Income Tax Notes - All 5 Chapters

INCOME TAX -I (AY2021-22) BBA- VTH SEM
Unit 1: INTRODUCTION TO INCOME TAX

Brief History of Indian Income Tax - Legal Frame Work – Types of Taxes -
Cannons of Taxation – Important Definitions: Assessment, Assessment Year,
Previous Year (including Exceptions), Assessee, Person, Income, Casual
Income, Gross Total Income, Agricultural Income (including Scheme of Partial
Integration – Theory Only) – Scheme of taxation. Meaning and classification of
Capital & Revenue. Income tax authorities: Powers & functions of CBDT, CIT
& A.O.
Brief History of Indian Income Tax

In India, the system of direct taxation as it is known today has been in force in one form or another
even from ancient times. In this article, we are discussing how the Income Tax evolved over the time
in India.
1860- The Tax was introduced for the first time by Sir James Wilson. India’s First “Union Budget”
Introduced by Pre-independence finance minister, James Wilson on 7 April, 1860. The Indian Income
Tax Act of 1860 was enforced to meet the losses sustained by the government on account of the
military mutiny of 1857. Income was divided into four schedules taxed separately:
(1) Income from landed property;
(2) Income from professions and trades;
(3) Income from Securities;
(4) Income from Salaries and pensions.
Time to time this act was replaced by several license taxes.
1886- Separate Income tax act was passed. This act remained in force up to, with various
amendments from time to time. Under the Indian Income Tax Act of 1886, income was divided into
four schedules taxed separately:
(1) Salaries, pensions or gratuities;
(2) Net profits of companies;
(3) Interests on the securities of the Government of India;
(4) Other sources of income.
1918- A new income tax was passed. The Indian Income Tax Act of 1918 repealed the Indian Income
Tax Act of 1886 and introduced several important changes.
1922- Again it was replaced by another new act which was passed in 1922. The organizational history
of the Income-tax Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first
time, a specific nomenclature to various Income-tax authorities. The Income Tax Act of 1922
remained in force until the year 1961.
Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 1

The Income Tax Act of 1922 had become very complicated on account of innumerable amendments.
The Government of India therefore referred it to the law commission in1956 with a view to
simplify and prevent the evasion of tax
1961– In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed. The
Income Tax Act 1961 has been brought into force with 1 April 1962.It applies to the whole of India
(including Jammu and Kashmir).
Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the
Union Budget every year which also contains Finance Bill. After it is passed by both the houses of
Parliament and receives the assent of the President of India, it becomes the Finance act.
At present, there are five heads of Income:
(1) Income from Salary;
(2) Income from House Property;
(3) Income from Profits and Gains of Business or Profession;
(4) Income from Capital Gains;
(5) Income from Other Sources.
There are XXIII Chapters, 298 Sections and Fourteen Schedules in the Income Tax Act.
Legal Frame Work

ADMINISTRATION OF TAX LAWS
Taxpoint :
■ Both of the Boards have been constituted under the Central Board of Revenue Act, 1963.
■ CBDT deals with levy and collection of all direct tax whereas matters relating to levy and
collection of Central indirect tax are dealt by CBEC

SOURCES OF INCOME TAX LAW IN INDIA/ FIVE PILLAR OF INCOME TAX LAW IN
INDIA
1. Income tax Act, 1961 (Amended up to date) The provisions of income tax extends to the
whole of India and became effective from 1/4/1962 (Sec. 1). The Act contains provisions for -
(a) Determination of taxable income;
(b) Determination of tax liability;
(c) Procedure for assessment, appeals, penalties and prosecutions; and
(d) Powers and duties of Income tax authorities.
2. Annual Amendments /Finance Act:*
(a) Income tax Act has undergone several amendments from the time it was originally enacted
through the Union Budget. Every year, a Finance Bill is presented before the Parliament by
the Finance Minister. The Bill contains various amendments which are sought to be made in
the areas of direct and indirect taxes levied by the Central Government.
(b) When the Finance Bill is approved by both the Houses of Parliament and receives the assent
of the President, it becomes the Finance Act. The provisions of such Finance Act are
thereafter incorporated in the Income Tax Act. If on the 1st day of April of the Assessment
Year, the new Finance Act has not been enacted, the provisions in force in the preceding
Assessment Year or the provisions proposed in the Finance Bill before the Parliament,
whichever is more beneficial to the assessee, will apply until the new provisions become
effective
In short ,The finance minister of India presents a finance bill in the parliament every year. If bill is
passed by both the houses of parliament and the assent of the president of India is received, it
becomes a finance Act. The proposed amendments are incorporated and applicable from the very
first day of the next financial year
3. Income tax Rules, 1962 (Amended up to date) Central Board of Direct Taxes (CBDT) has the
power to frame rules, by way of notification in the official gazette
4. Circulars and Clarifications by CBDT : CBDT has the power to issue orders, instructions
and directions for the proper administration of the Act.
5. Judicial decision /Case Law: Laws passed by Supreme court and High court.
MEANING OF TAX:
TAX is the compulsory payment made by citizen of the country to the government for the purpose
from the Government
Income tax plays an important role in the national economy and is also a valuable tool for
achieving the socio-economic objectives.

In a Welfare State, the Government takes primary responsibility for the welfare of its citizens, as in
matters of health care, education, employment, infrastructure, social security and other development
needs. To facilitate these, Government needs revenue. The taxation is the primary source of revenue
to the Government for incurring such public welfare expenditure.
What is tax:
Taxes are compulsory or enforced contribution to the Government revenue by public. Government
may levy taxes on income, business profits or wealth or add it to the cost of some goods, services,
and transactions.
Types of Taxes
There are two types of taxes: Direct Tax and Indirect Tax
1) DIRECT TAX: It is a kind of tax where in incidence and impact is on the same person.
Incidence means liability to pay tax to the government and impact means burden of paying the
tax. Example: Income Tax, Professional Tax.
A Direct tax that is paid directly by an individual or an organisation to the imposing entity
called direct tax.
It means, in the case of Direct Tax, tax is recovered directly from the assessee, who ultimately
bears such taxes
2) INDIRECT TAX: It is a kind of tax where in incidence and impact is on two different persons.
Example: VAT, Sales tax (Now it is GST – Goods and Service Tax)
An indirect is a tax collected by an intermediary (such as a retail store) from the person who
bears the ultimate economic burden of the tax (consumer).
In the case of Indirect Tax, tax is recovered from the assessee, who passes such burden to
another person & is ultimately borne by consumers of such goods or services.
Feature of Direct Tax:

1. Incidence and impact fall on the same person
2. Assessee, himself bears such taxes. Thus, it pinches the taxpayer.
3. Levied on income
4. E.g. Income Tax
5. Progressive in nature i.e., higher tax are levied on person earning higher income and vice
versa.

Feature of Indirect Tax :
1. Incidence and impact fall on two different persons

2. Tax is recovered from the assessee, who passes such burden to another person. Thus, it does not
pinch the taxpayer.
3. Levied on goods and services. Thus, this type of tax leads to inflation and have wider base.
4. E.g. GST, Customs Duty, etc.
5. Regressive in nature i.e., all persons will bear equal wrath of tax on goods or service consumed
by them irrespective of their ability.
6. Useful tool to promote social welfare by checking the consumption of harmful goods or sin
goods through higher rate of tax.
Difference Between Direct Tax and Indirect Tax:
BASIS FOR
COMPARISON DIRECT TAX INDIRECT TAX
Meaning Direct tax is referred to as the Indirect Tax is referred to as the tax,
tax, levied on person's income levied on a person who consumes the
and is paid directly to the goods and services and is paid indirectly
government. to the government.
Nature Progressive Regressive

Incidence and Impact Falls on the same person. Falls on different person.
Types Income Tax, Central Sales tax, VAT (Value Added

Tax), Service Tax, STT (Security
Transaction Tax), Excise Duty, Custom
Duty , GST Etc.
Evasion Tax evasion is possible. Tax evasion is hardly possible because

it is included in the price of the goods
and services.
Inflation Direct tax helps in reducing Indirect taxes promotes the inflation.
the inflation.
Imposition and collection Imposed on and collected Imposed on and collected from
from assessees, i.e. Individua l, consumers of goods and services but
HUF (Hindu Undivided paid and deposited by the assessee.
Family),
Company, Firm etc.
Burden Cannot be shifted. Can be shifted

Event Taxable income or wealth of Purchase/sale/manufacture of goods
the assesse and provision of services

Cannons of Taxation
 Adam Smith laid down principles to guide the taxing authority.
1) Canon of Equality
2) Canon of Certainty
3) Canon of Convenience
4) Canon of Economy
other cannon
5) cannon of simplicity
6) cannon of co-ordination
7) Canon of Flexibility
The system of taxation designed on the basis of cannons of taxation which helps
government to reduce not only the corruption but also to accelerate economic growth.
1) CANNON OF EQUALITY
This cannon states the principle of equity or justice i.e., the amount of tax to be paid should be
in proportion to the respective abilities of the tax payers. This clearly emphasis on progressive
taxation system.
2) CANNON OF CERTAINTY
Time and manner of payment of tax should be certain.
3) CANNON OF CONVENIENCE
Time and manner of payment of tax should be convenient
4) CANNON OF ECONOMY
Every tax has a cost of collection . The cannon of economy implies that Cost of collecting tax
should be less/minimum.
5) CANNON OF SIMPLICITY:
Tax system should not be complicated. Calculation of taxable income and taxable liability
should be simple and understandable to the tax payer.

6) CANNON OF CO-ORDINATION:
 There should be co-ordination between the various taxes imposed by center, state and local
bodies. Otherwise, there will be over lapping and causes unnecessary inconvenience to all the
tax payers.
7) CANNON OF FLEXIBILITY:

Income tax authorities should revise the tax structure at the right time in order to meet the changing
needs of the economy.
Charge of INCOME Tax (Sec 4)

The following basic Principles are followed while charging Income Tax [SEC. 4]:
1. Anuual Tax: Income tax is an anuual Tax on Income

2. Tax Rate of Assessment Year 2021-22: Income of Previous Year (2021-22) is chargeable to
Tax in following assessment year.
3. Rate fixed by Finance Act 2020: Tax rates Fixed by Annual Finance Act
4. Tax on Person: Tax is charged on Every person
5. Tax on Total Income : The Tax is levied on Total income of every assessee .
6. Total income is computed on the basis of residential status of the assessee
7. Income tax is to be deducted at source or paid in advance as provided under provisions of
the Act
Sec. 4 is a charging section and it is the backbone of the Income Tax Act.
Important Definitions:
Assessment [Sec 2 (8)]:

According to section 2(8) , the term Assessment means:
1. Computation of Total income or Taxable Income
2. Computation of Tax on that income and
3. Imposition of Tax Liability
ASSESSMENT YEAR (A.Y.) [SEC. 2(9)]:

Assessment year means the period of 12 months commencing on the 1st day of April every year. It is
the year (just after the previous year) in which income earned in the previous year is charged to tax.
E.g., A.Y.2021-22 is a year, which commences on April 1, 2021 and ends on March 31, 2022. Income
of an assessee earned in the previous year 2021-2021 is assessed in the A.Y. 2021-22.
Taxpoint:
■ Duration: Period of 12 months starting from 1st April.
■ Relation with Previous Year: It falls immediately after the Previous Year.
■ Purpose: Income of a previous year is assessed and taxable in the immediately following
Assessment Year.
PREVIOUS YEAR [SEC.3]

INCOME TAX -I (AY2021-22) B. COM- VTH SEM
Previous Year means the financial year immediately preceding the Assessment Year. Income earned
in a year is assessed in the next year. The year in which income is earned is known as Previous Year
and the next year in which income is assessed is known as Assessment Year. It is mandatory for all
assessee to follow financial year (from 1st April to 31st March) as previous year for Income-Tax
purpose.
In short, Previous year means a financial year immediately preceding the assessment year. In other
words, the year in which income is earned is known as previous year. (2020-2021)
Financial Year
A Financial Year means the year commencing on the 1st day of April. Hence, it is a period of 12
months starting from 1st April and ending on 31st March of the next year. It plays a dual role i.e.
Assessment Year as well as Previous Year.
Example: Financial year 2021-22 is -
• Assessment year for the Previous Year 2020-21; and
• Previous Year for the Assessment Year 2022-23
Exceptions to the general rule that income of a Previous Year is taxed in its Assessment Year
This is the general rule that income of the previous year of an assessee is charged to tax in the
immediately following assessment year. However, in the following cases, income of the previous
year is assessed in the same year in order to ensure smooth collection of income tax from the taxpayer
who may not be traceable, if assessment is postponed till the commencement of the Assessment Year:
2020-21 2021-22
2020-21 – 2020-21
1. Income of a non-resident assessee from shipping business (Sec. 172)

2. Income of a person who is leaving India either permanently or for a long period (Sec. 174)
3. Income of bodies, formed for a short duration (Sec. 174A)
4. Income of a person who is likely to transfer property to avoid tax (Sec. 175)
5. Income of a discontinued business (Sec. 176).
In this case, the Assessing Officer has the discretionary power i.e. he may assess the income in the
same previous year or may wait till the Assessment year.
ASSESSEE [SEC 2(7)]
Assessee means a person by whom any tax or any other sum of money (i.e penalty or interest ) is
payable by under the act.
Assessee is a person who is liable to pay any tax, fees, fine, penalty and interest under the income
tax act.
Deemed assessee : A person who is deemed to be an assessee for some other person is called
as “Deemed Assessee.
Ms. MANISHA , ASST. PROFESSOR PRESIDENCY COLLEGE ,BANGALORE Page 9
In simple word A person who is liable to pay any tax of some other person is called deemed
assessee.
Example: 1. after death of a person, his legal representative has to pay tax.
2. A person representing a minor have to pay tax.

3. Agent of Non resident
Assessee in default: When a Person is responsible for deducting tax at Source under the act and he
fails to do it, he is called as Assessee in Default.
Eg. If employer fails to deduct tax at source from salary income of the employee and pay the same to
government within the specified time limit, employer shall be consider as deemed to assesseein
default.
Simple word ,When a person is responsible for doing work under the income tax act and fails to do
it, he is called as ‘assessee in default’. Example: a person who is liable to TDS but fails to deduct it.
PERSON [SEC. 2 (31)]

The term person includes the following:
(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 Individuals (BOI), whether incorporated or not;
(vi) a Local authority; &
(vii) every artificial juridical person not falling within any of the preceding categories
Individual
The word ‘individual’ means a natural person, i.e. human being. “Individual” includes a minor or a
person of unsound mind. Eg. Mr. Narendra Modi , PM of India , Ram , Shyam etc…
Hindu Undivided Family (HUF)
A Hindu Undivided Family (on which Hindu law applies) consists of all persons lineally descended
from a common ancestor & includes their wives & unmarried daughters. Eg. A joint family of Mrs.
X and their Sons and Parents, Hindu Brahmin Family etc….
Taxpoint:
■ Only those undivided families are covered here, to which Hindu law applies. It also includes Jain
and Sikh families.
■ Once a family is assessed as Hindu undivided family, it will continue to be assessed as such till
its partition.
Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 10

Company [Sec. 2(17)]

Company means:
a. any Indian company; or
b. any body corporate, incorporated under the laws of a foreign country
Eg. LIC, SBI, ICICI ,Tata Ltd. Etc.
Firm
As per sec. 4 of Indian Partnership Act, 1932, partnership means “relationship between persons who
have agreed to share profits of the business carried on by all or any one of them acting for all”.
Persons, who enter into such business, are individually known as partners and such business is known
as a Firm. A firm is, though not having a separate legal entity, but has separate entity in the eyes of
Income-tax Act
Taxpoint:
♦ A partnership firm is a separate taxable entity apart from its partners.
Eg. A partnership Firm with A ,B ,C , A partnership Firm with X ,Y ,Z Partners.
Association of Persons (AOP) or Body of Individuals (BOI)

An AOP means a group of persons (whether individuals, HUF, companies, firms, etc.) who join
together for common purpose(s). Every combination of person cannot be termed as AOP. It is only
when they associate themselves in an income-producing activity then they become AOP. Whereas,
BOI means a group of individuals (individual only) who join together for common purpose(s).
Eg. CLUBS, markfed ,housefed, co-operative society etc.
Local Authority
As per Sec. 3(31) of the General Clause Act, a local authority means a municipal committee,
district board, body of Port Commissioners, Panchayat, Cantonment Board, or other
authorities legally entitled to or entrusted by the Government with the control and management of
a municipal or local fund. Eg. BBMP,Mangalore Municipal Corporation
Artificial Juridical Person

Artificial juridical person are entities -
● which are not natural person;
● has separate entity in the eyes of law;
● may not be directly sued in a court of law but they can be sued through person(s) managing them
E.g: Deities, Idols, University, Bar Council, Thirumala THirupati Devasthanam,, RBI,

Note: Under the Income-tax Act, such person has been provided exemption from payment of tax
under separate provisions of the Act, if certain conditions mentioned therein are satisfied.
Determine the status of the following person/ Entity for income Tax Purpose:
Determine the status of the following person/ Entity for income Tax Purpose:
1. Mr. Shankar a Lecturer in College :
2. Bangalore Club :
3. Gulbarga University :
4. P & Q associates :
5. A joint Family of Mr. suraj, his wife, sons and Parents :
6. Thirumala Thirupathi Devasthanam :
7. Tata Consultancy Service Ltd. :
8. Rajasthan Cricket Club :
9. Kalyani Publisher Ltd :
10. Punjab National Bank :
11. ICICI BANK :
12. A partnership Firm with A, B and C :
13. A gram Panchayat :
14. MarkFed :
15. BBMP :
16. Kolkata Municipal Corporation :
17. Mr. Narendera Modi , Prime Minister of India :
18. Reserve Bank of India :
19. Kempapura Football Club
20. Mr. suraj , sole propritor :
Income [Sec. 2(24)]

Under this section, income includes:
 profits and gains;
 dividend;
 the value of any perquisite or profits in lieu of salary taxable under the head 'salaries';
 any special allowance or benefit, other than granted to the assessee to meet his
expenses;
 any allowance granted to the assessee either to meet his personal expenses, e.g., City
Compensatory Allowance;
 the value of any benefit or perquisite;
 any sum paid by any such company in respect of any obligation;
 any profits on sale of import license;
 cash assistance received or receivable under exports;
 any refundable custom duty or excise the value of any benefit or perquisite arising
from business or exercise of profession;
 any capital gains.
Income should have following characteristics:

 It must derived from definite source (from Temporary or Permanent Source)
 It must come from inside or outside india
 It May be legal or Illegal
 It may be Received Voluntarily or under Legal Compulsion
 It May received in cash or Kind
HEADS OF INCOME [SEC. 14] According to Sec.14 of the Act, all income of a person shall be
classified under the following five heads:
1. income from Salary;
2. Income from house property;
3. Profits and gains of business or profession;
4. Income from Capital gains;
5. Income from other sources.
GROSS TOTAL INCOME (GTI) –SEC 14

Gross total income is the aggregate of income under all the five heads of income after adjusting the
set-off & carry forward of losses and before making any deduction under section 80C to 80U
Computation of Total Income for the A.Y.

Particulars Amount (Rs.)
Income under the head “Salaries” XX
Income under the head “House Property” XX
Income under the head “Profits and gains of business or profession” XX
Income under the head “Capital Gains” XX
Income under the head “Income from other sources” XX
Gross total income (GTI) XX
Less: Deductions under chapter VIA [Sec. 80C -80U] XX
Net taxable income or Total income (NTI) XXX
TOTAL INCOME:

Total income of the assessee means the total income after making deduction u/s section 80C to
80U.
Casual Income
Any receipt which is of a casual and non-recurring nature is casual income. It is an income the
receipt of which is accidental and without a stipulation. It is in nature of an unexpected windfall.
An income becomes casual income, if it contains the following features:

1. It is unanticipated
2. It is non recurring in nature
3. It arises from an unknown sources
4. No specific efforts were put in to earn such income.
Examples of casual income:
1. Winnings form lottery, crossword puzzles, card games and other games of any sort or
form, gambling or betting of any form or nature;
2. Receipts even from habitual betting are non-recurring receipts and assessable as
casual income.
3. Prize awarded for coin collection or stamp collection may be a casual income. This
income is due to hobby.
Scheme of income tax :

The scheme of Income Tax : a) Computation Total Income b) Computation of Tax Liability
COMPUTATION OF TAX LIABILITY:
Tax to be paid by any assessee is computed as per the format given below
Particulars Amount (Rs.)

Income-tax on net taxable income (1) XX
Less: Rebate under section 87A (2) XX
Total Tax XX
Add: Surcharge (% of income-tax) XX
Total Tax XX
Add: Health &Education Cess (EC) @ 4% on total Tax XX
Tax Liability XX
Add: Interest/ Penalty etc. XX
Less: Pre-paid taxes
[i.e., advance tax, self-assessment tax, TDS etc.] XX
Tax Payable/Tax Refund XXX
Income tax slabs and rates

What is income tax slab ?

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

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

Income Tax Slab 2020-21
(Applicable for All Individuals & HUF)
Rs 0.0 – Rs 2.5 Lakhs NIL
Rs 2.5 lakhs- Rs 3.00 Lakhs

5% (tax rebate u/s 87a is available)
Rs. 3.00 lakhs – Rs 5.00 Lakhs
Rs. 5.00 lakhs- Rs 7.5 Lakhs 10%
Rs 7.5 lakhs – Rs 10.00 Lakhs 15%

New Regime Income Tax Slab Rates FY

Income Tax Slab 2020-21
(Applicable for All Individuals & HUF)
Rs 10.00 lakhs – Rs. 12.50

20%
Lakhs
Rs. 12.5 lakhs- Rs. 15.00

25%
Lakhs
> Rs. 15 Lakhs 30%
The income tax rates are proposed by the Union Finance Minister along with the Union Budget
2020-21 stands as follows:
Income Tax Slab Rate for AY 2020-21 for Individuals old SLAB)
a) Individ UAL (resident or non-resident), who is of the age of less than 60 years on the
last day of the relevant previoUS year:
Net income range Income-Tax rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
b) Resident senior citizen, i.e., every individ UAL, being a resident in India, who is of the age
of 60 years or more BUT less than 80 years at any time d URINg the previoUS year:
Rs. 3,00,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

c) Resident SUPer senior citizen, i.e., every individ UAL, being a resident in India, who is of
the age of 80 years or more at any time d URINg the previoUS year:
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
STEP 2:
LESS : REBATE U/S 87A
Note: - A resident individual is entitled for rebate under section 87A if his total income does not
exceed Rs. 5,00,000.
The amount of rebate shall be
1. 100% of income-tax
2. or Max Limit : Rs. 12,500, whichever is less.
STEP 3:
PlUS: -SURCharge: - Total income exceeds Rs. 50,00,000. --
 Surcharge applicable as per tax rates below in all categories mentioned above:
1. 10% of Income tax if total income > Rs.50 lakh
2. 15% of Income tax if total income > Rs.1 crore
STEP 4:
PLUS: Health and Ed UCation cess: - 4% of income tax and surcharge.

INCOME TAX AUTHORITIES:
To discharge executive and administrative functions efficiently, the following income tax
authorities have been constituted under section 116 of the IT Act, 1961:
 The Central Board of Direct Taxes (CBDT)
 Director General of IT (DGIT) or Chief Commissioner of IT (CCIT)
 Directors of IT (DIT) or Commissioners of IT / Appeals (CIT)
 Additional Directors of IT (ADIT) or Additional Commissioner of IT /Appeals
 Joint Directors of IT or Joint Commissioners
 Deputy Directors of IT or Deputy Commissioners
 Assistant Directors of IT or Assistant Commissioners of IT
 Income Tax Officer
 Tax Recovery Officers
 Income Tax Inspectors
POWERS AND FUNCTIONS OF CBDT:
It is the top most authority in the sphere of Direct Taxes. CBDT works under the Ministry of
Finance
 To make rules for carrying out the objectives of IT Act
 To issue orders and instructions to subordinate authorities for proper administration

of IT Act
 To authorize any IT authority to accept application of claims for any exemption,
deduction, refund or any other relief after the expiry of the prescribed period
 To declare any institution, association to be a company
 To exercise control over IT authorities
 To decide jurisdiction of IT authorities (the official power to make legal decisions

and judgment)

 To empower authorities with the power of search (Raids)
POWERS AND FUNCTIONS OF COMMISSIONER OF INCOME TAX (CIT) :
 To review the order of the Assessing officer

 To set off refund against arrears of tax
 To appoint an authority below the rank of an Assistant Commissioner or Deputy
Commissioner
 To authorize Joint Commissioner to exercise the powers of an Assessing Officer
 To transfer cases from one subordinate assessing officer to another
 To authorize any Joint Commissioner, Assistant Commissioner or Deputy Director or IT
Officer to make search and seizure
 To make any enquiry under IT Act
 To sanction the re-opening of an assessment after the expiry of 4 years
POWERS AND FUNCTIONS OF INCOME TAX OFFICER (ITO) :
ITO is the person with whom an assessee comes into direct contact. The important powers
and functions are:
 To grant refunds
 To impose penalty for non-payment of tax
 To re-assess the escaped income
 To allot PAN
 To exercise power of search and seizure, if authorized by designated authority
 To inspect register of companies (Returns with Proofs)
 To issue a certificate prescribing lower rate of deduction of tax at source
 To determine appropriate proportion of expenses for Deduction in respect of premises

used for business or profession
PERMANENT ACCOUNT NUMBER (PAN) :
A Typical PAN is AHBPR5523R
 First 3 characters “AHB” in the above PAN are alphabetic series running from
AAA to ZZZ

 Fourth character of PAN “P” in the above PAN represents the status of the PAN holder.
“P” stands for individual, “F” stands for Firm, “C” stands for Company, “H” stands for
AOP, “T” stands for Trust.
 Fifth character “R” in the above PAN represents first character of the P AN holder’s
last name / surname
 Next four characters “5523” in the above PAN are sequential number running from
0001 to 9999
Last character “R” in the above PAN is an alphabetic check digit. The last character is
also known as the integrity check
CAPITAL AND REVENUE :
 Capital is different from money. Money is used to purchase goods and services for
consumption.
 Capital is more durable and is used to generate wealth through investment.
 Examples: Automobiles, Patents, Software and brand name
 Revenue is the amount of money that a company actually receives during a specific period,
including discounts.
 In other terms, revenue is the amount of money that is brought into a company by its
business activities
CAPITAL AND REVENUE :
RECEIPTS
 Capital Receipts
 Revenue Receipts
EXPENDITURES
 Capital Expenditures
 Revenue Expenditures
LOSSES
 Capital losses
 Revenue losses
DIFFERENCE BETWEEN CAPITAL AND REVENUE RECEIPTS:

Sale of proceeds of a fixed asset is a capital receipt. Whereas, the sale proceeds of a trading
asset is a revenue receipt
A receipt in substitution of a source of income is a capital receipt. Whereas, a receipt in
substitution of income is a revenue receipt
Compensation received for loss of business is a capital receipt. Whereas, compensation

received for a loss of profit is a revenue receipt
Subsidies or grants received from the Government for any development scheme is a capital
receipt. Whereas, subsidy or grants received from the Government for meeting foreign
competition is a revenue receipt.
Insurance money received for loss of a capital asset is a capital receipt. Whereas, insurance
money received for the loss of a trading asset is a revenue asset.
EXAMPLES OF CAPITAL RECEIPTS:
Compensation received
Profits due to fluctuations in the rate of exchange of foreign currency
Premium on the issue of new shares
Compensation received from employer for premature termination of services
EXAMPLES OF REVENUE RECEIPTS:
Proceeds from sale of forest trees
Damages received for breach of contract
Dividends and interest on investments
Amount received for digging the land for brick making
Compensation received for the injury suffered in an accident
CAPITAL AND REVENUE EXPENDITURES:
An expenditure which increases the earning capacity of a fixed asset is a capital expenditure.
Whereas, an expenditure incurred for maintaining a fixed asset is a revenue expenditure
Cost of acquisition and installation of a fixed asset is a capital expenditure. Whereas,purchase
price of goods bought for resale is revenue expenditure
An expenditure incurred for the acquisition of a source of income is a capital expenditure.
Whereas, an expenditure incurred for the purpose of earning of an income is a revenue
expenditure
An expenditure incurred in obtaining by issuing shares is a capital expenditure. Whereas,
an expenditure incurred for raising loans or issuing debentures is a revenue expenditure.
CAPITAL AND REVENUE LOSSES:

Capital losses do not arise in the course of regular business. Whereas, revenue losses arise
the course of regular business
Loss on sale capital asset is a capital loss. Whereas, loss on sale of trading asset is a
revenue loss
Loss sustained by a person for being surety to another person is a capital loss. Whereas, loss
suffered by a business on account of embezzlement by employees is a revenue loss
ASSESSMENT:
SELF-ASSESSMENT
The person whose taxable income exceeds the exempted limit has to file return of
income to the assessing officer on or before the specified period. Before filing the
return of income, the assessee has to assess his / her income themselves. This type of
assessment is called Self-Assessment
SUMMARYASSESSMENT
 Under summary assessment, the assessing officer is not required to pass any
assessment order. He is required only to act on the return filed by the assessee. If any
refund, he will initiate it to avoid interest liability of the government
REGULAR ASSESSMENT
 SCRUTINY ASSESSMENT: For the purpose of obtaining full information in respect

of income or loss from any person, the assessing officer may make such enquiry to ask
for additional information in the prescribed format. He may directly ask the assessee
to get the accounts audited by the accountant nominated by Chief Commissioner or
Commissioner.
 BEST JUDGEMENT ASSESSMENT: If the assessee does not cooperate in the
assessment proceedings with the tax authorities and fails to discharge his statutory duty
in the matter, the assessing authority assess him to the best of his judgement
RE-ASSESSMENT
 If Assessing Officer feels that income has escaped assessment, he may assess or re-
assess such income.
PRE-CAUTIONARY OR PROTECTIVE ASSESSMENT
 If it is not clear as to who has received the income, the AO can commence proceedings
against any or all of them to determine as to who is responsible to pay tax.
RECOVERY OFTAX:

TRO is first required to serve a notice on the assessee to pay the arrears of tax, interest or
penalty as specified in the certificate within 15 days from the date of service of such notice,
failing which recovery proceedings can be started
The TRO is required to draw a Certificate of Recovery
Different modes of recovery:
 Sale of assessee’s moveable property
 Sale of assessee’s immoveable property
 Arrest of the assessee and detention in prison
 Recovery by deduction from salary
 Recovery from debtors
 Recovery from money under court custody
 Recovery of tax in pursuance of agreement with foreign countries

Unit 2: EXEMPTED INCOMES (Income which do not part of Total Income)

And Agricultural Income
Introduction – Exempted Incomes U/S 10 - Restricted to Individual Assessee.
Exempted income: Exempted income is that income on which income tax is not chargeable.
They are not even included in total income eg. Scholarship for education is exempted from
tax.
Section 10 of income tax Act lays down income which are fully/ totally or partially exempted from
Tax.
Some of the incomes exempt under section 10 (excluding exempt incomes under the head
“Salaries”) are –
1. Agricultural income in india – Sec 10(1) –Fully exempted

2. Share of income from Hindu Undivided Family- Sec 10(2) -- Fully exempted
3. Share of income of a partner from his firm – Sec 10(2A) - Fully exempted
4. Educational Scholarships received by an individual –Sec 10(10)- Fully exempted
5. Reward or Awards made by the Government in public interest-Sec 10(17A)- Fully
exempted
6. Income of scientific research association –Sec 10(21) - Fully Exempted
7. Annual Value of Palaces of Former Rulers- SEC 10(19A) – Fully Exempted
8. Income of State Level Khadi and Village Industries Board – Sec 10(23BB)- Fully
exempted
9. Income of SAARC Fund for Regional Fund – Sec 10 (23BBC)- Fully Exempted
10. Income of IRDA – Sec 10(23BBE)- Fully Exempted
11. Dividend From Domestic Company or mutual fund - sec10(23D)- Fully exempted
12. Income of Swachh Bharat Kosh and Clean Ganga Fund- SEC 10 (23C) –fully exempted
13. Fund Set up by LIC under Pension Scheeme – Sec 10 (23AAB)—Fully Exempted
14. Allowance of MP/MLA – SEC10(17) - Fully exempted
15. Pension/family pension received to gallantry award winners/ family member - sec10 (18)
- Fully exempted
16. Family pension received by the family member of armed Forces – Sec10 (19)- Fully
Exempted
17. Capital Gain on transfer of US 64- Sec 10(33)
18. Income from Sukanya Samriddhi Account – sec10(11)A
19. Compensation under Bhopal Gas leak Disaster – sec 10 (10BB) - Fully Exempted
20. Income of Member of Schedule Tribes - Fully Exempted
21. Interest on Government Securities Sec 10(4)- Fully Exempted
22. Interest on non resident external (NRE) account by Non Resident - Sec 10(4)- Fully
Exempted
23. Remuneration Received by Foreign Diplomats of all categories- Sec 10(6)- Fully
Exempted

Incomes exempt under the head “Salaries” Or Exempted income for Employees:
1. House Rent Allowances – SEC 10(13 A) – exempted upto Certain Limit
2. Gratuity Received by an Employees -- exempted upto Certain Limit
3. Commutation of pension received by an employee –Sec 10 (10A) - exempted upto Certain
Limit
4. Leave travel Concession in india –Sec 10(5) - exempted upto Certain Limit
5. Amount received as leave encashment on retirement –Sec 10(10AA)- exempted upto
Certain Limit
6. Ccompensation on retrenchment –Sec10(10b) exempted upto Certain Limit
7. Allowance or perquisite outside India- sec 10(7)
8. Provident Fund- Sec 10(11) - Condition applicable
9. Superannuation Fund – Sec 10 (13)
10. Voluntary retirement scheme – Sec 10(10C)
11. Allowances for performing duty – Sec 10(14)
12. Tax on perquisite paid by the employer – Sec 10(10CC) – Not taxable at the hand of
employees
13. Compensatory allowances to Employee
AGRICULTURAL INCOME:
Sec. 2(1A), agricultural income means –
This definition is very wide and covers the income of not only the cultivators but also the land
holders who might have rented out the lands. Agricultural income may be received in cash or in
kind.
Agricultural income may arise in any one of the following three ways:-
 It may be rent or revenue derived from land situated in India and used for agricultural
purposes (Tilling the land, sowing of seeds, planting, harvesting, irrigation etc should
be carried out on the land)
 It may be income derived from such land by
 agriculture or
 The performance of a process ordinarily employed by a cultivator or
receiver of rent in kind to render the produce fit to be taken to the
market or
 The sale of such agricultural produce in the market.

 Lastly, agricultural income may be derived from any farm building required for
agricultural operations.
Note 1: Capital gain arising on the transfer of agriculture land is not considered as agricultural
income.
Note 2:
Agriculture or Agricultural operations or Agricultural purposes: The Act nowhere defines the
term agricultural operations or agricultural purposes. However, the Supreme Court laid down
guidelines for the determination of the scope of these terms in CIT -vs.- Raja Benoy Kumar Sahas
Roy. Accordingly, for the purpose, agricultural activity is divided into two parts:
. a) Basic Operation: It means application of human skill & labour upon the land, prior to
germination. E.g. Tilling of land, sowing of seeds, planting, irrigation, etc.  Taxpoint: Any
spontaneous growth from land itself (i.e. without any human effort) cannot be termed as
agricultural operation.  
. b) Subsequent Operation: It means operations -
• which fosters the growth and preserves the produce;  
• for rendering the produce to for sale in market; and  
• which are performed after the produce sprouts from the land.  
Note 3: Income from farm building:

 Income from the farm building which is owned and occupied by the receiver of the rent
or revenue of any such land or occupied by the cultivator or the receiver of rent in kind, of
any land with respect to which, or the produce of which, any process discussed above is
carried on, would be agricultural income.
 However, the income arising from the use of such farm building for any purpose (including
letting for residential purpose or for the purpose of business or profession) other than
agriculture referred in would not be agricultural income.
Further, the income from such farm building would be agricultural income only if the following
conditions are satisfied:
 The building should be on or in the immediate vicinity of the land; and

 The receiver of the rent or revenue or the cultivator or the receiver of rent in kind should,
by reason of his connection with such land require it as a dwelling house or as a store house.
In addition to the above conditions any one of the following two conditions should also be satisfied:

 The land should either be assessed to land revenue in India or be subject to a local rate
assessed and collected by the officers of the Government as such
or
 Where the land is not so assessed to land revenue in India or is not subject to local rate:-
 It should not be situated in any area as comprised within the jurisdiction of a municipality
or a cantonment board and which has a population not less than 10,000 or
 It should not be situated in any area within such distance, measured aerially, in relation to
the range of population as shown hereunder
Shortest aerial distance from Population according to the

the local limits of a last preceding census of
municipality or cantonment which the relevant figures
board referred to in item a. have been published before
the first day of the previous
year
(i) ≤ 2 kilometers > 10,000 ≤ 1,00,000
(ii) ≤ 6 kilometers > 1,00,000 ≤ 10,00,000
(iii ≤ 8 kilometers > 10,00,000

)
EXAMPLE OF AGRICULTURAL INCOME:
 Income from growing and selling paddy, wheat, flowers, tress.
 Insurance money received for destruction of agricultural produce or Compensation received

from insurance company for damage caused by hail-storm to the green leaf of the assessee’s tea
garden is agricultural income
 Income from sale of dried tobacco leaves
 Income from sale of straw (dried stalks of grain)
 Income from growing and maintaining nursery, tea leaves.
 Income from sales of seeds

 Income from growing trade or commercial products like jute, cotton, etc. is an agro income.

 Income from growing flowers and creepers is an agro income.
 Plants sold in pots are an agro income provided basic operations are performed.
 Remuneration and interest to partner: Any remuneration (salary, commission, etc.) received
by a partner from a firm engaged in agricultural operation is an agro income. Interest on capital
received by a partner from a farm, engaged in agricultural operation is an agro income.
 Income arising by sale of trees grown on denuded parts of the forest after replanting and by
carrying on subsequent operations is an agro income.
 Any fee derived from land used for grazing of cattle, being used for agricultural operation, is
an agro income.
EXAMPLE OF NON-AGRICULTURAL INCOME:

 Income from sale of trees and grasses grown spontaneously (without any human effort)
 Interest received by moneylender in the form of agricultural produce.
 Income from butter and cheese making
 Income from poultry farming
 Income from fishing
 Income derived from land let-out for storing crops
 Income from dairy farming
 Interest on loan given to a farmer
 Dividend received from a company engaged in agricultural operations.
 Salary received by an employee from any business (having agricultural income)
 Income from salt produced by flooding the land with sea-water is non-agro income.
 Breeding & rearing of livestock
 Profit on sale of standing crops after harvest
 Royalty income from mines

 Income from Brick Making
 Remuneration to a Director or Managing Director from a company engaged in agricultural

business
 Income earned by a cultivator from conversion of sugarcane (raised on own land) to jaggery is
non-agro income to the extent to which income is related to such conversion only. This is
because sugarcane itself is marketable.
 Interest on arrears of rent receivable in respect of agricultural land.
 Income from a land situated outside India
 Annuity received by a person in consideration of transfer of agricultural land
 Income on supply of water for agricultural operation is non-agro income.
TAXATION OF AGRICULTURAL INCOME:

Agricultural income is totally exempted from tax U/S 10(1). But, in case of agricultural income
from land situated outside India, it will be fully taxable under the head income from other sources
Partial Integration
The Concept of Partial Integration has been introduced to ensure that Non Agricultural income is
taxed at Higher Slab Rate.
Condition for Partial Integration:
1. Agricultural income should Exceed RS. 5,000 and
2. Non Agricultural Income Should exceed the Taxable Limit.
Partial Integration is applicable for Individual , HUF, AOP, Artificial Jurdicial Person
Step in Partial Integration:
1. Add : Agricultural income to Non Agricultural Income and Compute Tax
2. Add: Agricultural Income to Maximum income exempted from income Tax and
compute the Tax
3. Gross Tax Liability = STEP 1- STEP 2

PARTLY AGRICULTURAL INCOME AND PARTLY BUSINESS INCOME:
If agricultural produce is subjected to any manufacturing process, the profit from

the sale of finished products is partly from business and partly from agriculture. Profit attributable
to agriculture is exempted while the business profit is liable to tax.
RULES FOR DETERMINING PARTLY AGRICULTURAL AND

PARTLY BUSINESS INCOME:
CROP RULE AGRICULTURAL INCOME BUSINESS INCOME
Growing and 8 60% 40%

Manufacture of tea
Rubber 7A 65% 35%
Manufacturing
business
Coffee grown and 75% 25%
cured by seller 7B(1)
Coffee grown, cured, 7B(1A) 60% 40%
roasted and grounded
by the seller in India
with or without
mixing ingredients
In case of other 7 Market value of Balance
commercial crops, if produce Amount
agricultural produce
is used as raw
material.
Problem:
Q1. State whether the following are agricultural or non-agricultural Income.
a) Income from agricultural land situated in Australia.: non

b) Income derived from sale of seeds : agri
c) Income from sale of forest trees of spontaneous growth: non agri
d) Lease rent received from land given to tenants for agricultural operations- agri
e) Income derived from land used as stone quarries: non agri
f) Income from sale of plants from nursery. : agri
g) Compensation received for acquisition of agricultural land for military purposes: non
agri
h) Income from sale of forest trees of spontaneous growth: non agri
i) Income from interest on simple mortgage of land used for agricultural purposes: non agri
j) Income derived from land used as stone quarries.: non agi
k) Rent from house property situated in a village.: non agri
l) Income from agricultural land situated in Africa : non agi
Q2. State whether the following are agricultural or non-agricultural Income
a) Income from supply of water for agricultural purpose.: non agri

b) Profit on sale of agricultural land.: non agri
c) Income from farm house situated in agricultural land.: agi income
d) Interest received from loan given to farmers for agricultural purpose :non agri
e) Income from land used for agricultural purpose by the owner. : agri income
f) Salary received by an employee of a company engaged in agricultural operations : non agri

Unit 3: RESIDENTIAL STATUS

Residential Status of an Individual –Determination of Residential Status –
Incidence of Tax – Problems.
Taxability of income depends upon the residential status of an assessee. Also, it depends
whether the income earned is an Indian income or foreign income. This chapter is, thus, divided
into two parts – first part shows determining the residential status of an assessee and second
part shows tax incidence.
Residence and citizenship

The scope of total income of an assessee is determined with reference to his residential status in
India in the previous year (Sec. 5). Tax incidence of an assessee depends upon his residential
status rather than on his citizenship.
Residence and citizenship are two different things. The incidence of tax has nothing to do with
citizenship. An Indian may be non-resident and a foreigner may be resident for income tax
purposes. The residence of a person may change from year to year but citizenship cannot be
changed every year.
Determination of residential status of an assessee
How to determine the residential status of an INDIVIDUAL [Sec. 6]

An individual may be resident or non-resident. Further, if an individual is resident, he may be
resident and ordinarily resident or resident but not ordinarily resident.
Following are the rules to determine the residential status of an individual:
a. Resident:
Must satisfy at least one of the basic conditions.
b. Resident and ordinarily resident (ROR):
Must satisfy at least one of the basic conditions and both of the additional conditions.
c. Resident but not ordinarily resident (RNOR):
Must satisfy at least one of the basic conditions and one or none of the additional
conditions.
d. Non-resident (NR):
Must not satisfy any of the basic conditions.
Basic conditions [Sec. 6(1)]

a. He is in India in the previous year for a period of 182 days or more; or
b. He is in India for a period of 60 days or more during the previous year and 365 days
or more during 4 years immediately preceding the previous year.
Exceptions:
In the following two situations, basic condition (b) is not applicable:

1. An Indian citizen who leaves India during the previous year

 for the purpose of employment outside India; or
 as a member of crew of an Indian ship.
2. An Indian citizen or a person of Indian origin who comes on a visit to India
during the previous year.
Additional conditions [Sec. 6(6)]

a. He has been resident in India in at least 2 out of 10 previous years immediately
preceding the relevant previous year.
b. He has been in India for a period of 730 days or more during 7 years immediately
preceding the relevant previous year.
Incidence of Tax
Relationship between residential status and incidence of tax
As per section 5 of the Income Tax Act, incidence of tax on a taxpayer depends on his
residential status and also on the place and time of accrual or receipt of income.
Meaning of “INDIAN INCOME”

Any of the following three is an Indian income:
1. If income is received (or deemed to be received) in India during the previous year and
at the same time it accrues or arises (or is deemed to accrue or arise) in India during the
previous year.
2. If income is received (or deemed to be received) in India during the previous year but
it accrues or arises (or is deemed to accrue or arise) outside India during the previous
year.
3. If income is received outside India during the previous year but it accrues or arises (or
is deemed to accrue or arise) in India during the previous year.
Meaning of “FOREIGN INCOME”

If the following two conditions are satisfied, then such income is “foreign income” –
1. Income is not received (or not deemed to be received) in India and
2. Income does not accrue or arise (or is deemed to accrue or arise) in India.
Conclusions regarding taxability

1. Indian Income
Indian income is always taxable in India irrespective of the residential status of the
taxpayer.
2. Foreign Income
Foreign income is taxable in the hands of resident and ordinarily resident in India.
Foreign income is not taxable in the hands of non-resident in India.
In the hands of resident but not ordinarily resident (RNoR) taxpayer, foreign
income is taxable only in any of the following two situations –
a. If it is business income and business is controlled wholly or partly from India, or

b. If it is professional income and profession is set up in India.
In any other case (like salary, rent, interest etc.), foreign income is not taxable in the
hands of resident but not ordinarily resident taxpayers.

Unit 4: INCOME FROM SALARY

Meaning – Definition - Basis of Charge– Advance Salary – Arrears of Salary –
Allowances – Perquisites– Provident Fund - Profits in Lieu of Salary – Gratuity -
Commutation of Pension - Encashment of Earned leave - Compensation for voluntary
retirement - Deductions from Salary U/S 16 – Problems on Income from Salary.
After studying this chapter, students will be able to compute the taxable amount of
salary received by an employee from the employer
Section 15, 16 and 17 of the Act deals with the computation of income under the head “Salaries”.
In order to understand the computation of income under the head “Salaries”, the following relevant
concepts need to be understood first:
1. Employer-employee relationship –
An income can be taxed under the head “Salaries” only and only if there is an employer- employee
relationship between the payer and payee. If this relationship does not exist, then the income will not
be taxable as salary income; it will be taxable under other heads of income.
Employer may be an individual, firm, association of persons, company, local authority, Central
Government, State Government, etc. Likewise, employer may be operating in India or outside India.
The employee may be a full-time employee or a part-time employee.
MPs or MLAs are not treated as employees of the Government. Thus, remuneration received by them
is not taxable under the head “Salaries” but taxable as “Income from other sources”.
However, pay and allowances received by the Chief Minister of a State are assessable as
salary and not as income from other sources, in view of the provisions of article 164(5) of the
Constitution.
Any salary, bonus, commission or remuneration, by whatever name called, due to/ received by, a partner
of a firm from the firm shall not be taxable under the head “Salaries” because there is no employer-
employee relationship between firm and its partners. Such remuneration, however, is taxable under the
head “Profits and gains from business or profession” in the hands of partners.
2. No difference between salary and wages –

Conceptually, there is no difference between ‘salary’ and ‘wages’, both being a payment for work done
or services rendered.
3. Arrears of salary –
Salary due to an assessee in the earlier years, which was neither paid nor was charged to tax in those
years, will have to treated as ‘arrears of salary’ and thus, taxable under the head “Salaries”.
4. Advance salary –
Salary received in advance is taxable in the year of receipt. It will not be taxable again in the year in
which it becomes due.
5. Salary paid by foreign Government –

Salary paid by a foreign Government to its employees serving in India is taxable under the head
“Salaries”.

6. Salary from more than one employer –

Salary received by an employee from more than one employer during the same previous year is taxable
under the head “Salaries”.
7. Salary from former employer, present employer or prospective employer –

Salary received (or due) during the previous year is chargeable to tax under the head “Salaries”
irrespective of the fact whether it is received from a former, present or prospective employer.
8. Tax-free salary –
If salary is paid tax-free by the employer, the employee has to include in his taxable income not only
the salary received but also the amount of tax paid by the employer on this salary income of the
employee.
9. Foregoing of salary –
Once salary is earned by the employee, it becomes taxable in his hands though he may subsequently
waive the right to receive the same from his employer. Such voluntary waiver or foregoing by an
employee of salary due to him is merely an application of income and is chargeable to tax under the
head “Salaries”.
10. Place of accrual –

Income under the head “Salaries” is deemed to accrue or arise at the place where the service (in respect
of which it accrues) is rendered. If the services are rendered in India and if the salary in respect of such
service is received outside India, it will be treated as an income which is deemed to accrue or arise in
India. Similarly, if a person, who after rendering services in India, retires and settles abroad, receives
any pension on account of the same, such pension shall be an income which is deemed to accrue or arise
in India because the services on account of which pension accrues, were rendered in India
There is, however, an exception to the above rule. Salary payable by the Government of India to a
citizen of India for services outside India is treated as income deemed to accrue or arise in India even
though services are rendered outside India.
11. Method of accounting not relevant –

Salary is taxable on receipt or due basis, whichever is earlier regardless of the fact whether books of
account, in respect of salary income, are maintained by the assessee on mercantile basis or cash basis.
Meaning of salary [Section 17(1)] –

Salary includes –
a) wages;
b) any annuity or pension;
c) any gratuity;
d) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
e) any advance of salary;
f) any payment received by an employee in respect of any period of leave not availed by him;
g) employer’s contribution towards Recognized Provident Fund (RPF) in excess of 12% of
employee’s salary and interest credited to RPF in excess of 9.5% p.a.;
h) transferred balance in a recognized provident fund to the extent it is taxable; and
i) the contribution made by the Central Government (or any other employer) in the previous year,
to the account of an employee under a notified pension scheme referred to in section 80CCD.

Basis of charge ( DUE DATE OR RECEIPT DATE ) WEE

Under section 15, the following income shall be chargeable to income-tax under the head “Salaries” –
a. any salary due from an employer (or a former employer) to an assessee in the previous year,
whether actually paid or not;
b. any salary paid or allowed to him in the previous year by or on behalf of an employer (or a
former employer), though not due or before it became due; and
c. any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer (or a former employer), if not charged to income-tax for any earlier previous year.
Computation of income under the head “Salaries” of ….. for the A.Y. 2021-22
Particulars Details Amount
Basic Salary *****
Fees *****
Commission *****
Bonus *****
Allowances:
Dearness Allowance (DA) /Dearness Pay (DP) *****
House Rent Allowance *****
Children Education Allowance *****
Children Hostel Allowance *****
Entertainment Allowance *****
Medical Allowance *****
Conveyance Allowance *****
City Compensatory Allowance *****
Uniform Allowance *****
Professional Development Allowance *****
Transport Allowance *****
Other Allowances *****
Perquisites u/s 17(2)
Any Obligation of Employee paid by Employer *****

Accommodation /RFA *****
Shares and securities issued under ESOP *****
Employer’s Contribution to Superannuation Fund *****
Gas, Electricity & Water *****
Medical Facility *****
Other fringe benefits *****
Leave Travel Concession *****
Contribution of Employer to Provident Fund (excess of 12%) *****
Interest on Recognised Provident Fund (excess of 9.5%) *****

Any other item *****
Gratuity *****
Leave Encashment *****
Pension *****
Retrenchment Compensation *****
Compensation received under Voluntary Retirement Scheme *****
Gross Salary *****

Less: Deduction u/s 16
i)Standard Deduction (maximum limit 50000)
ii)Entertainment Allowance ****
iii)Tax on employment/Professional tax ****
Taxable Income from salary *****
■ Basic Salary: It is the sum paid by employer to employee as salary and shall be fully taxable.
■ Pay-Scale (Grade system): It is a system of payment where increment scale is pre-known to employee.
E.g. Basic salary is given as 5,000 – 1,000 – 8,000 – 2,000 – 12,000. The above data indicates the
increment schedule. As per this schedule initial payment is ` 5,000 p.m. w hich will increased by ` 1,000
every year until salary reaches to ` 8,000 p.m. Once salary reaches to ` 8,000 then increment will be `
2,000 every year till salary reaches the scale of ` 12,000. Accordingly, basic salary is calculated.
■ Dearness Allowance (DA) or Dearness Pay (DP): It is an extra amount given to an employee to meet the
burden of inflation or increased cost of living. This is fully taxable.
Note: Sometimes, , it is given that DA is not forming a part of retirement benefit (Leave encashment,
Pension, Provident Fund, etc.). In such case, DA itself shall be fully taxable. However, for calculating
taxable Leave encashment, Pension, HRA, etc., DA will be included in ‘salary’ only if it forms a part of

retirement benefit.
■ Fees: An employee may be given apart from basic salary, extra remuneration for doing specific job
under the terms of employment. Such extra remuneration is termed as fee and shall be fully taxable.
■ Commission: It may be as a percentage of turnover or as a percentage of profit. In either case, it is
taxable.
■ Bonus: Bonus may be contractual or voluntary. In either case, it is fully taxable.
■ ANNUITY [SEC. 17(1)(ii)] :Annuity means a yearly allowance, income, grant of an annual sum,
etc. for life or in perpetuity.
Allowances
Allowances are fixed monetary amount paid by the employer to the employee for meeting some
particular expenses. These are generally fully taxable and thus, included to compute gross salary unless
a specific exemption has been provided in respect of that particular allowance which is received.
Allowances are divided under three categories for the purpose of taxability:
1. Fully taxable allowances;
2. Fully exempt allowances; or
3. Partially exempt allowances:
Fully taxable allowances –

There can be hundreds of fully taxable allowances. All those allowances which are not covered under
exempt category becomes fully taxable. Some of the common fully taxable allowances are –
1. City compensatory allowance (CCA)
2. Tiffin allowance
3. Fixed medical allowance
4. Servant allowance
5. Dearness allowance
6. Deputation allowance
7. Lunch/ meal/ dinner/ refreshment allowance
8. Overtime allowance
9. Family allowance
10. Non-practicing allowance
11. Warden allowance
12. Planning allowance, etc.
Allowances Meaning
City Compensatory Allowance An allowance to meet personal expenses, which arise
due to special circumstances, or to compensate extra
expenditure by reason of posting at a particular place.
Tiffin Allowance An allowance to meet the expenditure on tiffin,

refreshment etc.
Medical Allowance An allowance to meet the expenditure on medical
treatment etc.
Servant Allowance An allowance to meet the expenditure of servant for
personal purpose.
Non-practicing Allowance Allowance given to professionals to compensate
them for restriction on private practice.
Warden or Proctor Allowance Allowances given to employees of educational
institutions for working as warden of the hostel or
working as proctor in the institutions.
Deputation Allowance Allowances given to an employee, when he is sent on
deputation for a temporary period from his permanent
place of service.
Entertainment Allowance It is an allowance to meet expenditure on
entertainment
Fully EXEMPTED allowances –(18000-18000)= NIL

Foreign Allowance to Government employees outside India
As per sec. 10(7), any allowance or perquisite allowed outside India by the Government to an Indian citizen
for rendering services outside India is wholly exempt from tax.
Allowance received from UNO (United Nations Organisation)
Basic salary or Allowance paid by the UNO to its employees are not taxable.
Allowance to judges of the High Court or the Supreme Court is fully exempted
Allowance to teacher or professor from SAARC Member States [DTAA]
allowances and perquisites of a teacher or professor or research scholars from SAARC Member States shall
not be taxable
Allowance to Chairman or a retired Chairman or any other member or retired member of the Union
Public Service Commission is exempt.
Partly Exempted allowances –(actual amount received – exempted amount )= taxable amount
1. House rent allowance (HRA) [Sec. 10(13A) and rule 2A]
An allowance to meet the expenses in connection with the rent of the house, by whatever name called.
Tax Treatment:
Minimum of the following is exempted from tax:
a. Actual HRA received.
b. An amount equal to 50% of salary(when house is situated in a metro city-mumbai, delhi, kolkatta and
chennai)
or
40% of salary(when house is situated in any other place) for the relevant period

c. The excess of rent paid over 10% of salary1. [Arithmetically, (Rent Paid – 10% of Salary)]
Salary here means: Basicpay/salary + DP+D.A. (if it forms /enters a part of retirement/employment
benefit) + Commission (as a fixed % on turnover)
Notes
a) Salary shall be determined on due basis for the period for which the employee occupies rented
accommodation in the previous year and gets HRA.
b) Exemption is not available if employee lives in his own house, or in a house for which he does not pay
any rent.
c) For criteria of 50% or 40% of salary as deduction, place of employment is not significant but place where
the house is situated is important.
d) Deduction from HRA depends on Salary of the employee, Amount of HRA, place of residence (not place
of employment), rent paid by the employee
2. Entertainment allowance [Sec. 16(ii)] –

It is first included in salary income under the head “allowances” and thereafter a deduction is given on
the following basis:
a. In case of a Government employee, the least of the following is deductible:
- Rs. 5,000;
- 20% of basic salary; or
- Amount of entertainment allowance granted during the previous year.
b. In the case of a non-government employee (including employees of local authority and

statutory corporation), entertainment allowance is not deductible. It if fully taxable.
3. Special allowances prescribed as exempt under section 10(14) –CA = 10000 –(8000 USED
OFFICIAL PURPOSE) =10000-8000 = 2000
a) When exemption depends upon actual expenditure by the employee –

In the case of given below six allowances, lower of the following is allowed as deduction:
 the amount of the allowance; or
 the amount utilized for the specific purpose for which allowance is given.
TA == 40000( 30000 SPENT BY EMPLOYEE)= 40000 – 30000= 10000
These allowances are as follows –(Amount received—actual amount spent for official purpose))
1. Travelling allowance/ Transfer allowance – (100000 – 80000)= 20000

An allowance (by whatever name called) granted to meet the cost of travel on tour or on transfer
(including any sum paid in connection with transfer, packing and transportation of personal effects on
such transfer).
2. Conveyance allowance –
Conveyance allowance is exempt from tax to the extent it is utilized for performance of official duties.
It is an allowance which is granted to meet the expenditure on conveyance in performance of duties of
an office. It may be noted that any expenditure for covering the journey between office and residence
is not treated as expenditure in performance of duties of the office.

3. Daily allowance –
An allowance whether granted on tour or for the period of journey in connection with transfer, to meet
the ordinary daily charges incurred by an employee on account of absence from his normal place of
duty.
4. Helper/ASSISTANT allowance –
An allowance (by whatever name called) to meet the expenditure on a helper where such helper is
engaged for the performance of official duties.
5. Research/ Academic allowance –

An allowance (by whatever name called) granted for encouraging the academic research and other
professional ethics.
6. Uniform allowance –
An allowance (by whatever name called) to meet the expenditure on the purchase or maintenance of
uniform for wear during the performance of duties of an office.
b) When exemption does not depend upon the actual expenditure –

In case of given below allowances, the amount of exemption does not depend upon the expenditure
actually incurred by the employee. Amount of exemption is –
 the amount of allowance; or
 the amount specified in rule 2BB,
whichever is lower.
1. Children education allowance –
Amount exempt from tax is limited to Rs. 100 per month per child up to a maximum of two children.
2. Hostel expenditure allowance –

Amount exempt from tax is limited to Rs. 300 per month per child up to maximum of two children.
3. Tribal/ scheduled areas allowance –

Rs. 200 per month if an employee is posted in U.P., M.P., Tamil Nadu, Karnataka, West Bengal,
Bihar, Orissa, Assam or Tripura.
4. Underground allowance –
Underground allowance is granted to an employee who is working in uncongenial, unnatural climate in
underground mines. Exemption is limited to Rs. 800 per month.
5. Highly active field area allowance –

It is granted to the members of armed forces in the nature of special compensatory highly active field
area allowance. It is exempt from tax up to Rs. 4,200 per month.
6. Truck Driver’s Allowance for transport employees working in any transport system –
It is an allowance granted to an employee working in any transport system to meet his personal
expenditure during his duty performed in the course of running of such transport from one place to
another place provided that such employee is not in receipt of daily allowance.
*70% OF ALLOWANCE OR 10000)wel
7. Transport allowance –
It is granted to an employee to meet his expenditure for the purpose of commuting between office and
residence. Amount of exemption is limited to Rs.. 3,200 per month in case of an employee who is blind
/ deaf and dumb / orthopaedically handicapped.
No exemption is available to the assessee other than specified above

8. Island duty allowance –

This special allowance is granted to the members of armed forces in the nature of island (duty)
allowance in Andaman and Nicobar and Lakshadweep group of islands. It is exempt from tax up to
Rs. 3,250 per month.
Perquisites
Perquisite may be defined as any casual emolument or benefit (monetary or non-monetary) attached to an
office or position in addition to salary or wages.
Definition of ‘Perquisite’ as per the Act [Section 17(2)] –

Under the Act, the term “perquisites” includes the following –
a. the value of rent-free accommodation provided to the assessee by his employer;
b. the value of any concession in the matter of rent respecting any accommodation provided to the
assessee by his employer;
c. the value of any benefit or amenity granted or provided free of cost or at concessional rate in
any of the following cases:
i. by a company to an employee who is a director thereof;
ii. by a company to an employee, being a person who has substantial interest in the company;
iii. by any employer (including a company) to an employee to whom provisions of (i) and (ii)
above do not apply and whose income under the head “Salaries” exclusive of the value of
all benefits or amenities not provided for by way of monetary benefits, exceeds Rs. 50,000;
d. any sum paid by an employer in respect of any obligation which but for such payment would
have been payable by the assessee;
e. any sum payable by the employer, whether directly or through a fund other than a recognized
provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect
an assurance on the life of the assessee or to effect a contract for an annuity;
f. 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;
g. the amount of any contribution to an approved superannuation fund by the employer in

respect of the assessee, to the extent it exceeds Rs. 1,50,000;
h. the value of any other fringe benefits or amenity as may be provided.
Perquisites are divided under five categories for the purpose of taxability:
1. Perquisites which are taxable only for specified employees

2. Perquisites which are taxable for specified as well as non-specified employees;
3. Perquisites which are exempt for specified as well as non-specified employees;
Specified employee –
The following employees are known as “specified employee”:
1. A director-employee – An employee, who is a director in the employer-company at any time during
the previous year, is a specified employee of the company in which he is a director.
2. An employee who has substantial interest in the employer-company – An employee who has a
substantial interest in the employer-company at any time during the previous year is a specified
employee of the company in which he has substantial interest. A person has substantial interest in the
employer-company, if he is a beneficial owner of equity shares carrying 20% or more voting power in
the employer-company.
3. An employee drawing in excess of Rs. 50,000 – An employee (not covered by the above two cases),
whose income chargeable to tax under the head “Salaries” (exclusive of the value of all benefits or
amenities not provided by way of monetary payments) exceeds Rs. 50,000, is a specified employee. For
computing the sum of Rs. 50,000, the following are excluded or deducted:
a. all non-monetary benefits;
b. monetary benefits which are not taxable under section 10 (for example, house rent allowance
to the extent exempt under section 10(13A) is excluded); and
c. deduction on account of entertainment allowance and professional tax.
Where salary is received from more than one employer, the aggregate salary from these employers
will have to be taken into account for the purpose of determining the aforesaid monetary ceiling.
Perquisites taxable only in the hands of a specified employee –
The following perquisites are taxable only in the hands of specified employees:
 Service of a sweeper, gardener, watchman or personal attendant
 Supply of gas, electricity or water for household purposes
 Education facility to employee’s family members
 Leave travel concession (LTC)
 Medical facility
 Car or any other automotive conveyance
 Transport facility by a transport undertaking
Perquisites which are taxable for specified as well as non-specified employees;
Valuation of different perquisites
Accommodation –
‘Accommodation’ includes a house, flat, farm house (or part thereof) or accommodation in a hotel,
motel, service apartment, guest-house, caravan, mobile home, ship or other floating structure. For the
purpose of valuation of this perquisite, employees are divided into two categories:
 Central and State Government employees; and

 Private sector employees or other employees (including employees of local authority or a

foreign Government)
1. Rent-free unfurnished accommodation [Rule 3(1)] –

For Central and State Government employees –The value of perquisite in respect of accommodation
provided to such employees is equal to the licence fee which would have been determined by the Central
or State Government in accordance with the rules framed by the Government for allotment of houses to
its officers.
However, rent-free official residence provided to a Judge of a High Court or to a judge of the Supreme
Court is exempt from tax. A similar exemption is extended to an official of Parliament, a Union
Minister, a Leader of Opposition in Parliament and serving Chairman/ members of UPSC.
For private sector or other employees (including the employees of a local authority or a foreign
Government):
Population of city as per 2001 Where the accommodation is Where the accommodation is
census where accommodation is owned by the employer taken on lease or on rent by the
provided employer
Exceeding 25 lakh 15% of salary in respect of the
period during which the
accommodation is occupied by
the employee
Amount of lease rent paid or
Exceeding 10 lakh but not 10% of salary in respect of the
payable by the employer or
exceeding 25 lakh period during which the
15% of salary, whichever is
accommodation is occupied by
lower
the employee
Any other 7.5% of salary in respect of the
period during which the
accommodation is occupied
by the employee
Notes:
1. Salary for this purpose includes – Basic salary, dearness allowance/ pay (if terms of employment
so provide), bonus, commission, fees, all other taxable allowances (excluding amount not taxable) and
any monetary payment which is chargeable to tax (by whatever name called).
It is to be noted that dearness allowance/ pay shall be considered only when it is part of salary for
computing all retirement benefits (like provident fund, pension, leave encashment, gratuity, etc.). If
dearness allowance/ pay is part of salary for computing only some (not all) of the retirement benefits,
then it is not taken into consideration for this purpose.
2. Salary does not include –

 employer’s contribution to provident fund account of an employee;
 all allowances which are exempt from tax;
 value of perquisites [under section 17(2)]; and
 lump-sum payment received at the time of termination of service or superannuation or
voluntary retirement, like gratuity, severance pay leave encashment, voluntary retrenchment
benefits, commutation of pension and similar payments.

3. Salary from two or more employers – Salary from all employers in respect of the period during which
an accommodation is provided will be taken into consideration.
4. Exemption – The above perquisite is not chargeable to tax in respect of any accommodation located
in a ‘remote area’ [i.e., an area located at least 40 kilometres away from a town having a population not
exceeding 20,000] provided to an employee working at a mining site or an onshore oil exploration site,
or a project execution site or a dam site or power generation site or an offshore site.
2. Rent-free furnished accommodation (not being a hotel) –
First, find out the value of the perquisite assuming that the accommodation is unfurnished and to the
figures so arrived, add the value of furniture on the following basis –
a. 10% (p.a.) of the original cost of furniture, if furniture is owned by the employer;
b. actual hire charges (whether paid or payable) if furniture is hired by the employer.
Furniture, here, includes radio sets, televisions sets, refrigerators, air–conditioners and other
household appliances.
3. Rent-free furnished accommodation provided in a hotel –
Besides, accommodation in a hotel, it includes licensed accommodation in the nature of motel, service
apartment or guest house.
The value of perquisite shall be taken as 24% of salary paid or payable for the period during which
such accommodation is provided in the previous year or actual charges paid/ payable by the employer
to such hotel, whichever is lower.
However, in case of an accommodation provided in a hotel, nothing is chargeable to tax (subject to

the fulfilment of given below two conditions) –
1. The hotel accommodation is provided for a period not exceeding in aggregate 15 days in a
previous year and
2. Such accommodation is provided on an employee’s transfer from one place to another place.
It is to be noted that if in the aforesaid case, the hotel accommodation is provided for more than 15 days,
then the perquisite is not taxable for the first 15 days. After that, it is chargeable to tax.
4. Accommodation provided at concessional rent –
Accommodation may be furnished or unfurnished or it is provided in a hotel. However, if it is

provided at a concessional rent, the valuation should be made as follows –
Step 1: Find out the value of the perquisite on the assumption that no rent is charged by the employer
(as per the above stated rules).
Step 2: From the value so arrived at, deduct the rent charged by the employer from the employee.

VALUATION OF PERQUISITES IN RESPECT OF MOTOR CAR
M =Maintenance cost
2. D = Depreciation @ 10% of actual cost of the car. However, if the car is not owned by employer then
actual hire charge incurred by employer shall be considered.
3. ` 2400 p.m. in case of higher capacity car# and ` 1800 p.m. for lower capacity car.
4. ` 900 p.m. in case of higher capacity car# and ` 600 p.m. for lower capacity car.
# Higher capacity car means a car whose cubic capacity of engine exceeds 1.6 litres (1600 CC)
Chauffeur / Driver
If chauffeur is also provided, then salary of chauffeur is further to be added to the value of perquisite (as
computed above). However, if car is used for both i.e. official and personal purpose then ` 900 p.m.
(irrespective of higher or lower capacity of car) is to be taken as value of chauffeur perquisite.
Employee’s obligation met by the employer –

Amount paid by the employer in respect of any obligation which otherwise would have been payable
by the employee is taxable in all cases whether the employee is specified or non- specified.
Amount payable by the employer to effect an assurance on the life of the employee – Amount
payable by an employer, directly or indirectly, to effect an assurance on the life of the assessee or to
effect a contract for an annuity is taxable in the hands of all employees.

GIFT, VOUCHER OR TOKEN GIVEN BY EMPLOYER [RULE 3(7)(iv)]
The value of any gift, voucher, or token (in lieu of which any gift may be received) given to the employee
(or any member of his household) on ceremonial occasion or otherwise by the employer shall be taxable in the
hands of all employees. However, gift, voucher or token upto ` 5,000, in aggregate, during the previous year,
shall be exempted.
Notes
a) Where worth of gift is in excess of ` 5,000 then amount in excess of ` 5,000 shall be taxable.
b) No such exemption (` 5,000) is available on gift made in cash or convertible into money.
Diwali , Holi or Gift which is related to any Festival will be exempted from Tax
Exempted Perquisites
Following perquisites are exempted in hands of employee:
1. Tea or snacks: Tea, similar non-alcoholic beverages and snacks provided during working hours.
2. Food/Meal: Food provided by employer during working hous in the remote area is not taxable. Free meal
provided by employer in the office premises during working hours is taxable to the extent the value of
meal exceeds Rs. 50 per meal.
3. Recreational facilities: Recreational facilities extended to a group of employees.
4. Goods sold to employee at concessional rate: Goods manufactured by employer and sold by him to his
employees at concessional (not free) rates. (500-200
5. Conveyance facility: Conveyance facility provided -
● to employees for journey between office and residence and vice versa.
● to the judges of High Court and Supreme Court
6. Training: Amount spent on training of employees including boarding & lodging expenses for such
training.
7. Services rendered outside India: Any perquisite allowed outside India by the Government to a citizen of
India for rendering services outside India.
8. Contribution in some specified schemes
● Employer’s contribution to a pension or deferred annuity scheme.
● Employer’s contribution to staff group insurance scheme.
● Annual premium paid by the employer on personal accident policy affected by him in respect of his
employee.
10. Periodicals and journals: Periodicals and journals required for discharge of work.
11. Telephone, mobile phones: Expenses for telephone, mobile phones actually incurred on behalf of
employee by the employer whether by way of direct payment or reimbursement.
.
12.Computer or Laptop: Computer or Laptop provided whether to use at office or at home (provided
ownership is not transferred to the employee).

PROVIDENT FUND:
Provident fund scheme is a saving device in the hands of salaried class. It is a retirement benefit scheme. Under
this scheme, a stipulated sum is regularly deducted from the salary of the employee as his contribution towards
the fund. The employer also, generally, contributes a similar amount out of his pocket to the fund. The
employer’s and employee’s contribution are together invested in such fund. Interest earned thereon is also
credited to the fund of the employee. Thus, provident fund scheme is a great media to initiate and mobilise
small savings to a large scale. On termination of service or retirement, employee receives the whole
accumulated fund, subject to certain conditions. Hence, provident fund has four components i.e. Employer’s
contribution; Employee’s contribution; Interest on employer’s contribution; and Interest on employee’s
contribution
Provident fund is of four types, viz:
a) Statutory Provident Fund (SPF): Statutory provident fund is set up under the provisions of the Provident
Funds Act, 1925. Government and Semi-Government organisations, local authorities, railways, Universities
and recognised educational institutions maintain Statutory Provident Fund.
b) Recognised Provident Fund (RPF): The provident fund scheme is framed under the Employee’s
Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred as PF Act). The PF Act covers
any establishment employing 20 or more persons. However, any establishment employing less than 20 persons
can also join the scheme provided employer and employee both agree to do so. Further, if an employer creates
his own scheme for provident fund then he can do so subject to recognition from the Commissioner of Income
tax.
c) Unrecognised Provident Fund (URPF): If a provident fund scheme is created by an employer, which is
not recognised by the Commissioner of Income tax, then such fund is known as Unrecognised provident fund.
d) Public Provident Fund (PPF): The Central Government has established a fund for the benefit of public to
mobilise personal savings. Any member of the public, whether salaried or self-employed, can contribute to the
fund by opening a provident fund account at any branch of the State Bank of India or its subsidiaries or other
nationalised bank. Even a salaried employee can simultaneously become a member of employee’s provident
fund (whether statutory, recognised or unrecognized) and public provident fund. Any amount in multiple of `
5 (subject to minimum of ` 500 and maximum of ` 1,50,000 p.a.) may be deposited in this account. Interest is
credited every year but payable only at the time of maturity. Interest earned on this fund is exempt from tax
u/s 10(11).
Tax Treatment
Particulars SPF RPF URPF PPF
Employer’s Not taxable Exempted up to Not taxable Not Applicable
Contribution 12% of Salary (here,
salary means Basic
+ DA# +
Commission as a
fixed percentage on
turnover
Employee’s Eligible for Eligible for Not eligible for Eligible for
Contribution deduction u/s 80C deduction u/s 80C deduction u/s 80C deduction u/s 80C
Interest Not Taxable Exempted @ 9.5% Not Taxable Not taxable
p.a. (Interest rate),
any excess interest
will be taxable as
salary.

Lump Sum Not Taxable Not taxable Note 1 Not taxable

withdrawal (Subject to Note 2)
Notes:
1. Lump sum amount withdrawn from URPF
Particulars Tax treatment
Accumulated employer’s contribution Fully taxable under the head Salaries
Accumulated employee’s contribution Not taxable
Accumulated interest on employer’s Fully taxable under the head Salaries
contribution
Accumulated interest on employee’s Fully taxable as income from other
contribution sources
2. Lump sum amount withdrawn from RPF
a) Amount withdrawn from RPF is not taxable, if
i. Employee retires or terminates job after 5 years of continuous service; or
ii. Employee has resigned before completion of 5 years and joins another organization (who also
maintains recognized provident fund and his fund balance with current employer is transferred
to the new employer).
iii. The entire balance standing to the credit of the employee is transferred to his account under New
Pension Scheme as referred u/s 80CC
iv. Employee retires or terminates job before 5 years of continuous service -
● by reason of ill health; or
● by reason of contraction or discontinuance of employer’s business; or
● any other reason beyond the control of employee.
b) In any other case, amount withdrawn shall be taxable as in the case of URPF. [Refer Note 1]
Employer’s Contribution to the New pension System (as specified u/s 80CCD) is fully taxable under
the head ‘Salaries’. However, deduction is available u/s 80CCD.
PROFITS IN LIEU OF SALARY [SEC. 17(3)]
Following receipts are taxable as profits in lieu of salary:

1. The amount of any compensation due to or received by an assessee from his employer or former employer
at or in connection with the (a) termination of his employment, (b) modification of the terms and conditions
of employment.
2. Any payment due to or received by an assessee from his employer or former employer except the following:
● Gratuity exempted u/s 10(10);
● House rent allowance exempted u/s 10(13A);
● Commuted pension exempted u/s 10(10A);
● Retrenchment compensation exempted u/s 10(10B);

● Payment from an approved Superannuation Fund u/s 10(13);

● Payment from statutory provident fund or public provident fund;
● Payment from recognised provident fund to the extent it is exempt u/s 10(12).
3. Any payment from unrecognised provident fund or such other fund to the extent to which it does not
consist of contributions by the assessee or interest on such contributions.
4. Any sum received by the employee under the Keyman Insurance Policy including the sum allocated by
way of bonus on such policy.
5. Any amount due to or received by the employee (in lump sum or otherwise) prior to employment or after
cessation of employment.
.
Retirement benefits
Retirement benefits are considered as those benefits which are generally given to the employees at the time
of retirement.
LEAVE SALARY ENCASHMENT(30 days -10 days ==20day

As per service contract and discipline, normally, every employee is allowed certain period of leave (with pay)
every year. Such leave may be availed during the year or accumulated by the employee. The accumulated
leave lying to the credit of an employee may be availed subsequently or encashed. When an employee receives
an amount for waiving leave lying to his credit, such amount is known as leave salary encashment.
30 DAYS IN YEAR – 25 DAYS AVAILED = 5 DAYS IN HIS CREDIT (UNAVAILED LEAVE IN HIS
ACCOUNT)
1. ENCASHMENT
2.30DAYS +5DAYS= 35 DAYS

Case A: Leave salary received during continuation of service

Leave salary during continuation of service is fully taxable in the case of the Government employee as well
as other employees [Sec. 17(1)(va)].
Case B: Leave salary received by Government employee on termination of service
At the time of termination of service, leave salary received by the Central or State Government employee is
fully exempted u/s 10(10AA)(i).
Taxpoint: Government employee here does not include employee of local authority or public sector
undertaking or foreign Government employee.
Case C: Leave salary received by non-Government employee on termination of service
At the time of termination of service, leave salary received by a non-Government employee (including
employee of foreign Government, local authority, public sector undertaking) is exempted to the minimum of
the following u/s 10(10AA)(ii):
a) Actual amount received as leave salary
b) maximum limit 3,00,000/- (i.e., Rs. 3,00,000 minus amount exempted earlier)
c) 10 × Average salary p.m.

d) To the maximum of 30 days (normally taken as 1 month) average salary1 for every completed year of
service2, subject to deduction for actual leave availed during the tenure of service.
Academically: [{(1 × completed year of service) – leave actually taken in terms of month} × average salary
p.m.]

1. Average salary means Basic + DA# + Commission (as a fixed percentage on turnover) being last 10
months average salary ending on the date of retirement or superannuation. (e.g. if an employee retires
on 18/11/2018 then 10 months average salary shall be a period starting from 19th Jan’ 2018 and
ending on 18th Nov’ 2018).
# If DA is not forming a part of retirement benefit then the same shall not be included in salary for the
above purpose. However, DA itself shall be fully taxable.
2. While calculating completed year of service, ignore any fraction of the year. E.g. 10 years 9 months
shall be taken as 10 years.
Notes
a) Leave encashment received from more than one employer: Where leave encashment is received from
more than one employer in the same previous year, the aggregate amount exempt from tax shall not exceed
the statutory deduction i.e. ` 3,00,000.
b) Earlier deduction claimed for leave encashment: While claiming the statutory amount (i.e. ` 3,00,000)
any deduction claimed earlier as leave encashment shall be reduced from ` 3,00,000.
Case D: Leave salary paid to the legal heir

Leave salary paid to the legal heir of deceased employee is not taxable..
PENSION [SEC. 17(1)(ii)]
Pension means a periodical payment received by an employee after his retirement. On certain occasions,
employer allows to withdraw a lump sum amount as the present value of periodical pension. When pension
is received periodically by employee, it is known as Uncommuted pension. On the other hand, pension received
in lump sum is known as Commuted pension. Such lump sum amount is determined considering factors like
the age and health of the recipient, rate of interest, etc.
Case A: Uncommuted pension

Uncommuted pension is fully taxable in the hands of all employees whether Government or Non – Government
employee.
Case B: Commuted pension received by a Government employee

Commuted pension received by a Government employee is fully exempt from tax
Case c: Commuted pension received by an employee who also received gratuity [Sec. 10(10A)(ii)]
One third of total pension (which assessee is normally entitled for) commuted is exempt.
Case D: Commuted pension received by an employee who does not receive gratuity [Sec. 10(10A)(ii)]
One half of total pension (which assessee is normally entitled for) commuted is exempt
Pension Status of employee Is it chargeable to tax

Uncommuted pension Government/ It is fully chargeable to tax
(Periodical payment) Non-Government employee
Commuted Pension Government employee (including It is fully exempt from tax
(Lump sum payment the employees of local authority
in lieu of periodical and statutory corporation)
payment) Non-Government employee See the provisions given below
Exemption of commuted pension for non-government employees depends upon the receipt of gratuity
(i.e., whether employee has received gratuity also or not):
a. In case where a non-government employee receives Gratuity –

the commuted value of one-third of the pension which he is normally entitled to receive
is exempt from tax.
b. In case where a non-government employee does not receive Gratuity –
the commuted value of one-half of such pension which he is normally entitled to receive
is exempt from tax.
GRATUITY
Gratuity is generally payable to an employee at the time of cessation (i.e., retirement, death, termination,
resignation or on his becoming incapacitated prior to the retirement) of employment in appreciation of
the past services rendered by him.
Tax treatment – The tax treatment is given below:
Status of employee Taxability

Government employee It is fully exempt from tax
Covered by the Payment of See the provisions given below
Non-Government Gratuity Act, 1972
employee Not covered by the Payment see the provisions given below
of Gratuity Act, 1972
Government employees receiving gratuity at the time of retirement – In case of Government employees
(including employees of local authority but not employees of a statutory corporation), amount of death-
cum retirement gratuity received is fully exempt from tax.

Non-Government employees covered by the Payment of Gratuity Act, 1972 – In such cases, least of
the following amount is exempt from tax:
a. 15 days salary (15/26) (7 days salary in the case of employees of a seasonal establishment)
based on salary last drawn for every completed year of service or part thereof in excess of 6
months.
For example, if service is rendered for 20 years and 6 months, then we have to take 20 years.
b. Rs. 20,00,000 being the amount specified by the Government
c. Gratuity actually received
Salary for this purpose means – Salary last drawn by an employee and dearness allowance (whether
forming part or not)
Non-Government employees not covered by the Payment of Gratuity Act, 1972 – In such cases,
least of the following amount is exempt from tax:
a. Half months(15/30) average salary for each completed year of service

b. Rs. 20,00,000 minus amount exempted earlier
c. Gratuity actually received
2. Salary for this purpose means – Basic salary (+) dearness allowance (if terms of employment so
provide) (+) commission based on fixed percentage on turnover achieved by an employee
3. Completed/ actual years of service – While computing completed/ actual years of service, any fraction
of the year shall be ignored.
COMPENSATION RECEIVED AT THE TIME OF VOLUNTARY RETIREMENT [SEC.

10(10C)]
If an employee accepts retirement willingly in lieu of compensation then such retirement is known as Voluntary
Retirement. Voluntary retirement compensation received or receivable by an employee is eligible for
exemption subject to the following conditions -
Conditions for exemption
1. Compensation is received from specified employer#
2. Compensation is received as per Voluntary Retirement Scheme (VRS) framed in accordance with
prescribed guidelines*
Guidelines [Rule 2BA]
1. Scheme (VRS) must be applicable to all employees (other than director) who have either completed age of
40 years or has completed 10 years of service. (This condition is, however, not applicable in the case of
an employee of a public sector company)
2. Such scheme must be framed to reduce the number of employees.
3. The vacancy caused by VRS is not to be filled up.
4. The retiring employee is not to be employed in another company or concern belonging to the same
management.
5. The amount of compensation does not exceed
● the amount equivalent to 3 months salary for each completed year of service; or
● salary at the time of retirement multiplied by the balance month of service left.
Note: Salary here means [Basic + DA (if forms a part of retirement benefit) + fixed percentage of commission
on turnover], last drawn.
Amount of exemption
Exemption shall be minimum of the following -
a) Actual amount received as per guidelines; or
b) ` 5,00,000.
c) the amount equivalent to 3 months salary for each completed year of service;*3*SALRY*
d) salary at the time of retirement multiplied by the balance month of service left.
Retrenchment Compensation [Sec. 10(10B)] –

Compensation received by a workman at the time of his retrenchment is exempt from tax to the least
of the following amounts –
a. Rs. 5,00,000 (amount specified by the Government);
b. 15 days average pay for every completed year of service or part thereof in excess of 6 months;
c. Amount actually received.
Deduction from Gross Salary [Sec. 16]
1. STANDARD DEDUCTION [SEC. 16(ia)]
Lower of the following shall be allowed as standard deduction to all employee:

a. ` 50,000
b. Amount of gross salary
2. ENTERTAINMENT ALLOWANCE [SEC. 16 (ii)]
Entertainment allowance is initially included in taxable allowances as fully taxable. Thereafter, a deduction
is allowed under this section from gross taxable salary. However, deduction u/s 16(ii) shall be available to the
Government employee only.
Deduction for Entertainment allowance being minimum of the following:
a. Actual Entertainment Allowance
b. ` 5,000/-
c. 20% of Basic Salary.
Taxpoint:
■ Deduction allowed shall be irrespective of actual expenditure incurred, whether for office or personal
purpose.
■ No deduction is available under this section to a Non-government employee.

2. TAX ON EMPLOYMENT OR PROFESSIONAL TAX [SEC. 16(iii)]
Tax on employment, profession, trade, etc. levied by a State under Article 276 of the Constitution will be
allowed as deduction on cash basis, whether paid by employee or by employer (on behalf of employee) from
gross taxable salary.
Note: If employer (on behalf of employee) pays Professional tax then:
a. Firstly, it is to be included as taxable perquisite; and
b. Further, it is allowed as deduction u/s 16(iii).
Important Notes:
Meaning of Salary for different purposes
For Retirement benefit
Gratuity (covered by the Payment of Gratuity Act) (Basic + DA) last drawn
Gratuity (not covered by the Payment of Gratuity Act) (Basic +DA1 + Commission2) being average of last 10
months preceding the month of retirement.
Leave encashment (Basic +DA1 + Commission2) being average of last 10
months immediately from the retirement.
Voluntarily retirement (Basic +DA1 + Commission2) last drawn
For regular benefit
Rent Free Accommodation (Basic + DA1 + Commission + Bonus + Fees + Any
other taxable allowance + Any other monetary benefits
excluding perquisite)
Specified employee (Basic + DA + Commission+ Bonus + Fees + Any
other taxable allowance + Any other monetary benefits
– Deduction u/s 16)
Entertainment Allowance Basic only
Any other case (Basic +DA1 + Commission2)
Questions:
1. Mr. Rajesh an employee of ABC Co. Ltd. Bangalore, retired on 31st May 2020 after completing
28 years of service. His monthly pension was fixed at Rs. 20,000. He commuted 60% of pension
on is' Jan. 2021 and received a sum of Rs. 5,40,000 as commuted pension. Calculate his taxable
commuted and uncommuted pension for the assessment year
.2. Mr. X, a physically handicapped person working in ABC Company Ltd. Bangalore has furnished
the following details of his income for the year 2018-19. Compute his income from salary for the
A.Y. 2019-20.
a) Basic s alary Rs. 40, 000 p.m.

b) Dearness allowance enters into retirement benefits Rs. 24,000 p.m.
c) Fixed percentage of commission on sales Rs. 1,500 p.m.

d) Bonus Rs . 65 , 000.
e) HRA Rs. 12,500 p.m. (Rent paid Rs. 10,600 p.m.)
f) Transport allowance Rs. 4,000 p.m.
g) Reimbursement of medical expenses Rs. 17,500 for treatment taken in private hospital.
h) Management contribution and own contribution to RPF is 15% of salary.
i) Interest credited to RPF is Rs. 11,000 at 11% p.a.
j) Professional tax paid by employee is Rs. 400 p.m.
k) He is provided with more than 1.6 liter capacity car by the company for official use. All the
expenses including salary of the driver are met by the company.
I) Children education allowance Rs. 600 p.m. per child for two children and children hostel
allowance Rs. 1,000 p.m. for two children.
3. Mr. Mugal joined Star Ltd. on 1/4/2020. Details regarding his salary are as follows:
Particulars Amount (`)
Basic 5,000 p.m.
Dearness Allowance 2,000 p.m. (50% considered for retirement benefit)
Education Allowance 1,000 p.m. (he has 1 son and 3 daughters)
Hostel Allowance 2,000 p.m. (none of the children is sent to hostel)
Medical Allowance 1,000 p.m. (total medical expenditure incurred ` 3,000)
Transport Allowance 1,800 p.m. (being used for office to residence & vice
versa)
Servant Allowance 1,000 p.m.
City compensatory Allowance 2,000 p.m.
Entertainment Allowance 1,000 p.m.
Assistants Allowance 3,000 p.m. (paid to assistant ` 2,000 p.m.)
Professional Development Allowance 2,000 p.m. (actual expenses for the purpose ` 8,000
p.m.)
Bonus 24,000 p.a.
Commission 9,000 p.a.
Fees 5,000 p.a.
Compute his taxable salary for the assessment year
4. Miss Sonal, being a citizen of India and Government employee has following salary details: (in `)
Basic Salary 2,000 p.m.
Dearness Allowance 3,000 p.m.
Dearness Pay 1,000 p.m.
Fees 50,000 p.a.

House Rent Allowance 5,000 p.m. (Rent paid for Kolkata house ` 4,000 p.m.)
Children Education allowance 3,000 p.m. (She is having one adopted child)
Children allowance 1,000 p.m.
Hostel allowance 2,000 p.m.
Dress Allowance 5,000 p.m.(Actual expenditure ` 10,000 p.m.)
Uniform Allowance 2,000 p.m. (Actual expenditure ` 1,000 p.m.)
Tiffin Allowance 1,000 p.m.
Education Allowance for her own education 2,000 p.m. (Actual expenditure ` 1,500 p.m.)
5. Compute her gross salary for the assessment year
Miss Stuti has the following salary structure: `

a) Basic salary 15,000 p.m.
b) Dearness Allowance 5,000 p.m. (not forming part of retirement benefit)
c) Hostel Allowance 1,000 p.m. (does not have any child)
d) Tiffin Allowance 500 p.m.
e) Transport Allowance 200 p.m.
f) Bonus 20,000 p.a.
g) Commission 15,000 p.a.
h) Free refreshment in office worth 5,000 p.a.
i) Mobile phone facility by employer 900 p.m.
j) Computer facility worth 10,000 p.a.
She has been provided a Rent-free Accommodation (owned by employer) in Kolkata. The house was allotted
to her with effect from 1/5/2018 but she could occupy the same only from 1/6/2018. Find her gross taxable
salary.
6. Mr. Rohit a non-Government employee has the following salary details :

a. Basic Salary ` 5,000 p.m. b. D.A. ` 2,000 p.m.
c. Entertainment Allowance ` 300 p.m. d. Professional tax paid by employee ` 600
e. LIC Premium paid by employer ` 3,600 f. Income tax paid by employee ` 2,000
g. Professional tax paid by employer on behalf of employee ` 1,600
Find his taxable salary
7.. From the following information calculate the income from salary of Mr. Anand for the A.Y.
Basic s alary Rs. 40, 000 p.m.
1) Dearness allowance 60% of basic forming part of salary.

2) Commis s ion Rs. 18, 000.

3) Bonus Rs . 60 , 000.
4) Employer and employee's contribution to SPF is 15% of salary.
5) Interest credited to SPF is Rs. 12,000 at 10% p.a.
6) CCA Rs . 500 p. m.
7) Medic al allow ance Rs. 800 p.m.
8) He is provided with a rent free furnished house by the employer for which his employer paid a
rent of Rs. 5,000 p.m. to the owner of the house. Cost of furniture is Rs. 1,20,000.
9) He is also provided with a car less than 1.6 litre capacity by the employer both for personal
and official use. All the expenses of the car including salary of the driver are paid by the employer.
10) Free telephone at his residence by the employer valued at Rs. 12,500.
11) Professional tax paid by him Rs. 450 p.m.
12) Gift voucher worth Rs. 12,500 were issued by the employer.
.8. Mr. X, a physically handicapped person working in ABC Company Ltd. Bangalore has furnished
the following details of his income for the year 2019-20. Compute his income from salary for the
A.Y. 2021-22.
a) Basic s alary Rs. 40, 000 p.m.

b) Dearness allowance enters into retirement benefits Rs. 24,000 p.m.
c) Fixed percentage of commission on sales Rs. 1,500 p.m.
d) Bonus Rs . 65 , 000.
e) HRA Rs. 12,500 p.m. (Rent paid Rs. 10,600 p.m.)
f) Transport allowance Rs. 4,000 p.m.
g) Reimbursement of medical expenses Rs. 17,500 for treatment taken in private hospital.
h) Management contribution and own contribution to RPF is 15% of salary.
i) Interest credited to RPF is Rs. 11,000 at 11% p.a.
j) Professional tax paid by employee is Rs. 400 p.m.
k) He is provided with more than 1.6 liter capacity car by the company for official use. All the
expenses including salary of the driver are met by the company.
I) Children education allowance Rs. 600 p.m. per child for two children and children hostel
allowance Rs. 1,000 p.m. for two children.
9. Mr. Veeresh retired on 31-03-2019 after sewing in a company for 32 years and 10 months. He received
Rs. 1,78,000 as gratuity. His average monthly salary in the immediately preceding 10 months was Rs.
28,000. Compute his taxable gratuity for the AY 2021-22 (Gratuity is not covered under Gratuity Act).
10. Mr. Pratham Sales Manager of XYZ Ltd., Mumbai has furnished the following details of his
income for the year ended 31-03-2020. Compute his income from salary for the AY 2021-22.
a) Basic salary Rs. 20,000 p.m.

b) Dearness allowance Rs. 6,000 p.m. (forming part of salary).
c) Bonus equal to 3 months basic salary.
d) Entertainment allowance Rs. 2,500 p.m. (amount spent Rs. 12,000).
e) Children hostel allowance for his three children Rs. 400 p.m. per child.

f) Reimbursement of medical bills Rs. 22,000 for the treatment taken in a private nursing home.
g) He is provided with rent free furnished accommodation owned by the company. Cost of furniture Rs.
1,00,000, FRV of the house is Rs. 7,500 P.M.
h) Free telephone at his residence Rs. 3,500.
i) Medical insurance premium of Mr. Pratham paid by the company Rs. 4,000 p.a.
j) Employment tax paid by the company Rs. 1,000 p.a.
k) Own contribution and company's contribution to RPF is 14% of salary. Interest credited to RPF at 14%
Rs. 14,000.
11. The following particulars relates to the income of Mr. Ganesh for the PY 2020-21.
He is employed in a Cotton Textile Mill at Bangalore on a monthly salary of Rs. 25,000.

He is also entitled to a commission at 1% on sales effected by him. The sales effected
by him during the previous year amounted to Rs. 40,00,000. He received the following
during the previous year :
a) Dearness pay Rs. 6,000 p.m.

b) Bonus at two months basic salary
c) Entertainment allowance Rs. 2,000 p.m.
d) House rent allowance Rs. 5,000 p.m.
e) Income tax of Mr. Ganesh paid by employer Rs. 10,000
f) Free telephone installed at his residence Rs. 6,000
g) He and his employer contribute 15% of his salary to his RPF and interest credited to
RPF at 10% amounted to Rs. 30,000 during the year.
h) He paid Rs. 6,000 p.m. as rent of the house occupied by him.
Compute his income from salary for the AY 2021-22.
12. Mr. Kumar is a non- government employee getting pension of Rs. 16,000 per month from a
company. During the previous year 2020-21 he got his 2 /3 rd pension commuted and received Rs.
9,84,000. Compute taxable pension for the Assessment Year 2021— 22.
13. Mrs. Smitha is working as Sales Executive in Maruthi Suzaki Ltd. Kolkata and her salary
details are as follows for the previous year 2020 —21
a) Basic salary Rs. 21,000 per month
b) Bonus equal to two months basic salary
c) Commission 3% on sales (During the year she reached sales target of Rs. 5,00,000)
d) Dearness allowance Rs. 7,000 per month. (Eligible for Retirement benefits)
e) Medical allowance Rs. 1,400 per month. (Medical expenses Rs. 15,000 p.a.)

f) Children Hostel Allowance for her two children @ Rs. 500 per month per child.
g) Children Education Allowance for her two children @ Rs. 400 per month per
child.
h) RPF contribution by the company Rs. 6,000 per month.
i) RPF contribution by employee Rs. 5,000 per month.
j) Interest credited on RPF @ 11% Rs. 44,000.
k) She has been provided with company's owned rent free furnished house in Mumbai
and cost of furniture provided Rs. 60,000.
I) Mrs. Smitha paid her professional tax Rs. 2,400 p.a.
Compute Taxable Salary for the A.Y. 2021 —22.

Unit 5: INCOME FROM HOUSE PROPERTY

Basis of Charge – Deemed Owners – Exempted Incomes from House Property
–Composite Rent - Annual Value – Determination of Annual Value – Treatment
of Unrealized Rent – Loss due to Vacancy – Deductions from Annual Value –
Problems on Income from House Property.
Basis of Charge [Section 22]
Income is taxable under the head “Income from house property” if the following three
conditions are satisfied:
1. The property should consist of any buildings or lands appurtenant thereto.
2. The assessee should be owner of the property.
3. The property should not be used by the owner for the purpose of business or
profession carried on by him, the profits of which are chargeable to income-tax.
Annual value of the property shall be taxable under the head “Income from house property” subject
to the following:
Deemed Owner [Section 27]
Besides the legal owner, section 27 provides that the following persons are to be treated as
deemed owner of house property for the purpose of taxation under the head “Income from
house property”:

1. Transfer to spouse or minor child:

If the following conditions are satisfied, then the individual who has transferred the
property would be deemed as “owner” of the house property:
a. The taxpayer is an individual.
b. He or she transfers a house property.
c. The property is transferred to his/ her spouse (not being a transfer in connection
with an arrangement to live apart) or to his/ her minor child (not being a married
daughter).
d. The property is transferred without adequate monetary consideration.
2. Holder of an impartible estate shall be deemed to be the individual owner of all the
properties comprised in the estate.
3. A member of a co-operative society, company or other association of persons to whom
a building (or part thereof) is allotted or leased under a house building scheme of the
society, company or association, as the case may be, shall be deemed to be the owner
of that building or part thereof.
4. Person who has acquired a property under a power of attorney transaction:

A person who is allowed to take (or retain) 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, 1882, shall be deemed to be the owner of that building (or part
thereof).
5. A person who has acquired a right in a building under section 269UA(f):

A person who acquires any rights (excluding any rights by way of a lease from month
to month or for a period not exceeding one year) in or with respect to any building (or
part thereof), by virtue of any such transaction as is referred to in section 269UA(f),
shall be deemed to be the owner of that building or part thereof.
When income is not taxable under the head “House Property”
In the following cases, income is not taxable under the head “Income from house property”:
1. If letting is only incidental and subservient to the main business of the assessee, rental
income is not taxable under the head “Income from house property” but is chargeable under
the head “Profits and gains of business and profession”.
Co-owners [Section 26]

If a house property is owned by two or more persons, then such persons are known as co-
owners. If respective shares of co-owners are definite and ascertainable, the share of each such
person (in the computed income of property) shall be included in his total income. It may be
noted that co-owners are not taxable as an association of persons.
When property income is not chargeable to tax
In the following cases, rental income is not chargeable to tax:
1. Income from farm house

2. Annual value of any one palace of an ex-ruler
3. Property income of a local authority
4. Property income of an approved scientific research association
5. Property income of an educational institution and hospital
6. Property income of a trade union
7. House property held for charitable purpose
8. Property income of a political party
9. Property used for own business or profession
10. One self-occupied property(TWO SOP from AY 2021-22
Computation of Income under the head “House Property”
There can be three different types of house properties for the purpose of taxation under the
head “Income from house property”.
1. Let out property [LOP]
2. Self-occupied property [SOP]
3. Deemed to be let out property [DLOP] :
4. Partly let out and partly Self occupied property
a) Portion Let out
b) Period Let out
Following format is to be followed for computing the income under the head “House
Property”:
Particulars Amount
Gross Annual Value (GAV) ****
Less: Municipal tax ****
Net Annual Value (NAV) ****
Less: Deductions u/s 24

24(a) Standard deduction [30% of NAV] ****

24(b) Interest on borrowed ****
capital
Taxable Income from house property ****
Meaning of Annual Value

As per section 23(1)(a), the annual value of any property shall be the sum for which the property
might reasonably be expected to be let out from year to year. It may neither be the actual rent
derived nor the municipal valuation of the property. It is something like notional rent which
could have been derived, had the property been let out. In determining the annual value there
are four factors which are normally taken into consideration.
These are (a) Actual rent received or receivable, (b) Municipal Rental value, (c) Fair rental rent
of the property, and (d) Standard rent.
Municipal Rental value: The Municipal Authority conducts a periodical survey of the house
property in their local limits for the purpose of levying local taxes. On the basis of the survey
conducted the rental value are fixed which serves as the basis for levying tax. The rental
value fixed by Municipal Authority is called “ Municipal Rental Value.”
Fair rental Value: Fair rent refer to the rent of similar type of house in the same locality. It
is an important consideration in determination of Gross Annual Value of the house Property.
Standard rent: The Rent fixed under the Rent Control Act of the State.
Actual rent received or receivable: Actual Rent is the rent which is actually received from
the house Property(Actual Rent = Annual Rent- Unrealised Rent – cost of Common Facilities
If Any)
Cost of Common Facilities Are swimming pool Maintenance Charge , Lift and Pump
Maintenance charges, lighting of common stairs and corridors, salary of Gardener and
Watchman etc.
Calculation of gross annual value (GAV)

.Refer Class Note
Unrealized Rent
Unrealized rent is the rent which the owner could not realize. Unrealized rent of earlier years
is not deductible, only unrealized rent of current previous year is deductible.
Unrealized rent shall be excluded from rent received/ receivable only if the following
conditions are satisfied [Conditions of Rule 4]:
1. The tenancy is bonafide.
2. The defaulting tenant has vacated, or steps have been taken to compel him to vacate

the property.
3. The defaulting tenant is not in occupation of any other property of the assessee.
4. The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings
would be useless.
Loss due to Vacancy/ Vacancy Period Rent:

It refers to the rent for the period during which let out property has remained vacant in the previous
Year.
Municipal Taxes
Municipal taxes (like house tax, service tax, local tax) levied by any local authority in respect
of the house property are deductible only if these taxes are borne and actually paid by the
owner during the previous year. It doesn’t matter whether the taxes belong to the earlier
years, current year or coming years.
2018-19=2000 2020-21: 4000
Standard Deduction [Sec. 24(a)]

30% of NAV is deductible irrespective of any expenditure incurred by the assessee. Thus, no
deduction can be claimed in respect of expenses on insurance, ground rent, land revenue,
repairs, collection charges, electricity, water supply, salary of liftman, etc.
Interest on Borrowed Capital [Sec. 24(b)]

Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose
of purchase, construction, repair, renewal or reconstruction of the property.


Pre-construction period interest:

Pre-construction period means the period commencing from the date of borrowing and
ending on –
a. 31st March immediately prior to the date of completion of construction/ date of
acquisition; or
b. Date of repayment of loan, whichever is earlier.
Interest payable by an assessee in respect of funds borrowed for the acquisition or construction
of a house property and pertaining to a period prior to the previous year in which such property
has been acquired or constructed, to the extent it is not allowed as a deduction under any other
provision of the Act, is deductible is five equal annual installments and the first installment
starts from the previous year in which the property is acquired or constructed.
Post-construction period interest:
It is charged from the year of completion (YOC) to date of repayment (DOR).
Notes –
1. Interest on borrowed capital is calculated by adding pre-construction period interest
and current year interest.
2. Interest is borrowed capital is deductible on “accrual basis”. It can be claimed as
deduction on yearly basis, even if the interest is not actually paid during the year.
3. If interest is calculated on the basis of number of days, the date of borrowing should
be included while the date of repayment of loan should be excluded.
4. Income from a self-occupied house property can be negative. Its value always lies
between Zero to (-) Rs. 2,00,000.
5. Interest on a fresh loan, taken to repay the original loan raised for the aforesaid
purposes, is allowable as deduction. This rule is applicable even if the first loan was
interest-free loan.
Steps for computation of Interest on Capital Borrowed:
Step 1: Compute Pre-construction Period
PCP which starts from DOB (Date of borrowing) and ends on 31st March prior to DOC (Date of
completion), OR Actual DOR (Date of repayment), Whichever is earlier
Step 2: Compute Pre-construction Period Interest

Step 3: Total Pre-construction Period Interest is allowed as deduction in 5 equal annual

installments and first installment will be deductible in the year in which the house is purchased
or constructed.
Step 4: Compute Post-construction period interest
It starts from YOC (Year of Completion) and ends on Actual DOR (Date of Repayment).
Step 5: Calculate IOCB (Interest on capital borrowed) which is equal to PCPI (Pre- construction
period interest) + PCPI (Post-construction period interest) for different years.For assessment
year 2020-21, relevant previous year is 2020-21
Interest on borrowed capital in case of Let Out/ Deemed to be Let Out property
It is fully deductible without any maximum ceiling.
Interest on borrowed Capital in case of Self-Occupied property

It is deductible (according to the rules given above) subject to a maximum ceiling given below:
Case 1: Rs. 2,00,000

If capital is borrowed on or after April 1, 1999 for acquiring or constructing a property and
if such acquisition or construction is completed within 5 years from the end of the financial
year in which the capital was borrowed.
Further, one more condition to satisfy is that the person extending the loan certifies that such
interest is payable in respect of the amount advanced for acquisition or construction of the
house or as re-finance of the principal amount outstanding under an earlier loan taken for such
acquisition or construction.
Case 2: Rs. 30,000

1. If capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals
of a property.
2. If capital is borrowed before April 1, 1999 for purchase, construction, reconstruction,

repairs or renewals of a property.
3. If capital is borrowed on or after April 1, 1999 for acquiring or constructing a property

and if such acquisition or construction is not completed within 5 years from the end of
the financial year in which the capital was borrowed.

Tax treatment of different cases of self-occupied house property
S. Self – Occupied Property Tax Treatment

No.
1 If such property is used by the owner for No income is taxable under the head
the purpose of carrying on his business “Income from house property” but taxable
or profession under the head “Profits and gains of
business or profession”
2 If such property is used throughout the Nothing is taxable. Only interest on
previous year for own residential borrowed capital is deductible subject to a
purposes, it is not let out or put to any maximum ceiling of Rs. 30,000 or Rs.
other use. Further, no benefit is derived 2,00,000 depending upon the case
by the owner from such property.
3 If such property could not be occupied
throughout the previous year because
employment, business or profession of Same as point (2) above
the owner is situated at some other place
and he has to reside at that other place
in a building not owned by him. Further,
no other benefit is derived by
the owner from that unoccupied
property.
4 When a part of the property (being Income from the independent unit (which is
independent residential unit) is self- self-occupied) will be taxable as self-
occupied and the other part is let out occupied property and income from the unit
which is let out is taxable as if the unit
is let out
5 When such property is self-occupied Taxable as a let-out property
for a part of the year and let out for the
other part of the year
6 Where a person has occupied more than Only one property (according to his own
one property for his own residential choice) is treated as self-occupied and all
purpose other properties will be taken as deemed to
be let out
Notes –
1. In the case of “deemed to be let out” properties, the taxable income will be calculated
in the same manner as used for let out properties. In case of “deemed to be let out”
properties, GAV shall be taken as reasonable expected rent.

Practice questions:
1. From the following information compute Taxable income from house property of Mr.
Ganesh for the A.Y. 2021-22
Fair rental value Rs. 1,80,000 p.a.
Standard rent Rs. 1,62 ,000 p.a.
Rent received Rs. 16,500 p.m.
Unrealized rent for the year 2020-21 Rs. 24,750
Loss due to vacancy Rs. 16,500
Municipal value 216000
Municipal tax paid by owners Rs. 21,600 &Rs 3,000 paid by the tenant
2. From the following information compute net annual value of house property of Mr.
Girish for the A.Y. 2021-22
Fair rental value Rs. 1,80,000 p.a.
Standard rent Rs. 1,62 ,000 p.a.
Rent received Rs. 16,500 p.m.
Unrealised rent for the year 2020-21 Rs. 24,750
Loss due to vacancy Rs. 16,500
Municipal tax paid by owners Rs. 21,600 being 10% of municipal value
3.. Determine the Net Annual Value House property for the AY 2021-22
Particulars Rs.
Municipal value 1,50,000
Fair rent 1,70,000
Standard rent 1,30,000
Actual rent p.m. 15,000
Unrealised rent 18,000
House Vacancy period 1 month
Municipal tax paid 15,000

4. Mr. Raju is the owner of following houses in Bangalore and the particulars of which
are relating to previous year 2020-21
Particulars House A House B House C
Rs. Rs. Rs.
1) Municipal value 1,20,000 1,32,000 1,44,000
2) Fair rental value 1,50,000 1,60,000 1,75,000
3) Standard rent 1,44,000 1,50,000 1,60,000
Let out for Let out for Self occupied
4) Nature of use
Residence Business for Residence
5) Rent received (p.m.) 15,000 18,000
6) Municipal tax paid by owner : 12,000 13,200 14,400
7)Municipal tax paid by
6,000 13,200
tenant
8) Cost of repairs 18,000 12,000
9) interest on loan 6,000 7,000 4,000
10) Unrealized for the year 19-20 12,000 18,000
11) Vacancy period (month) 2 2

Compute the Taxable Income from House Property for the A.Y. 2021-22

5. Ms. Lalitha is the owner of Five houses. Compute her income from the house property for A.Y.
2021-22 The particulars are as follows:
Particulars House A House B House C House D House E
Fair Rental value 6,00,000 7,00,000 8,80,000 10,00,000 9,00,000

Municipal Valuation 6,50,000 7,80,000 8,40,000 9,90,000 9,80,000
Standard rent 6,50,000 7,40,000 8,60,000 9,80,000 9,60,000
Purpose of use Let out for Let out Used for Self Self
bank for own occupied occupied
business business
Repairs 100 200 100 300 500
Collection charges 300 -- 500 -- --
Annual rent 6,60,000 8,00,000 8,60,000 -- --

Unrealized rent 40,000 -- 5000 -- --
Vacancy period 1month 2month -- -- --
Unrealized rent 10,000 20,000 -- -- --
received
Construction started 1/4/13 1/6/15 1/4/11 1/4/15 1/8/13
Construction 31/3/17 31/9/17 31/3/16 31/3/17 31/6/16

completed
Municipal tax @10% Paid by Paid by Paid by Paid by Paid by
on MV owner tenant owner owner owner
Ms. Lalitha borrowed the loan for the construction of five houses Rs 10,00,000, Rs 8,80,000, Rs
6,60,000 , Rs 5,00,000 and Rs 4,50,000 for House A, House B, House C , House D , House E
Respectively. Interest rate is at 9% pa.
6. Mr. Praveen is owner of a house property in Mysore. The construction of the house was
completed on 18th July 2017. He took a loan of Rs. 8,75,000 from Canara Bank on 1St Nov.
2015 at 11% p.a. The loan was outstanding during the year 2018-19 to the extent of Rs.
5,00,000. From the following information calculate his income from house property for the
A.Y. 2021-22
a) Municipal value Rs. 1,44,000 p.a.

b) Fair rental value Rs. 1,80,000 p.a.
c) Standard rent Rs. 1,20,000 p.a.
d) Rent received per month Rs. 18,000.
e) Municipal tax paid is 10% of M.V. (25% paid by tenent).
f) Loss due to vacancy Rs. 27,000.
g) Unrealised rent for the year 2020-21 Rs. 10,000.

Unrealised rent of 2018-19 was recovered during 2020-21 Rs. 16,000
7. Mr. Prakash is the owner of following houses in Bangalore and the particulars of which are
relating to previous year 2020-21
Particulars House A House B House C

Rs. Rs. Rs.
1) Municipal value 1,20,000 1,32,000 1,44,000
2) Fair rental value 1,50,000 1,60,000 1,75,000
3) Standard rent 1,44,000 1,50,000 1,60,000
Let out for Self occupied for
4) Nature of use Let out for Residence Business Residence
5) Rent received (p.m.) 15,000 18,000
6) Municipal tax paid
by owner :
a) For the year 2016-17 6,000 6,600
b) For the year 2018-19 12,000 13,200 14,400
7) Cost of repairs 18,000 12,000
8) Interest on loan for
construction 45,000 60,000 2,25,000
9) Unrealised for the
year 2018-19 12,000 18,000
10) Vacancy period (month) 2 2
11) Year of completion 2015 2014 2012
. Compute the Taxable Income from House Property for the A.Y. 2021-22
8.. Mr. Anand is the owner of three houses in Bangalore, the particulars of which are given below
Particulars House 'A' House 'B' House 'C'

Municipal value 30,000 40,000 20,000
Fair rent 36,000 30,000 24,000
Let out (per month) 4,000 3,000 5,000
1/6/2016(2016-
Construction completed 1/4/2016 2017) 31-3-2015
Repairs 5,000 4,000
Municipal tax paid by owner 3,000 —
Municipal tax paid by tenant 2,000
Municipal tax due 4,000 —
Vacancy period 2 months
Anand took a loan of Rs. 3,00,000 at 8.5% p.a. for construction of House 'B', date of borrowing
loan is 01-07-2013.Compute taxable income from House property for the AY 2021-22

9. Mr. Shankar owns three houses in K.G.F. from the following particulars compute his taxable
income from house property for the AY 2021-22
House —
Particulars House — I House — II Ill
Municipal value 60,000 90,000 75,000
Fair rent 65,000 1,00,000 60,000
Rent received DLOP SOP SOP
Municipal tax paid @ 10% of municipal value Paid by Paid by Paid by
Owner Owner Owner
Repairs 1,000 8,000 6,000
Interest on loan taken for house construction 10,000 8,000
How used SOP SOP SOP
10. . From the following information compute Net Annual value of House Property for
the A.Y. 2020—21

Municipal value Rs. 1,00,000
Fair Rental value Rs. 1,80,000
Let out (per month) Rs. 16,000
Standard Rent Rs. 1,20,000
Unrealised rent for one month
Municipal tax paid by owner of House Property Rs. 20,000
Municipal tax paid by tenant Rs. 10,000
11. Mr. Shankar is the owner of three house Properties in Bangalore and let-
out all the houses throughout the year
Particulars House — A House — B House — C

(Rs.) (Rs.) (Rs.)
Fair Rent 1,80,000 1,50,000 1,20,000
Municipal valuation 1,50,000 2,00,000 1,00,000
Let out (per month) 20,000 15,000 25,000
Use by tenant Residential Office Residential

Repair charges 10,000 — 40,000

Collection charges 20,000 5,000
Interest on loan :
a) For construction 1,00,000 - -
b) For Marriage of daughter 60,000
c) For repairs — — 10,000
Municipal tax is 10% of Municipal valuation. Municipal tax of House — A was paid by owner
but Municipal tax of House — B was not paid upto 31st March 2019 and Municipal tax of House
— C was paid by tenant. The House — C was remained vacant for 2 months.
Compute Income from House Property for the A. Y. 2019 — 20 by making
assumption housing loan in respect of House A and C was taken after 1-4-
2000.
12. Mr. Suryakantha has three houses in Mandya and particulars of which are
relating to previous year as under :
Particulars House — I House —II House — III

(Rs.) (Rs.) (Rs.)
Use of House Let out Let out S.O.P.
Standard Rent 1,50,000 2,00,000
Municipal value 1,00,000 3,00,000 3,00,000
Fair rental value 1,80,000 1,80,000 3,50,000
Actual rent per month 15,000 20,000
Municipal tax paid 10% of 10% of M.V. 10% of M.V.
Repair charges — 2,000
Suryakantha borrows Rs. 3,00,000 at 20% per annum from the bank for construction of
House — III. (date of borrowing 01-06-2012, date of repayment of loan 10-5-2020)
Construction of all houses is completed in May 2016.
13. Calculate the allowable interest on loan from NAV of the house Property
Date of Borrowing Loan: 1-6-2012
Date of Repayment of loan : 10-5-2020

Date of completion of construction – May 2017
Amount of Loan borrowed – Rs. 30,000.
Interest on loan – 20% P.A.
14. Calculate the allowable interest on loan from NAV of the house Property
Date of Borrowing Loan: 15-6-2013
Date of Repayment of loan : 31-12-2020
Date of completion of construction – 31-5-2018
Amount of Loan borrowed – Rs. 40,000.
Interest on loan – 15% P.A.
12. Mr. Ganesh (resident) owns a big house, the construction was completed in
MAY2012. 50% Floor area is let out for residential purposes on a monthly rent of Rs
3200. However this portion remained vacant for one month during 2020-21 . 25%
of the floor area is used by owner for the purpose of his profession, while remaining
25% of floor area is utilized for the purpose of his residence. Other particulars of
houses are as follows:
Municipal valuation : 60,000
Standard Rent : 90000
Municipal tax paid: 12000
Repairs: 3,000
Interest on capital borrowed for repairs: 28000
Ground rent: 4000
Annual charge: 6000
Fire insurance premium: 1200
Compute taxable income from House Property of Mr. Ganesh for AY 2021-22.
Period let out and Period Self occupied Property:

No concession is available for the property during which it is self occupied . House
will be taken as let out property

Q. Mr Kumar inherited a house from his father. The construction of house was completed
on 31.8.2018. During Financial Year 2020-21. Its MRV was fixed as Rs.25000. he paid
municipal tax of Rs 2000 during the year. The house had been let out for 4 months from
april to july 2019 @ 3000 p.m. for the remaining part of the Previous Year. The house was
self-occupied for his residence. Other particulars in respect to this house is :
Insurance premium paid :- 200
Urban land tax paid : 250
Collection charges : 100
Interest on loan taken for construction of the house : 4000
And payment to mother as per father’s will : 200 pm.
Calculate his taxable income from house property for AY 2021-22

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INCOME TAX -I (AY2021-22) BBA- VTH SEM

Unit 1: INTRODUCTION TO INCOME TAX

Brief History of Indian Income Tax

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 1

Legal Frame Work

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 2

ADMINISTRATION OF TAX LAWS

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 3

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 4

Feature of Direct Tax:

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 5

Feature of Indirect Tax :

1. Incidence and impact fall on two different persons

Nature Progressive Regressive

Types Income Tax, Central Sales tax, VAT (Value Added

Evasion Tax evasion is possible. Tax evasion is hardly possible because

Burden Cannot be shifted. Can be shifted

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 6

Time and manner of payment of tax should be convenient

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 7

Charge of INCOME Tax (Sec 4)

1. Anuual Tax: Income tax is an anuual Tax on Income

Assessment [Sec 2 (8)]:

ASSESSMENT YEAR (A.Y.) [SEC. 2(9)]:

PREVIOUS YEAR [SEC.3]

Ms. Sushma.C , ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 8

1. Income of a non-resident assessee from shipping business (Sec. 172)

ASSESSEE [SEC 2(7)]

2. A person representing a minor have to pay tax.

PERSON [SEC. 2 (31)]

Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 10

Company [Sec. 2(17)]

Eg. A partnership Firm with A ,B ,C , A partnership Firm with X ,Y ,Z Partners.

Association of Persons (AOP) or Body of Individuals (BOI)

Artificial Juridical Person

Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 11

Income [Sec. 2(24)]

Income should have following characteristics:

GROSS TOTAL INCOME (GTI) –SEC 14

Computation of Total Income for the A.Y.

Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 13

An income becomes casual income, if it contains the following features:

Examples of casual income:

Scheme of income tax :

COMPUTATION OF TAX LIABILITY:

Particulars Amount (Rs.)

Income tax slabs and rates

Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 14

What is income tax slab ?

 Individuals (aged less than of 60 years) including residents and non-residents

Income Tax Slab Rates for FY 20-21 (AY 2021-22 )

New Regime Income Tax Slab Rates FY

Rs 0.0 – Rs 2.5 Lakhs NIL

Rs 2.5 lakhs- Rs 3.00 Lakhs

Rs. 5.00 lakhs- Rs 7.5 Lakhs 10%

Rs 7.5 lakhs – Rs 10.00 Lakhs 15%

Ms. Sushma.C ASST. PROFESSOR SSMRV COLLEGE ,BANGALORE Page 15

New Regime Income Tax Slab Rates FY

Rs 10.00 lakhs – Rs. 12.50

Rs. 12.5 lakhs- Rs. 15.00

> Rs. 15 Lakhs 30%

Up to Rs. 2,50,000 Nil

Rs. 2,50,000- Rs. 5,00,000 5%