Income Tax Law and Practice, Code-301 - BBA (G.) & BBA (B & I) - Sem. V

INCOME TAX LAW AND PRACTICE
BBA- 301
NOTES
Submitted by:
Dr. Anita Sharma
Dr. Rajeev Dahiya
Dr. Asha Chaudhary
Ms. Pooja Dabas
Mr. Paramveer Singh
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INDEX
CONTEN
TS
Unit No. Page
Unit Name Number
I INTRODUCTION TO INCOME TAX ACT 1961 4-48
Lesson1:Introduction of Taxation system in India
Lesson2:Residential Status
Lesson3:Income Exempt from Tax as per Section 10
Lesson4: Agricultural income and tax
QUESTIONS
II HEADS OF INCOME 49-170
Lesson1:Salary
Lesson2:House Property
Lesson3: Business or Profession
Lesson4: Capital Gains
Lesson5:Other Sources
QUESTIONS
III DEDUCTIONS u/s 80C to 80U 171-217

Lesson1:Clubbing of Incomes
Lesson2:Set Off and carry forward of losses
QUESTIONS
IV Deduction of Tax at Source 218-264

Lesson1:Payment of Advance Tax
Lesson2:Assessment of Individuals
Lesson 3:Filing of Returns
QUESTIONS
References and Further Readings 264
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UNIT-1
CHAPTER: 1
Introduction of Taxation system in India
The Taxation Structure of the country can play a very important role in the working of our
economy. Some time back the emphasis was on higher rates of Tax and more incentives. But
recently, the emphasis has shifted to Decrease in rates of taxes and withdrawal of incentives.
While designing the Taxation structure it has to be seen that it is in conformity with our
economic and social objectives. It should not impair the incentives to personal savings and
investment flow and on the other hand it should not result into decrease in revenue for the State.
In our present day economy structure Income Tax plays a vital role as a source of Revenue and a
measure of removal economic disparity. Our Taxation structure provides for Two types of Taxes
-DIRECT and INDIRECT; Income Tax, Wealth Tax and Gift Tax are Direct Taxes whereas
Sales Tax and Excise Duties are Indirect Taxes.
HISTORY
The Income Tax was introduced in India for the first time in 1860 by British rulers following the
mutiny of 1857. The period between 1860 and 1886 was a period of experiments in the context
of Income Tax. This period ended in 1886 when first Income Tax Act came into existence. The
pattern laid down in it for levying of Tax continues to operate even to-day though in some
changed form. In 1918, another Act- Income Tax Act, 1918 was passed but it was short lived and
was replaced by Income Tax Act, 1922 and it remained in existence and operation till 31st.
March, 1961.
PRESENT ACT
On the recommendation of Law Commission & Direct Taxes Enquiry Committee and in
consultation with Law Ministry a Bill was framed. This Bill was referred to a select committee
and finally passed in Sept. 1961. This Act came into force from 1st.April 1962 in whole of the
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country. Income Tax Act, 1961 is a comprehensive Act and consists of 298 Sections. Sub-
Sections running into thousands Schedules, Rules, Sub-Rules, etc. and is supported by other Acts
and Rules. This Act has been amended by several amending Acts since 1961. The Annual
Finance Bills presented to Parliament along with Budget make far-reaching amendments in this
Act every year.
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MEANING OF “TAX MANAGEMENT”
“… A Business who stays aloof of tax matters cannot remain competitive. Tax laws are an
economic reality in the Business world. A Tax Dollar is just as real one derived from other
source.”
Tax Management is now an integral part of business management. It involves not only due
compliance of law in timely and regular manner, but also arranging the affairs in such a manner
that it reduces the tax liability burden. Specifics are :
• Filling of Return
• Maintenance of Accounts
• Getting the Accounts Audited.
• Complying with the notices of Income Tax Department.
• Payment of Advance Tax
• Timely deduction of Tax at Source and its payment.
PERSON [Section 2(31)]
The word “Person” is a very wide term and embraces in itself the following :
• Individual: It refers to a natural human being whether male or female, minor or major.
• Hindu Undivided Family (HUF): It is a relationship created due to operation of Hindu
Law. The Manager of HUF is called “Karta” and its member is called ‘Coparceners’.
• Company: It is an artificial person registered under Indian Companies Act 1956 or any
other Law.
• Firm: It is an entity which comes into existence as a result of partnership agreement. The
Income Tax accepts only these entities as Firms which are accessed as Firms under
Section 184 of the Act.
• Association of Persons (AOP) or Body of Individuals (BOI): Co-operative societies,
MARKFED, NAFED, etc are the example of such persons. When persons combine
together to carry on a joint enterprise and they do not constitute partnership under the
ambit of law, they are assessable as an Association of Persons. An A.O.P. can have firms,
companies, associations and individuals as its members. A Body of Individual ( B.O.I.)
cannot have non-individuals as its members. Only natural human being can be members
of a Body of Individuals.
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• Local Authority: Municipality, Panchayat, Cantonment Board, Port Trust etc. are called
Local Authority.
• Artificial Judicial Person: Statutory Corporations like Life Insurance Corporation,
University etc. are called Artificial Judicial Persons.
These are seven categories of person chargeable to tax under the Act. The aforesaid definition is
inclusive and not exhaustive. Therefore, any person, not falling in the above-mentioned seven
categories, may still fall in the four corners of the term “Person” and accordingly may be liable
to tax under Sec.4.:Determine the status of the following :
1. Delhi University
2. Microsoft Ltd.
3. Delhi Municipal Corporation
4. Swayam Education Pvt. Ltd.
5. Axis Bank Limited.
6. ABC Group Housing Co-operative Society.
7. DC & Co., firm of Mr. D and Mr. C
8. A joint family of Mr.D, Mrs. D and their sons
9. X and Y who are legal heirs of Z ( Z died in 1995 and X and Y carry on his business
without entering into partnership).
Solutions :
1. Artificial Judicial Person
2. a Company
3. a local authority
4. a company
5. a company
6. an association of person
7. a firm ;
8. a Hindu Undivided Family
9. An association of persons.
ASSESSEE [ Section 2(7)]
Assessee means a person by whom any tax or any other sum of money is payable under this Act
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and includes the following:
(i) Every person in respect (ii) A person who is (iii) Every person who is
of whom any proceeding deemed to be an assessee deemed to be an assessee in
under the Income-tax under any provisions of this default under any provisions of
Act has been taken: Act i.e. a person who is this Act. A person is said to be
(ii) treated as an assessee. This an assessee in default if he fails
a. for the assessment of his would include the legal to comply with the duties
income or the income of any representative of a imposed upon him under the
other person in respect of deceased person or the Income-tax Act. For example:
which he is assessable; or legal guardian of minor if a person, paying interest to
b. to determine the loss minor is taxable separately. another person, is responsible
sustained by him or by such for deducting tax at source on
other person; or this amount and to deposit the
c. to determine the amount of tax with the Government. If he
refund due to him or to such fails in either of these duties
other person. i.e., if he does not deduct the
tax, or deducts the tax but does
not deposit it with the
Government, he shall be
deemed to be an assessee in
default.
1. Every assessee is a 'person', but every person need not be an 'assessee'. For example, X,
an individual has earned total income of Rs. 2,40,000 in the previous year. He is a
person but not an assessee because his total income is less than the maximum exemption
limit of Rs. 2,50,000 and no tax or any other sum is due from him.
2. A person may not have his own assessable income but may still be an assessee. For
example, an assessee, who has earned an income of Rs. 1,45,000 in a previous year, fails
to deduct the tax at source on salary paid by him, which he was required to do under the
Act, shall be deemed to be an assessee in default. Although, he is not assessable in
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respect of his own income, as it is below the maximum exemption limit, but shall still be
an assessee for not deducting the tax at source, which he was obliged to do.
Example :
• Income of Mr. You ( age : 30 years) is Rs. 1,45,000 for the assessment year 2018-19. he
does not file his return of income because his income is not more than the amount of
exempted slab. Income-Tax Department does not take any action against him. He is not
an “assessee” because no tax or any other sum is due from him.
• Income of Mr. Me (age: 35 years) is Rs.1,60,000 for the assessment year 2018-19. He
does not file his return of income. Since he is supposed to file his return of income
(income being more than exempted slab of Rs.1,50, 000). He is an “Assessee”.
• Income of Mr. S (age: 50 years) is Rs. 70,000 for the assessment year 2018-19. He files
his return of income (even if his taxable income is less than Rs.1,50,000). Assessment
order is passed by the Assessing Office without any adjustment. Mr. S is an “Assessee”.
• Income of Mr. Ram (age: 25 years) is less than Rs.1,50,000 for the assessment year 2009-
10. He files his return of income to claim Refund of Tax deducted by XYZ Ltd. on
interest paid to him. B is an “Assessee”.
• Income of MR. Clean (age: 30 years) is less than Rs.1,50,000 for the assessment year
1018-19. He does not file his return of income. During 2018-19, he has paid salary of
Rs.2,40,000 to an employee. Though he is supposed to deduct TDS (Tax deducted at
Source), yet due to ignorance of law, no tax deducted by him. In this case, Mr. Clean is
an “assessee” as he has failed to deduct tax at source. This rule is applicable even if his
own taxable income is below Rs.1,50,000.
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“INCOME” [Section 2(24) ]
The Definition given u/s 2 (24) is inclusive and not exhaustive. According to English dictionary,
the term “Income” means periodical monetary return coming in regularly from definite sources
like one’s business, Land, Work, Investments etc.”
It’s nowhere mentioned that “Income” refers to only monetary return. It includes value of
Benefits and Perquisites.
The term “Income” includes not only what is received by using the property but also the amount
saved by using it himself. Any thing which is convertible into income can be regarded as source
of accrual of income.
“ Income includes “ :
• Profit and Gains: For instance, Profit generated by a businessman is taxable as
“Income”.
• Dividend: For instance, “Dividend” declared/paid by a company to a shareholders is
taxable as “income” in the hands of shareholders.
• Voluntary contribution received by a Trust: In the hands of a Trust, income includes
voluntary contributions received by it. This rule is applicable in the following cases..
o Such contribution is received by a trust created wholly or partly for charitable or
religious purpose ; or
o Such contribution is received by a scientific research association ; or
o Such contribution is received by any fund or institution established for charitable
purposes ; or
o Such contribution is received by any university or other educational institutions or
hospital.
Example:
ABC Trust is created for public charitable purposes. On Dec, 15, 2008 it receives a sum of Rs.2
Lakh as voluntary contribution from a business house. Rs. 2 Lakh would be included in the
income of the Trust.
• The value of any Perquisites or Profit in lieu of Salary taxable in the hand of employee.
Example:
Mr. You is employed by XYZ Ltd. Apart from Salary , he has been provided a Rent-Free House
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by the employer . the value of perquisites is respect of the Rent-Free House is taxable as
“Income” in the hands of Mr. You..
• Any Special Allowance or Benefit : All type of special allowance are given/allow to the
assessee to meet the expenses exclusively, wholly and necessarily for the duties he
performed for the office or employment is treated as “Income”.
Example:
Mr. You is employed by XYZ Ltd. He gets Rs.5,000 per month as conveyance allowance other
than Salary .Rs. 5,000 per month is treated as “ Income”.
• Value of any Benefit or Amenity, whether convertible into money or not.
• Any Capital Gain taxable u/s 45 is treated as “Income”
Example:
Mr. You owns a House Property. On its transfer, he generates a Capital Profit of Rs.1,20,000. It
is treated as “Income” even if it is Capital Profit.
• Any winning from Lotteries (it included winning from prizes awarded), Winning from
Crossword Puzzles, winning from Races including Horse Race, winning from Card
Games and other similar Games, winning from gambling or betting.
Example:
Mr. You wins a sum of Rs. 50,000 from gambling. Rs.50, 000 is treated as “Income” of Mr. You.
• Any sum received by the assessee on account of his employer’s contributions to any
Provident Fund, Superannuation Fund or any other Fund for the welfare of such
employees in the business.
• Amount exceeding Rs.50,000 by way of Gift.
FEATURES OF “INCOME’
The following features of income can help a person to understand the concept of income.
1. Definite Source: Income has been compared with a fruit of a tree or a crop from the field.
Fruit comes from a tree and crop from fields. Thus the source of income is definite in
both cases. The existence of a source for income is somewhat essential to bring a receipt
under the charge of tax.
2. Income must come from Outside: No one can earn income from himself. There can be no
income from transaction between head office and branch office. Contributions made by
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members for the mutual benefit and found surplus cannot be termed as income of such
group.
3. Tainted Income: Income earned legally or illegally remains income and it will be taxed
according to the provisions of the Act. Assessment of illegal income of a person does not
grant him immunity from the applicability of the provisions of other Act. Any
expenditure incurred to earn such illegal income is allowed to be deducted out of such
income only.
4. Temporary or Permanent: Whether the income is permanent or temporary, it is
immaterial from the tax point of view.
5. Voluntary Receipt: The receipts which do not arise from the exercise of a profession or
business or do not amount to remuneration and are made for reasons purely of personal
nature are not included in the scope of total income.
6. Dispute regarding the Title: In case a person is receiving some income but his title to
such receipts is disputed, it will not free him from tax liability. The receipt of such
income has to pay tax.
7. Income in Money or Money’s worth: The income may be in Cash or in kind. It is taxable
in both cases.
TAX TREATMENT OF “INCOME’
For the purposes of treatment of income for tax purposes it can be divided into 3 categories :
A. Taxable Income: These incomes form part of total income and are fully taxable. These are
treated u/s 14 to 69 of the Act. These are Salaries, Rent, Business Profits, Professional Gain,
Capital Gain, Interest, Dividend, Winning from Lotteries, Races etc.
B. Exempted Incomes: These incomes do not from part of total income either fully or partially.
Hence, no Tax is payable on such incomes. These incomes are given u/s 10(1) to 10(32) of the
Act.
C. Rebateable (Tax Free) Incomes: These incomes form part of total income and are fully
taxable. Tax is calculated on total income out of which a Rebate of Tax at average Rate is
allowed. The Rebateable incomes given u/s 86 of the Act are :
• Share of income received by a member of an association of persons provided the total
income of such AOP is assessed to tax at the rates applicable to an individual.
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• Share of income received by a partner of a firm assessed as an association of persons
(PFAOP) provided the total income of such PFAOP is assessed to tax at the rates
applicable to an individual.
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GROSS TOTAL INCOME (GTI) & TOTAL INCOME
U/s 14 the term “Gross Total Income” [ GTI ] means aggregate of incomes computed under the
following Five heads :
• Income under the head “Salaries”
• Income under the head “ House Property”
• Income under the head “Profit and Gains of Business or Profession”.
• Income under the head “Capital Gain”.
• Income under the head “ Other Sources”.
After aggregating income under various heads, losses are adjusted and the resultant figure is
called “Gross Total Income” [ GTI ]
From Gross Total Income , Deductions u/s 80 are allowed. The resultant figure is called “Total
Income “ on which Rates of Taxes are applied
ASSESSMENT YEAR [ Section 2 (9) ]
“Assessment Year” means the period of 12 months commencing on the 1st day of April every
year.
In India, the Govt. maintains its accounts for a period of 12 months i.e. 1st April to 31st March
every year. As such it is known as Financial Year. The Income Tax department has also selected
same year for its Assessment procedure.
The Assessment Year is the Financial Year of the Govt. of India during which income a person
relating to the relevant previous year is assessed to tax. Every person who is liable to pay tax
under this Act, files Return of Income by prescribed dates. These Returns are processed by the
Income Tax Department Officials and Officers. This processing is called Assessment. Under this
Income Returned by the assessee is checked and verified.
Tax is calculated and compared with the amount paid and assessment order is issued. The year in
which whole of this process is under taken is called Assessment Year.
At present the Assessment Year 2008-2009 ( 1-4-2018 to 31-3-2019) is going on.
Example-
Assessment year 2018-19 which will commence on April 1, 2018, will end on March 31, 2019.
Income of Previous Year of an assessee is taxed during the next following Assessment Year at
the rates prescribed by the relevant Finance Act
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PREVIOUS YEAR [ Section 3 ]
As the word ‘Previous’ means ‘coming before’ , hence it can be simply said that the Previous
Year is the Financial Year preceding the Assessment Year e.g. for Assessment Year 2008-2009
the Previous Year should be the Financial Year ending 31st March 2008.
• Previous Year in case of a continuing Business :
It is the Financial Year preceding the Assessment Year. As such for the assessment year 2008-
2009, the Previous Year for continuing business is 2007-2008 i.e. 1-4-2007 to 31-3-2008.
• Previous Year in case of newly set up Business :
The Previous Year in case of newly started business shall be the period between commencement
of business and 31st March next following . e.g. in case of a newly started business commencing
its operations on Diwali 2007, the Previous Year in relation to Assessment Year 2008-2009. shall
be the period between Diwali 2007 to 31 March 2008.
• Previous Year in case of newly created source of income :
In such case the Previous Year shall be the period between the day on which such source comes
existence and 31st March next following.
Sl.
Income Section Previous Year
No.
1. Cash Credit [68] Financial Year in which found to be entered.
2. Unexplained Investment [69] Financial Year preceding the Assessment Year
3. Unexplained Bullion, Cash, Financial Year in which found in the possession of
[69A]
Jewelley the assessee.
4. Partly explained Investment [69B] Financial Year in which Investment was made.
5. Unexplained Expenditure [69C] Financial Year in which expenditure was incurred.
6. Payment of Hundi, Money in
[69D] Financial Year in which such payment was made.
Cash
When Income Of Previous Year Is Not Taxable In The Immediately Following Assessment
Year
The rule that the income of the previous year is taxable as the income of the immediately
following assessment year has certain exceptions. These are:
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1. Income of non-residents from shipping business [Section 172] ;
In case a Non-Resident Shipping Company, which has no representative in India, earns income
by carrying passengers, livestock, mail or goods loaded from any Indian Port, such Ship will
have to pay Tax on such Income, otherwise the Ship will not be allowed to leave the Port till the
tax on such income has been paid or alternative arrangements to pay tax are made. Such
income will be assessed to paid tax at current year’s rates.
2. Income of persons leaving India either permanently or for a long period of time [ Section
174] ;
In case I.T.O. has the reasons to believe that an individual will leave India with having no
intention of returning to India during the current assessment year, the total income of such
individual will be taxable in the current assessment year for the period between the expiry of last
previous year and till the date of his departure.
3. Income of a person trying to transfer his assets with a view to avoiding payment of tax. [
Section 175]
4. Income of a discontinued business [Section 176]
In these cases, income will be taxed in the same year it is earned.
These exceptions have been incorporated in order to ensure smooth collection of income tax
from the aforesaid taxpayers who may not be traceable if tax assessment procedure is postponed
till the commencement of the normal assessment
On the basis of the aforesaid discussion, it can be said that a financial year plays a double role—
it is a Previous Year as well as an Assessment Year.
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What Are Different Heads Of Income According To Income Tax Act. ?
There are 5 different Income heads. The Income under each head will be charged to Income Tax.
Thus the tax will be computed on the basis of total income.
1. Salaries including Allowances, value of Perquisites, Profits in lieu of salary and Pensions.
2. Income from House Property whether residential, commercial or let out.
3. Profits & Gains of Business / Profession.
4. Capital Gains - Short & Long Term.
5. Income from other Sources including Bank Interest, Interest on Securities, Lotteries,
Cross word Puzzles, Races, Games, Gift received on or after 1-9-2004 in excess of Rs.
50,000 in cash etc. from unrelated persons.
Who all have to pay income-tax?
a. Individual including Non-resident, Hindu Undivided Families (HUF), Bodies of
Individuals (BOI), Association of Persons (AOP) & Artificial Juridical Persons ( such as
Deities of Temples) having taxable income exceeding Rs. 1.5 lakh (Rs. 1,80,000 for
Resident Women assesses below 65 Years and Rs. 2,25,000 for Resident Senior
Citizens.)
b. Societies & Charitable / Religious Trusts having taxable income exceeding Rs.1.5 lakh.
c. All Partnership Firms irrespective of their Income.
d. Co-Op. Societies irrespective of their Income.
e. All Companies irrespective of Income.
f. Local Authorities like, Panchayats, Municipal Corporation etc.
How Income-Tax Will Be Charged By The Income Tax Department?
Income Tax is charged on 5 different heads. Aggregate of taxable income under each head of
income is known as Gross Total Income and so
Taxable Income = Gross Total Income - Allowance Deductions.
Deductionof Expenditure
In computing income under various heads, deduction is allowed towards expenditure incurred in
relation to earning the income. However, no deduction shall be allowed in respect of expenditure
incurred in relation to incomes exempt from tax.
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Computation of Gross Total Income
It is the aggregate of incomes under various heads of income calculated after set-off of
unabsorbed depreciation/loss, carried forward from earlier years.
Set-off and Carry Forward
Set-off means adjustment of certain losses against the income under other sources / heads. Carry
forward implies carrying forward of certain losses for set-off in subsequent years.
Total / Taxable Income
Total / Taxable Income is computed after deducting permissible deductions under section 80A to
80U, from the Gross Total Income.
Where the Gross Total Income of the Assesses includes Short-Term Capital Gains from transfer
of equity shares / units of an equity oriented mutual fund subject to Securities Transaction Tax or
any Long-Term Capital Gains, then no deduction shall be allowed against such Capital Gains.
On this Taxable Income, Income Tax will be calculated as per the applicable rates.
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CHAPTER: 2
RESIDENTIAL STATUS
Residential Status is the basis of Individual taxability in India. The residential status is
determined based on the physical stay of an individual in the relevant financial year as
well as preceding ten tax years.
Determination of Residential Status of Individual
The Residential Status of an Individual is to be determined on the basis of period of stay

of the taxpayer in India and is computed separately for each year. If an individual
satisfies any one of the following conditions, he is said to be Resident in India for that
financial year. The conditions are:-
▪ He is in India for a period of 182 days or more in that financial year
OR
▪ He is in India for 60 days or more during that financial year and has been in India for 365 days or
more during 4 previous years immediately preceding the relevant financial year.
If any one of the above conditions is satisfied, the individual is said to be resident in India.
However, if none of the conditions is satisfied, he is said to be a Non Resident Indian (NRI)
Exceptions to Residential Status
There are 2 exceptions to the above rule of classification of Residential Status:-
1. In case of an individual, who is a citizen of India and who leaves India in any financial year for
the purpose of employment outside India, the 2nd condition stated above shall not be applicable
and only the 1st condition of 182 days or more would be applicable
2. In case of an individual (whose Indian income is less than Rs. 15 Lakhs) who is a citizen of India
or is a person of Indian origin and who being outside India comes on a visit to India in any
financial year, the 2nd conditions stated above shall not be applicable and only the 1st condition
of 182 days or more would be applicable. In case the indian income is more than 15 lakhs – then
the no. of days in the 2nd condition would be considered as 120 instead of 60)
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Classification of Ordinary Resident & Non Ordinary Resident
As per Section 6(6), a person shall be not ordinary resident in India if he satisfies any one of the
following conditions:-
▪ He has been a non-resident (in the manner computed above) in 7 out of 10 years immediately
preceding the Financial Year (Amended by Budget 2020)
OR
▪ He has been in India for a period of 729 days or less in 7 previous years immediately preceding
the financial year.
If any 1 of the above conditions is satisfied, the person is said to be resident but not-ordinary
resident in India. However, if none of the above conditions is satisfied, the person is said to be
Resident and Ordinary Resident in India.
Relevant points regarding Residential Status
Receipt of Income
For the purpose of levy of income tax, what is important is the 1st receipt. If an amount is
received outside India and then subsequently remitted to India, it shall be a receipt outside India.
Merely, because it has been remitted to India would not make it an income received in India. For
eg: A non-resident receives income equivalent to Rs. 80,000 in USA but then remits it to India.
This income would not be taxable in his hands in India because it is neither earned in India nor
received (1st receipt) in India.
Citizenship of a Country and Residential Status
Citizenship of a country and residential status are separate concepts. A person may be an Indian
national/citizen but may not be a resident in India. On the other hand, a person may be a foreign
national/citizen but may be a resident in India.
Computation of Period of Stay
In computing the period of stay for the purpose of residential status, it is not necessary that the
stay should be for a continuous period. What is to be seen is the total number of days of stay in
India during that financial year. It is also not necessary that the stay should be only at 1 place and
can be anywhere in India.
For the purpose of computing the period of 182 days for the determination of residential status,
the day he enters India and the day he leaves India should both be treated as stay in India.
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However, in borderline cases where stay in India is very close to 182 days, his stay in India
has to be calculated on hourly basis and a total of 24 hours will be taken as 1 day.
Residential status of HUF
1. A HUF would be resident in India if the control and management of its affairs is
situated wholly or partly in India.
2. If HUF is resident then residential status of KARTA determines whether the HUF is ROR
or RNOR.
3. If KARTA is ROR then HUF is ROR and if KARTA is RNOR then HUF is RNOR
Residential status of a Company

A Company is Said to be resident in India if
• It is an Indian company as defined under section 2(26).
(OR)
• It's control and management is situated wholly in India during the accounting year.
Indian Company other than

Place of Control Company Indian Company
Wholly In India Resident Resident
Wholly outside India Resident Non Resident
Partly in India and Partly outside India Resident Non Resident
Residential status of firms & association of persons (AOP).

A Firm or an AOP would be resident in India if the control and management of its affairs is
situated wholly or partly in India.
Primarily, residents can be classified into two categories
• Residents
• Non Residents
Residents can be further classified into two categories

• Resident and ordinarily resident (ROR)
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• Resident and not ordinarily resident (RNOR)
Determination of Residential Status of a taxpayer is very important at the time of filing of

income tax return as income tax is levied based on the Residential status of the taxpayer.
The following types of incomes are taxable in the hands of the different categories of
taxpayers:-
Residential status and tax incidence:
Particulars Resident and Not ordinary Non-Resident
Ordinary Resident
Resident
Income received or deemed to be received in Yes Yes Yes
India whether earned in India or elsewhere
Income which accrue or arise or is deemed to Yes Yes Yes
accrue or arise in India during the previous
year, whether received in India or elsewhere
Income which accrue or arise outside India Yes Yes No
and received outside India from a business
controlled from India
Income which accrue or arise outside India Yes No No
and received outside India in the previous year
from any other source
Income which accrues or arises outside India Yes No No
and received outside India during the year
preceding the year and remitted to India
during the previous year
From the above table, it is clearly visible that the maximum income tax is levied in case of an
Ordinary Resident, lesser in case of Not-Ordinary Resident and the least in the case of a Non
Resident Indian (NRI).
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Chapter: 3
Income Exempt from Tax as per Section 10
The following are the incomes that are exempt from income tax. (The detailed explanation
of each income is mentioned under various chapters of income tax)
1. Agriculture Income [Section 10(1)]
2. Amount received out of family income, Hindu Undivided Family (H.U.F.) [Section
10(2)]
3. Share of profit, [Section 10(2A)]
4. Interest paid to Non-Resident [Section 10(4)(i)]
5. Interest to Non-Resident on Non-Resident (External) Account [Section 10(4)(ii)]
6. Interest paid to a person of Indian Origin and who is Non-Resident [Section 10(4 B)]
7. Leave Travel Concession or Assistance [Section 10(5)]
8. Remuneration or Salary received by an individual who is not a citizen of India [Section
10(6)] a. Remuneration [U/s 10(6)(ii)] b. Remuneration received as an employee of
foreign enterprise [U/s 10(6)(vi)] c. Employment on a foreign ship [U/s 10(6)(viii)] d.
Remuneration received by an employee of foreign government [U/s 10(6)(xi)]
9. Tax paid by Government or Indian concern on Income of a Foreign Company [Section
10(6A), (6B), (6BB) and (6C)]
10. Perquisites/Allowances paid by Government to its Employees serving outside India
[Section 10(7)]
11. Employees of Foreign Countries working in India under Cooperative Technical
Assistance Programme [Section 10(8)]
12. Income of a Consultant [Section 10(8A)]
13. Income of Employees of Consultant [Section 10(8B)]
14. Income of any member of the family of individuals working in India under cooperative
technical assistance programmes [Section 10(9)]
15. Gratuity [Section 10(10)] a. Gratuity received by Government servants [Section
10(10)(i)] b. Gratuity Received by a Non-Government Employee covered by Payment of
Gratuity Act, 1972 [Section 10(10)(ii)]
16. Commuted value of Pension Received [Section 10(10A)]
17. Amount received as Leave Encashment on Retirement [Section 10(10AA)]
23
18. Retrenchment Compensation received by Workmen [Section 10(10B)]
19. Payment received under Bhopal Gas Leak Disaster (Processing of Claims) Act 1985
[Section 10 (10BB)]
20. Compensation received in case of any disaster [Section 10(10BC) ]
21. Retirement Compensation from a Public Sector Company or any other Company [Section
10(10C)]
22. Tax on Non-monetary Perquisites paid by Employer [Section 10(10CC)]
23. Amount received under a Life Insurance Policy [Section 10(10D)]
24. Statutory Provident Fund [Section 10(11)]
25. Recognized Provident Fund [Section 10(12)]
26. Superannuation Fund [Section 10(13)]
27. House Rent Allowance-HRA [Section 10(13A)]
28. Business Expenditure Allowance [Section 10(14)]
29. Interest Incomes [Section 10(15)]
30. Scholarship [Section 10(16)]
31. Allowance of M.P./M.L.A.I or M.L.C. [Section 10(17)]
32. Awards Instituted by Government [Section 10(17A)]
33. Pension received by certain winners of gallantry awards [Section 10(18)]
34. Family pension received by family members of armed forces including para military
forces [Section 10(19)]
35. Income of a Local Authority [Section 10(20)]
36. Income of Scientific Research Association [Section 10(21)]
37. Income of a News Agency [Section 10(22B)]
38. Income of some Professional Institutions [Section 10(23A)]
39. Exemption of Income Received by Regimental Fund [Section 23AA] a. Income of a Fund
set-up for the welfare of employees or their dependents [Section 10(23AAA)] b. Income
of a pension fund set up by LIC or other insurer [Section 10(23AAB)]
40. Income of State Level Khadi and Village Industries Board [Section 10(23BB)] a. Income
of certain Authorities set up to manage Religious and Charitable Institutions [Section
10(23BBA)] b. Income of European Economic Community [Section 10(23BBB)] c.
Income of a SAARC Fund for regional projects [Section 10(23BBC)] d. Any income of
24
Insurance Regulatory and Development Authority [Section 10(23BBE)] e. Income of
Prasar Bharti [Section 10(23BBH)] [Inserted by the Finance Act 2012, w.e.f. 2013-14]
41. Any income received by a person on behalf of following Funds [Section 10(23C)]
42. Income of Mutual Fund [Section 10(23D)]
43. Exemption of income of a securitization trust [Section 10(23DA)j [w.e.f. A.Y. 2014-15]
44. Income of Investor Protection Fund [Section 10(23EA)]
45. Exemption of income of investor protection fund of depository [Section 10(23ED)]
[w.e.f. A.Y. 2014-15]
46. Exemption for Certain Incomes of a Venture Capital Company or Venture Capital Fund
from Certain Specified Business or Industries [Section 10 (23FB)]
47. Income of Registered Trade Unions [Section 10(24)]
48. Income of Provident and Superannuation Funds [Section 10(25)]
49. Income of Employee’s State Insurance Fund [Section 10 (25A)]
50. Income of Schedule Tribe Members [Section 10(26) and 10(26A)]
51. Income of Sikkimese individual [Section 10(26AAN] (With retrospective effect from 1-
4-1990)
52. Regulating the marketing of agricultural produce [Section 10[26AAB]
53. Income of a corporation set-up for promoting the interests of Scheduled Castes,
Scheduled Tribes or Backward Classes [Section 10(26B)]
54. Income of a corporation set-up to protect the interests of Minorities [Section 10(26BB)]
55. Any income of a Corporation established for Ex-Servicemen [Section 10(26BBB)]
56. Income of cooperative society looking after the interests of Scheduled Castes or
Scheduled Tribes or Both [Section 10(27)]
57. Any income accruing or arising to Commodity Boards etc. [Section 10(29A)]
58. Amount received as subsidy from or through the Tea Board [Section 10(30)]
59. Amount received as subsidy from or through the concerned Board [Section 10(31)]
60. Income of Child Clubbed U/s 64 (IA) [Section 10(32)]
61. Income by way of dividend from Indian company [Section 10(34)]
62. Exemption of income to a shareholder on buyback of shares of unlisted company
[Section 10 (34A) [w.e.f. A.Y. 2014-15]
63. Exemption of income from Units [Section 10(35)]
25
64. Exemption of income from Securitization Trust [Section 10(35A)] [w.e.f A.Y. 2014-15]
Exempt Income vs Tax Deduction
A deduction is an amount which reduces the total taxable income of an individual. Exempt
income is like an exclusion, any income earned, which is categorized under exempt income does
not contribute to the total income of the person.
Disclosure of Exempt Income for Salary and Non-Salary Allowances
For salary account holders, one need to make a disclosure of exempt income under Schedule S -
Details of Income from Salary’ while filing income tax as per ITR-2. The various exemptions
are:
1. House Rent Allowance
2. Leave Travel Allowance
3. Leave Encashment Amount
4. Pension Amount
5. Gratuity Amount
6. Any form of perquisites received
7. Amount received from a Voluntary Retirement Scheme
For self-employed or non-salary account holders, there are certain incomes categorized under
exempt income. They include dividends, agricultural income, interest on funds, capital gains
which has to be disclosed under Schedule EI while filing income tax as per ITR-1.
26
Chapter-4:
Agricultural income and tax
Traditionally, India has been an agrarian nation. The First Five Year Plan after independence had
agriculture as its central focus sector, highlighting the value of the agricultural industry to the
Indian economy. Most of the population involved in agriculture either practice subsistence
farming or are small farmers. As a result, the Indian Income Tax Act under Section 10(1) has
made earnings from agriculture tax-free.
Agricultural Income- Meaning

Sec.10(1) exempts Agricultural Income from Income-Tax. Bu virtue of Sec.2(1)a the expression
“Agricultural Income” means :
• Any Rent or Revenue derived from Land which is situated in India and is used for
agricultural purposes. [Sec. 2(1A)(a)]
• Any income derived from such land :
o Use for Agricultural purposes ; or
o Used for agricultural operations means- irrigating and harvesting , sowing,
weeding, digging, cutting etc. It involves employment of some human skill,
labour and energy to get some income from land. ; or
According to Sec. 2(1)(a) , if the following 3 conditions are satisfied, income derived from Land
can be termed as “Agricultural Income”.
Condition-1: Income derived from Land
It is essential that for any income to be termed as agricultural Land must be effective and
immediate source of Income and not indirect and secondary.
As a result, interest on arrears of land revenue, dividend paid by a company out of its profits
which included agricultural income also and salary paid to a manager for managing agricultural
farms are not agricultural incomes because in all these cases land is not the effective and
immediate source of income.
Condition-2: Land is used for Agricultural Purposes
To term any income as agricultural income, it is necessary that income must be the result of
27
agricultural operations performed on agricultural land. Agriculture means performance of some
basic operations— irrigating and harvesting, sowing, weeding, digging, cutting etc. it involves
employment of some human skill, labour and energy to get some income form land.
Condition-3: Land is situated in India
To qualify the exemption u/s 10(1) of the Act, it is necessary that agricultural income must be
derived from land situated in India. In case income is derived from agricultural land situated
outside India or is from any non-agricultural land, it will not be exempted u/s 10(1). It is taxable
income under the head “Income from other Sources”.
What is the Tax Treatment of Income which is partially Agricultural and partially from
Business [Rules 7, 7A, 7B and 8]
For disintegrating a composite business income which is partly agriculture and partly non-
agricultural, the following rules are applicable –
Type of Income Business Income Agricultural Income
• Tea Business 40% 60%
• Coffee Business 40% 60%
• Rubber Business 40% 65%
Example:
Mr. X owns a Flour Mill and some agricultural Land. During the year 2018-2019 he has shown
profit of Rs.25 lacs from the Business of Flour Mill. On scrutiny of accounts it was found that he
has used 5,000 quintals of wheat produced in his own Farms and cost of this wheat has not been
debited to P & L account. The market price of the wheat during the season was Rs.400 per
quintal.. Find out his Agricultural and Business income.
[ Hints : Agricultural income Rs.20,00,000 and Business income Rs. 5,00,000 ]
How Is Agricultural Income Taxed?

There is no clause for directly taxing agricultural income. According to Section 10(1) of the
Income Tax Act, agricultural income is not considered a means of income. Income generated
from agriculture is exempted from taxation by the Central Government. However, there is an
indirect method of taxing that is levied on agricultural income.
While the Central Government cannot directly tax the income, the State Government is well
28
within its right to levy a tax on agricultural income. The latest amendment mentions that the
State Government can levy tax above the exempted rate, which is Rs 5,000 in a fiscal year.
According to the Finance Act, the total tax would be a combination of non-agricultural income
and agricultural revenue. The Income Tax Act taxes the non-agricultural income at a higher rate.
Individuals, BOIs, etc. have to calculate their taxes using this method. However, companies,
LLPs, etc. are excluded.
Calculating Tax on Agricultural Revenue

1. Take the sum of the agricultural income and non-agricultural income. The tax (A) should
be computed on this amount.
2. The base tax slab changes as per the changing Income Tax guidelines. Add the base tax
slab to the agricultural income. Another Tax (B) needs to be computed on this sum.
3. Deduct (B) from (A). That will be the Agricultural Income Tax liability. Agriculture
Tax = (A) – (B)
4. Any available rebate, applicable surcharge and education cess are added too to the final
taxable amount.
Example:
Steps to Calculate Tax on Agricultural income with example:
Once the aforementioned conditions are satisfied then we shall compute the Tax liability in the
following manner:
• First, include the Agricultural income while computing your income Tax liability. Example –
Let us say that an Individual Assessee has a Total income of INR 7,50,000/- (excluding
Agricultural income) and a Net Agricultural income of INR 100,000/-. Then, per this step, Tax
shall be computed on INR 7,50,000/- + INR 1,00,000/- = INR 8,50,000/-. Thus, income Tax
amount as per this step shall be INR 82,500/- for an individual who is below the age of 60 Years
during the P.Y. 2019-20.
• Second, add the applicable basic Tax slab benefit, as applicable, to the Net Agricultural income.
Thus, per our example mentioned above we shall add INR 2,50,000/- to INR 1,00,000/- as the
applicable Tax slab benefit available to an individual below 60 Years of age is INR 2,50,000/-
29
. Now we will compute income Tax on INR 3,50,000/- (Tax slab benefit 2,50,000 + Net
Agricultural income 1,00,000). The amount of Tax shall be INR 10,000/-.
• Third, subtract the Tax computed in Second step from the Tax computed in First step = INR
72,500/-. Thus, this is the income Tax liability subject to deductions, Education cess etc., as
applicable.
Q1 Explain any ten incomes that are exempt from tax.
Q2 Differentiate between
1) Previous year and Assessment year
2) Gross total income and total income
3) Assessee and deemed assessee
Q3 What is an agricultural income? Explain partly agricultural and partly non

agricultural income with examples.
Q4 Explain the various types of residents. Elaborate in detail how to compute

the residential status of an individual.
Q5 what is a company? How to determine the residential status of the

company?
Q6) Mr. X left India for the first time on 29th January, 2018. He came to India
on 6th March 2019 and again left on 29th March, 2019. Determine his
residential status for the AY 2020-21.
Link for MCQ:
https://www.gsck.ac.in/ebooks/mcq/com/D.Tax%20(AKD).pdf
Income Tax MCQ QUIZ Set-1 (Basic Concept)
30
1. Income tax is a
A) Direct tax
B) Indirect tax
C) Total tax
D) Danger tax
… Answer is A)
2. Sambalpur university is a
A) Local authority
B) Association of person
C) Individual
D) Artificial juridical person
… Answer is D)
3. Education cess is levid in case of
A) Individual
B) Hindu undivided family
C) All assesse
D) Company assesse
… Answer is C)
4. Income tax act 1961 imposed on
A) Legal income
B) Illegal income
C) Both legal and illegal income
D) None of this
… Answer is C)
5. Income tax act 1961 applicable to
A) Jammu and Kashmir only
B) All state in India
C) All metro city
D) All India except Jammu and Kashmir
… Answer is B)
6. Assesse includes
A) Individual
B) Company
C) HUF, AOP/BOI
D) All of the above
… Answer is D)
7. AOP consist of
31
A) Individual only
B) Other than individual
C) Both
D) None of Above
… Answer is c)
8. BOI consist of
A) Individual only
B) Other than individual
C) Both
D) None of Above
… Answer is A)
9. Health & Education cess is
A) 6%
B) 2%
C) 4%
D) 3%
… Answer is C)
4%
10. The term income is defined u/s
A) 2(24)
B) 3(24)
C) 24(2)
D) None of the above
… Answer is A)
11. Income tax act 1961 came in to force on
A) 1st April 1960
B) 31st march 1972
C) 1st April 1962
… Answer is C)
12. Who has the statutory power to issued notification under income tax
act1961
A) Central board of direct taxes
B) Central board of film certification
C) Finance department of state
32
… Answer is A)
13. Income tax is imposed on
A) Half yearly
B) Annually
C) Monthly
D) Daily
… Answer is B)
14. Assessment year start on
A) 1st April
B) 31st march
C) 1st July
D) None of the Above
… Answer is A)
15. Previous year ends With
A) 1st April
B) 31st march
C) 1st July
… Answer is B)
16. How many head of income are there
A) 6
B) 3
C) 4
D) 5
… Answer is D)
17. Residential status is determined on
A) Assessment year
B) Calendar year
C) Previous year
D) Accounting year
… Answer is c)
18. Taxable income is determined on the basic of
A) Residential status in India
B) Citizenship of India
C) BPL card holder
D) Govt. job holder
33
… Answer is A)
19. Section of residential status is
A) 7
B) 6
C) 5
D) 4
… Answer is B)
20. Salary to MP/MLA is
A) Exempted
B) Free
C) Taxable
D) illegal
… Answer is C)
12.1 Agricultural income is exempt provided the:
(A) Land is situated in India
(B) Land is situated in any rural area in India
(C) Land is situated whether in India or outside India.
12.2 If the assessee is engaged in the business of growing and manufacturing tea in India, the
34
agricultural income in that case shall be:
(A) 40% of the income from such business
(B) 60% of the income from such business
(C) market value of the agricultural produce minus the expenses on cultivation of such
agricultural produce
12.3 If the assessee is engaged in the business of manufacturing of tea, such income shall be:
(A) exempt
(B) fully taxable
(C) 40% of such income shall be taxable and the balance 60% shall be exempt
12.4 If the assessee is engaged in the business of growing and manufacturing of rubber, the
agricultural income in that case shall be:
(C) 65% of the income from such business
12.5 If the assessee is engaged in the business of growing and curing of coffee, the agricultural income
in that case shall be:
12.6 If the assessee in employed in the business of growing curing, roasting and grounding of coffee,
the agricultural income in that case shall be:
(D) 40% of the income from such business
35
12.7 If the assessee is engaged in the business of manufacturing some products other than tea, rubber
or coffee for which he uses his own agricultural produce, then agricultural income in that case
shall be:
(A) 40% of the income from such business of growing and manufacturing the products out of
it
(B) 60% of such income
(C) market value of such agricultural produce minus the expenses incurred for cultivation of
such agricultural produce.
12.8 If the assessee uses its own agricultural produce for the purpose of manufacturing
certain products other than tea, rubber or coffee the cost of such agricultural produce for the
purpose of computing business income of manufacturing shall be:
(A) cost of producing such agricultural produce
(B) market value of such agricultural produce as on the date of use
(C) none of these two
12.9 If an assessee uses the agricultural produce grown by him for his own consumption then:
(A) the market value of such agricultural produce shall be treated as his agricultural income
(B) the market value of the agricultural produce minus the cost of cultivation shall be treated
as his agricultural income
AGRICULTURE INCOME
CA VIKRAM BIYANI
MCQ
(C) nothing shall be treated as his agricultural income.
12.10 An assessee has incurred ?1,00,000 on the cultivation of agricultural produce. 50% of the produce
has been sold for ? 1,10,000 and the balance 50% has been used by the assessee for his
selfconsumption, the agricultural income in this case shall be:
36
(A) Rs. 10,000
(B) Rs. 60,000
(C) Rs. 1,20,000
12.11 The partial integration of agricultural income with non agricultural income is done in case of:
(A) all assessee
(B) any assessee other than who is liable to be taxed at flat rate of income tax
(C) individual HUF, AOP or BOI & artificial judicial person
12.12 Agricultural income is:
(A) fully exempt
(B) partially taxable
(C) fully taxable
12.13 The partial integration of agricultural income is done to compute tax on:
(A) agricultural income
(B) non agricultural income
(C) both agricultural and non agricultural income
12.14 If a firm earns agricultural income, it will be exempt:
(A) in the hands of firm
(B) in the hands of firm but taxable in the hands of the partners
(C) in the hands of firm as well its partners
(D) in the hands of the firm as well its partners but would be included in the other income of
partners for computation of tax on his other incomes.
12.15 If a company declares dividend out of agricultural income, such dividend declared by the
company shall be:
(A) exempt in the hands of the shareholder but dividend tax will be payable by the company
(B) not be subject to any income tax, either in the hands of company or the shareholder
37
(C) included in the total income of the shareholder
12.16 There will be no partial integration of agricultural income with non agricultural income, if the
non-agricultural income of A who is less than 65 years does not exceed:
(A) Rs. 5,000
(B) Rs. 1,80,000
(C) Rs. 1,60,000
12.17 There will be no partial integration, if the agricultural income does not exceed:
(A) Rs. 1,80,000
(B) Rs. 1,60,000
(C) Rs. 5,000
12.18 Income derived from rubber plantation in Singapore but received in India shall be treated as:
(A) agricultural income and hence exempt
(B) agricultural income but taxable under the head income from other source
(C) exempt as earned outside India.
12.19 Dividend received by a shareholder from an Indian company the whole of whose income is
agricultural income shall be treated as:
(A) agricultural income in the hands of shareholder and thus exempt
(B) agricultural income and thus exempt but it will be subject to partial integration
(C) exempt under section 10(34) but taxable in the hands of the company
(D) income taxable under the head income from other sources
Write True or False
12.20 Agricultural income is exempt provided the land is situated in any rural area in India.
12.21 The partial integration of agricultural income with non-agricultural income is done in case of all
assessees.
12.22 Agricultural income is fully exempt.
38
12.23 There will be no partial integration, if the agricultural income does not exceed Rs. 40,000.
12.24 Income from agricultural land situated outside India is fully exempt but partial integration of such
agricultural income and non-agricultural income is done to calculate tax on
non-agricultural income.
12.25 Agricultural income earned by a company fully exempt.
12.26 If the assessee is engaged in the business of growing and manufacturing tea, 40% of income of
such business shall be treated as agricultural income.
12.27 If the assessee is engaged in the business of manufacturing coffee, 40% of such income shall be
treated as business income.
Fill in the Blanks
12.28 If the assessee is engaged in the business of manufacturing some products other than tea, rubber,
or coffee for which he uses his own agricultural produce, then agricultural income in that case
shall be_______.
12.29 An assessee has incurred Rs. 2,00,000 on the cultivation of agricultural produce. 40% of the
produce has been sold for Rs. 3,00,000 and the balance 60% has been used by the assessee for his
self-consumption, the agricultural income in this case shall be___________________.
12.30 If a firm earns agricultural income, it will be exempt in the hands of________________.
12.31 There will be no partial integration of agricultural income with non-agricultural income, if the
non-agricultural income of A, who is less than 65 years does not exceed_________________.
12.32 There will be no partial integration of agricultural income with non-agricultural income, if the
agricultural income does not exceed_________
Write True or False
12.20 Agricultural income is exempt provided the land is situated in any rural area in India.
39
12.21 The partial integration of agricultural income with non-agricultural income is done in case of all
assessees.
12.22 Agricultural income is fully exempt.
12.23 There will be no partial integration, if the agricultural income does not exceed Rs. 40,000.
12.24 Income from agricultural land situated outside India is fully exempt but partial integration of such
agricultural income and non-agricultural income is done to calculate tax on
non-agricultural income.
12.25 Agricultural income earned by a company fully exempt.
12.26 If the assessee is engaged in the business of growing and manufacturing tea, 40% of income of
such business shall be treated as agricultural income.
Chapter 1
Direct Taxation
1. Income tax is collected on all types of income except _______________.
(a) Agricultural Income (b) Industrial Income
(c) Capital Gain (d) Household Property
2. The Income Tax Act came into force from _______________.
(a) 1st March 1971 (b) 1st April 1971
(c) 1st March 1961 (d) 1st April 1961
3. The Income Tax Act came into force all over India except _______________.
40
(a) Andaman & Nicobar (b) Maldives
(c) Jammu & Kashmir (d) None of the above
4. As per Income Tax Act, 1961, income tax is charged on the income of _______________ at a
rates which are prescribed by the Finance Act of relevant assessment year.
(a) Current year (b) One year before previous year
(c) Previous year (d) None of the above
5. The tax payer liability is determined with reference to his or her _______________.
(a) Financial Status (b) Residential Status
(c) All of the above (d) None of the above
6. As per the definition of Income, the income includes the following _______________.
(a) Profits and gains
(b) Dividend declared
(c) Voluntary contribution received by a trust created
(d) All of the above
7. The period of 12 months commencing on the first day of April every year and ending on 31st
March is called as _______________.
(a) Previous Year (b) Assessment year
(c) Accounting Year (d) Financial Year
8. Previous year means the financial year immediately preceding the _______________.
(a) Accounting Year (b) Assessment Year
2 All in One Multiple Choice Questions
9. Under Income Tax Act, the income liable for tax is classified on the basis of
_______________.
(a) Income from Salaries (b) Income from House Property
41
(c) Agricultural Income (d) Both (a) and (b)
10. Agricultural income is completely exempted for assessment year _______________.
(a) 1974-75 (b) 1985-86
(c) 1975-76 (d) 1978-79
11. The income from foreign companies by providing the services in project connected with
security of India is _______________ from tax liability.
(a) 50% exempted (b) 20% exempted
(c) 100% exempted (d) 55% exempted
12. An individual is said to be resident in India if _______________.
(a) It is in India in the previous year for a period of 182 days or more
(b) It is in India for period of 60 days or more during the previous and 365 days or more
during the four years immediately proceeding previous year
(c) All of the above
(d) None of the above
13. The HUF is said to be resident in India if _______________.
(a) The control and management of its affairs is wholly or partly situated in India
(b) The control and management of its affairs is partially situated out of India
(c) The control and management of its affairs is wholly or partly in out of India
14. The awards and rewards are exempted from Income Tax if _______________.
(a) Payment is in cash (b) Payment is in kind
(c) Payment is in cash or in kind (d) None of the above
15. Income received in India whether occurred in India or outside India, the tax incidence in case
of resident is _______________.
(a) Taxable as per slabs (b) Exempted from tax
42
(c) Partly exempted (d) None of the above
of resident but not ordinarily resident is _______________.
(a) Taxable as per slabs (b) Exempted from tax
of non-resident is _______________.
(a) Taxable as per slabs (b) Exempted from slab
All in One Multiple Choice Questions 3
18. Income deemed to be received in India whether occurred in India or outside India, the tax
incidence in case of resident is _______________.
(a) Taxable as per slabs (b) Exempted from slab
19. The income received and accrued outside India from a business controlled or profession set
up in India, the tax incidence in case of resident is _______________.
(a) Taxable (b) Non-taxable
(c) Partly taxable (d) None of the above
20. The income received and accrued outside India from a business controlled or profession set
up in India, the tax incidence in case of non-resident is _______________.
21. The tax incidence for company or firm in which income received in India and company is
resident is _______________.
43
22. The tax incidence for company or firm in which income received in India and company for
non-resident is _______________.
23. The tax incidence for company or firm in which income received outside India from a source
controlled from India for resident is _______________.
24. The tax incidence for company or firm in which income received outside India from a source
controlled from India for non-resident is _______________.
(a) Non-taxable (b) Taxable
25. _______________ is exempted from income tax.
(a) Interest from Indian company (b) Dividend from foreign company
(a) Cooperative dividend (d) Dividend from Indian company
26. Which section of the Income Tax Act exempted incomes have been mentioned?
(a) Section 80C (b) Section 80DD
(c) Section 10 (d) Section 2
27. _______________ of Income Tax Act is related to residential status.
(a) Section 2 (b) Section 6
28. Resident of India includes _______________.
(a) Ordinarily resident (b) Not ordinarily resident
(c) NRI (d) Both (a) and (b)
44
29. The Company may have the residential status as _______________.
(a) Resident or Non-resident (b) Not ordinarily resident
(c) Non-resident (d) Resident
30. The meaning of exempted income is _______________.
(a) Not included in total income (b) Agricultural income
(c) Not taxable under income tax (d) All of the above
31. The number of income source for a person are _______________.
(a) One head (b) Two heads
(c) Various heads (d) Any of the above
32. The sum of various heads is called as _______________.
(a) Taxable income (b) Total income
(c) Gross total income (d) Adjusted income
33. The agricultural income includes _______________.
(a) Income from sale of crop (b) Income from preparation of crop
(c) Income from nursery (d) All of the above
34. _______________ comes under agricultural income.
(a) Tea garden (b) Commodity farming
35. If the agricultural income is _______________, then the agricultural income is considered for
calculating tax.
(a) More than ` 5,000 and total income is exceeding exemption limit
(b) More than ` 5,000
(c) More than ` 10,000
(d) Any amount
45
36. The Income Tax Act, 1961 broadly covers _______________.
(a) Basic charging income
(b) Rebates and reliefs
(c) Incomes exempted from income tax
37. The capital gain is chargeable under _______________ of Income Tax Act.
38. The definition of the person includes _______________.
(a) An individual
(b) A company
(c) A Hindu undivided family
39. Any rent or revenue derived from land which is situated in India and is used for agricultural
purpose is _______________.
(a) Partially taxable (b) Fully taxable
(c) Exempted from tax (d) None of the above
40. Residential Status of an assesses can be _______________.
(a) Different for different previous year in the same assessment year
(b) Different for different assessment year
(c) None of the above
41. The income of previous year is chargeable to tax in the _______________.
(a) Immediately succeeding assessment year
46
(b) Same previous year
(c) Immediately preceding academic year
42. The interest on loan paid by the Government of India to a non-resident outside India is
_______________ in India.
(a) Not taxable (b) Partially taxable
(c) Taxable (d) Can’t say
43. An individual is resident and ordinarily resident of India if _______________.
(a) Person had been resident in India at least 2 out of 10 previous years immediately
preceding the relevant previous year
(b) Person been in India for a period of 730 days or more during 7 years immediately
preceding the relevant previous year
44. The Resident HUF is ordinarily resident in India, if _______________.
(a) He has been resident in India at least 2 years out of 10 previous years immediately
(b) He has been resident in India at least 3 years out of 10 previous years immediately
(c) He has been resident in India at least 2 years out of 5 previous years immediately
45. Basic condition will be for a person who leaves India for employment _______________.
(a) At least 182 days in India
(b) At least 60 days in previous year and 365 days in preceding 4 years
(c) At least 730 days in preceding 7 years
46. Which of the following is not included in the term Income under the Income Tax Act, 1961?
47
(a) Reimbursement of travelling expenses
(b) Profits and gains of business or profession
(c) Dividend
(d) Profit in lieu of salary
47. The term income includes the following types of incomes.
(a) Illegal (b) Legal income from India only
(c) Legal (d) Legal and illegal both
48. _______________ is the casual income.
(a) Interest received (b) Dividend income
(c) Pension received (d) Winning from lotteries
49. The way of tax liability by taking full advantage provided by the Act is _______________.
(a) Tax management (b) Tax avoidance
(c) Tax planning (d) Tax evasion
50. Mr. A, partner of M/s ABC, is assessable as _______________.
(a) Firm (b) An individual
(c) Body of individual (d) HUF
Answer Key of Chapter 1
1 (a) 11 (c) 21 (a) 31 (d) 41 (a)
2 (d) 12 (c) 22 (a) 32 (c) 42 (a)
3 (d) 13 (a) 23 (a) 33 (d) 43 (c)
4 (c) 14 (c) 24 (a) 34 (c) 44 (a)
5 (b) 15 (a) 25 (d) 35 (a) 45 (a)
6 (d) 16 (a) 26 (c) 36 (d) 46 (d)
7 (b) 17 (a) 27 (b) 37 (a) 47 (d)
48
8 (b) 18 (a) 28 (d) 38 (a) 48 (d)
9 (d) 19 (a) 29 (a) 39 (c) 49 (c)
10 (a) 20 (b) 30 (d) 40 (b) 50 (a)
Unit II
CHAPTER: 1
INCOME FROM SALARY
TAXABLE SALARY √
1. BASIC SALARY, ADVANCE SALARY, ARREAR OF SALARY,

REMUNERATION FOR EXTRA WORK, FOREGOING OF SALARY - Entirely
Taxable.
2. BONUS, COMMISSION, FEE, EX-GRATIA
Bonus, Commission, Fee, Ex-gratia received by an employee is included in his income
from salary. Bonus, Salary in lieu of notice is taxed on receipt basis.
3. GRATUITY
49
Gratuity is paid to an employee as a retirement benefit for his long and meritorious
service. Exemptions u/s 10(10) are calculated as under:
Exemption U/S 10(10)
Notes:
1. In Case (3) half month’s salary has to be calculated on the basis of last 10 months
average salary immediately preceeding the month in which employee retires. Futher
salary for that period includes. Basic salary, dearness allowance if the term of
employment so provide and commission based on sales.
2. Completed years of service means : Total period (Present + Past)
3. In case where the employer has received gratuity in any earlier year from his former
employer and also received gratuity from another employer in a later year, the limit
of Rs. 3.5 lakhs will be reduced by the amount of gratuity exempt from tax in any
earlier year.
4. In case of piece rated employee for calculating 15 days salary, daily wages shall be
computed on the average of the total wages received by him for a period of 3
months immediately preceding the termination of employment.
5. In case of seasonal employment, Instead of 15 days, 7 days shall be taken.
4. PENSION:
Pension is a periodical payment received by an employee after his retirement.
Exemptions u/s 10(10A) are calculated as under.
Exemption on Pension U/S 10(10A)
Uncommuted Pension Commuted Pension or Periodically or Lumpsum Fully Taxable
Govt./Semi Govt. Employees Non Govt. Employees Fully exempt
Gratuity Gratuity not received received 1/3rd of commuted 1/2 of commuted value of
normal value of normal pension receivable pension receivable would be exempt would
be exempt.
5. ENCASHMENT OF LEAVE
Any amount received by an employee in lieu of leave is taxable.
Exemption on Encashment of Leave U/S 10(10AA)
During the course of service At the time of retirement Central or State Govt.
Employee Non Govt. Employee (excluding local authority)
Note:
1. Average salary is to be calculated on the basis of actual salary drawn immediately 10
months preceding the date of retirement. Salary for this purpose includes D.A. If
in term of retirement benefit and commission based on sales.
50
IMPORTANT:
Leave salary paid to legal heirs of a deceased employee at the time of his/her death is
not taxable as salary. (Letter No. 35/1/15 dated 5/11/65)
6. PROVIDENT FUND
OBJECT:
Provident fund scheme is a welfare scheme for the benefit of the employees. Under this
scheme, certain sum is deducted by the employer from the employee’s salary as his
contribution to the provident fund every month. The employer also contributes a certain
percentage of salary of the employees to the P.F. These contributions are deposited or
invested. The interest on these investments is also credited to the P.F. account of the
employee. The balance thus keeps accumulating year after year. At the time of
retirement/ resignation, the accumulated amount is given to the employee.
TYPES:
(1) Statutory Provident Fund (SPF): This fund is set up under the provident fund
act 1925. The scheme under this act is mainly meant for Govt. employees/
Semi-Govt. employees/ University/ Educational Institution affiliated to the
universities.
(2) Recognised Provident Fund (RPF): RPF scheme is a scheme to which the P.F.
Act. 1952 applies. According to P.F. Act. 1952 any person who employs 20 or
more employees after three years of its establishment is under an obligation to
register himself under the PF Act.1952 and start PF Scheme for the employees
in his organisation.
(3) Unrecognised Provident Fund (URPF) : The scheme started by the employer
and the employees in an establishment, although approved by commissioner of
PF but not approved by the commissioner of Income – Tax is called URPF.
(4) Public Provident Fund (PPF): This is a scheme which is covered under public
provident fund 1968. Any member of the public, whether in employment or
not, may contribute to this fund by opening a provident fund account at any
branch of the State Bank of India or its subsidiaries. The basic object
of Govt. behind PPF is to mobilize personal saving. The employee can deposit
money under PPF. In this scheme there is no employer’s contribution. The
minimum contribution to this fund is Rs. 500/- and maximum Rs. 70,000/ per
year. The contribution made to this scheme alongwith interest is repayable
after 15 years.
(5) Approved Superannuation Fund (ASF): ASF means Superannuation Fund
which has been approved by the Chief Commissioner of Income Tax. It is
retirement benefit plan for employees. The basic object is to provide annuities
to the employees of the undertaking on their retirement after a specified age.
Under this scheme both employer and employee contribute.
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Treatment of Provident Fund for Income Tax Purpose:
Fund Employee’s Employer’s Interest on Payment of lump sum contribution
contribution provident amount on retirement or
Fund resignation or termination
SPF (Statutory Assessee can fully exempt Fully exempt Fully exempt U/S 10(ii)
Provident Fund) claim rebate U/S 10 U/S 10 U/S 80C
RPF -do- Taxable over Taxable over and Exempt if service for more (Recognised and
above 12% above 9.5% p.a. than 5 years or termination Provident Fund) of Salary*
Interest credited of service because of ill in excess of 9.5% health or discontinuance of
p.a. is included in business or balance gross salary transferred to another employer.
URPF Assessee Not taxable in Not taxable - Accumulated employer (Unrecognised can
not claim the year of in the year of contribution + interest on Provident Fund) rebate
U/S 80C contribution. contribution employer contribution (till date) is taxable as salary
Accumulated employee contribution is not income but interest on such contribution is
taxable in other sources.
PPF Assessee can N.A (As only Fully exempt Fully exempt (Public claim rebate
employee U/S 10(ii) Provident Fund) U/S 80C contribution and employer does not
contribute)
ASF -do- Fully exempt Fully exempt Generally exempt if payment
(Approved U/S 10 U/S 10 U/S 10 is on the death of
Superanmnution beneficiary to the legal heir or Fund) payment is given to employee in
lieu of commutation of any annuity on his retirement at or after specified age or on his
becoming incapacitated prior to such retirement.
Notes:
1. *Salary means Basic Salary + DA. If the term of employment so provide +
commission on sales.
2. Un-recognised superannuation fund is treated as point No. 3 URPF.
3. Transferred balance of URPF when it is converted in RPF: URPF will be treated as
RPF right from the beginning, contribution by the employer every year in excess of
12 % of his salary (from A.Y. 1998-99) + Interest credited to the provident fund
every year in excess of 9.5 % p.a. (from 1.4.2001) shall be aggregated till the date
of conversion of the URPF to RPF. This aggregate amount is called Transferred
balance which will be included in the gross salary of the previous year in which
conversion took place.
7. PERQUISITE SECTION 17(2):

Section 17(2) gives an inclusive definition of ‘perquisite’. As per this Section
‘perquisite’ includes:
52
(i) the value of rent-free accommodation provided (used or not) to the assessee by
his employer;
(ii) the value of any concession in the matter of rent respecting any accommodation
provided (used or not) to the assessee by his employer;
(iii) the value of any benefit or amenity granted or provided (used or not) free of cost
or at concessional rate in any of the following cases (specified employee):
(a) by a company to an employee, who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the
company;
(c) by any employer (including a company) to an employee to whom the provision of
clause (a) and (b) do not apply and whose income under the head of Salaries
(whether due from, or paid or allowed by, one or more employer), exclusive of the
value of all benefits or amenities not provided for by way of monetary payment,
exceeds Rs. 50,000 (Rs. 24,000 upto assessment year 2001-02).
Except ‘employee stock option plan’ proviso to (iii) above;
(iv)any sum actually paid by the employer in respect of any obligation on behalf of the
employee;
(v) any sum payable (not necessarily paid) by the employer to effect an assurance on
the life of the employee or to effect a contract for an annuity;
(vi)the value of any other fringe benefit or amenity as may be prescribed (Inserted
w.e.f. assessment year 2002-03). Note:
(a) Definition of ‘Substantial Interest’ : In relation to a company, means a person who
is the beneficial owner of shares, not being shares entitled to a fixed rate of
dividend whether with or without a right to participate in profits, carrying not less
than 20% of the voting power.
(b) Substantial interest need not be held throughout the previous year.
(c) To be specified as a director in the company, the person should also be an
employee of the company. However, it is sufficient even if he is the director for
just a day. Further it does not matter whether he is a full time or part time or
nominal director.
(d) For calculation of ceiling of Rs. 50,000, deduction is made for
Monetary payments exempt from income tax
Entertainment allowance
Professional Tax
The ceiling is computed with reference to aggregate monetary payments received from
all the employers during the previous year.
Valuation of Perquisites
Always Taxable Tax Free Perquisites for Perquisites taxable in case of (Specified &
Non-specified) all employees Specified employee only. (S)
53
1. Rent free accommodation (note-1) 1. Medical facility (note-3) 1. Motor Car
facility(note-6) 2. Concessional rent accommodation 2. Refreshment (if meals upto
Rs.50) 2. Servant facility (note-7) 3. Obligation payments 3. Recreational facility
provided to a 3. Gas, Light & Water 4. Employer contribution to employees group of
employee (not being facility (note-8) for Life Assurance & Annuity restricted to a
selected few 4.Education facility(note-9) (other than RPF, ASF and Deposit employees)
by employer is 5. Free transport facility Linked Insurance Fund) not taxable. (note-10)
5. Fringe Benefits as prescribed 4. Loan to employee 6. Others (note-2) (if less than Rs.
20,000) (a) Interest free loan 5. Perquisites outside India (if more than Rs. 20,000). 6.
Training to employees (b) Traveling, Touring, 7. Rent free house & Accommodation,
Expenses conveyance to judge for any Holidays. 8. Rent free house to officials (c) Free
meal, tea & snack to parliament (if meal above Rs. 50). 9. Rent free house in remote
area (d) Gift voucher or token 10.Educational facility (if more than Rs. 5,000). if Less
than 1000 p.m. per children (e) Expenses on credit cards 11.Laptops & Computer
facility (f) Club membership & expenses. owned by employer and used (g) Use of
movable assets by employee or his family members. (h) Transfer of moveable asset
12.Mobile and Telephone Facility (i) Any other benefit or amenity 13.Employers
contribution to pension deferred annuity scheme and staff group insurance 14. LTC
(note-4) 15.Accident policy taken by employer 16.Employee stock option plan (As per
guidelines of CG) 17.TAx on perquisites paid by employer.
Notes:
Specified employee means:
(i) Director employee

(ii) Substantial interest employee
(iii) Employee whose income from salary is greater than Rs. 50,000 [Salary means
Basic + D.A.+ Bonus + Comm. + Taxable Allowances
/ Perquisites (excluding benefits of non monetary nature) – Standard Deduction –
Entertainment Allowance – Employment Tax.]
Obligation payment v/s Perquisites v/s Allowances: Some examples
Obligation Payment Perquisites Allowance (Cash & Not Fixed) (in Kind) (Cash &
Fixed) Entirely taxable Valued as per rule 3 Exemptions are provided U/S 10
Reimbursement of house House facility provided House rent allowance rent paid by
employee. by employer. Gas, Light & Water Gas, Light & Water For Gas, Light &
Water connection in the name connection in the allowance of employee and name of
employer. expenses are reimbursed Servant are employed by Servant are engaged by
Servant allowance. employee and his salary employer & rendering reimbursed. Service
to employee.
Note - 1: Valuation of Rent Free Accommodation Valuation Central/State Govt.
Employees Accommodation not in Hotel Accommodation in Hotel In accordance with
54
the When House in When House is For Private purpose For office purpose rule framed
by the Govt. taken on Lease/ owned by Rent employer 24% of
Salary or Fully exempted
Actual Hotel Charges Whichever is lower
15% of Salary If City Polulation > 25 Lacs 15% of or actual amount Salary is valuation
of lease/rent Other Cities which ever is If population 10-25 lacs population - 10% of
salary. Lower is valuation If population upto10 lacs population - 7.5% of salary.
Points:
(i) Salary means = Basic Salary + D.A. (If included for retirement benefits) +
Commission based on sales + Bonus, Fees, Commission + Taxable Entertainment
Allowance + All Other Taxable Allowance.
(ii) Accommodation includes House, Flat, Farm House, Hotel, Guest House, Ship,
Mobile Home.
(iii) If employee received salary from more than one employer, the aggregate of the
salary received from both employer has to be taken even accommodation has been
provided by one employer.
(iv) The above rule is not applicable in following cases
House in remote area located Off Shore Area House provided at new place of
40k.m. away from town of posting with retaining old population <20,000 house
upto 90 days One House values
(v) If furnished house facility
First of all valuation of unfurnished house facility will be done as discussed above √
Add : If employer is owner of furniture 10% p.a. cost of furniture. √ (Including T.V.,
Radio, Refrigerator, A.C.) or If such furniture is hired from third party actual hire
charges Value of benefit from furnished house facility √
(vi) If concessional house facility Furnished / Unfurnished valuation as discussed
above √ Less : Concessional amount rent charges
√ Value of benefit from concessional house facility √
(vii) Hotel Accommodation
If accommodation is provided for a period not exceeding 15 days at the time of transfer
from one place to another. It will not perquisite hence not valued. Otherwise 24%
of salary or rent paid.
(viii) If two accommodations are provided at the time of transfer then value of benefit
from accommodation will be as follows
55
(a) Till 90 days — one accommodation’s value of benefit as perquisites
(accomodation of lower value)
(b) More than 90 days — both accommodation’s value of benefit as perquisites
Note - 2:
(a) Interest Free Loans
The value of benefit to employee or any member of his household during the previous
year shall be determined accordance with rate charged by the State Bank of India as
on the first day of the relevant previous year.
The different rates of interest charged by the State Bank of India as on 1.4.2009 were as
below :
Nature of Loan Rate of Interest
(per annum)
Housing Loan Upto 5 years 9.75%, 10.25%
Above 5 years 10%, 10.5%
Above 15 years but upto 25yrs 10.25%, 10.75%, 11%
Car Loan Upto 3 years (<7.5 lacs) 11.50%
Above 3 years 11.75%
Above 5 years 12.00%
Education Loan Upto 4 lacs 11.75%
Above 4 lacs but upto 7.5Lacs 13.25%
Loan amount above Rs. 7.5 Lacs 12.50% Personal Loan —
16.50%
Exemption if :
— Loans are petty not exceeding Rs. 20,000/-
— Loans is for medical treatment in respect of specified disease. (b) Value of traveling,
stay and other expenses borne by the employer for holiday availed.
Circumstances Value of benefits
(i) Where such facility is maintained by the employer Value at which such facilities are
offered by and it is not available uniformly to all employee. other agencies to the public.
(ii) Where the employee is on official tour Amount of actual expenses incurred. and
expenses are incurred in respect of any member accompanying him.
(iii)Where any official tour is extended Expenses incurred for such extended as a
vacation. period of vacation.
56
(iv)In any other case where such facility A sum equal to the amount of the
given to the employee or any member expenditure incurred by the employer of his
household.
Less : Amount paid / Recovered from the employee for such benefit or amenity.
(c) Value of free meals, tea and snacks [Rule 3 (7)(iii)] Circumstances Value of Benefit
(i) Tea or snacks provided during office hours. Nil

(ii) Free meals during working hours provided in a : Nil (a) Remote area; or (b) an off
shore installation.
(iii) Fee meals provided by the employer during office hours : (a) at office or
business premises; or Nil, If value thereof in either case is (b) through paid vouchers
which are not upto Rs. 50 per meal transferable and usable only at eating joints. (iv)
In any other case Actual cost to the employer
Less : Amount paid or recovered from the employee for such benefit or amenity.
(d) Value of any gift, voucher or token [Rule 3 (7)(iv)]

Gift voucher or token in lieu of which such gift may be received by employee or by any
member of his house hold on ceremonial occasion (like Deepawali, New Year,
Anniversary of any organisation) is exempted below Rs. 5,000 p.a.
IMPORTANT:
Gifts made in cash or convertible into money like gift cheques etc. are taxable.
(As per CBDT circular)
(e) Expenses on credit card [Rule 3(7)(v)]

Circumstance Value of Benefit
(i) Expenses including membership fees Amount paid for or reimbursed by the
and annual fees charged to a credit employer
card or add on card provided by Less : amount paid or recovered from
the employer. Paid or reimbursed by the employee the employer for
expenses other than official purpose.
(ii) Official purpose Nil
Specified conditions to be fulfilled to claim that expenses have been incurred wholly
and exclusively for official purposes:
(a) complete details in respect of such expenditure is maintained by the employer

which may, inter alia, include the date of expenditure and the nature of
expenditure;
(b) it is certified by the employer that such expenditure was incurred wholly and
exclusively for the performance of official duty;
57
(c) the supervising authority of the employee gives a certificate for such expenditure
to the effect that the same was incurred wholly and exclusively for the
performance of official duties;
(d) where an employee incurs expenditure on entertainment and claims the same to
have been incurred wholly and exclusively in the performance of his duties,
details of such entertainment expenses, inter alia, include the nature and purpose
of entertainment and persons entertained.
(f) Club membership and expenses incurred in a club
Circumstance Value of Benefit
(i) The payment for reimbursement by the The actual amount of expenditure employer
of any expenditure incurred incurred or reimbursed by (including the amount of annual
or periodical the employer. pay) in a club by the employee or by any Less amount paid
or recovered from member of his household for any purpose employee.other than
official purpose.
(ii) Where the expenses are incurred wholly and exclusively for official purposes and
the conditions specified are fulfilled.
Income from Salary
1) Explain the various components of salary with relevant examples.

2) Taking imaginary figures and lay down the various steps involved in
computing income from salary.
3) What are retirement benefits explain the various types of of provident fund
along with the tax provisions.
4) Explain the term gratuity. What are the various provisions related to
computing exempt amount on gratuity in case of both Government and non
Government employees.
5) Define any five allowances that are partly taxable and partly exempt
allowance.
6) What are perquisites? Explain the steps involved in computing rent free
accommodation in case of government as well as non Government employees.
58
7) Differentiate between perquisites and allowances.
8) What do you mean by a company? How to determine the residential status of
the company.
9) Determine the taxable amount of gratuity if Mr. X received Rs 15,00,000 as
gratuity on retirement after completing 23 years of service and if he is a
government employee and also in case if he is a non-government employee.
Link for MCQ:

http://studymaterial.unipune.ac.in:8080/jspui/bitstream/123456789/6473/1/INCOM
E%20TAX%20%20SALARY%20%20MCQ%20-%20TY%20B%20COM%20-
.pdf
MCQ on Income from Salary
1. Income tax rates are fixed in…

A) Income tax Act
B) Finance Act
C) Income tax rules
D) Finance rules
… Answer is B)
2. A person with the age of ………… or more is considered as a super senior citizen
as per Income tax Act
A) 80
B) 70
C) 50
D) 60
… Answer is A)
3. Rebate of Income tax is defined as per section …

A) 81A
B) 81C
59
C) 87A
D) 87C
… Answer is C)
4. Section 2(9) of Income tax deals with
A) Assessment Year
B) Person
C) Assessee
D) None of this
… Answer is A)
5. CBDT is control by
A) State Government
B) Central Government
C) Both (A) and (B)
D) None of this above
… Answer is B)
6. A Company has …… types of residential status
A) 2
B) 3
C) 1
… Answer is A)
7. Who is assessee in case of a HUF?
A) Deemed Karta
B) Coparceners
C) Karta
D) None of Above
… Answer is c)
8. . Expenditure incurred on exempted income is ……… as deduction
A) Not Allowed
B) Partly Allowed
C) Fully Allowed
D) None of Above
… Answer is A)
9. Dividend from an Indian Company is ……
A) Fully Taxable
B) Partly Taxable
60
C) Fully Exempted
D) None of these
… Answer is C)
10. Income exempted from tax are stated in the section……. Of Income Tax Act.
A) 5
B) 10
C) 12
… Answer is B)
11. The highest Administrative Authority for Income Tax in India is….
A) President of India
B) Finance Minister
C) CBDT
… Answer is C)
12. Gratuity is defined as per section …
A) 10(10)
B) 10(10AA)
C) 10(10A)
… Answer is A)
13. Bonus paid by the employer to the employee is
A) Fully Taxable
B) Partly Taxable
C) Fully Exempted
D) None of these
… Answer is A)
14. When an URPF is recognized, the balance so transferred is called
A) Recognized Balance
B) Transferred Balance
C) Transferred PF
… Answer is B)
15. Salary is defied as per section
A) 17(1)
B) 17(2)
61
C) 16(1)
… Answer is A)
16. Payment made by an employer to employee monthly, other than salary is
called
A) Bonus
B) Allowances
C) Benefits
D) None of these
… Answer is B)
17. HRA is …
A) Fully Taxable
B) Fully Exempted
C) Partly Taxable
D) None of these
… Answer is c)
18. Which Rule explain the taxation of HRA
A) 2A
B) 2
C) 2AA
D) 2AAA
… Answer is A)
19. If the assessee is living in own house HRA is
A) Fully Taxable
B) Partly Taxable
C) Fully Exempted
D) None of these
… Answer is A)
20. Entertainment allowance is allowed as a deduction as per section
A) 16(i)
B) 16(iii)
C) 16
D) 16(ii)
… Answer is D)
62
CHAPTER: 2
INCOME FROM HOUSE PROPERTY
SECTION 22 TO 27
63
Sec 22 Charging section.
Sec 23 Annual value.
Sec 24 Deduction from NAV.
Sec 25 Subsequent recovery.
Sec 26 Co ownership.
Sec 27 Deemed owner.
[A] General Points
1) The head income from house property covers sec 22 to 27 of the income tax act.
Sec 22 is the charging section of the head “ income form house property”
2) Under the head “Income form house property” we are interested to compute
income form the rental, income earned by the assessee from letting out of the
property not the profit on sale of house property.
3) The word “house property” includes residential house, office, go down,
showroom and any other commercial premises.
4) It is not necessary that the property must be let out through the year up to one
person only or at the same amt of rent
5) The truly speaking the head “Income form house property” is national head of
income. This is because of the fact that sometimes income will be considered
even if there is no actual income or higher income will be considered if actual
income is lower.
6) Conditions
64
Sec 22 lays down certain conditions. There are three such conditions these
conditions are cumulative. It means all the three conditions are satisfied then
the rental income will be taxable under the head income from house property.
a) There must be house property.

It is necessary that there must be house property. House property means the
building or superstructure (structure) supported by walls and roofs which can be
used by human beings. It includes land appurtenant (closely affected) to the
house property. It means there must be a house property or land appurtenant
thereto for e.g. rental income earned from let out a vacant plot of land is not
taxable under this head.
b) The assessee must be owner of house property.

To charge income under this head assessee need to be the owner of the property
rent received not as an owner is not taxable under this head.
For e.g. rent received from the property is not taxable under the income from
house property.
c) The property must be not used by the assessee for the purpose of his own
business or profession the income of which is chargeable to tax.
7) Temporary let out by builder
If all the above conditions are satisfied then income is taxable under this head.
This is true even if in the case of builder who has constructed the building for
selling purpose by let out the same temporary. In short if builder lets out the
building (stock in trade) then also rental income is taxable under the head
income formh.p.
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8) Business of letting out of property
If assessee is having business of owning and letting out of property rental

income will be chargeable to tax under the head income from h.p. only because
all the above conditions are satisfied.
9) Let out of quarters to the employees
If employer has given the quarters on rent to their employees then the rental
income will be chargeable to tax under the head income from business and
profession not under the head income formh.p.
This is because the fact that letting out of property is incidental and
subservient to the main activity of business therefore the rental income will be
charged to the tax under the head income from b & p (Delhi & general mills ltd
v/s commissioner of income tax)
10) Letting out of property to support

business activity
When the house property has been let out to banks police station etc. To
support the main business activity rental income from business and professing
or not under the head income from h.p.
11) Composite let out
Both are separable both are inseparable
(e.g. H.P + car) (E.g. classes)
66
Rent charged rent charged if it is business
not business
Separately is common (sec 28) (sec

56)
Rebate if rent of reduce the exp of other
h.p. Other assets assets and balance is taxed (Sec 22) (Sec
28or 56) (Sec 22)
[B] Basis of charge (Sec 22)
Income from house property is taxable on “due basis”. It means rental

income becomes due it is irrelevant or see in which year such rent has actually
been collected.
[C] Types of properties for I.T. purpose
a) let out property (lop)

b) self occupied or unoccupied property (so or Up)
c) partly let-out property (plop)
d) deemed let-out property (DLOP)
Computation of income from house property
67
Particular amt amt
Gross annual value (GAV)
xxx
(-) Municipal taxes paid net annual value
(xxx)
Net annual value
xxx
(-)Deduction u/s 24
1) Statutory deduction (sec 24a) [30% of NAV] xxx

2) Interest on borrowed capital (sec 24b)
xxx (xx)
Income from House Property XXX
[E] Gross annual value (sec 23)
Gross annual value is always the starting point for computation of income from h.p.
G.A.V. means rental value of the property being an annual value the rental value should
always be calculated for one year. This is true even in a case where the H.P is letout of
for a part of the year and it was empty or vacant for another part of the year G.A.V. is
68
an annual value before any deductions for determination of G.A.V. the following four
types of rent are considered.
i) Municipal value
Municipal value is the rental value of the property as recorded by
the municipal corporation. In other words it is the total rent for which
property may be let out according to Municipal Corporation.
ii) Fair Rent

Fair rent means the rent at which the property can reasonably be expected
to let out on month to month basic. It is let out to a common man and rent
charged is the sole consideration.
iii) Standard Rent

Standard rent means the rent determined as per provisions of the rent
control act. It is celling limit for the rent to be charged. In other words rent
control act specifies the maximum rent to be charged far rent can not exceed
standard rent
iv) Actual rent

Actual rent means rent received or receivable for the property
which is let out based on above G.A.V. can be determined as under.
Particular Amt (Rs)

a) municipal value xxx
b) fair rent xxx
c) hire of (a) and (b) xxx
d) standard rent xxx
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e) lower from (c) and (d) xxx
f) actual rent (excunrec)
xxx
g)higher of (e) and (f) xxx
Notes
1) If property is let out and also vacant during any part of the P.Y then actual
rent received or receivable will be cal n only for the period during which the
property was let out in other wards the actual rent for the period during
which the property was vacant will be excluded by calculating the actual rent.
For e.g. if a property is let out at Rs. 5000/- p.m. for 8 months then
actual rent ill be (5000 x 8) Rs. 40000/- and not Rs. 60000/- (5000 x 12)
2) If the let out property is vacant (as per point 1 above ) due to such vacancy
only the actual rent received or receivable ……. Less than the expected rent
the actual amt so received or receivable shall be deemed to be a G.A.V.
For e.g. if the expected rent (after considering municipal value and
standard rent) is Rs. 50000/- p.a. and actual rent received is Rs. 40000/- for 8
month then Rs. 40000/- will be G.A.V. this is because I the property would
have been let out for 12 month actual rent would have been more than the fair
rent (Rs. 60000/-) on the other hand if actual rent received is Rs. 40000/- for 12
month than Rs. 50000/- being higher will be treated as G.A.V.
[F] Municipal Taxes
70
Municipal taxes are the taxes laid by the local authority on the property. It is allowed
on payment bases. In other words it is allowed in the year in which it is paid y the
assessee it is irrelevant to see whether it is paid for past p.y. present p.y. or future p.y.
[G] Deduction from NAV (SEC 24)
Sec 24 gives a list of expenses which are allowed as a deduction while computing
income from h.p. sec 24 provides an exhaustive list. In other words only those
deductions are allowed which are specified in sec 24 any other expanses even though
incurred on h.p. will not allowed as deduction.
Under this section following tow deductions are allowed.
a)Statutory deduction (sec 24a)
Under the head statutory deduction statutory education are allowed to

repairs and collection cost etc incurred the assessee for the purpose of h.p. it
is allowed at a fix rate of 30% of NAV IRRESPECTIVE OF ACTUAL
EXPENSES INCURRED FOR THE PURPOSE. IN OTHER WORDS
ACTULA EXP UCURRED (IF ANY) SHOULD BE IGNORED.
d)Interest on borrowed capital (sec 24b)
The interest on capital borrowed by the assessee for the

purpose f the h.p. will be allowed as a deduction while computing income
from h.p. for this purpose following points would be noted.
1) The loan may be taken for the purpose of purchase construction

repairs or reconstruction of property.
2) The interest is allowed as a deduction whether paid or payable.
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3) Interest on new loan taken to repay the old loan which also be
allowed as dedication
4) Interest on interest i.e computed is not allowed likewise interest
on any loan taken to pay the interest of original loan will not be
allowed as a deduction.
5) Any brokerage commission fees or other remuneration by
whatever name called paid to arrange the loan ill not be allowed
as deduction.
6) Current year interest will be allowed …….full. However
reconstruction period interest will be allowed in part over certain
years. Current ear interest means interest paid or payable y the
assessee for the current p.y. it should be altered from the year p.y.
which construction is completed. 7)Pre construction period
interest
Pre construction period interest will be allowed in five
annual equal installments.
i) it is allowed form the year in which construction is

completed for the first five years only.
ii) Based on this if can be said that for the first five years
after construction total interest allowed will be pre-period
interest + current year interest.
iii) Pre construction period means period starting form the
date on which loan is taken and ending on 31st march
period to the year in which construction I completed.
8)In case when property is let out interest will be allowed in full without
any restrictions what’s ever this is true even if interest is more
than N.A.V.
Property tax if given on a consolidated basis can be
72
………………….as attributable to each such portion or floor on a
reasonable basis floor area or annual value can be considered as
the appropriate basis or such …………………………
Interest expenditure relating to the let out floor can be claimed fully without any
restriction and the interest attributable shall be allowed up to rs 30000/- or Rs.. 150000/-
as the case may be the treatment applicable to self occupied property is same as
explained earlier.
(ii) house property:-
Let out for a period and self occupied for a period.
If a single unit of the property (house, flat, tenement etc) is self occupied for few
months and let out for other months then such a property may also be owned as partly
let out. In this case while calculating G.A.V on the property actual rent should be taken
only for let out portion other treatment shall be as above.
[L] When there is unrealized rent
If any amt of rent is dot’ capable of being realized then such potion of rent shall not be
included in computing the G.A.V. However if to exclude such unrealized rent the
condition prescribe in relevant rule should be specified.
The exclusion of unrealized rent is permissible if the conditions prescribed under rule
(4) are satisfied (Notification no 198 of 2001 dated 2nd July 2001) this as under.
73
• The tenancy is bonafied.
• The defaultly tenancy has vacated or steps have been taken to compel him to
vacant the property.
• The defaultly tenant is not an occupation of any other property owned by the
assessee.
ARREARS OF RENT (SEC 25(d))
Where asessee receives any amt by way of arrears of rent in respect of any property
consisting of building or land apartment thereto of which assessee is the honors the amt
so received shall be chargeable to tax under the head “income from house property”
It shall be charged to tax as income of the P.Y. in which such rent is

received. Even if the assessee is no more honors of the property while computing the
income chargeable to tax in respect of arrears 30% shall be allowed as a statutory
deduction u/s 24(a). Consequently only 70% of arrears is charged to tax. The
deduction of 30% is irrespective of actual expense incurred.
CO OWNERSHIP (SEC26)
If a house property is an by two or more person then such person are not as co owner
are definite and as certain able the share of each person in the computed income of
property should be included in his total income on the other hand if their share is not
ascertainable then it will be called as an AOP [ i.e. association of person ] accordingly
assessment will completed.
It may be noted that the income will be computed as if it were on by one owner only.
At the same time consetional treatment in respect of SOP is applicable as if such person
is individually entitle to such relief.
74
DEEMED OWNER (SEC27)
Sec 22 is the charging sec of the head “income from h.p. it lays down three
conditions which must be satisfied to charge an income under the head income h.p.
accordingly one of the conation is that the assessee must be the owner o the
property. The owner for the purpose includes deemed owner u/s 27.
Sec 27 gives list of the situations o cases whereby assessee is deemed owner of the
property ever though legally he is not the owner of the property it should be noted
that sec 27 gives ownership only for the purpose of income tax and not of any other
property. There are as under.
• An individual who transfers any h.p. to his her spouse otherwise then for
adequate consideration and not being transferer will be treated as deemed owner
of the property. However if his spouse as paid adequate consideration then
transferer will not be treated as deemed owner of the property at the same time if
the assessee has gifted a sum to the spouse. Which spouse has given to the
assessee by the way of consideration for the h.p. transferred then transferer will
not be treated as deemed owner of the HP.
• The holder of an importable estate is deemed owner of the property.

• A member of co operative society or other association of person to whom
building or part thereof is allotted or leased under a house building scheme o the
society company or association as the case may be the member is deemed owner
of that building or part thereof
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• Any person who is allowed and to retain possession of any building in part
performance of a contract of the nature referred to sec 53 (a) of the transfer of
property act 1882 is deemed owner of the building or part thereof.
• A person who acquires any right in or with respect any building or part thereof y
virtue of any transaction whether by way of transfer of shares in a comparative
society company etc or by the way any agreement which has the effect of
transferring or enabling to endorsement of such property then such person is
deemed owner of the property under sec…………of the transfer of property
right which are acquire by the way of lease from month to month or a period of
not exceeding 1 year.
1. The Income from House Property is taxable in the hands of the individual even if property is
not registered in his name ______________.
(a) When the property has been transferred to spouse for inadequate consideration
(b) Where the property is transferred to a minor child for inadequate consideration
(c) Where the individual holds on importable estate
2. Under the Head Income from House Property, the basis of charge is the ______________ of
property.
(a) Annual value (b) Quarterly value
(c) Half-quarterly value (d) None of the above
3. The following conditions must be satisfied to charge the rental income under the head Income
of House Property:
(a) The property should consist of any buildings or lands
(b) The asssessee should be one of the property
(c) The property should not be used by the owner for the purpose of business or professional
purpose
76
4. Mr. Ram owns a house property. He lent it to Laxman at ` 10,000 p.m. Laxman sublet it to
Mr. Maruti on monthly rent of ` 20,000 p.m. Rental income of Ram is taxable under the head
______________.
(a) Income from Salary (b) Income from Other Sources
(c) Income from House Property (d) Income from Business
Mr. Maruti on monthly rent of ` 20,000 p.m. Rental income of Laxman is taxable under the
head ______________.
6. An individual who transfers house property without an adequate consideration to his owner
spouse or to minor child is called as ______________.
(a) Co-owner (b) Deemed Owner
(c) Owner Himself (d) None of the above
7. An individual is considered as a owner of the house property for the purpose of charging tax
to ______________.
(a) A member of cooperative society, company or AOP to whom a building or a part thereof
is allotted or leased under a house building scheme of the society.
(b) An individual who transfers house property without an adequate consideration to his
owner spouse or to minor child
(c) The holder of importable estate
8. The rental income of person who is resident of Ladakh is ______________ taxable under
77
Income from House Property.
(a) Fully taxable (b) Not taxable
(c) Partially taxable (d) None of the above
9. If the individual using the property for the business or professional purpose the income
taxable under the _____________ head.
(a) Income from House property (b) Income from HUF
(c) Income from Other (d) Income from Business or Proprietorship
10. If the assesses let out the building or staff quarters to the employee of business, the rent
collected from such employees is assessable as income from ______________.
(a) Business (b) House Property
(c) Other Sources (d) None of the above
11. The Gross annual value of the property is depends upon the ______________.
(a) Standard rent (b) Municipal Valuation
(c) Fair rent (d) All of the above
12. If Anil is entitled to basic salary of ` 50,000 p.m. and dearness allowance of ` 10,000 p.m.,
40% of which forms part of retirement benefits. He is also entitled to HRA of ` 20,000 p.m.
He actually lives with his parents in Mumbai and does not pay any rent. Market rent of that
house is ` 20,000 p.m. in Mumbai, then calculate the exempt HRA for Mr. Anil.
(a) Nil (b) ` 64,800
(c) ` 2,40,000 (d) ` 1,75,200
13. Calculate the Gross Annual Value from the following details:
Municipal Value ` 45,000
Fair rental value ` 50,000
Standard Rent ` 48,000
Actual Rent ` 42,000
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(a) ` 50,000 (b) ` 48,000
(c) ` 45,000 (d) ` 42,000
14. Which of the following is not a case of deemed ownership of house property?
(a) Transfer to a spouse for inadequate consideration
(b) Transfer to a minor child for inadequate consideration
(c) Holder of an importable estate
(d) Co-owner of a property
15. Interest on capital borrowed for acquisition or construction of property is deductible subject to
limit of _______________ per year, if capital is borrowed on or after 1-04-1999. This is
allowable if acquisition or construction is completed within 3 years from end of financial year
in which loan was taken.
(a) ` 1,50,000 (b) ` 2,00,000
(c) ` 1,80,000 (d) ` 2,50,000
16. For a self-occupied house property occupied on 1.7.2016, for which housing loan was availed,
if the interest up to 31.3.2016 is ` 90,000 and thereafter the interest payable is ` 3,000 p.m.,
the deduction available under section 24 in respect of interest for the year ended 31.3.2017 is
_______________.
(a) ` 50,000 (b) ` 45,000
(c) ` 54,000 (d) None of the above
17. If an assesses earns rent from a sub-tenant in respect to tenanted property let out as a
residence, the said rent is _______________.
(a) Exempted under Section 10
(b) Taxable under the head income from house property
(c) Taxable as business income, as the letting out is a commercial activity
79
(d) Taxable as income from other sources
18. An assesses, after sale of house property, receiving arrears of rent (is/is not) chargeable to tax;
the same computed in the stipulated manner, is chargeable to tax as _______________..
(a) Income from House Property (b) Income from Other Sources
(c) Either (a) or (b) (d) Neither (a) nor (b)
19. Arrear rent is taxable after deducting _______________ as per Section 25B of the Income
Tax Act, 1961.
(a) 30% (b) 35%
(c) 10% (d) 20%
20. Monish took a loan of ` 6,00,000 on 1.4.2014 from a bank for construction of a house. The
loan carries an interest @ 10% p.a. The construction is completed on 15.6.2016. The entire
loan is still outstanding. Compute the interest allowable for the assessment year 2016-17.
(a) ` 60,000 (b) ` 1,80,000
(c) ` 84,000 (d) ` 24,000
21. The value of interest-free concessional loans to employees is determined on the basis of
lending rates of _______________ for the same purpose.
(a) SBI (b) RBI
(c) Central Government (d) State Government
22. Value of rent-free accommodation in case of Government employee shall be taxable up to
_______________.
(a) 15% of employee’s salary (b) 8% of employee’s salary
(c) License fee fixed by Government (d) 10% of employee’s salary
23. Value of rent-free accommodation or a house owned by employer in case of non-government
employees with above 25 lakh population is _______________.
(a) 15% of employee salary (b) 7.5% of employee salary
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(c) 20% of employee salary (d) 10% of employee salary
24. Deduction for other expenses except interest in the computation of income from house
property is allowable to the extent of _______________.
(a) 25% of annual value (b) 10% of annual value
(c) 30% of annual value (d) 20% of annual value
25. Rate of depreciation on residential building is _______________.
(a) 10% (b) 20%
(c) 25% (d) 5%
26. House property held for less than 36 months is _______________.
(a) Short-term capital asset (b) Projected capital asset
(c) Exempted capital asset (d) Long-term capital asset
27. Mr. Shushant is the owner of a house, the details of which are given below the gross annual
value would be _______________.
Municipal value ` 36,000
Actual rent ` 32,000
Fair Rent ` 36,000
(a) ` 36,000 (b) ` 35,000
(c) ` 30,000 (d) ` 40,000
28. Sunil purchased a house for his residential purpose after taking a loan in January, 2016.
During the previous year 2016-17, he paid interest on loan ` 1,67,000. While computing
income from house property, the deduction is allowable to the extent of _______________.
(a) ` 30,000 (b) ` 1,00,000
(c) ` 1,67,000 (d) ` 1,50,000
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29. Expected rent shall be higher of ______________.
(a) Municipal value and standard rent (b) Fair rent and actual rent received
(c) Standard rent and fair rent (d) Municipal value and fair rent
30. Municipal Value ` 14,000, Fair rent ` 14,500, Standard Rent ` 14,200, Actual rent as
property let out throughout the previous year ` 16,800 and Unrealized rent of the previous
year ` 7,000. The annual value of the house property shall be ______________.
(a) ` 9,800 (b) ` 14,200
(c) ` 7,200 (d) ` 7,500
31. Interest on capital, borrowed on 10.10.2000, for self-occupied property is deductible up to a
maximum amount of ______________.
(a) ` 50,000 (b) ` 1,50,000
32. Deduction from annual value is allowed under ______________.
33. ______________ standard deduction from annual value is allowed.
(a) 10% (b) 20%
(c) 30% (d) 15%
34. Interest on loan for self-occupied house taken before 1st April, 1999 will be allowed up to
______________.
(a) ` 30,000 (b) ` 1,50,000
(c) ` 10,000 (d) ` 50,000
35. Deduction allowed from annual value is ______________.
(a) Interest on loan for constitution (b) Interest on loan for repair
82
(c) Statutory deduction (d) All of the above
36. An individual assesses can show maximum loss of ______________ from a self-occupied
residential house property.
(a) ` 1,50,000 (b) ` 30,000
(c) ` 20,000 (d) ` 5,00,000
37. The Annual Value has been defined under ______________ of Income Tax Act, 1961.
(c) Section 23(1) (d) Section 23
38. Mr. Rupesh owns a house property. Municipal value ` 1,50,000, Fair Rent ` 1,25,000 and
Standard Rent ` 1,45,000. It is let out throughout the previous year for ` 10,000 p.m. up to
December 31, 2015 and ` 1,45,000 p.m. thereafter. Find out the Gross Annual Value for the
Assessment Year 2016-17.
(a) ` 1,45,000 (b) ` 1,25,000
(c) ` 1,50,000 (d) ` 1,33,000
39. When the portion of the house is self-occupied for the full year and portion is self-occupied
for the whole year, the annual value of the house shall be determined by ______________.
(a) The full annual value of the house the proportionate annual value of self-occupied portion
for the whole year shall be deducted
(b) Its present standard value
40. Mr. R owns a house. The Municipal value of the house is ` 50,000. He paid ` 8,000 as local
taxes during the year. He uses this house for his residential purposes but lets out half of the
house @ ` 3,000 p.m. The annual value of the house is ______________.
(a) ` 15,000 (b) ` 16,000
83
(c) ` 17,000 (d) ` 18,000
41. If fair rent is not gives, then assume ______________ as fair rent.
(a) Actual rent (b) Standard rent
(c) Average rent (d) None of the above
42. Rent received by original tenant from sub-tenant is taxable under the head _______________.
(c) Income from Capital Gain (d) None of the above
43. The net annual value of house let out is ` 1,00,000 and actual amount spent by the assessee on
repairs and insurance premium is ` 20,000. The amount of deduction allowed under Section
24(a) shall be _______________.
(a) ` 35,000 (b) ` 45,000
(c) ` 30,000 (d) ` 25,000
44. Rent from House Property let out by an assessee to his employees when such letting is
incidental to his main business will be chargeable to tax under head _______________.
(a) Profit and Gain from Business and Profession
(b) Income from Capital Gain
(c) Income from House Property
45. When annual value of one-self occupied house is nil, the assesses will be entitled to the
standard deduction of _______________.
(a) 10% (b) 20%
(c) Nil (d) None of the above
46. Gross annual value shall be higher of _______________.
(a) Expected rent (b) Actual rent received or receivable
84
47. Income from property held under trust for charitable or religious purposes is ______________.
(a) Exempted from tax (b) Taxable @ 10%
(c) Taxable @ 20% (d) None of the above
48. Mr. Anup owns a house property. Municipal value ` 1,80,000, Fair Rent ` 1,35,000 and
(a) 1,80,000 (b) 1,65,000
(c) 1,55,500 (d) None of the above
49. The assessee lets on hire machinery, plant or furniture belonging to him and also building and
the letting of the buildings is inseparable from the letting of the said machinery, plant and
furniture, the income from such letting is chargeable to tax under the head _______________.
(a) Income from Business (b) Income from Capital Gain
(c) Income from Other Sources (d) Profit and Gain from Business or Profession
50. For computation of Gross Annual Value, if actual rent is more than expected rent, then we
select the ______________.
(a) Actual rent (b) Expected rent
(c) Any of the above (d) None of the above
85
CHAPTER: 2
Business or Profession
Dr. Rajeev Dahiya ?
CHAPTER-3
Profits and Gains from Business & Profession
Profits and Gains from Business and Profession

1. Chargeability:
The following incomes are chargeable to tax under the head Profit and Gains from Business or
Profession:
S. Section Particulars
No.
1. 28(i) Profit and gains from any business or profession carried on by the assessee at
any time during the previous year
2. 28(ii) Any compensation or other payment due to or received by any specified person
3. 28(iii) Income derived by a trade, professional or similar association from specific

services performed for its members
4. 28(iiia) Profit on sale of a license granted under the Imports (Control) Order 1955, made
under the Import Export Control Act, 1947
5. 28(iiib) Cash assistance (by whatever name called) received or receivable by any person
against exports under any scheme of Government of India
6. 28(iiic) Any duty of Customs or Excise repaid or repayable as drawback to any person
against exports under the Customs and Central Excise Duties Drawback Rules,
1971.
7. 28(iiid) Profit on transfer of Duty Entitlement Pass Book Scheme, under Section 5
of Foreign Trade (Development and Regulation) Act, 1992
8. 28(iiie) Profit on transfer of Duty Free Replenishment Certificate, under Section 5 of

Foreign Trade (Development and Regulation) Act 1992
9. 28(iv) Value of any benefits or perquisites arising from a business or the exercise of a
86
profession.
10. 28(v) Interest, salary, bonus, commission or remuneration due to or received by a

partner from partnership firm
11. 28(va) a) Any sum received or receivable for not carrying out any activity in relation to
any business or profession; or
b) Any sum received or receivable for not sharing any know-how, patent,
copyright, trademark, licence, franchise, or any other business or commercial
right or information or technique likely to assist in the manufacture of goods or
provision of services.
12. 28(vi) Any sum received under a Key man Insurance policy including the sum of bonus
on such policy
12A. 28(via) Any profit or gains arising from conversion of inventory into capital asset.
13. 28(vii) Any sum received ( or receivable) in cash or in kind, on account of any capital
assets (other than land or goodwill or financial instrument) being demolished,
destroyed, discarded or transferred, if the whole of the expenditure on such
capital assets has been allowed as a deduction under section 35AD
14. Explanation Income from speculative transactions. However, it shall be deemed to be distinct
to section 28 and separate from any other business.
15. 41(1) • Remission or cessation of liability in respect of any loss, expenditure

or trading liability incurred by the taxpayers
• Recovery of trading liability by successor which was allowed to the
predecessor shall be chargeable to tax in the hands of successor.
Succession could be due to amalgamation or demerger or succession
of a firm succeeded by another firm or company, etc.
• Any liability which is unilaterally written off by the taxpayer from the
books of accounts shall be deemed as remission or cessation of such
liability and shall be chargeable to tax.
16. 41(2) Depreciable asset in case of power generating units, is sold, discarded,
demolished or destroyed, the amount by which sale consideration and/ or
insurance compensation together with scrap value exceeds its WDV shall be
chargeable to tax.
17. 41(3) Where any capital asset used in scientific research is sold without having been
used for other purposes and the sale proceeds together with the amount of
deduction allowed under section 35 exceed the amount of the capital
expenditure, such surplus or the amount of deduction allowed, whichever is less,
is chargeable to tax as business income in the year in which the sale took place.
18. 41(4) Where bad debts have been allowed as deduction under Section 36(1)(vii) in
earlier years, any recovery of same shall be chargeable to tax.
19. 41(4A) Amount withdrawn from special reserves created and maintained under Section
87
36(1)(viii) shall be chargeable as income in the previous year in which the
amount is withdrawn.
20. 41(5) Loss of a discontinued business or profession could be adjusted from the deemed
business income as referred to in section 41(1), 41(3), (4) or (4A) without any
time limit.
20A. 43AA Any foreign exchange gain or loss arising in respect of specified foreign
currency transactions shall be treated as income or loss. Such gain or loss shall
be computed in accordance with notified ICDS [subject to Section 43A]
21. 43CA Where consideration for transfer of land or building or both as stock-in-trade is
less than the stamp duty value, the value so adopted shall be deemed to be the
full value of consideration for the purpose of computing income under this head.
However, no such adjustment is required to be made if value adopted for stamp
duty purposes does not exceed 110% of the sale consideration.
Note:
To boost the demand in the real-estate sector and to enable the real-estate
developers to sell their unsold inventory at a lower rate, the safe harbour limit is
increased from existing 10% to 20% in case of transfer of residential property
during the period from 12-11-2020 to 30-06-2021 by way of the first-time
allotment to any person. Further, the consideration received or accruing as a
result of such transfer should not exceed Rs. 2 crores.
21A. 43CB The profits and gains arising from construction contract or a contract for
providing service is to be determined on the basis of percentage completion
method, in accordance with the notified ICDS.
In case of contract for providing services with duration of not more than 90 days,
the profits and gains shall be determined on basis of project completion method.
While as in case of contract for providing services with indeterminate number of
acts over a specified period of time shall be determined on basis of straight line
method.
22. 43D As per RBI Guidelines, Interest on bad and doubtful debts of Public Financial
Institution or Scheduled Bank or [a co-operative bank other than a primary
agricultural credit society or a primary co-operative agricultural and rural
development bank] or State Financial Corporation or State Industrial Investment
Corporation, shall be chargeable to tax in the year in which it is credited to Profit
and Loss A/c or year in which it is actually received, whichever happens earlier.
With effect from Assessment Year 2020-21, the Finance (No. 2) Act, 2019 has
covered ‘Deposit Taking NBFCs’ and ‘Systemically Important Non-deposit
Taking NBFCs’ in the ambit of 43D. Hence, such NBFCs shall be able to
recognize interest on bad and doubtful debts in the year in which it is credited to
Profit and Loss A/c or year in which it is actually received, whichever happens
earlier.
Deposit Taking NBFC’ means a NBFC which is accepting or holding public
deposits and is registered with the RBI.
‘Systemically Important Non-deposit Taking NBFC’ means a NBFC which is
not accepting or holding public deposits and having total assets of not less than
Rs. 500 crore as per the last audited balance sheet and is registered with the RBI.
88
23. 43D Similarly as per NHB Guidelines, Interest on bad and doubtful debts of housing
finance company, shall be chargeable to tax, in the year it is credited to P & L
A/c or year in which it is actually received by them, whichever is earlier.
24 — Assistance in the form of a subsidy or grant or cash incentive or duty drawback

or waiver or concession or reimbursement (by whatever name called) by the
Central Govt. or State Govt. or any authority or body or agency to the assessee
would be included in definition of income as referred to in Section 2(24).
However, in the following cases subsidy or grant shall not be treated as income:
i) The subsidy or grant or reimbursement which is taken into account for
determination of the actual cost of the asset in accordance with the provisions of
Explanation 10 to clause (1) of Section 43;
ii) The subsidy or grant by the Central Government for the purpose of the
corpus of a trust or institution established by the Central Government or a State
Government, as the case may be.
2. Deductions under Sections 30 to 37
Amount deductible, while computing, Profits and Gains of Business or Profession are:-
Section Nature of expenditure Quantum of deduction Assessee
30 Rent, rates, taxes, repairs Actual expenditure incurred All assessee

(excluding capital excluding capital expenditure
expenditure) and
insurance for premises
31 Repairs (excluding capital Actual expenditure incurred All assessee

expenditure) and excluding capital expenditure
insurance of machinery,
plant and furniture
32(1)(i) Depreciation on Allowed at prescribed Assessees engaged in

i) buildings, machinery, percentage on Straight Line business of generation
plant or furniture, being Method for each asset or generation and
tangible assets; Provided that where an asset is distribution of power
ii) know-how, patents, acquired by the assessee during Note:
copyrights, trademarks, the previous year and is put to Taxpayers engaged in
licenses, franchises, or use for a period of less than one the business of
any other business or hundred and eighty days in that generation or generation
commercial rights of previous year, the deduction in and distribution of
similar nature not being respect of such asset shall be power shall have the
goodwill of business or restricted to fifty per cent of the option to claim
profession, being amount calculated at the depreciation either on
intangible assets percentage prescribed for an basis of straight line
asset. basis method or written
down value method on
each block of asset.
32(1)(ii) Depreciation on Allowed at prescribed All assessees

i) buildings, machinery, percentage on WDV method for
plant or furniture, being each block of asset
89
tangible assets; Provided that where an asset is
ii) know-how, patents, acquired by the assessee during
copyrights, trademarks, the previous year and is put to
licenses, franchises, or use for a period of less than one
any other business or hundred and eighty days in that
commercial rights of previous year, the deduction in
similar nature not being respect of such asset shall be
goodwill of business or restricted to fifty per cent of the
profession, being amount calculated at the
intangible assets percentage prescribed for an
asset.
32(1)(iia) Additional depreciation Additional depreciation shall be All assessee engaged in

on new plant and available @20 % of the actual – manufacture or
machinery (other than cost of new plant and production of any article
ships, aircraft, office machinery. or thing; or
appliances, second hand Provided that where an asset is – generation,
plant or machinery, etc.). acquired by the assessee during transmission or
(subject to certain the previous year and is put to distribution of power (if
conditions) use for a period of less than one taxpayer is not claiming
hundred and eighty days in that depreciation on basis of
previous year, then deduction of straight line method)
additional depreciation would
be restricted to 50% in the year
of acquisition and balance 50%
would be allowed in the next
year
Proviso Additional depreciation Additional depreciation shall be All assessees- where an

to Section on new plant and available @35 % of the actual assessee sets up an
32(1)(iia) machinery (other than cost of new plant and undertaking or
ships, aircraft,office machinery. enterprise for
appliances, second hand Provided that where an asset is production or
plant or machinery, etc.)) acquired by the assessee during manufacture of any
(Subject to certain the previous year and is put to article or thing in any
conditions) use for a period of less than one notified backward area
hundred and eighty days in that in state of the state of
previous year, then deduction of Andhra Pradesh, Bihar,
additional depreciation would Telangana or West
be restricted to 50% of actual Bengal.
cost in the year of acquisition
and balance 50% would be
allowed in the next year
Note:
1. Manufacturing unit should be
set-up on or after 1st day of
April, 2015.
2. New plant and machinery
acquired and installed during
the period beginning on the 1st
day of April, 2015 and ending
before the 1st day of April,
90
2020
32AC Deduction under section 15% of actual cost of new asset Company engaged in
32AC is available if business or
actual cost of new plant manufacturing or
and machinery acquired production of any article
and installed by a or thing
manufacturing company
during the previous year
exceeds Rs. 25/100
Crores, as the case may
be.(Subject to certain
conditions)
32AD Investment allowance for Investment allowance shall be All assessee who
investment in new plant available @15 % of the actual acquired new plant and
and machinery if cost of new plant and machinery for the
manufacturing unit is set- machinery in the year of purpose of setting-up
up in the notified installation of new asset. manufacturing unit in
backward area in the state Note:- the notified backward
of Andhra Pradesh, Bihar, 1) New asset should be acquired area in the state of
Telangana or West and installed during the period Andhra Pradesh, Bihar,
Bengal(Subject to certain beginning on the 1st day of Telangana or West
conditions) April, 2015 and ending before Bengal
the 1st day of April, 2020.
2) Manufacturing unit should be
set-up on or after 1st day of
April, 2015.
3) Deduction shall be allowed
under Section 32AD in addition
to deduction available
under Section 32AC if
assesseefulfils the specified
conditions
33AB Amount deposited in Tea Deduction shall be lower of All assessee engaged in
/ Coffee / Rubber following: business of growing and
Development Account by a) Amount deposited in account manufacturing
assessee engaged in with National Bank for tea/Coffee/Rubber
business of growing and Agricultural and Rural
manufacturing tea/ Coffee Development (NABARD) or in
/Rubber in India Deposit Account of Tea Board,
Coffee Board or Rubber Board
in accordance with approved
scheme; or
b) 40% of profits from such
business before making any
deduction under section
33AB and before adjusting any
brought forward loss.
(Subject to certain conditions)
91
33ABA Amount deposited in Deduction shall be lower of All assessee engaged in
Special Account with following: business of prospecting
SBI/Site Restoration a) Amount deposited in Special for, or extraction or
Account by assessee Account with SBI/Site production of,
carrying on business of Restoration Account; or petroleum or natural gas
prospecting for, or b) 20% of profits from such or both in India
extraction or production business before making any
of, petroleum or natural deduction under section
gas or both in India 33ABA and before adjusting
any brought forward loss.
(Subject to certain conditions)
35(1)(i) Revenue expenditure on Entire amount incurred on All assessee

scientific research scientific research is allowed as
pertaining to business of deduction.
assessee is allowed as Expenditure on scientific
deduction (Subject to research within 3 years before
certain conditions). commencement of business (in
the nature of purchase of
materials and salary of
employees other than
perquisite) is allowed as
deduction in the year of
commencement of business to
the extent certified by
prescribed authority.
35(1)(ii) Contribution to approved 100% of sum paid to such All assessee

research association, association, university, college,
university, college or or other institution is allowed as
other institution to be deduction.
used for scientific
research shall be allowed
as deduction (Subject to
certain conditions)
35(1)(iia) Contribution to an 100% of sum paid to the All assessee

approved company company is allowed as
registered in India to be deduction
used for the purpose of
scientific research is
allowed as deduction
(Subject to certain
conditions)
35(1)(iii) Contribution to approved 100% of sum paid to such All assessee

research association, association, university, college,
university, college or or other institution is allowed as
other institution with deduction
objects of undertaking
statistical research or
92
research in social sciences
shall be allowed as
deduction (Subject to
certain conditions)
35(1)(iv) read Capital expenditure Entire capital expenditure All assessee

with 35(2) incurred during the year incurred on scientific research is
on scientific research allowed as deduction.
relating to the business Capital expenditure incurred
carried on by the assessee within 3 years before
is allowed as deduction commencement of business is
(Subject to certain allowed as deduction in the year
conditions) of commencement of business.
Note:
i. Capital expenditure excludes
land and any interest in land;
ii. No depreciation shall be
allowed on such assets.
35(2AA) Payment to a National 100% of payment is allowed as All assessee

Laboratory or University deduction (Subject to certain
or an Indian Institute of conditions).
Technology or a specified
person is allowed as
deduction.
The payment should be
made with the specified
direction that the sum
shall be used in a
scientific research
undertaken under an
approved programme.
35(2AB) Any expenditure incurred 100% of expenditure so Company engaged in

by a company on incurred shall be allowed as business of bio-
scientific research deduction. technology or in any
(including capital Note: business of
expenditure other than on i. Company should enter into an manufacturing or
land and building) on in- agreement with the prescribed production of eligible
house scientific research authority for co-operation in articles or things
and development facilities such research and development
as approved by the and fulfils conditions with
prescribed authorities regard to maintenance of
shall be allowed as accounts and audit thereof and
deduction (Subject to furnishing of reports in such
certain conditions). manner as may be prescribed.
Expenditure on scientific
research in relation to
Drug and Pharmaceuticals
shall include expenses
incurred on clinical trials,
obtaining approvals from
93
authorities and for filing
an application for patent.
35ABA Capital expenditure Deduction will be available in All assessee engaged in

incurred and actually paid equal installments starting from telecommunication
for acquiring any right to the year in which actual services
use spectrum for payment is made and ending in
telecommunication the year in which spectrum
services shall be allowed comes to an end.
as deduction over the Note:
useful life of the If spectrum fee is actually paid
spectrum. before the commencement of
business, the deduction will be
available from the year in which
business is commenced.
35ABB Capital expenditure Deduction would be allowed in All assessee engaged in

incurred for acquiring any equal installments starting from telecommunication
license or right to operate the year in which such payment services
telecommunication has been made and ending in
services shall be allowed the year in which license comes
as deduction over the term to an end.
of the license.
35AC Expenditure by way of Actual payment made to All assessee. However,

payment of any sum to a prescribed entities. However, a deduction for direct
public sector company can also claim expenditure is allowed
company/local deduction for expenditure only to a company
authority/approved incurred by it directly on
association or institution eligible projects.
for carrying out any Note:-
eligible scheme or project No deduction in any A.Y.
(Subject to certain commencing on or after the 1st
conditions). day of April, 2018
35AD Deduction in respect of 150% of capital expenditure All assessee

`expenditure on specified incurred for the purpose of
businesses, as under: business is allowed as deduction
a) Setting up and provided the specified business
operating a cold chain has commenced its operation on
facility or after 01-04-2012.
b) Setting up and 100% of capital expenditure
operating a warehousing will be allowed to be deducted
facility for storage of from the assessment year 2018-
agricultural produce 19 onwards
c) Building and operating, Note: If such specified
anywhere in India, a businesses commence
hospital with at least 100 operations on or before 31-03-
beds for patients 2012 but after prescribed dates,
d) Developing and deduction shall be limited to
building a housing project 100% of capital expenditure.
94
under a notified scheme Note: No deduction of any
for affordable housing capital expenditure above Rs
e) Production of fertilizer 10,000 shall be allowed if it is
in India incurred in cash.
(Subject to certain
conditions)
35AD Deduction in respect of 100% of capital expenditure All assessee

expenditure on specified incurred for the purpose of Note: Such deduction is
businesses, as under: business is allowed as deduction available to Indian
a) Laying and operating a provided specified businesses company in case of
cross-country natural gas commence operations on or following business,
or crude or petroleum oil after the prescribed dates. namely;-
pipeline network for Note: No deduction of any i) Business of laying
distribution, including capital expenditure above Rs and operating a cross-
storage facilities being an 10,000 shall be allowed if the country natural gas or
integral part of such payment for such expenditure is crude or petroleum oil
network; made otherwise than by an pipeline network
b) Building and operating, account payee cheque/draft or ii) Developing or
anywhere in India, a hotel ECS or through prescribed maintaining and
of two-star or above electronic mode of payment. operating or developing,
category; maintaining and
c) Developing and operating a new
building a housing project infrastructure facility.
under a scheme for slum
redevelopment or
rehabilitation
d) Setting up and
operating an inland
container depot or a
container freight station
e) Bee-keeping and
production of honey and
beeswax
f) Setting up and
operating a warehousing
facility for storage of
sugar
g) Laying and operating a
slurry pipeline for the
transportation of iron ore
h) Setting up and
operating a semi-
conductor wafer
fabrication manufacturing
unit
i) Developing or
maintaining and
operating, or developing,
maintaining and operating
a new infrastructure
facility
95
(Subject to certain
conditions)
35CCA Payment to following Actual payment to specified All assessee

Funds are allowed as funds
deduction:
a) National Fund for
Rural Development; and
b) Notified National
Urban Poverty
Eradication Fund
35CCC Expenditure (not being 100% of the expenditure All assessee

cost of land/building) (Subject to certain conditions)
incurred on notified
agricultural extension
project for the purpose of
training, educating and
guiding the farmers shall
be allowed as deduction,
provided the expenditure
to be incurred is expected
to be more than Rs. 25
lakhs (Subject to certain
conditions).
35CCD Expenditure incurred by a 100% of the expenditure Company engaged in

company (not being (Subject to certain conditions) manufacturing of any
expenditure in the nature Note: article or providing
of cost of any land or (i) No deduction shall be specified services
building) on any notified allowed to a company engaged
skill development project in manufacturing alcoholic
is allowed as deduction spirits or tobacco products.
(Subject to certain
conditions).
35D An Indian company can Qualifying preliminary Indian Company

amortize certain expenditure is allowable in each
preliminary expenses (up of 5 successive years beginning
to maximum of 5% of with the previous year in which
cost of the project or the extension of undertaking is
capital employed, completed or the new unit
whichever is more) commences production or
(Subject to certain operation.
conditions and nature of
expenditures)
35D Non-corporate taxpayers Qualifying preliminary Resident Non-corporate

can amortize certain expenditure is allowable in each assessees
preliminary expenses (up of 5 successive years beginning
to maximum of 5% of with the previous year in which
96
cost of the project) the extension of undertaking is
(Subject to certain completed or the new unit
conditions and nature of commences production or
expenditures) operation.
35DD Expenditure incurred after Expenditure is allowed as Indian Company

31-3-1999 in respect of deduction in five equal
amalgamation or installments in 5 previous years
demerger can be starting with the year in which
amortized by an Indian amalgamation or demerger took
Company place.
35DDA Expenditure incurred Each payment under VRS is All assessee

under Voluntary allowed as deduction in five
Retirement Scheme is equal installments in 5 previous
allowed as deduction. years.
35E Qualifying expenditure Eligible expenditure is allowed Resident persons

incurred by resident as deduction in ten equal
persons on prospecting installments in 10 previous
for the minerals or on the years.
development of mine or
other natural deposit of
such minerals shall be
(Subject to certain
conditions).
36(1)(i) Insurance premium Actual expenditure incurred All assessee

covering risk of damage
or destruction of
stocks/stores
36(1)(ia) Insurance premium Actual expenditure incurred All assessee

covering life of cattle
owned by a member of
co-operative society
engaged in supplying
milk to federal milk co-
operative society
36(1)(ib) Medical insurance Actual expenditure incurred All assessee

premium paid by any
mode other than cash, to
insure employee’s health
under (a) scheme framed
by GIC of India and
approved by Central
Government; or (b)
scheme framed by any
other insurer and
97
approved by IRDA
36(1)(ii) Bonus or commission Actual expenditure incurred All assessee

paid to employees which
would not have been
payable as profit or
dividend if it had not been
paid as bonus or
commission
36(1)(iii) Interest on borrowed Interest paid in respect of All assessee

capital (Subject to certain capital borrowed for the
conditions) purposes of the business or
profession shall be allowed as
deduction. However, if capital
is borrowed for acquiring an
asset, then interest for any
period beginning from the date
on which capital was borrowed
till the date on which asset was
first put to use, shall not be
allowed as deduction.
36(1)(iiia) Discount on Zero Coupon Pro-rata amount of discount on Specified Assessee

Bonds (Subject to certain zero coupon bonds shall be
conditions) allowed as deduction over the
life of such bond
36(1)(iv) Employer’s contributions Actual expenditure incurred All assessee

to recognized provident
fund and approved
superannuation fund
[subject to certain limits
and conditions]
36(1)(iva) Any sum paid by Actual expenditure not All assessee – Employer
assessee-employer by way exceeding 10% of the salary* of
of contribution towards a the employee
pension scheme, as *Salary = Basic Pay + Dearness
referred to in section Allowance (to the extent it
80CCD, on account of an forms part of retirement
employee. benefits)+ turnover based
commission
36(1)(v) Employer’s contribution Actual expenditure not All assessee – Employer

towards approved gratuity exceeding 8.33% of salary of
fund created exclusively each employee
for the benefit of
employees under an
irrevocable trust shall be
98
(Subject to certain
conditions).
36(1)(va) Deposit of employee’s Actual amount received if All assessee – Employer

contributions in their credited to the employee’s
respective provident fund account in relevant fund on or
or superannuation fund or before due date specified under
any fund set up under relevant Act
Employees’ State
Insurance Act, 1948
36(1)(vi) Allowance in respect of Actual cost of acquisition of All assessee

animals which have died such animals less realization on
or become permanently sale of carcasses of animals
useless (Subject to certain
conditions)
36(1)(vii) Bad debts which have Actual bad debts which have All assessee
been written off as been written off from books of
irrecoverable (Subject to accounts
certain conditions) Note:-
However, if amount of debt or
part thereof has been taken into
account in computing the
income of assessee on basis of
income computation and
disclosure standards notified
under Section 145(2) without
recording the same in accounts
then, such debt shall be allowed
in the previous year in which
such debt or part therof
becomes irrecoverable. It shall
be deemed that such debt or part
thereof has been written off as
irrecoverable in the accounts.
36(1)(viia) Deductions for provision Deductions for provision for Banks, Public Financial
for bad and doubtful debts bad and doubtful debts shall be Institutions, Non-
created by certain banks, limited to following: banking financial
financial institutions and (a) In case of scheduled and company, State
non-banking financial non-scheduled banks: Sum not Financial Corporation,
company (Subject to exceeding aggregate of 8.5% of State Industrial
certain conditions). total income (before any Investment
Note deductions under this provision Corporations
Deduction in respect of and Chapter VI-A) and 10% of
bad debts actually written aggregate average advances
off under section made by rural branches of such
36(1)(vii) shall be limited bank;
to that amount of bad (b) In case of Financial
debts which exceed the Institutions: Up to 5% of total
99
provision for bad and income before any deductions
doubtful debts created under this provision and
under section 36(1)(viia). Chapter VI-A; and
(c) In case of foreign banks: Up
to 5% of total income before
any deductions under this
provision and Chapter VI-A
(d) In case of non-banking
financial company: Up to 5% of
total income before any
deduction under this provision
and chapter VI-A
36(1)(viii) Deduction under this Deduction shall be allowed to Specified financial

provisions is allowed to the extent of lower of corporations or public
following entities in following: company
respect of amount a) Amounts transferred to
transferred to special special reserve account
reserve account: b) 20% of profits derived from
a) Financial Corporation eligible business
which is engaged in c) 200% of paid-up capital and
providing long-term general reserve (on last day of
finance for industrial or previous year) minus balance in
agricultural development special reserve account (on first
or development of day of previous year)
infrastructure facility in
India; or
b) Public company
registered in India with
the main object of
carrying on the business
of providing long-term
finance for construction
or purchase of residential
houses in India.
[Subject to certain
conditions]
36(1)(ix) Expenditure incurred by a 1) Entire revenue expenditure is Company

company on promotion of allowed as deduction
family planning amongst 2) Capital expenditure shall be
employees is allowed as allowed as deduction in five
deduction equal installment in five years
36(1)(xii) Any expenditure incurred Actual expenditure incurred Notified corporations

by a notified corporation (not being in the nature of
or body corporate capital expenditure)
constituted or established
by a Central, State or
Provincial Act, for the
objects and purposes
authorized by the
100
respective Act is allowed
as deduction
36(1)(xiv) Contribution to Credit Actual expenditure incurred Public Financial

Guarantee Trust Fund for Institutions
micro and small industries
is allowed as deduction
36(1)(xv) Securities Transaction Actual expenditure incurred if All assessee

Tax paid corresponding income is
included as income under the
head profits and gains of
business or profession
36(1)(xvi) Amount equal to Actual expenditure incurred if All assessee

commodities transaction corresponding income is
tax paid by an assessee in included as income under the
respect of taxable head profits and gains of
commodities transactions business or profession
entered into in the course
of his business during the
previous year is allowed
as deduction
36(1)(xvii) Amount of expenditure Deduction would be allowed the Co-operative society

incurred by a co-operative extent of lower of following: engaged in the business
society engaged in the a) Actual purchase price of of manufacture of sugar
business of manufacture sugarcane, or
of sugar for purchase of b) Price of sugarcane fixed or
sugarcane. approved by the Government
36(1)(xviii) Marked to market loss or Actual losses incurred All assessee

other unexpected loss as
computed in accordance
with notified ICDS
37(1) Any other expenditure Actual expenditure incurred All assessee

[not being personal or
capital expenditure and
expenditure mentioned in
sections 30 to 36] laid out
wholly and exclusively
for purposes of business
or profession
37(2B) Expenditure on Not Allowed All assessee

advertisement in any
souvenir, brochure etc.
published by a political
party shall not be allowed
as deduction
101
3. Amount expressly disallowed under the Act
Section Description
40(a)(i) Any sum (other than salary) payable outside India or to a non-resident, which is
chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted
if it was paid without deduction of tax at source or if tax was deducted but not deposited
with the Central Government till the due date of filing of return.
Where deductor has failed to deduct the tax and he is not deemed to be an assessee in
default under first proviso to section 201(1), then it shall be deemed that the deductor has
deducted and paid the tax on the date on which the payee has furnished his return of
Income.
However, if tax is deducted or deposited in subsequent year, as the case may be, the
expenditure shall be allowed as deduction in that year.
40(a)(ia) Any sum payable to a resident, which is subject to deduction of tax at source, would attract
30% disallowance if it was paid without deduction of tax at source or if tax was deducted
but not deposited with the Central Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in subsequent
year, as the case may be, the expenditure so disallowed shall be allowed as deduction in
that year.
Where deductor has failed to deduct the tax and he is not deemed to be an assessee in
default under first proviso to section 201(1), then it shall be deemed that the deductor has
deducted and paid the tax on the date on which the payee has furnished his return of
Income.
40(a)(ib) Any sum paid or payable to a non-resident which is subject to a deduction of Equalisation
levy would attract disallowance if such sum was paid without deduction of such levy or if
it was deducted but not deposited with the Central Government till the due date of filing of
return.
However, where in respect of any such sum, Equalisation levy is deducted or deposited in
subsequent year, as the case may be, the expenditure so disallowed shall be allowed as
deduction in that year.
Note: This provision has beeninserted by the Finance Act, 2016, w.e.f. 1-6-2016
40(a)(ii) Any sum paid on account of any rate or tax levied on the profits and gains of business or
profession is not deductible
40(a)(iia) Wealth-tax or any other tax of similar nature shall not be deductible
40(a)(iib) Amount paid by way of royalty, license fee, service fee, privilege fee, service charge or
any other fee or charge, by whatever name called, which is levied exclusively on (or any
amount appropriated) a State Government undertaking by the State Government shall not
be deductible.
40(a)(iii) Salaries payable outside India, or in India to a non-resident, on which tax has not been
paid/deducted at source is not deductible.
40(a)(iv) Payments to provident fund or other funds for employees’ benefit shall not be deductible if
no effective arrangements have been made to ensure deduction of at source from payments
made from such funds to employees which shall be chargeable to tax as ‘salaries’.
102
40(a)(v) Tax paid by the employer on non-monetary perquisites provided to employees is not
deductible if the tax so paid is not taxable in the hands of employees by virtue of Section
10(10CC).
40(b) Following sum paid by a partnership firm to its partners shall not be allowed to be
deducted:
1) Salary, bonus, commission or remuneration paid to non-working partners;
2) Remuneration or interest paid to the partners is not in accordance with the terms of the
partnership deed;
3) Remuneration or interest to partners is in accordance with the terms of the partnership
deed but relates to any period prior to the date of the deed;
4) Interest to partners is in accordance with the terms of the partnership deed but exceeds
12% per annum;
5) Remuneration to partners is in accordance with the terms of the partnership deed but
exceeds the following permissible limit:
a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book
profit, whichever is more;
b) On the balance of the book profit – 60% of book profit
40(ba) Interest, salary, bonus, commission or remuneration paid by Association of Persons or

Body of Individuals to its members shall not be allowed as deduction (Subject to certain
conditions).
40A(2) Any payment to related parties (relatives, directors, partner, member of HUF/AOP, person
who has substantial interest in business of the taxpayer, etc.) in respect of any expenditure
shall be disallowed to the extent such expenditure is considered excessive or unreasonable
by the Assessing Officer having regard to its fair market value.
40A(3)/(3A) An expenditure, which is otherwise deductible under any provision of the Act, shall be
disallowed if payment thereof has been made otherwise than by account payee
cheque/bank draft or use of electronic clearing system through a bank account or through
other prescribed electronic mode of payment and it exceeds Rs. 10,000 (Rs. 35,000 in case
of payment made for plying, hiring or leasing goods carriages) in a day (Subject to certain
conditions and exceptions).
40A(7) Provision for payment of gratuity to employees, other than a provision for contribution to
approved gratuity fund, shall not be allowed as deduction (Subject to specified conditions).
Gratuity actually paid (or payable) during the year and contribution to approved gratuity
fund is allowed as deduction.
40A(9) Any sum paid as an employer for setting up or as contribution to any fund, trust, company,
AOP, BOI, Society or other institution (other than recognized provident fund, approved
superannuation fund, approved gratuity fund or pension scheme referred to in section
80CCD) shall not be allowed as deduction deduction if such contribution or payment is not
required by any law.
40(A)(13) No deduction shall be allowed in respect of marked to market loss or other unexpected loss
except as allowable under section 36(1)(xviii).
4. Expenses deductible on actual payment basis
103
The following expenses shall be allowed as deduction if such expenditure are actually paid on or
before the due date of filing of return of income:-
Section Particulars
43B(a) Any Tax, Duty, Cess or Fees under any Law
43B(b) Any contribution to Provident Fund/Superannuation Fund/Gratuity Fund/Welfare Fund
43B(c) Bonus or Commission paid to employees which would not have been payable as profit or
dividend
43B(d) Interest on Loan or Borrowings from Public Financial Institutions/State Financial Institutions
etc.
43B(da) Interest on loan from a deposit taking NBFC or systemically important non-deposit taking
NBFC
43B(e) Interest on loan or advance from bank
43B(f) Payment of Leave Encashment
43B(g) Sum payable to the Indian Railways for the use of railway assets.
5. Other provisions
Section Particulars Provision
42 Special allowance in case of business of Following deductions shall be allowed as

prospecting etc. for mineral oil (including deductions:
petroleum and natural gas) in relation to a) Any infructuous exploration expenditure
which the Central Government has entered b) Expenditure on drilling or exploration
into an agreement with the taxpayer for the activities or services, etc.
association or participation (Subject to c) Allowance in relation to depletion of mineral
certain conditions). oil, etc.
43A Special provisions consequential to changes Any increase or decrease in the liability
in rate of exchange of Currency (Subject to incurred in foreign currency (to acquire a
certain conditions). capital asset) pursuant to fluctuation in the
foreign exchange rates shall be adjusted with
the actual cost of such asset only on actual
payment of the liability.
43C Acquisition of any asset (except stock-in- Cost of acquisition of any asset (except stock-
trade) by the taxpayer in the scheme of in-trade) acquired by the taxpayer in the
amalgamation or by way of gift, will etc. scheme of amalgamation or by way of gift, will
etc. from the transferor (who sold it as stock-in-
trade) shall be the cost of acquisition in the
hands of transferor as increased by cost of any
improvement made
6. Provisions applicable to Non-Resident/Foreign Company
104
Section Particulars Limit of exemption or Available to
Computation of
income/deduction
44B read Income from shipping business shall be 7.5% of specified sum shall be Non-resident
with 172 computed on presumptive basis deemed to be the presumptive engaged in
(Subject to certain conditions). income shipping
business
44BB Income of a non-resident engaged in 10% of specified sum shall be Non-resident

the business of providing services or deemed to be the presumptive engaged in
facilities in connection with, or income activities
supplying plant and machinery on hire connected with
used, or to be used, in the prospecting exploration of
for, or extraction or production of, mineral oils
mineral oils shall be computed on
presumptive basis (Subject to certain
conditions).
44BBA Income of a non-resident engaged in 5% of specified sum shall be Non-resident

the business of operation of aircraft deemed to be the presumptive engaged in the
shall be computed on presumptive basis income business of
(Subject to certain conditions). operating of
aircraft
44BBB Income of a foreign company engaged 10% of specified sum shall be Foreign
in the business of civil construction or deemed to be the presumptive Company
the business of erection of plant or income
machinery or testing or commissioning
thereof, in connection with turnkey
power projects shall be computed on
presumptive basis (Subject to certain
conditions).
44C Deduction for Head office Expenditure Deduction for head-office Non-resident
(Subject to certain conditions and expenditure shall be limited to
limits) lower of following:
a) 5% of adjusted total
income*
b) Head office exp. as
attributable to business or
profession of taxpayer in India
* In case adjusted total income
of the assessee is a loss,
adjusted total income shall be
substituted by average
adjusted total income
** Adjusted total income or
average adjusted total income
shall be computed after
prescribed adjustments i.e.
105
unabsorbed depreciations,
carry forward losses, etc.
44DA Deduction of expenditure from royalty Expenditure incurred wholly Non-resident

and FTS received under an agreement and exclusively for the
made after 31-03-2003 which is business of PE or fixed place
effectively connected to the PE of non- of profession in India shall be
resident in India (Subject to certain allowed as deduction.
conditions)
7. Accounts and Audit
Section Particulars Threshold
44AA Compulsory maintenance of Persons carrying on specified profession and their gross
prescribed books of account – receipts exceed Rs. 1,50,000 in all the three years
Specified Profession immediately preceding the previous year
(Subject to certain conditions and
circumstances)
44AA Compulsory maintenance of 1) If total sales, turnover or gross receipts exceeds Rs.
books of account – Other 25,00,000 in any one of the three years immediately
business or profession preceding the previous year; or
(Subject to certain conditions and 2) If income from business or profession exceeds Rs.
circumstances) 2,50,000 in any one of the three years immediately
preceding the previous year
44AB Compulsory Audit of books of 1) If total sales, turnover or gross receipts exceeds Rs. 2
accounts (Subject to certain Crore in any previous year, in case of business; or
conditions and circumstances) Note:
a) Provided that this section is not applicable to the
person, who opts for presumptive taxation Scheme under
Section 44AD and his total sales or turnover does not
exceed Rs 2 crores.
b) Threshold limit of Rs. 1 crore shall be increased to Rs.
10 crore in case where the cash receipt and payment made
during the year does not exceed 5% of total receipt or
payment the business
2) If gross receipts exceeds Rs. 50 Lakhs in any previous
year, in case of profession.
8. Presumptive Taxation
Section Nature of business Presumptive income
44AD Income from eligible business can be Presumptive income of eligible business shall be
computed on presumptive basis if 8% of gross receipt or total turnover.
turnover of such business does not exceed Note: Presumptive income shall be calculated at
two crore rupees. rate of 6% in respect of total turnover or gross
Note: If an assessee opts out of the receipts which is received by an account payee
presumptive taxation scheme, after a cheque or draft or use of electronic clearing
106
specified period, he cannot choose to system or through any other electronic mode as
revert back to the presumptive taxation may be prescribed.
scheme for a period of five assessment
years thereafter. [section 44AD(4)]
(Subject to conditions)
44ADA Income from eligible profession u/s Presumptive income of such profession shall be
44AA(1) can be computed on 50% of total gross receipt.
presumptive basis if the total gross
receipts from such profession do not
exceed fifty lakh rupees in a previous
year.
(Subject to conditions)
44AE Presumptive income from business of For Heavy Goods Vehicle:

plying, hiring or leasing of goods carriage Rs. 1,000 per ton of gross vehicle weight for
if assessee does not own more than 10 every month or part of a month during which the
goods carriage. heavy goods vehicle is owned by assessee.
For Other Goods Vehicle:
Rs. 7,500 for every month or part of a month
during which the goods carriage is owned by
assessee.
Note: ‘Heavy goods vehicle’ means goods
carriage vehicle the gross vehicle weight of which
exceeds 12,000 kilograms.
107
CHAPTER: 4
INCOME U/H “CAPITAL GAINS”
BASIS OF CHARGE - SECTION 45
1. There should be a Capital Asset.
2. It should be transferred by the assessee.
3. Such transfer should take place during the PY.
4. Any Profit/Gains should arise from such transfer.
5. Such Capital Gain should NOT be exempted under Section 54 series.
If all the above conditions are satisfied, Capital Gain shall arise & shall be deemed to be the income of the PY in
which transfer took place & taxed accordingly.
DEFINITION OF CAPITAL ASSET - SECTION 2(14)
Capital Asset means:
(a) Any Property (Movable/immovable), connected with assessee’s business/profession
108
(b) Any Securities held by FIIs (invested as per SEBI regulations) [Always CA → Even if held as SIT]
(c) Any Rights in Indian Company including Right of Management or control.
EXCEPTIONS: [Following are NOT CAPITAL ASSETS]
1. SIT(Stock in Trade)/RM/Consumables stores held for business/profession; (Except Securities held by FIIs as
SIT). Note: Securities held by FIIs will be Capital Asset even if they are held as SIT.
2. Movable Personal effects (including wearing apparel & furniture) held for his/his family member’s personal use
but excludes
1. Jewellery
2. Archaeological collections
3. Drawings Capital Assets even if held for Personal use
4. Paints
5. Sculptures
6. Any other work of Art
Note: To constitute Personal Effect, Asset should be used by the assessee.Daily use is not necessary.
❖ Definition of Jewellery: Jewellery is a capital asset & the profits/gains arising from the transfer of jewellery held
for personal use are taxable u/h “capital gains”.
❖ If Precious stones/metals are sewn/worked/set into Wearing Apparel/ furniture, it is classified into the
category of jewellery& thus it is a Capital Asset. Ex: Throne made of Gold/Platinum/Diamonds; Shirt with diamond
buttons sewn into it.
3. Rural Agricultural Land in INDIA [Urban Agricultural land → Capital Asset]
❖ Rural Land means land outside the following Specified limits:
Population Distance from Municipality/Cantonment Board

≤ 10,000 0 Kms
> 10,000 & ≤ 1,00,000 2Kms
>1,00,000 & ≤10,00,000 6kms
Above 10,00,000 8 Kms
❖Agricultural Land: Land must be used for agricultural purposes for 2 yrs prior to transfer.
What about Urban agricultural Land?
Urban agricultural land is although a capital asset but any capital gain arising from the compulsory
acquisition of such land shall be exempt as per section 10(37)if certain conditions mentioned in that section
are satisfied.
4. Gold Deposit bonds/Certificates issued under Gold Deposit Scheme, 1999 or Gold Monetization Scheme
2015.
TYPES OF CAPITAL ASSET – SECTION 2(42A)
109
1. STCA(Short term capital asset): If Period of Holding (POH) of Asset ≤ 36 months immediately
before the date of transfer.
2. LTCA(Long term capital asset): If Period of Holding (POH) of Asset >36 months immediately
before the date of transfer.
Exceptions: Following assets become LTCA if POH is more than 12/24 Months.
A. LTCG if POH> 12 Months
(i) Listed Equity/Preference shares in a company.
(ii) Listed Securities (Debentures/bonds) other than units.
(iii) Units of UTI/ Equity oriented mutual fund.
(iv) Zero Coupon Bonds.
B. LTCG if POH> 24 Months
(i) Unlisted Equity or Preference shares. [Shares in private/unlisted public companies].
(ii) Immovable property, being Land or Building or both.
WhyCAPITAL ASSETS are divided into STCA & LTCA?
➢ Tax incidence under Capital Gains depends upon whether asset is LTCA or STCA.
➢ If asset is STCA, capital gain will be Short- term capital gains.
➢ If asset is LTCA, capital gain will be Long- term capital gains.
➢ In case of DEPRECIABLE ASSET, always STCG will arise irrespective of POH.
DEFINITION OF TRANSFER OF CAPITAL ASSET - [SEC 2(47)
1. Sale, exchange or relinquishment of the asset.
2. Extinguishment of any rights in the asset.
3. Compulsory Acquisition of any Capital Asset under any law.
4. Conversion of Capital Asset into Stock in trade.
5. Maturity/Redemption of Zero Coupon Bond.
6. Giving possession of IMMOVABLE PROPERTY under Part performance of a contract.
110
Ex: A enters into an agreement for the sale of his house. The purchaser gives the entire sale consideration
to A. ‘A’ hand over complete rights of possession to the purchaser since he has realised the entire sale
consideration. However some legal formalities are left to be done. Under Income Tax Act, the above
transaction is considered as transfer by applying ‘substance over form’.
7.Transactions which have the effect of transferring the enjoyment of Immovable property.
Ex: A person may become a member of a co-operative society which may be a house/flat. When he pays
an agreed amount, the society etc. hands over possession of the house to the person concerned. No
conveyance is registered. Such transaction is a transfer under Income Tax Act. Even power of attorney
transactions are regarded as transfer.
DATE OF COMPLETION OF TRANSFER
MOVABLE PROPERTY ▪ Date on which property is delivered after the

contract of sell.
▪ Entries in Books of A/c → Irrelevant for
determining date of transfer.
IMMOVABLE PROPERTY (i)Documents are registered → Date on which
deed is executed or registered.
(ii) Documents are not registered → If the
following conditions are satisfied:
▪ There should be a contract in writing;
▪ Transferee has paid consideration/is willing
to perform his part of the contract;
▪ Transferee should have taken the possession
of the property.
HOW TO COMPUTE CAPITAL GAINS – SECTION 48
Full Value of Consideration (Sec 50C may be applicable for L&B) XXX
Less: Expenses of Transfer (xxx)
Less: Cost of Acquisition (Indexation available if Capital Asset is (xxx)
LTCA)
Less: Cost of Improvement (Indexation available if Capital Asset is (xxx) (xxx)
LTCA)
SHORT/LONG TERM CAPITAL GAIN XXX
Note: STT levied on purchase/sale of Equity shares & units of EOMF → Not deductible u/h CG.
FULL VALUE OF CONSIDERATION (FVC) [SECTION 48]
111
➢Meaning: Consideration received/receivable by the transferor for the transferred capital asset.
➢ It may be in cash/ kind. [If the consideration is received in kind, then FMV = Full value of
consideration].
➢ Adequacy of Consideration & Receipt of Consideration → IRRELEVANT for determining FVC.
Note: Where ESOP Shares, debentures or warrants (allotted by a company directly/indirectly to its
employees) are transferred under a gift or irrecoverable trust → FVC = FMV on date of transfer.
EXPENSES OF TRANSFER
➢ Expenditure incurred wholly & exclusively in connection with transfer of capital asset.
➢ Such expenses of transfer are deductible from FVC. Ex: Brokerage, stamp fees, registration fees, legal
expenses, commission paid for securing a purchaser, cost of stamp, litigation expenditure etc.
Note: STT paid on purchase/sale of Equity shares & units of EOMF → Not deductible u/h CG.
COST OF ACQUISITION(COA)
➢ The value for which the asset was acquired by the assessee.
➢ Only capital expenditures for completing/acquiring title to the property are includible in COA.
➢ Any Revenue expenditure incurred → will not form part of COA.
➢ Amount paid for discharge of mortgage is part of ‘COA’ if mortgage was not created by transferor.
COST OF IMPROVEMENT(COI)
➢ Capital expenditure incurred in making any additions/improvements/protect capital asset.
➢ Routine expenditure on repairs or maintenance will NOT be included in Cost of improvement.
Points to Remember:
1. In case of Goodwill of Business (whether Self-generated/Purchased) → COI = Nil.
2. COI → Considered only if incurred on/after 1.4.2001.
3. COI incurred by Previous Owner → Considered if incurred on/after 1.4.2001.
INDEXATION
➢ Sale consideration is the price at which the asset is sold in the PY. However asset may be purchased in
some earlier year.
112
➢ The money spent years before & the sale consideration received in PY cannot be compared.
➢ Thus deducting the cost of acquisition that has been incurred many years earlier from the sale
consideration that has been received in this PY is unfair for the assessee.
➢ Thus Indexation is given for the Long-term capital assets.
➢ Thus Indexation of COA means bringing into line COA with that of Sale Consideration.
Meaning of Indexed COA:
▪ As per Section 48, COA will be increased by applying the cost inflation Index (CII).
▪ Once the Cost Inflation Index is applied to COA, it becomes Indexed COA
Steps to Calculate Indexed COA:
1. Find out the type of asset on the basis of POH (whether the asset is STCA/LTCA)
2. Apply Indexation to Cost of Acquisition only if asset is Long Term Capital Asset.
INDEXED COST OF ACQUISITION

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
× CII of year of Transfer of Asset
𝐶𝐼𝐼 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑎𝑠𝑠𝑒𝑡 𝑤𝑎𝑠 𝑓𝑖𝑟𝑠𝑡 ℎ𝑒𝑙𝑑 𝑏𝑦 𝐴𝑠𝑠𝑒𝑠𝑠𝑒𝑒
** Note: CII of year of acquisition of asset by Previous owner [For Transfer u/s 49(1).
PY CII PY CII PY CII PY CII PY CII

2001-02 100 2005-06 117 2009-10 148 2013-14 220 2017-18 272
2002-03 105 2006-07 122 2010-11 167 2014-15 240 2018-19 280
2003-04 109 2007-08 129 2011-12 184 2015-16 254 2019-20 289
2004-05 113 2008-09 137 2012-13 200 2016-17 264 2020-21 301
NO INDEXATION IS AVAILABLE IN FOLLOWING CASES [EVEN IF ASSETS ARE LTCA]

1. Zero Coupon Bonds
2. Debentures/ Bonds [Except Capital Indexed Bonds/ Soverign Gold Bonds issues by RBI]
3. Slump Sale [Section 50B]
4. Depreciable Assets [Since capital gain arising on depreciable asset is always STCG]
5. Share/Debentures acquired by NR in foreign currency in Indian company. (1st Proviso to sec 48)
6. Long term capital assets specified u/s 112A
OPTION TO TAKE FMV ON 1.4.2001 AS COST OF ACQUISITION
113
Whether Payment (Full/part) is received on/before DOA by A/c Payee cheque etc. FVC=SDV
Whether Payment (Full/part) is received on/before DOA by A/c Payee cheque etc. FVC=SDV
YES On DOA
NO On DOR
➢ If Capital Asset is acquired before 1.4.2001 → Assessee have the option to take FMV of the Asset on
1.4.2001 as COA of the Asset. [Exercised when FMV on 1.4.2001 > Original COA of asset].
➢ This option is not available in case of Depreciable Assets; Goodwill of Business/other like assets;
INDEXED COST OF IMPROVEMENT
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑰𝒎𝒑𝒓𝒐𝒗𝒆𝒎𝒆𝒏𝒕
× 𝑪𝑰𝑰 𝒐𝒇 𝒕𝒉𝒆 𝒚𝒆𝒂𝒓 𝒐𝒇 𝒕𝒓𝒂𝒏𝒔𝒇𝒆𝒓 𝒐𝒇 𝑨𝒔𝒔𝒆𝒕
𝑪𝑰𝑰 𝒐𝒇 𝒕𝒉𝒆 𝒚𝒆𝒂𝒓 𝒐𝒇 𝑰𝒎𝒑𝒓𝒐𝒗𝒆𝒎𝒆𝒏𝒕
Q. How to decide whether to take Indexation of Cost of Improvement or not?
❖ It should be decided from the nature of the asset.
❖ If Asset is LTCA→ Take Indexed COI &
❖ If Asset is STCA → Take COI (without Indexation).
Note: Year in which Improvement is done in the Asset → Not Relevant.
FULL VALUE OF CONSIDERATION IN CASE OF TRANSFER OF LAND & BUILDING

HELD AS CAPITAL ASSET – [SECTION 50C]
Circumstances Full Value of Consideration

A. Actual Sale Consideration > Stamp Duty value Actual Sale Consideration
B. Actual Sale Consideration < Stamp Duty value Stamp Duty value
❖ BUT If SDV ≤ 105% of Actual sale consideration → Actual Sale Consideration will be taken as full
value of the consideration for computing capital gain. [AY 2019-20]
WHEN DATE OF AGREEMENT (DoA) & DATE OF REGISTRATION (DoR) ARE NOT SAME:
(a) If Payment (Full/Part) has been received by A/c payee cheque/draft/Netbanking on/before DoA →
Full Value of Consideration = Stamp Duty Value on Date of Agreement.
(b) If NO Payment is received by A/c payee cheque/draft/Netbanking on/before DoA, →
Full Value of Consideration = Stamp Duty Value on Date of Registration
CRUX
Note: If SDV has been taken as full value of consideration & subsequently value is revised in any appeal
or revision → Full value of consideration = Value so revised in such appeal or revision
VALUATION BY VALUATION OFFICER
114
Circumstances Full Value of Consideration
(I) Value by VO > SDV Stamp Duty Value
(II) Value by VO > Actual Sale Consideration but < SDV Value by Valuation officer
FULL VALUE OF CONSIDERATION ON TRANSFER OF UNLISTED SHARES [SECTION

50CA]
➢ If Sale consideration < FMV of such share, FMV shall be deemed to be full value of consideration.
FMV → Deemed to be Full Value of Consideration – [Section 50D]
➢ If Consideration is not determinable → FVC = FMV of the capital asset on the date of transfer.
REFERENCE TO VALUATION OFFICER [SEC 55A]
AO may refer valuation officer with a view to ascertain FMV of a ca-pital asset in following cases:
(i) Where the value of the asset claimed by the assessee is in accordance with valuation made by the
registered valuer, but AO is of the opinion that value so claimed is less than FMV of the Asset.
▪ AO can make a reference to VO in cases where FMV is taken to be sale consideration
▪ If FMV on 1.4.2001 is taken as COA, AO can make a reference to VO if he is of the view that
there is any variation between FMV on 1.4.2001 claimed by assessee& FMV on that date.
(ii) Where the AO is of the opinion that FMV of the asset exceeds the value claimed by
▪ More than 15% of the value claimed by the assessee or
▪ Rs. 25,000 (whichever is less).
(iii) Where the AO thinks that it is necessary to do so having regards to the nature of the asset &
relevant circumstances.
TREATMENT OF ADVANCE MONEY RECEIVED & FORFEITED – [Sec 51]

➢ It is possible for an assessee to receive some advance in regard to the transfer of capital asset.
➢ Due to the break-down of the negotiation, the assessee may have retained the advance.
TAX TREATMENT FOR SUCH ADVANCE MONEY FORFEITED
1. Advance Money Forfeited Before 1.4.2014 → Reduce from Original COA.
2. Advance Money Forfeited on/After 1.4.2014 → Taxable u/h IFOS u/s 56(2)(ix)
Points to Remember:
(i) Forfeited Advance shall be reduced from original COA before Indexation & NOT after
Indexation.
(ii) Date of Forfeiture of Advance should be considered & NOT the date of Receipt of
Advance. (iii) Amount Received & Forfeited by Previous owner → Not to be
considered.
CAPITAL GAINS IN CASE OF DEEMED SALE [SEC 45]
115
DESTRUCTION OF CAPITAL ASSET [SPECIAL CHARGING SECTION - SEC 45(1A)]
CIRCUMSTANCES for Destruction or Damage of (i) Natural activities/causes.

Capital Asset (ii) Riot/civil disturbances.
(iii) Accidental fire/explosion
(iv) Action of Enemy (war/without declaration
of war)
Sale Consideration Insurance Compensation (Money + FMV of
replaced Asset).
Year of Taxability Capital Gain is taxable in PY of Receipt of
Insurance Money.
Period of Holding From Date of Acquisition till the Date of
Destruction.
Indexation Indexation is available till the year of destruction &
not till receipt of Compensation
CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET INTO SIT- [SEC 45(2)]
Sale Consideration FMV of the asset on the date of conversion.

Year of Taxability Year in which SIT is sold/ transferred & not in year
of conversion into SIT.
Period of Holding From Date of Acquisition till the Date of
conversion into SIT.
Indexation Only till the PY in which conversion took place.
CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET
Section → 45(3) 45(4)

By way of → Capital Contribution On Dissolution/Retirement of
partners
From ▪ Partners → Firm ▪ Firm → Partners
▪ Members → AOP/BOI ▪ AOP/BOI → Members
Sale consideration Value of Asset recorded in FMV of the asset on the date of
books of firm transfer
Taxed in PY of Transfer
POH From PY of Acquisition till PY
of transfer.
COMPULSORY ACQUISITION OF CAPITAL ASSET [SEC 45(5)]
▪ Given provisions are applicable when the asset has been compulsorily acquired by government.
▪ However, these rules are also applicable when consideration is approved by RBI/CG (Even if there is no
compulsory acquisition).
INITIAL COMPENSATION
116
SC Amount of initial compensation
Taxed in PY of receipt of initial Compensation(either Whole/Part)
➢ If compensation is received in Instalments, ENTIRE Capital gain on
Total Compensation is taxable in PY of receipt of 1st Instalment.
POH From: Date of Acquisition of asset. Till: Date of Compulsory
Acquisition
Indexation Upto the year of Compulsory Acquisition of the Asset & NOT till the
year of payment
ENHANCED COMPENSATION
SC Amount of Enhanced Compensation.

Taxed in Enhance compensation is taxable in PY of Receipt. ➢ Enhanced
Compensation is received in Instalments → only Proportionate Capital
Gain to the amount of Instalment received during PY, shall be taxable in
that PY. Note: Enhanced compensation received under interim order will
be taxable in the PY in which final order of court is passed.
COA/COI Nil. However Litigation expenses are allowed as deduction.
Reduction of Enhanced Compensation: Where capital gain has been charged on the compensation
received by the assessee& subsequently such compensation is reduced by any court, tribunal or any
authority, the assessed capital gain of that year shall be recomputed by taking into consideration the
reduced amount.
Points to Remember: 1. Interest on compensation will be taxable in PY of Receipt irrespective of the year
for which it has been paid. Such interest is deductible to the extent of 50% of amount received u/s 57. 2.
Enhanced Compensation is taxable in the hands of recipient → If assessee is dead on the date of receipt of
enhanced compensation, enhanced compensation received by his legal heir
shall be taxable in the hands of legal heir.
CAPITAL GAINS IN CASE OF SPECIFIED AGREEMENT [SECTION 45(5A)]
Applicability Individual & HUF.

Transaction Capital Gain on Transfer of Land & Building or
Both under Specified Agreement
Year of Taxability CG arising from such transfer shall be taxable as
income of the PY in which the Certificate of
Completion for the whole/part of the project is
issued by the competent authority.
Sale Consideration Stamp Duty Value of his share (being land or
building or both) in the project on the date of issue
of certificate of completion + Consideration
received in cash.
Meaning of Specified Agreement Registered agreement in which a person owing
land/building or both agrees to allow another
person to develop a real estate project on such
land/building in consideration of a share, being
land/building or both in such project with/without
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payment of part of the consideration in cash.
Consequences of Transfer before Date of Issue of Completion Certificate:
▪ Benefit u/s 45(5A) is Not available if assessee transfers his share in the project on/before issue of
completion certificate to any person. In such case, CG shall arise in the year of such transfer.
▪ In such case, section 45(5A) will not apply for determining full value of consideration.
▪ Thus, Higher of (i) SDV on the date of transfer of his share or (ii) Actual consideration shall be full
value of consideration
CAPITAL GAINS ON BUYBACK OF LISTED SHARES [SECTION 46(A)]
Sale Consideration Amount given by the company to Shareholder on buy-back of

shares.
COA Amount at which shares were Purchased by the shareholder.
Tax Treatment
Assessee Listed Shares. Unlisted Shares

Shareholder Taxable as Capital Gain u/s 46A Exempt u/s 10(34A).
Company Not Taxable to company. Additional Income-tax @
23.296%. [20% + 12% SC + 4%
HEC]
RIGHT SHARES/BONUS SHARES [SEC 55(2)(aa)]
Particulars Cost of Acquisition

1. Bonus Shares FMV as on 1.4.2001
➢ If Bonus shares acquired before Nil since no option is available
1.4.2001
➢ If Bonus shares acquired on/after
1.4.2001
2. Right Shares Issue Price
➢ Purchased by Original Shareholder Issue price + Cost of Right
➢ Purchased by Purchaser of Right
3. . Right Always Nil & always STCG
ASCERTAINMENT OF COST IN SPECIFIED CIRCUMSTANCES [SEC 49(1)]
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In the following cases, the cost of acquisition of the asset shall be deemed to be cost for which the
previous owner of the property acquired it. To this cost, the cost of improvement to the asset incurred by
the previous owner or the assessee must be added: Where the capital asset became the property of the
assessee:
(a) on any distribution of assets on the total or partition of a HUF;
(b) under a gift or will;
(c) by succession, inheritance or devolution;
(d) on any distribution of assets on the liquidation of a company;
(e) under a transfer to revocable or an irrevocable trust;
(f) under any transfer of capital asset by a holding company to its wholly owned subsidiary Indian
company or by a subsidiary company to its 100% holding Indian company, referred to in section 47(iv)
and 47(v) respectively;
(g) under any transfer referred to in section 47(vi) of a capital asset by amalgamating company to the
amalgamated Indian company, in a scheme of amalgamation;
(h) under any transfer referred to in section 47(vib), of a capital asset by the demerged company to the
resulting Indian company, in a scheme of demerger;
(i) by conversion by an individual of his separate property into a HUF property, by the mode referred to
in section 64(2).
DETERMINATION OF PERIOD OF HOLDING IN SPECIAL CIRCUMSTANCES
Circumstances Period of holding

Shares held in a company in liquidation Exclude the period subsequent to the date of
liquidation
Asset becomes property of the assessee by virtue of Include POH of previous owner
sec 49(1).
Allotment of shares in the scheme of Include POH of shares in Amalgamating/Demerged
amalgamation/Demerger Co.
Right shares / securities, Bonus shares From the date of allotment of such share or security
Right to subscribe to any share or security From the date of offer of right.
Units become property of assessee in consideration Include POH of units in consolidating scheme of
of transfer of units in consolidated scheme of MF MF.
referred u/s 47(xviii).
Where share/s of a company is acquired by NR Period from the date on which redemption request
assesee on redemption of GDRs held by such was made.
assessee
Equity share becomes property of the assessee by Include POH of preference shares.
way of conversion of preference shares into equity
shares u/s 47(xb)
Units become property of the assessee in Include POH of units in the consolidating plan of
119
consideration of transfer of units in the MF.
consolidated plan referred u/s 47(xix).
ESOP or sweat equity shares allotted by employer Period from the date of allotment or transfer.
free/@ concessional rate to his employees/ former
employees.
D. TRANSACTIONS NOT TREATED AS TRANSFER (SEC 46 & 47)
➢ In the following cases, No Capital Gain would arise since they are NOT treated as Transfer.
➢ Thus NO TAX will be payable on such transfer by the transferee.
1. CAPITAL GAIN ARISING ON “DISTRIBUTION OF ASSETS IN KIND BY COMPANY TO

ITS SHAREHOLDERS ON LIQUIDATION [SECTION 46]
Distributes Assets in Kind
COMPANYShareholder
Give up their Right in the Shares of the Company
FOR COMPANY IN LIQUIDATION

➢ Any Asset distributed in kind by the company to its shareholders on liquidation → shall NOT
be regarded as a transfer by the company.
➢ Thus No Capital Gain shall arise to company on distribution of such Assets.
➢ However, if liquidator sells the assets of company & distributes funds so collected, capital
gain shall arise on such transfer.
FOR SHAREHOLDERS
➢ Capital Gain shall arise in the hands of Shareholders on transfer of such shares to the
company.
➢ Sale Consideration = FMV of Assets received in Kind – Deemed Dividend u/s 2(22)(c).
➢ Deemed dividend u/s 2(22)(c) → Distribution of Accumulated Profits by the company on
liquidation is treated as deemed dividend u/s 2(22)(c) & DDT u/s 115 shall be payable by the
company & thus such dividend shall NOT be taxable in the hands of shareholders & therefore it
is deducted from SC.
CAPITAL GAIN ON TRANSFER OF ASSETS RECEIVED IN KIND BY THE

SHAREHOLDERS
➢ When the asset received in kind is transferred by the shareholder later, Capital Gain will arise.
➢ COA of such asset = FMV of such asset on date of distribution by the company.
➢ POH shall be reckoned from the date of receipt of asset on liquidation.
2. DISTRIBUTION OF CAPITAL ASSET ON TOTAL/PARTIAL PARTITION OF HUF
120
➢ Distribution of Capital Asset by HUF to its members on partition of HUF is NOT treated as
Transfer & thus NO Capital Gain shall arise in the hands of HUF.
➢ However, Capital Gain shall arise when the asset received on partition, is sold by member.
➢ For computing capital gain in the hands of member on the transfer of said asset
COA in the hands of member of HUF Cost of Asset to HUF
Period of Holding From the date of Acquisition of Asset by HUF
3. TRANSFER OF CAPITAL ASSET BY WAY OF GIFT/UNDER A WILL OR TRUST

➢ Transfer of capital asset under a gift or will or irrevocable trust is NOT treated as transfer &
thus NO CAPITAL GAIN shall arise in the hands of transferor.
➢ However, Capital Gain will arise in the hands of Recipient when he transfers such capital
asset.
➢ For computing capital gain in the hands of recipient of gifts/will/irrevocable trust
COA in the hands of Recipient Cost to previous owner
→
Period of Holding/Indexation → ▪ Includes Period of Holding of previous owner;
▪ Indexation will be taken from date of acquisition of Asset
by Previous owner
Exception: If Employee transfers share/debenture/warrant allotted to him under ESOP under a
Gift or irrevocable trust, capital gain arising on such transfer is NOT Exempt. For Determining
Capital gain in such case, Full value of consideration = FMV on date of transfer.
4. TRANSFER OF CAPITAL ASSET BY HOLDING COMPANY TO WOS COMPANY
COA in the hands of WOS Cost to Holding company (Previous owner)
POH of Holding company Includes POH of Holding company (Previous
owner)
5. TRANSFER OF CAPITAL ASSET BY WOS COMPANY TO ITS HOLDING COMPANY

COA in the hands of Holding company Cost to Holding company (Previous owner)
POH of Wholly owned subsidiary Includes POH of WOS company (Previous
owner)
Note: For Point No. 4 & 5 (a) Recipient Company (company receiving capital asset) shall be
Indian Company. (b) Exemption will NOT apply if a Capital Asset is transferred as SIT.
6. TRANSFER OF CAPITAL ASSET IN SCHEME OF AMALGAMATION BY

AMALGAMATING COMPANY TO AMALGAMATED (INDIAN) COMPANY
Transfers Asset
Amalgamating CompanyAmalgamated Company
COA to Amalgamated Company Cost to Amalgamating company (Previous

owner)
POH Include POH of Amalgamating company
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(Previous owner)
Indexation From date of acquisition of capital asset by
amalgamating company (previous owner)
7. TRANSFER OF CAPITAL ASSET IN THE SCHEME OF DEMERGER BY DEMERGED

COMPANY TO RES ULTING INDIAN COMPANY
Transfers Asset
Demerged Company Resulting Indian Company
COA to Resulting company Cost to Demarged company (Previous owner)

POH Include POH of demerged company (Previous
owner)
Indexation From Date of acquisition of capital asset by
demerged company (Previous owner)
8. ALLOTMENT (ISSUE) OF SHARES BY AMALGAMATED COMPANY IN LIEU OF

SHARES HELD IN AMALGAMATING COMPANY
(Transfers) Shares in Amalgamating Co.
Mr. XCompany
(Receives)shares in Amalgamated Indian Co.
COA of shares in Amalgamated company → COA of shares in Amalgamating Company

POH of shares in Amalgamating company → Include POH of shares in Amalgamating Company.
Note: In this case, shares in amalgamated company are allotted to the shareholders (of amalgamating
company) in exchange of their shares in the amalgamating company, except where the shareholder itself
is amalgamated company.
Ex: A Ltd., an Indian company, holds 60% of shares in B Ltd. B Ltd. amalgamates with A Ltd. Since A
Ltd. itself is the shareholder of B Ltd., A Ltd., being the amalgamated company, cannot issue shares to
itself. However, A Ltd. has to issue shares to the other shareholders of B Ltd.
Note: Same provision would apply in case of conversion of company into LLP – [Sec 47(xiiic)]
❖ Cost of share in LLP = COA of Shares in the company immediately before its conversion
ALLOTMENT OF SHARES BY RESULTING COMPANY TO SHAREHOLDERS OF DEMERGED

COMPANY
Shares in Resulting 𝑁𝑒𝑤𝐵𝑉𝑜𝑓𝑎𝑠𝑠𝑒𝑡𝑖𝑛𝑑𝑒𝑚𝑒𝑟𝑔𝑒𝑑𝑐𝑜𝑚𝑝𝑎𝑛𝑦𝑎𝑓𝑡𝑒𝑟𝑑𝑒𝑚𝑒𝑟𝑔𝑒𝑟

𝐶𝑂𝐴𝑜𝑓𝑠ℎ𝑎𝑟𝑒𝑠𝑖𝑛𝐷𝑒𝑚𝑒𝑟𝑔𝑒𝑑𝐶𝑜𝑚𝑝𝑎𝑛𝑦 ×
𝑁𝑒𝑤𝐵𝑉𝑜𝑓𝑎𝑠𝑠𝑒𝑡𝑖𝑛𝑑𝑒𝑚𝑒𝑟𝑔𝑒𝑑𝑐𝑜𝑚𝑝𝑎𝑛𝑦𝑏𝑒𝑓𝑜𝑟𝑒𝑑𝑒𝑚𝑒𝑟𝑔𝑒𝑟
Company
Shares in Demerged COA of share in Demerged Co. ─ Cost apportioned to shares of Resulting Co.
122
Company
10.TRANSFER OF GOVERNMENT SECURITY BY A NR TO ANOTHER NR OUTSIDE

INDIA THROUGH INTERMEDIARY (SEC 47(VIIB)
Government Securities(Periodic Interest)
Mr. X (Non-Resident)Mr. Y (Non-Resident)
11. TRANSFER OF CAPITAL ASSET BEING ANY WORK OF ART, Archaeological,

Scientific or Art Collection, Book, Manuscript, Drawing, Painting, Photograph or Print to
Government/University/National Museum/National Art Gallery/Any other Public Museum or
Institution of National Importance → Exempt
12. TRANSFER BY WAY OF CONVERSION OF BONDS/DEBENTURES INTO SHARES

Transfers Debentures
Mr. XCompany
Receives Shares
COA of Shares received Cost of Bonds/Debenture given up
POH of Shares Include POH of Debentures given up
13. TRANSFER OF UNITS OF MF IN THE SCHEME OF CONSOLIDATION OF MF

Transfers units in Consolidating scheme
Mr. XCompany
Receives units in consolidated scheme
COA of unit in Consolidated scheme → COA of units in Consolidating Scheme
POH of unit in consolidating scheme→ Includes POH of units in consolidating scheme
for determining POH of units in consolidated
scheme
14. TRANSFER OF CAPITAL ASSET IN SCHEME OF REVERSE MORTGAGE

➢ Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government would not amount to a transfer. [Section 47(xvi)]
Morgages House
Senior citizenBank
Receives Loan
Note: Sec 10(43) exempts any lumpsum amounts or instalments received as a loan under a
scheme of reverse mortgage from the bank by senior citizens.
SOME OTHER TRANSACTIONS WHICH ARE NOT TREATED AS TRANSFER
123
15. Transfer of Rupee denominated bond of Indian company issued outside India by NR to
another NR - [Section 47(viiaa)].
16. Redemption of Sovereign Gold Bonds by Individual issued under Sovereign Gold Bond
Scheme, 2015 [Section 47(viic)].
17. Conversion of Preference shares into Equity shares: Any transfer by way of conversion of
preference shares of a company into equity shares of that company [Section 47(xb)
REVERSE MORTGAGE SCHEME

Meaning ▪ Reverse Mortgage scheme is for the benefit of senior citizens who own residential
house.
▪ Senior citizens can mortgage their house property with scheduled bank/housing
finance company for lumpsum amount or a regular monthly/quarterly/annual
income.
Scheme ▪ Senior citizens can mortgage their house & get the contracted amount.
▪ They can continue to live in their house & receive regular income without having
to pay back the loan.
▪ Borrower can use the loan amount for renovation & extension of residential
property, family’s medical and emergency expenditure etc., amongst others.
▪ However, he cannot use the amount for speculative or trading purposes.
▪ Bank/housing finance company would revalue the property once every 5 years
Recovery ▪ Bank will recover loan with interest by selling house after the death of the borrower.
▪ The excess amount will be given to the legal heirs.
▪ However before selling the house, preference will be given to the legal heirs to repay the
loan and interest and get the mortgaged property released.
Taxation ▪ Transfer of capital asset in a transaction of reverse mortgage under a scheme made &
notified by CG would not amount to a transfer - Section 47(xvi).
▪ Amount received by the senior citizen as a loan (Lump sum/Instalments) in a transaction
of reverse mortgage would be exempt from income-tax- Section 10(43).
▪ Capital gains would arise in the hands of senior citizen only when the mortgaged property
is sold by the bank/housing finance company for the purposes of recovering the loan
EXEMPTION FROM CAPITAL GAINS

Exemption from Capital Gains is available in two categories:
A. Exemption u/s 10 ▪ These exemptions are available on Transfer of Notified Capital Assets.
▪ No Investment in any new capital asset is required to avail these Exemption
B. Exemption u/s 54 ▪ These exemptions are available only if the Specified (New) Capital Asset is
Acquired or Constructed.
A. EXEMPTIONS U/S 10:

1. Capital Gain on transfer of a Units of Unit Scheme, 1964 (US 64) [Section 10(33)]
▪ Such transfer should take place on/after 1.4.2002.
2. Capital Gain arising to Individual/HUF on Compulsory Acquisition of Urban Agricultural Land
[Section 10(37)]
124
▪ Exemption is available only if compensation is received on/after 1.4.2004.
3. Capital Gain arising on Buy-back of Unlisted shares of Domestic Company [Sec 10(33)
B. EXEMPTION U/S 54
Eligible Assessee Individual or HUF

Which Asset must be Residential House Property (LTCA) Income from such house should be
transferred chargeable u/h “Income from HP”.
Which asset must be acquired One Residential House in India (Purchased/Constructed).
Time limit for acquiring new Purchase → Within 1 yr before transfer or within 2 years after transfer. Construct
asset → Within 3 years after the date of transfer.
Quantum of Exemption Investment in New Asset or Capital Gain (whichever is lower)
Consequences of transfer of Exemption granted will be taken back. For computing STCG on transfer of new
Newly acquired asset within 3 asset: Cost of New asset = (Cost of acquisition- Capital gains exempted earlier).
years.
Example 1. CG = Rs. 7 lacs & Cost of New house= Rs.9 lacs; Exemption = 7 lacs.
2. CG = Rs. 7 lacs & Cost of New house=Rs.5 lacs; Exemption = 5 lacs.
Continuing Ex, if the new house was sold after 2 years for Rs. 12 lacs, then STCG
=
Particulars Rs. Rs.
Net Consideration 1200000
Cost of acquisition Less: 9,00,000
CG exempt earlier u/s (7,00,000)
54 (200000)
Taxable STCG 1000000
Points to Remember:
▪ Date of completion of construction is relevant. Date of commencement of construction is irrelevant.

Construction may be commenced even before the transfer of house.
▪ Allotment of Flat under Self-financing scheme is treated as construction of house for Section 54.
▪ Holding of Legal Title → Not Necessary. If the taxpayer pays whole/part of consideration & gets the
possession of new house, exemption available u/s 54 is available.
▪ Investment → Includes Cost of Purchase of House + Cost incurred to make habitable.
▪ A person may Sell 2 Houses & Purchase 1 House for the purpose of availing exemption u/s 54.
CAPITAL GAIN ON TRANSFER OF AGRICULTURAL LAND [SEC 54B]
Eligible Assessee Individual or HUF

Which asset shall be transferred Urban Agricultural land (LT/ST). Such land must have been
used by Assessee or his parents/HUF for agricultural purposes
125
for 2 yrs immediately preceding date of transfer.
Which asset is acquired Agricultural Land (Rural/Urban)
Time limit for acquiring new asset Within 2 years from the date of transfer.
Quantum of Exemption Same as Section 54.
Consequences of transfer within 3 years Same as Section 54. However, if new agricultural land is a
rural agricultural land, there would be no CG on transfer of
such land
CAPITAL GAIN ON COMPULSORY ACQUISITION OF INDUSTRIAL L & B [SEC 54D]
Eligible Assessee Any Assessee.

Which asset shall be transferred Industrial Land or Building (STCA/LTCA) Such
Land/building should have been used by assessee for Industrial
undertaking for 2 years immediately preceding the date of
transfer.
Which asset is acquired Land or Building for Industrial purpose
Time limit for acquiring new asset Within 3 years from the date of Receipt of compensation.
Quantum of Exemption Same as Section 54
Consequences of transfer within 3 years Same as Section 54
CAPITAL GAIN ON TRANSFER OF ANY LONG-TERM CAPITAL ASSET ON THE BASIS OF

INVESTMENT IN CERTAIN BONDS [SECTION 54EC]
Eligible Assessee Any Assessee

Which asset shall be transferred Long-term Capital Asset being Land or Building or both (Even
a depreciable asset held for more than 36 months is a LTCA
even if they are always regarded as STCA under other sections
of the act)
Which asset is acquired Bonds of National Highways Authority of India (NHAI) &
Rural Electrification Corporation Ltd (RECL) redeemable
after 5 years. Bonds issued by Power Finance Corporation
Limited on/after 15.06.17 & Bonds issued by Indian Railway
Finance Corporation Limited on/after 8.8.17 & redeemable
after 3 years.
Time limit for acquiring New Asset Within 6 months from the date of transfer.
Quantum of Exemption Capital Gain or Amount Invested in Bonds (whichever is
Lower). Note: Maximum Investment that can be made in
bonds of NHAI & RECL from CG arising from the transfer of
one/more LTCA during the PY of transfer & in subsequent FY
cannot exceed Rs. 50 lacs.
Lock-in-period Bonds should not be transferred for a period of 5 Years.
Assessee should not transfer/convert or avail loan on security
of such bonds for 5 years from the date of acquisition of such
bonds. Otherwise exemption granted earlier shall be taken
back.
Note: Receipt of money on liquidation of company is taxable in the hands of shareholders [Section 46(2)].
In such case there is no transfer of capital asset & thus exemption u/s 54EC is not available.
126
CAPITAL GAIN ON TRANSFER OF ANY LONG-TERM CAPITAL ASSET ON THE BASIS OF
INVESTMENT IN NOTIFIED UNITS OF SPECIFIED FUND – [SEC 54EE]
Eligible Assessee Any Assessee

Which asset shall be transferred Any Long-term capital asset. (Even a depreciable asset held
for more than 36 months is a LTCA even if they are always
regarded as STCA under other sections of the act)
Which asset shall be acquired Long Term specified asset to be notified by central
government to Finance Start-ups (On or after 1.4.2016).
Time limit for acquiring new asset Within 6 months from the date of transfer.
Quantum of Exemption Capital gains or amount invested in units (whichever is lower).
Maximum investment that can be made in specified units, out
of capital gains arising from transfer of one or more LTCA
during the PY of transfer & in subsequent FY cannot exceed
Rs. 50 lacs in aggregate.
Lock-in-period Units should not be transferred for a period of 3 years.
Note: Assessee should not transfer or convert or avail loan on the security of such bonds for a period of
3 years from the date of acquisition of such bonds.Otherwise exemption grant earlier shall be taken
back.
CAPITAL GAIN ON TRANSFER OF ANY LONG-TERM CAPITAL ASSET OTHER THAN

RESIDENTIAL HOUSE PROPERTY [SECTION 54F]
Eligible assessee Individual & HUF

Which asset shall be transferred Transfer of LTCA other than Residential House Property.
Thus, Transfer of Vanact Plot of Land → Eligible for
Exemption. Provided that assessee should not own more than 1
Residential House on the date of transfer (except the newly
acquired house property).
Which asset is acquired ONE Residential House Property in India
Time limit for acquiring New asset The assessee should either ▪ Purchase: Within 1 year before
transfer or within 2 years after transfer. ▪ Construct: Within 3
years from the date of transfer.
Quantum of Exemption Proportionate Exemption. Thus to get the exemption of
amount of capital gains, the whole amount of sale
consideration shall be invested.
Amount invested in new residential hous�
𝐿𝑇𝐶𝐺 ×
𝑁𝑒𝑡𝑆𝑎𝑙𝑒𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
Withdrawal of Exemption ▪ If the new house is transferred within 3 years from the date
of acquisition. ▪ If assessee purchases another residential house
within 2 years from the date of transfer of original asset. ▪ If
assessee completes construction of another residential house in
India/ outside India within 3 years from the date of transfer of
original asset.
CAPITAL GAINS ACCOUNT SCHEME (CGAS)
127
Scheme of deposit ▪ For Section 54, 54B, 54D, 54F, Capital Gain is exempt to the
extent of Investment of “capital gains/Net Sale Consideration”
(for 54F) in specified assets within specified time limit.
▪ If such Investment is not made before DD of filing of ROI,
then Capital Gain/Net sale consideration (for 54F) has to be
deposited under the CGAS to get exemption.
Time limit for acquiring new asset ▪ Such deposit in CGAS should be made before filing ROI or
before DD of filing ROI, whichever is earlier.
▪ Proof of such deposit should be attached with the return.
▪ Deposit can be withdrawn for the specified purposes.
Consequences of non-utilization ▪ If the amount deposited is not utilized for specified purpose
within stipulated period, then unutilized amount shall be
charged as capital gain of the PY in which specified period
expires. For Sec 54F, Proportionate Amount will be Taxable.
▪ If Individual dies before the stipulated period, unutilized
amount is not taxable in the hands of legal heirs of deceased
individual because such unutilized amount is not income but is
a part of the estate devolving upon them.
EXTENSION OF TIME FOR ACQUIRING NEW ASSET OR MAKING DEPOSIT IN CAPITAL

GAIN ACCOUNT SCHEME [SEC 54H]
➢ In case of compulsory acquisition of original asset, time limit for acquiring new asset/making deposit
in CGAS is considered from date of receipt of compensation & not from date of transfer.
➢ For Determination of Year of Chargeability of Capital Gain: Whole Capital gain is taxable in the PY in
which 1st Instalment of Compensation is received. But for Determining Time Limit for Acquiring the
Asset, Dates of Receipt of different Instalments shall be considered.
Rate of Tax on Capital Gain
STCG LTCG
111A Others 112A Others
15% Slab Rate 10% 20%
A. SHORT- TERM CAPITAL GAINS [STCG]

(I) STCG u/s 111A: Taxable @ 15%
▪ STCG on transfer of Equity shares/units of EOMF on which STT is paid → Taxed @ 15%
▪ Benefit of UNEXHAUSTED BEL will be available for Resident Individual/HUF.
128
▪ No deduction under Chapter VI-A against STCG taxable u/s 111A.
▪ STCG arising from transactions undertaken in foreign currency on RSE located in an
International Financial Services Centre (IFSC) is taxable @ 15% even if STT is not leviable on
such transactions.
(II) Other STCG:
▪ STCG other than Section 111A are treated as Normal Income & will be taxed @ Slab Rate
along with Other Incomes.
B. LONG - TERM CAPITAL GAINS [LTCG]
(I) LTCG u/s 112A: Taxable @ 10% on LTCG exceeding Rs. 1,00,000
▪ LTCG on transfer of Equity shares/units of EOMF on which STT is paid → Taxed @ 15%
▪ Benefit of UNEXHAUSTED BEL will be available for Resident Individual/HUF.
▪ No deduction under Chapter VI-A against STCG taxable u/s 112A.
▪ Rebate u/s 87A → Not Available against LTCG taxable u/s 112A.
▪ LTCG arising from transactions undertaken in foreign currency on RSE located in an International
Financial Services Centre (IFSC) is taxable @ 10% even if STT is not leviable on such transactions.
Note:
1. Equity share → STT is to be paid on acquisition & transfer of such capital asset.
2. Units of EOMF/Business Trust → STT is to be paid on transfer of such capital asset. However, CG
may specify the nature of acquisition of equity share on which STT is not payable on acquisition.
(II) OTHER LTCG: Taxable @ 20%
▪ No deduction under Chapter VI-A is available against LTCG.
❖ Resident Individual & HUF → 20%. Benefit of Unexhausted BEL is available.
❖ Other Person & Domestic Company → 20%. No Benefit of Unexhausted BEL.
❖ Foreign company/ Non-corporate Non-Resident:
LTCG on unlisted securities/Shares in Private 10% without Indexation & currency fluctuations
company under 1st proviso to sec 48.
Other Assets 20%
❖ LTCG arising from transfer of listed securities (other than units) & ZCBs ▪ Assessee will have the
option to pay tax @ 10% without Indexation or 20% with Indexation. ❖ What about Debt-oriented MF or
unlisted securities? ▪ LTCG on transfer of units of debt-oriented MF & unlisted Securities are not eligible
for concessional rate of 10% (without indexation benefit). Thus taxable @ 20% with indexation.
129
Benefit of UNEXHAUSTED BEL from LTCG & STCG u/s 111A to Resident Individual/HUF ❖ We
know that entire LTCG is taxable @ 20% & STCG u/s 111A @ 15% without any exemption. ❖ But in
case of Resident Individual/HUF, benefit of BEL is available if BEL is unexhausted. ❖ Unexhausted
BEL means: taxable income (excluding LTCG) is less than the BEL. ❖ In such case, the shortfall* shall
be deducted from LTCG/STCG u/s 111A as the case may be. ❖ Shortfall = BEL – (Taxable income –
LTCG).
CAPITAL GAIN ON CONVERSION OF LLP INTO GENERAL PARTNERSHIP ➢ Since the tax
treatment of LLP & general partnership is same, conversion from a general Partnership firm to LLP will
have no tax implications if the rights & obligations of the partners remain same after conversion and if
there is no transfer of any asset or liability after conversion. ➢ However, if there is a change in rights and
obligations of partners or there is a transfer of asset or liability after conversion, then the provisions of
section 45 would get attracted.
MCQ s On Capital Gains

Q.1.The provision relating to clubbing of income where transfer of income is done without
transferring the assets is given under _______________.
(c) Section 61 (d) None of the above
Q.2. The income from the asset would be taxable in the hands of the transferor if
_______________.
(a) The taxpayer owns an asset
(b) The ownership of asset is not transferred by him
(c) The income from the asset is transferred to any person under a settlement or agreement
Q.3. The examples of revocable transfers are _______________.
(a) If there is an express clause of revocation in the instrument of transfer
(b) If there is a sale with a condition of repurchase
(c) If the trustees are empowered in sole discretion to revoke the transfer
Q.4. The provision for the set off and carry forward of losses in Income Tax Act, 1961 is given
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under _______________.
(a) Sections 65-75 (b) Sections 70-80
(c) Sections 80-90 (d) Sections 75-80
Q.5. Mr. Rakesh has two properties one occupied by him and the other let out. Mr. Rakesh pays
interest on loan of ` 1.40 lakh on the property occupied and derives net rental income of `
1.40 lakh from the let-out property. In this case, the income chargeable under the head “House
Property” will be _______________.
(a) ` 1,40,000 (b) ` 2,80,000
(c) ` 70,000 (d) Nil
Q.6. Loss from speculation business cannot be set off against profit from any non-speculation
business, however _______________.
(a) Loss from non-speculative business can be set off against speculation income
(b) Loss from non-speculative business cannot be set off against speculation income
(c) Profit from non-speculative business can be set off against speculation income
Q.7. Long-term Capital Loss can only be set off against _______________.
(a) Long-term capital loss (b) Short-term capital loss
(c) Long-term capital gain (d) All of the above
Q.8. The losses from any casual income cannot be set off against any losses.
(a) True (b) False
Q.9. No expenses can be calmed against any casual income.
(a) True (b) False
Q.10.Generally, long-term capital gain is charged to tax @ _______________ (plus surcharge

andcess as applicable).
(a) 10% (b) 15%
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(c) 20% (d) 30%
Q.11. . The exemption under section 54 shall be available _______________.
(a) To the extent of capital gain invested in the house property
(b) Proportionate to the net consideration price invested
(c) To the extent of amount actually invested
(d) None
Q.12. Capital assets like equity shares which are listed in a recognised stock exchange in India
will be treated as short-term capital assets if they are held by the taxpayer for a period of not
more than months immediately preceding the date of its transfer.
(a) 12 (b) 24
(c) 36 (d) 48
Q.13.Section 111A is applicable in case of STCG arising on transfer of which are

transferred on or after 1-10-2004 in are cognised stock exchange and such transaction is liable to
securities transaction tax(STT).
(a) Preference shares (b) Units of debt oriented mutual fund
(c) Units of business trust (d) Zero coupon bonds
Q.14.Short-term capital gains covered under section 111A is charged to tax @15% (plus
surcharge and cess as applicable).
(a) True (b) False
Q.15 Short-term capital gain other than covered under section 111A is charged to tax at
(a) 10%
(b) 15%
(c) 20%
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(d) Normal rate of tax which is determined on the basis of the total taxable income of the
taxpayer
Q.16. Long term capital assets has defined u/s
A) Sec 2(29A)
B) Sec 2 (92A)
C) Sec 9(22A)
Q.17.The computation of capital gains is u/s
A) 48
B) 49
C) 47
Q.18.How many types of capital gains are there
A) 3
B) 2
C) 4
Q.19. Cost inflation index before 31st march, 2001…..
A) 150
B) 200
C) 100
D) All of the above
Q.20.Exemption under section 54 is available to which persons ?
A) Company
B) Individual and HUF
C) AOP/BOI
Q.21.If the goodwill of profession which is self-generated is transferred , then there will be
A) Long term capital gains

B) Short term capital gins
C) No capital gains
D) All of the above
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Q.22.Deduction from capital gains under section 54B is for capital gains arising from transfer
of……
A) Agricultural land
B) Salary
C) House property
Q.23. The rate of tax that is imposed on STCG arising from transfer of equity shares of a
company , concern, units of an equity oriented fund is….
A) 25%
B) 15%
C) 30%
Q.24.Where the total income of an assesses includes income by way of long term capital gains
arising from transfer of listed securities (other than listed equity shares) applicable income tax
rate on such income is
(a) 20% of LTCG calculated after doing indexation
(b) 10% of LTCG calculated without doing indexation
(c) Higher of a) or b)
(d) Lower of a) or b)
Q.25.: Where the entire block of the depreciable asset is transferred after 36 months of its use
there will be:
(a) Short-term capital gain
(b) Long-term capital gain
(c) Short-term capital gain or loss
Long Answer Type Questions:
Q.1.What incomes are charged to tax under the head “Capital Gains”?
Q.2.What is the meaning of capital asset?
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Q.3.What is the meaning of the term ‘long-term capital asset’?
Q.4.What is long-term capital gain and short-term capital gain?
Q.5.Why capital gains are classified as short-term and long-term?
Q.6.How to compute long-term capital gain?
Q.7.How to compute short-term capital gain?
Q.8.Is the benefit of indexation available while computing capital gain arising on transfer of
short-term capital asset?
Q.9.In respect of capital asset acquired before 1st April, 2001 is there any special method to
compute cost of acquisition?
Q.10.As per the Income-tax Law, gain arising on transfer of capital asset is charged to tax under
the head “Capital gains”. What constitutes ‘transfer’ as per Income-tax Law?
Q.11. I have sold a house which had been purchased by me 5 years ago. Am I required to pay
any tax on the profit earned by me on account of such sale?
Q.12. Is there any benefit available in respect of re-investment of capital gain in any other capital
asset?
Q.13. A domestic company, ABC Ltd., has an undertaking newly established for export, the
profits of which have been merged in the net profit of the company as per Profit and Loss
Account prepared in accordance with the provisions Companies Act. It furnishes the following
particulars in respect of Assessment and seeks your opinion on the application of section 115JB.
You are also required to compute the total income and tax payable by the company:
lakhs
(1) Net profit as per P & L A/c as per Schedule 200
VI (2) Profit and Loss A/c includes: 200
(a) Credits:
Dividend income 20
Excess realised on sale of land held as 30
Investment
Net profit from export covered by 10AA 52 52
(a) Debits:
Depreciation on straight line method 100
basis 60
Provision for losses of subsidiary
company 60
(3) Depreciation allowable as per I.T. Act and 150
Rules 150
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(4) Long Term Capital Gains as computed 40
under I.T. Ac 40
(5) Losses brought forward as per books of
account: 50
Business loss 60
Unabsorbed depreciation
The company has represented to you that the excess realised on sale of land cannot form part of
the book profit for purposes of sec. 115JB. The company has brought forward tax credit of 50
Lakhs.
You are required to
1. Compute the tax liability of the company
2. Compute the tax liability of the company assuming that it has preferred option u/s 115BAB.
Q.14. Welfare trust is a private trust, which derived income from the following sources.
Income from House Property 25,000

Interest from Indian Companies 175,000
Business Income (Net Computed) 150,000
Capital gains - Long term 30,000
You are required to compute the tax liability of trust in following situation :-
1. It is discretionary trust for the benefits of Mr. X and Mr. Y. a. Mr. X and Mr. Y are also
beneficiary under another trust. b. Mr. X and Mr. Y are not beneficiary under another trust.
2. It is non-discretionary trust for the benefits of Mr. X and Mr. Y.
3. It is discretionary trust for the benefits of Mr. A
4. It is private trust for the benefits of Mr. A and Mr. B and benefits are defined by deed at 60 :
40 and Instead of Business Income it is income from other sources.
5. It is specific trust for the equal benefits of an Indian Company A and Mr. Y.
6. It is specific trust for the benefits of Company X and Mr. Y. This trust is created out of word
of mouth. a. Benefits out of trust property is known and equal. b. Benefits out of trust property is
un-known.
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Q.15. How capital gain is calculated? What is Full Value Consideration, Cost of acquisition and
Cost of Improvement?
CHAPTER: 5
Income from Other Sources
Income from Other Sources

Any income which is not chargeable to tax under any other heads of income and which is not to
be excluded from the total income shall be chargeable to tax as residuary income under the head
“Income from Other Sources”.
1. Basis of Charge [Sec. 56]:
Income chargeable to tax under the head “Income from other sources” shall include following:
S. Nature of income taxable as residuary income

No.
1. Dividends
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2. Income by way of winnings from lotteries, crossword puzzles, races including horse
races, card games, gambling or betting of any form or nature whatsoever
3. Any sum received by an employer from his employees as contribution towards

PF/ESI/ Superannuation Fund etc., if same is not deposited in the relevant fund and it
is not taxable under the head ‘Profits and Gains from Business or Profession’.
4. Interest on securities, if not taxable under the head ‘Profits and Gains of Business or
Profession’
5. Income from machinery, plant or furniture belonging to taxpayer and let on hire, if
income is not chargeable to tax under the head ‘Profits and Gains of Business or
Profession’
6. Composite rental income from letting of plant, machinery or furniture with buildings,
where such letting is inseparable and such income is not taxable under the head
‘Profits and Gains of Business or Profession’
7. Any sum received under Keyman Insurance Policy (including bonus), if not taxable
under the head ‘Profits and Gains of Business or Profession’ or under the head
‘Salaries’
8. In the following cases, any sum of money or property received by a person from any
person (except from relatives or member of HUF or in given circumstances, see note
1) shall be taxable under the head ‘Income from other sources’:
a) If any sum is received without consideration in excess of Rs. 50,000 during the
previous year, the whole amount shall be chargeable to tax;
Though the provisions relating to gift applies in case of every person, but it has been
reported that gifts by a resident person to a non-resident are claimed to be non-
taxable in India as the income does not accrue or arise in India. To ensure that such
gifts made by residents to a non-resident person are subjected to tax in India,
the Finance (No. 2) Act, 2019 has inserted a new clause (viii) under Section 9 of the
Income-tax Act to provide that any income arising outside India, being money paid
without consideration on or after 05-07-2019, by a person resident in India to a non-
resident or a foreign company shall be deemed to accrue or arise in India.
b) If an immovable property is received without consideration and the stamp duty
value exceeds Rs. 50,000, the stamp duty value of such property shall be chargeable
to tax;
c) If immovable property is received for consideration which is less than the stamp
duty value of property by higher of following amount the difference is chargeable to
tax:
(i) the amount of Rs. 50,000
(ii) the amount equal to 10% of consideration.
d) If movable properties* is received without consideration and the aggregate fair
market value of such properties exceeds Rs. 50,000, the whole of aggregate fair
market value of such properties shall be chargeable to tax
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e) If movable properties is received for consideration which is less than the aggregate
fair market value of properties by an amount exceeding Rs. 50,000, the difference
between the aggregate fair market value and the consideration is chargeable to tax.
9. If shares in a closely held company are received by a firm or another closely held
company from any person without consideration or for inadequate consideration, the
aggregate fair market value of such shares as reduced by the consideration paid, if
any, shall be chargeable to tax.
Note: Nothing would be chargeable to tax if taxable amount doesn’t exceed Rs.
50,000.
10. If a closely held public company receives any consideration for issue of shares which
exceed the fair market value of such shares, the aggregate consideration received for
such shares as reduced by its fair market value shall be chargeable to tax.
Note: This provision is not applicable in the following cases:
a) Where the consideration for issue of shares is received by a venture capital
undertaking from a venture capital company or venture capital fund or a specified
fund.
“Specified fund” means a fund established or incorporated in India in the form of a
trust or a company or a LLP (Limited Liability Partnership) or a body corporate
which has been granted a certificate of registration by SEBI as a Category I or
Category II Alternative Investment Fund (AIF).
b) Where the consideration for issue of shares is received by company from class or
classes of person as notified by the Government.
In this regard, the Government has provided that section 56(2)(viib) shall not apply
where consideration is received by a start-up company in respect of shares issued to a
resident person. However, a start-up company shall fulfil the condition mentioned in
the Notification No. 127(E), dated 19-02-2019 issued by the Department for
Promotion of Industry and Internal Trade (DPIIT).
With a view to ensure compliance to the conditions specified in the said notification,
the Finance (No. 2) Act, 2019 reiterates that in case of failure to comply with the
conditions specified in the notification, the consideration received from issue of
shares as exceeding the fair market value of such shares, shall be deemed to be
income of the company chargeable to tax for the previous year in which such failure
takes place. Further, it shall be deemed that the company has misreported the said
income and, consequently, a penalty of an amount equal to 200% of tax payable on
the underreported income (i.e., difference between issue price and fair market value
of shares) shall be levied as per section 270A.
10A. Any compensation received by a person in connection with the termination of his
employment or modification of terms and conditions relating thereto.
11. Interest received on compensation or enhanced compensation
12. Any sum of money received as an advance or otherwise in the course of negotiations
for transfer of a capital asset shall be charged to tax under this head, if:
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a) Such sum is forfeited; and
b) The negotiations do not result in transfer of such capital asset.
* ‘Movable property’ shall include shares, securities, jewellery, archaeological collection,
drawings, paintings, sculptures, any work of art or bullion etc.
1.1 Gifts not chargeable to tax [Sec. 56(2)(vii)]
Any sum of money or property received by any person [on or after 01-04-2017] in the following
circumstances shall not be chargeable to tax:
a) Gifts received from relatives;
b) Gifts received by an individual on occasion of his/her marriage;
c) Gifts received by way of Inheritance/will;;
d) Gifts received in contemplation of death of the payer;
e) Gifts received from any local authority;
f) Gifts received from any fund, foundation, university, educational institution, hospital, medical
institution, any trust or institution referred to in Section 10(23C);
g) Gifts received from any trust or institution registered under section 12A/12AA.
h) Share received as a consequences of demerger or amalgamation of a company under clause
(vid) or clause (vii) of section 47, respectively.
i) Share received as a consequences of business reorganization of a co-operative bank
under section 47(vicb)
j) from such class of persons and subject to such conditions as may be prescribed
** ‘Relative’ shall mean:
1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of spouse of the individual
7. Spouse of the person referred in point 2-6 above
2 Deductions [Sec. 57]:
The following expenditures are allowed as deductions from income chargeable to tax under the
head ‘Income from Other Sources’:
S.N. Section Nature of Income Deductions allowed
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1. 57(i) Dividend or Interest on securities Any reasonable sum paid by way
of commission or remuneration
to banker or any other person for
purpose of realizing dividend or
interest on securities
2. 57(ia) Employee’s contribution towards If employees’ contribution is

Provident Fund, Superannuation credited to their account in
Fund, ESI Fund or any other fund relevant fund on or before the
setup for the welfare of such due date
employees
3. 57(ii) Rental income letting of plant, Rent, rates, taxes, repairs,

machinery, furniture or building insurance and depreciation etc.
4. 57(iia) Family Pension 1/3rd of family pension subject to

maximum of Rs. 15,000.
5. 57(iii) Any other income Any other expenditure (not being

capital expenditure) expended
wholly and exclusively for
earning such income
6. 57 (iv) Interest on compensation or 50% of such interest (subject to

enhanced compensation certain conditions)
7. 58(4) Proviso Income from activity of owning All expenditure relating to such
and maintaining race horses. activity.
3 Expenses not deductible [Section 58]:
S.N. Section Nature of Income
1. 58(1)(a)(i) Personal expenses
2. 58(1)(a)(ii) Interest chargeable to tax which is payable outside India on which tax
has not been paid or deducted at source
3. 58(1)(a)(iii) ‘Salaries’ payable outside India on which no tax is paid or deducted at

source
4. 58(1A) Wealth-tax
5. 58(2) Expenditure of the nature specified in section 40A
6. 58(4) Expenditure in connection with winnings from lotteries, crossword

puzzles, races, games, gambling or betting
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(Republished with Amendment, Source -Income Tax Website)
MCQ
1. The income is chargeable under the head of salary under _______________ of Income Tax
Act, 1961.
2. Pension is _______________ under the salary head.
(a) Fully taxable (b) Partially taxable
(c) Not taxable (d) None of the above
3. The salary of Member of Parliament is taxable under the head _______________.
(a) Salary (b) Income from Other Sources
(c) Income from Business (d) All of the above
4. The salary, remuneration or compensation received by the partners is taxable under the head
_______________.
(a) Income from Other Sources (b) Income from Business
(c) Salary (d) None of the above
5. The death-cum-retirement gratuity received by the Government Employee or employee of
local authority is _______________.
(a) Partially exempted (b) Fully exempted
(c) Half taxable (d) None of the above
6. Under Section 15 of Income Tax Act, the salary due in previous years and even if it is not
received is _______________.
(a) Taxable (b) Not taxable
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7. The assesses can claim relief under _______________ for arrears or advance salary.
(a) Section 89(1) (b) Section 89(2)
(c) Section 89(3) (d) Section 89(4)
8. The Payment of Gratuity Act came into force in _______________.
(a) 1973 (b) 1980
(c) 1991 (d) 1972
9. X is employed in Complex Ltd. as a Chartered Accountant. The annual membership fees of X
paid by Complex Ltd. is not a perquisite and hence not chargeable to tax.
(a) False (b) True
10. The salary of non-resident received for the period in which he is working in India is not
taxable.
(a) True (b) False
11. Which of the following is not taxable under the head Salary?
(a) Remuneration paid to the lecturer of a college for setting a question paper
(b) Salary received by a member of parliament
(c) Commission received by an employee director of a company
(d) Both (a) and (b)
12. In accordance with the provisions of Section 17(1) of Income Tax Act, 1961, the term salary
includes _______________.
(a) Any annuity or pension
(b) Any gratuity
(c) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages
143
13. The children education allowance, the amount exempted from taxable income is limited to
______________.
(a) ` 100 per month per child upto 3 children
(b) ` 1,000 per year per child upto 2 children
(c) ` 100 per year per child upto 2 children
14. If the employee receives retirement gratuity from more than one employer, he can claim
exemption in respect of _______________.
(a) Current employer (b) Previous employer
(c) Both employer (d) Not from single employer
15. The family pension received by the family members of armed forces after death of employee
is _______________.
(a) Exempt fully (b) Exempted after fulfilling of certain conditions
(c) Not exempted (d) None of the above
16. The entertainment allowance is applicable to _______________.
(a) Private sector employees (b) Public sector employees
(c) Government employees (d) All of the above
17. The entertainment tax allowed as a deduction under Section 16 of Income Tax Act is the least
of _______________.
(a) Actual amount of entertainment allowance received
(b) 20% of basic salary of the individual
(c) ` 50,00
18. The assessment period for income tax on salary is _______________.
(a) Only more than 12 months (b) 12 months and less than 12 months
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(c) Only 12 months (d) 12 months and more than 12 months
19. Total income is to be rounded off to nearest multiple of _______________ and tax is to be
rounded off to nearest multiple of _______________.
(a) Ten rupee (b) Hundred, ten
(c) Ten, ten (d) Rupee, rupee
20. Income accrued outside India and received outside India is taxable in case of
______________.
(a) Resident and ordinary resident (ROR) only
(b) Resident but not ordinary resident (RNOR) only
(c) Non-resident only
(d) ROR, RNOR and Non-resident
21. Gross Total Income is arrived after ______________.
(a) only adding Income under five heads of Income;
(b) adding Income under five heads of Income excluding losses
(c) adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses
(d) adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses and after allowing deduction
under section 80C to 80U
22. Salary of S (` 40,000 per month) becomes due on the last day of the month but is paid on 7th
of next month. Also, salary of April, 2017 and May, 2017 is received in advance in March,
2017. What will be his gross income for Assessment Year 2017-18?
(a) ` 5,60,000 (b) ` 4,80,000
(c) ` 4,40,000 (d) ` 5,20,000
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23. Calculate the exempt HRA from the following details:
A is entitled to basic salary of ` 50,000 p.m. and dearness allowance of ` 10,000 p.m., 40% of
which forms part of retirement benefits. He is also entitled to HRA of ` 20,000 p.m. He
actually lives with his parents in Mumbai and does not pay any rent. Market rent of that house
is ` 20,000 p.m. in Mumbai.
(a) Nil (b) ` 1,75,200
(c) ` 64,800 (d) ` 2,40,000
24. Deduction under section 80C to 80U cannot exceed ______________.
(a) Gross Total Income
(b) Total Income
(c) Income from Business or Profession
(d) Income from House Property
25. Employer provides a car (below 1.6 ltr capacity) along with a driver to X partly for official
and partly for personal purpose. The expenses incurred by the company are: running and
maintenance expenses – ` 32,000 and driver’s salary – ` 36,000 .Taxable value of perquisite
is ______________.
(a) ` 21,600 (b) ` 10,800
(c) ` 32,400 (d) ` 39,600
26. The maximum limit for the claim of deduction under salary head Contributions to certain
pension funds of LIC or any other insurer is ______________.
(a) Up to ` 2,00,000 (b) Up to ` 1,50,000
(c) Up to ` 1,75,000 (d) None of the above
27. Encashment of earned leave is given by ______________ of Income Tax Act, 1961.
(a) Section 10(10AA) (b) Section 12(10A)
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(c) Section 15(10B) (d) None of the above
28. Compensation received on voluntary retirement is given by ______________ of Income Tax
Act, 1961.
(a) Section 10(10D) (b) Section 10(10C)
(c) Section 10(10E) (d) Section 11(10D)
29. The house rent allowance (HRA) under the salary head of Income Tax Act is given by
______________.
(a) Section 10 (b) Sec 10(13A)
(c) Section 11(13B) (d) Section 11
30. ______________ of Income Tax Act defines the perquisites and their valuation.
(a) Section 18 (b) Section17
(c) Section 18(C) (d) Section 17(C)
31. The Income tax rate for the financial year 2016-17 for individual is ______________.
(a) ` 5,00,000 to ` 10,00,000 is 20%
(b) ` 5,50,000 to ` 1,50,000 is 20%
(c) ` 5,00,000 to ` 10,00,000 is 30%
(d) ` 5,00,000 to ` 10,00,000 is 10%
32. Income tax rate for the senior citizens for year 2016-17 is ______________.
(a) Upto ` 5 lakh is Nil (b) Upto ` 10 lakh is 10%
(c) Upto ` 5 lakh is 10% (d) None of the above
33. For computation for Income tax liability for individual, the Education Cess is
______________.
(a) 3% (b) 4%
(c) 2.5% (d) 2%
34. The rate of tax for the financial year 2016-17 for the foreign companies is ______________.
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(a) 45% (b) 30%
(c) 40% flat (d) None of the above
35. Which of the following are true regarding taxing the rich?
(a) Additional 10% tax on dividends in excess of ` 10 lakh per annum
(b) Surcharge on persons decreased to 12% from 15%
(c) TDS at 1% on purchase of luxury cars exceeding value of ` 10 lakh
36. The Secondary and Education Cess on the computation of Income Tax for 2016-17 is
______________.
(a) 1% of Income Tax (b) 2% of Income Tax
(c) 0.5% of Income Tax (d) None of the above
37. Surcharge is levied at the rate ______________ if the income exceeds ` 1 crore of the
financial year 2016-17.
(a) 10% (b) 12%
(c) 15% (d) 20%
38. Tax Liability for the individual for 2016-17 who is not the resident of the India whose income
` 2,50,000 to ` 5,00,000 is ______________.
(a) 10% of total income minus ` 2,00,000
(b) 10% of total income minus ` 1,00,000
(c) 15% of total income minus ` 1,00,000
39. If an employer transfers second hand motor car to the employee, the perquisite is valued at
______________.
(a) Actual cost less depreciation @ 30% for every completed year under straight line method
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(b) Actual cost less depreciation @ 20% for every completed year under WDV method
(c) Actual cost less depreciation @ 30% for every completed year under WDV method
(d) Actual cost less depreciation @ 20% for every completed year under SLM method
40. The following is not taxable as income under the head “Salaries”:
(a) Commission received by a full-time director
(b) Remuneration received by a partner
(c) Allowances received by an employee
(d) Free accommodation given to an employee
41. The following is exempt income from Income Tax:.
(a) Travel concession to employee
(b) Remuneration received for valuation of answer scripts
(c) Encashment of leave salary whilst in service
(d) Perquisites in India
42. Advance salary is taxable and advance against salary is ______________.
(a) Fully taxable (b) Partially taxable
(c) Not taxable (d) None of the above
43. If loan granted by employer to employee does not exceed ______________, it is not treated as
perquisite to employee for purpose of income tax.
(a) ` 20,000 (b) ` 40,000
(c) ` 30,000 (d) ` 25,000
44. Death-cum-retirement gratuity received by an employee of Central Government is wholly
exempt up to ______________.
(a) ` 2.5 lakh (b) ` 4.5 lakh
(c) ` 3.5 lakh (d) None of the above
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45. Gift to employee up to ______________ p.a. will not be treated as perquisite taxable in the
hands of employee.
(a) ` 4,000 (b) ` 5,000
(c) ` 10,000 (d) ` 2,500
46. Expenditure on free meals to employee in excess of ______________ per meal will be treated
as perquisite of employee.
(a) ` 25 (b) ` 50
(c) ` 100 (d) ` 55
47. Any commission due or received by a partner of a firm from the firm shall not be regarded as
salary income under ______________.
48. Proportional tax is based on the principle ‘higher the income, higher the tax’. Statement is
______________.
(a) True (b) False
49. The tax will be economical if the cost of collection is very small.
(a) True (b) False
50. Income tax is a form of tax which is levied on individual’s total earnings.
(a) False (b) True
1 (a) 11 (d) 21 (d) 31 (a) 41 (d)
2 (a) 12 (d) 22 (a) 32 (a) 42 (c)
3 (a) 13 (c) 23 (a) 33 (a) 43 (b)
4 (b) 14 (c) 24 (a) 34 (c) 44 (c)
5 (b) 15 (b) 25 (c) 35 (d) 45 (b)
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6 (a) 16 (c) 26 (b) 36 (a) 46 (b)
7 (a) 17 (d) 27 (a) 37 (c) 47 (a)
8 (d) 18 (c) 28 (b) 38 (a) 48 (b)
9 (a) 19 (c) 29 (b) 39 (d) 49 (a)
10 (b) 20 (a) 30 (d) 40 (b) 50 (b)
Chapter 3 Direct Taxation

1. The Income from House Property is taxable in the hands of the individual even if property is
not registered in his name ______________.
(a) When the property has been transferred to spouse for inadequate consideration
(b) Where the property is transferred to a minor child for inadequate consideration
(c) Where the individual holds on importable estate
2. Under the Head Income from House Property, the basis of charge is the ______________ of
property.
(a) Annual value (b) Quarterly value
(c) Half-quarterly value (d) None of the above
3. The following conditions must be satisfied to charge the rental income under the head Income
of House Property:
(a) The property should consist of any buildings or lands
(b) The asssessee should be one of the property
(c) The property should not be used by the owner for the purpose of business or professional
purpose
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Mr. Maruti on monthly rent of ` 20,000 p.m. Rental income of Ram is taxable under the head
______________.
Mr. Maruti on monthly rent of ` 20,000 p.m. Rental income of Laxman is taxable under the
head ______________.
6. An individual who transfers house property without an adequate consideration to his owner
spouse or to minor child is called as ______________.
(a) Co-owner (b) Deemed Owner
(c) Owner Himself (d) None of the above
7. An individual is considered as a owner of the house property for the purpose of charging tax
to ______________.
(a) A member of cooperative society, company or AOP to whom a building or a part thereof
is allotted or leased under a house building scheme of the society.
(b) An individual who transfers house property without an adequate consideration to his
owner spouse or to minor child
(c) The holder of importable estate
8. The rental income of person who is resident of Ladakh is ______________ taxable under
Income from House Property.
(a) Fully taxable (b) Not taxable
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9. If the individual using the property for the business or professional purpose the income
taxable under the _____________ head.
(a) Income from House property (b) Income from HUF
(c) Income from Other (d) Income from Business or Proprietorship
10. If the assesses let out the building or staff quarters to the employee of business, the rent
collected from such employees is assessable as income from ______________.
(a) Business (b) House Property
(c) Other Sources (d) None of the above
11. The Gross annual value of the property is depends upon the ______________.
(a) Standard rent (b) Municipal Valuation
(c) Fair rent (d) All of the above
12. If Anil is entitled to basic salary of ` 50,000 p.m. and dearness allowance of ` 10,000 p.m.,
40% of which forms part of retirement benefits. He is also entitled to HRA of ` 20,000 p.m.
He actually lives with his parents in Mumbai and does not pay any rent. Market rent of that
house is ` 20,000 p.m. in Mumbai, then calculate the exempt HRA for Mr. Anil.
(a) Nil (b) ` 64,800
(c) ` 2,40,000 (d) ` 1,75,200
13. Calculate the Gross Annual Value from the following details:
Municipal Value ` 45,000
Fair rental value ` 50,000
Actual Rent ` 42,000
(a) ` 50,000 (b) ` 48,000
(c) ` 45,000 (d) ` 42,000
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14. Which of the following is not a case of deemed ownership of house property?
(a) Transfer to a spouse for inadequate consideration
(b) Transfer to a minor child for inadequate consideration
(c) Holder of an importable estate
(d) Co-owner of a property
15. Interest on capital borrowed for acquisition or construction of property is deductible subject to
limit of _______________ per year, if capital is borrowed on or after 1-04-1999. This is
allowable if acquisition or construction is completed within 3 years from end of financial year
in which loan was taken.
(a) ` 1,50,000 (b) ` 2,00,000
(c) ` 1,80,000 (d) ` 2,50,000
16. For a self-occupied house property occupied on 1.7.2016, for which housing loan was availed,
if the interest up to 31.3.2016 is ` 90,000 and thereafter the interest payable is ` 3,000 p.m.,
the deduction available under section 24 in respect of interest for the year ended 31.3.2017 is
_______________.
(a) ` 50,000 (b) ` 45,000
17. If an assesses earns rent from a sub-tenant in respect to tenanted property let out as a
residence, the said rent is _______________.
(a) Exempted under Section 10
(b) Taxable under the head income from house property
(c) Taxable as business income, as the letting out is a commercial activity
(d) Taxable as income from other sources
18. An assesses, after sale of house property, receiving arrears of rent (is/is not) chargeable to tax;
154
the same computed in the stipulated manner, is chargeable to tax as _______________..
(c) Either (a) or (b) (d) Neither (a) nor (b)
19. Arrear rent is taxable after deducting _______________ as per Section 25B of the Income
Tax Act, 1961.
(a) 30% (b) 35%
(c) 10% (d) 20%
20. Monish took a loan of ` 6,00,000 on 1.4.2014 from a bank for construction of a house. The
loan carries an interest @ 10% p.a. The construction is completed on 15.6.2016. The entire
loan is still outstanding. Compute the interest allowable for the assessment year 2016-17.
(a) ` 60,000 (b) ` 1,80,000
(c) ` 84,000 (d) ` 24,000
21. The value of interest-free concessional loans to employees is determined on the basis of
lending rates of _______________ for the same purpose.
(a) SBI (b) RBI
(c) Central Government (d) State Government
22. Value of rent-free accommodation in case of Government employee shall be taxable up to
_______________.
(a) 15% of employee’s salary (b) 8% of employee’s salary
(c) License fee fixed by Government (d) 10% of employee’s salary
23. Value of rent-free accommodation or a house owned by employer in case of non-government
employees with above 25 lakh population is _______________.
(a) 15% of employee salary (b) 7.5% of employee salary
(c) 20% of employee salary (d) 10% of employee salary
24. Deduction for other expenses except interest in the computation of income from house
155
property is allowable to the extent of _______________.
(a) 25% of annual value (b) 10% of annual value
(c) 30% of annual value (d) 20% of annual value
25. Rate of depreciation on residential building is _______________.
(a) 10% (b) 20%
(c) 25% (d) 5%
26. House property held for less than 36 months is _______________.
(a) Short-term capital asset (b) Projected capital asset
(c) Exempted capital asset (d) Long-term capital asset
27. Mr. Shushant is the owner of a house, the details of which are given below the gross annual
value would be _______________.
Municipal value ` 36,000
Actual rent ` 32,000
Fair Rent ` 36,000
(a) ` 36,000 (b) ` 35,000
(c) ` 30,000 (d) ` 40,000
28. Sunil purchased a house for his residential purpose after taking a loan in January, 2016.
During the previous year 2016-17, he paid interest on loan ` 1,67,000. While computing
income from house property, the deduction is allowable to the extent of _______________.
(a) ` 30,000 (b) ` 1,00,000
(c) ` 1,67,000 (d) ` 1,50,000
29. Expected rent shall be higher of ______________.
(a) Municipal value and standard rent (b) Fair rent and actual rent received
156
(c) Standard rent and fair rent (d) Municipal value and fair rent
30. Municipal Value ` 14,000, Fair rent ` 14,500, Standard Rent ` 14,200, Actual rent as
property let out throughout the previous year ` 16,800 and Unrealized rent of the previous
year ` 7,000. The annual value of the house property shall be ______________.
(a) ` 9,800 (b) ` 14,200
(c) ` 7,200 (d) ` 7,500
31. Interest on capital, borrowed on 10.10.2000, for self-occupied property is deductible up to a
maximum amount of ______________.
(a) ` 50,000 (b) ` 1,50,000
32. Deduction from annual value is allowed under ______________.
33. ______________ standard deduction from annual value is allowed.
(a) 10% (b) 20%
(c) 30% (d) 15%
34. Interest on loan for self-occupied house taken before 1st April, 1999 will be allowed up to
______________.
(a) ` 30,000 (b) ` 1,50,000
(c) ` 10,000 (d) ` 50,000
35. Deduction allowed from annual value is ______________.
(a) Interest on loan for constitution (b) Interest on loan for repair
(c) Statutory deduction (d) All of the above
36. An individual assesses can show maximum loss of ______________ from a self-occupied
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residential house property.
(a) ` 1,50,000 (b) ` 30,000
(c) ` 20,000 (d) ` 5,00,000
37. The Annual Value has been defined under ______________ of Income Tax Act, 1961.
(c) Section 23(1) (d) Section 23
38. Mr. Rupesh owns a house property. Municipal value ` 1,50,000, Fair Rent ` 1,25,000 and
(a) ` 1,45,000 (b) ` 1,25,000
(c) ` 1,50,000 (d) ` 1,33,000
39. When the portion of the house is self-occupied for the full year and portion is self-occupied
for the whole year, the annual value of the house shall be determined by ______________.
(a) The full annual value of the house the proportionate annual value of self-occupied portion
for the whole year shall be deducted
(b) Its present standard value
40. Mr. R owns a house. The Municipal value of the house is ` 50,000. He paid ` 8,000 as local
taxes during the year. He uses this house for his residential purposes but lets out half of the
house @ ` 3,000 p.m. The annual value of the house is ______________.
(a) ` 15,000 (b) ` 16,000
(c) ` 17,000 (d) ` 18,000
41. If fair rent is not gives, then assume ______________ as fair rent.
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(a) Actual rent (b) Standard rent
(c) Average rent (d) None of the above
42. Rent received by original tenant from sub-tenant is taxable under the head _______________.
43. The net annual value of house let out is ` 1,00,000 and actual amount spent by the assessee on
repairs and insurance premium is ` 20,000. The amount of deduction allowed under Section
24(a) shall be _______________.
(a) ` 35,000 (b) ` 45,000
(c) ` 30,000 (d) ` 25,000
44. Rent from House Property let out by an assessee to his employees when such letting is
incidental to his main business will be chargeable to tax under head _______________.
(a) Profit and Gain from Business and Profession
(b) Income from Capital Gain
(c) Income from House Property
45. When annual value of one-self occupied house is nil, the assesses will be entitled to the
standard deduction of _______________.
(a) 10% (b) 20%
(c) Nil (d) None of the above
46. Gross annual value shall be higher of _______________.
(a) Expected rent (b) Actual rent received or receivable
47. Income from property held under trust for charitable or religious purposes is ______________.
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(a) Exempted from tax (b) Taxable @ 10%
(c) Taxable @ 20% (d) None of the above
48. Mr. Anup owns a house property. Municipal value ` 1,80,000, Fair Rent ` 1,35,000 and
(a) 1,80,000 (b) 1,65,000
(c) 1,55,500 (d) None of the above
49. The assessee lets on hire machinery, plant or furniture belonging to him and also building and
the letting of the buildings is inseparable from the letting of the said machinery, plant and
furniture, the income from such letting is chargeable to tax under the head _______________.
(a) Income from Business (b) Income from Capital Gain
(c) Income from Other Sources (d) Profit and Gain from Business or Profession
50. For computation of Gross Annual Value, if actual rent is more than expected rent, then we
select the ______________.
(a) Actual rent (b) Expected rent
(c) Any of the above (d) None of the above
Answer
Key of Chapter 3
1 (d) 11 (d) 21 (d) 31 (b) 41 (a) 2 (a) 12 (a) 22 (c) 32 (a) 42 (b) 3 (d) 13 (b) 23 (a) 33 (c) 43 (c) 4 (c) 14 (d) 24
(c) 34 (a) 44 (a) 5 (b) 15 (a) 25 (d) 35 (d) 45 (c) 6 (b) 16 (c) 26 (c) 36 (a) 46 (c) 7 (d) 17 (d) 27 (a) 37 (c) 47
(a) 8 (b) 18 (c) 28 (c) 38 (a) 48 (b) 9 (d) 19 (a) 29 (d) 39 (a) 49 (c)
10 (c) 20 (d) 30 (b) 40 (b) 50 (a)
Chapter 4 Direct Taxation
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1. Under the Income Tax Act, 1961, depreciation on machinery is charged on _______________.
(a) Purchase price of the machinery (b) Written down value of the machinery
(c) Market price of the machinery (d) All of the above
2. The Depreciation allowance is charged of written down value on intangible assets at the rate
of _______________.
(a) 25% (b) 15%
(c) 20% (d) 30%
3. Sunil contributed ` 3,00,000 to an approved institution for research in social science, which is
not related to his business. The amount of deduction eligible under section 35 would be
_______________.
(a) ` 37,500 (b) ` 30,000
(c) ` 45,000 (d) ` 30,500
4. Income of a business commenced on 1st Feb 2016 will be assessed during the assessment
year _______________.
(a) 2014-15 (b) 2015-16
(c) 2016-17 (d) 2015-17
5. The amount of additional depreciation in respect of new building constructed in financial year
2015-16 at a cost of ` 25 lakh for manufacturing garments will be ` _______________.
(a) Nil (b) ` 10,000
(c) ` 15,000 (d) ` 50,000
6. If an asset is put to use for less than 180 days in the previous year, the depreciation is charged
at _______________ rate.
(a) 30% (b) 50%
(c) 25% (d) Nil
7. Deduction for bad debt is allowed to assessees carrying on business in the year in which the
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debt is _______________ as bad.
(a) Accrual Basis (b) Written Basis
8. Under Section 44AB, specified date means _______________ of the assessment year.
(a) 31st March (b) 1st April
(c) 30th September (d) None of the above
9. Income chargeable under the head ‘Profits and Gains from Business or Profession’ is covered
under _______________.
10. Business expenses are allowed to be deducted from business income even if they are in the
nature of personal expenditure of the assessee, as long as they are reasonable.
(a) True (b) False
11. Where business is carried on, on behalf of the assessee’s minor child (whose income is
clubbed in assessee’s hands), by the assessee, which is besides assessee’s own business, the
gross receipts of both should be reckoned for judging the applicability of Section 44AB of the
Income Tax Act, 1961.
(a) True (b) False
12. The income charged under the head Business/Profession are _______________.
(a) The profit and gain of any business or profession which was carried on by the assessee at
any time during the previous year
(b) Export incentives available to the exporters under any scheme of Government
(c) Any compensation or other payment due to or received by any person specified by the
Section 28(ii)
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13. The depreciation on the assets in case of new plant and machinery is _______________.
(a) Depreciation sum equal to 20% of the actual cost of new plant and machinery
(b) Depreciation sum equal to 50% of the actual cost of new plant and machinery
(c) Depreciation sum equal to 30% of the actual cost of new plant and machinery
(d) Depreciation sum equal to 10% of the actual cost of new plant and machinery
14. If the asset is put to use for less than 180 days in the year in which it is acquired, the rate of
depreciation will be _______________.
(a) 20% (b) 30%
(c) 25% (d) 50%
15. If the assets falling within a block of assets is acquired during the previous year and it is put
to use for a period of less than 180 day, _______________.
(a) Depreciation should be restricted to 30%
(b) Depreciation should be restricted to 40%
(c) Depreciation should be restricted to 50%
(d) Depreciation should be restricted to 20%
16. The depreciation is allowable expenditure subject to _______________.
(a) The asset must be tangible asset
(b) The asset is used for the business purposes
(c) The assesses is the owner of the assets
17. The revenue expenditure on research incurred by the assesses himself is allowed for
deduction only if _______________.
(a) Research is related to business only
(b) Research is related to personal purpose
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(c) Research is related the HUI
18. Profits of ` 2,00,000 are earned from a business in USA which is controlled in India. Half of
the profit is being received in India. How much amount is taxable in India of a non-resident
individual?
(a) Nil (b) ` 2,00,000
(c) ` 1,00,000 (d) ` 3,00,000
19. Which of the following income is not chargeable as income of business or profession?
(a) Profits and gains of business carried by an assessee during the previous year
(b) Income derived by a trade, professional or similar association from specific services
performed for its members
(c) Income from the activity of owning and maintaining race horse
(d) Salary received by a partner of a firm from the firm in which he is a partner.
20. If any expenditure is incurred by an Indian company wholly and exclusively for the purpose
of amalgamation or demerger, the said expenditure is _______________.
(a) Not allowable as a deduction in computing profits and gains of business or profession
(b) Fully deductible as revenue expenditure in the year in which it is incurred
(c) Not deductible but is eligible to be treated as a intangible asset in respect of which
depreciation can be claimed
(d) Allowed as a deduction over five successive previous year in which amalgamation or
demerger takes place
21. The transfer of old movable assets will be tax-free if it is used for _______________.
(a) 1 year (b) 5 years
(c) 10 years (d) 15 years
164
22. The rate of depression on machinery is allowed upto _______________.
(a) 10% (b) 15%
(c) 2% (d) 8%
23. Section 45 of Income Tax Act, 1961 is related to _______________.
(a) Capital assets (b) Assets
(c) Capital expenses (d) Capital gain
24. Sections 28 to 44D of Income Tax Act, 1961 related to _______________.
(a) Income from House Property (b) Profit and Loss from Business or Profession
(c) Income from Salary (d) Income of HUF
25. If any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received
without consideration, by an individual or a Hindu undivided family, in any previous year
from any person or persons on or after the 1st day of April, 2006 but before 1st of October
2009, the whole sum is taxable under the head _______________.
(a) Income from Other Sources (b) Income from Business and Profession
26. If a money gift is received from _______________, it is not taxable under any head.
(a) From any relatives
(b) On the occasion of the marriage of the individual
(c) Under a will or by way of inheritance
27. The provision relating to clubbing of income where transfer of income is done without
transferring the assets is given under _______________.
(c) Section 61 (d) None of the above
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28. The income from the asset would be taxable in the hands of the transferor if _______________.
(a) The taxpayer owns an asset
(b) The ownership of asset is not transferred by him
(c) The income from the asset is transferred to any person under a settlement or agreement
29. The examples of revocable transfers are _______________.
(a) If there is an express clause of revocation in the instrument of transfer
(b) If there is a sale with a condition of repurchase
(c) If the trustees are empowered in sole discretion to revoke the transfer
30. The provision for the set off and carry forward of losses in Income Tax Act, 1961 is given
under _______________.
31. Mr. Rakesh has two properties one occupied by him and the other let out. Mr. Rakesh pays
interest on loan of ` 1.40 lakh on the property occupied and derives net rental income of `
1.40 lakh from the let-out property. In this case, the income chargeable under the head “House
Property” will be _______________.
(a) ` 1,40,000 (b) ` 2,80,000
(c) ` 70,000 (d) Nil
32. Loss from speculation business cannot be set off against profit from any non-speculation
business, however _______________.
(a) Loss from non-speculative business can be set off against speculation income
(b) Loss from non-speculative business cannot be set off against speculation income
(c) Profit from non-speculative business can be set off against speculation income
166
33. Long-term Capital Loss can only be set off against _______________.
(a) Long-term capital loss (b) Short-term capital loss
(c) Long-term capital gain (d) All of the above
34. The losses from any casual income cannot be set off against any losses.
(a) True (b) False
35. No expenses can be calmed against any casual income.
(a) True (b) False
36. If in any year, the tax payer has incurred losses under one head of income and is having
income under other head of income, then he can adjust the losses from one head against
income from other head.
(a) False (b) True
37. Mr. Anil has only one property, which is occupied by him and the loss is ` 1.50 lakh. He
derives salary of ` 10 lakh during the year. Here, he can set off the loss of ` 1.50 lakh against
his salary income by making appropriate declarations to his employer thereby making his net
taxable income _______________.
(a) ` 10 lakh (b) ` 8.50 lakh
(c) ` 9 lakh (d) None of the above
38. The provision for the set off loss from one head against income from another head is given
under _______________ of Income Tax Act, 1961.
39. The carry forward of losses is permissible if the return of income for the year in which loss
incurred is _______________.
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(a) Filled on time (b) Not filled on time
(c) Filed in advance (d) None of the above
40. All income which arises to the minor child shall be clubbed in the income of his/her
_______________.
(a) Parents (b) Siblings
(c) Friends (d) Neighbours
41. What are the incomes are considered as an agricultural income?
(a) Any rent received from land which is used for agricultural purpose
(b) Any income derived from such land by agricultural operations
(c) Income attributable to farm house
42. _______________ are not treated as a agricultural income.
(a) Income from poultry farming (b) Income from bee heaving
(c) Purchase of standing crop (d) All of the above
43. The agricultural income is fully exempt from tax from _______________.
(a) Finance Act, 1973 (b) Income Tax Act, 1961
(c) Agricultural Act, 1981 (d) None of the above
44. If the coffee is grown and cured, then the tax liability on the agricultural income is
_______________.
(a) 75% agricultural and 25% non-agricultural income
(b) 65% agricultural and 35% non-agricultural income
(c) 55% agricultural and 45% non-agricultural income
(d) 35% agricultural and 65% non-agricultural income
45. The coffee is grown, cured and further processed, then the tax liability for the agricultural
168
income is _______________.
(a) 60% agricultural and 40% non-agricultural
(b) 50% agricultural and 50% non-agricultural
(c) 40% agricultural and 60% non-agricultural
(d) 65% agricultural and 35% non-agricultural
46. If the agricultural land is used for tea plantation, then the tax liability is _______________.
(a) 65% agricultural and 35% non-agricultural
(b) 50% agricultural and 50% non-agricultural
(c) 70% agricultural and 30% non-agricultural
(d) 60% agricultural and 40% non-agricultural
47. A income by way of rent of agricultural land is _______________.
(a) Business income (b) Agricultural Income
(c) Income from Other Sources (d) Casual Income
48. Salary received by the manager of an agricultural farm is _______________.
(a) An agricultural income (b) A business income
(c) A salary income (d) A capital income
49. Income from a farm house is _______________.
(a) Agricultural Income (b) Income from Other Sources
50. Income from sale of rural agricultural land is _______________.
(a) Taxable capital gain (b) Taxable income
(c) Exempted capital gain (d) None of these
1 (c) 11 (b) 21 (c) 31 (d) 41 (d)
2 (a) 12 (d) 22 (b) 32 (a) 42 (d)
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3 (a) 13 (a) 23 (d) 33 (c) 43 (a)
4 (b) 14 (b) 24 (b) 34 (a) 44 (b)
5 (a) 15 (c) 25 (a) 35 (a) 45 (a)
6 (b) 16 (d) 26 (d) 36 (b) 46 (d)
7 (b) 17 (a) 27 (a) 37 (b) 47 (c)
8 (c) 18 (c) 28 (d) 38 (c) 48 (a)
9 (b) 19 (c) 29 (d) 39 (a) 49 (a)
10 (b) 20 (d) 30 (b) 40 (a) 50 (b)
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UNIT-III
CHAPTER: 1
Clubbing of Income:
INTRODUCTION
➢ Total Income of an Individual is taxed on the basis of Slab Rate. As the income goes up, rates
of tax also go up. There is a tendency amongst the tax-payers in higher tax brackets to divert a
part of their income to the hands of their relatives, in order to reduce the burden of tax.
Ex: If a person has an income of Rs. 10,00,000, tax payable by him = Rs. 1,12,500. If he can
divide this income in the hands of 2 persons related to him, Mr. A & Mr. B giving both of them
Rs. 2,50,000, combined tax liability = Nil (for A) + Nil (for B) + Rs. 12,500 for Himself. Thus,
we say that tax liability gets reduced by Rs. 1,00,000. [Rs. 1,12,500 – Rs. 12,500].
➢ In order to curb such practices of tax avoidance, Provisions have been incorporated in the
Income-tax Act by virtue of which the income arising to certain persons is to be included in the
income of another person, for purposes of computation of his tax liability.
➢ These provisions are enacted to counteract the tendency of the tax-payers to dispose of their
property or transfer their income in such a way that their tax liability can be avoided or reduced.
TRANSFER OF INCOME WITHOUT TRANSFER OF ASSET [SECTION 60]
➢ If any person transfers the income from any asset without transferring the asset, such
transferred Income is included in Total Income of the transferor.
➢ Transfer can be Revocable or Irrevocable. Ex: Mr. A confers the right to receive rent in
respect of his house property on his wife, Mrs. A, without transferring the house itself to her. In
this case, the rent received by Mrs. A will be clubbed with the income of Mr. A.
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CQ1. Mr. Vatsan has transferred through a duly registered document the income arising from a
godown, to his son, without transferring the godown. In whose hands will the rental income from
godown be charged?
Answer: As per Section 60 of the Act, the rental income from godown will be charged in the
hands of Mr. Vatsan According to Section 60 transfer of income without transfer of asset is
chargeable in the hands of the transferor.
INCOME ARISING FROM REVOCABLE TRANSFER OF ASSETS [SEC 61]
➢If any Asset is transferred under “Revocable Trust”, Income from such asset is included in
Total Income of the transferor.
Meaning of Revocable Transfer:
A transfer shall be deemed to be Revocable if Transfer:
(a) Contains ANY Provision for RE-TRASNFER (directly/indirectly) of whole/part of the Asset
or Income to the transferor, during the Life-Time of Beneficiary or Transferee. OR
Ex: (i) X transfers a house property to a trust for the benefit of A & B. However, X has a right to
revoke the trust during the lifetime of A or B. It is a revocable transfer & income arising from
house property shall be included in the hands of X.
(ii) X transfers a house property to A. However, X has a right to revoke transfer during the
lifetime of A. It is a revocable transfer & income arising from the house property is taxable in the
hands of X. (iii) X transfers an asset. As per T&C of transfer, he has a right to utilize the income
of the asset for his benefit. However, he has not exercised this right as yet. Income of the asset
would be taxable in the hands of X, even if he has not exercised the aforesaid right.
(b) Gives Right to the Transferor to RE-ASSUME Power (directly/indirectly) over the whole/part of
the Asset or Income during the Life-Time of Beneficiary or Transferee.
172
Ex: X transfers an asset. As per T&C of transfer, he has a right to use the asset for the personal
benefits of his family members whenever he wants. Till date, he has not exercised this right. It is
a revocable transfer. The entire income from the asset would be taxable in the hands of X.
Exceptions [Section 62] → Income will NOT be clubbed even in case of revocable Transfer
❖If the Transfer is not revocable during Life-Time of Beneficiary/Transferee. In such cases,
Income shall be taxable in the hands of transferee provided transferor derives no benefit.
Ex: R transfers his house property to a trust for the benefit of G till his death. In this case, this
transfer is irrevocable till the death of G. Thus, till the death of G, Income from house property is
taxable in the hands of Transferee (trust).
However, on death of G, income from such house shall be included in total income of R since on
that date the transfer has become revocable.
In the above case, if R had reserved a right to get back house property or its income from G
during lifetime of G, then, such transfer shall be revocable & Income from such house shall be
taxable in hands of R from the beginning.
Note: Income arising from revocable transfer of the asset/income is taxable when the power to
revoke the transfer arises even if the power to revoke has not been exercised by transferor.
CLUBBING OF INCOME ARISING TO SPOUSE [SECTION 64(1)(ii)]

(A) REMUNERATION TO SPOUSE
➢ Any Remuneration received by Spouse from a Concern in which other Spouse has
Substantial Interest, shall be clubbed in the hands of the spouse who has Substantial
Interest.
➢ NO CLUBBING → If Remuneration is received by Spouse due to his/her Qualifications.
➢ Substantial Interest: Individual is deemed to have substantial interest in concern if
Individual along with his relatives beneficially holds 20 % or more equity shares at any
time during PY.
➢ Relative = Husband, wife, brother or sister or Lineal Ascendant or Descendant of the
individual.
173
Ex: X is a partner in a partnership concern & is entitled to 50% share of the profit of the firm.
Mrs. X is employed as the General Manager of the firm & is getting a salary of 25,000 per
month. The taxable salary of Mrs. X will be clubbed with the total income of X u/h ‘Income
from salaries’. However, if Mrs. X is receiving the salary on account of her technical or
professional knowledge or experience, then the salary would not be clubbed. CQ2. Mr. X is a CA
in practice. He engages his wife Mrs. X as an employee for audit works & pays a sum of Rs.
20,000 p.m. towards salary. Mrs. X before marriage has completed her CA articleship& is
presently awaiting result of the final examination. Examine the tax implication. Answer: Where
the spouse of the assessee has qualification, remuneration received will not be clubbed. Thus,
Income of Mrs. X should not be clubbed with that of Mr. X.
Note: 1. Clubbing is Mandatory, even if such clubbing in some case results into benefit to the
assessee. 2. If both Husband & Wife have Substantial Interest & both are in Receipt of
Remuneration without qualification from the Same Concern → Remuneration of other spouse
will be clubbed in total income of Husband/Wife whose Total Income excluding such
remuneration is Greater. 3. Once the clubbing is done in the hands any spouse (Say X) since his
Income was greater in 1st year of clubbing than Income of other spouse (Mrs. X), Income of
Mrs. X shall be clubbed in the hands of X in subsequent years also even if Income of Mrs. X is
greater in subsequent year.
Ex: X is a 50% partner in a partnership firm from which his wife is getting salary of Rs. 15,000
p.m. Total Income of X (before clubbing) is Rs. 5,60,000 while total income of Mrs. X
(exclusive of such salary) is Rs. 6,00,000. The clubbing provisions will be applicable & total
income of X & Mrs. X will be determined as under:
Particulars X Mrs. X
Total Income before Clubbing 5,60,000 6,00,000
Add: Income to be clubbed [Salary Income of Mrs. X in the 1,80,000 _
hands of X]
Total Income 7,40,000 6,00,000
(B) INCOME FROM ASSETS TRANSFERRED TO THE SPOUSE [SECTION 64(1)(iv)]
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If Individual transfer any Asset (other than House Property) to his/her spouse for Inadequate
Consideration, Income from such Asset shall be included in Total Income of the transferor. Ex:
Mr. PC transfers debentures of X ltd to his wife for inadequate consideration. Interest income on
such debentures shall be clubbed in the hands of Mr. PC.
Points to Remember:
1. Transfer of House Property by Individual to Spouse for Inadequate Consideration →
Transferor shall be deemed as Owner of House Property u/s 27 & Income from such House
Property is taxed in the hands of the transferor.
❖ CAPITAL GAIN on Transfer of such House Property → Clubbed in hands of
Transferor.
2. Marriage should exist both at the time of Transfer & when Income is Accrued.
❖[Transfer before Marriage & After Divorce → No Clubbing]
3. If Any Property is acquired by the Wife out of the Pin Money → No Clubbing.
4. Transfer should be for inadequate Consideration. [Adequate Consideration → No
Clubbing]. Transfer of Asset in connection with Agreement to Live Apart → Deemed to be
transfer with Adequate Consideration & thus, No Clubbing. (If Consideration is Payable in
Parts → Only Proportionate Income shall be clubbed)
5. CHANGE IN IDENTITY OF TRANSFERRED ASSET: If transferred asset has changed
the shape & Identification, then Income from such Changed Asset shall be Clubbed. Ex:
Mr. PC gifted shares to his wife. His wife sold the shares & acquired a house which was
let out, the income from house property shall be clubbed in the hands of Mr. PC
6. NO CLUBBING ON ACCRETION OF INCOME: Income from Transferred Asset is to
be Clubbed. But Income on Income is Not Clubbed: Income derived on the accretion of
transferred property cannot be clubbed. Ex: X transfer 10,000 bonds of IDBI to his wife
Mrs. X. Mrs. X receive interest of 70,000 p.a on the bonds. Rs. 70,000 is to be clubbed in
the hands of Mr. X. However, if Mrs. X accumulates 50,000 out of the interest income &
deposits it with the company at an interest of 10% p.a, then interest of Rs. 5,000 p.a
received by her on the deposit will not be clubbed in Income of Mr. X.
APPROPRIATION WHEN TRANSFERRED ASSET IS INVESTED IN A BUSINESS
1. Find Total Investment of the Transferee (spouse) in the business on 1st day of PY
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2. Find out the amount Invested by the transferee (spouse) out of the assets transferred to
her for inadequate consideration on 1st day of PY in the said business.
3. Find out Taxable Income from Business. [If transferee becomes Partner of a Firm by
investing the said Asset (Capital Contribution), only Interest is considered (because Share
of Profit from firm is Exempt)]
4. Amount which shall be included in the hands of Transferor is determined as follows:
[ 2×3∕ 1 ]
CLUBBING OF INCOME FROM ASSET TRANSFERRED TO SON’S WIFE FOR

INADEQUATE CONSIDERATION [SECTION 64(1)(vi)]
If Individual Transfers any Asset to his/her son’s wife for Inadequate Consideration → Income
from such Asset shall be clubbed in Total Income of the Transferor.
Ex: Mr. PC transfers debentures of X ltd to his son’s wife for inadequate consideration. Interest
income on such debentures shall be clubbed in the hands of Mr. PC. Note: All Provisions relating
to Transfer of Asset to Spouse shall also apply to Son’s Spouse.
CLUBBING OF INCOME FROM ASSETS TRANSFERRED TO ANY PERSON FOR

BENEFIT OF SPOUSE/SON’S WIFE: [Section 64(1)(vii)/(viii)]
When Individual transfers any assets to Any Person/AOP for Inadequate consideration, Income
from such transferred Assets shall be clubbed in the Income of the transferor (to the extent of
benefit which accrues to the spouse/son’s wife).
Ex: X transfers a house to Y with a direction that 50% of Rental Income is to be used for the
benefit of his wife Mrs. X & 50% for others, then Rental Income to the extent of 50% shall be
included in the total income of X. CQ6. Mrs. Dimple transferred her Immovable property for
Inadequate consideration to RSA Co. Ltd. subject to a condition that, a sum of Rs. 5,00,000 per
annum out of the rental income shall be utilized for the benefit of her son’s wife. Mrs. Dimple
claims that she will not be held taxable as she no longer owned the property. State whether the
contention of Mrs. Dimple is valid in law. Answer: In case of transfer of any asset, directly or
indirectly, to any person otherwise than for adequate consideration, the income arising from such
asset for the immediate or deferred benefit of the son’s wife shall attract clubbing provisions u/s.
176
64(1)(viii). Such income shall be included in the computation of total income of the transferor.
Therefore Mrs. Dimple shall be liable to tax.
CLUBBING OF INCOME OF A MINOR CHILD [SECTION 64(1A)]
➢ All Income which accrues to Minor Child → Clubbed in the hands of either of his Parents.
➢ Clubbing in Father’s or Mother’s Hands: Income of Minor shall be clubbed in the hands of that
Parent who’s Total Income (excluding Income of Minor) is Greater.
➢ If Marriage of his Parents does not subsist: Income shall be clubbed in the hands of that Parent
who maintains the minor child in the PY.
➢ If Both Parents are Dead: Income of Minor cannot be assessed in hands of his grandparents.
➢ Rs. 1500 Exemption to Minor’s Parent u/s 10(32): Parent in whose Income, the income of
Minor is clubbed will get Exemption of (a) Rs. 1,500 OR (b) Amount of Income Clubbed
(whichever is less) in respect of each minor child.
NO CLUBBING:
1. Income has been earned by the Minor due to his own Skills.
2. Minor is suffering from disabilities referred in Section 80U.
Points to Remember:
1. Section 64(1A) apply even to Minor Married Daughter. Thus, Income arising to Minor
Married Daughter would also be clubbed.
2. If Minor attains Majority during PY → Income till the date he was minor in that PY is
clubbed.
INCOME FROM SELF-ACQUIRED PROPERTY CONVERTED TO HUF PROPERTY

[S. 64(2)]
➢ If Self-acquired Property of Individual is converted into HUF Property for Inadequate
Consideration → Income derived by HUF from such property is Clubbed in Income of
transferor. Ex: X owns a house property from which he derives an income of Rs. 6,00,000 p.a.
If he converts this property as the property of an HUF of which he is a member, h the income
177
shall henceforth be received by the HUF but it shall be deemed to be the individual income of
X & shall be included in computation of his total income u/h ‘Income from House Property’.
➢ CLUBBING AFTER PARTITION: If converted property is subsequently transferred

amongst the members of the family, Income from such converted property which is received by
Spouse of Transferor + Minor Child (subject to T&C) shall be clubbed in the hands of the
transferor.
Ex: In the example given above, if there is partition in the family & there are 5 members entitled
to a share in the HUF property i.e. Mr. X, Mrs. X, a minor child of X & two major sons of X
assuming they decide to share the property equally then the income from the property shall be
treated as follows:
a) Income from 1/5th share of X Rs. 120000;
b) Income from 1/5th share of Mrs. X 1,20,000 (to be clubbed with the income of X);
c) Income from 1/5th share of minor child of X 1,20,000 (to be clubbed with the income of
X or Mrs. X, whose income is higher, u/s 64(1A). However, X can claim exemption uptoRs.
l,5000);
d) Income from 2/5th share of other members shall be taxable in the hands of the major sons
individually.
CLUBBING OF LOSSES → Income includes Loss. Thus, Losses shall also be Clubbed.
RELEVANT HEAD FOR CLUBBING

➢ Firstly, Income will be computed in the hands of Actual Recipient under applicable head as if
Actual recipient is liable to pay the tax on such Income.
➢ Then after Computation of Income in the hands of Actual Recipient, it will be clubbed under
the same head in the hands of other person in whose hands such income is to be clubbed.
SECTION 61 VIS-À-VIS SECTION 64

➢SECTION 61: Section 61 applies only to Revocable transfer made by ANY Person.
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➢ SECTION 64: It applies to Revocable & Irrevocable Transfers made only by Individuals.
CROSS TRANSFERS
❖ Instances: Two transactions are Inter-connected in such a way that they seem to be two
different transactions but in reality, they are the parts of the same transaction. Ex: A making gift
of Rs. 50,000 to the wife of his brother B for the purchase of a house by her & a simultaneous
gift by B to A’s Minor son of shares in a foreign company of Rs. 50,000.
❖ In case of Cross Transfers → Income from transferred assets would be assessed in the hands
of the deemed transferor if the transfers are so intimately connected as to form part of a single
transaction, and each transfer constitutes consideration for the other. Thus, in above case,
transfers have been made by A & B to persons who are not their spouse or minor child so as to
evade the provisions of this section, showing that such transfers constituted consideration for
each other.
❖ CIT v. KeshavjiMorarji [1967] 66 ITR 142: The Supreme Court observed that if two
transactions are inter-connected and are parts of the same transaction in such a way that it can be
said that the circuitous method was adopted as a device to evade tax, the implication of Clubbing
provisions would be attracted. Thus, Income arising to Mrs. B from the house property should be
clubbed in Income of B & Dividend from shares transferred to A’s Minor son would be taxable
in the hands of A. This is because A and B are the indirect transferors to their minor child and
spouse, respectively, of income yielding assets, so as to reduce their burden of taxation.
Practice Question
Q Computation of total income and clubbing :MrDhaval and his wife MrsHetal furnish the
following information( amounts in Rs.)
Salary Income of MrsHetal 4,60,000
Income of minor son B who suffers from 1,08,000
disability specified in section 80u
Income of minor daughter “C “from singing 86,000
Income from profession of MrDhaval 7,50,000
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Cash gift received by “C”on 2-10-19 from 48,000
friend of MrsHetal on winning of singing
competition
Income of minor married daughter “A”from 30,000
company deposit
Compute the total income of MrDhaval and MrsHetal.
Sol:
Particulars MrDhaval MrsHetal
Income from Salaries (WN-1) - 4,60,000
(computed)
Income from profession 7,50,000
Add: Deemed income u/s 64(1A): (WN- 2 to 5) 30,000 -
Income of minor daughter Ä
“Less: Exemption u/s 10(32) (-)1,500 -
Total Income 7,78,500 4,60,000
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CHAPTER: 2
SET OFF AND CARRY FORWARD OF LOSSES
INTRODUCTION
➢ TOTAL INCOME earned by the Assessee during the PY is taxable under Income Tax Act.
➢ It is worthy to be noted that TOTAL INCOME from ALL SOURCES/HEADS is to be taxed
& not the Income from Individual source/head. Thus, it becomes Important to know
Mechanism of Set off & Carry forward of Losses. Ex: Mr. PC carries on two businesses. He
gets loss in one business & profit in another one. His PGBP income will be the net income i.e.
after an adjustment of the loss.
➢ It might also happen that Net Result from a Particular Source/Head of Income may be Loss.
This Loss can be Set off against other Source/Head in a Specified Manner.
➢ Thus, it can be said that Loss from one Source/Head can be Adjusted against Income form
other Source/Head Subject to Certain Conditions.
MEANING OF SET-OFF & CARRY FORWARD SET OFF:
• Adjustment of Losses against Profits from Another Source/Head of Income in Same AY.
• CARRY FORWARD OF LOSS: If Losses cannot be Set-off in Same Year due to
Inadequacy of Eligible Profits, then such Losses are Carried Forward to Next AY for Adjustment
against Eligible Profits of that year.
• THIS TOPIC CAN BE DIVIDED INTO 2 PARTS:
(A) Set off of Loss in Same Year
1. Intra-Head/Inter-Source Adjustments [Set off within Same Head of Income]
2. Inter Head Adjustements [Set off against other Head of Income]
(B) Carry Forward & Set off of Loss in Next Year.
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A. SET OFF OF LOSSES
1. INTRA HEAD/INTER SOURCE ADJUSTMENT [SECTION 70] General Rule: Loss from
Any Source can be set off (Adjusted) against Income from Any Other Source under SAME
HEAD.
Examples:
a) Loss from one house property can be set off against the Income from another house property
as both these sources of income fall under one head of income.
b) If the assessee has two house & income from one house is Rs. 30,000 while loss from other
house is Rs. 10,000, then such loss shall be adjusted against other income from same source &
after set off, income u/h HP = Rs. 20000.
c) Loss from one business (textiles) can be set off against income from any other business
(printing) in same year as both these sources of income fall under one head of income.
Summarised Provisions:
The provisions relating to set off and carry forward of losses can be analyzed in the following
manner:
Set off Carry forward of losses Special provisions

(Inter source and inter head) and set off allowed only
from respective heads of
income
Section 70: Inter source adjustment Section 71 B:Loss from Section 78: Change in
allowed house property and set off constitution and
Exceptions: allowed in eight years succession loss
• Speculation loss
• Loss of a specified business Section 72: Loss from
• Loss from activity of owing and
business/profession and set
maintaining race horses
• No loss can be set off against off allowed in eight years
winnings from
lotteries,crosswordpuzzles,cardgames,etc
182
.
• Long-Term capital loss cannot be set
off from short term gain
Section 71: Inter head adjustment Section 72 A: Loss of Section 79: Closely
allowed.Loss from house property can be amalgamating company held company loss –
set off from other heads of income and set off allowed in fresh No carry forward
subject to maximum of ₹2,00,000 eight years. unless 51%
Exceptions Section 73: Speculation shareholders are same.
• Speculation loss loss and set off allowed in
• Loss from activity of owning and four years.
maintaining race horses.
Section 73 A: loss of
• No loss can be set off against
winnings fromlotteries, specified business allowed
crosswordpuzzles, card games,etc. to be set off only from
• Loss under “Capital gains”(both short- income of specified
term and long-term)
business.
• Loss from business cannot be set off
against income from salary Carry forward allowed Section 80: Filing of
indefinitely. loss returns within due
Section 74: Loss from date is mandatory.
short-term capital gains’
and set off allowed in eight
years.However,brought
forward long-term capital
loss can be set off only
from long-term capital
gain.
Section 74A: loss from
activity of owning and
maintaining race horses and
set off allowed in 4 years.
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Practice Q.Mr.A furnishes the following particulars of his income for the previous year 2019-20
S.No. Particulars Amount(₹)

1 Income from salary 4,00,000
2 Loss from Self-occupied property (70,000)
3 Loss from Let-out property (1,50,000)
4 Business Loss (1,00,000)
5 Bank Interest (FD) received 80,000
Compute the Gross Total Income of Mr. A for the assessment year 2020-21
Solutions:
Particulars Amount Amount

Income from salary 4,00,000 -
Loss from House Property of Rs. 2,20,000 to be restricted to Rs. (2,00,000) 2,00,000
2 Lacs [Sec 71(3A)]
Balance loss of Rs. 20,000 from house property will be carry to next AY
forward
Income from other Sources (Interest on fixed deposit with bank) 80,000 -
Business Loss Set-off (1,00,000) -
Business loss of Rs. 20,000 to be carried forward
Gross total income/Total Income [See Note below] - 2,00,000
Deductions Of Payment Of Lic Premium, Deferred Annuity Contribution To Pf,

Subscription To Certain Equity Shares Or Debentures – (Sec 80c)
Eligible Assessee Only Individual or HUF. (R/NR)

Deduction ► Amount Invested/Paid OR ► Rs. 1,50,000 (whichever is lower)
Nature of Payment/Investment/Contribution Eligible for deduction u/s 80C
1. PREMIUM PAID ON LIFE INSURANCE POLICY on the life of:

▪ Individual himself;
▪ Spouse;
184
▪ Any Child of such Individual. (Minor/Major/Married/Single/Dependent/Independent).
➢ In case of HUF: Premium shall be paid on life of any Family Member.
Note: This will include Life Insurance Policy & Endowment Policy also.
MAXIMUM AMOUNT OF PREMIUM ELIGIBLE FOR DEDUCTION U/S 80C
Premium paid on Insurance Policy↓ Deduction u/s 80D

1. Issued before 1.4.2003 Upto 20% of sum assured.
2. Issued b/w 1.4.2003 & 31.3.2012 Upto 20% of sum assured.
3. Issued on/after 1.4.2012 but before 1.4.2013 Upto 10% of sum assured.
4. Issued on/after 1.4.2013 on life of a person Upto 15% of sum assured.
(a) with Disability referred u/s 80U or (b)
Suffering from Specified Disease u/s 80DDB
Note: Sum assured shall not include any bonus/premium agreed to be returned.
Exemption on Receipts of Maturity Amount from LIC [Section 10(10D)]
1.(a) Maturity Amount received (including Bonus) under Life Insurance Policy is NOT Exempt
if Premium paid for any year during the term of Policy Exceeds SPECIFIED % given in Sec
80C. Note: Maturity Amount of Policy issued before 1.4.2003 → Always Exempt.
(b) Any Sum received u/s 80DD(3) &Keyman Insurance Policy → Not Exempt u/s 10(10D).
2. CONTRIBUTION TOWARDS SPF/PPF/RPF/SAF ▪ Contribution to be made → In Account

of Individual/Spouse/Any Children. ▪ For HUF: Contribution shall be made in the account of any
member of the family.
3. Subscription to SUKANYA SAMRIDHI ACCOUNT Scheme in the name of: ▪ Girl

child/Individual himself (in case assessee is a girl child).
4. SUBSCRIPTION TO
▪ National Saving Scheme, 1992/National Savings Scheme, 1992.
▪ National Savings Certificates (VIII or IX Issue).
185
▪ Bonds issued by NABARD.
▪ Approved Equity Shares/Debentures of wholly public company where such proceeds are
utilized for infrastructure company. [Lock-in-period: 3 years].
▪ Notified units of MF/UTI
▪ Notified Deposit Scheme/Pension Fund set up by National Housing Bank. (Home Loan
Account Scheme of the National Housing Bank has been notified)
5. Any sum deposited in –
▪ Account under the Senior Citizens Saving Scheme Rules, 2004.
▪ 5 years time deposit in an account under the Post Office Time Deposit Rules, 1981.
▪ Term deposit for a fixed period of not less than 5 years with a scheduled bank
6. Payment made by Individual for NON-COMMUTABLE DEFERRED ANNUITY on life of:

(a) Individual himself; (b) Spouse & (c) Any Child of such Individual
7. Any Sum deducted from Salary of Government Employee for DEFERRED ANNUITY ▪
Maximum Sum deducted Eligible for deduction u/s 80C = 20% of Salary. ▪ Deferred Annuity
shall be for the benefit of Individual, Spouse, Any Children.
8. Payment of TUITION FEES IN INDIA for FULL TIME EDUCATION [MAX. 2

CHILDREN] Any sum paid as tuition fees excluding any payment towards development fees or
donation ▪ at any time on admission or afterwards. ▪ to any university, college, school or other
educational institution in India. ▪ for full-time education. ▪ for any 2 Children of such Individual.
9. Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008
10. Contribution in Unit-Link Insurance Plan of UTI or LIC Mutual Fund Contribution may be
made in the name of any person mentioned in (1) above
11. Contribution to Approved Annuity Plan of LIC or any other insurer. (Notified Schemes →
New JeevanDhara/I & New JeevanAkshay/I/II)
186
12. Subscription to Notified Deposit Scheme of: Public Sector Company engaged in providing
LT finance for Construction/Purchase of houses in India for Residential Purposes; [Ex: Public
Deposit Scheme of HUDCO]
13. REPAYMENT OF HOUSING LOAN including Stamp Duty, Registration Fee
Such payment may be made towards:
(a) Installment of Amount due under any self-financing scheme or other notified scheme.
(b) Installment of Amount due towards the cost of the house property allotted to him.
(c) Repayment of the amount borrowed by the assessee from:
▪ CG/SG/Bank, LIC, National Housing Bank.
▪ Indian Public Company carrying on business of providing LT finance for construction or

purchase of houses in India for residential purposes.
▪ Public company/Co-operative society engaged in financing construction of Houses.
▪ Employer of Assessee if such employer is Public Sector company/University/College.
(d) Stamp Duty, Registration fee & other expenses for transfer of such house.
FOLLOWING PAYMENTS ARE NOT ALLOWED AS DEDUCTION:
▪ Admission Fee, Cost of Share of co-operative society & Initial Deposit
▪ Cost of Renovation/Repair/Alteration of the house after issue of completion certificate.
▪ Any Expenditure in respect of which deduction is allowable u/s 24.
Points to Remember:
1. Deduction u/s 80C is available on Payment Basis.
2. Interest Accrued on NSC every year (except for Last Year) → Deemed to be Reinvested &
Such Amount of Interest is also entitled for deduction u/s 80C.
187
3. Such Payment/contribution/deposit can be made out of taxable Income or Exempt Income.
Termination of Insurance Policy or Unit Link Insurance Plan or Transfer of House Property or
Withdrawal of Deposit
If in any PY, an assessee:
1. Terminates his contract of Insurance by notice OR where the contract of insurance has ceased
because of non-payment of premium & the assesse does not revive the contract
(a) In case of Single Premium Policy → Within 2 years after date of commencement of
Insurance;
(b) In any other case → Before Premiums have been paid for two years.
2. Terminates ULIP by notice OR where his participation has ceased because of non-payment of
premium &assessee does not revive his ULIP before participation have been paid for 5 years.
3. Transfers House Property before expiry of 5 years from the end of FY in which possession of
such property is obtained by him, then NO further Deduction will be allowed & Total
Deductions allowed in earlier PYs is deemed to be the Income of the assessee of such PY & shall
be taxed in AY relevant to such PY.
4. If the amount deposited under Senior Citizens Savings Scheme is withdrawn by the assessee
before the expiry of 5 years from the date of its deposit, then withdrawn amount is deemed to be
the Income of the assessee of PY in which the amount is withdrawn. Amount so withdrawn is
taxable in the AY relevant to such previous year.
❖ If Interest received/withdrawn is taxed in earlier PYs → It will not be taxed again.
❖ If Interest on deposit was not taxed in earlier PYs → Such Interest would be taxed.
❖ Amount received by Legal heir on the death of assessee → not taxable in hands of Legal Heir.
Ques: Compute the deduction allowed under section 80 C and the net-tax payable by A from the
following information submitted by him for the assessment year 2020-21:
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S.No. ₹
1 Gross Salary 7,80,000
2 Royalty(Gross) 27,000
3 Expenses allowable from royalty 5,000
4 Interest on fixed deposits with bank(gross) 13,000
5 LIP on his own life(sum assured ₹20,000)policy issued on 1.4.2013 6,000
6 LIP on the life of his wife 2,000
7 LIP on the life of his major son (not dependent on A) 2,500
8 LIP on the life of dependent brother 2,000
9 Contribution to a Recognized Provident Fund 20,000
10 Amount deposited in PPF Account 15,000
11 Contribution to ULIP 3,000
12 Repayment of housing loan taken from LIC(principal amount ₹23,000 53,000
and interest ₹30,000)
13 Subscription to National Saving Certificate IXth issue 25,000
14 Amount incurred on the education of:
(a) Child X ₹14,000
(b) Child Y ₹7,000
(c) Child Z ₹5,000
15 Term deposit for 5 years with a scheduled bank 20,000
16 Five year time deposit in Post Office 15,000
17 Contribution to SukanyaSamriddhi Account 50,000
He had taken the loan from LIC for construction of a residential house property which was
completed in 2016 and which is being utilized by A for his own residence.
Solution:
Particulars ₹ ₹ ₹
Income from salaries - - -
Gross Salary - 7,80,000
Less: Deduction under section 16 (ia) - 50,000 7,30,000
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Income from house property - - -
Annual Value(being self occupied) - - Nil
Less: Deduction under section 24 - - -
Interest on money borrowed for construction - 30,000 (-)30,000
Income from other sources - - -
(i) Royalty 27,000 - -
Less: Expenses 5,000 22,000 -
(ii) Interest on fixed deposits with bank - 13,000 35,000
Gross Total Income - - 7,35,000
Less: Deductions under section 80 C to 80 U - -
Under section 80C(see working note) - - 1,50,000
Total Income - - 5,85,000
Tax on Total Income - -
Tax on ₹5,85,000 - - 29,500
Less: Rebate under section 87A(Nil,as the total income - - NIL
exceeds₹5,00,000)
- - 29,500
Add: Health and education cess@4% - - 1,180
Tax(rounded off) - - 30,680
Working note for deduction allowable under section 80 C
LIP on own life(Limited to 10 % of sum assured) 2,000

LIP on life of wife 2,000
LIP on life of major son 2,500
LIP on life of brother -----
Contribution to RPF 20,000
Contrbution to PPF 15,000
Contribution to ULIP 3,000
Repayment of housing loan
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(Principal amount ₹23,000) 23,000
Subscription to National Saving Certificate IX th issue 25,000
Which will subscribe to eligible issue of capital
Tuition fee of children allowed only for 2 children(₹14,000+7,000) 21,000
Term deposit for 5 years with a scheduled bank 20,000
Five year time deposit with Post Office 15,000
Contribution to SukanyaSamriddhi Account 50,000
1,98,500
But deduction limited to ₹1, 50,000.
CONTRIBUTION TO CERTAIN PENSION FUNDS [SEC 80CCC]
Eligible Assessee Only Individuals (R/NR)

Qualifying Payment ▪ Amount Deposited during PY by such individual for any Annuity Plan
of LIC or any other Insurer for receiving Pension out of his taxable
income. Note: Interest/Bonus accrued → Not deemed as Contribution &
thus No deduction will be available.
Deduction (a) Amount Deposited (Excluding Interest/Bonus) OR (b) Rs. 1,50,000
(whichever is LOWER)
Points to Remember: 1. Pension received is taxable in the PY of
Receipt of Maturity Amount.
2. If Deduction is Allowed u/s 8OCCC, Deduction u/s 80C will NOT
be available.
CONTRIBUTION TO PENSION SCHEME NOTIFIED BY CG [SEC 80CCD]
Eligible Assessee ▪ Employee of CG (Compulsory to Join NPS)
▪ Any other employees (Optional to join NPS)
▪ Self-employed individual (Optional to join NPS)
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▪ Meaning of Salary is same as that in the case of HRA.
▪ Employer’s Contribution is firstly taxable as Salary Income in the hands of Employee.
▪ Atal Pension scheme has been notified by CG till now.
Deduction 1. Employee’s Contribution [Sec 80CCD(1)]: Upto 10% of Salary is

deductible.
2. Employer’s Contribution [Sec 80CCD(2)]: Upto 10% of Salary is

deductible.
3. For Self-employed Individual: Upto 20% of GTI is deductible
▪ No deduction shall be allowed u/s 80C if deduction has been claimed u/s 80CCD.
Additional Deduction of Rs. 50,000 u/s 80CCD(1B) – [To be studied after Section 80 CCE]
▪ Additional Deduction uptoRs. 50,000 of Payment under NPS is allowed u/s 80CCD(1B)
over and above deduction u/s 80CCD(1).
Note: Deduction u/s 80CCD(1) is subject to overall limit of Rs. 1.50 lacs u/s 80CCE. But
deduction u/s 80CCD(1B) is in addition to overall limit of Rs. 1.50 lacs u/s 80CCE.
TAXABILITY OF PENSION RECEIVED:
1. Amount received on Closure of Account or opting out of NPS Taxable [Sec 10(12A)]
60%
2. If Amount is received by Nominee on the Death of Assessee Exempt
3. Pension received out of NPS Taxable
4. Amount received (Specified in 1,2,3) utilized for purchasing the Exempt
annuity plan in same PY
5. Pension received out of Annuity Plan specified in (4) Taxable
Note: Partial withdrawal from NPS → 25% of Contributions is Exempt [Sec 10(12B)]
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MAXIMUM COMBINED CEILING u/s 80C, 80CCC &80CCD(1) [Sec 80CCE]
➢ Total Deduction u/s 80C + 80CCC + 80CCD(1) → Cannot Exceed Rs. 1,50,000.
Note: Maximum Limit of Rs. 1,50,000 is Not Applicable to Employer’s contribution u/s
80CCD(1B).
Section Maximum Deduction Max deduction (80 CCE)
80C Rs. 1,50,000
80CCC Rs. 1,50,000
Employee’s Contribution 10% of Salary

u/s 80CCD(1)
Additional Deductions u/s Rs. 50,000 Not Applicable

80CCD(1B)
Employer’s contribution 10% of Salary Not Applicable

u/s 80CCD(2)
CQ5. Basic salary of Mr. A is Rs. 1,00,000 p.m. He is entitled to DA which is 40% of Basic
Salary. 50% of DA forms part of retirement benefits. Both Mr. A & his employer contribute 15%
of Basic Salary to Pension scheme referred in section 80CCD. Explain tax treatment of such
contribution to Mr. A.
Solution: Tax treatment in the hands of Mr. A u/s 80CCD
Basic Salary = Rs. 12 Lacs; DA = 40% of Rs. 12 lacs = Rs. 4.8 Lacs; DA (Retirement) = Rs.
2.4 Lacs Mr. A’s contribution = 15% of Basic salary = Rs. 1,80,000; Employer’s Contribution =
Rs. 1,80,000.
Salary for the purpose of deduction u/s 80CCD = Basic Salary + DA (Retirement) = Rs. 14.40
Lacs.
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(a) Employer’s contribution would be treated as salary since it is specifically included in the
definition of “salary” u/s 17(1)(viii). Therefore, Rs. 1,80,000 will be first included in Mr.
A’s salary. Deduction u/s 80CCD(2) [Maximum of Upto 10% of Salary] = Rs. 1,44,000.
Note: Deduction u/s 80CCD(2), would also be restricted to Rs. 1,44,000, even though the
entire employer’s contribution of Rs. 1,80,000 is included in salary u/s 17(1)(viii).
However, this deduction of Employer’s contribution of Rs. 1,44,000 would be outside the
overall limit of Rs. 1,50,000 u/s 80CCE. It would be over & above the other deductions
which are subject to the limit of Rs. 1,50,000.
(b) Mr. A’s Contribution will be Deductible u/s 80CCD(1). However, the deduction is restricted
to 10% of salary. Deduction u/s 80CCD(1) [Upto 10% of Salary] = Rs. 1,44,000 (Even
though Actual contribution is Rs. 1,80,000). This would be subject to the overall limit of Rs.
1,50,000 u/s 80CCE.
However, Addition Deduction u/s 80CCC(1B) Up to Rs. 50,000 will be allowed for
Employee’sContribution. As per section 80CCD(1B), a further deduction of up to Rs.
50,000 is allowable. Therefore, deduction u/s 80CCD(1B) is Rs. 36,000 (Rs. 1,80,000 – Rs.
1,44,000).
Rs. 36,000 allowable as deduction u/s 80CCD(1B) is outside the overall limit of Rs.
1,50,000 u/s 80CCE. Thus, we can say that if the employee’s contribution is more than the
specified limit of Section 80CCD(1) or 80CCE, he can avail additional deduction up to Rs.
50,000 u/s 80CCD(1B). ALTERNATE VIEW: Rs. 50,000 can be claimed as deduction u/s
80CCD(1B). Balance Rs. 1,30,000 (Rs. 1,80,000 – Rs. 50,000) can be claimed as deduction
u/s 80CCD(1).
DEDUCTION FOR INVESTMENT IN EQUITY SAVINGS SCHEME [80CCG]

Eligible Assessee Resident Individual who is New Retail
Investor with GTI of upto 12 Lacs
Eligible Investment Investment in Listed Equity Shares/Listed
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units of Equity Oriented Fund
Deduction Lower of: (a) 50% of Amount invested OR
(b) Rs. 25,000
Period of Deduction Deduction shall be allowed for 3 consecutive
AYs beginning with AY relevant to PY in
which Investment is made.
Conditions (a) GTI of a New Retail Investor for relevant
AY ≤ Rs. 12 Lacs.
(b) Investment is made in such listed equity
shares/units of EOF.
(c) Investment is locked-in for 3 years from
the date of acquisition.
Consequences of Contravention Deduction Allowed → Deemed to be Income
of the Assessee of the PY in which
conditions are not fulfilled.
DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIUM [SEC 80D]
Eligible Assessee Only Individual or HUF[Resident/Non-

Resident]
Mode of Payment Any Mode other than Cash [Preventive
Health Checkup → Cash is Allowed)
MAXIMUM AMOUNT OF DEDUCTION:
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Particulars Individual HUF
For whose benefit payment shall be Family Parents Member

made
1 Medical Insurance Premium √ √ √
Contribution to CG health Scheme √ × ×
Preventive Health check-up √ √ ×
❖ Maximum Deduction for (a), (b), (c) Rs. 25000 Rs. 25000 Rs. 25000
❖ Additional Deduction on (a) when Rs. 25000 Rs. 25000 Rs. 25000
Medi- claim policy is taken on Life of

Senior Citizen
2 Medical Expenditure on health of √ √ √
Super Senior citizen if NO Medical
Insurance is paid on his health
Maximum Deduction for (2) Rs. 50,000 Rs. 50,000 Rs. 50,000
3 Maximum Combined Deduction for 1 Rs. 50,000 Rs. 50,000 Rs. 50,000
&2
Points to Remember
❖ Maximum Deduction for Preventive Health-Check up of Family + Parents → Rs. 5,000.
❖ Family = Individual + Spouse + Dependent Children.
❖ Parents = Father + Mother (Dependent or independent); Father-in-Law & Mother-in-Law
→
❖ Notified Scheme = Contributory Health Service Scheme of Department of Space.
LUMPSUM HEALTH INSURANCE PREMIUM PAID FOR MORE THAN ONE YEAR
➢ Deduction u/s 80D for each PY shall be allowed on Proportionate basis.
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DEUCTION FOR MAINTENANCE/MEDICAL TREATMENT OF DEPENDANT
DISABLED [SEC 80DD]
Assessee Resident Individual/HUF
Eligible Payment ➢ Expenditure for Medical Treatment
(including nursing), training & rehabilitation
of a dependant disabled.
➢ Amount paid under approved scheme for
Maintenance of Dependant Disabled.
Deduction ➢ Rs. 75,000;
➢ Rs. 1,25,000 for dependent person with

severe disability.
Points to Remember:
❖ Deduction u/s 80DD is allowed irrespective of the amount of Actual Expenditure
incurred.
❖ Meaning of ‘Dependant’ (a) For Individual → Spouse, Children, Parents, Brothers &
Sisters of Individual (b) For HUF: Any member of HUF dependant wholly/mainly on such
individual/HUF for support & who has not claimed any deduction u/s 80U during PY.
❖ Person with severe disability = Person with 80% or more of one or more disabilities.
❖ If Dependant Disabled dies before Assessee → Amount deposited is deemed as Income
in PY of receipt.
DEDUCTION IN RESPECT OF MEDICAL TREATMENT, ETC. [SEC 80DDB]

Eligible Assessee Resident Individual/HUF
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Eligible Payment for Deduction Expenditure on Medical Treatment of
Specified Disease in Rule 11DD for:
Assessee Expenditure for

Individual Himself or
dependant
HUF Member of HUF
Deduction ➢ Amount Actually Paid or Rs. 40,000

(whichever is Lower)
➢ Senior Citizen: Amount Actually Paid or
Rs. 1,00,000 (whichever is Lower)
Note: If any amount is received under insurance or reimbursed by employer for Medical
treatment, received amount shall be reduced from the deduction allowable under this
section.
INTEREST PAID ON LOAN TAKEN FOR HIGHER EDUCATION [SECTION 80E]

Eligible Assessee Individuals only
Source of Loan Loan must have been taken from:
(a) Bank (b) Financial institution (c)
Approved charitable institution
Purpose of Loan Loan must have been taken for pursuing
higher education of
(a) Assessee himself; (b) His Relatives
(Spouse/Children); (c) Student for whom the
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assessee is Legal Guardian.
Note: Courses after Class XII or Equivalent
→ Qualify for deduction. ❖ Loan can be
taken for study in India or Outside India also.

❖ Course may be Full-time or Part-time
Deduction Interest paid during PY on higher Education

Loan out of taxable Income
Period of Deduction Deduction shall be allowed for 8 AYs
starting from the AY in which the
assesseestarts paying the interest on loan.
INTEREST ON LOAN TAKEN FOR ACQUISITION OF RESIDENTIAL HOUEE

PROPERTY [SECTION 80EE]
Eligible Assessee Individuals only [R/NR]
Source of Loan Loan must have been taken from: (a) Bank;
(b) Financial Institution; (c) Housing finance
company
Purpose of Loan. Loan must be taken for Acquisition of
Residential House Property.
Conditions ➢ Loan must have been sanctioned in FY
2016-17.
➢ Amount of Loan Sanctioned ≤ Rs. 35
Lacs. ➢ Value of Residential House
Property ≤ Rs. 50 Lacs.
➢Assessee does not own any Residential
House Property on the Date of Sanction of
Loan.
Deduction LOWER of (a) Interest paid on Loan during
FY or (b) Rs. 50,000. This deduction is over
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& above deduction u/s 24(b) for interest paid
in respect of loan borrowed for acquisition of
a self-occupied property.
PERIOD of Deduction Deduction is available Till Repayment of
loan continues.
Deduction in respect of Interest on loan taken for certain house property (Section 80
EEA)(W.e.f.A.Y 2020-21)
(b) Reason for making amendment
In order to provide an impetus to the ‘Housing for all’ objective of the government .
Provide deduction in respect of interest up to ₹1,50,000 on loan taken for residential
house property.
(c) Amendment made
An individual (not eligible to claim deduction under section 80 EE)shall be allowed a
deduction under section 80EEA on account of interest payable on loan taken by him
from any financial institution for the purpose of acquisition of a residential property
subject to the following conditions being satisfied:
(1) The loan has been sanctioned by the financial institution during the period beginning
on 1.4.2019 and ending on 31.3.2020.
(2) The stamp value of residential house property does not exceed ₹ 45,00,000.
(3) The assessee does not own any residential house property on the date of sanction of
loan.
Quantum of deduction: The deduction under this section shall not exceed ₹1,50,000
and shall not be allowed in computing the total income of the individual for the
assessment year beginning on 1.4.2020 and subsequent assessment years.
Deductions in respect of purchase of electric vehicle (section

80EEB)(W.e.f.A.Y.2020-21)
Provide for a deduction in respect of interest on loan taken for purchase of an electric
vehicle from any financial institution up to ₹1,50,000 subject to certain conditions.
200
DONATIONS TO CHARITABLE INSTITUTIONS/FUNDS [SEC 80G]
Eligible Assessee Any Assessee (R/NR)

Eligible Payment Donations made to specified funds which are approved u/s 80G.
Mode of Payment ➢ Amount shall be paid by Any Mode other than Cash. However,
Donations ≤ 2000 can be made in Cash.
➢ Donation in kind → No Deduction (Donation should be made
in Money).
➢ Donations can be from Earlier year’s Income/Exempt Income.
Adjusted GTI Adjusted GTI = GTI as Reduced by the following:
▪ LTCG u/s 112 & 112A
▪ STCG u/s 111A
▪ All Permissible Deductions u/s 80C - 80U [Except deduction u/s
80G]
▪ Exempt Income
Qualifying Limit Qualifying Limit = 10% of Adjusted GTI
Deduction Deduction u/s 80G = Total of Deductions permissible under A, B,
C & D.
AMOUNT OF DEDUCTION [Refer “How to calculate Deduction” Below]
(A) Donations Eligible for 100% Deduction WITHOUT QUALIFYING LIMIT

▪ National Defence Fund/ National Foundation for Communal Harmony;
▪ ZilaSakshartaSamiti/State/National Blood Transfusion Council;
▪ PM’s National Relief Fund/ [(Maharashtra CM’s/PM’s Armenia) Earthquake Relief
Fund]
▪ Africa (Public Contributions India) Fund;
▪ Approved University/Educational Institution of National Eminence;
▪ Fund set up by SG of Gujarat for providing relief to Victims of Earthquake in
Gujarat; ▪ Fund set up by SG to provide Medical Relief to Poor People;
▪ Army/Airforce Central Welfare Fund/Indian Naval Benevolent Fund;
201
▪ Andhra Pradesh CM’s Cyclone Relief Fund, 1996;
▪ CM’s Relief Fund/Lieutenant Governor’s Relief Fund in any State or Union
Territory.
▪ National Illness Assistance Fund/National Sports Fund/National Cultural Fund;
▪ Fund for Technology Development & Application set up by CG.
▪ National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental
Retardation etc
▪ National Fund for control of Drug Abuse (Inserted by FA, 2015 w.e.f. A.Y. 2016 -
17)
▪ Donations made to Swachh Bharat Kosh/ Clean Ganga Fund set up by CG
▪ National Children’s Fund (Inserted by FA, 2015 w.e.f. A.Y. 2015 -16).
(B) Donations Eligible for 50% Deduction WITHOUT QUALIFYING LIMIT
▪ Jawaharlal Nehru Memorial Fund/Prime Minister’s Drought Relief Fund.
▪ Indira Gandhi Memorial Trust/ Rajiv Gandhi Foundation.
(C) Donations Eligible for 100% Deduction SUBJECT TO QUALIFYING LIMIT

▪ Donation to Government/Approved LA/Institution for Promoting Family Planning;
▪ Donations by Company to Indian Olympic Association/any other association
established in India & notified by CG for Sponsorship/Development of Infrastructure
for Sports & Games
(D) Donations Eligible for 50% Deduction SUBJECT TO QUALIFYING LIMIT

▪ Donation to Government/Approved LA/Institution for Any Charitable Purpose
other than Promoting Family Planning.
▪ Authority constituted for satisfying the need for housing accommodation/
Improvement of cities, towns & villages.
▪ Corporation established by CG/SG specified u/s 10(26BB) for Promoting Interests
of Minority
▪ Notified Temple, Mosque, Gurdwara, Church notified by CG to be of historic
importance, for Renovation/Repair of such Place.
202
How to calculate Deduction u/s 80G
1. Calculate Adjusted GTI.
2. Calculate Qualifying Limit [= 10 % of Adjusted GTI]
3. Eligible donations in C & D (which are subject to Qualifying Limit) should be Aggregated.
4. Qualifying Limit gives us “Total Amount of Donations” eligible for Deduction. [It is mistaken
that Qualifying Limit gives us Maximum Possible Deduction]
5. Firstly, Donations eligible for 100% Deduction (C) should be adjusted against Qualifying
Limit.
6. Balance Qualifying Limit shall be adjusted against Donations Eligible for 50% Deduction &
then deduction of 50% shall be calculated.
7. Total Deduction under (C) & (D) should be limited to Qualifying Limit (10% of Adjusted
GTI)
8. Donations made under (A) & (B) are fully allowed as deduction without QUALIFYING
LIMIT.
CQ14. Mr. Shiva aged 58 years, has GTI of Rs. 7,75,000 comprising of Income from Salary &
House Property. He has made the following payments & investments:
(i) Premium paid to insure life of major daughter on 1.4.2018 (Sum Assured Rs. Rs.
1,80,000) - Rs. 20,000;
(ii) Medical Insurance Premium for self - Rs. 12,000; Spouse- Rs. 14,000;
(iii) Donation to a public charitable institution registered under 80G -Rs. 50,000 by way of
cheque;
(iv) LIC Pension Fund - Rs. 60,000;
(v) Donation to National Children’s Fund - Rs. 25,000 by way of cheque;
(vi) Donation to Jawaharlal Nehru Memorial Fund - Rs. 25,000 by way ofcheque;
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(vii) Donation to approved institution for promotion of family planning - Rs. 40,000 by
cheque.
(viii) Deposit in PPF – Rs. 1,00,000.
Compute the total income of Mr. Shiva for AY 2020-21
Solution: Computation of Total Income of Mr. Shiva for AY 2020-21
Gross Total Income 7,75,000

Less:
Deduction u/s 80C
Deposit in PPF (1,00,000)
Life insurance premium paid for insurance of major daughter (18,000)
(Maximum 10% of Sum Assured as the policy is taken after
31.3.2012)
Deduction u/s 80CCC in respect of LIC pension fund (60,000)
Total Investment eligible for deduction u/s 80C 1,78,000
Deduction u/s 80C [Restricted to Rs. 1,50,000] (1,50,000)
Deduction u/s 80D
Medical Insurance premium in respect of self & spouse (restricted (25,000)
to Rs. 25,000)
Deduction u/s 80G (See Working Note below) (87,500)
Total income 5,79,950
Working Note: Computation of Deduction u/s 80G
(i) Adjusted GTI = GTI – All Deductions except 80G = Rs. 7,75,000 – Rs. 1,50,000 – Rs.
25,000 = Rs. 6,00,000.
(ii) Qualifying Limit = 10% of Adjusted GTI = Rs. 60,000.
Particulars of Donation % of Deduction Deduction u/s 80G

donation
National Children’s 25,000 100% 25,000
Fund
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Jawaharlal Nehru 25,000 50% 12,500
Memorial Fund
Approved Institution 40,000 100%, subject to 40,000
for promotion of Qualifying Limit
family planning
Public Charitable 1,50,000 50% subject to 10,000
Trust qualifying limit (See
Note below)
Total Deduction u/s 80 G Rs. 87,000
Note: Firstly, donation of Rs. 40,000 to approved institution for family planning qualifying for
100% deduction subject to qualifying limit, should be adjusted against Qualifying Limit of Rs.
60,000.
Thus, Qualifying Limit left after such adjustment = Rs. 20,000 [Rs. 60,000 – Rs. 40,000]
Now, even though we have donated Rs. 1,50,000 to public charitable trust which qualify for 50%
donation, only the balance qualifying limit of Rs. 20,000 shall be available for taking deduction.
Thus, we will calculate deduction as if we have contributed only Rs. 20,000 to public charitable
trust. Hence contribution of Rs. 1,50,000 to public charitable trust is restricted to Rs. 20,000 (Rs.
60,000 - Rs. 40000) 50% of which would be the deduction u/s 80G.
Therefore, deduction u/s 80G in respect of donation to public charitable trust = Rs. 10,000 (50%
of Rs. 20,000).
DEDUCTIONS IN RESPECT OF RENT PAID [SECTION 80GG]
Eligible Assessee ▪ Any Self-Employed Individual OR

▪ Employed Individual (Not in Receipt of HRA/Rent-Free
Accommodation)
Eligible Payment Rent paid for his Residential Accommodation along with his family.
Deduction Least of the following: (a) Rs. 5,000 Per Month (b) Excess of Rent paid
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over 10% of Adjusted GTI (c) 25% of Adjusted GTI
Adjusted GTI Adjusted GTI for this purpose means GTI as REDUCED by:
1. LTCG which have been included in GTI.
2. STCG u/s 111A.
3. All Deductions u/s 80C-80U Except Deduction u/s 80G.
Conditions ▪ Assessee should not be receiving any HRA exempt u/s 10(13A).
▪ Rented House should be occupied by the assessee for his own residence.
▪ Assessee, spouse or minor child or HUF of which assessee is a member,
does not own any residential accommodation at the place where assessee
ordinarily resides or at the place where he works or carries on his business
or profession.
▪ If assessee owns any residential accommodation at any place, other than
the place of residence or work of the assessee, then the concession in
respect of self-occupied property is not claimed by the assessee.
DONATION FOR SCIENTIFIC RESEARCH/RURAL DEVELOPMENT [ 80GGA]
Assesse Any Assesse NOT having PGBP Income

Eligible Payment Payment made during PY to the following: ▪ Approved Research
Association/University/College to be used for Scientific or Social or
Statistical Research or Rural Development as specified u/s 35CCA. ▪
Notified rural development fund/National Urban Poverty Eradication
Fund. ▪ Public sector company/LA/Association/Institution approved by
National Committee, for carrying out any eligible project/scheme
specified in Sec. 35AC ▪ National Urban Poverty Eradication Fund
(NUPEF)
Deduction 100% of the Donation Paid.
Mode of Payment Amount shall be Paid by any mode other than Cash. ▪ However Donations
≤ 10000 can be made in Cash.
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Note: Deduction allowed to the assesse shall not be denied even if approval granted to any of
the above institution is withdrawn after the payment of donation by the assesse.
CONTRIBUTIONS GIVEN BY COMPANY TO POLITICAL PARTY [SEC 80GGB]
Eligible Assessee Indian Companies only.

Eligible Payment Any sum contributed in PY to any Political party or Electoral Trust.
Expenditure on advertisement in Brochure of Political party → Eligible
Deduction 100% of the Donation Paid.
Mode of Payment Amount shall be paid by Any mode other than Cash.
CONTRIBUTIONS GIVEN BY ANY PERSON TO POLITICAL PARTY [80GGC]
Eligible Assessee Any Person [Except Local Authority & Every AJP funded by Government]
Eligible Payment Any sum contributed in PY to any Political party or Electoral Trust.
Deduction 100% of the Donation Paid100% of the Donation Paid
Mode of Payment Amount shall be paid by Any mode other than Cash.
Note: Government companies cannot give political donations.
INCOME BASED DEDUCTIONS
DEDUCTION OF “INTEREST ON DEPOSIT IN SAVING A/C” [SEC 80TTA]
Eligible Assessee Individual/HUF whose GTI includes Interest on Deposits in Saving A/c in
Bank/Co-operative Bank/Post office (Except Time Deposit repayable after
Fixed Period)
Deduction Interest on Saving Deposits (other than Time Deposits) uptoRs. 10,000.
Note: Interest from Deposit in Savings A/c held by firm/AOP/BOI → No Deduction to
Partner/Member. Deduction u/s 80TTA is not available to Resident Senior Citizen eligible for
deduction u/s 80TTB. Section 10(15)(i) → Saving A/c Interest in POST OFFICE is Exempt
uptoRs. 3,500/Rs. 7,000
INTEREST ON DEPOSITS IN CASE OF SENIOR CITIZENS [SEC 80TTB]
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Eligible Assessee Resident Senior Citizen whose GTI includes Interest on Deposits in
Bank/Co-operative Bank/Post office.
Deduction Interest on Saving Deposits uptoRs. 50,000.
Note: It may be Interest on Saving A/c, Fixed Deposit or Any other Interest.
DEDUCTION IN RESPECT OF ROYALTY ON PATENTS [SECTION 80RRB]
Eligible Assessee Resident Individual who is registered as True & First Inventor under the
Patents Act, 1970, including co-owner of the patent.
Deduction Lower of (a) Amount of Royalty Received or (b) Rs. 3 lacs.
Income Eligible Royalty Income including Consideration for: (i) Transfer of Rights in the
for Deduction Patent or (ii) Providing information for working or use in India. It includes
Advance Royalty which is Not Returnable. Note: Exemption is not
Available on Consideration for Sale of Product Manufactured using of
Patented process/Article for Commercial Use.
Royalty from Royalty brought to India in Convertible Foreign Exchange within 6 Months
Foreign Country or extended period (by RBI) shall only be allowed as Deduction. Assessee
is required to furnish a Prescribed Certificate along with ROI
Subsequent If Patent is Subsequently Revoked → Deduction allowed shall be deemed
Revocation of to have been Wrongly Allowed & Assessment shall be rectified u/s 155.
Patent Note: Period of 4 years for Rectification u/s 155 shall be reckoned from the
end of PY in which order of the Revocation is Passed.
ROYALTY INCOME OF AUTHORS OF BOOKS [SECTION 80QQB]
Eligible Assessee Resident Individual who is an Author/Joint Author.

Deduction Lower of (a) Amount of Royalty Received or (b) Rs. 3 lacs
Income Eligible Royalty Income. ❖ Such book should be a work of Literary, Artistic or
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for Deduction Scientific Nature. ❖ Royalty Income from Textbook for Schools, Guides,
Commentaries, Newspapers, Journals, Pamphlets → Not Eligible for

Deduction.
Note: Royalty Income (before allowing Expenses attributable to such income) shall Not Exceed
15% of the value of books sold during PY. [If it Exceed 15%, Excess amount is Not deductible]
However, this condition is not applicable where Royalty is receivable in lumpsum in lieu of all
rights of the author in the book.
Royalty from Royalty brought to India in Convertible Foreign Exchange within 6
Foreign Country Months or extended period (by RBI) shall only be allowed as Deduction.
Assessee is required to furnish a Prescribed Certificate along with ROI
C. OTHER DEDUCTIONS
Eligible Assessee Resident Individual who is certified by medical authority to be a

person with disability at any time during PY.
Deduction ➢ Rs. 75,000 [Person with disability];
➢ Rs. 1,25,000 [Person with Severe Disability (over 80%)]
Legal Requirement Assessee shall furnish a copy of Medical Certificate along with ROI
DEDUCTION FOR “EMPLOYMENT OF NEW EMPLOYEES” [SEC 80JJAA]
Applicability Assessee to whom Section 44AB (Tax Audit) Apply.

Deduction 30% of Additional Employee Cost incurred in the PY would be
allowed for 3 AYs including the AY relevant to PY in which such
Employment is provided.
Conditions (a) Business should Not be formed by Splitting up or Reconstruction of
Existing Business.
(b) Business should Not be Acquired by the Assessee by way of
Transfer from any other Person or as a result of any Business Re-
organisation.
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(c) Prescribed Audit Report should be furnished along with ROI.
AEC (Additional AEC = Total Emolument Paid to Additional Employees Employed
Employee Cost during PY.
A. In case of Existing Business: AEC = Nil if:
(i) There is No Increase in Number of Employees from Total
Numberof Employees Employed on Last Day of Preceding Year; [Even
if New Employees are Employed]
(ii) Payment is made otherwise than by A/c Payee
Cheque/Draft/Netbanking. B. In case of New Business: AEC =
Emoluments Paid to Employees Employed during that PY
Additional Employee Employee who has been Employed during PY & his employment has
increased Total No. of Employees on the last day of Preceding year but
does Not Include:
(a) Employee whose T otal Emoluments >Rs. 25,000 per Month;
(b) Employee for whom Entire Contribution is Paid by Government
under the Employees’ Pension Scheme;
(c) Employee Employed for < 240 days during PY. [If Assessee
engaged in Business of Manufacturing of Apparel, Footwear, Leather
Products → Employee employed for < 150 days during PY]
(d) Employee who does Not Participate in RPF.
Emoluments Any Sum Paid/Payable to Employee for his Employment but does Not
Include:
(a) Contribution Paid/Payable by Employer to Pension fund/PF/Any
other Fund for the benefit of the Employee under any law;
(b) Any Lump-sum Payment Paid/Payable to Employee at the time of
Termination or Superannuation/Voluntary Retirement. [Ex: Gratuity,
Pension, VRS etc]
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Practice Question
QComputation of gross total Income and losses to be carried forward:Ms. Geeta is a resident
individual provides the following information details of her income/losses for the year ended
31-3-2020.
1. Salary received as a partner from a partnership firm 7,50,000.

2. Loss on sale ofofshareslisted in BSE Rs 3 lakhs. Shares were held for 15 months
and STT paid on sale
3. Long-term capital gain on sale of land 5 lakhs.
4. Rs 51.000 received in cash from friends in party.
5. Rs 55.000 received towards dividend on listed equity shares of domestic companies.
6. Brought forward business loss of assessment year 2019-20 12.5 lakhs. The return was filed in
time.
Compute gross total income of Ms.Geetaandascertain the amount of loss that can be carried
forward.
Solution :
Computation of gross total income of Ms.Geeta(amount in.)
Business Income: Salary received as partner from partnership (WN-1) 7,50,000

firm
Less: Brought forward loss of AY 2019-20 set off to the extent of (WN-2) 7,50,000 Nil
income
Long term capital gains: Sale of land 5,00,000
Less: Long term capital loss on shares on STT paid (WN-3) 3,00,000 2,00,000
Income from other sources : cash gifts (WN-4) 51,000
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MCQ s of UNIT 3
Q1. If income from a particular source is exempt from tax, then loss from such source cannot be
set off against any other income which is chargeable to tax.
(a) True (b) False
Q2. The process of adjustment of loss from a source under a particular head of income against
income from other source under the same head of income is called_____.
(a) Inter-head adjustment
(b) Intra-head adjustment
(c) Carry forward of loss
(d) Clubbing of income
Q3. While making intra-head adjustment of loss, short-term capital loss cannot be set off against
long-term capital gain.
(a) True (b) False
Q4. While making intra-head adjustment,loss from the business of owning and maintaining race
horses can be set off against ______only.
Income from winnings from lotteries
Income from crossword puzzles
Income from business of owning and maintaining race horses
Income from card game
Q5. Loss under the head “Profits and gains of business or profession” can be carried forward
even if the return of income/loss of the year in which loss is incurred is not furnished on or
before the due date of furnishing the return, as prescribed under section 139(1).
(a) True (b) False
Q6. In case of a Company, being a company in which public are not substantially interested but
not being an eligible start-up as referred to in section 80-IAC, if the person beneficially
holding___of the voting power as on the last day (i.e. 31st March) of the year in which the loss
was incurred and on the last day (i.e. 31st March) of the year in which the company wants to set
off the brought forward loss are different, then the company cannot set off such brought forward
loss.
(a) 20% (b) 25%
(c) 50% (d) 51%
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Q.7.Set of loss against income under other heads of income under section……
A) Sec 51
B) Sec 61
C) Sec 71
Q.8. Loss from the house property can be set off against ……
A) Business profession
B) Capital gains
C) Salaries
D) All of the above
Q.9.Loss from specified business can be set off

A) Income other than salary
B) Any head of income
C) Profits of any other specified business only
Q.10.Compulsory filing of loss return has been defined u/s

A) 80
B) 70
C) 60
Q.11. Carry forward and set off of capital losses comes under section
A) 74(1) & (2)
B) 73(1) & (2)
C) 71(1) & (2)
Q.12.The share of loss from a from cannot be set off by a partner against his…..income
A) Gross
B) Total
C) Individual
Q.13.Loss from house property can be set off only up to ….. From any head on income
A) 2,50,000
B) 2,00,000
C) 3,00,000
Q.14.Loss from business can’t be set off against…

A. salaries
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B. business and profession
C. capital gain
D. None of the above
Q.15. Loss of partnership firm can be set-off only against…

A. salaries
B. capita gain
C. firm
Q.16.Capital loss can be carried forward for a maximum period of …

A. 4 subsequent year assessment year
B. 8 subsequent year assessment year
C. 10 subsequent year assessment year
Q.17. The loss in speculation business can be carried forward only for a maximum period of…
C. 2 subsequent year assessment year
Q.18.long term capital loss can be adjusted only against

A. short term capital gain
B. long term capital gain
C. both the above
Q.19.Unabsorbed depreciation can be carried forward for a period of …

A. 8 year
B. 4 year
C. indefinite
Q.20. Loss from the business of owning and maintaining race horses can be carried forward for a
period of…
C. indefinite subsequent year assessment year
Q.21.Losses of discontinued business of an industrial undertaking after re-establishment or

revival can be carried forward up to…
C. indefinite subsequent year assessment year
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Q.22.Treatment of losses after succession comes under

A. sec 78(2)
B. sec 77(2)
C. sec 76(2)
d. None of the above
Q.23. Loss from other sources can be carried forward for …. Subsequent year
A. 4 year
B. 8 year
C. No carried forward
Q.24.Ram, owner of a house property, incurs loss of Rs. 5,00,000 from house property. He has filed his
return of loss u/s 139(1) after the due date. Will he be eligible to carry forward his loss of Rs. 5,00,000?
a) Yes, he can carry forward loss of Rs. 5,00,000

b) No, he can’t carry forward the loss of Rs. 5,00,000
c) He can carry forward only Rs. 2,00,000
d) None of the above
Q.25.A is engaged in derivative trading on a recognised stock exchange and incurs a loss of Rs. 5,00,000.
He has other business profit of manufacturing Rs. 3,00,000. Taxable income will be treated as
_____________.
a) 5,00,000
b) 3,00,000
c) 2,00,000 + c/f of loss
Answers:
Q.1 (a)
Q.2 (b)
Q.3 (b)
Q.4 ©
Q.5 (b)
Q.6 (d)
Q.7 ©
Q.8 (d)
Q.9 ©
Q.10 (a)
Q.11 (a)
Q.12 (c)
Q.13 (b)
Q.14 (a)
Q.15 (c)
Q16 (b)
Q.17 (a)
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Q.18 (b)
Q.19 (c)
Q.20 (a)
Q.21 (b)
Q.22 (a)
Q.23 (c)
Q.24 (a)
Q.25 (b)
DescriptiveType Questions:
Q.1What is the meaning of clubbing of income?
Q.2. Do any clubbing provisions exist in case of transfer of income without transfer of asset?
Q.3. Do any clubbing provisions exist in case of a revocable transfer?
Q.4.Can remuneration received by spouse of an individual be clubbed with his/her income?
Q.5.Illustration
Mr. Raja is beneficially holding 21% equity shares of Essem Minerals Pvt. Ltd. Mrs. Raja is
employed as Manager (in accounts department) in Essem Minerals Pvt. Ltd. at a monthly salary
of Rs. 84,000. Mrs. Raja is not having any knowledge, experience or qualification in the field of
accountancy. Will the remuneration (i.e., salary) received by Mrs. Raja be clubbed with the
income of Mr. Raja?
**
In this situation, Mr. Raja is having substantial interest in Essem Minerals Pvt. Ltd. and
remuneration of Mrs. Raja is not justifiable (i.e., she is employed without any technical or
professional knowledge or experience) and, hence, salary received by Mrs. Raja from Essem
Minerals Pvt. Ltd. will be clubbed with the income of Mr. Raja and will be taxed in the hands of
Mr. Raja.
Q.6.Illustration
Mrs. Kumar is beneficially holding 25% equity shares of SM Construction Pvt. Ltd. Mr. Kumar
is an architect and he is employed as site observer of one of the construction sites of the SM
Construction Pvt. Ltd. at a monthly salary of Rs. 28,400. The remuneration received by Mr.
Kumar is justifiable considering his knowledge, experience and qualification. Will the
remuneration received by Mr. Kumar be clubbed with the income of Mrs. Kumar because she is
having substantial interest in SM Construction Pvt. Ltd.?
**
In this situation, Mrs. Kumar is having substantial interest in SM Construction Pvt. Ltd., but Mr.
Kumar is deputed on the basis of his knowledge, experience and qualification and, hence,
remuneration paid to him is justifiable. The clubbing provisions of section 64(1)(ii) apply only in
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a case where spouse is deputed without any technical or professional knowledge or experience.
In this case, the remuneration of spouse is justifiable, hence, salary received by Mr. Kumar will
not be clubbed with the income of Mrs. Kumar but will be taxed in his hands.
Q.7.Can income from assets transferred to spouse without adequate consideration be clubbed
with the income of transferor-spouse?
Q.8.Are there any situations in which the clubbing provisions do not apply in case of income
from assets transferred to spouse?
Q.9.Discuss the taxability or otherwise in the hands of the recipients:
(i) PQR Private Limited issued 15,000 shares at ` 150 per share (face value ` 100 per share). The
fair market value of the share is ` 130 per share.
(ii) Mr. Sakshitha received a sum of ` 92,000 being proceeds at the time of maturity of a life
insurance policy (taken 5 years back) and ` 1,10,000 being proceeds of maturity value of a Key-
man insurance policy.
(iii) Nilay, a member of his father's HUF, gifted a house property to the HUF. The stamp duty
value of the house is ` 8 lakhs.
(iv) Rashmi received a cell phone worth ` 60,000 as gift from her friend on the occasion of
her birth day.
(v) On the occasion of her marriage Tripti received cash gifts of ` 1,30,000, which includes
` 60,000 from her friends.
Q.10. Write short notes on any three of the following:
(a) Fee for delay in furnishing the return of income;
(b) Scrutiny assessment
(c) ICDS : Accounting policies
(d) Adjustments during the course of processing of return of income u/s 139(1)
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Unit IV
CHAPTER-1
Payment of Advance Tax
Advance Tax Payment : Eligibility, Calculations & Exemption

Advance tax is tax payable by individuals who have sources of income other than their salary.
This is applicable to rent, capital gains from shares, fixed deposits, lottery winnings, etc. It can
be paid online or through certain banks.
Table of Contents
• Advance Tax Payment

• Who is liable to pay Advance Tax?
• Advance Tax Payment Due Date for FY 2020-21
• How to Pay Advance Tax Online?
• How to Calculate Advance Tax Payment?
• Benefits of Paying Advance Tax
Advance tax is also known as ‘Pay as you earn’ scheme. The tax is payable if your tax liability
exceeds Rs.10,000 in a financial year. The tax should be paid in the same year in which the
income was received.
Union Budget 2021 Proposal to Facilitate easier Payment of Advance Tax on Dividend Income
In the Union Budget 2021 announced by the Finance Minister NirmalaSitharaman on 1 February
2021, a proposal has been made to make the calculation and payment of advance tax on dividend
income easier for taxpayers. This will help them to avoid paying interest on advance tax on
dividend income which used to happen because of the complications in estimating the correct
dividend income. The proposal intends to make compliance of the payment of dividend tax on
par with capital gain tax. Capital gains tax is paid only after the taxpayer realizes the gains in
their hands. The late payment of advance tax incurs interest and this can be avoided when the
calculation becomes easier. This amendment is from 1 April 2021 and will apply to the
assessment year 2021 to 2022 as well as the subsequent assessment years.
What is Advance Tax Payment?
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Advance tax can be paid through tax payment challans at bank branches which are authorised by
the Income tax department. It can be deposited in authorised banks such as ICICI Bank, Reserve
bank of India, HDFC Bank, Syndicate Bank, Allahabad Bank, State Bank of India and more.
Another way of advance tax payment is by paying it through Online tax payment website of the
Income Tax department or the National Securities Depository.
Advance Tax
Who is liable to pay Advance Tax?
The eligibility criteria you will have to fulfil in order to pay advance tax are:
• Your tax liability should be Rs.10,000 and above.

• You should be a salaried or a self-employed individual.
• Income received via capital gains on shares.
• Interest earned on fixed deposits.
• Winnings earned from a lottery.
• Rent or income earned from house property .
Instalment of Advance Tax Payment Due Date for FY 2020-21
The last date to pay final instalment of advance tax payment for Financial year 2020-21 is March
15th, 2021. On this date 100% of advance tax liability has to be paid by taxpayers.
Listed below is the advance tax schedule for self-employed and businessmen
Installment Date Amount Payable
On or before September 15th Not less than 30% of the advance tax liability
On or before December 15th Not less than 60% of the advance tax liability
On or before March 15th 100% of tax liability
Advance Tax for Assessees (apart from the ones who are covered under section 44AD)
Payment Due Date Amount to be Paid as Advance Tax
On or before 15 June 15% of the Advance Tax
On or before 15 September 45% of the Advance Tax
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On or before 15 December 75% of the Advance Tax
On or before 15 March 100% of the Advance Tax
How to Pay Advance Tax Online?

The advance tax can be paid online through the online facility offered by the Income Tax
department. Listed below are the steps that need to be followed to make a successful online
payment for advance tax.
• Go to the official Government www.tin-nsdl.com.
• Click "Services" - epayement: Pay Taxes Online
• Select the right challan to pay your income tax ( Advance tax)
• Fill in the correct details in the form. You’ll have to fill in details such as the right assessment
year, address, phone number, email address, bank name, captcha code and other such
important details.
• Once you are done filling in the details, you’ll be redirected to the bank’s Net Banking page.
The income to be paid should be rechecked in this page.
• Next, you’ll get details of your payment including your challan number.
• It is important to report your payment after you’ve made the payment. You can do so by
adding an additional entry under the paid tax page.
Advance Tax Challan 280

Challan 280 allows people to pay their income tax online on the website of the Income Tax
Department of India. On the website, people have to select this challan and fill the form and then
use it to pay taxes online/office. If they want to pay the tax offline, they have to download
Challan 280 form from the Income tax welcome, fill it and submit it at the bank.
How to Calculate Advance Tax Payment?
You can easily calculate how much advance tax you will have to pay by following the steps and
pointers given below:
• Step 1: Estimate how much income you earned in the financial year for which you are doing
the advance tax calculation. These are the heads of income that should be taken into account
for the income earned:
• Income from any interest earned from FDs, savings account, etc.
• Capital gains
• Professional income
• Rental income
• Income of minors if it is added to that of the taxpayer
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• Any other income
• Step 2: Add your salary to the figure above to arrive at the gross taxable income (while
advance tax is not applicable on your salary, the sum total may change your tax slab which
will change the tax liability further)
• Step 3: Calculate the tax payable by applying the latest income tax slab that is applicable to
you
• Step 4: As per the TDS slab, deduct the TDS that is likely to get deducted or which has already
been deducted
If your tax liability after deduction of TDS exceeds Rs.10,000, you are liable to pay advance tax.
Example of Advance Tax calculation
Assuming if your tax liability is Rs.1 lakh, then you will pay:
On or before 15 June Rs.15,000
On or before 15 September Rs.45,000
On or before 15 December Rs.15,000
On or before 15 March Rs.25,000
Make sure you pay your tax on time to avoid any penalties.
Note: The advance tax will vary depending on the tax amount and the date on which you clear
your tax.
Advance Tax Late Payment and Interest
If advance tax paid by you is less than 90% of the assessed tax, then you will be charged an
interest of 1% every month under Section 234B of the Income Tax Act. The interest is computed
as 1% interest on the defaulted amount for every month until the tax is paid off completely. The
same interest penalty will be applicable if you don’t pay by the second or third deadline.
Under Section 234C of the Income Tax Act, if you do not pay your advance tax installment on
time, then you will be charged an interest rate of 1%.
Exemption in Advance Tax Payments
• Senior citizens aged 60 years and above are exempted from paying the advance tax.
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• Salaried individuals falling under TDS net are exempted from paying the advance tax.
However, any earnings from sources such as interest, capital gains, rent and other non-salary
income will attract advance tax.
• If TDS deducted is more than the tax payable for the year, then one does not have to pay the
advance tax.
Benefits of Paying Advance Tax
• Advance tax helps in reducing stress of taxpayers. By paying tax in advance, taxpayers do not
have to worry about money shortage or tax payments at the last moment.
• It speeds up the tax collection process.
• It increases government funds as the government can earn an interest on the collected amount.
• Advance tax payment saves people from defaulting on their tax payments.
• It helps businesses in managing their finances well and provides an idea of the income they
have earned during the year.
Refund in Advance Tax Payment
At the end of the year, if the Income Tax Department finds out that you have paid more tax than
you should have paid, then it will refund the excess amount. Taxpayers can claim refund by
filling and submitting Form 30. They have to make the claim within a period of one year from
the last year of the assessment year.
Advance Tax FAQs
1. Is an NRI required to pay advance tax?
If you are accruing income in excess of Rs.10,000 will be required to pay advance tax.
2. I forgot to pay my fourth installment on 15 March. What should I do?
In case you miss the deadline of paying your fourth installment on 15 March, you can make
the payment by 31 March.
3. What happens if advance tax paid is more than the total tax liability?
If the advance tax paid is more than the total tax liability, the extra amount will be refunded. If
the advance amount is more than 10% of the tax liability, then an interest of 6% p.a. will be
paid by the IT Department.
4. What is mode of payment of advance tax?
You can pay your advance tax either by internet banking or through challan.
5. Will any tax payable till 31 March treated as advance tax?
Yes, any tax paid till 31 March will be considered as Advance Tax payment.
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CHAPTER-2
ASSESSMENT OF INDIVIDUALS
Income Tax Slabs 2021 & Tax Rates for FY 2020-21/ FY 2019-20/ FY 2018-19
Content includes
• 1. What is Income tax slab?

• 2. Income Tax Slab Rates for FY 2020-21 (AY 2021-22)
1. a. Income tax slab rate for New Tax regime -FY 2020-21 – Why is it optional?
2. b. Income tax Slab rates for Old Tax regime-FY 2021
3. c. Difference of slab rates between New tax regime vs Old Tax regime
4. d. Conditions for opting New tax regime
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5. e. Example for Old Tax regime Vs New Tax regime & which is better?
6. f. Time of Selection of option of olsvs new regime
7. g. New Tax regime Slab rates for domestic companies for FY 2020-21.
8. h. Income tax rate for Partnership firm or LLP as per old/ new regime.
• 3. Income Tax Slab Rates for FY 2019-20
• 6. How to Calculate Income Tax from Income Tax Slabs?
1. What is income tax slab ?

Indian Income tax levies tax on individual taxpayers on the basis of a slab system. Slab system
means different tax rates are prescribed for different ranges of income. It means the tax rates
keep increasing with an increase in the income of the taxpayer. This type of taxation enables
progressive and fair tax systems in the country. Such income tax slabs tend to undergo a change
during every budget.These slab rates are different for different categories of taxpayers. Income
tax has classified three categories of “individual “taxpayers such as:
• Individuals (aged less than of 60 years) including residents and non-residents

• Resident Senior citizens (60 to 80 years of age)
• Resident Super senior citizens (aged more than 80 years)
2. Income Tax Slab Rates for FY 20-21 (AY 2021-22 )
a. Income tax slab rate for New Tax regime -FY 2020-21 – Why is it optional?
In this new regime, taxpayers has an OPTION to choose either :
1. To pay income tax at lower rates as per New Tax regime on the condition that they forgo
certain permissible exemptions and deductions available under income tax, Or
2. To continue to pay taxes under the existing tax rates.Theassessee can avail rebates and
exemptions by staying in the old regime and paying tax at the existing higher rate.
Income tax slab rate applicable for New Tax regime – FY 2020-21.
New Regime Income Tax Slab Rates for FY 2020-21

Income Tax Slab
(Applicable for All Individuals & HUF)
Rs 0.0 – Rs 2.5 Lakhs NIL
Rs 2.5 lakhs- Rs 3.00 Lakhs 5% (tax rebate u/s 87a is available)
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New Regime Income Tax Slab Rates for FY 2020-21
Income Tax Slab
(Applicable for All Individuals & HUF)
Rs. 3.00 lakhs – Rs 5.00 Lakhs
Rs. 5.00 lakhs- Rs 7.5 Lakhs 10%
Rs 7.5 lakhs – Rs 10.00 Lakhs 15%
Rs 10.00 lakhs – Rs. 12.50 Lakhs 20%
Rs. 12.5 lakhs- Rs. 15.00 Lakhs 25%
>Rs. 15 Lakhs 30%
Difference of slab rates between New tax regime vs Old Tax regime
NOTE:
• Please note that the tax rates in the New tax regime is the same for all categories of
Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years
upto 80 years , and Super senior citizens above 80 years. Hence no increased basic
exemption limit benefit will be available to senior and super senior citizens in the New
Tax regime.
• Individuals with Net taxable income less than or equal to Rs 5 lakh will be eligible for tax
rebate u/s 87A i.e tax liability will be nil of such individual in both – New and
old/existing tax regimes.
• Basic exemption limit for NRIs is of Rs 2.5 Lakh irrespective of age.
• Additional Health and Education cess at the rate of 4 % will be added to the income tax
liability in all cases. (increased from 3% since FY 18-19)
• Surcharge applicable as per tax rates below in all categories mentioned above:
1. 10% of Income tax if total income > Rs.50 lakh
2. 15% of Income tax if total income > Rs.1 crore
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b. Income tax slabs rate for Old Tax regime -FY 2020-21
Select your Age Group:
Less Than 60 Years Old
Income tax slabs for Individual aged below 60 years & HUF
Individuals Below The Age Of 60 Years – Income Tax

Income Tax Slab
Slabs
Up to Rs 2.5 lakhs NIL
Rs. 2.5 lakh -Rs. 5Lakhs 5%
Rs 5 .00 lakh – Rs 10 lakhs 20%
>Rs 10.00 lakh 30%
NOTE:
• Income tax exemption limit is up to Rs.2,50,000 for Individuals , HUF below 60 years
aged and NRIs for FY 2018-19
• An additional 4% Health & education cess will be applicable on the tax amount
calculated as above.
• Surcharge:
1. 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
2. 15% of income tax, where the total income exceeds Rs.1 crore.
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c. Difference of slab rates between New tax regime & Old Tax regime
New
Regime
Existing Regime Slab Rates for FY 19-20 and FY 20-21 Slab Rates
for FY 20-
21
Income Tax Slab
Resident Resident Applicable

Resident Individuals
Individuals & Individuals & for All
& HUF < 60 years of
HUF > 60 to < HUF > 80 Individuals
age & NRIs
80 years years & HUF
Rs 0.0 – Rs 2.5 Lakhs NIL NIL NIL NIL
Rs 2.5 – Rs 3.00 Lakhs NIL NIL

5% (tax
5% (tax rebate u/s 87a rebate u/s
is available) 5% (tax rebate 87a is
Rs. 3.00- Rs 5.00 Lakhs u/s 87a is NIL available)
available)
Rs. 5.00 – Rs 7.5 Lakhs 20% 20% 20% 10%
Rs 7.5 – Rs 10.00
20% 20% 20% 15%
Lakhs
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New
Regime
Existing Regime Slab Rates for FY 19-20 and FY 20-21 Slab Rates
for FY 20-
21
Income Tax Slab
Resident Resident Applicable

Resident Individuals
Individuals & Individuals & for All
& HUF < 60 years of
HUF > 60 to < HUF > 80 Individuals
age & NRIs
80 years years & HUF
Rs 10.00 – Rs. 12.50

30% 30% 30% 20%
Lakhs
Rs. 12.5 – Rs. 15.00

30% 30% 30% 25%
Lakhs
>Rs. 15 Lakhs 30% 30% 30% 30%
d. Conditions for opting New Tax regime.

The taxpayer opting for concessional rates in the New Tax regime will have to forgo certain
exemptions and deductions available in the existing old tax regime. In all there are 70 deductions
& exemptions that are not allowed, out of which the most commonly used are listed below:
List of common Exemptions and deductions “ not allowed” under New Tax rate regime
1. Leave Travel Allowance (LTA)

2. House Rent Allowance (HRA)
3. Conveyance allowance
4. Daily expenses in the course of employment
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5. Relocation allowance
6. Helper allowance
7. Children education allowance
8. Other special allowances [Section 10(14)]
9. Standard deduction on salary
10. Professional tax
11. Interest on housing loan (Section 24)
12. Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section
80CCD(2))
List of deductions “allowed” under new Tax rate regime
1. Transport allowance for specially abled people

2. Conveyance allowance for expenditure incurred for travelling to work
3. Investment in Notified Pension Scheme under section 80CCD(2)
4. Deduction for employment of new employees under section 80JJAA
5. Depreciation u/s 32 of the Income-tax act except additional depreciation.
6. Any allowance for travelling for employment or on transfer
e. Example for Old Tax regime Vs New Tax regime & which is better?
The new tax regime can largely benefit middle class taxpayers who have a taxable income
uptoRs 15 lakh. Old regime is a better option for high-income earners.
The new income tax regime is beneficial for people who make low investments. As the new
regime offers seven lower income tax slabs, anyone paying taxes without claiming tax
deductions can benefit from paying a lower rate of tax under the new tax regime. For instance,
assessee having total income before deduction up-to Rs 12 lakh will have higher tax liability
under the old system if they have investments less than Rs 1.91 lakh. Therefore, if you invest
less in tax-saving schemes, go for the new regime.
That being said, if you already have in place a financial plan for wealth creation by making
investments in tax-saving instruments; mediclaim and life insurance; making payments of
children’s tuition fees; payment of EMIs on education loan ;buying a house with a home loan;
and so on, the old regime helps you with higher tax deductions and lower tax outgo.
In light of the above and considering the new income tax regime, if taxpayers want to opt for the
concessional tax rates, they may evaluate both regimes. Hence, it is advisable to do a
comparative evaluation and analysis under both regimes and then choose the most
beneficial one as it may vary from person to person.
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Let’s take an example of comparing the Old & New tax regime of an assessee with Rs 10 Lakh
income.
Mr. Rahul has a salary income of Rs 10 lakh. His total investment u/s 80C is Rs 1.7 lakh under
ELSS, PF, LIC premium and principal installment of home loan. Further he pays Medical
insurance for himself and his wife of Rs 28000. If he opts for the old tax regime, then he can
claim the above deductions, however if he wishes to go for a new tax regime than these
deductions will not be available. He has paid home loan interest of Rs 75000 in FY 20-21. Let us
see the tax outflow in both the regimes
New Tax Regime

Particulars Old Tax Regime (Rs)
(Rs)
Gross Income 1,000,000 1,000,000
Deductions:
u/Sec: 80C 150,000 –
u/Sec: 80D 25,000 –
u/Sec: 24(b) 75,000 –
Taxable Income 750,000 1,000,000
Tax Slab (OLD)
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New Tax Regime
(Rs)
0 to 2.5 Lakh – –
2.5 to 5 Lakh @ 5% 12,500 –
5 Lakh to 10 Lakh @ 20% 50,000 –
> 10 Lakh @ 30% – –
Tax Slab (NEW)
0 to 5 Lakh – –
2.5 to 5 Lakh @ 5% – 12,500
5 to 7.5 Lakh @ 10% – 25,000
7.5 Lakh to 10 Lakh @ 15% – 37,500
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New Tax Regime
(Rs)
10 Lakh to 12.5 Lakh @ 20% – –
12.5 Lakh to 15 Lakh @ 25% – –
> 15 Lakh @ 30% – –
Income Tax 62,500 75,000
Cess @ 4% 2,500 3,000
Total Tax Outgo 65,000 78,000
As per illustration above, if the gross income is more than Rs 10 lakh or and deductions u/S 80C,
80D, and 24(b) of the Income Tax Act are availed , then older regime is more beneficial from tax
planning standpoint. While for individuals in the middle-income group, earning a gross income
of say Rs 5 lakh; the new tax slab regime may prove advantageous.
f. Time of Selection of option of olsvs new regime?
Nature of Income Time of Selection of option of old vs new regime
An employee can opt to choose for the new tax regime and intimate
Income from Salary or their employer at the beginning of FY 2020-21 . Employees can
any other head of income change the option of selecting the tax regime every year
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Nature of Income Time of Selection of option of old vs new regime
attracting TDS However if new tax slab regime is opted at the begning of the year, it
cannot be changed anytime during the year for TDS purpose,
however the option can be changed at the time of filing of Income-tax
return.
Income from Business & In case of Business or profession income , the option to choose between
Profession the tax regimes is available only once for a particular business.
g. New Tax regime Slab rates for domestic companies – FY 2020-21.
Existing / Old
New Regime
Particulars regime Tax
Tax rates
rates
Company opts for section 115BAB (not covered in section 115BA

and 115BAA) & is registered on or after October 1, 2019 and has – 15%
commenced manufacturing on or before 31st March, 2023.
Company opts for Section 115BAA , wherein the total income of a

company has been calculated without claiming specified deductions, – 22%
incentives, exemptions and additional depreciation
Company opts for section 115BA registered on or after March 1, 2016

and engaged in manufacture of any article or thing and does not claim – 25%
deduction as specified in the section clause.
Turnover or gross receipt of the company is less than Rs. 400 crore in 25% 25%
the previous year 2018-19
Any other domestic company 30% 30%
*Please refer to the new sections for checking the applicability for above concessional income
tax rates.
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• Additional Health and Education cess at the rate of 4 % will be added to the income tax
liability in all cases.
• Surcharge applicable for companies is as below:
1. 7% of Income tax where total income >Rs 1 crore
2. 12% of Income tax where total income > Rs.10 crore
3. 10% of income tax where domestic company opted for section 115BAA and
115BAB
h. Income tax rate for Partnership firm or LLP as per old/ new regime.
A partnership firm/ LLP is taxable at 30%.
* 12% Surcharge is levied on incomes above Rs 1 crore. Health and Education cess at the rate of
4 % Note- There are no concessional rates introduced for firms / LLPs in nex tax regime.
3. Income tax slab rates for FY 2019-20

Income tax slab for Individual aged below 60 years & HUF
Income Tax Slab Tax Rates for Individual & HUF Below the Age Of 60 Years & NRIs
Up to ₹2,50,000* Nil
₹2,50,001 to ₹5,00,000 5%
₹5,00,001 to ₹10,00,000 20%
Above ₹10,00,000 30%
NOTE:
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• Income tax exemption limit is up to Rs.2,50,000 for Individuals , HUF below 60 years
aged and NRIs for FY 2018-19
calculated as above
• Surcharge:
– 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
– 15% of income tax, where the total income exceeds Rs.1 crore.
Invest Now & Save Upto ₹ 46,800 on Taxes
4. Income Tax Slab Rates for FY 2018-19

Income tax slab for Individual aged below 60 years & HUF
Tax Rates for Individual & HUF Below the Age Of

Income Tax Slab
60 Years
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%
NOTE:
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calculated as above
• Surcharge applicability:
5. Income Tax Slab Rates for FY 2017-18

Income tax slab for Individual below 60 years & HUF
Tax Rates for Individual & HUF Below the Age

Income Tax Slab
Of 60 Years
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%
NOTE:
calculated as above
• Surcharge applicability:
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6. How to Calculate Income Tax from Income Tax Slabs?

Rohit has a total taxable income of Rs 8,00,000. This income has been calculated by including
income from all sources such as salary, rental income, and interest income. Deductions under
section 80 have also been reduced. Rohit wants to know his tax dues for FY 2018-119 (AY
2019-2019).
Income Tax Slabs Tax Rate Tax Calculation
*Income up to Rs 2,50,000 No tax
5% (Rs 5,00,000 – Rs
Income from Rs 2,50,000 – Rs 5,00,000 Rs 12,500
2,50,000)
20% (Rs 8,00,000 – Rs

Income from Rs 5,00,000 – 10,00,000 Rs 60,000
5,00,000)
Income more than Rs 10,00,000 30% nil
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Income Tax Slabs Tax Rate Tax Calculation
Tax Rs 72,500
Cess 4% of Rs 72,500 Rs 2,900
Total tax in FY 2017-18 (AY 2018-19) Rs 75,400
*Please note that Rohit is an individual taxpayer assessee having an income tax exemption of Rs
2,50,000. For other taxpayers assesseei.e senior citizens and super senir citizens, the Income tax
limit for availing the exemption would be Rs 3,00,000&Rs 5,00,000 respectively.
Income Tax Calculation AY 2020-21 (FY 2019-20)

With the financial year 2019-20, it’s time for salaried and self-employed individuals to focus on
income tax calculation and filing of IT returns. The tax calculation for this financial year will be
based on the income tax slabs for the assessment year 2020-21. To understand how to go about
computing your tax liability, you need to begin by calculating your total income. You then need
to account for any deductions or tax-saving investments you may have. Then, identify the
income tax slab that applies to you to arrive at your tax liability. Here’s a closer look at the
details of this step-by-step process.
Step 1: Calculate your total income
There are 5 heads of income under which your income is classified. These heads are listed
below.
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1. Income from salary: This includes all the income earned as part of your salary. You can find
these details in the Form 16 issued by your employer.
2. Income from house property: If you own a house property that you’ve let out as a rental, the
rental income earned from that property falls under this head of income.
3. Income from business or profession: For self-employed individuals practicing their own
business or profession, the income earned is classified as business income.
4. Income from capital gains: Any profits arising out of the sale of a capital asset during the
financial year is taxed under this head of income. Capital assets include land, building, bullion,
jewelry, bonds, and stocks, among others.
5. Income from other sources: Any other income that cannot be classified under the above-
mention heads is taxed as an income from other sources. Some examples include interest on
fixed deposits, dividends earned, and lottery winnings.
Step 2: Account for all deductions from your total income
Once you’ve calculated your total income and classified them under the categories mentioned
above, the next step in the income tax calculation process is to account for the deductions and
savings, if any. The amount parked in some tax-saving investments can be deducted from your
total income, thereby reducing the amount of income that’s taxable.
For instance, investments made under section 80C can give you the benefit of deductions up to
Rs. 1,50,000. Some of the tax-saving investments that qualify for a deduction under section 80C
are mentioned below.
• Premium paid for life insurance for yourself, your spouse or dependent children
• Premium paid for ULIPs
• Tax-saving fixed deposits that come with a lock-in period of five years
• Public Provident Fund (PPF)
• National Savings Certificate (NSC)
• National Pension System (NPS)
• Investments in NABARD bonds
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• Investments in Post Office Savings Schemes
• Investments in Senior citizen savings schemes (SCSS)
• Tax-saving mutual fund schemes like ELSS
Canara HSBC Oriental Bank of Commerce Life Insurance offers investors many options to save
tax and enjoy the benefits of insurance and/or investments simultaneously. For instance, our
iSelect+ Term Plan is an excellent choice for people seeking an affordable life cover that also
acts as a tax-saving investment. With this term insurance plan, you enjoy benefits like:
• A life cover of Rs. 1 crore at a premium of just Rs. 12 per day

• Option to avail 100% return of premium
• Limited premium payment option
• Whole life cover up to 99 years of age
Canara HSBC Oriental Bank of Commerce Life Insurance also offers ULIP that help you save
tax and grow your wealth over the long term. The Invest 4G ULIP, for instance, has many
beneficial features such as:
• Option to choose from 7 different funds and 4 portfolio strategies
• Loyalty additions and wealth boosters
• Flexibility of fund switching and redirection between the various fund options
• Partial withdrawals to help you meet emergency expenses
Aside from these tax-saving investments, there are also certain expenses that can be claimed as a
deduction under section 80C. Some examples of these include:
• Tuition fees paid for children, subject to a maximum of two kids

• Repayment of the principal component of a housing loan
• Stamp duty, registration charges, and other expenses incurred for a purchase or construction of a
residential house
In addition to the savings under section 80C, there are many other avenues that can help you save
tax. For instance, you can claim an additional deduction of Rs.50,000 for investment in NPS
under Section 80CCD(1B), bringing your total deduction from tax-saving investments up to Rs.
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2,00,000. Furthermore, premiums paid for health insurance can also be claimed as a deduction as
per section 80D.
Step 3: Identify your income tax slab and apply the relevant rate of tax on your income
The tax rate for individuals is determined based on the slab under which their total income falls.
There are three different sets of income tax slab rates, depending on the age of the individual
taxpayer.
Income tax slabs for individuals below the age of 60

Income tax slabs for individuals below the age of 60 Tax rates applicable
0 to 2,50,000 Nil
2,50,001 to 5,00,000 5% of the total income exceeding 2,50,000
Rs. 12,500 + 20% of total income exceeding

5,00,001 to 10,00,000
5,00,000
Rs. 1,12,500 + 30% of total income exceeding

Above 10,00,000
10,00,000
Income tax slabs for individuals between the age of 60 and 80

Income tax slab (in rupees) Tax rates applicable
Up to 3,00,000 Nil
3,00,001 to 5,00,000 5% of the total income exceeding 3,00,000
5,00,001 to 10,00,000 Rs. 10,000 + 20% of total income exceeding 5,00,000
Above 10,00,000 Rs. 1,10,000 + 30% of total income exceeding 10,00,000
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Income tax slabs for individuals above the age of 80
Income tax slab (in rupees) Tax rates applicable
Up to 5,00,000 Nil
5,00,001 to 10,00,000 20% of total income exceeding 5,00,000
Above 10,00,000 Rs. 1,00,000 + 30% of total income exceeding 10,00,000
There is an additional 4% Health & Education Cess that needs to be paid on every front on the
amount of income tax and surcharge being paid. Surcharge will be applicable based on
Individual’s Income Slab.
Step 4: Deduct TDS, TCS, and advance taxes, if any
In case you’ve already paid TDS, TCS, or advance taxes, deduct them from your tax liability to
arrive at the balance tax payable (or refundable).
What is Income Tax Calculator?

The Income tax calculator is an easy-to-use online tool that helps you estimate your taxes based
on your income after the Union Budget is presented. We have updated our tool in line with the
income tax changes proposed in the Union Budget 2021-22.(Read the highlights here)
How to use the Income tax calculator for FY 2021-22 (AY 2022-23)?
Following are the steps to use the tax calculator:
1. Choose the financial year for which you want your taxes to be calculated.
2. Select your age accordingly. Tax liability in India differs based on the age groups.
3. Click on 'Go to Next Step'
4. Enter your taxable salary i.e. salary after deducting various exemptions such as HRA,
LTA, standard deduction, and so on. (if you want to know your tax liability under the old tax
slabs)
Or else, just enter your salary i.e salary without availing exemptions such as HRA, LTA,
standard deduction, professional tax and so on. (if you want to know your tax liability under the
new tax slabs)
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5. Along with taxable salary, you must enter other details such as interest income, rental income,
interest paid on home loan for rented, and interest paid on loan for self occupied property.
6. Click on 'Go to Next Step' again.
7. In case, you want to calculate your taxes under the old tax slabs,you will have to enter your tax
saving investments under section 80C, 80D, 80G, 80E and 80TTA.
8. Click on 'Calculate' to get your tax liability. You will also be able to see a comparison of your
pre-budget and post-budget tax liability (old tax slabs and new tax slabs).
Note: Whichever field is not applicable, you can enter "0".
You can even get your tax computation on your mail.
How to calculate income tax? (See example)

Income tax calculation for the Salaried
Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport
Allowance + any other allowance. Some components of your salary are exempt from tax, such as
telephone bills reimbursement, leave travel allowance. If you receive HRA and live on rent, you
can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator.
On top of these exemptions, a standard deduction of Rs 40,000 was introduced in budget 2018.
This has been increased to Rs 50,000 in budget 2019.
In case you opt for the new tax regime, these exemptions will not be available to you.
Let's understand income tax calculation under the current tax slabs and new tax slabs (optional)
by way of an example. Neha receives a Basic Salary of Rs 1,00,000 per month. HRA of Rs
50,000. Special Allowance of Rs 21,000 per month. LTA of Rs 20,000 annually. Neha pays a
rent of Rs 40,000 and lives in Delhi.
Taxable(Old Taxable(New
Nature Amount Exemption/Deduction regime) regime)
Basic Salary 12,00,000 - 12,00,000 12,00,000
HRA 6,00,000 3,60,000 2,40,000 6,00,000
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Taxable(Old Taxable(New
Nature Amount Exemption/Deduction regime) regime)
Special Allowance 2,52,000 - 2,52,000 2,52,000
LTA 20,000 12,000 (bills 8,000 20,000

submitted)
Standard Deduction - 50,000 50,000 -
Gross Total Income 16,50,000 20,72,000

from Salary
To calculate Income tax, include income from all sources. Include:
• Income from Salary (salary paid by your employer)

• Income from house property (add any rental income, or include interest paid on home
loan)
• Income from capital gains (income from sale purchase of shares or house)
• Income from business/profession (income from freelancing or a business or profession)
• Income from other sources (saving account interest income, fixed deposit interest
income, interest income from bonds)
Neha has income from interest from savings account of Rs 8,000 and a fixed deposit interest
income of Rs 12,000 during the year. Neha has made some investments to save income tax. PPF
investment of Rs 50,000.ELSS purchase of Rs 20,000 during the year.LIC premium of Rs 8,000.
Medical insurance paid of Rs 12,000. Here are the deductions Neha can claim under the old tax
regime.
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Amount
claimed by
Nature Maximum Deduction Eligible investments/expenses Neha
Section Rs.1,50,000 PPF deposit Rs 50,000, ELSS investment Rs Rs 1,50,000

80C 20,000, LIC premium Rs 8,000. EPF deducted
by employer(Neha’s contribution) = Rs
1,00,000 *12% *12 = 1,44,000
Section Rs 25,000 for self Rs Medical insurance premium Rs 12,000 Rs 12,000

80D 50,000 for parents
Section 10,000 Savings account interest 8,000 Rs. 8,000

80TTA
Calculation of gross taxable income in India (Old regime)
Nature Amount Total
Income from Salary 16,50,000
Income from Other Sources 20,000
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Nature Amount Total
Deductions
80C 1,50,000
80D 12,000 -
80TTA 8,000 1,70,000
Gross Taxable Income 15,00,000
Total tax on above (including cess) 2,73,000
Calculation of gross taxable income in India (New regime)
Nature Amount Total
Income from Salary 20,72,000
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Nature Amount Total
Income from Other Sources 20,000
Total tax on above (including cess) 3,79,704
This is how income tax has been calculated for Neha under the new tax regime
Up to Rs 2,50,000 Exempt from tax 0
Rs 2,50,000 to Rs 5,00,000 5% (5% of Rs 5,00,000 less Rs 2,50,000) 12,500
Rs 10,00,000 to Rs 20% (20% of Rs 12,50,000 less Rs 10,00,000) 50,000

12,50,000
Rs 12,50,000 to Rs 25% (25% of Rs 15,00,000 less Rs 12,50,000) 62,500

15,00,000
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More than RsRs 15,00,000 30% (30% of Rs 20,92,000 less Rs 15,00,000) 1,77,600
Cess 4% of total tax (4% of Rs 12,500 + Rs 25,500+ Rs 14,604

37,500 + Rs 50,000 + Rs 62,500 + Rs 1,77,600)
Total Income Tax Rs 12,500 + Rs 25,500+ Rs 37,500 + Rs 50,000 + Rs 3,79,704

Rs 62,500 + Rs 1,77,600 + Rs 14,604
What are the exemptions/ deductions that are disallowed under the new tax regime?
Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall
not be entitled to the following exemptions/deductions:
(i) Leave travel concession as contained in clause (5) of section 10;
(ii) House rent allowance as contained in clause (13A) of section 10;
(iii) Some of the allowance as contained in clause (14) of section 10;
(iv) Allowances to MPs/MLAs as contained in clause (17) of section 10;
(v) Allowance for the income of minor as contained in clause (32) of section 10;
(vi) Exemption for SEZ unit contained in section 10AA;
(vii) Standard deduction, deduction for entertainment allowance and employment/professional
tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-
section (2) of section 23. (Loss under the head income from house property for the rented house
shall not be allowed to be set off under any other head and would be allowed tobe carried
forward as per extant law);
(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research contained in sub-
clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section
35;
(xii) Deduction under section 35AD or section 35CCC;
(xiii) Deduction from family pension under clause (iia) of section 57;
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(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD,
80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-
IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer
contribution on account of the employee in notified pension scheme) and section 80JJAA (for
new employment) can be claimed.
Following allowances shall be allowed as notified under section 10(14) of the Act to the
Individual or HUF exercising option under the proposed section:
a) Transport Allowance granted to a divyang employee to meet the expenditure for the purpose
of commuting between place of residence and place of duty
b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of
duties of an office;
c) Any Allowance granted to meet the cost of travel on tour or on transfer;
d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of
absence from his normal place of duty.
Frequently Asked Questions ( FAQ’s )
• How much tax should I pay on my salary?
You will be required to pay a tax depending on the income slab you belong to.
Income Tax Rates applicable for individuals under 60 years of age
Income Slab Applicable Tax Rate
Up to Rs 2.50 lakh Nil
Above Rs 2.50 lakh and up to Rs 5 lakh 5%
Above Rs 5 lakh and up to Rs 7.5 lakh 10%
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Income Slab Applicable Tax Rate
Above Rs 10 lakh and up to Rs 12.5 lakh 20%
Above Rs 15 lakh 30%
Suppose you have a gross taxable income of Rs 7.50 lakh after all the
deductions/exemptions, your tax will be calculated as follows:
Applicable Tax Applicable

Income Slab Rate Income Tax (in Rs)
Up to Rs 2.50 lakh No tax 0 0
Above Rs 2.50 lakh and up to Rs 5 5% Rs 2.50 lakh 12,500

lakh
Above Rs 5 lakh and up to Rs 7.5 10% Rs 2.50 lakh 25,000

lakh
Total Income Tax Payable 37,500
Hence, you will be required to pay a tax of Rs 37,500 (excluding cess) on your gross
taxable income i.e. Rs 7.50 lakh.
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• What is the maximum non-taxable income limit?
The maximum limit of non-taxable income for an individual is set at Rs 2.5 lakh.
However, you can also get a rebate of Rs 2,500 under section 87A if you have a total
income of less than Rs 3.5 lacs for FY 2018-19. From FY 2019-20 onwards, the rebate
has been increased to Rs 12,500 for an income less than Rs 5 lakh. So, that means an
individual earning less than 5 lakh will not be required to pay any income tax from FY
2019-20 onwards. If you have tax saving investments under section 80C of up to Rs 1.5
lakh then you will not have to pay any taxes till Rs 6.5 lakhs
• Does everyone have to file their income tax returns?
If the income of an individual is below the basic exemption limit then he is not required
to file income tax returns. Though those who have income less than Rs 2.5L and want to
claim an income tax refund can only claim the refund by filing an ITR. Otherwise, it is
mandatory to file income tax returns in any other case.
• Does the income tax calculator calculate for TDS?
No, the income tax calculator does not compute the Tax Deducted at Source (TDS).
However, it calculates your tax liability for the assessment year.
• What are the details you need when you're e-filing your income tax returns?
1. Basic information such as PAN, Aadhar Card details, and current address.
2. All the bank account details held in a financial year.
3. Income proofs like current salary details, income from investments (like FDs, savings
bank account) etc.
4. All the deductions claimed under Section 80 or Chapter VI-A.
5. Tax payment details such as TDS and advance tax payments.
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CHAPTER-3
FILING OF RETURNS
e-Filing of ITR
The user can file the Income Tax Return (ITR) in two ways:
1. Offline: Download the applicable ITR, fill the form offline, save the generated XML file and
then upload it.
To e-File the ITR using the upload XML method, the user must download either of the following
ITR utility:
• Excel Utility
• Java Utility
Perform the following steps to download the Java Utility or Excel Utility, then to generate and
Upload the XML:
1. Go to the Income Tax e-Filing portal www.incometaxindiaefiling.gov.in

2. Download the Appropriate ITR utility under 'Downloads > IT Return Preparation
Software'.
3. Extract the downloaded utility ZIP file and Open the Utility from the extracted folder. (For
more information and prerequisites, refer the 'Read me' document).
Note:SystemRequirementsExcel Utilities: Macro enabled MS-Office Excel version

2007/2010/2013 on Microsoft Windows 7 / 8 /10 with .Net Framework (3.5 & above)
Java Utilities: Microsoft Windows 7/8/10, Linux and Mac OS 10.x with JRE (Java Runtime
Environment) Version 8 with latest updates.
To Enable Macros in Excel Go to > File > Options > Trust Centre > Trust Centre Settings >
Macro Settings > Enable All Macro > Click ‘OK’ button twice to save these settings.
4. Fill the applicable and mandatory fields of the ITR form.
Note :
Pre-filled XML can be downloaded post login to the e-Filing portal from 'My Account >
Download Pre-Filled XML' and can be imported to the utility for prefilling the personal and
other available details.
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5. Validate all the tabs of the ITR form and Calculate the Tax.
6. Generate and Save the XML.
7. Login to e-Filing portal by entering user ID (PAN), Password, Captcha code and click 'Login'.
8. Click on the 'e-File' menu and click 'Income Tax Return' link.
9. On Income Tax Return Page:
o PAN will be auto-populated
o Select 'Assessment Year'
o Select 'ITR form Number'
o Select 'Filing Type' as 'Original/Revised Return'
o Select 'Submission Mode' as 'Upload XML'
10. Choose any one of the following option to verify the Income Tax Return:
o Digital Signature Certificate (DSC).
o Aadhaar OTP.
o EVC using Prevalidated Bank Account Details.
o EVC using PrevalidatedDemat Account Details.
o Already generated EVC through My Account  Generate EVC Option or Bank ATM. Validity
of such EVC is 72 hours from the time of generation.
o I would like to e-Verify later. Please remind me.
o I don’t want to e-verify this Income Tax Return and would like to send signed ITR-V through
normal or speed post to "Centralized Processing Center, Income Tax Department, Bengaluru –
560500"
11. Click 'Continue'
12. Attach the ITR XML file.
On choosing,
o DSC as verification option, Attach the signature file generated from DSC management utility.
o Aadhaar OTP as verification option, Enter the Aadhaar OTP received in the mobile number
registered with UIDAI.
o EVC through Bank account, Demat account or Bank ATM as verification option, Enter the
EVC received in the mobile number registered with Bank or Demat Account respectively.
o Other two verification options, the ITR will be submitted but the process of filing the ITRs is
not complete until it is verified. The submitted ITR should be e-Verified later by using 'My
Account > e-Verify Return' option or the signed ITR-V should be sent to CPC, Bengaluru.
13. Submit the ITR.
14. To view the uploaded ITRs
2. Online: Enter the relevant data directly online at e-filing portal and submit it. Taxpayer can
file ITR 1 and ITR 4 online.
1. Go to the Income Tax e-Filing portal, www.incometaxindiaefiling.gov.in

2. Login to e-Filing portal by entering user ID (PAN), Password, Captcha code and click 'Login'.
3. Click on the 'e-File' menu and click 'Income Tax Return' link.
4. On Income Tax Return Page:
o PAN will be auto-populated
254
o Select 'Assessment Year'
o Select 'ITR Form Number'
o Select 'Filing Type' as 'Original/Revised Return'
o Select 'Submission Mode' as 'Prepare and Submit Online'
5. Click on 'Continue'
6. Read the Instructions carefully and Fill all the applicable and mandatory fields of the Online
ITR Form.
Note :
To avoid loss of data/rework due session time out, Click on ‘Save Draft’ button periodically to
save the entered ITR details as a draft. The saved draft will be available for 30 days from the
date of saving or till the date of filing the return or till there is no change in the XML schema of
the notified ITR (Whichever is earlier).
7. Choose the appropriate Verification option in the 'Taxes Paid and Verification' tab.
Choose any one of the following option to verify the Income Tax Return:
o I would like to e-Verify

o I would like to e-Verify later within 120 days from date of filing.
o I don't want to e-Verify and would like to send signed ITR-V through normal or speed post to
"Centralized Processing Center, Income Tax Department, Bengaluru - 560 500" within 120
days from date of filing.
o Click on 'Preview and Submit' button, Verify all the data entered in the ITR.
o 'Submit' the ITR.
o On Choosing 'I would like to e-Verify' option, e-Verification can be done through any of the
following methods by entering the EVC/OTP when asked for.
▪ EVC generated through bank ATM or Generate EVC option under My Account
▪ Aadhaar OTP
▪ Prevalidated Bank Account
▪ PrevalidatedDemat Account
Note
On Choosing the other two verification options, the ITR will be submitted but the process of
filing the ITRs is not complete until it is verified. The submitted ITR should be e-Verified later
by using 'My Account > e-Verify Return' option or the signed ITR-V should be sent to CPC,
Bengaluru.
o The EVC/OTP should be entered within 60 seconds else, the Income Tax Return (ITR) will be
auto-submitted. The submitted ITR should be verified later by using 'My Account > e-Verify
Return' option or by sending signed ITR-V to CPC.
o To view the uploaded ITRs
255
1. Maximum limit for the deduction of Life insurance premia from the gross total income is
_______________.
(a) ` 2,00,000 (b) ` 1,50,000
(c) ` 1,00,000 (d) ` 1,25,000
2. The deduction of life insurance premia, contribution to provident fund, etc. will is done under
_______________ of Income Tax Act, 1961.
(a) Section 80C (b) Section 80U
(c) Section 80D (d) Section 80E
3. Gross Total Income is arrived after _______________.
(a) Only adding Income under five heads of Income
(b) Adding Income under five heads of Income excluding losses
(c) Adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses
(d) Adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses and after allowing deduction
under sections 80C to 80U
4. In Income Tax Act, 1961, deduction under sections 80C to 80U cannot exceed
_______________.
(a) Gross total income
(b) Total income
(c) Income from business or profession
(d) Income from house property
5. The maximum aggregate amount of deduction under sections 80C, 80CCC and 80CCD
cannot exceed _______________.
(a) ` 1,10,000 (b) ` 2,00,000
256
(c) ` 1,50,000 (d) Nil
6. Deduction in respect of contribution to political party will _______________.
(a) Be allowed in respect of sum paid by way of cash
(b) Not be allowed if payment made in cash
(c) This type of deduction is not allowed whether payment is in cash or not
(d) Be allowed if payment made in cash, subject to certain conditions
7. Maximum amount of deduction in case of a person with severe disability under section 80U
will be _______________.
(a) ` 50,000 (b) ` 75,000
(c) ` 80,000 (d) ` 1,00,000
8. Government’s contribution to the new pension scheme referred to in Section 80CCD is
_______________.
(a) An exempt income
(b) Income chargeable to tax as salaries in full
(c) 50% thereof is income chargeable to tax as Salaries
(d) Income chargeable to tax as income from other sources in full
9. In case of a hospital built in specified area after 31.3.2008 fulfilling the required conditions
laid down in Section 80IB-(11C), the profits and gains derived from running the hospital are
_______________.
(a) Deductible in full (b) Deduction up to 50%
(c) Taxable in full (d) Deductible up to 75%
10. Deduction in respect of contribution to pension scheme of central government comes under
_______________ of Income Tax Act, 1961.
(a) Section 80CCD (b) Section 80U
257
(c) Section 80EE (d) Section 80G
11. In case of assessees other than companies, the following is advance tax rate to be payable on
or before of 15th September:
(a) 45% (b) 30%
(c) 15% (d) 10%
12. For the purposes of computing minimum alternate tax under Section 115B(a) of the Income
Tax Act, 1961, the book profit need not to be increased by inter alia, the amount of deferred
tax debited to the profit and loss account.
(a) True (b) False
(c) Can’t say
13. Deduction under Section 80C can be claimed for fixed deposit made in any scheduled bank, if
the minimum period of deposit is _______________.
(a) 10 Years (b) 5 Years
(c) 12 Years (d) 8 Years
14. Which of the following is covered under section 80D of the Income Tax Act, 1961?
(a) Medical treatment of handicapped dependent
(b) Medical insurance premium
(c) Reimbursement of medical expenses
(d) Repayment of loan taken for higher education
15. The deduction available under section 80QQB in respect of royalty income of authors shall
not exceed _______________ in previous year.
(a) ` 1,50,000 (b) ` 2,50,000
(c) ` 3,00,000 (d) ` 1,00,000
16. Clubbing of income means _______________.
(a) Addition income of two partners
258
(b) Inclusion of income of other person in assessee income
(c) Total of income of various heads
(d) Collection of income
17. Minors income is clubbed to _______________ .
(a) Father’s income
(b) Mother’s income
(c) Father’s income or mother’s income whichever is greater
(d) Both mother’s and father’s income
18. The income of minor is not clubbed to the following limit:
(a) ` 1,500 (b) ` 10,000
(c) ` 1,000 (d) Whole amount
19. _______________ is a section related to clubbing of income
(c) Sections 60-64 (d) None of the above
20. Deduction in respect of medical insurance premium is allowed under _______________.
(a) Section 80C (b) Section 80D
(c) Section 80DD (d) Section 80U
21. Maximum deduction allowed for senior citizen under Section 80D is _______________.
(a) ` 5,000 (b) ` 15,000
(c) ` 20,000 (d) ` 25,000
22. Person with disability is allowed a fixed deduction of _______________.
(a) ` 50,000 (b) ` 20,000
(c) ` 30,000 (d) ` 1,00,000
23. Expenditure on severe disease under section 80DDB is allowed upto _______________.
259
(a) ` 40,000 (b) ` 20,000
(c) ` 25,000 (d) ` 30,000
24. Which of the following donations is eligible for 100% deduction?
(a) Rajeev Gandhi Foundation (b) J.L. Nehru Memorial Fund
(c) National Children Fund (d) National Sports Fund
25. Mr. Sharma contributed to a political party, he can avail deduction under _______________.
(a) Section 80G (b) Section 80GGB
(c) Section 80GGC (d) Section 80GGD
26. Rate of education cess on total income is _______________.
(a) 2% (b) 3%
(c) 4% (d) 0.3%
27. The deduction for donation to National Foundation for Communal Harmony is
_______________.
(a) 50% (b) 100%
(c) 100% Qualifying Amount (d) None of the above
28. Under which section HUF is not entitled to deduction from GTI?
(a) Section 80C (b) Section 80D
(c) Section 80G (d) Section 80E
29. The provision regarding TDS is given under _______________ of income tax.
(a) Section 195 (b) Sections 192-206
30. _______________ is related to self-assessment.
(a) Section 140 (b) Section 140(A)
(c) Section 140(B) (d) Section 140(C)
260
31. _______________ deals with PAN.
(a) Section 140 (b) Section 139A
32. Surcharge on tax on firm’s total income is _______________.
(a) Applicable
(b) Not applicable
(c) Applicable if total income crosses ` 1 crore
(d) Applicable if there is capital gain
33. Interest is paid to partners under _______________.
(a) Section 40A (b) Section 40B
(c) Section 40C (d) Section 40D
34. The provision of Section 56(2)(vii) is applicable to _______________.
(a) All assessees (b) An individual and HUF
(c) Aan individual only (d) An HUF only
35. On the occasion of marriage of Mr. Rahul, he received a gift of ` 75,000 from a relative. Such
an amount shall be _______________.
(a) Taxable
(b) Non-taxable
(c) Taxable subject to standard deduction of 50%
36. In case of winning from horse races, payment exceeding _______________ are subject to tax
deduction at source.
(a) ` 2,000 (b) ` 3,000
(c) ` 5,000 (d) ` 10,000
37. Exemption under section 10(37) is available to _______________.
261
(a) An individual or an HUF (b) An individual
(c) HUF (d) None of the above
38. Generally, long-term capital gain is charged to tax @ _______________ (plus surcharge and
cess as applicable).
(a) 10% (b) 15%
(c) 20% (d) 30%
39. The exemption under section 54 shall be available _______________.
(a) To the extent of capital gain invested in the house property
(b) Proportionate to the net consideration price invested
(c) To the extent of amount actually invested
(d) None
40. For the purpose of deduction under section 80DD, which of the following statements is/are
true?
(a) Assessee is either and individual or a HUF
(b) Assessee is resident of India
(c) Assessee has a dependent disable relative
41. The maximum deduction one can clam under section 80D is _______________.
(a) ` 30,000 (b) ` 50,000
(c) ` 40,000 (d) ` 60,000
42. Amount of deduction in case of a person with severe disability under section 80U will be
_______________.
(a) ` 75,000 (b) ` 85,000
(c) ` 1,50,000 (d) ` 1,25,000
262
43. Aggregate amount of deduction under 80C, 80CCC and 80CCD cannot exceed
_______________.
(a) ` 1,10,000 (b) ` 1,20,000
(c) ` 1,30,000 (d) ` 1,50,000
44. In the case of every senior citizen resident in India, tax rebate under section 87A is
_______________.
(a) ` 5,000 (b) ` 2,000
(c) ` 1,000 (d) Nil
45. The provisions regarding TDS on Salaries are contained in _______________.
46. If the payee does not furnish PAN and TDS under section 194, dividends shall be made @
_______________.
(a) 20% (b) 15%
(c) 10% (d) Nil
47. Deduction of tax at source for insurance commission is @ _______________.
(a) 10% (b) 15%
(c) 20% (d) 12%
48. Deduction of tax at source under section 1941 is @ _______________.
(a) 10% (b) 12%
(c) 15% (d) 5%
49. As per Section 207, _______________ not having any income from business or profession is
not liable to pay advance tax.
(a) A resident individual who is of the age of below 60 years
263
(b) A resident HUF
(c) A nonresident individual
(d) A resident senior citizen
50. Exemption from payment of advance tax under section 207 is also available to a non-resident
senior citizen (i.e., an individual of the age of 60 years or above) not having any income from
business or profession.
(a) True (b) False
Reference /Text book:
1. V.K.Singhania, Latest edition
2.Girish Ahuja, latest edition
3.Tarun Bansal/Dr. Monika Tushir Bohra, latest edition
264

Income Tax Law and Practice, Code-301 - BBA (G.) & BBA (B & I) - Sem. V

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INCOME TAX LAW AND PRACTICE

III DEDUCTIONS u/s 80C to 80U 171-217

IV Deduction of Tax at Source 218-264

References and Further Readings 264

Determination of Residential Status of Individual

The Residential Status of an Individual is to be determined on the basis of period of stay

Residential status of a Company

Indian Company other than

Residential status of firms & association of persons (AOP).

Residents can be further classified into two categories

Determination of Residential Status of a taxpayer is very important at the time of filing of

Agricultural Income- Meaning

How Is Agricultural Income Taxed?

Calculating Tax on Agricultural Revenue

Q3 What is an agricultural income? Explain partly agricultural and partly non

Q4 Explain the various types of residents. Elaborate in detail how to compute

Q5 what is a company? How to determine the residential status of the

12.1 Agricultural income is exempt provided the:

(A) Land is situated in India

(B) Land is situated in any rural area in India

(C) Land is situated whether in India or outside India.

(A) 40% of the income from such business

(B) 60% of the income from such business

(B) fully taxable

agricultural income in that case shall be:

(A) 40% of the income from such business

(B) 60% of the income from such business

(C) 65% of the income from such business

in that case shall be:

(A) 60% of the income from such business

(B) 75% of the income from such business

(C) 65% of the income from such business

the agricultural income in that case shall be:

(A) 60% of the income from such business

(B) 75% of the income from such business

(C) 65% of the income from such business

(D) 40% of the income from such business

(B) 60% of such income

such agricultural produce.

purpose of computing business income of manufacturing shall be:

(A) cost of producing such agricultural produce

(B) market value of such agricultural produce as on the date of use

(C) none of these two

as his agricultural income

(C) nothing shall be treated as his agricultural income.

(B) Rs. 60,000

(C) Rs. 1,20,000

(A) all assessee

(C) individual HUF, AOP or BOI & artificial judicial person

12.12 Agricultural income is:

(A) fully exempt

(B) partially taxable

(C) fully taxable

(A) agricultural income

(B) non agricultural income

(C) both agricultural and non agricultural income

12.14 If a firm earns agricultural income, it will be exempt:

(A) in the hands of firm

(C) in the hands of firm as well its partners

partners for computation of tax on his other incomes.

company shall be:

non-agricultural income of A who is less than 65 years does not exceed:

(A) Rs. 5,000