
purpose of construction of house property : Rs.78,000.
Determine the net income and tax liability of mrs. X for the assessment year 2020-21, after giving due
consideration to the following payments/investments made by her during the relevant previous year:
Rs.
Expenditure on marriage of dependent sister 1,00,000
Payment of insutace premium on the life of her mother
(sum assured : Rs.80,000) 20,000
Contribution to recognised provident fund 30,000
Contribution to public provident fund 6,000
Solution
Bonus 1,80,000
High cost of living allowance 90,000
City compensatory allowance 20,000
Car (Rs.80,000 – Rs.62,000) 18,000
Gift in kind (Rs.14,000 – Rs.5,000) 9,000
Use of camera (10% of Rs.17,000 x 4/12) 567
Gross Salary less std Ded 40000 9,77,567
Income from house property (grass annual value : Rs.40,000 x 12,
57
municipal tax: Rs.35,000; net annual value : Rs.4,45,000; income from
property :Rs.4,45,000 –30% of Rs.4,45,000 – Rs.78,000) 2,33,500
Income from other sources (Rs.40,000 being interest from debentures,
dividend from an indian company is not chargeable to tax) 40,000
Less: deduction under section (Rs.30,000 + Rs.6,000) 36,000
Tax on net income
Add: cess
Tax payable (rounded off)
P 8 from the following particulars of X (date of birth: october 17,1972), determine the net income and tax
liability for the assessment year 2020-21:
Rs. Rs.
Profit from business of selling goods 8,64,000
Current profit of publication of magazines and jounals 3,10,000
Brought forward loss of the business of publication 5,000
Profits from a small scale industrial undertaking set up in delhi in 2006
(before deducting the following) 3,80,000
 Salary to manager 1,08,000
 Depreciation 12,000
Income from business of dairy farming 4,65,000
Brought forward loss of the business of dairy farming 67,000
Agricultural income in india 2,98,000
Income from the business of dealing in equity shares
(after deducting securities transaction tax of Rs.18,000) 3,17,000
payment of insurance premia on the life of married daughter
(sum assured Rs.2,00,000) 68,000
58
solution
business income
business of selling goods 8,64,000
publication 3,10,000
small-scale industrial undertaking (Rs.3,80,000 – Rs.1,08,000 – Rs.12,000) 2,60,000
dairy farming 4,65,000
dealing in share (securities transaction tax is deductible) 3,17,000
total 22,15,000
less: brought forward losses (Rs.5,000 + Rs. 67,000) 72,000
income under the head “profits and gains of business or profession” 21,44,000
any other income nil
gross total income

21,44,000
income under section 80C (20% of Rs. 2,00,000) 40,000
net income
21,04,000
income-tax will be computed as under:

1. income-tax on Rs.24,02,000 (i.e, agricultural income Rs.2,98,000 +
non-agricultural income Rs.21,04,000)
2. income-tax on Rs.4,78,000 (i.e., agricultural income Rs.2,98,000 +
exempted slab of income Rs.)
3. income-tax computed at (1) minus income-tax computed at (2)
4. cess [4% of (3)]
5. tax liability [i.e., (3) + (4) ] (rounded off)
P 9 X (70 years) has prepared the following profit and loss account for the year ending march 31,2020:
Rs. Rs.
59
Salaries 4,55,000 Gross profit 20,15,000
Sundry expenses 1,65,000 Rent income (60 per cent portion) 3,60,000
Office expenses 90,000 Dividends from a foreign company 76,000
Interest on capital of X 80,000 Winnings from horse races (gross) 54,000
Fire insurance of house property 15,000 Winnings from lottery (gross) 1,10,000
Wealth-tax 14,000 Interest on government securities 94,000
Provision for bad debts 46,000
Repairs of house property 40,000
Municipal tax of house property 24,000
Insurance premium on own life 34,000
Donation to CPI, a political party 6,000
Depreciation (allowable) 84,000
Net profit 15,55,000
27,09,000 27,09,000
x owns a house property having three independent units (erection of which was completed on April
14,2009) which is being used by him for the following purposes:
a. 20 per cent of carpet area for business purposes;
b. 20 per cent of carpet area for self-residence; and
c. 60 per cent of carpet area is let out for commercial purposes.
Determine the net income of X for the assessment year 2020-21 assuming that standard rent of the property
under the rent control act is Rs.8,00,000.
Solution
Rs.
Net profit as per profit and loss account 15,55,000
Add: interest on capital of X 80,000
Add: fire insurance of house property (80% of Rs.15,000) 12,800
60
Add: wealth-tax 14,000
Add: provision for bad debts 46,000
Add: Repairs of house property (80% of Rs.40,000) 32,000
Add: Municipal tax of house property (80% of Rs.24,000) 19,200
Add: insurance premium on own life 34,000
Add: donation to political party 6,000
Less: rental income (-) 3,60,000
Less: dividend from foreign company (-) 76,000
Less: winnings from races (-)54,000
Less: winnings from lottery (-)1,10,000
Less: interest on government securities (-)94,000
Computation of property income –
Gross annual value 3,60,000
Less: municipal tax (60% of Rs. 24,000) 14,400
Net annual value 3,45,600
Less: deduction under section 24
Standard deduction (30% of Rs.3,45,600) 1,03,680
Repairs of house property (not deductible) nil
Fire insurance of house property (not deductible) nil
Computation of net income –
Rs.
Dividend from foreign company 76,000
61
Winnings from races 54,000
Winnings from lottery 1,10,000
Interest on government securities 94,000 3,34,000
Less: deduction under sections 80C and 80GGC 40,000
P10Mrs. X (38 years) is a general manager of a private limited company at delhi. She was appointed in the
grade of Rs.34,000-1000-50,000, on april 1,2015 (salary falls due on the last date of each month). besides,
she gets Rs.6,000 per month as dearness pay which does not form part of salary. She get bonus of 40000.
She had been provided with the facility of a gardener, watchman and personal attendant who are paid by
the employer at the rate of Rs.12,000, Rs.15,000 and Rs.18,000 per annum, respectively. Mrs. X uses
company’s car for official purposes. The house provided to mrs. X is not owned by the employer. Mrs. X
and her employer contribute 15 per cent of salary towards the recognised provident fund. Mrs. X gets prize
of Rs.90,000 (being winning from camel race) an bank’s interest of Rs.3,90,000 during the previous year
2020-21. On January 20,2019, mrs. X transfers bonus equity shares in Tata Chemicals (held since 1993) for
Rs.8,23,000. Besides brokerage @ 1 per cent, she pays securities transaction tax of Rs.1,030. Determine the
taxable income of mrs. X for the assessment year 2020-21.
Solution : salary of mrs. X at the time of joining on april 1,2015 was Rs.34,000. An increment of Rs.1,000
is added every year. The table given below gives salary on different dates-
April 1, 2015 Rs.34,000
April 1, 2016 Rs.35,000
April 1, 2017 Rs.36,000
April 1, 2018 Rs.37,000
April 1, 2019 Rs.38,000
Taxable income of Mrs. X is calculated as follows –
Rs.
Salary (Rs.38,000 x 12) 4,56,000
Bonus 40000
62
Dearness pay (Rs.6,000 x 12) 72,000
Rent-free house [15% of Rs.4,56,000 or Rs.70,000, whichever is lower] 68,400
Gardner, watchman and personal attendant (Rs.12,000 + Rs.15,000 +
Rs.18,000) 45,000
Car (not taxable as car is used for official purposes) nil
Employer’s contribution toward provident fund (in excess of 12% of salary,
i.e, 4% of Rs.4,56,000) 18,240
Gross Salary 6,59,640
Std Ded 40000
Salary Income 659640
Capital gain (long-term capital gain which is subject to securities transaction
tax is exempt) nil
Income from other sources (winnings from races: Rs.90,000 + bank interest: Rs.3,90,000) 4,80,000
Less: deduction under section 80C (15% of Rs.4,56,000) 72,960
63
ALTERNATE MINIMUM TAX ( AMT )

[Chapter XII-BA, Sec 115JC to 115JF]
Special provisions for payment of tax by certain persons other than a company [Section 115JC]:
 The provisions shall be applicable to a person, other than a company, who has claimed any deduction
(i) u/s 80 IA to 80 RRB [except 80P]
(ii) u/s 10 AA
(iii) u/s 35AD, and
whose regular income-tax payable for a previous year is less than the alternate
minimum tax payable.
 In case of an individual or HUF or an AOP/BOI, whether incorporated or not, or an artificial juridical

person, AMT Provisions are applicable only when adjusted total income exceeds 20 lakhs ie if the
adjusted total income of such person does not exceed 20 lakhs, AMT shall not apply.
For Firm and LLP, the limit of Rs 20 lacs does not apply ie AMT shall apply irrespective of adj TI.
 Adjusted total income to be deemed income: If regular income-tax payable for a previous year is less
than the alternate minimum tax payable then the adjusted total income shall be deemed to be the
total income of that person for such previous year and he shall be liable to pay tax on such
income @ 18.5% of adjusted total income.
 Meaning of Adjusted Total Income: Adjusted TI shall be the total income as increased by –:
(a) deductions claimed under sections 80IA to 80RRB (other than section 80P);
(b) deduction under section 10AA [Exemptions for units in SEZ]; and
(c) deduction claimed under section 35AD as reduced by the amount of depreciation allowable in
accordance with the provisions of section 32 as if no deduction under section 35AD was allowed.
 Every such person shall obtain a report, in prescribed form, from a CA, certifying that the adjusted total
income and the alternate minimum tax have been computed in accordance with the provisions of this
Chapter and furnish such report on or before the due date of filing of return under section 139(1).
 Tax Credit for alternate minimum tax [Section 115JD] :

(a) Tax credit to be allowed = AMT paid — regular income-tax payable. [this shall include
surcharge and cess]
(b) No interest shall be payable on tax credit so allowed.
(c) Such tax credit shall be carried forward and set-off during 15 subsequent assessment years.
(d) If the regular income-tax exceeds the alternate minimum tax, the tax credit shall be allowed to be
set off to the extent of the excess of regular income-tax over the alternate minimum tax and the
balance of the tax credit, if any, shall be carried forward.
64
Note: An amendment has been made under Section 115JEE to provide that even if the assessee has not
claimed any deduction under section 10AA or section 35AD or Chapter VI-A in any previous year and
the adjusted total income of that year does not exceed 20 lakh, it would still be entitled to set-off his
brought forward AMT credit in that year.
Que 1 AMT applicability: Mr. A a resident individual having a unit located in special economic zone
furnishes you with the following information for the year ended 31-3-2020:
Profit from unit located in SEZ 30,00,000

Export turnover of unit located in SEZ 72,00,000
Total Turnover of unit located in SEZ 1,00,00,000
Income from other sources 6,50,000
Investments in public provident fund 1,00,000
(i) Determine his tax liability for A.Y. 2020-21 after taking into account AMT provisions.
(ii) What would be your answer if profits derived from unit located in SEZ is 3,00,000 instead of
30,00,000?
Solution:
(i) Computation of total income of Mr. A for A.Y. 2020-21 (amount in Rs.) :
Profits and Gains of Business or Profession:

Less: Deduction u/s 10AA ( 30,00,000 x 72,00,000 ÷
1,00,00,000) 21,60,000 8,40,000
Gross Total Income 14,90,000
Less: Deduction u/s 80C (PPF investment) 1,00,000
Total Income 13,90,000
Computation of tax liability as per normal provisions of Act 2,29,500
AMT: (18.5% of Adj TI ) 18.5% of 35,50,000
[TI + Ded u/s 80IA to 80RRB(except 80P), 10AA, 35AD] 6,56,750
Since alternate minimum tax is higher than tax as per normal 6,56,750
provisions of the Act, Mr. A shall be liable to be pay
alternate minimum tax as per section 115JC
Add: Health and Ed.Cess @4% 26,270
Total tax payable (rounded off) 6,83,020
Working Note:
Computation of Adjusted Total Income (amount in Rs.):

Add: Deduction u/s 10AA 21,60,000
Adjusted Total Income 35,50,000
65
(ii) If profits derived from unit located in SEZ is 3,00,000 instead of 30,00,000 (amount in Rs.):
Profits and Gains of Business or Profession

Less: Deduction u/s 10AA ( 3,00,000 x 72,00,000 ÷ 2,16,000 84,000
1,00,00,000)
Computation of tax liability as per normal provisions of Act 39,300
Add: Cess @ 4% 1,572
Total Tax (rounded off) 40,870
[Since the adjusted TI of Mr A, now, does not exceed 20 lakhs, AMT provision shall not apply].
Que 2 Section 35AD and AMT applicability: Mr. X, carrying on the business of operating a inland
container depot, has a Gross total income of 96 lakh. In computing business income, he had claimed
deduction under section 35AD to the extent of 75 Iakh on investment in building (on 1-4-2019) for
operating the inland container depot. He has made investment of 1,50,000 on 31-03-2020 in public
provident fund. Compute his tax liability for AY 2020-21. Also determine the amount of AMT
credit under Section 115JD.
Solution: Computation of total income of Mr. X for A.Y. 2020-21 (amount in Rs.) :
Computation of Total Income

Computation of tax liability as per normal provisions of Act 26,47,500
AMT (18.5% of ATI) i.e. 18.5% of 1,62,00,000 29,97,000

[9450000+(7500000-750000)] 29,97,000
Add: Surcharge @ 10% 2,99,700
32,96,700
Add: Cess @4% 131,868
Total tax payable under Section 115JC (rounded off) 34,28,570
Since the regular income-tax payable is less than the AMT payable, the adjusted total income of
1,62,00,000 shall be deemed to be the total income of Mr. X and tax is payable @ 18.5%
thereof plus surcharge @ 10% and cess @ 4%.
Computation of Alternate Minimum Tax credit (amount in Rs.):

Total tax payable under Section 115JC 34,28,570
Less: Tax as per normal provision 2647500 + surcharge 10% + cess 4% 30,28,740
AMT credit to be carried forward 3,99,830
66
Working Note:
Computation of Adjusted Total Income (amount in Rs.)
Add: Deduction u/s 35AD 75,00,000
Less: Depreciation under Section 32 [10% of 75,00,000] 7,50,000 67,50,000
Adjusted Total Income 1,62,00,000
67
ASSESSMENT OF HUF
HUF is also treated as a separate person under section 2(31) of the Income-tax. -If the HUF in its
capacity is earning income, HUF has also to pay tax and file its return of income to the Department.
BASIC CONDITIONS FOR ASSESSMENT OF HUF:
There are two basic conditions for assessment of HUF, on fulfillment of these conditions, the
income arises to HUF is chargeable to tax in the hands of HUF:
a. There is coparcenership : Coparcenership means that the member of HUF can get the
partition of the property at any time and get their share in the properties of the HUE If once
the income of HUF is taxed in its hands, then the same shall be taxed in the hands of HUF
until there is partition of HUF
b. There is joint family property, which consists of ancestral property, Property purchased with
the aid of ancestral property and property transferred by its members.
ANCESTRAL PROPERTY MEANS : Ancestral Property means a property which a man inherits
from any of his three immediate male ancestors, i.e., his father, grandfather and great grandfather.
Therefore any property received from any other relation is not treated as ancestral property.
There are two schools of Hindu law -
b) Dayabhaga School of Hindu Law; and
c) Mitakshara School of Hindu Law
Law Dayabhaga School of Hindu Law Mitakshara School of Hindu Law
Applicable to Rules of Dayabhaga school prevails in the Rules of Mitakshara school prevail over rest
State of West Bengal and Assam of India.
Features
Interest in property As per this thought, a son acquires interest As per this thought, a son acquires interest
in ancestral property only after the death of in ancestral property as soon as he is born.
his father. Taxpoint: A son acquires an equal interest
in
Taxpoint: A son does not acquire interest in the ancestral property with his father mere
the ancestral property mere by birth. by birth.
Right to claim
partition Since son has no interest in ancestral Since son acquires interest in ancestral
68
property, he cannot claim partition till his property by his birth, therefore he can claim
father is alive. partition at any time.
Taxpoint: Father enjoys an absolute right to
dispose of the property of the family.
Fluctuation in The coparcenary interest does not fluctuate The coparcenary interest fluctuates on every
coparcenary interest on every birth or death of a male member. It birth or death of a male member.
fluctuates only on death of the father.
Note: After Hindu Succession (Amendment) Act 2005, the daughter (in the same manner as the son) of a
coparcener shall by birth become a coparcener in her own right. The female heir can demand the
partition of coparcenary property.
BASIS OF COMPUTATION OF TAXABLE INCOME OF HUF:
First compute income of HUF under different heads and sum up these incomes. Exempted incomes
will not be considered.
If funds of HUF are invested in a company or firm, any income arises from such funds is treated as
the income of HUF
If the remuneration is paid to Karta by HUF for conducting the family business, it is deductible
from the income of HUF only when the following conditions are satisfied:
 Paid under a valid or bonafide agreement

 In the interest of the business of the family
 It is genuine and not excessive
FOLLOWING INCOMES ARE NOT TAXABLE IN THE HANDS OF HUF:

a. If any member has converted on or after 31st December, 1969, his self acquired property in
the HUF property. Any income arise to HUF from such property is included in the income of
the member who transfers such property. This income is not chargeable in the hands of HUF.
Income from impartible estate is taxable in the hands of the holder of impartible estate. &.
Personal income of the members cannot be the income of HUF
b. Under Dayabhaga school of law, son is not having any right in the ancestral properties of
HUF till the father alive. Therefore if father is not having any brother as a coparcener,
income arising from ancestral property is treated as the personal income of the father and not
of the HUF.
CLUBBING AND ADJUSTMENT OF LOSSES:

b
While calculating the income of HUF, clubbing provisions as contained in section 60 to 63 are also to
.
69
be taken care of and losses are also to be adjusted under section 70 to 80.
DEDUCTION FROM GROSS TOTAL INCOME:
Section
80C Insurance Premium, Contribution to PF etc.
80CCF Subscription to Long Term Infrastructure bonds
80D Payment to medical insurance premium
80DD Maintenance including medical treatment of dependent being a person with disability
80DDB Medical treatment expenditure
80G Donations to charitable institutions and funds
80GGA Donations for Scientific research or rural development
80GGC Contribution given to Political parties
80IA Profit from industrial undertakings engaged in industrial infrastructure
80 IAB Profit by an undertaking engaged in development of SEZ
80IB Profit from certain industrial undertakings other than infrastructure development
undertakings
80IC Profit from certain undertakings in certain special category of states
80ID Profit from business of hotel and convention centre in NCR
80IE Profit from certain undertakings in North Eastern States
80JJA Profit from business of collecting and processing of bio-degradable waste.
80 JJAA Deduction from Additional employment
80 TTA Interest from saving bank account
TAX LIABILITY OF HUF - HOW CALCULATED:
The rates of income tax are the same which are applicable in case of individual , and whose age
is below 60 years.
If the HUF is having agricultural income, tax is to charged taking into account the agricultural income,
which is to be included in the HUF's total income and thereafter a deduction of taxes on the income
(agricultural income and the + basic exemption limit). The net amount arrives at shall be increased by
the applicable cess. Out of such amount any TDS of HUF is also deductibe and the balance amount so
arrives at shall be the tax payable by HUF.
TAX IMPLICATION OF PARTITION OF HUF:
a. Partition means division of properties of HUF
b. Partition can be claimed only by the coparceners. Following persons can claim partition:
 All coparceners
 A son in the womb of his mother at the time of partition
 If partition is between sons, Mother gets equal share on the death of father.
 If partition is in between father and sons. wife gets equal share.
ASSESSMENT AFTER PARTITION
Where there is a total partition of HUF, the income up to the partition is assessed in the hands of
70
HUF and thereafter the income is charged in the hands of individual who is in receipt of an asset
which generates income. if after partition, another HUF is created by the member, then the income
from property received from the HUF on partition is to be taxed in the hands of New HUF.
Partial partition is not being recognized for tax purposes, if partition takes place after
31stDecember, 1978. The following provisions in this regard to be taken care of:
a. AO shall not enquire and shall not record findings as to partition of the family.
b. Such family shall continue to be assessed as if no partial partition has taken place
c. Each of the members of family before partial partition shall be jointly and severally liable for
any tax, penalty, interest, find or other sum payable under the act, whether before or after
such partial partition. The Several liability of any member or group of members of such
family shall be computed according to the portion of the joint family property allotted to him
on such partial partition
AMT PROVISION APPLIES to HUF also.
Example 1 Mr. Raman (aged 70 years), karta of Hindu Undivided Family (HUF), furnishes the following
information:
(a) Income from the business of poultry farming 4,00,000.
(b) Income by way of winning from horse race 30,000 (horse race won on 28- 12-2019)
(c) Net profit from the business of dealing in equity shares RS 88,500
after deducting Transaction Tax (STT) of Rs 11,500.
(d) Brought forward business loss relating to discontinued automobile business RS 38,500
(related to assessment year 2016-2017).
(e) Payment of life Insurance Premium (on self) 22,500.
(f) Contribution to Pension Fund of LIC RS 17,500.
(g) Contribution made in the name of a member of HUF In public provident fund Account RS
20,000.
(h) Interest income from company deposits RS 15,100.
(i) Housing loan principal RS 30,000
(j) Interest on housing loan RS 36,000(actually paid RS 25,000).
(k) The HUF gave the right to receive furniture rent of RS 26,000 p.a to Mrs. Raman without
transferring the ownership rights in her favour.
The HUF owns a residential property which has 3 identical residential units. Unit I and Unit 2 are self
occupied by the members of the HUF for residential purpose. Municipal tax is paid @RS 5,000 p.a. for
each residential unit. Unit 3 Is let Out for a rent of RS 8,000 per month. The tenant paid the municipal tax
in respect of Unit 3 as per agreement The assessed realised RS 1,20,000 on 16-4-2019 as per court order
towards arrear rent for the period from 1-1-2014 to 31-12.2015.
Compute total income and tax payable by the assessee.
71
Solution. Computation of taxable income of HUF and tax payable for the AY 2020-21 (amount in RS)
Income from House Property (WN-1) 1,78,900
Profit and gains of Business or Profession (WN-2) 4,50,000
Income from Other Sources (WN-3) 71,100
Gross Total Income
7,00,000
Less: Deductions under Chapter VI-A-
Deduction u/s 80C (PPF 20000 + Repayment of housing loan 30,000 +
Life insurance of karta T 22,500) 72,500
Taxable Income
Tax:Tax on winnings from horse race( 30,000 x30%) 9,000
6,27,500
Tax on balance income 32,000
41,000
Add: Health and Ed cess @4%
1,640
total tax
42,640
Net tax payable (round off) 42,640
Working notes :
(1) Computation of income from house property :

Unit 1: Annual Value of self-occupied unit (Note-A) Nil
Less: Interest on housing loan (RS 36,000 * 1/3) 12,000 -12,000
Unit2:Annual Value of the unit (deemed to be let out)
96000
Less : Municipal taxes
5000
Net Annual Value (NAV)
91000
27000
Less : Standard deduction u/s 24@30% of NAV 51,700
12000
Less: Interest on housing loan ( 36,000 x 1/3)
96000
Unit 3: Actual rent received (T 8,000 12) (being GAV)
Nil
Less: Municipal taxes paid (Note-B)
96,000
Net Annual Value (NAV)
28,800
Less : Standard deduction u/s 24 30% of NAV 55,200
12,000
Less: Interest on housing loan (T 36,000 1/3, for one unit)
1,20,000
Ad& Arrears of rent realised taxable U/S 25B [NOTE-C] 84,000
36,000
Less deduction 030% U/S 25B
Total income from house property 1,78,900
(2) Computation of Profit and Gains of Business or profession:
72
Income from poultry business 4,00,000

Net profit from business of dealing in equity shares (Note-D) 88,500,
Brought forward business loss of automobile business (Note-
E) -38,500 4,50,000
(3) Computation of Income from Other Sources:
gross winnings from horse race 30,000 30,000

Interest Income on company deposits 15,100 15,100
rent of furniture (clubbed under section 60) (Note-F) 26,000 71,100
Note:
A. Unit I & Unit 2 are self -occupied by the members for their residential purposes. Annual value of
one unit is taken as Nil and the other unit is deemed to be let out.
B. Municipal tax paid by tenant is not a deductible expense under sec on 23(4).
C. Arrears of rent received, as per court order not shown earlier, realised on 16-4-2019 for the period
from 01-01-2014 to 31-12-2015 shall be chargeable to tax under the head income from house
property. As per Section 25B, 30% 01 the amount of arrears shall be allowed as deduction. Hence.
the taxable portion is 120,000 less 30% which is 84,000.
D. As per Section 36(1)(xv), securities transaction tax paid by the assessed in respect of taxable
securities is deductible If the income from such taxable securities is included in the income
computed under the head ‘Profits and gains of business and profession.
E. As per Section 72. brought forward loss of discontinued automobile business can be set off against
profits and gains of business or profession.
F. The HUT confers the right to receive the rent of furniture of 26,000 to Mrs. Raman, a member of
HUF. without transferring the said furniture to her. Hence, the rental Income of such furniture is to
be clubbed in the hands of HUF under section 60.
G. The deduction under section 8OCCC In respect of contribution to Pension Fund of LIC is
permissible only to an individual assessee. Hence, the HUF is not entitled to claim the deduction
under this section.
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ASSESSMENT OF PARTNERSHIP FIRM

Partnership firm is a business form of organization. It is also a person under section 2(31) of the
Incometax Act. In case of partnership firm, the return of income is to be filed for partnership firm
besides the return of income of partners.
SCHEME OF TAXATION OF PARTNERSHIP FIRM:
(a) These provisions are also applicable tn LLP .
(b) The firm is taxed as a separate entity
(c) The share of partner in the income of firm is exempt from tax and not chargeable to tax
(d) Any salary, bonus, commission and remuneration to partner is allowed to partners as
deduction, but the same taxable in the hands of partners as income from business and
profession.
(e) Interest on capital to partners is also deductible in the accounts of the firm.
(f) Income of the firm is taxable at the flat rate of 30% + 2% Education Cess + 1% SHEC (
surcharge @ 10% if TI exceeds Rs 1 crore)
WHEN REMUNERATION/INTEREST IS DEDUCTIBLE:
Payment of remuneration/interest is deductible on fulfillment of the following conditions:
a. Conditions of section 184
b. Conditions of section 40(b)
Even if these conditions are satisfied, firm mayor may not claim the deduction in respect of payment
of remuneration/interest to partners. The AO cannot enforce deduction for remuneration/interest if the
firm has not claimed these as deductions.
CONDITIONS OF SECTION 184:
(a) Firm must be evidenced by instrument (Partnership deed)
(b) Individual share of partners must be specified in instrument
(c) Certified copy of the instrument should be submitted.
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(d) Revised instrument should be submitted whenever there is change in the constitution . There
should not be any failure as mentioned in section 144
CONDITIONS FOR CLAIMING DEDUCTION OF REMUNERATION OF PARTNERS UNDER SEe. 40{b):
(a) Remuneration should be paid only to working partner
(b) Remuneration must be authorized by partnership Deed
(c) It should not pertain to the period prior to partnership deed
(d) Remuneration should not exceed the permissible limits: Permissible limits are:
If book profit is negative Rs. 150000/-
Up to 300000/- of book profit Rs. 150000/- or 90% of book profit

whichever is more
Balance of Book profit 60% of book profit
CALCULATION OF BOOK PROFIT:
(a) Find out the Net profit as per Profit &Loss Account
(b) Make adjustments as provided by sections 28 to 440B
(c) Add: Remuneration to partners if debited to the Profit &Loss Account.
The resulting amount is the Book Profit.
1. For calculation of book profit, only income from business and profession is taken, other
incomes
2. credited into the profit and loss account are deducted from the net profit.
3. B/F business loss is not to be deducted from book profit
4. B/F unabsorbed depreciation is deducted from book profit
5. Deductions uls 80-C to 80-U shall be ignored for computing book profit.
CONDITIONS FOR CLAIMING DEDUCTIONS OF INTEREST TO PARTNERS UNDER

SECTION 40{b):
a. Payment of interest to be authorized by partnership deed
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b. Payment of interest should pertain to the period after the partnership deed c. Rate of
interest should not exceed 12 per cent.
Interest charged by partnership from on drawings to partners: This interest received from the
partners is chargeable to tax.
C/F AND SET OFF OF LOSS IN CASE OF CHANGE IN THE CONSTITUTION OF FIRM U/S78:
Section 78 provides that where there is change in the constitution due to death or retirement of the
partner. The firm shall not be entitled to clF of so much of the loss as is pertaining to such partner.
Provisions of C/F and set off under section 78 are as follows:
a. First ascertain/calculate the share of outgoing partner in the profit/loss of the firm in the
year of change in the constitution of the firm.
b. Compute the share of loss of outgoing partner in B/Floss
c. The difference between the two (in the case of profit in the year of change) or the aggregate
of the two (if there is loss in the year of change in the constitution of firm) cannot be
allowed to be set off and carry forward.
UNABSORBED DEPRECIATION:
section78 is not applicable in case of unabsorbed depreciation and unabsorbed capital expenditure
on scientific research, these can be by the reconstituted firm.
COMPUTATION OF INCOME OF FIRM:
Find out the income under different heads of income. Payment of remuneration/interest is deductible
if conditions u/s 184 and 40(b) are satisfied.
Make adjustment of B/F business loss to arrive at the GTI
From the GTI, following deductions are allowed:
OTHER POINTS:
a. Where at the time of assessment it is found that there is change in the constitution of a firm, only
one assessment is to be made for the entire previous year in which the change occurred.
TAX LIABILITY OF THE FIRM:
1. STCG U/s I11A 15%

2. LTCG: See. 112 20%
3. Winnings from Lottories etc. 30%
4. Income of the firm (excluding the above) 30%
( Surcharge @ 12% if TI exceeds Rs 1 crore)

Add: Health & Educational cess @ 4% of the tax
CALCULATION OF TAXABLE INCOME Of THE PARTNERS OF THE FIRM:
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a. Share of partner from the firm is exempt from tax

b. Remuneration/interest to partner allowed to the firm is chargeable in the hands of partners
c. Remuneration to partner is chargeable under the head income from business & profession and
not under the head income from salary.
d. If the remuneration and interest is disallowed in the firm the same shall not be taxable in the
hands of the partners.
Limited Liability Partnership
The tax treatment of limited liability Is as under -
a) Firm to Include Limited Liability Partnership: The Finance Act has Incorporated the taxation
scheme of Limited Liability Partnership in the Income-tax Act. 1961 on the same lines as applicable
for general partnerships The definition of the terms “partner” “firm” and “partnership” have been
amended to include a limited liability partnership.
b) LLP to be assessed in he same manner as Firm: Since tie tax treatment of LLP and general
partnership is the same, the conversion from a general partnership to LLP will have no tax
Implications If the rights and obligations of the partners remain the same after conversion and there
is no transfer of asset or liability after conversion
LLP is eligible for deduction of remuneration paid to working partners, If the same Is authorized by the
partnership deed, and subject to the limits specified In section 40(b)(v), i.e., on the first RS 3 lakhs
of book profit or in case of loss, the limit would be the higher of RS 1,50,000 or 90% of book profit
and on the balance of book profit the limit would be 60%.
LLP is entitled to deduction of interest paid to partners if such payment is authorized by the
partnership deed and the rate of interest does not exceed 12% simple interest pa.
c) Liability of partners of limited liability partnership in liquidation [Section 167C]: Where any tax
due –
I. from a limited liability partnership in respect of any income of any previous year; or
II. from any other person in respect of any income of any previous year during which such other
person was a limited liability partnership cannot be recovered,
In such case, every person who was a partner of the limited liability partnership at any time during the
relevant previous year, shall be jointly and severally liable for the payment of such tax unless he
proves that the non- recovery cannot be attributed to any gross neglect. Misfeasance or breach of
duty on his part in relation to the affairs of the limited liability partnership.
AMT PROVISION APPLIES SEC 115JC TO 115JF
TAXATION OF FIRM
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1. Remuneration deductible u/s 40(b) : Profit and loss account of a partnership firm for the year ended
31st March 2020 is as follow (Amounts in Rs.) :-
Cost of goods sold 1000000 Sales 1500000
Remuneration to partners 145000 Rent of House property 60000
Interest to Partners @ 20% pa 40000 Dividend 170000
M.Taxes of house property 25000
Other expenses 240000
Net Profit 280000
1730000 1730000
Other information:
(1) Out of other expenses, Rs.18.400 is not deductible under section 36, 37(1) and 43B.
(2) On 15th January 2020, the firm pays an outstanding sales tax liability of Rs.54,700 for the previous
year 2013-13. As this amount pertains to the previous year 2015-15, it has not been debited to the
aforesaid profit and loss account.
Calculate book profit and the remuneration deductible under section 40(b).
Sol. Net profit 280000
Add : Int 40000/20*8 16000
Add : M Taxes of HP 25000
Add : Other Exp 18400
Add : Rem. 145000
Less : Rent of HP 60000
Less : Dividend 170000
Less : S tax 54700
Book Profit 199700 Allowable Rem. : 199700*90%= 179730
2. Computation of allowable remuneration U/s 40(b) : The net profits of Jolly Brothers, a partnership P
firm, consisting of the three partners carrying on business for the accounting year ended 31st March
2020 was Rs.5,40,000. The said net profits after charging salary payable to all the partners were
78
amounting to Rs.1,08,000 but before crediting interest to partner’s account to their fixed capitals
amounting Rs.10 lakh totally. The partnership deed provided for payment of interest on fixed capital
at 18% per annum.
The partnership deed does not, however, specify any salary entitlement to partners. On this information,
your are require to :-
(i) Compute the taxable income of the firm; and
(ii) Calculate the remuneration allowable under provisions of the Income Tax Act, 1961 to all the
partners, if the partnership deed had provided for the payment of remuneration to them.
Sol. (i) Taxable Income : 540000+108000-120000=528000. (ii) Allowable Max. Rem: 406800
Allowable Rem : 108000
3. Computation of remuneration allowable u/s 40(b) : A firm of Company Secretaries consisting of 3

partners earned a net surplus of Rs.2,80,000 during the accounting year ended 31st March, 2020 after
charging interest on capitals amounting to Rs.36,000 calculated @ 18% per annum on the capitals of
partners but before charging, remuneration to partners. You are requested to calculate the taxable
income of the firm and tax thereon after allowing the maximum allowable remuneration to partners
under the provisions of the Income tax Act, 1961.
4. Computation of remuneration u/s 40(b) : X & Co., a partnership firm such, furnishes the following
Profit and Loss Account for the previous year ended 31.3.2020.
Amount in Rs.
To cost of Goods 280,000 By sales 292,000
To other Expenses 91,000 By Net Loss 172,000
To interest to Partners 25,000
To Remuneration to 68,000
Partners
464,000 464,000
The other expenses debited includes Rs.13,600 not allowable under section 37(1) of the Act. Interest to
partners is in Excess by Rs.7,100 (not statutory allowable)
You are required to compute for the assessment year 2020-21.
(i) Books profits of the firm.
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(ii) Permissible remuneration to partners under section 40(b)
(iii) The income of the firm. (83300), 150000, (151300)
5. Total income of firm : Chatterjee and Co., a firm a Company Secretaries at Kolkata has furnished the
Profit and Loss account for the year ended 31st March 2020 as under :-
Expenses 155,000 Gross receipts from 220,000
profession
Depreciation on assets 45,000 Net Loss 131,000
Remuneration to partners 141,000
351,000 351,000
Additional information:
(a) Expenses include an amount of Rs.22,500 being interest on capital to partners credited @ 12% per
annum on the balances and Rs.22,500 being the expenditure not allowable under section 37.
(b) Depreciation as per the income tax rules is Rs.48,000.
Compute the taxable income of the firm indicating the maximum permissible remuneration and interest
allowable to partners under the provisions of the Income tax Act, 1961.
6 POR ,LLP has a profit of rs.5 crore after charging interest on capital for P amounting to rs.10 lakh
calculated at 15per cent annum as per the agreement, but before considering remuneration to
partners. What is the maximum admissible amount of remuneration to partners assuming all the
partner are working partners and remuneration is authorized by the LLP instrument ?
Rs.
Net profit 5,00,00,000
Add: interest in excess of 12% per annum (3/15x rs.10,00,000) 2,00,000
Book profit 5,02,00,000
Maximum remuneration to working partners (90% of rs.3,00,000+60% of rs.4,99,00,000) 3,02,10,000
Note-amount deductible is rs. 3,02,10,000 on account of remuneration payable to working partners. If,
however, the aggregate amount actually paid to all wording partners I lower than rs.3,02,10,000,
then the amount actually paid is deductible by virtue of section 40(b).
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ASSESSMENT OF ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS.
Concept of association of persons and body of individuals :-
1) Association of Persons (AOP) : When persons combine together for promotion of joint
enterprise, they are assessable as an AOP when they do not, In law, constitute a partnership. In
order to constitute an association. persons must join In for a common purpose and common action
and their object must be to produce Income. It is not enough that the persons receive the income
jointly. Co-heirs, co-legatees or co-donees joining together for a common purpose or action would
be chargeable as an AOP.
2) Body of Individuals (BOI) : It denotes the status of persons like executors or trustees who merely
receive the Income jointly and who may be assessable in like manner and to the same extent as the
beneficiaries individually. Thus, co-executors or co-trustees are assessable as a BOI as their title
and interest are Indivisible. Income-tax shall not be payable by an assessee in respect of the receipt
of share of Income by him from 801 and on which the tax has already been paid by such BOI.
3) Distinction between AOI and BOI:
S.no Point AOP BOI
(1) Creation It is voluntarily created by 2 or It is created by operation of

more persons . law
(2) Object Its member may constitute of Only individuals can be the
companies, firm HUF or member of body of
individuals. individual
(3) Example Co-heirs, co –legatees or donees are Co-executors or co-trustees

example of AOP are example of BOI
Provisions for computing business income of any AOP/BOl [Section 40(ba)]: In computing the income
of an AOP/BOl under the head, Profits and gains of business or profession’, the following shall be
disallowed –
1) Interest to members - Not allowable: Any payment of interest, made by such association or body to
a member of such association or body.
(a) Where interest is paid by an association or body to any member thereof who has also paid interest to
the association or body, then net amount of interest shall be disallowed.
(b) Where an individual is a member of an association or body on behalf or for the benefit, of any other
person (such member and the other person hereinafter referred to as member in a representative
capacity and person so represented, respectively),
81
(i) interest paid by the association or body to such individual or by such individual to the
association OF body otherwise than as member in a representative capacity, shall not be
disallowed.
(ii) interest paid by the association or body to such individual or by such individual to the
association or body as member in a representative capacity and interest paid by the association or
body to the person so represented or by the person so represented to the association or body shall
be disallowed.
(c) Where an individual is a member of an association or body otherwise than as member in a

representative capacity, interest paid by the association or body to such individual shall not be
disallowed, if such interest is received by him on behalf, or for the benefit. of any other person.
2) Remuneration to members - Not allowable: Any payment of salary, bonus, commission or

remuneration, by whatever name called, made by such association or body to a member of such
association or body.
Provisions relating to taxation of total income of association of person/body of individuals.
Charge of tax where shares of members in association of persons or body of Individual’ unknown,
etc. (Section 167B): The provisions relating to taxation of total income of association of
persons/body of Individuals are as follows :
(1) individual shares arc Indeterminate or unknown (Section 167B(1)): Where the Individual shares
of the members of an association of persons or body of individuals (other than a company or a
cooperative society or a registered society) in the whole or any part of the income of such association
or body are Indeterminate or unknown, tax shall be charged as under –
Case Taxability
(A) None of the members are taxable at the rate Tax shall be charged on the total Income of the
higher than maximum marginal rate (MMR) association or body at the maximum
marginal rate 42.744% [30+37+4] for AY
2020-21
(B) Any of the member are taxable at the rate Tax shall be charged on the entire total Income of
higher than maximum marginal rate (MMR) the association or body at such higher rate
(2) Individual shares are determinate or known [Section 167B(2)]: Where the Individual shares of
members of an association of person or body of individuals In the whole of the income of such association
or body are determinate or known –
Case Taxability
82
(A) any member of an AOP has income taxable Total income of AOP/BOl, to the extent it is
at higher rate than the maximum marginal relatable to the share(s) of such member(s) is
rate. taxable at such higher rate.
(B) Total Income of any member for the previous Tax shall be charged on the total income of the
year (excluding his share from such AOP/BOI) AOP/BOI at the maximum rate (i.e, 42.744% for
exceeds the maximum amount not chargeable to tax assessment year 2020-21)
(C) where none of the member has total income The total income of such AOP/BOI shall be taxable
(excluding share income) at the normal rates applicable in case of an
individual.
Method of computing a member’s share In Income of association of persons or body of

Individuals (Section 67A): In computing the total income of an assessee who Is a member of an
association of persons or a body of individuals wherein the shares of the members are determinate
and known (other than a company or a cooperative society or a registered society), whether the net
result of the computation of the total income of such
association or body is a profit or a loss, his share (whether a net profit or loss) shall be computed as
follows, namely -
Computation of apportionable share of Income of AOP or BOl:
Total income of such AOP/BOl xxx
Less: Interest, salary, bonus, commission or remuneration by whatever name xxx

member in respect of the previous year
Balance to be apportioned among the members In their agreed profit sharing ratio XXX
Taxability of members’ share in the income of AOP/BO1 [Section 66, Section 86 and Section 110]:
The members’ share in the total income of association of persons/bodY of Individuals shall be dealt
with as follows –
(1) Case 1 : Where the association of persons or body of Individuals Is chargeable to tax on its total
income at the maximum marginal rate or at any higher rate - The share of a member computed as per
Section 67A shall not be included in his total Income.
(2) Case 2: Where the association of person or body of Individuals Is taxable at the normal rates
applicable In case of individual - The taxability will be determined as under –
(a) Include the share income from the AOP/BOI in the hands of the members and total Income shall be
computed accordingly.
(b) Compute the tax payable on the above total Income.
(c) Compute average rate of tax = (tax on total income + Total income) X 100
83
(d) Tax rebate for share Income of AOP - Share Income under section 67A included in his total income
x average rate of tax.
(e) Tax payable – [Tax payable as per (b) above - Tax rebate as per (d)].
Note: Where no income-tax is chargeable on the total income of the association or body, the share
of a member computed as aforesaid shall be chargeable to tax as part of his total income and no
rebate shall be admissible
AMT PROVISIONS APPLY
Illustration Computation of total income of AOP: X and Y are equal members of an AOP carrying on
business- From the Profit & Loss A/c of the AOP for the year ended 31-3-2020. compute the tax liability
of the AOP and also the members lot the AY 2020-21
Particulars RS Particulars RS
Selling and administrative expenses 1,05,000 Gross profit 3,80,000
Interest to Y 20,000 Miscellaneous receipts 10,000
Remuneration to member:
X 70,000
Y 70,000 1,40,000
Total 3,90,000 Total 3,90,000
Other Information:
(i) Selling and administration expenses Include 30.000 paid to a consultant in cash.
(ii) The other 1ncome details of the members are as follows -
Member Income Nature of income Investment

X 1,40,000 Interest of fixed Purchase of NSC Rs
Y 50,000 deposit from bank 10,000
Dividend from Indian Contribution to PPF Rs
companies 7,500
Solution: Computation of tax liability of AOP and its members are -

(1) Computation of total income and tax liability of AOP (amount is RS)
125000
net Profit as per Profit and Loss A/c
Add: Inadmissible Expenses: 20000
interest paid to Y u/s 40(ba) 140000
Selling & administrative expenses paid in cash - disallowed u/s 30000 190000
4OA(3) (since the amount exceeds RS 10.000) 315000
Total Income
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Net tax payable (round off) 6,700
Working Note: Income of any member does not exceed the maximum amount not chargeable to tax i.e.
2.50,000, therefore the Income of AOP is chargeable to tax at the rate applicable to individuals.
(2) computation of appropriate share of income of AOP(amounts in RS)

20,000
Less: Interest to Y 1,40,000 1,60,000
Remuneration to X & Y
Apportionable income 1,55,000

77,500
Share of each member (equal)
(3) computation of income of a member of AOP(amount in Rs)

Particular X Y
Interest Nil 20,000
Remuneration 70,000 70,000
Share income 77,500 77,500
Total 1,47,500 1,67,500
Illustration - Tax implications of AOP in. different cases: Other facts remaining the same, determine the
tax consequences pertaining to the association of persons in the following cases
(1) If the interest on fixed deposits of Mr. X Is 2,80,000 instead 1,40,000.
(2) If instead of Mr. Y, PQR Inc, a foreign company. is a member.
(3) If shares of the members are not determinate and Not known.
(4) If shares are not determinate and not known and instead of Mr. Y, PQR lnc, a foreign company, is a
member.
Solution : The tax consequences of AOP in different cases shall be as follows:
(1) If the Interest on fixed deposits of Mr. X is RS 2,80,000: In this case, the total income of AOP
shall be charged to tax at maximum marginal rate i.e. 42.744%. Hence tax liability of AOP RS
3,15,000 X 42.744% =134640 (round off).
Members’ share in total income of AOP shall not be included in the total income of the members.
(2) If PQR Inc., a foreign company, Is a member: Tax rate of foreign company is 43.68% i.e.
40%+5% +4% . Thus, share income of PQR Inc., being 1,67,500, shall be taxed @43.68% and
balance income of the 1,47,500 shall be taxed at maximum marginal rate i.e. 42.744%.
85
(3) Members share in the total income of AOP shall not be included in their total income.
(4) If the shares of the members are indeterminate and unknown ; The total income of AOP shall
be assessed at maximum marginal rate i.e. 42.744% and members share in total income of AOP
shall not be included in their total income.
(5) If the shares of members are indeterminate and unknown and PQR Inc., a foreign company, is
a member: The total income of AOP shall be assessable at rate applicable to the foreign company
i.e.43.68%
Members’ share in the total income of AOP shall not be included in their total income.
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ASSESSMENT OF CO-OPERATIVE SOCIETIES
DEDUCTION IN RESPECT OF INCOME OF A CO-OPERATIVE SOCIETY [Sec 80-P]
In case of Co-operative society, the following amounts are allowed as deductions:
100% of the profit from the following activities of the co-operative:
 Activity of banking business or providing credit facility to its members
 Activity of cottage industry
 Marketing of the agricultural produce grown by its members
 Purchase of agricultural implements, seeds, livestock or other articles intended for

agriculture for the purposes of supplying them to its members
 Processing, without the aid of power, of the agricultural produce of its members
 Collective disposal of the labour of its members
 Fishing or allied activities, that is to say, catching, curing, processing, preserving, storing
or marketing of fish or the purchase of materials and equipment in connection therewith.
 Primary society engaged in supplying milk, oil seeds, fruits or vegetables raised or grown
by its members to a federal co-operative society or to the Government or local authority or
a Government company or a corporation established under the central, state or Provincial
act.
 Letting of godowns or warehouses for storage, processing or facilitating the marketing of

commodities.
 Income from Investment with co-operative societies.
 FOR ANY OTHER ACTIVITY: the income out of such other activities shall have a
deduction as follows :
Rs. 50000/- whether such activity is being independently taken or along with the above
mentioned activities.
Rs 100000 if such Co-operative society is a consumer co-operative society.
 If the co-operative society’s entire income is by way of interest on securities or from

House property and its GTI does not exceed Rs 20000, 100% of such income shall be
allowed as deduction provided such cooperative is not a Housing society or an urban
cosumer society or a society carrying on a transport business or engaged in any
87
operation with the aid of power.
Deductions from Income of Farm Producer Companies : Sec 80PA New inserted for 100% deduction
♦ A new Section 80PA has been inserted under the Act in order to provide that 100% of the gross total
income of Producer Company shall be exempt if following conditions are satisfied:
 Turnover in the relevant previous year is less than Rs. 100 crores;
 Such Producer Company shall be engaged in marketing, processing of agricultural produce of
members, purchase of agricultural implements, seeds, livestock for the use of members.
 Deduction can be taken from FY 2020-20 to FY 2024-25.
Important Points
 Producer Company means a body corporate having objects or activities in relation to production,
marketing, selling, export of agriculture produce of member, providing machinery, education, consultancy
to members in relation to production activities.
 A separate chapter governs the formation and operations of a Producer Company under Indian Company
Law.
Tax rates :
Upto 10000 10%
Next 10000 20%
Balance Income 30%
Surcharge @ 12% if TI exceeds Rs 1 crore
Health and Education Cess 4%
Problem 1- Total Income of co-operative society:
Samod Food Processing Cooperative Society, engaged in processing without the aid of power of the
agricultural produce of its members, In carrying out activities of marketing of agricultural produced
in agency business and others, furnishes the following particulars of its income for the year ended
on 31-3-2020 (amounts in Rs)
Income from processing of the produce of members 50,000

Income from marketing activities 30,000
Income from letting of building used as go downs 96,000
Dividend from another Cooperative Society 45,000
Collective disposal of labour of its members 25,000
Income from agency business 75,000
Interest of deposits from another Cooperative Society 15,000
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Compute the same chargeable to tax

Solution : Computation of Total Income of Samod Food Processing Cooperative Society
Income from letting of godowns 96,000 96000

Add: Business Income derived from the following:
processing of agricultural produce 50,000
Marketing activity 30,000
Agency work 75,000
Collective disposal of labour 25,000
1,80,000
dividend from other cooperative society 45,000

interest on deposit from other co-operative society
Gross Total income 15,000
Less: Deductions in respect of various income available under 3,36,000
section 80P:
processing of agricultural produce of its members without the aid of
power [Section 80P(2)(a)(v)]
Marketing of agricultural produce [Section 80P(2)(a)(iii)]
Agency business 80P(2)(c)] mx.50000
50,000
Collective disposal of labour [Section 80P(2)(a)(vi)]
Dividend from other Co-operative Society [Section 80P(2)(d)]
Interest from other Co-operative Society [Section 80P(2)(d)]
letting of godowns [Section 80P(2)(e)] 30,000
50,000
25,000
45,000
15,000 3,11,000
96,000
Total income 25,000
Problem 2:
89
Rs.
1. Income from processing of agricultural produce 38,500
2. Income from marketing of the agricultural produce 12,000
3. Dividends from other co-operative societies 41,400
4. Income from letting out of its godowns 24,000
5. Income from commission 91,000
Solution
Rs. Rs.
Business income:
(i) From processing of agricultural produce 38,500
(ii) From marketing of agricultural produce 12,000
(iii) Commission income 91,000 1,41,500
Dividend income: 41,400
Less: deduction under section 80P
(i) From processing of agricultural produce 38,500
(ii) From marketing of agricultural produce 12,000
(iii) Commission income exempt upto rs.50,000 50,000
(iv) Letting out of godowns 24,000
(v) Dividend income 41,400 1,65,900
Total income
Tax on rs.41,000
First rs.10,000-10% 1,000
Next rs.10,000 -20% 2,000
Balance rs.21,000-30% 6,300
9,300
90
Add: Health & education cess -@4% 372
Total tax payable (rounded off) 9,670
Problem 3:
Rs.
- Income from processing of the produce of members 1,50,000
- Income from marketing agricultural produce 1,30,000
- Income from letting of building used as godowns 96,000
- Dividend from another co-operative society 45,000
- Income from another agency business 75,000
- Interest from another co-operative society 15,000
Compute the income chargeable to tax for A.Y. 2020-21.
Solution: computation of total income of samode food processing co-operative society for the A.Y.2020-21
Rs. Rs.
Income from letting of go-downs (assumed computed)
Business income:
From processing of agricultural produce 1,50,000
From marketing of agricultural produce 1,30,000
From agency 75,000 3,55,000
Dividend from another co-operative society 45,000
Interest from co-operative society 15,000
Less: deduction under section 80P
Processing of agricultural produce of its members without
The aid of power [section 80P(2)(a)(v)] 1,50,000
91
Marketing of agricultural produce [section 80(2)(a)(iii)]
Agency work [section 80P(2)(c)][refer note below] 50,000
Dividend from another co-operative society [80P(2)(d)] 45,000
Interest from another co-operative society [section 80P(2)(d)] 15,000
Income from letting of godowns [section 80P(2)(e)] 96,000 4,86,000
Total income 25,000
92
INCOMES WHICH ARE EXEMPTED

Section Exempted income Remarks
10(1) Agricultural income -
10(2) Amount receive by a member from the
income of the HUF [subject to the provision
of section64(2)]
10(2A) Partner’s share in the income of firm The partner’s share in the total income of the
firm determined in accordance with the profit-
sharing ratio will be exempt from tax.
10(4) interest received by an individual on Individual is a person resident outside India
moneys standing to the credit in Non under FEMA or is a person who has been
resident (External) Account in any permitted by RBI to maintain the Non-
Indian bank. Resident (External) Account.
10(5) Leave travel concession Refer “salary”

10(6) Exemption In the case of individuals, who
are not citizens of India -
official of an embassy, high

commission, legation, consulate (a) The remuneration received by our
or the trade representation of a corresponding Government officers
foreign State or as a member of resident in such foreign countries should
the staff of any of these be exempt.
officials.
Section 10(6)(xi) provides that

remuneration received by a
person as an employee of a The employee’s stay in India does not exceed a
foreign enterprise for services total of 90 days in the previous year; and
rendered by him during his stay
in India is also exempt from
tax.
Section 10(6) (viii) provides that salary

income of a non- resident, for His total stay in India must not exceed a total
services rendered in connection 90days in the previous year.
with his employment on a
foreign ship, is exempt from
93
tax.
Income arising to a foreign Any income arising to such foreign company, as the
company from projects Central Government may notifr, by way of
connected with the security royalty or fees for technical services received
10(6C) of India. in pursuance of an agreement entered into
with that Government for providing services
in or outside India in projects connected with
security of India will be exempt.
Allowances or perquisites payable Allowances or perquisites paid or allowed as such

outside India. outside India by the Government to a citizen
10(7)
of India for services rendered outside India
are exempt from tax.
Co-operative technical assistance

10(8)
programmes.
Individuals, who are assigned duties in India in
connection with any co-operative technical
assistance programmes and projects in
accordance with agreement entered into by
the Central Government and Government of
foreign state, would be exempt from tax on
their receipts by way of: remuneration
received directly or indirectly from the
Government of that foreign State for
rendering such duties;
94
Income of family member of Income of any member of the family of any such
10(9) individual referred under section 10(8)
individuals who are
assigned duties under co- provided that the income:
operative technical (a) actually accrues or arises outside India;
assistance programmes, (b) cannot be deemed to accrue or arise in
accompanying such India; and (c) in respect of which such
individual to India. member is required to pay any income or
social security tax to the Government of that
foreign State.
10(10) Gratuity Refer Chapter - “Salaries”.
Payment in commutation of
10(10A) Refer Chapter - “Salaries”.
pension
encashment of unutilised earned

10(10AA) Refer Chapter - “Salaries”.
leave on retirement
10(1OB) Retrenchment compensation Refer Chapter - “Salaries”.
However, payments made to any assessee in

connection with Bhopal Gas Leak Disaster to
Payments to Bhopal Gas Leak the extent he has been allowed a deduction
10(1OBB)
Disaster Victims : under the Act on account of any loss or
damage caused to him by such disaster will
not be exempt.
(a) This clause exempts any amount received or

Compensation received on account receivable as compensation by an individual
10(1OBC)
of disaster, or his legal heir on account of any disaster
grnted by Govt.
10(10C) Voluntary Retirement Receipts Refer chapter-“salary”
10(10CC) Voluntary tax paid by employer Refer chapter – “salary”
However, the following sums are not exempt—
Any sum received under Keyman Insurance Policy.

Sum received under Life Insurance
Policy including the sum Any sum received under insurance policy issued on
10(10D) or after 14.2003 but on or before 31-03-2013,
allocated by way of bonus
on such policy. if in any year, the premium payable exceeds
20% of actual capital sum assured ; or
any sum received under an insurance policy issued

on or after the 01-4-2013 in respect of which
95
the premium payable for any of the years

during the term of the policy exceeds 10% of
the actual capital sum assured.
any sum received under an insurance policy issued

on or after the 01-4-2014 on life of any
person, who is a person with disability or a
person with severe disability as referred to in
section 80U; or suffering from disease
80DDB
Payment from Statutory and

10(11)/(12) Recognised Provident Refer Chapter - “Salaries”.
Funds
10(12A) Amt recd from NPS, maturity

NPS :Exempted to the extent of 60%
Payment from superannuation
SA: Full SA Amt exempt, if tfd to NPS.
10(13) funds
10(13A) House rent allowance (HRA) Refer Chapter - “Salaries”.
Special allowances to meet

10(14) expenses relating to duties or Refer Chapter - “Salaries”.
personal expenses
Interest income arising to certain

10(15) Int from Deposit under gold monetization sch, Ex.
persons
—- Scholarship granted to meet education cost of

10(16) Educational scholarships
children of employee is exempt
Following are exempt -

- Any allowance received under the Members
of
Parliament (Constituency Allowance) Rules,
10(17) Payments to MPs & MLAs 1986;
- Any constituency allowance received by any
person by reason of his membership of any
State Legislature under any Act or rules made
by that State Legislature.
Awards for literary, scientific and

10(17A) artistic works and other awards
by the Government
96
Any income by way of pension received by an

individual who has been awarded “Param
Vir Chakra” or “Maha Vir Chakra” or “Vir
Chakra” or such other gallantry award as
the Central Government may, by
Pension received by recipient of notification in the Official Gazette, specify
10(18)
gallantry awards in this behalf.
In case of the death of the awardee, any
income by way of family pension received
by any member of the family of the
individual shall also be exempt under this
section.
Exemption is available in respect of family

pension received by the widow or children
or nominated heirs, of a member of the
Family pension received by widow/
armed forces (including para-military
10(19) children/nominated heirs of
forces) of the Union, where the death of
members of armed forces
such member has occurred in the course of
operational duties, in specified
circumstances and conditions.
Annual value of palaces of former The annual value of any one palace in the
10(19A) occupation of former rulers would be
rulers
excluded from their total income provided
such annual value was exempt from
income-tax before the de-recognition of
Rulers of Indian States.
10(20) Income of local authorities: For the purposes of this clause, “local authority”
(1) All income arising to a means the following:
local authority from trade or (1) Panchayat; or
business carried on by it which (2) Municipality; or
accrues or arises from the (3) Municipal Committee and District
supply of commodity or Board legally entitled to, or entrusted by
service under jurisdictional the Government with the control or
area is excludible from its total management of a Municipal or local Fund;
income, or (4) Cantonment Board.
(ii) Exemption is available to
97
income derived by a local

authority from the supply of
water or electricity even
outside its jurisdictional area.
Income of research associations

10(21) approved under section
35(1)(ii)/ (iii).
Income of news agency:

10(22B)
This clause provides
exemption on any income of
such news agency set up in
India solely for collection and
distribution of new as specified
by the Central Government.
Any income received by any person on

1O(23AA) Income received by any person on behalf of behalf of any Regimental Fund or
institutions established by armed Non-Public Fund established by the
forces. armed forces of the Union for the
welfare of the past and present
members of such forces or their
dependents is exempt from tax.
The fund must apply its income or

accumulate it, for application,
1O(23AAA) wholly and exclusively for its
Any income received by any person on behalf
of a fund established, for notified objects.
purposes, for the welfare of employees must invest its funds and
or their dependents and such contributions and other sums
employees are members of such fund. received by it in forms or modes
specified u/s 11(5). The fund must
be approved by Principal
Commissioner or Commissioner of
Income Tax. However, at one time,
approval can have effect for a
98
maximum of 3 years.
Any income of a fund set up by the LIC of

India or any other insurer under a
Income of fund set up by Life Insurance Pension Scheme to which
1O(23AAB)
Corporation under Pension Scheme. contribution is made by any person
for receiving pensions from such
fund is exempt under this section.
Such scheme should be approved
by the Controller of Insurance or
IRDA.
The institution must apply or accumulate

solely, for application, its income
for its objects.
It must be approved by the Khadi
& Village Industries Commission,
Income of institution established for however, at one time, approval for
development of khadi or village a maximum of 3 assessment years
1O(23B)
industries or both, and not for the can be granted.
purposes of profit.
The exemption is available only to the
extent such income is attributable
to the business of production, sale
or marketing of khadi or products
of village industries.
Income derived by authorities similar to

Khadi and Village Industries
Income of authorities set up under State or Commission, set up under any
1O(23BB) Provincial Act for promotion of khadi State or Provincial Act, for the
and village industries. development of Khadi or Village
industries in the state is exempt
from tax.
(a) Income of bodies or authorities

established, constituted or
appointed under any enactment for
the administration of public
Income of authorities or bodies set up to religious or charitable trust or
1O(23BBA) administer public religious or endowments (including maths,
charitable trusts. temples, gurdwaras, wakfs,
churches, synagogues, agiaries or
other places of public religious
worship) or societies for religious
or charitable purpose is exempt
from tax.
99
(b) However, exemption will apply

to the income of the administrative
bodies or authorities but shall not
apply to the income of any such
trust, endowment or society
mentioned above.
This clause provides exemption on any

income of the EEC derived in India
Income of European Economic Community by way of interest, dividends or
1O(23BBB) (EEC). capital gains from investments
. made out of its funds under a
scheme notified by the Central
Government.
Any income derived by the SAARC Fund

Income derived .by the SAARC Fund for for Regional Projects set up by
1O(23BBC)
Regional Projects. Colombo Declaration shall be
exempt
Any income of the IRDA established

1O(23BBE) Income of the IRDA. under section 3(1) of the IRDA
Act, 1999 will be exempt.
This section provides exemption to any

income of Central Electricity
Income of Central Electricity Regulatory
1O(23BBG) Regulatory Conurussion
Commission.
constituted under section 76(1) of
the Electricity Act, 2003.
Any income of the Prasar Bharati

(Broadcasting Corporation of
India) established under section
Income of Prasar Bharati (Broadcasting
1O(23BBH) 3(1) of the Prasar Bharati
Corporation of India)
(Broadcasting Corporation of
India) Act,
1990 is exempt from tax.
1O(23C) Income of certain funds or institutions. Refer to Questions.
The income of a Mutual Fund set up by a

public sector bank/public financial
10(23D) Income of Mutual Fund. institution/SEBI/RBI subject to
certain conditions, notified by the
Central Government, is exempt.
10(23DA) Income of a securitisation trust from the (a) “Securitisation” shall have the same
100
activity of securitisation. meaning as assigned to it, in
(i) in Regulation 2(1)(r) of the Securities

and Exchange
Board of India (Public Offer and
Listing of Securitised Debt
Instruments) Regulations, 2008
made under the SEBI Act, 1992
and the SCRA, 1956 ; or
(ii) under the guidelines on securitisation

of standard
assets issued by the RBI.
(b) “Securitisation trust” shall have the

meaning assigned to it in the
Explanation below section 115TC.
(a) The income by way of contributions

from RSE and its members,
Income of Investor Protection Fund set up by
1O(23EA) received by Insurance Protection
Recognised Stock Exchange.
Fund set-up by RSE in India, is
exempt from tax.
(b) However, when the exempted income

of the fund is shared with a RSE in
any previous year, the amount so
shared shall be deemed to be its
taxable income of that previous
year.
Where the exempted income of the fund,

during any previous year, is shared
either wholly or in part, with a
Specified income of Investor Protection
commodity exchange, the entire
Fund set up by commodity
amount so shared shall be deemed
exchanges:
to be the taxable income of the
This clause exempts income, by way
previous year in which the amount
of contributions received from
is so shared.
10(23EC) commodity exchanges and the
members thereof, of such Investor A “commodity exchange” means a
Protection Fund set up by commodity “registered association” as defined
exchanges in India, either jointly or in Section 2(jj) of the Forward
separately, as the Central Government Contracts (Regulation) Act, 1952.
notifies, i.e. an association to which for the
time being a certificate of
registration has been granted by the
Forward Markets Commission u/s
101
14B of that Act.
1. Exemption not to apply: Where

any amount standing to the credit
of the Fund and not charged to
income-tax during any previous
year is shared, either wholly or in
part with a depository, the whole
of the amount so shared shall be
Exemption of income of Investor deemed to be the income of the
Protection Fund set up by previous year in which such
depositories: amount is so shared and shall,
Any income, by way of contributions accordingly, be chargeable to
received from a depository, of such income-tax.
1O(23ED)
Investor Protection Fund set up in
accordance with the regulations by a 2. Meaning of depository:
depository as the Central Government “Depository” shall have the same
may, by notification in the Official meaning as assigned to it in
Gazette, specify in this behalf. Section 2(1)(e) of the Depositories
Act, 1996.
3. Meaning of regulations:
“Regulations” means the
regulations made under the SEBI
Act, 1992 and the Depositories
Act, 1996.
Income of Venture Capital Company? “Venture capital company”(VCC) means

Venture Capital Fund: a company which—
Income earned by Venture Capital
A. has been granted a certificate of
Fund or Company registered under
registration, before 21-05-2013, as
SEBI Act, 1992 from investment in
a VCF and is regulated under the
venture capital undertaking is exempt.
SEBI
“Venture capital fund” (VCF) means
(VCF) Regulations, 1996 made
a fund-
under the SEBI Act, 1992; or
(A) operating under a trust deed
10(23FB) registered under the provisions of the B. has been granted a certificate of
Registration Act, 1908, which— registration as VCF as a sub-
category of Category I AIF and is
(I) has been granted a certificate of
regulated under the SEBI (AIF)
registration, before 21-05-2013, as a
Regulations, 2013 made under the
VCF and is regulated under the VCF
SEBI, and which fulfils the
Regulations; or
following conditions, namely :
(II) has been granted a certificate of
a) it is not listed on a recognised
registration as VCF as a sub-category
stock exchange;
of Category I Alternative Investment
102
Fund (AIF) under the AIF Regulations b) it has invested not less than
and which fulfils the following two-thirds of its investible
conditions, namely:— funds in unlisted equity shares
or equity linked instruments of
(a) it has invested not less than two- thirds of venture capital undertaking
its investible funds in ;and
c) it has not invested in any

venture capital undertaking in
which its director or a
substantial shareholder(being
a beneficial owner of equity
shares exceeding 10% of its
equity share capital) holds,
either individually or
collectively, equity shares in
excess of 15% of the paid-up
equity share capital of such
VCU;
unlisted equity shares or equity linked

instruments of VCU;
(b) it has not invested in any venture
capital undertaking in which its trustee
or the settler holds, either individually
or collectively, equity shares in excess
of 15% of the paid-up equity share “Venture Capital Undertaking” (VCU)
capital of such ventt.re capital means—
undertaking; and (i) a VCU as defined in Regulation
(c) the units, if any, issued by it are not 2 (n) of the VCF Regulations; or
listed in any recognised stock (ii) a VCU as defined in Regulation
exchange; or 2(1)(aa) of the Alternative
(B) operating as a venture capital Investment Funds Regulations
scheme made by the Unit Trust of
India established under the Unit Trust
of India Act,1963.
Income of Business Trust: Explanation: “Special purpose vehicle”

Any income of a business trust by way means an Indian
10(23FC) of interest received or receivable from company in which the business
a special purpose vehicle, trust holds controlling
. interest and any specific percentage
of shareholding or
103
interest, as may be required by the

regulations under
which such trust is granted
registration. (Amended by
Finance (No. 2) Act, 2015 w.e.f.
01-4-2019 i.e. AY 2019-161
Distributed Income of Business Trust:

Any distributed income, referred to in
section 11SUA, received by a unit
holder from the business trust, not
being that proportion of the income
10(23FD)
which is of the same nature as the
income referred to in Section
10(23FC). (Amended by Finance (No.
2) Act, 2015 w.e.f. 1-4-2019 i.e. AY
2019-16)
Any income under the heads “Income

from House Property” and “Income
from Other Sources” of a registered
trade union, within the meaning of
the Trade Unions Act, 1926,
formed primarily for the purpose of
10(24) Income of registered trade unions. regulating the relations between
workmen and the employers or
between workmen and workmen
will be exempt. Further, this
exemption is also available in
respect of an association of such
registered unions.
The exemption also applies to -

(a) the interest on securities which
are held by or are the property of
Income of provident funds, superannuation Statutory Provident Fund (SPF)
funds and gratuity funds: governed by the Provident Funds
Income of a Recognized Provident Act, 1925;
Fund (RPF) and of an approved (b) the capital gains, if any, arising
10(25)
superannuation fund or gratuity fund is to it from the sale, exchange or
exempt from tax and the trustees of transfer of such securities;
these funds would not be liable to tax .
thereon. (c) any income received by the
Board of Trustees constituted under
Coal Mines Provident Funds and
Miscellaneous Provisions Act,
104
1948 and under the

Employees’ Provident Funds and
Miscellaneous Provisions Act,
1952, on behalf of the Deposit
Linked Insurance Fund established
under these respective Acts.
The contributions paid under ESI Act,

1948 and all other moneys received
on behalf of the ES! Corporation
are paid into a fund called the ES!
Fund. This fund is held and
administered by the ES!
Corporation. The amounts lying in
Income of Employee’ State Insurance (ES!)
10(25A) the fund are to be expended for
Fund.
payment of cash benefits and
provision of medical treatment and
attendance to insured persons and
their families, establishment and
maintenance of hospitals and
dispensaries, etc. Any income of
the ES! Fund is exempted.
A member of a Scheduled Tribe residing

in -
(i) any area (specified in the
Constitution); or
(ii) States of Manipur, Tripura,
Arunachal Pradesh,
Mizoram and Nagaland; or
10(26) Income of member of a Scheduled Tribe. (iii) the Ladakh region of the state
of Jammu and Kashmir, is exempt
from tax on his income arising or
accruing -
(a) from any source in the areas or
States aforesaid; or
(b) byway of dividend or interest
on securities.
The following income, which accrues or

arises to a Sikkimese individual,
would be exempt from income-tax
10(26AAA) Income of a Sikkimese individual. i) income from any source in the
State of Sikkim; or
(ii) income by way of dividend or
interest on securities.
105
However, this exemption will not

be available to a Sikkimese woman
who, on or after 1-4-2008, marries
a non-Sikkimese individual.
Any income of an Agricultural Produce

Market Committee or Board
constituted under any law for the
Income of an Agricultural Produce Market
10(26AAB) time being in force for the purpose
Committee or Board.
of regulating the marketing of
agricultural produce would be
exempt.
Any income of a corporation (established

by a Central, State or Provincial
Act) or any other body, institution
Income of a corporation, etc. for the or association(wholly financed by
10(26B) promotion of interests of members of Government) formed for promotion
scheduled casts or tribes or both. of the interests of the members of
scheduled castes or tribes or
backward classes or of any two or
all of them is exempt from tax.
Any income of a corporation established

by the Central Government or any
State Govt. for promoting the
interests of the members of a
Income of corporations established to protect minority community will be
10(26BB)
interests of minority community. exempt from income tax.
Section 80G also provides deduction in

respect of donations made to these
corporations.
This clause exempts any income of a

corporation established by a
Income of corporation established by a
Central, State or Provincial Act for
10(26BBB) Central, State or Provincial Act for
the welfare and economic
welfare of ex-servicemen.
upliftment of ex-servicemen, being
the citizens of India.
106
Conditions:
Co-operatives for scheduled castes : Any (a) The membership of the co-
income of a co-operative society operative society should consist of
formed for promoting the interests of only other cooperative societies
10(27) the members of either the scheduled formed for similar purposes, and
castes or scheduled tribes will be
exempted from being included in the (b) The finances of the society shall be
total income of the society. provided by the Government and
such other societies.
Any income accruing or arising to the

following bodies is exempt from
tax:
a) the Coffee Board constituted under

section 4 of the Coffee Act, 1942,
b) the Rubber Board constituted under

section 4(1) of the Rubber Board Act,
1947,
c) the Tea Board established under

section 4 of the Tea Act, 1953,
d) the Tobacco Board constituted under

the Tobacco Board Act, 1975,
Incomes of certain bodies like Coffee Board,
e) the Marine Products Export
10(29A) Rubber Board, etc.
Development Authority established
under section 4 of the Marine
Products Export Development
Authority Act, 1972,
f) the Agricultural and Processed Food

Products Export Development
Authority established under section 4
of the Agricultural and Processed
Food Products Export Development
Act, 1985,
g) the Spices Board constituted under

section 3(1) of the Spices Board Act,
1986,
h) the Coir Board established under the

Coir Industry Act, 1953.
10(30) Tea board subsidy : The amount of any Conditions: (a) The subsidy should have
subsidy received by any assessee been received under any scheme
107
engaged in the business of growing for re-plantation or replacement of

and manufacturing tea in India through tea bushes or for rejuvenation or
or from the Tea Board will be wholly consolidation of areas used for
exempt from tax. cultivation of tea.
(b) The assessee should furnish a

certificate from the Tea Board as to
the subsidy received by him during
the previous year to the Assessing
Officer along with his return of
income of the relevant assessment
year or within the time extended by
the Assessing Officer for the
purpose.
Amount of any subsidy received by an

assessee engaged in the business of
growing and manufacturing rubber,
coffee, cardamom or other
specified commodity in India from
or through the Rubber Board,
Coffee Board, Spices Board or any
other Board notified by the Central
Government in respect of any other
10(31) Other subsidies.
commodity under any scheme for
re-plantation or replacement of
rubber, coffee, cardamom or other
plants or for rejuvenation or
consolidation of areas used for
cultivation of all such commodities
will be exempt from income-tax.
Condition for submission of
certificate is applicable.
In case, the income of an individual (i.e.

the parent) includes the income of
his minor child in terms of Section
64(1A), such parent shall be
10(32) Clubbed income of minor.
entitled to exemption of 1,500 in
respect of each minor child or
actual income of minor child,
whichever is less.
This clause provides that any income

Capital gain on transfer of a unit of Unit arising transfer of specified units,
10(33)
Scheme, 1964. shall be exempt from tax, provided
such transfer takes place on or after
108
1-4-2002.
This clause provides that any income by way of

dividends referred to in Section 115-0
shall be exempt. Under section 115-0,
any amount declared, distributed or paid
Dividends referred to in Sec. 115-0. by a domestic company by way of
dividend shall be subject to dividend
10(34) Wef 2020-21 dividend in accordance distribution tax @ 15%. Therefore, a
with sec 115BBDA is not domestic company is liable to pay
exempted. dividend distribution tax in addition to
income-tax chargeable in respect of its
total income. However, such dividend
income would be exempt in the hands of
the shareholders.
Income arising to shareholder on buy

back of shares : Any income
arising to an assessee, being a
shareholder, on account of buy
10(34A)
back of shares (not being listed
on a recognised stock exchange)
by the company as referred to in
section 1I5QA.
Income in respect of units from the

Administrator of specified However, the exemption shall not apply to any
10(35) undertaking! specified company income arising from transfer of such
mutual fund specified in Sec. units.
1O(23D).
Income received by investor from

securitisation trust: Any income
The term “Investor” and “Securitisation trust”
by way of distributed income
shall have the meanings respectively
10(35A) referred to in section 1I5TA
assigned to them in the Explanation
received from a securitisation
below section 115TC.
trust by any person being an
investor of the said trust.
Capital gains on compulsory acquisition

10(37) of agricultural land situated Refer Chapter - “Capital Gains”.
within specified urban limits.
10(38) Long-term capital gains on sale of Refer Chapter - “Capital Gains”.

equity shares/units of an equity
109
oriented fund or a unit of a

business trust.
However, the exemption shall not

apply in respect of any income
arising from transfer of units of
a business trust which were
acquired in consideration of a
transfer referred to in section
47(xvii). (Bold portion as
inserted by Finance (No. 2) Act,
2015 w.e.f. 1.4.2019 i.e. AY
2019-16)
The exemption is available only if such

international sporting event -
Specified income arising from any (a) is approved by the international
10(39) international sporting event held body regulating the international sport
in India. relating to such event; and
(b) has participation by more than 2
countries.
Exemption is available only if -

(a) such grants, etc. are received by
Certain grants, etc. received by a the subsidiary company for settlement
subsidiary company from its of dues in connection with
Indian holding company engaged reconstruction or revival of an existing
10(40)
in the business of generation or business of power generation;
transmission or distribution of (b) such reconstruction or revival is by
power. way of transfer of such business to an
Indian company notified under section
80-IA(4)(v).
(i) This clause exempts income, of the nature

and to the extent, arising to a body or
authority, notified by the Central
Specified income of certain bodies or Government.
10(42) authorities,
‘ (ii) Such body or authority should have been
established or constituted or appointed –
a) under a treaty or an agreement entered

into by the Central Government with 2
110
or more countries or a convention signed

by the Central Government; and
b) not for the purposes of profit
Income received in a transaction of

10(43) Refer Chapter - “Capital Gains”.
reverse mortgage.
Any income received by any person for, or on

Income received by any person on behalf of, the New Pension System Trust
10(44) behalf of New Pension System established on 27-02-2008 under the
Trust, provisions of the Indian Trusts Act, 1882
shall be exempt.
Exemption of specified allowances and

perquisites paid to Chairman or a
retired Chairman or any other
10(45) Refer Chapter - “Salaries”.
member or retired member of the
Union Public Service
Commission.
(1) Any income arising to a body or authority or

Board or Trust or Commission, the
nature and extent of which is to be
specified by the Central Government,
shall be exempt.
(2) For availing the benefit of exemption under

this section, the body or authority or
Board or Trust or Commission should be
established or constituted by or under a
Central, State or Provincial Act or
constituted by the Central or State
Specified income of notified entities not Government, with the object of
10(46)
engaged in commercial activity. regulating or administering an activity
for the benefit of the general public.
(3) Further, the body or authority or Board or

Trust or Commission should –
a) not be engaged in any commercial

activity; and
b) be notified by the Central Govt. in this

behalf.
Note: National Skill Development Corporation

(NSDC) has been notified vide Notification
111
No. 11/2013, dated

28-02-2013.
Competition Commission of India (CCI) has been

notified vide Notification No. 12/2013, dated
28-02-2013.
Any income of an infrastructure debt fund, set up in

Income of notified infrastructure debt
accordance with the guidelines as may be
fund and concessional tax rate on
10(47) prescribed, which is notified by the Central
interest received by non-residents
Government in the Official Gazette for the
from such fund,
purposes of this section shall be exempt.
Income received by certain foreign The following conditions have to be fulfilled for
10(48)
companies in India in Indian claim of such exemption –
currency from sale of crude oil or
any other goods or rendering of (a) The money has been received under an
services, as may be notified by agreement or arrangement entered into,
the Central Government in this or approved by, the Central Government;
behalf, to any person.
(b) The foreign company, as well as the
arrangement or agreement, are notified
by the Central Government having
regard to the national interest;
(c) The foreign company is not engaged in any

other activity in India, except receipt of
income in India under such arrangement
or agreement.
Exemption in respect of income of

10(49) National Financial Holdings
Company Ltd. : Any income of
the National Financial Holdings
Company Limited, being a
company set up by the Central
Government, of any previous
year relevant to any assessment
year commencing on or before
01-04-2015.
(iii) This clause exempts income, of the nature

Specified income of certain bodies or and to the extent, arising to a body or
10(42) authorities, authority, notified by the Central
‘ Government.
(iv) Such body or authority should have been
112
established or constituted or appointed –
c) under a treaty or an agreement entered

into by the Central Government with 2
or more countries or a convention signed
by the Central Government; and
d) not for the purposes of profit
Income received in a transaction of

10(43) Refer Chapter - “Capital Gains”.
reverse mortgage.
Any income received by any person for, or on

Income received by any person on behalf of, the New Pension System Trust
10(44) behalf of New Pension System established on 27-02-2008 under the
Trust, provisions of the Indian Trusts Act, 1882
shall be exempt.
Exemption of specified allowances and

perquisites paid to Chairman or
a retired Chairman or any other
10(45) Refer Chapter - “Salaries”.
member or retired member of the
Union Public Service
Commission.
(1) Any income arising to a body or authority or

Board or Trust or Commission, the
nature and extent of which is to be
specified by the Central Government,
shall be exempt.
(2) For availing the benefit of exemption under

this section, the body or authority or
Board or Trust or Commission should be
established or constituted by or under a
Specified income of notified entities not Central, State or Provincial Act or
10(46)
engaged in commercial activity. constituted by the Central or State
Government, with the object of
regulating or administering an activity
for the benefit of the general public.
(3) Further, the body or authority or Board or

Trust or Commission should –
c) not be engaged in any commercial

activity; and
d) be notified by the Central Govt. in this
113
behalf.
Note: National Skill Development Corporation

(NSDC) has been notified vide
Notification No. 11/2013, dated
28-02-2013.
Competition Commission of India (CCI) has

been notified vide Notification No.
12/2013, dated 28-02-2013.
Any income of an infrastructure debt fund, set

Income of notified infrastructure debt up in accordance with the guidelines as
fund and concessional tax rate on may be prescribed, which is notified by
10(47)
interest received by non-residents the Central Government in the Official
from such fund, Gazette for the purposes of this section
shall be exempt.
Income received by certain foreign The following conditions have to be fulfilled for
10(48)
companies in India in Indian claim of such exemption –
currency from sale of crude oil
or any other goods or rendering (a) The money has been received under an
of services, as may be notified by agreement or arrangement entered into,
the Central Government in this or approved by, the Central Government;
behalf, to any person.
(b) The foreign company, as well as the
arrangement or agreement, are notified
by the Central Government having
regard to the national interest;
(c) The foreign company is not engaged in any

other activity in India, except receipt of
income in India under such arrangement
or agreement.
10(50)
Exemption in respect of income

chargeable to equilization levy .
114
Special provisions in respect of newly established units in Special Economic Zones [Section 1OAA]:
(1) Applicability: This section applies to a unit established by an entrepreneur in a Special Economic
Zone, which begins to manufacture or produce articles or things or provide any services on or after 1-4-
2005.
(2) Amount of Deduction
First 5 consecutive assessment years 100% of profits and gains from export business
(starting from
assessment year relevant to year of start of
production! manufacture).
Next 5 consecutive assessment years Next 5 consecutive assessment years
Further Next 5 consecutive assessment years. Lower of —
> 50% of Profits from export business; or
> Amount transferred from Profit and
Loss A/c to the “Special Economic Zone
Reinvestment Reserve A/c”.
The deduction for last five assessment years is allowed if:
(i) The amount transferred to “Special Economic Zone Reinvestment Reserve A/c” is used for acquiring
new plant or machinery, which is first put to use within 3 years from the year of creation of reserve.
(ii) Until acquisition of such plant or machinery, it is used for business purposes other than for
distribution by way of dividend or profits or remittance outside India for creation of any asset therein.
(iii) Particulars of plant or machinery are furnished along with return of income for the previous year in
which such plant or machinery is first put to use.
Consequences of Misutilisation /non-utilisation of Reserve:

If the amount credited to the reserve is Taxability
used for purposes other than acquisition of plant Amount so misutilised shall be taxable in the year
or machinery of misutilisation
Not used within three years aforesaid Amount not so utilized shall be taxable in the
year immediately following the period of
three years.
(3) Computation of profits from export business for the purposes of deduction:
 “Export Turnover” means the consideration in respect of export of articles or things or computer
software or services received in, or brought into, India by the assessee but does not include,
(i) Freight, telecommunication charges or insurance attributable to the delivery of such articles
or things outside India; or
(ii) Expenses, if any, incurred in foreign exchange in rendering of services (including computer
software) outside India
 ‘Export’ in relation to Special Economic Zone means taking goods or providing services out of
India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or
otherwise.
Note: Profits and gains derived from on-site development of computer software (including
services for development of software) outside India shall be deemed to be profits and gains derived
115
from the export of computer software outside India.
(4) Transitional provisions: The transitional provisions are as follows -

(i) An existing unit, to whom deduction is not allowed under Section 10A, shall be allowed
deduction under this section for the unexpired period out of 10 consecutive assessment years and
thereafter, it shall be eligible for deduction for next five years on creation of “Special Economic
Zone Reinvestment Reserve A/c” in the aforesaid manner and fulfilling other conditions.
(ii) Similarly, if a unit located in Free Trade Zone or Export Processing Zone is subsequently located
in any SEZ by virtue of conversion of such FTZ/EPZ into SEZ, then, it will be allowed deduction
under this section for unexpired period out of 10 consecutive assessment years and thereafter, it
shall be eligible for deduction for next five years on creation of “Special Economic Zone
Reinvestment Reserve A/c” in the aforesaid manner and fulfilling other conditions.
No deduction under (i) or (ii) above: No deduction shall be allowed under (i) or (ii) above if such unit has
completed the period of 10 consecutive assessment years. In other words, a unit, which has completed the
period of 10 consecutive assessment years, will not be allowed deduction for further five years even on
creation of “Special Economic Zone Reinvestment Reserve A/c” also.
(5) Transfer of the undertaking in amalgamation or demerger: If the unit, which is entitled to
deduction under this section is transferred before the expiry of the period of deduction, to another unit in a
scheme of amalgamation or demerger, then —
(i) No deduction shall be allowed to the amalgamating or demerged unit for the previous year in which
such amalgamation or demerger took place; and
(ii) The provisions of this section shall apply to the amalgamated or resulting unit, as if no
amalgamation or demerger had taken place.
(6) Losses and allowances to be carried forward or set-off: The losses referred under section 72 (i.e.
business loss, other than speculative business losses) or section 74 (i.e. losses under the head ‘Capital
Gains’), so far as they relate to the business of the undertaking, shall be allowed to be carried forward or
set-off. Further, unabsorbed depreciation, unabsorbed capital expenditure on scientific research or family
planning shall also be allowed to be carried forward.
However, only those losses or allowance shall be allowed to be carried forward, which relate to assessment
year 2006-07 or any subsequent assessment year.
(7) Report from a Chartered Accountant : Deduction under this section shall be allowed only if the
assessee furnishes, along with return of income, a report from a chartered accountant certifying that the
deduction has been correctly claimed.
(8) No deduction under Section 35AD admissible: Where a deduction under this section is claimed and
allowed in respect of profits or any of the specified business, referred to in section 35AD, for any
assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such
specified business for the same or any other assessment year. (Amended by Finance (No. 2) Act, 2015 w.e.f
01-04-2016 i.e. AY2016-16J
116
Special provision relating to incomes of political parties

[Section 13A]:
“Political party” means a political party registered under section 29A of the Representation of the
People Act, 1951.
Incomes eligible for exemption: Any income of a political party which is chargeable under the head
“Income from house property” or “Income from other sources” or “Capital gains” or any income by
way of voluntary contributions received by a political party from any person shall be exempt.
Conditions to be fulfilled for claiming exemption: The following conditions must be satisfied in
order to claim exemption under the said section –
a) Such political party keeps and maintains such books of account and other documents as would
enable the Assessing Officer to properly deduce its income there from;
b) On respect of each such voluntary contribution in excess of 20,000, such political party keeps
and maintains a record of such contribution and the name and address of the person who has
made such contribution;
c) Donation exceeding 2,000 shall not be received by such political party otherwise than by an
account payee cheque drawn on a bank or an account payee bank draft or use of electronic
clearing system through a bank account or through electoral bond.
d) The accounts of such political party are audited by a Chartered Accountant; V
e) Its treasurer or any other authorized person must submit a report under Section 29C(3) of
Representation of People Act, 1951 to Election Commission providing contributions exceeding
20,000 and listing separately contributions from companies and Government companies.
Que 1 The books of account of a Political Party registered with Election Commission for the year ending
31-3-2020 disclose the following receipts:
Rent of property let out to a departmental store at Chennai 6,00,000

Interest on Fixed deposits 5,00,000
Contribution from 100 person of 21,000 each
(received through an account payee cheque)
(The political party submitted a report to the Election Commission) 21,00,000
Contribution of Rs 100 in cash by 1000 members 1,00,000
Net profit of cafeteria run in the premises at Delhi 3,00,000
Compute total income of the political party for the AY 2020-21.
Solution
Computation of total income of the Political party for the Assessment year 2020-21
117
Income from house property

Rent of property let out to a departmental store 600000
Exempted u/s 13A 600000 Nil
Profits and gains of business or profession

Net profit of cafeteria run in the premises at Delhi 3,00,000

Interest on deposits other than banks 500000
Contribution exceeding 20,000 2100000

Cont. by members 100000

118
INCOME OF ELECTORAL TRUST [SEC.13B]
Electoral trust means a trust so approved by the Board in accordance with the scheme made in this
regard by the Central Government.
Conditions to claim exemption u/s 13B

2. Such trust must be approved by the Central Board of Direct Taxes.
3. Such trust distributes 95% of the aggregate donations received by it during the previous year along
with the surplus, if any, brought forward from any earlier previous year to any political party, registered
u/s 29A of the Representation of the People Act, 1951.
4. Such electoral trust functions in accordance with the rules made by the Central Government.
Exemption
Any voluntary contributions received by an electoral trust shall be exempted.
119
RETURN OF INCOME
SUBMISSION OF RETURN OF INCOME [SECTION 139(1)
Companies and firms are liable to file return of income compulsorily, whether there is any profit-or
loss to the company and firm. But for others, filing of Return is compulsory where their taxable
income exceeds the exemption limit.
Such Return of Income must be submitted on or before the due date, In the prescribed form and
verified in the prescribed manner.
Return can be filed voluntarily, even if the taxable income is lower than the exemption limit.
In respect of individual, HUF, AOP or artificial juridical person, filing of return of income shall be
compulsory, if their gross total income (instead of total income before allowing deductions under
section l0A, l0B or 10BA or deduction under chapter VI-A exceeds the maximum amount which is
not chargeable to income-tax.
Return Forms
ITR-1 SAHAJ for individuals having salary, one hp income & IOS
ITR-2 for ind./huf having business income
ITR-2A for ind./huf havingsal,HP, IOS income only
ITR-3 for ind./huf being partner in firms
ITR-4 for ind./huf having proprietory business
ITR-4s SUGAM for ind./huf u/s 44AD, 44ADA & 44AE
ITR-5 for firms, AOP, BOI
ITR-6 for companies
ITR-7 those require to furnish return under 139(4A)/4b/4c/4d
ITR-V e return without digital signature
120
DUE DATE OF FURNISHING THE RETURN OF INCOME:
Company and other assesses whose accounts

are required to be audited, working partner
of a firm whose accounts are required to be 3o" September of the AY
audited
For other assesses 31" July of the AY
For Non-working partner in case of firm whose 31st July of the AY

Accounts are to be audited
where the assessee is required to furnish a report u/s 92E 30th November of the AY,
– Transfer Pricing Report for International & Specified
Domestic Transactions
Compulsory filing of income tax return in relation to assets located outside India
Any Resident person (other than RNOR) who is not required to furnish a return under section 139(1) and
who
during the PY:
a) Holds, as a beneficial owner or otherwise, any asset (including any financial interest in
any entity) located outside India or
b) Has signing authority in any account located outside India,
c) is a beneficiary of any asset (including any financial interest in any entity) located
outside India.
Shall furnish, on or before the due date, a return in respect of his Income or loss for the PY in prescribed
manner.
Furnishing of return of income shall be mandatory under Section 139 if an individual has deposited:
 Rs. 1 crore or more in current account, or
 he has incurred expenditure of Rs. 2 lakhs or more on foreign travel, or
 he has incurred expenditure of Rs. 1 lakh or more on electricity consumption.
ITR filing is mandatory, if total income of assessee before claiming the benefit of capital gain exemption
under sections 54, 54B, 54EC, 54F, 54G, 54GA and 54GB, doesn’t exceeds the maximum amount
not chargeable to tax.
Electronically filing of Return : Assesses reqd. to get their accounts audited reqd. to furnish their
121
return electronically with digital signatures.
Others , having TI exceeding Rs 5 Lacs shall also furnish the return electronically, either under
digital signature or without digital signature. Where return is filed without digital signatures, the
assesse must file ITR-V duly signed and it should be sent to P.Box No. 1, electronic city post office ,
Bengaluru, Karnataka- 560100, before due date or within a period of 120 days of uploading of
electronic return , whichever is later.
In case of failure to file an Income-tax return, the prosecution proceedings are initiated under Section
276CC if the tax payable by the assessee is Rs. 3,000 or more. This threshold limit has been
increased to Rs. 10,000.
RETURN OF LOSS:
Filing of Return of Income is not compulsory other than ,company and firm. But if the loss is to be
carried forward for being set off, then the return of the year for which the loss is to be
carried forward is to be filed in time except in the case of loss under the head house
property.
Section 80 : No loss which has not been determined in pursuance of a return filed in accordance with the
provisions of sub-section (3) of section 139, shall be carried forward and set off under
 sub-section (1) of section 72 or

 sub-section (2) of section 73 or
 sub-section (2) of section 73A or
 sub-section (1) or sub-section (3) of section 74 or
 sub-section (3) of section 74A.
Deduction not to be allowed unless return furnished [Section 80AC]
Where in computing the total income of an assessee, any deduction is admissible under section 80-
IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, no such
deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or
before the due date specified under sub-section (1) of section 139.
CAN A LOSS RETURN BE REVISED:

Assessee files a loss return u/s. 139(3). Later it revises the return u/s. 139(5) and claims enhanced amount
of loss. According to section 139(3), once a return is filed, all the provisions of the Income-tax Act
shall apply as if such return has been filed u/s.139(1). Consequently, the filing of revised loss return
is valid and section 80 does not come in the way of disallowing the carry forward of such
increased amount of loss.
BELATED RETURN: SEe. 139(4}:
122
Return which is not filed on or before the due date prescribed, it is known as belated
return. A return can be filed late. It can be filed within a period of one year from the end
of the relevant assessment year or up to the completion of the assessment whichever is
earlier. A belated return can now be revised. [AY 17-18]
REVISED RETURN: Sec. 139{5):

Where an assessee discovers any omission or wrong statement in the return filed, he may furnish a
revised return. Revised return can only be filed when the original return is furnished before the due
date. Revised return can be furnished within a period of one year from the end of the relevant
assessment year or up to the completion of assessment whichever is earlier. Revised return can be
further revised within the time prescribed for the revision of the return.
Return filed in response to notice Uls 142(1} can be revised, if the return in response is filed within
the time allowed. But loss declared in the return filed in response to notice Uls 142(1), cannot be
carried forward.
Revised return substitutes the original return. Thus if the original return is filed within time
showing the income and if the same is revised with the loss, this loss can be carried forward for
being set off.
An application or letter to the Assessing Officer cannot constitute revised return. For proper
revision of the return, return in the prescribed format, verified properly must be submitted to the
Department.
DEFECTIVE RETURN:
A return of income shall be regarded as defective unless the annexures, statements and columns in the
return of income relating to computation of income chargeable under each head of income,
computations of gross total income and total income have been duly filled in.
Where the A.O. considers that the return filed by the assessee is defective, he may intimate the
defect and give him an opportunity to rectify the defect within 15 days. The assessee can rectify
the defect within the said 15 days or within the extended time allowed to him. If he removes the
defect upto the completion of the assessment, the A.O. can condon the delay in rectification of the
mistake.
RETURN BY WHOM TO BE SIGNED/VERIFIED SECTION 140:
Retun of income must be signed by the following persons. In case of:
 Individual Himself or in his absence from india, by his attorney
 HUF Karta or in his absence or incapacitated by other adult member
 Company M.D or where MD not available due to unavoidable reasons or where there
is no MD by any director.
 In case of liquidation, by liquidator
123
 Firm Managing partner - in his absence due to unavoidable reasons, by any partner
Scheme of submission of returns through Tax Return Preparers [Section 139B]
The Tax Return Preparer shall assist the persons furnishing the return in a manner that will be specified in
the Scheme, and shall also affix his signature on such return. The "specified class or classes of persons" for
this purpose means any person other than a company or a person whose accounts are required to be audited
under section 44AB (tax audit) or under any other existing law, who is required to furnish a return of
income under the Act.
Tax Return Preparer : A Tax Return Preparer can be an individual, other than
(i) any officer of a scheduled bank with which the assessee maintains a current account or has other
regular dealings.
(ii) any legal practitioner who is entitled to practice in any civil court in India.
(iii) a chartered accountant.
(iv) an employee of the 'specified class or classes of persons'.
The Scheme notified under the said section may provide for the following —
 the manner in which and the period for which the Tax Return Preparers shall be authorised,
 the educational and other qualifications to be possessed, and the training and other conditions
required to be fulfilled, by a person to act as a Tax Return Preparer,
 the code of conduct for the Tax Return Preparers,
 the duties and obligations of the Tax Return Preparers,
 the circumstances under which the authorisation given to a Tax Return Preparer may be withdrawn,
any other relevant matter as may be specified by the Scheme.
Permanent Account Number (PAN) [Sec. 139A]
Permanent Account Number (PAN) is a 10-character alpha-numeric number, allotted to an assessee by the
Income Tax Department.
(1) Where any person in th the following category has not been allotted a permanent account number
(PAN), he should apply to the Assessing Officer within the prescribed time for allotment of a PAN -
(i) Every person whose total income or the total income of any other person in respect of which he is
assessable under this Act during any previous year exceeded the basic exemption limit; or
(ii) Every person carrying on any business or profession whose total sales, turnover or gross receipts
exceeds or is likely to exceed X5 lakhs in any previous year; or
(iii) Every person who is required to furnish a return of income under section 139(4A); or
(iv) Every person, being an employer, who is required to furnish a return of fringe benefits under
section115WD [Sub-section (1)].
124
(2) The CBDT had introduced a new scheme of allotment of computerized 10 digit PAN. Such PAN
comprises of 10 alphanumeric characters and is issued in the form of a laminated card.
(3) All persons who were allotted PAN (Old PAN) earlier and all those persons who were not so allotted
but were required to apply for PAN, shall apply to the Assessing Officer for a new series PAN within
specified time.
(4) Once the new series PAN is allotted to any person, the old PAN shall cease to have effect. No person
who has obtained the new series PAN shall apply, obtain or process another PAN.
(5) On receipt of allotment of PAN it must be mentioned on all tax payment challans, returns,
correspondence.
(6) Where TDS or TCS is made, the person from whom it is made must communicate his PAN to the
person deducting or collecting tax.
(7) Every person receiving any document relating to a transaction prescribed under clause (c) of sub-
section (5) shall ensure that the permanent account number or the General Index Register Number
has been duly quoted in the document.
(8) Income-tax return can be filed using Aadhaar Number, if person hasn’t been allotted PAN. If a
person has linked his Aadhaar number with PAN, he may also furnish his Aadhaar number in place
of PAN in the Income-tax return.
(9) PAN allotted to a person shall be deemed to be invalid, if he failed to intimate the Aadhaar to the Dept.
Section 272B
Clause 64 of the Bill seeks to amend section 272B of the Income-tax Act relating to penalty for failure to
comply with the provisions of section 139A.
The said section, inter alia, provides for penalty for failure to comply with the provisions of section 139A.
It is proposed to suitably amend the sub-section (2) of the said section, so that penalty may also be levied
on false quoting or non-intimation of Aadhaar number.
It is further proposed that penalty of ten thousand rupees shall be levied for each such default.
It is also proposed to insert a new sub-section (2A) to provide that if a person, who is required to quote and
also authenticate his permanent account number or Aadhaar number, as the case may be, in
accordance with the provisions of section (6A), fails to do so, the Assessing Officer may direct that
such person shall pay, by way of penalty, a sum of ten thousand rupees for each such default.
It is also proposed to insert a new sub-section (2B) to provide that if a person who is required to ensure that
the permanent account number or the Aadhaar number, as the case may be, quote in the documents
relating to transaction prescribed in clause (c) of sub-section (5) of section 139A or authenticate
such number in respect of transactions prescribed under sub-section (6A) of that section, fails to do
125
so, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten
thousand rupees for each such default.
It is also proposed that before passing a penalty order under the proposed new sub-section (2A) and sub-
section (2B), a person shall be heard.
These amendments will take effect from 1st September, 2019.
Consequence of not linking PAN with Aadhaar
The existing proviso to the sub-section (2) of section 139AA, provides that the PAN allotted to a person
shall be deemed to be invalid, in case the person fails to intimate the Aadhaar number, on or before
the notified date.
In order to protect validity of transactions previously carried out through such PAN, it is proposed to
amend the said proviso so as to provide that if a person fails to intimate the Aadhaar number, the
PAN allotted to such person shall be made inoperative in the prescribed manner.
This amendment will take effect from 1st September, 2019.
Monetary limits of specified transactions which require quoting of PAN

 Sale or purchase of motor vehicle (other than two wheeled motor vehicle) which requires
registration
 Opening an account [other than a time-deposit referred to at Sl. No.12 and a Basic Savings Bank
Deposit account] with a bank etc.
 Making an application to any bank etc for issue of a credit or debit card.
 Opening of a Demat account.
 Payment to a hotel or restaurant against a bill or bills at any one time Payment in cash of an
amount exceeding Rs 50,000.
 Payment in connection with travel to any foreign country or payment for purchase of any
foreign currency at any one time
 Payment in cash of an amount exceeding Rs 50,000.
 Payment to a Mutual Fund for purchase of its units Amount exceeding Rs 50,000.
 Payment to a company or an institution for acquiring debentures or bonds Amount exceeding Rs
50,000.
 Payment to the Reserve Bank of India for acquiring bonds Amount exceeding Rs 50,000.
 Cash Deposit with a banking company or a cooperative bank Deposits in cash exceeding Rs
50,000 during any one day.
 Purchase of bank drafts or pay orders or banker’s cheques
 Payment in cash of an amount exceeding Rs 50,000 during any one day.
 A Time Deposit with, -
a banking company or a co-operative bank
a Post Office;
a Nidhi referred in Companies Act, 2014; or
a NBFC
Amount exceeding Rs 50,000 or aggregating to more than Rs 5 lakh during a financial year
 Payment for one or more pre-paid payment instruments
 Payment in cash or by way of a bank draft or pay order or banker’s cheque of an amount
aggregating to more than Rs 50,000 in a financial year.
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 Payment as life insurance premium Amount aggregating to more than Rs 50,000 in a financial
year.
 A contract for sale/purchase of securities (other than shares) amount exceeding Rs 1 lakh per
transaction.
 Sale or purchase, by any person, of shares of a company not listed in a recognised stock exchange.
Amount exceeding Rs 1 lakh per transaction..
 Sale or purchase of any immovable property Amount exceeding Rs 10 lakh or valued by stamp
valuation authority referred to in section 50C of the Act at an amount exceeding Rs 10 lakh
 Sale or purchase, by any person, of goods or services of any nature other than above. Amount
exceeding Rs 2 lakh per transaction
Note:
 In case of minor who does not have any income chargeable to income-tax, PAN of his father or
mother or guardian is required.
 Further, any person who does not have a PAN and who enters into any transaction specified in this
rule, shall make a declaration in Form No. 60 giving therein the particulars of such transaction.
 Also, the provisions of this rule shall not apply to the Central Government, the State Governments
and the Consular Offices
Mandatory Application of PAN in certain cases
♦ Section 139A of Act has been amended in order to provide that:
PAN is mandatory for such non-individual entities which enters into financial transaction
valuing more than INR 2.50 lakhs.
PAN is also mandatory for the authorized signatories of such entities irrespective of
their financial transactions and income.
Section 139AA - Quoting of Aadhaar number

1. Every person who is eligible to obtain Aadhaar number shall, on or after the 1st day of July, 2018, quote
Aadhaar number—
 in the application form for allotment of permanent account number;

 in the return of income:
2. Where the person does not possess the Aadhaar Number, the Enrolment ID of Aadhaar application form
issued to him at the time of enrolment shall be quoted in the application for permanent account
number or, as the case may be, in the return of income furnished by him.
3. Every person who has been allotted permanent account number as on the 1st day of July, 2018, and who
is eligible to obtain Aadhaar number, shall intimate his Aadhaar number to such authority in such
form and manner as may be prescribed, on or before a date to be notified by the Central
Government in the Official Gazette:
Provided that in case of failure to intimate the Aadhaar number, the permanent account number allotted to
the person shall be deemed to be invalid and the other provisions of this Act shall apply, as if the person
had not applied for allotment of permanent account number.
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4. The provisions of this section shall not apply to such person or class or classes of persons or any State or
part of any State, as may be notified by the Central Government in this behalf, in the Official
Gazette.
RETURN OF INCOME OF CHARITABLE TRUSTS AND INSTITUTIONS [SECTION 139(4A)]
1. Every person in receipt of income –

a. derived from property held under a trust or any other legal obligation wholly or partly for charitable or
religious purpose; or
b. by way of voluntary contributions on behalf of such trust or institution must furnish a return of income
if the total income in respect of which he is assessable as a representative assessee (computed before
allowing any exemption under sections 11 and 12) exceeds the basic exemption limit.
2. This return must be filed by the representative-assessee voluntarily within the time limit.
RETURN OF INCOME OF POLITICAL PARTIES [SECTION 139(4B)]
1. The chief executive officer of the political party is statutorily required to furnish a return of income of
the party, if the amount of total income of the previous year exceeds the basic exemption limit
before claiming exemption under Section 13A.
2. The grant of exemption from income-tax to any political party under section 13A is conditional to the
filing of Return within the time limit prescribed under section 139(1).
3. The Due date shall be 30th September as Audit is compulsory for political parties.
4. The provisions would apply as if it were a return required to be furnished under section 139(1).
MANDATORY FILING OF RETURNS BY SCIENTIFIC RESEARCH ASSOCIATIONS, NEWS

AGENCY, TRADE UNIONS, ETC. [SECTION 139(4C)]
1. It will be mandatory for the following institutions/associations, to file the return of income if their
total income without giving effect to exemption u/s 10, exceeds the basic exemption limit –
a) Research Association u/s 10(21)

b) News Agency u/s 10(22B)
c) Association or Institution u/s 10(23A)
d) Institution u/s 10(23B)
e) Fund or Institution u/s 10(23C)
f) Trust or Institution u/s 10(23C)
g) University or other educational institution u/s 10(23C)
h) Hospital or other medical institution u/s 10(23C)
i) Trade Union u/s 10(24)
j) Competition Commission of India & National Skill Development Corporation u/s Section 10(46)
k) Infrastructure Debt Fund referred in Section 10(47)
l) Mutual Fund u/s 10(23D)
m) Securitisation Trust u/s 10(23DA)
n) Venture Capital Company / Venture Capital Fund u/s 10(23FB)
o) Investor Protection Fund whose income is exempt u/s 10(23EC)/10(23ED)
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p) Tea Board/Rubber Board/Coffee Board etc exempt u/s 10(29A)

q) RPF, ASF, Approved Gratuity Funds etc
2. The Due date shall be 30th September as Audit is compulsory.
3. Then, the provisions would apply as if it were a return required to be furnished under sec 139(1).
MANDATORY FILING OF RETURNS BY UNIVERSITIES, COLLEGES ETC. [SEC 139(4D)]
1. It will be mandatory for every university, college or other similar institution [as referred in Section
35(1)(ii)-175% & (iii)-125%] to furnish its return in respect of its income or loss in every previous
year.
2. All the provisions of the Income-tax Act, 1961 shall apply to such return as if it were a return under
section 139(1).
SECTION 139(4E) : Every Business Trust, which is not required to furnish return of income or loss under
any other provisions of this section, shall furnish the return of its income in respect of its income or
loss in every previous year and all the provisions of this Act shall, so far as may be, apply if it were
a return required to be furnished under sub-section (1).
Prosecution relating to failure to furnish return of income Section 276CC
♦ Section 276CC of the Act provides that in case an assessee fails to furnish ROI upto the end of
assessment year, then he shall be liable to following:
 Imprisonment of 6 Months – 7 Years with fine: If tax evaded exceeds INR 25 lakhs;
 Imprisonment of 3 Months – 2 Years with fine: If tax evaded is upto INR 25 lakhs.
♦ The above provisions are not applicable if tax amount is less than INR 3,000.
♦ Finance Bill, 2019 has made an amendment under the Act in order to provide that the limit of
INR 3,000 is not applicable to a Company in order to mandate all companies to file ROI.
Question
(i) Joseph engaged in profession filed his return of income for assessment year 2020-21 on
th
15 November, 2019. He disclosed an income of 74,00,000 in the return. In February, 2019 he
discovered that he did not claim certain expenses and filed a revised return on 3 rd February, 2019
showing an income of 71,80,000 and claiming those expenses. Is the revised return filed by Joseph
acceptable?
Answer:Joseph is engaged in profession. The due date for filing income tax return for assessment year
2020-21 as per section 139(1) of the Income-tax Act is 30th September, 2019 if his accounts are required to
be audited under any law. The due date is 31st July, 2019 if the accounts are not required to be audited
under any law.
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The return was filed beyond the due date prescribed in section 139(1). The return so filed is covered by
section 139(4) and the time limit is one year from the end of the relevant assessment year. The Apex court
in Kumar Jagadish Chandra Sinha v. CIT 220 ITR 67 (SC) has held that a return filed under section 139(4)
is not eligible for revision and hence a revised return cannot be filed.
Hence, the return filed by Joseph is not valid as the original return was not filed before the due date
mentioned in section 139(1).
(ii) An assessee filed a return of income on 31.8.2019 in respect of Assessment year 2020-21
disclosing an income of 75 lakhs from business. It was not accompanied by proof of payment of tax
due on self-assessment. Discuss the validity of such a return.
Answer :As per Explanation to sub-section (9) of section 139 a return is regarded as defective unless it is
accompanied by proof of tax deducted at source, advance tax and tax on self-assessment, if any, claimed to
have been paid. Therefore, the return is prima facie defective. It is not invalid at that stage. On receipt of
the return, the Assessing Officer has to intimate the defect to the assessee and give him an opportunity to
rectify the defect within a period of 15 days from the date of such intimation or within such further period
which, on application by the assessee, he may, in his discretion allow. If the defect is not rectified within
the said period, the return will be treated as an invalid return and the provisions of the Income-tax Act shall
apply, as if the assessee has failed to furnish the return.
Also, it may noted that section 140A(3) says that if an assessee fails to pay tax or interest on self
assessment he shall be deemed to be an assessee in default in respect of the tax or interest or both
remaining un paid and all the provisions of the Act shall apply accordingly.
(iv) Can Department make fresh computation, once the assessment is made final?
Answer:It is now a well settled principle that an assessment once made is final and that it is not open to the
department to go on making fresh computation and issuing fresh notices of demand to the end of all time.
(v) Can an Assessing Officer make an assessment for a year other than the assessment year for
which the return is filed?
Answer:It is not open to the Assessing Officer to make assessment in respect of a year other than the
Assessment Year for which the return is filed. Thus, in respect of a return filed for assessment year 2019-
19,assessment cannot be made for the assessment year 2020-21.
(vi) Can an Assessing Officer assess the income below the returned income or assess the loss higher
than the returned loss?
Answer:The Assessing Officer cannot assess income under section 144 for an assessment below the
returned income or cannot assess the loss higher than the returned loss.
(vii) Can incomplete, unsigned or unverified return lead to best judgement assessment?
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Answer : Incomplete, unsigned or unverified return may lead to best judgement assessment. A best
judgement assessment can be made when the return is filed woefully incomplete or not signed and verified.
(viii) Can assessee follow different method of accounting for different businesses?
Answer:If an assessee is carrying on more than one business, he can follow cash system of accounting for
one business and mercantile system (accrual system) of accounting for other business. Similarly, if he had
more than one sources of income under the head income from other sources, he can follow accrual system
for one source of income under the head income from other sources, he can follow accrual system for one
and cash system for other sources of income.
(SEC 234A) : INTEREST @ 1% PER MONTH OR PART OF MONTH FOR DELAY IN FILING
RETURN
Section 285BA Widening the scope of Statement of Financial Transactions (SFT)

Existing provisions of section 285BA of the Act, inter alia, provide for furnishing of statement of financial
transaction (SFT) or reportable account by person specified therein.
In order to enable pre-filling of return of income, it is proposed to obtain information by widening the
scope of furnishing of statement of financial transactions by mandating furnishing of statement by
certain prescribed persons other than those who are currently furnishing the same. It is also
proposed to remove the current threshold of rupees fifty thousand on aggregate value of transactions
during a financial year, for furnishing of information, with a view to ensure pre-filling of
information relating to small amount of transactions as well. In order to ensure proper compliance, it
is also proposed to amend the provisions of sub-section (4) of aforesaid section so as provide that if
the defect in the statement is not rectified within the time specified therein, the provisions of the Act
shall apply as if such person had furnished inaccurate information in the statement.
Consequently, it is also proposed to amend the penalty provisions contained in section 271FAA so as to
ensure correct furnishing of information in the SFT and widen the scope of penalty to cover all the
reporting entities under section 285BA. (Amount of penalty Rs.5,0000/- already prescribed).
These amendments will take effect from 1st day of September, 2019.
Pre-filled ITRs
The Hon’ble Finance Minister in her budget speech, has presented the provision of pre-filled ITRs as a
taxpayer friendly initiative, and has stated as under,
“Pre-filled tax returns will be made available to taxpayers which will contain details of salary income,
capital gains from securities, bank interests, and dividends etc. and tax deductions. Information
regarding these incomes will be collected from the concerned sources such as Banks, Stock
exchanges, mutual funds, EPFO, State Registration Departments etc. This will not only significantly
reduce the time taken to file a tax return, but will also ensure accuracy of reporting of income and
taxes.”
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Existing provisions of section 285BA of the Act, inter alia, provide for furnishing of statement of financial
transaction (SFT) or reportable account by person specified therein.
In order to enable pre-filling of return of income, it has been proposed to obtain information by widening
the scope of furnishing of statement of financial transactions by mandating furnishing of statement
by certain prescribed persons other than those who are currently furnishing the same. It has also
been proposed to remove the current threshold of rupees fifty thousand on aggregate value of
transactions during a financial year, for furnishing of information, with a view to ensure pre-filling
of information relating to small amount of transactions as well.
At present, the pre-filling of columns in ITRs is limited to certain basic details only like address, email id,
jurisdictional AO details etc. and not to details of salary income, capital gains from securities, bank
interests, and dividends etc. and tax deductions, as has now been proposed.
Faceless e-assessments
The Hon’ble Finance Minister, while emphasizing the significance and desirability of faceless e-
assessments, in her budget speech has stated as under,
“The existing system of scrutiny assessments in the Income-tax Department involves a high level of
personal interaction between the taxpayer and the Department, which leads to certain undesirable
practices on the part of tax officials. To eliminate such instances, and to give shape to the vision of
the Hon’ble Prime Minister, a scheme of faceless assessment in electronic mode involving no
human interface is being launched this year in a phased manner. To start with, such e-assessments
shall be carried out in cases requiring verification of certain specified transactions or discrepancies.
Cases selected for scrutiny shall be allocated to assessment units in a random manner and notices shall be
issued electronically by a Central Cell, without disclosing the name, designation or location of the
Assessing Officer. The Central Cell shall be the single point of contact between the taxpayer and the
Department. This new scheme of assessment will represent a paradigm shift in the functioning of
the Income Tax Department.”
No doubt the introduction of faceless e-assessments, is a very novel and path-breaking initiative of the
Government and is aimed at putting a curb on undesirable practices on the part of tax officials.
RETURN OF INCOME
1. Vinod started a retail business in textiles on 1st April 2019. During the financial year 2019-18, the
turnover from the business is Rs.36,50,000 and net profit of Rs.1,61,000 has been achieved from
operations. As a tax consultant, advise him as to what conditions are to be complied with before
filing return of income for the assessment year 2020-21? Briefly discuss the relevant provisions.
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2. Return of income : discuss whether the following persons are required to submit return of or
furnishing the return)-
Assesse Net Sources of Turnover/Gross

Income income receipt (Rs)
(Rs)
X (Firm) (-) Business 1,05,00,000

40,000
Mr R 45 yrs 2,97,000 Salary -
Pyare lal 40,000 Business 41,00,000
Sohit 5,10,000 Partner in Firm receipts

CA firm Rs.26,00,000
Rohit 5,10,000 Sleeping Firm turnover

partner in Rs.1 Crore
trading firm
Note : R has claimed deduction under Chapter VI-A of Rs.10,000
3. Requirement to file return : Mr A, 45 yrs is a resident Indian. During the F.Y 2019-18 interest of Rs
1,92,000 was credited to his Non-resident (External) Account with the SM Rs.20,000 being interest
on fixed deposit with SBI was credited to his savings bank account during this period. He also
earned Rs.4,000 as interest on this savings account. Is Mr. required to file return of income?
4. Interest u/s 234A, 234B & 234C : The following particulars are furnished by Mr X for the financial
year 2020-20 :
Tax on total income (paid on 30.9.2020) Rs.100,000

Due date for filing the return Rs.30.9.2020
Actual date of filing the return 1.10.2020
Calculate the total interest payable under section 234A, 234B & 234C.
5. Interest u/s 2234A, 234B & 234C : The following particulars are furnished by Ms Madhu for the
financial year 2019-18:
Tax on total income (Paid on 31/7/19) Rs.50,000

Date of filing the return 1-8-2020
Due date for filing the return 31-7-2020
Compute the total interest payable under section 234A, 234B & 234C of the Income tax Act, 1961.
6. Loss return and belated return : Discuss the correctness or otherwise of the following:-
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(i) Mr. P having business loss of Rs.1,00,000 (after providing for depreciation of Rs.75,000) furnishes
his return of income on 5-8-2019 (turnover for 2019-16 Rs.40 lacs). He wants to carry forward
Rs.1,00,000.
(ii) Mr. P has furnished his return of income for the assessment year 2020-21 on 31st March 2020. The
assessment was completed on the basis of such return on 8th May 2020.
(iii) Mr. R didn’t file any return of income for the assessment year 2020-21 and his assessment for that
year was completed on 31st December 2019.
7. Return of loss: Discuss the correctness or otherwise of the following-
(i) Mr. P having loss under the head ‘Income from house property’ doesn’t file return of income. He
wants to carry forward such loss.
(ii) Mr. K having loss from other sources of Rs.10,000 furnishes his return on 30-7-2019. He wants to
carry such loss for set off in subsequent years.
8. Revised return : State whether the following returns can be revised u/s 139 (5)-
(a) Return of loss filed under section 139(3);

(b) Belated Return filed under section 139(4);
(c) Return filed by a trust u/s 139(4A) or a Political party u/s 139(4B) or Association u/s 139(4C);
(d) Return filed within the time extended by CBDT under section 119;
(e) A Revised Return filed under section 139(5);
(f) Defective or incomplete return filed u/s 139(9)
(g) Return filed knowing it to be false; and
(h) Return filed for the assessment year 2019-19, assessment of which is yet to be completed.
9. Defective return : Discuss whether the following are correct or incorrect.
(1) Mr. S filed his return of income but forgot to affix his signature thereto. He want to rectify the
defect.
(2) Mr. Sharma didn’t rectify the defect in the return filed by him for assessment year 2020-21 within
the prescribed time i.e. 15 days specified by Assessing Officer. However, he filed another return on
1.1.2019. No assessment has been made till date. Mr. Sharma wants to revise such subsequent return.
(3) A return of income was filed within the statutory time provided under the Act, without making the
payment of self assessment tax due as per return. The same was paid before completion of
assessment. The Assessment Officer wants to treat the return as invalid.
10. PAN : Mr. Sharma ‘s sales for year ended 31.3.2019 were Rs.10,00,000 and his income for the same
year was Rs.1,10,000. As his income doesn’t exceed maximum amount not chargeable to tax, he is
of the opinion that neither he is required to apply for PAN nor he is required to furnish his return or
income.
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11. Whether return furnishable through Tax return preparer : Comment on the allow-ability of the
following claims made by the assessee;
Mrs H, an individual, engaged in the business of Beauty Parlour, has got her books of account for
the financial year ended 31.3.2019, audited under section 44AB. Her total income for the
assessment year 2020-21 is Rs.135000. She wants to furnish her return of income for assessment
year 2020-21 through a tax return preparer.
SOLUTIONS
Sol.1. As per section 44AD, where the assesse is engaged in the business of retail trade and its
gross turnover does not exceed Rs.100,00,000, his income from such business shall be 8% of the
turnover of Rs.36.5 lakh i.e. Rs.2,92,000. His due date for filing return of income shall be July
31,2020. If he wishes to show his income at Rs.151000, he should maintain accounts and get his
accounts audited as per section 44AB and, in that case, the due date of filing return shall be
September 30,2020.
Sol.2. The following table gives the answer to this example –
Provisions relating to filing of return of income
Assessee Whether return Due date Remarks

required to
be filed
X (firm) Yes 30-09-2020 Firm is compulsorily required

to file its return.
Accounts to be audited
under section 44AB
R Yes 31-7-2020 Mr. R’s total income before

claiming deduction
under chapter VI-A is
2,97,000 i.e. exceeding
Rs.2,50,000. Hence, he is
required to be furnished
by 31-07-2019
Pyare lal No -
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Sohit Yes 30-09-2020 Working partner of a firm,

whose accounts are
required to be audited
under section 44AB
Rohit Yes 31-07-2020 Extended time limit is

applicable only in case of
working partner of a
firm, whose accounts
are required to be
audited under section
44AB.
Sol.3. Interest on non-resident (external) account is exempt u/s 10(4)(ii). The balance income is
Rs.24,000 which is below the maximum amount not chargeable tax.
Hence, A is not required to file the return of income u/s 139(1).
Sol.4. Computation of interest payable by Mr X (amounts in Rs.)
Interest under section 234A for one month 1,500

i.e. October (1,50,000 x 1%)
Interest under section 234B for 6 month i.e. 9,000

1-4 to 30-09(1,50,000 x 1% x 6)
Interest under section 234C as follows- 450
15% of 100000 ie 15000x1%x3
45% of 1,00,000 i.e. 45,000 x 1% x 3 months 1,350

(15th Sep. to 15th dec.)
75% if 1,00,000 i.e. 75,000 x 1% x 3 months 2,250

(15th dec. to 15th march)
100% of 1,00,000 x 1% x 1 month (15th 1,000 5,050

march to 31st march)
Total interest payable 15,550
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Sol.5. The total interest payable by Ms. Madhu under section 234 is computed as under:
Interest for- Calculation Amount (Rs.)
Delay in filing under section 234A 50,000 x 1% 500
Default in payment of advance tax 50,000 x 1% x 4 months 2,000

u/s 234B
Deferment of advance tax u/s 234C: 15% of 50000 x 1% x 3 225

45% of 50,000 x 1% x 3
675
months
75% of 50,000 x 1% x 3 months 1125
100% of 50,000 x 1% x 1 month 500
Total interest payable 5025
Sol.6. The correctness or otherwise of the aforesaid is discussed hereunder-
(1) Incorrect: the due date for furnishing return was 31-7-2020. Since return has not been filed
within the due date specified in section 139(1), hence, business loss of Rs.25,000 cannot be
carried forward.
(2) Correct: belated return has been filed “within time limit i.e one year from the end of relevant
assessment year. Hence, assessment can be made on that basis.
(3) Incorrect: belated return cannot be filed after the date of completion of assessment. Hence,
the return filed after completion of assessment is invalid.
Sol.7. The correctness or otherwise of the aforesaid is discussed hereunder –
(1) Correct: loss from house property can be carried forward without filing any return of income.
(2) Incorrect: loss from other sources cannot be carried forward for set off.
Sol.8. The aforesaid points have been discussed here in below-
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(a) Yes: once a return of loss is filed under section 139(3), it takes the character of return filed
under section 139(1) in respect of which the assessee can file a revised return claming higher
amount of loss, under section 139(5). Thus, loss return can be revised.
(b) Yes: in case a belated return is filed u/s 139(4), revised return under section 139(5) can be
filed.
(c) Yes: A return filed under section 139(4A)/(4B)/(4C) can be revised as such returns are
deemed as returns filed under section 139 (1).
(d) Yes: A return filed within the time extended by CBDT beyond the due elate given under
section 139(1) is a return filed under section 139(1) and can therefore be revised.
(e) Yes: A second revised return can be filed u/s 139(5) correction omissions or wrong statement
made in the first revised return, for, the first revised return replaces the original return and
thereby becomes a return under section 139(1). Hence an assessee can revise a return any
number of times provided every such revised return is filed within the time limit specified
under section 139(5).
(f) Yes: defective return can be revised if the same was filed within time limit specified u/s
139(1) and the defect is rectified within 15 days or extended period allowed by the assessing
officer.
(g) No: revision under section 139(5) can be made only with a view to rectify any omission or
wrong statement in the return. Such omission or wrong statement in the return must be due
to a bona fide inadvertence or mistake on the part of the assessee; the same should not be
deliberate. Hence, false returns cannot be revised.
(h) No: revised return can be filed within one year from the end of the relevant assessment year
(i.e. by the 31st march, 2020 or before the completion of assessment, whichever is earlier.
Therefore, the return filed for the assessment year 2019-19 cannot be revised as being
barred by limitation.
Sol.9. The aforesaid points have been discussed here in below –
Provisions relating to filing of return of income
(1) incorrect: if a return is filed without signature and verification, it is an invalid return. Since
this is a defect, which cannot be cured, therefore, return filed by Mr. S such a return is void
ab initio.
(2) Incorrect: in this case, as the defect is not rectified within prescribed time, the return
becomes ‘invalid’ and it shall be deemed that the assessee had failed to file the return u/s
139(1).
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(3) Incorrect: as per section 139(9), a return can be regarded as defective only when it is not
accompanied by proof of payment of self-assessment tax claimed to have been paid. Since,
the assessee has not paid the tax, he has not claimed the same to be paid and so, the return
is not defective. Thus, when the return is not defective, it cannot be treated as invalid by the
assessing officer. Return can be treated as invalid only when it is defective and the defect is
not rectified within the time intimated by assessing officer.
Hence, the proposal of the assessing officer to declare the return as invalid is not justified.
Sol.10. Mr. Sharma is liable to apply for PAN, as his sales exceed Rs.5 lakh, but he is not required
to furnish return of income, as his income doesn’t exceed the basic exemption limit.
Sol.11. No, as per section 139B, the persons whose account are required to be audited under
section 4AAB or any other law are not eligible to file their return of income through tax
return prepares. Hence, Mrs. H cannot file her return of income through tax return
preparer.
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PROCEDURE FOR ASSESSMENT

After submission of Return of Income to the Income-tax Department, the process of assessment
commences. The AO can make the assessment in any of the following ways:
1. Summary assessment
2. Scrutiny assessment
3. Best judgement assessment
INQUIRY BEFORE ASSESSMENT:
Under Section 142: On the basis of Return of Income Under section 143(3) Under section 144
1. Service of a notice: (See. 142(1):It is a notice for filing of return of his income or the
income of any other person on whose behalf he is assessable in the prescribed form and within the
time specified in the notice. In this case AO gets information from the assessee.
2. Make inquiry (See. 142(2): In this case the AO collects information from the persons other
than the assessee. Such as in the case of ascertainment of cost of construction of the building,
AO may call for a report on the valuation from the valuation officer.
3. Audit of accounts: (See 142(2A) to (20): The AO may at any stage of the proceedings before
him, direct the assessee to get the accounts audited by CA nominated by Clvs ClT. Directions
for audit may be given:
(a) Due to nature and complexity of accounts

(b) The interest of revenue
The remuneration and expenses of audit for CA shall be fixed by the ClT, which shall be paid by the
assessee and in case of his default, it shall be recovered from the assessee in the manner provided for
collection and recovery of tax. But on or after 1.6.2009, such expenses to CA shall be paid by the
Central Government.
4. Opportunity of being heard: See. 142(3):Before using the information against the assessee
what has been collected by the AO in the inquiry or in the audit report, he has to give an .
opportunity to the assessee for clarification as to the information is relevant or not.
CONSEQUENCES OF NON-COMPLIANCE OF SEC 142(1) AND SEC 142(2A):
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1. Best judgement assessment
2. Penalty under section 271(1)(b) Rs. 10000/-
3. Prosecution U/s 2760: One vear Rt or Fine not less than Rs. 4/- and not more than Rs. 10/- per
day or with both.
4. Issue of warrant of authorization under section 132 for conducting search.
SELF ASSESSMENT U/S 140-A
Every person before submitting the return must calculate himself his taxable income and tax due
thereon, following the procedure and rules for calculation of income, tax and interest and deposit
the same, and on that basis, return of income has to be filed by the assessee. This is known as self
assessment.
 Intimation of any tax due

 Intimation of any re-fund is due
Where there is no tax due or refund, the acknowledgement of return shall be treated as deemed
intimation U/s 143(1}.
Important points regarding intimation U/s 143(1}:
1. If there is any tax due in the intimation, It shall be treated as a notice of demand and must be
paid within 30 days from the receipt of the said intimation U/s 143(1).
2. No intimation shall be sent after the expiry of one year from end of the financial year in
which the return is made. In case of revised return, intimation can be made within one year
from the end of the financial year in which the revised return is made.
3. No adjustment is possible U/s 143{l) in the Return of Income, but AO can make the
adjustment in the following cases:
 If tax and interest is wrongly computed by the assessee
 Rebate U/s 88-E is wrongly claimed
 Relief U/s 89 is wrongly claimed
 Credit of prepaid taxes and other taxes/relief including MAT credit has been wrongly
taken by the assessee
4. All the returns submitted U/s 139(1) or U/s 142(1) are initially processed U/s 143(1).
REGULAR/SCRUTINY ASSESSMENT u/S 143(3}:
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In order to ensure himself that:
1. Assessee has not understated the income
2. Has not computed the excessive loss
3. Has not under paid the taxes in any manner
The AO has to issue a notice U/s 143(2) requiring the assessee to attend his office and produce the
evidences in support of his return of Income. This notice is must for assessment U/s 143(3).
No notice under this section can be served on the assessee after the end of 6 months from the end of
the financial year In.which return is furnished.
Where the assessee is not complying with the notice it entails the Best judgement Assessment U/s
144 and Penalty of Rs. 10,000/-U/s 271(1)(b).
After hearing the evidences the AO will pass an assessment order U/s 143(3).
Where any claim of deduction/relief not ciaimed by the assessee, these can be claimed at the time
of the proceedings are going on and the same shall have to be considered by the AO.
NEW SCHEME FOR SCRUTINY [SEC. 143(3A) TO (3C)]

♦ The Central Government may make a scheme for the purposes of making assessment of total income or
loss of the assessee u/s 143(3) so as to impart greater efficiency, transparency and accountability by:
a) eliminating the interface between the Assessing Officer and the assessee in the course of
proceedings to the extent technologically feasible;
b) optimising utilisation of the resources through economies of scale and functional specialisation;
c) introducing a team-based assessment with dynamic jurisdiction.
♦ The Central Government may, for the purpose of giving effect to the scheme, direct (within 31-03-2021)
that any of the provisions of this Act relating to assessment of total income or loss shall not apply or
shall apply with such exceptions, modifications and adaptations.
♦ Every notification issued shall, as soon as may be after the notification is issued, be laid before each
House of Parliament.
New Scheme for Scrutiny Assessment Section 143.
♦ The Government is introducing e-assessment scheme for all assessment proceedings under
the Act.
♦ Section 143 have been amended in order to give power to the CG for new scheme which will
be laid down as soon as may be in Parliament.
BEST JUDGEMENT ASSESSMENT: U/S 144:
The AO, after considering all relevant material gathered, is under an obligation to make an assessment of
the total income/loss to the best of his judgement and determine the tax payable by the assessee _ It is
popularly known as ex-parte assessment, which can be passed in the following situations:
1 Where no return is filed
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2 Fails in complying with the notice U/s 142(1) or fails to compying with the direction of audit U/s 142
(2A)
3Fails in complying with the notice U/s 143(2)
4Assessment on rejection of the accounts books
Opportunity must be given to the assessee before passing the Best Judgement Assessment.
INCOME ESCAPING ASSESSMENT:
There may be cases where the incomes have escaped assessment or income has been taxed at low rates or
excess loss or allowances have been allowed. In such cases, the AO is empowered to assess/re-assess - such
income or recomputed the loss for the relevant assessment year.
INCOME ESCAPING ASSESSMENT: U/S 147:
If the AO has reason to believe that any income, chargeable to tax, has escaped assessment for any
assessment year, he may subject to provisions of section 148 to 153:
a Assess or reassess such income which has escaped assessment
b. Re-compute the loss or depreciation allowance or any other allowance
Where during the pendency of the proceedings U/s 147, AO finds that any other income chargeable to tax
has escaped for the relevant assessment year, can assess or reassess that income also,
DEEMED CASES OF ESCAPEMENT:
1. Where no return is filed even if the taxable income exceeds the maximum amount not liable to tax
2. Where return is filed, but AO has reason to believe that some income escaped the assessment
orexcessive allowances are allowed or tax is charged at low rate.
ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT: U/s 148:
For making assessment U/s 147, the ~has to serve on the assessee a notice U/s 148 for submitting a return
of income for the relevant assessment year. Further a notice U/s 143(2) be also issued to the assessee within
a period of 12 months from the end of the month in which return is filed to make the assessment U/s 147.
Before issuing notice U/s 148, the AO has to record the reasons for issuing the notice.
The flssessee has to file the return of income in response to notice U/s 148, even if he had duly filed the
return of income in the normal course U/s 139(1)
143
Separate notice U/s 148 to be given to the assessee for every assessment year.
POWER OF JOINT COMMISSIONER TO ISSUE DIRECTIONS IN CERTAIN CASES [SEC.

144A]
Joint Commissioner may (on his own motion or on a reference being made to him by the Assessing Officer
or on the application of an assessee) -
a) Call for and examine the record of any proceeding in which an assessment is pending; and
b) Having regard to the nature of the case or the amount involved or for any other reason,
- issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete
the assessment and such directions shall be binding on the Assessing Officer.
RECTIFICATION OF MISTAKE: U/S 154;
An income-tax authority, is empowered (suo moto or on application by assessee) to -

a) rectify any mistake apparent in an order passed by him; or
b) amend any intimation issued u/s 143(1) or deemed intimation
c) amend any intimation issued u/s 200A(1).
Taxpoint: Such order of rectification must be passed in writing.
Time limit for Rectification [Sec. 154(7)]
Within 4 years from the end of the financial year in which the order sought to be amended was passed.
However, in respect of an application made by the assessee or deductor or collector, the authority shall,
within a period of 6 months from the end of the month in which the application is received by it, pass an
order -
a. making the amendment; or
b. refusing to allow the claim.
Opportunity of being heard [Sec. 154(3)]:
If such rectification order is prejudicial to the assessee or deductor or collector, an opportunity of being
heard must be given to the assessee, before passing such order.
Note
● Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability
of the assessee or the deductor or collector, the Assessing Officer shall make any refund which may be
due to such assessee or the deductor or collector.
● Where any such amendment has the effect of enhancing the assessment or reducing a refund already
made or otherwise increasing the liability of the assessee or the deductor or collector, the Assessing
Officer shall serve on the assessee or the deductor or collector, as the case may be a notice of demand
in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be
issued u/s 156.
DEMAND NOTICE [SEC.156]

On completion of assessment, a demand notice is served for additional demand raised in the assessment.
Time limit for payment of tax: The assessee should make the payment of amount demanded within 30
days of service of notice [Sec. 220(1)] Where the Assessing Officer has any reason to believe that it will be
detrimental to revenue if the full period of 30 days is allowed, then he may with the previous approval of
the Joint Commissioner direct that the sum specified in the notice of demand shall be paid within such time
as may be specified by him in the notice. 553 554
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Interest on delay in payment: If the payment is not made within 30 days (or time allowed in the notice),
interest shall be payable @ 1% for every month (or part thereof) of the delay [Sec. 220(2)]
An assessee in default shall be liable to a penalty of an amount not exceeding the amount of tax in arrears.
[Sec. 221(1)]
Note: Where any sum is determined to be payable by the assessee or by the deductor or collector u/s 143(1)
or 200A(1) or 206CB(1), the intimation under those sections shall be deemed to be a notice of
demand for the purposes of this section.
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ADVANCE PAYMENT OF TAX

Generally Income of the financial year is, charged to tax in the assessment year. Tax is paid on the financial
years income is paid in the assessment year. But where the total tax liability of an assessee which is
calculated on estimated basis in the financial year itself, comes to Rs. 10000/- or more, then the assessee is
under an obligation to deposit the tax so calculated in the Financial year itself. This scheme of payment of
advance tax is known as pay as you earn scheme.
WHEN A PERSON BECOMES LIABLE TO PAYADVANCE TAX:
Every person is liable to pay advance tax if advance tax payable is Rs. 10000/- or more.
WHEN ADVANCE TAX BECOME DUE:
DUE DATE ADV TAX PAYABLE

On or before
DATE June 15 of the Up 15 %
to of advance tax
previous year to payable
On or before September 15 of Up to 45.% of advance tax
the Previous year payable,
On or before December 15 of Up to 75% of advance tax
the Previous year payable
On or before March 15 of the Up to 100% of advance tax
Previous year payable
 Advance paid before March 31 shall be treated as advance tax paid during the financial year.
 Assessees opting 44AD, 44ADA shall pay the whole amount of tax by March 15th.
 Where an assessee is a senior citizen (or super senior citizen) and does not have any income
chargeable under the head “Profits and gains of business or profession”, provision of advance tax is
not applicable. In other words, senior citizen not having business income is not liable to pay
advance tax.
 If the last day for the payment of instalment of advance tax is a day on which the receiving bank is
closed, the assessee can make the payment on the next immediately following working day, and in
such Case no interest is chargeable for late payment of advance tax.
HOW ADVANCE TAX IS COMPUTED:
Payment of advance tax by the assessee on his own account:
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An assessee has to calculate his tax in the financial year own his own and pay advance tax thereon without
having to submit any estimate or statement of income to the assessing authorities. After making the
first/second instalment can revise the remaining instalments of advance tax.
COMPUTATION OF TAX:
Tax is computed on the current income (on estimated basis) at rates in force during the financial year_
.Frorn the tax so computed, the TDS/TCS is deducted, the remaining amount if it Rs. 10000/- or more is to
be deposited in the financial year itself in instalments.
Payment of advance tax in pursuance of order of Assessing officer:
The tax payer who earlier been assessed to income tax, but not paid advance tax, the AO can pass an order
for payment of advance tax, he has to specify the different instalments in which the advance tax is to be
paid. But such order is passed before the last day of February.
lower estimate by assessee: On receipt of order of AO, the assessee can make his own estimate and
calculate advance tax and pay the tax according to his own estimate and submit the estimate of income and
tax in form no .28A to the AO. But if the assessee has estimated higher income compared to AO's estimate,
then the assessee need not file any estimate and has to pay the advance tax according to his own estimate.
COMPUTATION OF TAX BY ASSESSING OFFICER:
Firstly the AO shall calculate the current year's income of the assessee. He has to calculate the assessee's
income as follows:
a. Total income of the latest previous year for which regular assessment is made, or
b. The total income returned by the assessee for any subsequent year
Whichever is more
Tax liability on the income of current year is calculated- at the rates in force for that financial year and
from that tax, TDS/TCS is deducted.
Payment of advance tax in pursuance of revised order of AO:
The order passed by the AO can be revised by him. Such revision is possible if after passing of the or-der
but before 1stMarch of the relevant financial year, the assessee has furnished a return of later year or any
assessment for later year has been completed at a higher figure. On receipt of revised order the assessee has
to pay advance tax accordingly.
But if the assessee feels that the income of the assessee is less what is computed by the AO, then he can
sent his own estimate in form No. 28A and has to pay the advance tax according to his own estimate.
But if the assessee feels that the his income is higher what is calculated by the AO, then he need not submit
estimate but pay the advance tax according to his own estimate.
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DEDUCTION AND COLLECTION OF TAX AT SOURCE

SECTIONS 190 TO 206 C )
When payment of taxable income is made by one person to another, the payer is cast upon the
following duties:
1. Get TDCAN ( Tax Deduction and Collection Account Number) in Form No. 49B
2. Deduct the tax from the payments U/s 192 to 196
3. Deposit the tax so deducted within the requisite time to Central Government
4. Payee should be issued certificate in Form No. 15 and 15A
5. File quarterly statement with Income-tax Department.
Where the payer fails in deducting the tax or after deduction deposit such taxes to the Central
Government, he is treated as an assessee in default. The payer in 'case of default is liable for:
Penalty U/s 271C, of equal amount of taxes 2. Interest U/s 201 (lA)
Section 191 stipulates that where no tax is deducted or where the income is not covered under the
provisions of the TDS, the payee has to make the payment of taxes directly, and where no tax is
deducted by the payer, otherwise tax should have been deducted, if the tax is deposited by the
payee, the payer is not enforced to make the payment as if he is assessee in default.
Applicability of SURCHARGE & CESS
Surcharge (when receipts payable exceeds 10 Crores / 1 Crores / 50 Lakhs) or Cess is applicable
when TDS is deducted either from :
 Salary payment to any person (Res / NR) OR
 from the payment to NR / Foreign Company.
A: DEDUCTION OF TAX FROM SALARY: SECTION 192:
Employer has to pre-estimate the income of the employee during the financial year, taking into
account all the exemptions and deductions allowable to the employee. Deduction under section 80-
Gis generally not allowed by the employer at the time of TDS (except donations given to Funds
and institutions where 100% or 50% deductions for donation given is allowed). Tax on this
income is to be calculated as per the rates relevant for the financial year and the average of taxis
calculated and every month while making payment of salary, the average tax is to be deducted
from the salary amount.
Employer has to deduct the tax while making payment of salary to employees at the average of
income tax. This liability is absolute, which cannot be changed even there is an agreement
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between the employer and employee for no deduction of tax.
Where the salary is received from more than one employer, the employee may furnish the details
of payment to the employer of his own choice or to the subsequent employer in Form No. 12B.
The employer to whom the Form No. 12B is submitted has to consider it while making the
payment and deduction of taxes.
RELIEF U/S 89: Relief is allowed in case of arrear of salary is received U/s 89 to Government
employees or employees of Companies, Co-operative society, Local authority, Universuv,
institution, Association or Body. Employee has to furnished detail in Form No. 10E,
No relief is available here exemption is availed by an employee u/s 10(10) from Voluntary
Retirement Compensation received.
Employees may give details of other incomes (i·nclusiveof house property loss}, which is to be
considered by the employer before TDS.
EMPLOYER TO FURNISH STATEMENT TO EMPLOYEES:
The employer has to furnish a statement of perquisites and profit in lieu of salary to employee in:
Form No. 12BA where Salary exceed Rs. 150000/-
Salary here means: As used for valuation of rent free house provided by employer to employee.
ADJUSTMENT IN TDS:
Employer can make adjustment during the year, where excess/short deduction of TDS is made.
NO INTEREST IS CHARGED U/S 20l(lA}:
No interest is charged, if exact amount is not deducted every month.
TAXABLE AMOUNT PAID FROM R.P.F:
Tax is also to be deducted from the taxable amount paid to the employees from the RPF by the
Trustees of the Fund or authorized persons,
B.DEDUCTION OF TAX FROM INTEREST ON SECURITIES: SECTION 193:
Tax is to be deducted from interest on securities, at the time of payment or credit thereof in the
account of the payee @ 10%.
EXEMPTION FROM TDS:
No tax is to be deducted from interest on securities in the following cases:

1. Where Central Government notifies for no deduction of taxes
2. Securities of Central or State Governments, except in case of 8% savings (taxable) Bonds
2006 provided interest on such bonds exceeds Rs. 10000/- during the financial year.
NO TAX IS TO BE DEDUCTED AT SOURCE:
1. Interest payable to insurance companies
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2. Interest payable on debentures by widely held companies, where interest does not exceed
Rs.2500/-
3. Interest payable by companies on securities which are in dematerialized form.
4. Where form no. 15G is furnished. But Form 15G cannot be furnished where the assessee
receives following incomes during the financial year exceeds the exemption limit even if no
tax is payable on such income:
a.Interest on securities
b.Dividend
c.Interest other than interest on securities
d.Payment received from National Savings Scheme
e.Income from units
But a Senior citizen can submit Form No. 15 H even if the income from the abovesources exceeds
the exemption limit but the tax should be Nil.
5. Any payment made to NewPension System Trust
6. Certain entities required to file return of income u/s 139(4A) or 139(4C), For no deduction of
TDS for their securities, these entities have to obtain permission from AO by applying in
Form No. 13.
7. Entities whose income is unconditionally exempt u/s 10 and are not required to file return of
income.
FOR NO TDS OR TDS AT LOWER RATE:
An assessee who wants that the interest what he is receiving should be received without TDS or
TDS at lower rate, he has to apply in Form ·No: 13 to AO and the AO will issue a certificate to
that effect if he is satisfied.
C. INTEREST OTHER THAN INTEREST ON SECURITIES: Section 194A:
Tax is to be deducted from interest at the time of payment or credit of such income to the account
of the payee whichever is earlier.
Tax is not to be deducted when the income becomes accrues but not due.
Amount deducted can be adjusted, if there is any excess or deficiency arising out of any previous
deduction or failure to deduct during the financial year.
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WHEN NO TAX IS TO BE DEDUCTED AT SOURCE:
1. Where the interest during the financial year does not exceeds Rs. 40000/- in case payment is
received from Banking Company on time deposits
2. Where the interest during the financial year does not exceeds Rs. 5000/- in cas.e of other
payments_on time deposits
Recurring deposits are not treated at time deposit; hence any interest if received on recurring
deposits is not liable to TD5.
3. Where the interest is paid to certain specified persons:
 Banking companies or Co-operative societies engaged in banking business

 Any Financial corporation ie L1C
 UTI
 Company or Co-operative Societies engaged in business of insurance
 Partner of firm, where firm pays interest to partner
 A depositor of notified schemes such as, Kisan VikasPatra, Indra Vikas Patra, N5C, PO
time depsit
 Adepositor of Banking company or Co-operative Society where time deposit is made
 before 1.7.1995.
 Interest credited to Non-resident External Account
 Interest on recurring deposits and savings bank account
 Interest on compensation awarded by MACT upto Rs. 50000/-
 Income paid or payable by Infrastructure Capital Company or Infrastructure capital fund or
public sector companies or Scheduled bank on Zero Coupon Bonds issued on or after
01.06.2008.
4. Where Form No. 15G is submitted
5. Any payment made to New Pension System Trust
6. Certain entities required to submit return of Income U/s 139(4A) or 139 (4C): If these
entities require that their income should not be subject to TDS, gets permission from the AO
in Form No. 13.
7. Entities whose income is unconditionally exempt U/s 10.
An assessee who wants that the interest what he is receiving should be received without TDSor
TDS at lower rate, he has to apply in Form No. 13 to AO and the AOwill issue a certificate to that
effect if he is satisfied.
RATE OF TDS: Rates of TDS: 10% [No surcharge, EC, SHEC J
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W.E.F 01.04.2014: Rate will be 20% in all cases, where PAN is not quoted by the Deductee
D. WINNINGS FROM LOTTERIES, CROSSWORD PUZZLE, CARD GAME etc.

SECTION 194B:
Payer has to deduct tax from winnings amount at the time of payment of such amount, where the
amount exceeds Rs. 10000/- after deduction from winnings @ 30% .
E. WINNINGS FROM HORSE RACES: SECTION 194BB:
Payer has to deduct the tax on the amount paid, where it exceeds Rs.10000 @ 30% .
F. PAYMENT TO CONTRACTOR OR SUB-CONTRACTOR: SECTION 194-C:
Payment to contractor attracts the TDS provisions. Where amount is paid or credited in the
account of the payee, TDS is to be deducted @ 1% in case of advertising contract and 1% in case
where the amount is paid by Contractor to sub-contractor, where the amount exceeds Rs. 30000/.
in case of single contract but where the amount of a contract does not exceeds Rs. 30000/- but if
the payment made during the financial year exceeds Rs.100000 in various contracts, tax is to be
deducted at source.
No tax is to be deducted under this section, where in a single contract, the amount does not exceed
Rs. 30000/- and in case where in multiple contract, the amount during the financial year does not
exceed Rs. 100000 afterwards.
TDS rates are as follows, as to advertising or other contracts or payment to sub-contractor:
(a) 1% Where payment to Individual or HUF
(b) 2% Where payment to any other entity
(c) Nil In case of transporter owns 10 or less goods carriages
The rate of TDS will be 20% in all the above cases, if PAN is not quoted by the deductee.
G. INSURANCE COMMISSION: SECTION 194D:
Amount of tax is to be deducted at the time of payment or credit thereof in the account of payee @
10% where the commission amount exceeds Rs. 15000.
An assessee who wants that the commission what he is receiving should be received without TDS or
TDS at lower rate, he has to apply in Form No. 13 to AO and the AO will issue a certificate to that
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Sec : 194DA : TDS from non-exempt payments of Rs 1,00,000 or more made under life
insurance policy including the sum allocated by way of Bonus shall be at the rate of 5% on
sum paid under a life insurance policy, which are not exempt u/s 10(10D).
Tax shall be deductible under Section 194DA at the rate of 5% only on the income component of life
insurance pay-out. The existing rate of TDS was 1% on the gross amount.
H. PAYMENT TO NON-RESIDENT SPORTMEN (INCLUDING AN ATHLETE OR AN

ENTERTAINER) OR SPORTS ASSOCIATIONS [SECTION 194E:
Any person who pays or credit the amount in the account of non-resident, non-citizen of India, at the
time of payment or credit thereof, deduct tax @ 20% + surcharge,if any + Cess. The income must
have been earned by the sportsman by way of:
a. Participation in India in any game or sports; or,

b. Advertisement, or
c. Contribution of articles relating to any game or sport in India in newspapers, magazines or
Journals.
PAYMENT IN RESPECT OF DEPOSIT UNDER NATIONAL SAVINGS SCHEME: ulS

194EE:
Tax is to be deducted @ 10% on the amount paid with interest from National Savings Schemes, but
tax should not be deducted from the amount
a. Amount does not exceed Rs. 2500/-. during the financial year
b. Payment to legal heir
c. On submission of form No. 15G
Payments on account of repurchase of units by Mutual Fund or Unit Trust of India. 194F.
The person responsible for paying to any person any amount referred to in section 80CCB(2)
shall, at the time of payment thereof, deduct income-tax thereon at the rate of 20 %.
COMMISSION ON SALE OF LOTTERY TICKETS: Sec 194G :
Tax is to be deducted @ 5% where any income by way of commission, remuneration or prize (by
whatever name called) on lottery tickets at the time of payment or credit thereof if the amount
exceeds Rs. 15000/-, where PAN is not quoted by the payee TDS will be @ 20%.
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An assessee who wants that the income what he is receiving should be received without TDS or
TDS at lower rate, he has to apply in Form No. 13 to AO and the AO will issue a certificate to
that effect if he is satisfied.
COMMISSION AND BROKERAGE: SECTION 194 H:
Any person (includes Individual or HUF depends upon their turnover ) who is responsible for
payment of any commission or brokerage to resident on or after 01.06.2004 deduct the tax at the
time of payment or credit thereof @ 5% if the amount exceeds Rs. 15000/-
An assessee who wants that the income what he is receiving should be received without TDS or
TDS at lower rate, he has to apply in Form No. 13 to AOand the AO will issue a certificate to that
RENT: SECTION 194-I:
Any person (other than Individual or HUF, who are not subject to Tax Audit u/s 44AB) who is
responsible for paying to resident in India, any income by way of the rent, amounting in
aggregate to more than Rs. 240000/- in a financial year.
Tax is to be deducted at the time of actual payment or credit thereof in the account of the payee
whichever is earlier.
Rate of tax to be deducted:
a. Rent of Plant, Machinery and Equipments 2%

b. Rent of Land, Building or Furniture to Individual/H UF or others 10%
Tax is to be deducted whether or not the above assets are owned by the payee.
WHERE NO TAX IS TO BE DEDUCTED AT SOURCE:
a. Where the .amount does not exceed Rs. 240000/-

b. Where payment made to Government
An assessee who wants that the income what he is receiving should be received without flY. or
TDS at lower rate, he has to apply in Form No. 13 to AO and the AO will issue a certificate to that
Sec 194-IA : TDS on transfer of Immovable property other than agriculture land shall beatthe
154
rate of 1%, if the value of the property is Rs 50 Lacs or more.The amount deducted shall be
deposited within 7 days from the end of the month in which deduction is made in form 26QB.
As per Section 194-IA, a buyer is required to deduct tax at source from the consideration paid to buy an
immovable property. An explanation has been inserted that ‘consideration for immovable property’ shall
include all charges paid towards club membership fee, car parking fee, electricity and water facility fees,
maintenance fee, or any other charges of similar nature, which are incidental to transfer of the immovable
property.
TDS ON PAYMENT OF RENT BY CERTAIN INDIVIDUAL / HUF [SEC. 194-IB]

Who is responsible to deduct tax: Any person, being an individual or a Hindu undivided family (other
than those referred to in sec. 194-I), responsible for paying to a resident any rent.
"Rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other
agreement or arrangement for the use of any land or building or both
When tax shall be deducted: At the time of credit of rent for the last month of the previous year (or the
last month of tenancy, if the property is vacated during the year) to the account of the payee or at the time
of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier
Rate of TDS: 5%
When TDS cannot be made: Where rent for a month or part thereof does not exceed ` 50,000
Other Points:
■ The deductor is not required to obtain Tax Deduction Account Number as required u/s 203A.
■ As per provision of sec. 206AA, if payee fails to provide his PAN, TDS is required to be deducted @
20%. However, deduction under this section shall not exceed the amount of rent payable for the last
month of the previous year (or the last month of the tenancy).
TDS ON PAYMENT UNDER JOINT DEVELOPMENT AGREEMENT [SEC. 194-IC]
Who is responsible to deduct tax: Any person, responsible for paying any consideration
referred to in sec. 45(5A) [i.e.,
Joint Development Agreement] to a resident person.
When tax shall be deducted: At the time of payment or crediting the payee, whichever is earlier.
Rate of TDS: 10%
M. FEE FOR PROFESSIONAL OR TECHNICAL SERVICES: SECTION 194 J:
Any person (other than Individual or HUF, who are not subject to Tax Audit u/s 44AB) who is.
responsible for paying to resident in India, any income by way of
(a) Fees for Professional Services

(b) Fees for Technical Services
(c) Royalty
(d) Payments referred u/s 28(va) - Sum received for not carrying out any activity or not sharing any
Know-How, Patent etc. [Non-Compete Fees)
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exceeding Rs. 30000/- (individually for each kind of service) in a financial year, tax thereon is to be
deducted @ 10% . [2% if payee is engaged only in the business of Operation of Call Centre FA 2018]
PAYMENT OF COMPENSATION ON ACQUISITION OF CERTAIN IMMOVABLE

PROPERTY: [SECTION 194LA]
Tax is to be deducted on the compensation or enhanced compensation paid on or after 1.10.2007 on

compulsory acquisition of any immovable property (except agricultural land) @ 10% [basic rate]
where compensation amount exceeds Rs. 250000/- during the financial year.
Interest from Infrastructure Debt Fund [Section 194LB] s Infrastructure

Debt Fund [Section 194LB]
Person Responsible to deduct Tax Infrastructure Debt Fund [Section 10(47)]
Payee Non-Resident not being a company or a foreign
company.
TDS Rate 5% [plus applicable surcharge and cess]
Time for Deduction of Tax At the Time of Credit or payment, whichever is earlier.
Section 194N A new Section 194N has been inserted to require deduction of tax at source at the rate of 2%
if aggregate of cash withdrawn during the financial year from any account maintained with a banking
company or cooperative bank or post office exceeds Rs. 1 crore.
A new Section 194M has been inserted to require any individual or HUF (who is not required to deduct tax
under Section 194C or 194J) to deduct tax at source from sum paid to a contractor or professional, if
aggregate payment during the year exceeds Rs. 50 lakh. The tax can be deposited under this provision
without any requirement to obtain TAN.
Section 194M : The finance bill, 2019 has introduced Section 194M, regarding tax deduction at source
from any money paid by an individual or HUF to a resident contractor when the services are
provided for personal use. Therefore, this section applies to personal as well as business related
payments.
An individual and/or Hindu undivided family (HUF) has to deduct tax at source under Section 194M. Such
individuals and HUF must not be required to get their books of accounts audited. Books of
Accounts are required to be audited if total turnover or receipts of a business exceed Rs 1 crore or
where receipts of a profession exceed Rs 50 lakh.
It applies when the total amount paid to a resident individual, for carrying out any contractual work or
providing any professional service, in a financial year exceeds Rs 50,00,000.
If they are required to get Books of Accounts audited, TDS deduction is applicable as per Section 194C and
194J. The individual and/or HUF who have to deduct TDS under Section 194C (TDS on payment to
156
a contractor) and 194J (TDS on payment on professional fees) do not have to deduct tax at source
under Section 194M.
The individual or HUFs who has to deduct tax can pay the tax to the government by quoting his or her
PAN only. Not required to get a tax deduction account number (TAN) for TDS deduction.
Payments to non-residents are not covered under this section.
TDS amount will be deducted on the earlier of the following dates:

1. At the time of credit of the amount.
2. At the time of payment by cash or by the issue of a cheque or draft.
Rate of TDS under Section 194M
TDS at 5% will be deducted under 194M if the total amount paid to a resident exceeds Rs 50,00,000 in a
particular financial year.
In case the PAN of the deductee is not available, then TDS will be deducted at 20%.
time limit on depositing TDS
a. When any payment is made by or on behalf of the government – The TDS amount will have to be paid to
the department on the day of the payment.
b. Where any payment is made by any other person apart from the government:
The TDS will have to be paid:
i. If the amount is paid in March – on or before April 30 of the next financial year. For example, if the
amount has been paid in March 2020, then the TDS will be deposited to the department by 30 April
2020.
ii. In any other month – within seven days from the end of the month in which the tax deduction is made.
For example, if the amount has been paid in the month of September 2019, then the TDS will be
deposited to the department by 7 October 2019.
Work: The expression, “work” in this section would include:

a. Advertising
b. Broadcasting and telecasting including production of programs for such broadcasting or telecasting.
c. Carriage of goods and passengers by any mode of transportation, other than railways.
d. Catering.
e. Manufacturing or supplying a product according to the requirement or specification of a customer by
using material purchased from such customer. But does not include manufacturing or supplying a
product according to the requirements or specifications of a customer by using material purchased
from a person, other than such a customer.
157
Professional services: The phrase, professional services in this section would include:
1. Professional fees
2. Fees for technical services
3. Remuneration paid to directors excluding salary (For example, sitting fees to attend board meetings)
4. Royalty
5. Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or profession for
a specified time and within certain geographical boundaries) or fees paid to not share any technical
knowledge or know-how.
Contract: This expression includes sub-contract.
Section 194N : Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a
financial year. This section will apply to all the sum of money or an aggregate of sums withdrawn
from a particular payer in a financial year. The section will apply to withdrawals made by all kind of
persons/taxpayer.
The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not a
taxpayer’s individual account. For example, a person having three bank accounts with three
different banks, he can withdraw cash of Rs 1 crore * 3 = Rs 3 crores without any TDS.
Rate of TDS under Section 194N
The payer will have to deduct TDS at the rate of 2% on the cash payments/withdrawals of more than Rs 1
crore in a financial year under Section 194N. Thus, in the above example, TDS would be on Rs
50,000 at 2% i.e. Rs 1,000.
Application under Section 195(2) and 195(7) for lower or nil deduction of tax from sum paid or payable to
non-residents person can be filed electronically.
Benefit of first proviso of Section 201(1) has been extended in case of failure to deduct tax at source from
sum paid to non-residents. Thus, a deductor shall not be deemed to be an assessee in default even if
he fails to deduct tax from sum paid to a non-resident, if such non-resident discloses such income in
his return of income and pays tax due on such income and a certificate from a Chartered Accountant
is furnished to this effect.
CERTAIN OTHER POINTS FOR CONSIDERATION:
1. Amount payable to Government/RBI/certain corporations not subject to tax deduction.

2. Tax deducted is the income of the deductee and is available for tax credit.
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TIME LIMIT FOR PAYMENT OF TDS TO GOVERNMENT:
Different situation Time limit for deposit of taxes Time limit for issue of
certificate
to the recipient
When payer is the Government Same day Form No. 15 to be issued by 31st
or when payment is made on May of the financial year
behalf of the Government immediately following the
without production of Income financial year in which tax is
tax challan deducted.
When the payer is the Within 7 days from the end of Form No. 15A shall be issued
I Government and payment is the month in which tax is within 15 days from the due
i through challan deducted date of furnishing of TDS
! returns.
Salary Form No. 240 in Form no. 240

electronic format and
form no. 27A
---_._------
Payment {other than Form No. 260 in ----
Form No. 260 ---------.---
salary) to a resident electronic format and -
Form No. 27A
Payment (other than Form No. 270 in Form no. 270 -_ ...
salary to a non-resident electronic format and
Form No. 27A
TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER: SECTION 203A:
Every person who has to deduct or collect tax, has to apply for TADCAN number apply within 30
days from the end of the month in which tax is deducted or collected in form no. 49B.After
allotment of the number, he has to quote this number:
1. In all challans for the payment of tax deducted/collected to the government

2. In all certificates of tax deducted/collected
3. In all the quarterly returns to the government
4. In all other documents pertaining to such transaction
Section 206A Electronic filing of statement of transactions on which tax has not been deducted
159
Section 206A of the Act relates to furnishing of statement in respect of payment of certain income by way
of interest to residents where no tax has been deducted at source.
At present, the section provides for filing of such statements on a floppy, diskette, magnetic tape, CD-
ROM, or any other computer readable media. To enable online filing of such statements, it is
proposed to substitute this section so as to provide for filing of statement (where tax has not been
deducted on payment of interest to residents) in prescribed form in the prescribed manner.
It is also proposed to provide for correction of such statements for rectification of any mistake or to add,
delete or update the information furnished.
It is also proposed to make a consequential amendment arising out of amendment carried out by Finance
Act, 2019 whereby threshold for TDS on payment of interest by a banking company or cooperative
society or public company was raised to forty thousand rupees.
These amendments will take effect from 1st September, 2019.
TAX COLLECTION AT SOURCE: Sec 206C:
Every Seller at the time of debiting the buyer with the amount payable or receiving payments from buyers
engaged in business of alcoholic liquor, forest produce, scrap, timber, tendu leaves, etc. shall collect tax at
the followings rates:
Alcoholic liquor for human consumption (other than Indian made foreign liquor) 1%
Tendu Leaves 5%
Timber obtained under a forest lease 2.5%
Timber obtained by mode other than under a forest lease 2.5%
Any other forest produced not being timber or tendu leaves 2.5%
Scrap 1%
Minerals, being Coal or lignite or iron ore 1%
Such tax is not to be collected if the purchase of above goods is made by buyer (Resident in India) for
the purpose of manufacturing, processing or producing articles or things or for the purposes of
generation of power.
Every person, who grants a lease or a license or enters into a contract, etc for the purpose mentioned
below shall collect tax at the following rates:
Nature of contract or license or lease, etc. TCS Rate
 Parking Lot 2%
 Toll plaza 2%
 Mining and quarrying 2%
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In case of seller of Motor Vehicles where the value exceeds Rs 1000000, the seller should collect from the
buyer a sum equal to 1% of the sale consideration as Income Tax.
DEPOSIT OF TAX: The tax so collected shall be deposited within one week from the last day
of the month in which collection is made. For non-payment or iate payment interest @1% per
month or part of the month is also chargeable.
ISSUE A CERTIFICATE:Within a period of 15 days from the due date of furnishing the return
ofIC i.e., 30 July for 1stQuarter, 30 Oct. for 2ndQuarter, 31January for 3rdquarter and 30May for
thelast quarter. The person collecting the tax should issue a certificate for tax collection to the
buver in form no. 27D.
QUARTERLY RETURN FOR TAX COLLECTION:Person collecting tax has to furnish

quarterly returns in form no. 27EQ within 15 days from the end of the quarter and upto rs'" May
for the last quarter.
In the case of Company, Central government, state government or persons whose accounts are
required to be audited under section 44AB in the preceding financial year or in case of person
having deductee 20 or more in any' quarter of the financial year, has to submit return
electronically. In rest of the cases hard copy in form no. 27EQ is to be submitted.
TAX DEDUCTION AT SOURCE & ADVANCE TAX
1. Computation of TDS on salaries : Rajkumar is employed in a company in Ahmedabad. He

would received from employer the following sums as his remuneration during financial
year 2019-20 :
Basic Salary Rs.30,000 per month
Dearness allowance 50% of Basic Salary
Bonus Rs.85,000 annually
During the financial year 2019-20 he would made following payments :
Life Insurance Premium Rs.25,000
PPF Rs.30,000
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Contribution to Recognized Provided fund Rs.20,000
Donation to National Defence Fund Rs.10,000
Compute the amount of tax deductible at source per month from the salary of Mr. Rajkumar, if
Mr Rajkumar has following other incomes, as reported to the employer company
Loss under the head House Property Rs.40,000
Winning from lottery (Gross) Rs.50,000
Loss from business Rs.10,000
Royalty income (after expenses) Rs.50,000 (TDS deducted Rs.10,000)
Sol. The tax to be deducted from salary income shall be the higher of
(a) Tax due on salary income after deducting loss from house property; or
(b) Tax due on salary income including other incomes (not loss) but excluding loss from house
property.
(A) computation of tax considering salary income and loss from house property –
Dearness allowance @ 50% of basic salary 180,000
Bonus 85,000
Less: loss from house property 40,000
Gross total income 585,000
Less: deduction u/s 80C(25000 + 30000 + 85,000

20000)+deduction u/s 80G (Rs.10,000)
Total income liable to tax deduction at source 500,000
Tax due 12500
Add: cess 500
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Tax to be deducted at source 13000
(B) Tax due on salary income including other incomes (not less) but excluding loss from house
property –
Loss from house property -40,000
Winnings from lottery 50,000
Royalty income 50,000
Gross total income 685,000
Less: deduction under sections 80C & 80G 85,000
Income on which TDS to be made 600,000
Tax due 32500
Add: Health and education cess @ 4% 1300
Total tax 33800
Less: tax deducted at source under other sections (30% on 25000

50,000 + 10,000)
Tax to be deducted at source 8800
Since, the sum of Rs.13000 is higher, the amount of Rs. 13000 will be deducted at source in the
monthly instalments of Rs.13000/12 .
2. TDS liability : Discuss the liability for tax deduction at source in the following cases :-
(1) Mr. Anand has been running a sale proprietary business whose accounts are audited under
section 44AB of Income Tax Act, 1961. He pays a monthly rent of Rs.15,000 for the office
premises to Mr R, an individual who himself has taken the same on rent. Besides, Anand
also pays service charges of Rs.10,000 per month to Mr. R towards the use of furniture,
fixtures and vacant land appurtenant thereto.
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(2) By virtue of an agreement with nationalized Bank, a catering organization (Pvt. Ltd Co.)
receives a Rs.50,000 p.m. towards supply of food, water, snacks etc. during office hours to
the employees of bank
(3) An employee of the Central Government receives arrears of salary for the earlier 3 years.
He enquires whether he is liable for deduction of tax on the entire amount during the current
year.
(4) A TV channel pays Rs.10 lakhs as prize money to the winner of a Quiz Programme.
(5) State Bank of India pays Rs.50,000 per month as rent to the central Government for a
building in which one of its branches is situated.
(6) A television company pays Rs.50,000 to a cameraman for shooting of a documentary film.
(7) State Government pays Rs.20,000 as commission to one of its agent on sale of Lottery
Tickets.
(8) A Turf Club awards a jackpot of Rs.11 lakhs to the winner of one its races.
(9) A company pays to a doctor a monthly retainer ship of Rs.1500 for attending an outpatient
clinic at its factory premises.
(10) A company pays royalty of Rs.15000 fees for professional services of Rs.18000 and fees
for technical services of Rs.20,000 to Mr. A.
(11) A company pay royalty of Rs.50,000 to Mr. B.
(12) A company pays royalty of Rs.50,000, free of tax, to Mr.C.
(13) X Ltd. Pays non competing fees to Y Ltd. Rs.10,00,000.
(14) A foreign enterprises enters into a contract for the fabrication and supply of components for
machinery with X & Co., a firm in India X & Co., in turn, subcontracts the work to Y &
Co. Ltd. Aj.1d pays it Rs.20 lacs during the financial year 2020-21.
Sol.2. The aforesaid cases have been dealt with as follows –
(1) Where the payer is an individual or HUF whose accounts are required to be audited u/s
44AB in the immediately preceding year, the payer shall be required to deduct tax at
source @ 10% u/s 194-I, if the rent exceeds Rs.1,80,000 p.a. under section 194-I rent
covers all payments made for use of building, land, furniture etc. even if payment is made
under sub-lease and such assets are not owned by payee.
Therefore in this case rent = (15,000 + 10,000) x 12 = Rs.3,00,000; and
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TDS on such rent = 3,00,000 x 10% = Rs. 30000.
(2) Any payment made in pursuance of any contract for consideration of more than Rs.30,000
in case of individual contract or Rs.100,000 in aggregate during the previous year in case
of each payee is subject to TDS under section 194C. @ 2% [payee being a Co]
The expression ‘work’ includes catering.
So, TDS (rounded off) = 12,000 i.e. [6,00,000 x 2% ].
(3) The whole sum is liable for tax deduction at source in current year. However, the employee
can claim relief u/s89 by furnishing information in prescribed form to the person liable to
deduct tax at source.
(4) TV channel is a liable to deduct tax u/s 194B@ 30% on prize money, as the amount
exceeds Rs.5,000. TDS = 10 lakh x 30% = Rs.3,00,000.
(5) Payment of rent to central or state government is not liable for TDS under section 194-I,
(6) If the cameraman is an employee of T.V. company, provisions of section 192 will apply.
but if he is a professional man, section 194-J will apply. Tax shall be deducted u/s 194-J @
10% at the time of credit of the Rs.50,000 or on its payment, whichever is earlier. TDS u/s
194-J = 50,000 x 10% = Rs.5,000.
(7) The payer shall be liable to deduct tax at source under section 194G if payment or credit to
any person stocking, distributing, purchasing or selling lottery tickets exceeds Rs.15,000.
Tax to be deducted by state government = 20,000 x 5% = Rs.1,000.
(8) Club will be liable to deduct tax under section 194BB on the amount of Rs.11 lakh, which
shall be Rs.3,30,000[11,00,000 x 30% )
(9) The amount of Rs.1,500 p.m. i.e. Rs.18,000 is fees for professional services. No tax is
required to be deducted at source, as the amount of payment doesn’t exceed Rs.30,000.
(10) Tax is required to be deducted under section 194J if the amount of payment in respect of
each kind of service exceeds Rs.30,000 during the financial year. As the payment in
respect or each kind of services doesn’t exceed Rs.3,0000 no tax is required to be deducted
at source.
(11) Tax deductible at source under section 194-J = 50,000 x 10% = Rs.5,000.
(12) In case of payment free of tax, the amount has to be grossed up. Gross payment Rs.50,000
x 100 +(100 – rate of TDS i.e. 10 = 50,000 100/90 = Rs.55,555. Tax deductible at source =
Rs.55,555 x 10% = Rs.5,555.
(13) Tax deductible at source = 10,00,000 x 10% = Rs.1,00,000.
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(14) Fabrication and supply of components for machinery amounts to works contract. Foreign
enterprise is not liable to deduct tax u/s 194C on payment made by it to X & co. however,
the firm X & CC) is liable to deduct tax at 1% on the payment made by it to the sub
contractors, Y & Co. Ltd. as per section 194C the expression “contractor” includes a
contractor who is carrying out any work in pursuance of a contract between the contractor
and a foreign enterprise.
Tax deductible at source by X & Co. = 20,00,000 x 1% = Rs.20,000.
4 TDS under section 194-J: An individual practicing as a chartered engineer is in receipts of

fees from a company, which had retained him for purposes of valuation of properties. The
total fee agreed between the parties was Rs.50,000 and, the engineer was also to be
reimbursed of all expenses incurred him to visit the various locations where properties are
situated. The engineer was paid the following amounts by the company:-
2th July 2019 - Rs.10,000 (Advance of fees)
10th July 2019 - Rs.20,000 (towards expenses incurred)
5th August 2019 - Rs.40,000 (balance of fees on completion of work)
10th August 2019 - Rs. 25,000 (in total settlement of claim for
reimbursement of expenses)
Discuss the liability of the company in regard to tax deduction at source on these payments.
Sol.4.The company is liable to deduct TDS @ 10% u/s 194J on sum paid towards fees for
professional services only if the aggregate amount of such fees exceeds Rs.30,000. As per
CBDT’s clarifications, if the amount paid towards fees includes reimbursement of expenses, TDS
shall be on the gross amount.
Thus, total fees = Rs.10,000 + 20000 + 40,000 + 25000 = Rs.95,000, on which TDS = 95,000 x
10% = Rs.9,500.
5. TDS liability and due dates : XYZ Co. Ltd. engages a contractor ABC Contractors Ltd.
and makes following payments/credits for the sums payable to ABC Contractors Ltd.
(a) Rs.15,00,000 paid ill advance on 1.5.2019;
(b) Rs.10,00,000 paid in part payment on 31.7.2019;
(c) Rs.55,00,000 paid in part payment on 15.10.2019;
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(d) Rs.25,00,000 paid in part payment on 31.12.2019; and
(e) Rs.20,00,000 credited to the account of ABC Contractors Ltd. on 31.3.2019.
You are informed that XYZ Co. Ltd. prepares its final accounts as on 31.3.2019. You are
required to :
(i) Compute the TDS liability in respect of each payment/credit; and
(ii) Mention the due date by which the said TDS liability should be met by XYZ Co. ltd.
Sol.5. The solution is as follows -
Payment Amount Date of TDS deductible Due date of

payment/cr paymen
/credit edit t of
TDS
(a) Payment 15,00,000 1-5-2019 15,00,000 x 2.% = 7-6-2019

Rs. 30,000
(b) Payment 10,00,000 31-7-2019 10,00,000 x 2.% = 7-8-2019

Rs.20,000
(c) Payment 55,00,000 15-10-2019 55,00,000 x 2.0% 7-11-2019

= Rs.1,10,000
(d) Payment 25,00,000 31-10-2019 25,00,000x2.%- 7-11-2019

50000
(e) Credit 20,00,000 31-3-2019 20,00,000 x 2.% = 31-5-2019

Rs.40000
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INTEREST UNDER SECTIONS 234A/234B/234C

Interest for defaults in furnishing return of income [Section 234A] :
(i) When interest payable : Interest under section 234A is payable in case of failure on part
of the assessee to file a return of income on or before the due date mentioned in Section
139(1) or in response to a notice under section 142.
(ii) Rate of Interest : Simple interest @ 1% per month or part of a month.
(iii) Period for which interest is payable : The period commencing on the date immediately
following the due date and ending on the following dates-
Circumstances Ending on the following dates
Where the return is furnished after due date The date of furnishing of the return
Where no return is furnished The date of completion of assessment
(iv) Amount on which interest is calculated : Amount of the tax on the total income, as
reduced by the amount of –
 advance tax paid , if any,
 any tax deducted or collected at source;
Que1 - Interest u/s 234A : The due date for filing the return of income for the assessment year 2019-19
was 30-9-2019 for Mr. X. However, he did not file his return , hence the Assessing Officer issued a
notice to him under section 148 on 18-8-2020 requiring him to furnish his return of income by 20-
10-2020. In response to such notice, Mr. X furnished the return on 17-12-2020. The assessment was
completed on 31-3-2021 and tax liability was ascertained at Rs.1,50,000 (without giving credit of
advance tax or TDS).
Mr. X had paid advance tax of Rs.20,000; TDS of Rs.10,000; Determine his interest liability under
section 234A.
Solution : Period for which interest is to be paid - 1-10-2019 to 17-12-2020 = 15 months.

Amount on which interest payable = Rs.1,50,000 - Rs.20,000 - Rs.10,000 = Rs.1,20,000.
Rate of interest = 1% p.m. or part thereof.
Therefore, interest payable under section 234A = Rs.1,20,000 x 1% x 15 months = Rs.18,000.
Interest for defaults in payment of advance tax [Section 234B] : Interest on regular assessment
[Section 234B(1)] :
(i) When interest payable : Where, in any financial year, an assessee who is liable to pay
advance tax under section 208 has failed to pay such tax or, where the advance tax paid by
such assessee is less than 90% of the assessed tax.
(ii) Rate of Interest : Simple interest @ 1% per month or part of a month.
(iii) Period for which interest is payable: The period commencing from the 1st April next
following such financial year and ending on the date of completion of assessment under
section 143(1) or regular assessment.
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(iv) Amount on which interest is calculated : [Assessed tax - Advance tax paid] .
"Assessed tax" means the tax on the total income as reduced by the amount of –
 any tax deducted or collected at source;
 any relief of tax allowed under section 90 on account of tax paid in a country outside India;
Rounding off : As per Rule 119A, the amount in respect of which interest is to be calculated shall
be rounded off to the nearest multiple of Rs.100 and for this purpose, any fraction of Rs.100 shall
be ignored.
Que 2 Interest Ws 234B : X ltd paid a sum of Rs.15 lakhs as salary to Mr. X for which no tax was
deducted at source by the Company. Mr. X filed his return of income and paid the tax due by way of
self assessment one week before the last date of filing ITR. Assessing Officer (AO) issued notice to
Mr. X demanding interest under Section 234B as no advance tax was paid by him. Your opinion is
sought on the following aspects
(1) Is the action of AO valid ? if yes, work out the amount of interest/s 234 B
(2) If not, is there any other means available to AO to recover the interest ?
Solution :
(1) (a) Interest liability under section 234B is attracted only if an assessee, who is liable to pay
advance tax under section 208, has failed to pay such advance tax or the tax paid by him is
less than 90% of the assessed tax:
(b) Section 208 provides that an assessee shall be liable to pay advance tax in case the tax
payable by him for the previous year is equal to or more than Rs.10,000. Further, as per
Section 209, in case the payer has failed to deduct tax at source, then, the amount of tax so
deductible shall not be reduced from the income-tax liability of the resident payee for
determining his liability to pay advance tax.
Therefore, Mr. X would be liable to pay advance tax if the tax deductible was not deducted at
source, in which case the interest under section 234B for default in payment of advance tax would
also be attracted.
Interest u/s 234 B : 273000 x 1% x 4 months = 10920
Tax on 15 lac + cess @4% = 273000
(2) Further, the Assessing Officer can recover interest under section 201(1A) from the deductor for
failure to deduct tax at source. Therefore, in this case, interest is leviable @ 1% per month or part
thereof till such tax is actually paid by way of self-assessment tax by the employee.
Interest for deferment of advance tax [Section 234C] : If an assessee fails to pay any instalment of
advance tax or makes late payment of any instalment of advance tax, then he is liable to pay interest
under section 234C as under –
(1) In case of company assessee : The interest shall be the aggregate of the following-
Conditions Rate Months Amount on which interest payable
Where advance tax paid on or before 1% p.m. 3 15% of the tax due on returned
15th June is less than 12% of income less advance tax paid
tax due on returned income upto 15th June
169
15th September is less than income less advance tax paid

36% of tax due on returned upto 15th September
income
15th December is less than income less advance tax paid
75% of tax due on returned upto 15th December
income
Where advance tax paid on or before 1% p.m. 1 100% of tax due on returned income
15th March is less than 100% less advance tax paid upto
of tax due on returned income 15th March
(2) In case of other assessee : The interest shall be the aggregate of the following-
Conditions Rate Months Amount on which interest payable
15th September is less than income less advance tax paid
30% of tax due on returned upto 15th September
income
15th December is less than income less advance tax paid
60% of tax due on returned upto 15th December
income.
Where advance tax paid on or before 1% p.m. 1 100% of tax due on returned income
15th March is less than 100% less advance tax paid upto
of tax due on returned income 15th March
Other points :
(1) Tax due on returned income means tax chargeable on the total income declared in the return of
income furnished by the assessee as reduced by –
(i) any tax deductible or collectible at source;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory
outside India referred to in that section;
(iv) any deduction, from the income-tax payable, allowed under section 91, on account of tax
paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of Section 115JAA or
Section 115JD.
(2) Rounding off : As per Rule 119A, the amount in respect of which interest is to be calculated shall
be rounded off to the nearest multiple of 100 and for this purpose, any fraction of 100 shall be
ignored.
(3) In case shortfall in payment of advance tax is on account of capital gains or other casual
incomes : In case shortfall in payment of tax due on returned income is on account of under
estimate or failure to estimate –
(i) the amount of capital gains; or
(ii) casual incomes like income from horse race, etc., no interest shall be leviable under section
234C if the assessee pays whole of the tax due on such incomes in the remaining
170
instalments which are due or where no such instalments are due, by 31st March of the
financial year.
Que 3 Interest u/s 234A, 234B & 234C : The following particulars are furnished by Mr X for the financial
year 2020-20 :
Tax on total income (paid on 30.9.2020) Rs.100,000

Due date for filing the return Rs.30.9.2020
Actual date of filing the return 1.10.2020
Calculate the total interest payable under section 234A, 234B & 234C.
Sol.3. Computation of interest payable by Mr X (amounts in Rs.)
Interest under section 234A for one month 1,500

i.e. October (1,50,000 x 1%)
Interest under section 234B for 6 month i.e. 9,000

1-4 to 30-09(1,50,000 x 1% x 6)
Interest under section 234C as follows- 450
15% of 100000 ie 15000x1%x3
45% of 1,00,000 i.e. 45,000 x 1% x 3 months 1,350

(15th Sep. to 15th dec.)
75% if 1,00,000 i.e. 75,000 x 1% x 3 months 2,250

(15th dec. to 15th march)
100% of 1,00,000 x 1% x 1 month (15th 1,000 5,050

march to 31st march)
Total interest payable 15,550
Que 4. Interest u/s 2234A, 234B & 234C : The following particulars are furnished by Ms Madhu for the
financial year 2019-18:
Tax on total income (Paid on 31/7/19) Rs.50,000

Date of filing the return 1-8-2020
Due date for filing the return 31-7-2020
Compute the total interest payable under section 234A, 234B & 234C of the Income tax Act, 1961.
171
Sol.4. The total interest payable by Ms. Madhu under section 234 is computed as under:
Interest for- Calculation Amount (Rs.)
Delay in filing under section 234A 50,000 x 1% 500
Default in payment of advance tax 50,000 x 1% x 4 months 2,000

u/s 234B
Deferment of advance tax u/s 234C: 15% of 50000 x 1% x 3 225

45% of 50,000 x 1% x 3
675
months
75% of 50,000 x 1% x 3 months 1125
100% of 50,000 x 1% x 1 month 500
Total interest payable 5025
172
Assessment of Trust
Trusts are broadly categorised in Public Trusts and Private Trusts
Public Trusts for CHARITABLE PURPOSE
Charitable purpose [Section 2(15)] “Charitable purpose” includes —

a) relief of the poor,
b) education,
c) medical relief,
d) preservation of environment (including watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic interest, and
e) the advancement of any other object of general public utility.
The advancement of any other object of general public utility shall not be a charitable purpose, if –
 it involves the carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce or business
 for a cess or fee or any other consideration;
 irrespective of the nature of use or application, or retention, of the income from such activity;
 if the aggregate value of the receipts from the activities referred to above exceeds 20 % of its
Total Receipts. lakhs in the previous year.
 Thus, the advancement of any other object of general public utility shall be regarded as
charitable purpose even if ,. It involves carrying on of trade/commerce/business for a cess or
fee or any other consideration, if the gross receipts thereof does not exceed 20 % of its Total
Receipts.
 The expression “public” includes even a “section of public” as distinguished from an
individual or group of individuals.
PUBLIC TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES

A charitable trust can avail the benefits under section 11 & 12 of the Act if it satisfies the following
conditions —
(1) The trust has been granted registration by the Principal Commissioner or Commissioner of Income-
Tax under section 12AA of the Income-tax Act, 1961 on an application in the prescribed form.
(2) The property from which income is derived should be held under a trust or other legal obligation.
(3) The property should be held for charitable purposes.
(4) In the case of a charitable trust created on or after 01-04-1962, the further conditions are:
a) the trust should not be created for the benefit of a particular religious community or caste;
b) no part of the income should enure, directly or indirectly, for the benefit of the settlor or other
specified persons; and
c) the property should be held wholly for charitable purposes.
(The conditions mentioned in (b) & (c) above would also apply to religious trusts created on or
after 01-4-1962).
(5) Where the total income of the trust without giving effect to Sections 11 & 12 exceeds the maximum
amount which is not chargeable to income tax in any previous year, then the accounts of the trust
173
have to be audited and an audit report in the prescribed form must be filed along with the return of
income.
(6) At least 85% of the income is required to be applied for achieving the objects of the trust
institution.
(7) 15% of the income, which can be accumulated or set apart, should be preferably invested or
deposited in the forms or modes specified in Section 11(5).
Section 12AA Cancellation of registration of the Trust or Institution

Section 12AA of the Act prescribes for manner of grating registration in case of trust or institution for the
purpose of availing exemption in respect of its income under section 11 of the Act, subject to
conditions contained under sections 11, 12, 12AA and 13. Section 12AA also provides for manner
of cancellation of said registration. This section provides that cancellation of registration can be on
two grounds:-
(a) the Principal Commissioner or the Commissioner is satisfied that activities of the exempt entity are not
genuine or are not being carried out in accordance with its objects; and
(b) it is noticed that the activities of the exempt entity are being carried out in a manner that either whole or
any part of its income would cease to be exempt.
In order to ensure that the trust or institution do not deviate from their objects, it is proposed to amend
section 12AA of the Income-tax Act, so as to provide that,-
(i) at the time of granting the registration to a trust or institution, the Principal Commissioner or the
Commissioner shall, inter alia, also satisfy himself about the compliance of the trust or institution to
requirements of any other law which is material for the purpose of achieving its objects;
(ii) where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has
obtained registration at any time under section 12A and subsequently it is noticed that the trust or
institution has violated requirements of any other law which was material for the purpose of
achieving its objects, and the order, direction or decree, by whatever name called, holding that such
violation has occurred, has either not been disputed or has attained finality, the Principal
Commissioner or Commissioner may, by an order in writing, cancel the registration of such trust or
institution after affording a reasonable opportunity of being heard.
These amendments shall be effective from 1st September, 2019.
Section 12AA has been amended to provide that at the time of granting of registration to a trust or
institution the Pr. CIT or CIT shall also satisfy himself that the applicant trust or institution also
satisfy the requirements of any other law which is material for the purpose of achieving its objects.
174
The Pr. CIT or CIT has been empowered to cancel the registration under Section 12AA, if after granting
registration it has been noticed that the trust or institution has violated requirements of any other law
which was material for the purpose of achieving its objects.
Applicability of Section 40A(3), 40A(3A) and Section 40(a)(ia) in case of Trusts
 Income of a religious and charitable trust registered under the Act is taxable under the
head “Other Sources”.
 Now, Finance Bill, 2019 has made an amendment in order to provide that provisions of
Section 40A(3), 40A(3A) and 40(a)(ia) shall also apply to religious or charitable trusts.
 Accordingly, no deduction is allowable for any expenditure:
 Exceeding INR 10,000 made to a person in a day by cash mode; or
 Payment of Outstanding Balance exceeding INR 10,000 to a person in a day by cash
mode;
 30% of the amount of expense will be disallowed in case such trust do not deduct any
TDS on payments being made to residents.
 The same applies to trusts governed by Section 10(23C) and Section 11 & 12 of the Act.
Section 11 of the Income-tax Act, 1961, the income of a charitable or religious trust is exempt as
under—
(1) Income derived from Property held under trust wholly for charitable or religious purposes: As per
Section 11(1) (a), income derived from property held under trust wholly for charitable or religious
purposes shall be exempt from tax to the extent such income is applied to charitable or religious
purposes in India. However, trust is allowed to accumulate 15% of its income for future application
and such accumulation shall be treated as application ‘of income.
(2) income from property held under trust for a charitable purpose of promoting international welfare ,in
which India is interested shall be exempt to the extent income is applied to such charitable or
religious purposes outside India. Such exemption shall be available only if the Board has directed, by
general or special order, for such exemption.
(3) Corpus donations: As per Section 11(1)(d), voluntary contributions made with a specific direction
that they shall form part of corpus of trust/institution (corpus donations) shall be unconditionally
exempt.
Notes:
(i) Voluntary contributions: As per Section 12(1), any voluntary contributions (not being
contributions made with a specific direction that they shall form part of the corpus of the trust)
received by a trust created wholly for charitable or religious purpose(s), shall be deemed to be
income of the trust.
(ii) Value of services : As per section 12(2), the value of any services, being medical or educational
service, provided to any specified person referred under section 13(3) except section 13(3)(e) by
the charitable or religious trust running a hospital or medical institution or an educational
institution, shall be deemed to be the income of the trust during the previous year in which such
services are provided and shall be chargeable to income-tax accordingly.
(4) Deferment of application of income [Explanation 2 to Section 11(1)] : When due to certain
reasons, application of income is below 85% of its income, then the trust has an option to apply for
175
deferment of application of income by making an application in writing before the due date of filing
of return u/s 139(1).
Reasons, Deferment Period and effect of non application of income within the deferred period:
Effect when income is not applied within
Reasons Deferred period
the deferred period
The whole or any
It shall be treated as income of the year
part of The previous year in which
following the previous year in which
income has such income is actually
such income is actually received. It
not been received and the
must be noted that only that part of
received previous year
income which is not spent shall be
during that subsequent to such year
taxable.
year
Subsequent to the previous it shall be treated as income of the year

Any other reason year in which such following the previous yearin which
income is derived such income s derived.
Income for the purposes of application shall be determined without any deduction or allowance by
way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an
application of income under these sections in the same or any other previous year - -
Trusts or institution are not entitled for benefit of exemption under Section 10 other than agricultural
income:
The exemption under section 11 is available only if the income derived from property held under trust is
‘applied’ to the charitable or religious purposes: The application of income is discussed below —
(1) The ‘word applied need not necessarily imply spent. Even if an amount is irretrievably earmarked
and allocated far the charitable or religious purpose(s); it may be deemed to have been applied for its
purposes.
(2) The application of income may be revenue or capital in nature. eg
(i) Purchases of capital asset for charitable purpose. - S.R.M.M.CT.M. Tiruppani Trust v. CIT (SC)
(ii) Repayment of loan taken for construction of a building by the assessee for the purpose of
augmenting its funds. - CIT v. Janainbhurni Press Trust
Where in an earlier year, the application of income exceeds the income of the charitable trust and the
assessee ends up with a deficit, it can be brought forward to the subsequent years for set off against the
income of the subsequent year. - CIT v. 1BPS (20031131 Taxman 386 (Born.)
Tax treatment of capital gains arising on transfer of capital asset which is the property held under
trust wholly for charitable or religious purposes.
In case a capital asset, being property held under trust wholly for charitable or religious purposes, is
transferred and net consideration is utifised for acquiring another capital asset to be held for such purposes,
then, the capital gains shall be exempt as under —
Property transferred Amount utilized Exemption
Capital asset being property Whole of the net consideration Entire capital gains.
176
held Only a part of the net sale Amount so utilised - cost of

under trust for charitable consideration acquisition and cost of
purpose improvement of the
transferred asset.
Note: Net consideration means full value of consideration for such transfer less expenditure incurred for
the transfer.
Example - Exemption of capital gains u/s 11(M): Work out, from the following particulars, the
amount of capital gain which shall be deemed to have been applied for charitable or religious
purpose arising out of sale of a capital asset utilized for the purposes of trust to the extent of
60%:
Amount(’RS)
Cost of transferred asset 2,40,000
Sale consideration 3,60,000
Cost of new asset purchased 3,00,000
Solution:
Full value of consideration 3,60,000
Cost of acquisition of asset transferred 2,40,000
Capital gains 1,20,000
Less: Exemption u/s l1(IA) to the extent of 60% of the lower of the following i.e. (a)
Entire capital gains ( 1,20,000); or (b) [Cost of new capital asset ( 3,00,000) Less 36,000
Cost of asset transferred ( 2,40,000)] = 60% of 60,000.
Taxable Capital Gains 84,000
[Section 11(2)1: Where, during a previous year, the income applied for charitable or religious purposes
and the income deemed to have been applied for charitable or religious purposes under Explanation to
Section 11(1), falls short of 85% of the income derived from property held under trust, then, the trust may
accumulate or set apart such income for application to charitable or religious purposes.
(1) Conditions for accumulation: The income so accumulated or set apart shall be exempt only if,-
a) Notice to the Assessing Officer : The trust must furnish a notice in Form 10 to the Assessing
Officer in writing, specifying the purpose(s) for which income is being accumulated.
b) Period of accumulation : The maximum period for which such income can be accumulated or
set apart is 5 years (excluding the period during which income could not be applied due to
injunction or order of court).
 Investment of accumulated income: Amount so set aside or accumulated must be invested
or deposited in the forms and modes specified in Section 11(5).
177
Misapplication of income accumulated under section 11(2) [Section 11(3)]: Any amount of income
accumulated or set apart under section 11(2), which —
a) is applied to purposes other than charitable or religious purposes; or ceases to be accumulated or
set apart- for application to charitable or religious purposes or
b) ceases to remain invested in modes specified in Section 11(5); or
c) is not utilised for the purpose for which it is so accumulated or set apart within the period
specified by assessee in the application u/s 11(2) or in the year immediately following the expiry
of such period; or
d) is paid or credited to any trust or institution registered under section 12AA or to any fund or
institution or trust or any university or other educational institution or any hospital or other
medical institution referred’ under section 1O(23C)(iv)/(v)/(vi)/ (via),
shall be deemed to be the income of trust for the previous year in which any of the above event
takes place.
Exemption in respect of’ business income of a trust [Section 11(4) & 1i(4A)] . The relevant -provisions are
discussed as under-
(1) Business undertaking held under trust - Exemption only upto income computed as per Act:
Business under taking held under trust is ‘regarded as “property held under trust”. in case exemption
is claimed in respect of income of such undertaking, the Assessing officer may compute the income,
thereof as per provisions of the Act relating to assessment.
If the income computed ‘by the Assessing Officer exceeds the income shown in the accounts of. the
undertaking, the excess ‘will not be exempt and will’ be taxed accordingly.
(2) Conditions for exemption: Business income, as aforesaid, earned by a trust is exempt only if –
a) the business carried on is incidental to the attainment of the objects of the trust/institution;
and
(i) separate books of accounts are maintained in respect of such business.
if the aforesaid conditions are not satisfied, the trust would not lose complete exemption, but only the
business income will not be exempt and will be taxed accordingly.
Illustration Computation of total income of a trust: A registered public charitable trust derived gross
income of 16 Iakhs, which consists of the following (RS in lakhs):
Income from properties held by trust (net) 5
Income (computed) from business undertaking held under trust (incidental to main objects) 4
Voluntary contributions from public 7
The trust applied 11.60 lakhs towards charitable purposes during the year, which includes repayment of
loan taken for construction of orphan home 3.60 Iakhs.
Compute taxable income of the trust.
Solution: Computation of taxable income of the trust (amount in RS) -
Income from properties held by trust (net) 5,00,000
Income (computed) from business (incidental to main objects) 4,00,000
Voluntary contributions from public 7,00,000
Income from property held under trust 16,00,000
Less: 15% set apart under section 11(1)(a) for future application 2,40,000
Balance Income 13,60,000
178
Less: Income applied by the trust towards charitable purposes [WN) 11,60,000
Taxable income of the trust 2,00,000
Working Note: The amount of 3.60 lakhs used for repayment of loan taken for construction of orphan
home is to be treated as application of income.
Forfeiture of exemption [Section 13]: Nothing contained in Section 11 or Section 12 shall operate in
respect of,—
(1) Income for private religious purposes [Section 13(1)(a)]: Any part of the income from the property
held under a trust for private religious purposes which does not enure for the benefit of the public.
(2) Income for the benefit of particular religious community [Section 13(1)(b)1: Any income of a
charitable trust or institution created for the benefit of any particular religious community or caste.
Note: A trust or institution created or established for the benefit of scheduled castes, backward
classes, scheduled tribes or women and children shall not be deemed to be a trust or institution
created or established for the benefit of a religious community or caste.
(3) Income applied for benefit of specified persons [Section 13(1)(c)]: Any income of a charitable or
religious trust/ institution, if-
(i) under the terms of trust or the rules governing the institution, any part of such income enures,
or
(ii) any part of such income or any property of the trust/institution is, during the previous year,
used or applied, directly or indirectly for the benefit of any specified person referred to in
Section 13(3).
(4) Value of educational or medical facilities [Section 13(6)] : Value of any benefit or facility, being
medical or educational services, granted or provided free of cost or at concessional rate by any
charitable/religious trust running a hospital/medical institution or an educational institution, to any
specified person referred under section 13(3) except Section 13(3)(e).
The value of such services shall be deemed to be income of the trust not exempt under section 11(1)
during the previous year in which such services are so provided and shall be chargeable to income
tax.
(5) Anonymous donations [Section 13(7)] : Any anonymous donations on which tax is payable under
section II5BBC.
(6) Income of charitable institution formed with object of general public utility [Section 13(8)]: A
charitable trust or institution pursuing advancement of object of general public shall not be entitled
exemptions during the previous year, if the aggregate value of the receipts from activities in the
nature of trade, commerce or business exceeds 20 % in the previous year.
Tax on anonymous donations [Section 115BBC]:
(1) Meaning of Anonymous Donation :Anonymous donation means any voluntary contribution
received by any of the specified trusts/institutions, where the recipient does not maintain a record
of identity indicating the name and address of the person making such contribution and other
prescribed particulars.
(2) Applicability: This section applies to the anonymous donations received by the following entities
a) Charitable or religious trusts or institutions referred to in section 11;
b) Any university or other educational institution or hospital or other medical institution (not
being wholly or substantially financed by the Government) referred to in section 10(23C);
c) Any other fund or institution established for charitable purposes and notified u/s 10(23C); or
179
d) Any trust/institution wholly for public religious or for public religious and charitable
purposes, and notified
u/s 10(23C).
(3) Taxability: The tax on anonymous donations shall be calculated as under - Amount
Aggregate of anonymous donations received Xxx
Less : Higher of the two
(i) 5% of the total donations received by the assessee; or
(ii) RS 1,00,000 xxx
Taxable Anonymous Donations
Tax on taxable anonymous donations @ 30% (without giving basic exemption
limit)
Tax on balance total income (Total income — taxable anonymous donations) at xxx
applicable rates. xxx
Aggregate tax payable on Total Income xxx
xxx
Taxability of public charitable or religious trust.

Circumstances Consequences
If income not exempt under section 11

Such income is taxable as an AOP (Slab rates).
If exemption is forfeited due to contravention
Such income is taxable at maximum marginal
under
rate.
section 13(1)(c) or 13(1)(d)
Illustration — Computation of tax liability of trust: A charitable trust registered under section 11 received
donations of 25 lakhs during the previous year 2019-20 which includes anonymous donations
amounting to 5,00,000. Compute the tax liability of the trust.
Solution : Computation of the tax liability of the charitable trust (amount in – RS)
5,00,000
Aggregate anonymous donations received (Total income) [WN]
Less : Higher of the two —
(i) 5% of the total donations received by the assessee i.e. 5% of 25 lakhs 1,25,000
(ii) 1,00,000
1,25,000
Taxable anonymous donations 3,75,000
Tax @ 31.2% on anonymous donations (rounded off) 1,17,000
Working Note: Donations received by charitable trust, except anonymous donations, are exempt from tax,
hence the anonymous donations shall form part of the total income.
180
Illustration — Computation of Total income & Tax liability: Anshu Memorial Trust running hospitals is
registered under section 12A. Following particulars relevant for the previous year ended 31’ March,
2020 are furnished to enable you to compute tax liability of the trust.
(i) Income from running of hospitals 18 lacs.
(ii) Dividend received from shares of Indian company 2 lac.
(iii) Agricultural Income in India 5 lacs
(iv) Donation received (including anonymous donation 3 lacs) 12 lacs.
(v) Amount applied for the purposes of hospital 13 lacs which includes capital expenditure for purchase
of medical equipments 2 lacs
Compute the taxable income of the trust and tax payable by Anshu Memorial Trust for A.Y. 2020-21.
Solution : Computation of total income and tax payable by Anshu Memorial Trust (amounts in RS
):
Income from running hospitals 18,00,000
Dividend from shares of Indian company [WN -1] 2,00,000
Agricultural Income in India [WN -1] Exempt
Donations other than anonymous donations 9,00,000
Anonymous donations which are not taxable under Section 1,00,000 30,00,000
115BBC [WN -2] 4,50,000
Less: 15% of income of 30 lakhs accumulated or set apart u/s 13,00,000
11(1)(a) 12,50,000
Less: Actual application of income
Total Income of Trust 3,00,000
Tax on Anonymous donation (section II5BBC) : Anonymous
donations received Less: Higher of the following two –
(a) 5% of the total donations received by the assessee i.e. 5% 60,000
of 12 Iakhs 1,00,000 1,00,000
(b) 1,00,000
30,00,000
4,50,000
13,00,000
12,50,000
3,00,000
1,00,000
181
Taxable anonymous donations on which tax @ 30% is to be

2,00,000
imposed
Tax on taxable anonymous donations @ 30% [A] 60,000
Tax on balance income i.e. 12,50,000 at normal slab rates of tax [B] 2,00,000
Total Tax [A + B] 2,60,000
Add: cess @4% 10,400
PRIVATE TRUST
Representative assessee in case of trust
in the case of certain assessee the assessment may be made on some other person as a representative assessee
according to section 160,”representative assessee” with reference to the following persons mean-
Persons Representative assessee
A trust declare by a duly executed instrument in Trustee
writing Trustee
oral trust.
The provisions relating to the oral trust are as under –

1) Oral Trust: ‘Oral trust’ means a trust which is not declared by a duly executed instrument in writing
including any trust which is also not deemed under section 160 to be a trust declared by a duly
executed instrument in writing.
2) Taxability of oral trust: According to the provisions of Section 164A of the Income-tax Act, where
a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under
an oral trust then, notwithstanding anything contained in any other provision of this Act, tax shall be
charged on such income at the maximum marginal rate.
The taxability of private trust is governed by provisions of Sections 161 and 164(1) of the Income-tax Act,
1961. The s.3me are as under —
(1) Shares of beneficiaries are determinate or known [Section 161]:

Circumstances Consequences
The trustee is assessable at the rates applicable to each
Income does not include business profits
beneficiary.
Income includes profits from business
The whole income is taxable at maximum marginal rate.
(See note)
Note: If such profits from business are receivable under a trust declared by any person by “will”
exclusively for benefit of any relative, dependent on him for support and maintenance and such trust
is the only trust so declared by him, then, the trustees shall be assessable at the rates applicable to
each beneficiary.
(2) Shares of beneficiaries are indeterminate or unknown [Section 164(1)]:
Circumstances Consequences Consequences
Income does not business profits (a) Income is taxable at the rates applicable to an
182
AOP (slab rate), if –

(i) none of the beneficiaries has taxable income
exceeding maximum amount not chargeable to
tax or none of the beneficiaries is a beneficiary
in any other trust; or
(ii) the income is receivable under a trust declared
by any person by wifi and such trust is the only
trust so declared by him; or
(iii) the income is receivable by trustees on behalf of
a employee-welfare fund created by the
employer carrying on business or profession for
the benefit of his employees,
(b) In any other case, income is taxable at maximum
marginal rate.
Income includes business profits (See note) The whole income is taxable at maximum marginal
rate
-0-0-0-0-0-0-0-0-
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Tax by CMA Rajesh Kumar

CMA Rajesh Kumar Tax Classes

Direct Taxation [Part 2]

CMA RAJESH KUMAR

INDEX FOR THE CURRENT PART

Deductions from GTI 5

Computation of Individual's Total Income (Assessment of Individual) 40

AOP and BOI 89

Return of Income 128

Assessment procedure 146

Advance tax 152

Deduction and collection of Tax at source, Interest 154

DEDUCTIONS FROM GROSS TOTAL INCOME

 No ded. Under chapter VI A shall be available from :

 Casual incomes u/s 115BB e.g. lottery etc

 LTCG u/s 112, 112A

 STCG on which STT is paid u/s 111A

 Deduction under chapter VI A cannot exceed GTI

Ded. u/s 80 C : applicable to Individual and HUF

2. Any payment by Individual/HUF for purchase .or construction of residential house

 Instalment under self-financing scheme

 Re payment of principal amount of loan borrowed for residential house

4. Subscription in the bonds of NABARD

10. Investment in infrastructure Bonds or securities.

11. Sukanya smridhi Account Scheme.

DEDUCTION : MAX. RS 1.50 LACS.

Deduction under section 80CCC: Deduction in respect of contribution to annuity pension

Ded : Min. of : 50% of amount invested in equity shares or Rs 25000

GTI of the assesse should not exceed Rs 12 Lacs

DEDUCTION UNDER SECTION 80-D:

dependent children of the assessee) and

DEDUCTION UNDER SECTION 80DD:

 This deduction is available to Resident Individual/HUF in respect of maintenance including

DEDUCTION UNDER SECTION 80DDB:

 This deduction is allowed to resident individual/HUF,

DEDUCTION UNDER SECTION 80-E:

DEDUCTION UNDER SECTION 80-G:

 Donation above 10000 shall be in a mode other than cash.

DEDUCTION UNDER SECTION 80-GG: This deduction is available to an individual being

 Rs. 5000 p.m.

 Rent paid minus 10% of adjusted total income

 25% of the adjusted total income

DEDUCTION IN RESPECT OF CERTAIN DONATIONS TO SCIENTIFIC RESEARCH

 Scientific research associations or research associations or to an approved university, college

 Approved associations, institutions having object of undertaking of any Programme of rural

 Public sector company local authority or an association or institution approved by National

 National fund for rural development

 National Urban Poverty Eradication Fund.

[ Donation above 10000 shall be in a mode other than cash].

DEDUCTION IN RESPECT OF DONATIONS TO POLITICAL PARTIES OR

1. Undertaking engaged in infrastructure facility

2. Undertaking engaged in power generation, transmission and distribution or substantial

UNDERTAKING ENGAGED IN INFRASTRUCTURE FACILITY: An Indian Company is

1. It should provide infrastructure facility

2. There should be an agreement of company with the Government (central/state or local

3. It starts operation on or after 1.4.1995

4. Deduction to be claimed in the return of income, which is filed in time.

DEDUCTION ALLOWED:100% of profit 10 consecutive years out of 15 years starting from

UNDERTAKING ENGAGED IN POWER GENERATION AND DISTRIBUTION:

In order to get a deduction, these undertakings must fulfill certain conditions:

1. It should be new undertaking

2. It is setup in any part of India

3. It should not be formed by transferring old plant and machinery