Skill Development Programme Roll No - 7914

Skill Development Programme Roll No – 7914
UNIVERSITY OF PUNE
PROJECT REOPRT
ON
CONCEPT OF TAXATION
DIRECT TAX
BY
MR. PUSHKARAJ DILIP SHINDE.
MCOM (PART II) (SEM III) (ROLL NO. 7914)
ACADEMIC YEAR 2021-2022.
PROJECT GUIDE
PROF. ASMITA MADAM
KHADKI EDUCATION SOCIETY’S
TIKARAM JAGANNATH ARTS, COMMERCE & SCIENCE COLLEGE
491, ELPHINSTONE ROAD, PUNE, MAHARASHTRA - 411003
pg. 1
Index:
Sr. Title Conceptual Focus

No
1 Concept of Tax – Direct Tax and  To give an understanding Tax and

Indirect Tax Component’s in various types of direct taxes
Direct Tax
Income Tax
2 Income Tax  Introduction to Income Tax Act

and Definition of Various
important aspects
 To understand various Heads of

Income.
3 Income from Salary, House  Clarity on Various Important

Property, Profit from business Calculations.
and Profession.
4 Income from Capital Gains,  Clarity on Various Concepts and

Other Sources and Wealth Tax Calculations
Deductions and Computation of
Tax chargeability
5 Income Tax Authorities and  Procedure and Practices of Filling

Filling of Returns returns, E-Filling.
pg. 2
Declaration
I, Mr. Pushkaraj Dilip Shinde of Tikaram Jagannath Art, Commerce & Science
College MCOM (Sem- III) (Roll No- 7914) hereby declare that I have completed
this project on Concept of Taxation – Direct Tax in academic year 2021-22. The
information submitted is true & original in the best of my knowledge.
(Signature of Student)
pg. 3
Acknowledgment
To list who all helped me is difficult because they are so numerous and the depth is
so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I would firstly thank the University of Pune for giving me chance to do this project.
I would like to thank my principal, for providing the necessary facilities required
for completion of this project.
I even will like to thank our coordinator, for the moral support that we received.
I would like to thank our college library, for providing various books and
magazines.
Finally, I proudly thank my parents & friends for their support throughout the
project.
pg. 4
Concept of Tax
Direct Tax
 What are Direct Taxes? (Meaning of Direct Tax)
Answer:-
Direct taxes are one type of taxes an individual pays that are paid straight or
directly to the government, such as income tax, poll tax, land tax, and personal
property tax. Such direct taxes are computed based on the ability of the
taxpayer to pay, which means that the higher their capability of paying is, the
higher their taxes are.
For example, in the case of income taxation, an individual who earns more pays
higher taxes. It is computed as a percentage of the total income. Additionally,
direct taxes are the responsibility of the individual and should be fulfilled by no
one else but him.
pg. 5
 Types of Direct Taxes :-
1. Income tax
- It is based on one’s income. A certain percentage is taken from a

worker’s salary, depending on how much he or she earns. The good
thing is that the government is also keen on listing credits and
deductions that help lower one’s tax liabilities
2. Transfer taxes
- The most common form of transfer taxes is the estate tax. Such a tax
is levied on the taxable portion of the property of a deceased
individual, including trusts and financial accounts. A gift tax is also
another form wherein a certain amount is collected from people who
are transferring properties to another individual.
3. Entitlement tax
- This type of direct tax is the reason why people enjoy social programs
like Medicare, Medicaid, and Social Security. The entitlement tax is
collected through payroll deductions and is collectively grouped as
the Federal Insurance Contributions Act.
4. Property tax
- Property tax is charged on properties such as land and buildings and

is used for maintaining public services such as the police and fire
departments, schools and libraries, as well as roads.
pg. 6
5. Capital gains tax
- This tax is charged when an individual sells assets such as stocks, real
estate, or a business. The tax is computed by determining the
difference between the acquisition amount and the selling amount.
pg. 7
 Advantages of Direct Taxes :-
Though it is strictly implemented on every individual who does not qualify for an
exemption, there are actually numerous advantages of paying taxes directly.
They include:
1. Promotes equality
- Since direct taxes are based on the ability of a person to pay, it

promotes equality among payers and citizens. Every person is
charged a different amount, depending on how much they make.
2. Promotes certainty
- The good thing about direct taxes is that they are determined and
made final before they are even paid. In the case of income tax, the
annual tax is the same every year as long as the salary does not
change.
3. Promotes elasticity
- Taxes are the earnings of the government, and when they fluctuate,
the earnings also change. They can go higher or lower.
4. Saves time and money
- The government does not need to spend on the collection of taxes

because they are already taken right at the source of the income.
pg. 8
Income Tax
 Introduction & Brief History :-
Tax is the compulsory financial charge levy by the government on income,

commodity, services, activities or transaction. The word ‘tax’ derived from
the Latin word ‘Taxo’. Taxes are the basic source of revenue for the
government, which are utilized for the welfare of the people of the country
through government policies, provisions and practices.
In India, Income Tax was first time introduced in the year 1860 by Sir James
Wilson in order to meet the loss caused on account of ‘military mutiny’ in
1857.
In the year 1886, a separate Income Tax Act was passed, this act was in
force for a long time, subject to the various amendments from time to time.
In the year 1918, a new Income Tax Act was passed, but again, it was
replaced by another new act of 1992. The Act of 1922 became very
complicated due to various amendments. This act remains in force to the
assessment year 1961-62. In the year 1956, the Government of India
referred to the Law Commission in order to simplify the law and also to
prevent the evasion of Tax.
The Law Commission submitted its report in September 1958 in consultation

with the Ministry of Law. At present, this law is governed by the Act of 1961
which is commonly known as Income Tax Act, 1961 which came into force
on and from 1st April 1962. It applies to the whole of India, including the
state of Jammu & Kashmir.
Any law is in itself is not complete unless the gaps are being filled. The law
of Income Tax in India governed by the Income Tax Act of 1961 and the gaps
are being filled by the Income Tax Rules, Notifications, Circulars and judicial
pronouncement including rulings by the Tribunal.
pg. 9
 The Income Tax law in India consists of the following components :-
1. Income Tax Act, 1961
- The Act contains the major provisions related to Income Tax in India.
2. Income Tax Rules, 1962
- Central Board of Direct Taxes (CBDT) is the body which looks after the
administration of Direct Tax. The CBDT is empowered to make rules
for carrying out the purpose of this Act.
3. Finance Act
- Every year Finance Minister of Government of India presents the

budget to the parliament. Once the finance bill is approved by the
parliament and get the clearance from President of India, it became
the Finance Act.
4. Circulars and Notifications
- Sometimes the provisions of an act may need clarification and that

clarification usually in a form of circulars and notifications which has
been issued by the CBDT from time to time. It includes clarifying the
doubts regarding the scope and meaning of the provisions.
pg. 10
 Constitution and Tax Law :-
Every statute gains sanction from the law of land, i.e., the Constitution of
India. Similarly, the government is authorised by the Constitution to collect
the taxes. According to Article 265 of the Constitution of India, no tax shall
be levied or collected except by authority of law. [1] Thus, the tax levied and
collected must be within the competency of authority authorised by the
legislature.
Entry 82 of List I of Seventh Schedule of the Constitution of India confer

power on Parliament to levy taxes on income other than agricultural
income. Thus, Income Tax is under the Union list and henceforth Central
Government is authorised and responsible for the collection of income tax.
The Central Government enjoys the power to collect taxes on income except
for the tax on agricultural income, which is being enjoyed by the State
Government. Entry 46 of List II of Seventh Schedule of the Constitution of
India provides that the State Government has the power to collect taxes on
agricultural income.
 Concept of Income :-
In common parlance, Income is known as a regular periodic return to a

person from his activities. However, the Income has broader classified in
Income Tax law. The Income Tax Act, even take consideration of income
which has not arisen regularly and periodically. For instance, winning from
lotteries, crossword puzzles, income from winning of shows is also subject to
tax as per income tax.
pg. 11
 The Income includes income from :-
1. Cash or Kind
Income in terms of Cash is not the only way to receive income, it can also be
received in terms of a kind. The calculation of income from kind is subject to
different treatments in both Direct and Indirect Tax. When the income is
received in kind, its valuation will be made.
2. Legal or Illegal Income
A man of ordinary prudence may think that the illegal income may not be
falling under the concept of income, but income tax does not make any
distinction between the incomes received from a legal or illegal source. In
CIT v. Piara Singh [2], the Supreme Court held that the loss of business of
smuggling shall be allowed for deduction under Income Tax. The rationale
behind the decision was that the smuggling activity is also regarded as a
business. Therefore, the confiscation of currency notes employed in
smuggling activity is a loss which arises directly from the carrying on of the
business.
3. Temporary or Permanent
As per Income Tax Act, there is no distinction in computing income whether

nature is temporary or permanent.
4. Receipt basis or Accrual basis :-
Income arises either on receipt basis or accrual basis. It may accrue to a

taxpayer without its actual receipt. The income in some cases is deemed to
pg. 12
accrue or arise to a person without its actual accrual or receipt. Income

accrues where the right to receive arises
5. Gifts
Gifts up to Rs. 50,000 received in Cash do not constitute tax liability. Gifts in
kind having the fair value maximum up to Rs. 50,000 is not liable to tax.
However, the whole amount will be taxed if the value exceeds the
prescribed limit. Moreover, the treatment of valuation of the gift is different
in the different situation especially gifts received on occasion of marriage.
6. Lump sum or Instalments
Income Tax does not make any distinction in computing income, whether it
receive in lump sum or instalment.
pg. 13
 Definition of various important aspects:-
1. Person
Income tax is levied on the total income of the previous year of every
person. In general terms, the meaning of a person can be interpreted in a
short term. Whereas, as per Section 2 (31), Person includes:
I. an individual,
II. a Hindu undivided family (HUF),
III. a company,
IV. a firm,
V. an association of persons (AOP) or a body of individuals (BOI),
whether incorporated or not,
VI. a local authority, and
VII. Every artificial juridical person (AJP), not falling within any of the
preceding sub-clauses.
The definition of Person starts with the word includes, therefore, the
list is inclusive, not exhaustive.
2. Assessee
An assessee is a taxpayer means a person who under the income tax act is
subject to pay taxes or any other sum of money, as defined under section 2
(7) of the Act. The expression ‘any other sum of money’ includes other such
obligations payable, for instance fine, interest, penalty and other tax etc.
pg. 14
3. Assessment Year
“Assessment Year” means the year in which income of the previous year of
an assessee is taxed. The timed lap of assessment year is of twelve months
beginning from the 1st April every year. The period starts from 1st April of
one year and ending on 31st March of next year. Broadly, assessment year
is defined under section 2 (9) of the Act.
4. Previous Year
Income earned during the year is taxable in the next year. The definition of
“Previous Year” is given under section 3 of the Act. Previous Year is the year
in which income is earned. Previous year is the financial year immediately
preceding the relevant assessment year. From 1989-90 onwards, every
taxpayer is obliged to follow financial year (i.e., April 1st of one year to
March 31st of next year) as the previous year.
For a newly set up business or profession, the first previous year will start
from the day from which that business or profession has commenced, but
the period of ending will remains same (i.e., 31st March).
pg. 15
Heads of Income
1. Income from Salary
The first head of Income Tax heads is income from salary which this
clause essentially assimilates any remuneration, which is received by an
individual in terms of services provided by him based on a contract of
employment. This amount qualifies to be considered for income tax only
if there is an employer-employee relationship between the payer and the
payee respectively. Salary also should include the basic wages or salary,
advance salary, pension, commission, gratuity, perquisites as well as the
annual bonus.
Allowances: An allowance is a fixed monetary amount paid by the

employer to the employee for expenses related to office work.
Allowances are generally included in the salary and taxed unless there
are exemptions available.
Specific tax exemptions are allowances allowed by employers as part of

the salary. Some of them are.
1. Conveyance Allowance: Up to Rs 800/- a month is exempt from tax.
2. House Rent Allowance (HRA): Salaried individuals can claim House

Rent Allowance or HRA to lower taxes who live in a rented house. This
can be partially or completely exempt from taxes.
The deduction available is the minimum of the following amounts:
1. Actual HRA received
2. 50% of [Basic salary + DA] for those living in metro cities (40% for
non-metros)
pg. 16
3. Actual rent paid less 10% of salary
- Leave Travel Allowance (LTA): LTA accounts for expenses for travel
when you and your family go on leave. While this is paid to you, it is
tax-free twice in a block of 4 years.
- Medical Allowance: Medical expenses to the extent of Rs 15,000/–

per annum is tax-free. The bills can be incurred by you or your family.
- Perquisites: Section 17 of Income Tax Act deals with perquisites

which are basically benefits in addition to normal salary to which an
employee has a right by way of his employment. Examples of these
are rent free accommodation or car loan. There are some perquisites
that are taxable in the hands of all categories of employees, some
which are taxable when the employee belongs to a specific group and
some that are tax-free
2. Income from House Property
The second head of Income Tax heads is Income from house property,
According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to
the provisions for the computation of the total standard income of a
person from the house property or land that he or she owns. An
interesting aspect is that the charge is derived out of the property or
land and not on the amount of rent received. However, if the property is
utilized for letting out the normal course of business, then the income
from the rent will be considered.
pg. 17
3. Income from Profits and Gains of Profession or Business
The third head of Income Tax heads is Income from Profits of Business in
which the computation of the total income will be attributed from the
income earned from the profits of business or profession. The difference
between the expenses and revenue earned will be chargeable. Here is a
list of the income chargeable under the head:
 Profits earned by the assessee during the assessment year

 Profits on income by an organization
 Profits on sale of a certain license
 Cash received by an individual on export under a government scheme
 Profit, salary or bonus received as a result of a partnership in a firm
 Benefits received in a business
4. Income from Capital Gains
Capital Gains are the profits or gains earned by an assessee by selling or

transferring a capital asset, which was held as an investment. Any
property, which is held by an assessee for business or profession, is
termed as capital gains.
5. Income from Other Sources
Any other form of income, which is not categorized in the above-

mentioned clauses, can be sorted in this category. Interest income from
bank deposits, lottery awards, card games, gambling or other sports
awards are included in this category. These incomes are attributed in
Section 56(2) of the Income Tax Act and are chargeable for income tax.
pg. 18
Income from Salary
 Clarity on Various Important Calculations
i. Meaning of Salary
The salary for the purpose of calculation of income from salary includes:
a. Wages
b. Pension
c. Annuity
d. Gratuity
e. Advance Salary paid
f. Fees, Commission, Perquisites, Profits in lieu of or in addition to
Salary or Wages
g. Annual accretion to the balance of Recognized Provident Fund
h. Leave Encashment
i. Transferred balance in Recognized Provident Fund
j. Contribution by Central Govt. or any other employer to Employees
Pension A/c as referred in Sec. 80CCD
pg. 19
ii. Calculation of Income from salary
Particular Amount
Basic Salary xxx
Add:
1. Fees, Commission and Bonus xxx
2. Allowance xxx
3. Perquisites xxx
4. Retirement Benefits xxx
5. Fees, Commission & Bonus xxx
Gross Salary xxx
Less:
1. Entertainment Allowance u/s 16 xxx
2. Professional Tax u/s 16 xxx
Net Salary xxx
pg. 20
iii. Allowances
 What is Allowance?
Answer:
An allowance is a financial benefit given to the employee by the employer

over and above the regular salary. These benefits are provided to cover
expenses that may be incurred to facilitate the discharge of service for
example Conveyance Allowance is paid to foot expenses incurred for
commuting to the workplace. Some of these allowances are taxable under
the head Salaries. A few of them again could be partly taxable and few
others are non-taxable or fully exempt from taxes.
 Fully Taxable allowances
a. Dearness Allowance
Dearness Allowance (DA) is an allowance paid to employees as a cost of

living adjustment allowance paid to the employees to cope with
inflation. DA paid to employees is fully taxable with salary. The Income
Tax Act mandates that tax liability for DA along with salary must be
declared in the filed return.
b. Entertainment Allowance
Employees are allowed the lowest of the declared amount one-fifth of

basic salary, actual amount received as allowance or Rs. 5,000. This is an
allowance provided to employees to reimburse the expenses incurred on
pg. 21
the hospitality of customers. However, Government employees can claim

exemption in the manner provided in section 16 (ii). All other employees
have to pay tax on it.
c. Overtime Allowance
Employers may provide an overtime allowance to employees working

over and above the regular work hours. This is called overtime and any
allowance received for this is fully taxable.
d. City Compensatory Allowance
City Compensatory Allowance is paid to employees in an urban center

which may be highly expensive and to cope with the inflated living costs
in the cities. This allowance is fully taxable.
e. Interim Allowance
When an employer gives any Interim Allowance in lieu of final allowance,

this becomes fully taxable.
f. Project Allowance
When an employer provides an allowance to employees to meet project

expenses, this is also fully taxable.
g. Tiffin/Meals Allowance
Sometimes employers may provide Tiffin/Meals Allowance to the

employees. This is fully taxable.
pg. 22
h. Cash Allowance
When the employer provides a cash allowance like marriage allowance,

bereavement allowance or holiday allowance, it becomes fully taxable.
i. Non-Practicing Allowance
When physicians are attached to Clinical Centers of the various

Laboratories/Institutes, any non-practicing allowance paid to them
become fully taxable.
j. Warden Allowance
When an employer pays an allowance to an employee working as a

Warden i.e. Keeper in an educational Institute, the allowance received is
fully taxable.
k. Servant Allowance
When an employer pays an employee to engage services of a servant,

such an allowance is taxable.
 Partly Taxable allowances
a. House Rent Allowance
When an employer pays an allowance for the employees

accommodation it is called House Rent Allowance. Tax exemption under
pg. 23
section 10 (13A) can be claimed on whichever amount is lower of the

three:
i. HRA as per actuals received by the employee

ii. Rent paid as per actuals less 10% of Basic Salary
iii. In Metros i.e. Delhi, Mumbai, Chennai or Kolkata, as much as 50%
of basic salary or else 40% of it if the accommodation is in a non-
metro.
Any amount of House Rent Allowance received after claiming such

deduction is taxable.
b. Entertainment allowance
Employees are allowed the lowest of the declared amount one-fifth of

basic salary, actual amount received as allowance or Rs. 5,000. This is an
allowance provided to employees to reimburse the expenses incurred on
the hospitality of customers. This allowance is fully taxable.
c. Fixed Medical Allowance
This is an allowance paid by the employer when the employee or any of

his family members fall sick for the cost incurred on their treatment. If
any such reimbursement exceeds Rs.15, 000 per year; the same is
taxable.
d. Special Allowance
A special allowance paid to employees is covered under section 14(i) and

does not fall within the purview of a perquisite. It is essentially for
performance of a duty is partly taxable.
pg. 24
 Non-Taxable Allowances
Some of the allowances, usually paid to Government servants, judges and

employees of UNO are not taxable. These are:
a. Allowances paid to Govt. servants abroad
When servants of Government of India are paid an allowance while

serving abroad, such income is fully exempt from taxes.
b. Sumptuary allowances
Sumptuary allowances paid to judges of HC and SC are not taxed.
c. Allowance paid by UNO
Allowances received by employees of UNO are fully exempt from tax.
d. Compensatory allowance paid to judges
When a judge receives compensatory allowance, it is not taxable.
pg. 25
 Tabular - Taxable, Non-Taxable and Partially Taxable Allowances AY

2021-22
Taxable allowances Partly-taxable allowances Tax-exempt allowances
1. Entertainment 1. House Rent 1. Govt. employees

allowance Allowance posted abroad
2. Overtime allowance 2. Special allowance 2. Sumptuary allowance
3. City compensatory 3. Fixed medical 3. Allowance for UNO
allowance allowance employees
4. Interim allowance 4. City compensatory
allowance
5. Project allowance
6. Tiffin/meals allowance
7. Cash allowance
8. Non-practicing
allowance
9. Warden allowance
10. Servant allowance
pg. 26
iv. Perquisites
 Taxability of Perquisites - Under Income Tax Act
Perquisites are fringe benefits that are received over and above the salary
as a result of their official position. This is taxed separately for
accountability and taxability. There are both taxable and exempted
perquisites.
Similar to how all income generating individuals and business houses are
liable to pay income tax, certain fringe benefits or perquisites are attached
to all earning individuals. Provision of medical facilities, housing allowance,
provision of official vehicle are some of the most popular examples of perks
or perquisites offered by employers to their employees.
Using a car offered by your employer or a house provided by your employer

could attract perquisite tax since these amenities are made available to you
by your company over and above your salary.
 What are Perquisites?
Perquisites are benefits received by a person as a result of his/her official

position and are over and above the salary or wages. These fringe benefits
or perquisites can be taxable or non-taxable depending upon their nature.
A lot of benefits and perks which come in addition to an individual’s salary

are grouped under fringe benefits or perks. These components are taxed
separately from the employer’s account so as to maintain transparency and
accountability.
pg. 27
 Classification of Perquisites
Depending upon the tax that is levied on perquisites these can be classified
into the following three heads.
a. Taxable Perquisites
Some of the perquisites that are taxable in nature are rent-free

accommodation, supply of gas, water and electricity, professional tax of
employee, reimbursement of medical expense, and salary of servant
employed by employee. Taxable perquisites also include any other fringe
benefit provided by employer to employee like free meals, gifts
exceeding Rs.5000, club and gym facilities etc.
b. Exempted Perquisites
Non-taxable fringe benefits include travel allowance, computer or laptop

provided by the company for official use, refreshment provided by
employer during office hours, provision of medical aid, use of health
club, sports club, telephone lines, interest free salary loan provided by
pg. 28
employer to employees, contribution to provident fund by employers,

free medical and recreational facilities and so on.
c. Perquisites taxable only by employees
This type of perquisites include car owned by company but sued by

employee, education facility for children, service of domestic servant etc.
pg. 29
v. Income tax Slab Rates
Taxable income Tax Rate (Old Scheme) Tax Rate (New Scheme)
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,001 to Rs. 5,00,000 5% 5%
Rs. 5,00,001 to Rs. 7,50,000 20% 10%
Rs. 7,50,001 to Rs. 10,00,000 20% 15%
Rs. 10,00,001 to Rs. 12,50,000 30% 20%
Rs. 12,50,001 to Rs. 15,00,000 30% 25%
Above Rs. 15,00,000 30% 30%
Surcharge Rate on the amount of income tax
a. 10% – Net income exceeds Rs.50 Lakhs but doesn’t exceed Rs. 1 Crore
b. 15% – Net income exceeds Rs.1 Crore but doesn’t exceed Rs 2 crore
c. 25% – Net income exceeds Rs.2 Crore but doesn’t exceed Rs 5 crore
d. 37% – Net income exceeds Rs.5 Crore
Individual who opt for the income tax slab under the new tax regime will not be
able to avail any deduction & exemption under the Income Tax Act, 1961.
pg. 30
Income from House Property
i. Basics of House Property Tax
A house property could be your home, an office, a shop, a building or some

land attached to the building like a parking lot. The Income Tax Act does not
differentiate between a commercial and residential property. All types of
properties are taxed under the head ‘income from house property’ in the
income tax return. An owner for the purpose of income tax is its legal
owner, someone who can exercise the rights of the owner in his own right
and not on someone else’s behalf.
When a property is used for the purpose of business or profession or for

carrying out freelancing work – it is taxed under the ‘income from business
and profession’ head. Expenses on its repair and maintenance are allowed
as business expenditure.
a. Self-Occupied House Property
A self-occupied house property is used for one’s own residential

purposes. This may be occupied by the taxpayer’s family – parents
and/or spouse and children. A vacant house property is considered as
self-occupied for the purpose of Income Tax.
Prior to FY 2019-20, if more than one self-occupied house property is

owned by the taxpayer, only one is considered and treated as a self-
occupied property and the remaining are assumed to be let out. The
choice of which property to choose as self-occupied is up to the taxpayer.
pg. 31
For the FY 2019-20 and onwards, the benefit of considering the houses
as self-occupied has been extended to 2 houses. Now, a homeowner can
claim his 2 properties as self-occupied and remaining house as let out for
Income tax purposes.
b. Let Out House Property
A house property which is rented for the whole or a part of the year is
considered a let out house property for income tax purposes
c. Inherited Property
An inherited property i.e. one bequeathed from parents, grandparents

etc. again, can either be a self-occupied one or a let out one based on its
usage as discussed above.
pg. 32
ii. How to calculate Income From House Property
Here is how you compute your income from a house property
a. Determine Gross Annual Value (GAV) of the property:
The gross annual value of a self-occupied house is zero. For a let out
property, it is the rent collected for a house on rent.
b. Reduce Property Tax
Property tax, when paid, is allowed as a deduction from GAV of

property.
c. Determine Net Annual Value(NAV)
Net Annual Value = Gross Annual Value – Property Tax
d. Reduce 30% of NAV towards standard deduction
30% on NAV is allowed as a deduction from the NAV under Section 24

of the Income Tax Act. No other expenses such as painting and
repairs can be claimed as tax relief beyond the 30% cap under this
section.
pg. 33
e. Reduce home loan interest
Deduction under Section 24 is also available for interest paid during

the year on housing loan availed.
f. Determine Income from house property
The resulting value is your income from house property. This is taxed
at the slab rate applicable to you.
g. Loss from house property
When you own a self-occupied house, since its GAV is Nil, claiming
the deduction on home loan interest will result in a loss from house
property. This loss can be adjusted against income from other heads.
Note: When a property is let out, its gross annual value is the rental
value of the property. The rental value must be higher than or equal
to the reasonable rent of the property determined by the
municipality.
pg. 34
iii. Tax Deduction on Home Loans
a. Tax Deduction on Home Loan Interest: Section 24
Homeowners can claim a deduction of up to Rs 2 lakh on their home

loan interest, if the owner or his family resides in the house property.
The same treatment applies when the house is vacant. If you have
rented out the property, the entire home loan interest is allowed as a
deduction.
However, your deduction on interest is limited to Rs. 30,000 instead

of Rs 2 lakhs if any of the following conditions are satisfied:
A. Condition I
- The loan is taken on or after 1 April 1999, and

- The purchase or construction is not completed within 5 years from the
end of the FY in which loan was availed.
B. Condition II
- The loan is taken before 1 April 1999.
C. Condition III
- The loan is taken on or after 1 April 1999 for the purpose of repairs or
renewal of the house property.
pg. 35
When is the deduction limited to Rs 30,000?
- As already mentioned, if the construction of the property is not

completed within 5 years, the deduction on home loan interest shall
be limited to Rs. 30,000. The period of 5 years is calculated from the
end of the financial year in which loan was taken. So, if the loan was
taken on 30th April 2015, the construction of the property should be
completed by 31st March 2021. (For years prior to FY 2016-17, the
period prescribed was 3 years which got increased to 5 years in
Budget 2016). Note: Interest deduction can only be claimed, starting
in the financial year in which the construction of the property is
completed.
How do I claim a tax deduction on a loan taken before the

construction of the property is complete?
- Deduction on home loan interest cannot be claimed when the house

is under construction. It can be claimed only after the construction is
finished. The period from borrowing money until construction of the
house is completed is called pre-construction period. Interest paid
during this time can be claimed as a tax deduction in five equal
instalments starting from the year in which the construction of the
property is completed.
pg. 36
b. Tax Deduction on Principal Repayment
The deduction to claim principal repayment is available for up to Rs.

1,50,000 within the overall limit of Section 80C. Check the principal
repayment amount with your lender or look at your loan instalment
details.
Conditions to claim this deduction
i. The home loan must be for purchase or construction of a new

house property.
ii. The property must not be sold in five years from the time you took
possession. Doing so will add back the deduction to your income
again in the year you sell.
Stamp duty and registration charges Stamp duty and registration

charges and other expenses related directly to the transfer are also
allowed as a deduction under Section 80C, subject to a maximum
deduction amount of Rs 1.5 lakh. Claim these expenses in the same
year you make the payment on them.
c. Tax Deduction for First-Time Homeowners: Section 80EE
Section 80EE recently added to the Income Tax Act provides the
homeowners, with only one house property on the date of sanction
of loan, a tax benefit of up to Rs 50,000.
pg. 37
d. Tax Deduction for First-Time Homeowners: Section 80EEA
A new section 80EEA is added to extend the tax benefits of interest

deduction for housing loan taken for affordable housing during the
period 1 April 2019 to 31 March 2020. The individual taxpayer should
not be entitled to deduction under section 80EE.
Under the objective “Housing for all”, the government has now
extended the interest deduction allowed for low-cost housing loans
taken during the period between 1 April 2019 and 31 March 2020.
Accordingly, a new Section 80EEA has been inserted to allow for an

interest deduction from AY 2020-21 (FY 2019-20). The existing
provisions of Section 80EE allow a deduction up to Rs 50,000 for
interest paid by first-time home buyers for loan sanctioned from a
financial institution between 1 April 2016 and 31 March 2017.
With a view to further the benefit and give impetus to the real estate
sector, the government has extended the benefit for the FY 2019-20.
This deduction can be claimed until you have repaid the housing
loan.
e. Claiming Deduction on Home Loan
i. The amount of deduction you can claim depends on the

ownership share you have on the property.
ii. The home loan must also be in your name. A co-borrower can
claim these deductions too.
iii. The home loan deduction can only be claimed from the
financial year in which the construction is completed.
iv. Submit your home loan interest certificate to your employer for
him to adjust tax deductions at source accordingly. This
document contains information on your ownership share,
pg. 38
borrower details and EMI payments split into interest and

principal.
v. Otherwise, you may have to calculate the taxes on your own
and claim the refund, if any, at the time of tax filing. It’s also
possible that you may have to deposit the dues on your own if
there is a tax payable.
vi. If you are self-employed or a freelancer, you don’t have to
submit these documents anywhere, not even to the IT
Department. You will need them to calculate your advance tax
liability for every quarter. You must keep them safely to answer
queries that may arise from the IT Department and for your
own records.
f. Tax Benefits on Home Loans for Joint Owners
The joint owners, who are also co-borrowers of a self-occupied house

property, can claim a deduction on interest on the home loan up to
Rs 2 lakh each. And deduction on principal repayments, including a
deduction for stamp duty and registration charges under Section 80C
within the overall limit of Rs.1.5 lakh for each of the joint owners.
These deductions are allowed to be claimed in the same ratio as that
of the ownership share in the property.
You may have taken the loan jointly, but unless you are an owner in
the property – you are not entitled to the tax benefits. There have
been situations where the property is owned by a parent and the
parent and child together take up a loan which is paid off only by the
child. In such a case the child, who is not a co-owner is devoid of the
tax benefits on the home loan.
Therefore, to claim the tax benefits on the property:
I. You must be a co-owner in the property

II. You must be a co-borrower for the loan
pg. 39
Each co-owner can claim a deduction of maximum Rs 1.5 lakh towards repayment
of principal under section 80C. This is within the overall limit of Rs 1.5 lakh of
Section 80C. Therefore, you can avail a larger tax benefit against the interest paid
on home loan when the property is jointly owned and your interest outgo exceeds
Rs 2 lakh per year.
It’s important to note that the tax benefit of both the deduction on home loan
interest and principal repayment under section 80C can only be claimed once the
construction of the property is complete.
iv. Income tax application on house property income
Income for House property is taxed at normal slab rate & surcharge
is also applicable as per salary income.
pg. 40
Profit from Business & Profession
i. Basics of House Property Tax
Business Income is the profit that is earned from the business. It is nothing
but Total Revenue/Total turnover minus Total Expense. The profit from the
business is the taxable income/business income.
Total Revenue – Total expense = Profit/ Taxable Income from business.
The following incomes are chargeable to tax under the head Profit and
Gains from Business or Profession:
Sr. Section Particular

No.
1 28(i) Profit and gains from any business or profession carried on by the
assessee at any time during the previous year
2 28(ii) Any compensation or other payment due to or received by any
specified person
3 28(iii) Income derived by a trade, professional or similar association
from specific services performed for its members
4 28(iiia) Profit on sale of a license granted under the Imports (Control)
Order 1955, made under the Import Export Control Act, 1947
5 28(iiib) Cash assistance (by whatever name called) received or receivable
by any person against exports under any scheme of Government
of India
6 28(iiic) Any duty of Customs or Excise repaid or repayable as drawback to
any person against exports under the Customs and Central Excise
Duties Drawback Rules, 1971.
pg. 41
7 28(iiid)
Profit on transfer of Duty Entitlement Pass Book Scheme, under
Section 5 of Foreign Trade (Development and Regulation) Act,
1992
8 28(iiie) Profit on transfer of Duty Entitlement Pass Book Scheme, under
Section 5 of Foreign Trade (Development and Regulation) Act,
1992
9 28(iv) Value of any benefits or perquisites arising from a business or the
exercise of a profession.
10 28(v) Interest, salary, bonus, commission or remuneration due to or
received by a partner from partnership firm
11 28(va) a) Any sum received or receivable for not carrying out any
activity in relation to any business or profession; or b) Any sum
received or receivable for not sharing any know-how, patent,
copyright, trademark, licence, franchise, or any other business or
commercial right or information or technique likely to assist in the
manufacture of goods or provision of services.
12 28(vi) Any sum received under a Key man Insurance policy including the
sum of bonus on such policy
13 28(via) Any profit or gains arising from conversion of inventory into
capital asset.
14 28(vii) Any sum received ( or receivable) in cash or in kind, on account of
any capital assets (other than land or goodwill or financial
instrument) being demolished, destroyed, discarded or
transferred, if the whole of the expenditure on such capital assets
has been allowed as a deduction under section 35AD
15 Explanation Income from speculative transactions. However, it shall be
to section deemed to be distinct and separate from any other business.
28
16 41(2) Depreciable asset in case of power generating units, is sold,
discarded, demolished or destroyed, the amount by which sale
consideration and/ or insurance compensation together with
scrap value exceeds its WDV shall be chargeable to tax.
17 41(3) Where any capital asset used in scientific research is sold without
having been used for other purposes and the sale proceeds
together with the amount of deduction allowed under section 35
exceed the amount of the capital expenditure, such surplus or the
pg. 42
amount of deduction allowed, whichever is less, is chargeable to

tax as business income in the year in which the sale took place.
18 41(4) Where bad debts have been allowed as deduction under Section
36(1)(vii) in earlier years, any recovery of same shall be
chargeable to tax.
19 41(4A) Amount withdrawn from special reserves created and maintained
under Section 36(1)(viii) shall be chargeable as income in the
previous year in which the amount is withdrawn.
20 41(5) Loss of a discontinued business or profession could be adjusted
from the deemed business income as referred to in
section 41(1), 41(3), (4) or (4A) without any time limit.
21 43CA Where consideration for transfer of land or building or both as
stock-in-trade is less than the stamp duty value, the value so
adopted shall be deemed to be the full value of consideration for
the purpose of computing income under this head. However, no
such adjustment is required to be made if value adopted for
stamp duty purposes does not exceed 110% of the sale
consideration. Note: To boost the demand in the real-estate
sector and to enable the real-estate developers to sell their unsold
inventory at a lower rate, the safe harbor limit is increased from
existing 10% to 20% in case of transfer of residential property
during the period from 12-11-2020 to 30-06-2021 by way of the
first-time allotment to any person. Further, the consideration
received or accruing as a result of such transfer should not exceed
Rs. 2 crores.
22 43D As per RBI Guidelines, Interest on bad and doubtful debts of
Public Financial Institution or Scheduled Bank or [a co-operative
bank other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank] or State
Financial Corporation or State Industrial Investment Corporation,
shall be chargeable to tax in the year in which it is credited to
Profit and Loss A/c or year in which it is actually received,
whichever happens earlier. With effect from Assessment Year
2020-21, the Finance (No. 2) Act, 2019 has covered ‘Deposit
Taking NBFCs’ and ‘Systemically Important Non-deposit Taking
NBFCs’ in the ambit of 43D. Hence, such NBFCs shall be able to
recognize interest on bad and doubtful debts in the year in which
pg. 43
it is credited to Profit and Loss A/c or year in which it is actually

received, whichever happens earlier.
Deposit Taking NBFC’ means a NBFC which is accepting or holding
public deposits and is registered with the RBI.
‘Systemically Important Non-deposit Taking NBFC’ means a NBFC
which is not accepting or holding public deposits and having total
assets of not less than Rs. 500 crore as per the last audited
balance sheet and is registered with the RBI.
23 43D Similarly as per NHB Guidelines, Interest on bad and doubtful
debts of housing finance company, shall be chargeable to tax, in
the year it is credited to P & L A/c or year in which it is actually
received by them, whichever is earlier.
24 - Assistance in the form of a subsidy or grant or cash incentive or
duty drawback or waiver or concession or reimbursement (by
whatever name called) by the Central Govt. or State Govt. or any
authority or body or agency to the assessee would be included in
definition of income as referred to in Section 2(24). However, in
the following cases subsidy or grant shall not be treated as
income: i) The subsidy or grant or reimbursement which is taken
into account for determination of the actual cost of the asset in
accordance with the provisions of Explanation 10 to clause (1)
of Section 43; ii) The subsidy or grant by the Central Government
for the purpose of the corpus of a trust or institution established
by the Central Government or a State Government, as the case
may be.
pg. 44
ii. Income tax application on Profit from Business & Profession
Income Tax on Domestic Companies is levied @ 25% for Domestic

Companies with a Turnover of less than Rs. 250 Crores and @ 30%
in case of companies with turnover over Rs. 250 Crores. These
reduced income tax rates are applicable from financial year 2018-
19 onwards.
pg. 45
Income from Capital Gain
i. Introduction
Any profit or gain arising from transfer of capital asset held as investments
are chargeable to tax under the head capital gains. The gain can be on
account of short- and long-term gains. A capital gain arises only when a
capital asset is transferred. Which means if the asset transferred is not a
capital asset; it will not be covered under the head capital gains. Profits or
gains arising in the previous year in which the transfer took place shall be
considered as income of the previous year and chargeable to income tax
under the head Capital Gains and the concept of indexation shall apply, if
applicable.
ii. Capital Asset
It is any property held by the income tax assessee excluding
a. Any item held for a person's business or profession (stock, ready goods,
raw material) will be taxed under the head profits and gains of business
or profession
b. Agricultural land means any land from which agricultural income is

derived. Land which is not urban and is outside of 8 kilometers of a
municipality, where population is less than 10,000 qualifies to be
agricultural land
pg. 46
iii. Capital assets are of two types
Capital Assets are classified in two types these are as under
A. Short-term capital asset
This is an asset that is held for not more than 36 months immediately
preceding the date of its transfer. This period of 36 months is substituted
to 12 months in case of certain assets like equity or preference shares
held in a company, any other security listed on a recognized stock
exchange of India, Units of specific equity mutual funds and Zero coupon
bonds. In case of immovable property, the period of 36 months is
substituted by 24 months.
B. Long term capital asset
This is an asset that is held for more than 36 months, 12 months or 24

months, as the case may be. Transfer is defined as the sale of the asset,
giving up of rights on the asset, forceful takeover by law or maturity of
the asset. Many transactions are not considered as transfer, for
example, transfer of a capital asset under a will.
pg. 47
Stocks and units of equity diversified mutual funds qualify for long term
capital gains if held for more than a year. In case of real estate, it
qualifies for long term capital gains if it is held for more than two years.
Earlier to the Finance Act 2017, real estate was considered as a long
term capital asset only if it was held for more than three years.
pg. 48
iv. Capital Gains
Any profits or gains arising from the transfer of a capital asset effected in
the previous year shall be chargeable to income-tax under the head capital
gains. Examples of assets are a flat or apartments, land, shares, mutual
funds, gold among many others.
There are two types of capital gains
A. Short-term capital gain
Capital gain arising on transfer of short term capital asset.
B. Long-term capital gain
Capital gain arising on transfer of long term capital asset.
v. Capital gains can be taxed subject to the following conditions:
A. The assessee must have owned a capital asset.
B. The assessee must have transferred the capital asset in the previous year.
C. There must have been profit or gains as a result of such transfer.
pg. 49
vi. Concept of Indexation
The value of a rupee today is not same as will be its value tomorrow
because of inflation. Likewise to be fair when paying capital gain tax, the
effect of inflation on the purchase is included. For instance if you bought a
flat in January 2002 for Rs 20 lakh and sold it in January 2020 for Rs 65 lakh;
you don't pay tax on the Rs 45 lakh gain. The tax authorities allow the
concept of indexation so that you can show a higher purchase cost,
lowering the overall profit and reducing the tax you pay on the gain. Using
the inflation index, one needs to increase the purchase price of the asset to
reflect inflation-adjusted true price in the year of sale. However, the benefit
of indexation is available only in case of long-term capital gains.
vii. Indexed cost of acquisition
(Cost Inflation Index (CII) for year in which asset is transferred or sold)
divided by CII for year in which asset was acquired or bought). So in the
above example, the year in which asset is transferred or sold is 2020-21 and
the Cost Inflation Index (CII) for 2020-21 = 301. The year in which asset is
acquired or bought is 2001-2002 and the Cost Inflation Index (CII) for 2001-
02 = 100. So the Cost Inflation Index (CII) = 301/100 = 3.01
viii. Tax liability on capital gain with indexation and without

indexation
In case of long term capital gains, the tax liability is the lower of the amount
arrived at by the two:
A. 20 per cent tax liability arrived at by indexation method
B. 10 per cent tax liability arrived at by without using indexation method
pg. 50
ix. Cost Inflation Index (CII) for Calculation Capital Gains
Financial Year Cost Inflation Index (CII)
2001-02 (Base year) 100

2002-03 105
2003-04 109
2004-05 113
2005-06 117
2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289
2020-21 301
2021-22 317
pg. 51
x. Tax Rates
A. Long-Term Capital Gains and Short-Term Capital Gains
Tax Type Condition Tax applicable
Long-term capital gains Except on sale of equity shares/ 20%

tax units of equity oriented fund
Long-term capital gains On sale of Equity shares/ units of 10% over and above Rs 1
tax equity oriented fund lakh
Short-term capital gains When securities transaction tax The short-term capital
tax is not applicable gain is added to your
income tax return and the
taxpayer is taxed
according to his income
tax slab.
Short-term capital gains When securities transaction tax 15%
tax is applicable
pg. 52
B. Long-Term Capital Gains and Short-Term Capital Gains
Gains made on the sale of debt funds and equity funds are treated differently. Any
fund that invests heavily in equities (more than 65% of their total portfolio) is
called an equity fund.
Funds Effective 11 July 2014 On or before 10 July

2014
Short- Long- Short- Long-
Term Term Term Term
Gains Gains Gains Gains
Debt Funds At tax slab At 20% At tax slab 10%
rates of with rates of without
the indexation the indexation
individual individual or 20%
with
indexation
whichever
is lower
Equity Funds 10% over
and above
15% Rs 1 lakh 15% Nil
without
indexation.
pg. 53
Income from Other Sources
xi. Clarity on Various Important Calculations
i. An overview of ‘Income from Other Sources’
I. Section 56(2) (i) of the Income Tax Act, 1961 mentions that dividends
will always be taxed under this category. However, dividends from
companies based in India, except those covered by Section 2(22) (e),
are exempt from tax under Section 10(34).
II. Income from horse races, gambling, betting, lotteries, crossword

puzzles are taxable at a rate of 30% under this head.
III. Income from horse races, gambling, betting, lotteries, crossword

puzzles are taxable at a rate of 30% under this head.
IV. Gifts received by an individual or one who qualifies under the Hindu
Undivided Family (HUF) are also taxed under this category.
V. Income by way of interest from individuals with three or more Fixed

Deposits.
VI. Income of more than Rs.10, 000 through Recurring Deposits are liable
to deductions at a rate of 10%.
VII. Interest of up to Rs.10, 000 received from savings account in a bank

or post office or co-operative society that functions like a bank, as
mentioned in Section 80TTA. This is applicable for residential
individuals, that is, individuals till the age of 60 years, and HUF.
pg. 54
VIII. Income earned from Fixed Deposit, when combined with your source
of income like salary, is liable for tax deductions.
IX. Income from PPF and EPF (after a service of at least 5 consecutive
years), which are exempt from tax deductions, qualify under this
head.
X. Income through the Family Pension scheme, that is, the income that
one receives on behalf of a deceased. This income attracts a
deduction of Rs.15, 000 or one-third of the family pension amount,
whichever is lesser.
XI. These incomes are taxable under this head, if they are not taxed
under the head “Profits and gains of business or profession”:
a. Donation or contribution to a welfare fund for employees received

by an employee, as specified in Section 56(2) (ic) of the Income Tax
Act.
b. Income in the form of interest on securities, as per Section 56(2)

(id).
c. Income by way of hiring or renting out of machinery, plant or

furniture, as mentioned in Section 56(2) (ii).
d. Income by way of renting out of machinery, plant or furniture

along with building under Section 56(2) (iii).
e. Any amount received under a Keyman Insurance Policy, including

bonus, as per Section 56(2) (iv).
pg. 55
ii. Tax Deduction That Cannot Be Claimed Under the Head ‘Income
from Other Sources’
The deductions that cannot be claimed during computation of

‘Income from other sources’ are:
a. Personal expenses
b. Amount mentioned as per Section 40A is not deductible
c. Taxable amount paid under the category ’salaries’ and payable

outside India taxes have not been paid or deducted at source
d. Sum paid towards Wealth Tax that is not deductible
e. Interest that can be charged outside India on which taxes have

not been paid or deducted at source
pg. 56
Income Tax Authorities
 Who are Income Tax Authorities?
Answer:-
Income tax authority [Explanation (a) to section 133A]:
"Income-tax authority" means a Commissioner, a Joint Commissioner, a Director,
a Joint Director, an Assistant Director or a Deputy Director or an Assessing Officer,
or a Tax Recovery Officer, and for the purposes of clause (i) of subsection (1),
clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-
tax.
pg. 57
 Various Authorities
Section of the Income Tax Act, 1961 provides for the administrative and
judicial authorities for administration of this Act. The Direct Tax Laws Act,
1987 has brought far-reaching changes in the organizational structure. The
implementation of the Act lies in the hands of these authorities. The change
in designation of certain authorities and creation of certain new posts in the
structure are the main features of amendments made by The Direct Tax
Laws Act, 1987. The new features of authorities has been properly depicted
in a chart on the facing page. These authorities have been grouped into two
main wings:
i. Administrative [ Income Tax Authorities ][ Sec. 116 ]
a. the Central Board of Direct Taxes constituted under the Central

Boards of Revenue Act, 1963 (54 of 1963)
b. Directors-General of Income-tax or Chief Commissioners of Income-

tax
c. Directors of Income-tax or Commissioners of Income-tax or

Commissioners of Income-tax (Appeals)
1. (cc) Additional Directors of Income-tax or Additional

Commissioners of Income-tax or Additional Commissioners of
Income-tax (Appeals),
2. (cca) Joint Directors of Income-tax or Joint Commissioners of
Income-tax.
d. Deputy Directors of Income-tax or Deputy Commissioners of Income-

tax or Deputy Commissioners of Income-tax (Appeals),
pg. 58
e. Assistant Directors of Income-tax or Assistant Commissioners of

Income-tax,
f. Income-tax Officers
g. Tax Recovery Officers
h. Inspectors of Income-tax.
ii. Assessing Officer [ Sec. 2(7A)]
"Assessing Officer" means the Assistant Commissioner or Deputy

Commissioner or Assistant Director or Deputy Director or the
Income-tax Officer who is vested with the relevant jurisdiction by
virtue of directions or orders issued under sub-section (1) or sub-
section (2) of section 120 or any other provision of this Act, and
the Joint Commissioner or Joint Director who is directed under
clause (b) of sub-section (4) of that section to exercise or perform
all or any of the powers and functions conferred on, or assigned
to, an Assessing Officer under this Act;
Importance of Assessing Officer:
In the organizational setup of the income tax department

Assessing Officer plays a very vital role. He is the primary authority
who initiates his proceedings and is directly connected with the
public. Form the time of filing of return till the assessment is
pg. 59
completed he plays a pivotal role. He can start proceedings for

non-filing of return, imposition of penalties etc. Orders passed by
him can be challenged only on approval. The department can
revise his orders only if it is proved that there are prejudicial to the
revenue and that too only by the Commissioner of Income Tax.
iii. Appointment of Income-Tax Authorities [ Sec. 117 ]
1. Power of Central Government
The Central Government may appoint such persons as it thinks fit to

be income-tax authorities. It kept with itself the powers to appoint
authorities up to and above rank of an Assistant Commissioner of
Income-Tax [Sec. 117 (1)]
2. Power of the Board and Other Higher Authorities
Subject to the rules and orders of the Central Government regulating

the conditions of service of persons in public services and posts, the
Central Government may authorize the Board, or a Director-General,
a Chief Commissioner or a Director or a Commissioner to appoint
income-tax authorities below the rank of an Assistant Commissioner
or Deputy Commissioner. [Sec. 117 (2)]
3. Power to appoint Executive and Ministerial Staff
Subject to the rules and orders of the Central Government regulating

the conditions of service of persons in public services and posts, an
income-tax authority authorized in this behalf by the Board may
appoint such executive or ministerial staff as may be necessary to
assist it in the execution of its functions.
pg. 60
iv. Control of Income-Tax Authorities [ Sec. 118 ]
The Board may, by notification in the Official Gazette, direct that

any income-tax authority or authorities specified in the
notification shall be subordinate to such other income-tax
authority or authorities as may be specified in such notification.
pg. 61
Filling of Income Tax Return
 Forms of return prescribed under the Income -tax Law for the assessment
year 2021-22:-
Return Brief Description

Form
ITR-1 Also known as SAHAJ is applicable to a ordinarily Resident

individual having salary or pension income or income from one
house property (not a case of brought forward loss or loss to be
carried forward) or income from other sources (not being lottery
winnings and income from race horses and in come chargeable
to tax at special rates). However, an individual who is a director
in a company or has held equity shares of an unlisted company
shall not be eligible to use ITR -1.
Further, the ITR-1 shall not be available to a taxpayer in whose
case the tax has been deducted on cash withdrawal under
Section 194N or tax has been deferred in respect of ESOPs
allotted by an eligible startup.
ITR-2 It is applicable to an individual or an Hindu Undivided Family not
Having income chargeable to income-tax under the head “Profits
or gains of business or profession”.
ITR-3 It is applicable to an individual or a Hindu Undivided Family who
has any income chargeable to tax under the head business or
profession
ITR-4 Also known as SUGAM is applicable to individuals or Hindu
Undivided Family or partnership firm who have opted for the
Presumptive taxation scheme of section 44AD/44ADA/44AE.
pg. 62
ITR-5 This Form can be used by a person being a firm, LLP, AOP, BOI,
artificial juridical person referred to in section 2(31)(vii),
cooperative society, local authority Private Discretionary Trust,
Society registered under Society Registration Act, 1860, trust
other than trusts eligible to file ITR 7, estate of deceased person,
estate of an insolvent, business trust and investment fund.
However, a person who is required to file the return of income
under section 139(4A) or 139(4B) or 139(4C) or 139(4D) shall not
use this form (i.e., trusts, political parties, institutions, colleges.)
ITR-6 It is applicable to a company, other than a company claiming
exemption under section 11 (exemption under section 11 can be
Claimed by charitable/religious trust).
ITR-7 It is applicable to a persons including companies who are
required to furnish return under section 139(4A) or section
139(4B) or section 139(4C) or section 139(4D) (i.e., trusts,
political parties, institutions, colleges.).
ITR-V It is the acknowledgement of filing the return of income.
 Modes of filing the return of income
Return Forms can be filed with the Income-tax Department in any of the
following ways,
I. by furnishing the return in a paper form

II. by furnishing the return electronically under digital signature
III. by transmitting the data in the return electronically under electronic
verification code
IV. by transmitting the data in the return electronically and thereafter
submitting the verification of the return in Return Form ITR-V
pg. 63
Note –
Where the return of income is filed in the manner given at (iv) without
digital signature, then the taxpayer should take two printed copies of Form
ITR-V. One copy of ITR-V, duly signed by the taxpayer, is to be sent (within
the period specified in this regard, i.e., 120 days) by ordinary post or speed
post to “Income-tax Department – CPC, Post Bag No. 1, Electronic City Post
Office, Bangalore–560100 (Karnataka). The other copy may be retained by
the taxpayer for his record.
pg. 64
Thank You
pg. 65

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Skill Development Programme Roll No – 7914

Sr. Title Conceptual Focus

1 Concept of Tax – Direct Tax and  To give an understanding Tax and

2 Income Tax  Introduction to Income Tax Act

 To understand various Heads of

3 Income from Salary, House  Clarity on Various Important

4 Income from Capital Gains,  Clarity on Various Concepts and

5 Income Tax Authorities and  Procedure and Practices of Filling

 What are Direct Taxes? (Meaning of Direct Tax)

 Types of Direct Taxes :-

- It is based on one’s income. A certain percentage is taken from a

- Property tax is charged on properties such as land and buildings and

5. Capital gains tax

 Advantages of Direct Taxes :-

- Since direct taxes are based on the ability of a person to pay, it

4. Saves time and money

- The government does not need to spend on the collection of taxes

 Introduction & Brief History :-

Tax is the compulsory financial charge levy by the government on income,

The Law Commission submitted its report in September 1958 in consultation

 The Income Tax law in India consists of the following components :-

1. Income Tax Act, 1961

2. Income Tax Rules, 1962

- Every year Finance Minister of Government of India presents the

4. Circulars and Notifications

- Sometimes the provisions of an act may need clarification and that

 Constitution and Tax Law :-

Entry 82 of List I of Seventh Schedule of the Constitution of India confer

In common parlance, Income is known as a regular periodic return to a

 The Income includes income from :-

2. Legal or Illegal Income

As per Income Tax Act, there is no distinction in computing income whether

4. Receipt basis or Accrual basis :-

Income arises either on receipt basis or accrual basis. It may accrue to a

accrue or arise to a person without its actual accrual or receipt. Income

6. Lump sum or Instalments

 Definition of various important aspects:-

1. Income from Salary

Allowances: An allowance is a fixed monetary amount paid by the

Specific tax exemptions are allowances allowed by employers as part of

1. Conveyance Allowance: Up to Rs 800/- a month is exempt from tax.

2. House Rent Allowance (HRA): Salaried individuals can claim House

The deduction available is the minimum of the following amounts:

1. Actual HRA received

3. Actual rent paid less 10% of salary

- Medical Allowance: Medical expenses to the extent of Rs 15,000/–

- Perquisites: Section 17 of Income Tax Act deals with perquisites

2. Income from House Property

3. Income from Profits and Gains of Profession or Business

 Profits earned by the assessee during the assessment year

4. Income from Capital Gains

Capital Gains are the profits or gains earned by an assessee by selling or

5. Income from Other Sources

Any other form of income, which is not categorized in the above-

Income from Salary

 Clarity on Various Important Calculations

ii. Calculation of Income from salary

Basic Salary xxx

Gross Salary xxx

Net Salary xxx

An allowance is a financial benefit given to the employee by the employer

 Fully Taxable allowances

Dearness Allowance (DA) is an allowance paid to employees as a cost of