Mba III Tax Planning Merged

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT I
What Is a Direct Tax?
A direct tax is a tax that a person or organization pays directly to the entity that imposed it. Examples
include income tax, real property tax, personal property tax, and taxes on assets, all of which are paid
by an individual taxpayer directly to the government.
KEY TAKEAWAYS
 A direct tax is paid by an individual or organization to the entity that levied the tax.
 Direct taxes include income taxes, property taxes, and taxes on assets.
 There are also indirect taxes, such as sales taxes, wherein a tax is levied on the seller but paid
by the buyer.
Understanding a Direct Tax
Direct taxes in the United States are largely based on the ability-to-pay principle. This economic
principle states that those who have more resources or earn a higher income should bear a greater tax
burden. Some critics see that as a disincentive for individuals to work hard and earn more money
because the more a person makes, the more taxes they pay.
Direct taxes cannot be passed on to a different person or entity. The individual or organization upon
which the tax is levied is responsible for paying it.
A direct tax is the opposite of an indirect tax, wherein the tax is levied on one entity, such as a seller,
and paid by another—such as a sales tax paid by the buyer in a retail setting. Both kinds of taxes are
important revenue sources for governments.
The History of Direct Taxes
The modern distinction between direct taxes and indirect taxes came about with the ratification of
the 16th Amendment to the U.S. Constitution in 1913. Before the 16th Amendment, tax law in the
United States was written so that direct taxes had to be directly apportioned to a state's population. A
state with a population that was 75% of the size of another state's, for example, would only be
required to pay direct taxes equal to 75% of the larger state's tax bill.
This antiquated verbiage created a situation in which the federal government could not impose many
direct taxes, such as a personal income tax, due to apportionment requirements. However, the advent
of the 16th Amendment changed the tax code and allowed for the levying of numerous direct and
indirect taxes.
What Is the Difference Between Direct Tax and Indirect Tax?
Direct taxes cannot be shifted to another party and remain your responsibility to pay. Indirect taxes
are the opposite. Whoever is liable for these taxes can pass on or shift them to another person or
group
CH Institute of Management & Commerce Page 1

Assessment year
Assessment year means the year (from 1st April to 31st March) in which income earned by you in a
particular financial year is taxed. You are required to file your income tax return in the relevant
assessment year. Assessment year is the year just succeeding the Financial Year.
Difference between Previous Year and Assessment Year

Last updated on September 4, 2019 by Surbhi S
According to the Income Tax Act, income earned by a person in a financial year is taxable in the
following financial year. So, the financial year in which the person has received income is called as
the Previous Year. On the other hand, the financial year in which the tax liability on the income of the
person is assessed is known as Assessment Year.
We all know that the Calendar Year commences on the 1st of January and ends on 31st of December
every year. But, the calendar year has no relevance, for the purpose of accounting and taxation, as
“Financial Year” is used for such purposes.
The financial statements of a company are prepared and reported across the world, as per financial
year. It is a period of one year that starts on 1st April and ends on 31st March.
Comparison Chart
BASIS FOR
PREVIOUS YEAR ASSESSMENT YEAR
COMPARISON
Meaning Previous Year is the Assessment Year is the financial year, in

financial year, in which the which the income of the assessee earned
assessee earns income. during the previous year is evaluated and
taxed.
What is it? The year to which income The year in which income tax liability for
belongs. the previous year arises.
Term Its term is 12 months or Its term is 12 months.

less.
Definition of Previous Year

Previous Year indicates the financial year immediately preceding the assessment year. It is the year in
which a person or entity earns income, which becomes taxable in the assessment year. In Income Tax
Act, 1961, the term ‘previous year‘is defined under section.
Previous Year is a period of 12 months, but it can be shorter than that too, such as in the case of a
newly set up business or profession, the previous year will be less than 12 months, starting from the
date of commencing the business and ending on 31st March of that financial year.
Further, if a source of income commences in a particular financial year, then also the previous year
begins from the date on which the income generation starts and ends on the 31st March, of that
particular financial year.
It is a common rule that the income of the previous year is assessed in the immediately following
financial year. However, there are certain instances when the income of the previous year is assessed
in the same year. These are:
 Shipping business of non-resident.

 Person leaving India, permanently having no intention of coming back.
 Association of persons, Body of individuals or any artificial juridical person established for a
definite objective.
 Discontinued business
 Person is likely to transfer, sell or dispose of assets to avoid the payment of taxes.
Definition of Assessment Year
Assessment Year, as the name signifies, is the year in which income of the person is assessed, i.e.
verified, and taxed. Here the word ‘person’ covers Individual, Hindu Undivided Family (HUF),
Association of Persons (AOP)/Body of Individual (BOI), Partnership Firm, Local Authority, Company
or Any artificial juridical person.
In the Income Tax Act, 1961, the term ‘assessment year‘ has been defined under section 2 sub-section
9, which describes it as a period of 12 months starting from 1st of April every year.
Hence, the financial year to which the income belongs is termed as the previous year, and the
immediately succeeding financial year in which the income of the assessee is evaluated, the income
tax return is filed, the tax liability is computed and becomes due for payment, is termed as the
assessment year.
Further, the due date for filing an income tax return for the previous year, in the assessment year will
be:
 31st July for individuals/AOP/BOI/HUF, who does not need an audit of their accounts,
 30th Sep for Companies, Partner (working) of a firm or individuals whose accounts need to be
audited under any law,
 30th November for those businesses which require Transfer Pricing report.

 It may be noted that “assessee” under the Income Tax Act, 1961 is a person by whom any tax/
other dues are payable under that Act, i.e. income-tax is to be paid by a ‘person’. Therefore
deciding the status of ‘person’ under the Income Tax Act is all the more important, as there are
different set of tax rules/ rates which are applicable to different type of persons.
 Person
 As per Section 2(31) of Income Tax Act, 1961, unless the context otherwise requires, the term
“person” includes:
 (i) an individual,
 (ii) a Hindu undivided family,
 (iii) a company,
 (iv) a firm,
 (v) an association of persons or a body of individuals, whether incorporated or not,
 (vi) a local authority, and
 (vii) Every artificial juridical person, not falling within any of the preceding sub-clauses.
 Explanation: For the purposes of this clause, an association of persons or a body of individuals
or a local authority or an artificial juridical person shall be deemed to be a person, whether or
not such person or body or authority or juridical person was formed or established or
incorporated with the object of deriving income, profits or gains.
 What Do You Understand by Total Income/Gross Total Income?

 The total of all your taxable income from the preceding year is your gross total income. It will
also include any profit or loss carried forward from previous years and any income after
adjusting for clubbing provisions.
The income we talked about above can be classified under these five headings, according to Section 14
of the Income Tax Act 1961-
1. Earnings from Salaries

2. Income from house properties
3. Gains from Business and Profession
4. Gains on capitalisation
5. Other sources of income.
And your gross total income is calculated by adding your earnings from all five sources of income.

Apart from accumulating earnings from all five sources of income, you must also include the
following to arrive at your gross total income-
 Income to be added in accordance with the Income Tax Act's clubbing rules Adjustments for
set off and carry forward of losses.
 Unexplained Tax Credit received in cash or credit under section 68 of the Income Tax Act
1961. Which indicates you’ve received any amount for which you don’t have a suitable or
valid explanation for where it came from? Your Gross Total Revenue includes these sources of
income.
 Unexplained Investments are those in which you have made investments but are unable to
provide a satisfactory explanation for the source or have made inappropriate disclosures on
your behalf.
 Under Section 69A, assets such as money, jewellery, and other items for which the assessee
has no valid explanation shall be added to the person's gross total income.
 According to Section 69B of the Income Tax Act 1961, any undisclosed or under-disclosed
income is added to the gross total income. This refers to any income or assets that you have not
recorded or disclosed at a lesser level than the actual amounts.
 The Distinction Between Total Income and Gross Total Income

 Net income vs gross income-

 Before deductions, taxes, and other expenses, gross income is the total of all income collected
from providing services to clients.
 On the other hand, net income is the profit attributable to a corporation or individual after all
expenses have been deducted. Net income is derived by deducting all business expenses, such
as taxes, advertising charges, interest costs, and any qualified deductions, such as professional
and legal fees.
 If the net income is positive, the business has made a profit; if it is negative, the business has
lost money.
 If the difference between gross profit and net profit is substantial, it indicates that the company
has a lot of expenses. In this case, the company should analyse its spending to eliminate
unnecessary costs and cut necessary costs.
 Net income is the amount of money generated after state and federal taxes, social security
taxes, health insurance, and other expenses have been deducted.


 Look at the following formulas to see how they differ in basic terms:

 TI = GTI – deductions under Section 80
Capital Receipt
These have a nature of non-recurrence, besides that, they are situated in the balance sheet in the
liabilities portion of them. The capital receipt is always in the interchange for the income. The capital

receipt is a kind of cash-flow in the business that does not occur over and over again and this
eventually, leads to the creation of liabilities in the future and also, the decrement of assets takes place
in the future.
All of the capital receipts are free from taxation unless there is a provision to tax it. Various types of
Gifts and loans are the types of the capital receipts that do not attract tax and are tax-free. So, in
addition to non-recurring, Capital receipts are those non-routine receipts which either becomes a load
and responsibility or cause a vivid depletion in the assets of the government or any organization and
business
Revenue Receipt
These receipts are a major source of income for any kind of a business and without it; a business can’t
survive for long. This is a result of the normal and core business activities. Being a normal business
result is the reason for its recurring nature. However, there is a little shortcoming associated with it.
The benefits of revenue receipts are enjoyable only for the current accounting year and not possibly
after that.
The income received from the daily and periodic activities of business includes all the operations that
indulge cash into the business like:
The sale of any kind of an inventory
Income from services rendered
Different types of discount Received from the suppliers
Sale of scrap
Interest received.
Rent received
To sum it all, Revenue receipts are recurring receipts and their effect is shown on the income
statement. For a successful business, both receipts play a prominent role as they both compliments
each other
It is important for the Income Tax Department to determine the residential status of a tax paying
individual or company. It becomes particularly relevant during the tax filing season. In fact, this is one
of the factors based on which a person’s taxability is decided.

Let us explore the residential status and taxability in detail.
Budget 2021 update: FM proposes to notify rules for removing hardship for NRI due to double
taxation.
Meaning and importance of residential status
The taxability of an individual in India depends upon his residential status in India for any particular
financial year. The term residential status has been coined under the income tax laws of India and must
not be confused with an individual’s citizenship in India. An individual may be a citizen of India but
may end up being a non-resident for a particular year. Similarly, a foreign citizen may end up being a
resident of India for income tax purposes for a particular year. Also to note that the residential status of
different types of persons viz an individual, a firm, a company etc is determined differently. In this
article, we have discussed about how the residential status of an individual taxpayer can be determined
for any particular financial year
How to determine residential status?
For the purpose of income tax in India, the income tax laws in India classify taxable persons as:
A resident
A resident not ordinarily resident (RNOR)
A non-resident (NR)
The taxability differs for each of the above categories of taxpayers. Before we get into taxability, let us
first understand how a taxpayer becomes a resident, an RNOR or an NR.
Resident
A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions:

1. Stay in India for a year is 182 days or more or
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the
relevant financial year
In the event an individual who is a citizen of India or person of Indian origin leaves India for
employment during an FY, he will qualify as a resident of India only if he stays in India for 182 days
or more. Such individuals are allowed a longer time greater than 60 days and less than 182 days to stay
in India. However, from the financial year 2020-21, the period is reduced to 120 days or more for such
an individual whose total income (other than foreign sources) exceeds Rs 15 lakh.
In another significant amendment from FY 2020-21, an individual who is a citizen of India who is not
liable to tax in any other country will be deemed to be a resident in India. The condition for deemed
residential status applies only if the total income (other than foreign sources) exceeds Rs 15 lakh and
nil tax liability in other countries or territories by reason of his domicile or residence or any other
criteria of similar nature.
The amendment can be further simplified as below-
Residential Status for Income Tax – Individuals & Residents
Resident Not Ordinarily Resident
If an individual qualifies as a resident, the next step is to determine if he/she is a Resident ordinarily
resident (ROR) or an RNOR. He will be a ROR if he meets both of the following conditions:
1. Has been a resident of India in at least 2 out of 10 years immediately previous years and
2. Has stayed in India for at least 730 days in 7 immediately preceding years
Therefore, if any individual fails to satisfy even one of the above conditions, he would be an RNOR.

From FY 2020-21, a citizen of India or a person of Indian origin who leaves India for employment
outside India during the year will be a resident and ordinarily resident if he stays in India for an
aggregate period of 182 days or more. However, this condition will apply only if his total income
(other than foreign sources) exceeds Rs 15 lakh. Also, a citizen of India who is deemed to be a resident
in India (w.e.f FY 2020-21) will be a resident and ordinarily resident in India.
NOTE: Income from foreign sources means income which accrues or arises outside India (except
income derived from a business controlled in India or profession set up in India).
Non-resident
An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR for the
year.
Taxability
Resident: A resident will be charged to tax in India on his global income i.e. income earned in India as
well as income earned outside India.
NR and RNOR: Their tax liability in India is restricted to the income they earn in India. They need not
pay any tax in India on their foreign income. Also note that in a case of double taxation of income
where the same income is getting taxed in India as well as abroad, one may resort to the Double
Taxation Avoidance Agreement (DTAA) that India would have entered into with the other country in
order to eliminate the possibility of paying taxes twice.
Ax Free Incomes in India
Certain types of incomes earned in India are exempt from the scope of Income Tax as per the Income
Tax Act. These incomes are known as tax-free incomes. This article provides a list of tax-free incomes
in India.
Agricultural Income

Under Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.
However, for individuals and HUFs, an agricultural income of more than Rs.5000 is added to the total
income. The addition is made exclusively for the purpose of computing the slab rate that will be
applicable for the taxpayer on other income. In this context, other income means income earned from
sources other than agriculture. Hence, there is no tax on agricultural income, but declaring agricultural
income increases the overall income tax rate.
Receipts from Hindu Undivided Family
Receipts received by an individual as a member of a HUF is exempt from income tax. However, the
HUF should have been separately assessed to and paid Income Tax.
Share from a Partnership Firm or LLP
If an assessee is a partner of a partnership firm or LLP, which has been separately assessed for income
tax, the share of the assessee in the total income of the partnership firm will be exempt from income
tax.
NRI Tax Free Incomes
Certain types of incomes or receipts earned by NRIs are exempt from income tax. Income earned by
way of interest on the bonds notified by the Central Government is exempt from income tax. Also, any
premium which is applicable to the redemption of the specified bonds is exempt from tax.
Income Earned by Foreigners
Certain types of incomes and receipts of foreigners are exempt from income tax. Remuneration
received by a foreigner who is an official of an embassy is exempt from income tax. Also, any money
received by a foreigner from his employer for himself, his spouse, or children, in connection with his
proceeding on home leave out of India or after retirement or termination of service, is fully exempt
from income tax. Also, allowances and perquisites paid by the Government of India to a citizen of
India, while rendering services outside of India, are exempt from the scope of Income Tax.
Gratuities

Any amount of gratuity received by a government employee due to death or retirement is exempt from
income tax. The gratuity received by private-sector employees on retirement or on becoming
incapacitated or on termination is exempt subject to a maximum ceiling limit of ten lakh rupees. The
exemption is subject to further limits which are specified by the Income Tax Act. The specified limits
are half a month’s salary for each year of completed service, calculated on the basis of the average
salary for the ten months immediately preceding the year in which the gratuity is paid, or actual
gratuity paid.
Commutation of Pension
The amount received in commutation of pension by a Government servant or any payment in

commutation of pension from LIC or any other insurer from their pension funds is exempt from
income tax. For private sector employee, only the following amount of commuted pension is exempt:
Where the employee has received any gratuity, the commuted value of one-third of the pension which
he is normally entitled to receive
In any other case, the commuted value of half of the amount of pension.
The monthly pension receivable by a pensioner is liable to income tax like any other item of salary or
income, and no standard deduction is available in respect of pension received by a taxpayer.
Leave Salary
The maximum amount receivable by an employee of the Central Government as a cash equivalent, up
to ten months of leave at the time of their retirement, whether on superannuation or otherwise, is
exempt from income tax.
For private-sector employees, the exempt amount would be least of:
Ten months average salary calculated on the basis of the salary during ten months proceeding the
employees’ retirement on superannuation or voluntary retirement
Earned leave standing to the credit of the employee limited to 30 days for every year of actual service
rendered for the employer from whose service he has retired

The amount of leave encashment actually received
A standard amount of three lakh rupees
Voluntary Retirement or Separation Payment
Any amount received by an employee of a public sector company, of a local authority, of a statutory
authority, of a cooperative society or university at the time of voluntary retirement or voluntary
separation is completely exempt from tax. The maximum amount of exemption available for the
income received at the voluntary retirement has been capped at five lakh rupees.
Money Received from Insurance
Any amount received under a Life Insurance Policy (LIP) or under a Keyman Insurance Policy (KIP)
or under an insurance policy for which the premium payable for any of the years during the term of the
policy exceeds 10% of the actual capital sum assured, is fully exempt from tax. Also, all proceeds
received on the death of an insured person are fully exempt from income tax. Hence, money received
from life insurance policies, whether from the LIC or any other private insurance company is exempt
from income tax.
Money Received from Provident Fund
Any amount received from a government-recognised provident fund (PF), approved superannuation
fund or PPF is fully exempt from income tax.
Special Allowances and Benefits
Any special allowance or benefits received by an employee who is not in the nature of a perquisite is
not covered within the scope of income tax. However, the allowance should have been specifically
granted to meet the expenses incurred in the performance of duties connected with employment.
Interest Income Exempt from Income Tax
Certain types of interest payments are fully exempt from income tax under Section 10(15) of the
Income Tax Act. The following are some of the interest income exempt from income tax. However,
this list is subject to change from time to time:

Income by way of interest, the premium obtained on redemption or other payment on securities,
bonds, annuity certificates, savings certificates, and other certificates issued by the Central
Government
Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the
Ceylon Monetary Law Act, 1949
Interest payable to any bank incorporated in a country outside India and authorised to perform central
banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of
India, with any scheduled bank
Interest payable by Government or a local authority on money borrowed by it, including hedging
charges on currency fluctuation
Interest on Gold Deposit Bonds
Interest on deposits for Bhopal Gas victims
Interest on bonds of local authorities
Tax Free Bonds and Tax Free Infrastructure Bonds which are eligible for investment for securing
exemption from Capital Gains
Interest received by a non-resident or non-ordinarily person on deposits made with an Off-shore

Banking Unit
Interest from Tax Free Infrastructure Bonds
Bank interest of a girl child from the Sukanya Samridhi Scheme
Scholarships and Awards
Scholarship granted to meet the cost of education and certain awards is exempt from income tax.
Also, the amount provided as pension and family pension of Gallantry Award Winners like Paramvir
Chakra, Mahavir Chakra, and Vir Chakra and also other Gallantry Award winners notified by the
Central Government are exempt.
Dividends on Shares and Mutual Funds
Dividend income and income of units of Mutual Funds are completely exempt from income tax.
Capital Gains from Transfer of Agricultural Land

The capital gains received on transfer of agricultural land is eligible for exemption. However, the land
should have been used in the past two years for agricultural purposes. Also, the proceeds should be
reinvested in agricultural land again.
Capital Gains on Transfer of Securities
Income arising to a taxpayer on account of sale of a long-term capital asset which falls under the
category of securities is completely outside the purview of tax liability. However, the transaction
should have been subjected to a Securities Transaction Tax (STT). Thus, if the shares of any company
listed in the stock exchange are sold after holding it for a minimum period of one year, then there will
be no liability to payment of capital gains. However, the exemption benefit shall be available only
until 31.03.2018.
Gifts Received
Gifts received from a relative and gifts received during the assessee’s wedding are fully exempt from
income tax without any limit. Gift received from any other person is taxable subject to an exemption
for up to a limit of fifty thousand rupees.
Reverse Mortgage Scheme
Transfer of a capital asset in a transaction of reverse mortgage for senior citizens would not attract
capital gains tax. Further, the loan amount is also exempt from tax.
Difference between Tax Planning and Tax Management.
Tax refers to a mandatory contribution of a person towards the country’s revenue, which is imposed by
the government (central or state) on the income or wealth of the persons or included in the cost of
goods, services or transactions. Every assessee wants the tax liability to be minimum and for this,
he/she can take recourse to tax planning through which tax burden can be reduced to a minimum, by
using legitimate ways and means.

TAX PLANNING TAX MANAGEMENT
Meaning Tax planning devises a person's financial Tax Management implies well timed
affairs by taking advantage of all the and regular adherence to the tax laws
allowable deductions, exemptions, and arrangement of financial affairs, in
allowances and rebates, legitimately, so a way that reduces the taxes.
that the tax liability is the least.
Deals Planning of taxable income and planning Maintaining accounting records, filing
with of investments. of returns, audit of accounts and
payment of taxes on time.
Objective To reduce the tax liability to a minimum. To adhere to the provisions of tax laws.
Emphasis It lays emphasis on reducing tax liability. It lays emphasis on reducing taxes and
penalties.
Obligation It is not compulsory. It is compulsory for every assessee.
Conclusion
Tax planning is an honest and legal method of availing the full advantages of taxation laws. It is a way
of effectively managing the income and taxes so that the tax liability arising on the assessee is
minimum. As against, Tax Management is an art of handling the financial affairs, while complying
with the tax provisions, so as to avoid the payment of interest and penalties.

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT II
Income from salary is the income or remuneration received by an individual for services he is
rendering or a contract undertaken by him. This clause essentially assimilates the remuneration
received by a person for the services provided by him under the contract of employment.
This amount of remuneration will be considered as income for the purposes of Income Tax Act only if
there is an Employer and employee relationship between the person who is making the payment and
the person who is receiving the payment.
Employer and Employee Relationship – Any payment that is received by a person will be treated as
Income under Income Tax Act if there exist an Employer and employee relationship between the payer
and payee. For the purpose of qualifying income as income from salary, their relationship should be
that of a master and servant.Where a master is a person who directs his employee that what is to be
done and how it is to be done and servant is the person who is liable to conduct that work in the
manner told by his employer.
(I) Meaning of Salary
The salary for the purpose of calculation of income from salary includes:
Wages;
Pension;
Annuity;
Gratuity;
Advance Salary paid;
Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages;
Annual accretion to the balance of Recognized Provident Fund;
Leave Encashment;
Transferred balance in Recognized Provident Fund;
Contribution by Central Govt. or any other employer to Employees Pension A/c as referred in Sec.
80CCD.
What is CTC?
CTC is one of the generic term when a person talks about salary. CTC stands for Cost To Company. It
is the amount that the company in spending on hiring and sustaining an employee.

CTC includes the salary as well as the other benefits provided to an employee which can be meal
coupons, office space rent, Provident Fund, Medical Insurance, House Rent Allowance (HRA) and any
other element that cost to the company.
It may be noted that CTC varies from the actual income from salary that a person receives as CTC also
includes variables over and above the actual salary that a person is receiving.
(II) Calculation of Income from salary
Particulars Amount
Basic Salary —
Add: —
1. Fees, Commission and Bonus —
2. Allowances —
3. Perquisites —
4. Retirement Benefits —
5. Fees, Commission and Bonus —
Gross Salary —
Less: Deductions from Salary —
1. Entertainment Allowance u/s 16 —
2. Professional Tax u/s 16 —
Net Salary —
(III) Allowances
(A)Fully Taxable allowances:
Dearness Allowance: The allowance is paid to the employees to cope with inflation.
Entertainment Allowance: This is an allowance that is provided to the employees to reimburse the
expenses which are incurred on the hospitality.

Overtime Allowance: Overtime allowance is the allowance which is paid to the employees for
working above the regular work hours.
City Compensatory Allowance: This allowance is paid to those employees who move to urban cities.
Project Allowance: When an employer provides an allowance to the employees to meet the project
expenses.
Tiffin/Meals Allowance: Employees may be provided with meal allowances in some cases.
Cash Allowance: Employer may also provide cash allowance in some cases like for marriage or
holiday purposes.
(B) Partly Taxable allowances:
House Rent Allowance: It is the allowance that an employer pays to his employee for accommodation.
Entertainment allowance
Special allowances like allowance for travel, uniform, research allowance etc.
Special allowance to meet personal expenses like children’s education allowance, children hostel
allowance etc.
(C) Non Taxable allowances:
Allowances that is paid to the Govt. servants abroad: When the government employee of India are paid
allowances when they are serving abroad.
Sumptuary allowances: Sumptuary allowances which are paid to the judges of HC and SC are not
taxed.
Allowance paid by UNO: Allowances which is received by the employees of UNO are fully exempt
from tax.
Compensatory allowance paid to judges: When a judge receives a compensatory allowance, it is also
not taxable.
It may be noted that a person can save tax on income from salary by getting the Tax Saving
Allowances.
(IV) Perquisites
Perquisites are those payments which are received by an employee from the employer over and above
the salary.

(A) Perquisites that is taxable for all the employees:
Rent free accommodation
Club fee payments
Movable assets
Concession in accommodation rent
Interest-free loans
Educational expenses
Insurance premium paid on behalf of employees
(B) Perquisites that is taxable only to specified employees:
Free gas, electricity etc. for domestic purpose
Concessional transport facility
Concessional educational expenses
Payment made to gardener, sweeper and attendant.
Perquisites that is exempt from tax:
Medical benefits
Health Insurance Premium
Leave travel concession
Staff Welfare Scheme
Car, laptop etc. for personal use.
(V) GRATUITY [Sec. 10(10)]
Gratuity is a sum of money paid by an employer to an employee for services rendered in the company.
However, gratuity is paid only to employees who complete 5 or more years with the company.

If Gratuity is received by any employee while in employment then it is fully taxable in the hands of
employee. While if gratuity is received in case of death or retirement or resignation, then exemption is
available up to the following limits:
In case of Government employee {Section 10(10) (i))} - Any gratuity received by an employee of
Central Government, State Government or local authority is wholly exempt from tax. This exemption
is not available to employees of Statutory Corporation.
In case of employees covered by Payment of Gratuity Act,{Section 10(10)(ii))} an amount equal to the
least of the following will be exempt from tax:
15/26 x Salary last drawn x No. of completed years of service or part thereof in excess of 6 months.
10, 00,000
Gratuity actually received
Notes:
In case of seasonal establishments, 15 days is substituted by 7 days.
Salary includes basic salary and dearness allowance but does not include bonus, commission, overtime
wages or any other allowance.
Part of a year exceeding six months is taken as a complete year.
In case of employees not covered by Payment of Gratuity Act, {Section 10(10) (iii))} an amount equal
to the least of the following will be exempt from tax:
½ x Average salary of last 10 months preceding the month of retirement x Completed year of service
(fraction of a year is ignored)
10, 00,000
Gratuity actually received
Notes:
Salary includes basic pay, dearness allowance to the extent it forms part of retirement benefits and
percentage wise fixed commission on turnover.

If gratuity is received by an employee from more than one employer in the same previous year or in
different previous years the aggregate maximum amount exempt from tax on account of gratuity
cannot exceed 10, 00,000.
If an employee had also rendered service to any other employer, then period of service to such former
employer is also included while calculating “completed year of service” subject to condition that any
gratuity is not received from such former employer.
Gratuity is exempt if the relationship of employer and employee exist; if such relationship does not
exist then the exemption shall not be available.
Forfeiture of Gratuity:
According to the Payment of Gratuity Act of 1972, an employer holds the right to forfeit their gratuity
payment, either wholly or partially despite the employee having completed 5 and more years of
service in a company. The only situation where this works is when the employee has been terminated
due to disorderly conduct wherein, he/she tries to physically harm individuals during his/her
employment.
(VI) Provident fund
The contribution is made in the Employee Provident Fund (EPF) for the employee’s welfare by the
employee and the employer. The deduction is available under section 80C. Provident fund is a kind of
security fund in which the employees contribute a part of their salary and the employer also
contributes on behalf of their employees. Section 10(11) and 10(12) of the Income Tax Act defines the
exemption on the amount added to the provident fund. Additionally, the amount allowed as a
deduction on contributing to the provident fund is dealt in section 80C of the Income Tax Act. The
types of provident funds are:
1. Recognized Provident Fund (RPF) as recognized by Commissioner of Income Tax under EPF
and Miscellaneous Provision Act, 1952. It applies to enterprises employing at least 20
employees.
2. Unrecognized Provident Fund (UPF) is not recognized by the Commissioner of Income Tax.
The employers and employees start these schemes.
3. Public Provident Fund (PPF) under Public Provident Fund Act, 1968 is another system of
contributing to the provident fund. Self-employed people can also take part in this scheme. A
minimum contributing limit of Rs. 500 per annum and a maximum of Rs. 150000 per annum
are set.
4. Statutory Provident Fund (SPF) is meant for employees of Government or Universities or

Educational Institutes affiliated to University.
5. Tax Treatment of Provident Fund
Statutory
Particulars Recognised PF Unrecognised PF Public PF
PF
Contribution to
12% of salary is
Employer’s exempt, above Not Not
Not taxable
Contribution that is added to taxable taxable
salary income of
the employee.
Section Section
Employee’s Section 80C No Section 80C
80C 80C
Contribution Deduction deduction
Deduction Deduction
Any interest
over and above
9.5% is added to
Interest on
Income from Not taxable Exempt Exempt
PF
Salaries. Until
9.5% interest is
exempt.
Contribution from
employer and interest on
that is taxable under the
head Income from
Amount
Exempt subject Salaries; Contribution
withdrew at a
to certain by an employee is not Exempt Exempt
retirement
conditions*. taxable, and employee’s
time
contribution interest is
taxable under the head
Income from Other
Sources.
Conditions:

1. Employee leaves the job after 5 years of employment; or
2. Where the service period is less than 5 years, the reason for termination is discontinuance of
employer’s business or ill health; or
3. The balance in RPF is reassigned to RPF with the new employer on re-employment.
(VII) Tax planning (salary)
Tax planning for the salaried employees is a matter of planning and discipline. Planning involves
making a set of decisions at the start of the financial year in April and discipline comes in when you
are required to adhere to the plan come what may.
Tax Saving and Tax Planning

Sr Comments
Tips
No.
Take a good look at Section

Tip 1 Section 80 C is important for taxpaying individuals.
80C
Tip 2 Start with Rs 150,000 PPF, NSC, Life Insurance are most suitable options
Begin with the most important

Tip 3 Life Insurance and EPF could be included
options
Move to the second rung

Tip 4 ULIP, Pension Plans and NPS qualify for tax benefits
options
Claim tax benefits under Section 80C And under Section 24 towards interest
Tip 5 Have you taken a home loan?
payment on the home loan.
Tip 6 Don’t forget the other sections Section 80D, Section 80E, Section 80G
Tip 1 Take a good look at Section 80C
When it comes to taxation of salaried employees, perhaps no section is a bigger ally than Section 80C.
So the biggest tax planning tip for salaried employee is to take a good look at Section 80C to
maximize take-home salary, legally 'reduce' income tax rateÂ and lower tax payout.

Section 80C comes with a broad range of options to help individuals lower tax liability.
Section 80C offers as much as Rs 150,000 in terms of tax benefit, which tells you how important it is
for taxpaying individuals.
4. Tip 2 - Start with Rs 150,000
Make Rs 150,000 your starting point and work backwards by considering the most suitable options
like life insurance, PPF (public provident fund), tax-paying mutual funds, NSC (National Savings
Certificate) and so on.
The plans and allocations depend primarily on your financial goals, risk profile and income levels.
Your financial planner should be helpful over here. He can guide you on how to make the most of
these options.
5. Tip 3 - Begin with the most important options
While reviewing Section 80C benefits, go for options that you would take anyway, even if there was
no tax benefit. Typically this would include life insurance, employee provident fund (EPF) - should
your employer qualify for the same, tuition fees and so on. Deduct all these from the Rs 150,000
starting point.
6. Tip 4 - Move to the second rung options
Once you have got the most important options out of the way, it's time to take a close look at the
second rung. This would typically include tax-saving mutual funds and ULIPs (unit-linked insurance
plans) if you are the risk-taking type or PPF and NSC if you prefer low risk options.
If you want to invest in a pension plan, then the good news is that premium payment on plans, under
Section 80CCC - a sub-section of Section 80C - also qualify for tax benefits.
By the same token, contribution to New Pension Scheme (NPS) - under Section 80CCD - a sub-
section of Section 80C, also qualify for tax benefits.
7. Tip 5 - Have you taken a home loan?

If you have availed a home loan, you can claim tax benefits under Section 80C by furnishing proof of
principal re-payment on the home loan.
You can also claim tax benefits under Section 24 towards interest payment on the home loan.
8. Tip 6 - Don't forget the other sections
While Section 80C seems to hog most of the footage, so to say, when it comes to tax-planning there
are other sections that can save a bundle on taxes.
While listing the sections may not prove very meaningful, we have listed down the documents
individuals need to submit to avail of tax benefits under the sections:
1. Rent receipts to claim HRA tax benefit
2. Medical bills to claim tax-free medical allowance
3. Proof of travel to claim leave travel allowance (LTA) tax benefit - usually twice in a
block of four years
4. Proof of conveyance, if required by company guidelines, to claim conveyance

allowance
5. Premium receipt of health insurance/mediclaim, including premium paid on parents'

health insurance - Section 80D
6. Statement of education loan with details of the interest component - Section 80E
7. Proof of donation to a recognized charity under Section 80G

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT III
Basics of House Property
A house property could be your home, an office, a shop, a building or some land attached to the
building like a parking lot. The Income Tax Act does not differentiate between a commercial and
residential property. All types of properties are taxed under the head ‘income from house property’ in
the income tax return. An owner for the purpose of income tax is its legal owner, someone who can
exercise the rights of the owner in his own right and not on someone else’s behalf.
When a property is used for the purpose of business or profession or for carrying out freelancing work
– it is taxed under the ‘income from business and profession’ head. Expenses on its repair and
maintenance are allowed as business expenditure.
a. Self-Occupied House Property
A self-occupied house property is used for one’s own residential purposes. This may be occupied by
the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as
self-occupied for the purpose of Income Tax.
Prior to FY 2019-20, if more than one self-occupied house property is owned by the taxpayer, only
one is considered and treated as a self-occupied property and the remaining are assumed to be let out.
The choice of which property to choose as self-occupied is up to the taxpayer.
For the FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been
extended to 2 houses. Now, a homeowner can claim his 2 properties as self-occupied and remaining
house as let out for Income tax purposes.
b. Let out House Property

A house property which is rented for the whole or a part of the year is considered a let out house
property for income tax purposes
c. Inherited Property
An inherited property i.e. one bequeathed from parents, grandparents etc again, can either be a self
occupied one or a let out one based on its usage as discussed above.
A commercial and residential property. All types of properties are taxed under the head ‘income from
house property’ in the income tax return. An owner for the purpose of income tax is its legal owner,
someone who can exercise the rights of the owner
How to calculate Income From House Property
Here is how you compute your income from a house property:
a. Determine Gross Annual Value (GAV) of the property: The gross annual value of a self-
occupied house is zero. For a let out property, it is the rent collected for a house on rent.
b. Reduce Property Tax: Property tax, when paid, is allowed as a deduction from GAV of property.
c. Determine Net Annual Value (NAV): Net Annual Value = Gross Annual Value – Property Tax
d. Reduce 30% of NAV towards standard deduction: 30% on NAV is allowed as a deduction from
the NAV under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can
be claimed as tax relief beyond the 30% cap under this section.

e. Reduce home loan interest: Deduction under Section 24 is also available for interest paid during
the year on housing loan availed.
f. Determine Income from house property: The resulting value is your income from house property.
This is taxed at the slab rate applicable to you.
g. Loss from house property: When you own a self occupied house, since its GAV is Nil, claiming
the deduction on home loan interest will result in a loss from house property. This loss can be adjusted
against income from other heads.
Note: When a property is let out, its gross annual value is the rental value of the property. The rental
value must be higher than or equal to the reasonable rent of the property determined by the
municipality.
Tax Deduction on Home Loans
a. Tax Deduction on Home Loan Interest: Section 24
Homeowners can claim a deduction of up to Rs 2 lakh on their home loan interest, if the owner or his
family resides in the house property. The same treatment applies when the house is vacant. If you have
rented out the property, the entire home loan interest is allowed as a deduction.
However, your deduction on interest is limited to Rs. 30,000 instead of Rs 2 lakhs if any of the
following conditions are satisfied:
A. Condition I
 The loan is taken on or after 1 April 1999, and

 The purchase or construction is not completed within 5 years from the end of the FY in which
loan were availed.
B. Condition II
 The loan is taken before 1 April 1999.
C. Condition III
 The loan is taken on or after 1 April 1999 for the purpose of repairs or renewal of the house
property.
When is the deduction limited to Rs 30,000?
As already mentioned, if the construction of the property is not completed within 5 years, the
deduction on home loan interest shall be limited to Rs. 30,000. The period of 5 years is calculated
from the end of the financial year in which loan was taken. So, if the loan was taken on 30th April
2015, the construction of the property should be completed by 31st March 2021. (For years prior to FY
2016-17, the period prescribed were 3 years which got increased to 5 years in Budget
2016). Note: Interest deduction can only be claimed, starting in the financial year in which the
construction of the property is completed.
How do I claim a tax deduction on a loan taken before the construction of the property is
complete?
Deduction on home loan interest cannot be claimed when the house is under construction. It can be
claimed only after the construction is finished. The period from borrowing money until construction of
the house is completed is called pre-construction period. Interest paid during this time can be claimed

as a tax deduction in five equal instalments starting from the year in which the construction of the
property is completed. Understand pre-construction interest better with this example.
b. Tax Deduction on Principal Repayment
The deduction to claim principal repayment is available for up to Rs. 1, 50,000 within the overall limit
of Section 80C. Check the principal repayment amount with your lender or look at your loan
instalment details.
Conditions to claim this deduction-
 The home loan must be for purchase or construction of a new house property.
 The property must not be sold in five years from the time you took possession. Doing so will
add back the deduction to your income again in the year you sell.
Stamp duty and registration charges Stamp duty and registration charges and other expenses related
directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum
deduction amount of Rs 1.5 lakh. Claim these expenses in the same year you make the payment on
them.
What Is a Capital Gain?
The term capital gain refers to the increase in the value of a capital asset when it is sold Put simply, a
capital gain occurs when you sell an asset for more than what you originally paid for it.

Almost any type of asset you own is a capital asset whether that's a type of investment (like a stock,
bond, or real estate) or something purchased for personal use (like furniture or a boat).
Capital gains are realized when you sell an asset by subtracting the original purchase price from the
sale price. The Internal Revenue Service (IRS) taxes individuals on capital gains in certain
circumstances
KEY TAKEAWAYS
A capital gain is the increase in a capital asset's value and is realized when the asset is sold .Capital
gains apply to any type of asset, including investments and those purchased for personal use.The gain
may be short-term (one year or less) or long-term (more than one year) and must be claimed on
income taxes.Unrealized gains and losses reflect an increase or decrease in an investment's value but
are not considered a taxable capital gain. A capital loss is incurred when there is a decrease in the
capital asset value compared to an asset's purchase price.
How is Income from Other Sources Taxed in India?
Income from Other Sources is one of the five heads of income subject to taxation under the Income Tax
Act, 1961. Any income that is not covered in the other remaining four heads of income is taxed under
income from other sources. It is referred to as residuary head of income. Incomes excluded from salary,
house property, business & profession (PGBP) or capital gains are covered in Income from Other Sources,
barring incomes that are exempt under the Income Tax Act.

Section 56: Incomes Taxable Only in Income from Other Sources –

Criteria
Under Section 56 of the Act, the following three conditions must be satisfied for a receipt of earning to
come under the ‘income from other sources’ head –
1. You have an income
2. Such income is not tax-exempt under any other Sections of the Income Tax Act 1961
3. Such income cannot be categorized as salary, profits, and gains from business or profession, income
from house property, or capital gains
What does ‘Income from Other Sources’ Include?

The following types of receipts of income fall under the Income from Other Sources’ category –
1. Dividends Dividends are taxable under ‘income from other sources,’ based on the residential status of the
source company that paid out the dividend.
2. Dividend from an Indian Company
If any company has paid Dividend Distribution Tax (or DDT) on this receipt of income, the dividend is
exempted from tax. Under Section 115BBDA of the Act, however, if a resident individual, firm, or HUF
receives dividends over Rs 10 lakhs from an Indian company, then the excess amount over Rs 10 lakhs is
subject to taxation at 10%.
3. Dividend from a Foreign Company
Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’
4. One-time Income
One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games, gambling
or betting of any form are categorized under ‘Income from Other Sources.’
5. Interest on Compensation
Interest received by you (as assesse) on the amount of reimbursement or compensation paid out in
situations such as compulsory acquisition is subject to taxation under ‘Income from Other Sources’ head.
6. Gifts
Gifts received in the form of any sum of money, movable or immovable property, are also taxable.

Then, there are the following receipts of income, which can only be classified under ‘Income from Other
Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –
a) Employees’ contribution to any welfare scheme

b) Interest on securities such as debentures or government bonds
c) Rental income received from letting out the plant, furniture, or machinery owned by the assessee
d) Rental income received from letting out the plant, furniture, or machinery along with a building (here,
these two cases of letting out are inseparable)
Examples of Receipts that are Chargeable Under ‘Income from

Other Sources’
The following are some of the examples of other receipts of income that automatically fall under the
‘Income from Other Sources’ category –
a) Income received from subletting a house property by a tenant

b) Insurance commissions received by you (i.e., assesse)
c) Casual income
d) Family pension payments received by the lawful heirs of dead employees
e) Interest earned on deposits with companies and bank deposits
f) Interest on loans
g) Remuneration received by the Members of Parliament (MP)
h) Rental income earned from a vacant plot of land
i) Agricultural income received from an agricultural land situated outside of India
j) Interest paid out by the Government on excess payment of advance tax
Section 57- Expenditures Allowed as Deductions
The following expenditures are subject to tax deductions under the ‘Income from Other Sources’ category:
Section Nature of Income Deductions allowed
57(i) Dividend or interest earned on securities Any reasonable sum paid as commission or
remuneration to a banker or any other person to
realize interest or dividend on securities

57(ia) Employee’s contribution towards Provident Fund In case the employees’ contribution is credited to
(PF), Superannuation Fund (SF), or ESI Fund setup their respective accounts in relevant fund before or
for employees’ welfare on the due date
57(ii) Rental income received from letting of plant, Rent, taxes, rates, repairs, depreciation and
furniture, machinery or building insurance, etc
57(iia) Family Pension One-third of the family pension, subject to a

maximum of Rs. 15,000
57(iii) Any other income Any other expenditure (apart from capital
expenditure) expended exclusively and wholly for
earning such income
57 (iv) Interest on the compensation or enhanced 50% of such interest received (subject to specific
compensation conditions)
58(4) Income from any activity of maintaining or owning All expenditures relating to such activity
Proviso race horses
Section 58- Expenses not Deductible while Calculating Income Tax

Section Nature of Income
58(1)(a)(i) Personal expenses
58(1)(a)(ii) Interest subject to tax, which is payable outside India (there has been no previous tax deduction on this
interest)
58(1)(a)(iii) ‘Salary’ payable outside India on which no tax is deducted at source or paid
58(1A) Wealth-tax

58(2) Expenditures specified in section 40A
58(4) Expenditure associated with winnings from lotteries, races, crossword puzzles, games, gambling, or
betting

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT IV
INCOME FROM BUSINESS/PROFESSION
Business is an activity of purchase and sell of goods with the intention of making profit.
Profession is an occupation requiring intellectual skill. E.g. Doctor, Lawyer etc. Vocation is
An activity, which requires a special skill, which is used to earn income. E.g. Painter, Singer
Etc. For income tax purpose there is no difference between business incomes, profession
Income and vocation income.
Section 2 (13):
BUSINESS
“Business includes any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture.”
Profession:
“Profession” may be defined as a vacation, or a job requiring some thought, skill and special
Knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So profession refers to
those activities where the livelihood is earned by the persons through their intellectual or
manual skill.
ESSENTIAL FEATURES OF PROFITS FROM BUSINESS AND PROFESSION
1. Business or Profession carried on by assessee:
It is must that business or profession must be carried out by assessee himself during the
previous year.
2. Business or profession should have been carried on the previous year.
3. Aggregate income of different businesses is assessed to tax
4. Profits from speculation business are also taxed under the head income from business.
5. Income from previous year should be taxed for the current assessment year
6. The real profit i.e. the profit received or receivable during the previous year are taxed

BUSINESS EXPENSES NOT ALLOWED UNDER THE HEAD “PROFITS AND
GAINS OF BUSINESS:
1. Advertisement expenses incurred by an assessee on advertisement in any souvenir,
Magazine, pamphlet published by political party.
2. Interest, royalty, fees paid outside India without TDS shall be disallowed
3. Any amount of income tax, Arrears of income Tax or Advance income tax paid is
disallowed
4. Wealth tax paid on the wealth of an assessee
5. Payment of provident fund paid outside India without TDS
6. Payment to a relative by way of salary, provident fund, or Interest
7. Any Expenditure paid in cash or through bearer cheque exceeding Rs. 20,000 will be
Disallowed
8. Capital expenditures
9. All types of provisions, reserves and fund
10. Drawing of proprietor
11. Personal expenses of proprietor
12. Fines and penalties
13. Past losses and provisions for lossess
14. Charity and Donation
15. Registration expenses of business assets
16. Legal expenses related to capital assets
17. Life insurance premium on the life of proprietor
18. Expenditures on raising capital
19. Expendture on shifting registered office
20. Gifts made on personal consideration

BUSINESS INCOME NOT TAXABLE UNDER THE HEAD “PROFITS AND GAINS
OF BUSINESS OR PROFESSION”:
In the following cases, income from trading or business is not taxable under Sec. 28, under the
Head “Profits and Gains of Business or Professions”:
Nature of Income Head under which it is chargeable to Tax
Rental income in the case of dealer in
Property
Rent of house property is taxable under Sec. 22 under
The head “Income from House Property” even if
Property constitutes Stock-in-trade of recipient of rent
Or the recipient of rent is engaged in the business of
Letting properties on rent.
Dividend on shares in the case of a
Dealer-in-shares.
Dividend on shares is taxable under section 56(2) (i),
Under the head “Income from other sources”, even if
They are derived from shares held as stock in trade or
The recipient of dividends is a dealer-in-shares.
However, dividend received from an Indian company
Is not chargeable to tax in the hands of shareholders.
Winning from Lotteries etc. Winning form Lotteries, races, etc. are taxable under
The head “Income from Other Sources” (even if
Derived as a regular business activity)
BASIS OF CHARGE: SECTION 28
Under Section 28 following are the income chargeable to tax under the head Profits or Gains

From Business or profession: ‐
1) Profits and Gains of any business or profession that is carried on by the assessee at any
Time during the previous year.
2) Any compensation or other payment due to or received by an assessee for loss of agency
Due to termination or modification of terms.
3) Income derived by a trade, professional or a similar association for specific services
Performed for its members.
4) Any profit on sale of a license granted under Imports (controls) Order 1955 made under
Imports & Exports (control) Act of 1947.
5) Any cash assistance (by whatever name called) received or receivable against exports
Under any scheme of Government of India.
6) Any duty of customs or excise repaid or repayable as drawback to any person against
Exports under the Customs and Central Excise Duty’s Drawback Rules 1971.
7) Any profit on the transfer of the Duty entitlement pass book scheme under export import
Policy
8) Any profit on the transfer of the Duty free replenishment certificate under export
import policy.
9) The value of any benefit or perquisite whether convertible into money or not arising from
Business or exercise of a profession e.g. a gift received by the lawyer from his client.
10) Any interest, salary, bonus, commission or remuneration due to or received by partner of
A firm from such firm.
11) Sum received or receivable in cash or in kind under an agreement for not carrying out any
activity in relation to any business or not sharing any know how, patent, copyright, trade
mark, license franchise or any other business or commercial right of similar nature or
information or technique likely to assist the manufacture or processing of goods or provision

of services.
12) Any sum received including bonus under Keyman Insurance Policy.
13) Any sum received (or receivable) in cash or kind, on account of any capital asset (other
Than land or goodwill or financial instrument) being demolished, destroyed, discarded or
transferred, if the whole of the expenditure on such capital asset has been allowed as a
Deduction under section 35AD. 14) Income from a speculative business.
DEDUCTIONS FOR EXPENSES SPECIFICALLY ALLOWED SECTION 30 TO
SECTION 43D
1. Rent, rates, taxes, repairs and insurance of building (Section 30):
• If assessee has occupied the premises as a tenant, rent of the premises and if he has
Agreed to bear cost of repairs, such cost is allowed as deduction, provided it is not of
capital nature.
• If assessee has occupied premises as the owner; repairs, land revenue, local taxes,
insurance premium etc. are allowed as deduction. However, no expenditure in form of
Capital expenditure is allowed.
2. Repairs & Insurance of machinery, Plant & Furniture (Sec.31):
Amount paid on account of repairs and insurance premium against risk of damage in respect
Of machinery, plant & furniture are allowed as deduction provided they are not of capital
nature.
3. Depreciation u/s 32:
Under Section 32 depreciation on assets is allowed as deduction while computing income
from business or profession. To claim this deduction following conditions should be satisfied:
1) Assessee should be owner of the asset.
2) Asset must be used for the business.
3) Such use must be in the previous year.

Depreciation is allowed not on individual asset items, but on block of assets under following
Categories: ‐
1) Buildings
2) Plant & Machinery
3) Furniture
4) Intangible Assets acquired after March 31, 1998 such as know‐ how, Patents,
Trademarks, licenses, franchises or any other business or commercial rights of similar nature.
The term plant includes ships, vehicles, books, scientific apparatus and surgical equipments
used for the business but excludes tea bushes or live stock.
If any asset falling in block of assets is acquired during the year and put to use during the
Previous year for less than 180 days depreciation on such asset shall be restricted to 50% of
The normal depreciation.
No depreciation is allowed on motor car which is manufactured outside India and acquired on
Or after 1st March 1975 but before 1st April 2001. However, this restriction does not apply
if:
1) Assessee carries on a business of running the car on the hire for tourist, or
2) If assessee is using the car outside India for his business in another country. If business is
Carried on in a building not owned by the assessee but acquired on lease or any other
Occupancy right and any capital expenditure is incurred by him in respect of this building,
Such expenditure will be considered as cost of asset as if he is the owner of such property
Capital gain
Profit or gains on account of transfer of capital assets is known as capital gain. For income
Tax purpose the capital gains are classified into 2 types
➢ Long term capital gain
➢ Short term capital gain

Depreciation [Sec. 32]
Depreciation is the diminution in the value of an asset due to normal wear and tear or due to
Obsolescence. In order to allow depreciation as notional expenses in computing profits and gains of
Business or Profession,
The following conditions are to be fulfilled;
(i) It is allowed only on Capital assets: It may be classified into two types.
(a) Tangible assets: Buildings, machinery, plant or furniture
(b) Intangible assets: Know-how, patents, copy rights, trademarks, licences, franchise or any
Other business or commercial right of similar nature acquired on or after 1st April, 1998.
(ii) Such asset should be owned, wholly or partly, by the assessee: Ownership does not necessarily
Mean legal ownership. Assessee will be treated as owner if he is capable of enjoying the right of the
Owner in respect of asset in his own right and not on behalf of the owner in who title vests even
Though a formal deed of title has not been executed and registered (Mysore Minerals Ltd. vs. CIT
[(1999)
239 ITR 775(SC)].
In case of a building in which Business or Profession is carried on is not owned by the assessee but he
Holds a lease or other right of occupancy though he is not entitled to depreciation on the building,
Depreciation is allowed on the capital expenditure incurred for the purposes of Business or Profession
On construction of any structure or renovation etc.
(iii) Such asset should be used for purposes of Business or Profession.
(iv) It should be used during the relevant Previous Years.
Depreciation Mandatory Explanation 5 to Sec. 32 inserted by the Finance Act, 2001 w.e.f.
1.4.2002,
It is clarified that the depreciation provisions shall apply, whether or not the assessee has claimed the
deduction in respect of depreciation in computing his total income.

Block of Assets [Sec. 2(11) and Explanation 3 to Section 32]:
It means a group of assets falling within a class of assets comprising,
(i) Tangible assets : Buildings, machinery, plant or furniture;
(ii) Intangible assets: Know-how, patents, copyright, trademarks, licences, franchises or any other
Business or commercial rights of similar nature in respect of which same percentage of
depreciation has been prescribed.
Aligning the definition of ‘Block of Asset” [Explanation 3 to Section 32(1)] [W.e.f. A.Y. 2010-11]
The term “Block of Assets” has been defined in section 2(11) and in Explanation3 to section 32(1) of
the
Income-Tax Act. However, these definitions are not identical and therefore they are subject to misuse.
Accordingly, Explanation of section 32(1) has been amended so as to delete the definition of “Block of
Assets” provided therein. Consequently, “Block of Assets” will derive its meaning only from section
2(11) and Explanation 3 shall contain the meaning of assets which shall be applicable for electricity
Undertaking only.
Written Down Value [Sec. 43(6)]
(i) In case of assets acquired in the Previous Year, Written Down Value is the actual cost to the
assessee.
(ii) In case of assets acquired before the Previous Year :- Written Down Value is the actual cost of
the asset to the assessee as reduced by depreciation actually allowed to him in respect of such
asset under this Act.
(iii) In case of any block of assets :
Written Down Value of the block of asset is computed as per the following mechanism.
Written Down Value at the beginning of the year
Add: Actual cost of the assets purchased
Less: Assets sold/ Scraped/ Demolished/Destroyed during the previous year

Depreciation
Block1: Building- Residential building other than hotels and boarding houses 5%
Block 2 Building- Office, factory, godowns or buildings which are not mainly used for residential
purpose 10%
Block 4 Any furniture/ fitting including electrical fittings 10%
Block 5 Any plant & machinery (except covered by Block 6, 7, 8, 9, 10,
11 or 12) and motor cars (other than those used in a business of running them on hire)
Acquired or put to use on or after April 1, 1990 15%
Block 13 Intangible assets- Know-how, patents, copyrights, trademarks,
Licences,
Franchises and any other business or commercial rights of
similar nature
25%
Rate of Depreciation
1. 1st year of Acquisition
Assets used 180 days or more---Full Rate of depreciation
Assets used less than 180 days-----Half of the normal rate of depreciation
2. Subsequent Year------ Full Rate of Depreciation
Additional Depreciation :
Applicable
For assesses engaged in the business of manufacture or production of any article
or thing or engaged in the business of generation or generation and distribution
of power
Assets eligible for additional depreciation
Any new plant or machinery acquired and installed after 31.3.2005

Rate of Additional Depreciation
20% of the Actual Cost of Plant or Machinery
Note: If the newly acquired asset is “put to use” for a period of less than 180 days during
the Previous Year, in which it is acquired, the rate of additional depreciation
shall be provided at 50% of the normal rate = 50% × 20% = 10%
UNABSORBED DEPRECIATION [SEC. 32(2)]
When on account of insufficient profits of business or profession the full or a part of depreciation
allowance can not be deducted, the balance of such allowance not so deducted is known as unabsorbed
Depreciation
Unabsorbed depreciation shall be treated as part of the current year depreciation such unabsorbed
depreciation can be set off not only against income under “Profits and Gains of Business or
Profession” but also against income under any other head. Unabsorbed depreciation can be carried
forward indefinitely and the
business need not be continued in order to get the benefit of carry forward of unabsorbed depreciation.
Unabsorbed depreciation is adjusted as under
1. Un- absorbed depreciation can be set-off from the profits of other business or profession during the
same year.
2. The profits of any other business or profession are unable to absorb the amount of depreciation, the
same may be adjusted against the income under any other head of that year.
3. The balance if any can be forward to be set- off against the assessable incomes of subsequent years.
The following is the treatment of unabsorbed depreciation
Business Profits of the current year
Less: Current year Depreciation xx
Less: B/F Business Loss
Less : B/F Unabsorbed Depreciation

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT V
Income Tax Deductions under Section 80C to 80U
Individuals can claim tax deduction benefits for payments made towards life insurance policies, fixed
deposits, superannuation/provident funds, tuition fees, and construction/purchase of residential
properties under Section 80C of the Income Tax Act.
Taxes are an integral component in our country, with them accounting for a major portion of the
income earned by the government, income which is utilized to provide certain basic provisions to
citizens. Individuals who earn more than a certain amount are expected to pay taxes, as per the existing
tax slabs. While these taxes can be harsh on the bank balance of a taxpayer, the government also
provides certain provisions wherein one can save tax. Tax deductions can help one reduce the taxable
income, lowering their overall tax liability and thereby helping them save on taxes. The deduction one
is eligible for depends on many factors, with different limits set for different purposes.
Investments that qualify for deductions under Section 80C
The following are the investments that qualify for deductions under Section 80C of the Income Tax
Act:
Public Provident Fund
Employee Provident Fund
Voluntary Provident Fund
Five-Year Post Office Time Deposit
Equity Linked Savings Scheme
Five-Year Tax Saving Bank Fixed Deposit
National Savings Certificate
Senior Citizens Savings Scheme
Unit Linked Insurance Plan
Sukanya Samriddhi Scheme
Infrastructure Bonds
NABARD Rural Bonds
Expenses that qualify for tax deductions under Section 80C

The following are the expenses that qualify for tax deductions under Section 80C of the Income Tax
Act:
 Premium payments made towards Life insurance policies

 Tuition fees for children's education
 Repayment of principal amount on home loan
 Registration fees and stamp duty for house property
Tax Deductions under Section 80C
Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments,
with both individuals and Hindu Undivided Families eligible for these deductions. Eligible taxpayers
can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C, with this amount being a
combination of deductions available under Sections 80 C, 80 CCC and 80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.
 Payment made towards life insurance policies (for self, spouse or children)
 Payment made towards a superannuation/provident fund
 Tuition fees paid to educate a maximum of two children
 Payments made towards construction or purchase of a residential property
 Payments issued towards a fixed deposit with a minimum tenure of 5 years
This section provides for a number of additional deductions like investment in mutual funds, senior
citizens saving schemes, purchase of NABARD bonds, etc.
Subsections under Section 80C
Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to the
creation of suitable sub-sections to provide clarity to taxpayers.
 Section 80CCC: Section 80CCC of the Income Tax Act provides scope for tax deductions on
investment in pension funds. These pension funds could be from any insurer and a maximum
deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed only by
individual taxpayers.
 Section 80CCD: Section 80CCD aims to encourage the habit of savings among individuals,
providing them an incentive for investing in pension schemes which are notified by the Central

Government. Contributions made by an individual and his/her employer, both are eligible for
tax deduction, subject to the deduction being less than 10% of the salary of the person. Only
individual taxpayers are eligible for this deduction.
o Section 80CCD (1):All individuals who have subscribed to the National Pension Scheme
(NPS) will be eligible to claim tax benefits under Section 80 CCD (1) up to the limit of Rs.1.5
lakh. In addition to that, an exclusive tax deduction for investments of up to Rs.50, 000 in NPS
(Tier I account) can be availed by the subscribers under Section 80 CCD (1B).
 Section 80CCF: Open to both Hindu Undivided Families and Individuals, Section
80CCF contains provisions for tax deductions on subscription of long-term infrastructure
bonds which have been notified by the government. One can claim a maximum deduction
of Rs 20,000 under this Section.
 Section 80CCG: Section 80CCG of the Income Tax Act permits a maximum deduction of Rs
25,000 per year, with specified individual residents eligible for this deduction. Investments in
equity savings schemes notified by the government are permitted for deductions, subject to the
limit being 50% of the amount invested.
 Tax Deductions under Section 80D
 Section 80D of the Income Tax Act permits deductions on amounts spent by an individual
towards the premium of a health insurance policy. This includes payment made on behalf of a
spouse, children, parents, or self to a Central Government health plan. An amount of Rs 15,000
can be claimed as a deduction when paid towards the insurance for spouse, dependent children,
or self, while this amount is Rs 30,000 (Union Budget 2017) if the person is over the age of 60
years.

 On February 1, 2018, Finance Minister Arun Jaitley presented the Union Budget 2018 with a
few changes in the tax deductions applicable for senior citizens. Under Section 80D, the
income tax deduction limit for senior citizens has been increased to Rs.50,000 for medical
expenditure.

 Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the
payment being made in modes other than cash.

 Subsections under Section 80D
 Section 80D is further subdivided into two sub-sections, offering clarity on the benefits
available to taxpayers.


 Section 80DD: Section 80DD provides provisions for tax deductions in two cases, with the
permitted deduction being Rs 75,000 for normal disability and Rs 1.25 lakh if it is a severe
disability. This deduction can be claimed in case of the following expenditures.
 On payments made towards the treatment of dependants with disability
 Amount paid as premium to purchase or maintain an insurance policy for such dependant
 The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe
disability. Both Hindu Undivided Families and resident individuals are eligible for this
deduction. The dependant, in this case can be either a spouse, sibling, parents or children.

 Section 80DDB: Section 80DDB can be utilised by HUFs and resident individuals and
provides provisions for deductions on the expense incurred by an individual/family towards
medical treatment of certain diseases. The permitted deduction is limited to Rs 40,000, which
can be increased to Rs 60,000 (Union Budget 2015) if the treatment is for a senior citizen.The
deduction under Section 80DDB for senior citizens and very senior citizens has been increased
to Rs.1 lakh in Union Budget 2018.
 Tax Deductions under Section 80E
 Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself
doesn’t become an additional tax burden. Under this provision, taxpayers are eligible for tax
deductions on the interest repayment of a loan taken to pursue higher education. This loan can
be availed either by the taxpayer himself/herself or to sponsor the education of his/her
ward/child. Only individuals are eligible for this deduction, with loans taken from approved
charitable organizations and financial institutions permitted for tax benefits.
 Subsections of Section 80E
 Section 80EE: Only individual taxpayers are eligible for deductions under Section 80EE, with
the interest repayment of a loan taken by them to buy a residential property qualifying for
deductions. The maximum deduction permitted under this section is Rs 3 lakhs.
 Tax Deductions under Section 80G
 Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax
benefits on monetary donations. All assessees are eligible for this deduction, subject to them
providing proof of payment, with the limit of deductions decided based on a few factors.

 100% deductions without any limit: Donations to funds like National Defence Fund, Prime
Minister’s Relief Fund, National Illness Assistance Fund, etc. qualify for 100% deduction on
the amount donated.
 100% deduction with qualifying limits: Donations to local authorities, associations or institutes
to promote family planning and development of sports qualify for 100% deduction, subject to
certain qualifying limits.

 50% deduction without qualifying limits: Donations to funds like the PMs Drought Relief
fund, Rajiv Gandhi Foundation, etc. are eligible for 50% deduction.
 50% deduction with qualifying limit: Donations to religious organisations, local authorities for
purposes apart from family planning and other charitable institutes are eligible for 50%
deduction, subject to certain qualifying limits.
 The qualifying limit refers to 10% of the gross total income of a taxpayer.

 Subsections of Section 80G
 Under Section 80G has been further subdivided into four sections to simplify understanding.

 Section 80GG: Individual taxpayers who do not receive house rent allowance are eligible for
this deduction on the rent paid by them, subject to a maximum deduction equivalent to 25% of
their total income or Rs 2,000 a month. The lower of these options can be claimed as
deduction.
 Section 80GGA: Tax deductions under this section can be availed by all assessees, subject to
them not having any income through profit or gain from a business or profession. Donations by
such members to enhance social/scientific/statistical research or towards the National Urban
Poverty Eradication Fund are eligible for tax benefits.
 Section 80GGB: Tax deductions under this section can be availed by Indian Companies only,
with the amount donated by them to a political party or electoral trust qualifying for
deductions.
 Section 80GGC: Under this section, funds donated/contributed by an assessee to a political
party or electoral trust are eligible for deduction. Local authorities and artificial juridical
persons are not entitled to the tax deductions available under Section 80GGC.
Tax Deductions under Section 80 IA
Section 80 IA provides an avenue for all taxpaying assessees to claim tax deductions on the profits
generated through industrial activities. These industrial undertakings can be related to
telecommunication, power generation, industrial parks, SEZs, etc.
The following subsections are related to Section 80-IA
 Section 80-IAB: Section 80 IAB can be used by SEZ developers, who can claim tax
deductions on their profits through development of Special Economic Zones. These SEZs need
to be notified after 1/4/2005 in order for them to be eligible for tax deductions.

 Section 80-IB: Provisions of section 80-IB can be used by all assessees who have profits from
hotels, ships, multiplex theatres, cold storage plants, housing projects, scientific research and
development, convention centres, etc.
 Section 80-IC: Section 80 IC can be used by all assessees who have profits from states
categorised as special. These include Assam, Manipur, Meghalaya, Himachal Pradesh,
Uttaranchal, Arunachal Pradesh, Mizoram, Tripura and Nagaland.
 Section 80-ID: All assessees who have profits or gain from hotels and convention centres are
eligible for deduction under this section, subject to their establishments being located in certain
specified areas.
 Section 80-IE: All assessees who have undertakings in North-East India are eligible for
deductions under this Section, subject to certain conditions.
Tax Deductions under Section 80J
Section 80J of the Income Tax Act was amended to include two subsections, 80JJA and 80 JJAA
 Section 80 JJA: Section 80 JJA relates to deductions permitted on profits and gains from
assessees who are in the business of processing/treating and collecting bio-degradable waste to
produce biological products like bio-fertilizers, bio-pesticides, bio-gas, etc. All assessees who
deal with this are eligible for deductions under this section. Such assessees can claim deduction
equivalent to 100% of their profits for 5 successive assessment years since the time their
business started.
 Section 80 JJAA: Deductions under Section 80 JJAA can be claimed by Indian companies
which have profits from the manufacture of goods in factories. Deductions equivalent to 30%
of the salary of new full time employees for a period of 3 assessment years can be claimed. A
chartered accountant should audit the accounts of such companies and submit a report showing
the returns. Employees who are taken on a contract basis for a period less than 300 days in the
preceding year or those who work in managerial or administrative posts do not qualify for
deductions.
Tax Deduction under Section 80LA
Deductions under Section 80LA can be availed by Scheduled Banks which have offshore banking
units in Special Economic Zones, entities of International Financial Services Centres and banks which
have been established outside India, in accordance to the laws of a foreign nation. These assessees are
eligible for deductions equivalent to 100% of the income for the first 5 years, and 50% of income
generated through such transactions for the next 5 years, subject to the rules of the land.

Such entities should have relevant permission, either under the SEBI Act, Banking Regulation Act or
registration under any other relevant law.
Tax Deduction under Section 80P
Section 80P caters to cooperative societies, offering tax deductions on their income, subject to certain
conditions. 100% deduction is permitted to cooperative societies which have incomes through cottage
industries, fishing, banking, sale of agricultural harvest grown by members and milk supplied by
members to milk cooperative societies.
Cooperative societies which are involved in other forms of business are eligible for deductions
ranging between Rs 50,000 and Rs 1 lakh, depending on the type of work they are involved in.
Deductions which can be claimed by all cooperative societies are listed below.
 Income which a cooperative society makes by renting out warehouses

 Income derived through interest on money lent to other societies
 Income earned through interest from securities or properties
Tax Deduction under Section 80QQB
Section 80QQB permits tax deductions on royalty earned from sale of books. Only resident Indian
authors are eligible to claim deductions under this section, with the maximum limit set at Rs 3 lakhs.
Royalty on literary, artistic and scientific books are tax deductible, whereas royalties from textbooks,
journals, diaries, etc. do not qualify for tax benefits. In case of an author getting royalties from abroad,
the said amount should be brought into the country within a specified time period in order to avail tax
benefits.
Tax Deduction under Section 80RRB
Section 80RRB offers tax incentives to patent holders, providing tax relief to resident individuals who
receive an income by means of royalty on their patent. Royalty to the tune of Rs 3 lakhs can be
claimed as deductions, subject to the patent being registered after 31/3/2003. Individuals who receive a
royalty from foreign shores need to bring said amount to the country within a specific time period in
order to be eligible for tax deductions on such royalty.
Tax Deduction under Section 80TTA

Deductions under Section 80TTA can be claimed by Hindu Undivided Families and Individual
taxpayers. This section permits deductions to the tune of Rs 10,000 every year on the interest earned
on money invested in bank savings accounts in the country.
Tax Deduction under Section 80U
Tax deductions under Section 80U can be claimed only by resident individual taxpayers who have
disabilities. Individuals who have been certified by relevant medical authorities to be a Person With
Disability can claim a maximum deduction of Rs 75,000 per year. Individuals who have severe
disabilities are entitled to a maximum deduction of Rs 1.25 lakh, subject to them meeting certain
criteria. Some of the disabilities which classify for tax benefits are autism, mental retardation, cerebral
palsy, etc.
Summary of Tax Deductions Available under Section 80C to 80U
Section Permissible limit (maximum) Eligible Claimants
Rs 1.5 lakh (aggregate of 80C, 80CCC and

80 C Individuals/Hindu Undivided Families
80CCD)

80 CCC Individuals
80CCD)

80 CCD Individuals
80CCD)
80 CCF Rs 20,000 Individuals/Hindu Undivided Families
• RS 50,000 for senior citizens

80 CCG Individuals/Hindu Undivided Families
• Rs 25,000 for other individuals
80 D RS 20,000 Individuals/Hindu Undivided Families
 Rs 75,000 for general disability

80 DD  Rs 1.25 lakh for severe disability Resident Individuals/Hindu Undivided Families

• Rs 1 lakh for senior citizens

80
Resident Individuals/Hindu Undivided Families
DDB
• Rs 40,000 for others
80 E No limit mentioned Individuals
80 EE Rs 3 lakh Individuals
80 G Different limits based on donation All assessees
80 GG Rs 2,000 per month Individuals who do not get HRA
80 All assessees who do not have income from

Depends on quantum of donation
GGA business/profession
80
Depends on quantum of donation Indian companies
GGB
80 All assesses apart from local/Artificial judicial a

Depends on quantum of donation
GGC by the government
80 IA No maximum limit defined All assessees
80 IAB No maximum limit defined All assessees who are SEZ developers
80 IB No maximum limit defined All assessees
80 IC No maximum limit defined All assessees
80 ID No maximum limit defined All assessees
80 IE No maximum limit defined All assessees
80 JJA All profits earned for first 5 years All assessees

80
30% of increased wages Indian companies which have income from profit
JJAA
80 LA Portion of their income Scheduled banks, IFSCs, banks established outsid
80 P Portion of their income Cooperative societies
80
Rs 3 lakh Authors – resident individuals
QQB
80 RRB Rs 3 lakh Resident individuals
80 TTA Rs 10,000 per year Individuals/Hindu Undivided Families
 Rs 75,000 for people with disabilities Resident individuals

 Rs 1.25 lakh for people with severe
80 U
disabilities
1. MEANING OF TOTAL INCOME
The Total Income of an individual is arrived at after making deductions under
Chapter VI-A from the Gross Total Income. As we have learnt earlier, Gross Total
Income is the aggregate of the income computed under the 5 heads of income,
after giving effect to the provisions for clubbing of income and set-off and carry
forward & set-off of losses.
2. INCOME TO BE CONSIDERED WHILE
COMPUTING TOTAL INCOME OF INDIVIDUALS
Capacity in which
income is earned by
an individual

Treatment of income earned in each capacity
(1) In his personal
capacity
(under the 5 heads of
income)
Income from salaries, Income from house property, Profits
and gains of business or profession, Capital gains and
Income from other sources.
(2) As a partner of a firm (i) Salary, bonus etc. received by a partner is taxable as his
business income.
(ii) Interest on capital and loans to the firm is taxable as
business income of the partner.
The income mentioned in (i) and (ii) above are taxable to
the extent they are allowed as deduction to the firm.
(iii) Share of profit in the firm is exempt in the hands of the
partner.
(3) As a member of HUF (i) Share of income of HUF is exempt in the hands of the
member
(ii) Income from an impartible estate of HUF is taxable in
the hands of the holder of the estate who is the eldest
member of the HUF
(iii)Income from self-acquired property converted into
joint family property.
(4) Income of other
persons included in

(i) Transferee’s income, where there is a transfer of
income without transfer of assets
© The Institute of Chartered Accountants of India
8.4 INCOME TAX LAW
the income of the
individual
(ii) Income arising to transferee from a revocable transfer
of an asset.
In cases (i) and (ii), income is includible in the hands of the
transferor.
(iii) Income of spouse as mentioned in section 64(1)
(iv) Income from assets transferred otherwise than for
adequate consideration to son’s wife or to any person
for the benefit of son’s wife.
(v) Income of minor child as mentioned in section 64(1A)
3. COMPUTATION OF TOTAL INCOME AND TAX
LIABILITY OF INDIVIDUALS
Income-tax is levied on an assessee’s total income. Such total income has to be
computed as per the provisions contained in the Income-tax Act, 1961. The
procedure for computation of total income for the purpose of levy of income-tax
is detailed hereunder –
Step 1 – Determination of residential status
The residential status of a person has to be determined to ascertain which income
is to be included in computing the total income.
♦ In case of an individual, the number of days of his stay in India during the

relevant previous year and/or the earlier previous years would determine his
residential status.
♦ An individual/HUF can be either a –
- Resident and ordinarily resident
- Resident but not ordinarily resident
- Non-resident
♦ Persons, other than an individual and HUF, can be either resident or nonresident.
♦ An Indian company is resident in India.
♦ A company, not being an Indian Company and having its place of effective
management in India in a particular year, would be resident in India for that
year.
3.
COMPUTATION OF TOTAL INCOME AND TAX PAYABLE 8.5
♦ The determining factor for every other assessee is the place where the control
and management of its affairs are situated during that year i.e., whether in
India or outside India.
♦ The residential status of a person determines the scope of his taxable income.
For example, income which accrues outside India and is received outside India is
taxable in the hands of a resident and ordinarily resident but is not taxable in the
case of a non-resident.
Step 2 – Classification of income under different heads
♦ There are five heads of income, namely, -
- Salaries,
- Income from house property,

- Profits and gains of business or profession
- Capital Gains
- Income from other sources
♦ The income of a person should be identified and grouped under the
respective head of income.
♦ Each head of income has a charging section (for example, section 15 for
salaries, section 22 for income from house property).
♦ Deeming provisions are also contained under certain heads, by which specific
items are sought to be taxed under those heads.
For example, if bad debts allowed as deduction in an earlier year is recovered
in a subsequent year, then the amount recovered would be deemed as
business income of the person in the year of recovery.
The charging section and the deeming provisions would help you to determine the
scope of income chargeable under a particular head.
Step 3 – Computation of income under each head
♦ Income is to be computed in accordance with the provisions governing a
particular head of income.
♦ Assess the income under each head by -
- applying the charging and deeming provisions,
8.6 INCOME TAX LAW
- excluding items of income relating to that head in respect of which
specific exemptions are provided in section 10.
There are certain incomes which are wholly exempt from income-tax
e.g. agricultural income. These incomes have to be excluded and will

not form part of Gross Total Income.
Also, some incomes are partially exempt from income-tax e.g. House
Rent Allowance, Education Allowance. These incomes are excluded
while computing income under the relevant head only to the extent of
the limits specified in the Act.
- allowing the permissible deductions under that head, and
For example, while calculating income from house property, municipal
taxes and interest on loan are allowed as deduction. Similarly,
deductions and allowances are prescribed under other heads of income.
- disallowing the non-permissible deductions.
For example, while computing income under the head “Profits and gains
from business or profession” expenditure of personal nature and
expenditure which is in the nature of offence are not allowable as
deduction. Hence, such expenditure, if any, debited to profits and loss
account, has to be added back while computing income under this
head.
Likewise, while computing net consideration for capital gains,
brokerage is a permissible deduction from gross sale consideration but
securities transaction tax paid is not permissible.
Step 4 – Clubbing of income of spouse, minor child etc.
♦ An individual in a higher tax bracket may have a tendency to divert his income
to another person who is not subject to tax or who is in a lower tax bracket.
For example, an individual may make a fixed deposit in the name of his minor
son, so that income from such deposit would accrue to his son, who does not
have any other income.

♦ In order to prevent evasion of income-tax by such means, clubbing provisions
have been incorporated in the Income-tax Act, 1961, under which income
arising to certain persons (like spouse, minor child etc.) have to be included
in the income of the person who has diverted his income to such persons for
the purpose of computing tax liability.
♦ For example, income of a minor child (say, interest income) is includible in
the hands of the parent whose total income is higher before including minor’s
income. Such interest income will be included in the hands of the parent
under the head “Income from other sources” after providing for deduction of
up to ` 1,500 under section 10(32).
♦ However, if a minor child earns income on account of his or her special skills
or talent, like music or dance, then such income is not includible in the hands
of the parent.
Step 5 – Set-off or carry forward and set-off of losses
An individual may have different sources of income under the same head of income.
He might have profit from one source and loss from the other. For instance, an
individual may have profit from his let-out house property and loss from his selfoccupied property.
This loss can be set-off against the profits of the let-out
property to arrive at the net income chargeable under the head “Income from
house property”.
♦ Inter-source set-off of losses
- A person may have income from one source and loss from another
source under the same head of income. For instance, a person may have

profit from wholesale trade of merchandise and loss from the business
of plying vehicles.
The loss of one business can be set-off against the profits of another
business to arrive at the net income under the head “Profits and gains
of business or profession”.
- Set-off of loss from one source against income from another source
within the same head of income is permissible, subject to certain
exceptions, like long-term capital loss cannot be set-off against shortterm capital gains though short-
term capital loss can be set-off against
long-term capital gains.
♦ Inter-head set-off of losses
- Likewise, set-off of loss from one head (say, loss from house property)
against income from another head (say, Salaries) is also permissible,
subject to certain exceptions, like business loss cannot be set-off
against salary income.
- Also, Loss under the head house property can be set-off against income
under any other head only to the extent of ` 2 lakhs.
Carry forward and set-off of losses
- Unabsorbed losses of the current year can be carried forward to the
next year for set-off only against the respective head of income.
- Here again, if there are any restrictions relating to inter-source set-off,
the same will apply, like long-term capital loss which is carried forward
can be set-off only against long-term capital gains and not short-term
capital gains of a later year.
- The maximum number of years up to which any particular loss can be

carried forward is also provided under the Act.
For example, business loss can be carried forward for a maximum of 8
assessment years to be set-off against business income.
Step 6 – Computation of Gross Total Income
♦ The income computed under each head, after giving effect to the clubbing
provisions and provisions for set-off and carry forward and set-off of losses,
Have to be aggregated to arrive at the gross total income.
♦ The process of computing GTI is depicted hereunder -
Add income
computed under
each head
→ Apply
Clubbing
provisions
→ Apply the provisions for
set-off and carry forward
of losses
Step 7 – Deductions from Gross Total Income
Certain deductions are allowable from gross total income to arrive at the total
Income. These deductions contained in Chapter VI-A can be classified as –
♦ Deduction in respect of certain payments, for example,
Section Nature of Payment/Deposit
80C Payment of life insurance premium, tuition fees of children,
deposit in public provident fund, repayment of housing loan etc.
80D Medical insurance premium paid by an individual/HUF for the

specified persons/ contribution to CGHS etc.
80E Payment of interest on educational loan taken for self or relative
♦ Deduction in respect of certain incomes, for example,
80QQB Royalty income of authors of certain books other than text books
80RRB Royalty on patents.
♦ Deduction in respect of other incomes
80TTA Interest on savings account with a bank, co-op-society and post
office.
80TTB Interest on deposit with a bank, co-op-society and post office
in case of senior citizens
♦ Other Deductions
Deduction under section 80U in case of a person with disability
These deductions are allowable subject to satisfaction of the conditions prescribed
in the relevant sections. There are limits in respect of deduction under certain
sections. The payments/incomes are allowable as deduction subject to such limits.
For example, the maximum deduction under section 80RRB is ` 3 lakhs.
Step 8 – Total income
♦ The gross total income as reduced by the above deductions under Chapter
VI-A is the total income.
Total income = GTI – Deductions under Chapter VI-A
♦ It should be rounded off to the nearest multiple of ` 10.

♦ Tax is calculated on the total income of the assessee.

INTRODUCTION TO GOODS AND SERVICE TAX
Tax Structure in India before GST In India tax is levied by Central Government and State
Governments. Minor taxes like municipality tax or local taxes are levied by the Local Body
Authorities. Tax can be broadly divided into two categories namely - Direct Tax and Indirect Tax.
Direct Tax is paid directly paid to the government by the tax payer, such as Income tax, corporate tax,
wealth tax, capital gains tax etc. Direct taxes are levied on the income of the individuals or the
corporate entities. Here the burden to deposit tax is on the assessees themselves. Indirect tax is levied
on the manufacture of goods and services. It is collected by an intermediary from the consumer who
ultimately bears the burden of tax. Burden to collect and deposit taxes is on the sellers rather than the
assessees themselves. Customs duty, excise duty, Value added tax (VAT), Central VAT (CENVAT),
service tax etc. are the examples of indirect taxes in India
Indirect tax system in India has undergone several reforms over decades. Sales tax was a major source
of revenue under indirect taxation until 1991. Central Board of Indirect Taxes (CBIT) administers the
formulation of policies for levy and collection of Customs, Excise duties, Central Goods and Services
Tax, and other indirect taxes in India. Indirect taxes were levied at various stages like sales tax, excise
duty, customs duty, and service tax. Sales tax is levied on the goods sold, and is paid by the dealer,
whether it is inter-state sales or within the state or import or export of goods. Value Added Tax
(VAT) is a multistage tax which is levied on the value addition to a product at each stage of
production to the point of sale. Credit is given for the tax already paid at all stages of addition to the
value of the product. So the tax is paid on the cost of the product, less cost of the material which is
already taxed in the earlier stages of production. Excise Duty is an indirect tax which is levied on the
goods manufactured within the country. After the introduction of GST, excise duty exists on very few
items in India like liquor and petroleum. Excise duty is collected by an intermediary or a retailer from
the customers and then is ultimately paid to the government. Excise duty is administered by Central
Board of Excise and Customs (CBEC) Custom Duty is an indirect tax imposed on the goods
transported across the international boundaries. It is calculated either on specific or ad valorem basis.
Customs duty is calculated on the value of goods. Customs duties are divided into basic customs duty,
countervailing customs duty, special customs duty, protective duty, anti-dumping duty. Service Taxis
an indirect tax levied on services provided by a service provider within a taxable territory. The
Central Government via Finance Act 1994 governs the service tax in India. Service tax was initially on
telephone services, Non-Life insurance services and stock brokers’ services which later increased to
119 services. From July 1st 2012, service tax approach was changed from ‘positive list regime;’ to
‘negative list approach’. Thereafter, services under negative list and those exempted by notification are
exempted from service tax. Roadmap towards GST Goods and Services Tax is one of the most
prominent indirect tax reform which brings subsumed other indirect taxes levied by State and Central
Government. GST is a comprehensive indirect tax which is levied on manufacture, sales and
consumption of goods and services throughout India. It was introduced in order to bring ‘One Nation,
One Tax’ and avoid cascading effect in taxation. Prime Minister of India, Narendra Modi in his speech
during the implementation of GST on July 1st, 2017 said that GST would shred off around 500 taxes

which were levied by Central and State Governments to have ‘One Nation One Tax’ throughout the
nation. Evolution of GST The concept of Goods and Service Tax (GST) for India was first mooted
sixteen years back, during the regime of Shri Atal Bihari Vajpayee as Prime Minister. From there on,
on 28th February, 2006, the then Finance Minister in his Financial budget for 2006-07 suggested that
GST would be implemented from 1st April, 2010. The Empowered Committee of State Finance
Ministers (EC) was asked to define the plan and structure for GST. Joint Working Committee Officials
of the state as well as Centre were set up to draw up reports explicitly on exemptions and threshold,
tax collection of administrations and tax assessment between State supplies. In light of talks inside and
among it, the EC discharged its First Discussion Paper (FDP) on GST in November, 2009. The FDP
spelled out the highlights of the proposed GST and has framed the basis for the present GST laws and
rules. In March 2011, Constitution (115th Amendment) Bill, 2011 was introduced in the Lok Sabha
for the implementation of GST. However due to political reason Bill was not passed. On 19th
December, 2014, The Constitution (122nd Amendment) Bill 2014 was presented in the Lok Sabha and
was passed by Lok Sabha in May 2015. The Bill was then taken to Rajyasabha and was passed on to
Joint Committee on 14th May 2015. The committee submitted its report on 22nd July 2015. After
ratification by required number of State legislatures and assent of the President, the Constitutional
amendment was notified as Constitution (101st Amendment) Act 2016 on 8th September, 2016. This
paved the way for the progress in the journey of GST. After GST Council approved CGST, IGST,
UTGST, and GST Bill in 2017, these Bills were passed in Loksabha on 29th March 2017. The Rajya
Sabha passed these Bills on 6th April, 2017 and was enacted as Acts on 12th April, 2017 thereafter;
State Governments passed Goods and Service Tax Bills for the respective States. After enactment of
various GST Laws, GST was successfully implemented by Honourable Prime Minister, Shri Narendra
Modi on 1st July, 2017, in the Central Hall of Parliament of India. Concept of GST is a destination
based tax system based on the consumption of goods and services. Under GST, only supply of goods
will attract tax and is levied on the value addition made to the product at each stage of manufacture.
GST comprises of Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST) and
Union Territory Goods and Service Tax (UTGST) for intra-state supplies. In case of inter-state
supplies, Integrated Goods and Service Tax (IGST) would be applicable. Input tax credit is available
in order to avoid cascading effect of tax. It is based on the concept of VAT. The output supplier will
avail input tax credit on the CGST, SGST, UTGST and IGST charged by the input supplier. So the
supply of goods, services or capital goods will be taxed only once. This credit is available as follows:
Input tax credit can be utilised for payment of SGST first and balance for IGST on outward supply
Input tax credit of UTGST can be utilised for payment of UTGST first and balance for payment of
IGST on outward supply Input tax credit of CGST can be utilised for payment of CGST first and
balance for payment of IGST on outward supply Input tax credit of IGST can be utilised for
payment of IGST, CGST and SGST on outward supply Input tax credit on GST compensation cess
can be utilised only for payment of GST compensation cess Threshold exemption: Taxpayers with an
aggregate turnover of Rs.20 lakhs for a financial year will be exempted from paying GST. All
taxpayers eligible for exemption will have an option of paying tax with Input tax credit benefits.
Composition levy: Small taxpayers with an aggregate turnover of upto Rs. 50 lakhs will be eligible for

composite levy. Under this, a taxpayer will be eligible to pay GST, at a certain percentage over his
turnover without benefit of input tax credit during the year. The tax rate for CGST and SGST/UTGST
shall not exceed – 2.5% in case of restaurants 1% of the turnover in a State/Union Territory in case
of manufacturer 0.5% of the turnover in a State/Union Territory in case of supplier A taxpayer who
wants to be eligible for composition levy shall not collect any tax from his customers nor will he get
any benefit of input tax credit. Harmonised System of Nomenclature (HNS): is used for classifying
goods under GST regime. Taxpayers with a turnover below 1.5 crores need not mention HSN in their
tax invoice, however, those with turnover above 1.5 crores but below 5 crores should mention 2 digits
HSN and those taxpayers with turnover above 5 crores shall mention 4 digits HSN in their tax invoice.
Export and Import of goods and services: Exports and supply to Special Economic Zones (SEZ) are
treated as zero-rated supplies. The exporter can claim refund over the output tax paid or can get input
tax credit if export is made under bond without tax. Import of goods and services shall be treated as
Inter-State supplies and will be levied IGST. In addition to this, customs duties also will be applicable
on import of goods and services. GST rates have been revised in the council meetings. The rates of
1,211 commodities and 119 categories of services were decided leading a further impetus to the roll
out of GST. The rates imposed are at 5%, 12%, 18% and 28% across India. Special rates are imposed
on certain commodities like gold, silver, precious stones etc. An additional cess of 22% is levied on
items like tobacco, carbonated drinks and luxury cars.The commodities and services falling under each
tax rate bracket get revised in every GST Council Meeting.
Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of
goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it
has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is
imposed at every step in the production process, but is meant to be refunded to all parties in the
various stages of production other than the final consumer and as a destination-based tax, it is
collected from point of consumption and not point of origin like previous taxes.
Goods and services are divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18%
and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and
instead are taxed separately by the individual state governments, as per the previous tax
system.[citation needed] There is a special rate of 0.25% on rough precious and semi-precious stones
and 3% on gold.[1] In addition a cess of 22% or other rates on top of 28% GST applies on few items
like aerated drinks, luxury cars and tobacco products.[2] Pre-GST, the statutory tax rate for most
goods was about 26.5%, Post-GST; most goods are expected to be in the 18% tax range.
The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First
Amendment of the Constitution of India by the Indian government. The GST replaced existing
multiple taxes levied by the central and state governments.
The tax rates, rules and regulations are governed by the GST Council which consists of the finance
ministers of the central government and all the states. The GST is meant to replace a slew of indirect
taxes with a federated tax and is therefore expected to reshape the country's $2.4 trillion economy, but

its implementation has received criticism.[3] Positive outcomes of the GST includes the travel time in
interstate movement, which dropped by 20%, because of disbanding of interstate check posts.[4]
History
Formation
The reform of India's indirect tax regime was started in 1986 by Vishwanath Pratap Singh, Finance
Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax
(MODVAT). Subsequently, Prime Minister P V Narasimha Rao and his Finance Minister Manmohan
Singh initiated early discussions on a Value Added Tax (VAT) at the state level. [5] A single common
"Goods and Services Tax (GST)" was proposed and given a go-ahead in 1999 during a meeting
between the Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included
three former RBI governors IG Patel, Bimal Jalan and C Rangarajan. Vajpayee set up a committee
headed by the Finance Minister of West Bengal, Asim Dasgupta to design a GST model.
Asim Dasgupta committee which was also tasked with putting in place the back-end technology and
logistics (later came to be known as the GST Network, or GSTN, in 2015). It later came out for rolling
out a uniform taxation regime in the country. In 2002, the Vajpayee government formed a task force
under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended rolling
out GST as suggested by the 12th Finance Commission.
After the defeat of the BJP-led NDA government in the 2004 Lok Sabha election and the election of a
Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006
continued work on the same and proposed a GST rollout by 1 April 2010. However, in 2011, with the
Trinamool Congress routing CPI (M) out of power in West Bengal, Asim Dasgupta resigned as the
head of the GST committee. Dasgupta admitted in an interview that 80% of the task had been done.
The UPA introduced the 115th Constitution Amendment Bill [7] on 22 March 2011[8] in the Lok
Sabha to bring about the GST. It ran into opposition from the Bharatiya Janata Party and other parties
and was referred to a Standing Committee headed by the BJP's former Finance Minister Yashwant
Sinha. The committee submitted its report in August 2013, but in October 2013 Gujarat Chief Minister
Narendra Modi raised objections that led to the bill's indefinite postponement.[9] The Minister for
Rural Development Jairam Ramesh attributed the GST Bill's failure to the "single handed opposition
of Narendra Modi".
In the 2014 Lok Sabha election, the Bharatiya Janata Party (BJP)-led NDA government was elected
into power. With the consequential dissolution of the 15th Lok Sabha, the GST Bill – approved by the
standing committee for reintroduction – lapsed. Seven months after the formation of the then Modi
government, the new Finance Minister Arun Jaitley introduced the GST Bill in the Lok Sabha, where
the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2017 to implement
GST. In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST.
However, the Opposition, led by the Congress, demanded that the GST Bill be again sent back for

review to the Select Committee of the Rajya Sabha due to disagreements on several statements in the
Bill relating to taxation. Finally, in August 2016, the Amendment Bill was passed. Over the next 15 to
20 days, 18 states ratified the Constitution amendment Bill and the President Pranab Mukherjee gave
his assent to it.
A 21-member selected committee was formed to look into the proposed GST laws. [13] After GST
Council approved the Central Goods and Services Tax Bill 2017 (The CGST Bill), the Integrated
Goods and Services Tax Bill 2017 (The IGST Bill), the Union Territory Goods and Services Tax Bill
2017 (The UTGST Bill), the Goods and Services Tax (Compensation to the States) Bill 2017 (The
Compensation Bill), these Bills were passed by the Lok Sabha on 29 March 2017. The Rajya Sabha
passed these Bills on 6 April 2017 and was then enacted as Acts on 12 April 2017. Thereafter, State
Legislatures of different States have passed respective State Goods and Services Tax Bills. After the
enactment of various GST laws, Goods and Services Tax was launched all over India with effect from
1 July 2017.[14] The Jammu and Kashmir state legislature passed its GST act on 7 July 2017, thereby
ensuring that the entire nation is brought under a unified indirect taxation system. There was to be no
GST on the sale and purchase of securities. That continues to be governed by Securities Transaction
Tax (STT).
Implementation
The GST was launched at midnight on 1 July 2017 by the President of India, and the Government of
India. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of
parliament convened at the Central Hall of the Parliament. Though the session was attended by high-
profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted
by the opposition due to the predicted problems that it was bound to lead for the middle and lower
class Indians. The tax was strongly opposed by the opposing Indian National Congress.[16][17] It is
one of the few midnight sessions that have been held by the parliament - the others being the
declaration of India's independence on 15 August 1947, and the silver and golden jubilees of that
occasion.[17] After its launch, the GST rates have been modified multiple times, the latest being on 22
December 2018, where a panel of federal and state finance ministers decided to revise GST rates on 28
goods and 53 services.[18]
Members of the Congress boycotted the GST launch altogether. [19] They were joined by members of
the Trinamool Congress, Communist Parties of India and the DMK. The parties reported that they
found virtually no difference between the GST and the existing taxation system, claiming that the
government was trying to merely rebrand the current taxation system. [20] They also argued that the
GST would increase existing rates on common daily goods while reducing rates on luxury items, and
affect many Indians adversely, especially the middle, lower middle and poorer income group
The single GST subsumed several taxes and levies, which included central excise duty, services tax,
additional customs duty, surcharges, state-level value added tax and Octroi. Other levies which were
applicable on inter-state transportation of goods have also been done away with in GST regime. GST

is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or
services.
India adopted a dual GST model, meaning that taxation is administered by both the Union and state
governments. Transactions made within a single state are levied with Central GST (CGST) by the
Central Government and State GST (SGST) by the State governments. For inter-state transactions and
imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a
consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or
services are consumed not the state in which they were produced. IGST complicates tax collection for
State Governments by disabling them from collecting the tax owed to them directly from the Central
Government. Under the previous system, a state would only have to deal with a single government in
order to collect tax revenue.
HSN code
India is a member of World Customs Organization (WCO) since 1971. It was originally using 6-digit
HSN codes to classify commodities for Customs and Central Excise. Later Customs and Central
Excise added two more digits to make the codes more precise, resulting in an 8 digit classification.
The purpose of HSN codes is to make GST systematic and globally accepted.
HSN codes will remove the need to upload the detailed description of the goods. This will save time
and make filing easier since GST returns are automated.
If a company has turnover up to ₹15 million (US$190,000) in the preceding financial year then they
did not mention the HSN code while supplying goods on invoices. If a company has turnover more
than ₹15 million (US$190,000) but up to ₹50 million (US$630,000), then they need to mention the
first two digits of HSN code while supplying goods on invoices. If turnover crosses ₹50 million
(US$630,000) then they shall mention the first 4 digits of HSN code on invoices.
Rate
The GST is imposed at variable rates on variable items. The rate of GST is 18% for soaps and 28% on
washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less
than ₹100 and 28% GST on tickets costing more than ₹100 and 28% on commercial vehicle and
private and 5% on readymade clothes. The rate on under-construction property booking is 12%.Some
industries and products were exempted by the government and remain untaxed under GST, such as
dairy products, products of milling industries, fresh vegetables & fruits, meat products, and other
groceries and necessities.
Checkposts across the country were abolished ensuring free and fast movement of goods. Such
efficient transportation of goods was further ensured by subsuming octroi within the ambit of GST.
The Central Government had proposed to insulate the revenues of the States from the impact of GST,
with the expectation that in due course, GST will be levied on petroleum and petroleum products. The

central government had assured states of compensation for any revenue loss incurred by them from the
date of GST for a period of five years. However, no concrete laws have yet been made to support such
action. GST council adopted concept paper discouraging tinkering with rates.
E-Way Bill
An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It was made compulsory
for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state
movement of goods beyond 10 kilometres (6.2 mi) and the threshold limit of ₹50,000 (US$630).
It is a paperless, technology solution and critical anti-evasion tool to check tax leakages and clamping
down on trade that currently happens on a cash basis. The pilot started on 1 February 2018 but was
withdrawn after glitches in the GST Network. The states are divided into four zones for rolling out in
phases by end of April 2018.
A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the transporter.
The EBN can be a printout, SMS or written on invoice is valid. The GST/Tax Officers tally the e-Way
Bill listed goods with goods carried with it. The mechanism is aimed at plugging loopholes like
overloading, understating etc. Each e-way bill has to be matched with a GST invoice.
Transporter ID and PIN Code now compulsory from 01-Oct-2018.
It is a critical compliance-related GSTN project under the GST, with a capacity to process 75 lakh e-
way bills per day.
Intra-State e-Way Bill The five states piloting this project are Andhra Pradesh, Gujarat, Kerala,
Telangana and Uttar Pradesh, which account for 61.8% of the inter-state e-way bills, started
mandatory intrastate e-way bill from 15 April 2018 to further reduce tax evasion. [34] It was
successfully introduced in Karnataka from 1 April 2018. [35] The intrastate e-way bill will pave the
way for a seamless, nationwide single e-way bill system. Six more states Jharkhand, Bihar, Tripura,
Madhya Pradesh, Uttarakhand and Haryana will roll it out from 20 April 18. All states are mandated to
introduce it by 30 May 2018.
Reverse Charge Mechanism
Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of
unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax
Credit, while the unregistered dealer is not.
The central Government released Rs 35,298 crore to the state under GST compensation. For the
implementation, this amount was given to the state to compensate the revenue. Central government
has to face many criticisms for delay in compensation.
Goods kept outside the GST

Alcohol for human consumption (i.e., not for commercial use).
Petrol and petroleum products (GST will apply at a later date), i.e., petroleum crude, high-speed diesel,
motor spirit (petrol), natural gas, aviation turbine fuel. [36]
QRMP Scheme
This is a recent amendment in GST Taxation System. If a taxpayer opts for this scheme he will have to
file GST Returns on Quarterly basis instead of regular monthly basis, but Tax payment will have to be
done monthly. QRMP means quarterly return monthly payment.
Revenue distribution
Revenue earned from GST (intra state transaction - seller and buyer both are located in same state) is
shared equally on 50-50 basis between central and respective state governments.[ Example: if state of
Goa has collected a total GST revenue (intra state transaction - seller and buyer both are located in
same state) of 100 crores in month of January then share of central government (CGST) will be 50
crores and remaining 50 crores will be share of Goa state government (SGST) for month of January.
For distribution of IGST (inter state transaction - seller and buyer both are located in different states)
collection, revenue is collected by central government and shared with state where good is imported.
[39][40] Example: 'A' is a seller located in state of Goa selling a product to 'B' a buyer of that product
located in state of Punjab, then IGST collected from this transaction will be shared equally on 50-50
basis between central and Punjab state governments only.[40]
GST Council
GST Council is the governing body of GST having 33 members, out of which 2 members are of centre
and 31 members are from 28 state and 3 Union territories with legislation. The council contains the
following members (a) Union Finance Minister (as chairperson) (b) Union Minister of States in charge
of revenue or finance (as member) (c) the ministers of states in charge of finance or taxation or other
ministers as nominated by each states government (as member). GST Council is an apex member
committee to modify, reconcile or to procure any law or regulation based on the context of goods and
services tax in India. The council is headed by the union finance minister Nirmala Sitharaman assisted
with the finance minister of all the states of India. The GST council is responsible for any revision or
enactment of rule or any rate changes of the goods and services in India.
Goods and Services Tax Network (GSTN)
The GSTN software is developed by Infosys Technologies and the Information Technology network
that provides the computing resources is maintained by the NIC. "Goods and Services Tax Network"
(GSTN) is a nonprofit organisation formed for creating a sophisticated network, accessible to
stakeholders, government and taxpayers to access information from a single source (portal). The portal

is accessible to the Tax authorities for tracking down every transaction, while taxpayers have the
ability to connect for their tax returns.
GSTN's authorised capital is ₹10 crore (US$1.3 million) in which initially the Central Government
held 24.5 percent of shares while the state government held 24.5 percent. The remaining 51 percent
were held by non-Government financial institutions, HDFC and HDFC Bank hold 20%, ICICI Bank
holds 10%, NSE Strategic Investment holds 10% and LIC Housing Finance holds 11%.
However, later it was made a wholly owned government company having equal shares of state and
central government.

MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT VII
What is Tax Planning?
Tax planning refers to financial planning for tax efficiency. It aims to reduce one’s tax liabilities and
optimally utilize tax exemptions, tax rebates, and benefits as much as possible. Tax planning includes
making financial and business decisions to minimise the incidence of tax. This helps you legitimately
avail the maximum benefit by using all beneficial provisions under tax laws. It enables one to think of
their finances and taxes at the beginning of the fiscal year, instead of leaving it to the eleventh hour.
Why should you do Tax Planning?
There are some fundamental objectives of tax planning. Tax planning diminishes tax liability by
saving the assessee the maximum amount of tax by arranging their financial operations according to
tax decisions. It also conforms to the provisions under taxation laws, thereby minimizing any
litigation. One of the biggest benefits of tax planning is that the returns can be directed to investments.
It is the most productive way to make smart investments while fully utilizing the resources available
due to tax benefits. Investing tax money generates white money to flow through the economy, aiding
in the country's economic development. Tax planning hence contributes to the economic stability of
the individual as well as the country.
Tax Planning in India
There are a lot of tax saving options available in India for taxpayers. These options provide a variety
of exclusions and deductions that help to reduce the overall tax burden. Deductions are provided from
Sections 80C to 80U, and eligible taxpayers can claim them. These deductions are applied to the total
amount of tax owed. It is totally legal and, in fact, a wise decision when tax planning is done within
the boundaries set by the respective authorities. However, employing unscrupulous methods to avoid
paying taxes is prohibited, and you could face penalties. Tax avoidance, evasion, and preparation are
all ways to save money on taxes.
What are the Types of Tax Planning?

Now that you know as to what tax planning is, let us look at three types of tax planning.
1. Short and Long-range Tax Planning
Tax planning done every year for specific objectives is called short-range tax planning. On the
contrary, long-range tax planning refers to practices undertaken by the assessee, which is not paid off
immediately. Simply put, short-range planning usually occurs towards the end of a fiscal year while
long-range planning occurs in the beginning.
2. Permissive Tax Planning
Tax planning is deemed permissive when carried out under the provision of a country’s taxation laws.
3. Purposive Tax Planning
It is a tax planning method for a particular objective. It may include diversification of business and
income assets based on residential status and replacing assets if necessary.
Objectives of Tax Planning
Tax planning is a major part of your overall financial planning. A reduced tax liability means fewer
burdens on you, which will lead you to plan your financial goal as per your dreams and needs. Here
are a few objectives of tax planning:
1. Reduced tax liability

2. Productive investment
3. Growth of economy
4. Litigation minimization
5. Economic stability
How to Get Started with Tax Planning?
Anyone can start planning their taxes in a few simple steps:

1. Start by taking your total income into account. This is the starting point of the process and requires
you to accurately assess your annual and monthly income.
2. Evaluate the taxable aspects of your income. Housing and rent allowances included in the salary on
top of base pay are not taxable. However, profits made from investments could add to taxable income.
Therefore, understanding one’s taxable income is a requisite to be able to plan taxes.
3. Make use of deductions to reduce the total taxable income. This can be done by structuring salary
and proper planning of investments. For example, interest from a fixed deposit is taxed at the same
rate as income tax, while a debt fund held over e years is taxed at 20%. So if you fall in the 30% tax
bracket against the taxable income of 10 lakhs and above, debt funds are a more tax-friendly option.
4. Invest in tax-saving instruments. There exists a wide range of deductions available to eligible
taxpayers in Sections 80C through 80U of the Income Tax Act, 1961. Other options such as
deductions and tax credits are listed under the Income Tax Act, 1961. Investment options include
Provident Public Fund (PPF), Equity Linked Saving Schemes (ELSS) in mutual funds, National
Saving Certificates (NSC) or 5-year bank deposits. Life insurance, health insurance premium and
home loan payments can let you avail tax savings.
A simple example is, if an individual’s income is 6.5 lakhs per annum and they invest 1.5 lakhs in the
notified schemes, they can bring down their taxable income to 5 lakhs- consequently reducing tax
liability to NIL as a person having taxable income upto Rs 5 L available for rebate of Rs 12,500 u/s
87A. The savings can then be put to productive use. With a simple assessment of your income and
some basic tax rules; planning your taxes can ensure your overall financial security.
Penalties
A timely and consistent paying of taxes and filing of returns ensures the government has money for
public welfare at any point of time. To make sure that taxpayer does not default in paying taxes or
disclosing the information, there are several penalties prescribed under the Act. A penalty a

punishment imposed on the taxpayer for being non-compliant. Listed below is a summary of some of
the important and most common penalties.
Default in making payment of tax
The amount of penalty leviable will be as determined by the Assessing Officer. However, the amount
will not exceed the amount of tax in arrears
Under-reporting of income
 If the income assessed/ re-assessed exceeds the income declared by the assessee, or in cases
where return has not been filed and income exceeds the basic exemption limit, penalty at 50% of
tax payable on such under reported income shall be levied.
 200% of the tax is payable if under-reporting results from misreporting of income
Failure to maintain books of accounts and other documents
 Normally, the amount of penalty leviable is ₹25,000
 In case, the assessee is a person who has entered into international transaction, the penalty will
be 2% of the value of such international transactions or specified domestic transactions
Penalty for false entry such as fake invoices

In case the income tax officer finds that the books of accounts provided by the asseessee in the
proceeding contains the following:
 forged or falsified documents such as a fake invoice or a false piece of documentary evidence
 an invoice in respect of supply or receipts of goods or services issued by any person without
actual supply or receipt of goods or services
 an invoice of supply or receipt of goods or services received from a person who does not exist
 An omission of any entry which is relevant for computation of total income.
Then, the assessee might have to pay a penalty of the amount equal to sum of such false or omitted
entries.
Undisclosed income
 Where the income determined includes undisclosed income, a penalty @10% is payable.
However, no such penalty will be leviable, if such income was included in the return and tax
was paid before the end of the relevant previous year.
 Where Search has been initiated on/ after 1/7/2012 but before 15/12/2016,
 If undisclosed income is admitted during the course of search and assessee pays tax and
interest and files return, a penalty @ 10% of such undisclosed income is payable.
 If undisclosed income is not admitted but the same is furnished in the return filed after
such search, 20% of such undisclosed income is payable.
 In all other cases, penalty is leviable @ 60%

 Where Search has been initiated on/ after 15/12/2016,
 If undisclosed income is admitted during the course of Search and assessee pays tax and
interest and files return, a penalty @ 30% of such undisclosed income is payable.
 In all other cases, penalty is leviable @ 60%
Audit and Audit Report
 If the assessee fails to get his accounts audited, obtain audit report, or furnish report of such
auditor, a penalty will be leviable at the ₹1, 50,000 or ½% of the total sale/ Turnover/ gross
receipts whichever is lesser.
 Failure of assessee to furnish Audit report related to foreign transaction, a penalty
@ ₹1,00,000 will be payable
TDS/TCS
 Where a person fails to deduct tax at source, he will be liable to pay a penalty equal to
the amount of tax which he has failed to deduct/ pay.
 Where a person fails to collect tax at source, he will be liable to pay a penalty equal to
the amount of tax which he has failed to collect.
 Failure to furnish TDS/TCS statement or furnishing incorrect statements, shall attract a penalty
ranging from ₹10,000 to ₹1,00,000

 Failure to furnish information/ furnishing inaccurate information related to TDS deduction
related regarding Non residents shall attract a penalty of ₹100,000
Penalty for using modes other than Account payee cheque/ draft/ ECS
 If a person takes/ accepts loan/ deposit except by way of Account payee cheque/ account payee
draft/ ECS, and if the aggregate amount exceeds ₹20,000, he shall be liable to pay a penalty of
an amount equal to such loan/ deposit.
 If, an amount of ₹2,00,000 or more is received in aggregate from a person in a day/ single
transaction/ relating to one event, a penalty equal to such amount will be payable.
 If a person repays loan/ deposit and such amount so repaid exceeds ₹20,000 and such amount
has been repaid except by way of Account payee cheque/ account payee draft/ ECS, an
amount equal to such loan/ deposit shall be payable.
Failure to furnish statements/ information
 Failure to furnish a statement of financial transaction or reportable account shall attract a penalty
of ₹500 for each day of failure. And if the failure is in response to a notice to report on specified
financial transaction, the penalty shall be ₹1,000 for each day of failure
 A penalty of ₹50,000 shall be attracted for furnishing inaccurate statement of a financial
transaction/ reportable account
 Failure of an eligible investment fund to furnish any statement / information/ documents within
the prescribed time shall attract a penalty of ₹5,00,000

 Failure to furnish any information/ document in relation to international transaction shall attract
a penalty of 2% of the value of such transaction
 Failure to furnish any information/ document by an Indian Concern related with international
transaction shall attract a penalty of 2% of the value of transaction or ₹50,000 in some cases.
 If a report/ certificate is required to be furnished by an Accountant/ Merchant Banker/
Registered Valuer and such information is found to be incorrect, a penalty of ₹10,000 for each
incorrect report/ information is payable
 Failure to furnish information by any person who is attending/ helping carrying the business/
profession of any person, in whose building/ place the income tax authority has entered for
collecting information shall attract a penalty of upto ₹1,000
 Non furnishing of report by any reporting entity which is obliged to furnish Country by Country
report will attract penalty as follows:
Period of delay Penalty
Less than or equal to 1 month ₹5000 per day
Continuing default ₹50,000 per day from the beginning of service of order
Submission of inaccurate information ₹5,00,000
Others
 Failure to apply/quote/ intimate PAN/ quoting false PAN shall attract a penalty of ₹10,000
 Failure to apply/quote TAN/ quoting false TAN shall attract a penalty of ₹10,000

 In case of the following defaults, ₹10,000 will be the penalty leviable,
 Refusal to answer questions put by the department
 Refusal to sign statements made in income tax proceedings
 Non compliance with summons to give evidence/ produce books of accounts
 Failure to comply with a notice
What is tax evasion?
Tax evasion is nothing but any activity that aims to hide, understate, or falsely report income to
reduce your tax liability. For example, not paying the tax or paying less than what is due is
considered to be tax fraud. It is essentially the criminal act of a person or a company attempting to
avoid paying their tax obligations. It includes concealing or fabricating income, falsifying
deductions without proof. Another tax evasion example is failing to declare cash transactions, etc.
People utilize various methods to avoid paying taxes, including filing fraudulent tax returns,
smuggling, falsifying documents, and bribery. Tax evasion is important because it is considered
illegal in India and leads to severe penalties. The penalty for not disclosing income ranges from 100
percent to 300 percent of the tax. But, you should also not ignore the fact that taxes are an essential
source of revenue for the government.
What is the difference between tax exemptions and evasions?
For a layperson, technical terms like tax exemption, tax planning, tax avoidance, and tax
evasion can become quite challenging to comprehend. With little or no understanding of these
critical terminologies, taxpayers may fail to make the most of the benefits this government
provisions offer. Tax planning and tax evasion are two such terms. The difference between tax
planning and tax evasion is clear and simple to understand. Tax planning is the act of strategizing to
use or invest your money in ways that can help reduce your tax burden. It helps you reduce the
overall taxable income. However, tax evasion is a malafied practice of avoiding paying taxes.
Here’s a tabular comparison between the two most commonly confused terms: tax exemptions and
tax evasions:

Tax Exemptions Tax Evasions
Refers to expenditure, income, or Refers to avoiding tax payments through

investment on no tax is levied. illegal means or frauds.
Reduces the overall taxable income Does not alter the taxable income
Undertaken by employing government

Undertaken by using unfair means.
provisions like HRA,LTA, VRS, etc.
Helps taxpayers save their hard-earned Helps taxpayers save their hard-earned
money through lawful means money through unlawful, fraudulent means.
Leads to no penalties if done wisely and as

Leads to serious penalties and fines
per the available provisions
What are Tax Avoidance and Tax Evasion?
Tax evasion and tax avoidance in India is another set of terms that taxpayers often misunderstand.
However, the difference between tax evasion and tax avoidance is easy to understand.
While tax avoidance simply means to avoid paying taxes by lawfully complying with the
provisions, tax evasion, as mentioned above, means to avoid paying taxes through frauds and unfair
practices. The former is just a way to defeat the intention of the law while still following it.
However, the latter is a way to cheat the law. If one aims to avoid paying taxes, they can use the
loopholes in the provisions to their advantage, but if you choose to evade paying taxes, you must

employ unlawful practices with malafied intentions. Another significant difference between tax
avoidance and evasion is - the former is a means of tax planning which is performed before tax
liabilities arise. At the same time, the latter is blatant fraud performed after the tax liabilities arise.
Having read the meanings of these terms, you can now clearly understand the difference between
tax planning, tax avoidance, and tax evasion and make prudent financial decisions.
Appeals
APPEAL BEFORE COMMISSIONER (APPEALS) if any demand is raised by the Assessing Officer
in the assessment, what’s the next step for Assessee. Aggrieved tax payer can file appeal before the
Commissioner (Appeals) having, jurisdiction over the tax payer. Designation of the Commissioner
(Appeals), with whom appeal is to be filed is also mentioned in the notice of demand issued by the
Assessing Officer under section 156 of Income Tax Act. Particulars 246A 254 260A 261 Appellate
Authority CIT (A) ITAT High Court Supreme Court Time limit for Appeal 30 days from the receipt of
the order 60 days from the communication of the Order 120 days from the communication of the order
of ITAT Time limit for disposal of Appeal 1 Year from the end of the FY 4 Year from the end of the
FY As per Court procedure As per Court procedure Application Form 35 36 As per Court procedure
As per Court procedure Stamps to be affixed 0.50P 0.50P As per Court procedure As per Court
procedure Fees to be Paid Returned Income upto Rs1 Lac Rs 250 Rs 500 As per Court procedure As
per Court procedure More than 1 lac upto Rs 2 Lac Rs 500 Rs 1500 As per Court procedure As per
Court procedure More than 2 lac Rs 1000 1 % of income (Max Rs 10,000) As per Court procedure As
per Court procedure Appeal for other than Income Rs 250 Rs 500 As per Court procedure As per
Court procedure Stay of Demand Not Possible Possible against order of CIT(A) Possible Possible
Recovery of Tax No power to stay the recovery of Tax Final order should be passed within 180 days
from the stay order so passed .
WHEN APPEAL CAN BE FILED BEFORE COMMISSIONER (APPEALS), i.e. APPEALABLE

ORDERS: Appeal can be filed before Commissioner (Appeals), when a tax payer is adversely affected
by Orders as under passed by various Income tax authorities: Order against tax payer where the tax
payer denies liability to be assessed under Income Tax Act; Intimation issued under Section 143(1)
making adjustments to the returned income ; Scrutiny assessment order u/s 143(3) or an ex-parte
assessment .order u/s 144, to object to income determined or loss assessed or tax determined or status
under which assessed, Order u/s 115WE/115WF/115WG assessing fringe benefits; Re-assessment
order passed after reopening the assessment u/s 147/150; Search assessment order u/s 153A or 158BC;
Rectification Order u/s 154/155; Order u/ s 163 treating the taxpayer as agent of a nonresident; Order
passed u/s 170(2)/(3) assessing the successor to the business in respect of income earned by the
predecessor; Order u/s 171 recording finding about partition of Hindu undivided family(HUF); Order
u/s 115VP(3) refusing approval to opt for tonnage-tax scheme by qualifying shipping companies;
Order u/s 201(1)/206C(6A) deeming person responsible for deduction of tax at source as assessee in
default on failure to deduct/ collect tax at source or to pay the same to the Government; Order

determining refund u/s 237; Order imposing penalty u/s 221/271 /271A/271AAA/
271F/271FB/272A/272AA/272BB/275(1A)/158BFA(2)/271B/ 271BB/271C/271CA/271D/271E
FORM OF APPEAL AND HOW TO FILL THE SAME: Every appeal to the Commissioner (Appeals)
is to be filed in Form No. 35. In this form, details such as name and address of the tax payer,
Permanent Account Number (PAN), assessment year, details of the order against which appeal is filed
etc. are to be filled in.
E- Form is used in this day for filing appeal; no Physical documents are accepted in the department.
Against the column “Relief claimed in appeal”, amount of reductions sought in income or any other
relief sought in appeal is to be mentioned. In the column “Statement of Facts”, relevant facts in respect
of each subject matter of appeal are to be mentioned in brief. Nature of business or profession, account
books maintained etc. may also be mentioned in this column. Against column “Grounds of appeal”,
points on which relief is sought in appeal are to be mentioned in narrative form. For example, in an
appeal against addition to the returned income by applying a gross profit rate on estimated turnover,
the ground of appeal may be, “the Ld. Assessing Officer was not justified in rejecting the results as per
regular books of account and in estimating the income by applying an adhoc rate of gross profit.”
PAYMENT OF ACCEPTED TAX LIABILITY MUST BEFORE FILING APPEAL: An appeal will
be admitted by Commissioner (Appeals) only if tax as per the returned income, where return of
income is filed, or advance tax payable, where no return of income is filed has been paid prior to filing
of appeal. In the latter situation i.e. where return of income is not filed, tax payer can apply to the
Commissioner (Appeals) for exemption from such condition for good and sufficient reasons. APPEAL
FEES: Fees to be paid before filing appeal to the Commissioner (Appeals) depends upon total income
determined by the Assessing Officer. Fees as under are to be paid and proof of payment of fee is to be
attached with Form No. 35: Sr.no Total Income determined by the Assessing Officer Appeal Fees 1
Less than Rs. 1,00,000/- Rs. 250 2 More than Rs.1,00,000/- but less than Rs.2,00,000/- Rs. 500 3 More
than Rs. 2,00,000/- Rs. 1,000 Where the subject matter of appeal relates to any other matter, fee of Rs.
250/- is to be paid. Appeal fee can be paid in any branch of authorised bank/ State Bank of
India/Reserve bank of India along-with challan. Epayment can also be made. Assessee Company need
to pay 20 % of the disputed demand before hearing the appeal matter in the office of CIT (A). TIME
LIMIT FOR FILING AN APPEAL Appeal is to be filed within 30 days of the date of service of notice
of demand relating to assessment or penalty order or the date of service of order sought to be appealed
against, as the case may be. The Commissioner (Appeals) may admit an appeal after the expiration of
period of 30 days, if he is satisfied that there was sufficient cause for not presenting the appeal within
the period of 30 days. Application for condoning the delay citing out reasons for the delay along with
necessary evidences should be filed with Form No. 35 at the time of filing of appeal. Commissioner
(Appeals) can condone the delay in filing the appeal in genuine cases with a view to dispense
substantive justice.

APPEAL PROCEDURE:
On receipt of Form no. 35, Commissioner of Income-tax (Appeals) fixes date and place for hearing
the appeal by issuing notice to the tax payer and the Assessing Officer, against whose order appeal is
preferred. The tax payer has a right to be heard either personally or through an Authorized
Representative. In these day reply submitted to the CIT (A) in form of Paper Book. Detail of sample
format of Indexing of Paper Book as follows: Sr.no Particulars Page No 1 Notice of Assessment u/s
143 2 Reply filed against the notice 3 Letter of adjournment filed with AO 4 Reply filed with AO ( In
respective addition made) 5 Case laws 6 Assessment Order Format of Paper Book in Sequence as case
Progress in the office of Assessing Officer , main idea for this submission is to submit all the
documents before CIT in Proper Sequence. The Commissioner (Appeals) would hear the appeal and
may adjourn it from time to time till the hearing is over. During hearing, Commissioner (Appeals) may
allow the tax payer to go into additional grounds of appeal, i.e. grounds not specified in the appeal
memo, i.e. Form no. 35, on being satisfied that omission of those grounds from the form of appeal was
not willful or unreasonable.
FILING OF ADDITIONAL EVIDENCE:
During appeal proceedings, the tax payer is not entitled to produce any evidence, whether oral or
documentary other than what was already produced before the Assessing Officer. Commissioner
(Appeals) would admit additional evidence filed only in following situations: where the Assessing
Officer has refused to admit evidence which ought to have been admitted; or where the appellant was
prevented by sufficient cause from producing the evidence which he was called upon to be produced
by the Assessing Officer; or where the appellant was prevented by sufficient cause from producing
before the Assessing Officer any evidence which is relevant to any ground of appeal; or where the
Assessing Officer has made the order appealed against without giving sufficient opportunity to the
appellant to adduce evidence relevant to any ground of appeal. Normally, additional evidences are to
be accompanied with an application stating the reasons for their admission, after which the
Commissioner (Appeals) may admit the same after recording reasons in writing for its admission.
Before taking into account the additional evidence filed, Commissioner (Appeals) is to provide
reasonable opportunity to the Assessing Officer. For examining the additional evidence or the witness
as well as to produce evidences to rebut additional evidences filed by the tax payer. Before disposing
of any appeal, Commissioner (Appeals) may carry out further enquiry himself or through the
Assessing Officer. If such proceedings are conducted through the Assessing officer, the same are
generally referred to as remand proceedings. After submission of assessee, CIT may pursue the
remand proceedings issue a notice to the assessing officer regarding the Objections file by the assessee
Company, in reply Assessing officer submit its reply. After receiving the Remand Report from CIT –
(APPEAL), assessee Company will submit its Re- Joinder; this submission is known as final
submission from assessee Company.

APPEAL DECISION:
After the hearing is concluded, Commissioner (Appeals) passes order in writing, disposing of the
appeal and stating the decision on each ground of appeal with reasons. In case of assessment and
penalty, Commissioner (Appeals) may confirm, reduce or enhance it. Before enhancing any
assessment or penalty, Commissioner of Income-tax (Appeals) has to provide reasonable opportunity
to the tax payer for showing cause against such enhancement. While disposing of an appeal, the
Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which
order appealed against was passed, even if such matter was not raised by the tax payer. FORM NO. 35
[See Rule 45] Appeal to the Commissioner of Income Tax (Appeals) Designation of the
Commissioner (Appeals) No……………………..of……………………. Name and address of the
appellant Permanent Account Number Assessment year in connection with which the appeal is
preferred Assessing Officer/ Valuation Officer passing the order appealed against Section and sub-
section of the Income-tax Act, 1961 under which the Assessing Officer/Valuation Officer passed the
order appealed against and the date of such order Where the appeal relates to any tax deducted under
section 195(1), the date of payment of the tax Where the appeal relates to any assessment or penalty,
the date of service of the relevant notice of demand In any other case, the date of service of the
intimation of the order appealed against Section and clause of the Income-tax Act, 1961 under which
the appeal is preferred Where a return has been filed by the appellant for the assessment year in
connection with which the appeal is preferred, whether tax due on the income returned has been paid
in full (if the answer is in the affirmative, give details of date of payment and amount paid) Where no
return has been filed by the appellant for the assessment year in connection with which the appeal is
preferred, whether an amount equal to the amount of advance tax payable by him during the financial
year immediately preceding such assessment year has been paid (If the answer is in the affirmative,
give details of date of payments and amount paid) Relief claimed in appeal Where an appeal in
relation to any other assessment year is pending in the case of the appellant with any Commissioner
(Appeals), give the details as to the – (a) Commissioner (Appeals), with whom the appeal is pending;
(b) Assessment year in connection with which the appeal has been preferred; (c) Assessing Officer
passing the order appealed against; (d) Section and sub-section of the Act, under which the Assessing
Officer passed the order appealed against and the date of such order Signed STATEMENT OF FACTS
——————————————————————————————— GROUNDS OF
APPEAL Signed Form of verification I, ——————- the appellant, do hereby declare that what is
stated above is true to the best of my information and belief. Place ———————– Delhi ————
————— ————————-
Signed ——————————- Status of applicant
APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL
Appeal against an order of Commissioner (Appeals) lies with the Income Tax Appellate Tribunal
(ITAT). Both tax payer and the Assessing Officer can file appeal before the Appellate Tribunal.

Several Benches of the Appellate Tribunal comprising judicial and accountant members have been
constituted all over India.
ORDERS AGAINST WHICH APPEAL CAN BE FILED BEFORE APPELLATE TRIBUNAL:
Tax payer can file appeal before the Income Tax Appellate Tribunal against the following orders:
Order by Commissioner(Appeals) u/s 250/154/271/ 271A/272A; Order by Assessing Officer u/s
158BC(c) in respect of search action initiated during 30.6.1995 to 1.1.1997; Order by Assessing
Officer u/ s 115 VZC excluding the tax payer from tonnage tax scheme; Order by Commissioner u/s
12AA on registration application by a charitable or religious trust; Order by the Commissioner u/s
80G(5)(vi) regarding approval of a charitable trust for donations made after 31.3.92; Order by
Commissioner u/s 263 revising Assessing Officer’s order considered prejudicial to the interest of
revenue; Order by Commissioner u/s 154 to rectify an order u/s 263; Penalty order passed by
Commissioners u/s 271 or section 272A; Penalty order passed by Chief Commissioner/ Director
General/Director u/s 272A; Order passed by Assessing Officer u/s 143(3)/147 in pursuance of
direction of Dispute; Resolution Panel (DRP) and rectification order passed u/s 154 in respect of such
order. The Commissioner can also direct the Assessing Officer to file appeal against order of
Commissioner (Appeals) before the Appellate Tribunal.
TIME LIMIT FOR FILING APPEAL BEFORE ITAT:
Appeal is to be filed before the Appellate Tribunal within 60 days of the date on which order appealed
against is communicated to the taxpayer or the Commissioner, as the case may be. FORM OF
APPEAL: An appeal to the ITAT is to be made in Form No. 36 which is to be filed in triplicate and is
to be accompanied by two copies of order appealed against (at least one out of which should be a
certified copy), two copies of relevant order of the Assessing Officer, two copies of grounds of appeal
before the first appellate authority i.e. Commissioner (Appeals) and two copies of statement of facts, if
any, filed before the said first appellate authority. In case of appeal against order levying penalty, 2
copies of relevant assessment order are also to be filed. In case of appeal against order u/s 143(3)
r.w.s. 144A, two copies of directions of Additional Commissioner/Joint Commissioner u/s 144A are
also to be filed and in case of appeal against order u/s 143(3) r.w.s. 147, two copies of original
assessment order, if any are also to be filed. In case of appeal against penalty u/s 271(1) (C)/158BFA
(2), the relevant assessment orders’ copies are also to be filed...
FEES TO BE PAID BY THE TAXPAYER FOR FILING APPEAL BEFORE THE ITAT:
Form No. 36 is to be accompanied with fee as under, which depends upon total income computed by
the Assessing Officer in the case to which appeal relates Sr.no Total Income as computed by
Assessing Officer Fees 1 Less than Rs.1 lakh Rs. 500 2 More than Rs. 1 lakh but less than Rs. 2 lakh
Rs. 1500 3 More than Rs. 2 lakh 1% of assessed income, subject to maximum of Rs.10,000 Where the
subject matter of appeal relates to any other matter, fee of Rs 500/- is to be paid. An application for
stay of demand is to be accompanied by fee of Rs. 500.

MEMORANDUM OF CROSS OBJECTIONS:
The tax payer or the Assessing Officer on receipt of notice that an appeal has been filed before the
Appellate Tribunal against order of Commissioner (Appeals) by the other party can, within 30 days of
receipt of notice, file a memorandum of cross objections in Form No. 36A Such memorandum of cross
objections can be filed even if no appeal is filed by the tax payer or the Assessing Officer himself. No
fee is required to be paid for filing the memorandum of cross objections. The memorandum of cross
objections is to be signed and verified by the person who was competent to sign Form 36. The
memorandum of cross objections is disposed of by the ITAT like an appeal in Form 36.
CONDONATION OF DELAY IN FILING APPEAL/ MEMORANDUM OF OBJECTIONS
: The Appellate Tribunal may admit an appeal or permit filing of memorandum of cross objections
after the period of 60 days or 30 days, as the case may be, if it is satisfied that there was sufficient
cause for not presenting it within the prescribed time
WITH WHOM THE APPEAL IS TO BE FILED:
Normally appeal is to be filed with the Assistant Registrar or the Superintendent/ Assistant
Superintendent/Clerk in the ITAT.
PROCEDURE FOLLOWED IN THE ITAT:
Filing of Paper Book: The appellant or the respondent, as the case may be, may submit a paper book in
duplicate containing documents or statements or other papers referred to in the assessment, appellate
order, which it may wish to rely upon. The paper book duly indexed and page numbered is to be filed
at least a day before the hearing of the appeal along-with proof of service of copy of the same on the
other side at least a week before. The Bench may in appropriate cases condone the delay and admit the
paper book. The Tribunal can also, on its own direct preparation of paper book in triplicate by and at
the cost of appellant or the respondent as it may consider necessary for disposal of appeal. Each paper
in the paper book is to be certified as true copy by the party filing the same. Additional evidence, if
any, should not be part of the paper book and it should be filed separately. Format of Indexing of
Paper Book as follows: Sr.no Particulars Page no 1 Notice received from Assessing Officer u/s 143 2
Reply filed with Assessing officer 3 Request filed with AO for Adjournment 4 Reply filed with AO on
Subject addition made 5 Assessment order received from Assessing Officer 6 Filing of APPEAL with
CIT (A) 7 Filing of Paper Book with CIT (A) 8 Request to CIT (A) for additional evidences 9 Filing
of addition al evidence with CIT (A) 10 Copy of Remand Report 11 Filing of Re- Joinder with CIT
(A) 12 Case Laws 13 Assessment order of CIT (A) Hearing of the Appeal The Appellate Tribunal
fixes the date for hearing the appeal and notifies the parties specifying date and place of hearing of the
appeal. A copy of memorandum of appeal is sent to the respondent either before or along with such
notice. The appeal is heard on the date fixed and on other dates to which it may be adjourned. If the
appellant does not appear in person or through an authorized representative when appeal is called on
for hearing, the ITAT may dispose of the appeal on merits after hearing the respondent. However,

where after disposal of appeal ex parte, the appellant appears afterwards and satisfies the Tribunal that
there was sufficient cause for non appearance, the Tribunal can set aside the ex parte order and restore
the appeal. Similar procedure is applicable where appeal is disposed in the absence of respondent.
Production of additional evidence before the Tribunal: The parties to the appeal are not entitled to
produce additional evidence of any kind, either oral or documentary before the Tribunal. However, if
the Tribunal requires production of any document, examination of any witness or filing of any
affidavit to enable it to pass orders, it may allow such document to be produced, witness to be
examined, affidavit to be filed and such evidence to be adduced. Proceedings before the Tribunal to be
open to public: Normally the proceedings in the Tribunal are public except in cases decided to be
otherwise by the Tribunal as per its discretion.
ORDERS OF THE APPELLATE TRIBUNAL:
Normally appeals are heard by a Bench comprising one judicial member and one accountant member.
Appeals where total income computed by the Assessing Officer does not exceed Rs. 5 lakh may be
disposed of by single member Bench. The President of ITAT is empowered to constitute Special
Bench consisting of three or more than three members for disposal of any particular case, one of
whom would necessarily be a judicial member and one an accountant member. If the members of the
Bench differ in opinion on any point, decision is by majority. If members are equally divided in their
opinion, the points of difference are stated by each member and the case is referred by the President of
the ITAT for hearing such points by one or more of other members of the ITAT. Such point or points
is decided according to opinion of majority of the members of ITAT who heard the case, including
those who first heard it. The Bench normally pronounces its orders in Court. Where the orders are not
pronounced in the Court, list of such orders showing results of appeal and signed by members is put on
the notice board of the Bench. MISCELLANEOUS APPLICATIONS: The ITAT, at any time within
four years from the date of order passed by it, can rectify any mistake apparent from record, if the
same is brought to its notice by the tax payer or the Assessing Officer. A fee of Rs 50/- is to be paid
for filing miscellaneous application. PETITIONS SEEKING STAY: On application by the tax payer,
the Appellate Tribunal can pass an order of stay in any proceedings relating to an appeal filed before
the Appellate Tribunal. The stay can be for a period up to 180 days, and the Appellate Tribunal is
expected to dispose of the appeal within the period of stay. Where the appeal is not disposed of within
the period of stay, the Appellate Tribunal may grant further stay; however, the total stay period cannot
exceed 365 days. FORM NO. 36 [See Rule 47(1)] Form of appeal to the Appellant Tribunal In the
Income-tax Appellate Tribunal————————— Appeal No—————-of————— Versus
————————
——— —– APPELLANT
Respondent 1 The State in which the assessment was made 2 Section under which the order appealed
against was passed 3 Assessment year in connection with which the appeal is preferred 4 Total income
declared by the assesses for the assessment year referred to in item 3 5 Total income as computed by
the Assessing Officer for the assessment year referred to in item 3 6 The Assessing Officer passing the
original order 7 Section of the Income-tax Act, 1961, under which the Assessing Officer passed the

order 8 The Deputy Commissioner (Appeals) in respect of orders passed before the 1st day of October,
1998 Commissioner (Appeals) passing the order under section 154/250/271/271A/272A 9 The Deputy
Commissioner or the Deputy Director in respect of orders passed before the 1st day of October, 1998,
or the joint Commissioner or the joint Director passing the order under section 154/272A/274(2) 10
The Chief Commissioner or Director General or Director or Commissioner, passing the order under
section 154(2)/250/263/271/271A/272A 11 Date of communication of the order appealed against 12
Address to which notices may be sent to the appellant Address to which notices may be sent to the
respondent 13 Relief claimed in appeal GROUNDS OF APPEAL 1 2 3 —————————–
—————————– Signed
Signed ( Authorized Representative) (
Appellant) Verification I, ————————- the appellant, do hereby declare that what is stated
above is true to the best of my information and belief Verified today the————————————
———– day of—————————————– ——————————— Signed
APPEAL BEFORE HIGH COURT
Appeal against Appellate Tribunal’s order lies with the High Court, Where the High Court is satisfied
that the case involves a substantial question of law. Appeal to the High Court against Appellate
Tribunal’s order can be filed by the tax payer or the Chief Commissioner/Commissioner within 120
days of receipt of the order and in the form of memorandum of appeal, precisely stating the substantial
question of law involved. If the High Court is satisfied that a substantial question is involved, it would
formulate that question. High Court hears the appeal only on the question of law so formulated;
however, the respondents can argue at the time of hearing that case does not involve such question of
law. Appeal filed before High Court is heard by bench of not less than two Judges and decision is by
majority. APPEAL BEFORE SUPREME COURT Appeal against High Court’s order in respect of
Appellate Tribunal’s order lies with the Supreme Court in those cases, which are certified to be fit one
for appeal to the Supreme Court. Special leave can also be granted by the Supreme Court under Art.
136 of the constitution of India against the order of the High Court.

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MBA III TAX PLANNING AND MANAGEMENT (FT-303F) UNIT I

What Is a Direct Tax?

Understanding a Direct Tax

The History of Direct Taxes

What Is the Difference Between Direct Tax and Indirect Tax?

CH Institute of Management & Commerce Page 1

Difference between Previous Year and Assessment Year

Meaning Previous Year is the Assessment Year is the financial year, in

Term Its term is 12 months or Its term is 12 months.

Definition of Previous Year

CH Institute of Management & Commerce Page 2

 Shipping business of non-resident.

Definition of Assessment Year

CH Institute of Management & Commerce Page 3

 (ii) a Hindu undivided family,

 (v) an association of persons or a body of individuals, whether incorporated or not,

 (vi) a local authority, and

 What Do You Understand by Total Income/Gross Total Income?

1. Earnings from Salaries

CH Institute of Management & Commerce Page 4

 The Distinction Between Total Income and Gross Total Income

CH Institute of Management & Commerce Page 5

The sale of any kind of an inventory

Income from services rendered

Different types of discount Received from the suppliers

CH Institute of Management & Commerce Page 6

Let us explore the residential status and taxability in detail.

Meaning and importance of residential status

How to determine residential status?

A resident not ordinarily resident (RNOR)

CH Institute of Management & Commerce Page 7

1. Stay in India for a year is 182 days or more or

The amendment can be further simplified as below-

Residential Status for Income Tax – Individuals & Residents

Resident Not Ordinarily Resident

CH Institute of Management & Commerce Page 8

Ax Free Incomes in India

CH Institute of Management & Commerce Page 9

Receipts from Hindu Undivided Family

Share from a Partnership Firm or LLP

NRI Tax Free Incomes

Income Earned by Foreigners

CH Institute of Management & Commerce Page 10

The amount received in commutation of pension by a Government servant or any payment in

For private-sector employees, the exempt amount would be least of:

CH Institute of Management & Commerce Page 11

The amount of leave encashment actually received

A standard amount of three lakh rupees

Voluntary Retirement or Separation Payment

Money Received from Insurance

Money Received from Provident Fund

Special Allowances and Benefits

Interest Income Exempt from Income Tax

CH Institute of Management & Commerce Page 12

Interest on Gold Deposit Bonds

Interest on deposits for Bhopal Gas victims

Interest on bonds of local authorities

Interest received by a non-resident or non-ordinarily person on deposits made with an Off-shore

Interest from Tax Free Infrastructure Bonds

Bank interest of a girl child from the Sukanya Samridhi Scheme

Scholarships and Awards

Dividends on Shares and Mutual Funds

Capital Gains from Transfer of Agricultural Land