4 Direct Tax Revision

CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA.
Jignesh Thakkar
Meaning & classification of tax: Tax is a fee charged by the Government on a product, service, income,
wealth or activity. Taxes can be classified as direct taxes and indirect taxes.
Direct taxes Indirect taxes
Meaning It is a tax where incidence as well as impact It is a tax where the incidence is on one
of tax is on one and the same person. person but the impact is on the customer.
Example (a) Income tax (a) Good & Services Tax.
(b) Securities transaction tax (b) Customs duty.
Burden Burden not felt by all persons. Burden shouldered by all persons.
Powers for levying taxes:
 Article 265 of the Constitution prohibits levy or collection of tax except by authority of law.
 Since India being is a federal state, the laws can be enacted by the Union Parliament as well as State
legislatures.
 The matters with respect to which laws can be framed by the Union Government and the State
Governments are spelt out by Article 246 of the Constitution through the Seventh Schedule. The seventh
schedule consists of three lists, namely union list, state list & concurrent list:
Sr.No. List Matters with respect to which
1 Union list (List-I) CG alone can frame laws
2 State list (List-II) SG alone can frame laws
3 Concurrent list (List-III) Both CG & SG can frame laws (like forest, education etc.)
 The authority to levy a tax is derived from the Constitution of India which allocates the power to levy
various taxes between the Centre and the State.
 Taxes in India are levied by the Central Government and the State Governments.
 Some minor taxes are also levied by the local authorities such as the Municipality or the Local Council.
 Entry 82 of the Union List referred to above empowers the Central government to make laws relating to
taxes on income other than agricultural income.
Income tax law: The Income Tax Law consists of the following components:
1) The Income tax Act, 1961: Levy of income tax is governed by this Act. This Act came into force on 1 st
April 1962. It contains 298 sections and XIV schedules. It contains provisions for determination of taxable
income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It
also lays down the powers and duties of various income-tax authorities. Income tax Act is amended
through the annual finance Act and also through the amendment Acts and ordinances.
2) Annual Finance Act: The Provisions of income tax Act are amended every year through the Finance Act.
The Finance Act consists of tax rates applicable for the assessment year, TDS rates and Advance tax rates
(applicable for the current financial year). It also lays down the manner of computation of tax on non-
agricultural income where the assessee has got agricultural income.
3) The Income tax rules, 1962: For carrying out the purposes this Act, CBDT is empowered to frame rules.
These rules are collectively called the Income tax rules. Along with the Act, these rules should also be
studied.
4) Circulars & Notification: Issued by CBDT from time to time to deal with certain specific problems and to
clarify doubts regarding the scope and meaning of the provisions. Issued for guidance of officers and
assessees. The department is bound by the circulars. Such circulars are not binding on assessees but they
can take advantage of beneficial circulars.
5) Case laws: It is not possible for parliament to conceive and provide for all possible issues that may arise in
the implementation of the Act. So judiciary will hear the disputes between the assessees and the
department and give decision on various issues. Supreme Court decisions are binding on all since it is
regarded as law of the land. High court decisions will apply in the respective states in which such High
courts have jurisdiction.
Charge of income tax: As per Section 4, the total income of the previous year of every person shall be
charged to Income Tax at the rates prescribed in the annual Finance Act as applicable to the relevant
assessment year.
Chapter 1 – Basic Concepts 1
CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA. Jignesh Thakkar
Person [Section 2(31)]: Person includes:
(i) An individual; (ii) A Hindu Undivided Family (HUF);
(iii) A Company; (iv) A Firm;
(v) An Association of Persons (AOP) or a Body of (vi) A local authority;
Individuals (BOI), whether incorporated or not;
(vii) Every artificial juridical person not falling within any of the preceding sub-clauses.
Assessment Year [Section 2(9)]: Assessment year means the period of 12 months commencing on the first
day of April every year.
Previous Year [Section 2(34) & 3]: As per Section 2(34), previous year means the previous year as defined
in Section 3. According to Section 3, previous year means the financial year immediately preceding the
assessment year.
Exception: In case of a newly set up business or profession, or a source of income which comes into
existence during the financial year, previous year for that business / profession or that source of income will be
from the date of setting up the new business or profession, or from the date the new source came into
existence, and ending on the last day of the financial year, i.e. 31st March.
What is gross total income? As per Section 14, income of a person is computed under the five heads of
income. Following is the format of computation of Gross total income & Total income:
Particulars `
I] Income from Salary [Section 15 to 17] xxx
II] Income from House property [Section 22 to 27] xxx
III] Profits and Gains from Business or Profession [Section 28 to 44DB] xxx
IV] Income from Capital gains [Section 45 to 55] xxx
V] Income from Other sources [Section 56 to 59] xxx
GROSS TOTAL INCOME xxx
Less: Deductions under chapter VIA [Section 80C to 80U] (xxx)
NET TAXABLE INCOME / TOTAL INCOME xxx
General rates of tax for A.Y. 2021-22: (As per Part III of the First Schedule to the Finance Act, 2020)
Category (I) Category (II) Category (III)
a) Individual other than those covered In the case of every individual, In the case of every
in category II & category III. being a resident in India, who is individual, being a resident in
b) Hindu undivided family. of the age of 60 years or more India, who is of the age of 80
c) Association of persons or body of at any time during the previous years or more at any time
individuals (except co-op society) year but less than 80 years. during the previous year.
d) Artificial juridical person
Income Slab Rate of tax Income Slab Rate of tax Income Slab Rate of tax
Upto 2,50,000 Nil Upto 3,00,000 Nil
Upto
> 2,50,000 & 3,00,000 & Nil
5% 5% 5,00,000
< = 5,00,000 < = 5,00,000
> 5,00,000 & > 5,00,000 & > 5,00,000 &
< = 10,00,000 20% < = 10,00,000 20% <= 20%
10,00,000
> 10,00,000 30% > 10,00,000 30% > 10,00,000 30%
(IV) In the case of every firm (including a limited (V) In the case of every co- operative society:
liability partnership) & local authority: Income slab Rate of tax
On the whole of the total 30% Upto 10,000 10%
income > 10,000 & < = 20,000 20%
> 20,000 30%
(VI) In the case of a company:
A] In the case of a Domestic company
(i) Where the total turnover or gross receipts of the previous year 2018-19 25%
does not exceed ` 400 crores.
(ii) Domestic companies other than referred to in (i) above. 30%
B] In the case of a company other than a domestic company 40%

Surcharge: In addition to the amount of income tax computed as per the above mentioned rates or as per
section 111A or section 112, every person shall be liable to pay surcharge as follows:
Assessee & their rate of surcharge
Individual, HUF, AOP / BOI Co-op Society, Domestic Other than
Total Income and Artificial Juridical Firm and Local Company domestic
Person Authority. Company
Total Income ≤ ` 50 lakhs Nil Nil Nil Nil
Total Income > ` 50 lakhs 10% of tax Nil Nil Nil
but ≤ ` 1 crore
Total Income > ` 1 crore but 15% of tax 12% of Tax 7% of tax 2% of tax
≤ ` 2 crores.
Total Income > ` 2 crores *25% of tax 12% of Tax 7% of tax 2% of tax
≤ ` 5 crores.
Total Income > ` 5 crores *37% of tax 12% of Tax 7% of tax 2% of tax
but ≤ ` 10 crores.
Total Income exceeds ` 10 *37% of tax 12% of Tax 12% of tax 5% of tax
crores
*Surcharge Rates for Individuals / HUFs / AOPs / BOIs and AJPs: will remain the same. No changes have
been made here. But the higher surcharge rate of 25% and 37% is not applicable to LTCG u/s 112A, STCG u/s
111A and incomes covered by S. 115AD(1)(b) in case of FPIs. W.e.f AY 2021-22, this benefit of capping the
Surcharge at 15% maximum is now extended to Dividends referred to in Section 196D also i.e. Dividends
received by FPIs from Domestic Companies.
Health & Education cess @ 4% shall be levied on total tax payable including surcharge, if any.
Rounding off of Total income [Sec. 288A] / Rebate for resident individuals having total
Rounding off of tax liability [Sec. 288B] income upto ` 5,00,000 [Section 87A]
1. Ignore the decimal portion in the taxable income / With a view to provide tax relief to the tax payers
tax. who are in lower income group, the Act has
2. If the taxable income / tax is not a multiple of ten and provided rebate from the tax payable by the
if the last digit in that amount is five or more, the assessee, if following conditions are satisfied:
amount shall be increased to the next higher amount a) The assessee is an Individual.
which is a multiple of ten. b) He is Resident in India.
3. If the last digit is less than five, the amount shall c) His total income does not exceed ` 5,00,000
be reduced to the next lower amount which is Quantum of Rebate: Lower of:
multiple of ten. a) 100% of tax liability (excluding education cess).
b) ` 12,500
Marginal relief: To avoid hardship in case of any Average Rate of tax:
assessee whose total income is slightly higher than Tax Liability
` 50 lakhs, a provision has been made to provide for a Average Rate of tax = x 100
Total Income
marginal relief in such cases. The said Marginal Relief
is available in case where Additional tax liability >
Additional income due to applicability of surcharge.
Optional tax regime in case of Individual (including senior & very senior citizen) / HUF (Resident / Non-
resident) [Section 115BAC]: Budget 2020 has introduced a new scheme of tax for Individuals and HUFs with
lower rates of tax if they forego certain exemptions / deductions:
Total Income Tax Rate Total Income Tax Rate
Upto ` 2,50,000 Nil ` 10,00,001 to ` 12,50,000 20%
` 2,50,001 to ` 5,00,000 5% ` 12,50,001 to ` 15,00,000 25%
` 5,00,001 to ` 7,50,000 10% Above ` 15,00,000 30%
` 7,50,001 to ` 10,00,000 15% Note: Surcharge and Cess remains unchanged.
1) Manner of exercising option for New Scheme: The new scheme is optional and the assessees will have
to opt for being covered by the new scheme in the prescribed manner:
(i) Individual / HUF not having PGBP Income needs to exercise option for every year along with the filing
of the return of income u/s 139(1) for the year.
(ii) An employee not having PGBP income can opt for the lower tax regime u/s 115BAC by intimating the
same to the employer. Employer shall deduct TDS accordingly. If intimation is not made by the
employee, then employer shall deduct TDS ignoring provisions of section 115BAC. Such intimation to
the employer does not amount to exercise of option by the employee u/s 115BAC. Employee is
required to exercise the option u/s 115BAC at the time of submitting his return of income.
(iii) If Individual / HUF have PGBP Income, then option needs to be exercised on or before the due date of
filing the return of income and such option once exercised shall apply for that previous year and to all
subsequent years. Once opted out of new scheme, re-entry is not allowed except when he ceases to
have any business income.
2) Following Exemptions / Deductions needs to be forgone if individual / HUF opts for S. 115BAC:
Standard deduction u/s 16(ia). Entertainment allowance deduction u/s 16(ii).
Profession tax u/s 16(iii). Leave Travel Concession – Section 10(5).
House Rent Allowance – Section 10(13A). Allowances to MPs / MLAS section 10(17).
Specified allowances exempt u/s 10(14) (allowances granted to employees other than transport
allowance, conveyance allowance, per-diems (daily allowance) and travel and transfer allowance as
mentioned in the Explanatory Memorandum).
Interest in respect of SOP u/s 24(b). Inter-head Set-off of IFHP loss u/s 71.
Additional depreciation - Section 32(1)(iia). Investment allowance u/s 32AD.
Tea / Coffee / rubber development a/c u/s 33AB Site Restoration Fund – section 33ABA.
Specified deduction for donations or for expenditure on scientific research – Section 35.
Deduction for specified business u/s 35AD Agricultural extension project u/s 35CCC.
Exemption for unit in SEZ - Section 10AA. Clubbed income of minor upto ` 1,500 u/s 10(32).
Standard deduction for family pension – S. 57(iia) Exemption for food & beverages voucher to
employees.
Deductions under Chapter VI-A (such as section 80C, 80D, 80TTA, 80TTB, 80G etc.) other than the
following:
a) 80CCD(2) - Employer's contribution in notified pension scheme
b) 80JJAA - Employment of new employees
c) 80LA - IFSC centre.
3) Following Exemptions can be claimed even if individual / HUF opts for S. 115BAC
Gratuity exemption u/s 10(10). Commuted pension exemption u/s 10(10A).
Leave Salary exemption u/s 10(10AA). Retrenchment compensation exemption u/s 10(10B).
VRS compensation exemption u/s 10(10C). Exemption u/s 10(10CC) pertaining to tax on non-
monetary perquisites paid by employer.
Exemption u/s 10(10D) pertaining to sum Interest and maturity amount in case of public
received under a life insurance policy. provident fund [Section 10(11)].
Interest and maturity amount in case of Exemption u/s 10(12) pertaining to interest and
Sukanya Samriddhi Account [Section 10(11A)]. withdrawal from recognized provident fund.
Exemption u/s 10(12A) / (12B) pertaining to Exemption u/s 10(13) pertaining to payment from
payment (including withdrawal) from NPS. approved superannuation fund.
4) No adjustment of B/f loss or additional depreciation (it is deemed to have been given full effect):
Brought forward loss (and / or additional depreciation) of any earlier year pertaining to any deductions /
exemptions covered in point (2) above cannot be set-off. Moreover, any loss under the head “Income from
house property” cannot be set off with any other income under any other head of income.
5) Adjustment of Opening WDV of Block of assets as on 1.4.2020: However, where unadjusted
depreciation in respect of a block of assets has not been given full effect to prior to the AY 2021-22,
corresponding adjustment shall be made to the written down value of such block as on April 1, 2020 in the
prescribed manner (if option is exercised for the lower tax regime u/s 115BAC for the AY 2021-22).
6) If Option is exercised for new scheme u/s 115BAC, then AMT provisions are not applicable.
“The only Place where success comes before work is in the dictionary.”
Residential Status of Individual
Category I Category II Category III Category IV
st
1 Exception: An Individual 2nd Exception: Citizen of India or a Person of Indian Sec. 6(1A): Citizen of India not liable to tax in Residuary category: No
who is an Indian citizen and Origin (PIO), who lives outside India, but comes to any Country / Territory outside India by reason of Changes have been made
leaves India during the India during the relevant previous year for the purpose his Residence / Domicile. here. This will now be the
relevant previous year: of visit (And) residual Category.
(i) for the purpose of
employment outside India; or
(ii) as a crew member of an
Indian ship.
2 Basic Conditions: An If his Indian income > If his Indian income ≤ 15 Indian income > Indian income ≤ 15 2 Basic Conditions: An
Individual would be Resident 15 Lakhs Lakhs 15 Lakhs Lakhs Individual would be Resident
in India, if he fulfills any one 2 Basic Conditions: An 2 Basic Conditions: An Deemed to be 2 Basic Conditions: An in India, if he fulfills any one
out of the following two Basic Individual would be Individual would be RBNOR Individual would be out of the following two Basic
Conditions: Resident in India, if he Resident in India, if he irrespective of his Resident in India, if he Conditions:
1) 182 days or more during fulfills any one out of the fulfills any one out of the number of days fulfills any one out of the 1) 182 days or more during
the relevant previous year. following two Basic following two Basic stay in India during following two Basic the relevant previous year.
(OR) Conditions: Conditions: the relevant Conditions: (OR)
2) 60 182 days or more during 1) 182 days or more 1) 182 days or more previous year [S. 1) 182 days or more during 2) 60 days or more during the
the relevant previous year during the relevant during the relevant 6(1A) & S. 6(6)(d)] the relevant previous year. relevant previous year (AND)
(AND) 365 days or more previous year. (OR) previous year. (OR) (OR) 365 days or more during 4
during 4 years immediately 2) 60 120 days or more 2) 60 182 days or more 2) 60 182 days or more years immediately preceeding
preceeding the relevant (but < 182 days) during during the relevant during the relevant the relevant previous year.
previous year. the relevant previous previous year (AND) 365 previous year (AND) 365
year (AND) 365 days or days or more during 4 days or more during 4
more during 4 years years immediately years immediately
immediately preceeding preceeding the relevant preceeding the relevant
the relevant previous previous year. previous year.
year.
= R&OR, if Resident for Deemed to be RBNOR. = R&OR, if Resident for Deemed to be = R&OR, if Resident for = R&OR, if Resident for
atleast 2 out of 10 years atleast 2 out of 10 years RBNOR. atleast 2 out of 10 years atleast 2 out of 10 years
immediately preceding the immediately preceding the immediately preceding the immediately preceding the
relevant previous year (And) relevant previous year relevant previous year relevant previous year (And)
Stay in India for ≥ 730 days (And) Stay in India for ≥ (And) Stay in India for ≥ Stay in India for ≥ 730 days
during 7 years immediately 730 days during 7 years 730 days during 7 years during 7 years immediately
preceding the relevant immediately preceding the immediately preceding the preceding the relevant
previous year. [Section 6(6)] relevant previous year. relevant previous year. previous year. [Section 6(6)]
[Section 6(6)] [Section 6(6)]
Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 5

Explanation 2 to Section 6(1): In the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India,
the period or periods of stay in India shall, in respect of an eligible voyage, shall exclude the period commencing from the date entered into the
Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the
Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.
RESIDENTIAL STATUS OF HUF, COMPANY and OTHER PERSONS
HUF - Section 6(2) Company - Section 6(3) Any other person (Firm, AOP / BOI, LA, AJP)
Section 6(4)
Control & Management is

Registered Registered Control & Management is
In India Outside India
Wholly or Wholly
Partly in India outside India
Indian Place of
Company Wholly or Wholly
Effective
Partly in India outside India
Resident Non-Resident Management
in that year
Resident Resident Non-Resident
Whether Karta fulfills conditions given u/s 6(6)?
Is in India Is outside India Very Important Note:

Yes No Resident status of company and Any other person is
NOT further divided into Resident & Ordinarily
Resident Non-Resident Resident AND Resident but Not Ordinarily Resident.
HUF = R & OR HUF = R but NOR
“Control & Management” means actual (de facto) control and not only legal (de jure) control and management. Control and management of HUF lies at the
place where the decisions regarding the affairs of business of HUF are taken. It is normally the karta who has the control and management of the affairs of HUF,
yet another coparcener can control and manage the affairs. Therefore, the mere fact of absence of karta in India does not make the family non-resident.
“Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an
entity as a whole are, in substance made.

Important points to be noted with respect to residential status of Individual:
(a) Employment also includes self – employment.
(b) It is not necessary that the stay should be for a continuous period. It is also not necessary that the stay should be only at one place.
(c) Purpose of stay in India is immaterial.
(d) Generally in computing the period of stay in India, the day the person enters India and the day he leaves India both should be treated as
stay in India.
(e) A person merely undertaking tours abroad in connection with his employment in India would not be considered as ‘leaving India for the
purpose of employment’ and thus, both the basic conditions given u/s 6(1) would be applicable to him.
(f) The term “stay in India” includes stay in the territorial waters of India (i.e. 12 nautical miles into the sea from the Indian coastline). Even
the stay in a ship or boat anchored in the territorial waters of India is treated as stay in India.
Section 5: Scope of Total Income: The provisions regarding incidence of a tax may be summarised in the following table:
Non-ordinarily Non-
Resident
Particulars of Income Resident Resident
Whether Taxable
INDIAN INCOME
1. Income received or deemed to be received in India whether earned in India or elsewhere Yes Yes Yes
2. Income which accrues or arises or is deemed to accrue or arise in India during the
Yes Yes Yes
previous year, whether received in India or elsewhere
FOREIGN INCOME
1. Income which accrues or arises outside India and received outside India from a business
Yes Yes No
controlled from India or Profession set up in India
2. Income, which accrues or arises outside India and received outside India in the previous
Yes No No
year from any other source.
Past income (whether taxed or untaxed) which accrues or arises outside India and received
No No No
outside India, remitted to India during the previous year
Foreign income pertaining to the relevant year and remitted to India in the same year would have to be classified as foreign income (1) or (2)
above and accordingly, may be included in total income or otherwise, depending upon residential status of the assessee.
Important Points:
(a) Merely because income accruing or arising outside India is included in a Balance Sheet prepared in India, it shall not be deemed to be
received in India.
(b) Once the income outstanding is included in the total income of a person on accrual basis, it shall not again be so included on receipt
basis.

SECTION 5: SCOPE OF TOTAL INCOME
Income Accrued In India * INCOME Income Accrued outside India
Income Accrued in India Income Accrued in India Income Accrued outside India Income Accrued outside India
& But But &
Received in India Received outside India Received in India Received outside India
Taxable in India for ALL, If Residential status of person

Irrespective of Residential status in India
R & OR RBNOR NR
“Taxable” See source of Income “Not

R&OR = Residential & Ordinarily Resident. Taxable”
RBNOR = Residential but Not Ordinarily Resident.
NR = Non-resident.
Business / Profession Any other heads
[IFS, IFHP, IFCG, IFOS]
* Includes income which is deemed to accrue or
arise in India. (Given u/s 9) If Control & Management is
“Not
Taxable”
In India Outside India
“Taxable” “Not Taxable”

Clarification regarding liability to income-tax in India of a non-resident seafarer receiving remuneration in NRE (Non-Resident External) account
maintained with an Indian Bank [Circular No.13/2017, dated 11.04.2017 and Circular No.17/2017, dated 26.04.2017] Income by way of salary,
received by non-resident seafarers, for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) and received into the
NRE bank account maintained with an Indian bank shall not be included in the total income.

SECTION 9: INCOME DEEMED TO ACCRUE OR ARISE IN INDIA.

SN. Sec No. Nature of income
1 9(1)(i) Income accruing or arising through or from any business connection in India.
(a) Any income which arises directly or indirectly, from a business connection in India is deemed to accrue or arise in India.
(b) ‘Business connection’ is not exhaustively defined in the Income Tax Act. Therefore, the term has to be understood as in common
parlance and in the light of various judicial decisions. Business connection means a real and intimate relationship between the
activities which are carried out in India on an on-going basis and the business carried on outside India. The activities in India
contribute to the profits earned by the business outside India. It predicates an element of continuity between business of the non-
resident and the activity in India. A stray or isolated transaction does not normally be regarded as ‘business connection’.
(c) Forms of Business connection
i) Branch office in India ii) An agent or an organization of a non-resident in India.
iii) Formation of subsidiary in India to carry on the business of non-resident parent company, etc.
(d) A non-resident is said to have business connection in India, if the person acting on behalf of the non-resident:
i) Exercises in India an authority to conclude contracts on behalf of non-resident or
ii) Maintains in India a stock of merchandise from which he regularly delivers merchandise on behalf of non-resident or
iii) Secures order in India for the non-resident.
(e) The ‘business connection’ shall not include cases where the non-resident carries on business through a broker or commission agent
of an independent status, provided such person is acting in the ordinary course of business. Agent of an independent status has
been clarified as a person who does not work mainly or wholly for one non-resident. In other words, if an agent works for more than
one non-residents (& not mainly for just one non-resident), he shall be regarded as an independent agent.
(f) Where the business operations are partly carried out in India and partly outside India, only such portion of profits of such business shall be
considered as income deemed to accrue or arise in India, which is reasonably attributed to the operations carried out in India.
(g) Explanation 3A (W.e.f AY 2021-22): It is hereby declared that the income attributable to the operations carried out in India, as
referred to in Explanation 1, shall include income from –
(i) Advertisements targeting Indian Customers / Customers accessing ads through Indian IP’s: Income from advertisement which
targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located
in India;
(ii) Sale of data collected from persons residing in India / using Indian IP’s: Income from sale of data collected from a person who resides
in India or from a person who uses internet protocol address located in India; and

(iii) Sale of Goods / Services using data collected from persons residing in India / using Indian IP’s: Income from sale of goods or
services using data collected from a person who resides in India or from a person who uses internet protocol address located in
India.”
Exceptions to Business Connection: Following shall not be considered as business connection in India:
(a) Where all operations are not carried out in India, such part of income which cannot be reasonably attributed to the operations in
India, is not deemed to accrue or arise in India. [Explanation 1(a) to section 9(1)(i)].
(b) Purchase of goods in India for the purpose of export. [Explanation 1(b) to section 9(1)(i)].
(c) Collection of news & views in India for transmission outside India. [Explanation 1(c) to section 9(1)(i)]
(d) Shooting of cinematograph films in India. [Explanation 1(d) to section 9(1)(i)]
(e) Display of uncut and unassorted diamonds in a notified special zone notified by the Central Government.
2 9(1)(i) Income from any property, asset or source of income in India is deemed to accrue or arise in India.
3 9(1)(i) Income from transfer of capital asset situated in India is deemed to accrue or arise in India.
Important points:
a) Explanation 4 to section 9(1)(i) clarifies that the expression “through” shall mean and include “by means of”, “In consequence of”, “by
reason of”.
b) Explanation 5 to section 9(1)(i): Any share or interest in a company or entity registered or incorporated outside India shall be deemed
to be situated in India, if the shares or interest derives, directly or indirectly, its value substantially from the assets located in India.
4 9(1)(ii) Income from salary shall be regarded as income earned in India, if it is payable for:
(a) Services rendered in India.
(b) Rest period or leave period, which is preceded and succeeded by services rendered in India and forms part of contract of
employment.
5 9(1)(iii) Salary payable by the government of India to a Citizen of India for rendering services outside India is deemed to accrue or arise in India.
However, allowances and perquisite provided to such employee outside India are exempt from tax u/s 10(7).
6 9(1)(iv) Dividend paid by the India company outside India is deemed to accrue or arise in India.
W.e.f AY 2021-22, Domestic Companies are not required to pay Dividend distribution tax and shareholders will not get any exemption for
dividend income. Dividend will be taxable in the hands of shareholders.
7 9(1)(v) Interest income will be deemed to accrue or arise in India as follows:
Whether income is deemed to
From whom income is received Payer’s source of income
accrue or arise in India
Government of India Any Yes

Borrowed capital is used by the payer for any purpose in
A person resident in India Yes
India.
Borrowed capital is used by the payer for carrying on
A person resident in India business / profession outside India or earning any No
income outside India.
Borrowed capital is used by the payer for carrying on
A person non-resident in India Yes
business / profession in India
Borrowed capital is used by the payer for any other
A person non-resident in India No
purpose outside India.
8 9(1)(vi) / Royalty paid outside India – Section 9(1)(vi) / Fees for technical services paid outside India – Section 9(1)(vii)
& 9(1)(vii) Whether income is deemed to
From whom income is received Payer’s source of income
9 accrue or arise in India
Government of India Any Yes
Payment is relatable to any other source of income in
A person resident in India Yes
India.
Payment is relatable to a business / profession or any
A person resident in India No
other source carried on by the payer outside India
Payment is relatable to a business or profession or any
A person non-resident in India Yes
other source carried on by the payer in India
A person non-resident in India Payment is relatable to any other source of income. No
10 9(1)(viii) Money / Property situated in India transferred on or after 5.7.2019 by resident of India to any person outside India.
“THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT”

PRACTICAL PROBLEMS FOR SELF STUDY
Q 1. Mr. Rajan, a citizen of India, left India on 6.6.2017 for employment abroad. Prior to this date, he was always in India. During 2018-2019 and 2019-
2020, he visited India for 145 days and 165 days respectively. In the previous year 2020-2021, he came to India on 7.4.2020 and left on
30.11.2020. Determine his residential status for the assessment year 2021-2022.
Q 2. Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in carriage of passengers in international
traffic departing from Chennai port on 6th June, 2020. From the following details for the P.Y 2020-21, determine the residential status of Mr. Anand
for A.Y.2021-22, assuming that his stay in India in the last 4 previous years (preceding P.Y 2020-21) is 400 days and last seven previous years
(preceding P.Y.2020-21) is 750 days:
Particulars Date
th
Date entered into the Continuous Discharge Certificate in respect of joining the ship by Mr. Anand 6 June, 2020
Date entered into the Continuous Discharge Certificate in respect of signing off the ship by Mr. Anand 9th December, 2020
Q 3. From the following particulars of income furnished by Mr. Anirudh pertaining to the year ended 31.3.2021, compute the total income for the assessment
year 2021-22, if he is: (i) Resident and ordinary resident; (ii) Resident but not ordinarily resident; (iii) Non-resident
Particulars `
(a) Profit on sale of shares in Indian Company received in Germany 15,000
(b) Dividend from a Japanese Company received in Japan 10,000
(c) Rent from property in London deposited in a bank in London, later on
75,000
remitted to India through approved banking channels
(d) Dividend from RP Ltd., an Indian Company 6,000
(e) Agricultural income from lands in Gujarat 25,000
SOLUTIONS
Ans 1.
Mr. Rajan, who is a citizen of India had left India for the purpose of employment on 6.06.2017. During the previous year 2020-
21; he has come to India on a visit.  He will be covered by the explanation to section 6(1).  Only the First Basic Condition is
applicable to him for the previous year 2020–21.
Computation of Number of days stays in India during the PY 2020 –21:
From 7th April 2020 to 30th November 2020 = 24 + 31 + 30 + 31 + 31 + 30 + 31 + 30 = 238 days.
He has fulfilled the first basic condition therefore he will be considered a Resident.
A Resident individual is said to be ordinarily resident in India if he fulfills both the additional conditions given in
Section 6(6)
(1) He has been resident in India in at least 2 years out of 10 years immediately preceding the relevant previous year, And
(2) He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
Mr. Rajan left India on 6.6.2017 for employment abroad. Prior to this date, he was always in India. Therefore Mr. Rajan fulfills
both the additional conditions given u/s 6(6) and he will be resident and ordinarily resident in India for the P.Y. 2020-21.
Ans 2. In this case, the voyage is undertaken by an Indian ship engaged in the carriage of passengers in international traffic,
originating from a port in India (i.e., the Chennai port) and having its destination at a port outside India (i.e., the Singapore port).
Hence, the voyage is an eligible voyage for the purposes of section 6(1). Therefore, the period beginning from 6th June, 2020 and
ending on 9th December, 2020, being the dates entered into the Continuous Discharge Certificate in respect of joining the ship and
signing off from the ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be excluded for computing
the period of his stay in India. Accordingly, 187 days [25 + 31 + 31 + 30 + 31 + 30 + 9] have to be excluded while computing period
of his stay in India.
Consequently, Mr. Anand’s period of stay in India during the PY 2020-21 would be 178 days [i.e., 365 days – 187 days]. Since his
period of stay in India during the PY 2020-21 is less than 182 days, he is a non-resident for AY 2021-22.
Note: Since the residential status of Mr. Anand is “Non-resident” for AY 2021-22 consequent to his number of days of stay in PY 2020-
21 being less than 182 days, his period of stay in the earlier previous years become irrelevant.
Ans 3. Computation of total income of Mr. Anirudh for the AY 2021-22
Particulars R & OR RBNOR NR
a) Profit on sale of shares in Indian Company received in Germany 15,000 15,000 15,000
b) Dividend from a Japanese company received in Japan 10,000 - -
c) Rent from property in London deposited in a bank in London 52,500 - -
d) Dividend from RP Ltd, an Indian Company. 6,000 6,000 6,000
e) Agricultural income from land in Gujarat [Exempt u/s 10(1)] - - -
TOTAL INCOME 83,500 21,000 21,000
Note: Since, Rent is received in London from a Property situated in London & deposited in a bank in London, the Income has neither
accrued / deemed to accrue in India nor it has been received / deemed to be received in India. It is a Foreign Income and hence
taxable only to Resident and Ordinarily Resident.
It has been assumed that the rental income is the gross annual value of the property. Therefore, deduction @ 30% u/s 24, has been
provided and the net income so computed is taken into account for determining the total income of a resident and ordinarily resident.
Rent received (assumed as gross annual value) 75,000
Less: Deduction under section 24 (a) (30% of ` 75,000) 22,500
Income from house property 52,500
Section 15 : If there is an employer-employee relationship between the payer (Service recipient) and the payee
(Service provider), then income received by payee is taxable under the head “Income from Salaries”. Salary is
chargeable to tax either on due basis or on receipt basis whichever is earlier.
Particulars Contract of Service Contract for Service
Relationship between In case of contract of service In case of contract for service Principal – Agent
payer and payee. employer – employee (Master – relationship exists between the payer and payee.
Servant) relationship exists
between the payer and payee.
Thumb rule for A master can tell his servant what Principal cannot tell his agent how to carry out his
determining the to do and how to do. Control and instructions which is left to the discretion of the
relationship. supervision vest with the master agent. He has discretion to do the work in his own
and the servant is bound to follow way. He is answerable only for the work to be
the master’s instruction. carried out which must be in accordance with the
terms of contract entered into with the person
awarding the contract. The day to day control is
normally absent in the case of contract for service.
Under which head income Income from salaries. a) Profits & Gains of business or profession.
is taxable in the hands of OR
service provider. b) Income from Other sources.
FORMAT FOR COMPUTATION OF INCOME FROM SALARIES
Particulars `
a) Basic Salary Xxx
b) Allowances Xxx
c) Perquisites Xxx
d) Profits – in – lieu of salary Xxx
Gross salary Xxx
Less: Deduction u/s 16:
1) Standard Deduction u/s 16(i) (xxx)
2) Entertainment Allowance u/s 16(ii) (xxx)
3) Profession tax u/s 16(iii) (xxx)
INCOME FROM SALARIES Xxx
Important terminologies:
Advance Salary Vs Advance against salary: Foregoing of Salary Vs Surrender of salary:
Advance Salary – Taxable in the year of receipt. Foregoing of salary means voluntary sacrifice of the salary
Advance against Salary – Loan from employer – income by the employee – Taxable.
Not taxable. Surrender of salary means surrender of salary by an employee
u/s 2 of the Voluntary Surrender of Salaries (Exemption from
Taxation Act) to the Central Government – Not taxable.
Gross basic salary Vs Net basic salary Vs Grade pay:
Gross basic salary – Taxable.
Net basic salary – It is salary after certain compulsory deductions. Various deductions shall be added back to the
Net Salary and the gross amount shall be chargeable to tax.
Grade pay is incremental amount of basic salary – Taxable.
Deductions from Salary [Section 16]
Standard Deduction: [Section 16(ia)] Gross Salary or ` 50,000 whichever is lower.
Entertainment allowance [Section 16(ii)] Profession Tax: [Section 16 (iii)]
Step 1: Add entertainment allowance to salary income. Profession tax is a tax on
Step 2: Thereafter, Central Government & State government employee can employment. Professional tax is
claim deduction u/s 16(ii) from gross salary as follows: levied by the State Government
Deduction is : lower of following: (under Article = 276 of the
i) Actual amount received. Constitution). This is allowed as
ii) Maximum Deduction ` 5,000 p.a. deduction from the gross salary on
iii) 20% of basic salary; or “payment basis”.
Chapter 3 – Income from Salaries [Summary Notes] 14

ALLOWANCES
Fully taxable Partly Taxable & Partly Exempt Allowance Fully exempt
allowance allowance
Few examples of fully a) Daily / constituency

Category A Category B Category C allowance received by
taxable allowance are: Official purpose Personal purpose
a) Dearness MP / MLA u/s 10 (17)
allowance. b) Allowance received
b) Entertainment Exemption is certain % of amount by judges of High
allowance. Exemption: lower of: Exemption: lower of: received court / Supreme
c) City compensatory i) Amount received i) Amount received a) Allowance received by Court.
allowance. ii) Amount spent ii) Amount specified employees working in c) Allowance received
d) Medical allowance Transport organisation. by government
Examples Examples employee rendering
e) Lunch / Tiffin / Exemption: Lower of:
a) Uniform allowance a) Children education services outside India
Refreshment i) Amount received x 70%
b) Travelling allowance allowance (` 100 p.m. u/s 10(7)
allowance ii) ` 10,000 p.m.
c) Daily allowance p.c, max. 2 children)
f) Overtime allowance
d) Helper allowance b) Hostel expense b) House Rent Allowance
g) Servant allowance
e) Academic / research allowance (` 300 p.m. Exemption u/s 10(13A): Lower of :
h) Warden allowance
allowance p.c, max. 2 children) i) Rent paid minus 10% of salary
i) Non - practicing
f) Conveyance c) Transport allowance
allowance. ii) Metro - 50% of salary
allowance (` 3,200 p.m. only in
j) Telephone Non metro - 40% of salary
allowance. case of handicapped
employee - For iii) Actual amount received
k) Any other
travelling from Salary = Basic salary + Dearness
allowance which is
residence to office and allowance (recognised) + Turnover
not exempt. commission.
back)
Dearness allowance (Recognised) – Forming part of salary for computation of retirement benefits. (Also called as DA in terms)
Dearness allowance (Ordinary) – Not Forming part of salary for computation of retirement benefits. (Also called as DA not in terms)
Important Note : When the question is silent as to whether dearness allowance forms part of salary or not for computing retirement benefits.
It should be assumed that Dearness allowance is not forming part of salary for computing retirement benefits.

TREATMENT OF PROVIDENT FUND / APPROVED SUPER ANNUATION FUND:

Particulars Statutory Provident Recognized Provident Unrecognised Provident Public Approved Super Annuation
Fund Fund Fund Provident Fund Fund
Meaning This fund is set-up This fund is set-up under This fund is a scheme This is a scheme which It means a superannuation
under the Provident Employee’s provident funds started by employer & is covered under Public fund which has been and
Fund Act, 1925 for the & Miscellaneous provisions employees in an Provident Fund Act, continues to be approved by
benefit of Government Act, 1952 for the benefit of establishment but it is not 1968. Any member of the Commissioner in
& Semi-government Non-government employees. approved by commissioner Public, whether in accordance with rules
employees. This fund is also registered of income tax under employment or not, may contained in Part B of the
under Income tax Act, 1961. Income tax Act, 1961. contribute to this fund. Fourth Schedule.
Tax treatment of various components in Income tax.
Employees Available Available Not Available Available Available
contribution
(Deduction u/s 80C)
Employer’s Exempt. Exempt upto 12% of Salary Taxable on retirement. Employer does not Exempt upto ` 7,50,000/-.
Contribution (Excess is Taxable) contribute. [Excess is taxable u/s
(Note 1) 17(2)(vii)] W.e.f A.Y 2021-22
Interest Credited to Exempt. Exempt upto 9.5% p.a Taxable on retirement. Exempt. Exempt.
the Fund (Excess is Taxable)
Lumpsum payment Exempt. Exempt. Lumpsum payment is taxable Exempt. Exempt.
on retirement / U/s 10 (11) U/s 10 (12) U/s 17 (3) U/s 10 (11) U/s 10 (13)
Resignation. (Note 2) (Note 3)
Notes:
1) Salary = Basic + D.A. (Recognised) + Turnover Commission.
2) Amount withdrawn from recognised Provident Fund at the time of retirement is exempt from tax subject to following conditions:
a) Employee should have rendered services for a continuous period of 5 years or more.
b) If accumulated balance includes any amount transferred from RPF maintained by former employer(s), then, in computing period of 5 years, the period(s) for
which service is rendered to former employer(s) should also to be included.
c) If the employee is not able to fulfill the conditions of such continuous service due to his service having been terminated by reason of his ill-health or by reason of
the contraction or discontinuance of the employer's business or due to some other reason beyond the control of the employee.
d) If the accumulated balance becomes taxable due to non-fulfillment of the aforesaid conditions, then the total income of the employee will be computed by the
concerned Assessing Officer, as if the fund was not recognised from the beginning.
3) Amount withdrawn from unrecognised provident fund is taxable as follows:
Employees Contribution Exempt from tax
Employers Contribution Taxable under the head “Income from salaries”
Interest on Employees Contribution Taxable under the head “Income from other sources”
Interest on Employers Contribution Taxable under the head “Income from salaries”

Exemption in respect of Gratuity [Section 10(10)]

Gratuity received while in service is totally taxable for government as well as Non-government employees.
Gratuity received at the time of retirement / Death / Resignation: Exemption is as shown below:
Exemption in
Exemption in case of employee covered Exemption in case of employee not covered
case of Govt.
by Payment of Gratuity Act, 1972 by Payment of Gratuity Act, 1972
Employees
Totally exempt Exemption u/s 10 (10): lower of: Exemption u/s 10 (10): lower of:
from tax. 1. Actual amount received. 1. Actual amount received.
2. Maximum Limit - ` 20,00,000 2. Maximum Limit - ` 20,00,000
Last drawn 15 Period of Average 1 Period of
3. x x 3. x x
salary 26 service salary 2 service
Entire amount is Manner of calculation: Manner of calculation:
exempt from tax. a) Last Drawn = Salary for the month a) Average = Average salary for last 10
immediately preceding the month of months immediately preceding the month
retirement. of retirement (excluding retirement month).
b) Salary = Basic + D.A. (Recognised) + b) Salary = Basic + D.A. (Recognised) +
D.A. (Ordinary). Turnover Commission.
c) Any part of a year more than 6 months c) Any part of a year more than, less than or
shall be taken as one year. equal to 6 months shall be totally ignored.
Exemption in respect of Commuted Pension [Section 10(10A)]
Uncommuted (monthly) pension is taxable in the hands of Government as well as non-Government employees.
Commuted (Lumpsum) Pension is exempt u/s 10(10A) as shown below:
Exemption in
Non - Government employees who had Non - Government employees who had not
case of Govt.
received gratuity on retirement. received gratuity on retirement.
Employees
Totally
exempt from Exemption = Commuted Pension received x 1 Exemption = Commuted Pension received x 1
% of pension Commuted 3 % of pension Commuted 2
tax.
Exemption in respect of Leave salary [Section 10(10AA)]
Leave salary received while in service is totally taxable for government as well as Non-government
employees.
Leave salary received at the time of retirement / Death / Resignation: Exemption is as shown below:
Exemption in case of
Exemption in case of Non-Government Employees
Govt. Employees
Totally exempt from Exemption is lower of:
tax. 1. Actual amount received
2. Maximum Limit - ` 3,00,000 (During lifetime of assessee)
3. Average Salary x 10 Months
4. Period of earned leave (in no. of months) to the credit of the employee at the time of
his retirement, calculated as below:
 Lower of : 
 (a) Leave as per service 
 
Average
 rule for each completed year
(c) Leave taken

x  and ( ) 
Salary  (b) Leave as per Income tax while in service 
 
 rule for each completed year 
 (1 year = 1month) 
 
Not applicable Manner of calculation:
a) Average = Average salary for last 10 months immediately preceding the date of
retirement (including retirement month).
b) Salary = Basic + D.A. (Recognised) + Turnover Commission.
c) Any part of a year more than, less than or equal to 6 months shall be totally ignored.

RETRENCHMENT COMPENSATION [Section 10(10B)]
Meaning of Retrenchment compensation: It means compensation received by a workman at the time of his
retrenchment or closing down of an undertaking or transfer of ownership or management of the undertaking shall be
deemed to be retrenchment compensation. Amount of exemption will be lower of following:
(a) The actual amount received;
(b) ` 5,00,000;
(c) Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947:
15
Average salary   period of service
26
Important points:
Particulars Retrenchment compensation
How to take Average Average = Average salary for last 3 months.
Components to be excluded in Bonus, Employers contribution to provident / pension fund (And)
salary for calculation of exemption. Gratuity payable on retirement.
How to calculate period of service Any part of a year more than 6 months shall be taken as one year
COMPENSATION ON VOLUNTARY RETIREMENT [Section 10(10C)] Exemption is lower of following :
(1) Actual compensation received.
(2) ` 5,00,000 (or)
(3) Higher of
(a) Last drawn salary x 3 months x completed years of service (or)
(b) Last drawn salary x remaining months of service
Salary = Basic salary + D.A. (Recognised) + Turnover Commission for the latest month.
If the question does not provide particulars for calculating the limit indicated in (3) above, the least of (1) & (2) can be
taken by assuming that the amount received is in accordance with the scheme as per rules. Similarly, where the
problem clearly indicates that the compensation is paid in accordance with the approved scheme as per rule, the
exemption can be allowed for the amount received subject to the limit of ` 5,00,000.
Note 1: Exemption can be claimed under this section only once in a lifetime.
Note 2: Assessee can either claim exemption or relief but not both.
17(2) PERQUISITES
17(2)(i) Rent free Accommodation.
17(2)(ii) Concessional Accommodation.
17(2)(iii) Perquisites provided to specified employee.
17(2)(iv) Obligation of employee paid by employer.
Perquisites covered u/s 17(2)(iii) & 17(2)(iv):
a) Gas, electricity & water supply for household consumption.
b) Education Facility. c) Domestic servant facility.
d) Transport Facility. e) Medical Facility.
f) Leave Travel Concession. g) Motor Car Facility.
17(2)(v) Life Insurance premium / Contribution to Deferred Annuity schemes.
17(2)(vi) Specified security or sweat equity shares allotted.
17(2)(vii) Approved super-annuation fund / Recognised provident fund / National pension scheme
referred to in Section 80CCD (Employer’s contribution in excess of ` 7,50,000 lakh).
17(2)(viia) Annual accretion by way of interest / dividend / any other amount during the previous year to
the balance at the credit of the fund / scheme referred to in S. 17(2)(vii), to the extent it relates
to the employer's taxable contribution.
17(2)(viii) Fringe benefit or amenity as may be prescribed:
R. 3 (7) (i) Interest free or concessional loan to employees
R. 3 (7) (ii) Traveling, accommodation, touring, and other expenses.
R. 3 (7) (iii) Free or concessional Meal & Refreshment.
R. 3 (7) (iv) Gift or voucher or token.
R. 3 (7) (v) Credit card facility.
R. 3 (7) (vi) Club facility.
R. 3 (7) (vii) Use of any moveable asset owned / hired by the employer
R. 3 (7) (viii) Transfer / Sale by employer of any moveable asset owned by him.
R. 3 (7) (ix) Any other benefit or amenity, service, right, privilege provided by the employer.

Taxable RENT – FREE ACCOMODATION (SECTION 17(2) (i) Exempt
1. Rent free official residence

Unfurnished Furnished Hotel provided to union minister, leader
Accommodation Accommodation Accommodation of opposition in parliament),
officials of parliament.
2. Rent free official residence
Taxable Value of provided to judges of High Court
Government Non-Govt. Unfurnished Furniture perquisite: lower of: and Supreme Court.
Employee Employee Accommodation 1. 24% of Salary 3. Accommodation provided at mining
Site, onshore oil exploration site,
AND
project execution site, dam site,
2. Actual hire charges Power Generation site, remote
TVOP = TVOP = As already paid / payable. area.
Licence Fees Owned Leased discussed. 4. If two accommodations are
provided on transfer of employee:
Population Taxable Value of Taxable Value of a. Upto 90 days: Any one
perquisite perquisite: lower accommodation is taxable
P > 25L 15% of salary of: Owned Leased (having lower perquisite value)
1. 15% of Salary b. After 90 days: Both
P > 10L
AND accommodation are taxable
but 10% of salary Taxable Value of
2. Actual rent Taxable Value of 5. If on transfer of employee Hotel
P < 25L perquisite = perquisite = Actual hire
paid / payable. accommodation is provided
P < 10L 7.5% of salary 10% of actual cost charges paid / payable a. Upto 15 days (in agreegate) :
It is not taxable
Salary excludes:  Salary is calculated on due basis
1. Dearness Allowance (ordinary)  If there is change in any component of salary, b. After 15 days (in agreegate) :
2. Employer contribution to Provident Fund columnar calculation should be done. It is taxable
3. Allowances which are exempted  If employee is working with 2 employers
4. Perquisites simultaneously then salary from both employers
5. Lumpsum receipts like Gratuity, commuted pension, Leave should be considered for valuation of accommodation.
salary, VRS compensation, etc.

Section 17(2)(ii): Value of any concession in the matter of rent in respect of any accommodation provided to
employee by his employer:
Case I :
>
IF Value determined Amount recovered
as per Rule 3(1) from employee.
There is a concession.
Taxable Value = Value determined - Amount recovered
of Perquisite as per Rule 3(1) from employee.
Case II :
≤
IF Value determined Amount recovered
as per Rule 3(1) from employee.
There is a NO concession. Taxable Value of Perquisite = Nil
Section 17(2)(iv): Valuation of monetary obligation of the employee discharged by the employer: Wherever any
monetary obligation of the employee is discharged by the employer, which otherwise would have been payable by the
employee, it is considered as a perquisite and is taxable in the hands of all employees. The value of these perquisites
is the actual expenditure incurred by the employer in this regard.
Few examples of monetary obligation of employee paid by employer are as follows:
a) Salary of Domestic servant engaged by employee paid by employer.
b) Gas, electricity and water supply charges paid in respect of connections in the name of employee.
c) Children education expenses paid or reimbursed.
d) Medical expenses reimbursed in excess of ` 15,000;
e) Income - tax or professional tax paid by employer;
Section 17(2)(v): any sum payable by the employer to effect an assurance on the life of the employee or to effect a
contract for an annuity
Section 17(2)(vi): the value of any specified security or sweat equity shares allotted or transferred, directly or
indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
Taxable value of
 
Number of  Fair Market Value of shares   Amount recovered 
x  
Perquisite Shares Allotted  on the date of application from employee 
Note: Perquisite is taxable in the year of allotment of shares.
Section 17(2)(vii): Aggregate Amount of any contribution, exceeding ` 7,50,000 by the employer to the account of an
employee under Approved superannuation fund, Recognised provident fund & National pension scheme referred to in
Section 80CCD. [W.e.f AY 2021-22]
Section 17(2)(viia): Annual accretion by way of interest / dividend / any other amount during the previous year to the
balance at the credit of the fund / scheme referred to in S. 17(2)(vii), to the extent it relates to the employer's taxable
contribution. [W.e.f AY 2021-22]
Section 17(2) (viii) Value of Fringe benefit / amenity as may be prescribed
Rule Nature of perquisite Taxable Value of Perquisite
3(7)(i) Interest free Loan / Concessional (i) Interest charged by employer is equal to or
Loan higher than SBI rates : It is not a taxable
perquisite.
SBI Rate = SBI Rate prevailing on the (ii) Interest charged by employer is lower than SBI
First Day of the Previous Year rates :
Interest at SBI rates on maximum outstanding
Balance at the end of the month
Less : Interest paid by the employee on that loan.
Exceptions :
(a) Medical Loan for treatment of diseases specified in
Rule 3A except Loan reimbursed by Medical
Insurance.
(b) Loan not exceeding ` 20,000 in aggregate.

3(7)(ii) Travelling, Accommodation, Touring and Amount incurred by Employer or Value at which such
Other Expenses met by the Employer. services are offered to general public.
(To be calculated only for the period of Less : Amount recovered from Employee.
vacation)
3(7)(iii) Free Meals during office hours Actual Cost to the Employer (in excess of ` 50 per
Note: Free Meal in remote area or meal)
offshore installation area is not a Less : Amount recovered from the Employee.
taxable perquisite. Note : Tea or non-alcoholic beverages / snacks during
working hours are not taxable.
3(7)(iv) Value of any gift or voucher or token other i) Gift in cash is fully taxable.
than gifts made in cash or convertible into ii) Gift in Kind: In case the aggregate value of gift
money (e.g. Gift cheques) on during the previous year is < ` 5,000, then it is not a
Ceremonies. taxable perquisite.
iii) Gift in Kind: In case the aggregate value of gift
during the previous year exceeds ` 5,000, then
there are 2 opinions.
Opinion 1: Entire amount is taxable.
Opinion 2: Value in excess of ` 5,000 is taxable.
3(7)(v) Expenditure incurred on credit card or Actual expenditure incurred by Employer Less Amount
add on card including membership fee recovered from Employee.
and annual fee. Note: If it is incurred for official purpose and supported
by necessary documents then it is not taxable.
3(7)(vi) Expenditure on Club other than Health Actual Expenditure incurred by the Employer Less
Club or Sports Club or similar facilities Amount recovered from Employee.
provided uniformly to all Employees. Note : If the expenditure is incurred exclusively for
official purposes and supported by necessary
documents then it is not taxable.
Note : Initial Fee of Corporate Membership of a Club is
not a taxable perquisite.
3(7)(vii) Use of any movable asset other than 10% of Actual Cost if owned by the Employer, or
computer or laptops or other assets Actual Rental Charges Paid / Payable by Employer
already mentioned Less : Amount recovered from Employee
3(7)(viii) Transfer of movable asset to employees:
Computers & Electronic Items Motor Car Other Assets
Particulars ` Particulars ` Particulars `
Actual Cost xxx Actual Cost xxx Actual Cost xxx
Less : Depreciation @ Less : Depreciation @ Less : Depreciation @
50% for each 20% for each 10% for each
completed year as per completed year under completed year under
WDV method. xxx WDV method. xxx SLM Method. xxx
Value of the Asset xxx Value of the Asset xxx Value of the Asset xxx
Less : Amount Less : Amount Less : Amount
recovered from the recovered from the recovered from the
employee xxx employee xxx employee xxx
Taxable Value of Taxable Value of Taxable Value of
perquisite xxx perquisite xxx perquisite xxx
Completed year means actual completed year from the date of acquisition of asset to the date of
transfer of such asset to Employees.
Note: Electronic gadgets include Computer, Digital Diaries and Printers, but exclude washing
machines, Microwave ovens, Mixers, Hot plates, Ovens etc.
Note: Transfer of other assets after using for 10 years – taxable value = Nil.
3(7)(ix) Any other benefit or amenities or service or right or privilege provided by the employer
other than telephone or mobile phone
Taxable value of perquisite = Cost to the employer Less : Amount recovered from employee

Perquisites covered by Section 17(2)(iii) & Section 17(2)(iv)
Rule Nature of Perquisite Taxable value of perquisite
3(3) Domestic servant facility i) Servant appointed by employee – covered u/s 17(2)(iv)
(Service of Sweeper, Gardener or Obligation of employee paid by employer – taxable for
Watchman or Personal Attendant) specified as well as non-specified employee.
ii)Servant appointed by employer – covered u/s 17(2)(iii) –
taxable only for specified employees.
Taxable value = Actual Cost to the Employer Less Amount
recovered from Employee.
3(4) Supply of Gas, Electricity or Water i) Connections in the name of employee – covered u/s
for household consumption 17(2)(iv) Obligation of employee paid by employer – taxable
for specified as well as non-specified employee.
ii)Connections in the name of employer – covered u/s
17(2)(iii) – taxable only for specified employees.
Procured from outside Agency : Amount paid to outside
agency Less Amount recovered from Employee.
Resources owned by employer himself : Manufacturing cost
per unit Less Amount recovered from Employee.
3(5) Education facilities to members of i) Free Education to employees children in the school
his household maintained by the Employer or the school sponsored by the
Note: Education / training facility to Employer :
employees is not taxable. a) If the cost of education per child does not exceed ` 1,000
Note: School fees of employees p.m. - Not taxable.
children paid / reimbursed by b) If the cost of education per child exceeds ` 1,000 p.m. –
employer - Taxable u / s 17(2) (iv) in Taxable value = Cost of education in a similar institute
case of all employees i.e. specified Less Amount recovered from Employee.
as well as non-specified employees. ii) Other Cases – Taxable value = Cost of education in a similar
institute Less Amount recovered from Employee.
3(6) Transportation of goods or Taxable value = Value at which such services are offered to
passengers at free or concessional general public Less Amount recovered from the employee.
rate provided by the employer
engaged in that business (other than
Railways / Airlines)
Medical facility and its taxability:
1) Medical treatment in any hospital maintained by employer – Not taxable.
2) Medical treatment in any hospital maintained by Government / Local authority / approved by government for
medical treatment of its employees – Not taxable.
3) Medical treatment in any hospital approved by Chief commissioner of Income tax for treatment of specified
disease – Not taxable.
4) Health insurance premium paid or reimbursed by employer for employee and his family members.
5) Medical treatment in a hospital situated outside India: Following are the nature of expense and its taxability:
a) Medical treatment cost: Exempt upto amount approved by RBI. Excess is taxable.
b) Travel cost: It is exempt if GTI < 2,00,000. However it will be taxable if GTI > 2,00,000.
c) Stay cost: Stay cost of patient + 1 attendant is exempt upto amount approved by RBI. Excess is taxable.
6) Payment of annual premium by employer on personal accident policy effected by him on his employee is not
taxable.
7) Re-imbursement of medical expenses is fully taxable.
Leave Travel Concession – Section 10(5): Value of travel concession or assistance received by an individual
from his employer or former employer for himself and his family in connection with his proceeding: (a) on leave
to any place in India; (b) to any place in India after retirement from service or after the termination of his service
shall be exempt. Lower of Amount spent and amount specified is exempt from tax. Amount specified is
calculated as follows:
1) If the journey is performed by Air: Economy class fare of National carrier by shortest possible route.
2) If the journey is performed by any other mode of transportation but Place of origin and destination are
connected by Rail: First class AC fare by shortest possible route.
3) If the journey is performed by any other mode of transportation & Place of origin and destination are not
connected by Rail but recognised public transport exists: Deluxe fare by shortest possible route.
4) If the journey is performed by any other mode of transportation, Place of origin and destination are not
connected by Rail & recognised public transport do not exists: First class AC rail fare by shortest possible
route (as if the journey is performed by rail.

Taxability of Motor Car Benefits [Rule 3(2)(A)]
When car is owned by employee, it is covered by Section 17(2)(iv) – It is taxable in case of all employees.
When car is owned by employer, it is covered by Section 17(2)(iii) – It is taxable only in case of specified
employee.
Expenses
Owner of Car Purpose Taxable Value of Perquisite
incurred by
1(a) Employer Employer Fully Official Not a perquisite provided the documents specified in
Rule 3(2)(B) are maintained.
1(b) Employer Employer Fully personal use Aggregate of –
(a) Running and maintenance expenditure on car
(b) Drivers salary
(c) If the car is owned - 10% of the cost of car and If
the car is taken on lease – Actual Hire charges.
Less : Amount charged from employee.
1(c) Employer Employer Partly for official and i) Cubic Capacity of Car Engine upto 1.6 Litres `
partly for personal 1,800 p.m. + ` 900 p.m. for Drivers salary.
use ii) Cubic Capacity of Car Engine above 1.6 Litres `
2,400 p.m. + ` 900 p.m. for Drivers salary.
2(a) Employer Employee Fully Official Not a perquisite provided the documents specified in
Rule 3(2)(B) are maintained.
2(b) Employer Employee Fully personal use Aggregate of –
(a) Drivers salary
(b) If the car is owned - 10% of the cost of car and If
the car is taken on lease – Actual Hire charges.
2(c) Employer Employee Partly for official and i) Cubic Capacity of Car Engine upto 1.6 Litres `
partly for personal 600 p.m. + ` 900 p.m. for Drivers salary.
use ii) Cubic Capacity of Car Engine above 1.6 Litres `
900 p.m. + ` 900 p.m. for Drivers salary.
3(a) Employee Employer Fully official use Not a perquisite provided documents as per Rule
3(2)(B) are maintained.
3(b) Employee Employer Fully personal use Aggregate of –
(a) Running and maintenance expenditure on car
(b) Drivers salary
3(c) Employee Employer Partly for official use Option 1 : If log book is maintained :
and partly for a) Extent of official use: Not taxable.
personal use b) Extent of personal use: Proportionate Running
and maintenance expenditure on car +
Proportionate Drivers salary Less Amount
recovered from employee.
Option 2 : If log book is not maintained :
Running and maintenance expenditure on car
Add : Drivers salary (actual amount paid)
Less : Upto 1.6 cc – 1,800 per month.
Above 1.6 cc – 2,400 per month.
Less : Drivers salary (900 per month)
Less : Amount recovered from employee.
Notes:
1) In a case where the employer provides more than one cars to the employee, not exclusively for official
purposes, then, the value of perquisite shall be determined as under:
a) Only one of the cars shall be treated as for partly personal use. (Valuation shall be as per 1(c) above.
b) All the other cars shall be valued as if they are used wholly for personal purposes. (Valuation shall be as
per 1(b) above.
2) Documents to be maintained for claiming 'not taxable perquisite' or higher deduction wherever
applicable. [Rule 3(2) (B)]
(a) Employer should maintain complete details of journey undertaken for official purpose, which includes
date of journey, destination, mileage and amount of expenditure incurred thereon.
(b) Certificate of supervising authority of the employee, wherever applicable, to the effect that the
expenditure was incurred wholly and exclusively for performance of official duties, should be provided.


Q 1. Mr. Mohan is an area manager of M/s Navneet Steels Co. Ltd. During the financial year 2020-21, he gets the
following emoluments from his employer.
a) Net Basic Salary (after deduction of professional tax and income tax)
Upto 31.08.2020 ` 18,300 pm
From 1.09.2020 ` 23,300 pm
b) Professional tax deducted ` 200 pm
c) Income tax deducted ` 1,500 pm
d) Transport Allowance ` 2,000 pm
e) Dearness Allowance ` 5,000 pm (60% recognised)
f) Employers contribution to RPF ` 4,000 pm
g) Children Education Allowance ` 500 pm per child for 2 children
h) City Compensatory Allowance ` 300 pm
i) Hostel Expenses Allowance ` 380 pm for 2 children
j) Tiffin Allowance ` 5,000 pa
(actual expenses ` 3,700)
k) Helper Allowance ` 1,000 pm
(actual expenses ` 700 pm)
l) Fixed medical Allowance ` 1,000 pm
(actual expenses ` 8,000)
th
m) Bonus received on 12 April, 2020 ` 50,000 for the previous year 2019-2020.
Compute the taxable Salary of Mr. Mohan for the Assessment year 2021-22.
Ans 1. Statement showing taxable Salary of Mr. Mohan for AY 2021 – 22
Particulars Amount Amount
Basic salary
Net Salary [(18,300 x 5) + (23,300 x 7)] 2,54,600
Add : Professional tax deducted (200 p.m. × 12) 2,400
Add : Income tax deducted (1,500 p.m. × 12) 18,000 2,75,000
Transport Allowance (2,000 x 12) 24,000
Dearness Allowance (5,000 x 12) 60,000
Employer’s contribution to RPF. (4,000 x 12) 48,000
Less: Exempt (2,75,000 + 36,000) x 12% (37,320) 10,680
Children education allowance (500 x 12 x 2) 12,000
Less: Exempt (100 x 12 x 2) (2,400) 9,600
City Compensatory Allowance (300 x 12) 3,600
Hostel expense allowance (380 x 12) 4,560
Less: Exempt (190 x 12 x 2) (4,560) -
Tiffin Allowance 5,000
Helper Allowance 12,000
(1,000 x 12)
(-) Exempt U/s 10 (14) (8,400)(700 x 12)
3,600
Fixed medical allowance (1,000 x 12) 12,000
Bonus received 50,000
Gross Salary 4,53,480
Less: Deduction u/s 16:
a) Standard Deduction 16(i) 50,000
b) Entertainment Allowance 16(ii) Nil
c) Profession tax 16(iii) 2,400 (52,400)
Income from Salaries 4,01,080
Q 2. R is employed with ABC Ltd. on a monthly salary of ` 25,000 per month. The company provides him with the
following benefits:
(i) A company owned accommodation is provided to him in Delhi.
(ii) The company has given a loan for purchase of house of ` 5,00,000 on 1.6.2019 to his son’s wife on
which it charges interest @ 6% per annum. The entire loan is still outstanding. The SBI lending rate on
similar loan as on 1.4.2020 is 8.5%.
th
(iii) The company gave him a gift worth ` 4,900 on his 50 birthday on 21.10.2020.
(iv) He is allowed to use the television belonging to the company. The company had purchased this
television for ` 60,000 on 1.5.2017. This television was sold to him on 1.8.2020 for ` 30,000.

(v) The company had purchased a car on 16.7.2017 for ` 2,50,000. This car is sold to R on 14.7.2020 for
` 1,20,000.
(vi) The company pays the telephone bills of ` 24,000 for the telephone installed at the residence of R.
th
(vii) On 20 March, 2021, he was transferred to Mumbai while his family was at Delhi. He joins his duties in
Mumbai. An accommodation was provided to him in Hotel Centaur. Tariff of ` 5,000 per day was paid by
the employer.
(viii) On 11.11.2020, the company announced an ESOP scheme whereby each employee can apply for 500
shares @ ` 100 each. R exercised his option on 12.12.2020 and shares were allotted to him on
5.1.2021. The Market value of such shares on 11.11.2020, 12.12.2020, and 5.1.2021 was ` 500, ` 750
and ` 1,000 respectively.
(ix) Employers contribution to approved superannuation fund ` 2,10,000
Compute the Net Income from salary of R for the assessment year 2021-22.
Ans. Statement showing computation of Income from salary for A.Y. 2021-22
Particulars ` `
Basic salary (25,000 p.m. × 12) 3,00,000
Perquisite value of rent-free accommodation (W.N. 1) 45,000
Perquisite value of loan given to son’s wife at concessional
rate u/s 17(2)(viii) (5,00,000 @ 2.5% for 12months) 12,500
Perquisite value gift 4,900
Less: exempt u/s 17(2)(viii) (4,900) Nil
Perquisite value of television given for use, u/s 17(2)(viii) 2,000
(60,000 × 10% × 4/12)
Perquisite value on transfer of television (W.N. 2) 12,000
Perquisite value on transfer of car (W.N. 3) 40,000
Perquisite value on allotment of shares under ESOP, u/s 3,25,000
17(2)(vi) [(750 – 100 ) × 500]
Employer’s contribution to approved superannuation fund,
u/s 17(2)(vii) (Not taxable upto 7,50,000) Nil
Gross salary 7,36,500
Less : Deductions u/s 16 (i) : Standard Deduction (50,000)
Income from salary 6,86,500
Working Note : 1 Working Note : 2

Value of rent-free accomodation Value of perquisite on transfer of television
Salary = ` 3,00,000 Cost on 1.5.2017 ` 60,000
 Value of rent-free accomodation (-) 10% depreciation for 3 years ` (18,000)
= 15% of salary (Delhi) (60,000 × 10% × 3)
= 15% of ` 3,00,000 WDV as on 1.8.2020 ` 42,000
= ` 45,000 (-) Amount recovered from employee ` (30,000)
Value of perquisite ` 12,000
Working Note : 3
Value of perquisite on transfer of car
Cost on 16.7.2017 ` 2,50,000
st
(-) 20% depreciation for 1 completed year (2,50,000 × 20%) ` (50,000)
` 2,00,000
nd
(-) 20% depreciation for 2 completed year (on RBM) ` (40,000)
(2,00,000 × 20%)
WDV as on 14.7.2020 ` 1,60,000
(-) Amount recovered from employee ` (1,20,000)
Value of perquisite ` 40,000
Notes :
1. Free telephone provided at employees’ residence is not a taxable perquisite.
2. If accommodation is provided in a hotel then, it is not taxable for aggregate period of 15 days.
3. In case of allotment of shares or securities, perquisite is taxable in the year of allotment but perquisite
value will be fair market value as on the date of exercising the option.

Section Particulars
22 Charging Section: Annual value of property is taxable under the head IFHP if following
three conditions are satisfied:
1) Property = Building or Building plus Land (Income from plot of land = PGBP or IFOS)
2) Assessee = Owner (Income from sub-letting = IFOS)
3) If property is used for assessee’s own business or profession, then
a) If profits of business / profession are taxable under the head PGBP – Annual value of
such property is not taxable under the head IFHP.
b) If profits of business / profession are not taxable under the head PGBP – Annual
value of such property is taxable under the head IFHP.
Important points:
a) Income from Business of owning & letting-out house property: Taxable under the
head PGBP as per the decision of SC in Rayala Corporation (P) Ltd V. Astt CIT
(2016) 386 ITR 500.
b) Property held as stock-in-trade: Annual value of Property held as stock-in-trade is
taxable under the head IFHP. However, the annual value of property held as stock-
in-trade would be treated as NIL for a period of 2 years from the end of the financial
year in which certificate of completion of the property is obtained from the
competent authority, if such property is not let-out during such year. [Section
23(5)]. Standard deduction is not allowed in such cases.
c) Income from paying guest accomodation - taxable under the head PGBP or IFOS.
23(1) Computation of IFHP case of let-out property:

Particulars `
a) Fair Rent xxx
b) Municipal value. xxx
c) Higher of (a) & (b). xxx
d) Standard Rent. xxx
e) Reasonable expected rent (lower of c & d) xxx
f) Actual Rent received or receivable – unrealised rent (If any) xxx
g) Gross Annual Value (Higher of e & f). xxx
Less: Municipal taxes paid to local authority & borne by owner. xxx
Net Annual Value xxx
Less: Deductions u/s 24: xxx
a) Standard Deduction u/s 24(a): 30% of Net Annual Value.
b) Interest on loan taken for acquisition / construction / repairs xxx
/ renovation / reconstruction u/s 24(b).
Income from House Property xxx
GAV in case there is vacancy:
1) If there is Vacancy and AR > RER, then GAV = AR.
2) If there is Vacancy and AR < RER, then GAV is computed as follows:
a) If AR + VR > RER, then GAV = AR
b) If AR + VR < RER, then GAV = RER
NAV = GAV – Property taxes paid & borne by owner.
*AR means Actual Rent. *VR means rent for vacancy period.
*GAV means Gross Annual Value. *NAV means Net Annual Value.
Chapter 4 – Income from House Property [Summary Notes] 26

Explanation to Section 23(1): Unrealised Rent should be subtracted from Actual Rent if following 4
conditions given under rule 4 are satisfied:
i) The tenancy is bonafide;
ii) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
iii) The defaulting tenant does not occupy any other property of the assessee;
iv) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the
unrealised rent; or satisfies the Assessing Officer that legal proceedings would be useless.
In such cases GAV = Higher of:
(a) Reasonable Expected Rent; and
(b) Actual Rent – Unrealised Rent.
23(2) Where the property is Self-occupied for own residence [23(2)(a)] or Un-occupied property
throughout the previous year 23(2)(b), its Annual value shall be taken as NIL, provided no
other benefit is derived by the owner from such property.
a) No deduction for municipal taxes.
b) No standard Deduction.
c) Deduction is allowed for interest on loan upto 30,000 / 2,00,000 as the case may be.
Note: Unoccupied property refers to the property which cannot be occupied by the owner
by reason of his employment, business or profession at a different place and he resides at
such other place in a building not belonging to him.
23(3) I] Where a house property is let-out for part of the year and self-occupied for part of the
year.
Important points:
a) If the property is let out for any part of the year or and self-occupied for part of the
year, then as per section 23(3) NAV cannot be taken as Nil i.e. 23(2) is not applicable.
b) In such cases Income shall be computed as if the property is let-out for entire year.
c) RER for 12 months & Actual Rent for the number of months for which the property is
actually let-out should be taken to compute GAV.
d) Municipal taxes pertaining to the entire year can be claimed as deduction.
II] Where in case of a house property, a portion is let-out and portion is self-occupied.
Important points:
a) Entire property should not be treated as one unit for computation of income from
house property.
b) Income of let-out portion shall be computed by applying section 23(1) whereas income
of self-occupied portion shall be computed by applying section 23(2)
c) If Municipal value / Fair rent / Standard rent / Municipal taxes / Interest on loan is
given for the entire property then it should be apportioned between the let-out portion
and self-occupied portion on the basis of plinth area / built-up floor space let-out and
self-occupied.
23(4) If more than two house properties are self-occupied, then

a) Any two house properties at the option of the Assessee, NAV = NIL u/s 23(2),
b) Other houses – DLOP, so GAV = RER & all other calculations are same as LOP.
Steps to be followed for computation of IFHP in such cases:
1) Compute IFHP for all the houses considering all houses as LOP.
2) Compute IFHP for all the houses considering all houses as SOP.
3) Prepare a matrix considering two houses as SOP and remaining houses as DLOP in
different options. Option having lowest total IFHP should be selected in computing total
income.

24 Deductions: LOP / DLOP:

a) Standard Deduction u/s 24(a) @ 30 % of NAV.
b) Interest on loan u/s 24(b) - No maximum limit for claiming deduction.
Deductions: For SOPR:
a) Standard Deduction u/s 24(a) – Since NAV is NIL, standard deduction is not allowed.
b) Interest on loan u/s 24(b) – Deduction is allowed subject to maximum limit as explained
in point 10 below.
Important points for Interest on loan:
1) Interest on loan – Deduction allowed u/s 24(b); Principal repayment – Deduction
allowed u/s 80C.
2) Loan taken for Acquisition / construction / repairs / renovation / re-construction of
property – deduction is allowed for interest on loan whereas loan taken for any other
purpose – deduction is not allowed for interest on loan.
3) Brokerage / Fees paid for arranging the loan – deduction is not allowed.
4) Deduction is allowed on accrual basis.
5) Interest payable to seller of the property on the unpaid purchase price – deduction is
allowed.
6) Interest on loan – Deduction is allowed. Interest on Interest or penalty interest –
deduction is not allowed.
7) Loan from any person – Deduction is allowed for interest on loan.
8) Interest on new loan taken for repayment of old loan which was taken for Acquisition /
construction / repairs / renovation / re-construction of property – Interest on new loan
is allowed as deduction.
9) Pre-construction period interest (Interest FROM Date of loan or Date of starting of
construction whichever is later TO 31st March immediately preceding the Date of
completion of construction) – deduction is allowed in 5 equal annual installments,
whereas Post-construction period interest – deduction is allowed in the year in which
interest is accrued.
10) Maximum limit for deduction with respect to interest on loan u/s 24(b):
a) Let-out property / Deemed let-out property / Property let-out for part of the year:
There is no maximum limit with respect to deduction of interest on loan.
b) Self-occupied properties / un-occupied properties: Maximum Limit for claiming
deduction is ` 30,000. However, the maximum limit shall be increased to
` 2,00,000 (for 2 properties combined), if following four conditions are satisfied:
i) Loan should be taken on or after 1.4.1999.
ii) Loan should be taken for the purpose of acquisition / construction of property.
iii) Construction of the property should be completed within 5 years, from the end
of the financial year in which loan is taken.
iv) Person extending the loan certifies the amount of interest payable for the
purpose of acquisition / construction of the property.
25 Interest payable outside India is allowed as deduction only if following 2 conditions are
satisfied:
a) TDS is deducted and paid; &
b) There is an agent of the Recipient in India.
25A Unrealised Rent recovered = Bad Debts recovered.

Arrears of Rent recovered = Increase in rent with retrospective effect.

Important points:
1) Unrealised rent recovered and Arrears of rent is taxable in the year in which it is
recovered (received).
2) It is taxable even if assessee is no longer the owner of the property in respect of
which unrealised rent is recovered OR Arrears of rent is received.
3) Deduction u/s 24(b) shall be allowed @ 30% from such amount.
Amount taxable is calculated as follows:
Particulars `
Gross taxable Unrealised rent recovered / Arrears of rent received xxx
Less: Standard Deduction @ 30% (xxx)
Taxable amount of unrealised rent recovered / Arrears of rent Xxx
26 Co-ownership:
I] If share of each co-owner is not definite and ascertainable: Income from such
property is taxable in the hands of Association of persons.
II] If share of each co-owner is definite and ascertainable:
a) If the property is self-occupied: The Annual value of the property for each co-
owner shall be taken as NIL. Each co-owner shall be entitled to claim deduction
u/s 24(b) in respect of interest on loan subject to prescribed therein.
b) If the property is let-out: Income from such Property shall be first computed as
if the property is owned by single person. Thereafter income so computed shall
be apportioned between the co-owners in their agreed ratio.
27 ‘Owner’ to include ‘deemed owners’

(i) Transfer of house property to a spouse or minor child [Section 27(i)]
Exception:
a) transfer to spouse is in connection with an agreement to live apart.
b) transfer to a minor married daughter
(ii) Holder of an impartible estate [Section 27(ii)]
(iii) A member of a co-operative society, company or other AOP to whom a building or
part thereof is allotted or leased under a House Building Scheme of a
society/company/association. [Section 27(iii)]
(iv) A person who is allowed to take or retain the possession of any building or part
thereof in part performance of a contract of the nature referred to in section 53A of
the Transfer of Property Act. [Section 27(iiia)]
(v) Person having right in a property for a period not less than 12 years [Section
27(iiib)]. Exception: Lease acquired from month to month basis & Lease acquired for
a period not exceeding one year.
Concept of Composite rent:

1) Rent for Property + Facilities:
a) Bifurcation of rent is available: Rent of property – IFHP, Rent of facilities – IFOS.
b) Bifurcation of rent is not available: Total rent received (–) cost of facilities provided – IFHP.
2) Rent for Property + Assets:
a) If letting is Separable: Rent of property – IFHP, Rent of Assets – PGBP or IFOS.
b) If letting is Inseparable: Entire Rent – PGBP or IFOS.


Q.1. Raja borrowed a sum of ` 4,00,000 on 1.4.1998 on interest @ 12% p.a. to construct house
property in Delhi. As the house property was still under construction, he borrowed another sum of
` 20,00,000 on 1.4.2016 @ 12% p.a. The construction of property was completed on 30.9.2016 &
it was self-occupied w.e.f. 1.10.2016. The fair rent of the house is ` 20,000 p.m. Raja paid ` 4,000
as insurance premium for insuring the house property. He further borrowed ` 2,00,000 @ 12% p.a.
for repairs of the house on 1-04-2017.
Compute-the income under the head income from house property for the AY 2021-2022.
Q.2. X (age 64 years), has occupied three houses for his residential purposes, particulars of which
are follows:
Particulars I (`) II (`) III (`)
Standard rent under the Poona Rent Control Act 63,000 1,85,000 73,000
Municipal Valuation 70,000 1,90,000 69,000
Fair Rent 53,000 1,78,000 71,000
Municipal taxes paid 4,000 42,000 6,000
Repairs Nil Nil Nil
Ground rent due but outstanding 600 - 800
Insurance premium due but outstanding 900 2,000 1,200
X borrows from a relative ` 100,000 @ 9% p.a for construction of House II (date of borrowing
June 1, 2016). During the financial year 2020-21 assessee repaid ` 25,000 of the principal
amount. Construction of all the houses was completed in August 2016. Compute the Income from
house property for AY 2020-21.
Q.3. Rimi has a house property situated in Delhi, which consists of two units. Municipal value was
` 80,000 and fair rent is ` 90,000. Unit A has 60% floor area, whereas unit B has 40% floor area.
Unit A was self-occupied by Rimi for 8 months and w.e.f 1.12.2020, it was let out for ` 10,000 p.m.
However, this unit remained vacant for March, 2021. Unit B was also meant for self-occupation but
it was also let out w.e.f 1.10.2020 for ` 8,000 p.m. Unit B remained vacant for February and
March, 2021. The other particulars of the house property were as under:
Particulars `
Unrealised Rent for Unit A (Feb 2021)
Municipal taxes paid 40,000
Educational Cess Paid 2% of Municipal Tax
Insurance premium 4,000
Interest on money borrowed (paid outside India without TDS) 20,000
Compute income from house property for the assessment year 2021-2022.
Q.4. Three brothers A, B and C having equal share are co-owners of a house property consisting of six
identical units. Construction of the property was completed on 31st May, 2006. Each of them
occupies one unit for his residence and the other units are let out at a rent of ` 10,000 per month
per unit. The Municipal Value of the house property is ` 6,00,000 and the Municipal Taxes are 40%
of such Municipal Value, which were paid during the year. The other expenses were as follows:
Sr. No. Particulars `
(i) Repairs (Paid outside India without TDS) 40,000
(ii) Collection charges 5,000
(iii) Insurance Premium (paid) 11,000
(iv) Interest payable on loan taken for construction of house 1,20,000
One of the let out units remained vacant for three months during the year. A could not occupy, his
unit for six months as he was transferred to Mumbai. He does not own any other house. Compute
“Income from House property" of the three brothers for assessment year 2021-2022.

SOLUTIONS
Ans 1. Statement showing Taxable IFHP
Particulars `
Net Annual value u/s 23(2)(a) Nil
Less: Deduction u/s 24(b)
Interest on loan (W.N.2) (2,00,000)
Loss from HP (2,00,000)
Working Notes:
1. Calculation of pre-construction interest:
Pre-construction interest = Interest prior to the year of completion of construction
Date of loan = 1.4.1998
Date of completion of construction : 30.9.2016
Immediately preceeding 31st March : 31.3.2016
Pre-construction Interest = Interest from 1.4.1998 to 31.3.2016 (18 years)
= 4,00,000 x 12% p.a x 18 years = ` 8,64,000.
1/5th of above (i.e. 1/5th of ` 8,64,000 = ` 1,72,800) will be allowed as deduction from P.Y. 2016-17
to 2020-21.
2. Calculation of deduction u/s 24(b):
Particulars ` `
(A) Interest on loan taken prior to 1.4.1999 for acquisition,
construction, repairs, renovation & reconstruction:
(i) Pre-construction Interest on loan (W.N.1) 1,72,800
(ii) Post-construction Interest for P.Y. 2020-21 on 1st loan taken on
1.4.1998 for Construction (4,00,000 x 12%) 48,000
Total (A) 2,20,800
(B) Interest on loan taken on or after 1.4.99 for repairs, renovation
or reconstruction:
Interest for PY 2020-21 on 3rd loan taken on 1.4.2017 for repairs of
the property (2,00,000 x 12%) Total (B) 24,000
Total (A + B) 2,44,800
But maximum restricted to………………….. 30,000
(C) Interest on loan taken on or after 1.4.99 for acquisition or
construction:
Interest for PY 2020-21 on 2nd loan taken on 1.4.2016 for
construction (20,00,000 x 12%) 2,40,000
But maximum restricted to………….. 2,00,000
Total (A + B + C) 2,30,000
But maximum restricted to……………….. 2,00,000
Notes: If loan is taken in the year in which construction is completed, interest on such loan is not included
in pre-construction interest, since there is no pre-construction period.
Ans 2. Computation of Income from house property.
WN1: Computation of income from House Property (“assuming” all as SOP)
Particulars House I House II House III
Net Annual Value u/s 23 (2) (a) NIL NIL NIL
Less: Deductions u/s 24 (b): Interest on loan NIL (6,750) NIL
INCOME / LOSS FROM S.O.P NIL (6,750) NIL

WN 2: Computation of income from House property (“assuming” all as D.L.O.P’s)
a) GAV (being R.E.R)
i. Municipal value 70,000 1,90,000 69,000
ii. Fair rent 53,000 1,78,000 71,000
iii. Higher of (i) & (iii) 70,000 1,90,000 71,000
iv. Standard Rent 63,000 1,85,000 73,000
v. GAV / RER [Lower of (iii) or (iv)] 63,000 1,85,000 71,000
Less: Municipal taxes paid (4,000) (42,000) (6,000)
Net Annual Value (NAV) 59,000 1,43,000 65,000
Less: Deductions u/s 24
a) Standard Deduction @ 30% (17,700) (42900) (19,500)
b) Interest on Loan Nil (6,750) Nil
INCOME FROM D.L.O.P. 41,300 93,350 45,500
WN 3: For Evaluation of Options of SOP
Options / Houses Option A Option B Option C
House – I SOP NIL 41,300 SOP NIL
House – II SOP NIL SOP (6,750) 93,350
House - III 45,500 SOP NIL SOP NIL
Total IFHP 45,500 34,550 93,350
Note: Since the Total IFHP is lowest in option B, assessee should go for option B i.e., House I should be
considered as DLOP and House II & House III should be considered as SOP.
Important Notes:
1. Deduction u/s 24(b) in respect to Interest on loan is computed as follows:
9 12
1,00,000 -75,000  x x = 6,750 / -
100 12
In the absence of information in the question with respect of date of repayment of principal amount of
` 25,000, it is assumed that amount of ` 25,000 are repaid on 1st day of the year i.e., 1.4.2020.
2. For the purpose of construction of House II money is borrowed from a relative. There is no restriction
u/s 24(b) to claim deduction of interest on loan taken from a relative.
Ans 3.
Unit A (60%) Unit B (40%)
April 2020 to Nov 2020 - 8 months SOP April 2020 to Sept 2020 - 6 months SOP
Dec 2020 to Feb 2021 - 3 months LOP Oct 2020 to Jan 2021 - 4 months LOP
March 2021 – 1 month Vacant Feb & March 2021 - 2 months Vacant
Feb 2021 – Unrealised rent Not applicable
Statement showing computation of Income from House Property
Particulars Unit A (60%) Unit B (40%)
a) RER
i) Municipal Value 48,000 (80,000 x 60%) 32,000 (80,000 x 40%)
ii) Fair rent 54,000 (90,000 x 60%) 36,000 (90,000 x 40%)
iii) Higher of (i) & (ii) (RER) 54,000 36,000
b) Actual rent received or receivable – 20,000 32,000
unrealised rent (10,000 x 3) – (10,000 x 1) (8,000 x 4)
c) AR + Rent for vacancy period 30,000 48,000
(20,000 +10,000) [32,000 + (8,000 x 2)]
AR + VR < RER, GAV = RER AR + VR > RER, GAV = AR
Gross Annual Value 54,000 32,000

RETRENCHMENT COMPENSATION [Section 10(10B)]
Meaning of Retrenchment compensation: It means compensation received by a workman at the time of his
retrenchment or closing down of an undertaking or transfer of ownership or management of the undertaking shall be
deemed to be retrenchment compensation. Amount of exemption will be lower of following:
(a) The actual amount received;
(b) ` 5,00,000;
(c) Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947:
15
Average salary   period of service
26
Important points:
Particulars Retrenchment compensation
How to take Average Average = Average salary for last 3 months.
Components to be excluded in Bonus, Employers contribution to provident / pension fund (And)
salary for calculation of exemption. Gratuity payable on retirement.
How to calculate period of service Any part of a year more than 6 months shall be taken as one year
COMPENSATION ON VOLUNTARY RETIREMENT [Section 10(10C)] Exemption is lower of following :
(1) Actual compensation received.
(2) ` 5,00,000 (or)
(3) Higher of
(a) Last drawn salary x 3 months x completed years of service (or)
(b) Last drawn salary x remaining months of service
Salary = Basic salary + D.A. (Recognised) + Turnover Commission for the latest month.
If the question does not provide particulars for calculating the limit indicated in (3) above, the least of (1) & (2) can be
taken by assuming that the amount received is in accordance with the scheme as per rules. Similarly, where the
problem clearly indicates that the compensation is paid in accordance with the approved scheme as per rule, the
exemption can be allowed for the amount received subject to the limit of ` 5,00,000.
Note 1: Exemption can be claimed under this section only once in a lifetime.
Note 2: Assessee can either claim exemption or relief but not both.
17(2) PERQUISITES
17(2)(i) Rent free Accommodation.
17(2)(ii) Concessional Accommodation.
17(2)(iii) Perquisites provided to specified employee.
17(2)(iv) Obligation of employee paid by employer.
Perquisites covered u/s 17(2)(iii) & 17(2)(iv):
a) Gas, electricity & water supply for household consumption.
b) Education Facility. c) Domestic servant facility.
d) Transport Facility. e) Medical Facility.
f) Leave Travel Concession. g) Motor Car Facility.
17(2)(v) Life Insurance premium / Contribution to Deferred Annuity schemes.
17(2)(vi) Specified security or sweat equity shares allotted.
17(2)(vii) Approved super-annuation fund / Recognised provident fund / National pension scheme
referred to in Section 80CCD (Employer’s contribution in excess of ` 7,50,000 lakh).
17(2)(viia) Annual accretion by way of interest / dividend / any other amount during the previous year to
the balance at the credit of the fund / scheme referred to in S. 17(2)(vii), to the extent it relates
to the employer's taxable contribution.
17(2)(viii) Fringe benefit or amenity as may be prescribed:
R. 3 (7) (i) Interest free or concessional loan to employees
R. 3 (7) (ii) Traveling, accommodation, touring, and other expenses.
R. 3 (7) (iii) Free or concessional Meal & Refreshment.
R. 3 (7) (iv) Gift or voucher or token.
R. 3 (7) (v) Credit card facility.
R. 3 (7) (vi) Club facility.
R. 3 (7) (vii) Use of any moveable asset owned / hired by the employer
R. 3 (7) (viii) Transfer / Sale by employer of any moveable asset owned by him.
R. 3 (7) (ix) Any other benefit or amenity, service, right, privilege provided by the employer.

Method of accounting [Sec. 145]:
Income under the heads "Profits and gains of business or profession" shall be computed in accordance with method of
accounting regularly employed by the assessee. There are two methods of accounting as follows:
Mercantile system Cash system
Income & expenses are recognised in the books of Income is recognised in the books on receipt basis
account on accrual basis. whereas expenses are recognised on payment basis.
Profit & Loss A/c or Income & Expenditure A/c will be Receipts & Payments A/c will be given in the question.
given in the question. Indirect method is followed for Direct method is followed for computing business
computing business income. income.
Format for computing PGBP income in case of mercantile system of accounting:
Particulars `
Net Profit as per P & L Account xxx
Add: Expenses debited to P&L A/c but disallowed or allowed under other heads xxx
Add: Taxable business Income not credited to Profit & Loss A/c xxx
Less: Incomes credited to P&L A/c but non-taxable or taxable under different heads xxx
Less: Expenses allowable but not debited to Profit & Loss A/c xxx
Taxable PGBP xxx
Format for computing PGBP income in case of Cash system of accounting:
Particulars `
Income of a business or profession, actually received during the previous year.
(Irrespective of whether such income relates to the previous year or some other year.) xxx
Less: Expenditure of business or profession actually paid during the previous year.
(Irrespective of whether such expense relates to the previous year or some other year.). xxx
Taxable Income from Business / Profession (a – b) xxx
SECTION 28 - CHARGING SECTION: Following incomes are taxable under the head "PGBP":
(i) Profits and gains of any business or profession carried on by the assessee during the previous year.
(ii) Any compensation or other payment due to or received by:
(a) any person managing the whole / substantially whole of the affairs of the Indian company, or any other
company in India for modification / termination of the terms and conditions of such management contract.
(b) any person being agent, for termination or modification of the terms and conditions of such agency
contract.
(c) any person, for, in connection with the vesting in the Government, or in any corporation owned or
controlled by the Government under any law for the time being in force, of the management of any
property or business. (Nationalisation of a business)
(d) any person, by whatever name called at or in connection with the termination or modification of the terms
and conditions of any contract relating to his business.
(iii) Income derived by any trade, professional or similar associations from specific services rendered by them to
their members.
(iv) In the case of an assessee carrying on export business, the following export incentives:
(a) Profit on sale of import-entitlements.
(b) Cash assistance (Cash Compensatory Support - CCS)
(c) Excise or customs duty repaid (Duty Drawback)
(d) Profit on transfer of Duty entitlement pass book scheme or duty free replenishment certificate.
(v) The value of any benefit or perquisite (whether in cash or in kind) earned during the course of any business or
profession (the nexus between the business or profession and the receipt should be taken into consideration.)
(vi) Any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm from such
firm. Where any such interest, salary, etc. has been disallowed u/s 40(b), in the case of the firm, the same
shall not be taxed in the case of the partner. (This provision intends to avoid double taxation.) However, share
of profit received by a partner from the firm is exempt as per Section 10(2A).
(vii) Any sum whether received or receivable, in cash or kind, under an agreement :
(a) for not carrying out any activity in relation to any Business / Profession, or
(b) for not to share any know-how, patent, copyright, trade-mark, license, franchise or any other business or
commercial right of similar nature. (Non-compete fees)
Exception: The aforesaid (a) is not applicable in respect of the following:
(a) Any sum received on account of transfer of the right to manufacture, produce or process any article or
thing to carry on any Business / Profession which is chargeable as capital gains;
(b) Any sum received on account of transfer of a right to carry on any business, which is chargeable as
capital gains;
As a consequence, the aforesaid receipt shall not be taxable as business income u/s 28.
Chapter 5 – Profit & Gains of Business or Profession 34
(viii) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such
policy.
(ix) Fair market value of inventory on the date of its conversion or treatment as capital asset.
(x) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or
goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the
expenditure on such capital asset has been allowed as a deduction under section 35AD.
Note: Speculation business should be treated as separate business.
SECTIONS RELATING TO DEDUCTIONS
Section 30: Building used for Business / Profession – Deduction is allowed for Rent (when building is taken on rent),
Revenue repairs, Rates & taxes and Insurance.
Section 31: Machinery / Plant / Furniture used for Business / Profession – Deduction is allowed for Revenue repairs
& Insurance.
Section 38 – Building / Plant / Machinery / furniture not exclusively used for business or profession: Where
any building, plant, machinery, furniture is used partly for the purpose of business or profession and partly for
personal purpose, then deduction for repairs and maintenance, rent, rates and taxes, depreciation will be allowed
only to the extent assets are used for business / profession.
Section 32: Depreciation on assets: Following 3 conditions are required to be fulfilled for claiming deduction:
1) The assets in respect of which depreciation is claimed must belong to either of the following categories, namely
(i) Tangible assets being buildings, machinery, plant or furniture;
(ii) Intangible assets being know-how, patents, copyrights, trademarks, licences, franchises or any other business
or commercial rights of similar nature.
2) Assessee must be the owner of the asset. Fractional ownership is also recognised for the claim of depreciation.
Exception to the conditions that assessee must be owner of the asset:
i) If the assessee is occupying any building as a tenant then capital expenditure incurred towards renovation,
extension or improvement of such building can be capitalised and depreciation can be claimed on such
amount. [Explanation 1 to Section 32]
ii) If an asset is purchased under hire purchase system - Depreciation can be claimed on cash price of the
asset.
3) Asset must be actually used by the assessee for the purpose of carrying on the business or profession during the
relevant previous year.
(i) Use includes active use as well as passive use.
(ii) Proviso to section 32(1): if the asset is put to use for < 180 days in the year of acquisition then Depreciation
deduction will be half of normal depreciation. [Refer example 2]
Life of asset can be divided into 3 phases:
a) Year of acquisition
i) If an asset is put to use for > 180 days. (Means asset is put to use during the period from 1.4.2020 to
3.10.2020) – Full Depreciation.
ii) If an asset is put to use for < 180 days. (Means asset is put to use on or after 4.10.2020) – Half
Depreciation
b) Intermittent years – Full Depreciation
c) Year of Sale – No Depreciation.
Illustration to understand the Concept of Half depreciation:
Cases Date of Date of Dep. u/s 32 from which year…?
acquisition Installation Half or Full depreciation…?
1. 1.7.2020 1.7.2020 Full Depreciation.
2. 1.1.2021 1.1.2021 Half Depreciation.
3. 1.7.2020 1.1.2021 Half Depreciation.
PY 2020-21 (No Depreciation)
4. 1.7.2020 1.7.2021
PY 2021-22 (Full Depreciation)
PY 2020-21 (No Depreciation)
5. 1.7.2020 1.1.2022
PY 2021-22 (Full Depreciation)
As per Section 32, Depreciation shall be computed on the “written down value” of “block of assets” as shown below:
Opening value of the block of assets at the beginning of the previous year. xxx
Add: Actual cost of assets acquired during the previous year and put to use. xxx
Total (1) + (2) xxx
Less: Money receivable in respect of any asset sold, discarded, demolished or destroyed. (xxx)
WDV for the purpose of depreciation xxx
(x) Rate of Depreciation xx %
Depreciation u/s 32 xxx

Determination of “actual cost” in certain specific circumstances
Exp. to Sec. 43 (1) Mode of Acquisition Actual Cost
Exp. 1 Asset acquired for scientific research Actual cost less deduction availed u/s 35.
subsequently brought into business use.
Exp. 2 Asset acquired by way of gift or inheritance. WDV to the previous owner.
Exp. 5 Building used for private purpose Cost of purchase / construction minus notional
subsequently brought into business use. depreciation calculated upto the year of
bringing the asset to business use.
Note: If payment or aggregate payment for acquiring asset is > 10,000 per person per day and payment is made by
any mode other than A/c payee cheque or A/c payee bank draft or ECS through bank or through such other
electronic mode (Rule 6ABBA) as may be prescribed, then such amount shall not be allowed to be added to the
Block of asset. Consequently, no depreciation / amortisation shall be allowed on such amount.
TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE
BLOCK OF ASSETS Rate %
TANGIBLE ASSETS
(I) BUILDING :
(1) Buildings which are used mainly for residential purposes except hotel and boarding houses 5%
(2) Buildings which are not used mainly for residential purposes [i.e. office, factory, godown, hotels, 10%
boarding houses but other than (1) above and (3) below]
(3) (i) Buildings for installing plant and machinery forming part of water supply project or water 40%
treatment system meant for infrastructure facilities
(ii) Purely temporary erections such as wooden structures 40%
(II) FURNITURE AND FITTINGS :
(4) Furniture and Fittings including electrical fittings (“Electrical fittings” include electrical wiring, 10%
switches, sockets, other fittings and fans, etc.)
(III) PLANT AND MACHINERY :
(5) Oil wells 15%
(6) Windmills and any specially designed devices running on windmills installed on or before 15%
31.3.2014 and any special devices including electric generators and pumps running on wind
energy installed on or before 31.3.2014.
(7) Windmills and any specially designed devices which run on windmills installed on or after 40%
1.4.2014.
(8) Motor cars other than those used in a business of running them on hire. 15%
Note: 30% in case purchased from 23.08.2019 till 31.3.2020.
(9) Motor buses, lorries and taxis used in business of running on hire 30%
(including motor Lorries used in business of transportation of goods on hire.)
(10) Ocean going ships, speed boats operating on inland water, vessels other than speed boats 20%
ordinarily operating on inland waters.
(11) Moulds used in rubber and plastic goods factories. 30%
(12) Plant & Machinery used in semi-conductor industry covering all Integrated Circuits (ICs) 30%
(13) Aero-plane and Aero-engines 40%
(14) Specified air pollution control equipments, water pollution control equipments, soild waste 40%
control equipment and soil waste recycling and resource recovery systems.
(15) Energy Saving Devices (as specified) 40%
(16) Computer including computer software 40%
(17) Books owned by professionals 40%
(18) Books owned by assessee carrying on business in running lending libraries 40%
(19) Life saving medical equipments 40%
(20) General Rate for Plant & Machinery (other than above) 15%
INTANGIBLE ASSETS
(21) Know-how, patents, copyrights, trademarks, licences, franchises, or any other business or 25%
commercial rights of similar nature.

Example 1: For Understanding of Section 32 Vs Section 50

Case I Case II Case III Case IV
Particulars
Value Qty Value Qty Value Qty Value Qty
Opening WDV of Block of Assets 100,000 2 100,000 2 100,000 2 100,000 2
Add: Assets purchased (Put to use
for > 180 days) 80,000 2 80,000 2 80,000 2 80,000 2
Total 180,000 4 180,000 4 180,000 4 180,000 4
Less: Assets sold. (Old Assets) (90,000) (1) (190,000) (1) (90,000) (4) (190,000) (4)
Closing WDV of Block of Assets 90,000 3 (10,000) 3 90,000 0 (10,000) 0
Whether closing WDV is
Yes No Yes No
positive……?
Whether assets exist in the
Yes Yes No No
block……?
Depreciation
Consequence STCG u/s 50 STCL u/s 50 STCG u/s 50
u/s 32(1)(ii)
Example 2: For understanding of "Half Rule" of Depreciation:
Particulars Value Nos. Value Nos. Value Nos. Value Nos.
Opening WDV of Block
of Assets 100,000 2 100,000 2 100,000 2 100,000 2
Add: Assets
purchased (Put to use
for < 180 days) 80,000 2 80,000 2 80,000 2 80,000 2
Total 180,000 4 180,000 4 180,000 4 180,000 4
Less: Assets sold
(which asset is Old Old New New
sold…..?). (90,000) (1) (110,000) (1) (90,000) (1) (90,000) (2)
Closing WDV of Block
of Assets 90,000 3 70,000 3 90,000 3 90,000 2
Depreciation Calculation u/s 32(1)(ii):
Half Half Full Half Full Half
Particulars Rule Full Rule Rule Rule Rule Rule Rule Full Rule
Closing WDV 80,000 10,000 70,000 - 40,000 50,000 - 90,000
(x) Rate of Dep. 15% 15% 15% - 15% 15% - 15%
Depreciation u/s 32 6,000 1,500 5,250 - 3,000 7,500 -
13,500
(40,000
Calculation of (80,000 x (10,000 (70,000 x x 15% x (50,000 (90,000
depreciation. 15% x ½) x 15%) 15% x ½) - ½) x 15%) - x 15%)
Total Depreciation. 7,500/- 5,250/- 10,500/- 13,500/-
Note: Half rule is applicable in computation of “Normal depreciation” as well as “Additional depreciation”.
ADDITIONAL DEPRECIATION SECTION 32(1)(iia): Additional depreciation is allowed in following cases:
1. Additional depreciation is allowed on new machinery or plant acquired and installed after 31.3.2005,
2. Assessee is engaged in the business of manufacture / production of any articlele or thing or in the business of
Generation, transmission or distribution of power.
3. Additional depreciation = Actual cost x 20%.
4. If the asset is put to use for less than 180 days then only half additional depreciation is allowed in such year. The
remaining half additional depreciation shall be allowed in the succeeding year.
5. Additional depreciation will not be available in respect of:
(i) Plant / machinery used earlier by any person either in India or any other country. (Second hand plant /
machinery – Additional depreciation not allowed)
(ii) It should not be Ship, aircraft or road transport vehicle.
(iii) Plant / Machinery installed in any Office premises, residence or guest house.
(iv) It should not be any Office appliance.
(v) It should not be entitled to deduction at 100% as depreciation or otherwise.
Note: Additional depreciation for manufacturing business set up in backward area of Andhra Pradesh, Bihar,
Telangana or West Bengal from 1st April 2015 to 31st March 2020 shall be 35% instead of 20%.
Note: Business of printing or printing & publishing = Manufacture, hence additional depreciation allowed.
Distinction between Normal Depreciation & Additional Depreciation:
Normal Depreciation Additional Depreciation
To all Assessees To Manufacturers or power generation / transmission / distribution units.
On entire block (allowed Only on new assets (allowed only in the year in which asset is put to use and
every year) in the subsequent year)
For all types of assets Only for Plant & Machinery
On WDV basis On actual cost
Different rates At 20% (35% in certain states)
Special provisions for depreciation for power generating & distribution unit Section 32(1)(i)
Depreciation computation for power generating and distributing unit.
OPTION – I Block of asset & WDV Method OPTION – II Individual asset & SLM Method
Consequences if the above assets are sold:

If Assessee had opted for block Computation of profit / loss If Assessee had opted for
of asset & WDV method, for on sale of asset by power Individual asset & SLM method
computing depreciation. generating & distribution unit. for computing depreciation.
Profit / loss on sale of

asset will be computed
as discussed in Case I, SP < WDV SP > WDV
Case II, Case III &
Case IV in Example 1
Loss on sale = WDV – SP (It will be allowed as deduction as
above.
terminal depreciation u/s 32 u/h PGBP in the year of sale.
SP > WDV but SP < OC SP > WDV & SP > OC
Profit on sale = SP – WDV

OC – WDV SP – OC
It will be taxable as “Balancing charge”

u/s 41(2) u/h PGBP in the year of sale. It will be taxable u/s 50A u/h Income from
Capital Gains in the year of sale.
DEPRECIATION IN CASE OF SUCCESSION, AMALGAMATION OR DEMERGER [PROVISO TO SECTION 32(1)]

1) Depreciation on Common Assets (Assets which are used by pre-decessor / amalgamating company /
Demerged company as well as successor / Amalgamated company / resulting company): Depreciation shall
be calculated as if succession / amalgamation / demerger has not taken place thereafter such depreciation should be
apportioned between the predecessor / amalgamating company / demerged company and the successor /
amalgamated company / resulting company in the ratio of the number of days for which the assets were used by
them.
2) Depreciation on uncommon assets (assets which are acquired by successor / Amalgamated company /
resulting company): Depreciation deduction in case of such assets will be allowed only to successor /
Amalgamated company / resulting company.
SECTION 32AD - DEDUCTION FOR ADDITIONAL INVESTMENT ALLOWANCE
An additional investment allowance shall be allowed, of an amount equal to 15% of the cost of new asset acquired
and installed by an assessee, if:
(1) Eligible assessee: Assessee should sets-up an undertaking or enterprise for manufacture or production of any
article or thing, in any notified backward areas in the State of Andhra Pradesh, Bihar, Telangana or West
Bengal.
(2) Eligible Investment: “New asset” is acquired and installed during the period from 1-04-2015 to 31-03-2020.
“New Asset” for the purpose of section 32AD means new plant or machinery, but does not include following:
(i) any plant or machinery which before its installation by the assessee was used either within or outside
India by any other person; (Second hand plant / machinery – Deduction not allowed)
(ii) any plant or machinery installed in any Office premises or any residential accommodation, including
accommodation in the nature of a guest house;
(iii) any Office appliances including computers or computer software;
(iv) any Ship, aircraft or vehicle; or
(v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of
depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of
business or profession” of any previous year.
(3) Withdrawal of deduction if P&M is transferred within 5 years: if new plant / machinery is sold or otherwise
transferred within 5 years, then Deduction allowed earlier will be withdrawn and tax will be levied u/h PGBP.
This will be in addition to the taxable capital gains arising on the transfer of the asset.
(4) No withdrawal of deduction in case of business restructuring: Any transfer on account of amalgamation,
demerger or re-organisation of business of the assessee, shall not be treated as a violation of the above condition.
The above condition will then be applicable to the amalgamated company / resulting company / successor, as it
would have applied to the amalgamating company / demerged company / predecessor as if amalgamation /
demerger / succession had not taken place.
SECTION 35AD - EXPENDITURE ON SPECIFIED BUSINESS
1) Deduction for capital expenditure incurred for specified business: An assessee shall, if he opts (W.e.f AY
2021-22), be allowed a deduction in respect of any capital expenditure incurred (excluding goodwill, land and
financial instruments) wholly and exclusively for the purposes of below mentioned business carried on by the
assessee:
Commencing
Specified business
business on or after
i. Setting up & operating a cold chain facility 1.4.2009
ii Setting up & operating a warehousing facility for storage of agricultural 1.4.2009
produce
iii Laying and operating a cross-country natural gas / crude / petroleum oil 1.4.2007
pipeline network for distribution, including storage facilities being an integral
part of such network.
iv Building and operating, anywhere in India, a hotel of two-star or above category 1.4.2010
as classified by the Central Government
Note: Where the assessee builds a hotel of two-star or above category as
classified by the Central Government and subsequently, while continuing
to own the hotel, transfers the operation thereof to another person, the
assessee shall be deemed to be carrying on the specified business and
shall consequently, be entitled to deduction under this section.
v. Building & operating in India, a hospital with at least 100 beds for patients. 1.4.2010
vi Developing and building a housing project under a slum redevelopment or 1.4.2010
rehabilitation scheme framed by the government and notified by the Board
vii Developing and building a housing project under a scheme for affordable 1.4.2011
housing framed by the Central government or a State government and
notified by the Board in accordance with the prescribed guidelines.
viii Production of fertilizer in India. (New plant or newly installed capacity in 1.4.2011
an existing plant)
ix Setting up and operating an inland container depot or a container freight 1.4.2012
station notified or approved under the Customs Act, 1962
x Bee-keeping and production of honey & beeswax 1.4.2012
xi Setting up and operating a warehousing facility for storage of sugar 1.4.2012
xii laying and operating a slurry pipeline for the transportation of iron ore 1.4.2014
xiii Setting up and operating a semi-conductor wafer fabrication 1.4.2014
manufacturing unit in accordance with guidelines as may be prescribed.

xiv Developing or maintaining and operating or developing, maintaining and 1.4.2017

operating a new infrastructure facility
Notes: "Infrastructure facility" means:
a) a road including toll road, a bridge or a rail system;
b) a highway project including housing or other activities being an
integral part of the highway project;
c) a water supply project, water treatment system, irrigation project,
sanitation and sewerage system or solid waste management system;
d) a port, airport, inland waterway, inland port or navigational channel in
the sea
2) Quantum of deduction: An amount equal to 100% of capital expenditure incurred wholly and exclusively for such
aforesaid business is allowed as deduction as follows:
Period during which capital Year in which deduction is allowed
expenditure is incurred
a) Capital expenditure is incurred after Deduction is allowed in the year in which capital expenditure is
commencement of business. incurred.
b) Capital expenditure incurred prior to Deduction is allowed in the year in which operations of
the commencement of business business are commenced, provided such expenditure is
operations. capitalised in the books of accounts on the date of
commencement of operations.
Note: If payment or aggregate payment for acquiring asset is > 10,000 per person per day and payment is
made by any mode other than A/c payee cheque or A/c payee bank draft or ECS through bank or through such
other electronic mode (Rule 6ABBA) as may be prescribed, then such amount shall not be allowed as
deduction.
3) Conditions to be satisfied for availing deduction:
(i) No deduction in case of restructuring of existing business: The business should not set up by splitting
up, or the reconstruction, of a business already in existence.
(ii) Business should not be set-up by transfer of Second hand P&M: Business is not set up by the transfer
to the specified business of machinery or plant previously used for any business. (New plant and machinery
should be used).
(iii) Second hand P&M upto 20% to total P&M is allowed: However, if the value of the machinery or plant so
transferred does not exceed 20% of the total value of the machinery or plant, this condition is not violated.
(iv) Second hand imported P&M allowed: For this purpose, imported machinery or plant which was used
outside India by any person other than the assessee and for which no depreciation has been allowed under
the Act, shall not be regarded as machinery or plant previously used.
(v) Audit of books: Books of accounts should be audited.
(vi) Audit report: The deduction under 35AD is available only if the accounts of the undertaking have been
audited by a chartered accountant and the audit report is furnished along with the return of income.
(vii) Usage of pipeline capacity by person other than assessee and associated person: Assessee will have
rd th
to make 1/3 of its total Natural Gas Pipeline Network capacity, or 1/4 of its total Petroleum Oil Pipeline
Network capacity available for use on a common carrier basis by any person other than assessee or an
‘Associated Person’ [‘Associated Person’ means a person who (1) Participates in the management of the
assessee, (2) Holds > 26% voting power in the assessee, (3) Appoints > 50% of the Board of Directors of
the Assessee, or (4) Guarantees > 10% of the total borrowings of the assessee.
4) No deduction for depreciation u/s 32: once a deduction is claimed u/s 35AD in respect of acquisition of any
capital asset for specified business, then no deduction for depreciation u/s 32 will be allowable on the same asset.
5) No deduction u/s 10AA or Chapter VIA under the heading “Deduction in respect of certain incomes”:
(W.e.f AY 2021-22) If the deduction has been claimed or opted by the assessee and allowed to him under this
section in respect of a particular specified business, then no deduction will be allowed in respect of that specified
business under Chapter VIA or u/s 10AA (SEZ) or under any other provision of the Income Tax Act, 1961.
6) Tax treatment of Asset destroyed, demolished, discarded, transferred: Any Capital Asset in respect of which
a deduction was allowed u/s 35AD, is destroyed, demolished, discarded, transferred, then the cost of acquisition
or purchase price of such asset will be considered to be ‘NIL’ [as per Explanation 13 to Section 43(1)] and
accordingly, any sum received or receivable on account of transfer of such asset will entirely be chargeable to tax,
but under the head ‘Profits and Gains of Business and Profession’ and not under the head ‘Capital Gains’ –
Section 28.
7) Section 35AD(7A): Any asset in respect of which a deduction is claimed and allowed under section 35AD, shall
be used only for the specified business for a period of 8 years beginning with the previous year in which such
asset is acquired or constructed.
8) Section 35AD(7B): If asset in respect of which deduction is claimed and allowed u/s 35AD is used for any
business other than specified business before expiry of 8 years as explained in Section 35AD(7A), then amount
calculated as shown below will be taxable in the year in which asset acquired for specified business is used for
any other purpose.
Particulars `
Actual cost of asset to the assessee. xxx
Less: Notional Depreciation eligible on such asset u/s 32
(Normal Depreciation + Additional Depreciation) (xxx)
Profit chargeable to tax in accordance with section 35AD(7B) xxx
Note: Above amount can be added to block of asset and depreciation can be claimed on it. [Proviso to
Explanation 13 to Section 43(1) – (W.e.f AY 2018-19)]
9) Section 35AD(7C): Section 35AD(7B) shall not apply to a company which has become a sick industrial company
u/s 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 within 8 years from the previous year in
which such asset is acquired or constructed.
10) Carry forward and set off of losses of Specified Business [Section 73A]: Provisions are as follows:
(i) Set-off only against gain of any specified business: Business Loss from a Business specified u/s 35AD
from one Specified Business can be set off only against profits from another Specified Business and against
no other income.
(ii) Carry forward of loss for indefinite period: Balance loss remaining unabsorbed if any from Specified
Business u/s 35AD, can be carried forward for an unlimited period (as against 8 years and 4 years). Such
loss can be carried forward only by filing Return of Income within the time limit given in section 139(3) /
139(1) read with Section 80.
(iii) In subsequent years also, Set-off only against gain of any specified business: In the subsequent
years also, such loss can be set off only against profit from the same Specified Business or any other
Specified Business.
Section 35 - Expenditure on Scientific Research: Expenditure on scientific research can be classified as follows:
a) Expenditure incurred on carrying out in-house scientific research relating to the business carried on by the
assessee.
b) Expenditure by way of contribution or donation to outside agencies engaged in scientific research.
Example for understanding unabsorbed expenditure on Scientific research.

Particulars Case I Case II Case III
Net Profit as per P&L Account 100 100 100
Add: 100 100 100
a) Expenses debited to P&L A/c but disallowed or allowed under other
heads or considered separately.
b) Taxable business Income not credited to Profit & Loss A/c.
Less: (50) (50) (250)
a) Incomes credited to P&L A/c but non-taxable or taxable under different
heads.
b) Expenses allowable but not debited to Profit & Loss A/c
PGBP income before deduction u/s 35 150 150 (50)
Less: Deduction u/s 35 for scientific research (100) (200) (100)
PGBP income after deduction u/s 35 50 (50) (150)
Analysis of above amount
Taxable PGBP income 50 Nil Nil
Business Loss Nil Nil (50)
Unabsorbed expenditure on scientific research Nil (50) (100)

Pre-commencement EXPENDITURE ON SCIENTIFIC RESEARCH (SECTION. 35) Post commencement

research expenses (In house Research expenses i.e. expense incurred by assessee himself) Research expenses
incurred during 3 years immediately preceding

the date of commencement of business. Revenue expenditure Capital expenditure
Deduction
Revenue expenditure Capital expenditure @ 100% Cost of Other capital
Land expenditure
Salary and material Perquisites Cost of Other capital Deduction

if approved by and Other Land expenditure i) Entire cost allowed as
Not Allowed deduction.
Prescribed authority expenses
ii) Depreciation cannot be
Deduction claimed as deduction.
a) Entire cost allowed as deduction.
Deduction Deduction Not Allowed b) Depreciation cannot be claimed
@ 100% Not Allowed as deduction.
Note: Normally in case of in-house research 100% deduction is allowed. However in case of post commencement research expenditure if following
conditions are satisfied then instead of 100%, higher deduction is allowed: (Weighted deduction is discontinued W.e.f PY 2020-21)
a) Assessee should be company.
b) Assessee should be involved in business of bio-technology or in the business of manufacture or production of any article or thing except those
specified in eleventh schedule.
c) Research and development facility is approved by prescribed authority.
If abovementioned conditions are satisfied, then deduction will be allowed as shown below
Expense
s
Land Building Other Revenue / Capital

expenditure
Not allowed 100% 100% [Reduced from 150% to 100% W.e.f PY 2020-21]
Chapter 5 - Profit & Gains of Business or Profession [Summary notes] 42

Scientific Contribution (Donations) to the third party Social or Statistical

Research (Outsourced Research expenses) Research
1. Amount contributed to approved scientific research Amount contributed to:

association, university, college or other institution. a) Approved research association.
Section 35(1)(ii): Deduction = 100% b) Approved college.
c) Approved university.
2. Amount contributed to approved Indian Company d) Approved institutions.
Section 35(1)(iia): Deduction = 100% Section 35(1)(ii): Deduction = 100%
3. Amount contributed to:

a) National Laboratory. b) University.
c) Indian Institute of Technology.
d) Approved research institution
Sec. 35 (2AA): Deduction = 100%
Sold after using for Sale of an asset used for Sold without using
other purpose scientific Research for other purpose
Step 1 : Add value of asset to Block of Asset

(Unabsorbed capital expenditure on scientific research)
Step 2 : On sale of asset Profit / Loss on sale will be calculated as discussed under
case I, II, III or IV of Example 1 on depreciation.
SP < WDV (Note) SP > WDV (Note)
Loss on sale = WDV – SP (It will be allowed as

deduction u/h PGBP in the year of sale).

It will be taxable as u/s 41(3)

under the head PGBP in the It will be taxable u/s 45 u/h
year of sale. Income from Capital Gains in
the year of sale.
Note : WDV = Unabsorbed capital expenditure on Scientific research.

Carry forward and set-off of deficiency in subsequent years: If on account of inadequacy or absence of profits of
the business, deduction on account of capital expenditure on scientific research cannot be allowed, fully or partly, the
deficiency so arising is to be carried forward as if it is unabsorbed depreciation.
Amortisation of Preliminary Expenses – Section 35D:
1) Eligible Assessee: Indian companies and resident non-corporate assesses are eligible for deduction. (Foreign
company cannot claim deduction even if it becomes resident in India)
2) Purpose: Preliminary expenditure incurred for the following purposes can qualify for amortisation:
(i) commencement of new business
(ii) after the commencement of business, in connection with the:
(a) extension of existing undertaking; or
(b) setting-up of new undertaking.
3) Preliminary Expenditure: It includes following:

(i) Legal expenditure for preparation of an agreement for the setting up of business.
(ii) Cost of preparation of feasibility report, project report & expenditure incurred for conducting any survey
including market survey & engineering services related to the business provided the work is carried on by
the assessee or a concern notified by CBDT.
(iii) Legal expenditure incurred for preparation of Memorandum & Articles of Association.
(iv) Cost of printing Memorandum and Articles of Association.
(v) Registration fees paid for incorporation.
(vi) Expenses incurred in connection with public issue of shares and debentures being underwriting
commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus.
4) Ceiling Prescribed: Deduction can be claimed as per limits prescribed below:
(i) Non-Company assessee: 5% of cost of project (cost of Fixed Assets) as on the last day of the relevant
previous year.
(ii) Company assesses: 5% of cost of project or 5% of capital employed at the option of the company. "Capital
employed" means the aggregate of issued capital, debentures and long term borrowings as on the last day
of relevant previous year.
5) Deduction period = 5 years: The qualifying amount of the preliminary expenditure can be claimed as deduction
over a period of 5 years in equal instalments.
6) If Assessee is other than Company or Co-op society, then Audit of Books & submission of report is
mandatory before due date given u/s 44AB: Where the assessee is a person other than a company or a co-
operative society, no deduction shall be admissible under this section unless the accounts of the year in which
expenditure is incurred have been audited by a Chartered Accountant, before the specified date referred to in
section 44AB (W.e.f AY 2021-22) and the assessee furnishes the report of such audit by that date in the
prescribed form duly signed and verified by such accountant and setting forth such particulars as may be
prescribed. Specified date referred to in section 44AB is one month prior to the due date of furnishing Return of
Income u/s 139(1) (W.e.f 2021-22).
7) In case of business restructuring, deduction will be allowed to the new entity: Where the undertaking of an
Indian company, which is entitled to the deduction under this provision is transferred within the specified period for
which deduction is available in a scheme of amalgamation / demerger, deduction will be allowed to the
amalgamated company or resulting company in the same manner as allowable to the amalgamating / demerged
company. No deduction shall be allowed to the amalgamating / demerged company for the previous year in which
amalgamation / demerger takes place.
8) Pictorial presentation of deduction u/s 35D: Summarised below:
Assessee = Company Maximum Limit Assessee = Other than company
Assessee = Indian Assessee ≠ Indian Assessee = Assessee =

Company Company Non-resident Resident
Amount eligible for deduction: Deduction Amount eligible for

Deduction
Lower of: NOT allowed deduction: Lower of:
NOT allowed
1) Actual preliminary expenses. 1) Actual preliminary
2) Maximum limit: higher of: expenses.
a) 5% of cost of project. 2) Maximum limit: 5%
b) 5% of capital employed of cost of project.
Note: Deduction is allowed in 5 equal Annual Installments.
Section 35DDA – Amortisation of expenditure incurred under voluntary retirement scheme:
1) Eligible assessee: This deduction is available to all assessee, whether Individual / HUF / Company / AOP / BOI /
Firm / LLP.
2) Nature of expenditure: Deduction u/s 35DDA is allowed in respect of payment of any sum to an employee in
connection with his voluntary retirement under any scheme of voluntary retirement. [whether framed in accordance with
guidelines prescribed under 10(10C) or not.]
3) Period of deduction: The total amount paid is deductible in 5 equal annual instalments, commencing from the
year of payment.
4) Manner of claiming deduction: Every payment will be given a fresh period of 5 years. In other words, if one
employee has been paid his VRS Compensation in three annual instalments of 25% , 45% and 30%, then each
such annual instalment will get fresh five years, as the deduction under this section shall be in respect of amount
actually paid to the employee spread over five years.
5) No Double deduction: No deduction shall be allowed in respect of the above expenditure under any other
provision of the Act.
6) Audit Report: Audit of accounts is necessary for claiming deduction where accounts are not audited under any
other law. Deduction under section 35DDA, will not be allowed unless assessee (other than a person being a
Company or a Co-Operative Society) furnishes an Audit Report of a Chartered Accountant in a prescribed form.
7) Consequences in case of Amalgamation / Demerger: In case of amalgamation or demerger before the expiry
of the specified period of 5 years, the deduction shall continue to be available to the amalgamated or resulting
company, from the year of amalgamation or demerger, as if the amalgamation or demerger had not taken place.
8) Consequences in case of Business re-organisation: Similar are the provisions in case of business
reorganisation whereby a firm or a proprietary concern is succeeded by a company, or a private company or
unlisted public company is succeeded by a LLP, fulfilling the conditions of 47. i.e., the deduction shall continue to
be available to the successor company or LLP from the year of conversion.
SECTION 36 - OTHER DEDUCTIONS

Section No. Deduction is allowed for
36(1)(i) Insurance premium for insuring stocks or stores.
36(1)(ia) Insurance premium paid by federal milk co-operative society for insurance on the life of cattle owned
by a member of primary co-operative society.
36(1)(ib) Health Insurance premium paid for employees by any mode other than cash.
36(1)(ii) Bonus or commission paid to employees. (subject to 43B).
36(1)(iii) Interest on capital borrowed for the purpose of business or profession. However, interest on loans
borrowed from public financial institutions or state financial institutions and interest on term loans
borrowed from scheduled banks shall be allowed on payment basis as per Section 43B.
Loan taken for acquiring asset: Interest from date of loan till the date asset is put to use should be
capitalised.
36(1)(iiia) Discount on zero coupon bonds will be allowed as deduction on pro-rata basis.
36(1)(iv) "Contribution to recognised provident fund or approved superannuation fund (subject to section 43B).
36(1)(iva) Contribution made to an employee’s account, towards a pension scheme referred to in section
80CCD, to the extent it does not exceed 10% of the salary of the employee in the previous year.
Salary = Basic Salary + DA (Recognised) + Turnover commission.
36(1)(v) Contribution to an approved gratuity fund (subject to section 43B)
36(1)(va) Employee’s contribution to staff welfare schemes, if such sum is remitted on or before the relevant
due date to the concerned fund account. [The amount so received from employees is treated as
income u/s 2(24) and it is allowed as deduction only if it is paid within the stipulated due date].
36(1)(vii) Bad debt written off as irrecoverable is allowed as deduction subject to following conditions:
a) Debt should be incidental to the business.
b) It should have been taken into account in computing the income of the assessee or it should
represent money lent in the ordinary course of banking or money lending business.
c) It should be written off in the books of accounts.
d) Business in respect of which the debt is incurred should be continued during the previous year.
Note: The successor can claim deduction in respect of debt created by the predecessor.
Section 41(4): Bad debts recovered are taxable to the assessee if the deduction for bad-debts was
allowed to the assessee in the past. However if deduction for bad-debts was allowed as deduction to
the pre-decessor and bad-debts are recovered by successor then it is not taxable in the hands of
successor.
36(1)(ix) Company can claim deduction for expenditure incurred for promoting family planning among
employees. Revenue expenditure – allowed as deduction in the year in which it is incurred. Capital
expenditure – allowed as deduction in 5 equal annual installments. The provisions relating to carry
forward of depreciation equally apply to unabsorbed capital expenditure on family planning.
36(1)(xv) Securities Transaction Tax if the income is taxable under the head PGBP.
36(1)(xvi) Commodities Transaction Tax if the income is taxable under the head PGBP.
WN 2: Computation of income from House property (“assuming” all as D.L.O.P’s)
a) GAV (being R.E.R)
i. Municipal value 70,000 1,90,000 69,000
ii. Fair rent 53,000 1,78,000 71,000
iii. Higher of (i) & (iii) 70,000 1,90,000 71,000
iv. Standard Rent 63,000 1,85,000 73,000
v. GAV / RER [Lower of (iii) or (iv)] 63,000 1,85,000 71,000
Less: Municipal taxes paid (4,000) (42,000) (6,000)
Net Annual Value (NAV) 59,000 1,43,000 65,000
a) Standard Deduction @ 30% (17,700) (42900) (19,500)
b) Interest on Loan Nil (6,750) Nil
INCOME FROM D.L.O.P. 41,300 93,350 45,500
WN 3: For Evaluation of Options of SOP
Options / Houses Option A Option B Option C
House – I SOP NIL 41,300 SOP NIL
House – II SOP NIL SOP (6,750) 93,350
House - III 45,500 SOP NIL SOP NIL
Total IFHP 45,500 34,550 93,350
Note: Since the Total IFHP is lowest in option B, assessee should go for option B i.e., House I should be
considered as DLOP and House II & House III should be considered as SOP.
Important Notes:
1. Deduction u/s 24(b) in respect to Interest on loan is computed as follows:
9 12
1,00,000 -75,000  x x = 6,750 / -
100 12
In the absence of information in the question with respect of date of repayment of principal amount of
` 25,000, it is assumed that amount of ` 25,000 are repaid on 1st day of the year i.e., 1.4.2020.
2. For the purpose of construction of House II money is borrowed from a relative. There is no restriction
u/s 24(b) to claim deduction of interest on loan taken from a relative.
Ans 3.
Unit A (60%) Unit B (40%)
April 2020 to Nov 2020 - 8 months SOP April 2020 to Sept 2020 - 6 months SOP
Dec 2020 to Feb 2021 - 3 months LOP Oct 2020 to Jan 2021 - 4 months LOP
March 2021 – 1 month Vacant Feb & March 2021 - 2 months Vacant
Feb 2021 – Unrealised rent Not applicable
Statement showing computation of Income from House Property
Particulars Unit A (60%) Unit B (40%)
a) RER
i) Municipal Value 48,000 (80,000 x 60%) 32,000 (80,000 x 40%)
ii) Fair rent 54,000 (90,000 x 60%) 36,000 (90,000 x 40%)
iii) Higher of (i) & (ii) (RER) 54,000 36,000
b) Actual rent received or receivable – 20,000 32,000
unrealised rent (10,000 x 3) – (10,000 x 1) (8,000 x 4)
c) AR + Rent for vacancy period 30,000 48,000
(20,000 +10,000) [32,000 + (8,000 x 2)]
AR + VR < RER, GAV = RER AR + VR > RER, GAV = AR
Gross Annual Value 54,000 32,000

Specific disallowances
Section Provision
40(a)(ii) Any sum paid on account of tax or cess levied on profits on the basis of or in proportion to the
profits and gains of any business or profession i.e. Income Tax (including foreign taxes eligible
for relief u/s 90 / 90A / 91)
40(a)(iib) any 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 which is
appropriated, directly or indirectly, from, a State Government undertaking by the State
Government.
40(a)(iv) Any payment to provident fund or other fund established for the benefit of employees of the
assessee unless the assessee has made effective arrangements to secure that tax shall be
deducted at source from any payments made from the funds which are chargeable to tax under
the head salaries.
40(a)(v) Tax liability paid by employer (on non-monetary perquisites), which is referred to in 10(10CC).
Due date mentioned u/s 139(1) for filling of return of Income:
Sr. No. Nature of Assessee Due date u/s 139 (1)
1 Company (or) Assessee whose books of accounts 30th October of the assessment
are required to audited as per Sec 44AB. year.
2. Other cases 31st July of the assessment year.
SECTION 37(2B): Expenditure incurred by an assessee on advertisement in any souvenir, brochure, pamphlet or the like
published by a political party cannot be claimed as deduction.
SECTION 40A(2) - Excessive payments to relatives
1. Excess payment to Specified person (relative) is disallowed to the extent it is excess or unreasonable.
2. The extent to which the expenditure is excessive or unreasonable shall be determined having regard to the fair
market value of the goods, services or facilities for which the payment is made or the legitimate needs of the
business or profession of the assessee or the benefit derived by or accruing to him there from.
3. For the purpose of this section, specified person includes relatives of the assessee, directors of the company,
partners of firms, their relatives, persons having substantial interest in assessee’s business and person in
whose business assessee has substantial interest.
Substantial Interest: Means beneficial owner of at least 20% of equity capital (in the case of a company) or 20%
profits of a concern (in any other case) at any time during the previous year.
Relative includes:
(1) Individual – Spouse, Brother, Sister, Lineal ascendant, Lineal descendent.
(2) Partnership firm – Partner & their relatives.
(3) Company – Director & their relatives.
SECTION 40A(3) - Disallowance out of cash expenditure exceeding ` 10,000

i) Payment is made by A/c payee cheque, a/c payee bank draft / ECS / Such other electronic (Rule 6ABBA)
mode as may be prescribed – Deduction is allowed for the expense irrespective of the amount.
ii) Payment is made by any mode other than A/c payee cheque, a/c payee bank draft / ECS / Such other
electronic mode (Rule 6ABBA) as may be prescribed:
a) Per expense / Per payment / Per day / Per person ≤ 10,000 (35,000 in case of payments made to
transporters) – Deduction is allowed for the expense.
b) Per expense / Per payment / Per day / Per person > 10,000 (35,000 in case of payments made to
transporters) – Deduction is disallowed for the expense.
Note: Where a deduction is allowed for any liability incurred in respect of any expenditure and subsequently payment for
such expense is made in any other year in violation of above provision, the payment made shall be considered as PGBP
income of the year of payment.
RULE 6 DD – EXCEPTIONS
In the following cases, no disallowance shall be made u/s 40A(3):
(a) Where payments are made to banks or primary agricultural credit society or primary credit society or LIC.
(b) Where the payment is made to government and where such payment is required to be made in legal tender.
E.g. payment of taxes.

(c) Where the payment is made by letter of credit arrangements through a bank; mail or telegraphic transfer
through a bank; Book adjustment from any account in a bank to any other account in that or any other bank; Bill
of exchange made payable only to a bank; ECS through a Bank A/c; Credit Card; Debit Card.
(d) Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for
any goods supplied or services rendered by the assessee to such payee.
(e) Where the payment is made for the purchase of Agricultural or forest produce; produce of animal husbandry
(including livestock, meat, hides and skins) or dairy or poultry farming; Fish or fish products; products of
horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products.
(f) Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a
cottage industry, to the producer of such products.
(g) Where the payment is made in a village or town which on the date of such payment is not served by any bank to
person who ordinarily resides or is carrying on any business, profession or vocation in any such village or town;
(h) Where any payment by way of gratuity compensation, etc. is paid to an employee or his legal heirs if such
payment does not exceed 50,000.
(i) Where the payment is made by an assessee by way of salary to his employee after TDS and when such
employee is temporarily posted for a continuous period of 15 days or more in a place other than his normal
place of duty or on a ship and does not maintain any account in any bank at such place or ship.
(j) Where the payment was required to be made on a day on which the banks were closed either on account of
holiday or strike.
(k) Where the payment is made by any person to his agent who is required to make payment in cash for goods or
services on behalf of such person.
(l) Payment made by an authorised dealer or money changer against purchase of foreign currency or travellers
cheque in the normal course of his business.
SECTION 40A(7) - Disallowance in respect of provision for gratuity
Provision made towards contribution towards an approved gratuity fund. (Subject to S. 43B.) Deduction allowed.
Provision for Gratuity which has become payable to employee (because employee is retired) Deduction allowed.
Provision for gratuity payable to employees in future (employees are not retired) Deduction not allowed.
SECTION 40A(9) – Employers contribution to unapproved / unrecognised / non-statutory funds is not allowed as deduction.
SECTION 43B - Certain deductions allowed based on actual payment
1. Tax, duty, cess or fee payable to government.
2. Bonus / commission / Leave Salary payable to an employees.
3. Employers contribution to Provident Fund / Superannuation fund / Gratuity fund / any other fund.
4. Interest on any loan or borrowing from any public financial institution or State Financial Corporation or State
Industrial Investment Corporation like IDBI, IFCI, UPSIDC, Delhi Financial Corporation, Housing Finance
Companies, Deposit taking NBFC and systematically important Non-deposit taking NBFC, etc.
5. Interest on any loan or advance from a scheduled bank or a scheduled co-operative bank or Co-operative bank,
other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
6. Any sum payable by the assessee to the Indian Railways for the use of railway assets.
a) If above payments are made upto due date of furnishing return of income u/s 139(1) – Deduction is allowed.
b) If above payments are made after due date of furnishing return of income u/s 139(1) – Deduction is not allowed
while computing income of current year. However, deduction can be claimed in the year of payment.
SECTION 41(1) - Benefit received against any deduction allowed earlier respect of any loss, expenditure or
trading liability
a) Where deduction has been allowed in respect of loss or expenditure and subsequently, the assessee or successor of
the business has obtained any amount in respect of such loss or expenditure the amount obtained shall be deemed to
be income.
b) Where deduction has been allowed in respect of trading liability and subsequently there is a remission or cessation of
a trading liability, amount written off is chargeable to tax irrespective of whether such remission / cessation is
unilateral act or bilateral act.
c) The provisions are applicable even to the successor who receives the amount / benefit.

SECTION 44AA - MAINTENANCE OF ACCOUNTS BY CERTAIN PERSONS

Assessees carrying Section 44AA: Maintenance Assessees carrying on Business /
on Notified Profession of books of accounts Non-notified Profession.
Check Gross Receipts Check Gross Receipts or PGBP Income:

Gross Receipts PGBP Income
Existing Profession Existing Business / Profession Existing Business / Profession
Gross Receipts > 1,50,000 during Gross Receipts > 10,00,000* in PGBP Income > 1,20,000** in
ALL 3 years immediately preceding ANY OF 3 years immediately ANY OF 3 years immediately
the previous year. preceding the previous year preceding the previous year.
New Profession New Business/ profession New Business/ profession
Expected Gross Receipts > Expected Gross Receipts > Expected PGBP Income >
1,50,000 during the current year 10,00,000* in the current year. 1,20,000** in the current year.
Yes No Yes No
Maintain Specified Maintain such Books as may enable Need not maintain
books of accounts. Assessing officer to compute total Income. books of accounts
* Incase of Individual and HUF carrying on business or profession limit of Gross receipts is increased from
10,00,000 to 25,00,000
** Incase of Individual and HUF carrying on business or profession limit of PGBP income is increased from
1,20,000 to 2,50,000
Notified Professions includes profession of law, medicine, engineering, accountancy, architecture, technical
consultancy, interior decoration, authorised representative, film artist, company secretary or any other notified,
profession like information technology.
Specified Books include Cash Book; Ledger; Journal (if mercantile system is adopted); Bills and vouchers in respect
of expenses incurred; Copies of bills issued for amounts exceeding ` 25.
In the case of a medical practitioner, in addition to above Daily case register (Form 3C) & Inventory register
showing the stock of medicines (where drugs and medicines are dispensed during the course of practice) should be
maintained.
Number of years of maintenance: The books of accounts are required to be maintained & kept for 6 years, at the
place of business, and if there is more than one place of business, at the principal place of business.
SECTION 44AB - AUDIT OF ACCOUNTS OF CERTAIN PERSONS
In following cases assessee is required to get their books of accounts compulsorily audited by a chartered accountant:
Assessee When they are covered by the provisions of compulsory audit under section 44AB
Person carrying If the total Sales, Turnover or Gross receipt from such business for the relevant previous year
on business. exceeds 1 crore.
Important points to be noted:
(i) 2 crores for assessee covered u/s 44AD: In case of person who declares income in
accordance with the provisions of Section 44AD(1) and his total sales, turnover or gross
receipt from the business for the relevant previous year does not exceed 2 crores, then he is
not required to get the books of accounts audited.
(ii) 5 Crores if Cash receipt & Cash payments does not exceed 5% of total receipts & total
payments (W.e.f AY 2021-22): In the case of a person whose aggregate of all amounts
received including amount received for sales, turnover or gross receipts during the previous
year, in cash, does not exceed 5% of the said amount; (And) aggregate of all payments made
including amount incurred for expenditure, in cash, during the previous year does not exceed
5% of the said payment, them the limit for getting the books of account audited will be 5
crores instead of 1 crore.
Person carrying If the gross receipts from the profession for the relevant previous year exceeds 50 lakhs.
on Profession.
Person covered If such person claims that profits & gains from the business are lower than the profits & gains
u/s 44AE. computed on presumptive basis. In such case, the normal monetary limits for tax audit in
respect of business would not apply.
Person covered If a person carrying on Notified profession claims that profits & gains from such profession are
u/s 44ADA. lower than the profits & gains computed on presumptive basis u/s 44ADA and his income
exceeds the basic exemption limit.
Person covered If such person carrying on business is covered by the provisions of section 44AD(4) and his
u/s 44AD(4). income exceeds the basic exemption limit.
Due date for obtaining audit report: Audit report should be obtained on or before the due date of filing return u/s
139(1) and should be submitted electronically alongwith the return of income.
Special provision for computing profits and gains of eligible business on presumptive basis [Section 44AD]
The provisions of section 44AD are explained hereunder:
1) Eligible assessee: Eligible Assessee means a Resident Individual, HUF or a Partnership firm (excluding LLP)
and who has not claimed deduction u/s 10A, 10AA, 10B, 10BA or under chapter VI-A under the heading “C” –
“Deduction in respect of certain incomes”, in the relevant assessment year.
2) Eligible business: The provisions of this section shall not apply to -
(i) a person carrying on Notified profession as referred to in 44AA(1);
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
(iv) a person who is in the business of plying, hiring or leasing goods carriages.
3) Limit of Gross receipt: In the case of an eligible assessee carrying on eligible business whose gross receipts
from such business does not exceed ` 2 crores.
4) Relief from requirement of maintenance of Books of Accounts: Assessee covered by section 44AD, will be
exempted from the requirement of maintenance of Books of Accounts as required by section 44AA.
5) Quantum of deemed income [Section 44AD(1)]: If the above three conditions are satisfied then assessee need
not maintain the books of accounts and his profits shall be calculated on estimated basis as follows:
(a) 6% of gross turnover or gross receipts which is received by account payee cheque or bank draft or by use of
electronic clearing system through a bank account or through such other electronic mode as may be
prescribed, either during the relevant previous year or before the due date for filing the return of income as
prescribed under section 139(1).
(b) 8% of Gross turnover or gross receipts in any other case other than (a) above.
Note: Assessee has the option to declare in his return of income, an amount higher than the presumptive income
so calculated, claimed to have been actually earned by him.
6) Set-off of Brought forward loss against presumptive income: Set-off of brought forward loss is not prohibited
against such income. Therefore, brought forward loss of earlier years can be set-off against such presumed
income. Even losses of other heads of the current year will also be allowed to be set-off.
7) Deductions deemed to have been allowed: All deductions u/s 30 to 38 including depreciation is deemed to
have been allowed.
8) Remuneration and Interest to partners deemed to have been allowed: Even Remuneration and Interest to
partners shall be deemed to have been allowed and a separate deduction cannot be claimed for it while
computing deemed income under this section.
9) Computation of WDV of Block of assets: WDV of the assets used for the purposes of such business shall be
calculated as if the depreciation has been actually allowed.
10) Disallowance deemed to have been done: It will be assumed that disallowance, if any, under sections 40, 40A
and 43B has been considered while calculating the estimated income @ 8% / 6%.
11) Consequences of not declaring income as per Section 44AD in subsequent years:
a) Section 44AD(4): Where an eligible assessee declares his profits in accordance with the provisions of
Section 44AD(1) in any Previous Year, but then he does not declare his profits to be in accordance with the
provisions of Section 44AD(1) in any of the subsequent 5 Previous Years, then as per Section 44AD(4), he
will not be allowed to claim the benefit of Section 44AD(1) for the next 5 succeeding Previous Years following
the Previous Year in which the income was not computed as per the provisions of Section 44AD(1).
Less: Property Taxes paid & borne by (24,480) (16,320)
owner (40,000 + 2% Ed. Cess) (40,800 x 60%) (40,800 x 40%)
Net Annual Value 29,520 15,680
Less : Deductions u/s 24:
a) 30% of NAV (8,856) (4,704)
b) Interest on Loan Nil Nil
Taxable IFHP 20,664 10,976
Thus, aggregate IFHP = ` 31,640
Notes:
1. Both the units were self-occupied for some period and let out for some period. Hence, as per section
23(3), the benefit of section 23(2) is not allowed.
2. Since, interest on loan is paid outside India without deducting TDS, deduction of interest is not allowed
as per section 25.
Ans 4. Statement showing taxable IFHP and Taxable Income of three brothers
Particulars A B C
IFHP
Share in income / (loss) from LOP (W.N.1) 29,000 29,000 29,000
Loss from SOPR (W.N. 2) (20,000) (20,000) (20,000)
Taxable IFHP 9,000 9,000 9,000
Working Note 1: Calculation of Income from LOP (3 units):
Particulars `
(a) RER
(i) Municipal Valuation (6,00,000 x 3/6) 3,00,000
(ii) Fair Rent N.A.
(iii) Higher of (i) & (ii) 3,00,000
(iv) Standard Rent N.A.
(v) RER [Lower of (iii) & (iv)] 3,00,000
(b) Actual rent received or receivable 3,30,000
[(2 x 10,000 x 12) + (1 x 10,000 x 9)]
GAV (Higher of a & b) 3,30,000
Less: Municipal taxes paid & borne by owner
(3,00,000 x 40%) (1,20,000)
Net Annual Value 2,10,000
(a) 30% of NAV (63,000)
(b) Interest on Loan (1,20,000 x 3/6) (60,000)
INCOME FROM LET OUT UNITS 87,000
Working Note 2: Calculation of Loss from SOPR
Particulars A B C
NAV u/s 23(2)(a)/(b) Nil Nil Nil
Less : Deductions u/s 24 (b):
Interest on Loan (1,20,000 x 1/6) (20,000) (20,000) (20,000)
Loss from SOPR (20,000) (20,000) (20,000)
Note: If a property owned by co-owners is used by them for their residence, each co-owner can claim
benefit of SOPR u/s 23(2). Further, each co-owner can claim deduction u/s 24(b) to the extent of
` 30,000 or ` 2,00,000 as the case may be.

Method of accounting [Sec. 145]:
Income under the heads "Profits and gains of business or profession" shall be computed in accordance with method of
accounting regularly employed by the assessee. There are two methods of accounting as follows:
Mercantile system Cash system
Income & expenses are recognised in the books of Income is recognised in the books on receipt basis
account on accrual basis. whereas expenses are recognised on payment basis.
Profit & Loss A/c or Income & Expenditure A/c will be Receipts & Payments A/c will be given in the question.
given in the question. Indirect method is followed for Direct method is followed for computing business
computing business income. income.
Format for computing PGBP income in case of mercantile system of accounting:
Particulars `
Net Profit as per P & L Account xxx
Add: Expenses debited to P&L A/c but disallowed or allowed under other heads xxx
Add: Taxable business Income not credited to Profit & Loss A/c xxx
Less: Incomes credited to P&L A/c but non-taxable or taxable under different heads xxx
Less: Expenses allowable but not debited to Profit & Loss A/c xxx
Taxable PGBP xxx
Format for computing PGBP income in case of Cash system of accounting:
Particulars `
Income of a business or profession, actually received during the previous year.
(Irrespective of whether such income relates to the previous year or some other year.) xxx
Less: Expenditure of business or profession actually paid during the previous year.
(Irrespective of whether such expense relates to the previous year or some other year.). xxx
Taxable Income from Business / Profession (a – b) xxx
SECTION 28 - CHARGING SECTION: Following incomes are taxable under the head "PGBP":
(i) Profits and gains of any business or profession carried on by the assessee during the previous year.
(ii) Any compensation or other payment due to or received by:
(a) any person managing the whole / substantially whole of the affairs of the Indian company, or any other
company in India for modification / termination of the terms and conditions of such management contract.
(b) any person being agent, for termination or modification of the terms and conditions of such agency
contract.
(c) any person, for, in connection with the vesting in the Government, or in any corporation owned or
controlled by the Government under any law for the time being in force, of the management of any
property or business. (Nationalisation of a business)
(d) any person, by whatever name called at or in connection with the termination or modification of the terms
and conditions of any contract relating to his business.
(iii) Income derived by any trade, professional or similar associations from specific services rendered by them to
their members.
(iv) In the case of an assessee carrying on export business, the following export incentives:
(a) Profit on sale of import-entitlements.
(b) Cash assistance (Cash Compensatory Support - CCS)
(c) Excise or customs duty repaid (Duty Drawback)
(d) Profit on transfer of Duty entitlement pass book scheme or duty free replenishment certificate.
(v) The value of any benefit or perquisite (whether in cash or in kind) earned during the course of any business or
profession (the nexus between the business or profession and the receipt should be taken into consideration.)
(vi) Any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm from such
firm. Where any such interest, salary, etc. has been disallowed u/s 40(b), in the case of the firm, the same
shall not be taxed in the case of the partner. (This provision intends to avoid double taxation.) However, share
of profit received by a partner from the firm is exempt as per Section 10(2A).
(vii) Any sum whether received or receivable, in cash or kind, under an agreement :
(a) for not carrying out any activity in relation to any Business / Profession, or
(b) for not to share any know-how, patent, copyright, trade-mark, license, franchise or any other business or
commercial right of similar nature. (Non-compete fees)
Exception: The aforesaid (a) is not applicable in respect of the following:
(a) Any sum received on account of transfer of the right to manufacture, produce or process any article or
thing to carry on any Business / Profession which is chargeable as capital gains;
(b) Any sum received on account of transfer of a right to carry on any business, which is chargeable as
capital gains;
As a consequence, the aforesaid receipt shall not be taxable as business income u/s 28.
SECTION 40(b) - DISALLOWANCE IN THE CASE OF PARTNERSHIP FIRM

(i) Interest paid to a partner by a firm is not deductible unless the following conditions are fulfilled:
(1) It should be authorised by and in accordance with the partnership deed.
(2) It should relate to a period falling after the date of the partnership deed.
(3) It should not be exceeding 12% p.a. simple rate of interest
Further, the disallowance of interest is subject to the following explanations:
(ii) Any amount paid by way of salary, bonus, commission or remuneration by a firm to a partner is not deductible in
the computation of income of the firm unless the following conditions are fulfilled :
(1) It should be authorised by and in accordance with partnership deed.
(2) It should relate to a period falling after the date of the partnership deed.
(3) It should be within the prescribed limits, The prescribed limits are as follows:
Book Profit Remuneration (as a % of Book Profits)
On the first 3 lakhs or in case of a loss `1,50,000 or 90% whichever is higher
On the balance book profit 60%
(4) It should be paid to a working partner.
Note: "Book Profit" means profits after giving effect to all the provisions of this chapter but before deduction of
remuneration.
Rule 6ABBA: Other electronic modes of payment shall include payment by Credit Card; Debit Card; Net Banking;
IMPS (Immediate Payment Service); UPI (Unified Payment Interface); RTGS (Real Time Gross Settlement); NEFT
(National Electronic Funds Transfer); and BHIM (Bharat Interface for Money).

Q 1. WDV of 5 machineries at the beginning of the previous year 2020-21, forming part of a block of assets
carrying 15% rate of depreciation was ` 5,00,000. The following 5 machines of the same block were bought.
Machinery Date of Purchase Date when put to use Cost (`)
P 5.1.2020 14.1.2021 50,000
Q 5.4.2020 15.5.2020 1,00,000
R 15.5.2020 31.1.2021 2,00,000
S 15.11.2020 27.3.2021 1,50,000
T 15.5.2020 3.4.2021 2,00,000
Four machineries of this block were sold for ` 4,00,000. Expenses for effecting the sale were ` 25,000.
Calculate the depreciation for the assessment year 2021-22. What will be the answer if four machineries
were sold for ` 7,00,000 instead of ` 4,00,000 ?
Q 2. Mr. Praveen Kumar has furnished the following particulars relating to payments made towards scientific
research for the year ended 31.3.2021:
Particulars `
i) Payments made to K Research Ltd. 20,00,000
ii) Payment made to LMN College. 15,00,000
iii) Payment made to OPQ College. 10,00,000
Note: K Research Ltd. and LMN College are approved research institutions
and these payments are to be used for the purposes of scientific research.
iv) Payment made to National Laboratory. 8,00,000
v) Machinery purchased for in-house scientific research. 25,00,000
vi) Salaries to research staff engaged in in-house scientific research. 12,00,000
Compute the amount of deduction available under section 35 of the Income-tax Act, 1961 while arriving at the
business income of the assessee.

Determination of “actual cost” in certain specific circumstances
Exp. to Sec. 43 (1) Mode of Acquisition Actual Cost
Exp. 1 Asset acquired for scientific research Actual cost less deduction availed u/s 35.
subsequently brought into business use.
Exp. 2 Asset acquired by way of gift or inheritance. WDV to the previous owner.
Exp. 5 Building used for private purpose Cost of purchase / construction minus notional
subsequently brought into business use. depreciation calculated upto the year of
bringing the asset to business use.
Note: If payment or aggregate payment for acquiring asset is > 10,000 per person per day and payment is made by
any mode other than A/c payee cheque or A/c payee bank draft or ECS through bank or through such other
electronic mode (Rule 6ABBA) as may be prescribed, then such amount shall not be allowed to be added to the
Block of asset. Consequently, no depreciation / amortisation shall be allowed on such amount.
TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE
BLOCK OF ASSETS Rate %
TANGIBLE ASSETS
(I) BUILDING :
(1) Buildings which are used mainly for residential purposes except hotel and boarding houses 5%
(2) Buildings which are not used mainly for residential purposes [i.e. office, factory, godown, hotels, 10%
boarding houses but other than (1) above and (3) below]
(3) (i) Buildings for installing plant and machinery forming part of water supply project or water 40%
treatment system meant for infrastructure facilities
(ii) Purely temporary erections such as wooden structures 40%
(II) FURNITURE AND FITTINGS :
(4) Furniture and Fittings including electrical fittings (“Electrical fittings” include electrical wiring, 10%
switches, sockets, other fittings and fans, etc.)
(III) PLANT AND MACHINERY :
(5) Oil wells 15%
(6) Windmills and any specially designed devices running on windmills installed on or before 15%
31.3.2014 and any special devices including electric generators and pumps running on wind
energy installed on or before 31.3.2014.
(7) Windmills and any specially designed devices which run on windmills installed on or after 40%
1.4.2014.
(8) Motor cars other than those used in a business of running them on hire. 15%
(9) Motor buses, lorries and taxis used in business of running on hire 30%
(including motor Lorries used in business of transportation of goods on hire.)
(10) Ocean going ships, speed boats operating on inland water, vessels other than speed boats 20%
ordinarily operating on inland waters.
(11) Moulds used in rubber and plastic goods factories. 30%
(12) Plant & Machinery used in semi-conductor industry covering all Integrated Circuits (ICs) 30%
(13) Aero-plane and Aero-engines 40%
(14) Specified air pollution control equipments, water pollution control equipments, soild waste 40%
control equipment and soil waste recycling and resource recovery systems.
(15) Energy Saving Devices (as specified) 40%
(16) Computer including computer software 40%
(17) Books owned by professionals 40%
(18) Books owned by assessee carrying on business in running lending libraries 40%
(19) Life saving medical equipments 40%
(20) General Rate for Plant & Machinery (other than above) 15%
INTANGIBLE ASSETS
(21) Know-how, patents, copyrights, trademarks, licences, franchises, or any other business or 25%
commercial rights of similar nature.

Example 1: For Understanding of Section 32 Vs Section 50

Particulars
Value Qty Value Qty Value Qty Value Qty
Opening WDV of Block of Assets 100,000 2 100,000 2 100,000 2 100,000 2
Add: Assets purchased (Put to use
for > 180 days) 80,000 2 80,000 2 80,000 2 80,000 2
Total 180,000 4 180,000 4 180,000 4 180,000 4
Less: Assets sold. (Old Assets) (90,000) (1) (190,000) (1) (90,000) (4) (190,000) (4)
Closing WDV of Block of Assets 90,000 3 (10,000) 3 90,000 0 (10,000) 0
Whether closing WDV is
Yes No Yes No
positive……?
Whether assets exist in the
Yes Yes No No
block……?
Depreciation
Consequence STCG u/s 50 STCL u/s 50 STCG u/s 50
u/s 32(1)(ii)
Example 2: For understanding of "Half Rule" of Depreciation:
Particulars Value Nos. Value Nos. Value Nos. Value Nos.
Opening WDV of Block
of Assets 100,000 2 100,000 2 100,000 2 100,000 2
Add: Assets
purchased (Put to use
for < 180 days) 80,000 2 80,000 2 80,000 2 80,000 2
Total 180,000 4 180,000 4 180,000 4 180,000 4
Less: Assets sold
(which asset is Old Old New New
sold…..?). (90,000) (1) (110,000) (1) (90,000) (1) (90,000) (2)
Closing WDV of Block
of Assets 90,000 3 70,000 3 90,000 3 90,000 2
Depreciation Calculation u/s 32(1)(ii):
Half Half Full Half Full Half
Particulars Rule Full Rule Rule Rule Rule Rule Rule Full Rule
Closing WDV 80,000 10,000 70,000 - 40,000 50,000 - 90,000
(x) Rate of Dep. 15% 15% 15% - 15% 15% - 15%
Depreciation u/s 32 6,000 1,500 5,250 - 3,000 7,500 -
13,500
(40,000
Calculation of (80,000 x (10,000 (70,000 x x 15% x (50,000 (90,000
depreciation. 15% x ½) x 15%) 15% x ½) - ½) x 15%) - x 15%)
Total Depreciation. 7,500/- 5,250/- 10,500/- 13,500/-
Note: Half rule is applicable in computation of “Normal depreciation” as well as “Additional depreciation”.
ADDITIONAL DEPRECIATION SECTION 32(1)(iia): Additional depreciation is allowed in following cases:
1. Additional depreciation is allowed on new machinery or plant acquired and installed after 31.3.2005,
2. Assessee is engaged in the business of manufacture / production of any articlele or thing or in the business of
Generation, transmission or distribution of power.
3. Additional depreciation = Actual cost x 20%.
4. If the asset is put to use for less than 180 days then only half additional depreciation is allowed in such year. The
remaining half additional depreciation shall be allowed in the succeeding year.
5. Additional depreciation will not be available in respect of:
(i) Plant / machinery used earlier by any person either in India or any other country. (Second hand plant /
machinery – Additional depreciation not allowed)
(ii) It should not be Ship, aircraft or road transport vehicle.
(iii) Plant / Machinery installed in any Office premises, residence or guest house.
(iv) It should not be any Office appliance.
(v) It should not be entitled to deduction at 100% as depreciation or otherwise.
Note: Additional depreciation for manufacturing business set up in backward area of Andhra Pradesh, Bihar,
Telangana or West Bengal from 1st April 2015 to 31st March 2020 shall be 35% instead of 20%.
Note: Business of printing or printing & publishing = Manufacture, hence additional depreciation allowed.
Distinction between Normal Depreciation & Additional Depreciation:
Normal Depreciation Additional Depreciation
To all Assessees To Manufacturers or power generation / transmission / distribution units.
On entire block (allowed Only on new assets (allowed only in the year in which asset is put to use and
every year) in the subsequent year)
For all types of assets Only for Plant & Machinery
On WDV basis On actual cost
Different rates At 20% (35% in certain states)
Special provisions for depreciation for power generating & distribution unit Section 32(1)(i)
Depreciation computation for power generating and distributing unit.
OPTION – I Block of asset & WDV Method OPTION – II Individual asset & SLM Method
Consequences if the above assets are sold:

If Assessee had opted for block Computation of profit / loss If Assessee had opted for
of asset & WDV method, for on sale of asset by power Individual asset & SLM method
computing depreciation. generating & distribution unit. for computing depreciation.
Profit / loss on sale of

asset will be computed
as discussed in Case I, SP < WDV SP > WDV
Case II, Case III &
Case IV in Example 1
Loss on sale = WDV – SP (It will be allowed as deduction as
above.
terminal depreciation u/s 32 u/h PGBP in the year of sale.

It will be taxable as “Balancing charge”

u/s 41(2) u/h PGBP in the year of sale. It will be taxable u/s 50A u/h Income from
Capital Gains in the year of sale.
DEPRECIATION IN CASE OF SUCCESSION, AMALGAMATION OR DEMERGER [PROVISO TO SECTION 32(1)]

1) Depreciation on Common Assets (Assets which are used by pre-decessor / amalgamating company /
Demerged company as well as successor / Amalgamated company / resulting company): Depreciation shall
be calculated as if succession / amalgamation / demerger has not taken place thereafter such depreciation should be
apportioned between the predecessor / amalgamating company / demerged company and the successor /
amalgamated company / resulting company in the ratio of the number of days for which the assets were used by
them.
2) Depreciation on uncommon assets (assets which are acquired by successor / Amalgamated company /
resulting company): Depreciation deduction in case of such assets will be allowed only to successor /
Amalgamated company / resulting company.
SECTION 32AD - DEDUCTION FOR ADDITIONAL INVESTMENT ALLOWANCE
An additional investment allowance shall be allowed, of an amount equal to 15% of the cost of new asset acquired
and installed by an assessee, if:
(1) Eligible assessee: Assessee should sets-up an undertaking or enterprise for manufacture or production of any
article or thing, in any notified backward areas in the State of Andhra Pradesh, Bihar, Telangana or West
Bengal.
(2) Eligible Investment: “New asset” is acquired and installed during the period from 1-04-2015 to 31-03-2020.
“New Asset” for the purpose of section 32AD means new plant or machinery, but does not include following:
(i) any plant or machinery which before its installation by the assessee was used either within or outside
India by any other person; (Second hand plant / machinery – Deduction not allowed)
(ii) any plant or machinery installed in any Office premises or any residential accommodation, including
accommodation in the nature of a guest house;
(iii) any Office appliances including computers or computer software;
(iv) any Ship, aircraft or vehicle; or
(v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of
depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of
business or profession” of any previous year.
(3) Withdrawal of deduction if P&M is transferred within 5 years: if new plant / machinery is sold or otherwise
transferred within 5 years, then Deduction allowed earlier will be withdrawn and tax will be levied u/h PGBP.
This will be in addition to the taxable capital gains arising on the transfer of the asset.
(4) No withdrawal of deduction in case of business restructuring: Any transfer on account of amalgamation,
demerger or re-organisation of business of the assessee, shall not be treated as a violation of the above condition.
The above condition will then be applicable to the amalgamated company / resulting company / successor, as it
would have applied to the amalgamating company / demerged company / predecessor as if amalgamation /
demerger / succession had not taken place.
SECTION 35AD - EXPENDITURE ON SPECIFIED BUSINESS
1) Deduction for capital expenditure incurred for specified business: An assessee shall, if he opts (W.e.f AY
2021-22), be allowed a deduction in respect of any capital expenditure incurred (excluding goodwill, land and
financial instruments) wholly and exclusively for the purposes of below mentioned business carried on by the
assessee:
Commencing
Specified business
business on or after
i. Setting up & operating a cold chain facility 1.4.2009
ii Setting up & operating a warehousing facility for storage of agricultural 1.4.2009
produce
iii Laying and operating a cross-country natural gas / crude / petroleum oil 1.4.2007
pipeline network for distribution, including storage facilities being an integral
part of such network.
iv Building and operating, anywhere in India, a hotel of two-star or above category 1.4.2010
as classified by the Central Government
Note: Where the assessee builds a hotel of two-star or above category as
classified by the Central Government and subsequently, while continuing
to own the hotel, transfers the operation thereof to another person, the
assessee shall be deemed to be carrying on the specified business and
shall consequently, be entitled to deduction under this section.
v. Building & operating in India, a hospital with at least 100 beds for patients. 1.4.2010
vi Developing and building a housing project under a slum redevelopment or 1.4.2010
rehabilitation scheme framed by the government and notified by the Board
vii Developing and building a housing project under a scheme for affordable 1.4.2011
housing framed by the Central government or a State government and
notified by the Board in accordance with the prescribed guidelines.
viii Production of fertilizer in India. (New plant or newly installed capacity in 1.4.2011
an existing plant)
ix Setting up and operating an inland container depot or a container freight 1.4.2012
station notified or approved under the Customs Act, 1962
x Bee-keeping and production of honey & beeswax 1.4.2012
xi Setting up and operating a warehousing facility for storage of sugar 1.4.2012
xii laying and operating a slurry pipeline for the transportation of iron ore 1.4.2014
xiii Setting up and operating a semi-conductor wafer fabrication 1.4.2014
manufacturing unit in accordance with guidelines as may be prescribed.

xiv Developing or maintaining and operating or developing, maintaining and 1.4.2017

operating a new infrastructure facility
Notes: "Infrastructure facility" means:
a) a road including toll road, a bridge or a rail system;
b) a highway project including housing or other activities being an
integral part of the highway project;
c) a water supply project, water treatment system, irrigation project,
sanitation and sewerage system or solid waste management system;
d) a port, airport, inland waterway, inland port or navigational channel in
the sea
2) Quantum of deduction: An amount equal to 100% of capital expenditure incurred wholly and exclusively for such
aforesaid business is allowed as deduction as follows:
Period during which capital Year in which deduction is allowed
expenditure is incurred
a) Capital expenditure is incurred after Deduction is allowed in the year in which capital expenditure is
commencement of business. incurred.
b) Capital expenditure incurred prior to Deduction is allowed in the year in which operations of
the commencement of business business are commenced, provided such expenditure is
operations. capitalised in the books of accounts on the date of
commencement of operations.
Note: If payment or aggregate payment for acquiring asset is > 10,000 per person per day and payment is
made by any mode other than A/c payee cheque or A/c payee bank draft or ECS through bank or through such
other electronic mode (Rule 6ABBA) as may be prescribed, then such amount shall not be allowed as
deduction.
3) Conditions to be satisfied for availing deduction:
(i) No deduction in case of restructuring of existing business: The business should not set up by splitting
up, or the reconstruction, of a business already in existence.
(ii) Business should not be set-up by transfer of Second hand P&M: Business is not set up by the transfer
to the specified business of machinery or plant previously used for any business. (New plant and machinery
should be used).
(iii) Second hand P&M upto 20% to total P&M is allowed: However, if the value of the machinery or plant so
transferred does not exceed 20% of the total value of the machinery or plant, this condition is not violated.
(iv) Second hand imported P&M allowed: For this purpose, imported machinery or plant which was used
outside India by any person other than the assessee and for which no depreciation has been allowed under
the Act, shall not be regarded as machinery or plant previously used.
(v) Audit of books: Books of accounts should be audited.
(vi) Audit report: The deduction under 35AD is available only if the accounts of the undertaking have been
audited by a chartered accountant and the audit report is furnished along with the return of income.
(vii) Usage of pipeline capacity by person other than assessee and associated person: Assessee will have
rd th
to make 1/3 of its total Natural Gas Pipeline Network capacity, or 1/4 of its total Petroleum Oil Pipeline
Network capacity available for use on a common carrier basis by any person other than assessee or an
‘Associated Person’ [‘Associated Person’ means a person who (1) Participates in the management of the
assessee, (2) Holds > 26% voting power in the assessee, (3) Appoints > 50% of the Board of Directors of
the Assessee, or (4) Guarantees > 10% of the total borrowings of the assessee.
4) No deduction for depreciation u/s 32: once a deduction is claimed u/s 35AD in respect of acquisition of any
capital asset for specified business, then no deduction for depreciation u/s 32 will be allowable on the same asset.
5) No deduction u/s 10AA or Chapter VIA under the heading “Deduction in respect of certain incomes”:
(W.e.f AY 2021-22) If the deduction has been claimed or opted by the assessee and allowed to him under this
section in respect of a particular specified business, then no deduction will be allowed in respect of that specified
business under Chapter VIA or u/s 10AA (SEZ) or under any other provision of the Income Tax Act, 1961.
6) Tax treatment of Asset destroyed, demolished, discarded, transferred: Any Capital Asset in respect of which
a deduction was allowed u/s 35AD, is destroyed, demolished, discarded, transferred, then the cost of acquisition
or purchase price of such asset will be considered to be ‘NIL’ [as per Explanation 13 to Section 43(1)] and
accordingly, any sum received or receivable on account of transfer of such asset will entirely be chargeable to tax,
but under the head ‘Profits and Gains of Business and Profession’ and not under the head ‘Capital Gains’ –
Section 28.
Section 10(1) exempts agricultural income from Income Tax. By virtue of Section 2(1A), the expression 'agricultural
income' means:
(1) Rent or revenue derived from land [Section 2(1A)(a)] : According to Section 2(1A)(a), if the following three
conditions are satisfied, income derived from land can be termed ‘agricultural income':
(a) Rent or revenue should be derived from land (may be in cash or kind);
(b) The land is one which is situated in India (if the land is situated in a foreign country, this condition is not
satisfied); and
(c) The land is used for agricultural purposes.
Points to be noted:
(a) Basic operations in relation to agriculture, are those operations that involve expenditure of human skill
and labour upon the land itself, and not on the growth from the land. Eg. Tilling of land, sowing of seeds,
planting etc.
(b) Subsequent operations are performed after the produce sprouts from the land. Eg. Weeding, digging the
soil, removing under growths, pruning, cutting, harvesting, and rendering the produce fit for market.
(c) To constitute as agriculture, assessee has to perform basic operations, or basic as well as subsequent
operations. Mere performance of subsequent operations does not constitute agriculture.
(d) Merely, raising food grains does not constitute agriculture. It also includes plantation and groves or grass
or pasture for consumption of beasts, or articles of luxury such as betel, coffee, tea, spices, tobacco, etc.
or commercial crops like cotton, flax, jute hemp indigo, etc.
(e) Mere connection with land is not sufficient. Rearing / breeding of livestock, dairy farming, poultry farming
etc., does not constitute agriculture.
(2) Income derived from agricultural land by agricultural operation [Section 2(1A)(b)]
Section 2(1A)(b) gives the following three instances of agricultural income:
(a) Any income derived by agriculture from land situated in India and used for agricultural purposes;
(b) Any income derived by a cultivator or receiver of rent-in-kind of any process ordinarily employed to render
the produce raised or received by him to make it fit to be taken to market; or
(c) Any income derived from such land by the sale by a cultivator or receiver of rent-in-kind of the produce raised
or received by him in respect of which no process has been performed other than a process of the nature
described in (b).
The aforesaid incomes are agricultural income, if such incomes are derived from land, which is situated in India
and is used for agricultural purposes.
Note: Any surplus arising on sale or transfer of agricultural land is not treated as rent or revenue derived from
land.
(3) Income from farm building [Section 2(1A)(c)]
Bonafide annual value of house property is taxable under Section 22. However, income from a house property,
which satisfies the following cumulative conditions, would be treated as agricultural income and consequently, it
would be exempt from tax by virtue of Section 10(1):
1) The building should be occupied by the cultivator (as a landlord or as a tenant) or receiver of rend-in-kind
(as-a landlord);
2) It should be on or in the immediate vicinity of land, situated in India and used for agricultural purposes;
3) The cultivator or receiver of rent-in-kind should by reason of his connection with the agricultural land require
the building as a dwelling house or as a store house or other out building; and
4) The land is assessed to land revenue or local rate or, alternatively, the land (though not assessed to land
revenue or local rate), is not situated
a) In any area, which is comprised within the jurisdiction of a municipality of a cantonment board, and
which has a population of not less than ten thousand or
b) In area within the distance mentioned hereunder, measured aerially-
Distance from local limits of municipality Size of population of municipality /
/ cantonment board cantonment board
(i) 2 kilometers from the local limits of If population exceeds 10,000 but is less
municipality / cantonment board than or equal to 1 lakh
(ii) 6 kilometers from the local limits of If population exceeds 1 lakh but is less than
municipality / cantonment board or equal to 10 lakhs
(iii) 8 kilometers from the local limits of If population exceeds 10 lakhs.
municipality / cantonment board
If all the above conditions are satisfied, income from a farm building is exempt from tax u/s 2(1A)(c).
Chapter 6 – Agricultural Income 59

Note: Use of Building or land for any purposes other than agriculture - Income arising from building or land from
the use of the building or land for any purpose other than agriculture, shall not be considered as 'agricultural income'.
Instances of income held to be agricultural / non- agricultural income
Agricultural income Non-Agricultural income
1) Rent for agricultural land received 1) Income from marketing process, fisheries, etc.
from tenant or sub-tenant. 2) Income from supply of water for irrigation purpose.
2) Income from growing of flowers and 3) Income from mining royalties.
creepers. 4) Income from sale of earth for brick making.
3) Interest received by partner on his 5) Income from stone quarries.
capital from a firm which is engaged 6) Income from diary or poultry farming.
in agricultural operation. 7) Growing mulberry leaves and feeding them to silkworms and
4) Share of profit or salary received by obtaining silk cocoons will not treated as agricultural income.
partner from a firm engaged in 8) Sale proceeds of spontaneously grown forest trees.
agricultural operations. 9) Dividend paid by a company out of its agricultural income.
5) Income from sale of replanted trees. 10) Interest on arrears of rent payable in respect of agricultural
6) Fees collected for allowing cattle to income.
graze on forest lands of spontaneous 11) Income from sale of salt produced by flooding of land with
growth. sea water.
7) Income of nursery from sale of plants 12) Remuneration of fixed percentage of net profit received by
and seedlings grown in pots. managing agent from company earning agricultural income.
8) Compensation received from 13) Interest received by a money lender in the form of agricultural
insurance company due to damage of produce.
tea garden from hailstorm. 14) Transfer of urban agricultural land.
15) Rental income from farm house given for non-agricultural
purpose is not agricultural income.
Composite Income: For disintegrating a composite business income, which is partly agricultural and partly non-
agricultural, the following rules are applicable in case of Tea, Coffee & Rubber:
Non- Income
Income Agricultural Agricultural Tax
Income income Rules
Growing and manufacturing tea in India 40% 60% Rule 8
Sale of centrifuged latex or cenex (rubber) manufactured from
35% 65% Rule 7A
rubber plants grown by the seller in India
Growing & curing of coffee in India 25% 75% Rule 7B(1)
Growing, curing, roasting & grounding coffee in India with or
40% 60% Rule 7B(1A)
without mixing of chicory or other flavouring ingredients
Any other case (other than Tea, Coffee & Rubber) [Rule 7]: For disintegrating a composite business income, which
is partly agricultural and partly non-agricultural, the market value of any agricultural produce raised by the assessee or
received by him as rent-in-kind and utilised as raw material in his business, is deducted. No further deduction is
permissible in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.
Particulars `
Composite income xxx
Less: FMV of agricultural produce raised by the assessee used as raw material (xxx)
Non-agricultural income xxx
Partial integration of agricultural income with non-agricultural income: Though Indian agricultural income is not
taxable as such, it has the effect of enhancing the tax liability on non-agricultural income. The computation mechanism
employed in computing the tax liability on non-agricultural income where the assessee is having agricultural income is
called the scheme of partial integration. Such partial integration scheme for calculation of tax liability is applicable only
in the case of Individual, HUF, AOP / BOI, Artificial juridical person. partial integration scheme is applicable only two
conditions are satisfied:
(a) Non-agricultural income of the assessee exceeds the Basic exemption limit; and
(b) Net Agricultural Income exceeds ` 5,000.
Steps involved in partial integration of agricultural income:
Step 1 – Find out the tax payable on (Agricultural income + non-agricultural income).
Step 2 – Find out the tax payable on (Agricultural income + basic exemption).
Step 3 – Tax payable on (Non-agricultural income) = (Tax in Step 1) – (Tax in Step 2)
Step 4 – Add Health & Education Cess @ 4% to Step 3.
Chapter 6 – Agricultural Income 60
Section 45(1): Basic charging section: If following 4 conditions are satisfied, then income is chargeable to tax under
the head Income from capital gains:
Condition No 1: There must be a “Capital Asset”
1) Listed securities.
2) Units of UTI. Period of holding < 12 months - STCA – STCG.
Category I 3) Units of Equity oriented
fund. Period of holding > 12 months - LTCA – LTCG.
Capital 4) Zero coupon Bonds.
Asset 1) Unlisted Shares Period of holding < 24 months - STCA – STCG.
Category II
2) Land / Building Period of holding > 24 months - LTCA – LTCG.
All other capital assets not Period of holding < 36 months - STCA – STCG.
Category III
covered under Category I & II Period of holding > 36 months - LTCA – LTCG.
1) Stock- in- trade – Not a Capital asset
2) Personal effects
a) Immovable Personal effects (Land & Building) – Capital asset.
b) Specified Movable assets: Jewellery, Archaeological collection, Drawings, Paintings, Sculpture,
Work of art & Bullion – Capital assets.
Not a c) Other Movable Assets – Not a capital asset.
Capital 3) Agricultural Land
Asset a) Agricultural Land Outside India – Capital Asset
(Exclusions b) Agricultural Land In India in urban area – Capital Asset
of Capital c) Agricultural Land In India in Rural area – Not a capital asset
asset)
Important Note: Rural area means any area which is outside the jurisdiction of a municipality or
cantonment board having a population of 10,000 or more AND also which does not fall within
Section distance given below (to be measured aerially):
2(14) Size of population of municipality / Distance from local limits of
cantonment board municipality / cantonment board
Population > 10,000 but not more than 1 lakh 2 kilometers
Population > 1 lakh but not more than 10 lakhs 6 kilometers
Population > 10 lakhs 8 kilometers
4) Gold Deposit Bonds/ Gold Bonds/ Special Bearer Bonds - Not a Capital asset
Explanation to Section 2(14) (introduced by Finance Act, 2012 w.r.e.f 1.4.1962): For the removal of doubts, it is
hereby clarified that “Property” includes and shall be deemed to have always included any rights in or in relation to an
Indian company, including rights of management or control or any other rights whatsoever.
Condition No 2: There should be “Transfer” of capital asset.
Section 2(47) - ‘Transfer’ in relation to a capital asset includes:
(i) Sale, exchange or relinquishment of a capital asset;
(ii) Extinguishments of any rights therein;
(iii) Compulsory acquisition of a capital asset under any law;
(iv) Conversion of a capital asset into stock-in-trade;
(v) Transaction allowing the possession of immovable property to be retained in part performance of a contract u/s
53A of the Transfer of Property Act;
(vi) Transaction by way of acquiring shares or by way of becoming a member of a co-operative society, company or
other AOP which has the effect of transferring or enabling the enjoyment of any immovable property;
(vii) The maturing or redemption of a zero coupon bond.
Section 2(47) Explanation 2: For the removal of doubts, it is hereby clarified that "transfer" includes and shall be
deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in
any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by
way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of
rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of
a company registered or incorporated outside India;
Chapter 7 – Income from Capital Gains 61

Condition No 3: Such transfer of Capital Asset should be during the “previous year”.
Condition No 4: Such Capital gains should not be exempt from tax under section 54 series.
Computation of Capital Gains [Section 48]: There are 2 types of Capital Gains:
Computation of Short Term Capital Gains Computation of Long Term Capital Gains
Particulars ` Particulars `
Full value of consideration xx Full value of consideration xx
Less: Expenses on transfer (xx) Less: Expenses on transfer (xx)
Net Consideration xx Net Consideration xx
Less: Cost of acquisition. (xx) Less: Indexed Cost of acquisition. (xx)
Less: Cost of improvement (xx) Less: Indexed Cost of improvement (xx)
Gross short-term capital gains xx Gross Long-term capital gains xx
Less: Exemption u/s 54B,54D, if any. (xx) Less: Exemption u/s 54, 54B, 54D, 54EC, 54F if any. (xx)
Taxable short-term capital gains xx Taxable long-term capital gains xx
INDEXATION:
1) In computing capital gains arising from the transfer of a long-term capital asset, deduction can be claimed for the
cost of acquisition and the cost improvement after indexing them with the help of following index numbers.
FY CII FY CII FY CII FY CII FY 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
2) Indexed Cost of acquisition / improvement is calculated with the help of following formula:
CII for the year of transfer
Indexed Cost of acquisition = Cost of acquisition or FMV as x
on 1.4.81, whichever is higher CII for the year of acquisition by the assessee
or PY1981-82,whichever is later.
Note: W.e.f AY 2021-22, where the capital asset transferred is land or building or both, the fair market value of such
asset on 1.4.2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1.4.2001. Stamp
duty value means the value adopted or assessed or assessable by any authority of the Central Government or a
State Government for the purpose of payment of stamp duty in respect of an immovable property.

Indexed Cost of improvement = Cost of improvement x
CII for the year of improvement
3) Section 48 Proviso IF Long term Capital Asset = Bonds or Debentures
Normally However in case of following, indexation benefit is allowed:

i) Capital Indexed Bonds issued by Government.
Indexation benefit is not allowed. ii) Sovereign Gold Bonds issued under sovereign Gold bond scheme, 2015.
Note 6: Conversion of stock-in-trade into capital asset:

a) For computing PGBP Income – Section 2(24)(xiia) and Section 28(via): As per section 2(24)(xiia) FMV on the
date of conversion into capital asset = PGBP income.
b) For computing Capital Gains, following points should be kept in mind:
(i) Section 2(42A): Period of holding should be taken from date of conversion to date of transfer.
(ii) Full value of consideration = Gross selling price of capital asset.
(iii) Section 49(9): Cost of acquisition = Fair market value as on the date of conversion.
(iv) Indexation of cost of acquisition from year of conversion to year of transfer.
(v) Indexation of cost of improvement: from year of improvement to year of transfer.
CHARGING SECTION 45(1) 45(1A) 45(2) 45(2A) 45(3) 45(4)
Capital gain on
Capital gains on
Capital Gains in case transfer of
Capital gains on transfer of
of amount received Capital Gains on Transfer of capital asset
conversion of capital asset by
General Charging from an insurer on Securities by Depository in by way of
Particulars capital asset into partner/member
Section account of damage respect of which assessee has distribution on
stock-in-trade to firm/AOP/BOI
or destruction of any Beneficial Interest. the dissolution
[Note 6] as capital
capital asset of firm, AOP /
contribution
BOI
Date of Date of Date of
Period of holding from Date of acquisition Date of acquisition acquisition Date of acquisition acquisition acquisition
Date of
conversion of
Date of destruction capital asset into Date of
Period of holding to Date of transfer of capital asset stock-in-trade Date of transfer Date of transfer transfer
Note 1 Money received + FMV of asset on Note 1 Amount "Fair Market
FMV of Other Assets the date of recorded in the Value" of asset
Full Value of received conversion into Books of Firm, on the date
Consideration. from Insurance stock in trade AOP, BOI as transfer
Company. Capital
contribution
Less: Expense on Transfer Note 2 Note 2 Note 2 Note 2 Note 2 Note 2
Net Consideration xxx xxx Xxx xxx xxx xxx
Less: Cost of Acquisition Note 3 Note 3 Note 3 Note 3 Note 3 Note 3
Less: Cost of Improvement Note 4 Note 4 Note 4 Note 4 Note 4 Note 4
Income from Capital Gains xxx xxx Xxx xxx xxx xxx
Criteria of Chargeability Accrual Basis Receipt Basis Accrual Basis Accrual Basis Accrual Basis Accrual Basis
Year of Taxability Year of Receipt of Year of Sale of Year of

Year of Transfer Compensation. stock in trade Year of Transfer Year of Transfer Transfer
Note 1: Full Value of Consideration: The whole price without any deduction whatsoever (e.g. brokerage, commission, etc.) and it cannot refer to the
adequacy or inadequacy of price bargained for. The consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts
with, namely money or money’s worth. If the consideration is received in kind then FMV of asset received shall be considered as FVOC.
Note 2: Expenses on transfer: Expenses on transfer include any expenditure incurred, whether directly or indirectly, for the purpose of transfer like
advertisement expenses, brokerage, stamp duty, registration fees, legal expenses, etc. However, any expenses which have been claimed as a deduction under
any other provisions of the Act cannot be claimed as a deduction under this clause. Further, any securities transaction tax paid is also not allowed as
deduction.

CHARGING SECTION 45(5) 45(5A) 45(6) 46
Capital gain on Compulsory acquisition of capital asset
Capital gains in
Particulars case of Joint Capital gains on
Initial Enhanced Reduction in Development CG on Re-purchase distribution of assets by
Compensation Compensation compensation Agreement of units by Fund. companies in liquidation
Date of Date of
Period of holding from acquisition Date of acquisition Date of acquisition acquisition Date of acquisition Date of acquisition
Date of
compulsory Date of compulsory Date of compulsory Date of Re-purchase
Period of holding to acquisition acquisition acquisition Date of transfer of units by fund. Date of liquidation
Entire initial Enhanced SDV on the date Money received +
compensation Amount of enhanced compensation of issue of FMV of Other Assets
Re-purchase price
Full Value of Consideration. (even if compensation received minus project received Minus
of units
received in received. Amount of reduction completion Deemed Dividend u/s
instalments) in compensation. certificate 2(22)(c)
Less: Expense on Transfer Note 2 Litigation expenses Litigation expenses Note 2 Note 2 Note 2
Net Consideration xxx xxx Xxx xxx xxx xxx
Less: Cost of Acquisition Note 3 Nil Nil Note 3 Note 3 Note 3
Less: Cost of Improvement Note 4 Nil Nil Note 4 Note 4 Note 4
Income from Capital Gains xxx xxx Xxx xxx xxx xxx
Criteria of Chargeability Receipt Basis Receipt Basis Receipt Basis On receipt of PCC Accrual Basis Accrual Basis
Year of Year in which
Receipt of Year of Receipt of project
Year of Taxability Initial enhanced Capital Gains completion
compensation compensation. computed earlier certificate has
(Full / Part) [Note 5] will be re-computed. been received. Year of Transfer Year of Transfer
Note 3: Cost of Acquisition: It is the price paid / amount incurred by assessee for acquisition of the capital asset. Expenses incurred for completing the title are a part
of the cost of acquisition. However Securities Transaction Tax (STT) shall not form part of cost of acquisition. W.e.f AY 2021-22, where the capital asset transferred is
land or building or both, the fair market value of such asset on 1.4.2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1.4.2001.
Stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment
of stamp duty in respect of an immovable property.
Note 4: Cost of Improvement [Section 55]: Any capital expenditure incurred towards the improvement of a capital asset & not allowed as deduction under any other
head of income can be claimed as cost of improvement. Cost of improvement incurred before 1.4.2001 cannot be claimed as deduction.
Note 5: Any amount of compensation received in pursuance of an interim order of a court, Tribunal or other authority shall be taxable in the year in which the
final order of such court, Tribunal or other authority is made.

Capital gains on buyback of shares or specified securities [Section 46A]
Taxability in Buyback of shares by domestic Buyback of shares by a Buyback of
the hands of companies company, other than a specified securities
[Note 1] domestic company. by any company.
Company Subject to additional income tax @ Not subject to tax in the Not subject to tax in the
23.296%. (20% tax + 12% hands of the company. hands of the company.
Surcharge + 4% Cess)
Shareholder / Capital gains arising to Capital gains arising to Capital gains arising to
holder of shareholders is exempt from tax u/s shareholder is taxable u/s holder of specified
specified 10(34A). 46A. securities is taxable u/s
securities [Note 2] 46A. [Note 2]
Important notes:
1) Buyback of listed shares by domestic Company prior to 5.7.2019: Prior to 5.7.2019, buyback of listed shares
by domestic company was taxable in the hands of shareholders and not in the hands of company.
2) FVOC = Amount received from Company: Amount received by the shareholder or holder of specified securities
from the company shall be deemed to be full value of consideration. All other provisions with respect to
computation of Capital Gains would remain the same. However, benefit of tax rate of 10% under section 112A in
case of LTCG and 15% under section 111A in case of STCG will not be available due to Non-applicability of
Securities transaction tax on such transactions.
Section 49: Cost with reference to certain modes of acquisition:
Sec 49 Mode of acquisition of capital asset Cost of Acquisition
49 (1) Where the capital asset became the property of the assessee: Cost for which the previous owner
(i) On any distribution of assets on the total or partial partition of the property acquired it, as
of a Hindu undivided family; increased by the cost of any
(ii) Under a gift or will. improvement of the assets incurred
(iii) By following modes: or borne by the previous owner or
(a) by succession, inheritance or devolution, or the assessee.
(b) on any distribution of assets on the liquidation of a
company, or Note: 'Previous owner' means the
(c) under a transfer to a revocable or an irrevocable trust, last previous owner of the asset
or who acquired it by a mode of
(d) under any transfer referred to in clause (iv) / (v) / (vi) / acquisition other than that referred
(xiii) / (xiiib) / (xiv) of section 47. to under section 49(1).
(iv) In case of HUF-assessee, by conversion of member's
individual property into HUF property.
Capital Gain on transfer of capital assets which was acquired by way of Gift, Will, Inheritance, partition of HUF
etc. and was not taxed under the head ‘IFOS’
S. 2(42A) Period of Holding: While computing period of holding of assessee, period for which capital asset
was held by the previous owner shall also be included. In other words, period of holding should be
considered from the date of acquisition of capital asset by the previous owner.
S. 49(1) Cost of acquisition: If the capital asset is acquired by any of the modes given in S. 49(1) i.e. Gift,
will, inheritance, etc. then the cost of Acquisition of the previous owner should be considered as
Deemed cost of acquisition of the assessee.
Indexation of a) As per Section 48 Proviso 2: Indexation will be available from the year in which capital asset
cost of is acquired by the assessee.
acquisition b) As per CIT Vs Manjula J. Shah (Bom): As per recent decision of Mumbai High Court in the
case of CIT Vs Manjula J. Shah, it was held that benefit of indexation should be made
available to the assessee from the year in which capital asset was acquired by the previous
owner and not from the year in which capital asset is acquired by the assessee.

Specific disallowances
Section Provision
40(a)(ii) Any sum paid on account of tax or cess levied on profits on the basis of or in proportion to the
profits and gains of any business or profession i.e. Income Tax (including foreign taxes eligible
for relief u/s 90 / 90A / 91)
40(a)(iib) any 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 which is
appropriated, directly or indirectly, from, a State Government undertaking by the State
Government.
40(a)(iv) Any payment to provident fund or other fund established for the benefit of employees of the
assessee unless the assessee has made effective arrangements to secure that tax shall be
deducted at source from any payments made from the funds which are chargeable to tax under
the head salaries.
40(a)(v) Tax liability paid by employer (on non-monetary perquisites), which is referred to in 10(10CC).
Due date mentioned u/s 139(1) for filling of return of Income:
Sr. No. Nature of Assessee Due date u/s 139 (1)
1 Company (or) Assessee whose books of accounts 30th October of the assessment
are required to audited as per Sec 44AB. year.
2. Other cases 31st July of the assessment year.
SECTION 37(2B): Expenditure incurred by an assessee on advertisement in any souvenir, brochure, pamphlet or the like
published by a political party cannot be claimed as deduction.
SECTION 40A(2) - Excessive payments to relatives
1. Excess payment to Specified person (relative) is disallowed to the extent it is excess or unreasonable.
2. The extent to which the expenditure is excessive or unreasonable shall be determined having regard to the fair
market value of the goods, services or facilities for which the payment is made or the legitimate needs of the
business or profession of the assessee or the benefit derived by or accruing to him there from.
3. For the purpose of this section, specified person includes relatives of the assessee, directors of the company,
partners of firms, their relatives, persons having substantial interest in assessee’s business and person in
whose business assessee has substantial interest.
Substantial Interest: Means beneficial owner of at least 20% of equity capital (in the case of a company) or 20%
profits of a concern (in any other case) at any time during the previous year.
Relative includes:
(1) Individual – Spouse, Brother, Sister, Lineal ascendant, Lineal descendent.
(2) Partnership firm – Partner & their relatives.
(3) Company – Director & their relatives.
SECTION 40A(3) - Disallowance out of cash expenditure exceeding ` 10,000

i) Payment is made by A/c payee cheque, a/c payee bank draft / ECS / Such other electronic (Rule 6ABBA)
mode as may be prescribed – Deduction is allowed for the expense irrespective of the amount.
ii) Payment is made by any mode other than A/c payee cheque, a/c payee bank draft / ECS / Such other
electronic mode (Rule 6ABBA) as may be prescribed:
a) Per expense / Per payment / Per day / Per person ≤ 10,000 (35,000 in case of payments made to
transporters) – Deduction is allowed for the expense.
b) Per expense / Per payment / Per day / Per person > 10,000 (35,000 in case of payments made to
transporters) – Deduction is disallowed for the expense.
Note: Where a deduction is allowed for any liability incurred in respect of any expenditure and subsequently payment for
such expense is made in any other year in violation of above provision, the payment made shall be considered as PGBP
income of the year of payment.
RULE 6 DD – EXCEPTIONS
In the following cases, no disallowance shall be made u/s 40A(3):
(a) Where payments are made to banks or primary agricultural credit society or primary credit society or LIC.
(b) Where the payment is made to government and where such payment is required to be made in legal tender.
E.g. payment of taxes.

(c) Where the payment is made by letter of credit arrangements through a bank; mail or telegraphic transfer
through a bank; Book adjustment from any account in a bank to any other account in that or any other bank; Bill
of exchange made payable only to a bank; ECS through a Bank A/c; Credit Card; Debit Card.
(d) Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for
any goods supplied or services rendered by the assessee to such payee.
(e) Where the payment is made for the purchase of Agricultural or forest produce; produce of animal husbandry
(including livestock, meat, hides and skins) or dairy or poultry farming; Fish or fish products; products of
horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products.
(f) Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a
cottage industry, to the producer of such products.
(g) Where the payment is made in a village or town which on the date of such payment is not served by any bank to
person who ordinarily resides or is carrying on any business, profession or vocation in any such village or town;
(h) Where any payment by way of gratuity compensation, etc. is paid to an employee or his legal heirs if such
payment does not exceed 50,000.
(i) Where the payment is made by an assessee by way of salary to his employee after TDS and when such
employee is temporarily posted for a continuous period of 15 days or more in a place other than his normal
place of duty or on a ship and does not maintain any account in any bank at such place or ship.
(j) Where the payment was required to be made on a day on which the banks were closed either on account of
holiday or strike.
(k) Where the payment is made by any person to his agent who is required to make payment in cash for goods or
services on behalf of such person.
(l) Payment made by an authorised dealer or money changer against purchase of foreign currency or travellers
cheque in the normal course of his business.
SECTION 40A(7) - Disallowance in respect of provision for gratuity
Provision made towards contribution towards an approved gratuity fund. (Subject to S. 43B.) Deduction allowed.
Provision for Gratuity which has become payable to employee (because employee is retired) Deduction allowed.
Provision for gratuity payable to employees in future (employees are not retired) Deduction not allowed.
SECTION 40A(9) – Employers contribution to unapproved / unrecognised / non-statutory funds is not allowed as deduction.
SECTION 43B - Certain deductions allowed based on actual payment
1. Tax, duty, cess or fee payable to government.
2. Bonus / commission / Leave Salary payable to an employees.
3. Employers contribution to Provident Fund / Superannuation fund / Gratuity fund / any other fund.
4. Interest on any loan or borrowing from any public financial institution or State Financial Corporation or State
Industrial Investment Corporation like IDBI, IFCI, UPSIDC, Delhi Financial Corporation, Housing Finance
Companies, Deposit taking NBFC and systematically important Non-deposit taking NBFC, etc.
5. Interest on any loan or advance from a scheduled bank or a scheduled co-operative bank or Co-operative bank,
other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
6. Any sum payable by the assessee to the Indian Railways for the use of railway assets.
a) If above payments are made upto due date of furnishing return of income u/s 139(1) – Deduction is allowed.
b) If above payments are made after due date of furnishing return of income u/s 139(1) – Deduction is not allowed
while computing income of current year. However, deduction can be claimed in the year of payment.
SECTION 41(1) - Benefit received against any deduction allowed earlier respect of any loss, expenditure or
trading liability
a) Where deduction has been allowed in respect of loss or expenditure and subsequently, the assessee or successor of
the business has obtained any amount in respect of such loss or expenditure the amount obtained shall be deemed to
be income.
b) Where deduction has been allowed in respect of trading liability and subsequently there is a remission or cessation of
a trading liability, amount written off is chargeable to tax irrespective of whether such remission / cessation is
unilateral act or bilateral act.
c) The provisions are applicable even to the successor who receives the amount / benefit.

II] (b) Transfer of shares / securities which were received in ESOPs under a will.
S. 47(iii) It is not considered as transfer as per S. 47(iii) therefore there is no taxability under the head capital
gains.
Period of Holding, Cost of acquisition & Cost of improvement for different types of capital assets:
A] INTANGIBLE ASSETS:
Cost Of
Capital asset Period of Holding Cost Of Acquisition
Improvement
1) Goodwill of business. a) Self-generated a) If self-generated : NIL;
2) Right to carry on Intangible asset: Date b) If purchased : Purchase
business. of self-development to Price
3) Right to manufacture / Date of transfer.
NIL
produce / process any b) Acquired Intangible
article or thing. asset: Date of
acquisition to Date of
transfer.
1) Trade mark or Brand a) Self-generated asset: a) If self-generated : NIL; Any capital
name associated with Date of self- b) If purchased : Purchase expenditure
business. development to Date of Price incurred by
2) Tenancy rights. transfer. assesse or
3) Route permits. b) Acquired asset: Date of previous owner on
4) Loom hours. acquisition to Date of or after 1.4.1981.
transfer.
Very Important notes for intangible assets:
a) Where such assets were acquired by the assessee in any mode given under Section 49(1), the cost of such
asset shall be the cost to the previous owner if the previous owner had purchased the asset from someone. If
such asset were self-generated by the previous owner, then cost of acquisition shall be taken to be nil.
b) Self-generated assets specifically mentioned above are liable to capital gains. However, other self-generated
assets like goodwill of a profession are still not subject to capital gains.
c) In case of above assets, the option to take F.M.V. as on 1.4.2001 is not available whether such asset is self-
generated or purchased.
B] SHARES / SECURITIES:
Capital asset Period of Holding Cost Of Acquisition Cost Of
Improvement
1) Original shares acquired From Date of allotment to Higher of: See Note (iii)
before 1.4.2001. Date of transfer. (i) Actual Cost of acquisition. &
(ii) FMV on 1.04.2001.
2) Original shares acquired From Date of allotment to Actual Cost of acquisition. See Note (iii)
on or after 1.4.2001. Date of transfer.
3) Bonus shares acquired From Date of allotment to FMV on 1.04.2001 because See Note (iii)
before 1.4.2001. Date of transfer. Actual cost of acquisition =
NIL.
4) Bonus shares acquired on From Date of allotment to NIL See Note (iii)
or after 1.4.2001. Date of transfer.
5) Right shares subscribed From Date of allotment to Higher of: See Note (iii)
before 1.4.2001. Date of transfer. i) Actual Cost of acquisition
(Amount paid to the
company). AND
ii) FMV on 1.04.2001.
6) Right shares subscribed From Date of allotment to Actual Cost of acquisition. See Note (iii)
on or after 1.4.2001. Date of transfer. (Amount paid to the company).
7) Right to acquire the shares From the Date of NIL NIL
is renounced (Tax Announcement of rights to
treatment in the hands of the date of renouncement
renouncer) of rights. Period of holding
is always ≤ 60 Days.
 short term capital gains

8) Right to acquire the shares From Date of allotment to If right shares were acquired See Note (iii)
is renounced (Tax Date of transfer. before 1.4.2001
treatment in the hands of Cost of acquisition is higher
renouncee when such of:
shares are transferred) i) Actual Cost of acquisition
= Amount paid to
renouncer + Amount paid
to company. AND
ii) FMV on 1.04.2001.
If right shares were acquired
on or after 1.4.2001: Cost of
acquisition = Actual Cost of
acquisition Amount paid to
renouncer + Amount paid to
company.
Very Important notes for Shares / Securities:
(i) Brokerage paid on purchase of shares / securities is added to cost of acquisition whereas brokerage paid at the
time of sale is deducted from full value of consideration treating it as expenses on transfer.
(ii) Securities transaction tax paid on purchase of shares / securities should not be added to cost of acquisition
whereas securities transaction tax paid at the time of sale should not be deducted from full value of
consideration.
(iii) Any capital expenditure incurred by assesse or previous owner on or after 1.4.2001.
C] OTHER CAPITAL ASSETS:
Capital asset Period of Holding Cost Of Acquisition Cost Of
Improvement
Any Capital asset (except From Date of Acquisition If Capital asset is acquired Any capital
Intangible assets, shares & to Date of transfer. before 1.4.2001 expenditure
securities) Cost of acquisition is higher of: incurred by
i) Actual Cost of assesse or
acquisition. AND previous owner on
ii) FMV on 1.04.2001. or after 1.4.2001.
If Capital asset is acquired on
or after 1.4.2001:
Cost of acquisition = Actual
Cost of acquisition.
COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE [SECTION 50B]
1. According to Section 2(42C), “Slump Sale” means the transfer of one or more undertakings as a result of the
sale for a lumpsum consideration without values being assigned to the individual assets and liabilities in such
sales.
2. Capital gains will be computed in the year of transfer of undertaking as follows:
Period of holding of the undertaking ≤ 36 months - STCG.
Period of holding of the undertaking > 36 months – LTCG (However, indexation benefit would not be available).
Particulars ` Calculation of Net worth: `
Full Value of consideration Xxx A] Aggregate value of total assets:
(a) In the case of depreciable assets, the
Less: Expenses on transfer (xxx)
notional written down value of the assets. xxx
Net consideration Xxx (b) In the case of other assets, the book
Less: Cost of acquisition & Cost of value of such assets. xxx
improvement (Net worth of the (c) In case of assets covered u/s 35AD, Nil. xxx
undertaking shall be deemed to be the B] Value of liabilities of such undertaking or
cost of acquisition & cost of improvement) (xxx) division as appearing in its books of account. (xxx)
Capital Gains Xxx Net worth [A – B] xxx

Notes:
(a) Any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of
computing the net worth. Contingent liability should also be ignored.
(b) A report of a Chartered Accountant indicating the computation of the net worth and certifying the
correctness of net worth is required to be furnished before the specified date referred to in section 44AB
(W.e.f AY 2021-22). Specified date referred to in section 44AB is one month prior to the due date of
furnishing Return of Income (W.e.f 2021-22).
Section 50C & Section 43CA: Full value of consideration in case of Transfer of Immovable Property:
1) Immovable property held as stock in trade – S. 43CA is applicable – PGBP Chapter.
2) Immovable property held as capital asset – S. 50C is applicable – Capital Gains Chapter.
SDV < 110%* of AV FVOC in case of Transfer of immovable SDV > 110%* of AV
property [Section 50C & Section 43CA]
FVOC = AV
If SDV is challenged by the
If SDV is not challenged by the Assessee
assessee in any court / tribunal.
but Assessee claims that SDV > FMV, then
the assessee can request assessing officer
to get valuation of property done from
FVOC = SDV [Subsequently on conclusion of the
Department Valuation officer.
case income computation will be revised]
SDV = Stamp duty value

AV = Agreement value
FVOC = Full value of Situation C I Situation C II Situation C III
consideration If DVO < SDV If DVO < SDV If DVO > SDV
DVO = Value determined But DVO > AV And DVO < AV And DVO > AV
by department FVOC = DVO FVOC = AV FVOC = SDV
valuation officer
SDV of which date shall be considered for the purpose of determination of FVOC..?
If Date of Date of If Date of Date of

= ≠
Agreement Registration Agreement Registration
FVOC = SDV on Date of Agreement / Registration (Date of Registration is after the date of Agreement)
If Entire consideration is received If Part or Full consideration is received on or before agreement

after the date of agreement. date by account payee cheque / account payee bank draft / ECS
through a bank or such other prescribed electronic mode.
SDV on the date of registration.

SDV on the date of agreement
* Increased from 105% to 110% w.e.f AY 2021-22.
Illustration
Particulars Situation A Situation B Situation C I Situation C II Situation C III
AV 30 20 20 20 20
110% of AV 33 22 22 22 22
SDV 25 25 25 25 25
DVO -NA- -NA- 23 18 27
FVOC 35 25 23 20 25

Full Value of consideration for transfer of unlisted shares – S. 50CA (W.e.f AY 2018-19): Where the consideration
received or accruing as a result of transfer of a capital asset being unlisted shares is less than the fair market value of
such share determined in such manner as may be prescribed, such fair market value shall be deemed to be the full
value of consideration for computing capital gains. For ascertaining the FMV Rule11UA is prescribed which will be
discussed at CA Final level. This section will also have implications u/s 56(2)(x). This provision shall not apply to
transfer of unlisted shares by such class of persons and subject to such conditions as may be prescribed.
Tax treatment of Advance money forfeited Section 51:
Particulars Tax treatment
Advance money forfeited 1. It is a capital receipt and hence it is not taxable in the year in which it is forfeited.
upto 31.03.2014 2. Such advance money forfeited by assessee shall be reduced from cost of
acquisition while computing Income from Capital Gains. Advance money forfeited
by the previous owner shall be ignored.
Advance money forfeited on 1. It is considered as income as per section 2 (24) – Definition of Income.
or after 1.04.2014 2. It is taxable under the head “Income from Other Sources” u/s 56(2)(ix).
3. Such advance money forfeited shall NOT be reduced from cost of acquisition
while computing Income from Capital Gains.
Taxability in case of Reverse Mortgage Scheme:
a) Section 47(xvi): As per Section 47(xvi), 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 for the purpose of capital
gains. Therefore Capital gains is not taxable in the hands of Senior citizen (Borrower).
b) Exemption of income received in a transaction of reverse mortgage – Section 10(43): Amount received by
the senior citizen as a loan, either in lump sum or in installments, in a transaction of reverse mortgage would be
exempt from income-tax.
c) Capital Gains: Capital gains tax liability would be attracted only at the stage of alienation of the mortgaged
property by the bank / housing finance company for the purposes of recovering the loan.
Rupee Denominated Bonds: As a measure to enable Indian companies to raise funds from outside India, the RBI
has permitted them to issue rupee denominated bonds outside India.
S. 48 In case of an assessee being a non-resident, any gain arising on account of appreciation of rupee
Proviso 5 against a foreign currency at the time of redemption of rupee denominated bond of an Indian
company acquired / subscribed by him, shall be ignored for the purposes of computation of full value
of consideration.
47(viiaa) Any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian
company issued outside India, by a non-resident to another non-resident is not considered as
transfer for the purpose of capital gains.
Illustration: Indian company issues rupee denominated bonds of ` 1,00,000 each. Mr. X non-resident applies for bond
of ` 70,00,000 on 1-1-2020 and on 1-1-2020, the exchange rate is $ 1 = ` 70. Mr. X therefore, remitted $ 1,00,000 to
India to subscribe to these bonds. The bonds are redeemed at par on 2-1-2021 when $ 1= ` 63. Now Mr. X receives `
70,00,000 from the company and remit $ 1,11,111 to foreign country. As per the amendment made by Finance Act,
2016, the gain of $ 11.111 arising on account of appreciation in rupee is not taxable.
Exemption of Capital Gains arising on compulsory acquisition of agricultural land [Sec. 10(37)]
If assessee = Individual / HUF and his urban agricultural land is compulsorily acquired, then capital gains will be
exempt from tax subject to following 3 conditions:
i) Land was used for agricultural purposes by such HUF or individual or his parent during 2 years immediately
preceding the date of transfer;
ii) Transfer is by way of compulsory acquisition under any law or where consideration for transfer is determined by
Central Government or RBI;
iii) Capital gain has arisen on or after 1.4.2004.
Particulars Section 54 Section 54B Section 54D
Who can claim exemption Individual /
Individual / HUF Any person
under these sections HUF (w.e.f AY 2013-14)
Nature of Capital Asset
Transferred (Short term / Long term Short term / long term Short term / long term
Long term)
Land or building forming part of an
Residential house
industrial undertaking which is
property (Income of Agricultural land should be used by the
compulsorily acquired by the
Which Capital Asset is which is chargeable individual or his parents / HUF for
Government and which is used for
eligible for exemption under the head agricultural purpose during atleast 2 years
industrial purposes during 2 years
“Income from house immediately prior to transfer.
immediately prior to the compulsory
property)
acquisition.
Which asset the taxpayer Only one Residential
Agricultural land (may be in Rural area or Land or building for Industrial
should acquire to get the house property in
Urban area) purposes
benefit of exernption. India.(Note 6)
Purchase:
1 year Backward or 2
What is time limit for
years forward 2 years forward 3 years forward
acquiring the new asset
Construction: 3 years
forward.
From which date the time- Date of Transfer Date of Transfer
From the date of receipt of compensation
limit shall be determined (Note 1) (Note 1)
Lower of:
How much is exempt Lower of: Lower of:
Investment in new
Investment in new asset or capital gain. Investment in new asset or capital gain.
asset or capital gain.
If New asset is
Under What circumstance
transferred within 3 If New asset is transferred within 3 years from If New asset is transferred within 3 years
exemption will be withdrawn
years from date of its date of its acquisition. from date of its acquisition.
in the subsequent year.
acquisition.
Taxability on withdrawal of Taxable as STCG Taxable as STCG Taxable as STCG
exemption. (Note 3) (Note 3) (Note 3)
Whether scheme of deposit Yes (Note 4)
applicable. Yes (Note 4) Yes (Note 4)

Particulars Section 54EC Section 54F
Who can claim exemption
Any person Individual / HUF
under these sections
Nature of Capital Asset
Transferred (Short term / Long term Long term
Long term)
Which Capital Asset is Any long-term capital asset (other than a residential house property)
eligible for exemption provided on the date of transfer the taxpayer does not own more than
Land / Building / Both
one residential house property (except the new house acquired for
taking exemption u/s 54F)
Which asset the taxpayer
Bonds of NHAI / Bonds of REC / Only one Residential house property in India.
should acquire to get the
benefit of exernption. Bonds notified by CG.
What is time limit for Purchase: 1 year Backward or 2 years forward
acquiring the new asset 6 months forward
Construction: 3 years forward.
From which date the time-
Date of Transfer
limit shall be determined Date of Transfer (Note 1)
(Note 1)
How much is exempt Lower of:
Capital Gain x Investment in the new asset /
Investment in new asset or capital
Net sale consideration
gain. (Note 2)
Under What circumstance If New asset is transferred / If New assets is transferred within 3 years from date of its acquisition
exemption will be withdrawn Converted into money / loan is taken (OR)
in the subsequent year. on security of the new asset within 5 Another residential house is purchased / constructed within 2 / 3 years from
years from date of acquisition. date of transfer.
Taxability on withdrawal of
Taxable as LTCG Taxable as LTCG
exemption.
Whether scheme of deposit
No Yes (Note 4)
applicable.
Note 1: Extension of time for acquiring new asset or depositing amount of capital gain [Section 54H]: Where the transfer of the original
asset is by way of compulsory acquisition under any law, then the period available for acquiring new asset or investment by the assessee as
referred to in Section 54, 54B, 54D, 54EC and 54F shall be reckoned from the date of receipt of such compensation and not from date of transfer
of the original asset.
Note 2: Amount invested in the new asset in the year of transfer and in the subsequent financial year should not exceed ` 50,00,000
Note 3: Capital gain will arise on transfer of new asset within the lock-in-period. For computing such capital gains, the cost of the new asset shall
be reduced by the amount of capital gain exempt under this section earlier. It is obvious that capital gain arising on transfer of new asset will always
be a short-term capital gain because new asset is transferred within the lock-in period of 3 years / new asset is forming part of block of assets.
Note 4: Scheme of deposit: If the new asset is not acquired upto the due date of submission of return of income, then the taxpayer will have to
deposit the money in “Capital gain deposit account scheme” with a nationalized bank. On the basis of actual investment and the amount deposited
in the deposit account, exemption will be given to the taxpayer. The taxpayer should acquire the new asset by withdrawing money from the deposit
account within the time-limit prescribed above. Amount lying unutilized in “Capital gain deposit account scheme” will become chargeable to tax in
the previous year in which the specified time-limit expires [but in case of section 54F & 54GB Amount taxable = Unutilized amount x Capital gain /
Net sale consideration] & will be taxable as STCG / LTCG depending upon the original capital gain. Thereafter unutilized amount can be withdrawn
by the taxpayer.
Note 5: Section 54EC: Investment in Bonds to be notified by Central Government:
Explanation to section 54EC has been amended to provide that investment in bonds notified by Central Government will also qualify for deduction under
section 54EC. Therefore, now bonds issued by other bodies may also be notified to qualify for investment and to claim exemption.
Note 6: Assessee (Individual / HUF) can claim exemption for acquiring how many houses in India?
a) Where the amount of capital gain exceeds ` 2 crores – Assessee can claim exemption for purchase / construction of only one residential house in India.
b) Where the amount of capital gains does not exceed ` 2 crores – Assessee may at his option, claim exemption for purchase / construction of two
residential houses in India. (This benefit will be available to the assessee only once in lifetime).
Note 7: Examples for understanding of Section 54F:
Example 1: Mr. X owns the following Capital assets:
1) Residential house property (Long Term Capital Asset).
th
2) Gold (Long Term Capital Asset) – Sold on 15 Aug, 2020.
3) He acquired new residential house property on 26.1.2021.
4) Is he eligible for exemption u/s 54F….?
Conclusion: Since assessee owns only one residential house property on the date of transfer of Gold, therefore he is eligible for exemption u/s 54F. 
Example 2: Mr. X owns the following Capital assets
1) Residential house property (Long Term Capital Asset)
th
3) He acquired new residential house property on 10.08.2020.
Conclusion: Since assessee owns only one house property on the date of transfer of Gold (except for the house property purchased to avail exemption u/s
54F), therefore he is eligible for exemption u/s 54F. 
Example 3: Mr. X owns the following Capital assets
1) Residential house property – RHP1 (Long Term Capital Asset).
2) Residential house property – RHP2 (Long Term Capital Asset).
th
4) He acquired new residential house property on 26.1.2021 - RHP3.
th
Conclusion: Since Mr. X owns two house properties on the date of transfer of gold i.e. on 15 Aug, 2020, other than the house property purchased to claim
exemption u/s 54F. So Mr. X is not eligible to claim exemption u/s 54F.
Tax Planning: If Mr. X wants to claim the benefit of exemption u/s 54F, then he should sell either RHP1 or RHP2 before the date of transfer of Gold. In
such case he will have only one RHP on the date of transfer of Gold and he will become eligible to claim exemption u/s 54F.

Long Term Capital Gains Income from Capital Gains (Tax Rates) Short Term Capital Gains
Section 112A Section 112 1) Short term Capital Gain on transfer of listed equity Other Short Term
1) LTCG (without indexation benefit) in excess of ` 1,00,000 on Capital Gains
shares, Units of equity oriented mutual fund / units
transfer of: of business trust – Sale transaction is done
a) Listed equity shares, if STT is paid on purchase & sale of through stock exchange & STT is paid. Tax @ Normal rates.
such shares. 2) Short-term capital gains arising from transaction
b) Units of equity oriented mutual fund / units of business trust, undertaken in foreign currency on a recognized
if STT is paid on sale of such units. stock exchange located in an International
2) LTCG arising from transaction undertaken on a recognized stock Financial Services Centre (IFSC) even though
exchange located in an International Financial Services Centre STT is not paid in respect of such transaction.
(IFSC), where the consideration is received / receivable in foreign
currency, even though STT is not paid on such transaction.
Tax @ 15% as per Section 111A.
(Without indexation benefit & benefit of currency fluctuation).
Tax @ 10%
If Long Term Capital Asset = unlisted If LTCA = (i) Listed securities other than units & If LTCA = other assets
securities or shares of closely held company. (ii) Zero coupon Bonds.
Tax @ 20% with

Tax @ 20% with Indexation or 10% indexation benefit.
If Assessee = Foreign company or Non-corporate Non-resident person. without indexation whichever is
Other Assessees
beneficial to assessee.
Tax @ 10% without indexation and benefit of currency fluctuation. Tax @ 20% with indexation benefit.

1) In case of a Resident individual or a Hindu Undivided Family (HUF), the LTCG taxable u/s 112 or u/s 112A or STCG taxable u/s 111A shall be
reduced by the unexhausted basic exemption limit and the balance shall be subject to tax.
2) No deduction under Chapter VI-A can be claimed in respect of such LTCG taxable u/s 112 or u/s 112A or STCG taxable u/s 111A.
3) Rebate u/s 87A is not available in respect of tax payable @ 10% on Long-term Capital Gains u/s 112A.
4) Enhanced surcharge of 25% (If total income exceeds ` 2 crores) and 37% (If total income exceeds ` 5 crores) levied by Finance (No. 2) Act
2019, in case of Individuals / HUF / AOPs / BOIs, has been withdrawn on tax payable at special rates u/s 111A and u/s 112A on capital gains
arising from the transfer of equity share in a company or unit of an equity-oriented fund / business trust, which has been subject to securities
transaction tax. [Press Release dated 24-8-2019].

Section 112A [Inserted by Budget 2018]

1) Long Term Capital Gain in excess of 1,00,000 arising on transfer of following capital asset will be taxable @ 10%
without giving the benefit of indexation.
(i) Listed Equity shares – Subjected to securities transaction tax at the time of acquisition and transfer.
(ii) Units of equity oriented mutual fund or units of business trust – subjected to securities transaction tax at the
time of transfer.
2) If assessee = Resident Individual / HUF, then unexhausted basic exemption limit if any can be adjusted against
above capital gains.
3) Chapter VIA deduction is not available against such capital gains.
4) Rebate covered u/s 87A cannot be claimed against tax on such LTCG.
5) Cost of acquisition of computing such LTCG will be as follows:
Case I – Shares / units acquired on or before 31.1.2018 :
Cost of acquisition for computing capital gains will be higher of:
(i) Actual cost of acquisition.
(ii) Lower of FMV on 31.1.2018 and Full Value of Consideration.
Case II – Shares / units acquired on or after 1.2.2018 :
Cost of acquisition for computing capital gains = actual cost of acquisition.
6) Illustration to understand Capital gains calculation.
Particulars Case I Case II Case III Case IV
Date of acquisition of shares 1.1.2017 1.1.2017 1.1.2017 1.1.2017
Actual cost of acquisition 100 100 100 100
FMV on 31.1.2018 200 200 50 200
Full Value of consideration 250 150 150 50
For understanding Grandfathering Clause
FMV on 31.1.2018 200 200 50 200
Less: Actual cost of acquisition (100) (100) (100) (100)
Gain Upto 31.1.2018 (Not taxable in future) 100 100 (50) 100
Computation of Capital Gains (for understanding)
Less: Cost of acquisition (100) (100) (100) (100)
Actual Capital Gain 150 50 50 (50)
Gain Upto 31.1.2018 (Not taxable) 100 100 Nil 100
Taxable Capital Gain 50 Nil 50 (50)
Computation of Capital Gains (for presentation in exams)
Less: Cost of acquisition: Higher of: (200) (150) (100) (100)
1) Actual cost of acquisition. 100 100 100 100
2) Lower of FMV on 31.1.2018 or full value of 200 150 50 50
consideration. (200 or 250) (200 or 150) (50 or 150) (200 or 50)
LTCG / LTCL 50 Nil 50 (50)

Q.1. X acquired a land in 1997-1998 for ` 2,00,000 and gifted it to his major son Y on 1.6.2000, when the
market value of the land was ` 2,50,000. The fair market value of that land as on 1.4.2001 was ` 3,50,000
and stamp duty value as on 1.4.2001 was ` 3,00,000. Y sold the land on 15.9.2020 for ` 35,00,000.
Compute the capital gain for assessment year 2021-22, assuming that the expenses on transfer
were ` 1,00,000. What would be the capital gain if the land was gifted by X to his son Y on
15.5.2016?
Ans 1.
Case A: If date of Gift is 1.6.2000:
Name of the Assessee: Mr. Y Period of holding: 1997-1998 to 14.09.2020 > 24 months (LTCA)
Statement showing computation of Long Term Capital Gain
Particulars ` `
Full value of Consideration 35,00,000
Less : Expenses on Transfer (1,00,000)
Net Consideration 34,00,000
Less : a. Indexed cost of acquisition 3,00,000 x 301(2020 - 21)
100 (2001 - 02) 9,03,000
b. Indexed cost of Improvement Nil (9,03,000)
Taxable LTCG/(LTCL) 24,97,000
Case B: If date of Gift is 15.5.2016: As per Section 48 Proviso 2:
Name of the Assessee: Mr. Y Period of holding: 1997-1998 to 14.09.2019 > 24 months (LTCA)
Statement showing computation of Long Term Capital Gain
Particulars ` `
Less : Expenses on Transfer (1,00,000)
Less : a. Indexed cost of acquisition 3,00,000 x 301(2020 - 21)
264 (2016 - 17) 3,42,045
b. Indexed cost of Improvement Nil (3,42,045)
Taxable LTCG / (LTCL) 30,57,955
Case B: If date of Gift is 15.5.2016: As per CIT Vs Manjula Shah: Even if date of gift is 15.5.2016 instead
of 1.6.2000, answer will remain the same because of reasons explained below:
1. Cost of acquisition: If the capital asset is acquired by any of the modes given in Sec 49 (1) i.e gift, will,
inheritance etc, the cost of Acquisition of the Previous Owner (in this case X) should be considered as
Deemed cost of acquisition of the assessee.
2. Period of holding: As per Explanation 1 to section 2(42A), in case the capital asset becomes the
property of the assessee in the circumstances mentioned in section 49(1), inter alia, by way of gift by the
previous owner, then for determining the nature of the capital asset, the aggregate period for which the
capital asset is held by the assessee and the previous owner shall be considered.
3. Indexation benefit: As per the view expressed by Bombay High Court in CIT Vs Manjula J. Shah 16
Taxman 42, in case the cost of acquisition of the capital asset in the hands of the assessee is taken to
be cost of such asset in the hands of the previous owner, the indexation benefit would be available from
the year in which the capital asset is acquired by the previous owner. If this view is considered, the
indexed cost of acquisition would have to be calculated by considering the Cost Inflation Index of
FY.2001-02.

Q2. Mr. A converts his capital asset acquired for an amount of ` 50,000 in June, 2003 into stock-in-trade
in the month of November, 2016. The fair market value of the asset on the date of conversion is `
4,50,000. The stock-in-trade was sold for an amount of ` 6,50,000 in the month of September, 2020.
What will be the tax treatment?
Ans. 2. In case of conversion of capital asset into stock-in-trade, Capital Gain arises in the year of
conversion (i.e. PY. 2016-17) but will be taxable only in the year in which the stock-in-trade is sold (i.e. PY.
2020-21). Profits from business will also be taxable in the year of sale of the stock-in-trade (P.Y.
2020-21). The long-term capital gains and business income for the AY.2021-22 are calculated as under:
Particulars ` `
Profits and Gains from Business or Profession
Sale proceeds of the stock-in-trade 6,50,000
Less: Cost of the stock-in-trade (FMV on the date of conversion) (4,50,000) 2,00,000
Long Term Capital Gains
Full value of the consideration (FMV on the date of the conversion) 4,50,000
Less: Indexed cost of acquisition (` 50,000 x 264 ÷ 109) 1,21,101 3,28,899
Note: For the purpose of indexation, the cost inflation index of the year in which the asset is converted into
stock-in-trade should be considered.
Q.3. On January 31, 2021, Mr. A has transferred self-generated goodwill of his profession for a sale
consideration of ` 70,000 and incurred expenses of ` 5,000 for such transfer. You are required to compute
the capital gains chargeable to tax in the hands of Mr. A for the A.Y. 2021-22.
Ans 3. As per the decision of the Supreme Court in the case of B.C Shrinvasa Shetty, if the computation
provision cannot be applied to a given situation, it is not chargeable to tax even if it is covered by the
charging provision.  In the given case, the amount of ` 70,000 received on transfer of goodwill of
profession is not chargeable to tax.
Q.4. The balance sheet of a company X Ltd. as on 31.3.2020 is as under:
LIABILITIES ` ASSETS `
Paid up Capital 5,00,000 Software Division
Reserves & Surplus 6,00,000 Fixed Assets (Revalued by ` 75,000) 2,00,000
Revaluation Reserve 2,00,000 Debtors 1,00,000
Creditors Stock 50,000
Software Division 1,50,000 Telecom Division
Telecom Division 2,50,000 Fixed Assets (Revalued by ` 75,000) 1,00,000
Cement Division 1,00,000 Debtors 75,000
Stock 2,10,000
Investment (FMV ` 3,00,000) 1,50,000
Cement Division
Fixed Assets (Revalued by ` 50,000) 1,30,000
Machinery (Depreciable) 3,05,000
Debtors 3,00,000
Stock 1,00,000
Investments (FMV ` 1,00,000) 80,000
18,00,000 18,00,000
On 1.4.2020 X Ltd. decides to sell its Cement Division to Z Ltd. for ` 14,00,000. The Cement Division was
set up on 30.6.2010. In the agreement to sell, the company specifies that the land is valued at ` 3,25,000
for the purpose of payment of stamp duty by the purchaser. It is clarified in the agreement that this value
has nothing to do with the consideration of ` 14,00,000. The machinery transferred in the slump sale
belongs to Block of assets of Plant & Machinery on which depreciation rate is 15%. The WDV of Block of
assets of Plant & Machinery as on 1.4.2020 is ` 8,00,000. The company has acquired a new machinery 'A'
on 30.6.2020 for ` 2,00,000 and has sold a machinery 'B' on 31.12.2020 for ` 6,50,000. From the records
maintained under the Companies Act, 2013 the company ascertains that the machinery transferred in the
slump sale was acquired at the actual cost of ` 5,00,000 on 31.12.2014.
Ans 4.
 There is a sale of an undertaking being the Cement Division which constitutes business activity as a
whole. The sale is for lumpsum consideration i.e. ` 14 Lakhs and therefore, it is a slump sale on which
section 50B applies.
 Cement Division was established on 30.06.2010 and is transferred on 1.04.2020. Capital Gains shall be
Long Term Capital Gains and taxable in Assessment Year 2021-22.
LONG TERM CAPITAL GAINS ON SLUMP SALE AS PER SECTION 50B:
Period of holding: 30.6.2010 to 1.4.2020 Long term
Full value of consideration (Slump Sale Consideration) ` 14,00,000
Less: NET WORTH of undertaking transferred (Note 1) ` 6,65,214
Long term Capital Gain ` 7,34,786
Note 1: Computation of Net worth of the undertaking transferred
Particulars `
Debtors 3,00,000
Stock 1,00,000
Investment 80,000
Land (1,30,000 – 50,000) 80,000
Book value of Non-depreciable assets 5,60,000
WDV of Depreciable assets (Note 2) 2,05,214
Total value of assets 7,65,214
Less: Liabilities: Creditors of cement division (1,00,000)
Networth of the undertaking transferred 6,65,214
Note 2: Computation of WDV for charging depreciation for AY 2021-22
Particulars `
Opening WDV of Block of Assets as on 1.4.2020 8,00,000
Add: Actual cost of Machinery ‘A’ acquired during the previous year 2,00,000
Less: Sales Price of Machinery ‘B’ sold during the previous year (6,50,000)
3,50,000
Less: Reduction as per Section 43(6)(c)(i)(c):
Actual cost of Machinery transferred in slump-sale 5,00,000
Less: Depreciation for PY 2014-15 @ 7.5% (37,500)
Less: Depreciation for PY 2015-16 @ 15% (69,375)
Less: Depreciation for PY 2019-20 @ 15% (36,214) (2,05,214)
WDV for Assessment Year 2019-20 1,44,786
Therefore, WDV of assets transferred in slump sale as per section 43(6)(c)(i)(c) is ` 2,05,214.
Q.5. R owns a residential house, which was purchased by him in 1996 for ` 3,00,000. The fair market
value of the house as on 1.4.2001 was ` 12,50,000. This house is sold by him on 16.7.2020 for a
consideration of ` 45,00,000. The value adopted by stamp valuation authority for collecting stamp
duty is ` 50,00,000. The brokerage and other expenses on the transfer were ` 15,000. The due date
of furnishing the return of income is 31st July, 2021.
Compute the capital gain for the assessment year 2021-2022 if:
(a) He invests ` 10,00,000 for purchase of a new house on 14.5.2021;

(b) He purchased a piece of land for construction of a house on 21.10.2020 for ` 7,50,000
and deposited ` 4,50,000 in the Capital Gains Account Scheme on 15.6.2021 and a further
sum of ` 1,80,000 on 30.6.2022;
(c) He invested ` 9,00,000 on construction of an additional floor at a residential house already
owned by him. The investment is made during the period 1.10.2020 to 31.12.2020;
(d) He invested ` 10,00,000 in Capital Gains Account Scheme on 29.6.2021, ` 1,00,000 on
1.7.2021 and ` 3,00,000 on 1.8.2021. He purchased a house property on 5.4.2022 for
` 9,00,000 by withdrawing this amount from the Scheme. No further investments were made
by him.
Ans 5. Statement showing gross LTCG Period of holding [1996 to 15.7.2020 > 24 months]
Particulars `
Full value of Consideration (As per Sec. 50C) 50,00,000
Less: Expenses on Transfer 15,000
301(2020 - 2021) (37,62,500)
Less : a. Indexed cost of acquisition 12,50,000 x
100 (2001-2002)
b. Indexed cost of Improvement Nil
Taxable LTCG 12,22,500
Situation (a)
Date of transfer of original residential House = 16.7.2020
Time limit of purchase of new residential House till 15.7.2022
Actual date of purchase of new residential House: 14.5.2021
Particulars `
Gross LTCG 12,22,500
Less : Exempt u/s 54
Lower of : a. Amt invested in new house & 10,00,000
b. Capital Gain 12,22,500 (10,00,000)
Net Taxable LTCG 2,22,500
Situation (b)
Particulars `
Lower of: a. Purchase of land 7,50,000 4,50,000
Deposit in CGAS on 15.6.2021 4,50,000
Total amount eligible 12,00,000
b. Capital Gain 12,22,500 (12,00,000)
Net Taxable LTCG 22,500
Note 1: Cost of land is an integral part of cost of construction. Hence, exemption can be claimed even for cost of
land.
Note 2: Deposit in CGAS after the due date of filling return of income is not eligible for exemption u/s 54.
Situation (c)
Particulars ` `
Lower of : a. Construction of additional floor 9,00,000
b. Capital Gain 12,22,500 (9,00,000)
Notes: Construction of additional floor of the existing house is considered as construction of new house. Hence it
is also eligible for exemption u/s 54.

Situation (d) : AY 2021-22:
Particulars ` `
Lower of : a. Amt. deposited in CGAS 11,00,000
b. Capital Gain 12,22,500 (11,00,000)
Situation (d) (AY 2023 – 24) (PY 2022 – 23)
Date of Transfer of original residential house: 16.7.2020
Time limit for utilisation of amount deposited in CGAS: 15.7.2023
The unutilised amount is taxable in the year in which the time limit of 3 years expires.
Particulars `
Amt Deposited in CGAS 14,00,000
But Amount Exempted 11,00,000
Less : Amount utilised for construction of House till 15.7.2023 (9,00,000)
Note: If the amount withdrawn from CGAS is not utilised for the specified purpose then, the amount not so
utilised shall be taxed as LTCG in the year in which period of 3 years from the date of transfer of original asset
expires.
Q.6. M sold gold ornaments on 16.7.2020 for a sum of ` 45,00,000. This gold ornaments were purchased by him in
1995 for ` 8,00,000. The fair market value of the gold ornaments as on 1.4.2001 was ` 12,00,000. He spent
` 2,00,000 till 31.7.2021 (the due date for filing of the return) on construction of a house property and
deposited ` 5,00,000 on 30.6.2021 under capital gain scheme and a further sum of ` 1,50,000 on 30.8.2021.
He withdrew from the capital gain scheme a sum of ` 4,00,000 for construction of the house property till the
stipulated time.
Compute the capital gain chargeable to tax on this transaction for various relevant assessment years.
Ans 6. AY 2021 – 22 (PY 2020 – 21)
Statement showing Taxable LTCG (POH : 1995 to 15.7.2020 > 36 months)
Particulars ` `
Less : Expenses on Transfer Nil
Less : Indexed cost of acquisition 12,00,000 x

301(2020 - 2021)
100 (2001-2002) (36,12,000)
Gross LTCG 8,88,000
Less: Exempt u/s 54F:
Construction of HP 2,00,000
Deposit in CGAS on 30.6.2021 5,00,000
Amount Invested 7,00,000
8,88,000
Eligible Investment LTCG x 7,00,000 x
Net Considerat ion 45,00,000
(1,38,133)
Net taxable LTCG 7,49,867
AY 2024 - 25 (PY 2023 – 24) Date of transfer of original Capital Asset 16.7.2020
Time limit for construction of Residential House by withdrawing from CGAS - till 15.7.2023
Particulars `
Amt deposited in CGAS 5,00,000
Less: Amount utilised for the construction of house till 15.7.2023 4,00,000
Amount not utilized 1,00,000
 LTCG taxable during AY 2019 – 20 is as calculated below:
Amount unutilised
= GrossLTCG x 1,00,000 x 8,88,000 =19,733/ -
Net Considerat ion 45,00,000

CA INTERMEDIATE – INCOME TAX [May 2021] MENSA COMMERCE CLASSES
Section 56(1): Income is taxable under the head income from other sources, if following three conditions
are fulfilled:
1. There should be an Income.
2. Such income should not be exempt.
3. Such income should not covered under any preceeding heads of Income i.e. [IFS, IFHP, PGBP,
IFCG]
Following is the Illustrative list of incomes chargeable to tax under the head” Income from other
sources”:
1) Examination fees received by a college teacher university;
2) Salaries received by MP / MLA are taxable u/s 56(1). However, Daily allowance and Constituency
Allowance received by them is totally exempt u/s 10(17)
3) Amount received by part time director from the company is taxable u/s 56(1). Example: Directors’
Sitting Fees received by part time director.
4) Director’s commission for standing as a guarantor to bankers or for underwriting shares of new
company;
5) Interest on employees contribution in case of unrecognised Provident Fund;
6) Income from subletting
7) Rent of plot of land;
8) Income from royalty (If it is not an income from business/profession);
9) Annuity payable under a will, contract, trust deed (excluding annuity payable by employer which is
chargeable under the head ’Salaries);
10) Pension and Family pension.
Pension Pension & Family Pension Family Pension
Family Pension Family pension Other

Pension received Other cases
received by any received by the case
by an individual
member of family widow / children / s
who has been in
of individual who nominated heirs of a
the service of the
has been member of armed
Central or State
Received Received awarded “Param forces of the Central
Government and
from from Vir Chakra” or Govt. (including para
has been awarded
Employer Financial “Maha Vir – military forces) in
“Param Vir
Institution Chakra” or “Vir case of the death of
Chakra” or “Maha
Chakra” or such such member in the
Vir Chakra” or “Vir
other gallantry course of
Chakra” or such Taxable
u/h “IFS” Taxable award. [Exempt operational duties.
other gallantry
award. u/h “IFOS” u/s 10(18)] [Exempt u/s 10(19)]
Particulars ` `
Totally exempt from Family pension received xxx
tax u/s 10(18). Less: Deduction allowed u/s 57: (xxx)
a) Amount received × 1 xxx
3
b) Maximum limit 15,000 (xxx)
Taxable Family Pension xxx
11) Agricultural Income : Agricultural income derived from a land situated in India is exempt from tax
under section 10(1). However, Agricultural Income derived from agricultural lands situated outside
India is taxable.
Section 56(2): Following Incomes are specifically taxable under the head “IFOS”
1) Dividend Income [Section 56(2)(i)]: Chargeability of dividend income [Section 8]
Nature of Dividend Year of Chargeability
(i) Final Dividend The previous year in which it is declared in the AGM.
(ii) Interim Dividend The previous year in which dividend is unconditionally
made available.
(iii) Deemed Dividend u/s 2(22) The previous year in which it is distributed or paid.
Chapter 8 – Income from Other Sources 82

Condition No 3: Such transfer of Capital Asset should be during the “previous year”.
Condition No 4: Such Capital gains should not be exempt from tax under section 54 series.
Computation of Capital Gains [Section 48]: There are 2 types of Capital Gains:
Computation of Short Term Capital Gains Computation of Long Term Capital Gains
Particulars ` Particulars `
Full value of consideration xx Full value of consideration xx
Less: Expenses on transfer (xx) Less: Expenses on transfer (xx)
Net Consideration xx Net Consideration xx
Less: Cost of acquisition. (xx) Less: Indexed Cost of acquisition. (xx)
Less: Cost of improvement (xx) Less: Indexed Cost of improvement (xx)
Gross short-term capital gains xx Gross Long-term capital gains xx
Less: Exemption u/s 54B,54D, if any. (xx) Less: Exemption u/s 54, 54B, 54D, 54EC, 54F if any. (xx)
Taxable short-term capital gains xx Taxable long-term capital gains xx
INDEXATION:
1) In computing capital gains arising from the transfer of a long-term capital asset, deduction can be claimed for the
cost of acquisition and the cost improvement after indexing them with the help of following index numbers.
FY CII FY CII FY CII FY CII FY 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
2) Indexed Cost of acquisition / improvement is calculated with the help of following formula:
Indexed Cost of acquisition = Cost of acquisition or FMV as x
on 1.4.81, whichever is higher CII for the year of acquisition by the assessee
or PY1981-82,whichever is later.
Note: W.e.f AY 2021-22, where the capital asset transferred is land or building or both, the fair market value of such
asset on 1.4.2001 shall not exceed the stamp duty value, wherever available, of such asset as on 1.4.2001. Stamp
duty value means the value adopted or assessed or assessable by any authority of the Central Government or a
State Government for the purpose of payment of stamp duty in respect of an immovable property.

Indexed Cost of improvement = Cost of improvement x
CII for the year of improvement
3) Section 48 Proviso IF Long term Capital Asset = Bonds or Debentures
Normally However in case of following, indexation benefit is allowed:

i) Capital Indexed Bonds issued by Government.
Indexation benefit is not allowed. ii) Sovereign Gold Bonds issued under sovereign Gold bond scheme, 2015.
Note 6: Conversion of stock-in-trade into capital asset:

a) For computing PGBP Income – Section 2(24)(xiia) and Section 28(via): As per section 2(24)(xiia) FMV on the
date of conversion into capital asset = PGBP income.
b) For computing Capital Gains, following points should be kept in mind:
(i) Section 2(42A): Period of holding should be taken from date of conversion to date of transfer.
(ii) Full value of consideration = Gross selling price of capital asset.
(iii) Section 49(9): Cost of acquisition = Fair market value as on the date of conversion.
(iv) Indexation of cost of acquisition from year of conversion to year of transfer.
(v) Indexation of cost of improvement: from year of improvement to year of transfer.
Deemed dividend u/s 2(22)(d): Any distribution by a company to its shareholders on account of reduction
of share capital to the extent to which the company possesses accumulated profits, whether capitalised or
not. Pictorial presentation
Company in Particulars `
Internal a) Cash distributed. xx Shareholder
reconstruction b) FMV of assets distributed xx
Total xx
Distribution to the extent of Distribution in excess of accumulated profits

accumulated profits whether
capitalised or not. (Note 1)
Particulars `
Full Value of consideration. (Cash and assets xx
Section 115O & Section 10(34) are distributed in excess of accumulated profits)
deleted W.e.f AY 2021-22. Less: Expenses on transfer (xx)
Therefore W.e.f AY 2021-22 Net Consideration xx
dividend is taxable in the hands of Less: Cost of acquisition. (xx)
shareholders.
a)  Amount paid for  Reduction in face value
acquiring shares x Face value before reduction
 
Less: Cost of improvement. (xx)
Income from Capital Gains xx
Deemed dividend u/s 2(22)(e): Any payment to the extent of accumulated profits (excluding capitalised
profits) by a Private company of any sum by way of:
i) loan or advance to a shareholder who holds the beneficial ownership of equity shares carrying not
less than 10% voting power;
ii) loan or advance to any concern (HUF, firm, AOP, Body of Individuals or a company) in which such
shareholder is a member or partner holding substantial interest (20% or more beneficial interest at
any time during the previous year).
iii) any payment on behalf of or for the individual benefit of any such shareholder made to any person.
E.g. personal expenditure paid by such company.
Exceptions to Section 2(22)(e):
1) Any advance or loan given during the normal course of its business provided the lending of money is a
substantial part of the business of the company.
2) Trade advances in the nature of commercial transactions would not fall within the ambit of word
advance in S. 2(22)(e) and therefore, the same would not to be treated as deemed dividend.
3) If the Loan had been treated as dividend and subsequently company declares dividend to all
SH’s including borrowing SH, and dividend so paid is set-off by company against the previous
borrowing, then adjusted amount will not be treated as deemed dividend.
4) Any payment made by a company to shareholders on purchase of its own shares. Such buyback of
shares attracts capital gains tax liability in the hands of the shareholder u/s 46A.
5) Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the
demerged company (whether or not there is a reduction of capital in the demerged company) shall not
be treated as dividend.
(i) Loan Registered & Beneficial shareholder holding

Private
10% or more shares in Private Company
Company
HUF / Firm / AOP Holding 20%

(ii) Loan Personal
& BOI / Company or more Transaction
(iii) Personal Expenses

of shareholder. Third Party

Deemed Dividend covered by Deemed Dividend covered by section
section 2(22)(a)(b)(c)(d) 2(22)(e)
Applicable to all companies. Applicable only in case of Private
companies.
Accumulated profits whether Accumulated profits possessed by the
capitalised or not. company. i.e., Non-capitalised profits.
Private Particulars ` Registered &

Company a) Loan / Advance to shareholder or a xx Beneficial shareholder
concern in which shareholder has holding 10% or more
substantial interest. shares in Private
b) Personal expense of shareholder xx Company
paid to third party.
Total xx
Distribution to the extent of accumulated profits Distribution in excess of accumulated

(excluding Capitalised profits): profits:
Section 115O & Section 10(34) are deleted W.e.f AY It is a capital receipt in the hands of
2021-22. Therefore W.e.f AY 2021-22 dividend is shareholder, therefore it is not taxable.
taxable in the hands of shareholders.
Important note: Dividend income is taxable under the head “Income from other sources” irrespective of
whether the shares are held as stock in trade or shares are held as investment.
2) Winnings & casual incomes [Section 56(2)(ib)]: Any winning from lotteries, crossword puzzles, races
including horse races, card games & other games of any sort or from gambling or betting of any form or
nature whatsoever; Section 115BB: Provisions of section 115BB are explained hereunder:
a) Winnings are taxable at a flat rate of 30% plus Health and education.
b) Deduction is not allowed for any expense [Section 58].
c) Losses cannot be set-off against winnings.
d) Deduction under Chapter VI-A is not allowable from such income.
e) Adjustment of unexhausted basis exemption limit is also not permitted against such income.
3) Employees contribution to staff welfare schemes [Section 56(2)(ic)]:
Any sum received by the assessee from his employees as contribution to any staff welfare scheme (if not
taxable under the head “Profits & gains of business or profession”)
4) Interest income [Section 56(2)(id)]:
Securities held as Stock-in-trade – Interest income is taxable under the head PGBP.
Securities held as Investments – Interest income is taxable under the head IFOS.
Interest exempt from tax [Section 10(11)] : Any payment (including interest) from a provident fund
under Provident Fund Act, 1925 or Public Provident Fund Scheme, 1968 shall be exempt from tax.
Interest exempt from tax [Section 10(12)] : Accumulated balance due and becoming payable to an
employee participating in a recognised provident fund.
Interest exempt from tax [Section 10(15)] : Interest on certain securities / bonds, savings certificates
and other certificates issued by the Government is exempt under provisions of Section 10(15) and will not
be part of Gross Total Income. Some of the securities / investments, interest on which is exempt are as
under :
(1) Interest on Notified Bonds / Certificates :
(i) Post Office Savings Bank Account (Single account upto ` 3,500, Joint account upto ` 7,000);
(ii) Post Office Cumulative Time Deposits Rules, 1981.
(iii) Fixed Deposit Scheme governed by the Post Office (Fixed Deposit) Rules, 1968.
(2) Interest on RBI Relief Bonds (only for individual of HUF);
(3) Interest on notified bonds / Debentures of Public Sector Companies; E.g. bonds of HUDCO,
National Hydroelectric Power Corporation., etc.
(4) Interest on notified bonds issued by a local authority or a state pooled finance entity.
(5) Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit
certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central
Government.
(6) Interest income receivable by a non-resident from a unit located in IFSC in respect of
moneys borrowed by it on or after 1.9.2019.
5) Income from letting of machinery, plant or furniture belonging to the assessee [Section
56(2)(ii)]:
Amount taxable Rent received in Deduction in respect of rent, repairs,
under the head = respect of plant / Minus rates & taxes, insurance, depreciation
IFOS machinery / furniture and other revenue expenditure.
6) Income from letting of plant, machinery or furniture along with the building and letting of
building is inseparable from the letting of plant, machinery or furniture [Section 56(2)(iii)]:
(Composite rent – already discussed in the chapter of Income from house property)
7) Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy [Section 56(2)(iv)]: Maturity proceeds of keyman insurance policy are
taxable. Taxability is explained in following diagram:
Taxability of maturity Proceeds of Keyman Insurance policy.
If policy is NOT assigned to Keyman If policy is assigned to Keyman

COMPANY = BENEFICIARY KEYMAN = BENEFICIARY
Maturity Proceeds received by

company is taxable u/s 28. If Assignee = Employee If Assignee  Employee
Maturity Proceeds are Maturity proceeds are

taxable u/h Income from taxable u/h Income from
salaries u/s 17 (3) other sources u/s 56(2)
8) Where a company, not being a company in which the public are substantially interested (closely held
company) receives from any resident person, any consideration for issue of shares that exceeds the
face value of such shares, the aggregate consideration received for such shares as exceeds the fair
market value of the shares. [Section 56(2)(viib)]
Exception:
Consideration received by a venture capital undertaking from a venture capital company or a venture
capital fund; or by a company from notified class of persons.
Fair market value of the shares shall be higher of—
(i) the value as may be determined in accordance with prescribed method; or
(ii) the value as may be substantiated by the company to the satisfaction of the Assessing Officer,
based on the value, on the date of issue of shares, of its assets, including intangible assets;
whichever is higher.

Pictorial presentation
Closely held Issues shares Any resident
company person
Receives consideration
Shares issued at Discount (OR) Shares issued at premium

Shares issued at par
No taxability in the Amount taxable Fair market

Consideration _
hands of the company in the hands of = value of the
received
the company shares
9) Interest received on compensation or on Enhanced compensation [Section 56(2)(viii)]

[Already discussed in the chapter of “Income from capital gains” while discussing Section 45(5)]
Amount taxable Interest on Initial /
50% of amount received as
under the head = enhanced Minus
standard deduction u/s 57.
IFOS compensation
10) Forfeiture of advance money received for transfer of capital asset [Section 56(2)(ix)]
Advance Money Forfeited
Advance money forfeited upto 31.03.2014 Advance money forfeited on or after 1.04.2014
1. It is a capital receipt and hence it is not 1. It is considered as income as per Section 2(24)
taxable in the year in which it is forfeited. – Definition of Income.
2. Such advance money forfeited by the 2. It is taxable under the head “Income from
assessee shall be reduced from cost of Other Sources” u/s 56(2)(ix).
acquisition while computing Capital Gains. 3. Such advance money forfeited shall NOT be
3. However, advance money forfeited by the reduced from cost of acquisition while
previous owner should be ignored. computing Income from Capital Gains.
11) Gifts received and any property (Movable as well as immovable) acquired for inadequate
consideration. [Section 56(2)(x)]
Taxable GIFTS Exempt
Gift received
a) From Relatives
Gifts Benefits or Gifts received b) On the occasion of Marriage of individual.
received perquisites from any
c) Inheritance / will
from arising out other person
d) On contemplation of Death of payer or Donor
Employer of business /
e) From Local authority
profession.
Taxable u/s f) From any Fund / Foundation / University / other
56(2)(vii) u/h educational institution / Hospital / Medical institution
Taxable u/s
Taxable u/s 28 “Income from registered u/s 10(23C).
17(2)(viii)
under the head Other g) From Trust registered u/s 12AA / 12AB.
under the
“Profits & Gains sources” if it is h) By Fund / Foundation / University / other educational
head “Income
of Business or not covered institution / Hospital / Medical institution referred to in
from salaries”
Profession” by exemption. Section 10(23C)(iv)(v)(vi)(via).
i) Under Transfers covered u/s 47(i)/(vi)/(via)/
(viaa)/(vib)/(vic)/(vica)/(vicb)/(vid)/(vii).
j) from an individual by a Private trust created solely for
the benefit of relative of the individual.

Gifts in Cash Gifts & Property acquired for inadequate consideration Other than cash
Aggregate Aggregate Movable Immovable

Gifts > Property Property
Gifts 
50,000 50,000
Totally Totally Received without Acquired for inadequate consideration

exempt taxable consideration [Gifts] (Inadequacy = SDV – Amount paid)
from tax
Covered by definition of NOT covered by definition If SDV of If SDV of If Inadequacy of each If Inadequacy of each
term “property” (Note1) of term “property” each each Property  Higher of Property > Higher of
Property Property (a) 50,000 (a) 50,000
 50,000 > 50,000 (b) 10% of consideration. (b) 10% of consideration.
Not taxable
Totally exempt Totally Totally Totally

Required without Acquired for inadequate consideration
from tax taxable exempt taxable
consideration. [Gifts] (Inadequacy = FMV – Amount paid)
from tax
Note 1: “Property” means the following capital asset of the assessee:

Aggregate Aggregate Acquired from Acquired from (i) Immovable property being land or building or both;
Gifts  Gifts > Registered any other (ii) Shares and securities;
50,000 50,000 Dealer person (iii) Jewellery;
(iv) Archaeological collections;
Totally Not taxable (v) drawings;
Totally
exempt taxable (vi) Paintings;
Aggregate Aggregate
from tax (vii) sculptures;
inadequacy  inadequacy >
(viii) any Work of art. or
50000 50000
(ix) Bullion.
Totally exempt Totally

from tax taxable

Relative includes following:
(5) Lineal Ascendant (7) S (6)Lineal Ascendant (7) S
(5) Grand Father (7) S (6) Grand Father (7) S
(7) S (7) S
(4) Brother (4) Brother

(5) Father (7) S (6) Father (7) S
(4) Sister (4) Sister
(7) S (7) S
(7) S (7) S

Individual (1) Spouse
(7) S (7) S
(5) (6) Lineal
(7) S = Spouse
(7) S Descendant
Deductible Expenses [Section 57]: The following expenditures are allowed as deductions from income
chargeable to tax under the head ‘Income from Other Sources’:
Section Nature of Income Deductions allowed
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
Proviso to Section 57(i): W.e.f AY 2021-22, Only expenditure of interest, restricted to a
maximum of 20% of dividend income or Income from units, shall be allowed to be deducted from
such income. No other deductions will be allowed from such income.
57(ia) Employee’s contribution towards If employees’ contribution is credited to their account in
Provident Fund, Superannuation Fund, relevant fund on or before the due date.
ESI Fund or any other fund setup for the
welfare of such employees.
57(ii) Rental income from letting of plant, Rent, Rates & taxes, Repairs, Insurance and
machinery, furniture with or without Depreciation (computed as per section 32, subject to
building section 38).
57(iia) Family Pension Sum equal to 33.33% of the pension or ` 15,000,

whichever is less, shall be allowed as deduction.
57(iii) Any other income Any other expenditure (not being capital expenditure)
expended wholly and exclusively for earning such
income.
57(iv) Interest on compensation or enhanced 50% of such interest.
compensation No other deduction shall be allowed therefrom.
58(4) Income from activity of owning and All expenditure relating to such activity.
Proviso maintaining race horses.
Inadmissible Expenses [Section 58]
(i) Personal expenses
(ii) Wealth – tax

(iii) Expenses of the nature described in Section 40 A.
(iv) Interest & salary payable outside India, if tax has not been paid or deducted at source.
(v) No deduction shall be allowed in respect of winnings from lotteries, cross word puzzles, card games,
races including horse race, gambling, betting, etc.
(vi) Provisions of section 40(a)(ia) providing for 30% disallowance for non-deduction of tax from payments
made to residents shall, so far as may be, also apply in computing income chargeable under the head
"income from other sources".
Deemed Income [Section 59]: Any amount received or benefit derived in respect of expenditure incurred
or loss or trading liability allowed as deduction, shall be deemed as income in the year in which the amount
is received or the benefit is accrued. This provision is similar to that of Section 41(1) under the head “Profits
and gains of business or profession”

Q.1. Mr. Hansie furnishes the following particulars of his income for the previous year 2020-21. Compute his
'Income from Other Sources' for the assessment year 2021-2022.
(a) Dividend from Microsoft Corporation, an US company ` 5,000
(b) Interest on Govt. Securities ` 4,500.
(c) Dividend from a Co-operative Society ` 1,500.
(d) Winning from lottery ` 4,200 net (TDS as per applicable rates)
(e) Winning from camel races ` 10,000.
(f) He has let office machinery at a monthly rent of ` 3,000. He spent ` 2,000 on repairs of the
machinery. Depreciation allowable on machinery as per Income Tax Rules ` 5,000.
(g) He has let one house property along with furniture for a composite rent of ` 10,000 p.m.
His expenditure on the above were:
 Repairs of the house : ` 2,000  Insurance premium :
 Collection charges : ` 3,000 On Building : ` 3,000
 Municipal taxes : ` 7,000 On Furniture : ` 2,000
 Depreciation as per the income tax rules :  Interest on capital borrowed for purchase
On Building : ` 7,000 of furniture & House : ` 12,000
On Furniture : ` 3,000
(h) He stays in a rented house paying rent of ` 8,000 p.m. since the house is too big for his
family, he has sublet ¼th portion of the house for a rent of ` 2,500 p.m. He also pays municipal
taxes and current repairs for the entire house ` 10,000 and ` 16,000 respectively.
(i) Family pension received on death of his wife ` 2,000 p.m.
(j) Salary as a Member of Parliament ` 24,000
(k) Daily allowance as Member of Parliament ` 16,000
(l) Income from agricultural land in Pakistan ` 10,000
Income from agricultural land in India ` 5,000
(m) Interest on post office savings bank ` 4,000 Interest on Corporation Bank Savings A/c. ` 2,000,
Interest on debentures of TELCO Ltd. ` 4,000, Interest on National Savings certificate VIII issue `
4,000.
(n) Interest received / accrued on Public Provident Fund ` 2,500.
(o) Received ` 20,000 interest on his contribution to an unrecognized Provident Fund on
retirement from his employer on 1st May 2020.
(p) Received ` 50,000 on maturity of his L.I.C. policy.
(q) Received a gift of ` 40,000 from a friend on 12th Nov. 2020 and a gift of ` 1,00,000 from the
brother of his grandfather.
Ans 1. Statement Showing Taxable Income from other sources for A.Y. 2021-22.
Particulars ` `
Dividend from Microsoft Corp., US Co. 5,000
Interest on Government Securities 4,500
Dividend from a co-operative society 1,500

Winnings from lottery 4,200
Add back: Tax Deducted at Source (4,200 x 30 / 70) 1,800 6,000
Winning from camel races 10,000
Rent from Letting of Machinery (3,000 p.m x 12) 36,000
Repairs 2,000
Depreciation 5,000 (7,000) 29,000
Rent from house property let-out with furniture 1,20,000
(10,000 p.m x 12 months)
i) Repairs of house 2,000
ii) Collection charges 3,000
iii) Municipal Taxes 7,000
iv) Depreciation (7,000 + 3,000) 10,000
v) Insurance Premium (3,000 + 2,000) 5,000
vi) Interest on capital borrowed for purchase
of furniture and house. 12,000 (39,000) 81,000
Rent from subletting of house property (2,500 × 12) 30,000
Less: Deduction u/s 57
i) Municipal taxes (10,000 × 1/4) (2,500)
ii) Rent paid / payable (8,000 × 12 × 1/4) (24,000)
iii) Current repairs (16,000 × 1/4) (4,000) (500)
Family Pension received (2,000 × 12) 24,000
Less: Deduction u/s 57
Lower of : (a) 1/3rd of pension received
i.e. 1/3rd of ` 24,000 8,000
(b) Notified amount 15,000 (8,000) 16,000
Salary as MP 24,000
Daily allowance as MP 16,000
Less: Exempt u/s 10(17) 16,000 Nil
Income from agricultural land in Pakistan 10,000
Income from agricultural land in India 5,000
Less: Exempt u/s 10(1) (5,000) Nil
Interest on Post Office Saving Bank A/c 4,000
Less: Exempt u/s 10(15) (3,500) 500
Interest on Corporation Bank Saving A/c 2,000
Interest on debentures of TELCO Ltd. 4,000
Interest on NSC VIII issue 4,000
Interest received/accrued on PPF 2,500
Less: Exempt u/s 10(11) 2,500 Nil
Interest on contribution to URPF 20,000
Amount received on maturity of Insurance Policy 50,000
Less: Exempt u/s 10(10D) (50,000) Nil
Gift received 1,40,000
Taxable Income from other sources 3,57,000
Note: Brother of grandfather is not covered by the definition of ‘relative’ for the purpose of Section
56(2). Hence, gift received from him will be taxable if the amount received exceeds the specified
limits.

“Failure will never overtake you if your determination to succeed is strong enough.”
Chapter 9. Clubbing of Income
Transfer of income where there is no transfer of assets [Section 60]: If a person transfers income
derived from an asset to another person, without transferring the underlying asset, then income so
transferred shall be clubbed in the total income of the transferor. Clubbing will be done irrespective of
whether such transfer is revocable or irrevocable, and whether such transfer was effected before or after the
commencement of the Income Tax Act, 1961.
Revocable transfer of assets [Section 61] All income arising to any person by virtue of a revocable transfer
of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total
income.
Note: Revocable transfer means a transfer in case of which there is a provision for the re-transfer, directly or
indirectly, of the whole or any part of the income or assets to the transferor
Remuneration to spouse from a concern in which the assessee has a substantial interest [S. 64 (1)
(ii)]: If the conditions mentioned below are satisfied, then salary etc. received by the spouse will be taxed in
the hands of the individual:
1) The tax payer is an individual.
2) He has substantial interest in a concern. (Substantial interest means holding 20% or more voting power
or share in profits alongwith relatives) Meaning of Relative: Relative in relation to an individual means: (a)
spouse of individual (b) brother / sister of individual and (c) any lineal ascendant or descendent of the
Individual.
3) Spouse of the individual is in receipt of income from such concern by way of salary, commission, fees or
other form of remuneration (whether in cash or in kind).
4) Such income is not solely attributable to the application of spouse’s technical or professional knowledge
and experience.
No clubbing if remuneration is due to technical or professional qualification: Where the remuneration is
solely attributable to the application of technical or professional qualification, knowledge and experience of the
spouse, such remuneration cannot be clubbed.
Clubbing when both husband and wife are having substantial interest and both are employed in the
concern:
Does WIFE possess
Does HUSBAND Manner of clubbing
technical or
possess technical or
Cases professional
professional knowledge
knowledge &
& experience?
experience?
I Yes No Salary of wife from the concern will be clubbed
with the income of the husband.
II No Yes Salary of husband from the concern will be
clubbed with the income of the wife.
III Yes Yes No clubbing. Salary income will be taxable in the
hands of the respective spouse.
IV No No Include the salary of the other spouse in the total
income of the spouse whose total income
excluding such remuneration is greater. (Refer
note)
Note: Where such income is once included in total income of the other spouse, it will continue to be so
included, unless the AO is satisfied after giving that spouse an opportunity of being heard.
Chapter 9. Clubbing of Income 92

Income from assets transferred to spouse [Section 64 (1) (iv)]: Subject to Section 27, where an asset is
transferred, directly or indirectly, by the individual to his / her spouse, otherwise than for adequate
consideration or in connection with an agreement to live apart, then income arising from such asset shall be
included in the income of transferor.
Analysis of Section 64 (1) (iv):
1) Significance of the phrase “subject to Sec 27”: If a house property is transferred and the aforesaid
conditions are satisfied, then transferor is deemed as owner of the property u/s 27. This case is not
covered by S. 64 (1) (iv).
2) Significance of the phrase “indirectly”: The effect of this is, even cross transfers are hit by S. 64 (1)
(iv). CIT Vs C.M. Kothari 49 ITR 107 (SC)
X Mrs.X
Gift 00
s a ss .100
et w s
o rth R
s e t wroth Rs.
s as 100
Gift 00
A Mrs.A
3) Significance of the phrase “Spouse”: Husband and wife relationship should subsist both on the date of
transfer of the asset and on the date of accrual of income. Then only the provisions of S. 64 (1) (iv) can
be invoked. Philip John Plasket Thomas Vs. CIT 49 ITR 97 (SC).
Notes:
a) It means transfer of asset before marriage is outside the scope of this section.
b) Similarly, if transferor-spouse dies, income though continued to be enjoyed by the transferee,
cannot be included in the income of deceased transferor's heir, as a widow or widower is not a
spouse.
4) Significance of the phrase “Income arising from such asset”:
a) Where cash is transferred by an individual to his spouse and the latter invests the same in units and
deposits, interest income is included in assessee's total income.
b) Where the assets transferred by an individual to his spouse are invested by the transferee in any
business, (not being as capital contribution in a firm), then proportionate income will be clubbed as
follows:
Income to be clubbed = Profit of the business x Amount invested out of transferred asset
Total capital in business as on the first day
of the previous year.
Where the assets transferred by an individual to his spouse are invested by the transferee as capital
contribution in any firm, then clubbing will be done as follows:
i) Proportionate clubbing will be done for interest on capital.
ii) Share of profit received from the firm should not be clubbed as it is exempt u/s 10(2A).
iii) Remuneration received from the firm cannot be considered for clubbing since it is paid for the
services rendered by the partner.
c) Where the assets transferred by an individual to his spouse is sold by transferee, then capital gains
derived by the transferee-spouse upon sale of assets transferred to her/him by the transferor-spouse
had to be included in the total income of the transferor-spouse-u/s 64(1)(iv) Seventilal Maneklal
Sheth Vs CIT-68 ITR 503 (SC) Capital gains on sale of transferred asset:
Note: Even the capital gains arising on account of transfer of an asset the form of which is changed by
the transferee-spouse shall be clubbed in the hands of the transferor-spouse. CIT Vs Smt Pelleti
Sridevamma 216 ITR 826 (SC).

Notes:
(a) Any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of
computing the net worth. Contingent liability should also be ignored.
(b) A report of a Chartered Accountant indicating the computation of the net worth and certifying the
correctness of net worth is required to be furnished before the specified date referred to in section 44AB
(W.e.f AY 2021-22). Specified date referred to in section 44AB is one month prior to the due date of
furnishing Return of Income (W.e.f 2021-22).
Section 50C & Section 43CA: Full value of consideration in case of Transfer of Immovable Property:
1) Immovable property held as stock in trade – S. 43CA is applicable – PGBP Chapter.
2) Immovable property held as capital asset – S. 50C is applicable – Capital Gains Chapter.
SDV < 110%* of AV FVOC in case of Transfer of immovable SDV > 110%* of AV
property [Section 50C & Section 43CA]
FVOC = AV
If SDV is challenged by the
If SDV is not challenged by the Assessee
assessee in any court / tribunal.
but Assessee claims that SDV > FMV, then
the assessee can request assessing officer
to get valuation of property done from
FVOC = SDV [Subsequently on conclusion of the
Department Valuation officer.
case income computation will be revised]
SDV = Stamp duty value

AV = Agreement value
FVOC = Full value of Situation C I Situation C II Situation C III
consideration If DVO < SDV If DVO < SDV If DVO > SDV
DVO = Value determined But DVO > AV And DVO < AV And DVO > AV
by department FVOC = DVO FVOC = AV FVOC = SDV
valuation officer
SDV of which date shall be considered for the purpose of determination of FVOC..?
If Date of Date of If Date of Date of

= ≠
Agreement Registration Agreement Registration
FVOC = SDV on Date of Agreement / Registration (Date of Registration is after the date of Agreement)
If Entire consideration is received If Part or Full consideration is received on or before agreement

after the date of agreement. date by account payee cheque / account payee bank draft / ECS
through a bank or such other prescribed electronic mode.
SDV on the date of registration.

SDV on the date of agreement
* Increased from 105% to 110% w.e.f AY 2021-22.
Illustration
Particulars Situation A Situation B Situation C I Situation C II Situation C III
AV 30 20 20 20 20
110% of AV 33 22 22 22 22
SDV 25 25 25 25 25
DVO -NA- -NA- 23 18 27
FVOC 35 25 23 20 25

Q.1. During the previous year 2020-21 the following transactions occurred in respect of Mr. A, Mrs. A and
his minor son:
a) Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of ` 25,000 from the firm for
promoting the sales of the firm. Mrs. A possesses no technical or professional qualification.
b) Mr. A gifted a flat to Mrs. A on April 1, 2017. During the previous year the flat generated a net income of `
52,000 to Mrs. A. Mrs. A invested the amount of ` 52,000 and earned an interest income of ` 6500.
c) Mr. A gifted ` 2,00,000 to his minor son who invested the same in a business and he got a share income
of ` 20,000 from the investment.
d) Mr. A's minor son derived an income of ` 20,000 through a business activity involving application of his
skill and talent.
e) Mr. N, a friend of Mr. A, gifted some jewellery having Fair Market Value of ` 80,000 to his minor son A.
f) Mr. A has transferred an amount of ` 1,00,000 to a trust. During the year, the trust derived an income of `
10,000 from investing such amount. 30% of the income generated by the trust is to be used for the benefit
of Mrs. A and 70% for the benefit of his minor son.
g) During the year Mr. A got a monthly pension of ` 15,000. He had no other income.
h) Mrs. A received salary of ` 30,000 per month from a part time job.
Discuss the tax implications of each transaction and compute the total income of Mr. A, Mrs. A and their
minor child.
Ans 1. Statement showing computation of taxable income
Mr. A Mrs. A Minor child
Particulars
Rs. Rs. Rs. Rs. Rs. Rs.
Income from Salaries
Gross salary 1,80,000 3,60,000
(-) Deduction u/s 16 (50,000) 1,30,000 (50,000) 3,10,000
IFHP
GAV (Being Actual Rent) 52,000
Less: Std. Deduction @ 30% (15,600) 36,400
Profits & Gains of Business or Profession 20,000
(Note 2)
Income from Other Sources
Commission from AB & Co. received by 25,000
Mrs. X. [Clubbed u/s 64(1)(ii)]
Interest Income (Note 1) 6,500
Income from amount transferred to trust
[Clubbed u/s 64(1)(vii)] 3,000
Income from Investment 20,000
[Clubbed u/s 64(1A)] (Note 2)
Jewellery received as gift 80,000
[Clubbed u/s 64(1A)] (Note 2)
1,00,000
(-) Exemption u/s 10(32) (1,500) 98,500
Net taxable income 1,94,400 4,15,000 20,000
Note 1: Second generation income cannot be clubbed: Income from “Income generated from the
transferred asset” will not be clubbed u/s 64(1)(iv). Therefore interest income earned by Mrs. A by investing
rental income earned by letting-out house property cannot be clubbed u/s 64(1)(iv).
Note 2: Income earned by minor child by application of skill and talent will not be clubbed with income of
parents u/s 64(1A), but income from investments & gifts received will attract clubbing provisions u/s 64 (1A).

SET OFF AND CARRY FORWARD OF LOSSES AT A GLANCE
Introduction: Process of Set-Off & Carry Forward:

 It is easy to find out GTI if income under each head from each source is Step 1: Inter-source Adjustment.
positive. Step 2: Inter-head Adjustment
 Problem, however, arises if there is a loss from one or more sources under one (Only if loss cannot be Set-off under Step 1)
or more heads of income. Step 3: Carry Forward of a loss
 Income includes “Loss” – Negative Income. (Only if loss cannot be Set-off under Step 1 & Step 2).
 “Source of Income” v/s “Head of Income” – Which is wider term?
Sr. Nature of Loss Set – Off in Current Assessment Year Whether Set – Off in subsequent Shall Is it
No. C/F Assessment Year / s business Necessary
Under same Head Under Other Allowed..? Under same Head Under other heads be to
(Section 70) Heads (Section (Period continued Submit
“Inter-Source 71) of C/ F) Return of
Adjustment” “Inter-Head loss in time
Adjustment”
1. Loss Under IFHP Allowed Allowed Allowed - NA - No
(Except 8 years (u/s 71B) Not Allowed
Winnings)
2. Loss from Allowed, only against profits Allowed, only against
speculation of speculative business Not Allowed 4 years profits of speculative Not Allowed Not Yes
business business. (u/s 73) Necessary
Specified of other specified business Not Allowed No Time profits of specified Not Allowed Not Yes
Business u/s limit business Necessary
35AD (u/s 73A)
4. Loss from Non- Allowed, against profits of Allowed Not Allowed [Except
speculative speculative business, Non- Allowed 8 year (u/s 72) profits from Not Yes
business speculative business, and (Except Salary business activity Necessary
Specified business. & Winnings) taxable under other
heads]
See Note 1
5. Unabsorbed Allowed
Depreciation u/s Allowed Allowed No time Priority of Set-off: Allowed Not No
32(2), Capital (Except Salary limit a) Current Depre. (Except Salary & Necessary
expenditure on & Winnings) b) B/f business loss. Winnings)
Scientific c) Unabsorbed
Research & Depre.
Family Planning
Chapter 10 - Set-off & Carry forward of losses 96

Long Term Capital Gains Income from Capital Gains (Tax Rates) Short Term Capital Gains
Section 112A Section 112 1) Short term Capital Gain on transfer of listed equity Other Short Term
1) LTCG (without indexation benefit) in excess of ` 1,00,000 on Capital Gains
shares, Units of equity oriented mutual fund / units
transfer of: of business trust – Sale transaction is done
a) Listed equity shares, if STT is paid on purchase & sale of through stock exchange & STT is paid. Tax @ Normal rates.
such shares. 2) Short-term capital gains arising from transaction
b) Units of equity oriented mutual fund / units of business trust, undertaken in foreign currency on a recognized
if STT is paid on sale of such units. stock exchange located in an International
2) LTCG arising from transaction undertaken on a recognized stock Financial Services Centre (IFSC) even though
exchange located in an International Financial Services Centre STT is not paid in respect of such transaction.
(IFSC), where the consideration is received / receivable in foreign
currency, even though STT is not paid on such transaction.
Tax @ 15% as per Section 111A.
(Without indexation benefit & benefit of currency fluctuation).
Tax @ 10%
If Long Term Capital Asset = unlisted If LTCA = (i) Listed securities other than units & If LTCA = other assets
securities or shares of closely held company. (ii) Zero coupon Bonds.
Tax @ 20% with

Tax @ 20% with Indexation or 10% indexation benefit.
If Assessee = Foreign company or Non-corporate Non-resident person. without indexation whichever is
Other Assessees
beneficial to assessee.
Tax @ 10% without indexation and benefit of currency fluctuation. Tax @ 20% with indexation benefit.

1) In case of a Resident individual or a Hindu Undivided Family (HUF), the LTCG taxable u/s 112 or u/s 112A or STCG taxable u/s 111A shall be
reduced by the unexhausted basic exemption limit and the balance shall be subject to tax.
2) No deduction under Chapter VI-A can be claimed in respect of such LTCG taxable u/s 112 or u/s 112A or STCG taxable u/s 111A.
3) Rebate u/s 87A is not available in respect of tax payable @ 10% on Long-term Capital Gains u/s 112A.
4) Enhanced surcharge of 25% (If total income exceeds ` 2 crores) and 37% (If total income exceeds ` 5 crores) levied by Finance (No. 2) Act
2019, in case of Individuals / HUF / AOPs / BOIs, has been withdrawn on tax payable at special rates u/s 111A and u/s 112A on capital gains
arising from the transfer of equity share in a company or unit of an equity-oriented fund / business trust, which has been subject to securities
transaction tax. [Press Release dated 24-8-2019].

Q.1. The following particulars are available about Mr. Sanjay (non-resident) aged 75 years
for the previous year ending March 31, 2021:
1) Profit of business ‘X’ carried on in India ` 2,00,000.
2) Loss of business ‘Y’ carried on in India ` 1,00,000.
3) Profit of business ‘Z’ carried on in Singapore and controlled from India, the profit having
been received in Singapore ` 45,000.
4) Loss of business ‘P’ carried on in Dubai, the business being controlled from Delhi
` 75,000.
5) Income from house property in India ` 1,50,000 (net).
6) Income from house property in Dubai, 40% of which is received in India ` 3,00,000
(net).
7) Long term capital loss on sale of land in India ` 5,00,000.
8) Loss from agriculture activity in China being invested there ` 70,000.
9) Long term capital gain on transfer of shares of Indian companies, sold in Singapore and
gains received there ` 4,00,000.
10) Short term capital gain on sale of house in India but received in Dubai ` 60,000.
11) Interest on Government securities accrued in India but received in Australia ` 30,000.
12) Income from activity of owning and maintaining race horses in India ` 4,00,000.
13) Loss from S.O.P. house in Jaipur ` 25,000.
14) Carried forward unabsorbed depreciation for assessment year 2006-2007 ` 1,64,000.
Compute the total taxable income and losses to be carried forward for the AY 2021-22.
Ans. 1. Computation of Total Income
Particulars ` `
(1) Income from House Property
In India 1,50,000
In Dubai (3,00,000 x 40%) 1,20,000
(assumed to be net computed income) 2,70,000
Less: Loss from S.O.P. at Jaipur (25,000) 2,45,000
(2) Income from Business
Business X carried on in India 2,00,000
Less: Loss of business Y (1,00,000) 1,00,000
(3) Capital Gains
LTCG on sale of shares 4,00,000
Less: LTCL on sale of land (4,00,000) Nil
Balance LTCL on sale of land c/f u/s. 74 (1,00,000) Nil

STCG on sale of house in India 60,000 60,000
(4) Income from other sources
Interest on government securities accrued in India 30,000
Income from owning and maintaining race horses in 4,00,000 4,30,000
India
GTI before set-off of unabsorbed depreciation 8,35,000
Less: Unabsorbed Depreciation u/s 32(2) (1,64,000)
Gross Total Income. 6,71,000
Less: Deduction under Chapter VI-A --
Net Taxable Income 6,71,000
Notes:
1) For a non-resident, only what is earned / received in India initially is taxable in India, i.e. if
business is controlled from India but earned and received outside India, then its income is
not taxable. Thus business income of Singapore, loss from business of Dubai are not
considered.
2) Any asset or source of income if located in India, it is taxable in the hands of assessee,
even if received outside India.

“The beautiful thing about learning is that no one can take it away from you.”
SECTION 139(1): Voluntary Return: The following persons are under statutory obligation to file return of
income:
1) Every company or Firm – Should always file the return of income irrespective of income or loss.
2) Person other than a company or a firm – Should file the return of income if the total income
3) If a person is resident & ordinarily resident and is not required to file return of income as per above
provisions should also file the return of income or loss if he is covered in following situations:
i) If such person during the previous year holds (as a beneficial owner or otherwise) any asset
(including financial interest in any entity) located outside India or any signing authority in any
bank account located outside India; or
ii) If such person is a beneficiary of any asset (including financial interest in any entity) located
outside India. However, an individual being a beneficiary would not be required to file return
of income, if income arising from asset located outside India is includible in the income of
beneficial owner.
4) Person, being an individual or a HUF or an AOP / BOI, whether incorporated or not, or an
artificial juridical person whose total income or the total income of any other person in respect of
which he is assessable under this Act during the previous year without giving effect to the
provisions of section 10(38), 10A, 10B, 10BA & Chapter VI-A, section 54 / 54B / 54D / 54EC / 54F /
54G / 54GA or 54G [Budget 2019] exceeds the basic exemption limit.
5) [Budget 2019] Any person other than a company or a firm, who is not required to furnish a
return u/s 139(1), is required to file income-tax return in the prescribed form and manner on or
before the due date if, during the previous year, such person –
a) has deposited an amount or aggregate of the amounts exceeding ` 1 crore in one or more
current accounts maintained with a banking company or a co-operative bank; or
b) has incurred expenditure of an amount or aggregate of the amounts exceeding ` 2 lakh for
himself or any other person for travel to a foreign country; or
c) has incurred expenditure of an amount or aggregate of the amounts exceeding ` 1 lakh
towards consumption of electricity; or
d) fulfils such other prescribed conditions.
Due dates for filing return of income [Section 139(1)]: Due dates are as follows:
Different situations Due date for
filing of return.
1) Where the assessee is required to furnish report referred to in Section 92E November 30
in respect of international transactions.
2) Where the assessee = Company. September 30
3) Where the assessee is a person other than a company, whose accounts
are required to be audited under the Income tax Act, 1961 or under any
other law.
4) Where the assessee is a ‘working partner’ in a firm whose accounts are
required to be audited under Income tax Act or any other law.
5) In any other case July 31
Chapter 11 - Assessment Procedure 99

Fee for default in furnishing return of income [Section 234F]: Where a person, who is required to
furnish a return of income under section 139, fails to do so within the prescribed time limit under section
139(1), he shall pay, by way of fee, a sum of –
Total Income If return is file upto 31st Dec of AY. Other Cases
≤ 5,00,000 1,000 1,000
> 5,00,000 5,000 10,000
Section 139(3) - Return of Loss: If any person who has sustained a loss in any previous year under the
head “Profits and Gains of business or profession” (including losses of specified businesses) or under the
head “Capital Gains” or under "Activity of owning and maintaining Race Horses" and claims that the
loss or any part thereof should be c/f in the relevant sections, he has to submit his return as per Section
139(1) i.e. on or before the due dates or else the loss might not be allowed to be carried forward. Section
139(3) shall not apply to loss under the head "Income from House Property", Unabsorbed Depreciation,
unabsorbed capital expenditure on scientific research, unabsorbed expenditure on family planning.
Section 139(4) - Belated return i.e. return furnished after the due date: Any person who has not
furnished a return within the time allowed to him u/s 139(1) or within the time allowed under a notice
u/s 142(1)(i) may furnish the return for any previous year at any time before the end of the relevant
assessment year OR before completion of the assessment, whichever is earlier. However he will be
liable to interest u/s. 234A.
Section 139(5) - Revised return i.e. submitting a fresh return subsequent to discovery of any
error or omission in the original return: If any person, having furnished a return u/s. 139(1) or u/s
139(4) or in pursuance of a notice issued u/s. 142(1)(i), discovers any omission or any wrong
statement therein, he may furnish a revised return at any time before the end of the relevant
assessment year OR before completion of the assessment, whichever is earlier.
Section 139(9) - Defective return: Return is considered as defective in following situations:
a) the annexures, statements and columns in the return of income relating to computation of income
chargeable under each head of income are not duly filled in, or
b) Return of income is not accompanied by statement of computation of total income, In case of
assessee liable to tax audit u/s 44AB - Audited P&L A/c, Audited balance sheet & Tax Audit report
u/s 44AB, TDS certificate, TCS certificate, Advance tax and self-assessment tax challans.
c) Where regular books of account are maintained by the assessee, the return is not accompanied by
copies of Manufacturing account, Trading account, Profit and Loss account as the case may be,
Income and Expenditure account or any other similar account and Balance Sheet alongwith the
personal account of the proprietor, (in case of proprietary business) the personal accounts of
partners / members (in case of firm / AOP / BOI) respectively, or
d) Where the regular books of accounts are not maintained by the assessee, the return is not
accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts,
gross profit, expenses and net profit of the business or profession and the basis on which such
amounts of total sundry debtors, sundry creditors, stock in trade and cash balance at the end of the
previous year are computed.
Consequences of defective return:
i) If ROI = Defective, AO will intimate the defect to assessee and ask to rectify defect within 15 days from
the date of service of such intimation, or within such extended time as he may think proper.
ii) If the defect is not rectified within the above period, the return = Invalid (as if it is not filed at all).
iii) If the assessee rectifies the defect after 15 days or extended period allowed, but before
assessment, AO may condone the delay and treat the return as a valid return.

Ans 4.
 There is a sale of an undertaking being the Cement Division which constitutes business activity as a
whole. The sale is for lumpsum consideration i.e. ` 14 Lakhs and therefore, it is a slump sale on which
section 50B applies.
 Cement Division was established on 30.06.2010 and is transferred on 1.04.2020. Capital Gains shall be
Long Term Capital Gains and taxable in Assessment Year 2021-22.
LONG TERM CAPITAL GAINS ON SLUMP SALE AS PER SECTION 50B:
Period of holding: 30.6.2010 to 1.4.2020 Long term
Full value of consideration (Slump Sale Consideration) ` 14,00,000
Less: NET WORTH of undertaking transferred (Note 1) ` 6,65,214
Long term Capital Gain ` 7,34,786
Note 1: Computation of Net worth of the undertaking transferred
Particulars `
Debtors 3,00,000
Stock 1,00,000
Investment 80,000
Land (1,30,000 – 50,000) 80,000
Book value of Non-depreciable assets 5,60,000
WDV of Depreciable assets (Note 2) 2,05,214
Total value of assets 7,65,214
Less: Liabilities: Creditors of cement division (1,00,000)
Networth of the undertaking transferred 6,65,214
Note 2: Computation of WDV for charging depreciation for AY 2021-22
Particulars `
Opening WDV of Block of Assets as on 1.4.2020 8,00,000
Add: Actual cost of Machinery ‘A’ acquired during the previous year 2,00,000
Less: Sales Price of Machinery ‘B’ sold during the previous year (6,50,000)
3,50,000
Less: Reduction as per Section 43(6)(c)(i)(c):
Actual cost of Machinery transferred in slump-sale 5,00,000
Less: Depreciation for PY 2014-15 @ 7.5% (37,500)
Less: Depreciation for PY 2019-20 @ 15% (36,214) (2,05,214)
WDV for Assessment Year 2019-20 1,44,786
Therefore, WDV of assets transferred in slump sale as per section 43(6)(c)(i)(c) is ` 2,05,214.
Q.5. R owns a residential house, which was purchased by him in 1996 for ` 3,00,000. The fair market
value of the house as on 1.4.2001 was ` 12,50,000. This house is sold by him on 16.7.2020 for a
consideration of ` 45,00,000. The value adopted by stamp valuation authority for collecting stamp
duty is ` 50,00,000. The brokerage and other expenses on the transfer were ` 15,000. The due date
of furnishing the return of income is 31st July, 2021.
Compute the capital gain for the assessment year 2021-2022 if:
(a) He invests ` 10,00,000 for purchase of a new house on 14.5.2021;

(n) Payment of life insurance premium exceeding ` 50,000 to insurer.
(o) Sale / purchase transactions in securities exceeding ` 1,00,000 per transaction.
(p) Sale / purchase of shares of unlisted company exceeding ` 1,00,000 per transaction.
(q) Sale / purchase of immovable property stamp duty value or consideration amount
exceeding ` 10,00,000.
(r) Sale or purchase of goods / services other than transactions specified above exceeding
` 2,00,000 per transaction.
9) Requirement to intimate PAN and quote PAN not to apply to certain persons who does not have
taxable income or who are not required to obtain PAN.
10) Consequences if there is a failure to apply for PAN: If a person without reasonable cause, fails to
apply for the allotment of PAN within the prescribed time or fails to quote it on the relevant
document, the AO shall impose a penalty of a sum which shall be minimum of ` 500 and
maximum of ` 10,000 u/s 272A.
Inter-changeability of PAN with the Aadhaar number: Person who is required to furnish or intimate
or quote PAN may furnish or intimate or quote his Aadhar Number in lieu of the PAN w.e.f. 1.9.2019 if
he has not been allotted a PAN but possesses the Aadhar number or has been allotted a PAN and
has intimated his Aadhar number to prescribed authority.
Quoting and authentication of PAN or Aadhar number
a) Every person entering into such prescribed transactions is required to quote his PAN or Aadhar
number, as the case may be, in the documents pertaining to such transactions and also
authenticate such PAN or Aadhar number in the prescribed manner.
b) Every person receiving such document relating to transactions referred to in (a) has to ensure
that PAN or Aadhar number has been duly quoted in such document and also ensure that such
PAN or Aadhar number is so authenticated.
Section 139AA – Quoting of Aadhar number
1) Mandatory quoting of Aadhar Number / Enrolment ID of Aadhaar application form in PAN
application form and Income tax return.
2) Linking of Aadhar with PAN: Every person who has been allotted PAN and is eligible to obtain
Aadhaar number, shall intimate his Aadhaar number to the Principal DGIT (Systems) or Principal
Director of Income-tax (Systems) by 30th September, 2019.
3) In case of failure to intimate the Aadhaar number, the PAN shall be deemed to be invalid.
4) Provision relating to quoting of Aadhar Number not apply to an individual who does not possess
the Aadhar number or Enrolment ID and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.
Section 139B: Scheme to facilitate submission of returns through Tax Return Preparers:
(1) Section 139B enables / empowers CBDT to frame a scheme whereby a “specified class of
persons” can file their ROI through a TRP.
(2) “Specified class of persons” means any person who is required to file ROI, other than the
following persons:
(a) a Company,
(b) any other person whose Books of accounts are required to be audited u/s 44AB or under
any other law.

(3) A TRP means an ‘Individual’ who is authorised to act as TRP by CBDT, other than following
persons:
(a) a Chartered Accountant,
(b) a Legal Practitioner,
(c) an Officer of a Scheduled Bank with which assessee maintains an account,
(d) an employee of specified class of person.
Return by whom to be verified [Section 140]:
Assessee Return to be Verified by whom
(1) a) Individual a) Himself
b) When absent from India; b) Himself or any other person duly authorized by
c) Mentally incapacitated; him (holding a valid power of attorney)
d) For any other reason he is not able to verify c) His guardian or any other person competent
to act on his behalf
d) Any other person duly authorized by him
(holding a valid power of attorney)
(2) a) H.U.F. a) Karta.
b) Where Karta is absent from India or is b) Any other adult member of the family.
mentally incapacitated
(3) a) Company a) Managing Director
b) Where M.D. is unable to verify or where there b) Any other director
is no M.D. c) Any person who holds a valid power of
c) When company is not resident in India attorney from the company
d) When the company is in liquidation d) The liquidator
e) When the company’s management is taken e) The principal officer
over by the Government
f) Where an application for corporate insolvency f) Insolvency professional appointed by
resolution process has been admitted by the such adjudicating authority.
Adjudicating Authority under the Insolvency
and Bankruptcy Code, 2016.
(4) Partnership firm Managing partner or any other partner not being
a minor
(5) Limited Liability Partnership Designated partner or any other partner not being
a minor
(6) Local authority Principal officer
(7) Political party Chief Executive Officer
(8) Association of Persons Any member or principal officer
(9) Any other person That person or some other person who is
competent to verify
“The Pessimist Sees Difficulty In Every Opportunity,

“The Optimist Sees Opportunity In Every Difficulty.”
– Winston Churchill

DEDUCTIONS FROM GROSS TOTAL INCOM UNDER CHAPTER VI-A [SECTIONS 80C TO 80U]
Deductions under Chapter VIA (Section 80C to 80U) cannot be claimed against incomes which are taxable at flat rates i.e., LTCG covered u/s 112, LTCG
covered u/s 112A, STCG covered u/s 111A and Winnings from lotteries, races, etc. covered u/s 115BB.
SECTION 80C: Deduction in respect of Life Insurance Premium, Contribution to provident fund, etc.
Eligible Maximum Other
Nature of Deduction
Assessee Limit Conditions
Individual / 1) Life insurance premium: Life insurance premium paid for Life insurance policy or endowment Maximum Limit There is lock-
HUF policy. [Policy should not be terminated or surrendered within two years] Deduction allowed in respect of 1,50,000 in-period in
premium paid will be restricted to the limits prescribed based on sum assured as mentioned hereunder. certain cases.
except in respect of a contract for deferred annuity: If the
If policy is If policy is If policy is investments
Person Insured issued before issued during issued on or are sold within
1.4.2012 FY 2012-13 after 1.4.2013 lock-in-period
If policy is taken for on the life of a disabled 20% of sum 10% of sum 15% of sum then the
person. assured assured assured amount of
Policy on the life any other person 20% of sum 10% of sum 10% of sum deduction
assured assured assured
claimed will be
Note: It is further clarified that any premium agreed to be returned or any benefit by way of bonus or
withdrawn.
otherwise over and above the sum actually assured shall not be considered as ‘capital sum assured’.
2) Contribution made towards:
Statutory Provident Fund Recognized Provident Fund
Public Provident Fund. Approved superannuation fund.
Notified pension fund of mutual fund / UTI. Unit Linked Insurance Plan of UTI.
Unit Linked Insurance Plan of LIC Mutual Fund Equity Linked Saving Scheme of Mutual fund /
u/s 10(23D) U.T.I.
Annuity Plan of LIC or any other insurer. Non-commutable deferred annuity.
Deferred annuity scheme of government for government employee.
Contribution by central government employee to additional account under NPS (Budget 2019).
3) Points relating to housing:
i) Subscription to any deposit scheme of Housing finance companies or Housing Authorities.
ii) Subscription to Home Loan Account Scheme of the National Housing Bank (including accrued
interest).
iii) Repayment of housing loan taken from specified persons, Stamp duty & registration fees.
4) Deposits with post office / Scheduled bank:
i) Subscription to NSC VIII issues.
ii) Senior Citizen Savings Scheme, Rules 2004.
iii) Deposit made under Sukanya Samriddhi Account Scheme.
iv) Term Deposit for 5 years or more with Post Office under PO Time Deposit Rules, 1981.
v) Term Deposit for 5 years or more with a Scheduled Bank.
Chapter 11 – Deductions from Gross Total Income 104
5) Other Points:
i) Subscription to Equity Shares or Debentures forming part of any “Eligible issue of capital”
approved by the CBDT or subscription to any units of mutual fund referred to in Section 10(23D)
approved by the CBDT (Infrastructure Bonds / Debentures / units)
ii) Notified Bonds of NABARD
iii) Tuition fees (excluding donation, development fees, etc.) paid by an individual to university,
college, school or other educational institution situated within India for full time education of any
2 children.
Section 80CCC : Contribution to certain pensions funds
Nature of Deduction
Individual Contribution made to annuity plan of the LIC or any other insurer for receiving pension from a fund. ` 1,50,000 Payment
i) Tax treatment of surrender value: If the plan is surrendered before its maturity, then surrender should be
value shall be taxable in the year of receipt. made out of
ii) Tax treatment of pension received: Pension received is taxable under the head ‘IFOS”, in the income
year of receipt. chargeable to
iii) No Double Deduction: Deduction u/s 80C will not be available for same investment. tax.
iv) Tax treatment of commuted value: Commuted pension is exempt as per section 10(10A).
Section 80CCD: Deduction in respect of contribution to National pension scheme: National Pension Scheme consists of :
(i) New pension scheme notified under Notification No. F.No. 5/7/2003 dated 22nd December, 2003. and
(ii) Atal pension Yojana notified under Notification No. SO 529(E), dated 19th February, 2016.
Note: Individuals who are employed by government, individuals who are employed by private sector as well as individuals who are self-employed can
contribute to National pension scheme.
Individual 1) Section 80CCD(1): Deduction for employees contribution or contribution by any other 10% of salary
individual to pension scheme: or 20% of total
a) Contributions made by an employee to the pension scheme, is allowed as deduction u/s income
80CCD to the extent of 10% of the salary. whichever is
Salary = Basic Salary + Dearness Allowance (R) + Turnover Commission. applicable
b) Contributions made by any other person to the pension scheme, is allowed as deduction
u/s 80CCD to the extent of 20% of total income.
Total Income = Gross Total Income – LTCG – STCG covered u/s 111A.
2) Section 80CCD(1B): Additional deduction for employees contribution or contribution by any ` 50,000
other individual to pension scheme: Additional deduction is allowed upto ` 50,000 in respect of
amount contributed by an individual assessee under NPS in the previous year.

3) Section 80CCD(2): Deduction for employer contribution to pension scheme: Employer’s 10% of salary /
contribution to NPS is taxable as salary income in the hands of employee. Thereafter, contributions 14% of salary
made by an employer to the pension scheme, is allowed as deduction u/s 80CCD to the extent of
10% of the salary. Salary = Basic Salary + Dearness Allowance (R) + Turnover Commission.
14% of salary in case of contribution made by Central Government (Budget 2019)
4) Tax treatment of amount received from pension scheme: Taxability is discussed below:
i) Amount received by the assessee on closure of his account or opting out of NPS
scheme. Exempt u/s 10(12A) upto 60% of total amount payable to him at the time of
closure or opting out of the scheme. Balance 40% is taxable. (Exemption increased from
40% to 60% by Budget 2019) Note: Exemption u/s 10(12A) is allowed to Employee as well
as Non-employee subscriber.
ii) Payment from NPS to an employee on partial withdrawal made out of his account.
Exempt u/s 10(12B) upto 25% of amount of contributions made by him. Balance is taxable.
Note: Exemption u/s 10(12B) is allowed to only to Employee subscriber.
iii) In case of (i) & (ii), if the amount is received by the nominee on the death of the assessee -
Totally exempt.
iv) Pension received out of NPS – Taxable.
v) If amount received in (i), (ii) & (iv) above is utilised for purchasing an annuity plan in the
same previous year – Exempt.
vi) Pension received out of annuity plan purchased out of (iv) – Taxable.
Note: If deduction is allowed under Section 80CCD, no deduction will be allowed u/s 80C.
Section 80CCE: Aggregate limit on deductions u/s 80C, 80CCC and 80CCD:
Individual / Particulars Maximum limit for deduction 1,50,000
HUF A) Section 80C 1,50,000
B) Section 80CCC 1,50,000
C) Section 80CCD(1): for Individuals (a) 10% of salary (If doing job); or
(employee’s) contribution to Notified (b) 20% of total Income (If self employed).
Pension Scheme as the case may be
As per section 80CCE aggregate limit for
(A + B + C) < 1,50,000
deduction under all the above sections
Note: Deduction u/s 80CCD(2) for employer’s contribution to Notified pension scheme and Additional
deduction of upto ` 50,000 on payment in excess of 10% u/s 80CCD(1B) for individuals (employees)
contribution to Notified pension scheme is not covered in the limit of ` 1,50,000 mentioned above.

Section 80D : Health insurance premium etc.
Nature of Deduction
Individual / 1) Deduction for: Deduction is allowed u/s 80D in respect of following payments: Deduction is Payment
HUF i) Health Insurance premium paid, by any mode other than cash, in accordance with the scheme lower of: should be
approved by Central Government or IRDA. i) Actual made out of
amount income
ii) Contribution made to the Central Government or State Government Health Scheme, by any mode paid; and chargeable to
other than cash. ii) Notified tax.
iii) Any amount paid on account of preventive health check-up, by any mode including cash. amount.
iv) Medical expenditure for senior citizen not having health insurance, by any mode other than cash.
2) Eligibility and Notified amount: it is explained in following table:
Particulars Deduction in case of Individual Deduction in
case of HUF
For whose benefit payment can be made Self, Spouse Parents (whether Any member
& Dependent dependent or of HUF
Children not)
A. a) Medi-claim insurance premium Eligible Eligible Eligible
b) Contribution to CGHS / SGHS Eligible Not eligible Not eligible
c) preventive health check-up. Eligible Eligible Not eligible
Maximum limit for deduction:
General deduction limit for (a + b + c) 25,000 25,000 25,000
Additional deduction for (a) when
mediclaim policy is taken for senior
citizen. 25,000 25,000 25,000
B. Medical expenditure on the health of a
person who is a senior citizen if
Eligible Eligible Eligible
mediclaim insurance is not paid on the
health of such person.
Maximum limit for deduction for (B) 50,000 50,000 50,000
C. Maximum deduction for (A + B) 50,000 50,000 50,000
Notes:
(i) Aggregate amount of deduction on account of preventive health check-up of self, spouse, dependent
children, father and mother cannot exceed ` 5,000.
(ii) “Senior citizen” means Resident individual aged 60 years or more.
(iii) Section 80D(4A): If lumpsum premium is paid for more than one year then deduction per annum =
Lumpsum amount paid divided by number of years for which premium is paid.

Section 80DD : Maintenance and medical treatment of disabled dependent person
Nature of Deduction
Resident 1) Deduction is allowable in respect of: 75,000 / Assessee
Individual / i) Expenses incurred for the medical treatment, training and rehabilitation of a dependent being a 1,25,000 should furnish
HUF a copy of
person with disability, or
certificate
ii) Any amount paid or deposited by the assessee under any scheme of LIC or any other insurer or issued by the
UTI approved by the CBDT for the maintenance of dependent person with disability. Such scheme medical
should provide for payment of annuity or lumpsum amount for the benefit of the dependent in the authority along
event of death of the individual or the member of the HUF in whose name subscription to the with his return
scheme has been made. If the dependent predeceases the individual or such member of HUF, the of income.
amount paid or deposited shall be deemed to be the income of assessee of the previous year in
which such amount is received by the assessee from the insurer.
2) Extent of disability Vis a Vis Quantum of Deduction:
Extent of disability Quantum of Deduction
Disability less than 40% Nil
Disability 40% or more but less than 80% 75,000
Disability 80% or more (severely disabled) 1,25,000
Note: The quantum of deduction is fixed. No regard should be had to actual expenditure.
3) Meaning of Dependent: ‘Dependent’ means:
a) For Individual, the spouse, children, parents, brothers and sisters of the individual
b) For Hindu undivided family, a member of the Hindu undivided family.
Section 80U : Deduction in case of a person with disability
Nature of Deduction
Resident Deduction to individual suffering from disability. 75,000 / Assessee
Individual Extent of disability Vis a Vis Quantum of Deduction is explained below: 1,25,000 should furnish
Extent of disability Quantum of Deduction a copy of
Disability less than 40% Nil certificate
Disability 40% or more but less than 80% 75,000 issued by the
Disability 80% or more (severely disabled) 1,25,000 medical
Note: Word ‘Disability’, ‘Severe disability’ and ‘Medical authority’ are defined in the Persons with authority along
Disabilities Act, 1995 with his return
of income

Section 80DDB: Medical treatment for certain specified disease or ailment
Nature of Deduction
Resident Deduction is allowed for expenditure incurred for medical treatment of the assessee, or his dependent or To be Assessee
Individual / any dependent member of the HUF in respect of specified disease or ailments. calculated as should furnish
HUF Quantum of Deduction: quantum of deduction is computed as follows: prescribed. a copy of
Particulars ` certificate
[A] Actual amount spent on treatment of specified disease xxx issued by the
[B] Maximum Limit as prescribed below: medical
a) Person treated (Senior citizen & Resident) 1,00,000 authority along
b) Person treated (Other cases) 40,000 with his return
Lower of [A] and [B] xxx of income
Less:
[C] i) Insurance claim received, if any (xxx)
ii) Reimbursement of expense by employer, if any (xxx)
Deduction available u/s 80 DDB [Lower of A & B] – [C] xxx
Meaning of Dependent: ‘Dependent’ means:
(a) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any
of them,
(b) in the case of a Hindu undivided family, a member of the Hindu undivided family, dependent wholly or
mainly on such individual or Hindu undivided family for his support and maintenance.
Section 80E : Deduction in respect of payment of interest on loan taken for higher education
Nature of Deduction
Individual Interest on loan taken for higher education of assessee himself; or his relative (spouse and children or Actual amount Payment
the student for whom the individual is the legal guardian). of interest paid should be
1) Loan must have been taken from any financial institution (i.e. banking company or other notified (for maximum 8 made out of
financial institution), or any approved charitable institution [notified u/s 10(23C) or funds referred to in years) income
Section 80G(2)(a)] chargeable to
2) Period of Deduction: Deduction shall be allowed for: tax.
a) Eight assessment years starting from the assessment year relevant to the previous year in
which the interest was first paid; or
b) Until the interest is paid by the assessee in full, whichever is earlier.
Meaning of higher education: ‘Higher education’ means any study pursued after passing Senior
Secondary Examination from school, board or university recognised by Central Government or State
Government or local authority.
Section 80EE : Deduction in respect of interest on loan taken for residential property
Nature of Deduction
Individual Interest payable on loan taken by him from any financial institution (Bank, Banking institution, Housing Actual interest Four
finance company or Public company whose main object is providing long term funds for residential paid or conditions
houses. Except NBFC) for the purpose of acquisition of a residential house property shall be deducted. Maximum limit
Four conditions are required to be fulfilled for claiming deduction under this section: ` 50,000
i) Loan should has been sanctioned during the financial year 2016-17;
ii) Amount of loan sanctioned should not exceed 35 lakhs;
iii) Value of the residential house property does not exceed 50 lakh;
iv) Assessee does not own any residential house property on the date of sanction of loan.
Period of deduction: Deduction will be available till the repayment of loan continues.
No Double Deduction: Where deduction is allowed for interest under this section no deduction shall be
allowed under any other provisions of the Act for such interest.
Section 80EEA : Deduction in respect of interest on loan taken for residential property
Individual Interest payable on loan taken by assessee from any financial institution (Bank, Banking institution, Actual interest Four
Housing finance company or Public company whose main object is providing long term funds for paid or conditions
residential houses. Except NBFC) for the purpose of acquisition of a residential house property shall be Maximum limit
deducted. ` 1,50,000
Four conditions are required to be fulfilled for claiming deduction under this section:
i) Loan should has been sanctioned during the period 1.4.2019 to 31.3.2021;
ii) Individual should not be eligible to claim deduction u/s 80EE;
iii) Stamp duty Value of the residential house property does not exceed 45 lakh;
iv) Assessee does not own any residential house property on the date of sanction of loan.
Period of deduction: Deduction will be available till the repayment of loan continues.
No Double Deduction: Where deduction is allowed for interest under this section, no deduction shall be
allowed under any other provisions of the Act for such interest.
Section 80EEB : Deduction in respect of interest on loan taken for purchase of electric vehicle.
Individual i) Interest payable on loan taken by assessee from any financial institution (Bank, Banking institution, Actual interest
Deposit taking NBFC, systemically important Non-deposit taking NBFC) for the purpose of paid or
purchase of electric vehicle. Maximum limit
ii) Loan should has been sanctioned during the period from 1.4.2019 to 31.3.2023; ` 1,50,000
iii) Period of deduction: Deduction will be available till the repayment of loan continues.
iv) No Double Deduction: Where deduction is allowed for interest under this section no deduction
shall be allowed under any other provisions of the Act for such interest.

Section 80G : Deduction in respect of donations to certain funds, charitable institutions, etc.
Nature of Deduction
Deduction is allowed for sum of money donated to specified funds / institutions.
If Donation
Category A: Qualifying amount 100% of amount donated & Deduction is 100% of qualifying
exceeds
amount: (24 points)
` 2,000, then
Prime Minister’s National Relief Fund; Prime Minister’s Armenia Earthquake Relief Fund; payment
Africa (Public Contributions India) Fund; National Foundation for Communal Harmony; should be
Maharashtra Chief Minister’s Earthquake Zila Saksharta Samiti constituted in any district; made by any
Relief Fund; mode other
National Blood Transfusion Council or any State Any fund set up by a State Government to provide than cash.
Blood Transfusion Council; medical relief to the poor;
Army Central Welfare Fund or the Indian Naval Andhra Pradesh Chief Minister’s Cyclone Relief
Benevolent Fund or the Air Force Central Fund, 1996 To avail
Welfare Fund. deduction
University / Educational Institution of National National Illness Assistance Fund under this
Eminence approved by the prescribed section, the
authority; Maximum limit assessee
All National Sports Fund set up by the Central National Cultural Fund set up by the Central must produce
is specified
assessees Government. Government. proper proof of
category wise.
National Defence Fund set up by the Central Fund for Technology Development and payment.
Government. Application, set up by the Central Government.
National Children’s Fund. National Fund for control of Drug Abuse
Swachh Bharat Kosh Clean Ganga Fund Deduction not
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple allowed for
Disabilities. donation in
The Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or kind.
Union Territory, as the case may be.
Any fund set up by the Government of Gujarat for providing relief to victim of earthquake in Gujarat.
Prime Minister’s Citizen Assistance and relief in Emergency Situations Fund (PM CARES Fund) No Double
Category B: Qualifying amount 100% of amount donated & Deduction is 50% of qualifying deduction.
amount: (4 points)
Jawaharlal Nehru Memorial Fund Prime Minister’s Drought Relief Fund
Indira Gandhi Memorial Trust Rajiv Gandhi Foundation

Category C: Qualifying amount is restricted to 10% Adjusted Gross Total income &
Deduction is 100% of qualifying amount: (2 points)
Donation to Government or any approved local The Indian Olympic Association or to an institute
authority, institution or association to be notified for the development of infrastructure of
utilized for promoting family planning. sports and games in India; or the sponsorship of
sports and games in India (only donation by a
company)
Category D: Qualifying amount is restricted to 10% Adjusted Gross Total income &
Deduction is 50% of qualifying amount: (4 points)
Donation to Government or any approved local Any approved charitable institution which satisfies the
authority, institution or association to utilized conditions of Section 80G.
for any charitable purpose other than
promoting family planning.
To any authority constituted in India for Any notified temple, mosque, gurdwara, church or
satisfying the need for housing accommodation other place notified by the Central Government to
or for planning, development or improvement be of historic, archaeological or artistic
of cities, towns, villages, etc. or any importance, for renovation or repair of such place.
corporation specified u/s 10(26BB) for
promoting interests of minority community.
Note 1 : How to compute Adjusted Gross Total Income for section 80G:
Particulars `
Gross Total Income xxx
Less:
a) Long term capital gains (xxx)
b) Short term capital gains covered u/s 111A (xxx)
c) Deductions under chapter VIA, u/s 80C to 80U (except 80G). (xxx)
Adjusted Gross Total Income xxx
Section 80GG : Deduction in respect of Rent paid
Nature of Deduction
Individual Deduction in respect of rent paid is allowed as deduction. Deduction is File
a) Which Individuals can claim deduction: The assessee should be self-employed or he should be a lower of: declaration in
salaried employee not in receipt of HRA. 1) Rent paid Form No.
b) Can a person availing this deduction own a house: The assessee, his spouse, or minor child or minus 10% 10BA
the HUF in which he is a member should not own any residential accommodation at the place of of Total
residence or place of duties. Income.

(iii) Fixed Deposit Scheme governed by the Post Office (Fixed Deposit) Rules, 1968.
(2) Interest on RBI Relief Bonds (only for individual of HUF);
(3) Interest on notified bonds / Debentures of Public Sector Companies; E.g. bonds of HUDCO,
National Hydroelectric Power Corporation., etc.
(4) Interest on notified bonds issued by a local authority or a state pooled finance entity.
(5) Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit
certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central
Government.
(6) Interest income receivable by a non-resident from a unit located in IFSC in respect of
moneys borrowed by it on or after 1.9.2019.
5) Income from letting of machinery, plant or furniture belonging to the assessee [Section
56(2)(ii)]:
Amount taxable Rent received in Deduction in respect of rent, repairs,
under the head = respect of plant / Minus rates & taxes, insurance, depreciation
IFOS machinery / furniture and other revenue expenditure.
6) Income from letting of plant, machinery or furniture along with the building and letting of
building is inseparable from the letting of plant, machinery or furniture [Section 56(2)(iii)]:
(Composite rent – already discussed in the chapter of Income from house property)
7) Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy [Section 56(2)(iv)]: Maturity proceeds of keyman insurance policy are
taxable. Taxability is explained in following diagram:
Taxability of maturity Proceeds of Keyman Insurance policy.
If policy is NOT assigned to Keyman If policy is assigned to Keyman

COMPANY = BENEFICIARY KEYMAN = BENEFICIARY
Maturity Proceeds received by

company is taxable u/s 28. If Assignee = Employee If Assignee  Employee
Maturity Proceeds are Maturity proceeds are

taxable u/h Income from taxable u/h Income from
salaries u/s 17 (3) other sources u/s 56(2)
8) Where a company, not being a company in which the public are substantially interested (closely held
company) receives from any resident person, any consideration for issue of shares that exceeds the
face value of such shares, the aggregate consideration received for such shares as exceeds the fair
market value of the shares. [Section 56(2)(viib)]
Exception:
Consideration received by a venture capital undertaking from a venture capital company or a venture
capital fund; or by a company from notified class of persons.
Fair market value of the shares shall be higher of—
(i) the value as may be determined in accordance with prescribed method; or
(ii) the value as may be substantiated by the company to the satisfaction of the Assessing Officer,
based on the value, on the date of issue of shares, of its assets, including intangible assets;
whichever is higher.

Section 80JJAA : Deduction in respect of employment of new employees
Nature of Deduction
Assessee Deduction is allowed for 30% of additional employee cost for 3 Assessment years including the year in 30% of No deduction
covered by which employment is provided. additional in case of
tax audit Meaning of Additional employee: Additional Employee means an employee who has been employed employee cost splitting-up or
during the previous year and whose employment has the effect of increasing the total number of reconstruction
employees employed by the employer as on the last day of the preceding year and fulfills the following of existing
conditions: business.
1. Employee whose total emoluments are < ` 25,000 p.m; or
2. Employee who is employed for > 240 days in the previous year. (≥ 150 days in case of assessee
engaged in business of manufacture of apparel / footwear / leather products) For claiming
Note: If the employee is employed during the previous year for less than 240 days / 150 days, but is deduction
employed for ≥ 240 days / 150 days in the immediately succeeding year, he shall be deemed to have assessee
been employed in the succeeding year. should furnish
3. Employee participates in recognised provident fund. report of
4. Employee for whom entire contribution to Pension scheme is not paid by Government. chartered
Meaning of Additional employee cost: Additional employee cost means any emoluments paid or accountant in
payable to employees but it does not include: Form No.
1. Employers’ contribution to pension fund/provident fund/any other fund for the benefit of employee 10DA, before
under any law for the time being in force. the date
2. Any lump-sum payment for termination benefits such as gratuity, commuted pension, leave referred to in
encashment, Voluntary Retirement scheme compensation, Superannuation, and such other similar section 44AB
payments. i.e., one
Important Notes: month prior to
A] In case of existing business additional employee cost shall be Nil if: the due date
1. There is no increase in total number of employees as compared to number of employees employed of furnishing
as on last day of preceding year. Return of
2. Emoluments are paid in cash or bearer cheque. Income (W.e.f
B] In case of first year of new business emoluments paid or payable to employee employed during 2021-22).
previous year shall be deemed to be additional employee cost.
Section 80M: Deduction in respect of certain inter-corporate dividends received by a Domestic Company (W.e.f AY 2021-22)
Nature of Deduction
Domestic Deduction for Dividends received from any other domestic company or a foreign company or a business No Double
Company trust. deduction

Quantum of Deduction: Lower of: Lower of
(i) Dividend received from any other domestic company or foreign company or business trust. Dividend
(ii) Dividend distributed by it on or before the due date. received or
Note: “Due date” means the date one month prior to the date for furnishing the return of income u/s Dividend
distributed.
139(1).
Section 80QQB : Royalty income of authors
Nature of Deduction
Resident Nature of Deduction: Deduction is available in respect of income derived as author either by way of a Maximum Certificate
Individual lumpsum consideration for the assignment of his interest in the copyright or royalty or copyright fee Deduction from publisher
` 3,00,000 should be
received in respect of such books.
furnished.
Nature of books: Deduction shall be available in respect of any book, being a work of literary, artistic or
scientific nature and shall not be available in respect of royalty income from textbook for schools, guides,
commentaries, newspapers, journals, pamphlets and other publications of similar nature. No double
Format for computation of deduction: deduction.
Particulars `
1) Gross Royalty received (When royalty is revenue receipt) xxx
2) Lump sum consideration for Assignment of rights xxx
3) Gross Royalty restricted to 15% of value of books sold. xxx
(Only when the royalty is revenue receipt)
4) Amount brought to India upto 30th Sept. 2019 (If royalty is earned from abroad) xxx
5) Lower of A, B, C & D xxx
6) Expenses for earning royalty xxx
7) Qualifying Income (5 minus 6) xxx
8) Maximum limit 3,00,000
9) Deduction u/s 80QQB xxx
Section 80RRB : Royalty on patents
Nature of Deduction
Resident 1) Who can claim Deduction: Resident individual who is registered as the true and first inventor in Certificate
Individual respect of an invention under the Patents Act, 1970, including the co-owner of the patent. This from
deduction is not available to anyone who is assignee or mortgagee of any patent. Maximum prescribed
2) Nature of Deduction: Deduction for Royalty income of a patent registered on or after 1.4.2003. Deduction authority.
3) Time limit for remittance of foreign exchange in India in case of royalty earned from abroad: 6 months ` 3,00,000
from the end of the previous year. No double
4) If the patent is revoked subsequently, then Deduction allowed earlier shall be withdrawn. deduction

Section 80TTA : Deduction on account of interest on savings account
Nature of Deduction
Individual / Maximum
Deduction is allowed to an assessee in respect Interest income on Savings account with Bank / Co-
HUF Deduction
operative bank / Post office. (Resident senior citizen cannot claim deduction under this section)
` 10,000
Section 80TTB : Deduction in respect of interest on deposits for senior citizen
Nature of Deduction
Resident Maximum
Deduction is allowed in case of senior citizen in respect of interest on Deposits with Bank / Co-operative
senior Deduction
bank / Post office.
citizen ` 50,000
Q.1. X (age: 26 years) is employed by the Central Government in the Ministry of Labour (date of joining: March 6, 2017). During the previous year 2020 –
2021 his basic salary (including dearness allowance) is ` 1,00,000 per month. The Government contributes 15% of his salary towards notified
pension scheme. Matching contribution is made by the employee. He annually contributes ` 70,000 to public provident fund. Income of X from other
sources is ` 1,46,000. He is eligible for deduction of ` 12,000 u/s 80CCC. Compute the Income of X for the AY 2021 – 22.
Ans 1. Computation of Total Income of Mr.X for the AY 2021-22
Particulars ` ` `
I] Income from Salaries:
Salary (1,00,000 x 12) 12,00,000
Contribution by employer towards notified pension scheme (15 % of Rs.12,00,000) 1,80,000
Gross Salary 13,80,000
Less: Standard Deduction u/s 16(ia) (50,000) 13,30,000
II] Income from Other Sources: 1,46,000
Gross Total Income (1+2) 14,76,000
Less: Deduction under chapter VIA:
1) Deduction u/s 80C: Contribution to PPF 70,000
2) Deduction u/s 80CCC (given) 12,000
3) Deduction u/s 80CCD(1) for employee contribution:
a) Total amount contributed ` 1,80,000 minus deduction claimed u/s 80CCD(1B) ` 50,000) 1,30,000
b) Restricted to 10% of salary (10% of 12,00,000) 1,20,000 1,20,000
Total Deduction u/s 80C, 80CCC, 80CCD (1) 2,02,000
As per section 80CCE deduction is Restricted to… 1,50,000 (1,50,000)

4) Employer contribution towards NPS – Section 80CCD(2) 1,80,000
Restricted to 14% of salary (14% of 12,00,000)…. 1,68,000 (1,68,000)
5) Deduction u/s 80CCD(1B) for employee contribution (50,000)
Net Taxable Income 11,08,000
Q.2. The following are the particulars relating to Mr.A, Mr.B, Mr.C and Mr.D, salaried individuals, for A.Y.2021-22 –
Particulars Mr. A Mr. B Mr. C Mr. D
Amount of loan taken ` 43 lakhs ` 45 lakhs ` 20 lakhs ` 15 lakhs
Loan taken from Deposit taking
HFC Deposit taking NBFC Public sector bank
NBFC
Date of sanction of loan 1.4.2019 1.4.2019 1.4.2019 30.3.2019
Date of disbursement of loan 1.5.2019 1.5.2019 1.5.2019 1.5.2019
Purpose of loan Acquisition of residential Acquisition of residential Purchase of Purchase of electric
house property for self- house property for self- electric vehicle for vehicle for personal
occupation occupation personal use use
Stamp duty value of house property ` 45 lakhs ` 48 lakhs - -
Cost of electric vehicle - - ` 22 lakhs ` 18 lakhs
Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.
Compute the amount of deduction, if any, allowable under the provisions of the Income-tax Act, 1961 for A.Y.2021-22 in the hands of Mr. A, Mr. B, Mr. C
and Mr. D. Assume that there has been no principal repayment during the PY 2019-20.
Ans. 2.
Particulars `
Mr. A : Interest deduction for A.Y.2021-22
(i) Deduction allowable while computing income under the head “Income from
house property”
Deduction u/s 24(b) ` 3,87,000 [` 43,00,000 × 9% x 12/12] Restricted to… 2,00,000
(ii) Deduction under Chapter VI-A from Gross Total Income
Deduction u/s 80EEA ` 1,87,000 (` 3,87,000 – ` 2,00,000) Restricted to… 1,50,000
Mr. B : Interest deduction for A.Y.2020-21
(i) Deduction allowable while computing income under the head “Income from
house property”
Deduction u/s 24(b) ` 4,05,000 [` 45,00,000 × 9% x 12/12] Restricted to… 2,00,000

(ii) Deduction under Chapter VI-A
Deduction u/s 80EEA is not permissible since:
(i) loan is taken from NBFC
(ii) stamp duty value exceeds ` 45 lakhs.
Deduction under section 80EEA would not be permissible due to either violation Nil
listed above.
Mr. C: Deduction under Chapter VI-A: Deduction u/s 80EEB for interest
payable on loan taken for purchase of electric vehicle [` 20 lakhs x 10% x
12/12 = ` 2,00,000, restricted to `1,50,000, being the maximum permissible 1,50,000
deduction]
Mr. D: Deduction under Chapter VI-A: Deduction u/s 80EEB is not Nil
permissible since loan was not sanctioned during 1.4.2019 to 31.3.2023.
Q.3. Mr. A has commenced the business of manufacture of computers on 1.4.2020. He employed 350 new employees during the PY 2020-21,
the details of whom are as follows:
Sr. No. No. of Date of Regular / Total monthly emoluments
employees employment Casual per employee (`)
(i) 75 1.4.2020 Regular 24,000
(ii) 125 1.5.2020 Regular 26,000
(iii) 50 1.8.2020 Casual 17,000
(iv) 100 1.9.2020 Regular 24,000
The regular employees participate in recognised provident fund while the casual employees do not. Compute the deduction, if any,
available to Mr. A for AY 2021-22, if the profits and gains derived from manufacture of computers that year is ` 75 lakhs and his total
turnover is 2.16 crores.
What would be your answer if Mr. A has commenced the business of manufacture of footwear on 1.4.2020?
Ans. 3.
Case I: If Mr. A is engaged in the business of manufacture of computers
Mr. A is eligible for deduction under section 80JJAA since he is subjected to tax audit u/s 44AB for AY 2021-22, as his total turnover from
business exceeds ` 1 crore and he has employed “additional employees” during the PY 2020-21.
Additional employee cost = ` 24,000 × 12 × 75 [See Working Note below] = ` 2,16,00,000
Deduction under section 80JJAA = 30% of ` 2,16,00,000 = ` 64,80,000.

Working Note: Number of additional employees:
Number of
Particulars
workmen
Total number of employees employed during the year 350
Less:
1) Casual employees employed on 1.8.2020 who do not participate in recognised provident (50)
fund
Note: Since casual employees do not participate in recognised provident fund, they do not
qualify as additional employees.
2) Regular employees employed on 1.5.2020, since their total monthly emoluments exceed (125)
` 25,000.
Note: 125 regular employees employed on 1.5.2020 also do not qualify as additional
employees since their monthly emoluments exceed ` 25,000.
3) Regular employees employed on 1.9.2020 since they have been employed for less than 240 (100)
days in the PY 2020-21.
Note: 100 regular employees employed on 1.9.2020 do not qualify as additional employees
for the PY. 2020-21, since they are employed for less than 240 days in that year.
Number of “additional employees” 75
Note: Only 75 employees employed on 1.4.2020 qualify as additional employees, and the total
emoluments paid or payable to them during the P.Y.2020-21 is deemed to be the additional
employee cost.
II If Mr. A is engaged in the business of manufacture of footwear
If Mr. A is engaged in the business of manufacture of footwear, then, he would be entitled to deduction u/s 80JJAA in respect of employee cost
of regular employees employed on 1.9.2020, since they have been employed for more than 150 days in the previous year 2020-21.
Additional employee cost = ` 2,16,00,000 + ` 24,000 × 7 × 100 = ` 3,84,00,000
Deduction under section 80JJAA = 30% of ` 3,84,00,000 = ` 1,15,20,000.

Relative includes following:
(5) Lineal Ascendant (7) S (6)Lineal Ascendant (7) S
(5) Grand Father (7) S (6) Grand Father (7) S
(7) S (7) S

(5) Father (7) S (6) Father (7) S
(7) S (7) S
(7) S (7) S

Individual (1) Spouse
(7) S (7) S
(5) (6) Lineal
(7) S = Spouse
(7) S Descendant
Deductible Expenses [Section 57]: The following expenditures are allowed as deductions from income
chargeable to tax under the head ‘Income from Other Sources’:
Section Nature of Income Deductions allowed
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
Proviso to Section 57(i): W.e.f AY 2021-22, Only expenditure of interest, restricted to a
maximum of 20% of dividend income or Income from units, shall be allowed to be deducted from
such income. No other deductions will be allowed from such income.
57(ia) Employee’s contribution towards If employees’ contribution is credited to their account in
Provident Fund, Superannuation Fund, relevant fund on or before the due date.
ESI Fund or any other fund setup for the
welfare of such employees.
57(ii) Rental income from letting of plant, Rent, Rates & taxes, Repairs, Insurance and
machinery, furniture with or without Depreciation (computed as per section 32, subject to
building section 38).
57(iia) Family Pension Sum equal to 33.33% of the pension or ` 15,000,

whichever is less, shall be allowed as deduction.
57(iii) Any other income Any other expenditure (not being capital expenditure)
expended wholly and exclusively for earning such
income.
57(iv) Interest on compensation or enhanced 50% of such interest.
compensation No other deduction shall be allowed therefrom.
58(4) Income from activity of owning and All expenditure relating to such activity.
Proviso maintaining race horses.
Inadmissible Expenses [Section 58]
(i) Personal expenses
(ii) Wealth – tax

10) TDS is just one mode of recovery of tax: TDS is just a tentative deduction and is not the final levy of tax. Therefore, there may be some tax still payable, even
after deduction of TDS by payer at the appropriate rate.
11) TDS needs to be deducted in case of Business as well as personal transactions (subject to two exceptions, viz. Section 194C and 194J, where tax is not
required to be deducted in respect of payments for personal purposes by Individuals and HUFs.).
12) No TDS on GST on services, if Payee = Resident (And) GST on services is separately mentioned in the Invoice.
13) No TDS if income is exempt & ROI is not required to be furnished: No TDS in case income is unconditionally exempt u/s 10 and ROI is not required to be
filed. However, if income is exempt but ROI is required to be filed, or if exemption has been withdrawn, then this benefit is not available.
Grossing-up Principle (in case of net of tax payments) [Section 195A]: If TDS is agreed to be borne by payer, then amount paid to payee is considered as net
amount. In such cases Gross amount to be included in the income of payee is calculated as follows:
Gross Amount = Net amount paid x 100 ÷ (100 minus TDS rate)
Note: No such grossing up will be required in case of tax paid by the employer on the non-monetary perquisites provided to the employee. [Since it is an exempt
perquisite u/s 10(10CC)]
No TDS if the payment is made to specified persons [Section 196]: No deduction of tax shall be made by any person from any sum payable to the Government;
RBI; Corporation established under a Central Act; or Mutual fund specified u/s 10(23D).
No TDS / Low TDS Certificate [Section 197]: If tax is deductible u/s 192,193,194,194A,194C,194D,194G,194H,194-I,194J,194K, 194LA, 194M or 195; then Payee
can apply to the Assessing Officer in Form No 13 to get a No TDS / Low TDS certificate authorising the payer to deduct tax at lower rate or deduct no tax as may be
appropriate. Such certificate shall be issued on plain paper directly to the payer after obtaining prior approval of JCIT / Addl. CIT. If the payee does not have PAN, he
cannot apply for the aforesaid certificate u/s 197. AO will issue such certificate on the basis of “existing and estimated tax liability” of the payee and also taking into
account Advance tax / TDS / TCS amounts.
No TDS if self-declaration is submitted to payer: [Section 197A]: If the following 3 conditions are satisfied and the payee gives a declaration to the payer along with
his PAN, then the payer will not deduct tax at source. Such declaration should be given in Form No. 15G (Form No. 15H for senior citizen).
Taxable pre-mature Dividend [S. 194]
Interest Payment in respect of
withdrawal from Payment from NSS [S. 194EE]
Conditions [S. 193 & 194A] or life insurance policy
provident fund Insurance Commission
Rent [S. 194-I] [S. 194DA]
[S. 192A] [S. 194D w.e.f 1.6.2017]
Other than a Other than a
Condition 1: Who is recipient Individual Resident Individual
company or firm company or firm
Condition 2: What is tax on total income of the previous year Nil Nil Nil Nil
Condition 3: How much is total of income covered by sections Total Income covered by prescribed section ≤ Basic exemption limit or such amount of income which is
192A, 193, 194, 194A 194DA and (w.e.f 1.6.2016) 194-I. eligible for rebate u/s 87A. This condition is not applicable if the Payee = Resident senior citizen.
th
Section 197A(2): Payer to submit one copy of declaration to CIT / CCIT by 7 of next month in which such declaration is received from payee.
Note: No TDS shall be deducted if the payment is made to notified institutions, associations or bodies whose income is exempt u/s 10.
Tax deducted is income received [Section 198]: For Computation of total Income of payee, Income = Amount actually received + Amount of Tax deducted.
Exception: Tax paid by employer u/s 192(1A) on non-monetary perquisites provided to employee shall not be considered as income of employee. [Since it is an exempt
perquisite u/s 10(10CC)]
Credit for Tax Deducted at Source [Section 199]: Tax deducted at source in accordance with the abovementioned provisions and paid to the credit of central
government shall be treated as payment of tax on behalf of payee.
CA INTERMEDIATE – INCOME TAX [May 2021] Chapter 13 – TDS, TCS & Advance tax Compiled by Prof. CA. Jignesh Thakkar 121
TDS PROVISIONS AT A GLANCE FOR FY 2020-21
Sec. Nature of payment Payer Payee When to Rate Minimum amount Important points
deduct tax not liable to TDS
192 Salaries Employer (Any Employee Payment Slab Rate No TDS if tax Note: Employer should obtain evidence from
person) (Resident / liability on employee with respect to claim of
Non-resident salary income Deductions / exemptions / Set-off of loss.
Individual) after (Refer Note 1)
deductions /
rebate is Nil.
192A Pre-mature taxable Employee Provident Employee Payment 10% < 50,000 a) TDS is applicable only if amount is
withdrawal from fund officer or (Resident / withdrawn before 5 years of continuous
Recognised Employee Provident Non-resident) service.
provident fund. fund trust. b) If employee does not submit the PAN then
tax needs to be deducted @ Maximum
marginal rate.
c) However, employee can file self-
declaration u/s 197A in Form 15G / Form
15H for non-deduction of TDS in case his
Total Income < Basic exemption limit.
193 Interest on securities Local authority or Resident Payment or 10% 5,000 in case No TDS in case of:
statutory person credit, (7.5% from payee is resident a) Interest on Debentures paid to resident
corporation or whichever is 14.5.2020 to Individual / HUF Individual / HUF provided debentures are
company earlier 31.3.2021) and payment is issued by public company, interest is paid
made by a/c by a/c payee cheque and interest amount
payee cheque. does not exceed ` 5,000/-.
and b) Interest on National defence bonds or
10,000 in case Loan / National development bonds /
interest is paid on National savings certificate (IV issue) /
8% savings Gold Bonds / Bonds of Power finance
taxable bonds corporation Ltd./ Bonds of Indian Railway
(2003) or 7.75% Finance Corporation Ltd / other notified
savings taxable Bonds / debentures.
bonds,2018. c) Interest on securities issued by company
in DEMAT form & listed on any stock
exchange.
d) Interest on CG / SG securities.
e) Interest payable to LIC, GIC or any of four
public sector insurance companies formed
by GIC in respect of any securities owned
by it.
194 Dividend paid by Domestic company. Resident Payment 10% Nil a) No TDS if payee is an individual shareholder,
Domestic company. person. (7.5% from payment is made by any mode other than
14.5.2020 to cash and the amount of dividend does not
31.3.2021) exceed ` 5,000.
b) No TDS if Payee is LIC / GIC / Four Insurance
companies formed under General Insurance
Business (Nationalisation) Act, 1972 or any
other insurer.
194A Interest other than Any person Resident Payment or 10% ≤ 40,000 (≤ a) No TDS if payee = Bank / Co-op bank /
interest on (Individual or HUF person credit, (7.5% from 50,000 in case Financial corporation established under any
securities. only if total sales, whichever is 14.5.2020 to payee is resident Act / LIC / UTI / National skill development
gross receipts or earlier 31.3.2021) senior citizen) in fund / HUDCO / Company or Co-op society
turnover from case payer = carrying on Insurance business / Depositor
business or Bank / of a notified scheme framed by the Central
profession exceeds Co-op bank / Government.
` 1 crore in case of Post office. b) No TDS on Interest paid by firm to resident
business and ` 50 partners / Interest on income tax refund /
lakhs in case of < 5,000 (≤ 50,000 savings a/c / Zero coupon bonds / Deposits
profession in in case payee is made in the name of Registrar General of
immediately resident senior court.
preceding financial citizen) in case c) No TDS on interest paid by Co-operative
year). payer = any other society (except co-operative banks) to its
person. members or any other Co-op. society.
At the time of 10% < 50,000 in case d) Interest credited or paid in respect of
payment in (7.5% from of interest on deposits with a primary agricultural credit
case of 14.5.2020 to compensation society or a primary credit society or a co-
interest on 31.3.2021) awarded by Motor operative land mortgage bank or a co-
compensation Accidents Claim operative land development bank.
awarded by tribunal. e) Interest credited or paid in respect of
Motor deposits (other than time deposits) with a co-
Accidents operative society (other than those societies
Claim tribunal. which are referred to in (d) above) engaged
in the business of Banking.
Important points continued….
f) W.e.f 1.4.2020 i.e., AY 2021-22, Co-operative society shall be liable to deduct tax at source in all the cases as mentioned above if the
total sales, gross receipts or turnover of the co-operative society > ` 50 crore during the financial year immediately preceding the financial
year in which the interest is credited or paid; and Interest / Aggregate interest, credited or paid, or is likely to be credited or paid, during
the financial year is more than ` 50,000 in case of payee being a senior citizen (resident individual having age of 60 years or more) and `
40,000 in any other case.
g) If Core banking solutions is not adopted: Limit of ` 40,000 / ` 5,000 / ` 50,000 needs to be seen for each branch of the Bank / Co-op
bank / Company.
h) If Core banking solutions is adopted: Limit of ` 40,000 / ` 5,000 / ` 50,000 needs to be seen for total interest paid by Bank / Co-op bank /
Company.
i) CBDT Circular No. 3/2010 dated 2.3.2010: Since no constructive credit to the depositor's / payee's account takes place while calculating
interest on time deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such
provisioning of interest by banks. In such cases, tax shall be deducted at source on accrual of interest at the end of financial year or at
periodic intervals as per practice of the bank.
(iii) Expenses of the nature described in Section 40 A.
(iv) Interest & salary payable outside India, if tax has not been paid or deducted at source.
(v) No deduction shall be allowed in respect of winnings from lotteries, cross word puzzles, card games,
races including horse race, gambling, betting, etc.
(vi) Provisions of section 40(a)(ia) providing for 30% disallowance for non-deduction of tax from payments
made to residents shall, so far as may be, also apply in computing income chargeable under the head
"income from other sources".
Deemed Income [Section 59]: Any amount received or benefit derived in respect of expenditure incurred
or loss or trading liability allowed as deduction, shall be deemed as income in the year in which the amount
is received or the benefit is accrued. This provision is similar to that of Section 41(1) under the head “Profits
and gains of business or profession”

Q.1. Mr. Hansie furnishes the following particulars of his income for the previous year 2020-21. Compute his
'Income from Other Sources' for the assessment year 2021-2022.
(a) Dividend from Microsoft Corporation, an US company ` 5,000
(b) Interest on Govt. Securities ` 4,500.
(c) Dividend from a Co-operative Society ` 1,500.
(d) Winning from lottery ` 4,200 net (TDS as per applicable rates)
(e) Winning from camel races ` 10,000.
(f) He has let office machinery at a monthly rent of ` 3,000. He spent ` 2,000 on repairs of the
machinery. Depreciation allowable on machinery as per Income Tax Rules ` 5,000.
(g) He has let one house property along with furniture for a composite rent of ` 10,000 p.m.
His expenditure on the above were:
 Repairs of the house : ` 2,000  Insurance premium :
 Collection charges : ` 3,000 On Building : ` 3,000
 Municipal taxes : ` 7,000 On Furniture : ` 2,000
 Depreciation as per the income tax rules :  Interest on capital borrowed for purchase
On Building : ` 7,000 of furniture & House : ` 12,000
On Furniture : ` 3,000
(h) He stays in a rented house paying rent of ` 8,000 p.m. since the house is too big for his
family, he has sublet ¼th portion of the house for a rent of ` 2,500 p.m. He also pays municipal
taxes and current repairs for the entire house ` 10,000 and ` 16,000 respectively.
(i) Family pension received on death of his wife ` 2,000 p.m.
(j) Salary as a Member of Parliament ` 24,000
(k) Daily allowance as Member of Parliament ` 16,000
(l) Income from agricultural land in Pakistan ` 10,000
Income from agricultural land in India ` 5,000
(m) Interest on post office savings bank ` 4,000 Interest on Corporation Bank Savings A/c. ` 2,000,
Interest on debentures of TELCO Ltd. ` 4,000, Interest on National Savings certificate VIII issue `
4,000.
(n) Interest received / accrued on Public Provident Fund ` 2,500.
(o) Received ` 20,000 interest on his contribution to an unrecognized Provident Fund on
retirement from his employer on 1st May 2020.
(p) Received ` 50,000 on maturity of his L.I.C. policy.
(q) Received a gift of ` 40,000 from a friend on 12th Nov. 2020 and a gift of ` 1,00,000 from the
brother of his grandfather.
Ans 1. Statement Showing Taxable Income from other sources for A.Y. 2021-22.
Particulars ` `
Dividend from Microsoft Corp., US Co. 5,000
Interest on Government Securities 4,500
Dividend from a co-operative society 1,500

6) Any Government of a foreign State or a foreign enterprise or any association or body 5. TDS on payments by television channels &
established outside India; publishing houses to advertisement
7) Society registered under the Society Registration Act, 1860. companies for procuring or canvassing for
8) Firm; advertisements [Circular No. 05/2016, dated
9) Company. 29-2-2016] There are two types of payments
10) Individual, HUF, AOP or BOI, whether incorporated or not, (w.e.f AY 2021-2) only if involved in the advertising business:
their total sales, gross receipts or turnover from business or profession carried on by a) Payment by client to the advertising
him exceeds ` 1 crore in case of business or ` 50 lakh rupees in case of profession agency – Liable to TDS u/s 194C.
in the immediately preceding previous year. b) Payment by advertising agency to the
television channel / newspaper company –
NOT Liable to TDS u/s 194C.
6. No TDS to be deducted in case of payments
made to transport operators in case PAN is
given (only in case of transporters owning <
10 goods carriages and submitting
declaration to that effect). Condition of not
owning more than 10 goods carriage needs
to be seen on the date of credit / payment.
However, TDS is applicable on Goods
carriage not owned (taken on rent) by
transporter.
194D Insurance commission Any person Any resident Payment or
(Insurance person credit, 5%* * (3.75% from 14.5.2020 to 31.3.2021)
< 15,000
Company) whichever is
earlier
194DA Maturity proceeds of Any person Any resident Payment 5% of net < 1,00,000 a) Tax needs to be deducted only If the maturity
LIC including bonus (Insurance person income. proceeds are not exempt u/s 10(10D).
Company) (3.75% from Net income b) However, payee can file self-declaration u/s
14.5.2020 to = 197A in Form 15G / Form 15H for non-
31.3.2021) Maturity proceeds deduction of TDS in case his Total Income
(minus) including maturity proceeds < Basic
premiums paid exemption limit.
194E Payment to Non- Any person Non-resident Payment or Following payments are covered u/s 194E:
resident sportsman / sportsman or credit, a) Payment for participation in any games /
Athlete / entertainer athlete who is whichever is sports in India.
who is not a citizen of not a citizen of earlier 20% b) Income by way of advertisement.
Nil
India (And) Payment to India or Non- c) Remuneration for writing articles on game,
Non-resident sports resident sports sport etc.
association or institution. association. d) Guarantee sum paid to sports association /
institution.
194EE Payment from National Post office Any person Payment Note: No TDS if the payment is made to the
savings scheme. legal heirs of the deceased assessee
10%* < 2,500 (depositor).
* TDS at the rate of 7.5% from 14.5.2020 to
31.3.2021.
194F Repurchase of units by Mutual Fund / UTI Any person Payment 20% Note: Applicable to units for which deduction
Mutual fund / UTI. (15% from was claimed u/s 80CCB during the PY 1990-91
14.5.2020 to & PY 1991-92.
31.3.2021)
194G Commission on sale Any person Any person Payment or * TDS at the rate of 3.75% from 14.5.2020 to
of lottery tickets credit, 31.3.2021.
5%* < 15,000
whichever is
earlier
194H Commission or Any person Any resident Payment or 5% < 15,000 a) No TDS on Brokerage payable by BSNL/
brokerage (Individual or HUF person credit, (3.75% from MTNL to their PCO franchisees.
only if total sales, whichever is 14.5.2020 to b) “Commission or brokerage” includes any
gross receipts or earlier 31.3.2021) payment received or receivable, directly or
turnover from
indirectly, by a person acting on behalf of
business or
profession another person for services rendered, or for
exceeds ` 1 crore any services in the course of buying or selling
in case of of goods, or in relation to any transaction
business and ` 50 relating to any asset, valuable article or thing,
lakhs in case of other than securities. Therefore, No TDS on
profession in brokerage paid on purchase / sale of
immediately securities.
preceding FY.
194I Rent Any person Any resident Payment or 2%* in case of 2,40,000 a) Lease / sub-lease / tenancy / other
(Individual or HUF person credit, Plant / Machinery (In case of co- arrangements covered.
only if total sales, whichever is / Equipment. ownership limit of b) Ownership of asset in not relevant.
gross receipts or earlier And 2,40,000 should c) No TDS on Municipal tax component,
turnover from 10%** in case be seen for each Refundable deposit, GTS component.
business or of Land / co-owner)
profession d) No TDS on remittance of passenger service
Building / * 1.5% from fees by Airline to Airport operator.
exceeds ` 1 crore Furniture 14.5.2020 to
in case of e) If a particular space is taken on rent and
31.3.2021.
business and ` 50 thereafter it is sub-let fully or in part for
** 7.5% from
lakhs in case of putting up a hoarding, then TDS is attracted
14.5.2020 to
profession in under section 194-I.
31.3.2021.
immediately f) No TDS on lumpsum lease premium.
preceding FY.
g) No exclusion for personal purposes.
h) Rent for ‘Motor Car’ [which is covered by
the definition of ‘Plant’ given in Section
43(3)] will be subjected to TDS u/s 194C or
u/s 194-I?
(i) If provided with chauffer and fuel - then
u/s 194C.
(ii) If provided without chauffer and fuel -
then u/s 194-I.
194-IA Consideration for Any person Any resident Payment or 1% Actual sale a) No TDS in case actual sale consideration is
transfer of person credit, (0.75% from consideration less than 50,00,000.
immovable whichever is 14.5.2020 to < 50,00,000 b) Provisions of section 203A shall not apply i.e
property other than earlier 31.3.2021) deductor need not apply for tax deduction
agricultural land. account number.
c) W.e.f 1.9.2019 – Consideration includes club
membership fees, car parking fees, electricity
or water facility fees, maintenance fees,
advance fees or other charges of similar
nature.
194-IB Payment of Rent Individual and HUF Any resident Payment or 5% 50,000 for a month a) Section 203A dealing with obtaining TAN is
by certain not covered u/s person credit, (3.75% from or part of a month. not applicable.
Individual / HUF. 194-I. whichever is 14.5.2020 to b) Meaning of at the time of credit: At the time
earlier 31.3.2021) of credit of rent for the last month of the
previous year or the last month of tenancy, if
the property is vacated during the year, as
the case may be, to the account of the
payee.
c) If Section 206AA is applicable, then TDS
shall not exceed the rent for last month of
the year or rent of the last month of tenancy,
as the case may be.
194-IC Payment under Any person Any resident Payment or 10% - a) Specified agreement means a registered
Specified person credit, (7.5% from agreement in which a person owning land or
agreement u/s whichever is 14.5.2020 to building or both, agrees to allow another
45(5A). earlier 31.3.2021) person to develop a real estate project on
such land or building or both. The
consideration, in this case, is a share, being
land or building or both in such project; Part
of the consideration may also be in cash.
b) TDS is applicable only on consideration
other than consideration in kind.
194J Fees for Any person Any resident Payment or FTS and 30,000 for each a) No TDS on fees for professional services if
professional or (Individual or HUF person credit, Royalty in the nature of payment. the payer is Individual / HUF and payment is
technical services / only if total sales, whichever is nature of made for ’Personal purpose’.
Royalty / gross receipts or earlier consideration No limit in case of b) No TDS (even if turnover / sales / gross
Non-compete fees turnover from for sale, remuneration to receipts exceeds the prescribed limit) on
/ Remuneration to business or distribution or director. Royalty / Non-compete fees / payments to
directors. profession exceeds exhibition of director if the payer is Individual / HUF.
` 1 crore in case of cinematographic c) No TDS on re-imbursement of expenses in
business and ` 50 films – 2% case a separate bill is given.
Note: Consideration
lakhs in case of (1.5% from d) Rate of TDS will be 2% (1.5% from
for use or right to
profession in 14.5.2020 to 14.5.2020 to 31.3.2021) in case of payee
use of computer
immediately 31.3.2021) engaged in business of operation of call
software is royalty
preceding financial Other payments center.
within the meaning year).
of Section 9(1)(vi). – 10%(7.5% e) Third party Administrators liable to deduct
from 14.5.2020 TDS on payments to Hospitals on behalf of
to 31.3.2021) Insurance Companies.
194K Income on units Any person Any resident Payment or 10% (7.5% from ≤ 5,000 Income in respect of:
other than in the responsible for person credit, 14.5.2020 to a) units of a Mutual Fund specified u/s 10(23D);
nature of capital paying any income whichever is 31.3.2021) or
gains. in respect of units earlier b) units from the Administrator of the specified
of a mutual fund / undertaking; or
Administrator of
c) units from the specified company.
the specified
undertaking /
specified company.
194LA Compensation on Any person Any resident Payment 10% (7.5% from < 2,50,000 a) No TDS in case compensation is for
compulsory person 14.5.2020 to agricultural land (Urban / Rural)
acquisition of certain 31.3.2021) b) No TDS if the compensation is exempt from
immovable property. tax by virtue of Section 96 of the Right to Fair
Compensation and Transparency in Land
acquisition, Rehabilitation and Resettlement
Act, 2013.
194M Payment for Contract Individual or HUF Any resident Payment or 5% < 50,00,000 a) Sec.203A does not apply i.e., No need to apply
work, Professional other than those person credit, (3.75% from for TAN.
fees, Commission or covered u/s 194C, whichever is 14.5.2020 to b) Personal transactions are also liable for TDS.
Brokerage. (Budget 194H and 194J. earlier 31.3.2021)
2019, w.e.f 1.9.2019)
194N TDS on Cash Bank, Co-operative Any resident Payment TDS rate as < 1,00,00,000 a) No TDS if the recipient is Government, Bank, Co-
withdrawal from Bank bank, post office. person explained op Bank, Post office, Business correspondent of
account. below. Bank / Co-op bank, White label ATM operator of
Bank / Co-op Bank.
Income from assets transferred to spouse [Section 64 (1) (iv)]: Subject to Section 27, where an asset is
transferred, directly or indirectly, by the individual to his / her spouse, otherwise than for adequate
consideration or in connection with an agreement to live apart, then income arising from such asset shall be
included in the income of transferor.
Analysis of Section 64 (1) (iv):
1) Significance of the phrase “subject to Sec 27”: If a house property is transferred and the aforesaid
conditions are satisfied, then transferor is deemed as owner of the property u/s 27. This case is not
covered by S. 64 (1) (iv).
2) Significance of the phrase “indirectly”: The effect of this is, even cross transfers are hit by S. 64 (1)
(iv). CIT Vs C.M. Kothari 49 ITR 107 (SC)
X Mrs.X
Gift 00
s a ss .100
et w s
o rth R
s e t wroth Rs.
s as 100
Gift 00
A Mrs.A
3) Significance of the phrase “Spouse”: Husband and wife relationship should subsist both on the date of
transfer of the asset and on the date of accrual of income. Then only the provisions of S. 64 (1) (iv) can
be invoked. Philip John Plasket Thomas Vs. CIT 49 ITR 97 (SC).
Notes:
a) It means transfer of asset before marriage is outside the scope of this section.
b) Similarly, if transferor-spouse dies, income though continued to be enjoyed by the transferee,
cannot be included in the income of deceased transferor's heir, as a widow or widower is not a
spouse.
4) Significance of the phrase “Income arising from such asset”:
a) Where cash is transferred by an individual to his spouse and the latter invests the same in units and
deposits, interest income is included in assessee's total income.
b) Where the assets transferred by an individual to his spouse are invested by the transferee in any
business, (not being as capital contribution in a firm), then proportionate income will be clubbed as
follows:
Income to be clubbed = Profit of the business x Amount invested out of transferred asset
Total capital in business as on the first day
of the previous year.
Where the assets transferred by an individual to his spouse are invested by the transferee as capital
contribution in any firm, then clubbing will be done as follows:
i) Proportionate clubbing will be done for interest on capital.
ii) Share of profit received from the firm should not be clubbed as it is exempt u/s 10(2A).
iii) Remuneration received from the firm cannot be considered for clubbing since it is paid for the
services rendered by the partner.
c) Where the assets transferred by an individual to his spouse is sold by transferee, then capital gains
derived by the transferee-spouse upon sale of assets transferred to her/him by the transferor-spouse
had to be included in the total income of the transferor-spouse-u/s 64(1)(iv) Seventilal Maneklal
Sheth Vs CIT-68 ITR 503 (SC) Capital gains on sale of transferred asset:
Note: Even the capital gains arising on account of transfer of an asset the form of which is changed by
the transferee-spouse shall be clubbed in the hands of the transferor-spouse. CIT Vs Smt Pelleti
Sridevamma 216 ITR 826 (SC).

e) No TDS if tax liability = Nil: No tax is deductible if the tax on salary income (after considering exemptions / deductions / rebates) = Nil.
f) Obtain evidence from employee [Section 192(2D)] read with Rule 26C: Employer should obtain proof rom employee with respect to claim of exemption / deduction
such as proof for (i) House rent allowance, (ii) Leave travel concession / assistance, (iii) Interest on housing loan and (iv) Chapter VIA deductions.
g) Tax deduction on Actual payment: Tax needs to be deducted only at the time of actual payment of salary.
h) TDS certificate in Form No.16: Employer should furnish a TDS certificate to the employee in Form No. 16 to employee.
i) Statement of Perquisites and Profits in lieu of Salary in Form No. 12BA – Section 192(2C): Employer should furnish details of perquisites or profits in lieu of salary
in Form 12BA if the amount of salary paid or payable to employees is more than ` 2,50,000 p.a. (‘Salary’ shall have the same meaning as applicable for calculation of
Rent free accommodation.) Whereas salary paid or payable to employees is ≤ ` 2,50,000 p.a. then such information can be provided as part of Form 16 itself.
j) TDS on non-monetary perquisites provided to employee: If employer agrees to pay tax in respect of non-monetary perquisites provided to employee, then to that
extent tax need not be deducted at source. Tax on such non-monetary perquisites shall be calculated at average rate of tax on salary income of employee.
k) Relief u/s 89(1): If an employee is entitled to relief u/s 89(1), then may furnish Form 10E to the employer. Employer shall compute the relief u/s 89(1) and take it into
account while computing the amount of TDS.
l) TDS on Shares or Securities issued under ESOPs by an eligible Start-up referred to in Section 80-IAC – Section 192(1C) (W.e.f AY 2021-22): Under section
192, the employer-company is mandated to deduct tax at source on such income i.e., at the time of exercise of option. In order to ease the burden of start-ups, Section
192(1C) is introduced to provide that a company, being an eligible start-up referred to in section 80IAC, would deduct tax at source on such income within 14 days:
 after the expiry of 48 months from the end of the relevant assessment year; or
 from the date of the sale of such ESOPs by the employee; or
 from the date of which the taxpayer ceases to be the employee;
Whichever is earlier on the basis of rates in force of the financial year in which the said specified security or sweat equity share were allotted. Thus, now, the tax
payment / deduction on such perquisite is deferred as mentioned above without changing the year of its chargeability.
Duty of Person Deducting Tax [Section 200]: Payer shall pay TDS to the credit of Central Government within the prescribed time limit as given below: [Rule 30]
Different situations Time limit for deposit of tax
When payer is the Government or when payment is made on behalf of the Government
1. Where tax is paid without production of income-tax challan. (Book entry) Same day
2. Where tax is paid accompanied by a challan. 7 days from the end of the month in which deduction is made or tax is due u/s 192(1A)
When payer is other than Government
th
1. Amount of tax deduction is made in the month of March. 30 April
2. Any other case (If month of deduction is April to February). 7 days from the end of the month in which deduction is made or tax is due u/s 192(1A)
When permission is given for quarterly payment of TDS
When the Assessing Officer has permitted (with the prior approval of Joint For quarters ended 30th June, 30th September, 31st December and 31st March - July
Commissioner) to make payment of TDS on quarterly basis & when such 7, October 7, January 7 & April 30 respectively.
payment is covered by S. 192, 194A, 194D, 194H.
Tax deducted u/s 194-IA, S. 194-IB and S. 194M
Section 194-IA: Consideration for transfer of immovable property. Payment should be made within 30 days from the end of the month of deduction. A
Section 194-IB: TDS on rent paid by individual / HUF not covered under 44AB in challan-cum-statement in Form 26QB / 26QC should also be furnished within 30 days
immediately preceeding financial year. from the end of the month of deduction.
Section 194M: Payment made by an individual or a HUF for contract work or by
way of fees for professional services or commission or brokerage.
Statement of Tax Deducted and Deposited (TDS Return) [Section 200(3)]: Every payer (Deductor) shall furnish quarterly statements (TDS return) to the prescribed income-
tax authority, in the prescribed form, within the due dates mentioned below:
Quarter ending Due date for submitting TDS return Quarter ending Due date for submitting TDS return
th st
30 June July 31 31 December January 31
th st
30 September October 31 31 March May 31
Important Note: Due dates for submitting TDS return as mentioned above not applicable in case of TDS u/s 194-IA, section 194-IB and 194M. In such cases payer
shall furnish statement in Form 26QB / 26QC / 26QD within 30 days from the end of the month of deduction which is considered as challan cum TDS return.
Levy of fee in certain cases [Sec. 234E] : If payer (deductor) fails to furnish TDS return within the time limit prescribed above, he shall be liable to pay fess [such fees shall
be Lower of ` 200 per day or TDS amount]. Such fee shall be paid before furnishing the TDS statement.
Rectification of TDS return: Payer (deductor) can file a correction statement for rectification of any mistake in the original TDS return.
Consequences of failure to deduct or pay tax [Section 201]
1) If payer fails to deduct tax or after deducting fails to pay the tax then payer = Assessee-in-default. However, the payer (deductor) ≠ assessee-in-default if the resident payee:
(i) has furnished his return of income u/s 139; (ii) has taken into account amount received while computing his total income; (iii) has paid the tax due on the income declared by
him; & and the payer furnishes a certificate to this effect from CA in the prescribed form. This benefit is not extended to employer referred to in S. 192(1A).
2) If payer = Assessee-in-default, then he shall be liable to pay penalty. Amount of penalty will be decided by the Assessing Officer but amount of penalty should be ≤ TDS
amount. However, no penalty shall be charged u/s 221 unless the Assessing Officer is satisfied that failure to pay TDS is without good and sufficient reasons.
3) Besides the above penalty, according to section 201(1A), he shall be liable to pay simple interest as follows:
a) For delay in deduction of TDS: Interest @ 1% p.m. or part of the month from the date on which tax was deductible to the date on which tax is actually deducted.
b) For delay in payment of TDS: Interest @ 1½ % p.m. or part of the month from the date on which tax was actually deducted to the date on which tax is actually paid.
c) However, if the payer ≠ assessee-in-default because the resident payee has filed his return u/s 139 and paid the tax, then interest @ 1% p.m. or part of the month
shall be charged from the date on which such tax was deductible to the date of furnishing of return of income by the resident payee.
d) Such interest shall be paid before furnishing TDS return u/s 200(3).
4) Further the amount of tax deducted together with interest for delayed payment shall be a charge upon all the assets of the person.
Issue TDS certificate to Payee [Section 203]: Payer shall furnish TDS certificate to the payee, in the prescribed form and within time limit given below:
Section under which tax is deducted Time limit for issue of TDS certificate
For deduction u/s 192 (Form 16) 15th June of Financial Year immediately following the Financial year in which the income was paid &
tax deducted. (Yearly basis)
For deduction u/s 194-IA (Form No.16B) 15 days from the due date for furnishing challan-cum-statement in Form 26QB.
For deduction u/s 194-IB (Form No. 16C) 15 days from the due date for furnishing challan-cum-statement in Form 26QC.
For deduction u/s 194M (Form No. 16D) 15 days from the due date for furnishing challan-cum-statement in Form 26QD.
For deduction under any other provision of 15 days from the due date for furnishing quarterly statement of tax deducted at source under Rule 31A.
chapter XVII-B (Form 16A) (Quarterly basis – Q1 15th Aug, Q2 15th Nov, Q3 15th Feb and Q4 15th June of next financial year)
Tax Deduction and Collection account number (TAN) [Section 203A]: Every person deducting tax or collecting tax shall apply to the Assessing Officer for the allotment of
“tax-deduction and collection-account number”. Once such number is allotted to a person, such person shall quote such number in all challans for the payment of TDS / TCS,
TDS / TCS certificate, TDS / TCS returns, other documents pertaining to such transactions as may be prescribed.
Note: The provisions of this section shall not apply to such person as may be notified by the Central Government in this behalf.
5) Important points to be noted:
a) Even if the form of the asset transferred by the transferor-spouse is changed by the transferee-
spouse, still, the income arising from such changed asset shall be clubbed in the hands of the
transferor-spouse. Mohini Thapar Vs CIT 83 ITR 208 (SC)
b) Income arising from accretions to transferred assets - If an assessee gifts, debentures of a company
to the spouse and, subsequently, the company issues bonus debentures to the spouse, interest on
bonus debentures will not be includible in the hands of the assessee as there is no transfer of bonus
debentures by the assessee to the spouse.
c) Second generation income cannot be clubbed.
Income from assets transferred to son’s wife [Section 64 (1)(vi)]: Where an asset is transferred, directly
or indirectly, by the individual to son’s wife, otherwise than for adequate consideration, then income arising
from such asset shall be included in the income of transferor.
Analysis of Section 64 (1) (vi):
(1) The relationship of father-in-law or Mother-in-Law and Daughter-in-Law should subsist both at the time of
transfer and at the time of accrual of income.
Note: It means transfer of asset before son's marriage by an individual to his prospective daughter-in-law
is outside the scope of clubbing even if income is accrued after son's marriage.
(2) Even S. 64 (1) (vi) covers cross transfers - Om Dutt Vs. CIT 277 ITR 63 (P&H).
(3) The asset may be held by the transferee in the same form or in a different form.
(4) Provisions relating to income to be clubbed, is same as discussed u/s 64 (1) (iv).
Income from assets transferred to any person or association of persons for the benefit of spouse /
son’s wife: [Section 64(1)(vii) / Section 64(1)(viii)] :
In computing the total income of any individual, there shall be included all such income arising directly or
indirectly to any person or association of persons from assets transferred otherwise than for adequate
consideration to the extent to which the income from such assets is for the immediate or deferred benefit of
the individual's spouse or son's wife.
Example: Mr. A transfers one of his house properties to his friend B with a direction that 50% of the rental
income is to be used for the benefit of his wife Mrs. A and 50% for others. Then, the rental income to the
extent of 50% shall be included in the total income of Mr. A.
Losses also to be clubbed: In CIT Vs Karamchand Premchand Ltd 40 ITR 106 (SC), the apex court held
that income includes loss. Therefore, u/s 64 (1), where the income arising to one person is to be clubbed in
the hands of another person, in the event of loss, the loss shall be taken into account in computing the
income of such person.
Income of minor child [Section 64(1A)]
(1) In computing the total income of any individual, there shall be included all such income as arises or
accrues to his minor child.
(2) However, income shall not be clubbed if it arises or accrues to a minor child on account of any:
a) Manual work done by him; or
b) Activity involving application of his skill, talent or specialised knowledge and experience.
(3) If the minor child is suffering from any disability of the nature specified in Section 80U, the income of such
child shall not be clubbed in the hands of the parent but shall be assessed in the hands of the child.
(4) The income of the minor will be included in the income of that parent whose total income, excluding the
income to be clubbed, is greater. Once clubbing of minor's income is done with that of one parent, it will
not be clubbed with the other parent unless the Assessing Officer is satisfied, after giving the other parent
an opportunity to be heard, that it is necessary so to do. Where the marriage of the parents does not
subsist the income of the minor will be included in the income of the parent who maintains the minor child
in the previous year.  Explanation to Section 64(1A).
(5) In the case of an assessee in whose total income the minor child's income is to be included u/s 64(1A),
exemption is given upto ` 1,500 (not exceeding the income clubbed) in respect of each such minor child 
Section 10(32).
4) Section 206C(1G) do not apply in following cases:
(i) If buyer has deducted TDS.
(ii) If the buyer is the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of
a foreign State, a local authority as defined in the Explanation to section 10(20) or any other person as the Central Government may, by notification in the Official
Gazette, specify for this purpose, subject to such conditions as may be specified therein.
5) Meaning of certain terms:
(i) Authorised Dealer: “Authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange
Management Act, 1999 to deal in foreign exchange or foreign security.
(ii) Overseas tour program package: “overseas tour program package” means any tour package which offers visit to a country or countries or territory or territories
outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
Section 206C(1H) – W.e.f 1.10.2020, TCS on sale of goods above specified limit:
1) Seller of any goods [other than the goods being exported out of India or goods covered in section 206C(1) or Section 206C(1F) or Section 206C(1G)] shall collect TCS
@ 0.1% [0.075% from 14.5.2020 to 31.3.2021] at the time of receipt of sale consideration on amount exceeding ` 50,00,000 in a financial year. In non-PAN /
Aadhaar cases the rate shall be higher of twice the rate given in the sub-section and 1%.
2) Section 206C(1H) do not apply if the buyer has deducted TDS.
3) Meaning of Buyer: For the purposes of this sub-section, “buyer” means a person who purchases any goods, but does not include,–
(i) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
(ii) a local authority as defined in Explanation to section 10(20); or
(iii) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such
conditions as may be specified therein.
4) Meaning of Seller: “Seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceeds 10 crore rupees in the immediately
preceding financial year. Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
Time limit for paying tax collected to the credit of the Central Government [Rule 37CA]
Person collecting sums in Period within which such sum should be paid to
Circumstance
accordance with S. 206C the credit of the Central Government
(i) where the tax is paid without production of an income-tax challan on the same day
(1) An officer of the Government on or before 7 days from the end of the month in which
(ii) where tax is paid accompanied by an income-tax challan
the collection is made
within one week from the last day of the month in
(2) Collectors other than an office of the Government
which the collection is made
Important point to be noted: Unlike TDS, here there is no relaxation of time limit, in a case where the tax was collectible in the last month of the financial year.
Consequences of failure to collect / deposit tax: Failure to collect tax or failure to deposit the same to the credit of Central Government after collecting it shall attract:
(i) Simple interest u/s 206C(7) @ 1% per month or a part of a month during which the default continues i.e. starting from the date on which the tax was collectible till the date
on which tax is deposited to the credit of Central Government;
(ii) Section 206C(6A) – Such person (collector) shall be deemed to be an assessee-in-default.
Person responsible for collecting tax ≠ Assessee-in-default: For the purpose of Section 206C(1) and section 206C(1C), seller / licensor / lessor (collector) shall not be
deemed to be in default if all the following conditions are fulfilled by buyer / licensee / lessee:
(i) he has furnished his Return of Income u/s 139;
(ii) he has taken into account such income in such return of income;
(iii) he has paid the tax due on the income declared by him in such return of income; and
(iv) he furnishes a certificate to this effect from a Chartered Accountant in a prescribed form to the collector of tax.
However, this relief is not available with regards to TCS u/s 206C(1F).
Proviso to Section 206C(3) – Filing of Quarterly TCS Statement (TCS Return): Every person who is required to collect the tax at source, shall be required to furnish a
Statement (TCS Return) of tax collected, in a prescribed form (Form No. 27D), within the due dates as follows:
Quarter Due Date Quarter Due Date
th th
Q1 15 July of previous year Q3 15 Jan of previous year
th th
Q2 15 Oct of previous year Q4 15 May of next year
Fees / Penalty for Default in furnishing TCS return: Default in furnishing Quarterly TCS Statement, within the time limits as mentioned above, will attract fees u/s 234E of `
200/- per day of default. However, the amount of fee u/s 234E shall not exceed the amount of TCS.
Application for Low TCS certificate – Section 206C(9): Based on an application from Buyer / Licensee / Lessee, if AO is satisfied that the total income of the Buyer /
Licensee / Lessee justifies collection of tax at the rate lower than the rate specified in section 206C(1) / (1C), then AO shall issue him a certificate for collection of tax at lower
rate. W.e.f 1.4.2017, no such application shall be entertained in case if it is not supported with the PAN of the applicant collectee.
Advance payment of tax [Section 207 to 211]
Liability for payment of advance tax Computation and payment of advance tax [Section 209]
1. Tax shall be payable in advance during the financial year in respect of the Particulars `
total income of the assessee. [Section 207]. Estimated total income xxx
2. Liability to pay advance tax arises when Advance tax payable by the Estimated total tax due from Assessee xxx
assessee ≥ ` 10,000/- [Section 208]. Less: Tax Deducted at Source (xxx)
Exception: Advance tax shall not be payable by an Resident individual, who is a Less: Tax Collected at Source (xxx)
senior citizen if he does not have PGBP income. Advance Tax liability (xxx)
Payment of advance tax: Every person who is liable to pay advance tax under section 208 shall, of his own accord, pay the advance tax on his current income. Such
advance tax is to be paid at the specified percentage and within the due dates u/s 211. The manner of calculating advance tax is laid down in section 209.
Increase or decrease of subsequent instalments [Section 210(2)]: Any person, who pays advance tax, may increase or reduce the amount of advance tax payable
in the remaining installment/s to accord with his estimate of his current income and pay the same in the remaining installment/s accordingly.
Due dates for payment of Advance tax [Section 211]: Assessees which are liable to pay advance tax shall have to pay the installments as follows:
A] All assessees (Except who are covered by section 44AD & 44ADA) B] An assessee covered by section 44AD & 44ADA
Due date of installments Amount payable Due date of installments Amount payable
th
1) Upto 15 June Atleast 15% of advance tax
th
2) Upto 15 September Atleast 45% of advance tax (Less) amount paid in the earlier installments. th
th Upto 15 March 100% of advance tax.
3) Upto 15 December Atleast 75% of advance tax (Less) amount paid in the earlier installments.
th
4) Upto 15 March 100% of advance tax (Less) amount paid in the earlier installments.
Important Notes:
1) Any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day for
th
all the purposes of this Act. (Consequently, any payment made after 15 March saves the assessee from levy of interest u/s 234B but it may not save him from levy of
interest u/s 234C.
2) Any sum paid by the assessee as advance tax shall be treated as a payment of tax and credit thereof shall be given to the assessee in the regular assessment
[Section 219].
INTEREST PAYABLE BY THE ASSESSEE U/S 234A, 234 B AND 234C

Interest should be Period
Section Purpose Interest rate
computed on Start date End date
It is interest for default in furnishing return of Tax on Assessed a) In case return is filed after due date -
income. i.e. 1% p.m. or income Date succeeding Date of submitting the return of income.
234A a) Return of income furnished after due date u/s part of the (Note 1) the due date of b) In case return is not filed – Date
139(1); or month return. completion of assessment u/s 144 i.e.
b) Return of income not furnished. best judgement assessment
It is interest for default in payment of advance tax i.e. Tax on Assessed
1% p.m. or
a) Failed to pay advance tax. income First day of Date of determining income u/s 143(1) i.e.
234B part of the
b) Advance tax actually paid is less than 90% of (Note 1) assessment year. date of determining assessed income.
month
the assessed tax.
Shortfall in
It is interest for deferment of advance tax i.e. 1% p.m. or st nd rd
installments based on a) Interest for 3 months in case of 1 , 2 and 3 installments.
234C assessee fails to pay the percentage of advance part of the
tax on returned b) Interest for 1 month in case of last installments.
tax installments specified u/s 211. month.
income
Additional points to be noted for section 234C:
Relaxation in case all assessees: If the short fall in the payment of the tax due on the returned income is on A/c of underestimation or failure to estimate:
i) Capital gains or winnings from lotteries, crossword puzzles, races (including, horse races), card games and any other activity in the nature of gambling, betting etc.
And If the assessee has paid the amount of tax payable in respect of such income as part of the remaining installments of advance tax which are due or where no
st
such installments are due, by the 31 March of the financial year, then no interest shall be levied in respect of such shortfall u/s 234C.
ii) Where the advance tax paid by assessee on or before 15th day of June and on or before 15th day of September is not less than 12% and 36% respectively of tax
due on the returned income then assessee is not liable to pay interest on shortfall.
Notes:
1) Tax on assessed income = Tax on the total income as determined u/s 143 (1) (less) advance tax paid (less) TDS (less) TCS.
2) Tax on returned income = Tax on total income declared in the return of income furnished by the assessee (less) TDS (less) TCS.
3) For our questions solving purposes assessed income and returned income shall be assumed to be the same.
4) Interest u/s 234B and 234C is mutually exclusive. Once the levy of 234C is done with, the levy of 234B commences.
“Everything you want to achieve is always outside your comfort zone and within your effort zone”
SET OFF AND CARRY FORWARD OF LOSSES AT A GLANCE
Introduction: Process of Set-Off & Carry Forward:

 It is easy to find out GTI if income under each head from each source is Step 1: Inter-source Adjustment.
positive. Step 2: Inter-head Adjustment
 Problem, however, arises if there is a loss from one or more sources under one (Only if loss cannot be Set-off under Step 1)
or more heads of income. Step 3: Carry Forward of a loss
 Income includes “Loss” – Negative Income. (Only if loss cannot be Set-off under Step 1 & Step 2).
 “Source of Income” v/s “Head of Income” – Which is wider term?
Under same Head Under Other Allowed..? Under same Head Under other heads be to
“Inter-Source 71) of C/ F) Return of
Adjustment” “Inter-Head loss in time
Adjustment”
1. Loss Under IFHP Allowed Allowed Allowed - NA - No
(Except 8 years (u/s 71B) Not Allowed
Winnings)
speculation of speculative business Not Allowed 4 years profits of speculative Not Allowed Not Yes
business business. (u/s 73) Necessary
Specified of other specified business Not Allowed No Time profits of specified Not Allowed Not Yes
Business u/s limit business Necessary
35AD (u/s 73A)
4. Loss from Non- Allowed, against profits of Allowed Not Allowed [Except
speculative speculative business, Non- Allowed 8 year (u/s 72) profits from Not Yes
business speculative business, and (Except Salary business activity Necessary
Specified business. & Winnings) taxable under other
heads]
See Note 1
5. Unabsorbed Allowed
Depreciation u/s Allowed Allowed No time Priority of Set-off: Allowed Not No
32(2), Capital (Except Salary limit a) Current Depre. (Except Salary & Necessary
expenditure on & Winnings) b) B/f business loss. Winnings)
Scientific c) Unabsorbed
Research & Depre.
Family Planning

Q.2. Mr. X an individual has made the following payments during the financial year ending 31.3.2021. For the assessment year 2020-2021, his
turnover of the business is 1.5 crore. However he has failed to get his books of accounts audited and the penalty for that year is already
levied by officer.
S.N. Particulars (`)
1) Interest on loan paid to Mr. A (Credited on 15.5.2020 & paid on 15.6.2020) 55,000
2) Installation Charges Paid to Mr. B on 12.12.2020 38,000
3) Professional Fees Paid to his Chartered Accountant on 2.1.2021 35,000
4) Rent of Office Premises Paid to Mr. C on 11.11.2020 80,000
5) Rent of his Residential Premises Paid to Mr. D on 26.1.2021 2,50,000
6) Brokerage on purchase of Raw Material paid to Brake Private Limited on 15.8.2020 22,000
Discuss whether Tax is required to be deducted on any of the above payments. Also mention the due dates of payment of the tax
deducted.
Ans.2. Since turnover of Mr. X in the preceding financial year was more than ` 1 crore, he will be liable for deducting tax at source on payments
covered by Sec. 194A, 194C, 194H, 194-I and 194J.
Date of Amount of T.D.S. Rate of Amt. of Last Date of
Payment / Payment / u/s TDS TDS Payment for
Credit Credit TDS
15.5.2020 55,000 194A 7.50% 4,125 7.6.2020
12.12.2020 38,000 194C 0.75% 285 7.1.2021
2.1.2021 35,000 194J 7.50% 2,625 7.2.2021
11.11.2020 80,000 194-I No TDS as rent < 2,40,000
26.1.2021 2,50,000 194-I 7.50% 18,750 7.2.2021
15.8.2020 22,000 194H 3.75% 825 7.9.2020
Q.3. A company having a total income of ` 50 Lakhs filed its return of income for AY 2021-22 on 11.11.2021. It has paid advance tax as below:
15.06.2020 ` 2,00,000
15.09.2020 ` 3,00,000
15.12.2020 ` 5,00,000
15.03.2021 ` 1,00,000
TDS credit available was ` 1,00,000.
Find out Interest payable u/s 234B & 234C.
Ans 3. Statement showing determination of interest u/s 234B and 234C.
Determination of tax liability.
Particulars Rs.
Total income 50,00,000
Tax @ 30% 15,00,000
Education cess @ 4% 60,000
Tax Payable 15,60,000
Less: T.D.S credit (1,00,000)
Less: Advance Tax (11,00,000)
Tax liability 3,60,000
Tax on assessed income = Tax on returned income = ` 3,60,000.
Interest u/s 234 B: Interest from the period 1.4.2021 to 11.11.2021, i.e. for 8 months.
Interest on 3,60,000 x 1% x 8 months.
Interest u/s 234B = ` 28,800.
Advance Tax liability = 14,60,000
90% of above = 13,14,500
Amount actually paid as advance tax = 11,00,000
 The assesses shall have to pay interest on the shortfall = ` 14,60,000 – ` 11,00,000
= ` 3,60,000
Interest u/s 234C
Due Date Date of % to Amount Amount Shortfall Interest
of Actual be To be paid Paid
Payment Payment Paid
15.6.2020 15.6.2020 15% 2,19,000 2,00,000 - -
15.9.2020 15.9.2020 45% 6,57,000 5,00,000 1,57,000 1,57,000 x 1% x 3 months = 4,710
15.12.2020 15.12.2020 75% 10,95,000 10,00,000 95,000 95,000 x 1% x 3 months = 2,850
15.3.2021 15.3.2021 100% 14,60,000 11,00,000 3,60,000 3,60,000 x 1% x 1 month = 3,600
Total Interest u/s 234C = 11,160/-
In the case of first installment amount paid is more than 12% of the advance tax, therefore shortfall is not liable for interest. While calculating
interest, the shortfall has to be rounded down to the multiple of ` 100.
Total Interest = Section 234B ` 28,800 + Section 234C ` 11,160
= ` 39,960/-
Under same Head Under Other Allowed..? Under same head Under other heads be to
“Inter-Source 71) of C/ F) Under same Return of
Adjustment” “Inter-Head Under Head loss in time
Adjustment” same
Head
6. Long term capital Allowed, only against LTCG. Not Allowed 8 years Allowed, only against Not
Loss LTCG. (u/s 74) Not Allowed Necessary Yes
7. Short term capital Allowed, against LTCG & Not Allowed 8 years Allowed, against Not
Loss STCG LTCG & STCG Not Allowed Necessary Yes
(u/s 74)
8. Loss from activity
of owning & Allowed, only against Profits Not Allowed 4 years Allowed, only against Not Allowed Yes Yes
Maintaining race of such business Profits of such
horses. business
(u/s 74A)
9. Other Losses
under the head Allowed Allowed Not NA NA NA NA
IFOS. (Except Allowed
Winnings)
Very Important points to remember:
1) Dividend income from shares of foreign company held as stock-in-trade.
2) Losses cannot be set-off against winning from lotteries, crossword puzzles, etc.
3) As no order of priority is given u/s 71, one should try to first set-off those losses which cannot be carried forward to the next year. Example: Losses under
the head “Income from Other Sources”.
4) Sec. 74A is applicable only in case of loss from activity of owning & maintaining race horses. Loss from activity of owning & maintaining other race animals
are governed by section 72 and not section 74A.
5) Section 115BBE(2): Losses cannot be set-off against unexplained cash credits u/ s 68, unexplained investments u/s 69, unexplained money u/s 69A,
undisclosed investments u/s 69B, unexplained expenditure u/s 69C and amount borrowed or repaid on hundi u/s 69D.
6) Losses from source which is exempt from tax cannot be claimed as set-off.
7) Maximum Limit for Inter-head adjustment for house property losses is ` 2,00,000 as per Budget 2017.
“Do not wait to strike till the iron is hot; but make it hot by striking.”

3) Report from Chartered Accountant: The assessee should obtain before the due date of filing of return, a report
in prescribed form certifying that the deduction has been correctly claimed in accordance with the provisions of
section 10AA.
4) Depreciation deemed to be allowed during 10 years: During these 10 years, depreciation is deemed to have
been allowed on the assets. Written down value would be accordingly reduced.
5) No Double u/s 35AD or u/s 80IA and 80IB: Where a deduction is claimed and allowed u/s 10AA in respect of
profits of any specified business referred to in section 35AD, for any assessment year, then no deduction shall be
allowed under the provisions of section 35AD. Assessee cannot claim any deduction u/s 80IA and 80IB.
6) Prescribed particulars to be furnished: particulars with respect to details of the new plant / machinery, name
and address of the supplier of the new plant / machinery, date of acquisition and date on which new plant /
machinery was first put to use. Such particulars have to be furnished along with the return of income for the
assessment year relevant to the previous year in which such plant or machinery was first put to use.
Other important points:
1) Transfer of Goods services by SEZ unit to Non-SEZ unit: Where the goods are transferred by SEZ unit to
Non-SEZ unit and vice-versa and in either case, if the consideration for such transfer as recorded in the accounts
of SEZ unit does not correspond to the market value, then the profits eligible for deduction shall be computed by
adopting market value of such goods or services on the date of transfer. If it appears to the Assessing Officer that
the profits of SEZ unit is increased to more than the ordinary profits, then the Assessing Officer shall compute the
amount of profits of SEZ unit on a reasonable basis for allowing the deduction.
2) Conversion of Export Processing Zone / Free Trade Zone into Special Economic Zone: Where a Unit initially
located in any FTZ or EPZ is subsequently located in a SEZ by reason of conversion of such FTZ or EPZ into a
SEZ, the period of 10 consecutive assessment years referred to above shall be reckoned from the year in which
the unit began to manufacture, or produce or process such articles or things or services in such FTZ or EPZ.
3) Deduction in case of Business re-structuring: If there is transfer of unit before the expiry of specified period on
account of amalgamation, demerger or re-organisation of business of the assessee, then deduction will be
available to amalgamated company / resulting company / successor, as it would have been available to the
amalgamating company / demerged company / predecessor as if amalgamation / demerger / succession had not
taken place.
Certain Exemptions:
1) Section 10(2) – Share of income received by member from HUF: Share of income received by a member of
HUF from the HUF is exempt in the hands of members to prevent double taxation.
2) Section 10(2A) – Share of profit received by partner from Firm: Share of profit received by a partner from the
partnership firm is exempt in the hands partners to prevent double taxation.
3) Interest on Non-resident external Account – Section 10(4): Interest on moneys standing to the credit of Non-
resident (External) Account (NRE A/c) in any bank in India in accordance Foreign Exchange Management Act,
1999, and the rules made thereunder, would be exempt. In case of joint account benefit of exemption will be
available subject to fulfillment of prescribed conditions by each of the individual joint account holders.
4) Remuneration received by officials of Embassies etc. of Foreign States – Section 10(6)(ii): The
remuneration received by a person for services as an official of an embassy, high commission, legation, consulate
or the trade representation of a foreign State or as a member of the staff of any of these officials is exempt.
Conditions:
(a) The remuneration received by our corresponding Government officials resident in such foreign countries
should be exempt.
(b) The above-mentioned officials should be the subjects of the respective countries represented and should not
be engaged in any other business or profession or employment in India.
5) Remuneration received for services rendered in India as an employee of foreign enterprise – Section
10(6)(vi): Remuneration received by a foreign national as an employee of a foreign enterprise for service
rendered by him during his stay in India is also exempt from tax.
Conditions:
(a) The foreign enterprise is not engaged in any business or trade;
(b) The employee’s stay in India does not exceed 90 days during the previous year;
(c) The remuneration is not liable to be deducted from the employer’s income chargeable to tax under the Act.
Chapter 14 – Income exempt from tax. 140
6) Salary received by a non-citizen non-resident for services rendered in connection with employment in
foreign ship - Section 10(6)(viii): Salary income received by or due to a non-citizen of India who is also non-
resident for services rendered in connection with his employment on a foreign ship is exempt where his total stay
in India does not exceed 90 days during the previous year.
7) Remuneration received by Foreign Government employees during their stay in India for specified training
- Section 10(6)(xi): Any remuneration received by employees of foreign Government from their respective
Government during their stay in India, is exempt from tax, if such remuneration is received in connection with their
training in any establishment or office of or in any undertaking owned by:
a) the Government; or
b) any company wholly owned by the Central or any State Government or jointly by the Central and one or more
State Governments; or
c) any company which is subsidiary of a company referred to in (b); or
d) any statutory corporation; or
e) any society registered under the Societies Registration Act, 1860 or any other similar law, which is wholly
financed by the Central Government or any State Government or jointly by the Central and one or more State
Governments.
8) Educational scholarships - Section 10(16): The value of scholarship granted to meet the cost of education
would be exempt from tax in the hands of the recipient irrespective of the amount or source of scholarship.
9) Awards for literary, scientific and artistic works and other awards by the Government - Section 10(17A):
Any award instituted in the public interest by the Central / State Government or any body approved by the Central
Government and a reward by Central / State Government for such purposes as may be approved by the Central
Government in public interest, will enjoy exemption under this clause.
10) Income of member of a Scheduled Tribe - Section 10(26): A member of a Scheduled Tribe residing in any area
specified in the Constitution i.e., The North Cachar Hills District, The Karbi Anglong District, The Bodoland
Territorial Areas District, Khasi Hills District, Jaintia Hills District or The Garo Hills District or in the States of
Manipur, Tripura, Arunachal Pradesh, Mizoram and Nagaland, or in the Ladakh region of the state of Jammu and
Kashmir is exempt from tax on his income arising or accruing (a) from any source in the areas or States aforesaid.
And (b) by way of dividend or interest on securities.
11) Specified income of a Sikkimese Individual - Section 10(26AAA): Following income, which accrues or arises
to a Sikkimese individual, would be exempt from income tax –
(a) income from any source in the State of Sikkim; or
(b) income by way of dividend or interest on securities.
Note: However, this exemption will not be available to a Sikkimese woman who, on or after 1st April, 2008,
marries a non-Sikkimese individual.
12) Tea board subsidy [Section 10(30)] Amount of any subsidy received by any assessee engaged in the business
of growing and manufacturing tea in India through or from the Tea Board will be wholly exempt from tax.
Conditions:
(a) Subsidy for specified purpose: The subsidy should have been received under any scheme for replantation
or replacement of the bushes or for rejuvenation or consolidation of areas used for cultivation of tea, as
notified by the Central Government.
(b) Submit Certificate from tea Board alongwith return of income: The assessee should furnish a certificate
from the Tea Board, as to the amount of subsidy received by him during the previous year, to the Assessing
Officer along with his return of the relevant assessment year or within the time extended by the Assessing
Officer for this purpose.
13) Other subsidies [Section 10(31)] Amount of any subsidy received by an assessee engaged in the business of
growing and manufacturing rubber, coffee, cardamom or other specified commodity in India, as notified by the
Central Government, will be wholly exempt from tax.
Conditions:
(a) Subsidy for specified purpose: The subsidies should have been received from or through the Rubber
Board, Coffee Board, Spices Board or any other Board in respect of any other commodity under any scheme
for replantation or replacement of rubber, coffee, cardamom or other plants or for rejuvenation or
consolidation of areas used for cultivation of all such commodities.

“The beautiful thing about learning is that no one can take it away from you.”
SECTION 139(1): Voluntary Return: The following persons are under statutory obligation to file return of
income:
1) Every company or Firm – Should always file the return of income irrespective of income or loss.
2) Person other than a company or a firm – Should file the return of income if the total income
3) If a person is resident & ordinarily resident and is not required to file return of income as per above
provisions should also file the return of income or loss if he is covered in following situations:
i) If such person during the previous year holds (as a beneficial owner or otherwise) any asset
(including financial interest in any entity) located outside India or any signing authority in any
bank account located outside India; or
ii) If such person is a beneficiary of any asset (including financial interest in any entity) located
outside India. However, an individual being a beneficiary would not be required to file return
of income, if income arising from asset located outside India is includible in the income of
beneficial owner.
4) Person, being an individual or a HUF or an AOP / BOI, whether incorporated or not, or an
artificial juridical person whose total income or the total income of any other person in respect of
which he is assessable under this Act during the previous year without giving effect to the
provisions of section 10(38), 10A, 10B, 10BA & Chapter VI-A, section 54 / 54B / 54D / 54EC / 54F /
54G / 54GA or 54G [Budget 2019] exceeds the basic exemption limit.
5) [Budget 2019] Any person other than a company or a firm, who is not required to furnish a
return u/s 139(1), is required to file income-tax return in the prescribed form and manner on or
before the due date if, during the previous year, such person –
a) has deposited an amount or aggregate of the amounts exceeding ` 1 crore in one or more
current accounts maintained with a banking company or a co-operative bank; or
b) has incurred expenditure of an amount or aggregate of the amounts exceeding ` 2 lakh for
himself or any other person for travel to a foreign country; or
c) has incurred expenditure of an amount or aggregate of the amounts exceeding ` 1 lakh
towards consumption of electricity; or
d) fulfils such other prescribed conditions.
Due dates for filing return of income [Section 139(1)]: Due dates are as follows:
Different situations Due date for
filing of return.
1) Where the assessee is required to furnish report referred to in Section 92E November 30
in respect of international transactions.
2) Where the assessee = Company. September 30
3) Where the assessee is a person other than a company, whose accounts
are required to be audited under the Income tax Act, 1961 or under any
other law.
4) Where the assessee is a ‘working partner’ in a firm whose accounts are
required to be audited under Income tax Act or any other law.
5) In any other case July 31

Working Note: Computation of exemption u/s 10AA in respect of Unit S located in a SEZ
Particulars ` (in lacs)
Domestic turnover of Unit S 10
Export turnover of Unit S 120
Total turnover of Unit S 130
Profit derived from Unit S 13
Export turnover of unit S 120
Exemption under section 10AA = Profit of Unit S x =13 x = 12
Total turnover of Unit S 130
Q.2. Rudra Ltd. has one unit at Special Economic Zone (SEZ) and other unit at Domestic Tariff Area (DTA). The
company provides the following details for the previous year 2020-21.
Particulars Rudra Ltd. (`) Unit in DTA (`)
Total Sales 6,00,00,000 2,00,00,000
Export Sales 4,60,00,000 1,60,00,000
Net Profit 80,00,000 20,00,000
Calculate the eligible deduction under section 10AA of the Income-tax Act, 1961, for the Assessment Year
2021-22, in the following situations:
(i) If both the units were set-up and start manufacturing from 22.5.2013.
(ii) If both the units were set up and start manufacturing from 14.5.2017.
Ans 2. Computation of deduction under section 10AA of the Income-tax Act, 1961 As per section 10AA, in
computing the total income of Rudra Ltd. from its unit located in a Special Economic Zone (SEZ), which begins to
manufacture or produce articles or things or provide any services during the previous year relevant to the assessment
st
year commencing on or after 1.4.2006 but before 1 April 2021, there shall be allowed a deduction of 100% of the
profit and gains derived from export of such articles or things or from services for a period of five consecutive
assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to
manufacture or produce such articles or things or provide services, as the case may be, and 50% of such profits for
further five assessment years.
Computation of eligible deduction under section 10AA [See Working Note below]:
(i) If Unit in SEZ was set up and began manufacturing from 22-5-2013: Since AY. 2021-22 is the 8th assessment
year from AY. 2014-15, relevant to the previous year 2013-14, in which the SEZ unit began manufacturing of articles
or things, it shall be eligible for deduction of 50% of the profits derived from export of such articles or things, assuming
all the other conditions specified in section 10AA are fulfilled.
Profit of unit in SEZ x Export turnover of SEZ unit ÷ Total turnover of SEZ unit x 50%
60 lakhs x 300 lakhs ÷ 400 lakhs x 50% = 22.50 lakhs.
th
(ii) If Unit in SEZ was set up and began manufacturing from 14-05-2016: Since AY. 2021-22 is the 4 assessment
year from AY. 2018-19, relevant to the previous year 2017-18, in which the SEZ unit began manufacturing of articles
or things, it shall be eligible for deduction of 100% of the profits derived from export of such articles or things,
assuming all the other conditions specified in section 10AA are fulfilled.
Profit of unit in SEZ x Export turnover of SEZ unit ÷ Total turnover of SEZ unit x 100%
60 lakhs x 300 lakhs ÷ 400 lakhs x 100% = 45 lakhs.
The unit set up in Domestic Tariff Area is not eligible for the benefit of deduction under section 10AA in respect of its
export profits, in both the situations.
Working Note: Computation of total sales, export sales and net profit of unit in SEZ:
Particulars Rudra Ltd. (`) Unit in DTA (`) Unit in SEZ (`)
Total Sales 6,00,00,000 2,00,00,000 4,00,00,000
Export Sales 4,60,00,000 1,60,00,000 3,00,00,000
Net Profit 80,00,000 20,00,000 60,00,000
************************************** ALL IS WELL **************************************

MISCELLANEOUS TOPICS
Cases where income of previous year is assessed in the same year: Income earned during any previous year is
assessed or charged to tax in the immediately succeeding assessment year. However, in the below mentioned
circumstances, income is taxed in the same year in which it is earned, and hence the previous year and the
assessment year in these circumstances will be the same. These provisions are to safeguard the revenue as regards
the collection of taxes, even if the assesses are not traceable later on or recovery of taxes is not possible later on.
Following are the cases in which income of previous year is assessed in the same year:
(1) Non-resident Shipping Business [Section 172]
a) The assessee (the person liable to pay tax) should be a non-resident.
b) He should own a ship or ship is chartered by him.
c) The ship carries passengers, live-stock, mail or goods, shipped at a port in India.
d) Deemed income is 7.5% of carriage amount received/receivable (including demurrage / handling charges) -
(Section 44B).
e) Rate of tax shall be the tax rate applicable to foreign companies.
f) Before the departure of ship from Indian port, the return of the full amount paid / payable to the owner on
account of fare and freight (including demurrage charge or handling charge or any other amount of similar
nature) should be filed by the master of ship. Then only the collector of customs shall grant the port clearance.
g) If AO is satisfied that it will be difficult to submit ROI before departure and satisfactory arrangement is made
for payment of tax, then he may allow submission of ROI within 30 days of departure.
h) However, the non-resident may claim before the expiry of the assessment year that a normal assessment
should be made of his income and in such a case, the tax paid u/s 172 will be adjusted against the tax due on
normal assessment.
(2) Assessment of persons leaving India [Section 174]: When it appears to the Assessing Officer that any
individual may leave India during the current assessment year or shortly after its expiry, with no present intention
of returning to India, the total income of such individuals, up to the probable date of his departure from India shall
be chargeable to tax in the same year.
th st
For example, if a person is leaving India on 15 of September, 2020, then the income for the period 1 of April,
th
2020 to 15 of September, 2020 will be chargeable to tax in the financial year 2020 - 21 it-self. The AO may
estimate the income of such individual for such period or any part thereof, where it cannot be readily determined
in the manner provided in the Act.
(3) Associations / Bodies formed for short duration [Section 174A]:
a) There is an association of persons or a body of Individuals or an artificial juridical person, formed or
established or incorporated for a particular event or purpose.
b) It appears to the Assessing Officer that the above-mentioned association, body, etc. is likely to be dissolved in
the year in which such association of persons or body of individuals or artificial juridical person was formed or
established or incorporated or immediately after such year.
c) The total income of such association or body or juridical person for the period from the expiry of the previous
year for that assessment year upto the date of its dissolution shall be chargeable to tax in that assessment
year.
(4) Assessment of Person trying to alienate his assets with a view to avoid tax [Section 175]: If it appears to
the Assessing Officer during any current assessment year, that any person is likely to charge, sell, transfer,
dispose of or otherwise part with any of his assets with a view to avoiding any payment of his tax liability, then the
total income of such person for the period from the expiry of the previous year till the date when the assessing
officer commences proceedings, shall be chargeable to tax in the same assessment year.
(5) Discontinued Business [Section 176]: Where any business or profession is discontinued in any assessment
year, the income of the period from expiry of the previous year for that assessment year up to the date of such
discontinuance may, at the discretion of the assessing officer, be charged to tax in that assessment year. For
th
example, if a business is discontinued on 16 of July, 2020, then the income for the period 1.4.2020 to 16.7.2020
may be assessed in the previous year 2020-21 itself. Further, any sum received after the discontinuance is
chargeable to tax in the hands of recipient.
Chapter 15. Miscellaneous Topics 144

Diversion of Income by overriding title vs Application of Income
Particulars Diversion of Income by over-riding title Application of income
Essentials a) Income is diverted at source. a) Income accrues to the assessee.
b) There is an over-riding charge or title for such b) Income reaches the assessee.
diversion. c) Income is applied to discharge an
c) The charge or the obligation is on the source obligation.
of income and not on the receiver.
Examples a) Right of maintenance of dependents or of a) Payment of housing loan
coparceners on partition of HUF installment from salary.
b) Right under statutory provision b) Donations.
c) A charge created by a decree of a court of c) Contribution to provident fund.
law.
Provisions illustrated – A and B prepare an article for publication in Pragati Publications, a weekly magazine, on the
understanding that remuneration will be shared equally. The article is published in August 23, 2020 issue. On
September 7, 2020, A receives the entire remuneration of ` 2,00,000 (as per practice of the magazine, the
remuneration is paid to the first author), a half of which is later on paid by A to B. The payment of ` 1,00,000 (being
50% of ` 2,00,000) by A to B is diversion of income by overriding title. The taxable income of A will be ` 1,00,000
(payment of ` 1,00,000 to B will not be treated as income of A as it is diverted by an overriding title.) Any expenditure
or investment by A out of his income of ` 1,00,000 will be an “application of income”.
Income from Undisclosed Sources
1) Unexplained Cash Credit [Section 68]: Where any sum is found credited in the books of an assessee
maintained for any previous year and the assessee offers no explanation about the nature and source thereof, or,
the explanation offered is not satisfactory, the sum so credited may be charged as income of the assessee for that
previous year.
Note: Further, any explanation offered by a closely held company in respect of any sum credited as share
application money, share capital, share premium or such amount, by whatever name called, in the accounts of
such company shall be deemed to be not satisfactory unless the person, being a resident, in whose name such
credit is recorded in the books of such company also explains, to the satisfaction of the Assessing Officer, the
source of sum so credited as share application money, share capital, etc. in his hands. Otherwise, the explanation
offered by the assessee company shall be deemed as not satisfactory, consequent to which the sum shall be
treated as income of the company. However, this deeming provision would not apply if the person in whose name
such sum is recorded in the books of the closely held company is a Venture Capital Fund (VCF) or a Venture
Capital Company (VCC) registered with SEBI.
2) Unexplained Investments [Section 69]: Where in the financial year relevant to an assessment year, the
assessee has made investments which are not recorded in the books of account, if any, maintained by him, and
the assessee offers no explanation or unsatisfactory explanation, the value of the investments may be deemed to
be the income of the assessee for such financial year.
3) Unexplained Money, Bullion, Jewellery, etc. [Section 69A]: Where in any financial year, the assessee is found
to be the owner of any money, bullion, jewellery, or other valuable articles, which are not recorded in the books of
account, if any, maintained by the assessee and the assessee offers no explanation or unsatisfactory explanation
the money and value of assets so found may be deemed to be the income of the assessee for such financial year.
Ownership is important and mere possession is not enough.
4) Investments not fully disclosed [Section 69B]: Where in any financial year, the assessee has made
investments or is found to be the owner of any bullion, jewellery or other valuable article and the assessing officer
finds that the amount expended for making such investments exceeds the amount recorded in the books and the
assessee offers no explanation or unsatisfactory explanation, the excess amount may be deemed to be the
income of the assessee for such financial year.
5) Unexplained Expenditure [Section 69C]: Where in any financial year, the assessee has incurred any
expenditure and offers no explanation about the source of such expenditure, or the explanation offered is not
satisfactory, then the expenditure to the extent it is not satisfactorily explained may be deemed to be the income of
the assessee for such financial year. Such unexplained expenditure which is deemed to be the income of the
assessee shall not be allowed as a deduction under any head of income.

6) Amount borrowed or repaid on hundi [Section 69D]: Where any amount is borrowed on a hundi or any amount
due thereon is repaid other than through an account payee cheque drawn on a bank, the amount so borrowed or
repaid shall be deemed to be the income of the person borrowing or repaying for the previous year in which the
amount was borrowed or repaid, as the case may be.
However, where any amount borrowed on a hundi has been deemed to be the income of any person, he will not
be again liable to be assessed in respect of such amount on repayment of such amount. The amount repaid shall
include interest paid on the amount borrowed.
Taxability of Income from Undisclosed Sources [Section 115BBE]

1) Tax rate = 60% + 25% compulsory surcharge + 4% Health & education cess: In order to control laundering of
unaccounted money by availing the benefit of basic exemption limit, the unexplained money, investment,
expenditure, etc. deemed as income under section 68 or section 69 or section 69A or section 69B or section 69C
or section 69D would be taxed at the rate of 60% The enhanced rate of 60% shall apply to both:
i) Income from unexplained sources but disclosed by the assessee by reflecting it in the return furnished u/s
139.
ii) Income from such unexplained sources and also undisclosed but found by the Assessing Officer. The
surcharge as applicable otherwise, if the total income exceeds the specified amount, is not applicable on the
tax calculated in accordance with the provisions of section 115BBE. Instead, surcharge of 25% shall apply on
the amount of such tax. The surcharge of 25% is applicable irrespective of the amount of income from
unexplained sources and also irrespective of the amount of total income.
2) No deduction for exemption & No basic exemption limit: No basic exemption or allowance or expenditure
shall be allowed to the assessee under any provision of the Income-tax Act, 1961 in computing such deemed
income.
3) No set-off of losses: Further, no set off of any loss shall be allowable against income brought to tax under
sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.
CHAPTER XII-BA (SECTION 115JC TO 115JF)

ALTERNATE MINIMUM TAX (AMT)
1) Section 115JC(1): Income Tax payable by every person other than a Company shall be the higher of the
following two:
(i) Regular Income Tax payable on regular income as per Income Tax Act provisions (+) Surcharge (only if the
NTI > ` 50 lakhs or 100 Lakhs) (+) Health and Education Cess @ 4%
OR
(ii) 18.5% of Adjusted Total Income (+) Surcharge (only if the ATI > ` 50 lakhs or 100 Lakhs) (+) Health and
Education Cess @ 4% (called as ‘Alternate Minimum Tax – AMT’)
(a) Adjusted Total Income – Section 115JC(2): ‘Adjusted Total Income’ means the total income (as per Income
Tax Act), before giving effect to this chapter, increased by the following three:
Particulars `
Total income as per Income tax Act xxx
Add Back:
1) Deductions claimed under Chapter VIA under the heading ‘C’- ‘Deductions in xxx
respect of certain Incomes’, other than deduction u/s 80P (i.e. deduction u/s 80-IA /
80-IAB / 80-IB / 80-IC / 80-ID / 80-IE / 80JJA / 80QQB / 80RRB) (but not Section
80TTA & 80TTB)
2) Deductions claimed under Section 10AA(SEZ) xxx
3) Deductions claimed under Section 35AD. xxx
xxx
Less:
4) Depreciation allowable u/s 32, as if no deduction was allowed u/s 35AD in respect of
the asset on which deduction u/s 35AD is claimed. (xxx)
Adjusted Total Income xxx

(b) CA report in Form No. 29C to be furnished one month prior to the due date for furnishing ROI u/s
139(1) – Section 115JC(3): Every person to whom section 115JC applies, shall be required to obtain a report
of a Chartered Accountant (in a prescribed form i.e. Form No. 29C) certifying the correct computation of
Adjusted Total Income and Alternate Minimum Tax and furnish such report before the specified date referred
to in section 44AB. Specified date means date one month prior to the due date for furnishing the return of
income under sub-section (1) of section 139 (W.e.f AY 2021-22)
(c) AMT @ 9% for unit in IFSC – Section 115JC(4) (w.e.f AY 2019-20): If the assessee referred to in section
115JC(1) is a unit located in an International Financial Service Centre (IFSC) and is deriving income solely in
convertible foreign exchange, then the rate of AMT shall be 9% instead of 18.5%.
2) AMT credit allowed to be C/f for 15 years & set-off allowed against excess of Regular tax over AMT –
Section 115JD: Excess of AMT paid over and above the Regular Tax payable shall be allowed as a Credit, which
can be carried forward for the next (w.e.f AY 2018-19) 15 consecutive years from the end of the year in which
such credit arose and can be set-off against excess of Regular Tax payable over and above AMT in those 15
successive years.
(a) If AMT credit is not availed off in the next 15 consecutive years, then it shall lapse.
(b) No interest will be allowed to the assessee on the amount of such credit.
(c) If the amount of Regular Income Tax payable or the amount of AMT undergoes any changes, due to an order
of any assessment / reassessment or order of any higher authority in an appeal or otherwise, then the amount
of AMT Credit shall also undergo changes accordingly.
(d) AMT Credit can be set-off only in the year in which the Regular Tax payable exceeds the AMT and can be
set-off only to the extent of the amount of excess of Regular Income Tax over and above the amount of AMT.
3) All other provisions of the Act shall apply in the normal manner – Section 115JE: Except as otherwise
provided, all the provisions of the Income Tax Act shall be applicable to a person to whom section 115JC applies,
apart from this chapter. (Simply, applicability of this chapter on AMT, shall not affect the applicability of the other
provisions of the Income Tax Act) [Same as Section 115JB(5) of MAT Chapter]
4) Section 115JEE:
(i) Applicability of AMT provisions – Section 115JEE(1): The provisions of this chapter shall apply only to a
person who has claimed deduction under chapter VI-A, under the heading – ‘C’ i.e., ‘Deduction in respect of
certain incomes’ (other than u/s 80P) (but not Section 80TTA & 80TTB) or deduction u/s 10AA (SEZ) or
deduction u/s 35AD.
(ii) AMT provisions do not apply if Adjusted total Income ≤ 20 lakhs – Section 115JEE(2): The provisions
of this chapter, shall not apply to an Individual / HUF / AOP / BOI / Artificial Juridical Person, whose
Adjusted Total Income, does not exceed ` 20 Lakhs.
(iii) Credit of AMT is allowed as per Section 115JD – Section 115JEE(3): Notwithstanding anything
contained in Section 115JEE(1) or 115JEE(2), the credit of tax paid u/s 115JC shall be allowed in
accordance with the provisions of Section 115JD.
5) Section 115JF: Definitions: Following three terminologies used in this chapter have been defined in this section,
as follows:
a) “Accountant”: shall have the meaning as given in Explanation to Section 288.
b) “Alternate Minimum Tax (AMT)”: means the amount of tax computed on ‘Adjusted Total Income’ at the rate
of 18.5%.
c) “Regular Income Tax”: means the income tax payable for the previous year on total income in accordance
with the provisions of this Act other than the provisions of this Chapter.

Section 139A - Permanent Account Number (PAN): Following persons are required to obtain PAN:
1) Every person whose total income > basic exemption limit shall apply for PAN upto 31st May of AY.
2) Every person carrying on business, If Sales turnover > ` 5,00,000, should apply for PAN upto the
end of the previous year.
3) Every Resident person (except individual) who enters into a financial transaction of an amount
aggregating to ` 2,50,000 or more in a financial year shall apply for PAN on or before 31st May of
Assessment Year.
4) Every person who is the managing director, director, partner, trustee, author, founder, karta, chief
executive officer, principal officer or office bearer of the person mentioned in (3) above or any person
competent to act on behalf of such person.
5) Charitable Trust should apply for PAN on or before the end of the accounting year.
6) Persons notified by Central Government shall apply for PAN even if they do not fall in above.
Persons notified are importers, exporters, GST assessees, etc shall apply for PAN with time
prescribed in the notice.
7) Assessing Officer having regard to the nature of the transactions as may be prescribed, may also
suo moto allot a PAN, to any other person (whether any tax is payable by him or not) in
accordance with the prescribed procedure.
8) Quoting / Intimating PAN is mandatory in following:
i) Once a PAN is allotted, such number must be quoted in all returns, correspondence with
Income-tax authorities, challans for payment of taxes and in all documents prescribed by the
Board.
ii) Intimate PAN to the person responsible for deducting TDS and person responsible for
collecting TCS. Deductor / Collector should quote PAN of deductee / collectee in TDS / TCS
returns & TDS / TCS certificates.
iii) Quote PAN in all documents pertaining to the following transactions prescribed by CBDT:
S.N. Prescribed transaction
(a) Purchase and sale of Motor Vehicles (other than two wheeled vehicles)
(b) Opening a new bank account (other than time deposits and basic savings account).
(c) Making an application for Credit or Debit card.
(d) Opening a DEMAT account.
(e) Payment to hotel against bill / bills exceeding ` 50,000 at any one time.
(f) Cash payment exceeding ` 50,000 in connection with travel to any foreign country at any
one time.
(g) Payment to mutual fund for purchase of units for an amount exceeding ` 50,000.
(h) Payment to company or institution for acquiring bonds or debentures for an amount
exceeding ` 50,000.
(i) Payment to RBI for acquiring bonds for an amount exceeding ` 50,000.
(j) Cash deposits with bank / Co-operative bank / post office exceeding ` 50,000 during any
one day.
(k) Cash payment for purchase of bank drafts or pay orders or bankers cheque from a banking
company for an amount exceeding ` 50,000 during any one day.
(l) Time deposit exceeding ` 50,000 or aggregate time deposits exceeding ` 5,00,000 during
the financial year with bank / post office / Nidhi / NBFC.
(m) Payment in cash or by bank draft or pay order or bankers cheque for one or more pre-paid
payment instruments to banking company / co-operative bank / any company or institution
exceeding ` 50,000 in a financial year.

(n) Payment of life insurance premium exceeding ` 50,000 to insurer.
(o) Sale / purchase transactions in securities exceeding ` 1,00,000 per transaction.
(p) Sale / purchase of shares of unlisted company exceeding ` 1,00,000 per transaction.
(q) Sale / purchase of immovable property stamp duty value or consideration amount
exceeding ` 10,00,000.
(r) Sale or purchase of goods / services other than transactions specified above exceeding
` 2,00,000 per transaction.
9) Requirement to intimate PAN and quote PAN not to apply to certain persons who does not have
taxable income or who are not required to obtain PAN.
10) Consequences if there is a failure to apply for PAN: If a person without reasonable cause, fails to
apply for the allotment of PAN within the prescribed time or fails to quote it on the relevant
document, the AO shall impose a penalty of a sum which shall be minimum of ` 500 and
maximum of ` 10,000 u/s 272A.
Inter-changeability of PAN with the Aadhaar number: Person who is required to furnish or intimate
or quote PAN may furnish or intimate or quote his Aadhar Number in lieu of the PAN w.e.f. 1.9.2019 if
he has not been allotted a PAN but possesses the Aadhar number or has been allotted a PAN and
has intimated his Aadhar number to prescribed authority.
Quoting and authentication of PAN or Aadhar number
a) Every person entering into such prescribed transactions is required to quote his PAN or Aadhar
number, as the case may be, in the documents pertaining to such transactions and also
authenticate such PAN or Aadhar number in the prescribed manner.
b) Every person receiving such document relating to transactions referred to in (a) has to ensure
that PAN or Aadhar number has been duly quoted in such document and also ensure that such
PAN or Aadhar number is so authenticated.
Section 139AA – Quoting of Aadhar number
1) Mandatory quoting of Aadhar Number / Enrolment ID of Aadhaar application form in PAN
application form and Income tax return.
2) Linking of Aadhar with PAN: Every person who has been allotted PAN and is eligible to obtain
Aadhaar number, shall intimate his Aadhaar number to the Principal DGIT (Systems) or Principal
Director of Income-tax (Systems) by 30th September, 2019.
3) In case of failure to intimate the Aadhaar number, the PAN shall be deemed to be invalid.
4) Provision relating to quoting of Aadhar Number not apply to an individual who does not possess
the Aadhar number or Enrolment ID and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.
Section 139B: Scheme to facilitate submission of returns through Tax Return Preparers:
(1) Section 139B enables / empowers CBDT to frame a scheme whereby a “specified class of
persons” can file their ROI through a TRP.
(2) “Specified class of persons” means any person who is required to file ROI, other than the
following persons:
(a) a Company,
(b) any other person whose Books of accounts are required to be audited u/s 44AB or under
any other law.

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CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA.

Chapter 1 – Basic Concepts 2

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 5

RESIDENTIAL STATUS OF HUF, COMPANY and OTHER PERSONS

Control & Management is

Is in India Is outside India Very Important Note:

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 6

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 7

SECTION 5: SCOPE OF TOTAL INCOME

Income Accrued In India * INCOME Income Accrued outside India

Taxable in India for ALL, If Residential status of person

“Taxable” See source of Income “Not

“Taxable” “Not Taxable”

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 8

SECTION 9: INCOME DEEMED TO ACCRUE OR ARISE IN INDIA.

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 9

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 10

“THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT”

Chapter 2 - Residential Status and Scope of Total Income [Summary Notes] 11

Chapter 3 – Income from Salaries [Summary Notes] 14

Few examples of fully a) Daily / constituency

Chapter 3 – Income from Salaries [Summary Notes] 15

TREATMENT OF PROVIDENT FUND / APPROVED SUPER ANNUATION FUND:

Chapter 3 – Income from Salaries [Summary Notes] 16

Exemption in respect of Gratuity [Section 10(10)]

Chapter 3 – Income from Salaries [Summary Notes] 17

Chapter 3 – Income from Salaries [Summary Notes] 18

Taxable RENT – FREE ACCOMODATION (SECTION 17(2) (i) Exempt

1. Rent free official residence

Chapter 3 – Income from Salaries [Summary Notes] 19

There is a NO concession. Taxable Value of Perquisite = Nil

Chapter 3 – Income from Salaries [Summary Notes] 20

Chapter 3 – Income from Salaries [Summary Notes] 21

Chapter 3 – Income from Salaries [Summary Notes] 22

Chapter 3 – Income from Salaries [Summary Notes] 23

PRACTICAL PROBLEMS FOR SELF STUDY

Chapter 3 – Income from Salaries [Summary Notes] 24

Working Note : 1 Working Note : 2

Chapter 3 – Income from Salaries [Summary Notes] 25

23(1) Computation of IFHP case of let-out property:

Chapter 4 – Income from House Property [Summary Notes] 26

23(4) If more than two house properties are self-occupied, then

Chapter 4 – Income from House Property [Summary Notes] 27

24 Deductions: LOP / DLOP:

25A Unrealised Rent recovered = Bad Debts recovered.

Chapter 4 – Income from House Property [Summary Notes] 28

27 ‘Owner’ to include ‘deemed owners’

Concept of Composite rent:

Chapter 4 – Income from House Property [Summary Notes] 29

PRACTICAL PROBLEMS FOR SELF STUDY

Chapter 4 – Income from House Property [Summary Notes] 30

Chapter 4 – Income from House Property [Summary Notes] 31

Chapter 4 – Income from House Property [Summary Notes] 32

Chapter 3 – Income from Salaries [Summary Notes] 18

Chapter 5 – Profit & Gains of Business or Profession 35

Chapter 5 – Profit & Gains of Business or Profession 36

Example 1: For Understanding of Section 32 Vs Section 50

Depreciation computation for power generating and distributing unit.

Consequences if the above assets are sold:

Profit / loss on sale of

SP > WDV but SP < OC SP > WDV & SP > OC

Profit on sale = SP – WDV

It will be taxable as “Balancing charge”

DEPRECIATION IN CASE OF SUCCESSION, AMALGAMATION OR DEMERGER [PROVISO TO SECTION 32(1)]