CS Professional DT Revision For Dec 19

CS PROFESSIONAL
DIRECT TAX
[OLD / NEW SYLLABUS FOR DEC 19]
BY
CMA VIPUL SHAH
www.vipulshah.org
75591 73787
CMA VIPUL SHAH
CS PROFESSIONAL
[DIRECT TAX – OLD/ NEW SYLLABUS]
INDEX
SN SUBJECT PAGE NO
1 Basic Concepts & Taxation Of Individual 2
2 Assessment Of Partnership Firm / LLP 44
3 Assessment Of Companies 49
4 International Taxation 65
5 Tax Planning 86
www.vipulshah.org 75591 73787 Page 1

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CHAPTER 1: BASIC CONCEPTS & TAXATION OF INDIVIDUAL

FINDIVIDUAL TAX RATES FOR AY 18-19
Tax rate Resident Individual age < 60 Resident Individual Resident Individual
(Male & Female), HUF, AOP, (Age >= 60 during (Age >=80 during
BOI & AJP PY) PY)
Senior citizen( Male& Super senior citizen(
Female) Male & Female)
NIL 2,50,000 3,00,000 5,00,000
5% 2,50,001 to 5,00,000 3,00,001 to 5,00,000 NA
20% 5,00,001 to 10,00,000 5,00,001 to 10,00,000 5,00,001 to
10,00,000
30% Above 10,00,000 Above 10,00,000 Above 10,00,000
Add: Surcharge Income Rate
50,00,000 to 1,00,00,000 10%
Above 1,00,00,000 15%
Health & 4% on Tax plus Surcharge
Education Cess (Amendment FA 18)
REBATE U/ 87A
 A resident individual (whose net income does not exceed Rs. 3,50,000)
can avail rebate u/s. 87A. Net income = GTI – Deduction u/s 80C to
80U
 The amount of rebate is 100% of income tax or Rs. 2,500 whichever is
less.[Amendment Finance Act 2017]
 It is to be deducted before H & EC.
 Rebate u/s 87A and surcharge cannot come at a time.
NON RESIDENT ASSESSEE

 For Non-Resident individual exempted income shall be upto Rs. 2, 50,000 irrespective of Age Tax
Rate for Non-Resident.
 Surcharge @ 10% for income between 50L to 1cr & above 1cr 15%
 Health & Education Cess @ 4% on Tax + SC
 Rebate u/s 87A is not available.
Total Income does not include taxable Long Term Capital Gain (20%), Short Term Capital
KEY
Gain (15%) on Securities subjected to STT, Lottery Winnings, Horse races, etc. (30%) and
NOTE
other Income chargeable at Special Rates.

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Illustration 1
Compute the tax liability in the following cases:-
Assessee Status Total Income
(in Rs.)
(a) Mr. Mohan Resident Individual of 40 years 2,60,000
(b) Mrs. Swati Non-resident Individual of 65 years 2,75,000
(c) Mr. Bansal Resident Individual of 25 years 4,50,000
(d) Mrs. Priyanka Resident Individual of 21 years 5,35,000
(e) Mrs. Resham Resident individual of 60 years 12,00,000
(f) Mrs. Radhika Resident Individual of 80 years 18,00,000
(g) Ms. Madhuri Resident Individual of 21 years 2,65,500
Solution
The computation of tax liability is given below:-
Assessee Total Income- Rebate Income EC & Total Total
Income (?) tax u/s. tax SHEC Tax Tax
87A after @ 3% (rounded
rebate off)
(a) Mr. Mohan 260000 500 500 nil
(b) Mrs. Swati 275000 1250 1250 50 1300 1300
(c) Mr. Bansal 450000 10000 10000 400 10400 10400
(d) Mrs. Priyanka 535000 19500 19500 780 20280 20280
(e) Mrs. Resham 1200000 170000 170000 6800 176800 176800
(f) Mrs. Radhika 1800000 340000 340000 13600 353600 353600
(g) Ms. Madhuri 265500 775 775
FOR DOMESTIC COMPANIES
Surcharge
Particulars AY 19-20 Income between 1 Above 10 cess
cr to 10 cr cr
If turnover of or gross receipt during 25% 7% 12% 4%
PY 15-16 dose not exceeds 50 cr
If turnover of or gross receipt during 25% 7% 12% 4%
PY 16-17 dose not exceeds 250cr
[Amendment FA 2018]
Otherwise 30% 7% 12% 4%

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FOR OTHER ASSESSEES / PERSONS
Surcharge
Assesse Rate TI <Rs. TI > Rs.1 Crore, TI > Rs.10 Rate of EC +
of tax 1 Crore but TI ≤ Rs.10 crores H & EC
Crores
Foreign Companies 40% 2% 5% 4%
Firms and LLP 30% 12% 12% 4%
Local Authorities 30% 12% 12% 4%
Co – operative
Societies 10% - - 4%
For First Rs.10,000 20% - - 4%
For Next Rs.10,000 30% 12% 12% 4%
For the Balance
CONCEPT OF MARGINAL RELIEF

Why Relief is given?
Increase in income
by Rs 1, 00,000
Particulars Difference Rate Tax on Tax on

50,00,000 51,00,000
Up to 2,50,000 2,50,000 Exempt - -
2,50,000 to 5,00,000 250000 5% 12500 12500
5,00,000 to 10,00,000 500000 20% 100000 100000
Above 10,00,000 4000000 30% 1200000
4100000 30% 1230000
Total Tax 1312500 1342500
Add: Surcharge 13,42,500 10% 134250
Tax plus Surcharge 13,12,500 14,76,750
Add: Health & Education Cess 14,76,750 4% 52,500 59,070
@ 4%
Tax liability 13,65,000 15,35,820
Tax is increased by
Rs 1,70,820
To remove above defect Marginal relief is given as under

Meaning Marginal relief in provided to insure that the additional income tax payable including
surcharge on excess of income over Rs. 50,00,000 / 1,00,00,000 is limited to the
amount by which the income is more than Rs.50,00,000 /1,00,00,000
Applicable to All assessee

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Marginal [(Income tax + surcharge on actual income) – (Income tax on 50L / 1 crore as the
relief case may be )] –[ actual income – 50 L / 1 crore]
Key Note When increase in income is more than increase in tax Marginal relief shall not be
given.
Illustration 2
Compute the amount of marginal relief available if the income of Mr. Apple is Rs. 51 lakhs and tax
payable
Solution
Particulars Difference Rate 5000000 5100000
Up to 2,50,000
2,50,000 to 5,00,000 5% 12500 12500
5,00,000 to 10,00,000 20% 100000 100000
Above 10,00,000 400000 30% 1200000 1230000
Total Tax 1312500 1342500

Add: SC @ 10% on Tax NIL 134250
= TAX + SC 1312500 1476750
Marginal Relief [(Income tax + surcharge on actual income) – (Income tax on 50L / 11 crore as
the case may be )] –[ actual income – 50 L / 1 crore]
[1476750-1312500]-[5100000-5000000]
164250-100000
64250
Calculation of Tax Liability after Marginal Relief

Particulars Amount
Income
Tax on 5100000 computed above
Add: Sc @ 10%
= Tax plus surcharge 1476750
Less: Marginal relief computed above 64250
= Tax 1412500
Add: Health & Education Cess @ 4% 56500
Tax Liability 1469000
Illustration 3
Compute the amount of marginal relief available if the income of Mr. Raju cha cha is Rs 51.50 lakhs
and tax Payable

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Solution
Particulars Difference Rate 5000000 5150000
Up to 2,50,000 250000 Nil
2,50,000 to 5,00,000 250000 5% 12500 12500
5,00,000 to 10,00,000 500000 20% 100000 100000
Above 10,00,000 400000 30% 1200000
4150000 30% 1245000
Total Tax 1312500 1357500
Add: SC @ 10% on Tax 135750
= TAX + SC 1312500 1493250
Marginal Relief [(Income tax + surcharge on actual income) – (Income tax on 50L / 1 crore as
the case may be )] –[ actual income – 50 L / 1 crore]
[1493250-1312500]-[5150000-5100000]
180750-150000
30750
Calculation of tax liability after marginal relief

Particulars Amount
Income 5150000
Tax on 5150000 computed above 1357500
Add: Sc @ 10% 135750
= Tax plus surcharge 1493250
Less: Marginal relief computed above 30750
= Tax 1462500
Add: Health & Education Cess @ 4% 58500
= Tax liability 1521000
Illustration 4
Income of Mr. Mote is Rs 53,00,000 compute tax payable for AY 19-20
Solution
Particulars Difference Rate 53,00,000
Up to 2,50,000
2,50,000 to 5,00,000 250000 5% 12500
5,00,000 to 10,00,000 500000 20% 100000
Above 10,00,000 4300000 30% 1290000
1409500
Total Tax
Add: SC @ 10% on Tax 140250
= TAX + SC 1542750

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Add: health & Education Cess @ 4% 61710
Tax Liability 1604460

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RESIDENTIAL STATUS
Sr Particulars Explanation
1 Why Residential status? To decide where to pay tax in India or Outside India.
2 Criteria to decide Person Criteria
Residential status Individual Period of stay in India
HUF Place of control and Management
Company Place of effective management
Other assessee Place of control and Management
3 Hints for determination 1) Citizenship of a country and residential status of that country
of Residential status are different concepts.
2) If person is resident in India in the P.Y. relevant to an A.Y. in
respect of any source of income, he shall be deemed to be
resident in India for his other source of income.
3) If an individual stays on a ship, which is in the territorial
waters of India, then it shall be treated as his presence in
India.
4) 24 hrs. Shall be treated as one day.
5) It is not essential that stay should be at same place.
6) Continuous stay is not required.
Counting of number of days: If nothing is mentioned about the
time of arrival and departure than the day of arrival and the day
of departure both shall be include for determining residential
status of an Individual
RESIDENTIAL STATUS AT A GLANCE
Assessee Condition to be a Resident Condition to be an Ordinary Resident

Assessee satisfies any one condition of Assessee satisfies both the conditions of
sec. 6(1) i.e. sec. 6(6).
1. He is in India in the previous year for a 1. He has been resident in India in at
period of 182 days or more; or least 2 out of 10previous years
immediately preceding the relevant
previous year; and
Individual 2. He is in India for a period of 60 days or 2. He has resided in India for a period of
Sec 6(1) more during the previous year and 365 730 days or more during 7 previous
days or during more during 4 previous years immediately proceeding the
years immediately preceding the relevant previous year.
relevant previous year.
Exceptions:
In the following cases, (b) is irrelevant.
1. An Indian citizen, who leaves India

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during the previous year for
employment purpose.
2. An Indian citizen, who leaves India
during the previous year as a member
of crew of an Indian ship.
3. An Indian citizen or a person of Indian
origin, who normally resides outside
India, comes on a visit to India during
the previous year.
Note
A person is said to be of Indian origin if he or either of his parents or any of his grandparents
(maternal & paternal) was born in undivided India.
INTEREST, ROYALTY & FEES FOR TECH. SERVICE-WHEN DEEMED TO ACCRUE OR ARISE
IN INDIA
1. Accrual of Interest 9(1)(v) in India:
Payer Purpose of Payment Is the payment Taxability in the hands of
deemed to accrue or receiver
arise in India
Government Any purpose Yes All Assessee
For carrying on Business No ROR – Taxable NOR – Not
Resident or profession outside Taxable NR – Not Taxable
India or earning income [For NOR or NR – assumed
outside India first receipt not in India]
Resident For any other purpose Yes All Assessee
Non-Resident For carrying on business Yes All Assessee
or profession in India
ROR – Taxable NOR –Not
Non-Resident For any other Purpose No Taxable NR – Not Taxable
[for NOR or NR – assumed
first receipt not in India]
2. Accrual of Royalty 9(1)(vi), and Fees for Technical Service 9(1)(vii) in India:
Payer Purpose of payment Is the payment Taxability in the hands of
deemed to accrue or receiver
arise in India
Government Any purpose Yes All Assessee
For carrying on business No ROR – Taxable NOR – Not
Resident or profession outside taxable NR – Not taxable
India or earning Income [For NOR or NR – assumed
outside India first receipt not in India]
Resident For any other purpose Yes All Assessee
For carrying on business Yes All Assessee
Non-resident or profession in India or
any other source in

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India
For any other purpose No ROR – Taxable NOR – Not
taxable NR – Not taxable
Non-resident [For NOR or NR – assumed
first receipt not in India]

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AGRICULTURAL INCOME
INTRODUCTION
Conditions to treat Income as agricultural income
a) Land must be situated in India. ( Urban or Rural)
b) Used for Agri purpose. (Basic & subsequent operations )
Note: Income from only subsequent operations shall not be treated as Agricultural income.
Agricultural Income Sec 2(1A)
1) Any rent or revenue derived from a land, which is situated in India & is used for
agricultural purposes.
 Rent may be in cash or in kind.
 Assessee may be the owner or tenant of such land.
2) Any income derived from such land on sale made by

a) The cultivator of the agricultural produce raised;
b) The receiver of rent in kind of the agricultural produce received. Without carrying on any
process, other than the process required to render it fit for the market.
3) Any income derived from a building subject to fulfilment of the following conditions
a) The building should be occupied by the cultivator or receiver of rent in kind.
b) The building should be on or in the immediate vicinity of the land, being situated in India and
used for agricultural purposes.
c) The building should be used as dwelling house or store-house or other out building.
d) The land is assessed to land revenue or situated in rural area.
Note: Profit on transfer of agricultural land: Profit on transfer of agricultural land shall not be
treated as agricultural income.
Examples of Agri incomes
1. Income from sale of Jute, cotton, flowers plants sold in pots.
2. Remuneration & interest on loan / capital to partner.
3. Saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Examples of Non Agri Incomes
1. Salary to employees, poultry, dairy, fisheries,
2. Rearing of live stock
3. Interest to moneylender
4. Salary to Director of company
5. Dividend received from company engaged in agri activity.
6. Agri income earned outside India.
7. Sale of trees and grasses grown spontaneously (without any human effort). Is non-agro
income.

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APPORTIONMENT OF AGRICULTURAL INCOME
Rule Particulars Business Income Agricultural Income
7. Manufacturing of product other Market value of Net agricultural
than tea, coffee and rubber. agricultural produce income will be exempt.
(Income is partially agricultural) will be deducted.
7A. Income from growing and 35% of profit 65% of profit
manufacturing of rubber
7B(a) Coffee grown and 25% of profit 75% of profit
cured
7B(b) Coffee grown, cured, roasted and 40% of profit 60% of profit.
grounded.
8 Tea 60% of the profit 40% of profit
LOSS FROM AGRICULTURAL INCOME

1) Where the result of the computation for the previous year in respect of any source of
agricultural income is loss, such loss shall be set off against the income of the assessee, if any,
for that previous year from any other source of agricultural income.
2) If such loss could not be set off in that previous year, it shall be carried forward and set off in
the following Assessment Years for not more than 8 A.Ys only against Agricultural Income.
CONDITIONS FOR INCLUDING AGRICULTURAL INCOME IN THE TOTAL INCOME OF THE

ASSESSEE
Conditions Treatment
Step 1: Compute income tax on total income of
1) The assessee is an individual, HUF,
assessee including Agro-income.
BOI, an association of person or an
Step 2: Compute income tax on (Agro-income +
artificial juridical person.
Maximum exempted limit
2) The assessee has non-agricultural
Step 3: Tax liability before cess = (Tax as per step 1) -
income exceeding the maximum amount
(Tax as per step 2)
of exemption
Note: Consider rebate u/s87A or surcharge if
3) The agricultural income of the
applicable and cess also.
assessee exceeds Rs.5000

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Illustration 1
Assessee Agri income Non Agri Total To be considered
for tax
calculation
Mr Surag 6,000 3,50000 3,56,000 3,56,000
Mr Patang 4,000 3,50000 3,54,000 3,50,000
Mr Santro 6,000 2,42,000 2,48,000 2,42,000
Bye Bye Ltd 6,000 3,50000 3,56,000 3,50,000
Illustration 2
Mr. Sourav Dadely age 42 years has non-agro income of Rs. 3,50000 and agro income of Rs. 1,80,000.
Compute his tax liability for the A.Y. 2019-20.
Solution
Particular Rs. Rs.
Step 1: Tax on Agri + non Agri ( 3,50,000 + 1,80,000) 530000
Upto 2,50,000 Nil
2, 50,000 to 5, 00,000 (5 %) 12500
5, 00,000 to 5, 30,000 (20%) 6000 18500
Step 2: Tax on Agri + max. exemption limit (2,50,000 + 430000
1,80,000)
Upto 2,50,000 Nil
2,50,000 to 4,30,000 9000 9000
Step 3: Tax as per step 1 – step 2 9500
Less: Rebate u/s 87 A 2500
= Tax 7000
(+) 4% H & EC 280
Tax Liability 7280

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OTHER INCOMES EXEMPT FROM TAX
S N SECTION EXPLAINATION
1 10(1) Agricultural Income: Refer chapter Agricultural Income.
2 10(2) Member‟s share in income of HUF [Sec. 10(2)]
Any sum received by an individual as a member of a Hindu Undivided Family:
1) Where such sum has been received out of the income of the family; or
2) Where such sum has been received out of the income of an
impartible estate belonging to the family.
3 10(2A) Share in Profit of firm Exempt in the hands of partner.
4 10(6) 1) Remuneration of foreign citizens
Remuneration received by an official of an embassy, high commission, legation
commission, consulate, trade representation of a Foreign State, or as a
member of the staff of any of these officials, of services in such capacity,
subject to the following conditions:
a) Remuneration of the corresponding officials or member of staff of the
Indian government resident for similar purposes in that country shall be
exempt in that country.
b) Members of such staff are not engaged in any business or profession or
employment in Indian otherwise than as members of such staff.
2) Remuneration received by him as an employee of a foreign enterprises
(which doesn‘t carry any business in India) for services rendered by him
during his stay in India = < 90 days.
3) In case he is a non-resident, any remuneration due to his employment on a
foreign ship provided his total stay in India = < 90 days in the PY.
Any remuneration received by an employee of the foreign government in
connection with his training in any specified establishment or office, to the
extent of his stay in India.
5 10(7) Allowance or perquisite paid outside India
Any allowance or perquisite paid outside India by the Government to a citizen
of India for rendering services outside India.
6 10(10D) Any sum received under the life insurance policy, including bonus on such
policy. However the following sums are not exempt:
1) Sum received from a policy u/s 80DD (Handicap policy); or
2) Sum received under a Keyman insurance policy; or
―Keyman Insurance Policy‖ means a life insurance policy taken by a person of
the life of another person who is or was the employee or is or was connected
or is any manner whatsoever with the business of such person and includes
such policy which has been assigned to a person, at any time during the term
of the policy, with or without any consideration.
3) Any sum received under an insurance policy issued between 1-4-2003
and 31-03-2012 in respect of which the premium payable for any

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year > 20% of the actual capital sum assured; or
Exception: any sum received on the death of a person is not taxable
4) Any sum received under an insurance policy issued on or after 01/04/2012
in respect of which the premium payable for any of the years > 10% of the
actual capital sum assured:
In case of policy issued on or after 1/4/2013, on life of following persons, 10%
shall be taken as 15%
(a) A person with disability or severe disability as referred to u/s 80U; or
(b) Suffering from disease or ailment as specified in the rules made u/s
80DDB
Exception: Any sum received on the death of a person is not taxable
7 10 (11A) 1. A special small savings instrument for the welfare of the girl child was
announced in the Union Budget in July 2014. To give effect to this
announcement, Sukanya Samriddhi Account Rules, 2014 have been
introduced.
2. The following are the tax benefits envisaged in the Sukanya Samriddhi
Account Scheme: -
a. The investments made in the scheme will be eligible for deduction under
section 80C.
b. The interest accruing on deposits in such account will be exempt from
income tax.
c. The withdrawal from the said scheme in accordance with the rules of the
said scheme will be exempt from tax.
8 10(12A) Payment from NPS Trust to an employee on closure of his account or on
his opting out of the pension scheme exempt
1. So far, under the Income tax Act, 1961, the tax treatment for the
National Pension System (NPS) referred to in section 80CCD is Exempt,
Exempt and Tax (EET). This implies that –
(a) The monthly periodic contributions during the pension accumulation phase
are allowed as deduction from income for tax purposes;
(b) The returns generated on these contributions during the accumulation
phase are also exempt from tax;
(c) However, the terminal benefits on exit or superannuation, in the form of
lump sum withdrawals, are taxable in the hands of the individual
subscriber or his nominee in the year of receipt of such amounts.
2. As per section 80CCD, any payment for National Pension System Trust on
an employee on account of closure or his opting out of the pension scheme
is chargeable to tax.
3. Amendment Fin Act 2016: New clause (12A) has been inserted in section
10 to provide that any payment from National Pension System Trust to an
employee on account of closure or his opting out of the pension scheme
referred to in section 80CCD, to the extent it does not exceed 40% of

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the total amount payable to him at the time of closure or his opting out of
the scheme, shall be exempt from tax.
9 10(12B) Payment to assessee on partial withdrawal from NPS.
Any payment from the National Pension System Trust to an assessee under
the pension scheme referred to in section 80CCD, on partial withdrawal made
out of his account in accordance with the terms and conditions, specified
under the Pension Fund Regulatory and Development Authority Act, 2013 and
the regulations made thereunder, to the extent it does not exceed 25% of
the amount of contributions made by him
10 10(15) Income Exempt u/s 10(15)
1. Post office savings bank account to an extent of interest of Rs. 3,500 for
an individual account & Rs. 7,000 for a joint account
11 10(16) Scholarships granted to meet the cost of education.
12 10(18) Pensions to gallantry award winners
Any pension received by an individual who has been awarded ―Paramvir Chakra‖
or ―Mahavir Chakra‖ or ―Vir Chakra‖ or such other gallantry award as notified
by the government. It includes family pension.
13 10(19) Family pension to widow or children of armed force:
Family pension received by the widow or children or nominated heirs, of a
member of the armed forces (including para-military forces) of the Union,
where the death of such member has occurred in the course of operational
duties, in such circumstances and subject to such conditions, as may be
prescribed.
14 10(32) Income of Minor
Income upto Rs. 1500 is exempt in respect of each minor child whose income
is clubbed u/s. 64(1A)
15 10(34) Dividend Income
Any income by way of dividend [other than dividend u/s. 2(22) (e) declared,
paid or distributed by a domestic company.
[Amendment Fin Act, 2016]
Exemption u/s 10(34) shall not apply to dividend chargeable to tax u/s
115BBDA (refer chapter income from other source).
Income by way of dividend as referred u/s 115BBDA is not exempt. [w.e.f.
1/4/2017]
Illustration 1
A Ltd., a domestic company, declared dividend of Rs. 170 lakh for the year F.Y
2015-16 and distributed the same on 10/7/2016. Mr. X holding 10% shares in
A Ltd. receives dividend of Rs. 17 lakh in July, 2016. Mr. Y Holding 5% shares
in A Ltd., receives dividend of Rs. 8.50 lakh. Discuss the tax implication in the
hands of Mr. X and Mr. Y, assuming that Mr. X and Mr. Y have not received
dividend from any other domestic company during the year.

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Solution
1) The dividend of Rs. 170 lakh declared and distributed in the PY 2016-17 is
subject to dividend distribution tax2 in the hands of A Ltd., a domestic
company
2) In the hands of Mr. X dividend received upto Rs. 10 lakh would be exempt
u/s 10(34). Rs. 7 lakh, being dividend received in excess in excess of Rs. 10
lakh would be taxable u/s 115BBDA.
16 10(35) Income from units
Any income (other than income on transfer of unit) on the following units :-
1) Income received in respect of the units of a Mutual Fund specified u/s.
10(23D);
2) Income received in respect of units from the Administrator of the
specified undertaking as defined in the Unit Trust of India (Transfer of
Undertaking and Repeat) Act, 2002.
3) Income received in respect of units from the company specified in the
Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
17 10(38) Long-Term capital Gain on transfer of Securities:
1. Income should be from transfer of a Long-term Capital Asset being –
(a) A Equity share in a company, or
(b) A Unit of an equity oriented Fund, or
(c) A Unit of Business trust.
Note: Exemption shall also apply in respect of any Income arising from
transfer of units of a Business Trust which were acquired in consideration of
a transfer referred to in Sec. 47(xvii).
2. The sale transaction should be entered into on or after 1/10/2004.
3. Transaction should be chargeable to securities transaction tax under
Chapter VII. this condition is not applicable for a transaction undertaken
on a Recognised Stock Exchange (RSE) located in any International
Financial Services Centre (IFSC) and where the consideration for such
transaction is paid or payable in Foreign Currency.
4. Provided also that nothing contained in this clause shall apply to any income
arising from the transfer of a long term capital asset, being an equity
share in a company, if the transaction of acquisition, other than the
acquisition notified by the Central Government in this behalf, of such
equity share is entered into on or after the 1st October, 2004 and such
transaction is not chargeable to STT [Inserted by FA 2017 w-e-f PY 18 –
19].
5. Provisions applicable from the AY 19-20: Exemption u/s 10(38) is not
applicable from the AY 2019 – 20. Long term capital gain (which arises on
transfer of equity shares/ units of equity oriented mutual fund on or after
April, 1, 2018) is taxable within the parameters of section 112A. [Capital
Gain]

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6. Equity Oriented Fund means a Fund
(a) Where the investible funds are invested by way of Equity Shares in
Domestic Companies to the extent of more than 65% of the total Proceeds
of such Fund, and
(b) Which has been set up under a Scheme of Mutual Fund specified u/s
10(23D).
Note: Percentage of Equity Shareholding of the Fund will be determined with
reference to the Annual Average of the monthly averages of the Opening and
Closing Figures.
The above Exempt Income is includible in computing Book Profit for
determining Minimum Alternate Tax u/s 115JB.
18 10(48) Sale of Crude oil,
Any income received in India Currency by a Foreign Company on account of
sale of Crude Oil, or any other goods or rendering of services, as notified by
Central Government in this behalf, to any person is exempt, based on following
conditions –
1. Such income is received in India by the Foreign Company, pursuant to an
agreement or agreement entered into by Central Government or approved
by Central Government.
2. Having regard to the national interest, the Foreign Company and the
agreement or notified by the central Government. [Note: Some Notified
Companies are – M/s temad – Iran, National Iranian Oil Company.)
3. The foreign company is not engaged in any activity in India, other than the
receipt of such income.
19 10(48A) Storage of Crude Oil
Any income accruing or arising to a Foreign Company, on account of storage of
crude oil in a facility in India and sale of Crude Oil there from, to any person
resident in India, is exempt.
Conditions:
1. the storage and sale by the Foreign Company is pursuant to an agreement
or an arrangement entered into by the Central Govt or approved by the
central govt, and
2. Having regard to the national interest, the foreign company and the
agreement or arrangement are notified by the Central Government in this
behalf.
20 10(48B) Sale of leftover stock of crude oil
Any income accruing or arising to a foreign company on account of sale of
leftover stock of crude oil, if any, from the facility in India after the expiry
of the agreement or the arrangement referred to in clause (48A) subject to
such conditions as may be notified by the Central Government in this behalf
The above provisions of section 10(48B) have been amended (With effect
from the AY 19-20) to provide that any income accruing or arising to such

CMA VIPUL SHAH
foreign company on account of sale of leftover stock of crude oil, if any, from
such facility in India on the termination of the agreement/ arrangement [as
referred to in clause (48A)], shall also be exempt (subject to the conditions
as may be notified).

CMA VIPUL SHAH
HEADS OF INCOME
INCOME FROM SALARY
ALLOWANCES
S N PARTICULARS EXPLANATIONS
1 House rent Minimum of the following is exempt from tax.
allowance(HRA) a. Actual HRA received
b. 50% / 40% of salary
c. Rent Paid - 10% of Salary.
Notes:
 Salary = Basic + DA(app) + comm. ( TO)
 Advance salary to be ignored for the calculation of HRA.
 Basis of deduction is place of accommodation.
 50% for Mumbai, Delhi, Kolkata and Madras and other cities 40%
PERQUISITES
S N PARTICULARS EXPLANATIONS
1 Rent-free In hands of Government employee is taxable tithe extent of licence
accommodation fee. [Central/ State]
2 Other Employee Rent-free accommodation in hands of other employees is taxable as
under:
1) Where accommodation is hired by the employer: 15% of salary or
hire charges, whichever is lower.
2) Where accommodation is owned by the employer: 15% / 10% / 7.5%
of salary, depending on population of city in which accommodation
is provided. [ 25 lakhs/15 lakhs/ 10 lakhs]
3 Valuation of rent- Value of accommodation + Value of furniture being (10% of original
free furnished cost (if owned by employer) or Hire charge paid by employer)].
accommodation
4 Valuation of Value of Rent free accommodation as usual (-) Rent payable by
accommodation employee to employer for the above facility.
provided at
concessional rent.
5 Valuation of 1) For the first 90 days of transfer: Where accommodation is
accommodation in provided both at existing place of work and in new place, the
case of employees accommodation, which has lower value, shall be taxable.
on transfer 2) After 90 days: Both accommodations shall be taxable.
Meaning of salary for valuation of accommodation facilities
Salary includes Salary excludes
 Basic Salary  Other D.A.

CMA VIPUL SHAH
 D.A., if considered for retirement benefits  Employer‘s Contribution to PF
 All Taxable Allowances  Exempted Allowances
 Bonus or Commission or Ex – gratia  Value of perquisites
 Any other Monetary Payment  value of perquisites specifically excludes

CMA VIPUL SHAH
INCOME FROM HOUSE PROPERTY
HOW TO CALCULATE GROSS ANNUAL VALUE
Steps PARTICULARS AMOUNT

1st FIND OUT REASONABLE EXPECTED RENT [RER]
Gross Municipal Value (a) xxx
Fair Rent (b) Xxx
Higher of the [(a) and (b)] [A] Xxx
Standard Rent as per Rent Control Act [B] Xxx
Reasonable Expected Rent [Lower of [(A) and (B)] Xxx
2nd ACTUAL RENT RECEIVED/RECEIVABLE [ ARR]
Rent received /Receivable – unrealised Rent Xxx
rd
3 GAV = HIGHER OF 1 OR 2 Xxx
th
4 If GAV is lower due to vacancy allowance then GAV shall be ARR
Illustration 4
Find out the gross annual value in case of the following properties for the AY 2017-18
(Rs. in thousand)
Particulars H1 H2 H3 H4 H5 H6
Gross Municipal Value p.a. 200 300 400 500 300 300
Fair rent p.a. 300 600 750 180 200 400
Standard rent under the Rent Control Act p.a. 300 180 280 225 250 240
Actual rent p.a. 600 900 300 240 216 240
Property remains vacant (in number of month) 1 3 2 1 2 1
Solution
Computation of gross Annual Value
(Rs. in „000)
Step Particulars Working H1 H2 H3 H4 H5 H6
1 Calculation of Higher of GMV and FR (RER 300 180 280 225 250 240
RER cannot exceed SR)
2 ARR For the period actually let 550 675 250 220 180 220
out
3 Higher of above Higher of step 1& step 2 550 675 280 225 250 240
4 Gross Annual
Value

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Interest on Loan (u/s 24 (b)
Type of Property Loan taken before Loan taken on or after
1.04.1999 01.04.1999
Self-Occupied Amount of deduction is If construction completed
minimum of the following: within 5 yrs from the of financial year in which
1) Interest paid loan is taken Amount of deduction is minimum
2) Rs. 30,000 of the following: [Amendment Fin Act 2016]
1) Interest paid
2) Rs 2,00,000
Let out Amount of interest paid Amount of interest paid
NOTES:
1. Above interest includes pre-construction interest, post-construction interest and interest on
repairs, renewal and reconstructions.
2. In case of SO property if loan taken for repairs, renewal and reconstructions then maximum
deduction is Rs 30,000 irrespective of date of borrowings.

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INCOME FROM BUSINESS OR PROFESSION
S N Sec Explanation
1 32 Depreciation:
Assessee must be the owner of the asset.

Hire purchase, Co-owner, beneficial owner
Meaning of Use
Asset should be ready to use actual use not necessary.
Significance of date of purchase: Where an asset is acquired by the
assessee during the previous year and is put to use in the same previous year
for less than 180 days, the depreciation in respect of such asset is restricted
to 50% of the normal depreciation
Method of Depreciation
1) Depreciation shall be allowed on written down value method at the rates
prescribed.
2) However, in certain cases depreciation is allowed on Strength Line method
on an application made by the assessee e.g., in case of Power Sector
Undertaking if the assessee applies to the department then depreciation is
allowed on Strength line method.
STRAIGHT LINE METHOD
Terminal Depreciation and Balancing Charge: Applicable to assessee engaged
in generation or generation and distribution of power and following straight-
line method of depreciation.
Terminal depreciation = +ve value of [WDV of assets - (Sale value or Scrap
value)]
Balancing Charge = -ve value of [WDV of assets - (Sale value + Scrap value)] to
the extent of accumulated depreciation.
.
REDUCING BALANCE METHOD
Block of asset sec 2(11)
Block of assets means group of asset falling within a class of asset
Determination of Written Down Value (WDV) [Sec. 43(6)]
Situation WDV
Asset acquired during the Previous Actual cost to the assessee
Year
Asset acquired in earlier Previous Actual cost to the Assessee Less All
Year(s) depreciation allowed under IT Act.
In case of Succession, WDV of the Predecessor Company or
Amalgamation or Demerger Transferor Company or Demerged
Company

CMA VIPUL SHAH
Actual cost of asset Sec 43 (1)
1) All expenses directly related to acquisition of such asset including
travelling expenditure incurred for acquiring asset.
2) Expenses necessary to bring the asset to site, installation, and to make it
ready to use, e.g. carriage inward, loading and unloading charges,
installation cost, trial run cost, etc.
3) Expenses incurred to increase the capacity of the asset or to make it fit
prior to its use
4) Loss on exchange rate
Provided further that where the assessee incurs any expenditure for
acquisition of any asset or part thereof in respect of which a payment or
aggregate of payment bank or an account payee bank draft or use of
electronic clearing system through a bank account, > Rs. 10,000/-, such
expenditure shall be ignored for the purposes of determination of such cost
[inserted by FA 17 w-e-f PY 17 – 18]
Calculation of depreciation (at a glance)
Particulars Amount Rs.
W.D.V. of the block at the beginning of the previous year
Add: Purchase during the previous year
Less: Net Sale consideration of assets sold during the

previous year
Value of block before depreciation
Less: Depreciation
WDV of the block at the end of the year
When depreciation is not charged:
1) When WDV is reduced to zero. The negative value is to be treated as
short term capital gain.
2) When entire block is empty. In such case, the positive value shall be
treated as short term capital loss & negative value is treated as STCG.
2 Additional depreciation: Sec 32(1)(iia)
Conditions Rate of Depreciation
Applicable to Assessee engaged in the Asset is put to Asset is put to

business of manufacture / production of use for more use for less
any article / thing or in the business of than 180 days than 180 days
Generation or Transmission or distribution
of power. (w.e.f. 1/4/2017)
20% 10%
[Amendment Fin Act 2016]
Amendment Finance Act 15: Balance 50% can be claimed in succeeding PY

CMA VIPUL SHAH
Extra Additional Depreciation (Amendment Finance Act 15)
New undertaking in backward area (given below) started on or after 01-04-15
the rate of additional shall be 35% (more than 180 days) and 17.5% (less than
180 days).
Unabsorbed depreciation: Depreciation remaining unabsorbed can be carried
forward for indefinite period and can be set off against any income of the
assessee.(Except salary and casual income)
3 32AD Investment allowance for under takings in backward areas for Acquisition &
Installation of New Assets.
1. Applicability: All assessee engaged in business of manufacture or
production of any article or thing
2. Condition:
a) Commencement: Assessee should set up an undertaking or Enterprise on or
after 01/04/2015.
b) Location: In any notified Backward Area in the State of Andhra Pradesh or
Bihar or Telangana or West Bengal;
3. Deduction: 15% of actual cost of such new assets for that AY.
4. Time: Deduction available up to AY 2020 – 2021
4 40A(2) Any excess payment made to relative and person having substantial interest is
disallowed.
Relatives
1) Relative u/s 2(41) means the spouse, brother, sister or any lineal ascendant
or descendant or descendant of that Individual.
2) Voting power 20% ( in case of company)
3) Profit share more than 20% ( other than company)
5 40A(3) Applicable to expenses covered by sec 30 to 37
Where an assessee incurs any expenditure, for, which payment or aggregate

of payment is made to a person in a day is in excess of Rs. 10,000 (FA Act 17)
( Rs. 35,000 in case of payment made for plying, hiring or leasing goods
carriages), Otherwise than by an Account Payee Cheque drawn on a Bank or an
Account Payee Bank Draft, the whole of such expenditure shall not be
allowed as a deduction.
Exceptions
Government taxes; Payment financial institutes; Payment to cultivator

CMA VIPUL SHAH
CAPITAL GAIN
S N Particulars Explanation
1 Capital gain Profits or gains arising on transfer of a capital asset shall be treated as
capital gain.
2 Capital asset Capital asset means any kind of property held by an assessee except
1. Stock in trade,
2. Personal effect but excludes.
a) Jewellery
b) Archaeological Collection
c) Drawings.
d) Paintings
e) Sculptures
f) Any work of art.
Note: Any immovable property is not personal effects hence are capital
assets.
3. Agricultural land in rural area,
4. 6.5% Gold Bond, 1977,
5. 7% Gold Bonds, 1980,
6. National Defense Gold Bond, 1980,
7. Special Bearer Bond, 1991 and
3 Short-term Nature of asset STCA LTCA
Capital Asset 1 A security (other than
4 Long-term unit) listed in a recognized POH <= 12 months POH > 12 months
Capital Asset stock exchange in India,
2 Units of UTI or Equity
oriented Mutual Fund
specified u/s 10(23D),
3 Zero coupon bond
4 Unlisted shares POH <= 24 months POH > 24 months
5 Immovable property being
land or building or both(
Finance Act 2017)
6 Any other Asset POH <= 36 months POH > 36 months
Period of holding
It means the period for which the asset is held by the assessee. It
starts from the day following the date of acquisition and ends on the
date of transfer
5 Transfer Transfer in relation to a capital asset includes:
(a) Sale
(b) Exchange

CMA VIPUL SHAH
(c) Relinquishment of the asset
(d) Extinguishment of any right in an asset
(e) Compulsory acquisition of an asset under any law
(f) Conversion of asset into stock-in-trade by the owner
(g) Any transaction of immovable property u/s 53A of the Transfer of
Property Act, 1882
(h) Any transaction, which has the effect of transferring or enabling the
enjoyment of any immovable property) Maturity or redemption of zero
coupon bond.
6 Full value of 1. It is a full value of consideration received or receivable by the
consideration transferor.
2. If consideration received in kind them fair market value of asset is
considered as full value of consideration.
3. Even if a consideration received in installments in different years full
value of consideration is important.
7 Expenses on Shall be allowed as deduction.
Transfer
8 Cost of 1. Purchase Price of Asset + Expenditure incurred to purchase
Acquisition 2. Deemed cost of Acquisition: Cost to Previsions owner
3. Indexed cost of Acquisition: Inflation adjusted cost
Note: Cost of acquisition includes expenses incurred in acquiring the
assets or completing the title.
Cost Inflation Index for different financial years is as follows
Financial year Index Financial year index
2001 – 02 100 2011 – 12 184
2002 – 03 105 2012 – 13 200
2003 – 04 109 2013 – 14 220
2004 – 05 113 2014 – 15 240
2005 – 06 117 2015 – 16 254
2006 – 07 122 2016 – 17 264
2007 – 08 129 2017 - 18 272
2008 – 09 137 2018 – 19 280
2009 – 10 148
2010 – 11 167
Indexation benefit not available
1) Transfer of bonds and debentures other than capital indexed bonds
issued by the Government.
Exception: Indexation benefit shall be available in case of LTCG
arising of transfer of Sovereign Gold Bond. [W.e.f. AY 2017-
18]
2) Transfer of an undertaking or division in a slump sale.
3) Certain transaction by non-resident.

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4) Transfer of global deposit receipts
9 Computational 1) If an asset is acquired before 1/4/2001 then its cost of acquisition
Notes will be higher of
a) Actual cost of acquisition; or b) Fair market value of the asset as on
1/4/01. In such case, indexation benefit shall be available from the year
2001-02.
2) Where an-asset is acquired through any mode specified in sec. 49(1),
then indexation benefit shall be available from the year when the
previous owner first held the property.
3) The cost of acquisition in relation to the long-term capital assets
being
- Equity shares in a company on which STT is paid both at the time of
purchase and transfer or
- Unit of equity-oriented fund or unit of business trust on which STT
is paid at the time of transfer.
Acquired before 1st February, 2018 shall be the higher of

i) Cost of acquisition of such asset; and
ii) Lower of
a) The fair market value of such asset; and
b) The full value of consideration received or accruing as a result of the
transfer of the capital asset.
10 How to Compute In a case where the capital asset If there is trading in such
FMV ? is listed on any recognized stock asset on such exchange on
exchange as on 31/01/2018 31/01/2018
The highest price of the capital
asset quoted on such exchange on
the said date
If there is no trading in such
asset on such exchange on
31/01/2018
The highest price of such asset
on such exchange on a date
immediately preceding
31/01/2018 when such asset was
traded on such exchange
In a case where the capital asset An amount which bears to the
is an equity share in a company cost of acquisition the same
which is proportion as CII for the
- Not listed on a recognized financial year 2017 – 18 bears to
stock exchange as on the CII for the first year in

CMA VIPUL SHAH
31/01/2018 but listed on such which the asset was held by the
exchange on the date of assesse or on 01/04/2001,
transfer whichever is later.
- Listed on a recognized stock
exchange on the date of
transfer and which became
the property of the assesse in
consideration of share which
is not listed on such exchange
as on 31/01/2018 by way of
transaction not regarded as
transfer under section 47
11 Cost of 1) Cost of improvement means expenditure incurred to increase the
Improvement productive quality of the asset. It includes all expenditure of a
capital nature incurred in making any additions or alteration to the
capital asset.
2) Deemed cost of Acquisition: Cost to Previsions owner
3) Indexed cost of Acquisition: Inflation adjusted cost
Notes:
 Any improvement expenditure incurred before 1/4/2001 shall be
ignored.
 Improvement expenditure incurred by Assessee and previous owner
after 1/4/01 shall be considered.
TO CLACULATE INDEXED COST OF ACQUISITION & IMPROVEMENT
Indexed cost of acquisition [Explanation (iii) to Section 48)

Cost of acquisition X Cost inflation index for the year in which the asset is transferred
Cost inflation index for the PY in which the asset was 1st held by the assessee
Indexed cost of improvement [Explanation (iv) to Section 48)

Cost of improvement X Cost inflation index for the year in which the asset is transferred
Cost inflation index for the year in which the improvement to the asset took place
 Improvement cost incurred by previous owner & assessee before 1.4.2001 shall
KEY NOTES
be ignored.
 Indexation benefit is case of gifted assets shall be allowed from the date when
gifted asset is acquired by the previous owner. [CIT vs Manjula J Shah (Bom)]

CMA VIPUL SHAH
SUMMARY OF SECTION 54
Time limit
Deposit Revocation of
Sec. Nature Applicable New Asset for Exemption
scheme benefit
investment
54 Long Individual A Within 1 year Capital Yes If new asset
term or HUF Residential before or 2 gains or is sold within
Resident House in years after amount 3 years, then
ial House India the date of invested, benefit
transfer in whichever availed earlier
case of is less will be
purchase, or revoked and
within 3 shall be
years after reduced from
the date of cost of new
transfer, in asset.
case of new
construction.
54B Agricult Individual Agricultur Within 2 Capital Yes If new asset
ural land al Land years after gains or is sold within
used for transfer amount 3 years, then
agro invested. benefit
purpose Whicheve availed earlier
for 2 r is less? will be
years by revoked and
him or shall be
his reduced from
parents. cost of new
asset.
54D Land and Any Land and Within 3 Capital Yes If new asset
building assessee Building years after gains or is sold within
used for for receipt of amount 3 years, then
industria industrial initial invested, benefit
l undertakin compensation whichever availed earlier
undertak g. . is less. will be
ing for 2 revoked and
years. shall be
reduced from
cost of new
asset.
54EC Land or Any Specified Within 6 Capital No. If bonds are
building assessee bonds months after gains or redeemed in 5
or both redeemabl transfer amount yrs from the

CMA VIPUL SHAH
e after 5 Authority invested. date of acquis
years in Rural Whicheve ion then
National Electrificatio r is less. benefit
Highways n Corp. Ltd. availed earlier
Authority Max. Rs. shall be
or Rural 50 lacs revoked and
Electrifica deemed to be
tion Corp. LTCG in the
Ltd. year of
redemption.
54F Any Individual Residential Within 1 year (Capital Yes If new asset
LTCA or HUF house before or Gain/Net is sold within
other Assessee two years considerat 3 years, or
than should not after ion) * new asset
residenti own more transfer in Amount acquired
al house. than one case of invested within 3
house. purchase or 3 years, then
years after earlier
transfer in exemption
case of shall be
construction. revoked and
will be
deemed to be
LTCG.
54EE Any long Any Long term Within 6 Capital NO If specified
term assessee specified months from gain or assets is
capital assets the date of amount transferred/l
asset transfer invested oan taken in 3
whichever yrs from the
is lower date of acquis
ion then
benefit
availed earlier
shall be
revoked and
deemed to be
LTCG in the
year of
redemption.
54G Plant & Any Plant and Within one Capital Yes If new asset
machiner assessee. machinery year before gain or is sold within
y or land or land and or 3 year amount 3 years then

CMA VIPUL SHAH
& building after the invested capital gain
building used for date of whichever will be
for industrial transfer. is lower. revoked and
industria under shall be
l under taking in reduced from
taking in non-urban cost of new
urban area or asset.
area meeting
(LTCA or expenses
STCA) of shifting.
54G Plant & Any Plant and Within one Capital Yes If new asset
machiner assessee. machinery year before gain or is sold within
y or land or land and or 3 year amount 3 years then
& building after the invested capital gain
building used for date of whichever will be
for industrial transfer. is lower. revoked and
industria under shall be
l under taking in reduced from
taking in SEZ area cost of new
urban or meeting asset.
area expenses
(LTCA or of shifting.
STCA)
54GB Long Individual Equity Within due (Capital Yes If new asset
term or HUF shares of date of Gain/ Net is sold within
residenti eligible furnishing considerat 5 years, then
al company return of ion capital gain
property income *amount will be
Such invested revoked and
company Within 1 year will be
shall from the deemed to be
acquire date of such LTCG.
new assets subscription
in equity
shares

CMA VIPUL SHAH
SET OFF AND CARRY FORWARD OF LOSSES
WHEN SET OFF IS AVAILABLE?

When these is a loss in one or more sources under one or more heads of income, the provisions of
set off and carry forward are applicable as under.
1. Inter Source Adjustment (Sec 70)
2. Inter head Adjustment (Sec 71)
3. Carry forward of losses.
1. Inter source adjustment (sec 70): Under this section loss from any source of income can be set
off against same head of income for the same assessment year.
NOTE: Assessee does not have any option to set off or not to set off.
Solution
NATURE OF LOSS SET OFF AVAILABLE U/S 70
1. Speculation business loss Profit from speculation business
2. Non-speculation business loss Profit from speculative & non – Speculative
3. Loss of Specified Business Sec 35AD Income of Specified Business Sec 35AD
4. Short term capital loss Long term & short term capital gain
5. Long term capital loss Long term capital gain
6. House property loss House property income
7. Losses from activity of maintaining race losses Income from such business
8. Winnings from lotteries, Crossword puzzles, Cannot be set off against any income.
card games, gambling or betting
9. Loss from other source except 8 Income from Income from other source except casual
other source (except activity of maintaining Income.
race losses Winnings from lotteries, Crossword
puzzles, card games, gambling or betting)
10. Loss from Income which is exempt u/s 10 Cannot be set off against any income.
2. Inter head adjustment (Sec 71): Sec. 71 is appliance if loss cannot be set off against Sec. 70.
NATURE OF LOSS SET OFF AVAILABLE U/S 71
Speculation business loss Profit from speculation business
Non-speculation loss Any income other than salary, lottery, card games,
crossword puzzles, gambling or betting
House property loss Any income other than lottery, card games,
crossword puzzles, gambling or betting
Losses from activity of maintaining race Income from such business
losses
Winnings from lotteries ,Crossword puzzles, Cannot be set off against any income.

CMA VIPUL SHAH
card games, gambling or betting
Loss from other source Any income (except winnings from lotteries,
Crossword puzzles, card games, gambling or
betting)
Carry Forward
The table given below highlights the rule of carry forward of loss –
Type of loss to be Income against which For how Should Is it
carried forward & set off carried forward loss can many yrs the necessary
be set off in next year(s) loss can source be to submit
be carried continued return of
forward loss of loss
in time
Sec. 71B House property Income under the head 8 years No No
loss w.e.f. A.Y. 1999-2000] "Income from house
property"
Sec. 72 No speculation Any income under the head 8 years No Yes
business loss Business 'Profits &gains of business
losses (other than or profession'
depreciation etc.) (whether from speculation
or otherwise)
Sec. 32(2) On account of Any income other than Indefinite No No
unabsorbed depreciation, Income under the head years
capital expenditure on Salaries and winning from
scientific research and lotteries, etc.
family planning
Sec. 73 Speculation loss Income from speculation 4 years No Yes
Transaction.
Sec. 73A Loss of specified Income from any specified Indefinite No Yes
business covered u/s 35AD business. years
Sec. 74 Capital loss Income under the head 8 years No Yes
Short Term Long Term "Capital gains ―Long term
capital gain
Sec. 74A Loss from Income from the activity of 4 years Yes Yes
activity of owing and owing and maintaining
maintaining race horses race horses

CMA VIPUL SHAH
Summary
Nature of loss Section 70 Section 71 Carry forward
House Property Yes Yes Yes
Speculation Loss Yes No Yes
Non-Speculation Loss Yes Yes Yes
Loss of Specified Business Yes No Yes
Capital Gain Yes No Yes
Casual Income No No No
Income from Owning & Maintaining Race Horse Yes No Yes
Other than casual Income Yes Yes No

CMA VIPUL SHAH
DEDUCTIONS SEC 80C TO 80 U
Important points
The aggregate amount of deduction under sec 80C to 80U cannot exceed gross total income ( after
excluding STCG u/s 111A , LTCG, Casual income & income referred to in Sec 111A, 115AB, 115AC,
115AD, 115BBA & 115D.
Applicable Individual & HUF whether resident or non-resident

1 Life Insurance Premium including payment made by Govt. employee to the central Govt.
employees' insurance scheme.
a. Paid on his own life policy, life of the spouse or any child (child may be dependent/
independent, male/ female, major/minor or married/unmarried)
b. Deduction allowed is.
Date of issue of policy Policyholder suffering from Any other
disability/ disease
st
Before 1 April 2012 20% of sum assured 20% of sum assured
During 2012-13 10% of sum assured 10% of sum assured
On or after 1st April 15% of sum assured 10% of sum assured
2013
 If value of policy is not given then premium paid will be allowed
 Lock in period 2yrs
2 Contribution to Statutory provident fund and Recognised provident Fund
3  Contribution towards Public provident fund (PPF) maximum 1, 50,000 per year.
Subscription should be in the name of such individual, his spouse and child whether
major or minor & in case of HUF any member of the family
 Accrued interest which is deemed as reinvested is also qualified for deduction
except all last year
4 1) Contribution to Unit linked insurance plan. Subscription should be in the name of
such individual, his spouse and child whether major or minor & in case of HUF any
member of the family
2) Lock period 5yrs
5 Contribution to National saving certificates
6 Contribution to notified Mutual funds
7 Any sum paid as tuition fees to any university/college/ educational institution/play
school/pre nursery [Institute situated in India for full time education for max. 2
children]
8 Repayment of housing loan (principal amount)
9 Amount deposited under Senior citizen saving scheme
10 Amount deposited as term deposit for a period of 5 yrs or more in accordance with a
scheme framed by central government.
11 Subscription to any notified bonds of NABARD.
12 Stamp duty, registration fee and other expenses for the purpose of transfer of house

CMA VIPUL SHAH
property
13 Amount invested in approved debentures of and equity shares in a public company
engaged in infrastructure.
14 Tax benefits under section 80C for the girl child under the Sukanya Samriddhi
Account Scheme ( Interest exempt/ Maturity amount exempt )
Following persons referred to in section 80C (4) (ba) shall be eligible for deduction
under section 80C: (i) individual, or (ii) any girl child of that individual, or (iii) any girl
child for whom such person is the legal guardian, if the scheme so specifies.
Sec. Applicable to Condition(s) Deduction

80CCC Individual Deposit in LIC or other Maximum Rs. 1,50,000
Pension insurer‘s annuity plan Notes:
fund  Pension or surrender value received
from such pension scheme shall be
taxable in the hands of recipient on
cash basis.
 Interest or bonus accrued as per
the scheme shall not be eligible for
deduction but shall be liable to tax.
80CCD An individual. Assessee has in the In case of salaried individual: Lower
Specified previous year paid or of the following
Pension deposited any amount in 1) The whole of the amount so paid or
Fund his account under a deposited
pension scheme 2) Maximum of 10% of his salary in the
notified by the previous year
Central Government. Plus
Employers contribution to the extent of
10% of salary
Salary means Basic +DA, if the terms of
employment so provide.
Another cases: 20%of GTl (FA 17)
Additional deduction of Rs 50,000 shall

be allowed. (For salaried + Others)
Note:
Aggregate deduction under Sec. 80C, 80CCC and 80CCD cannot exceed Rs. 1,50,000.(Excluding
employers contribution to NPS to the extent of 10% shall not be consider for calculating limit of Rs.
1,50,000)

CMA VIPUL SHAH
Particulars Amount
Deduction u/s 80C ****
Deduction u/s 80CCC ****
Deduction u/s 80CCD [other than deduction in respect of Employer‘s Contribution] ****
Total [Restricted to maximum of Rs. 1,50,000 u/s 80CCE] *****
Add: contribution of NPS by any individual allowable u/s 80CCD(1B) [sub. To maximum ****
of Rs. 50,000/-]
Add: Employer‘s contribution to New Pension System referred to in Sec. 80CCD ****
[Subject to max. of 10% of salary]
Deduction available u/s 80C, 80CCC & 80CCD *****
80D Individual Paid medical insurance Maximum Rs. 25,000 /Rs.30,000 (in
Mediclaim (Himself/herse for relative by any mode case insured is a senior citizen)
lf, spouse or other than cash from (Additional
dependent taxable income. Rs. 25,000 / Rs.30,000 for parents)
children and Note: Individual can Above amount includes Rs.5,000 for
parents) also contribute' to the preventive health check up
HUF Central Government Medical expenditure for super senior
Any member of Health Scheme for citizen Rs 30,000.
the family himself / spouse
/dependent children
80DD Resident  Assessee has disable 1) Rs. 125000 for severe disability.(
Disability individual dependent relative. 80% or more)
Spouse,  Assessee deposited 2) Rs. 75000 for non-severe disability
children, medical with return.
parents,
brothers and
sisters of the
individual.
Resident HUF
Any member of
the Hindu
Undivided
Family.
80DDB As above 1) Assessee himself or Quantum of deduction
Specified his relative is 1) Actual expenditure on medical
Disease suffering from treatment or Rs. 40,000 (in case of
specified diseases senior citizen Rs. 60,000) whichever

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2) Assessee deposited is less, is deductible.
medical certificate 2) For super senior citizen deduction
along with return. for medical expenditure up to Rs
Where the patient is 80,000 is available. (age 80 or more
a senior citizen during relevant PY)
3) Deduction under this section shall be
reduced by the amount received, if
any under insurance from an insurer
or reimbursed by the employer for
the medical treatment of the person
referred to above.
80E Individual Assessee is repaying the Interest paid during the year for a
Interest on interest on loan (taken maximum period of 8 years
Education for higher education).
Loan
80EE Individual Payment of Interest on 1. Conditions:
Amendment loan taken by Assessee a. Amount of Deduction: deduction
Fin. Act 16 from any Financial shall not exceed Rs. 50,000
Institutional for the b. Period: Beginning from AY 2017-18
purpose of acquisition of and subsequent AY‘s
a Residential Property. c. Loan section period: 1/4/2016 to
31/3/2017.
d. Maximum Loan Amount: The amount
of Loan sanctioned for acquisition of
the Residential House Property does
not exceed Rs. 35 lakhs.
e. HP Value: Value of Residential
House Property does not exceed Rs.
50 Lakhs.
f. No other house: The assessee
should not own any Residential
House Property on the date of
sanction of loan.
2. No Further Deduction: Where a
deduction u/s 80EE is allowed for
any interest, deduction shall not be
allowed in respect of such interest
under any under provision of this
Act for the same or any other
assessment yea
80G All assessee Assessee donated an 50% or 100% of amount
Donation amount (otherwise than donated(subject to limit applicable, if

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in kind) to specified any, on amount of donation)
organizations or funds. Donation exceeding 2,000 must be any
mode other than cash.[FA 17]
80GG Individual  Assessee is paying Minimum of the following-
Rent Paid rent. 1) Rs. 5,000 p.m.
 He or his relative 2) 25% of Adjusted GTl
has no house at the 3) Rent paid - 10%n of adjusted GTl
place of employment
of the assessee.
 He is neither
receiving HRA nor
has claimed any
benefit for self-
occupied property.
80GGA Any assessee Assessee has Amounts contributed.
Rural not having contributed certain
Development income under amount for rural
the head development, scientific
―Profits & gains research, etc.
of business or
profession"
80GGB Indian Company Assessee contributed an Amount so contributed
Political amount to political party
party or an electoral trust
80JJA Any assesse Business of collecting & 100% of profits for first 5 yrs
processing of Bio-
degradable waste
80JJAA Any assessee Employment of new 30% of additional wages

subject to tax workmen
audit
80QQB Resident 1) Assessee is author Minimum of the following (as the case
Royalty Individual of the specified may be)
book. 1) Royalty fee (to the maximum of 15%
2) He earned royalty of the value of the book sold; or
income (whether 2) Lump sum fee;
received in lump sum 3) Income brought into India
or otherwise). inconvertible foreign exchange; or
3) A certificate from 4) RS.3,00,000
the payer in Form
10CCDis to be
submitted along with

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return of income.
4) In case income is
earned outside India,
money must be
brought into Indian
convertible foreign
exchange and a
certificate must be
obtained from the
prescribed authority.
80RRB Resident Resident Individuals, Rs 3,00,000 or amount received
Individual being a patentee in whichever is less
receipt of any income by
way of royalty in
respect of a patent
registered on or after
1.4.2014 under the
patents Act, 1970
80 TTA Individual & Interest from saving Max Rs. 10,000
Interest on HUF account in bank, post Assessee claiming deduction u/s 80TTB
Saving office or cooperative can not claim deduction under this
society section.
80TTB Resident Senor Interest on deposits Max Rs 50,000

Interest on citizen
deposits
[F ACT 18]
80U Resident 1) Assessee himself 1) Severe disabilityRs.1,25,000
Disability Individual suffering from 2) Non-Severe disabilities. 75,000
disabilities.
2) Medical certificate
submitted along with
return

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ALTERNATE MINIMUM TAX SEC 115JC
1. Applicability: The provisions shall be applicable to a person, other than a company, whose regular
income – tax payable for a previous year is less than the alternate minimum tax payable.
2. Adjusted total income to be deemed income: If regular income tax payable for a previous year
is less than the alternate minimum tax payable then the adjusted total income shall be deemed to
be the total income of that person for such previous year and he shall be liable to pay tax on such
income @ 18.5% of adjusted total income.
3. Meaning of Adjusted Total Income: Adjusted Total Income shall be the total income as
increased by:
a. Deductions claimed under sections 80IA to 80RRB (other than section 80P);
b. Deduction under section 10AA; and
c. Deduction claimed, if any, under section 35AD as reduced by the amount of depreciation allowable
in accordance with the provisions of section 32 as if no deduction under section 35AD was allowed
in respect of the assets on which the deduction under that section is claimed. (Bold portion
amended by Finance (No.2) Act, 2014 w.e.f. 1.4.2015 i.e. AY 2015 – 16).
4. Provisions applicable when adjusted total income exceeds Rs.20 lakhs: The above provisions
shall not apply to an individual or HUF or an AOP / BOI, whether incorporated or not, or an
artificial juridical person, if the adjusted total income of such person does not exceed Rs.20
lakhs.
5. Report to be obtained from a Chartered Accountant: Every such person shall obtain a report, in
prescribed form, from a chartered Accountant, certifying that the adjusted total income and the
alternate minimum tax have been computed in accordance with the provisions of this Chapter and
furnish such report on or before the due date of filing of return under section 139(1).
6. Tax credit for alternate minimum tax (Section 115JD): The credit for tax paid by a person
under section 115JC shall be allowed in accordance with the provisions of this section as under:
a. Tax credit to be allowed = Alternate minimum tax paid – regular income tax payable.
b. No interest shall be payable on tax credit so allowed.
c. The tax credit so allowed shall be credited forward and set – off during 15 subsequent
assessment years.
d. If the regular income tax exceeds the alternate minimum tax, the tax credit shall be allowed to
be set off to the extent of the excess of regular income tax over the alternate minimum tax and
the balance of the tax credit, if any, shall be carried forward.
Note: An amendment has been made under Section 115JEE to provide that even if the assessee
has not claimed any deduction under section 10AA or section 35AD or Chapter VI – A in any
previous year and the adjusted total income of that year does not exceed Rs.20 lakh, it would still
be entitled to set – off his brought forward AMT credit in that year. (Bold portion amended by
Finance (No.2) Act, 2014 w.e.f. 1.4.2015 i.e. AY 2015 – 2016).

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CHAPTER 2: ASSESSMENT OF PARTNERSHIP FIRM / LLP

ASSESSMENT OF FIRM
INTRODUCTION
1. Under Income Tax Act, a partnership firm has a separate identity apart from its partner. It is
taxed as a separate entity at a flat rate of 30% + SC + H&EC
 Taxpoint: Unless and until otherwise mentioned, a partnership firm shall include limited liability
partnership. Further, the word ‗Partner‘ includes partner of a limited liability partnership.
2. The share of partner (member) in the income of the firm is not taxable in the hands of partners
[Sec. 10(2A)].
3. As in case of any other assessee, income of the firm (including LLP) is also assessed under heads
of income i.e. ‗Income from house property‘. ‗Profits & gains of business or profession‘. ‗Capital
gains‘ and ‗Income from other sources‘.
DEDUCTION U/S. 40(B)

In case of computation of income under the head ―Profits & gains of business or profession‖ a
partnership firm shall apart from all deductions discussed in the said chapter, be further allowed
deduction u/s. 40(b) in respect of:
 Interest to partner, and
 Remuneration to partner.
 CONDITIONS: As per Sec. 185, to claim deduction u/s. 40(b), the firm shall have to fulfill the
following conditions as laid down u/s. 184.
1. The partnership must be evidenced by an instrument [Sec. 184(1)(ii)]
2. A certified copy of the instrument of partnership shall accompany the return of income of the
year in which assessment as a firm is first sought [Sec. 184(2)].
3. The individual shares of the partners must be specified in the instrument. [Sec. 184(1)(ii)]
 Effect of non-fulfillment of above conditions: As per sec. 185, where a firm does not comply
with the provisions of Sec. 184 for any assessment year, then no deduction by way of interest to
partner or remuneration to partner shall be allowed.
INTEREST TO PARTNER
Interest to partners whether on capital or on loan is allowed as deduction.
 Conditions:
1. Interest must be authorized by the partnership deed.
2. Payment must pertain to a period after the partnership deed.
 Deduction: Minimum of the following is allowed as deduction :
a) Actual interest given to partner as per deed.
b) Max. 12% p.a. simple interest.

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Illustration 1
Case Interest on Rate of Interest Workings Disallowed
capital as interest allowed as account
per books of allowed to per
account partner partnership
deed
A 20000 10% 10% Nil
B 30000 15% 12% (Rs. 30000 / 15) *3 *6000
C 30000 15% Deed is silent Interest must be given as 30000
per deed
D 30000 20% 18% (Rs. 30000/20) *8 12000
E 30000 15% 10% (Rs. 30000/15) *5 10000
F 30000 30% 30% (Rs. 30000/30) *18 18000
REMUNERATION TO PARTNER:
Remuneration to partner includes salary, fees, commission, bonus, etc.
 Conditions: Remuneration is allowed subject to fulfillment of the following conditions :
1. Partner must be a working partner,
2. Remuneration must be authorized by the partnership deed.
3. Payment must pertain to a period after the partnership deed.
Working partner means an individual who is actively engaged in conducting the affairs of the
business or profession of the firm. ‗Time devotion‘ is not the key factor for deciding the status
of partner as a working partner.
 Deduction: Remuneration (in total) is allowed to the minimum of the following
1) Actual remuneration allowed to all partners.
2) Maximum permissible limit u/s. 40(b) (v) as discussed under.
 Maximum permissible limit:
Amount of book-profit Maximum remuneration allowed

In case of loss Rs. 150000
In case of profit
First Rs. 300000 90% of book profit or Rs. 150000, whichever is higher
On balance book-profit 60% of next book profit.
 Taxpoint: The above slab indicates that in any case remuneration to the minimum of Rs. 150000 is
allowed.
COMPUTATION OF BOOK PROFIT:

STEP 1: Find out the net profit of the firm as per Profit and Loss A/c.
STEP 2: Make adjustment as per Sec. 28 to 44DB (including adjustment for interest on partner‘s
capital)
STEP 3: Add remuneration to partner, if debited to the Profit & Loss A/c.

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STEP 4: Subtract unabsorbed depreciation but do not subtract brought forward business losses.
The resultant figure is book profit.
Note: Due to subtraction of unabsorbed depreciation the residual profit should not be less than the
brought forward losses, which are to be set-off in the current year.
Notes: Income from house property, Income from other sources and Capital gains do not form part
of book profit. Deduction under chapter VIA (i.e. 80C to 80U) shall be ignored for this purpose.
Illustration 3
ABC is a partnership Firm carrying on business, in which A, B and C are partners sharing profit and
losses equally. In respect of Assessment Year 2019-2020, it furnishes the following particulars-
(i) Loss as per P&L A/C after debiting remuneration to partners and Interest on their Capital
Rs. 2,50,000
(j) Remuneration to Partners: A-90,000, B-60,000, C-30,000: Total = Rs. 1,80,000
(k)
Interest paid on capital: Capital as on 01.04.2018 Interest
A Rs. 1,00,000 Rs. 20,000
B Rs. 1,00,000 Rs. 20,000
C Rs. 1,00,000 Rs. 20,000
Compute the income of the Firm and of the partners assuming that the partners have no other
income
Assessee: ABC Previous Year: 2018-2019 Assessment Year: 2019-2020

Status: Firm
Solution
Computation of Firm‟s Income under the head Profits and Gains of Business or profession
Particular Rs.
Net loss as per Profit and Loss account (2,50,000)
Add: Partners remuneration 1,80,000
Add: Interest on Capital to Partners 60,000
Net loss before Interest and Remuneration (10,000)
Less: Allowable Interest on Capital at 12% (A-12,000, B-12,000 and C- (36,000)
12,000)
Book Profit (46,000)
Less: Remuneration allowable u/s 40(b) Rs. 1,50,000 or 90% of Books Profit,
whichever is Higher (1,50,000)
Loss of the Firm (1,96,000)

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ASSESSMENT OF LLP
DEFINITIONS: (SECTION 2(23))

a. ―Firm‖ means a firm as defined in the ―Indian Partnership Act, 1932‖ and includes a ―Limited
Liability Partnership‖ as defined in the ―Limited Liability Partnership Act, 2008‖.
b. ―Partner‖ means as defined in the ―Indian Partnership Act‖, and includes a Minor admitted to the
benefits of the Partnership, and a Partner of a LLP.
LIABILITY OF PARTNERS OF PARTNERS OF LLP IN LIQUIDATION (Section 167C)

1. Joint and Several Liability (Section 167C): Every person who was a Partner of a LLP during the
previous year, and the Legal Representative of the Deceased Partner shall be jointly and severally
liable along with the LLP for any tax due includes penalty or interest or other sum payable by the
LLP for the assessment year relevant to such previous year.
2. Exception: The above liability shall not apply if the Partner is able to prove that the non –
recovery cannot attributed to any gross neglect, misfeasance or breach of duty on his part, in
relation to affairs of LLP.
CONVERSION OF PARTNERSHIP FIRM TO LLP

Conversion of Partnership Firm into LLP will not attract Capital Gains Tax provided:
1. The rights and obligations of the partners remain the same after conversion, and
2. There is no transfer of any asset or liability after conversion.
CONVERSION OF PRIVATE COMPANY / UNLISTED PUBLIC COMPANY TO LLP

a. Principle: The following transactions are not considered as transfer, and hence, not chargeable to
Capital Gain Tax.
 Transfer of Capital Asset or Intangible asset by a private company or unlisted public company to a
limited liability partnership (LLP) as a result of conversion as per LLP Act, 2008 or
 Transfer of Share(s) held in the Company by a shareholder. (Note: ―Private Company‖ and
―Unlisted Public Company‖ have the meanings respectively assigned to them in LLP Act, 2008).
b. Conditions:
 All assets and liabilities of the company immediately before the conversion become the Assets
and liabilities of the LLP.
 All the shareholders of the company immediately before the conversion, become the partners of
the LLP, and their Capital Contribution and Profit Sharing Ratio in the LLP are in the same
proportion as their shareholding in the company on the date of conversion.
 The shareholders of the company do not receive any consideration or benefit, directly or
indirectly, in any form or manner, other than by way of share in Profit and Capital Contribution in
the LLP.
 The aggregate of the Profit Sharing Ratio of the shareholders of the company in the LLP shall not
be less than 50%, at any time during the period of 5 years from the date of conversion.
 Total sales, turnover or Gross Receipts in the business of the Company in any of the 3 previous

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years preceding the previous year in which the conversion takes place does not exceed Rs.60
lakhs.
 No amount is paid, either directly or indirectly, to any partner out of balance of Accumulated
Profit standing in the accounts of the Company on the date of conversion for a period of three
years from the date of conversion.
c. Circumstances of Withdrawal (Section 47A(4)): Where any conditions laid down in Section
47(xiiib) are not complied with, the amount of profits or gains arising from the transfer of such
Capital Asset or Intangible Asset shall be chargeable to tax in the hands of Successor LLP or the
Shareholders of the Predecessor Company.
This transaction is not regarded as transfer, if specified conditions are satisfied.
SET OFF AND CARRY FORWARD OF LOSSES IN OF SUCCESSION OF PRIVATE COMPANY /

UNLISTED PUBLIC COMPANY BY A LLP (SEC 72A)
1. Succession of a Private Company / Unlisted Public Company by a LLP
Nature of Loss Accumulated Loss or Unabsorbed Depreciation of Predecessor Company.
Condition Conditions laid down in Section 47(xiiib) shall be fulfilled.
Non-compliance with If the conditions under section 47(xiiib) are not satisfied, the Loss or
Section 47(xiiib) Depreciation set off by the LLP shall be taxable in its hands in the year of
non – compliance.
2. No carry forward of MAT credit: In the case of conversion of Private Company or Unlisted
Public Company into a Limited Liability Partnership, MAT Credit shall not be allowed to be carried
forward by the Successor Limited Liability Partnership.

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CHAPTER 3: ASSESSMENT OF COMPANIES

COMPANY UNDER THE INCOME TAX ACT, [SECTION 2(17)]
Company means –
 An Indian Company, or
 Body corporate incorporated outside India under the laws of a Foreign Country, or
 Any institution, association or body whether incorporated or not and whether Indian or non-
Indian, which is declared by general or special order of the Board to be a Company.
COMPUTATION OF TOTAL INCOME
In the case of a company

COMPANY TAX RATE Surcharge(based on Income) H&EC
Up to 1 cr to 10CR Above
1CR 10CR
Domestic 30% Nil 7% 12% 4%
Foreign 40% Nil 2% 5% 4%
 Surcharge is subject to Marginal relief.
 Minimum Alternate Tax: Tax payable by a non-corporate assessee cannot be less than 18.5%
(+SC+H&EC) of adjusted total income as per Section 115JB.
 STCG u/s 111A – 15%

 LTCG – 20% & exempt if STT paid (where the LTCG is covered by section 115AB, 115AC or 115AD,
it is taxable at 10%)
 Casual Income – 30%
SPECIAL TAX RATE FOR DOMESTIC COMPANIES SEC. 115BA [W.E.F AY 2017-18]
1. Eligible Assessee: Domestic Companies
2. Special Rate of Tax: 25% of Total Income, at option of the company.
3. Nature: Above Tax Rate is notwithstanding anything contained in the Act, but subject to the
provisions of Sec. 111A & Sec. 112
4. From: AY 2017-18 onwards.
5. Exercise of Option:
a) The benefit of this section shall be applicable only if the option is exercised in the prescribed
manner on or before the due date specified u/s 139 (1) for furnishing the First of Return of
Income for the relevant previous year.
b) The option once exercised for any PY cannot be subsequently withdrawn for the same or any
other PY.
6. Conditions:
a) The Company has been set up and registered on or after 1/3/2016,

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b) The Company is engaged only in the business of manufacturing or production of any article or
thing, and research in relation to, or distribution of such article or thing manufactured or
produced by it, and
c) The Total Income of the Company has been computed –
(i) Without any deduction u/s 10AA / 32(1)(iia) / 32AC / 32AD / 33AB / 33ABA /
35(1)(ii)/(iia)/(iii)/(2AA)/(2AB)/35AC/35AD/35CCC/35CCD/ and 80HH to 80RRB (excluding
80JJAA).
(ii) Without set off of loss carried forward from any earlier AY, if such loss is attributable to any of
the deduction referred to in (i) above
(iii) Depreciation u/s 32 other than Sec. 32(1)(iia), is determined in the prescribed manner.
Note: The loss referred above shall be deemed to have been already given full effect to and no
further deduction for such loss shall be allowed for any subsequent year.
MINIMUM ALTERNATE TAX SEC [115JB (1)]

Where in the case of a company the income tax payable on the total income as computed under
income tax act is less than 18.5% of its book profit, such book profit shall be deemed to be the total
income of the assessee.
PROCEDURE FOR COMPUTATION OF MAT
Step Procedure
1 Compute the Total Income under Income Tax Act, 1961.
2 Compute Book Profit u/s. 115 JB as mentioned below.
3 Compute tax on total income at rates applicable for companies under Income Tax Act.
4 Compute Tax at 18.5% on Book Profit i.e. Step 2.
5 Tax payable = Higher of Step 3 or Step 4.
6 Avail MAT credit wherever possible u/s 115JAA i.e., the tax payable on Total Income is
higher, then, the difference between the tax on total income and the tax on book profit
as calculated above shall be adjusted from the MAT credit available u/s 115JAA.
NOTES
 Advance tax provisions are applicable to tax payable u/s 115JB hence assessee is liable to pay
interest under section 234B and 234C.
 Every company shall for the purpose of this section, prepare its profits and loss account for the
relevant previous year in accordance with the provisions of part II and III of schedule III to the
companies Act 2013.
 Surcharge. EC and SHEC shall be applicable on tax payable under MAT.
 MAT Credit u/s. 115JAA: Any amount of tax paid u/s. 115JB for the Assessment Years starting
2006-07 can be claimed as credit against tax on Total Income payable in subsequent years.
 Audit Report: Every Company to which this Section applies shall furnish a Chartered Accountant‘s
Report in the prescribed Form No. 29B along with the return of income.
 MAT provisions are also applicable to foreign companies.

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HOW TO CALCULATE BOOK PROFIT? [SEC 115JB (1) & 2]
Add Item Explanation
1 Income tax or provision for income tax Wealth tax or any interest or penalty paid under
including surcharge and education cess. wealth tax Act shall not be added. STT shall not
be added.
2 Any interest paid under Income tax Act Any penalty paid under Income tax Act shall not
shall be added. be added
3 Tax on distribute profits u/s 1150 (CDT)
and tax on distributed income u/s 115R
shall be added back
4 Amount transfer to any reserve  The reserves shall be added back irrespective
of the fact that such transfer to reserves is as
per the direction of RBI.
 Transfer made to reserves under section 80IA,
10A (1A), etc. shall also be added back for
computing book-profit.
 Excess provisions are in the nature of reserves
and are to be added back.
5 Provisions made to meet unascertained  Provision for gratuity etc. shall be added back
liabilities shall be added back as it unascertained liability, however if it is
provided on actuarial valuation then it need not
be added back.
- Eicher Motor Ltd. Vs CIT (2004) (Indore)
 Provision for warranty is allowed as deduction
if the same is made on scientific basis.
 Debenture redemption fund shall not be added
as the liability is ascertained.
[IOL Ltd vs CIT (2003 (Cal)]
 Provision for contingency shall be added as it is
unascertained liability
 Provision for leave encashment made on
scientific basis is an ascertained liability/
however it shall be treated as unascertained in
case the same is allowed on actual payment
basis under section 43B.
Bharat Earth Movers (SC)
6 The amount by way of provision for losses The term ―the amount by way of provision for
of subsidiary companies losses of subsidiary companies‖ even includes
actual loss of subsidiary company debited to
profit and loss account.
7 Amount of dividends paid or proposed
dividend

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8 Expenditure relatable to any income to Long term capital gain exempt under section
which sec. 10 [other than 10(38)] or 11 or 10(38) of the Income tax Act under normal
12 apply provisions shall be added back while calculating
book profit hence liable to minimum Alternate
tax.
Income of business referred u/s 10AA i.e. SEZ
shall be taxable under minimum alternate tax.
However, as per amendments made by Finance
Act, 2015, in case of a foreign company, the long
term capital gains referred to in section 10(38)
shall not be included in book profits and shall not
be liable to MAT. This is in view of clause (iid) and
clause fb added by Finance Act, 2015 in
Explanation 1 to section 115JB. (This is discussed
separately)
9 The amount of depreciation Depreciation as per accounts shall be added
10 The amount of deferred tax and the The term ―deferred tax‖ includes both deferred
provision thereof tax asset as well as deferred tax liability.
11 Provision made for diminution in value of Provision for bad doubtful debts amount to
asset debited to p/l shall be added to net diminution in the value of asset (Debtors) hence
profit to find out book profit. shall be added back while computing book profits.
Provision for diminution in value of any
Investment or asset as per AS 13 / AS28.
12 Amount standing in the revaluation
reserve relating to the revalued asset
which has been retired or disposed if the
same is not credited to the Profit and
Loss A/C.
13 Amount of expenditure relatable. To, Interested in A.Y. 2016-17
income, being share of the assessee in the
income of an AOP or BOI, on which no
income-tax is payable in accordance with
the provision of section 86;
14 Amount of expenditure relatable to Interested in A.Y. 2016-17
income from capital gains arising on
transactions in securities (other than
short term capital gains arising on
transaction tax insecurities not
chargeable), accruing or arising to an
assessee being a Foreign Institutional
Invested in such securities in accordance
with the regulation made under the

CMA VIPUL SHAH
securities and Exchange Board of India
Act, 1992
15 Royalty income in respect of patent Inserted AY 2017-18
chargeable to tax u/s 115BBF will not be
subject to the provisions of MAT w.e.f.
AY 2017-2018. Such income shall be
deducted from net profit and the
corresponding expenditure shall be added
back.
16 In case if a foreign company, any income Inserted AY 2016-17
chargeable at a rate lower than 18.5%
shall be reduced from book profit and the
corresponding expenditure shall be added
back w.e.f. AY 2016-2017
Less Item Explanation
1 The amount withdrawn from any reserve However the provision will not apply to-
or  A reserve created before the 1/4/97
otherwise than by way of a debit to the profit
and loss account,
 A reserve created on or after the 1/4/97 but
not adjusted in book profit u/s 115JB
2 Income exempt u/s 10 [except section Income by way of Long Term Capital Gain
10(38)], 11 and 12 shall not be liable to referred under MAT irrespective of the fact
MAT that is exempted under normal provisions of the
income Tax Act.
3 The amount of depreciation debited to
the profit and loss account (excluding the
depreciation on account of revaluation of
assets)
4 The amount withdrawn from revaluation
reserve and credited to the profit and
loss account, to the extent it does not
exceed the amount of depreciation on
account of revaluation of asset referred
to in clause (iia)
5 (iii) The amount of loss brought forward  Such loss shall not include depreciation
or unabsorbed depreciation, whichever is  This provision will not apply if the amount of
less as per books of account. loss brought forward of unabsorbed
depreciation is nil.
6 The amount of profit of sick industrial The term ‖Net worth‖ here shall have the same
company [for the assessment year meaning as referred in referred in section 3 of
commencing on and from the assessment the sick industrial companies

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year relevant to the previous year in (special provision ) Act, 1985.
which the said company has become a sick
industrial companies (special provision)
Act, 1985 and ending with the assessment
year during which the entire net worth of
such company becomes equal to be exceed
the accumulated losses.
7 The amount of deferred tax, if any such
amount is credited to Profit and Loss
Account.
8 Income tax refund (excluding interest)
9 Amount of income, being the share of the Interested in A.Y. 2016-17
assessee in the income of an association
of persons or body of individuals, on which
no income-tax is payable in accordance
with the provisions of section 86, if any
such amount is credited to the profit and
loss account;
10 Amount of income capital gains arising on Interested A.Y.2016-17
transaction In securities (other than
short term capital gains arising in
transaction on which securities
transaction tax is not chargeable),
accruing or arising on an assessee being a
Foreign Institution Investor in such
securities in accordance with the
regulations made under the Securities and
Exchange Board of India Act 1992, if any
such amount is credited to the profit and
loss account.
11 Royalty income in respect of patent Inserted in AY 2017-18
chargeable to tax u/s 115BBF will not be
subject to the provisions of MAT w.e.f.
AY 2017-18. Such income shall be
deducted from net profit.
12 In case of a foreign company, any income Inserted AY 2016-17
chargeable at a rate lower than 18.5%
shall be reduced from book profit.

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MAT CREDIT: SECTION 115-JB
(1) Relevant year in which tax credit becomes available: tax credit becomes available in the
assessment year in which the assessee pays minimum alternate tax in accordance with provisions
of section 115JB.
(2) Amount of MAT credit to be allowed: The tax credit to be allowed shall be the difference of
the tax paid for any assessment year under section 115JB (1) and the amount of tax payable by
the assessee on his total income computed in accordance with the other provisions of this Act.
No interest to be payable: No interest shall be payable on the tax credit allowed under
this section.
(3) Period for which tax credit is allowed: the amount of tax credit shall be carried forward upto
10 years immediately succeeding the assessment year in which tax credit becomes available.
(4) Year in which tax credit shall be set-off: The tax credit shall be allowed set-off in a year
when tax payable on the total income computed in accordance with the provisions of this Act
exceed minimum alternate tax u/s 115JB.
(5) Amount of tax credit eligible shall be set-off: set off in respect of brought forward tax
credit shall be allowed for any assessment year to the extent of the difference between the tax
on his total income and the tax which would have been payable under the provisions of section
115JB, as the case maybe for that assessment year.
(6) Variation of tax credit in certain cases: where as a result of an order under section 143(1) or
143(3) section 144, section 147, section 154, section 155, section 145D(4), section 250, section
254, section 260, section 260, section 263, or section 264, the amount of tax payable under this
Act is reduced or increased, as the case may be, the amount of tax credit allowed under this
section shall also be increased or reduced accordingly.
(7) Credit not to be allowed to successor LLP: In case of conversion of a private company or
unlisted public company into a limited liability partnership under the Limited Liability Partnership
Act, the provisions of this section shall not apply to the successor limited liability partnership.
WHEN CAN A NON-RESIDENT OR A FOREIGN COMPANY BE TREATED AS HAVING A

PERMANENT ESTABLISHMENT IN INDIA?
A non-resident or a foreign company is said to have a permanent establishment in India has been
clarified as per Circular No. 5/2004 dated 28.9.2004 issued by CBDT. Therefore, a non-resident or
a foreign company is said to have a permanent establishment in India, if the said non-resident or
foreign company carries on business in India through a branch, sales office etc. or through an agent
(other than an independent agent) who habitually exercises an authority to conclude contracts or
regularly delivers goods or merchandise or habitually secures orders on behalf of the non-resident
principal. In such a case, the profits of the non-resident or foreign company attributable to the
business activities carried out in India by the permanent establishment become taxable in India.

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SOLVED EXAMPLES
Illustration 1
GMP Ltd. earned a net profit of Rs. 13,60,000 after debit/credit of the following item to its profit
and loss account for the year ended on 31-3-2019:
(a) Items debited to Profit and Loss Account

Rs.
Provision for Income-Tax 2,50,000
Interest on income-tax 18,000
Dividend distribution tax 40,000
Provision for deferred tax 16,000
Securities Transaction tax 18,000
Transfer to General Reserve 45,000
Provision for gratuity based on actuarial valuation 16,000
Provision for diminution in the value of investment 11,000
Proposed dividend 27,000
Preference dividend 20,000
Expenditure to earn agriculture income 7,000
Expenditure to earn LTCG exempt under section 10(38) 5,000
Expenditure to earn dividend income 3,000
Depreciation (including depreciation of Rs.17,000 on revaluation) 42,000
Expenditure relatable to share income AOP in which the assessee company is member 5,00,000
(b) Items credited to Profit and Loss Account

Rs.
Amount credited to P & L A/c from special reserve
12,000
Amounted credited to P &L A/c from Revaluation Reserve
23,000
Agriculture income
36,000
LTCG exempt under section 10(38)
24,000
Dividend income
18,000
Share Income of AOP in which assessee company is member
5,50,000
The company provides the following additional information:

Brought forward Business Loss / Unabsorbed Depreciation

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Assessment year Amount as per Books
Loss Depreciation
2014-15 55,000 60,000
2015-16 60,000 10,000
2016-17 40,000 NIL
You are required to examine the applicability of section 115JB of the Income-tax Act, 1961 and
compute book profit and the tax credit, if any, to be carried forward, assuming that the total income
compute as per the provision of the income-tax Act, 1961 is Rs. 9,00,000.
Solution
Net Profit as per Profit & Loss Account 13,60,000
Add: Net profit to be increased by the following amount
as per Explanation 1 to section 115JB
Income –tax paid or payable or provision therefore

Provision for income-tax 2,50,000
Interest on income-tax 18,000
Dividend distribution tax 40,000 3,08,000
Provision for deferred tax 16,000
Transfer to General Reserve 45,000
Provision for diminution in the value of investment 11,000
Expenditure relatable to share income of AOP in which the 5,00,000
assessee company is member
Dividend paid or proposed
Proposed dividend 27,000
Preference dividend 20,000 47,000
Expenditure to earn income exempt u/s 10 [except
section 10(38)] 7,000
Expenditure to earn agriculture income [exempt u/s 3,000 10,000
10(1) 42,000 9,79,000
Expenditure to earn dividend income [exempt u/s 10(34) 23,39,000
Depreciation
Less: Net profit to be reduced by the following amounts 12,000

as per Explanation 1 to section 115JB 25,000
Amount credited to P & L A/c from Special Reserve
Depreciation (excluding depreciation on account of
revaluation of fixed assets) 17,000
(i.e. Rs.42,000 – Rs.17,000)
Amount credited to P & L A/c from Revaluation Reserve 70,000

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(to the extent of depreciation on revaluation)
Brought forward business loss or unabsorbed 5,50,000
depreciation as per books of account, whichever is less taken
on cumulative basis
Share income of AOP in which assessee company is member 36,000
18,000 7,28,000
Income exempt u/s 10 [except section 10(38)]
Agriculture income [since it is exempt u/s10(1)]
Dividend income [since it is an income exempt u/s 10(34)
Book Profit 16,11,000
18.5% of book profit 2,98,035
Add: H&EC @ 4% 11,921
Tax liability under section 115JB (rounded off) 3,09,956
Total income computed as per the provision of the income- 9,00,000
tax Act, 1961
Tax payable @ 30% 2,70,000
Add: H&EC @ 4% 10,400
Tax payable as per the Income-tax Act, 1961 2,80,400
The payable by company: Since MAT is greater than tax as per normal provisions of Act. Hence,
company is liable to pay MAT.
Tax credit under section 115JAA [MAT – Tax as per normal provisions of Act.]:
Particulars Rs.
Tax on book profit under section 115JB 3,09,956
Less: Taxon total income computed as per the other provisions of the Act 2,80,400
Tax credit to be carried forward 29,556
Notes:
(1) Securities transaction tax does not from part of income-tax and hence, should not be added
back to net profit for computing book profit.
(2) Provisions for gratuity based on actuarial valuation is a provision for meeting an ascertain
liability. Therefore, it should not be added back for computing book profit.
(3) LTCG on sale of equity shares is exempt under section 10(38) but cannot be deducted in
computing book profit.

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DIVIDEND & DDT
TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES [SECTION 115-0]

1. Applicability: Domestic Company.
2. Tax is payable on any amount declared or distributed or paid by such Company by way of dividend.
3. Rate of Tax: 15% plus 12% Surcharge, 4% H&EC
4. Time of Payment: Within 14 days from the date of declaration or distribution or payment of
dividend whichever falls earlier.
5. Dividend Includes all dividends except dividend u/s 2(22) (e).
6. Allow ability of Expenditure: The tax paid on distributed profits shall not be an allowable
expenditure under the Income Tax Act.
7. Consequences of non-payment of Dividend Tax :
a) Interest u/s 115P: Interest at 1% per month or part thereof for the period commencing from the
date immediately after the specified date on which the tax was payable up to the date of actual
payment.
b) Penalty u/s 271C: A sum equal to the amount of tax, which such person fails to pay.
c) Prosecution u/s 276B: Rigorous imprisonment for a minimum period of 3 months and the same may
be extended to 7 years and with fine.
d) No penalty or prosecution in case the Company proves that there was a reasonable cause for such
default or failure.
e) Company in default: If the Company fails to pay tax, then it shall be treated as assessee in
default.
The effective tax rate for payment of DDT as per section 115-0(1) shall be as under:
Tax rate 15%
Add: 12%surcharge 1.8%
Add: 4% Education Cess 0.672%
Total tax rate 17.472%
Now as per amendment by Finance Act, 2014 if dividend of Rs. 100 is to be paid, then, Rs. 100
- Shall be increased to such an amount

- As would after reduction of tax on such increased amount
- At the rate given in section 115-0(1) i.e. 17.472%
- Would be equal to dividend of Rs. 100 distributed
SECTION 115BBD: TAX ON CERTAIN DIVIDEND RECEIVED FROM FOREIGN COMPANIES

1) Where the total income of an assessee, being an Indian company, includes any income by way of
dividends declared, distribute or paid by a specified foreign company, the income-tax payable
shall be the aggregate of-

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(a) The amount of income-tax calculated on the income by way of such dividends, at the rate of 15%;
and
(b) The amount of income tax which with the assessee would have been chargeable had its total
income been reduced by the aforesaid income by way of dividends.
2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or
allowance shall be allowed to the assessee under any provision of this Act in computing its income
by way of dividends referred to in sub-section (1).
3) In this section-
(i) ―Dividends‖ shall have the same meaning as is given to ―dividends‖ in clause (22) of section 2 but
shall not include sub-clause (e) thereof
(ii) ―Specified foreign company‖ means a foreign company in which the Indian company holds 26% or
more in nominal value of the equity share capital of the company.
Foreign subsidiary company means a foreign company in which Indian company holds 26% or more
equity share capital.
Following conditions must be fulfilled for application of section 115BBD:
1. Benefit of section 115BBD is available only to the Indian Company.

2. Indian Company must hold at least 26% in nominal value of the equity share capital of the foreign
company.
3. Dividend received under section 2(22) (e) shall not be covered.
4. No other expense shall be claimed by the Indian Company in respect of dividend received.
TAXABILITY OF DIVIDEND [SECTION 56(2) (I)]

Dividends can be of three types:
(a) Dividends declared by a domestic company.
(b) Dividends or any other income distributed by Unit Trust of India.
(c) Dividends declared by a foreign company.
 Dividend which is exempt under section 10(34) includes deemed dividend but shall not include
deemed dividend mentioned in section 2(22) ( e ), i.e. loan/advance given by a closely held
company to a specified shareholder/concern.
 Since dividends received from a domestic company shall be exempt, no deduction of any expense
shall be allowed from such dividends.
 Dividend from a foreign company or deemed dividend, mentioned under section 2(22) (e) shall,
however, be taxable under the head ―Income from Other Sources‖.
 The liability of payment of tax on dividends has been shifted to the domestic company who shall
be liable to pay additional income-tax on the amount declared, distributed or paid by such
company by way of dividends, whether interim or otherwise, on or after 1.4.2003, whether out of
current or accumulated profits.
Exemption of income from units [Section 10(35)]: Any income by way of income received in respect
of units from the Administrator of the specified undertaking or the specified company or a Mutual
Fund specified under clause (10(23D)) shall be exempt.

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What is dividend: Dividend in its ordinary connotation means the sum paid to or received by a
shareholder proportionate to his shareholding in a company out of the total sum distributed.
However, section 2(22) of the Income-tax Act, 1961 has devised a special inclusive definition of
dividend. As per the definition given in section 2(22), ‗dividend‘ includes the following disbursements
by the company to the shareholders, to the extent of accumulated profits.
(a) Any distribution by a company to the extent of accumulated profits involving the release of
the assets of the company [Section 2(22) (a)]: Any distribution by a company to the extent of
accumulated profits whether capitalized or not, if such a distribution entails the release by the
company to its shareholders of all or any part of the assets of the company. However, mere
capitalization of accumulated profits by issue of bonus shares to equity shareholders does not
entail the release of assets of the company and hence shall not be deemed to be dividend.
(b) Distribution of Debentures/Deposit Certificates to shareholders and bonus shares to
preference shareholders [Section 2(22)(b)]:
(i) Any distribution to its shareholders (equity or preference) by a company of debentures,
debenture-stock, or deposit certificates in any form, whether with or without interest to the
extent of accumulated profits, whether capitalized or not, and
(ii) Any distribution to its preference shareholders of shares by way of bonus, to the extent to which
the company possesses accumulated profits, whether capitalized or not
(c) Distribution to shareholders on liquidation of the company [Section 2(22) (C)]: Any
distribution made to the shareholders of a company on its liquidation, to the extent to which the
distribution is attributable to the accumulated profits of the company immediately before its
liquidation, whether capitalized or not.
(d) Distribution on reduction of share capital [Section 2(22)(d)]: Any distribution to its
shareholders by a company on the reduction of its capital, to the extent to which the company
possesses accumulated profits, whether such accumulated profits have been capitalized or not
(e) Loans / Advances to certain shareholders/concerns [Section 2(22)(e)]:

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DIVIDEND INCLUDES
- Any payment by a company not being a company in which public are substantially interested
- Of any sum by way of loan or advance to
(i) A shareholder being the beneficial owner of shares Deemed as dividend in the
(j) Holding not less than 10%of voting power hands of the company
- Or
(i) To any concern
(ii) In which such a shareholder Deemed as dividend in the
(iii) Is a member or a partner hands of the concern
(jjj) And in which he has a substantial interest
- Or
(i) To any person Deemed as dividend
(ii) On behalf of or for the individual benefit in the hands of the
of such a shareholder company
- To the extent to which the company possesses accumulated profits.
1. Following condition must be satisfied on the date on which loan/ Advance is given to the
shareholder/ concern/ any other person by a closely held company in order to attract section
2(22)(e):
(a) Beneficial owner of shares
(b) Holding 10% or more voting power
(c) Member/ partner in concern
1. Concern means a HUF, or a firm or a company or an AOP / BOI.
2. A person shall be deemed to have a substantial interest in a concern if he is, at any time during
the previous year, beneficially entitled to not less than 20% of the income of such concern (20%
of voting power in case of a company).
3. Section 2(22)(e) is also attracted even if the company charges market rate of interest on the
loan / advance given to the shareholder.
4. Section 2(22)(e), the payment is deemed as dividend to the extent the company possesses
accumulated profits.
Whereas, under section 2(22)(a)/(b)/(c)/(d), the payment / distribution is deemed as dividend to the
extent the company possesses accumulated profits whether capitalized or not.
5. Section 2(22)(e) applies to loan / advance given by a closely held company whereas section 2(22)
(a)/(b)/(c)/(d) applies to payments / distribution made by all companies.
6. A closely held company having Reserves & Surplus of Rs. 20 Lakhs gives a loan of Rs.10Lakhs @
12% p.. interest to a shareholder Mr. X. who holds 10% shares in the Company. Mr. X pays interest
of Rs.1,20,000 to the company. Rs.10 Lakhs is deemed dividend under section 2(22)(e) in the
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hands of Mr. X. However, Rs.1,20,000 paid by Mr. X shall not be allowed as deduction from the
deemed dividend of Rs.10 Lakhs as it cannot be said that the interest has been paid to earn to
deemed dividend.
However, if Mr. X has used the loan of Rs.10 Lakhs in the business then, the interest of rs.1,20,000
shall be allowed as deduction from the business income.
DIVIDEND RECEIVED FROM SUBSIDIARY COMPANY TO BE REDUCED FROM THE ABOVE

DIVIDEND TO BE DISTRIBUTED IF
(i) The amount of dividend if any received by the domestic company (holding company) during the
financial year if
a) Such divided is received from its subsidiary
b) Such subsidiary is Domestic Company.
c) The subsidiary has paid tax under this section on such dividend and
(ii) Where such subsidiary is a foreign company, the tax is payable by domestic company u/s 115BBD
on such dividend ( w.e.f 01/06/2013)
Note: Same amount is not eligible for deduction more than once.
SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME OF DOMESTIC

COMPANY FOR BUY BACK OF SHARES
Tax on distributed income to shareholders [Section 115QA] [Inserted by Finance Act 2013 w.e.f.
01.06.2013]
(1) Tax on distribution income on buy back of shares to be charged @ 23.296%: A domestic
company shall in addition to the income-tax chargeable in respect of the total income be liable to
pay additional income-tax at the rate of 20% (plus surcharge @ 12% and H&EC @ 4%) i.e.
23.296% on distributed income (i.e. consideration paid by the company for buyback of its own
unlisted shares which is in excess of the sum received by the company at the time of issue of
such shares).
(2) Distribution tax payable even of no income tax is payable: The company is liable to pay such
additional income-tax even though no income-tax may be payable by it in respect of its total
income computed under the provisions of the Act.
(3) Time limit for deposit of distribution tax: Such tax should be paid to the credit of the
Central Government within 14 days from the date of payment of any consideration for such
buyback to the shareholder.
(4) Dividend distribution tax is final levy: The additional income-tax payable by the company shall
be the final payment of tax on such income. No credit or deduction shall be claimed by the
company or any other person in respect of such tax paid.

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(5) Distribution tax is not deductible: No deduction under any provision of the Income-tax Act,
1961 shall be allowed to the company or the shareholder in respect of income, which has been
subject to additional income-tax, or tax thereon.
(6) Interest payable for non-payment of distribution tax by the company [Section 115QB]:
The principal officer of the domestic company and the company will be liable to pay simple
interest on the amount of additional income-tax not paid within the specified time. Such
interest is leviable at the rate of 1% for every month or part of the month on the amount of
such tax not paid or short paid for the period beginning on the date immediately after the last
date on which such tax was payable and ending with the date on which the tax is actually paid.
(7) When company is deemed to be in default [Section 115QC]: The principal officer of the
domestic company and the company will be deemed to be an assessee-in-default in respect of
amount of tax payable by him or it, in case the additional income-tax is not paid to the credit of
Central Government within the specified time. In such a case, all the provisions of the Act for
the collection and recovery of income-tax would apply.

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CHAPTER 4: INTERNATIONAL TAXATION

ADVANCE RULING (SEC 245N TO 245V)
CONDITIONS EXPLAINATION
Meaning of a. A determination by the Authority in relation to a transaction which has
Advance Ruling been undertaken or is proposed to be undertaken by a non-resident
[SECTION 245N applicant; or
(A)]: b. A determination by the Authority in relation to the tax liability of a non-
resident arising out of a transaction which has been undertaken or is
proposed to be undertaken by resident applicant with such non-resident
Meaning of APPLICANT” MEANS [SECTION 245N (B)] –
Applicant i) Is a non-resident referred to in sub-clause (i) of clause (a); or
[SECTION 245N ii) Is a resident referred to in sub-clause (ii) of clause (a); or
(B)]: iii) Is a resident referred to in sub-clause (iia) of clause (a) falling within
any such class or category of persons as the Central Government may,
by notification in the Official Gazette, specify; or
iv) Is a resident falling within any such class or category of persons as
the Central Government may, by notification in the Official Gazette,
specify in this behalf; or
v) Is referred to in sub-clause (iv) of clause (a), and makes an
application under sub-section (1) of section 245Q;
Authority for a. A Chairman who will be a retired judge of the Supreme Court.
Advance Ruling b. An officer of the Indian Revenue Service who is qualified to be member
of CBDT, and
c. An officer of the Indian Legal Service who disqualified to be an
Additional Secretary to the Government of India.
Procedure for AR An applicant desirous of obtaining an advance ruling under this chapter may
[SECTION 245Q] take the following steps.
1. An application for obtaining an advance ruling under section 245Q(1) shall
be made in quadruplicate :
a. In Form No. 34C in respect of a non-resident applicant.
b. In Form No. 34D in respect of a resident applicant seeking advance
ruling in relation to a transaction undertaken or proposed to be
undertaken by him with a non-resident; and
c. In form no 34DA any resident in relation to his tax liability arising out
of one or more transaction valuing Rs. 100 crore or more in total which
has been undertaken or proposed to be undertaken.
d. In Form No. 34E in respect of a resident, falling within such class or
category of persons notified by the Central Government and shall be
verified in the manner indicated therein.

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e. In form no 34EA in respect of of R/NR seeks advance ruling in
respect of impermissible arrangement
2. The application should state the question on which the advance rulings is
sought.
3. The application should be accompanied by a fee of Rs. 10,000 in the form
of a demand draft drawn in favour of Authority for Advance Rulin
Note: Fees w.e.f. 28-11-2014 vide Not No. 74/2014-
Applicant Amount of one or more transaction, entered Fees
into or proposed to be undertaken, in respect (Rs)
of which Ruling is sought
Applicant u/s Does not exceed Rs.100 crore 2 Lakhs
245N(b)(i) / Exceed Rs.100 Crore but does not exceed 5 Lakhs
(ii) / (iia) Rs.300 Crore
Exceed Rs.300 Crore 10
Lakhs
Other In all cases 10,000
Cases where a) Where the question of law or fact raised in the application is already
application for pending in case of an applicant (whether non-resident or resident other
Advance ruling can than notified resident) either before any income tax authority, the
be rejected Appellate Tribunal or any Court on the date of application though it may
become pending later on.
b) In case of notified resident (i. e. P. S., U.), the application shall also not to
be entertained if the issue is pending before any court. However,
notified resident can seek advance ruling of a case is pending before any
Income Tax Authority or ITAT
c) Where the question raised relate to the determination of the fair market
value of any property.
d) Where the transaction in relation to which the question is raised, is
designed for the avoidance of income-tax. However, this will not be
applicable in case of notified residents
Procedure after a. Submission of additional facts before the Authority
submission of b. Hearing of application
application c. Continuation of proceeding after the death of the applicant
applicant d. Hearing of application ex-parte
e. Pronouncement of advance ruling
f. Time limit for pronouncement of Advance ruling ( 6 months)
g. Order of Advance ruling to be sent
Applicability of a. On the applicant who had sought it, and
Advanced Ruling b. In respect of the specific transaction in relation to which advance ruling
[Section 245S] was sought.
Advanced Ruling to The advance ruling shall be void if it is subsequently found by the authority,
be void in certain on a representation made to it by Commissioner or revenue to have been

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circumstances obtained by fraud or misrepresentation of facts.
[section 245T] :

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SOLVED QUESTIONS
Illustration 1
Saba karim is a Non-Resident, The appeal pertaining to the Assessment year 2014-2015 is pending
before the appellate Tribunal, and the issue involved being computation of Income from House
Property. The same issue persists Assessment Year 2018-2019 also. Saba Karim‘s friend Shaikh Ali
has obtained an Advance Ruling under Chapter XIX-B of the Income Tax Act, 1961 from the
Authority for Advance Rulings on an identical point. Saba Karim proposes to use the said rulings for
his assessment pertaining to the assessment Year 2018-2019. Advise Saba Karim suitably?
1. As per Sec. 245S, the Advance Ruling shall be binding only-
(a) On the applicant who had sought it,
(b) in respect of the transaction in relation to which the ruling had been sought, and
(c) On the Commissioner and the Income Tax Authorities Subordinate to him, in respect of the
applicant and the said transaction.
2. In view of the above, Mr. Saba Karim cannot use the Ruling obtained by his friend for his
assessment.

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TRANSFER PRICING
INTERNATIONAL TRANSACTION [SEC. 92B]

1. Meaning:
(a) International Transaction means a transaction between two or more Associated Enterprises.
(b) Either both or at least one of the enterprises should be a Non-Resident
(c) It should be in the nature of –
 Purchase, Sale or Lease of tangible or intangible property,
 Provision of Services
 Lending or Borrowing of money
 Any other transaction having bearing on Profits/ Income/ Assets of such enterprises.
(d) It includes a mutual agreement or arrangement between two or more Associated Enterprises for –
 Allocation of, or
 Apportionment of, or any cost or expenses in connection with a benefit, service or facility
 Contribution to provided or to be provided to one or more of such enterprises
Transaction between a  One of the Parties to the International Transaction should be a

Resident Assessee and its Non-Resident
Foreign Branches or  When a company is resident in India, all its Foreign Branches will
between its two or more be deemed to be resident in India, and any transaction between
Foreign Branches Head Office and Branches or between branches inter-se will be
considered as transaction between Residents.
 Hence this will not be considered as International Transaction.
Transaction between a  Indian Branch is considered to be a Permanent Establishment of a
Non-Resident Assessee Foreign Assessee.
and its Indian Branches or  Any transaction between Indian Branch with its Head Office
between its two or more abroad, or with any of the Branches of the foreign Assessee
Indian Branches outside India shall be considered as International Transaction.
2. Deemed Transaction between Non-Associated Enterprises: A transaction by an Enterprises

with a person other than an Associated Enterprises shall be deemed to be an International
transaction between two Associated Enterprises, if –
(a) There is a prior agreement in relation to the relevant transaction between such person and the
Associated Enterprises, or
(b) The terms of the relevant transaction are determined in substance between such other person
and the Associated Enterprises.
Where the Enterprise or the Associated Enterprise or both of them are Non-Residents, Irrespective
of whether such other Person is a Non-Resident or not (w.e.f. 01/04/2015)

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SECTION 92A: ASSOCIATED ENTERPRISE’ & DEEMED ASSOCIATED ENTERPRISES
As per Section 92A, associated enterprise means an enterprise which participates, directly or
indirectly, in management or control or capital of other enterprise. Further, if one or more persons
participate, directly or indirectly, in the management or control or capital of two enterprises, those
two enterprises are associated enterprise.
Deemed associated enterprises: Two enterprises are deemed to be associated enterprises if, at any
time during the previous year, —
a. One holds, directly or indirectly, shares carrying 26% or more of voting power in other
enterprise.
b. Any person holds, directly or indirectly, shares carrying 26% or more voting power in both of
them.
c. A loan advanced by one to the other constitutes 51% or more of book value of total assets of
other.
d. One enterprise guarantees 10% or more of the total borrowings of the other enterprise.
e. One appoints more than half of board of directors or one or more executive directors of the
other.
f. Any person appoints more than half board of directors or one or more executive directors of
both.
g. Manufacture/processing of goods or business carried on by one is fully dependent on use of
know-how, patents, copyrights, etc. owned by the other, or in respect of which other has
exclusive rights.
h. 90% or more of raw materials required by one are supplied by the other or by persons specified
by other, and prices and other conditions relating to the supply are influenced by the other
enterprise.
i. Goods manufactured/processed by one are sold to the other enterprise or to persons specified
by other, and the prices and other conditions relating thereto are influenced by such other
enterprise.
j. Where one enterprise is controlled by an individual/HUF, the other enterprise is also controlled
by such individual/HUF or his relative or jointly by such individual/HUF and such relative.
k. One enterprise is a firm/ Association of Persons /Body of Individuals and other enterprise holds
10% or more interest in such firm/ Association of Persons /Body of Individuals.
l. There exists between the two enterprises, any relationship of mutual interest, as may be
prescribed.
SECTION 92BA: SPECIFIED DOMESTIC TRANSACTION

Meaning of specified domestic transaction [Section 92BA] [Inserted by Finance Act, 2012
w.e.f. 1-4-2013]: For the purposes of this section and sections 92, 92C, 92D and 92E, ―specified
domestic transaction‖ in case of an assessee means any of the following transactions, not being an
international transaction, namely:
i) Any expenditure in respect of which payment has been made or is to be made to a related person
referred to in Section 40A(2)(b);

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ii) Any transaction referred to in Section 80IA; i.e., inter-unit transfer of goods and services by an
undertaking or unit or enterprise or eligible business to other business carried on by the
assessee or vice versa, for consideration not corresponding to the market value on the date of
transfer;
iii) Any transfer of goods or services referred in Section 80-IA i.e., inter-unit transfer of goods or
services between eligible business and other business, where the consideration for transfer does
not correspond with the market value of goods and services;
iv) Any business transacted between the assessee and other person as referred to in section 80-
1A(10);
v) Any transaction, referred to in any other section under Chapter VI-A or Section 10AA, to which
provisions of section 80-IA(8)/(10) are applicable; or
vi) Any other transaction as may be prescribed.
And where the aggregate of such transactions entered into by the assessee in the previous year
exceeds a sum of Rs. 20 crore.
MEANING OF ARMS LENGTH PRICE

The relevant provisions of section 92C are as follows –
(1) Arm‘s length price (ALP) means a price applicable in an uncontrolled transaction i.e. a transaction
between non-associated enterprises, in uncontrolled conditions.
(2) Methods for computation of ALP‘s length price (Sec 92): Arm‘s length price is determined by
the most appropriate of the following methods, selected as per the mode prescribed by the
Board—
Resale price method Cost plus method Profit split method
Transactional net margin Comparable uncontrolled price method Other prescribed method
method
However where more than one price is determined by the most appropriate method, the ALP shall be
taken to be the arithmetical mean of such price. However if the variation between (a) the ALP so
determined and (b) price at which international transaction has been actually undertaken is within
3%.
METHOD 1: STEPS OF RESALE PRICE METHOD OF COMPUTATION OF ARM’S LENGTH

PRICE
1. Identify the resale price at which property/services purchased from an associated enterprise
are resold/ provided to an unrelated enterprise.
2. Deduct normal gross profit margin earned by the assessee or an unrelated enterprise from
purchase and resale/providing of similar property/services in comparable uncontrolled
transaction(s).
3. Deduct expenses incurred by assessee for purchase of property or obtaining of services.
4. Adjust price so arrived at to consider differences between international transaction and
comparable transaction, or between nature of enterprises, which could affect gross profit margin
in open market.

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5. Arm‘s length price for property/services purchased from associated enterprise = Price arrived at
(4).
Illustration 2
US Inc. and ABC India Ltd. Are associated enterprises. ABC India Ltd. Imported 500 LCD‘s from US
Inc. at a price of Rs. 32,000 per unit and re-sells them at a price of Rs. 35,000 per unit. ABC India
Ltd. Has bought similar products from PQR Inc. (unrelated party) and resold them and earned gross
profit of 10% of sales.
a) In course of purchase from US Inc., ABC India Ltd. Incurred a freight of Rs. 500 per unit and
customs duty of Rs. 300 per unit. In course of purchase from PQR Inc. only customs duty of Rs.
300 per unit was incurred.
b) US Inc. offers a quantity discount of Rs. 100 per unit. PQR Inc. does not offer any quantity
discount.
Compute the ALP of such transaction and its impact on the assessment of ABC India Ltd.
Solution: Computation of arm‘s length price under resale price method (amount in Rs./ unit)
Solution
Particulars Rs.
Re – sale price charged from unrelated buyer 35,000
Less: Normal GP Margin in comparable uncontrolled transaction (10% of sales) 3,500
31,500
Less: Expenses in course of purchase from associated enterprise 800
Adjusted cost of purchases 30,700
Add: Freight incurred in case of purchases from US Inc. (Since extra cost have 500
been incurred on account of purchases from associated enterprises, the gross
profit would be lower on that account)
Less: Quantity discount allowed by US Inc. (The gross profit would be higher on 100
account of quantity discount received from associated enterprise)
Arm‘s Length price 31,100
Price paid to US Inc. 32,000
Difference to be adjusted (added to the income of ABC India Ltd.) 900
The income of ABC India Ltd. shall be increased by Rs.4,50,000 (i.e. 500 units x
Rs.900)
METHOD 2: STEPS OF COST PLUS METHOD FOR COMPUTATION OF ARM’S LENGTH PRICE
(1) Determine direct and indirect costs of production incurred by assessee in respect of property or
services provided to an associated enterprise.
(2) Determine normal gross profit mark-up arising from provision of similar property/services by the
assessee or an unrelated enterprise in comparable uncontrolled transaction(s).
(3) Adjust normal gross profit mark-up in (2) above, to consider differences between international
transaction and the comparable uncontrolled transactions, or between nature of enterprises,
which could affect such profit mark-up in open market.

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(4) Increase direct and indirect costs referred (1) by the adjusted profit mark-up arrived at in (3).
(5) Arm‘s length price = Price arrived at in (4) above.
Illustration 3
Genpact Ltd., India is a financial BPO arm of Genpact Inc., US. It bills Genpact Inc., at $ 40,00,000
per month for its services. Genpact Ltd. Also provides the same service to PQ Inc., US and bills it at
$ 36,00,000 per month. The man-hours spent on each work form the basis for billing. The direct
cost of services per hour for Genpact Ltd., works out to $ 1000 and indirect cost of services works
out to $ 4000 per hour. In a month of 30 days, Genpact Ltd. Works at 2 shifts per day consisting of
7 hours and 6 hours for PQ Inc. Compute whether the transactions are done at arm‘s length.
Solution: Genpact Ltd., provides service to different customers consuming different man – hours
each. From the given information the gross margins realized can be identified. It is suitable to apply
cost plus method as the gross margins can be identified only in proportion to the man – hours spent.
Therefore, the Gross margins realized from each customer shall be computed on taking the man –
hours as the basis (amount in US $)
Solution
Particulars Genpact Inc. PQ Inc.
Billing price 40,00,000 36,00,000
Less: Direct cost of service
- $ 1,000 x 7 x 30 2,10,000 -
- $ 1,000 x 6 x 30 - 1,80,000
37,90,000 34,20,000
Less: Indirect Costs of Services
- $ 4,000 x 7 x 30 8,40,000 -
- $ 4,000 x 6 x 30 - 7,20,000
Gross Margin 29,50,000 27,00,000
Total Man hours 210 hours 180 hours
Gross Margin Per hour 14,048 15,000
The margin realized from the transactions with the associated enterprise is less than the unrelated
transactions. Genpact Ltd., India has to offer the same margin for the International transactions
with the associated enterprise also. Therefore, the arm‘s length price shall be fixed at $ 15,000 per
hour.
METHOD 3: STEPS OF ‘PROFIT SPLIT METHOD’ OF COMPUTATION OF ARM’S LENGTH

PRICE
1stApproach: Relative Contribution Method –
A. Determine combined net profit of all associated enterprises from the international transaction.
B. Evaluate relative contribution of associated enterprises to earning of such combined net profit,
on the basis of the functions performed, assets employed and risks assumed by each enterprise
C. Split combined net profit amongst all enterprises in ratio of their relative contributions, as
above.

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D. Arm‘s length price = Cost incurred by enterprise + Profit apportioned in c above.
2ndApproach: Residual Split Method (Two Tier Method)-
A. Determine combined net profit of all associated enterprises from the international transaction.
B. Partially allocate the combined net profit so as to provide each enterprise it with a basic return
appropriate for the type of international transaction, with reference to market returns.
C. Split residual net profit amongst all enterprises in ratio of their relative contributions, as above.
D. Arm‘s length price = Cost incurred + return and profit apportioned in (b) and (c) above.
Illustration 4
US Inc. of US, GG Ltd. Of Germany and Bharat Ltd. Of India are associated enterprises. Bharat Ltd.
Develops software and does both onsite and offsite consultancy. GG Ltd., which has worldwide
presence, received an order from PQ Ltd. For developing a software product. In order to execute
the same, Bharat Ltd., US Inc. and GG Ltd. Have each contributed integrally to the development of
the product. GG Ltd. Finally delivers the product to PQ Ltd. And receives a consideration of US $ 2,
50,000. GG Ltd., in turn pays to Bharat Ltd., and US Inc., a sum of US $ 60,000 and US $ 50,000,
respectively, and keeps the balance for itself.
In the entire transaction, a profit of US $ 50,000 is earned. Bharat Ltd. Incurred a total cost of US
$ 45,000 in executing its functions relating to the above project.
Factors to be considered:
a) On the basis of functions performed, risks assumed and assets employed, the relative
contribution may be taken at 40%, 30% and 30% for Bharat Ltd., US Inc., and GG Ltd.
Respectively.
b) Assume normal basic return for Bharat Ltd. For aforesaid operation at US $ 10,000. Similar
returns for US Inc. and GG Ltd. Are US $ 8,000 and US $ 6,000 respectively.
Compute the impact of the facts given above on the assessment of Bharat Ltd.
Solution
1. 1st Approach: Relative contribution method (amounts in US $)
a. Combined net profit of Bharat Ltd., US Inc. and GG Ltd. 50,000
b. Relative contribution of Bharat Ltd., US Inc. and GG Ltd. is 40%, 30% and 30%
respectively
c. Splitting combined net profit on the basis of relative contribution
- Bharat Ltd. (40% of 50,000) 20,000
- Us Inc. (30% of 50,000) 15,000
- GG Ltd. (30% of 50,000) 15,000
d. Arm‘s length price to Bharat Ltd. = Net profit + Cost incurred i.e. US $ (20,000 + 65,000
45,000)
e. Actual price received from GG Ltd. 60,000
Difference to be treated as increased income of Bharat Ltd. (d – e) 5,000

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2. 2nd Approach: Residual split Method (or Two – Tier Method) (amounts in US $)
a. Combined net profit of Bharat Ltd., US Inc. and GG Ltd. 50,000
b. Partial allocation of net profits on the basis of basic returns (given):
- Bharat Ltd. 10,000
- US Inc. 8,000
- GG Ltd. 6,000
c. Split residual profit of US $ 26,000 i.e. US $ (50,000 – 24,000) on the basis of
relative contribution:
- Bharat Ltd. (40% of 26,000) 10,400
- Us Inc. (30% of 26,000) 7,800
- GG Ltd. (30% of 26,000) 7,800
d. Net Profit arising to Bharat Ltd. = Step 2 + step 3 = US $ (10,000+10,400) = US $ 65,400
20,400
Arm‘s length price to Bharat Ltd. = Net profit + Cost i.e. US $ 20,400 +US $ 45,000
e. Actual price received from GG Ltd. 60,000
Difference to be treated as increased income of Bharat Ltd. (d – e) 5,400
Since, in relative contribution method, the addition on account of arm‘s length price is less, Bharat
Ltd. should adopt relative contribution method and thus, the income of Bharat Ltd. shall be increased
by US $ 5,000.
METHOD 4: STEPS OF TRANSACTIONAL NET MARGIN METHOD (TNMM)’ OF COMPUTING

ARM’S LENGTH PRICE
1. Compute net profit margin of assessee from international transaction entered into with
associated enterprise having regard to costs incurred or sales effected or assets employed or
other relevant base.
2. Compute net profit margin of assessee or an unrelated enterprise from comparable uncontrolled
transactions) [regard to the same base.
3. Adjust net profit margin referred in (2) above to take into account differences between
international transaction and the comparable uncontrolled transactions, or between nature of
enterprises, which could materially affect the of net profit margin in the open market
4. Cost in international transaction = (Price charged x 100) / (100 + net margin in (1) above);
5. Arm‘s length price = Cost in international transaction + Net margin computed in (3) above.
Illustration 5
US Inc., a USA company, holds 30% shares in Bharat Ltd., an Indian company. Bharat Ltd.
Manufactures printers and it has supplied 1000 printers to US Inc. @ Rs. 20,000 per printers. The
net profit margin on the sales to US Inc. works out to be 12% of cost. Sales of the same product
have also been made to PQR Ltd. The net profit margin on the sale to PQR Ltd. Works out to 20%.
The transactions of Bharat Ltd., with US Inc., and PQR Ltd. Are comparable subject to following
differences:

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(a) The sales to PQR Ltd. are backed by an extended warranty for 6 months whereas no such
extended warranty is offered to US Inc. Estimated cost of extended warranty execution is 4% in
the net profits.
(b) In case of dealings with PQR Ltd., Bharat Ltd. Has to assume all risk and marketing costs.
Such costs may be estimated at 1% in the net profits. No such risks or costs are incurred in
dealing with US Inc.
Compute the impact of the facts given above on the assessment of Bharat Ltd.
Solution
Arm‘s length price under transactional net margin method (amount in Rs. / printers)
NP margin on sale to PQR Ltd. 20%
Add: Extended warranty to PQR Ltd. 4%
24%
Less: Risks and marketing costs incurred in case of PQR Ltd. (Due to risks, 1%
net profit margin from PQR Ltd. was charged higher to that extent)
Arm‘s length NP Margin 23%
Price charged from US Inc. (Sale Price) 20,000
(A)
NP Margin on sale to US Inc. 12%
Cost price of printers sold to US Inc. (Rs.20,000 x 100 112) 17,857
Arm‘s length net profit margin (as computed above) 23%
Arm‘s length price = Cost + Arm‘s length NP = 17,857 + 23% of 17,857 21,964
(B)
Difference between Arm‘s Length Price and price charged from US Inc. (B – 1,964
A)
The income of Bharat Ltd. shall be increased by Rs.19,64,000 (Rs.1,964 x 1,000)
METHOD 5: COMPARABLE UNCONTROLLED PRICE METHOD

1. Identify the price charged or paid for property transferred or services provided.
2. Adjust such price to account for difference if any between the international transaction and the
CUPM.
3. The adjusted price is ALP.
4. Compare ALP with price charged in the international transaction. If the price charged in the
international transaction is lower than the ALP then an adjustment is to be paid to the price
charged in the international transaction by the amount of such variance.
Illustration 6
Comparable uncontrolled price method: US Ltd., a US company has a subsidiary, IND Ltd. In
India.US Ltd. sells computer monitors to IND Ltd. For resale in India.US Ltd. Also sells computer
monitors to IND Ltd. At Rs. 11,000per unit. The price fixed for CMI Ltd. Is Rs. 10,000 per unit. The
warranty in case of sale of monitors by IND Ltd. is handled by IND Ltd. However, for sale of
monitors by CMI Ltd.US Ltd. is responsible for the warranty for 3 months. Both US Ltd. And IND

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Ltd. Offer extended warranty at a standard rate of Rs. 1,000 per annum. On these facts, how the
assessment of IND Ltd. Is going to be affected ? Units sold 50,000 to IND ltd.
Solution
Since IND Ltd. is a subsidiary company of US Ltd., therefore, US Ltd. & IND Ltd. are associated
enterprises. The computation of ALP shall be as under (amount in Rs.):
Sale price charged by US Ltd. to CMI Ltd. 10,000
Less: Cost of warranty included in the price charged to CMI Ltd. (Rs.1,000 x 250
3/12)
Arm‘s Length price 9,750
Actual price paid by IND Ltd. to US Ltd. 11,000
Difference per unit 1,250
No. of units supplied by US Ltd. to IND Ltd. 50,000
Addition required to be made in the computation of total income of IND Ltd. 6,25,00,000
(Rs.1,250 x 50,000 units)
Note: Exemption under section 10AA and deduction under Chapter VI – A will not be available in
respect of increased income of Rs.6.25 crores.
PROCEDURES FOR DETERMINATION OF ALP BY ASSESSING OFFICER

Power of Assessing Officer to determine arm‘s length price and implications of such substitution
[Section 92C(3) & 92C(4)] [Bold portion inserted by Finance Act, 2012 w.e.f. 1-4-2013] : Where
during the course of any assessment proceeding, the Assessing Officer is, on the basis of material or
information or document in his possession, of the opinion that :-
a) The price charged or paid in an international transaction or specified domestic transaction has
not been determined in accordance with most appropriate method; or
b) Any information and document relating to an international transaction or specified domestic
transaction have not been kept and maintained by the assessee in accordance with the provisions
Section 92D; or
c) The information or data used in computation of the arm‘s length price is not reliable or correct;
or
d) The assessee has failed to furnish, within the specified time, any information or document which
he was required to furnish under section 92D.
The Assessing Officer, after giving assessee an opportunity of being heard, may proceed to
determine the ALP in relation to the said international transaction or specified domestic transaction
in accordance with most appropriate method on the basis of such material or information or document
available with him.
IMPLICATIONS OF SUBSTITUTION OF ALP DETERMINED BY ASSESSING OFFICER

i) Computation of total income by AO: The Assessing Officer may compute the total income of
the assessee having regard to the arm‘s length price so determined.

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ii) No deduction on excess income: No deduction on excess income: No deduction under section
10AA or under Chapter VI-A shall be allowed in respect of the amount of income by which the
total income of the assessee is enhanced after computation of income by Assessing Officer.
iii) No recompilation of income of other associated enterprise: Where the total income of an
associated enterprise is computed on determination of the arm‘s length price paid to another
associated enterprise from which tax has been deducted or was deductible under the provisions
of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by
reason of such determination of arm‘s length price in the case of the first mentioned enterprise.
SECTION 92A: REFERENCE TO TRANSFER PRICING OFFICER

(1) Meaning of Transfer Pricing Officer: Transfer Pricing Officer (TPO) means a Joint
Commissioner or Deputy Commissioner or Assistant Commissioner authorized by the Board to
perform all or any of the functions of an Assessing Officer specified in Sections 92C and 92D in
respect of any person or class of person.
(2) Reference to Transfer Pricing Officer: The Assessing Officer if he considers it necessary he
may, with the previous approval of the Commissioner, refer the computation of the ALP in
relation to the international transaction or specified domestic transaction to the Transfer
Pricing Officer. (Inserted by Finance Act, 1012 w.e.f. 1-4-2013]
(3) Service of notice to the assessee to furnish evidences: Where a reference is made to TPO,
he shall serve a notice on the assessee requiring him to produce any evidence on which the
assessee may rely in support of the computation made by him of the ALP.
(4) TPO‟s power to determine ALP of international transactions not referred by AO: Where any
other international transaction, other than an international transaction referred by the
Assessing Officer, comes to the notice of Transfer Pricing Officer during the course of the
proceedings before him, the provisions of this Chapter shall apply as if such other international
transaction is an international transaction referred to him by the Assessing Officer.
(5) TPO‟s power to determine ALP of international transactions not reported u/s 92E: Where in
respect of an international transaction, the assessee has not furnished the report under section
92E and such transaction comes to the notice of the Transfer Pricing Officer during the course
of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is
an international transaction referred to him. [Inserted by Finance Act, 2012 w.e.f. 1-6-2002.]
(6) Determination of ALP and order to be passed in writing: On the date specified in the notice,
or as soon thereafter as may be: Determine the arm‘s length price in relation to the international
transaction or specified domestic transaction in accordance with Section 92C (3); and [Inserted
by Finance Act, 2012 w.e.f. 1-4-2013] and Send a copy of his order to the Assessing Officer and
to the assessee.
(7) Assessment to be as per ALP determined by TPO: On receipt of such order of the Transfer
Pricing Officer, the Assessing Officer shall proceed to compute the total income of the assessee
under section 92C in conformity with the arm‘s length price as so determined by the Transfer
Pricing Officer.
(8) TPO to pass order at least 60 days before the time-limit for completion of assessment:
Where a reference under this section is made, an order under this section by the Transfer

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Pricing Officer may be made at any time before 60 days prior to the date on which the period of
limitation referred to in Section 153 or Section 153B for making the order of assessment or
reassessment or recompilation or fresh assessment expires.
(9) Rectification of orders passed by TPO is possible within time limit.
CAN THE TRANSFER PRICING OFFICER ACCEPT USE OF MULTIPLE-YEAR DATA FOR
DETERMINATION OF ARM’S LENGTH PRICE IN AN INTERNATIONAL TRANSACTION?
Rule 10B of the Income-tax Rules, 1962, has prescribed the methods of determining ALP u/s 92C.
As per Rule 10B(4), the data to be used in the comparability of an uncontrolled transaction with an
international transaction shall be the data relating to the financial year in which the international an
international transaction shall be the data relating to the financial year in which the international
transaction has been entered into. However, data relating to a period of maximum 2 years
prior to such financial year may also be considered if such data reveals the facts which could have an
influence on the determination of transfer prices in relation to the transactions being compared.
STATE THE CONSEQUENCES THAT WOULD FOLLOW IF THE ASSESSING OFFICER MAKES
ADJUSTMENT TO ARM’S LENGTH PRICE IN INTERNATIONAL TRANSACTIONS OF THE
ASSESSEE RESULTING IN INCREASE IN TAXABLE INCOME. WHAT ARE THE REMEDIES
AVAILABLE TO THE ASSESSEE TO DISPUTE SUCH ADJUSTMENT?
In case the Assessing Officer makes adjustment to arm‘s length price in an international transaction
which results in increase in taxable income of the assessee, the following consequences shall follow:
(1) No deduction under section 10AA or Chapter VI-A shall be allowed from the income so increased.
(2) No corresponding adjustment would be made to the total income of the other associated
enterprise (in respect of payment made by the assessee from whom tax has been deducted or is
deductible at source) on account of increase in the total income of the assessee on the basis of
the arm‘s length price so recomputed.
The remedies available to the assessee to dispute such an adjustment are:
(i) In case the assessee is an eligible assessee under section 144C, he can file his objections to the
variation made in the income within 30 days of the receipt of draft order by him to the Dispute
Resolution Panel and Assessing Officer. Appeal against the order of the Dispute Resolution Panel
can be made to the Income-tax Appellate Tribunal.
(ii) In any other case, he can file an appeal under section 246A to the Commissioner (Appeals)
against the order of the Assessing Officer within 30 days of the date of service of notice of
demand.
(iii) The assessee can opt to file an application for revision of order of the Assessing Officer under
section 264 within 1 year from the date on which the order sought to be revised is
communicated, provided the time limit for appeal to the Commissioner (Appeals) or the Income-
tax Appellate Tribunal has expired or the assessee has waived the right of such an appeal. The
eligibility conditions stipulated in Section 264 should be fulfilled.

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SECTION 92CC: ADVANCE PRICING AGREEMENT [SEC 92CCC]
1) Meaning of advance Pricing agreement: An advance pricing agreement (APA) is an agreement

between a taxpayer and a taxing authority on an appropriated transfer pricing methodology for a
set of transaction over a fixed period of time in future. It offer better assurance on transfer
pricing methods and proved certainty of approach.
2) Board to enter into an APA with any person for determination of ALP: The Board, with the
approval of the Central Government, may enter into an advance pricing agreement (APA) with any
person, determining the ALP is to be deterred, in relation to an international transaction to be
entered into be entered into by that person. The ALP may be determined by the methods
referred under section 92C (1) or any other method subject to adjustment or variations if
needed.
3) ALP to be determined in accordance with APA: The ALP of any international transaction, in
respect of which the advance pricing agreement has been entered into, shall be determined in
accordance with the advance pricing agreement so entered.
4) APA to be valid up to 5 years: The APA shall be valid for such period not exceeding 5
consecutive previous year as may be specified in the agreement.
5) APA to be binding on such person & income tax authorities: The advance pricing agreement
entered into shall be binding:
a. On the person in whose case, and in respect of the transaction in relation to which, the agreement
has been entered into; and
b. On the Principal Commissioner or Commissioner, and the income tax authorities subordinate to
him, in respect of the said person and the said transaction.
The APA shall not be binding if there is a change in law or facts having bearing on the agreement
so entered.
6) APA to be void in certain cases: The board may, with the approval of the Central Government,
by an order, declare an agreement to be void ab initio, if it finds that the agreements has been
obtained by the person by fraud or misrepresentation of facts.
a. All the provisions of the Act shall apply to the person as if such agreement had never been
entered into; and
b. For the purpose of computing any period of limitation under this Act, (for example period of
limitation specified under section 153, 153B etc.) the period beginning with the date of such
agreement and ending on the date of such order shall be excluded.
However, where immediately after the exclusion of the aforesaid period, the period of limitation,
referred to in any provision of this Act, is less than 60 days, such remaining period shall be
extended to 60 days and the aforesaid period of limitation shall be deemed to be extended
accordingly.

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7) Scheme to be prescribed by Board: The Board may, for the purposes of this section, prescribe
a scheme specifying therein the manner, form, procedure and any other matter generally in
respect of the advance pricing agreement.
8) Pending case: Where an application is made by a person for entering into an APA, the proceeding
shall be deemed to be pending in the case of the person for the purposes of the Act.
9) Roll back provision in APA: the agreement referred above, may, subject to such conditions,
procedure and manner as may be prescribed, provide for determining the ALP or specify the
manner in which ALP shall be determined in relation to the international transaction entered into
by the person during any period not exceeding 4 previous years preceding the first of the
previous years referred above, and the ALP of such international transaction shall be determined
in accordance with the said agreement. (Inserted by Finance (No.2) Act, 2014 w.e.f. 1.10.2014)
SECTION 92CD: EFFECT TO ADVANCE PRICING AGREEMENT

1) Modified return to be furnished in accordance with APA: Where any person has entered into
APA and prior to the data of entering into the APA, he has furnished a return under section 139
for any assessment year to which APA applied such person shall furnish, within period of 3
months from the end of the month in which the said APA was entered into, a modified return in
accordance with limited to the APA i.e. modification can only be made shall on account of such
APA in the return to be filed. The modified return so furnished shall be a return filed under
section 139
2) Assessment/Reassessment to be in accordance with modified return: If the assessment of

reassessment proceeding for an assessment year relevant to a previous year to which the APA
applied have been completed before the expiry of period allowed for furnishing of modified
return, the assessing officer shall, proceed of assessment the total income of the relevant
assessment year having regard to and in accordance with the APA.
3) Time-limit for completion of assessment/reassessment: Notwithstanding anything in section

153 or section 153B or section 144c, such order of assessment, reassessment or recompilation of
total income shall be passed within a period of 1 year from the end of the financial year in which
the modified return is furnished.
4) Pending assessment to be completed in accordance with modified return: Where the

assessment or reassessment proceeding for an assessment year relevant to the previous year to
which the APA applies are pending on the data of filing of modified return, the Assessing officer
shall proceed to complete the assessment or reassessment proceeding in accordance with the
APA taking into consideration the modified return so furnished.

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5) Extension by 12 months: notwithstanding anything contained in section 153 or section 153B or
section 144C, the period of limitation as provided in section 153 or section 144C for completion
of such pending assessment proceeding shall be extended by a period of 12 months.
SECTION 92D: RECORDS TO BE MAINTAINED

1. Documents required to be maintained: Every person who has entered into an international
transaction or specified domestic transaction shall keep and maintain such information and
document in respect thereof, as may be prescribed. As per Rule 10D (1), every person who has
entered into an international transaction shall keep and maintain 13 different types of
information and documents. However, as per guidance note issued by ICAI, they can be classified
as under:
a. Enterprise – wise documents: These are documents that describe the enterprise, the
relationships with other associated enterprise, the nature of business carried out etc. This
information is, largely, descriptive.
b. Transaction – specific documents: These are documents that explain the international transaction
in a greater detail. It includes information with regard to each transaction like nature and terms
of the contract, description of the functions performed, asset employed and risks assumed by
each party to the transaction, economic and market analyses, etc. This information is both
descriptive and quantitative in nature.
c. Computation related documents: These are documents which describe and detail the methods
considered, actual working assumptions, policies etc., adjustments made to transfer prices and any
other relevant information, data; document relied for determination of ALP.
2. Relief from maintenance of specified records: If total value of international transactions (as
per books of account of assesse) is upto Rs.1 core, the assesse need not to maintain specified
information and documents, but he will have to substantiate that income from international
transactions was computed as per Section 92.
3. Information and documents specified should be contemporaneous: The information and

documents specified above, should as far as possible, be contemporaneous and should exist latest
by the due date mentioned under section 139(1).
However, where an international transaction continues to have effect over more than one
previous year, fresh documentation need not be maintained separately in respect of each
previous year, unless there is any significant change in the nature of terms of the international
transaction, in the assumptions made, or in any other factor which could influence the transfer
price, and in case of such significant change, fresh documentation as may be necessary shall be
maintained bringing out the impact of the change on the pricing of the international transaction.
4. Period for which records to be maintained: The specified information and documents are to be
maintained for a period of 8 years from the end of the relevant Assessment Year.

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5. Furnishing of records: The Assessing Officer or the Commissioner (Appeals) may require such
person who has entered into an international transaction or specified domestic transaction to
furnish specified information / documents within 30 days from date of receipt of notice issued in
this regard. The said period of 30 days may be extended by a further period not exceeding 30
days.
THE PENAL PROVISIONS IN CONTEXT OF TRANSFER PRICING
Section Particulars Amount of penalty
271(1)(c) Penalty for concealment of income (Explanation 7 to Section Minimum penalty: 100%
271 (1)(c)): Any amount added / disallowed in computing total of tax sought to be
income of an assessee u/s 92C(4) by substitution of ALP evaded
determined by Assessing Officer) shall be regarded as Maximum penalty: 300%
concealed income. However, the same will not be regarded as of tax sought to be
concealed income if the assesse proves that price charged in evaded.
international transaction was computed as per section 92C, in
good faith and with due diligence.
271AA Penalty for failure to keep and maintain information and 2% of value of each
document, etc., in respect of certain transactions: Where such international
any person in respect of an international transaction or transaction or specified
specified domestic transaction,: domestic transaction.
a. Fails to keep and maintain any information and document
as required by Section 92D(1) and 92D(2), or
b. Fails to report such transaction as he required to do, or
c. Maintains or furnishes an incorrect information and
document.
271AA(2) 92D(4): Failure to furnish the information and the document Prescribed IT authority
w.e.f. as required u/s 92D(4) Rs. 5,00,000
AY
2017-18
271BA Penalty for failure to furnish report from an Chartered Rs.1 lakh
Accountant as required u/s 92E.
271G Penalty for failure to furnish information or document u/s 2% of value of
92D: Where any person who has entered into an international international
transaction or specified domestic transaction fails to furnish transaction or specified
any such information or document as required by section domestic transaction.
92D(3).

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DOUBLE TAXATION RELIEF [SECTIONS 90 TO 91]
Double Taxation
Avoidance Agreement
Sec. 90 Sec. 91
Bilateral Relief Unilateral Relief
(Agreement Exist) (Agreement does not exist)
Relief given by home country

Exemption Method Tax Credit Method
Double Taxed income Average rate

of taxing India or Average rate of tax
in foreign country whichever is
lower.
SR CONDITIONS EXPLAINATION
1 Meaning of Double Taxation Income of a person is taxed in more than one country
2 Reason for Double Taxation Source of Income Rule
Residence Rule
3 Relief when Agreement exist Bilateral relief
between two countries [ Sec a) Exemption Method: Pay tax in either of country.
90] b) Tax Credit Method: Pay tax in one country and take credit
of tax pain in another country.
4 Relief when Agreement does Unilateral relief
not exist between two unilateral relief will be available, if the following conditions
countries [Sec 91] are satisfied:
1. The assessee in question must have been resident in India
in the previous year.
2. The same income must have accrued or arisen to him
outside India during the previous year and it should also
be received outside India.
3. Before any such relief is computed, the assessee has to
prove that such income is not deemed to accrue or arise
in India during the previous year.
4. The income should be taxed both in India and in a foreign
country.
5. There should be no reciprocal arrangement for relief or
avoidance from double taxation with the country where

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income has accrued or arisen.
6. In respect of that income, the assessee must have paid
by deduction or otherwise tax under the law in force in
the foreign country in question in which the income
outside India has arisen.
If all the above conditions are satisfied, such person shall
be entitled to deduction from the Indian income-tax
payable by him of a sum calculated on such doubly taxed
income -
a. at the average Indian rate of tax or the average rate of
tax of the said country; whichever is the lower, or
b. At the Indian rate of tax if both the rates are equal.
Average rate of tax means the tax payable on total
income, after deduction of any relief due under the
provisions of this Act but before deduction of any relief
due under this Chapter divided by the total income.

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CHAPTER 5: TAX PLANNING
COMPARE TAX EVASION, TAX AVOIDANCE AND TAX PLANNING
Aspect Tax Evasion Tax Avoidance Tax Planning

Meaning Method of evading or Method to reduce or It is the arrangement of
reducing tax liability by minimize tax liability by financial activities to
dishonest means exploiting or taking minimize the tax incidence by
Methods of tax evasion advantages of a loop making use of all beneficial
include – holes in the law. It provisions of the Income Tax
*Concealing of Income; does not give rise to any Law.
*Overstating Expenses; critical offence.
*Manipulating accounts;
*Violating Rules.
Effect Result of illegality, Result of actions none Result of availing the
supper-ssion, of which is illegal or benefits under various
misrepresentation and forbidden either singly beneficial provisions of Law.
fraud. or in any combination.
Legality Illegal Technically Legal Legal
Permissibility Note Permissible Decided on the basis of Legally permissible under all
– circumstances.
a) Facts and
circumstances of
each case; and
b) General principles of
conscience and
justice.
Violation of Involves blatant violation No violation of laws. No violation or circumvention
Law. of law. Loop holes in law are of the provisions of tax laws.
taken advantage of by
circumventing certain
provisions.
Penalties Heavy penalty including Does not invite any No Penalties.
prosecution. penalty

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Illustration 1
Specify with brief reasons, whether the following acts can be considered as (i) Tax Management, or
(ii) Tax Planning, or (iii) Tax Evasion.
Question Reason Answer

(a) P deposits Rs. 50,000 in PPF Account so as to Tax Planning Reducing liability by use of
reduce Total Income from Rs. 3,40,000 to Rs. beneficial provisions of law
2,90,000
(b) PQR Industries Ltd installed an Air Conditioner Tax Evasion Reducing tax liability by
costing Rs. 75,000 at the Residence of a director dishonest means.
as per terms of his appointment, but treats it as
fitted in Quality Control Section in the factory.
This is with the objective to treat it as plant for
the purpose of computing depreciation
(c) SQL Ltd maintains a register of Tax Deduction at Tax Objective is to ensure
Source effected by it to enable timely compliance. Management comply with law
(d) R Ltd. issues a Credit Note for Rs. 40,000 for Tax Making use of Loopholes in
brokerage payable to Suresh, who is son of R, Avoidance the Provisions of Law.
Managing Director of the Company. The purpose of
this is to increase him Income from Rs. 1,40,000 to
Rs. 1,80,000 and reduce its Income
correspondingly.

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TAX PLANNING WITH RESPECT TO NON- RESIDENT ASSESSEE
SECTION 44B: PROFITS AND GAINS OF SHIPPING BUSINESS IN THE CASE OF NON-
RESIDENTS
 Section applies to: A non-resident assessee engaged in the business of operation of ships.
 Deemed profits and gains of business or profession : 7.5% of the aggregate of the following :
a) Amount paid/payable in or outside India to assessee or any person on his behalf for carriage of
goods, livestock, mail or passengers shipped at any port in India; and
b) Amount received or deemed to be received in India by or on behalf of the assessee for any of
the above shipped at any port outside India.
SECTION PROFITS AND GAINS IN CONNECTION WITH BUSINESS OF

44BB EXPLORATION OF MINERAL OILS.
A) Section applies to: A non-resident engaged in the business of providing services or facilities
in connection with, or supplying plant (including ships, aircraft, vehicles, drilling units, scientific
apparatus and equipment, used for the said business) and machinery on hire used, or to be
used, in the prospecting for, or extraction or production of, mineral oils (including petroleum
and natural gas).
B) Deemed profits and gains of business or profession: 10% of the aggregate of following :
a) Amount paid or payable in or outside India to the assessee or to any person on his behalf for
any of the above for prospecting for, or extraction or production of, mineral oils in India; and
the above for prospecting for or extraction or production of mineral oils outside India.
C) Claim of lower profits: The assessee may claim lower profits and gains than the profits as
deemed above, if he :-
a) Keeps and maintains books of account and other documents as per Section 44AA; and
b) Gets his accounts audited and furnishes a report thereof as per Section 44AB.
SECTION PROFITS AND GAINS OF THE BUSINESS OF OPERATION OF AIRCRAFT

44BBA IN CASE OF NON-RESIDENTS
A) Section applies to: Non-resident assessee engaged in business of operations of aircraft.
B) Deemed profits and gains of business or profession: 5% of the aggregate of the following
a) Amount paid / payable in or outside India to assessee or any person on his behalf for carriage
of goods, livestock, mail or passengers from any place in India; and
the above from any place outside India.
SECTION PROFITS AND GAINS OF FOREIGN COMPANIES ENGAGED IN THE

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44BBB BUSINESS OF CIVIL CONSTRUCTION, ETC., IN CERTAIN TURNKEY
POWER PROJECTS.
A) Section applies to: A foreign company engaged in the business of civil construction or the
business of erection of plant or machinery or testing or commissioning thereof, in connection
with a turnkey power project approved by the Central Government in this behalf.
B) Deemed profits and gains: 10% of the amount paid / payable in or outside India to the
assessee or to any person on his behalf on account of such civil construction, erection, testing
or commissioning.
C) Claim of lower profits: The assessee may claim lower profits than what deemed under this
section by maintaining proper books of account and getting its accounts audited.
SECTION INCOME BY WAY OF ROYALTIES, ETC., IN CASE OF NON-RESIDENTS.

44DDA
A) Section applies to: This section applies if the following conditions are fulfilled :-
a) The assessee is a non-resident (not being a company) or a foreign company;
b) He is in receipt of income by way of royalty or fees for technical services from Government or
an Indian concern;
c) Such income is received in pursuance of an agreement made by the assessee with Government
or the Indian concern after 31-3-2003;
d) Assessee carries on business in India through a permanent establishment situated in India, or
performs professional services from a fixed place of profession situated in India; and
B) Computation of income: The income of such assessee shall be computed under the head
―Profits and gains of business or profession‖ in accordance with the provisions of this Act.
However, no deduction is allowed in respect of :-
i) Any expenditure or allowance which is not wholly and exclusively incurred for the business of
such permanent establishment or fixed place of profession in India; or
ii) Amounts paid (otherwise than towards reimbursement of actual expenses) by the permanent
establishment to its head office or to any of its other offices.
a) Accounts and audit : The assessee shall :- Keep and maintain books of account and other
documents as per Section 44AA;
b) Get his accounts audited by a Chartered Accountant; and
c) Furnish along with the return of income the report of such audit in prescribed form duly signed
and verified by such Chartered Accountant.

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TAX RATES FOR NON RESIDENT
TAXATION OF NON-RESIDENT
Particulars All Non-Residents Overseas All Non- Resident Foreign

including foreign Co. financial Residents Individual Institutional
organs/ including employee Investors
i.e. foreign Co. of Indian
offshore Co.
funds
Section 115A(1)(a) 115AB 115AC 115ACA 115AD
Investment Mandatory Mandatory Mandatory Mandatory Mandatory
made in
Foreign
Currency
Source of 1. Dividends other than Income 1. Interest Dividends 1. Income
Income dividends u/s 115-0) received, on – (a) (other (other than
2. Interest from Govt, and LTCG bonds of dividends Dividends
of Indian Concern or from Indian u/s 115-0) u/s 115-0)
on Foreign Currency transfer Company & LTCG on from
Loan (Exempt Point 3, of, Units of issued transfer of Securities
4 below). UTI / abroad, GDRs (other than
3. Interest from Mutual or (b) (allotted units
infrastructure Debt Funds Bonds of under Govt mentioned
Fund u/s 10(17). PSU sold approved u/s 115AB)
4. Interest referred u/s by Govt. ESOP 2. STCG/LTCG
194LC/194LD/194LBA or (c) Scheme) from above
(2) GDRs Securities
5. Income from units of 2. Dividends (See Notes
Mutual Funds u/s (other 8 & 9)
10(23D) or UTI than
dividends
u/s 115-0)
3. LTCG on

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transfer
of above
Tax Rate 1. Point 1, 2 and 5 above On Income On Income On On Income at
at 20% at 10% at 10% dividends 20% (5% for
(Surcharge 2. Point 3 and 4 above at 10% 194LD Income)
as at 5%
applicable, STCG N.A STCG N.A STCG N.A STCG N.A STCG 30% (15%
EC and for STT)
SHEC) LTCG N.A. LTCG at LTCG at 10% LTCG at LTCG at 10%
10% 10%
Filling of Exempt of total income Exempt if
Return consists of above income Total
Income only provided TDS is Income
made and no other consists of
income. Otherwise Mandatory Interest & Mandatory Mandatory
mandatory dividend
provided
TDS is made
and no other
income.
Otherwise
mandatory
TDS 195 196B 196C - 196D
Section
Notes:
1. No deduction / expenditure shall be allowed u/s 28 to 44C or Sec. 57 in computing the above
Incomes.
2. Indexation Benefit for LTCG (Second proviso to Sec. 48) is not available.
3. Benefit of Conversion to Foreign Currency (First Proviso to Sec. 48) is not available.
4. Benefit of Set Off and Carry Forward of Loss is available (Subject to Chapter VI).
5. Benefit of DTAA can be availed by the above Persons.
6. Deduction under chapter VI-A are not allowed against the above the above Incomes. If there is
any other income, deductions are available against such other income.
7. Basic Exemption Limit is not available for the above Income. But, it can be claimed / availed
against Other Income, if any.
TAXABILITY OF INCOME OF NON-RESIDENT SPORTSMEN OR SPORTS

ASSOCIATIONS[SECTION 115 BBA]
1 Eligible assessee:
a) A sportsman (including an athlete), who is not a citizen of India and is a non-resident, and
whose total income includes any income received or receivable by way of :-

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 Participation in India in any game (other than a game the winning where from are taxable
under section 115BB) or sport; or
 Advertisement; or
 Contribution of articles relating to any game or sport in India in newspapers, magazines or
journals; or
b) An entertainer, who is not a citizen of India and is a non-resident, and whose total income
includes any income received or receivable from his performance in India. [Inserted by
Finance Act, 2012 w.e.f. 1-4-2013]
2 Deductions: No deduction in respect of any expenditure or allowance shall be allowed under
any provision of this Act in computing the above income.
3 Applicable tax rate: 20% [Amended by Finance Act, 2012 w.e.f. 1-4-2013]
4 No return of income to be furnished in a particular case: No return is required to be
submitted under section 139(1) if the following conditions are satisfied :
a) The total income of the assessee consists only of income by way of interest, and
b) The tax deductible at source has been deducted from such income.
BUSINESS CONNECTION [SEC, 9(1) (i)]
Any income which arises through a business connection/ professional connection in India is deemed to
accrue or arise in India.
Meaning of business connection:
Includes If the assessee (non-resident) has an authority in in India who can conclude contracts on
his behalf and he and he habitually exercises such authority then it shall be treat as
business connection in India. However , if the activities are limited to the purchase of
goods or merchandise for the non-resident then it shall not be treated as business
connection; or
If the assessee (non-resident) has an authority who habitually maintains in India a stock
of goods or merchandise from which he regularly deliver goods or merchandise on behalf
of the assessee then it shall not be treated as business connection; or
If the assessee (non-resident) Hs an authority who habitually secures orders in India
for such assessee.
Does not In the case of a non-resident, no income shall be deemed to accrue of arise in India if
include the operation are confined to the purchased of goods in India for the purpose of export.
Any business activity which is merely carried out through a broker, general a broker,
general commission agent or any other agent (having an independent status and is
acting in the ordinary course of his business) in India
In a case of a non-resident, being a person engaged in the of running a news agency or of
Publishing newspapers, magazines or journals, no income shall be deemed to accrue or
arise in India to him through or from activities which are confined to the collection of
news and views in India for transmission out of India;
In the case of a non-resident being

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-An individual (who is not a citizen of India); or
-A firm which does not have any partner, who is a citizen of India or who is a resident in
India; or
-A company, which does not have any shareholder who is a citizen of or resident in India;
-activities are confined to the shooting of any cinematography film in India.
NR engaged in the cinematography business and activities are confined to shooting only.
Activities confined to display of rough diamonds in SNZs [Explanation 1(e) to section
9(1)(i): In order to facilitate the FMCs to undertake activity of display of uncut
diamond (without any sorting or sale) in a Special Notified Zone (SNZ), clause (e) has
been inserted in Explanation 1 to section 9(1)(i) to provide that in the case of a foreign
company engaged in the business of mining of diamonds, no income shall be deemed to
accrue or arise in India to it through or from the activities which are confined to display
of uncut an unsorted diamonds in any special zone notified by the Central Government in
the Official Gazette in this behalf. [Amendment Fin Act 2016]
WHO MAY REGARD AS AGENT (SEC 163)

Representative Assessee / Agent of a Non-Resident
1. Representative Assessee of Non – Resident (Section 160): In respect of Income of a Non –
Resident specified in Section 9(1), his Agent, including a person deemed to be his agent under
section 163, will be treated as a Representative Assessee, after giving him an opportunity of
being heard.
2. Agent of a Non – Resident (Section 163): Agent, in relation to a Non – Resident, includes the
following persons in India:
a. Person employed by or on behalf of the Non – Resident.
b. Person who has any business connection with the Non – Resident.
c. Person from or through whom the Non – Resident is in receipt of any income, whether directly or
indirectly.
d. Trustee of the Non – Resident.
e. Person who has acquired Capital Asset in India by means of a transfer from the Non – Resident,
whether such person is a Resident or Non – Resident.
3. Broker of Non – Resident is not regarded as Agent, if the following conditions are fulfilled:
a. The Broker in India does not deal directly with or on behalf of the Non – Resident Principal,
b. He deals with or through a Non – Resident Broker,
c. The transactions are carried on in the ordinary course of business of the Resident Broker, and
d. The Non-Resident Broker carries on such business in ordinary course of his business as Broker
and not as Principal.
4. Liability of Agent (Section 161)

a. He shall have same duties, responsibilities and liabilities as if the Income were received by him or
accruing or in favour of him beneficially.
b. Assessment shall be deemed to be made upon him in respective capacity only,

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c. Tax shall be levied and recovered from him in the same manner as on the person represented by
him.
5. Rights of Agent (Section 162)

a. To be given opportunity of being head by the AO, before being treated as Agent,
b. To recover amounts paid under the Act, from the outsider, i.e. Principal,
c. To retain amounts paid under Wealth Tax Act, based on Certificate from AO.
TAX PLANNING WITH REFERENCE LOCATION OF A NEW BUSINESS
SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL

ECONOMIC ZONES [SECTION 10AA]
Sr Provisions Explanation
1 Who can claim? All Assessee
2 Nature of Profits or gains from an undertaking profit & gains derived from
business export of articles/things /services shall be allowed from the total
income of the assesses.
3 Conditions to a) It has begun or begins to manufacture or produce articles or things
claim deduction or produce any service during the previous year relevant to any

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assessment commencing on or after 1.4.2005 in any Special Economic
Zone,
b) It should not be formed by the splitting up or reconstruction of a
business already in existence.
c) It should also not be formed by the transfer of machinery or plant,
previously used for any purpose, to a new business. However, the
following are the two exceptions to this condition:
 Machinery or plant which was used outside India by any person other
than the assessee shall not be regarded as machinery or plant
previously used for any purpose, if the following conditions are
fulfilled:
 The machinery or plant should not be previously used in India.
 The machinery or plant should be imported into India from a foreign
country.
 No deduction on account of depreciation in respect of such
machinery or plant has been allowed or is allowable under the
provisions of this Act to any person previously.
 Deduction u/s 10AA will, be available if the total value of the second
hand machinery or plant transferred to the new undertaking does
not exceed 20 per cent of the total value of the machinery or plant
used in the industrial unit.
4 4 Period of tax 1) 100% the profits and gains of the first five years
holiday 2) 50% for the next five assessment years.
3) Further deduction for 5 years beyond the period of 10 years, mentioned
shall be allowed as under:
 Quantum of deduction for next 5 years: The amount of deduction shall be
so much mount not exceeding 50% of the profit as is debited to the profit
and loss account previous year in respect of which the deduction is to be
allowed and credited to an account (to be called the ―Special Economic Zone
Re-investment Allowance Account‖) to be created
5 5 Utilisation of
 for the purposes of acquiring new machinery or plant which is first put to use
reserve before the expiry of a period of three years next following the previous year in
which the reserve was created; and
 until the acquisition of new machinery or plant as aforesaid, for the purposes of
the business of the undertaking other than for distribution by way of dividends
or profits or for remittance outside India as profits or for the creation of any
asset outside India
6 6 Consequences of
 Shall be treated as deemed to be the profits of the year in which so
mis-utilisation utilized for any other purpose or not utilized within 3 yrs. After
of reserve creating reserve
7 7 Report  Report of CA in form 56F
8 8 How to calculate
Profit from business Export turnover
www.vipulshah.org 75591 73787
of the undertaking Page 95
Total turnover of the undertaking
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profit
X
9 9 Export turnover  Export turnover does not include freight, telecommunication

charges and insurance attributable to the delivery of the article
or things outside India.
 Expenses incurred in foreign exchange in providing technical
service outside India.
1 Consequences of  Amalgamated or resulting company shall be entitled to deduction
Amalgamation of under this section from the previous year in which the
Demerger amalgamation or the demerger rakes place in the same manner if
the amalgamation or demerger had not taken place.
SECTION 80-IA: DEDUCTION IN RESPECT OF PROFIT & GAINS FROM INDUSTRIAL

UNDERTAKING OR ENTERPRISE ENGAGED IN INFRASTRUCTURAL DEVELOPMENT
Available only to the following types of undertaking –
1. Enterprises engaged in providing infrastructural facility
2. Telecommunication services
3. Industrial parks or Special Economic Zones (SEZ)
4. Power Generation and distribution undertakings.
5. Revival of Power Generation Plant
INFRASTRUCTURAL FACILITY
Conditions:
 Enterprise provides infrastructural facility.
 The enterprise is owned by an Indian company or consortium of such companies or by an authority,
board or corporation established under any Central or State Act.
 The enterprise has entered into an agreement with Central Government or State Government or
local authority or any other statutory body for developing, maintaining or operating new
infrastructure facility
 The enterprise starts operating and maintaining the infrastructure facility after April 1, 1995.
but before 1/4/2017
 Deduction should be claimed in the return of Income and the return should be submitted on or
before the due date of submission.
What is Infrastructural facility? The enterprise must carry out business of – [Amendment Fin Act
2016]
1) Developing or
2) Maintaining and operating or
3) Developing, maintaining and operating any infrastructure facility.

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Infrastructural facility means –

1) Road including toll road, bridge or rail system
2) Highway project including housing or other activities
3) Water supply project, water treatment plant, irrigation, sanitation, solid waste management.
4) Airport .Inland waterway or Inland port or navigational channel in the sea.
Amount of deduction
1) 100% of the profits for 10 consecutive A.Y. falling within a period of 15 A.Y. from the year in
which enterprise commences or begins operating and maintaining infrastructural facility.
2) The above deduction will be allowed from the A.Y. specified by the assessee at his option to be
the initial year.
3) For first 3, type Infrastructure Facilities period of 15 A.Y. is replaced by 20 A.Y.
INDUSTRIAL PARKS / SEPECIAL ECONOMIC ZONE

It an undertaking which
a. Develops or
b. Develops and operate or
c. Maintains and operate a notified Industrial parks
Conditions:
a) The undertaking begins to operate an industrial park, in accordance with the scheme framed and
notified by the central government.
b) It starts operating Industrial park at any time on or after 1.4.1997 but before 31.3.2011.
This section shall not apply to
1. Any SEZ notified on or after 1-4-2005.
Amount of Deduction
100% of profit is deductible for 10 years commencing from Initial A.Y.(out of 15 AY)
TELECOMMUNICATION SERVICES
Conditions
 Applicable to all assessee.
 It should be the new undertaking.
 It should not be formed by transfer of old plant and machinery. Upto 20%of total value of P&M
can be previously used
 The activity should commence after 31.3.1995 but before 31.3.2005.
 It is not formed by splitting up or reconstruction of an existing business
Telecommunication undertaking means
An undertaking engaged in basic or cellular, radio paging, domestic satellite service or network of
trucking & broadband network and internet services.
Amount of Deduction
Assessee % of profit Deductible Period

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Any 100% First 5 years
30% Next 5 years
The above deduction will be allowed out of 15yrs from the A.Y. specified by the assessee at his
option to be the initial year.
POWER UNDERTAKINGS
Conditions:
 It should be the new undertaking.
 It should not be formed by transfer of old plant and machinery.
 The activity should commence within specified period.
Amount of Deduction
Amount of
Type of Business Date of Commencement Period
Deduction
Generation or Generation & 1/4/93 to31/3/2017 100% First 10 yrs from
distribution Initial A.Y.(out of 15
AY)
Transmission or 1/4/99 to 31/3/2017 100% First 10 yrs from
Distribution by laying Initial A.Y.(out of 15
Network AY)
Undertakes substantial 1/4/2004 to 31/03/2017 100% First 10 yrs from
renovation and Initial A.Y.(out of 15
modernization of existing AY)
network
Note: Substantial renovation and modernization means an increase in the plant and machinery in the
network of transmission or distribution lines by at least 50% of the book value such plant and
machinery as on 1.4.2004.
RECONSTRUCTION OR REVIVAL OF A POWER GENERATING PLANT

Nature of Activity: Reconstruction or revival of a power generating plant, if such undertaking begins
to generate or transmit or distribute power before 31/3/2011.
Amount of Deduction: 100% of profits and gains derived for such business.
Period of Deduction: Any 10 consecutive assessment years out of 15 years –
Manner of computing profits eligible for deduction: Notwithstanding anything contained in any
other provision of this Act, the profits and gains of an eligible business, for the purpose of
determining the quantum of deduction, be computed as if such eligible business were the only source
of income of the assessee.
SECTION 80-IAB: DEDUCTION IN RESPECT OF PROFITS AND GAINS BY AN

UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE
Conditions

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 Applicable to all assessee
 The taxpayer is a Developer of Special Economic Zone
 The Gross Total income includes Profit from business of developing SEZ
 SEZ is notified after 1-4-2005
 Any enterprise which starts the development all operation and maintenance of infrastructure
facility on or after 1/4/2017 (Amendment Fin Act 2016)
 Books are audited & Return is filed in time.
Amount of Deduction
100% deduction for 10 out of 15 years beginning with the year when the SEZ was notified by the
Govt.
80IAC: SPECIAL PROVISION IN RESPECT OF SPECIFIED BUSINESS (W.e.f. AY 17-18)

1. Applicability: Assessee being an eligible start-up.
2. Quantum of deduction: 100% of the profit and gains derived from such eligible Start-Up
business.
3. Period of Deduction: deduction can be claimed at the option of the Assessee, for any 3
consecutive assessment years out of 7 years beginning from the year in which the eligible start-
up incorporated.
4. Meaning of Terms:
(a) “Eligible Business” means a business which involves innovation, development, deployment or
commercialization of new products, processes or services driven by technology or intellectual
property.
(b) “Eligible Start-Up” means a company or Limited Liability Partnership engaged in eligible business,
which fulfils the following conditions, namely –
 It is incorporated on or after 1/4/2016 but before 1/4/2019,
 The Total Turnover of its business does not exceed Rs. 25 crores in any of the previous years
beginning 1/4/2016 and ending on 31/3/2021, and
 It holds a Certificate of Eligible Business for the Inter-Ministerial Board of Certification as
notified by the Central Government.
(c) “Limited Liability Partnership” (LLP) means a partnership referred to in Sec. (2)(1)(c) of the
Limited Liability Partnership Act, 2008.
COMPANY ENGAGED IN INDUSTRIAL AND SCIENTIFIC RESEARCH [Sec 80-IB(8) & (8A)]
Conditions:
 The Company must be an Indian company and has its main object the Scientific & Industrial
research & development
 It is for time being approved by prescribed Authority (Secretary, Department of scientific and
industrial research, Ministry of Science & Technology, Government of India).

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Amount of Deduction
Type of Business Date of commencement Amount of Deduction Period
st
Approved before 1.4.1999 100% 1 5 A.Y.
Scientific Research Approved between 1.4.2000
100% 1st 10 A.Y.
to 31.3.2007
MINERAL OILS AND REFINING OF MINERAL OIL [Sec 80-IB(9)]

Conditions:
 Applicable to all assessee.
Deduction
Amount of
Type of Business Date of commencement Period
Deduction
Production of Mineral Oil After 31/3/1997 100% First 7 A.Y.
Refining of Mineral Oil After 30/9/1998 anywhere in India but 100% First 7 A.Y.
before 31/03/2012
Commercial production of On or after 01/09/2009 100% First 7 A.Y.
Natural Gas
Deduction under section 80IB(9) will not be available to an undertaking which commences production
of mineral oil/ natural gas on or after April 1, 2017. [AY 2017 – 18]
INTEGRATED HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS [Sec 80-

IB(11A)]
Conditions:
Applicable to all assessee.
It must operate integrated business of handling, storage and transportation of food grains. W.e.f.
A.Y.2006-07.The benefit has been extended to the business of processing, preservation and
packaging of fruits and vegetables. From AY 2011-12 the following products are also included namely,
meat and meat products or poultry or marine or dairy products.
Amount of Deduction
ENTERPRISE AMOUNT OF DEDUCTION PERIOD
100% 1ST 5 A.Y
COMPANY
30% Next 5 A.Y
ANY OTHER PERSON 100% 1ST 5 A.Y
SECTION 80IBA: DEDUCTIONS FOR PROFITS & GAINS FROM HOUSING PROJECTS (W.E.F.
AY 17-18)
1. Applicability: All Assessee
2. Nature of Business: Business of developing and building Housing Projects.

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Note: Assessee who executes the Housing Project as a Works – Contract awarded by any person
(including Central/ State Govt) is not eligible for Deduction.
3. Quantum of Deduction: 100% of the Profits & Gains derived from such Business.
4. Conditions:
Project Approval The project shall be approved by the Authority after 1/6/2016 but on or
before 31/3/2019.
The project shall be completed within a period a period of 5 years from the
date of approval by the competent Authority.
 Frist Approval: if the approval in respect of a Housing Project is
obtained more than once the project shall be deemed to have been
Project Completion approved on the date on which the Building Plan of such Housing Project
was first approved by the Competent Authority.
 Deemed Completion: The project is deemed to have been completed
when a Certificate of Completion of Project as a whole is obtained in
writing from the Competent Authority.
Shops and The built-up area of the shops and other commercial establishment included
Commercial in the housing project does not exceed 3%. Of the aggregate built-up area.
Establishment
Housing project location Chennai, delhi, Kolkata or In any other
Mumbai or within distance place
measure aerially of 25 Kms
from the Municipal Limits of
Conditions as to these cities
Land Area, Minimum Land Area for 1,000 sq m 2,000 sq m
Residential Unit the Housing Project
Area, Floor Area, Note: The project u/s 80IBA shall be the only housing project on the above
etc. mentioned land.
Maximum built up Area for 30 sq m 60 sq m
Residential Units in the
Housing Project
minimum Floor Area Ratio 90% of the permissible Ratios 80% of the
utilization as per Rules by Permissible
Central Govt./ State Ratio
Govt./ Local Authority
If a Resident unit is allotted to an individual, no other Residential Unit in the
Allotment Housing Project shall be allotted to the Individual or the Spouse or the
Restriction Minor Children of such Individual.
Maintenance of The Assessee maintains separate books of account in respect of the Housing
Books Project.
5. Non completion in 5 years: if the Housing Project is not completed within 5 years from the date
of approval, and in respect of which a deduction has been claimed and allowed u/s 80-IBA, the
total amount of deduction so claimed and allowed in one or more previous years, shall be deemed

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to be the income of the Assessee chargeable as ―Profits and Gains of Business or Profession‖ of
the previous year in which the period for completion so expires.
6. No Double Deduction: Where any amount of Profits and Gains derived from the business of
developing and building Housing Projects is claimed and allowed u/s 80-IBA for any AY, deduction
to the extent of such profit and gain shall not be allowed under any other previous of this Act
SECTION 80JJA: PROFITS AND GAINS FROM THE BUSINESS OF COLLECTING AND
PROCESSING OF BIO DEGRADABLE WASTE
Condition:
 Applicable to all assessee
 Gross total income of an assessee includes any profits and gains derived from the business of
collecting, processing and treating bio – degradable waste for-
a) generating power
b) bio-fertilizers,
c) bio-pesticides, or other biological agents
d) producing bio – gas and
e) Making pellets, briquettes for fuel and organic manure.
Amount of Deduction:
An amount equal to whole of such income for a period of five consecutive assessment years beginning
with the assessment year relevant to the previous year in which such business commences.
SECTION 80JJAA: DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN

Applicable to: All assessee who has income from business and is subject to tax audit u/s 44AB.
Conditions:
1. Business is not acquired by the assessee by way of transfer from any other person or as a result
of any business reorganization
2. The business of the assessee is not formed by splitting up, or the reconstruction, of an existing
business, Except Sec. 33B
3. Books of account should be audited and report of audit should be submitted along with the return
of income.
4. deduction should be claimed in the return of income (otherwise deduction is not available)
Deduction
An amount equivalent to 30% of Additional Employee Cost (incurred in the course of such business in
the PY) is deduction u/s 80JJAA for 3 assessment years including the AY relevant to the PY in which
such employment is provided.
“Additional ―Additional Employee‖ means an employee who has been employed during the PY
Employee” and whose employment has the effect of increasing the total number of

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employees employed by the employer as on the last date of the preceding year,
but does not include –
a. An employee whose total emoluments are more than Rs. 25,000 per month
b. An employee for whom the entire contribution is paid by the government
under the Employee Pension Scheme notified in accordance with the
provisions of the ―Employees Provident Funds and Miscellaneous Provisions
Act, 1952;
c. An employee employed for a period of less than 240 days during the PY; or
d. An employee who does not participate in the recognised provident fund.
Additional ―Additional employee cost‖ means total emoluments paid or payable to additional
employee cost employees employed during the PY
1. In the case of existing business, the additional employee cost shall be nil, if
–
a. There is no increase in the number of employees from the total number of
employees employed as on the last date of the preceding year.
b. Emoluments are paid otherwise than by an account payee cheque or account
payee bank draft or by use of electronic clearing system through a bank
account.
2. In the first year of a new business, emoluments paid or payable to employees
employed during the PY shall be deemed to be the additional employee cost.
Emoluments ―Emoluments‖ means any sum paid or payable to an employee in lieu of his
employment by whatever name called, but does not include employer‘s
contribution to pension fund/ provident fund/ any other fund for the benefit of
employer under any law. Further, it does not include lump sum payment at the
time of termination of service, or superannuation or voluntary retirement, such
as gratuity, severance pay, leave encashment, voluntary retrenchment benefits,
commutation of pension, and the like.
Note The provisions of old section 80JJAA shall apply to an assessee who is eligible
to claim any deduction under section 80JJAA for the AY 2016-17 (or any
earlier AY)

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TAX PLANNING BASED ON NATURE OF BUSINESS
33AB Special deduction for assessee engaged in growing & manufacturing Tea, Coffee or
Rubber Applicable to all assessee carrying on business of growing and manufacturing
Tea; Coffee; or Rubber in India.
Assessee must deposit an amount in an account with NABARD or in any other account in
accordance with and for the purpose specified in a scheme approved by Tea Board or
Coffee Board or Rubber Board within 6 months from the end of the previous year or
before the due date of furnishing the return of income. Accounts of assessee must be
audited.
Deduction: Minimum of - Amount so deposited or 40% of the profit.
33ABA Site Restoration Fund: Applicable to all assessee engaged in the business of a)
Prospecting for petroleum of natural gas in India; or b) Extraction or production of
petroleum or natural gas in India; or c) Both.
The Central Government has entered into an agreement with the assessee for such
business. Assessee must deposit an amount with the State Bank of India or in an
account maintained in accordance with and for the purposes specified in a scheme
approved by the Government of India in the Ministry of Petroleum & Natural Gas. Such
amount must be deposited before the end of the previous year. Accounts must be
audited.
Deduction: Minimum of - Amount so deposited or 20% of the profit.
DEDUCTION FOR EXPENDITURE ON SPECIFIED BUSINESS: SECTION 35 AD

Deduction = 100% of capital expenditure
Ineligible Expenditure:
1. Any Capital expenditure in respect of which the payment or aggregate of payments made to a
person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee
bank draft or use of electronic clearing system through a bank account, > Rs. 10,000, or
2. Any expenditure incurred on the acquisition of any
(i) Land, or
(ii) Goodwill, or
(iii) Financial Instrument
Specified business Commencement

(a) Laying and operating a cross country Natural Gas or Crude or Petroleum On or after 1/4/2008
Oil Pipeline Network for distribution, including Storage Facilities being
an integral part of such network

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(b) Setting up and operating a Cold Chain Facility, on or after
01/04/2010
(c) Setting up and operating a Warehousing Facility for storage of on or after
Agricultural Produce. 01/04/2010
(d) Building and operating a Hotel of two star or above category as n or after
classified \ by the Central Government. 01/04/2011
(e) Building and operating a Hospital with at least 100 beds for patients. on or after
01/04/2011
(f) Developing and building a Housing Project under a scheme for n or after
Affordable Housing Slum Redevelopment or Rehabilitation Scheme 01/04/2011
framed by Central or State Government and notified by CBDT.
(g) Developing and building a Housing Project under a scheme for on or after
Affordable Housing framed by the Central Government or State 01/04/2011
Government and notified by CBDT[Guidelines as per Notification No.
1/2012]
(h) New Plant or in newly installed capacity in an existing Plant, for on or after
production of Fertilizer. 01/04/2011
(i) Setting up and operating an Inland Container Depot or Container on or after
Freight Station notified or approved under the Customs Act. 01/04/2013
(j) Bee-keeping and production of Honey and Beeswax. on or after
01/04/2013
(k) Setting up and operating a Warehousing Facility for storage of Sugar. on or after
01/04/2013
(l) Laying and operating a Slurry Pipeline for the transportation of Iron or after
Ore. 01/04/2015
(m) Setting up and operating semi-conductor Wafer Fabrication on or after

Manufacturing Unit notified by CBDT. 01/04/2015
(n) Business of developing or maintaining or operating or developing, on or after
maintaining and operating a New Infrastructure Facility 01/04/2017
Infrastructure facility means –

a. A road including toll road, a bridge, a rail system
b. A highway project including housing or other activities being an integral
part of the highway project
c. A water supply project, water treatment system, irrigation project,
sanitation or sewerage system or solid waste management system
d. a port airport inland waterway, inland port or the navigation channel in
the sea.

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Illustration 1
Win Limited commenced the Business of operating Three Star Hotel in Tirupathi on 01.04.2016. It
furnishes you the following:
Particulars Rs. (in lakhs)

(i) Cost of land (acquired in June 2015) 60
(ii) Cost of construction of hotel building
Financial year 2015 – 2016 30
Financial year 2016 – 2017 150
(iii) Plant and Machineries (all new) acquired during financial year 2016 – 2017 30
(all the above expenditures were capitalized in the books of the company)
Net Profit before Depreciation for the Financial Year 2016 – 2017 80
Determine the amount eligible for u/s 35AD, for the assessment year 2017 – 18. [May
2011]
Solution
Computation of Deduction under section 35AD

(in Rs. lakhs)
Particulars Deduction under

section 35AD
Expenditure incurred in the Prior Previous year capitalized in the books of the
company
(i) Land – Excluded under section 35AD Nil
(ii) Construction of Hotel Building – (Rs.30 + Rs.150) 180
(iii) Plant and Machineries 30
Total Eligible Deductions under section 35AD 210
Computation of Income
Income for the Previous year 80
Less: Deductions computed above restricted to Income as above (80)
Total Income Nil
.
NOTE
KEY
The Balance Deduction of Rs. 130 Lakhs can be carried for any number of years, and can
be set off only against the Income of Specified Business. [Sec.73A]

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TAX PLANNING WITH REFERENCE TO SPECIFIC MANAGEMENT DECISIONS
Illustration 1
What are tax benefits available, where the asset is acquired on lease or purchase by own fund.
Solution
Purchase vs. lease
1. In case of purchase, depreciation is allowed under section 32, while depreciation will not be
allowed u/s 32 in case of lease. This principal has also been upheld by the Hon. Supreme Court in
the case of ICDS Ltd. Vs CIT (2013) 350 ITR 527,
2. In case of Lease, revenue expenditure i.e., lease rent will be allowed as deduction u/s 37(1).
Repairs are also allowable under section 31.
In case of purchase, insurance premium, current repairs are allowed as deduction u/s 31. Further,
interest on borrowed funds is deductible under section 36.
3. Purchase of machinery would create a tangible asset which can also be mortgage in the hours of
need. While it is not so in case of Lease.
Illustration 2
A Ltd. wants to acquire a machine on 1st April, 2015. It will cost Rs. 1,50,000. It is expected to have a
useful life of 3 years. Scrap value will be Rs. 40,000. If the machine is purchased through borrowed
funds, rate of
Interest is 15% p.a. the loan is repayable in three annual instalments of Rs. 50,000 each. If machine
is acquired through lease. Lease rent would be Rs. 60,000 p.a.
Profit before depreciation and tax is expected to be Rs. 1,00,000 every year. Rate of depreciation is
15%. Average rate of tax may be taken at 33.99%
A Ltd. seeks your active whether is should:

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(i) Acquire he machine through own funds, or borrowed funds; or
(ii) Take it on lease.
Advice whether asset should be taken on lease or on purchase. Whether it should be acquired
through own funds or borrowed funds? Present value factor shall be taken @ 10%.
Note: The profit or Loss on sale of the asset is to be ignored
Solution
In all the scenarios, profit is same, therefore, we can advise on the basis pf present value of Outflow
and loans.
(I) PURCHASINF MACHINE
a) Through own Funds
Particulars Year
0 1 2 3
Cash Outflow (1,50,000) - - -
Less: Tax Relief on depreciation @33.99% - 7,650 6,500 5,525
(Rounded Off)
Less: Sale Proceeds of machine - - - 40,000
Total (1,50,000) 7,650 6,500 45,525
Present Value Factor @10% 1 10.909 0.826 0.751
Present Value of Cash Outflows (1,50,000) 6,954 5,369 34,189
Cash Inflows (-) Outflows Rs.
(1,03,487)
b) Through Loan Funds

Particulars Year
0 1 2 3
Cash Outflows:
Loan repayment (50,000) (50,000) (50,000)
Interest Payment (22,500) (15,000) (7,500)
Cash inflow
Less: Tax Relief on Depreciation / Loss 7,650 6,500 5,525
@ 33.99%
Less: Tax Relief on Interest 7,650 6,500 5,525
Sale Proceeds of machinery - - 40,000
Total (57,200) (53,400) (9,425)
Discounting factor @ 10% 1 0.9.9 0.826 0.751
Present value of Cash outflows (Rs) Nil (51,995) (44,108) (7,078)
Net Present Value of Cash Outflows Rs.
(1,03,181)

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(II) ACQUIRING MACHINE ON LEASE
Particulars Year
0 1 2 3
Cash Outflow on Lease Rent - (60,000) (60,000) (60,000)
Less: Tax Relief on Lease Rent @ 33.99% - 20,390 20,390 20,390
Net Cash Outflow (39,610) (39,610) (39,610)
Discounting factor @ 10% 1 0.9.9 0.826 0.751
PV of Cash Outflows - (36,005) (32,718) (29,747)
Net Present Value of Cash Outflows Rs.
(98,470)
Conclusion: Cash outflow is latest if machine is acquired on lease. Hence, machine shall be acquired on
lease.
Working Notes:
Calculation of Tax relief on Depreciation and Balancing Allowance
Year Opening Balance Depreciation @ 15% Tax Relief @33.99%
1 1,50,000 22,500 7,650
2 1,27,500 19,125 6,500
3 1,08,375 16,257 5,525
19,675

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TAX PLANNING WITH REFERENCE TO EMPLOYEES‟ REMUNERATION
The tax planning in case of employee‘s remuneration requires the study both from the employer and
employees point of view. On one side, the employers have to adopt steps so as to ensure eligibility for
deductions and allowances to the maximum extent. Further planning is required from employer‘s point
of view also.
TAX PLANNING FROM EMPLOYEE’S POINT OF VIEW

The salary received by the employee, whether in cash or kind should attract minimum tax liability. In
other words, he should be in a position to avail maxim–exemption/concession in respect of such salary
received by him.
1. Medical allowance v Medical facility/reimbursement: Any medical allowance received by an
employee shall be fully taxable, irrespective of any amount spent by him on his medical treatment
or treatment of his family members. On if other hand any medical facility granted by the
employer to the employee and his family members in a hospital etc. maintained by the employer
shall be a tax free perquisite. Similarly, any reimbursement of medical expenses by the employer
on account of the medical treatment of the employee and his family members shall be tax free
perquisite subject to maximum of Rs. 15,000. Further, if the treatment of the employee or his
family members is done in a Government hospital/hospital approved by the Govt, for its
employees or treatment is done for any specified disease or ailment in a hospital approved by
CIT, the entire amount incurred shall be tax free perquisite, in addition to the above Rs.15, 000.
Similarly, expenses incurred/reimbursed by the employer on medical treatment of the employees
and his family members outside India shall also be tax free a regard to expenses on medical
treatment, stay outside India of the patient one attendant are concerned. However, the travel
expenses of the patient and one attendant, for going outside India for such purpose, shall be tax
free only, if v gross total income of the employee before including such perquisite of travel does
not exceed Rs. 2 Lakhs.
2. Lunch allowance v food and beverages. Any lunch allowance received by an employee shall be
fully taxable. But food and beverages of any kind giver, employee will not be treated as a
perquisite in the hands of the employee. The benefit may be in the form of –
(i) any expenditure on or payment for, food or beverages provided by the employer to his employees
in office or factory,
(ii) Any expenditure on or payment through paid vouchers which are not transferable and usable only
at eating joints or outlets.
3. Transport allowance v conveyance for travelling from residence to the office and back to
residence: Any transport allowance received by an employee from the employer for travelling
from residence to the office and back to residence shall be exempt to the extent of Rs. 1600
p.m. irrespective of any amount spent on such travelling. On the other hand, if the conveyance is
provided by the employer to the employee for travelling from residence to the office and back it
will be tax free perquisite.

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4. Conveyance allowance v Conveyance facility: Any conveyance allowance given to the employee
for his persona! Purposes shall be fully taxable in his hands. However, the expenditure on
conveyance, tour and travel (including foreign travel) will be deemed to be a perquisite. Further,
facility of car/ conveyance shall be treated as a perquisite in the hands of the employee.
5. Children education allowance/hostel expenditure allowance v reimbursement of the expenses

of children education/education facility: If an employee takes C.E.A. and H.E.A. from his
employer for his children education, such children education allowance shall be exempt subject to
a maximum of Rs. 100 p.m. per child for a maximum of 2 children. Similarly, H.E.A, shall be
exempt to the extent of Rs. 300 p.m. per child for a maximum of 2 children. On the other hand,
any expenses on the education of the children reimbursed by the employer shall be fully taxable.
CASE TAXABLE VALUE
Facility provided to employee Not taxable
Facility provided to family member
If institute is owned by the employer Child of the assessee
Cost of such education in similar institution LESS 1000
per month per child LESS amt recovered from
employee = Taxable value of perquisite (if positive)
Facility provided in any other institute Other Family member
Cost of such education in similar institution LESS amt
recovered from employee = Taxable value of perquisite
(if positive)
Reimbursement of education expenditure Fully taxable
to employee
6. Servant allowance v facility of watchman, sweeper or gardener: Any servant allowance

received by the employee shall be fully taxable unless the servant helps the employee to do
official work. On the other hand, if the watchman, sweeper or gardener is employed by the
employer and the facility of such person is given to the employee free of cost, the valuation of
this perquisite for taxability of the same shall be the actual cost to the employer.
7. Telephone allowance v Telephone facility/reimbursement of expenses: The facility of

telephone shall not be treated as a perquisite in the hands of employee. However, if telephone
allowance is given to the employee it will be fully taxable in the hands of the employee.
8. House rent allowance v rent free accommodation: Any house rent allowance received by an
employee is exempt to the extent of the minimum of following three limits:
 Actual H.R.A. received.
 Excess of Rent paid over 10% of salary.
 50% of salary if the house is situated in Mumbai, Delhi, Chennai . Calcutta and 40% of salary in
any other city.‖

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Salary for HRA

Basic + DA (if applicable) + commission (TO)
Salary for Rent free Accommodation

Basic salary + DA (if applicable) + bonus + fees + commission + taxable allowance + Any monetary
payment by employer
TAX PLANNING FOR RETIREMENT OF THE EMPLOYEE
The employee can receive the following retirement benefits from his employer: Gratuity — if the
gratuity is received by an employee under the Payment of Gratuity Act, 1972, it shall be exempt to
the extent of minimum of the following 3 limits:
(1) Actual Gratuity received.
(2) 15/26 X monthly salary at the time of retirement X duration of service
(3) Rs. 20.00.000
Salary for this purpose will include dearness allowance and it will be last drawn salary.
In any other case, the gratuity shall be exempt to the extent of minimum of following 3 limits:
(1) Actual gratuity received.
(2) ½ X Avg salary X completed yrs of service
(3) Rs. 10,00,000
Salary for this purpose shall include Dearness allowance if the terms of employment so provide.
Further, if a fixed percentage of commission on turnover is given it shall include due to the
Supreme Court case. Average salary here means average of the above salary for the last ten months
immediately preceding the month in which the event occurs.
Commuted Pension.–If an employee receives uncommitted pension, it is taxable, but there is some
exemption in case of commuted pension. The commuted pension in case of Government employee of
local authority & employees of corporation, if the commutation is as per their rules, shall be fully
exempt. In case of any other employee, it shall exempt to the extent of commuted value of 50% of
the normal pension in case the employee is not in receipt of gratuity. The exemption shall be l/3 rd in
case he is in receipt of gratuity as well.
Leave encashment.—Encashment of accumulated leave to the Government employ at the time of

retirement on superannuation or otherwise shall be fully exempt. In case any other employee, the
exemption shall be to the extent of the minimum of the follow: limits:—.
(1) Actual encashment received.
(2) Cash equivalent to the unveiled leave calculated on the basis of maximum days leaves for each
completed year of service.
(3) 10 months average salary.
(4) Rs. 3,00,000.
Salary for this purpose shall have same meaning as is given in case of gratuity above Average salary
means average of the salary of last 10 months immediately preceding the retirement.

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Payment for RPF: If the payment is received by an employee after 5 years continuous service, it
shall be fully exempt. Further, if the payment is received before years due to ill health or
disablement or death of the employee or due to any reason beyond his control, it shall also be
exempt. If the payment is received before 5 years, the employee‘s contribution plus interest thereon
till date shall be taxable as profits in lieu of salary. Interest on employee‘s contribution shall be
taxable under the head income from other sources.
Compensation received Under Voluntary Retirement Scheme: Any compensation received/receivable

by an employee under an approved Voluntary Retirement Scheme shall be exempt to the maximum
extent of Rs. 5,00,000.

CMA VIPUL SHAH
CHAPTER 6:INCOME TAX IMPLICATIONS OF SPECIFIED

TRANSACTIONS
CAPITAL GAINS IN THE CASE OF SLUMP SALE SEC 50B
Sale consideration As usual

Cost of Acquisition / Improvement Net worth of the undertaking
Indexation Benefit Not available
Nature of gain weather. short term If undertaking is owned & held for not more than 36
or long term months, then capital gain shall deemed to be short-term
capital gain otherwise long-term capital gain.
TAX IMPLICATION ON BUY BACK OF SHARES
Listed Companies -
In case of listed company buyback tax is not triggered, buy back option can be considered as best
way for distribution of surplus funds by these entities,
The shareholders are liable to pay capital gain tax in case they receive amount from the company
in process of buy back. Capital gain tax payable can be long term or short term capital gain tax
depending upon duration the shares are held, this is covered under Section 10 (38) of the Income
Tax Act, 1961,
ISSUE OF SHARES AT PREMIUM
Relevant provision of Section 56 with regard to Share premium amount
Section 56(2)(viib) of the Income Tax Act, 1961 covers taxation on share premium amount, the
relevant part reads as follows -
(viib) where a company, not being a company in which the public are substantially interested,
receives in any previous year, from any person being a resident, any consideration for issue
of shares that exceeds the face value of such shares, the aggregate consideration received
for such shares as exceeds the fair market value of the shares:

CMA VIPUL SHAH
TRANSFER OF SHARES
Special provision for full value of consideration for transfer of share other than quoted share
[Section 50CA]
Where the consideration received or accruing as a result of the transfer by an assessee of a capital
asset, being share of a company other than a quoted share, is less than the fair market value of
such share determined in such manner as may be prescribed, the value so determined shall, for
the purposes of section 48, be deemed to be the full value of consideration received or accruing as
a result of such transfer.
Explanation: For the purposes of this section, “quoted share” means the share quoted on any
recognised stock exchange with regularity from time to time, where the quotation of such share is
based on current transaction made in the ordinary course of business.
CAPITAL GAIN ON TRANSFER OF SHARES / DEBENTURES BY A NON-RESIDENT

Applicable A non-resident assessee
Nature of asset Capital assets whether long-term or short term being shares in, or
debentures of an Indian company acquired by utilizing foreign currency
Ste Conversion of Particulars Conversion rate
p
1 Sale Find sale consideration in At average exchange rate1 on the date of
consideration Indian currency and convert it transfer
into foreign currency
2 Expenditure on Find expenditure on transfer At average exchange rate on the date of
transfer in Indian currency and transfer (not on the date when
convert it into foreign expenditure was incurred)
currency
3 Cost of Find cost of acquisition in At average exchange rate on the date of
acquisition Indian currency and convert it acquisition.
into foreign currency
4 Capital gain in Step 1 - Step 2 - Step 3 Not applicable
foreign currency
5 Taxable Capital Capital gain so calculated (in At buying rate2 on the date of transfer
gain step 4) will be reconverted
into Indian currency

CMA VIPUL SHAH
11 Cash Credits [Sec. Taxable in the FY in which it is found credited in books of

68] accounts if Assessee offers unsatisfactory explanation about
its nature and source.
12 Unexplained Investments made by Assessee which are not recorded in books
Investments [Sec. and he offers no explanation or offers unsatisfactory
69] explanation about its nature and source, then the value of
investment is deemed to be Income of the Assessee of such FY.
13 Unexplained money, Where in any FY the assessee is found to be the owner of
Bullion, Jewel or Money, Bullion, jewellery, or any valuable article and those are
valuable article etc not recorded in books and he offers no explanations of offers
[Sec. 69A] unsatisfactory explanation about its nature and source, then the
value of those assets is deemed to be Income of the Assessee
of such FY.
14 Investments, etc. Where in any FY the assessee has made investments or is found
not fully disclosed in to be the owner of money, Bullion, Jewellery, etc the AO finds
books of account that amount expended exceeds the amount recorded in books
[Sec. 69B] and assessee offers no explanation or offers unsatisfactory
explanation about excess amount, then such excess amount is
deemed to be Income of the assessee of such FY.

CS Professional DT Revision For Dec 19

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CS PROFESSIONAL

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CHAPTER 1: BASIC CONCEPTS & TAXATION OF INDIVIDUAL

NON RESIDENT ASSESSEE

other Income chargeable at Special Rates.

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FOR DOMESTIC COMPANIES

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CONCEPT OF MARGINAL RELIEF

Particulars Difference Rate Tax on Tax on

To remove above defect Marginal relief is given as under

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Total Tax 1312500 1342500

Calculation of Tax Liability after Marginal Relief

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Calculation of tax liability after marginal relief

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RESIDENTIAL STATUS AT A GLANCE

Assessee Condition to be a Resident Condition to be an Ordinary Resident

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2) Any income derived from such land on sale made by

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LOSS FROM AGRICULTURAL INCOME

CONDITIONS FOR INCLUDING AGRICULTURAL INCOME IN THE TOTAL INCOME OF THE

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INCOME FROM SALARY

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HOW TO CALCULATE GROSS ANNUAL VALUE

Steps PARTICULARS AMOUNT

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Assessee must be the owner of the asset.

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Less: Net Sale consideration of assets sold during the

Applicable to Assessee engaged in the Asset is put to Asset is put to

Amendment Finance Act 15: Balance 50% can be claimed in succeeding PY

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Where an assessee incurs any expenditure, for, which payment or aggregate

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Acquired before 1st February, 2018 shall be the higher of

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TO CLACULATE INDEXED COST OF ACQUISITION & IMPROVEMENT

Indexed cost of acquisition [Explanation (iii) to Section 48)

Indexed cost of improvement [Explanation (iv) to Section 48)

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WHEN SET OFF IS AVAILABLE?

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