Income Tax Brief Notes

Income Tax Brief
Notes
For CA Inter Nov 2020 Exams
By CABlogIndia.com
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Contents of Brief Notes on Income Tax
Topic Page No.
Basic Concepts of Income Tax 1.1 - 1.2
Residential Status 2.1 - 2.3
Incomes which do not form Part of Total 3.1 - 3.4

Income
Income under Head ‘Salaries’ 4.1 - 4.37
Income from House Property 5.1 - 5.6
Profits and Gains of Business or Profession 6.1 - 6.40
Capital Gains 7.1 - 7.27
Income from Other Sources 8.1 - 8.7
Clubbing of Income 9.1 - 9.4
Set-Off and Carry Forward of Losses 10.1 - 10.5
Deductions from Gross Total Income 11.1 - 11.13
Computation of Total Income and Tax 12.1 - 12.5

liability of Individuals
Advance Tax, TDS and TCS 13.1 - 13.23
Provisions for Filing Return of Income and 14.1 - 14.5

Self-Assessment
© www.CABlogIndia.com Basic Concepts of Income Tax
Basic Concepts of Income Tax

1. Tax is the financial charge imposed by the Government on income,
commodity or activity. Government imposes two types of taxes namely
Direct taxes and Indirect taxes. Direct tax is one where the burden of tax
is directly on the payer. While Indirect tax is paid by the person other
than the person who utilizes the product or service.
2. The Income tax Act contains the provisions for determination of taxable
income, determination of tax liability, procedure for assessment, appeal,
penalties and prosecutions.
3. Every year a Budget is presented before the parliament by the Finance
Minister. One of the important components of the Budget is the Finance
Bill. The Bill contains various amendments such as the rates of income tax
and other taxes. When the Finance Bill is approved by both the houses of
parliament and receives the assent of the President,it becomes the Finance
Act.
4. To levy income tax, one must have the understanding of the various
concepts related to the charge of tax like previous year, assessment year,
Income, total income, person etc.
5. Income: No precise definition of the word ‘Income’ is available under the
Income-tax Act, 1961. The definition of Income as given in Section 2(24)
of the Act starts with the word includes therefore the list is inclusive not
exhaustive.
6. Assessee: In common parlance every tax payer is an assessee. However,
the word assessee has been defined in Section 2(7) of the Act according
to which assessee means a person by whom any tax or any other sum of
money (i.e. interest, penalty etc.) is payable under the Act.
1.1
Brief Notes on Income Tax
© www.CABlogIndia.com Basic Concepts of Income Tax
7. Person: Income-tax is charged in respect of the total income of the
previous year of every person. Hence, it is important to know the definition
of the word person.
8. Assessment year means the period of twelve months commencing on 1st
April every year.
9. Previous year: Income earned in a year is taxable in the next year. The
year in which income is earned is known as the previous year.
10. Computation of income: Income tax is a charge on the assessee’s income.
Income Tax law lays down the provisions for computing the taxable income
on which tax is to be charged.
1.2
© www.CABlogIndia.com Residential Status
Residential Status
1. Total income of an assessee cannot be computed unless the person’s
residential status in India during the previous year is known. According to
the residential status, the assessee can either be;
i. Resident in India or
ii. Non-resident in India
2. Section 6 of the Income-tax Act prescribes the tests to be applied to
determine the residential status of all taxpayers for purposes of income-
tax. There are three alternative tests to be applied for individuals, two for
companies and Hindu Undivided Families and firms, associations of persons,
bodies of individuals and artificial juridical persons
3. Residential status of Individual
The residential status of individual is determined on the basis of the
following conditions :
(i) Condition 1 : If an individual is in India in the previous year for a total
period of 182 days or more.
(ii) Condition 2 : If he has been in India for at least 365 days during the
4 years preceding the previous year and has been in India for at least 60
days during the previous year. However, the clause of 60 days is not
applicable if a person is :
● Citizen of India, who leaves India in any previous year as a member
of the crew of an Indian ship, or for the purpose of employment
outside India. OR
● Citizens of India or of Indian origin engaged outside India (whether
for rendering service outside or not) and who comes on a visit to
India in any previous year.
2.1
(iii) Condition 3 : An individual who has been a non-resident in India in at
least nine out of the ten previous years preceding that year, and has during
the seven previous years preceding that year been in India for a period of,
or periods amounting in all to 729 days or less.
Resident and Ordinarily Resident - Satisfies either condition 1 or 2; But
does not satisfies condition 3
Not ordinarily resident - Satisfies any one condition from 1 & 2 and
condition 3
Non-resident - Does not satisfy any condition from 1 and 2
4. Residential status of HUF
The test to be applied to determine the residential status of a HUF, Firm
or other Association of Persons is based upon the control and management
of the affairs of the assessee concerned. A HUF, firm or other association
of persons is said to be resident in India within the meaning of Section 6(2)
in any previous year, if during that year the control and management of its
affairs is situated wholly or partly in India during the relevant previous
year. If the control and management of its affairs is situated wholly
outside India during the relevant previous year, it is considered non
resident.
A HUF can be “Not Ordinarily resident” - If manager/karta has been a
not ordinarily resident in India in the previous year in accordance with the
tests applicable to individuals.
5. Firms, association of persons, local authorities and other artificial juridical
persons can be either resident (ordinarily resident) or non-resident in
India but they cannot be not ordinarily resident in India.
2.2
6. Residential status of Companies
All Indian companies within the meaning of Section 2(26) of the Act are
always resident in India regardless of the place of effective management.
In the case of a foreign company the place of effective management
(POEM) of the affairs is the basis on which the company’s residential
status is determinable.
7. Basis of charge
Section 4 of the Act is the charging section which imposes a charge and
provides rules for working out the charge so imposed
Section 4 of the Act imposes a charge of tax on the total or taxable income
of the assessee. The meaning and scope of the expression of total income
is contained in Section 5. The total income of an assessee cannot be
determined unless we know the residential status in India during the
previous year. The scope of total income and consequently the liability to
income-tax also depends upon the following facts :
● whether the income accrues or is received in India or outside,
● the exact place and point of time at which the accrual or receipt of
income takes place, and
● the residential status of the assessee
2.3
© www.CABlogIndia.com Incomes which do not form Part of Total Income
Incomes which do not form Part of
Total Income
1. This section discusses the general exempted incomes enumerated under
section 10 and other specific exempted income dealt under section 10A,
10AA.
2. Agricultural income is exempt.
However, agricultural income has to be aggregated with non- agricultural
income for determining the rate at which non-agricultural income would be
subject to tax, in case of individuals, HUF, AOPs & BOIs etc., where the –
● agricultural income exceeds Rs. 5,000 p.a. And
● non-agricultural income exceeds basic exemption limit.
The following are the steps to be followed in computation of tax -
Step 1: Tax on non-agricultural income plus agricultural income
Step 2: Tax on agricultural income plus basic exemption limit
Step 3: Tax payable by the assessee = Step 1 – Step 2
Step 4: Add Surcharge/Deduct Rebate u/s 87A, if applicable.
Step 5: Add Health and Education Cess@4%.
3. Since the HUF is taxed in respect of its income, the share income is exempt
from tax in the hands of the member.
4. The partner’s share in the total income of the firm or LLP is exempt from
tax.
5. Income by way of interest on moneys standing to his credit in a Non-
resident (External) Account (NRE A/c), is exempt in the hands of an
individual, being a person resident outside India as per the FEMA, 1999 or
3.1
in the hands of an individual who has been permitted by the RBI to maintain
such account.
6. Remuneration received by an individual, who is not a citizen of India, as an
official of an embassy, high commission, legation, consulate or the trade
representation of a foreign State or as a member of the staff of any of
these officials would be exempt, subject to satisfaction of certain
conditions:
(i) such members of staff are subjects of the country represented
and not engaged in any business or profession or employment in
India otherwise than as members of such staff.
(ii) remuneration of corresponding officials of the Government or
members of the staff resident for similar purposes enjoy similar
exemption in the other Country.
7. Income arising to non-corporate non-resident and foreign companies, by
way of royalty from or fees from technical services rendered in or outside
India to, the National Technical Research Organisation (NTRO) is exempt.
8. Payment to Bhopal Gas Victims is exempt.
9. Compensation received or receivable from the Central Government, State
Government or local authority by an individual or his legal heir on account
of any disaster is exempt except to the extent of loss or damage allowed
as deduction under the Act.
10. Any payment from Sukanya Samriddhi Account
11. The value of scholarship granted to meet the cost of education would be
exempt from tax in the hands of the recipient irrespective of the amount
or source of scholarship.
12. Daily allowance received by any Member of Parliament or of State
Legislatures or any Committee thereof are exempt.
3.2
13. Awards for literary, scientific and artistic works and other awards by the
Government are exempt.
14. Pension received by an individual who has been in service of Central or
State Government and has been awarded “ParamVir Chakra” or “MahaVir
Chakra” or “Vir Chakra” such other gallantry award as the Central
Government notifies is exempt from tax.
15. Income from any source in the specified areas or States in which member
of a Scheduled Tribe is residing or income by way of dividend or interest
on securities is exempt in the hands of member of the Scheduled Tribe.
16. Income from any source in the state of Sikkim, dividend income and
interest on securities is exempt in the hands of a Sikkimese individual. This
exemption is not available to a Sikkimese woman who, on or after 1st April,
2008, marries a non-Sikkimese individual.
17. The amount of any subsidy received by any assessee engaged in the
business of growing and manufacturing tea in India through or from the
Tea Board will be wholly exempt from tax.
18. The amount of any subsidy received by an assessee engaged in the business
of growing and manufacturing rubber, coffee, cardamom or other specified
commodity in India from or through the Rubber Board, Coffee Board,
Spices Board or any other will be exempt.
19. Any income received in respect of units from the Administrator of the
specified undertaking/ specified company/ Mutual Fund shall be exempt.
However, income arising from transfer of such units would not be exempt.
20. Tax holiday for unit established in Special Economic Zones (SEZs), which
begins to manufacture or produce articles or things or provide any service
on or after 1.4.2005 in any SEZ for 15 consecutive assessment years in
respect of its profits derived from exports of such articles or things or
export of services (including computer software).

3.3
Amount of exemption = Profits of Unit in SEZ x (Export turnover of Unit
SEZ/ Total turnover of Unit SEZ)
100% of such profits would be exempt in the first five years, 50% in the
next five years and in the last five years, 50% subject to transfer to SEZ
Reinvestment Reserve Account.
Note - Only some of the exemptions are discussed. The remaining
exemptions are being discussed in the respective heads of Income.
3.4
© www.CABlogIndia.com Income under Head ‘Salaries’
Income under Head ‘Salaries’

1. Basis of Charge: As per section 15, salary is taxable on due or receipt
basis whichever is earlier. Under Section 15 the income chargeable to
income tax under the head salaries would include any salary due to an
employee from an employer or a former employer during the previous year
irrespective of the fact whether it is paid or not.
2. Different forms of salary

● Basic Salary: Basic salary is taxable in the hands of an employee.
● Allowance: An allowance is defined as a fixed amount of money given
periodically in addition to the salary for the purpose of meeting some
specific requirements connected with the service rendered by the
employee or by way of compensation for some unusual conditions of
employment. It is taxable on due/accrued basis whether it is paid in
addition to the salary or in lieu thereon
● Perquisites: The term “perquisites” includes all benefits and
amenities provided by the employer to the employee in addition to
salary and wages either in cash or in kind which are convertible into
money. These benefits or amenities may be provided either
voluntarily or under service contract. For income-tax purposes, the
perquisites are of three types:
(i) Tax-free perquisites
(ii) Taxable perquisites
(iii) Perquisites taxable under specified cases.
4.1
3. Exemption of Certain Allowances
House Rent Least of the following is exempt:
Allowance (a) Actual HRA Received
(b) 40% of Salary (50%, if house situated in
Mumbai, Calcutta, Delhi or Madras)
(c) Rent paid minus 10% of salary
* Salary= Basic + DA (if part of retirement
benefit) + Turnover based Commission
Note:
- Fully Taxable, if HRA is received by an
employee who is living in his own house or
if he does not pay any rent
- It is mandatory for employees to report
PAN of the landlord to the employer if
rent paid is more than Rs. 1,00,000
[Circular No. 08 /2013 dated 10th
October, 2013].
Children Education
Up to Rs. 100 per month per child up to a
Allowance
maximum of 2 children is exempt.
Hostel Expenditure Up to Rs. 300 per month per child up to a
Allowance maximum of 2 children is exempt.
Transport Allowance The exemption for various types of transport
allowance is as follows-
4.2
● Transport Allowance granted to an
employee to meet expenditure for the
purpose of commuting between place of
residence and place of duty is exempt up
to Rs. 3,200 per month granted to an
employee, who is blind or deaf and dumb or
orthopedically handicapped with disability
of lower extremities
● Transport Allowance to an employee
working in any transport business to meet
his personal expenditure during his duty
performed in the course of running of such
transport from one place to another place
provided employee is not in receipt of daily
allowance.
Amount of exemption shall be lower of
following:
(a) 70% of such allowance; or
(b) Rs. 10,000 per month.
Conveyance Conveyance Allowance granted to meet the
Allowance expenditure on conveyance in performance of
duties of an office is exempt to the extent of
expenditure incurred.
Daily Allowance
Daily Allowance to meet the ordinary daily
charges incurred by an employee on account of
4.3
absence from his normal place of duty is exempt
to the extent of expenditure incurred.
Helper/Assistant
Exempt to the extent of expenditure incurred.
Allowance
Research Allowance
Research Allowance granted for encouraging
academic research and other professional
pursuits is exempt to the extent of expenditure
incurred.
Uniform Allowance
Exempt to the extent of expenditure incurred.
Foreign Allowances
Foreign allowances or perquisites paid or allowed
or Perquisites
by Government to its employees (an Indian
citizen) posted outside India are Fully Exempt.
4. Taxable Value of Certain Perquisites
Rent free
License Fees determined in accordance with rules
unfurnished
framed by the Government for allotment of
accommodation
houses shall be deemed to be the taxable value
provided to
of perquisites.
Government
employees
4.4
Unfurnished rent- Taxable value of perquisites shall be:
free accommodation A. If House Property is owned by the

provided to other employer:
employees
i. 15% of salary, if population of city where
accommodation is provided exceeds 25
lakhs as per 2001 census
ii. 10% of salary, if population of city where
accommodation is provided exceeds 10
lakhs but does not exceed 25 lakhs as per
2001 census
iii. 7.5% of salary, if accommodation is
provided in any other city
B. If House Property is taken on lease or rent
by the employer, the perquisite value shall
be:
Lease rent paid or payable by the employer
or 15% of the salary, whichever is lower
*Salary includes:
a. Basic Pay
b. Dearness Allowance (only to the extent it
forms part of retirement benefit salary)
c. Bonus
d. Commission
e. All other allowances (only taxable portion)
f. Any monetary payment which is chargeable
4.5
to tax
But does not include
i. Value of any perquisite [under section
17(2)]
ii. Employer’s contribution to PF
iii. Benefits received at the time of
retirement like gratuity, pension etc.
Note:
1) Rent free accommodation is not
chargeable to tax if provided to an
employee working at mining site or an on-
shore oil exploration site, etc., —
i. which is being of temporary nature
(subject to conditions)
ii. which is located in a remote area.
2) Rent free accommodation if provided to
High Court or Supreme Court Judges,
Union Ministers, Leader of Opposition in
Parliament, an official in Parliament and
Serving Chairman and members of UPSC is
Tax Free Perquisites.
3) The value so determined shall be reduced
by the amount of rent, if any, paid by the
employee.
4) If an employee is transferred and retains
4.6
property at both the places, the taxable
value of perquisites for the initial period
of 90 days shall be determined with
reference to only one accommodation (at
the option of the assessee). The other one
will be tax free. However, after 90 days,
taxable value of perquisites shall be
charged with reference to both the
accommodations.
Rent free furnished Taxable value of perquisites
accommodation a) Find out taxable value of perquisite
assuming accommodation to be provided to
the employee is unfurnished
b) Add: 10% of original cost of furniture and
fixtures (if these are owned by the
employer) or actual higher charges paid or
payable (if these are taken on rent by the
employer).
Note: The value so determined shall be reduced
by the amount of rent, if any, paid by the
employee.
Accommodation in a Taxable value of perquisites
Hotel Value of perquisite shall be lower of following:
a) Actual charges paid or payable by the
employer to such hotel
b) 24% of salary
4.7
Note: Hotel accommodation will not be
chargeable to tax if:
a) It is provided for a total period not
exceeding in aggregate 15 days in the
financial year; and
b) Such accommodation in hotel is provided
on employee’s transfer from one place to
another place.
Domestic servant Taxable value of perquisite shall be salary paid or
including sweeper, payable by the employer for such services less
gardener, watchmen any amount recovered from the employee.
or personal
attendant
Taxable value of perquisites:

Supply of gas,
1. Manufacturing cost per unit incurred by
electricity or water
the employer., if provided from resources
for household
owned by the employer;
purposes
2. Amount paid by the employer, if purchased
by the employer from outside agency
Note: - Any amount recovered from the employee
shall be deducted from the taxable value of
perquisite.
ESOP/ Sweat Taxable value of perquisites
Equity Shares Fair Market value of shares or securities on the
date of exercise of option by the assessee less
amount recovered from the employee in respect
4.8
of such shares shall be the taxable value of
perquisites.
Fair Market Value shall be determined as follows:
a) In case of listed Shares: Average of
opening and closing price as on date of
exercise of option.
b) In case of unlisted shares/ security other
than equity shares: Value determined by a
Merchant Banker as on date of exercise of
option or an earlier date, not being a date,
which is more than 180 days earlier than
the date of exercise of the option.
Interest Free Loan Interest free loan or loan at concessional rate of
or Loan at interest given by an employer to the employee (or
Concessional Rate any member of his household) is a perquisite
of Interest chargeable to tax in the hands of all employees
on following basis:
1) Find out the ‘maximum outstanding
monthly balance’ (i.e. the aggregate
outstanding balance for each loan as on the
last day of each month);
2) Find out rate of interest charged by the
SBI as on the first day of relevant
previous year in respect of loan for the
same purpose advanced by it;
3) Calculate interest for each month of the
4.9
previous year on the outstanding amount
(mentioned in point 1) at the rate of
interest (given in point 2)
4) Interest actually recovered, if any, from
employee
5) The balance amount (point 3-point 4) is
taxable value of perquisite
Nothing is taxable if:
a) Loan in aggregate does not exceed Rs
20,000
b) Loan is provided for treatment of
specified diseases (Rule 3A) like
neurological diseases, Cancer, AIDS,
Chronic renal failure, Hemophilia
(specified diseases). However, exemption
is not applicable to so much of the loan as
has been reimbursed to the employee
under any medical insurance scheme.
Facility of a) Perquisite value taxable in the hands of
travelling, touring employees shall be expenditure incurred
and accommodation by the employer less amount recovered
availed of by the from employee.
employee or any b) Where such facilities are maintained by
member of his the employer, and is not available
household for any uniformly to all employees, the value of
holiday benefit shall be taken to be the value at
4.10
which such facilities are offered by other
agencies to the public less amount
recovered from employee.
Free food and 1. Fully Taxable: Free meals in excess of Rs.
beverages provided 50 per meal less amount paid by the
to the employee employee shall be a taxable perquisite
2. Exempt from tax: Following free meals
shall be exempt from tax
a) Food and non-alcoholic beverages provided
during working hours in remote area or in
an offshore installation;
b) Tea, Coffee or Non-Alcoholic beverages
and Snacks during working hours are tax
free perquisites;
c) Food in office premises or through non-
transferable paid vouchers usable only at
eating joints provided by an employer is
not taxable, if cost to the employer is Rs.
50(or less) per meal.
Gift or Voucher or a) Gifts in cash or convertible into money
Coupon on (like gift cheque) are fully taxable
ceremonial occasions b) Gift in kind up to Rs.5,000 in aggregate per
or otherwise annum would be exempt, beyond which it
provided to the would be taxable.
employee
Credit Card a) Expenditure incurred by the employer in
4.11
respect of credit card used by the
employee or any member of his household
less amount recovered from the employee
is a taxable perquisite
b) Expenses incurred for official purposes
shall not be a taxable perquisite provided
complete details in respect of such
expenditure are maintained by the
employer.
Free Recreation/ a) Expenditure incurred by the employer
Club Facilities towards annual or periodical fee etc.
(excluding initial fee to acquire corporate
membership) less amount recovered from
the employee is a taxable perquisite
b) Expenses incurred on club facilities for
the official purposes are exempt from tax.
c) Use of health clubs, sports and similar
facilities provided uniformly to all
employees shall be exempt from tax.
Leave Travel Leave Travel Concession or Assistance
Concession or (LTC/LTA), extended by an employer to an
Assistance employee for going anywhere in India along
(LTC/LTA) with his family
Family includes spouse, children and
dependent brother/sister/parents. However,
family doesn’t include more than 2 children of
4.12
an Individual born on or after 01-10-1998.
The exemption shall be limited to fare for
going anywhere in India along with family
twice in a block of four years:
i. Exemption limit where journey is
performed by Air - Air fare of economy
class in the National Carrier by the
shortest route or the amount spent,
whichever is less
ii. Exemption limit where journey is
performed by Rail - Air-conditioned first-
class rail fare by the shortest route or the
amount spent, whichever is less
iii. Exemption limit if places of origin of
journey and destination are connected by
rail but the journey is performed by any
other mode of transport - Air-conditioned
first-class rail fare by the shortest route
or the amount spent, whichever is less
iv. Exemption limit where the places of origin
of journey and destination are not
connected by rail:
a) Where a recognized public
transport system exists - First
Class or deluxe class fare by the
whichever is less
4.13
b) Where no recognized public
transport system exists - Air-
conditioned first-class rail fare by
whichever is less.
Medical facilities in 1) Expense incurred or reimbursed by the
India employer for the medical treatment of the
employee or his family (spouse and
children, dependent - parents, brothers
and sisters) in any of the following hospital
is not chargeable to tax in the hands of the
employee:
a) Hospital maintained by the
employer.
b) Hospital maintained by the
Government or Local Authority or any
other hospital approved by Central
Government
c) Hospital approved by the Chief
Commissioner having regard to the
prescribed guidelines for treatment of
the prescribed diseases.
2) Medical insurance premium paid or
reimbursed by the employer is not
chargeable to tax.
4.14
Medical facilities
Any expenditure incurred or reimbursed by the
outside India
employer for medical treatment of the employee
or his family member outside India is exempt to
the extent of following (subject to certain
condition):
a) Expenses on medical treatment - exempt
to the extent permitted by RBI.
b) Expenses on stay abroad for patient and
one attendant - exempt to the extent
permitted by RBI.
c) Cost on travel of the employee or any
family or one attendant - exempt, if Gross
Total Income (before including the travel
expenditure) of the employee, does not
exceed Rs. 2,00,000.
Motor Car / Other

Explained Below (After this table)
Conveyance
Education Facilities
Explained Below (After Motor Car / Other
Conveyance is Explained)
Motor Car / Other Conveyance
4.15
S. No. Circumstances Engine Capacity upto Engine Capacity
1600 cc (value of above 1600 cc
perquisite) (value of
perquisite)
1 Motor Car is owned or hired by the employer
1.1 Where maintenance and running expenses including
remuneration of the chauffeur are met or reimbursed by the
employer.
1.1-A If car is used Fully exempt subject to Fully exempt
wholly and maintenance of subject to
exclusively in specified documents maintenance of
the specified
performance of documents
official duties.
1.1-B If car is used Actual amount of expenditure incurred by
exclusively for the employer on the running and maintenance
the personal of motor car including remuneration paid by
purposes of the the employer to the chauffeur and increased
employee or any by the amount representing normal wear and
member of his tear of the motor car at 10% p.a. of the cost
household. of vehicle less any amount charged from the
employee for such use is taxable
4.16
1.1-C The motor car Rs. 1,800 per month Rs. 2,400 per month
is used partly in (plus Rs. 900 per (plus Rs. 900 per
the month, if chauffeur is month, if chauffeur
performance of also provided to run the is also provided to
duties and motor car) run the motor car)
partly for
personal Nothing is deductible in respect of any
purposes of the amount recovered from the employee.
employee or any
member of his
household.
1.2 Where maintenance and running expenses are met by the
employee.
1.2-A If a car is used Not a perquisite, hence, Not a perquisite,
wholly and not taxable hence, not taxable
exclusively in
the
performance of
official duties.
1.2-B If car is used Expenditure incurred by the employer (i.e.
exclusively for hire charges, if car is on rent or normal wear
the personal and tear at 10% of actual cost of the car)
purposes of the plus salary of chauffeur if paid or payable by
employee or any
4.17
member of his the employer minus amount recovered from
household the employee.
1.2-C The motor car Rs. 600 per month (plus Rs. 900 per month
is used partly in Rs. 900 per month, if (plus Rs. 900 per
the chauffeur is also month, if chauffeur
performance of provided to run the is also provided to
duties and motor car) run the motor car)
partly for
personal Nothing is deductible in respect of any
purposes of the amount recovered from the employee.
employee or any
member of his
household
2 Motor Car is owned by the employee
2.1 Where maintenance and running expenses including
remuneration of the chauffeur are met or reimbursed by the
employer.
2.1-A The Fully exempt subject to Fully exempt
reimbursement maintenance of subject to
is for the use of specified documents maintenance of
the vehicle
4.18
wholly and specified
exclusively for documents
official
purposes
2.1-B The Actual expenditure incurred by the employer
reimbursement minus amount recovered from the employee
is for the use of
the vehicle
exclusively for
the personal
purposes of the
employee or any
member of his
household
2.1-C The Actual expenditure Actual expenditure
reimbursement incurred by the incurred by the
is for the use of employer minus Rs. employer minus Rs.
the vehicle 1800 per month and Rs. 2400 per month and
partly for 900 per month if Rs. 900 per month
official chauffer is also if chauffer is also
purposes and provided minus amount provided minus
partly for recovered from amount recovered
personal employee. from employee.
purposes of the
employee or any
4.19
member of his
household.
3 Where the employee owns any other automotive conveyance
and actual running and maintenance charges are met or
reimbursed by the employer
3.1 Reimbursement Fully exempt subject to Fully exempt
for the use of maintenance of subject to
the vehicle specified documents maintenance of
wholly and specified
exclusively for documents
official
purposes;
3.2 Reimbursement Actual expenditure Not Applicable
for the use of incurred by the
vehicle partly employer minus Rs. 900
for official per month minus
purposes and amount recovered from
partly for employee
personal
4.20
purposes of the
employee.
Education Facilities
Facility Value of perquisite
extended
to Provided in the school Provided in any other school
owned by the employer
Children Cost of such education Amount incurred less amount
in similar school less recovered from employee (an
Rs. 1,000 per month exemption of Rs. 1,000 per month
per child (irrespective per child is allowed)
of numbers of
children) less amount
recovered from
employee
Other Cost of such education Cost of such education incurred
family in similar school less
member amount recovered
from employee
4.21
Other Educational Facilities
Particulars Taxable Value of Perquisites
Reimbursement of school fees of Fully taxable
children or family member of employees
Free educational facilities/ training of Fully exempt
employees
5. Exemption of Certain Terminal Benefits
Leave Encashment A. Encashment of unutilized earned leave at
the time of retirement of Government
employees - Fully Exempt
B. Encashment of unutilized earned leave at
the time of retirement of other employees
(not being a Government employee) –
Least of the following shall be exempt from
tax:
a) Amount actually received
b) Unutilized earned leave* X Average
monthly salary
c) 10 months Average Salary**
d) Rs. 3,00,000
*While computing unutilized earned leave,
earned leave entitlements cannot exceed 30
4.22
days for each year of service rendered to
the current employer
**Average salary = Average Salary*** of
last 10 months immediately preceding the
retirement
***Salary = Basic Pay + Dearness Allowance
(to the extent it forms part of retirement
benefits) + turnover based commission.
Retrenchment Retrenchment Compensation received by a
Compensation workman under the Industrial Dispute Act,
1947(Subject to certain conditions).
Least of the following shall be exempt from tax:
a. an amount calculated as per section 25F(b)
of the Industrial Disputes Act, 1947;
b. Rs. 5,00,000; or
c. Amount actually received
Note:
i. Relief under Section 89(1) is available
ii. 15 days average pay for each completed
year of continuous service or any part
thereof in excess of 6 months is to be
adopted under section 25F(b) of the
Industrial Disputes Act, 1947.
Gratuity A. Gratuity received by Government Employees
(Other than employees of statutory
corporations) - Fully Exempt
4.23
B. Death -cum-Retirement Gratuity received
by other employees who are covered under
Gratuity Act, 1972 (other than Government
employee) (Subject to certain conditions) –
Least of following amount is exempt from
tax:
1. (*15/26) X Last drawn salary** X
completed a year of service or part
thereof in excess of 6 months.
2. Rs. 20,00,000
3. Gratuity actually received.
*7 days in case of employee of seasonal
establishment.
** Salary = Last drawn salary including DA
but excluding any bonus, commission, HRA,
overtime and any other allowance, benefits
or perquisite.
C. Death -cum-Retirement Gratuity received
by other employees who are not covered
under Gratuity Act, 1972 (other than
Government employee) (Subject to certain
conditions).
Least of following amount is exempt from
tax:
1. Half month’s Average Salary*
X Completed years of service
4.24
2. Rs. 20,00,000
3. Gratuity actually received.
*Average salary = Average Salary of last
10 months immediately preceding the
month of retirement
** Salary = Basic Pay + Dearness
Allowance (to the extent it forms part of
retirement benefits) + turnover based
commission
Pension A. Pension received from United Nation
Organization by the employee of his family
members - Fully Exempt
B. Commuted Pension received by an employee
Central Government, State Government,
Local Authority Employees and Statutory
Corporation - Fully Exempt
C. Commuted Pension received by other
employees who also receive gratuity - 1/3 of
full value of commuted pension will be
exempt from tax
D. Commuted Pension received by other
employees who do not receive any gratuity -
1/2 of full value of commuted pension will be
exempt from tax
E. Family Pension received by the family
4.25
members of Armed Forces - Fully Exempt
F. Family pension received by family members
in any other case - 33.33% of Family Pension
subject to maximum of Rs. 15,000 shall be
exempt from tax
Voluntary Amount received on Voluntary Retirement or
Retirement Voluntary Separation (Subject to certain
conditions)
Least of the following is exempt from tax:
1) Actual amount received as per the
guidelines i.e. least of the following
a) 3 months salary for each completed
year of services
b) Salary at the time of retirement X
No. of months of services left for
retirement; or
2) Rs. 5,00,00
Any payment from the National Pension System

National Pension
Trust to an assessee on closure of his account or
System (NPS)
on his opting out of the pension scheme referred
to in section 80CCD, to the extent it does not
exceed 60% of the total amount payable to him at
the time of such closure or his opting out of the
4.26
scheme.
Note: Partial withdrawal from the NPS shall be
exempt to the extent of 25% of the amount of
contributions made by the employee.
Explained Below
Employees
Provident Fund
Employees Provident Fund
Tax treatment in respect of contributions made to and payment from
various provident funds are summarized in the table given below:
Particulars Statutory Recognized Unrecognized Public
provident provident fund provident fund provident
fund fund
Employers Fully Exempt only to Fully Exempt -
contribution Exempt the extent of
to 12% of salary*
provident
fund
Deduction Available Available Not Available Available
under
section 80C
on
employees
contribution
4.27
Interest Fully Exempt only to Fully Exempt Fully
credited to Exempt the extent rate Exempt
provident of interest does
fund not exceed 9.5%
Payment Fully Fully Exempt Fully Taxable Fully
received at Exempt (Subject to (except Exempt
the time of certain conditions employee’s
retirement and contribution)
or circumstances)
termination
of service
* Salary = Basic Pay + Dearness Allowance (to the extent it forms part of
retirement benefits) + turnover based commission
Payment from recognized provident fund shall be exempt in the hands of
employees in following circumstances:
a) If employee has rendered continue service with his employer
(including previous employer, when PF account is transferred
to current employer) for a period of 5 years or more
b) If an employee has been terminated because of certain
reasons which are beyond his control (ill health,
discontinuation of business of employer, etc.)
6. Deductions from gross salary
Standard deduction Standard deduction of upto Rs. 50,000.
Entertainment allowance Allowable only in the case of
4.28
government employees
Least of the following is allowed as
deduction:
i. Rs. 5,000
ii. 1/5th of basic salary
iii. Actual entertainment allowance
received
Professional tax i. Any sum paid by the assessee on
account of tax on employment is
allowable as deduction.
ii. In case professional tax is paid by
employer on behalf of employee, the
amount paid shall be included in gross
salary as a perquisite and then
deduction can be claimed.
7. Meaning of Salary under various circumstances:
Circumstance Definition
Gratuity (Non-Government Basic + DA
Employees covered by Payment of
Gratuity Act, 1972)
Gratuity (Non-Government Basic + DA (if terms of employment
Employees NOT covered by so provide) + Commission as a % of
4.29
Payment of Gratuity Act, 1972) Turnover
Leave Salary Basic + DA (if terms of employment
so provide) + Commission as a % of
Turnover
HRA Basic + DA (if terms of employment
so provide) + Commission as a % of
Turnover
Rent Free Accommodation Basic + DA (forming part of
retirement benefits) + Bonus + all
Taxable Allowances
8. Proforma for computation of income under the Head
“Salaries”
Particulars Amt (R)
(i) Basic Salary XXX
(ii) Fees/Commission XXX
(iii) Bonus XXX
(iv) Taxable Allowances:
(a) Dearness Allowance XXX
(b) House Rent Allowance (HRA) xxx
Less: Least of the following is xxx XXX
exempt [Section 10(13A)]
4.30
HRA actually received xxx
Rent paid (-)10% of salary xxx
for the relevant period
50% of salary, if xxx
accommodation is located in
Mumbai, Kolkata, Delhi or
Chennai or 40% of salary in
any other city for the
relevant period
(c) Children Education Allowance xxx
Less: R 100 per month per child upto xxx XXX
maximum of two children is exempt
(d) Children Hostel Allowance xxx
Less: R 300 per month per child upto xxx XXX
maximum of two children is exempt
(e) Transport allowance xxx
Less: R 3,200 per month is exempt xxx XXX
in case of blind/ deaf and dumb/
orthopedically handicapped
employee only (In case of other
employees, transport allowance is
fully taxable)
(f ) Entertainment Allowance XXX
4.31
(g) Other Allowances including overtime allowance, XXX
city compensatory allowance etc.
(v) Taxable Perquisites
(a) Valuation of rent free accommodation1 XXX
I) Where the accommodation is provided by the Govt. to its
employees
License fee determined by the Govt. xxx
Less: Rent actually paid by the employer xxx
II) Where the accommodation is provided by any other
employer
If accommodation is owned by the employer
(i) Cities having population > 25 lakh as per 2001 census xxx
15% of salary in respect of the period of occupation (–)
rent recovered from employee
(ii) Cities having population >10 lakh ≤ 25 lakh as per 2001 xxx
census
10% of salary in respect of the period of occupation (–)
rent recovered from employee
(iii) In other cities xxx
7.5% of salary in respect of the period of occupation (–
) rent recovered from employee
If accommodation is taken on lease by the employer
4.32
Lower of lease rental paid or payable by the employer xxx
(or) 15% of salary
Less: Rent actually paid by the employee xxx
(b Obligation of employee discharged by employer. For e.g. XXX
) Professional tax paid by the employer
(c) Any sum payable by the employer to effect an assurance on XXX
the life of the employee or to effect a contract for annuity:
Actual expenditure incurred by the employer
(d Value of use of motor car XXX
(e) Any other perquisite: For example, XXX
(1) Provision of services of a sweeper, gardener, watchman or
personal attendant: Actual cost to employer by way of salary
paid or payable for such services (-) amount paid by the
employee
(2) Gas, electricity, or water supplied by employer for
household consumption of the employee: Amount paid on that
account by the employer to the agency supplying gas etc. (-)
amount paid by the employee
(3) Provision of free or concessional education facilities for
any member of employee’s household: Sum equal to the
expenditure incurred by the employer (-) amount paid or
recovered from the employee
4.33
Where educational institution is maintained and owned by
employer: Cost of such education in similar institution in or
near the locality (-) amount paid or recovered from employee
[However, there would be no perquisite if the value of benefit
per child does not exceed R 1,000 p.m.]
Note: Above perquisites are taxable only in case of specified
employees.
(4) Interest-free or concessional loan exceeding R 20,000 :
Interest computed at the rate charged by SBI as on 1st day
of relevant PY in respect of loans for similar purposes on the
maximum outstanding monthly balance (-) interest actually
paid by employee
(5) Value of gift, voucher: Sum equal to the amount of such
gift [If value of gift, voucher is below R 5,000, there would
be no perquisite]
(6) Use of moveable assets
Asset given Value of benefit
(a) Use of laptops and Nil
computers
Movable assets, other than - 10% p.a. of the actual cost of
such asset, or the amount of

laptops and computers; and
rent or charge paid, or payable
assets already specified by the employer, as the case
may be (-) amount paid
4.34
by/recovered from an
employee
(7) Transfer of movable assets: Actual cost of asset to
employer – cost of normal wear and tear – amount paid or
recovered from employee
Assets transferred Computation of cost of normal wear and
tear
Computers and @50% on WDV for each completed year
electronic items of usage
Motor cars @20% on WDV for each completed year
of usage
Any other asset @10% of actual cost of such asset to
employer for each completed year of
usage [on SLM basis]
(vi) Leave travel concession xxx
Less: Exempt u/s 10(5) xxx XXX
(vii Gratuity
(a) Received during the tenure of employment (fully xxx
taxable)
4.35
(b Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10) xxx XXX
(viii Uncommuted pension (fully taxable) XXX
(ix) Commuted pension xxx
Less: Exempt u/s 10(10A) xxx XXX
(x) Leave encashment
(a) Received during the employment (fully xxx
taxable)
(b) Received at the time of retirement or xxx
otherwise
Less: Exempt u/s 10(10AA) xxx XXX
(xi) Voluntary retirement compensation xxx
Less: Exempt u/s 10(10C) - Least of the following: xxx XXX
(a) Compensation received/ xxx
receivable on voluntary
retirement
(b) R 5,00,000 xxx
(c) 3 months’ salary x completed xxx
years of service
(d) Last drawn salary x remaining xxx
months of service left
4.36
(xii) Retrenchment compensation etc. xxx
Less: Exempt u/s 10(10B)] – Least of the following: xxx XXX
(a) Compensation actually received xxx
(b) R 5,00,000 xxx
(c) 15 days average pay x completed xxx
years of service and part
thereof in excess of 6 months
Gross Salary XXX
Less: Deduction under section 16
Standard deduction u/s 16(ia) upto R 40,000 or amount of salary, XXX
whichever is lower
Entertainment allowance u/s 16(ii) (only for Govt. employees)
Least of the following is allowable as deduction: XXX
(a) R 5,000 xxx
(b) 1/5th of basic salary xxx
(c) Actual entertainment allowance received xxx
Professional Tax (paid by employer/ employee) under section 16(iii) XXX
Income under the head salary XXX
4.37
© www.CABlogIndia.com Income from House Property
Income from House Property
1. Basis of Charge (Section 22)
The annual value of any property consisting of buildings or lands
appurtenant thereto, of which the assessee is the owner, is chargeable to
tax under the head “Income from house property”.
(i) Property should consist of any buildings or lands appurtenant
thereto - Income from letting out of vacant land is, however, taxable
under the head “Income from other sources” or “Profits and gains
from business or profession”, as the case may be.
(ii) Assessee must be the owner of the property
(iii) The property may be used for any purpose, but it should not be used
by the owner for the purpose of any business or profession carried
on by him, the profit of which is chargeable to tax. Further, the
income earned by an assessee engaged in the business of letting out
of properties on rent would be taxable as business income.
(iv) Property held as stock-in-trade etc. - Annual value of house property
will be charged under the head “Income from house property”, where
it is held by the assessee as stock-in-trade of a business also.
2. Annual Value of let-out property
Annual value is the amount arrive after deducting the Municipal taxes
actually paid by the owner during the previous year from the Gross Annual
Value (GAV). The GAV of Let-out property would be determined in the
following manner:
5.1
3. Annual Value of self-occupied property
Where the property is self-occupied for own residence or unoccupied
throughout the previous year owing to his employment, business or
profession carried on at any other place and residing at that other place in
a building not belonging to him, its Annual Value will be Nil, provided no
other benefit is derived by the owner from such property. An assessee can
claim benefit of Nil Annual Value in respect of one or two residential house
properties self-occupied by him.
4. Annual Value of deemed to be let-out property
If more than two properties are so self-occupied/ unoccupied, the
assessee may claim benefit of Nil annual value in respect of any two
properties at his option. The other property(s) would be deemed to be let
out, in respect of which Expected Rent would be the GAV.
5.2
5. Annual value where the property held as stock-in-
trade etc.
Where property consisting of any buildings or lands appurtenant thereto is
held as stock-in-trade and the whole or any part of the property is not let
out during the whole or any part of the previous year, the annual value of
such property or part of the property for the period upto 2 years from the
end of the financial year in which certificate of completion of construction
of the property is obtained from the competent authority shall be taken
as “Nil”.
6. Deductions from Annual Value
1. 30% of Annual Value [Section 24(a)]
2. Interest on borrowed capital [Section 24(b)]: Interest payable on loans
borrowed for the purpose of acquisition, construction, repairs, renewal or
reconstruction can be claimed as deduction.
Pre-construction interest: Interest for the period prior to the previous
year in which property is acquired or construction is completed. Pre-
construction interest is allowable as deduction in 5 equal installments from
the previous year of completion of construction or acquisition.
a. Let out property: Whole of the amount of interest on borrowed
capital payable during the previous year and apportioned pre
construction interest without any ceiling limit would be allowed as
deduction.
b. Self-occupied property:
(i) Loan taken on or after 1.4.99: Interest on loan taken for
acquisition or construction of house on or after 1.4.99, where such

5.3
construction is completed within 5 years from the end of the
financial year in which capital was borrowed, aggregate interest paid
or payable for one or two self-occupied properties subject to a
maximum of Rs 2,00,000 (including apportioned pre-construction
interest).
(ii) Loan taken before 1.4.99: In case of loan for acquisition or
construction taken prior to 1.4.99 or loan taken for repair,
renovation or reconstruction at any point of time, aggregate interest
paid or payable for one or two self-occupied properties subject to a
maximum of Rs 30,000 (including apportioned pre construction
interest).
Note - Total amount of interest deduction under (i) and (i) cannot
exceed Rs. 2,00,000.
7. Inadmissible deductions
Interest chargeable under this Act which is payable outside India shall not
be deducted if –
i. tax has not been paid or deducted from such interest and
ii. in respect of which there is no person in India who may be treated as an
agent.
8. Taxability of recovery of unrealized rent & arrears
of rent received -
(i). Taxable in the year of receipt/ realization
(ii). Deduction@30% of rent received/ realized
5.4
(iii). Taxable even if the assessee is not the owner of the property in the
financial year of receipt/ realization.
9. Co-owned property
(i). Self-occupied property: The annual value of the property of each co-
owner will be Nil and each co-owner shall be entitled to a deduction of Rs
30,000 / Rs 2,00,000, as the case may be, on account of interest on
borrowed capital. However, aggregate deduction of interest to each co-
owner in respect of co-owned self-occupied property and any other self-
occupied house property, if any, cannot exceed Rs 30,000/Rs 2,00,000, as
the case may be.
(ii). Let-out property: The income from such property shall be computed as
if the property is owned by one owner and thereafter the income so
computed shall be apportioned amongst each co-owner as per their specific
share.
10. Deemed Ownership:
The following persons, though not legal owners of a property, are deemed
to be the owners:
i. Transferor of the property, where the property is transferred to the
spouse or to minor child except minor married daughter, without adequate
consideration
ii. Holder of an impartible estate
iii. Member of a co-operative society etc.
iv. Person in possession of a property
v. Person having rights in a property for a period not less than 12 years.
5.5
11. Other important points:
(i). The Actual rent received/receivable should not include any amount of
rent which is not capable of being realized i.e., unrealized rent while
determining gross annual value in case let-out property, provided the
conditions specified in Rule 4 are satisfied.
(ii). If a portion of a property is let-out and a portion is self-occupied, then,
the income will be computed separately for let out and self-occupied
portion.
5.6
© www.CABlogIndia.com Profits and Gains of Business or Profession
Profits and Gains of Business or
Profession
1. Meaning of ‘Business’ and ‘Profession’ -
The tax payable by an assessee on his income under this head is in respect
of the profits and gains of any business or profession, carried on by him or
on his behalf during the previous year.
Business Profession
The term “business” has been The term “profession” has not
defined in section 2(13) to “include been defined in the Act. It means
any trade, commerce or manufacture an occupation requiring some
or any adventure or concern in the degree of learning. The term
nature of trade, commerce or ‘profession’ includes vocation as
manufacture” well [Section 2(36)]
● Thus, a painter, a sculptor, an author, an auditor, a lawyer, a doctor,
an architect and even an astrologer are persons who can be said to
be carrying on a profession but not business.
● However, it is not material whether a person is carrying on a
‘business’ or ‘profession’ or ‘vocation’ since for purposes of
assessment, profits from all these sources are treated and taxed
alike.
6.1
● Business necessarily means a continuous exercise of an activity;
nevertheless, profit from a single venture in the nature of trade may
also be treated as business.
2. Meaning of ‘Profits’
● Profits in cash or in kind: Profits may be realized in money or in
money’s worth, i.e., in cash or in kind. Where profit is realized in any
form other than cash, the cash equivalent of the receipt on the date
of receipt must be taken as the value of the income received in kind.
● Capital receipts: Capital receipts are not generally to be taken into
account while computing profits under this head.
● Voluntary Receipts: Payment voluntarily made by persons who were
under no obligation to pay anything at all would be income in the
hands of the recipient, if they were received in the course of a
business or by the exercise of a profession or vocation. Thus, any
amount paid to a lawyer by a person who was not a client, but who
has been benefited by the lawyer’s professional service to another
would be assessable as the lawyer’s income.
● Application of the gains of trade is immaterial: Gains made even
for the benefit of the community by a public body would be liable to
tax. To attract the provisions of section 28, it is necessary that the
business, profession or vocation should be carried on at least for
some time during the accounting year but not necessarily throughout
that year and not necessarily by the assessee-owner personally, but
it should be under his direction and control.
● Legality of income: The illegality of a business, profession or
vocation does not exempt its profits from tax. The revenue is not
concerned with the taint of illegality in the income or its source.
6.2
● Income from distinct businesses: The profits of each distinct
business must be computed separately but the tax chargeable under
this section is not on the separate income of every distinct business
but on the aggregate profits of all the business carried on by the
assessee.
● Computation of profits: Profits should be computed after deducting
the losses and expenses incurred for earning the income in the
regular course of the business, profession, or vocation unless the
loss or expenses is expressly or by necessary implication, disallowed
by the Act. The charge is not on the gross receipts but on the profits
and gains.
3. Method of Accounting [Section 145]
Income chargeable under this head shall be computed in accordance with
the method of accounting regularly and consistently employed by the
assessee either cash or mercantile basis.
4. Income chargeable under this Head
i. The profits and gains of any business or profession carried on by the
assessee at any time during the previous year.
ii. Any compensation or other payment due to or received by a person, at
or in connection with -
a. Termination of his management or modification of the terms and
conditions relating thereto, in case the person is managing the whole
or substantially the whole of the affairs of an Indian company.
b. Termination of his office or modification of the terms and
conditions relating thereto, in case the person is managing the whole
6.3
or substantially the whole of the affairs in India of any other
company.
c. Termination of agency or modification of the terms and conditions
relating thereto, in case the person is holding an agency in India for
any part of the activities relating to the business of any other
person.
d. Vesting in the Government or in any corporation owned and
controlled by the Government, under any law for the time being in
force, of the management of any property or business.
e. Termination or the modification of the terms and conditions, of any
contract relating to his business
iii. Income derived by a trade, professional or similar association from
specific services performed for its members.
iv. In the case of an assessee carrying on export business, the following
incentives –
a. Profit on sale of import entitlements;
b. Cash assistance against exports under any scheme of GOI;
c. Customs duty or excise re-paid or repayable as drawback;
d. Profit on transfer of Duty-Free Replenishment Certificate.
v. Value of any benefit or perquisite, whether convertible into money or
not, arising from business or the exercise of profession.
vi. Any interest, salary, bonus, commission or remuneration due to, or
received by, a partner of a firm from such firm (to the extent allowed as
deduction in the hands of the firm).
vii. Any sum, received or receivable, in cash or kind under an agreement for
6.4
a. not carrying out any activity in relation to any business or profession;
or
b. not sharing any know-how, patent, copyright, trademark, licence,
franchise or any other business of commercial right of similar nature
or information or technique likely to assist in the manufacture or
processing of goods or provision of services.
viii. Any sum received under a Keyman insurance policy including the sum
allocated by way of bonus on such policy.
ix. Fair market value of inventory as on date on which it is converted into
or treated as a capital asset.
x. Any sum, whether received or receivable, in cash or kind, on account of
any capital asset (other than land or goodwill or financial instrument) being
demolished, destroyed, discarded or transferred, in respect of which the
whole of the expenditure had been allowed as deduction under section
35AD.
5. Admissible Deductions
Rent, Rates, Amount paid on account of rent, rates, taxes, repairs
Taxes, Repairs (not including expenditure in the nature of capital
and insurance expenditure) and insurance for buildings used for the
for buildings purpose of business or profession.
(Section 30) In case the premises are occupied by the assessee as
a tenant, the amount of repairs would be allowed as
deduction only if he has undertaken to bear the cost
of repairs to the premises.
6.5
Repairs and
Amount paid on account for current repairs and
insurance of
insurance of machinery, plant and furniture used for
machinery, plant
the purpose of business or profession.
and furniture
(Section 31)
Depreciation Depreciation is mandatorily allowable as deduction.
(Section 32) Conditions for claiming depreciation
● Asset must be used for the purpose of business
or profession at any time during the previous
year.
Note: If the asset is acquired during the
previous year and is put to use for less than 180
days during that previous year then, only 50%
of the depreciation calculated at the rates
prescribed will be allowed.
● The asset should be owned (wholly or partly) by
the assessee.
● The depreciation shall be allowed on the written
down value of block of assets at the prescribed
rates (except in the case of assets of power
generating units, in respect of which
depreciation has to be calculated as a
percentage of actual cost).
As per section 2(11), block of assets means a
group of assets falling within a class of assets
comprising:
6.6
(a) buildings, machinery, plant or furniture
being tangible assets,
(b) know-how, patents, copyrights,
trademarks, licences, franchises or any
other business or commercial rights of
similar nature being intangible assets;
in respect of which, the same rate of
depreciation is prescribed.
Written Down Value of Assets (W.D.V.) [Section
43(6)]
(1) W.D.V. of the block of assets on 1st xxxx
April of the previous year
(2) Add: Actual cost of assets acquired xxxx
during the previous year
(3) Total (1) + (2) xxxx
(4) Less: Money receivable in respect of xxxx
any asset falling within the block which is
sold, discarded, demolished or destroyed
during that previous year
(5) W.D.V at the end of the year (on which xxxx
6.7
depreciation is allowable) [(3) – (4)]
(6) Depreciation at the prescribed rate xxxx
(Rate of Depreciation × WDV arrived at in
(5) above)
Additional
Additional depreciation at the rate of 20% of actual
depreciation
cost of plant or machinery acquired and installed after
(Section Section
31.03.2005 by an assessee engaged in the business of
32(1)(iia))
manufacture or production of any article or thing or in
the business of generation, transmission or
distribution of power, shall be allowed.
If plant and machinery is acquired and put to use for
the purpose of business or profession for less than
180 days during the previous year in which it is
acquired, additional depreciation will get restricted to
50% of the depreciation allowable. The balance 50%
of additional depreciation will be allowed in the
immediately succeeding previous year.
However, additional depreciation will not be allowed on
the following plant or machinery:
● Ships, aircraft, road transport vehicles, office
appliances;
● Machinery previously used by any other person;
● Machinery installed in any office premises,
6.8
residential accommodation, or guest house;
● Machinery in respect of which, the whole of the
actual cost is fully allowed as deduction
(whether by way of depreciation or otherwise)
of any one previous year.
In order to encourage acquisition and installation of
plant and machinery for setting up of manufacturing
units in the notified backward areas of the States of
Andhra Pradesh, Bihar, Telangana and West Bengal, a
proviso has been inserted to section 32(1)(iia) to allow
higher additional depreciation at the rate of 35%
(instead of 20%) in respect of the actual cost of new
machinery or plant (other than a ship and aircraft)
acquired and installed during the period between 1st
April, 2015 and 31st March, 2020 by a manufacturing
undertaking or enterprise which is set up in the
notified backward areas of these specified States on
or after 1st April, 2015.
Such additional depreciation shall be restricted to
17.5% (i.e., 50% of 35%), if the new plant and
machinery acquired is put to use for the purpose of
business for less than 180 days in the year of
acquisition and installation.
The balance 50% of additional depreciation (i.e., 50%
of 35%) would, however, be allowed in the immediately
6.9
succeeding financial year.
Industrial
In order to encourage the setting up of industrial
undertakings in
undertakings in the backward areas of the States of
the backward
Andhra Pradesh, Bihar, Telangana and West Bengal,
areas of the
section 32AD has been inserted to provide for a
States of
deduction of an amount equal to 15% of the actual cost
Andhra Pradesh,
of new plant and machinery acquired and installed in
Bihar, Telangana
the assessment year relevant to the previous year in
and West Bengal
which such plant and machinery is installed, if the
(section 32AD)
following conditions are satisfied by the assessee –
a. The assessee sets up an undertaking or
enterprise for manufacture or production of
any article or thing on or after 1st April, 2015
in any backward area notified by the Central
Government in the State of Andhra Pradesh or
Bihar or Telangana or West Bengal; and
b. The assessee acquires and installs new plant and
machinery for the purposes of the said
undertaking or enterprise during the period
between 1st April, 2015 and 31st March, 2020
in the said backward areas.
Expenditure on Expenditure incurred by assessee
Scientific ● Any revenue and capital expenditure (other
Research than cost of acquisition of land) on scientific
6.10
(Section 35) research for in-house research related to its
business is allowable as deduction [Section
35(1)(i) & Section 35(1)(iv) read with section
35(2)].
● Deduction is also allowed in respect of payment
of salary or purchase of material inputs for
such scientific research during 3 years
immediately preceding the year of
commencement of business. Such deduction is
allowed in the year in which it has commenced
its business [Section 35(1)(i)/Section 35(2)].
● Capital expenditure incurred prior to the
commencement of the business is also allowed in
the year in which business is commenced.
● In case of companies engaged in the business of
biotechnology or manufacture or production of
article or thing, deduction of 150% of
expenditure incurred on scientific research on
in-house research and development facility is
allowed (other than expenditure on cost of land
or building) [Section 35(2AB)].
Contributions to Outsiders
Contributions made by any assessee to certain
specified/ approved institutions shall be entitled to
weighted deduction as follows:
6.11
Section Contribution made to Deduction (as
a % of
contribution
made)
35(1)(ii) Notified approved 150%
research association/
university/ college/ other
institution for scientific
research
35(1)(iia Approved notified 100%
) Company for scientific
research
35(1)(iii) Notified approved 100%
research
association/university/
college/ other institution
for research in social
science or statistical
research
35(2AA) Approved National 150%
Laboratory/ University/
IIT/ specified person to
6.12
be used for scientific
research undertaken
under an approved
programme
Investment-
This section provides for investment-linked tax
linked tax
deduction in respect of the following specified
deduction
businesses –
(Section 35AD)
i. setting-up and operating ‘cold chain’ facilities
for specified products;
ii. setting-up and operating warehousing
facilities for storing agricultural produce;
iii. laying and operating a cross-country natural
gas or crude or petroleum oil pipeline network
for distribution, including storage facilities
being an integral part of such network;
iv. building and operating a hotel of two-star or
above category, anywhere in India;
v. building and operating a hospital, anywhere in
India, with at least 100 beds for patients;
vi. developing and building a housing project
under a notified scheme for slum
redevelopment or rehabilitation framed by the
6.13
Central Government or a State Government;
vii. developing and building a housing project
under a notified scheme for affordable housing
framed by the Central Government or State
Government;
viii. production of fertilizer in India;
ix. setting up and operating an inland container
depot or a container freight station notified or
approved under the Customs Act, 1962;
x. bee-keeping and production of honey and
beeswax;
xi. setting up and operating a warehousing
facility for storage of sugar;
xii. laying and operating a slurry pipeline for
transportation of iron ore; and
xiii. setting up and operating a semiconductor
wafer fabrication manufacturing unit, if such
unit is notified by the Board in accordance with
the prescribed guidelines.
xiv. developing or maintaining and operating or
developing, maintaining and operating a new
infrastructure facility.
100% of the capital expenditure incurred during the
6.14
previous year, wholly and exclusively for the above
businesses would be allowed as deduction from the
business income.
However, expenditure incurred on acquisition of any
land, goodwill or financial instrument would not be
eligible for deduction.
Further, the expenditure incurred, wholly and
exclusively, for the purpose of specified business
prior to commencement of operation would be allowed
as deduction during the previous year in which the
assessee commences operation of his specified
business, provided the amount incurred prior to
commencement has been capitalized in the books of
account of the assessee on the date of commencement
of its operations.
Further, any expenditure in respect of which payment
or aggregate of payment made to a person of an
amount exceeding Rs.10,000 in a day otherwise than
by account payee cheque drawn on a bank or an account
payee bank draft or use of electronic clearing system
through a bank account or through such other
prescribed electronic modes would not be eligible for
deduction.
An assessee availing investment-linked tax deduction
under section 35AD in respect of any specified
6.15
business in any assessment year, is not eligible for
claiming profit-linked deduction under Chapter VI-A
or section 10AA for the same or any other assessment
year in respect of such specified business.
Any asset in respect of which a deduction is claimed
and allowed under section 35AD shall be used only for
the specified business, for a period of eight years
beginning with the previous year in which such asset is
acquired or constructed. If such asset is used for any
purpose other than the specified business, the total
amount of deduction so claimed and allowed in any
previous year in respect of such asset, as reduced by
the depreciation allowable under section 32 as if no
deduction had been allowed under section 35AD, shall
be deemed to be the business income of the assessee
of the previous year in which the asset is so used.
Expenditure on
150% of expenditure incurred by an assessee on
notified
notified agricultural extension project in accordance
agricultural
with the prescribed guidelines.
extension project
(Section 35CCC)
Expenditure on
150% of expenditure (other than expenditure in
notified skill
nature of cost of any land or building) incurred by a
development
company on notified skill development project.
project (Section
6.16
35CCD)
Preliminary
Preliminary expenditure incurred by Indian companies
expenditure
and other resident non-corporate assessees shall be
(Section 35D)
allowed as deduction over a period of 5 years beginning
with the previous year in which business commences or
in which extension of the undertaking is completed or
the new unit commences operation or productions.
Maximum aggregate amount of the qualifying expenses
that can be amortized is 5% of the cost of project. In
case of an Indian company, 5% of the cost of project
or at its option, 5% of the capital employed by the
company, whichever is higher.
Payment in
One-fifth of the expenditure incurred by an assessee-
connection with
employer in any previous year in the form of payment
his voluntary
to any employee in connection with his voluntary
retirement
retirement in accordance with a scheme of voluntary
(Section 35DDA)
retirement, shall be allowed as deduction in that
previous year and the balance in four equal
installments in the immediately four succeeding
previous years.
Interest paid in
Interest paid in respect of capital borrowed for the
respect of capital
purposes of business or profession.
borrowed
6.17
(Section However, any interest paid for acquisition of an asset
36(1)(iii)) (whether capitalized in the books of account or not)
for any period beginning from the date on which the
capital was borrowed for acquisition of the asset till
the date on which such asset was first put to use, shall
not be allowed as deduction.
Contribution
Any sum paid by the assessee as an employer by way
towards a
of contribution towards a recognized provident fund
recognized
or approved superannuation fund, subject to
provident fund or
prescribed limits.
approved
superannuation
fund (Section
36(1)(iv))
Contribution
Any sum paid by the assessee as an employer by way
towards a
of contribution towards a pension scheme referred to
pension scheme
in section 80CCD, to the extent of 10% of salary of
referred to in
any employee. Salary includes dearness allowance, if
section 80CCD
the terms of employment so provide. Correspondingly,
(Section
section 40A(9) disallows the sum paid in excess of 10%
36(1)(iva))
of the salary of any employee.
Bad debts
Any bad debts written off as irrecoverable in the
written off
accounts of the assessee for the previous year,
(Section
provided the debt has been taken into account in
6.18
36(1)(vii)) computing the income of the previous year or any
earlier previous year. Amount of debt taken into
account in computing the income of the assessee on
the basis of notified ICDSs to be allowed as deduction
in the previous year in which such debt or part thereof
becomes irrecoverable. If a debt, which has not been
recognized in the books of account as per the
requirement of the accounting standards but has been
taken into account in the computation of income as per
the notified ICDSs, has become irrecoverable, it can
still be claimed as bad debts under section 36(1)(vii)
since it shall be deemed that the debt has been
written off as irrecoverable in the books of account
by virtue of the second proviso to section 36(1)(vii).
This is because some ICDSs require recognition of
income at an earlier point of time (prior to the point
of time such income is recognised in the books of
account). Consequently, if the whole or part of such
income recognised at an earlier point of time for tax
purposes becomes irrecoverable, it can be claimed as
bad debts on account of the second proviso to section
36(1)(vii).
Expenditure
Any bona fide expenditure incurred by a company for
incurred by a
the purpose of promoting family planning amongst its
company for the
employees.
purpose of
6.19
promoting family In case the expenditure or part thereof is of capital
planning amongst nature, one fifth of such expenditure shall be
its employees. deducted for the previous year in which it was
(Section incurred; and the balance in four equal installments in
36(1)(ix)) four succeeding previous years.
Securities
An amount equal to the securities transaction tax
Transaction Tax
(STT) paid by the assessee in respect of taxable
(STT) (Section
securities transactions entered into in the course of
36(1)(xv))
his business during the previous year, if the income
arising from such taxable securities transactions is
included in the income computed under the head
“Profits and gains of business or profession”.
Commodities
An amount equal to commodities transaction tax (CTT)
Transaction Tax
paid in respect of taxable commodities transactions
(CTT) (Section
entered into the course of business during the
36(1)(xvi))
previous year, if the income arising from such taxable
commodities transactions is included in the income
computed under the head “Profits and gains of
business or profession”.
General (Section
An expenditure shall be allowed under section 37,
37(1))
provided:
● it is not in the nature of expenditure described
6.20
under sections 30 to 36;
● it is not in the nature of capital expenditure;
● it is not a personal expenditure of the assessee;
● it is laid out and expended wholly and exclusively
for the purpose of business/ profession;
● it is not incurred for any purpose which is an
offence or which is prohibited by law; and
● it is not an expenditure incurred by the
assessee on CSR activities referred to in
section 135 of the Companies Act, 2013.
6. Amounts not deductible
Section 40(a)(i) Any interest, royalty, fees for technical services or
other sum chargeable under the Act, which is payable
outside India or in India to a non-corporate non-
resident or to a foreign company, on which tax
deductible at source has not been deducted or after
deduction has not been paid on or before the due date
specified under section 139(1).
However, if such tax has been deducted in any
subsequent year or has been deducted in the previous
year but paid in the subsequent year after the due
date specified under section 139(1), such sum shall be
allowed as deduction in computing the income of the
previous year in which such tax is paid.
6.21
Section 40(a)(ia) 30% of any sum payable to a resident on which tax is
deductible at source under Chapter XVII-B and such
tax has not been deducted or, after deduction has not
been paid on or before the due date for filing of
return of income under section 139(1).
However, if such tax has been deducted in any
subsequent year or has been deducted in the previous
year but paid in the subsequent year after the due
date specified under section 139(1), 30% of such sum
shall be allowed as deduction in computing the income
of the previous year in which such tax is paid.
Section 40(a)(ii) Any sum paid on account of income-tax
Section 40(a)(iib) Any amount paid by way of royalty, licence fee, service
fee, privilege fee, service charge, or any other fee or
charge, which is levied exclusively on, or any amount
appropriated, directly or indirectly, from a State
Government undertaking, by the State Government.
Section 40(a)(iii) Any payment chargeable under the head “Salaries”, if
it is payable outside India or to a non-resident, if tax
has not been paid thereon nor deducted therefrom.
Section 40(a)(v) Tax paid by the employer on non-monetary perquisites
provided to its employees, which is exempt under
section 10(10CC) in the hands of the employee.
Section 40(b) i. Salary, bonus, commission or remuneration, by
6.22
whatever name called, paid to any partner who is not a
working partner;
ii. Payment of remuneration or interest to a working
partner, which is not –
● authorized by the partnership deed; or
● in accordance with the terms of the partnership
deed.
iii. Payment of remuneration or interest to a working
partner authorized by and in accordance with the
terms of the partnership deed, but relates to a period
falling prior to the date of such partnership and is not
authorized by the earlier partnership deed.
iv. Payment of interest to any partner authorised by
and in accordance with the terms of the partnership
deed and falling after the date of the partnership
deed to the extent of the excess of the amount
calculated at 12% simple interest per annum.
v. Payment of remuneration to a working partner which
is authorized by and in accordance with the
partnership deed to the extent the aggregate of such
payment to working partners exceed the following
limits –
On the first Rs. 3,00,000 Rs. 1,50,000 or 90% of
of the book-profit or in the book-profit,
case of a loss whichever is more.
6.23
On the balance of book- 60%
profit
7. Expenses or payments not deductible in certain
circumstances
Expenditure Any expenditure incurred in respect of which a
incurred in payment is made to a related person or entity, to the
respect of which extent it is excessive or unreasonable by the
a payment is Assessing Officer.
made to a Few examples of related persons are as under:
related person or
Assessee Related Person
entity (Section
40A(2))
Individual Any relative of the individual
Firm Any partner of the firm or relative
of such partner and the member of
the family or association
HUF or AOP Any member of the AOP or HUF or
any relative of such member
Company Director of the company or any
relative of the director
6.24
Any assessee Any individual who has a
substantial interest (20% or more
voting power or beneficial
entitlement to 20% of profits) in
the business or profession of the
assessee; or
A relative of such individual
Expenditure in Any expenditure, in respect of which a payment or
Cash (Section aggregate of payments made to a person in a single
40A(3)) day otherwise than by account payee cheque or
account payee bank draft or ECS through bank
account or through such other prescribed electronic
modes exceeds Rs. 10,000.
In case of payments made to transport operator for
plying, hiring or leasing goods carriages, an enhanced
limit of Rs. 35,000 shall apply. If the
payment/payments exceed this limit, the entire
expenditure would be disallowed.
However, disallowance would not be attracted if the
cases and circumstances in which payment is made
otherwise than by way of an account payee cheque or
bank draft are covered in Rule 6DD.
Expenditure Where an expenditure has been allowed as deduction
allowed in on accrual basis in any previous year, and payment is
Previous Years made in a subsequent previous year otherwise than by
6.25
(Section account payee cheque or account payee bank draft or
40A(3A)) ECS through bank account or through such other
prescribed electronic modes and such payment (or
aggregate of payments made to a person in a day is
made in a subsequent previous year) is in excess of the
limits of Rs. 10,000/ Rs. 35,000 specified above, the
payment/aggregate of payments so made shall be
deemed as profits and gains of the business or
profession and charged to tax as income of the
subsequent previous year.
However, the deeming provision will not apply in the
cases and circumstances covered in Rule 6DD.
Payment of Provision for payment of gratuity to employees.
gratuity (Section However, disallowance would not be attracted if
40A(7)) provision is made for contribution to approved
gratuity fund or for payment of gratuity that has
become payable during the year.
8. Profits chargeable to tax
Section 41(1) Where deduction was allowed in respect of loss,
expenditure or trading liability for any year and
subsequently, during any previous year, the assessee
or successor of the business has obtained any amount
in respect of such loss or expenditure or some benefit
in respect of such trading liability by way of remission
or cessation thereof, the amount obtained or the
6.26
value of benefit accrued shall be deemed to be
income.
Section 41(3) Amount realized on transfer of an asset used for
scientific research is taxable as business income to
the extent of deduction allowed under section 35 in
the year in which transfer takes place.
Section 41(4) Any amount recovered by the assessee against bad
debt earlier allowed as deduction shall be taxed as
income in the year in which it is received.
9. Certain Deductions to be allowed only on Actual
Payment [Section 43B]
In respect of the following sums payable by an assessee, deduction is
allowable only if the sum is actually paid on or before the due date of filing
of return under section 139(1).
i. Tax, duty, cess or fee, under any law for the time being in force; or
ii. Contribution to any provident fund or superannuation fund or gratuity
fund or any other fund for the welfare of employees; or
iii. Bonus or commission for services rendered by employees, where such
sum would not have been payable to him as profits or dividend if it had not
been paid as bonus or commission; or
iv. Interest on any loan or borrowing from any public financial institution or
a State Financial Corporation or a State Industrial Investment
Corporation, in accordance with the terms and conditions of the agreement
governing such loan or borrowing; or

6.27
v. Interest on any loan or borrowing from a deposit taking non banking
financial company or systemically important non deposit taking non-banking
financial company, in accordance with the terms and conditions of the
agreement governing such loan or borrowing
vi. Interest on any loan or advance from a scheduled bank or cooperative
bank other than a primary agricultural credit society or a primary co-
operative agricultural and rural development bank in accordance with the
terms and conditions of the agreement governing such loan or advances; or
vii. Payment in lieu of any leave at the credit of his employee.
viii. Any sum payable to the Indian Railways for use of Railway assets.
10. Stamp Duty Value as Deemed Consideration
(Section 43CA) :
Where the consideration for the transfer of an asset (other than capital
asset), being land or building or both, is less than the stamp duty value, the
value so adopted or assessed or assessable (i.e., the stamp duty value) shall
be deemed to be the full value of the consideration for the purposes of
computing income under the head “Profits and gains of business or
profession”.
However, if the stamp duty value does not exceed 105% of the
consideration received or accruing then, such consideration shall be
deemed to be the full value of consideration for the purpose of computing
profits and gains from transfer of such asset.
Further, where the date of an agreement fixing the value of consideration
for the transfer of the asset and the date of registration of the transfer
of the asset are not same, the stamp duty value may be taken as on the
date of the agreement for transfer instead of on the date of registration
6.28
for such transfer, provided at least a part of the consideration has been
received by way of an account payee cheque/ account payee bank draft or
use of ECS through a bank account or through such other prescribed
electronic modes on or before the date of the agreement.
11. Mandatory audit of accounts of certain persons
(Section 44AB)
Category of person Condition for applicability of
section 44AB
Every person carrying on business Total sales, turnover or gross
receipts in business > Rs 1 crore in
any previous year
Every person carrying on profession Gross receipts in profession > Rs 50
lakh in any previous year
Every person carrying on a Income is claimed to be lower than
business, where deemed profits are the deemed profits under the
taxed on presumptive basis under respective sections
section 44AE or 44BB or 44BBB
Every person carrying on a Income is claimed to be lower than
profession, where 50% of the gross the deemed profits and such
receipts are deemed to be the income exceeds the basic
profits under section 44ADA. exemption limit.
6.29
Every person who declared profit Income cannot be computed on the
on presumptive basis under section basis of presumptive tax provisions
44AD for any previous year and under section 44AD for five
thereafter, declares profits for assessment years subsequent to
any five consecutive assessment the assessment year relevant to
years relevant to the previous year the previous year in which profits
succeeding such previous year not have not been declared under
in accordance with presumptive tax section 44AD(1) and whose income
provisions of section 44AD(1). exceeds the basic exemption limit
in that year.
The requirement of audit under section 44AB does not apply to a person
who declares profits and gains on a presumptive basis under section 44AD
and his total sales, turnover or gross receipts does not exceed Rs 2 crore.
6.30
12. Presumptive taxation provisions
Particulars Deemed profits and gains
Section Any individual, HUF or firm 8% of gross receipts or total
44AD who is a resident (other turnover
than LLP) who has not

However, the presumptive rate of
claimed deduction under
6% of total turnover or gross
section 10AA or Chapter
receipts will be applicable in
VI-A under the heading “C –
respect of amount which is
Deductions in respect of
received
certain incomes” engaged in
any business (except the ● by an account payee cheque
business of plying, hiring or or
leasing goods carriages ● by an account payee bank
referred to in section draft or
44AE) and whose total ● by use of electronic
turnover or gross receipts clearing system through a
in the previous year does bank account or through
not exceed Rs 2 crore. such other prescribed
However, this section will electronic modes
not apply to –
during the previous year or
i. a person carrying on before the due date of filing of
specified professions return under section 139(1) in
referred to in section respect of that previous year.
44AA(1),
6.31
ii. a person earning
income in the nature
of commission or
brokerage;
iii. a person carrying
on agency business.
Section An assessee, being a 50% of the gross receipts.
44ADA resident in India, who is
engaged –
in any profession referred
to in section 44AA(1) such
as legal, medical,
engineering or architectural
profession or the profession
of accountancy or technical
consultancy or interior
decoration or any other
profession as is notified by
the Board in the Official
6.32
Gazette; and whose total
gross receipts does not
exceed Rs 50 lakhs in a
previous year.
Section Any assessee who owns not For each heavy goods vehicle, Rs
44AE more than ten goods 1,000 per ton of gross vehicle
carriages at any time during weight or unladen weight, as the
the previous year and who is case may be, for every month or
engaged in the business of part of a month and for other
plying, hiring and leasing than heavy goods vehicle, Rs
goods carriages. 7,500 per month or part of a
month during which such vehicle
is owned by the assessee or an
amount claimed to have been
actually earned from such
vehicle, whichever is higher.
13. Taxability in case of composite income
In cases where income is derived from the sale of rubber manufactured or
processed from rubber plants grown by the seller in India, coffee (grown
and cured/grown, cured, roasted and grounded) or tea grown and
manufactured in India, the income shall be computed as if it were income

6.33
derived from business, and a specified percentage of such income, as given
in the table below, shall be deemed to be income liable to tax –
Rule Nature of Business income Agricultural
composite (Taxable) Income
income (Exempt)
7A Income from the 35% 65%
manufacture of
rubber
7B Income from the
manufacture of
coffee
25% 75%
- sale of
coffee
grown and
cured
- sale of 40% 60%
coffee
grown,
cured,
roasted
and
grounded
6.34
8 Income from the 40% 60%
manufacture of
tea
14. Proforma for computation of income under the
head “Profits and gains of business or profession"
Particulars Amt (Rs)
Net profit as per statement of profit and loss A
Add: Expenses debited to statement of profit and loss but not B
allowable
● Depreciation as per books of accounts
● Income-tax [disallowed u/s 40(a)(ii)]
● 30% of sum payable to residents on which tax is
not deducted at source or after deduction has not
been remitted on or before the due date u/s
139(1), would be disallowed u/s 40(a)(ia) [The same
is allowable in the year in which the tax is deducted
and remitted]
● Any expenditure incurred, in respect of which
payment is made for goods, services or facilities to
a related person, to the extent the same is
excessive or unreasonable, in the opinion of the
6.35
A.O, having regard to its FMV [disallowed u/s
40A(2)]
● Any expenditure incurred in respect of which
payment or aggregate of payments to a person
exceeding R 10,000 in a single day is made
otherwise than by way of A/c payee cheque/bank
draft or use of ECS through bank A/c [disallowed
u/s 40A(3)]
● Certain sums payable by the assessee which have
not been paid during the relevant P.Y. in which the
liability was incurred or on or before the due date
for filing return u/s 139(1) in respect of that P.Y.
[disallowed u/s]
● Personal expenses/ capital expenditure [not
allowable as per section 37]
● Repairs of capital nature [not allowable as per
sections 30 & 31]
● Amortisation of preliminary expenditure u/s 35D/
expenditure incurred under voluntary retirement
scheme u/s 35DDA [4/5th of such expenditure to
be added back]
● Fine or penalty paid for infringement or breach of
law [However, penalty in the nature of damages for
delay in completion of a contract, being
compensatory in nature, is allowable]
6.36
● All expenses related to income which is not taxable
under this head e.g. municipal taxes in respect of
house property
● Any sum paid by the assessee as an employer by
way of contribution to pension scheme u/s 80CCD
● exceeding 10% of the salary of the employee
(A + B) C
Less: Expenditure allowable as deduction but not debited to D
statement of profit and loss
● Depreciation u/s 32 computed as per Rule 5 of
Income-tax Rules, 1962
● Additional depreciation@20% of actual cost of
new P & M acquired by an assessee engaged in the
business of manufacture or production of any
article or thing or generation, transmission or
distribution of power (10% of actual cost, if put to
use for less than 180 days in the year of
acquisition)/ 35% of actual cost (17.5% if put to
use for less than 180 days in the year of
acquisition), if the manufacturing undertaking is
set up in a notified backward area in the State of
6.37
A.P./Bihar/Telengana/West Bengal on or after
1.4.2015 [Balance additional depreciation can be
claimed in the next year]
● Deduction@15% of actual cost of new P&M u/s
32AD in case of a manufacturing undertaking/
enterprise set up in a notified backward area in the
State of A.P./Bihar/ Telengana/West Bengal on or
after 1.4.2015
● Weighted deduction for expenditure
on/contribution for research u/s 35(1)(ii),
35(2AA), 35(2AB) in excess of the amount already
debited to statement of profit & loss
● Investment-linked tax deduction in respect of
specified businesses u/s 35AD
(C - D) E
6.38
Less: Income credited in statement of profit and loss but not F
taxable/ taxable under any other head
● Dividend income exempt u/s 10(34)/ taxable u/s
115BBDA
● Agricultural income exempt u/s 10(1)
● Interest on securities/savings bank account/ FD
taxable under the head “Income from other
sources”
● Profit on sale of capital asset taxable under the
head “Capital Gains”
● Rent from house property taxable under the head
“Income from house property”
● Winnings from lotteries, horse races, games etc.,
taxable under the head “Income from other
sources”
● Gifts exempt or taxable under the head “Income
from other sources”
● Income-tax refund not taxable
● Interest on income-tax refund taxable under the
head “Income from other sources”
(E - F) G
6.39
Add: Deemed Income H
● Bad debt allowed as deduction u/s 36(1)(vii) in an
earlier PY, now recovered [deemed as income u/s
41(4)]
● Remission or cessation of a trading liability
[deemed as income u/s 41(1)]
(G + H) I
6.40
© www.CABlogIndia.com Capital Gains
Capital Gains
1. Basis of Charge (Section 22)
Any profits or gains arising from the transfer of a capital asset
effected in the previous year will be chargeable to tax under the head
‘Capital Gains’, and shall be deemed to be the income of the previous
year in which the transfer took place [Section 45(1)]
2. Following income shall be chargeable to tax under the
Head of Capital Gains
Money or other asset received The income is chargeable in the
under an insurance from an previous year in which such money or
insurer on account of damage/ other assets are received.
destruction of any capital The value of money or the fair market
asset, as a result of, flood, value of other assets received shall be
hurricane, cyclone, earthquake the full value of consideration.
or other convulsion of nature,
riot or civil disturbance,
accidental fire or explosion,
action by an enemy or action
taken in combating an enemy.
Transfer by way of conversion The income is chargeable in previous
by the owner of a capital asset year in which such stock- in-trade is
into stock-in- trade of a sold or otherwise transferred by him.
7.1
business carried on by him. The fair market value of the capital
asset on the date of such conversion
shall be the full value of
consideration.
Transfer of a capital asset by The income is chargeable in previous
a person to a firm or other year in which such transfer takes
association of persons (AOPs) place.
or body of individuals (BOIs) in The amount recorded in the books of
which he is or becomes a account of the firm, AOPs or BOIs as
partner or member, by way of the value of the capital asset shall be
capital contribution or the full value of consideration.
otherwise.
The transfer of a capital asset The income is chargeable in the
by way of distribution of previous year in which the said
capital assets on the dissolution transfer takes place.
of a firm or other AOPs or The fair market value of the capital
BOIs or otherwise. asset on the date of such transfer
consideration.
Transfer by way of compulsory The income is chargeable in previous
acquisition under any law, or a year in which the consideration or
transfer, the consideration for part thereof is first received.
which was determined or Compensation or consideration
approved by the Central determined or approved in the first
Government or RBI instance by the Central Government
or RBI shall be the full value of
7.2
consideration.
If the compensation or The income is chargeable in the
consideration is further previous year in which the amount was
enhanced by any court, received by the assessee.
Tribunal or other authority, Amount by which the compensation
the enhanced amount will be or
deemed to be the income Consideration is enhanced or further
However, any amount of enhanced shall be the full value of
compensation received in consideration. For this purpose the
pursuance of an interim order cost of acquisition and cost of
of a court, Tribunal or improvement shall be taken as ‘Nil’.
other authority shall be
deemed to be income
chargeable under the head
“Capital Gains” of
the previous year in which the
final order of such
court, Tribunal or other
authority is made.
Transfer of a capital asset, The income is chargeable in previous
being land or building or both, year in which the certificate of
by an individual or Hindu completion for the whole or part of
undivided family, who enters the project is issued by the
into a specified agreement for competent authority.
development of a project, The stamp duty value of his share in
provided he does not transfer the project, being land or building or
7.3
his share in project on or both, on the date of issuing of said
before the date of issuance of certificate of completion
completion certificate. +
Consideration received in cash,
if any,
consideration.
3. Definition of various terms [Section 2]
Capital Asset Capital Asset means –
(a) property of any kind held by an assessee,
whether or not connected with his business
or profession;
(b) any securities held by a Foreign
Institutional Investor which has invested in
such securities in accordance with the
regulations made under the SEBI Act, 1992.
Exclusions from the definition of Capital Asset:
Stock in trade [other than securities referred to
in (b) above], raw materials or consumables held
for the purposes of business or profession;
➢ Personal effects except jewellery,
archeological collections, drawings,
paintings, sculptures or any work of art;
➢ Rural agricultural land in India i.e.
7.4
agricultural land not situated within
specified urban limits.
The agricultural land described in (a) and (b)
below, being land situated within the specified
urban limits, would fall within the definition of
“capital asset”, and transfer of such land would
attract capital gains tax -
(a) agricultural land situated in any area within
the jurisdiction of a municipality or
cantonment board having population of not
less than ten thousand, or
(b) agricultural land situated in any area within
such distance, measured aerially, in relation
to the range of population as shown
hereunder -
Shortest aerial Population according
distance from the to the last preceding
local limits of a census of which the
municipality or relevant figures have
cantonment board been published
referred to in item before the first day
(a) of the previous year.
(i) ≤ 2 kilometers > 10,000 ≤ 1,00,000
7.5
(ii) ≤ 6 kilometers > 1,00,000 ≤
10,00,000
(iii) ≤ 8 kilometers > 10,00,000
➢ Gold Deposits Bonds issued under the
Gold Deposit Scheme, 1999 or deposit
certificates issued under the Gold
Monetisation Scheme, 2015 notified by the
Central Government;
➢ 6% Gold Bonds, 1977 or 7% Gold Bonds,
1980 or National Defence Gold Bonds, 1980,
issued by the Central Government
➢ Special Bearer Bonds, 1991 issued by the
Central Government.
Note: ‘Property’ includes and shall be deemed
to have always included any rights in or in relation
to an Indian company, including rights of
management or control or any other rights
whatsoever.
Short-term capital Capital asset held by an assessee for not more
asset than 36 months immediately preceding the date of
its transfer is a short-term capital asset.
However, a security (other than a unit) listed
in a recognized stock exchange in India, a unit of
UTI or a unit of an equity oriented fund or a zero
7.6
coupon bond will be treated as short term capital
asset if it is held for not more than 12 months
immediately preceding the date of its transfer.
Further, a share of a company (not being a share
listed in a recognized stock exchange in India)
would be treated as a short-term capital asset
if it was held by the assessee for not more than
24 months immediately preceding the date of its
transfer.
Further, an immovable property, being land or
building or both, would be treated as a short-term
capital asset if it was held by an assessee for
not more than 24 months immediately preceding
the date of its transfer.
Long-term capital Capital asset which is not a short-term capital
asset asset is a long-term capital asset. The following
assets are, therefore, long-term capital assets:
➢ a security (other than a unit) listed in a
recognized stock exchange in India, a unit
of UTI or a unit of an equity oriented fund
or a zero coupon bond held for more than
12 months;
➢ unlisted shares or an immovable property,
being land or building or both, held for
more than 24 months immediately
preceding the date of its transfer and
7.7
➢ any other capital asset held for more
than 36 months.
4. Transactions not regarded as transfer [Section 47]

➢ Any distribution of capital assets on the total or partial partition of
a HUF
➢ Any transfer of capital asset under a gift or will or an irrevocable
trust
➢ Any transfer of capital asset by a holding company to its 100%
subsidiary Indian company or by a subsidiary company to its 100%
holding Indian company
➢ Any transfer or issue of shares by the resulting company, in a
scheme of demerger to the shareholders of the demerged company
➢ Any transfer by a shareholder in a scheme of amalgamation of shares
held by him in the amalgamating company
➢ Any transfer by an individual of sovereign gold bonds issued by RBI
by way of redemption
➢ Any transfer by way of conversion of bonds, debentures, debenture
stock, deposit certificates of a company, into shares or debentures
of that company.
➢ Any transfer by way of conversion of preference shares of a
company into equity shares of that company
➢ Any transfer of a capital asset in a transaction of reverse mortgage
under a scheme made and notified by the Central Government
7.8
5. Computation of Capital Gains [Section 48]
Computation of Long Term Capital Gains :
Full value of consideration received or accruing as a XX
result of transfer
Less: Expenditure incurred wholly and exclusively in XX
connection with such transfer (e.g. brokerage on
sale)
(Note: Deduction on account of STT paid will not be
allowed)
Net Sale Consideration XX
Less: Indexed cost of acquisition and indexed cost of (XX)
improvement
Less: Exemption under sections 54/ 54B/ 54D/ (XX)
54EC/ 54EE/ 54F
Long-term capital gains XX
Notes:
(i). Deduction on account of securities transaction tax paid will not be
allowed.
(ii). Indexed Cost of Acquisition =
(iii). Indexed Cost of Improvement =
7.9
(iv). Benefit of indexation will, however, not be available in respect of long
term capital gains from transfer of bonds or debentures other than
capital indexed bonds issued by the Government and sovereign gold bonds
issued by RBI and in respect of long term capital gains chargeable
to tax under section 112A
Computation of short-term capital gains :
Full value of consideration received or accruing as XX
a result of transfer
Less: Expenditure incurred wholly and exclusively in XX
connection with such transfer (e.g. brokerage on sale)
(Note: Deduction on account of STT paid will not be
allowed)
Net Sale Consideration XX
Less: Cost of acquisition and cost of improvement (XX)
Less: Exemption under sections 54B/ 54D (XX)
Short-term capital gains XX
6. Capital Gains: Special Provisions
Transfer of Any income from transfer of depreciable assets
depreciable is deemed to be capital gains arising from
7.10
assets transfer of short-term capital assets, irrespective
of the period of holding (i.e., indexation benefit
would not be available even if the period of holding
of such assets is more than 36 months).
Capital Gains on Any profits and gains arising from slump sale
Slump Sale effected in the previous year shall be
chargeable to income-tax as capital gains arising
from the transfer of capital assets and shall be
deemed to be the income of the previous year in
which the transfer took place.Where the
undertaking being transferred under slump sale is
held for more than 36 months, the resultant gain
is long-term; However, no indexation benefit would
be available. If the undertaking is held for less
than 36 months, the resultant gain is short-
term.Net worth is deemed to be the cost of
acquisition and the cost of improvement. ‘Net
worth’ shall be aggregate value of total assets
minus value of liabilities of such undertaking as
per books of account.
Capital gains = Sale consideration – Net Worth.
Aggregate value of total assets would be the
aggregate of the following :
i) Written Down Value of depreciable assets;
ii) Nil, in case of capital assets in respect of which
the whole of the expenditure has been allowed or
7.11
is allowable as deduction under section 35AD; and
iii) Book value for other assets.
Revaluation of assets shall be ignored for
computing Net Worth.
Computation of Where consideration received or accruing as a
capital gains on result of transfer of a capital asset, being land
sale of land or or building or both, is less than the value
building or both adopted or assessed or assessable by the stamp
valuation authority for the purpose of payment of
stamp duty in respect of such transfer, the value
so adopted or assessed or assessable, shall, for
the purpose of section 48, be deemed to be the
full value of consideration received or accruing as
a result of such transfer.
However, where the date of the agreement
fixing the amount of consideration for the
transfer of immovable property and the date of
registration are not the same, the stamp duty value
on the date of the agreement may be taken for the
purposes of computing the full value of
consideration.
The stamp duty value on the date of agreement
can be adopted only in a case where the amount
of consideration, or part thereof, has been paid by
way of an account payee cheque or account payee
bank draft or use of electronic clearing system
7.12
through a bank account or such other prescribed
electronic mode on or before the date of the
agreement for the transfer of such immovable
property.
Where the stamp duty value does not exceed
105% of the sale consideration, then the sale
consideration shall be deemed to be the full value
of consideration.
Where the assessee claims before any Assessing
Officer that the value adopted or assessed or
assessable by the stamp valuation authority
exceeds the fair market value of the property on
the date of transfer, the Assessing Officer may
refer the valuation of the capital asset to the
Valuation Officer, provided the value so
adopted or assessed or assessable has not been
disputed in any appeal or revision.
Sl. Condition Deemed Sale
No Consideration
1. Stamp Duty Value >
Actual Consideration
If Stamp Duty Value Stamp Duty
>105% of actual Value
consideration
7.13
If Stamp Duty Value < Actual sale
105% of consideration
actual sale consideration
2. Actual Consideration > Actual Sale
Stamp Duty Value Consideration
3. Value ascertained by Stamp Duty
Valuation Officer > Value
Stamp Duty Value
4. Value ascertained by Value
Valuation Officer < ascertained by
Stamp Duty Value Valuation
Officer
Fair Market Value Where the consideration received or accruing as a
deemed to be full result of transfer of a capital asset, being share
value of of a company other than a quoted share, is less
consideration in than the fair market value of such share, such fair
case of transfer market value shall be deemed to be the full value
of unlisted shares of consideration received or accruing as a result of
in certain cases such transfer.
The provisions of this section would not, however,
be applicable to any consideration received or
accruing as a result of transfer by such class of
persons and subject to such conditions as may be
prescribed.
7.14
Fair Market Value Where, on transfer of a capital asset,
deemed to be full consideration received is not ascertainable or
value of cannot be determined then, fair market value of
consideration in the asset as on the date of transfer shall be
certain cases deemed as the full value of consideration received
or accruing as a result of such transfer.
Advance money Where the assessee has received advance money
received and on an earlier occasion for transfer of capital asset,
forfeited upto but the transfer could not be effected due to
31.3.2014 failure of negotiations, then, the advance money
forfeited by the assessee has to be reduced from
the cost of acquisition (and indexation would be
calculated on the cost so reduced) while computing
capital gains, when the capital asset is transferred
or sold.
However, such advance money received on or after
1.4.2014 would be taxable under section 56(2)
under the head “Income from other sources”.
Therefore, advance money received and forfeited
on or after 1.4.2014 should not be deducted from
the cost for determining the indexed cost of
acquisition while computing capital gains arising on
transfer of the asset.
Tax on short-term ➢ Any short-term capital gains on transfer of
capital gains on equity shares or units of an equity oriented
sale of equity fund shall be liable to tax @15%, if
7.15
shares and units securities transaction tax has been paid on
of equity oriented such sale.
fund on which STT ➢ In case of resident individuals and HUF, the
is chargeable short-term capital gain shall be reduced by
the unexhausted basic exemption limit and
the balance shall be taxed at 15%.
➢ No deduction under Chapter VI-A can be
claimed in respect of such short-term
capital gain.
➢ Short-term capital gains arising from
transaction undertaken in foreign currency
on a recognized stock exchange located in an
International Financial Services Centre
(IFSC) would be taxable at a concessional
rate of 15% even when STT is not paid in
respect of such transaction.
Tax on long-term ➢ Any long-term capital gains, other than long
capital gains term capital gains taxable under section
112A, shall be liable to tax@20%.
➢ In case of resident individuals and HUFs,
the long-term capital gain shall be reduced
by the unexhausted basic exemption limit,
and the balance shall be subject to tax at
20%.
➢ Capital gains on transfer of listed securities
(other than units) or zero coupon bonds shall
7.16
be chargeable to tax@10% computed
without the benefit of indexation or @20%
availing the benefit of indexation, whichever
is more beneficial to the assessee.
➢ In case of non-corporate non-resident or
foreign company, capital gains arising from
the transfer of a capital asset, being
unlisted securities, or shares of a closely
held company shall be chargeable to tax
@10% without giving effect to the
indexation provision under second proviso to
section 48 and currency conversion under
first proviso to section 48.
➢ No deduction under Chapter VI-A can be
claimed in respect of long-term capital gains.
Tax on long-term ➢ Any long-term capital gains exceeding Rs
capital gains on 1,00,000 on transfer of equity shares or
certain assets units of an equity oriented fund or unit of a
business trust shall be liable to tax @10% on
such capital gain, if securities transaction
tax has been paid on acquisition and such
sale in case of equity share, and on such sale
in case of units of an equity oriented mutual
fund or business trust.
➢ In case of resident individuals and HUF, the
7.17
long-term capital gain shall be reduced by
the unexhausted basic exemption limit and
the balance shall be taxed at 10%.
➢ No deduction under Chapter VI-A or rebate
under section 87A can be claimed in respect
of such long-term capital gain.
➢ Long-term capital gains (in excess of Rs
1,00,000) arising from transaction
undertaken on a recognized stock exchange
located in an International Financial
Services Centre (IFSC) would be taxable at
a concessional rate of 10%, where the
consideration for transfer is received or
receivable in foreign currency, even when
STT is not paid in respect of such
transaction.
7. Cost of Acquisition
Sl. Nature of asset Cost of acquisition
No.
1 Goodwill of business,
trademark, brand name etc.,
- Self generated Nil
- Acquired from previous Purchase price
7.18
owner
The cost of improvement of
such assetswould be Nil.
2 Bonus shares
If bonus shares are allotted FMV on 1.4.2001
before 1.4.2001
If bonus shares are allotted Nil
on or after 1.4.2001
3 Rights Shares
Original shares (which forms Amount actually paid for
the basis of entitlement of acquiring the original shares
rights shares)
Rights shares subscribed for Amount actually paid for
by the assessee acquiring the rights shares
Rights entitlement (which is Nil
renounced by the assessee in
favour of a person)
Rights shares which are Purchase price paid to the
purchased by the person in renouncer of rights
whose favour the assessee entitlement as well as the
has renounced the rights amount paid to the company
entitlement which has allotted the rights
shares.
7.19
4 Long term capital assets being, Cost of acquisition shall be the
- equity shares in a higher of
company on whichSTT (i) cost of acquisition of
is paid both at the time such asset; and
of purchase and (ii) lower of
transfer or - The fair market
- unit of equity oriented value of such
fund or unit ofbusiness asset; and
trust on which STT is - the full value of
paid at thetime of consideration
transfer received or
acquired before 1st February, accruing as a result
2018 of the transfer of
the capital asset.
5 Any other capital asset
Where such capital asset Cost of the asset to the
became the property of the assessee, or FMV as on
assessee before 1.4.2001 1.4.2001, at the option of the
assessee.
Where capital assets became Cost to the previous owner.
the property of the assessee Where such cost cannot be
by way of distribution of ascertained, FMV on the
assets on total or partial date on which the capital
partition of HUF, under a asset became the property of
gift or will, by succession, the previous owner.
7.20
inheritance, distribution of
assets on liquidation of a
company, etc.
Where the capital asset Cost to the previous owner or
became the property of the FMV as on 1.4.2001, at the
previous owner before 1.4.2001 option of the assessee.
8. Cost of improvement of certain assets (Section 55)
Sl. Nature of asset Cost of acquisition
No.
1 Goodwill of a business, right to Nil
manufacture, produce or
process any article or thing,
right to carry on any business
or profession
2 In relation to any other All capital expenditure incurred
capital asset in making additions or
alterations to the capital asset
on or after 1.4.2001 –
- by the assessee after it
became his property; and
- by the previous owner [in
a case where the
assessee acquired the
7.21
property by modes
specified in section
49(1)].
9. Capital Gains: Exemptions under section 10

➢ Any income arising from the transfer of a capital asset being a unit
of Unit Scheme 1964 of UTI. (Section 10 (33))
➢ Where any individual or HUF owns urban agricultural land which has
been used for agricultural purposes for a period of two years
immediately preceding the date of transfer by such individual or a
parent of his or by such HUF and the same is compulsorily
acquired under any law or the consideration for such transfer is
determined or approved by the Central Government or the RBI,
resultant capital gain will be exempt provided the compensation or
consideration for such transfer is received on or after 1.4.2004.
(Section 10 (37))
➢ The amount received by the senior citizen as a loan, either in
lump sum or in installments, in a transaction of reverse mortgage
would be exempt from income-tax. (Section 10(43))
10. Exemption of Capital Gains [Sections 54 to 54F]
Section 54 - Income ● Eligible Assessee - Individual / HUF
from Transfer of ● Asset transferred - Residential House
Residential House (LTCA)
7.22
(LTCA) ● Other Conditions - Income from such
house should be chargeable under the
head “Income from house property”
● Qualifying asset i.e., asset in which
capital gains has to be invested - One
Residential House situated in India/
Two residential houses in India, at the
option of the assessee,where capital
gains do not exceed Rs. 2 crore
● Time limit for purchase/ construction
- Purchase within 1 year before or 2
years after the date of transfer(or)
construct within 3 years after the
date of transfer
● Amount of Exemption - Cost of new
Residential House or two houses, as
the case may be or Capital Gain,
whichever is lower, is exempt
Section 54 B - Income ● Eligible Assessee - Individual / HUF
from Transfer of Urban ● Asset transferred - Urban
Agricultural Land Agricultural Land
● Other Conditions - Land should be
used for agricultural purposes by
assessee or his parents or HUF for 2
years immediately preceding the date
of transfer
7.23
capital gains has to be invested - Land
for being used for agricultural purpose
(Urban/ Rural)
- Purchase within a period of 2 years
after the date of transfer
Agricultural Land or Capital Gain,
whichever is lower, is exempt
Section 54D - Income ● Eligible Assessee - Any assessee
from Transfer of Land & ● Asset transferred - Land & building
building forming part of forming part of an industrial
an industrial undertaking undertaking.
● Other Conditions - Land & building
have been used for business of
undertaking for at least 2 years
immediately preceding the date of
transfer. The transfer should be by
way of compulsory acquisition of the
industrial undertaking.
capital gains has to be invested - Land
or Building or right in land or building.
- Purchase/ construct within 3 years
7.24
after the date of transfer, for
shifting or re-establishing the
existing undertaking or setting up a
new industrial undertaking.
asset or Capital Gain, whichever is
lower.
Section 54EC - Income ● Eligible Assessee - Any assessee
from Transfer of Land ● Asset transferred - Land or building
or building or both or both (LTCA).
(LTCA) ● Qualifying asset i.e., asset in which
capital gains has to be invested -
Bonds of NHAI or RECL or any other
bond notified by C.G. (Redeemable
after 5 years.
- Purchase within a period of 6 months
after the date of transfer.
● Amount of Exemption - Capital Gain or
amount invested in specified bonds,
whichever is lower. Maximum
permissible investment out of capital
gains arising in any financial year is Rs.
50 lakhs, whether such investment is
made in the current FY or subsequent
FYor both.
7.25
Section 54EE - Income ● Eligible Assessee - Any assessee
from any LTCA ● Asset transferred - Any LTCA
capital gains has to be invested - Unit
issued before the 1st April, 2019 of
Specified Fund as notified by the
Central Government.
- Purchase within a period of 6 months
after the date of such transfer.
● Amount of Exemption - Capital Gain or
amount invested in notified units of
specified fund, whichever is lower.
Maximum permissible investment in
such units out of capital gains arising
in any FY is Rs. 50 lakhs, whether such
investment is made in the current FY
or subsequent FY or both.
Section 54F - Any LTCA ● Eligible Assessee - Individual / HUF
other than Residential ● Asset transferred - Any LTCA other
House. than Residential House.
● Other Conditions - Assessee should
not own more than one residential
house on the date of transfer. He
should not purchase within 2 years or
construct within 3 years after the
7.26
date of transfer, another residential
house.
capital gains has to be invested - One
Residential House situated in India.
- Purchase within 1 year before or 2
years after the date of transfer or
Construct within 3 years after the
date of transfer.
Residential House ≥ Net sale
consideration of original asset, entire
Capital gain is exempt.Cost of new
Residential House < Net sale
consideration of original asset,
proportionate capital gain is exempt.
7.27
© www.CABlogIndia.com Income from Other Sources
Income from Other Sources
1. Basis of Charge -
Where any income, profits or gains includible in the total income of an
assessee, cannot be included under any of the other heads, it would be
chargeable under the head ‘Income from other sources’. Hence, this head
is the residuary head of income [Section 56(1)]
2. Specific Incomes Chargeable under this head [Section
56(2)]
Dividend Income -
Casual income Casual income (winnings from lotteries, crossword
puzzles, races including horse races, card games
and other games, gambling, betting etc.). Such
Winnings are chargeable to tax at a flat rate of 30%
under section 115BB and no expenditure or
deduction under Chapter VIA can be allowed
from suchincome. No loss can be set-off
against such income and even the unexhausted
basic exemption limit cannot be exhausted
against such income.
Sum of money or
property received
8.1
by any person Nature of Particulars Taxable value

[Section 56(2)(x)] asset
1 Money Without The whole
consideration amount, if the
same exceeds
Rs. 50,000.
2 Movable Without The aggregate
property consideration fair market
value of the
property, if it
exceeds Rs.
50,000
3 Movable Inadequate The difference
property consideration between the
aggregate fair
market value and
the
consideration, if
such difference
exceeds Rs.
50,000.
4 Immovable Without The stamp value
property consideration of the property,
if it exceeds Rs.
50,000.
8.2
5 Immovable Inadequate The difference
property consideration between the
stamp duty value
and the
consideration, if
such difference
exceeds the
higher of Rs.
50,000 and 5%
of consideration.
Receipts exempted from the applicability of section
56(2)(x)
Any sum of money or value of property received -
a. from any relative; or
b. on the occasion of the marriage of the
individual; or
c. under a will or by way of inheritance; or
d. in contemplation of death of the payer or
donor, as the case may be; or
e. from any local authority; or
f. from any fund or university or other
educational institution or hospital or other
medical institution or any trust or institution;
or
g. from or by any registered trust or institution;
8.3
or
h. by any fund or trust or institution or any
university or other educational institution or
any hospital or other medical institution.
i. by way of transaction not regarded as
transfer under specified clauses of section
47
j. from an individual by a trust created or
established solely for the benefit of the
relative of the individual.
k. from such a class of persons and subject
to such conditions, as may be prescribed.
Consideration Consideration received in excess of FMV of
received in shares issued by a closely held company to any
excess of FMV person, being a resident, to be treated as income
of shares of such company, where shares are issued at a
premium
Interest Interest received on compensation/enhanced
received on compensation deemed to be income in the year
compensation/ of receipt and taxable under the head “Income
enhanced from Other Sources”.
compensation
Money received Any sum of money received as an advance or
as an advance otherwise in the course of negotiations for
or otherwise in transfer of a capital asset, if such sum is forfeited
the course of and the negotiations do not result in transfer of
8.4
negotiations for such asset.
transfer of a
capital asset
Compensation in Compensation or other payment, due to or
connection with received by any person, by whatever name called,
termination of in connection with termination of his employment
his employment or the modification of the terms and
conditions relating thereto.
3. Deductions allowable [Section 57]
S. No. Particulars Deduction
1 In case of dividends (other Any reasonable sum paid by
than dividends u/s 115-O) or way of commission or
interest on securities remuneration to a banker or
any other person.
2 Income consists of recovery Amount of contribution
from employees as remitted before the due
contribution to any PF, date under the respective
superannuation fund etc. Acts, in accordance with the
provisions of section 36(1)(va)
3 Income from letting on hire of Current repairs to the
machinery, plant and machinery, plant, furniture or
furniture, with or without building , insurance premium,
8.5
building depreciation/ unabsorbed
depreciation
4 Family Pension Sum equal to
- 33 1/3% of such income
or
- Rs. 15,000,whichever is
less
5 Interest on 50% of such interest income
compensation/enhanced
compensation received
4. Deductions not allowable [Section 58]

● Any personal expense of the assessee
● Any interest chargeable to tax under the Act which is payable
outside India on which tax has not been paid or deducted at source.
● Any payment chargeable to tax under the head “Salaries”, if
it is payable outside India unless tax has been paid thereon or
deducted at source.
● Any expenditure in respect of which a payment is made to a related
person, to the extent the same is considered excessive
or unreasonable by the Assessing Officer, having regard to the
FMV.
● Any expenditure in respect of which a payment or aggregate
payments exceeding Rs.10,000 is made to a person in a day otherwise
8.6
than by account payee cheque or draft or ECS through bank account
or through such other prescribed electronic mode.
● Any expenditure or allowance in connection with income by way
of earnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort or from
gambling or betting of any form or nature
● 30% of expenditure in respect of sum which is payable to a resident
on which tax is deductible at source, if such tax has not been
deducted or after deduction has not been paid on or before
the due date of return specified in section 139(1)
8.7
© www.CABlogIndia.com Clubbing of Income
Clubbing of Income
1. Sections 60 to 65 of the Income-tax Act provide that in computing the
total income of an individual for purposes of assessment, there shall be
included all the items of income specified in these sections.
2. Income transferred without transfer of asset
(Section 60) -
When a person transfers the income accruing to an asset without
the transfer of the asset itself, such income is to be included in the
total income of the transferor, whether the transfer is revocable or
irrevocable.
3. Income arising from revocable transfer of assets
(Section 61) -
Such income is to be included in the hands of the transferor.
A transfer is deemed to be revocable if it –
(i) contains any provision for re-transfer of the whole or any part of
the income or assets to the transferor; or
(ii) gives the right to re-assume power over the whole or any part of
the income or the asset.
4. Income arising to spouse by way of remuneration from
a concern in which the individual has substantial
interest (Section 64(1)(ii)) -

Such income arising to spouse is to be included in the total income of the
individual.
9.1
However, if remuneration received is attributable to the application of
technical or professional knowledge and experience of spouse, then, such
income is not to be clubbed.
5. Income arising to spouse from assets transferred
without adequate consideration (Section 64(1)(iv)) -

Income arising from an asset (other than house property) transferred
otherwise than for adequate consideration or not in connection with an
agreement to live apart, from one spouse to another shall be included in
the total income of the transferor.
However, this provision will not apply in the case of transfer of house
property, since the transferor- spouse would be the deemed owner as per
section 27.
6. Income arising to son’s wife from an asset
transferred without adequate consideration (Section
64(1)(vi)) -
Income arising from an asset transferred otherwise than for adequate
consideration, by an individual to his or her son’s wife shall be included in
the total income of the transferor.
7. Income arising from transfer of assets for the
benefit of spouse or son’s wife (Section
64(1)(vii)/64(1)(viii)) -
All income arising to any person or association of persons from assets
transferred without adequate consideration is includible in the income of
the transferor, to the extent such income is used by the transferee for
the immediate or deferred benefit of the transferor’s spouse or son’s wife.
9.2
8. Income of minor child (Section 64(1A)) -

All income arising or accruing to a minor child (including a minor married
daughter) shall be included in the total income of his or her parent. The
income of the minor child shall be included with the income of that parent,
whose total income, before including minor’s income, is higher.
The parent, in whose total income, the income of the minor child or children
are included, shall be entitled to exemption of such income subject to a
maximum of Rs. 1,500 per child under section 10(32).
The following income of a minor child shall, however, not be clubbed in the
hands of his or her parent -
(a). Income from manual work done by him or activity involving
application of minor’s skill, talent or specialized knowledge and
experience; and
(b). Income of a minor child suffering from any disability specified
in section 80U.
9. Conversion of self-acquired property into the
property of a Hindu Undivided Family (Section 64(2))
-
Where an individual, who is a member of the HUF, converts his individual
property into property of the HUF of which he is a member, directly or
indirectly, to the family otherwise than for adequate consideration, the
income from such property shall continue to be included in the total
income of the individual.
Where the converted property has been partitioned, either by way of total
or partial partition, the income derived from such converted property as is
9.3
received by the spouse on partition shall also be included in the total income
of the individual who effected the conversion of such property.
9.4
© www.CABlogIndia.com Set-Off and Carry Forward of Losses
Set-Off and Carry Forward of
Losses
1. Sometimes the assessee incurs a loss from a source of income and unless such loss
is set-off against any income, the net result of the assessee’s activities during
the particular accounting year cannot be ascertained and consequently the tax
payable would also be incapable of determination. For this purpose, the Income-
tax Act contains specific provisions (Sections 70 to 80) for the set-off and carry-
forward of losses.
2. Inter-source set-off of losses under the same head
of income (Section 70) -
Any loss in respect of one source shall be set-off against income from any other
source under the same head of income. For example,
- loss from textile business can be set-off against profit from printing
business.
- loss from one house property can be set-off against income from another
house property.
- short-term capital loss (STCL)can be set-off against both STCG and LTCG.
Exceptions -
● Loss from speculation business can be set-off only against profits from
another speculation business.
● Loss from specified business under section 35AD can be set-off only
against profits from any other specified business.
● Long term capital loss (LTCL) can be set-off only against Long term capital
gains (LTCG).
10.1
● Loss from the activity of owning and maintaining race horses can be set-
off only against income from the activity of owning and maintaining race
horses.
3. Inter head adjustment (Section 71) -
Loss under one head of income can be set-off against income assessable under any
other head of income.
For example, business loss can be set-off against income from house property.
Exceptions -
● Loss under the head “Profits and gains of business or profession” cannot
be set off against income under the head “Salaries”
● Loss under the head “Capital gains” cannot be set-off against income under
any other head.
● Speculation loss, losses from specified business under section 35AD and
loss from the activity of owning and maintaining race horses cannot be
set-off against income under any other head.
● Loss from house property can be set-off against income under any other
head only to the extent of Rs. 2 lakhs. The remaining loss can be carried
forward for set-off against income from house property of the succeeding
year(s).
4. Losses which cannot be set-off or carried forward

● Loss from gambling, betting, card games etc.
● Loss from an exempt source [for example, share of loss of partnership
firm cannot be set-off against any other business income]
10.2
5. Maximum period of carry forward of losses &
Manner of set-off of brought forward losses
Section Nature of loss to Income against Maximum period
be carried which the [from the end
forward brought forward of the
loss can be set- relevant
off assessment
year] for carry
forward of
losses
32(2) Unabsorbed Income under any Indefinite period
depreciation head other than
salaries
71B Unabsorbed loss Income from 8 assessment
from house house property years
property
72 Unabsorbed Profits and gains 8 assessment
business from business or years
loss profession
73 Loss from Income from any 4 assessment
speculation speculation years
business business
10.3
73A Loss from Profit from any Indefinite period
specified business specified business
under section
35AD
74 Long-term capital Long-term capital 8 assessment
loss gains years
Short-term Short-term/Long- 8 assessment
capital loss term capital gains years
74A Loss from the Income from the 4 assessment
activity of owning activity of owning years
and maintaining and maintaining
race horses race horses.
6. Order of set-off of losses
1. Current year depreciation / Current year capital expenditure on scientific
research and current year expenditure on family planning, to the extent allowed.
2. Brought forward loss from business/profession [Section 72(1)]
3. Unabsorbed depreciation [Section 32(2)]
4. Unabsorbed capital expenditure on scientific research [Section 35(4)].
5. Unabsorbed expenditure on family planning [Section 36(1)(ix)]
Note - As per section 80, filing of loss return under section 139(3) within
the due date specified under section 139(1) is mandatory for carry forward
10.4
of the above losses except loss from house property and unabsorbed
depreciation
10.5
© www.CABlogIndia.com Deductions from Gross Total Income
Deductions from Gross Total
Income
Chapter VI-A of Income Tax contains deductions from gross total income. The important
point to be noted here is that if there is no gross total income, then no deductions will
be permissible. These deductions contain deductions in respect of certain payments,
deductions in respect of certain incomes, deductions in respect of other income and
other deductions.
Section Nature of deduction Who can claim
80C ● Life insurance premium for policy : Individual/HUF
- in case of individual, on life of assessee,
assessee's spouse and any child of
assessee
- in case of HUF, on life of any member of
the HUF
● Sum paid under a contract for a deferred annuity
- in case of individual, on life of the
individual, individual's spouse and any child
of the individual (however, contract should
not contain an option to receive cash
payment in lieu of annuity)
- in case of HUF, on life of any member of
the HUF
● Sum deducted from salary payable to Government
servant for securing deferred annuity or making
provision for his wife/children [qualifying amount
11.1
limited to 20% of salary]
● Contributions by an individual made under
Employees' Provident Fund Scheme
● Contribution to Public Provident Fund Account in
the name of:
- in case of individual, such individual or his
spouse or any child of such individual
- in case of HUF, any member of HUF
● Contribution by an employee to a recognised
provident fund
● Contribution by an employee to an approved
superannuation fund
● Subscription to any notified security or notified
deposit scheme of the Central Government. For
this purpose, Sukanya Samriddhi Account Scheme
has been notified vide Notification No. 9/2015,
dated 21.01.2015. Any sum deposited during the
year in Sukanya Samriddhi Account by an
individual would be eligible for deduction.
● Amount can be deposited by an individual or in the
name of girl child of an individual or in the name
of the girl child for whom such an individual is the
legal guardian.
● Subscription to notified savings certificates
[National Savings Certificates (VIII Issue)]
● Contribution for participation in unit-linked
Insurance Plan of UTI :
- in case of an individual, in the name of the
individual, his spouse or any child of such
11.2
individual
- in case of a HUF, in the name of any
member thereof
● Contribution to notified unit-linked insurance plan
of LIC Mutual Fund [Dhanaraksha 1989]
- in the case of an individual, in the name of
the individual, his spouse or any child of
such individual
- in the case of a HUF, in the name of any
member thereof
● Subscription to notified deposit scheme or
notified pension fund set up by National Housing
Bank [Home Loan Account Scheme/National
Housing Banks (Tax Saving) Term Deposit
Scheme, 2008]
● Tuition fees (excluding development fees,
donations, etc.) paid by an individual to any
university, college, school or other educational
institution situated in India, for full time
education of any 2 of his/her children
● Certain payments for purchase/construction of
residential house property
● Subscription to notified schemes of (a) public
sector companies engaged in providing long-term
finance for purchase/construction of houses in
India for residential purposes/(b) authority
constituted under any law for satisfying need for
housing accommodation or for planning,
11.3
development or improvement of cities, towns and
villages, or for both
● Sum paid towards notified annuity plan of LIC
(New Jeevan Dhara/New Jeevan Dhara-I/New
Jeevan Akshay/New Jeevan Akshay-I/New
Jeevan Akshay-II/Jeewan Akshay-III plan of
LIC) or other insurer
● Subscription to any units of any notified [u/s
10(23D)] Mutual Fund or the UTI (Equity Linked
Saving Scheme, 2005)
● Contribution by an individual to any pension fund
set up by any mutual fund which is referred to in
section 10(23D) or by the UTI (UTI Retirement
Benefit Pension Fund)
● Subscription to equity shares or debentures
forming part of any approved eligible issue of
capital made by a public company or public
financial institutions
● Subscription to any units of any approved mutual
fund referred to in section 10(23D), provided
amount of subscription to such units is subscribed
only in 'eligible issue of capital' referred to above.
● Term deposits for a fixed period of not less than
5 years with a scheduled bank, and which is in
accordance with a scheme framed and notified.
● Subscription to notified bonds issued by the
NABARD.
● Deposit in an account under the Senior Citizen
Savings Scheme Rules, 2004 (subject to certain
11.4
conditions)
● 5-year term deposit in an account under the Post
Office Time Deposit Rules, 1981 (subject to
certain conditions)
● Contribution to specified account of the pension
scheme referred to in section 80CCD, in case of
central Government employee.
Note Deduction is limited to the whole of the amount paid
or deposited subject to a maximum of Rs. 1,50,000. This
maximum limit of Rs. 1,50,000 is the aggregate of the
deduction that may be claimed under sections 80C,
80CCC and 80CCD.
80CCC Contributions to certain pension funds of LIC or any Individual
other insurer (up to Rs. 1,50,000) (subject to certain
conditions)
80CCD Contribution to pension scheme notified by Central Individual
Government up to 10% of salary (subject to certain
conditions and limits)
Contribution made by employer shall also be allowed as
deduction under section 80CCD(2) while computing total
income of the employee. However, the amount of
deduction could not exceed 14% of salary where
contribution is made by the central government and 10%
of salary. Where contribution is made by any other
employee.
80D Amount paid (in any mode other than cash) by an Individual/HUF
individual or HUF to LIC or other insurer to effect or
11.5
keep in force an insurance on the health of specified
person. An individual can also make payment to the
Central Government health scheme and/or on account of
preventive health check-up (subject to limit)
❏ specified person means:
- In case of Individual - self, spouse,
dependent children or parents
- In case of HUF - Any member thereof
❏ Deduction for preventive health check-up shall
not exceed in aggregate Rs. 5,000.
❏ Payment on account of preventive health check-up
may be made in cash.
80DD Deduction of Rs. 75,000 (Rs. 1,25,000 in case of severe Resident
disability) to a resident individual/HUF where (a) any Individual/HUF
expenditure has been incurred for the medical treatment
(including nursing), training and rehabilitation of a
dependant, being a person with disability [as defined
under Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995]
(w.e.f. assessment year 2005-06 including autism,
cerebral palsy and multiple disability as referred to in
National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation & Multiple Disabilities
Act, 1999), or (b) any amount is paid or deposited under
an approved scheme framed in this behalf by the LIC or
any other insurer or the Administrator or the specified
company for the maintenance of a dependent, being a
person with disability (subject to certain conditions)
11.6
80DDB Expenses actually paid for medical treatment of Resident
specified diseases and ailments subject to certain Individual/HUF
conditions
80E Amount paid out of income chargeable to tax by way of Individual
payment of interest on loan taken from financial
institution/approved charitable institution for pursuing
higher education (subject to certain conditions)
(maximum period : 8 years)
80EE Interest payable on loan taken by an individual from any Individual
financial institution for the purpose of acquisition of a
residential house property subject to certain condition.
(Maximum deduction 50,000)
80EEA Interest payable on loan taken by an individual, who is not Individual
eligible to claim deduction under section 80EE, from any
financial institution for the purpose of acquisition of a
residential house property subject to certain condition.
(Maximum deduction 1,50,000)
80EEB Interest payable on loan taken by an individual from any Individual
financial institution for the purpose of purchase of an
electric vehicle subject to certain condition. (Maximum
deduction 1,50,000)
80G Donations to certain approved funds, trusts, charitable All assessees
institutions/donations for renovation or repairs of
notified temples, etc. [amount of deduction is 50 per cent
of net qualifying amount]. 100 per cent of qualifying
donations to National Defence Fund, Prime Minister's
11.7
National Relief Fund, Prime Minister's Armenia
Earthquake Relief Fund, Africa (Public Contributions -
India) Fund, National Children's Fund (from 1-4-2014),
Government or approved association for promoting family
planning, universities and approved educational
institutions of national eminence, National Foundation for
Communal Harmony, Chief Minister's Earthquake Relief
Fund (Maharashtra), Zila Saksharta Samitis, National or
State Blood Transfusion Council, Fund set up by State
Government to provide medical relief to the poor, Army
Central Welfare Fund, Indian Naval Benevolent Fund and
Air Force Central Welfare Fund, Andhra Pradesh Chief
Minister's Cyclone Relief Fund, National Illness
Assistance Fund, Chief Minister's Relief Fund or the Lt.
Governor's Relief Fund in respect of any State or Union
Territory, National Sports Fund, National Cultural Fund,
Fund for Technology Development and Application, Indian
Olympic Association, etc., fund set up by State
Government of Gujarat exclusively for providing relief to
victims of earthquake in Gujarat, National Trust for
Welfare of Persons with Autism, Cerebral palsy, Mental
retardation and Multiple Disabilities, and sums paid
between 26-1-2001 and 30-9-2001 to any eligible trust,
institution or fund for providing relief to Gujarat
earthquake victims, the Swachh Bharat Kosh and the
Clean Ganga Fund (from assessment year 2015-16) and
National Fund for Control of Drug Abuse (from
assessment year 2016-17) [subject to certain conditions
and limits]
11.8
80GG Rent paid in excess of 10% of total income for Individuals not
furnished/unfurnished resi-dential accommodation receiving any
(subject to maximum of Rs. 5,000 p.m. or 25% of total house rent
income, whichever is less) (subject to certain conditions) allowance
80GGA Certain donations for scientific, social or statistical All assessees
research or rural development programme or for carrying not having any
out an eligible project or scheme or National Urban income
Poverty Eradication Fund (subject to certain conditions) chargeable
under the head
'Profits and
gains of business
or profession'
80GGB Sum contributed to any political party/electoral trust Indian company
80GGC Sum contributed to any political party/electoral trust All assessees,
other than local
authority and
artificial
juridical person
wholly or partly
funded by
Government
80-IA Profits and gains from industrial undertakings engaged in All assessees
infrastructure facility, telecommunication services,
industrial park, development of Special Economic Zone,
power undertakings, etc. (subject to certain conditions
and limits)
No deduction under this section shall be available to an
11.9
enterprise which starts the development or operation
and maintenance of the infrastructure facility on or
after the 1st day of April, 2017.
80-IAB Profits and gains derived by undertaking/enterprise Assessee being
from business of developing a Special Economic Zone Developer of
notified on or after 1-4-2005 (subject to certain SEZ
conditions and limits)
No deduction under this section shall be available to an
assessee, being a developer, where the development of
Special Economic Zone begins on or after the 1st day of
April, 2017.
80-IAC Profit and gains derived by an eligible start-up from Company and LLP
specified business on or after 1-4-2017 (subject to
certain conditions)
80-IB Profits and gains from industrial undertakings, cold All assessees
storage plant, hotel, scientific research & development, No deduction
mineral oil concern, housing projects, cold chain facility, shall be available
multiplex theatres, convention centres, ships, etc. to an enterprise
(subject to certain conditions and limits) which commence
the business
activity on or
after 1-4-2017.
80-IBA Profits and gains derived by assessee from the business All assesses
of developing and building affordable housing projects.
(subject to certain conditions)
80-IC Profits and gains derived by an undertaking or an All assesses
11.10
enterprise in special category States (Himachal Pradesh,
Uttaranchal, Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland and Tripura) (subject to
certain limits, time limits and conditions),
(a) which has begun or begins to manufacture or
produce any article or thing, not being any article
or thing specified in the Thirteenth Schedule, or
which manufactures or produces any article or
thing, not being any article or thing specified in
the Thirteenth Schedule and undertakes
substantial expansion during the specified period.
(b) which has begun or begins to manufacture or
produce any article or thing specified in the
Fourteenth Schedule or commences any operation
specified in that Schedule, or which manufactures
or produces any article or thing, specified in the
Fourteenth Schedule or commences any operation
specified in that Schedule and undertakes
substantial expansion during the specified period
80-ID Profits and gains from business of hotels and convention All assessees
centres in specified areas (subject to certain conditions).
80-JJA Deduction in respect of certain undertakings in North All assessees
Eastern States.
80- Entire income from business of collecting and processing All assessees
JJAA or treating of biodegradable waste for generating power,
or producing bio-fertilizers, bio-pesticides or other
biological agents or for producing bio-gas, making pellets
or briquettes for fuel or organic manure (for 5
11.11
consecutive assessment years)
80LA Certain incomes of Scheduled banks/banks incorporated Scheduled
outside India having Offshore Banking Units in a Special Banks/banks
Economic Zone/Units of International Financial Services incorporated
Centre (subject to certain conditions and limits) outside
India/Units of
International
Financial
Services Centre
80QQB Royalty income of author of certain specified category Resident
of books (up to Rs. 3,00,000) (subject to certain Individual -
conditions) Author
80RRB Royalty on patents up to Rs. 3,00,000 in the case of a Resident
resident individual who is a patentee and is in receipt of individuals
income by way of royalty in respect of a patent
registered on or after 1-4-2003 (subject to certain
conditions).
80TTA Interest on deposits in savings bank accounts (up to Rs. Individuals/HUF
10,000 per year) s (except Senior
Citizen)
80TTB Interest on deposit in saving account or fixed deposit Senior citizen
(upto Rs. 50,000 per year)
80U Deduction of Rs. 75,000 to a resident individual who, at Resident
any time during the previous year, is certified by the individuals
medical authority to be a person with disability [as
defined under Persons with Disabilities (Equal
11.12
Opportunities, Protection of Rights and Full
Participation) Act, 1995] [w.e.f. assessment year 2005-
06 including autism, cerebral palsy, and multiple
disabilities as defined under National Trust for Welfare
of Persons with Autism, Cerebral Palsy, Mental
Retardation & Multiple Disabilities Act, 1999] [in the
case of a person with severe disability, allowable
deduction is Rs. 1,25,000] (subject to certain conditions).
11.13
© www.CABlogIndia.com Computation of Total Income and Tax liability of Individual
Computation of Total Income and
Tax liability of Individuals

Income-tax is levied on an assessee’s total income. Total income has to be computed
as per the provisions contained in the Income-tax Act, 1961. The following steps
has to be followed for computing the total income of an assessee:
Step 1 – Determination of residential status
❖ Resident
➢ Resident and ordinarily resident
➢ Resident but not ordinarily resident
❖ Non-resident
Step 2 – Classification of income under five heads
● Salaries,
● Income from house property,
● Profits and gains of business or profession
● Capital Gains
● Income from other sources
Step 3– Computation of income under each head
Income under each Head (–) Exemptions (-) Deductions
12.1
Step 4 – Clubbing of income of spouse, minor child etc.
Step 5 – Set-off current year losses and brought forward
losses
● Inter-source set-off of losses
● Inter-head set-off of losses
● Carry forward for set-off of losses
Step 6 – Computation of Gross Total Income
Gross Total Add income →Apply →Apply the provisions

Income = computed under clubbing for set-off and carry
each head provisions forward of losses
Step 7 – Deductions from Gross Total Income
● Deductions in respect of certain payments
● Deductions in respect of certain incomes
● Deduction in respect of other incomes
● Other deductions
Step 8 – Computation of Total income
● Gross Total Income –Deduction under Chapter VI-A
● Rounded off to the nearest multiple of Rs. 10
12.2
Step 9 – Application of rates of tax on total income in
case of an individual
Total income (in Rs.) Rate of Tax
Upto Rs. 2,50,000 (below 60 years) Nil
Upto Rs. 3,00,000 (60 years or above but less than 80 years
and resident in India)
Upto Rs. 5,00,000 (above 80 years and resident in India)
Rs. 2,50,001/ Rs. 3,00,001, as the case may be, to Rs. 5%
5,00,000
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
Step 10 – Surcharge and Rebate
● Surcharge
Total Income Surcharge
>Rs. 50 lakhs ≤ Rs. 1 crore 10% of income-tax
12.3
>Rs. 1 crore ≤ Rs. 2 crore 15% of income-tax
>Rs. 2 crore ≤ Rs. 5 crore 25% of income-tax
> Rs. 5 crore 37% of income-tax
● Rebate under section 87A: Rebate of up to Rs. 12,500 for resident
individuals having total income of up to Rs. 5 lakh
Step 11 – Health and Education cess on Income-tax:
Health and Education cess - 4% of income-tax and surcharge, if applicable
Tax on total income at applicable rates XXX
ADD: Surcharge, at applicable rates, if total income > Rs. XXX
50 lakhs
ADD: Health and Education cess @ 4% XXX
LESS: Rebate u/s 87A, if total income ≤ Rs. 5 lakh (XXX)
Total Tax Liability XXX
Step 12 – Examine the applicability of AMT
● If an individual is claiming deduction under section 10AA or under section 35AD
or section 80JJAA, 80QQB & 80RRB and his adjusted total income exceeds Rs.
20 lakhs, AMT provisions will apply.
● If AMT > tax computed as per regular provisions, adjusted total income would be
deemed to be total income.
12.4
● Tax is leviable @18.5%
● Tax credit to be carried forward = AMT less Tax computed as per regular
provisions
Step 13 – Credit for advance tax, TDS and TCS
Net Tax Liability = Total tax liability - TDS - TCS - Advance tax paid
Step 14 – Tax payable/ Tax refundable
● Net tax liability should be rounded off to the nearest multiple of Rs. 10.
● The assessee has to pay the amount of tax payable (called self-assessment
tax) at the time of filing of the return
● If any refund is due, assessee will get the same after filing the return of
income.
12.5
© www.CABlogIndia.com Advance Tax, TDS and TCS
Advance Tax, TDS And TCS
TDS
Section Nature of Threshold Limit Payer Payee Rate of Time of
payment for deduction of TDS deduction
tax at Source
192 Salary Basic exemption Any person Individual Average At the time
limit (Rs. responsible for (Employee) rate of of payment
2,50,000/Rs. paying income- tax
3,00,000, as the any computed
case may be). income on the basis
chargeable of the rates

This is taken care
under the head in force.
of in computation
“Salaries
of the average
rate of income-
tax.
192A Premature Payment or Trustees of Individual 10% [In At the time
withdrawal aggregate the EPF (Employee) case of of payment
from payment ≥ Rs. Scheme or any failure to
Employee 50,000 authorised furnish
Provident person under PAN, TDS@
Fund the Scheme Maximum
Marginal
Rate]
13.1
193 Interest on > Rs. 10,000 in a Any person Any 10% At the time
Securities F.Y., in case of responsible for resident of credit of
interest on 8% paying any such income
Savings (Taxable) income by way to the
Bonds, of interest on account of
2003/7.75% securities the payee
Savings (Taxable) or at the
Bonds, 2018. time of
payment,
> Rs. 5,000 in a
whichever
F.Y., in case of
is earlier.
interest on
debentures issued
by a Co. in which
the public are
substantially
interested, paid
or credited to a
resident individual
or HUF by an A/c
payee cheque. No
threshold
specified in any
other case.
13.2
194A Interest > Rs. 40,000 in a Any person Any 10% At the time
other than F.Y., in case of (other than an Resident of credit of
interest on interest credited individual or such income
securities or paid by – HUF whose to the
total sales, account of

(i) a banking
gross receipts the payee
company;
or turnover or at the
(ii)a co-operative from business time of
society or profession payment,
engaged in do not exceed whichever
banking business; the monetary is earlier.
and limits specified
u/s
(iii) a post office
44A in the
on any deposit
immediately
under a notified
preceding F.Y.)
Scheme.
responsible for
paying interest
In all the above
other than
cases, if payee is a
interest on
resident senior
securities.
citizen, tax
deduction limit is >
Rs. 50,000.
> Rs. 5,000 in a
F.Y., in other
cases.
13.3
194B Winnings > Rs. 10,000 The person Any Person 30% At the time
from any responsible for of payment
lottery, paying income
crossword by way of such
puzzle or winnings
card game
or other
game of any
sort
194BB Winnings > Rs.10,000 Book Maker or Any Person 30% At the
From horse a person time of
race holding licence payment
for horse
racing or for
arranging for
wagering or
betting in any
race course.
13.4
194C Payments Single sum Central/State Any 1% of sum At the time
to credited or paid > Govt., Local Resident paid or of credit of
Contractors Rs. 30,000 (or) authority, contractor credited, if such sum to
The aggregate Central/State/ for the payee is the account
of sums credited Provincial carrying an of the
or paid to a Corpn., out any Individual contractor
contractor during company, firm, work or HUF or at the
the F.Y. > trust, (including time of

2% of the
Rs.1,00,000 registered supply of payment,
sum paid or
Individual/HUF society, co- labour) whichever
credited,
need not deduct operative is earlier.
if the payee
tax where sum society,
is any other
is credited or paid university
person.
exclusively for established
personal purposes under
Central/State/
Provincial Act,
declared
university
under the UGC
Act, Govt. of
Foreign State
or a foreign
enterprise,
individual/HUF
liable to tax
audit u/s
44AB(a)/(b) in
the
immediately
preceding F.Y.
13.5
194D Insurance >Rs.15,000 in a Any person Any 5% At the time
Commission financial year responsible for Resident of credit of
paying any such income
income by way to the
of account of
remuneration the payee
or reward for or at the
Soliciting or time of
procuring payment,
insurance whichever
business is earlier.
194DA Any sum ≥ Rs.1,00,000 Any person Any 1% [5% of At the
under a Life (aggregate responsible for resident the amount time of
Insurance amount of paying any sum of income payment
Policy payment to a under a LIP, comprised
payee in a including the w.e.f.
financial year) sum allocated 1.9.2019]
by way of bonus
194E Payment to - Any person Non- 20% At the time
non- responsible for resident of credit of
resident making the sportsman such income
sportsmen payment (including to the
or sports an athlete) account of
associations or the payee
of income entertaine or at the
referred to r who is not time of
in section a citizen of payment,
115BBA India or
non-
13.6
resident whichever
sports is earlier.
association
or
institution
194EE Payment of ≥ Rs.2,500 in a Any person Individual 10% At the
deposit financial year responsible for or HUF time of
under NSS paying payment
194G Commission >Rs.15,000 in a Any person Any person 5% At the time
on sale of financial year responsible for stocking, of credit of
lottery paying any distributin such income
tickets income by way g, to the
of commission, purchasing account of
remuneration or selling the payee
or prize (by lottery or at the
whatever name tickets time of
called) on payment,
lottery tickets whichever
is earlier.
13.7
194H Commission >Rs.15,000 in a Any person Any 5% At the time
or financial year (other than an resident of credit of
brokerage Individual or such income
HUF whose to the
from business time of
or profession payment,
do not exceed whichever
the monetary is earlier.
limits specified
u/s
44A in the
immediately
preceding F.Y.)
responsible for
paying
commission or
brokerage.
13.8
194-I Rent > Rs. 2,40,000 in a Any person Any For P&M or At the time
financial year (other than an resident equipment- of credit of
individual or 2% such income
HUF whose to the

For land or
building,
land
appurtenant
from business time of
to a
or profession payment,
building,
carried on by whichever
furniture or
him do not is earlier.
fittings -
exceed the
10%
monetary limits
specified u/s
44AB in the
immediately
preceding F.Y.)
responsible for
paying rent.
194-IA Payment on ≥ Rs. 50 lakh Any person, Resident 1% At the time
Transfer of (Consideration Being a transferor of credit of
certain for transfer) transferee such sum to
immovable (other than a the account
property person of the
other than referred to in transferor
agricultural section 194LA or at the
land responsible for time of
paying payment,
compensation whichever
for compulsory is earlier.
13.9
acquisition of
immovable
property)
194-IB Payment of > Rs. 50, 000 for a Individual/ Any 5% At the time
rent by month or part of a HUF (other Resident of credit of
certain month than rent, for
individuals Individual/HUF the last
or HUF whose total month of
sales, gross the
receipts or previous
turnover from year or the
Business or last
profession month of
carried on by tenancy, if
him exceed the the
limits specified property is
u/s 44AB in the vacated
immediately during the
preceding F.Y.) year, as the
responsible for case may
paying rent. be, to the
account of
the payee
13.10
or at the
time of
payment,
whichever
is earlier
13.11
194-IC Payment No threshold Any person Any 10% At the time
under specified. responsible for Resident of credit of
specified paying any sum such income
agreement by way of to the
referred to consideration, account of
in section not being the payee
45(5A) consideration or at the
in kind, under a time of
registered payment,
agreement, whichever
wherein L or B is earlier.
or both are
handed over by
the owner for
development of
real estate
project, for
consideration,
being a share in
L or B or both
in such a
project, with
payment of
part
consideration
in cash.
13.12
194J Fees for > Rs. 30,000 in a Any person, Any 2% - Payee At the time
professional financial year, for other than an Resident engaged of credit of
or technical each category of individual or only in the such sum to
services/ income. (However, HUF; However, business of the account
Royalty/ this limit does not in case of fees operation of of the
Non- apply in case of for call centre payee or at
compete payment made to professional or the time of

10% -
fees/ the director of a technical payment,
Others
Director’s company). services paid or whichever
remuneratio credited, is earlier.
n individual/HUF
whose total
sales, gross
receipts or
turnover from
Business or
profession
exceed the
monetary limits
specified u/s
44AB in the
immediately
preceding F.Y.
is liable to
deduct tax u/s
194J, except
where fees for
professional
services are
credited or
paid exclusively
13.13
for his personal
purposes.
194LA Compensatio > Rs.2,50,000 in a Any person Any 10% At the
n on financial year responsible for Resident time of
acquisition paying any sum payment
of certain in the nature of
immovable compensation
property or enhanced
other than compensation
on compulsory
13.14
agricultural acquisition of
land immovable
property
At the
194M -Payments > Rs. 50,00,000 in Individual or Any 5%
time of
(w.e.f. to a financial year HUF other than Resident
credit of
1st Contractors those who are
such sum
Sep, required to
-Commission to the
2019) deduct tax at
or account of
source under
brokerage the payee
section 194C or
or at the
- Fees for 194H or 194J
time of
professional
payment,
services
whichever
is earlier.
194N Cash > Rs. 1 crore a banking Any person @2% of sum At the time
(w.e.f. withdrawals company or any exceeding of payment
1st bank or banking Rs. 1 crore of such sum
Sep, institution a co-
operative
2019)
society
engaged in
carrying on the
business of
banking or a
post office
13.15
Advance Payment of Tax
Liability for payment of ● Tax shall be payable in advance during any financial
advance tax [Sections 207 & year in respect of the total income(TI) of the
208] assessee which would be chargeable to tax for the
A.Y. immediately following that financial year.
● Advance tax is payable during a financial year in
every case where the amount of such tax payable
by the assessee during the year is Rs. 10,000 or
more.
● However, an individual resident in India of the age
of 60 years or more at any time during the previous
year, who does not have any income chargeable
under the head “Profits and gains of business or
profession” (PGBP), is not liable to pay advance tax.
Instalments of advance tax Advance tax payment schedule for corporates and non-
and due dates [Section 211] corporates (other than an assessee computing profits on
presumptive basis under section 44AD or section 44ADA)
– Four instalments
Due date of instalment Amount payable
On or before 15th June Not less than 15% of
advance tax liability.
13.16
On or before 15th Not less than 45% of
September advance tax liability (-)
amount paid in earlier
instalment.
On or before 15th Not less than 75% of
December advance tax liability (-)
installment or instalments.
On or before 15th March The whole amount of
advance tax liability (-)
instalment or instalments.
Advance tax payment by An eligible assessee, opting for computation of profits or
assessees computing profits gains of business or profession on presumptive basis in
on presumptive basis under respect of eligible business referred to in section 44AD(1)
section 44AD(1) or section or in respect of eligible profession referred to in section
44ADA(1) 44ADA(1), shall be required to pay advance tax of the
whole amount on or before 15th March of the F.Y.
However, any amount paid by way of advance tax on or
before 31st March shall also be treated as advance tax
paid during the F.Y. ending on that day.
Interest for defaults in 1. Interest under section 234B is attracted for non-
payment of advance tax payment of advance tax or payment of advance tax
[Section 234B] of an amount less than 90% of assessed tax.
13.17
2. The interest liability would be 1% per month or part
of the month from 1st April following the F.Y. upto
the date of determination of total income under
section 143(1) and where regular assessment is
made, upto the date of such regular assessment.
3. Such interest is calculated on the amount of
difference between the assessed tax and the
advance tax paid.
4. “Assessed tax” means the tax on total income
determined u/s 143(1)/under regular assessment,
as the case may be, less TDS & TCS, any relief of
tax allowed u/s 89, any tax credit allowed to be set
off in accordance with the provisions of section
115JD.
5. Where self-assessment tax is paid by the assessee
under section 140A or otherwise, interest shall be
calculated upto the date of payment of such tax and
reduced by the interest, if any, paid under section
140A towards the interest chargeable under this
section.
Interest for deferment of Manner of computation of interest u/s 234C for
advance tax [Section 234C] deferment of advance tax by corporate and non-
corporate assessees:
In case an assessee, other than an assessee who declares
profits and gains in accordance with the provisions of
section 44AD(1) or section 44ADA(1), who is liable to pay
advance tax u/s 208 has failed to pay such tax or the
advance tax paid by such assessee on its current income
on or before the dates specified in column (1) below is
13.18
less than the specified percentage [given in column (2)
below] of tax due on returned income, then simple
interest@1% per month for the period specified in
column (4) on the amount of shortfall, as per column (3)
is leviable u/s 234C.
Specified Specified % Shortfall in Period
date advance tax
(1) (2) (3) (4)
15th June 15% 15% of tax 3
due on
months
returned
income (-)
advance tax
paid up to
15th June
15th 45% 45% of tax 3
September due on
months
returned
income (-)
advance tax
paid up to
15th
September
13.19
15th 75% 75% of tax 3
December due on
Months
returned
income (-)
advance tax
paid up to
15th
December
15th March 100% 100% of tax 1 month
due on
returned
income (-)
advance tax
paid up to
15th March
Note – However, if the advance tax paid by the assessee
on the current income, on or before 15th June or 15th
September, is not less than 12% or, as the case may be,
36% of the tax due on the returned income, then, the
assessee shall not be liable to pay any interest on the
amount of the shortfall on those dates.
Tax due on returned income = Tax chargeable on total
income declared in the return of income – TDS – TCS -
any relief of tax allowed u/s 89 - any tax credit allowed
to be set off in accordance with the provisions of section
13.20
115JD
Computation of interest under section 234C in case of an
assessee who declares profits and gains in accordance with
the provisions of section 44AD(1) or section 44ADA(1):
In case an assessee who declares profits and gains in
accordance with the provisions of section 44AD(1) or
section 44ADA(1), who is liable to pay advance tax u/s 208
has failed to pay such tax or the advance tax paid by the
assessee on its current income on or before 15th March is
less than the tax due on the returned income, then, the
assessee shall be liable to pay simple interest at the rate
of 1% on the amount of the shortfall from the tax due on
the returned income.
Non-applicability of interest under section 234C in certain
cases:
Interest under section 234C shall not be leviable in
respect of any shortfall in payment of tax due on
returned income, where such shortfall is on account of
under-estimate or failure to estimate –
(i). the amount of capital gains;
(ii). income of nature referred to in section
2(24)(ix) i.e., winnings from lotteries, crossword
puzzles etc.;
(iii). income under the head “Profits and gains of
business or profession” in cases where the income
accrues or arises under the said head for the first
time.
13.21
(iv). income of the nature referred to in section
115BBDA(1) i.e., dividend in aggregate exceeding
of Rs. 10 lakhs including in the assessee’s total
income.
However, the assessee should have paid the whole of the
amount of tax payable in respect of such income referred
to in (i), (ii), (iii) and (iv), as the case may be, had such
income been a part of the total income, as part of the
remaining instalments of advance tax which are due or
where no such instalments are due, by 31st March of the
financial year.
Tax Collection at Source
a. Sellers of certain goods are required to collect tax from the buyers at the
specified rates. The specified percentage for collection of tax at source is as
follows:
(i) Alcoholic liquor for human consumption 1%
(ii) Tendu leaves 5%
(iii) Timber obtained under a forest lease 2.5%
(iv) Timber obtained by any mode other than (iii) 2.5%
(v) Any other forest produce not being timber or tendu 2.5%
leaves
(vi) Scrap 1%
(vii) Minerals, being coal or lignite or iron ore 1%
13.22
However, no collection of tax shall be made in the case of a resident buyer, if
such buyer furnishes a declaration in writing in duplicate to the effect that
goods are to be utilised for the purpose of manufacturing, processing or
producing articles or things or for the purposes of generation of power and
not for trading purposes
b. Every person who grants a lease or a licence or enters into a contract or otherwise
transfers any right or interest in any
- parking lot or
- toll plaza or
- a mine or a quarry
to another person (other than a public sector company) for the use of such parking
lot or toll plaza or mine or quarry for the purposes of business. The tax shall be
collected as provided, from the licensee or lessee of any such licence, contract or
lease of the specified nature, at the rate of 2%, at the time of debiting of the
amount payable by the licensee or lessee to his account or at the time of receipt
of such amount from the licensee or lessee in cash or by the issue of a cheque or
draft or by any other mode, whichever is earlier
c. Every person, being a seller, who receives any amount as consideration for sale
of a motor vehicle of the value exceeding Rs. 10 lakhs, shall, at the time of receipt
of such amount, collect tax from the buyer@1% of the sale consideration.
13.23
© www.CABlogIndia.com Provisions for Filing Return of Income and Self-Assessment
Provisions for Filing Return of
Income and Self-Assessment
1. Assessees required to file return of income
compulsorily (Section 139(1))
(i) Companies and firms (whether having profit or loss or nil income);
(ii) a person, being a resident other than not ordinarily resident, having any
asset (including any financial interest in any entity) located outside India
or signing authority in any account located outside India, whether or not
having income chargeable to tax;
(iii) Individuals, HUF, AOPs or BOIs and artificial juridical persons whose total
income before giving effect to the provisions of Chapter VI-A and sections
54, 54B, 54B, 54EC or 54F exceeds the basic exemption limit.
(iv) Any person who during the previous year –
- has deposited more than Rs. 1 crore in one or more current accounts
maintained with a banking company or a co- operative bank
- has incurred expenditure of more than Rs. 2 lakh for himself or any other
person for travel to a foreign country;
- has incurred expenditure of more than Rs. 1 lakh towards consumption of
electricity
- fulfils such other conditions as may be prescribed
Due date of filing return of income
30th September of the assessment year, in case the assessee is:
(i) a company;
14.1
(ii) a person (other than company) whose accounts are required to be audited;
or
(iii) a working partner of a firm whose accounts are required to be audited.
31st July of the assessment year, in case of any other assessee (other than
assessees who are required to furnish report under section 92E, for whom the
due date is 30th November of the assessment year).
2. Interest for default in furnishing return of income
(Section 234A)
Interest under section 234A is payable where an assessee furnishes the return
of income after the due date or does not furnish the return of income.
Assessee shall be liable to pay simple interest @1% per month or part of the
month for the period commencing from the date immediately following the due
date and ending on the following dates –
Circumstances Ending on the following dates
Where the return is furnished after due the date of furnishing of the return
date
Where no return is furnished The date of completion of assessment
However, where the assessee has paid taxes in full on or before the due date,
interest under section 234A is not leviable.
14.2
3. Fee for default in furnishing return of income
(Section 234F)
Where a person who is required to furnish a return of income under section 139,
fails to do so within the prescribed time limit under section 139(1), he shall pay,
by way of fee, a sum of –
(I). Rs. 5,000, if the return is furnished on or before the 31st December of the
assessment year;
(II). Rs. 10,000 in any other case
However, if the total income of the person does not exceed Rs.5 lakhs, the fees
payable shall not exceed Rs. 1,000
4. Return of loss (Section 139(3))
An assessee can carry forward or set off his/its losses provided he/it has filed
his/its return under section 139(3), within the due date specified under section
139(1).
Exceptions
Loss from house property and unabsorbed depreciation can be carried forward
for set-off even though return has not been filed before the due date.
5. Belated Return (Section 139(4))
A return of income for any previous year, which has not been furnished within the
time allowed u/s 139(1), may be furnished at any time before the:
(i). end of the relevant assessment year; or
(ii). completion of the assessment, whichever is earlier.
14.3
6. Revised Return (Section 139(5))
If any omission or any wrong statement is discovered in a return furnished u/s
139(1) or belated return u/s 139(4), a revised return may be furnished by the
assessee at any time before the:
(i). end of the relevant assessment year; or
(ii). completion of assessment, whichever is earlier.
Thus, belated return can also be revised.
7. Permanent Account Number (PAN) (Section 139A)
Quoting of PAN is mandatory in all documents pertaining to the following
prescribed transactions :
(a) in all returns to, or correspondence with, any income-tax authority;
(b) in all challans for the payment of any sum due under the Act;
(c) in all documents pertaining to such transactions entered into by him, as
may be prescribed by the CBDT in the interests of revenue. For example, sale or
purchase of a motor vehicle, payment in cash of an amount exceeding Rs. 50,000
to a hotel against a bill or bills at any one time, etc.
Interchangeability of PAN with the Aadhaar number
Every person who is required to furnish or intimate or quote his PAN may furnish
or intimate or quote his Aadhar Number in lieu of the PAN w.e.f. 1.9.2019 if he
⎯ has not been allotted a PAN but possesses the Aadhar number
⎯ has been allotted a PAN and has intimated his Aadhar number to
prescribed authority in accordance with the requirement contained in
section 139AA(2).
8. Quoting of Aadhar Number (Section 139AA)
To be quoted by every person on or after 1/7/2017 in the application for allotment
of PAN and in Return of Income
14.4
If a person does not have an Aadhar Number, the Enrolment ID of Aadhar
application form issued to him at the time of enrolment shall be quoted.
Aadhar Number to be intimated to prescribed authority on or before a date
notified by the Central Government
9. Self-Assessment (Section 140A)
Where any tax is payable on the basis of any return required to be furnished
under section 139, after taking into account –
(i) the amount of tax, already paid,
(ii) the tax deducted or collected at source
(iii) any relief of tax claimed under section 89
(iv) any tax credit claimed to be set-off in accordance with the provisions of
section 115JD.
The assessee shall be liable to pay such tax together with interest and fee
payable under any provision of this Act for any delay in furnishing the return or
any default or delay in payment of advance tax before furnishing the return.
Where the amount paid by the assessee under section 140A(1) falls short of the
aggregate of the tax, interest and fee as aforesaid, the amount so paid shall first
be adjusted towards the fee payable and thereafter, towards interest and the
balance shall be adjusted towards the tax payable.
14.5

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Income Tax Brief

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Edition : July 2020 (For Nov 2020 Exams)

Price : Rs. 200

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Topic Page No.

Basic Concepts of Income Tax 1.1 - 1.2

Residential Status 2.1 - 2.3

Incomes which do not form Part of Total 3.1 - 3.4

Income under Head ‘Salaries’ 4.1 - 4.37

Income from House Property 5.1 - 5.6

Profits and Gains of Business or Profession 6.1 - 6.40

Capital Gains 7.1 - 7.27

Income from Other Sources 8.1 - 8.7

Clubbing of Income 9.1 - 9.4

Set-Off and Carry Forward of Losses 10.1 - 10.5

Deductions from Gross Total Income 11.1 - 11.13

Computation of Total Income and Tax 12.1 - 12.5

Advance Tax, TDS and TCS 13.1 - 13.23

Provisions for Filing Return of Income and 14.1 - 14.5

Basic Concepts of Income Tax

commodity or activity. Government imposes two types of taxes namely

than the person who utilizes the product or service.

income, determination of tax liability, procedure for assessment, appeal,

penalties and prosecutions.

3. Every year a Budget is presented before the parliament by the Finance

Minister. One of the important components of the Budget is the Finance

Income, total income, person etc.

5. Income: No precise definition of the word ‘Income’ is available under the

Income-tax Act, 1961. The definition of Income as given in Section 2(24)

6. Assessee: In common parlance every tax payer is an assessee. However,

money (i.e. interest, penalty etc.) is payable under the Act.

7. Person: Income-tax is charged in respect of the total income of the

previous year of every person. Hence, it is important to know the definition

of the word person.

8. Assessment year means the period of twelve months commencing on 1st

April every year.

year in which income is earned is known as the previous year.

10. Computation of income: Income tax is a charge on the assessee’s income.

on which tax is to be charged.

residential status in India during the previous year is known. According to

the residential status, the assessee can either be;

ii. Non-resident in India

2. Section 6 of the Income-tax Act prescribes the tests to be applied to

determine the residential status of all taxpayers for purposes of income-

companies and Hindu Undivided Families and firms, associations of persons,

bodies of individuals and artificial juridical persons

3. Residential status of Individual

The residential status of individual is determined on the basis of the

(i) Condition 1 : If an individual is in India in the previous year for a total

period of 182 days or more.

● Citizen of India, who leaves India in any previous year as a member

of the crew of an Indian ship, or for the purpose of employment

● Citizens of India or of Indian origin engaged outside India (whether

for rendering service outside or not) and who comes on a visit to

India in any previous year.

(iii) Condition 3 : An individual who has been a non-resident in India in at