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 INDEX
CHAPTER 1 – BASIC CONCEPTS ...........................................................................................................2

CHAPTER 2 - RESIDENCE AND SCOPE OF TOTAL INCOME ............................................................. 14

CHAPTER 3 - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME .................................... 34

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CHAPTER 4 - INCOME FROM SALARIES ............................................................................................ 45

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CHAPTER 5 - INCOME FROM HOUSE PROPERTY ............................................................................. 86

CHAPTER 6 - CAPITAL GAINS............................................................................................................. 99

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CHAPTER 7 - PROFITS OR GAINS OF BUSINESS OR PROFESSION ................................................ 139

CHAPTER 8 - INCOME FROM OTHER SOURCES ............................................................................. 187

CHAPTER 9 - INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME ........... 199

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CHAPTER 10 - SET OFF AND CARRY FORWARD OF LOSSES .......................................................... 204

CHAPTER 11 - DEDUCTIONS FROM GROSS TOTAL INCOME ........................................................ 215

CHAPTER 12 - ALTERNATE MINIMUM TAX (AMT) .......................................................................... 241

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CHAPTER 13 - ADVANCE TAX, TDS AND TCS .................................................................................. 257

CHAPTER 14 - RETURN OF INCOME AND ASSESSMENT ............................................................... 293

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 CHAPTER 1 – BASIC CONCEPTS

Overview

Steps for Basis of charge

Components of determining total Important and rates of
Types of tax
income tax law income definations taxes

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Taxes

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Meaning For the payer – Contribution to his own nation
For the payee – Source of revenue
Why levied Meeting the expenses of Government like defence, provision of

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education, healthcare, infrastructure facilities like roads, dams etc.
Power to levy  Constitution of India gives the power to levy and collect taxes, whether direct
taxes or indirect, to the Central and State Government.
 Seventh Schedule to Article 246 contains three lists

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➢ Union List: Parliament has the exclusive power to make laws on the
matters contained in Union List
➢ State List: The Legislatures of any State has the exclusive power to make
laws on the matters contained in the State List
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➢ Concurrent List: Both Parliament and State Legislatures have the power
to make laws on the matters contained in the Concurrent list.
 Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of
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the Constitution of India has given the power to the Parliament to make laws
on taxes on income other than agricultural income.

Types of taxes Direct taxes Indirect taxes

and Tax on income Tax on Goods and services
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differentiation Borne by the person who earns the Borne by the ultimate consumer of
between them income goods & services.
Burden of tax is felt by the person Burden is not felt as it is inbuilt in the
paying it price.
Administration is difficult for the Comparatively easy
government
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Progressive nature - The one who Regressive nature – Same amount is

earns more pays more payable irrespective of the financial
status of the person.
Example: Income tax Example: GST and Customs act
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 Components of Income tax law
 It came into force on 1st April 1962.
Income-tax Act,
 It contains 298 sections and XIV schedules.
1961
 The Income-tax Act, 1961 undergoes change every year with additions
and deletions brought out by the Annual Finance Act passed by
Parliament.

Income-tax Rules,  The administration of direct taxes is looked after by the Central Board of

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1962 Direct Taxes (CBDT)
 For the proper administration of the Income-tax Act, 1961, the CBDT

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frames rules from time to time. These rules are collectively called Income-
tax Rules, 1962.

The Finance Act  Every year, the Finance Minister of the Government of India introduces the

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Finance Bill in Parliament’s Budget Session.
 It is laid in both the houses of the Parliament and gets the assent of the
President, it becomes the Finance Act.

 Circulars are issued by the CBDT from time to time to deal with certain

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Circulars and
Notifications specific problems and to clarify doubts regarding the scope and meaning
of certain provisions of the Act.
 Circulars are issued for the guidance of the officers and/or assesses. The
department is bound by the circulars. While such circulars are not binding
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on the assessees, they can take advantage of beneficial circulars.
 Notifications are issued by the Central Government to give effect to the
provisions of the Act. The CBDT is also empowered to make and amend
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rules for the purposes of the Act by issue of notifications.

Judicial decisions  The judiciary will hear the disputes between the assessee and the
department and give decisions on various issues.
 The Supreme Court is the Apex Court of the Country and the law laid
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down by the Supreme Court is the law of the land.

 The decisions given by various High Courts will apply in the respective
states in which such High Courts have jurisdiction.

Income Tax Act, 1961

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Sections - 298 Schedules - I to XIV

Sub-sections Clauses
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Sub-clauses

Sub-section  Parts of a section where each part is related with other, and all sub-
sections complete the concept propounded in the Section
Clause  Each part of section is independent of each other and not related
Proviso  The Proviso(s) to a section/sub-section/clause spells out the
exception(s)/condition(s) to the provision contained in the respective
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 section/sub-section/clause
Explanation  gives a clarification relating to the provision contained in the respective
section/sub-section/clause.

Steps for computing total income and tax liability

Step 1 Determination of residential status
The residential status of a person has to be determined to ascertain which income is to be

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included in computing the total income.

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Step 2 Classification of income under different heads

Heads of Income as per Act

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Profits & gains
Salaries House Other
of Business or Capital gains
property sources
profession

Step 3 Computation of income under each head

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Compute in accordance with the provisions governing a particular head of income.
Exempt income is not considered.
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Step 4 Clubbing of income of spouse, minor child etc.
Under which income arising to certain persons (like spouse, minor child etc.) have to be
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included in the income of the person who has diverted his income for the purpose of
computing tax liability.

Step 5 Set-off or carry forward and set-off of losses

Loss from one head of income is set off with the income under another head subject to
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conditions.

Step 6 Computation of Gross Total Income

Aggregate of the all the above steps will lead to this.

Step 7 Deductions from Gross Total Income (GTI)

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• Deductions for certain payments

• Deductions against certain incomes
• Deduction for other income
• Other Deductions
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Step 8 Total Income = GTI – Deductions

It should be rounded off to the nearest multiple of Rs. 10 as per Section 288A.

Step 9 Application of the rates of tax on the total income

After reducing deductions from gross total income, we arrive at total taxable income

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 For certain special Income (like Long Term Capital Gains, Lottery Income, Specified Short
Term Capital Gains etc.), slab rates are not applicable.

New section 115BAC provides an option for concessional slab rates to individual and HUF
subject to certain conditions, which have been discussed later.
Step 10 Application of Surcharge / Rebate under section 87A
➢ Surcharge is levied as a percentage of IT, where total income exceeds Rs.50 lakhs

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➢ Section 87A provides a rebate from the tax payable by an assessee, being an
individual resident in India, whose total income does not exceed Rs. 5,00,000.

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➢ Rebate = Lower of Amount of Income-tax payable (or) Rs. 12,500

Step 11 Health and education cess on income-tax

The income-tax, as increased by the surcharge or as reduced by the rebate under section

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87A, if applicable, is to be further increased by an additional surcharge called health and
education cess on income-tax @ 4% of income-tax plus surcharge, if applicable.

Step 12 Advance tax and tax deducted at source

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Any tax paid in advance or deducted at source and remitted to government on behalf of
the assessee, during the previous year should be deducted from the tax liability.

Step 13 Tax Payable/Tax Refundable

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➢ After adjusting the advance tax and tax deducted at source, the assessee would arrive
at the amount of net tax payable or refundable. Such amount should be rounded off to
the nearest multiple of Rs. 10 as per Section 288A.
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➢ The assessee has to pay the amount of tax payable (called self-assessment tax) on or
before the due date of filing of the return. Similarly, if any refund is due, assessee will
get the same after filing the return of income.
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Tax rates (Per Finance Act, 2021)

Old scheme
Resident individuals of the Resident individuals of
Individual/ HUF/ AOP/
age of 60 years or more but the age of 80 years or
BOI/ Artificial Juridical
less than 80 years more at any time during
Person
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the previous year

Total Tax rate Total income Tax rate Total Tax rate
income (Rs.) (Rs.) income
(Rs.)
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0-2,50,000 Nil 0-3,00,000 Nil 0-5,00,000 Nil

2,50,001 – 5% On excess 2,50,001 – 5% On 5,00,001 – 20% On
5,00,000 over 2,50,000 5,00,000 excess over 10,00,000 excess over
3,00,000 5,00,000
5,00,001 – 20% On 5,00,001 – 20% On > 10,00,000 30% On
10,00,000 excess over 10,00,000 excess over excess over
5,00,000 + Rs. 5,00,000 + 10,00,000
12,500 Rs. 10,000
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 lacs + Rs.
1,00,000
> 10,00,000 30% > 10,00,000 30%
On excess On excess
over over
10,00,000 lacs 10,00,000
+ Rs. 1,12,500 lacs + Rs.
1,10,000

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CBDT clarification – A resident individual whose 60th birthday (or 80th birthday) falls on
1st April 2023, would be treated as having attained the age of 60 years (or 80 years) in

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the P.Y.2022-23, and would be eligible for higher basic exemption limit of Rs.3 lacs (or 5
lacs) in computing his tax liability for A.Y.2023-24.

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Tax rates applicable for Firm, LLP, Local Authority and Cooperative Society
Particulars Tax rate
Firms & LLP Flat rate of 30%
Local authority Flat rate of 30%

Co-operative society
Up to 10,000
10,001 – 20,000 go
Total income (Rs)
10%
Tax rate

20% On excess over 10,000

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+ Rs. 1,000
> 20,000 30% On excess over 20,000
+ Rs. 3,000
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Tax rates - New Scheme u/s 115BAC

Note – As per section 115BAC, individuals and HUFs have an option to pay tax in respect of
their total income (other than income chargeable to tax at special rates under Chapter XII)
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at following concessional rates, if they do not avail certain exemptions/deductions like LTC,
standard deduction under the head “Salaries”, interest on housing loan on self-occupied
property, deductions under Chapter VI-A (other than 80CCD(2) or section 80JJAA) etc.
Category - Individual/HUF
Total income (Rs.) Tax Tax Amount (Rs.)
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rate
0-2,50,000 Nil Nil

2,50,001 – 5,00,000 5% 5% On excess over 2,50,000

5,00,001 – 7,50,001 10% Rs.12,500 + 10% On excess over 5,00,000

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7,50,001 – 10,00,000 15% Rs.37,500 + 15% On excess over 7,50,000

10,00,001 – 12,50,000 20% Rs.75,000 + 20% On excess over 10,00,000

12,50,001 – 15,00,000 25% 1,25,000 + 25% On excess over 12,50,000

> 15,00,000 30% 1,87,500 + 30% On excess over 15,00,000 lacs

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 ➢ Individuals and HUFs exercising option u/s 115BAC are not liable to alternate minimum
tax u/s 115JC.

Tax Rates applicable for Companies

Category Tax Rate
Other than Domestic Companies 40%
Domestic Companies:

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➢ General 30%
➢ Turnover ≤ Rs. 400 Crores in FY 2020-21 25%

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➢ Subject to 115BAA 22%
➢ Subject to 115BAB 15%

➢ Domestic company can opt for section 115BAA or section 115BAB, as the case may be,

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subject to certain conditions.
➢ The total income of such companies would be computed without giving effect to
deductions under section 10AA, 32AD, 33AB, 33ABA, 35AD, 35CCC, 35CCD, 80-IA to
80RRB (except section 80JJAA or section 80M), additional depreciation under section 2(1)

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(iia) etc. and without set-off of brought forward loss and unabsorbed depreciation
attributable to such deductions.
➢ The taxability of companies is not tested for CA Inter.
➢ Effective rate of tax as per Section 115BBE is 78%. (i.e., 60% + Surcharge 25% and cess 4%)
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Special Rates (Discussed later)

# Sec. Income Rate of Tax

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(a) 112 Long term capital gains (other than LTCG taxable as per 20%
section 112A)
(b) 112A Long term capital gains on transfer of – Equity share in a 10%
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company, Unit of an equity-oriented fund, Unit of business [On LTCG > Rs. 1L]
trust subject to securities transaction tax
(c) 111A Short-term capital gains on transfer of – Equity share in a 15%
company, Unit of an equity-oriented fund, Unit of business
trust subject to securities transaction tax.
(d) 115BB Winnings from - Lotteries; Crossword puzzles; Races 30%
including horse races; Card games and other games of any
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sort; Gambling or betting of any form or nature

(e) 115BBE Unexplained money, investment, expenditure, etc. deemed 60%
as income under section 68 or section 69 or section 69A or
section 69B or section 69C or section 69D
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Surcharge applicable on various categories

Individual/HUF/BOI/AOP/AJP (Total Income - Surcharge
(including dividend income and capital gains
chargeable to tax u/s 111A, 112 &112A) Rs.
> 50 lakhs up to 1 Crore 10%
> 1 crore up to 2 crores 15%
> 2 Crore up to 5 crores 25%

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 > 5 crores 37%
➢ The surcharge on total income to the extent of income under 111A, 112 & 112A and
dividends will not exceed 15%.

Companies (Total Income) Surcharge

General (other than Domestic company
opting for Section 115BAA or 115BAB)
> 1 Crore 7%

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> 10 Crore 12%
115BAA and 115BAB (No threshold Limit) 10%

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Foreign
> 1 Crore 2%
> 10 Crore

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5%

Firm/LLP/Co-Op Societies/Local Surcharge

Authority
> 1 Crore 12%

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➢ Marginal relief is available to all the above categories if the tax payable including
surcharge is greater than the excess of income over the threshold limit.

Sec. 87A- Rebate

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 Available only to resident individuals.
 Whose total income does not exceed Rs. 5,00,000 *
 Rebate = Tax payable or Rs.12,500, whichever is less
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 Rebate under section 87A is, however, not available in respect of tax payable @10% on
long-term capital gains taxable under section 112A.

Sec 4 – Chargeability
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Section 4 of the Income-tax Act, 1961 is the charging section which provides that:
 Tax shall be charged at the rates prescribed for the year by the Annual Finance Act.
 The charge is on every person specified under section 2(31).
 Tax is chargeable on the total income earned during the previous year and not the
assessment year.
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 Tax shall be levied in accordance with and subject to the various provisions contained in
the Act.

Marginal Relief
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Step 1 Compute income-tax payable on total income; and add surcharge

Step 2 Compute income-tax payable on the lower limit of the surcharge slabs i.e., Rs. 50 lakhs,
Rs.1 Crore, Rs.2 Crores, Rs.5 crores
Step 3 Total income (-) the lower limit of the surcharge slabs i.e., Rs. 50 lakhs, Rs.1 Crore, Rs.2
Crores, Rs.5 crores
Step 4 Add the amount computed in Step 2 and Step 3

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 Step 5 Income-tax payable on total income (along with surcharge) would be the lower of the
amount arrived at in Step 1 or Step 4
Consequently, if A > B, the marginal relief would be A – B.
Sec 2 – Definitions

Sec. 2 (31) – Person

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Persons

Individual HUF Firm AOP BOI Local AJP

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Authority
Under Under
Partnership LLP
Act Company

Domestic

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Foreign
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Category Particulars
Individual ➢ Natural person, i.e., a human being
➢ Including minor and lunatics. (In such case the legal representative
is assessed.)
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HUF ➢ Defined under the Hindu Law as a family, which consists of all
males lineally descended from a common ancestor and includes
their wives and daughters.
➢ Head of the family is called ‘Karta’ and other male members and
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daughters are called ‘co-parceners’ who have right to demand

partition.
➢ Jain undivided families and Sikh undivided families are included.

Company (Section ➢ Any Indian company (Section 2(26))

2(17)) ➢ Any foreign company (Section 2(23A))
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➢ Any institution, association or body which is assessable or was

assessed as a company for any assessment year
➢ Any institution, association or body, whether incorporated or not
and whether Indian or non-Indian, which is declared by a general
or special order of the CBDT to be a company
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Firm (Section ➢ As defined under the Partnership Act,1932

2(23)) ➢ As defined under the Limited Liability Partnership Act, 2008

Association of ➢ When persons combine together for promotion of joint enterprise,

Persons they are assessable as an AOP, when they do not in law constitute a
(AOP) partnership.
➢ Common purpose and common income is necessary.

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 ➢ Co-heirs, co-legatees or co-donees are included.

Body of Individuals ➢ It denotes the status of persons like executors or trustees who
(BOI) merely receive the income jointly and who may be assessable as
such
➢ co-executors or co-trustees are assessable as a BOI

Local Authority ➢ Means a municipal committee, district board, body of port

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commissioners or other authority legally entitled to or entrusted by
the Government with the control or management of a municipal or
local fund.

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Artificial Juridical ➢ Residuary category.
Persons ➢ Temples, churches, mosques and charitable institutions come
under this category.

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Sec 2(7) – Assessee
Assessee” means a person by whom any tax or any other sum of money is payable under
this Act

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➢ Every person in respect of whom any proceeding under this Act has been
taken for the assessment of
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• his income; or
• assessment of fringe benefits; or
• the income of any other person in respect of which he is assessable; or
• the loss sustained by him or by such other person; or
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• the amount of refund due to him or to such other person.
➢ Every person who is deemed to be an assessee under any provision of this Act;
➢ Every person who is deemed to be an assessee-in-default under any
provision of this Act.
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Section 2(25A) – India

(i) the territory of India as per Article 1 of the Constitution,
(ii) its territorial waters, seabed and subsoil underlying such waters,
(iii) continental shelf,
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(iv) exclusive economic zone or

(v) any other specified maritime zone and the air space above its territory and territorial
waters.
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Section 2(8) – Assessment

This is the procedure by which the income of an assessee is determined by the Assessing
Officer. It may be by way of a normal assessment or by way of reassessment of an income
previously assessed.

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 Section 2(9) – Assessment year
➢ A period of 12 months commencing on 1st April every year.

Section 3 – Previous year

➢ The financial year immediately preceding the assessment year.

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➢ The year in which income is earned is the previous year and such income is taxable in
the immediately following year which is the assessment year.

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➢ Business or profession newly set up during the financial year: -
Previous year shall be the period beginning on the date of setting up of the business or
profession and ending with 31st March of the said financial year.

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➢ If a source of income comes into existence in the said financial year, then the previous
year will commence from the date on which the source of income newly comes into
existence and will end with 31st March of the financial year.

 PY in case of undisclosed income

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1. Cash Credits [Section 68] – PY is year in which such amount is credited
2. Unexplained Investments [Section 69] – PY is year in which investments are made.
3. Unexplained money etc. [Section 69A] – PY is the financial year in which the
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assessee is found to be the owner of any money, bullion, jewellery or other valuable
article and the same is not recorded in the books
4. Amount of investments etc., not fully disclosed in the books of account [Section 69B]
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– PY is the financial year in which the assessee has made investments or is found to
be the owner of any bullion, jewellery or other valuable article and the Assessing
Officer finds that the amount spent on making such investments or in acquiring such
articles exceeds the amount recorded in the books of account.
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5. Unexplained expenditure [Section 69C] –PY is the financial year in which the
assessee has incurred any expenditure.
6. Amount borrowed or repaid on hundi [Section 69D] - PY in which the
amount was borrowed or repaid, as the case may be. Where any amount
borrowed on a hundi has been deemed to be the income of any person, he
will not be again liable to be assessed in respect of such amount on
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repayment of such amount.

 Other consequences of such income -

➢ Section 115BBE - tax@60% plus surcharge @25% of tax. Thus, the effective rate of tax
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(including surcharge@25% of tax and cess@4% of tax and surcharge) is 78%.

➢ No basic exemption or allowance or expenditure shall be allowed to the assessee under
any provision of the Income-tax Act, 1961 in computing such deemed income.
➢ Further, no set off of any loss shall be allowable against income brought to tax under
sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.

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  Exceptions to PY rule - cases when income of a previous year will be assessed in the
previous year itself
1. Shipping business of non-resident [Section 172] (provided he does not have any
agent in India, and he does not make any arrangement to pay tax @7.5%
2. Persons leaving India [Section 174] (without an intention to come back)
3. AOP/BOI/Artificial Juridical Person formed for a particular event or purpose
[Section 174A] (The purpose is accomplished, and the AOP/BOI is dissolved)

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4. Persons likely to transfer property to avoid tax [Section 175]

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5. Discontinued business [Section 176] – (The AO has a discretionary power in this
case)

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Sec.2(24) – Income
 Definition of Income- It is an inclusive definition and not an exhaustive one. The
components are given under each head of income

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 Concept of Income under the Income-tax Act, 1961
➢ It includes not only a regular receipt but also a casual receipt
➢ Normally refers to revenue receipts but certain provisions are included capital
receipts also
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➢ Normally refers to net receipt i.e., Excess of income over expenditure. Income from
certain eligible businesses/professions is also determined on presumptive basis i.e.,
as a certain percentage of gross receipts
➢ Includes both earned in cash also in kind
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➢ Income from both legal source and illegal source is subject to tax
➢ It can be received as a lumpsum payment or in instalments.
 Concept of revenue and capital receipts
➢ Fixed capital or Circulating capital:
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A receipt referable to fixed capital would be a capital receipt whereas a receipt

referable to circulating capital would be a revenue receipt. The former is not taxable
while the latter is taxable.
➢ Income from transfer of capital asset or trading asset:
Profits arising from the sale of a capital asset are chargeable to tax as capital gains
under section 45 whereas profits arising from the sale of a trading asset being of
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revenue nature are taxable as income from business under section 28

➢ Profits arising from transactions which are entered into in the course of the business
regularly carried on by the assessee, or are incidental to, or associated with the
business of the assessee would be revenue receipts
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➢ In the case of profit arising from the sale of shares and securities the nature of the
profit has to be ascertained from the motive, intention or purpose with which they
were bought
➢ Even a single transaction may constitute a business or an adventure in the nature of
trade even if it is outside the normal course of the assessee’s business depending on
the case.
➢ Liquidated damages pertaining to capital assets is a capital receipt.
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 ➢ Compensation on termination of agency is a capital receipt however it is taxable u/s
28. In case of employee, it is taxable u/s 17(3)
➢ Gifts are generally constituted as Capital receipt. But certain gifts come into the
scope of Income-tax.

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 CHAPTER 2 - RESIDENCE AND SCOPE OF TOTAL INCOME

Overview

Sec 7 Sec 9
Sec 6
Sec 5 Income deemed Income deemed
Residential

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Scope of Income to received in to accrue or arise
status in India
India

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Sec 5 – Scope of Income

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The scope of total income of an assessee depends upon
(i) the residential status of the assessee.
(ii) the place of accrual or receipt of income, whether actual or deemed; and
(iii) the point of time at which the income had accrued to or was received by or on behalf
of the assessee.

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Scope of total income

Resident and Resident and not Non-Resident

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ordinarily ordinarily
resident resident
Income which is
received / deemed
Income which is to be received /
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Global accrued / arisen /

income is received / deemed to be
received / accrued / deemed to accrue or
taxable in arise in India
India arisen / deemed to
accrue or arise in India
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Income which accrues

or arises outside india
being derived from a
business controlled or
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profession set up in
India

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 Scope of total Resident and Resident but not Non-
Income Ordinarily Ordinarily Resident Resident
Resident

Income received or Yes Yes Yes

deemed to be
received in India
during the previous

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year
Income accruing or Yes Yes Yes

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arising or deeming
to accrue or arise in
India during the

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previous year
Income accruing or Yes Yes No
arising outside India Even if such income is But only if such income
during the previous not received or is derived from a
year brought into India business controlled in

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during the previous or profession set up in
year India; Otherwise, No.
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Clarification [Circular No.13/2017, dated 11.04.2017 and Circular No.17/2017,
dated 26.04.2017]
Income by way of salary, received by non-resident seafarers, for services rendered outside
India on a foreign going ship (with Indian flag or foreign flag) and received into the NRE
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bank account maintained with an Indian bank shall not be included in the total income.

Sec 6 – Determination of Residential status

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Sec 6(1) and 6(6) Sec 6(1A) Sec 6(2) Sec 6(3) Sec 6(4)

Individuals Individuals HUF Company Firm, AOP, BOI

6(1) – Basic (Citizens of India) (S 6(6) – and others
conditions - Deemed Resident Additional
6(6) – Additional conditions for
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conditions Karta)
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 Section 6: Individual Residential status

Section Non
Section 6(1) Section 6(6) Resident
6(1A)/(6)(d)
(NR)

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Resident Deemed resident Resident but
but not ordinarily not

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(Individual)
Resident ordinarily
(Individual) resident
(c) Stayed in (RNOR)

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India - Citizen of India
(a) Stayed in ≥ 365 𝑑𝑎𝑦𝑠
India ≥182 - Total Income other than
in PPY &
𝑑𝑎𝑦𝑠 in PY income from foreign
≥ 60 𝑑𝑎𝑦𝑠
sources > Rs. 15 lacs
in PY
- Not liable to tax in any

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other country

For the purposes of this section, the expression "income from foreign sources" means
➢ Income which accrues or arises outside India (except income derived from a business controlled
in or a profession set up in India) and
di
➢ Which is not deemed to accrue or arise in India.
In
Residential Status of an Individual

Stay in India for 182 days or

more during the PY
By

YES NO

Resident in India in any 2 PYs out of 10 Stay in India for 60 days or more
PYs preceding the relevant PY + during the relevant PY
IN

Stay in India for 730 days or more OR

during the 7 PYs preceding the relevant
PY Stay in India for 365 days or
more during 4 PYs immediately
preceding the relevant PY
YES No
1F

YES NO
ROR RNOR

NR

➢ Stay in India includes stay in territorial waters of India.

➢ Period of stay need not be continuous.
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 ➢ Date of arrival and date of departure is considered as stay days.

Exceptions to Sec 6(1)(c)

Indian citizen, who Indian citizen or

Indian citizen, who
leaves India during the person of Indian
leaves India during Indian citizen or person
relevant PY for origin engaged

n
the relevant PY as a of origin having total
purposes of outside India, visits
member of the crew income, other than the
employment outside India during the
of an Indian ship income from foreign
India, or relevant PY.

ar
sources > Rs.15 lakhs
during the PY
182 days
182 days instead 182 days instead
instead of 60
of 60 Days in of 60 Days in
Days in Current

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Current P.Y Current P.Y
P.Y
120 days
instead of
60 Days in
The period or periods of stay in India shall, in respect Current P.Y
of an eligible voyage, shall not include the following

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period:
Period commencing from
the date entered into the Continuous Discharge
Certificate in respect of joining the ship by the said
individual for the eligible voyage and
di
Period ending on
the date entered into the Continuous Discharge
Certificate in respect of signing off by that individual
In
from the ship in respect of such voyage.
By
IN
1F

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 Resident but not ordinarily resident

Section 6(6)(a) Section 6(6)(c) Section 6(6)(d)

n
Individual + Individual +

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Individual Citizen of India / Citizen of India
Citizen of Indian [Deemed resident
origin u/s 6(1A)]

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Total Total
Stayed in Income Not liable
Non – India in Income
other than Stayed in other than for tax in
Resident total for ≤ any other
for 9 out of from India ≥120 from
729 days in foreign country or
preceding 7 foreign days but <
182 days sources > territory

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PYs preceding sources >
Rs.15 lakhs Rs.15 lakhs
PYs during PY
PY
di
In

Residential Status of a HUF

Is the control and management of its

By

affairs situated wholly or partly in India?

YES NO

Is Karta resident in India in any 2 PYs out of 10 PYs

IN

preceding the relevant PY (+) HUF is Non-resident

Is his stay in India for 730 days or more during the 7
PYs preceding the relevant PY
1F

YES NO

HUF is ROR HUF is RNOR

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 Residential status of firms and association of persons,
local authorities and artificial juridical persons

control and management of its affairs is situated

n
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wholly or partly in India. wholly outside India

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Resident Non-resident

Expression ‘control and management’ refers

➢ To the central control and management and not to the carrying on of day-to- day
business by servants, employees or agents.

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➢ A place where the head and brain of the adventure is situated.
➢ Need not necessarily be done from the place of business or from the registered
office of the assesse.
di
Residential status of a company
In

Is the company an Indian company?

By

Yes No

The company is a resident in India Whether POEM of the company is in India

for the relevant P.Y. in the relevant P.Y.?
IN

Yes No
1F

The company is a non-resident in

India for the relevant P.Y.

Place of effective management” to mean a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole are,
in substance made.

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 Residential status of local authorities and artificial juridical persons

Resident if the control and management of its affairs is situated wholly or partly in India.
Non-resident: Where the control and management of the affairs is situated wholly outside India, they
would become non-residents.

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Sec. 7 – Income deemed to received in India

 Contribution in excess of 12% of salary to RPF (Recognized provident fund)

ar
 Interest credited in excess of 9.5% p.a (Annual accretion to the credit of RPF)
 Amount transferred from unrecognized provident fund to recognized provident fund
(being the employer's contribution and interest thereon)

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 Contribution by the Central Government or any other employer in the P.Y. under a
pension scheme referred u/s 80CCD.

− Accrue refers to the right to receive income, whereas

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− Due refers to the right to enforce payment of the same.
− Receipt of income refers to only the first occasion when the recipient gets the money
under his control.
 All assessees are liable to tax in respect of the income received or deemed to be received
di
by them in India during the previous year irrespective of -
➢ their residential status, and
➢ the place of its accrual
In
 Income is to be included in the total income of the assessee immediately on its actual or
deemed receipt.

Sec.9 – Income deemed to accrue or arise in India

By

Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec

9(1)(i) 9(1)(ii) 9(1)(iii) 9(1)(iv) 9(1)(v) 9(1)(vi) 9(1)(vii) 9(1)(viii)
Income Salary from Income Income Specified
from Salary Govt. by an from from Income Income income
connect- earned in Indian dividend interest from from arising
ion in India India citizen for paid by an payable by royalty technical outside
IN

services Indian specified services India paid

rendered company person by a person
outside resident in
India India to a
non-
resident, not
1F

being a
company, or
to a foreign
company.

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 Income from connection in India [Sec. 9(1)(i)]
All income accruing or arising, whether directly or indirectly:
a) through or from any business connection in India; or
b) through or from any property/asset or source of income in India; or
c) through the transfer of a capital asset situated in India.

 In the case of a business, other than the business having business connection in India on
account of significant economic presence, of which all the operations are not carried out

n
in India, the income of the business deemed under this clause to accrue or arise in India
shall be only such part of the income as is reasonably attributable to the operations

ar
carried out in India.
 Significant economic presence of a non-resident in India shall also constitute business
connection in India. Significant economic presence means –

Le
Nature of transaction Condition
(a) in respect of any goods, services or Aggregate of payments
property carried out by a non-resident arising from such transaction
with any person in India including or transactions during the

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provision of download of data or software previous year > Rs. 2 crores.
in India
(b) Systematic and continuous soliciting of The number of users ≥ 3
business activities or engaging in lakhs.
di
interaction with users in India
The above transactions or activities shall constitute significant economic presence in
India, whether or not, —
In
(i) the agreement for such transactions or activities is entered in India.
(ii) the non-resident has a residence or place of business in India; or
(iii) the non-resident renders services in India:
However, where a business connection is established by reason of significant economic
By

presence in India, only so much of income as is attributable to the transactions or

activities referred to in (a) or (b) above shall be deemed to accrue or arise in India.

 The income attributable to the operations carried out in India, shall include income
from—
IN

(i) such advertisement which targets a customer who resides in India or a customer who
accesses the advertisement through internet protocol address located in India.
(ii) sale of data collected from a person who resides in India or from a person who uses
internet protocol address located in India; and
1F

(iii) sale of goods or services using data collected from a person who resides in India or
from a person who uses internet protocol address located in India
 Business connections may be in several forms, e.g., a branch office in India or an agent/
organization of a non-resident in India.
 Business connection shall include any business activity carried out through a person
who, acting on behalf of the non-resident:
➢ has and habitually exercises in India, an authority to conclude contracts on behalf
21
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 of the non-resident or habitually concludes contracts or habitually plays the
principal role leading to conclusion of contracts by that non-resident and the
contracts are—
• in the name of the non-resident; or
• for the transfer of the ownership of, or for the granting of the right to use,
property owned by that non-resident or that non-resident has the right to
use; or
• for the provision of services by the non-resident; or

n
➢ has no such authority, but he maintains in India habitually a stock of goods or
merchandise from which he regularly delivers goods or merchandise on behalf of

ar
the non-resident; or
➢ habitually secures orders in India mainly for the non-resident.

Further, there may be situations when the person acting on behalf of the non-resident

Le
secure order for other non-residents. In such situation, business connection for other non-
residents is established as follows:

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Mr. A acting on behalf of Mr. X,
non-resident
di
Secures order for
In
Mr. X, non-resident Mr. Y, non-resident

Business connection directly Business Connection established, if

By

established

Commonly controlled by
Mr. X is controlled Mr. Y is controlled Mr. Z, being the person
by Mr. Y ; or by Mr. X ; or who controls Mr. X as
well as Mr. Y.
IN

− Significant economic presence of a non-resident in India shall also constitute business

connection in India.
1F

− Agent having independent status are not included in Business Connections

Exceptions to business connection

➢ Business activity through a broker: Business connection shall not include any
business activity carried out through a broker, general commission agent or any other
agent having an independent status and acting in the ordinary course of his business.

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 ➢ Business activity confined to purchase of goods: In the case of a non-resident, no
income shall be deemed to accrue or arise in India to him from operations, which are
confined to the purchase of goods in India for the purpose of export

➢ Business activity of a news agency confined to collection of news, etc.: In the case
of a non-resident, being a person engaged in the business of running a news agency or
of publishing newspaper, magazines or journals, no income shall be deemed to accrue

n
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.

ar
➢ Business of mining of diamonds: 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 the display of uncut and

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unassorted diamond in any special zone notified by the Central Government

➢ Business activity confined to shooting: 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 resident
in India; or
• A company, which does not have any shareholder who is a citizen of or resident in
India.
di
• no income shall be deemed to accrue or arise in India through or from operations,
which are confined to the shooting of any cinematography film in India.
In
Salaries earned in India [Sec. 9(1)(ii)]

Salary payable for –

a) Services rendered in India; and
By

b) The rest period or leave period which is preceded and succeeded by the
period during which services were rendered in India and forms part of the
service contract of employment,

- shall be deemed to accrue or arise in India.

IN

Salary payable by the Government [Sec. 9(1)(iii)]

 Any salary -
➢ payable by the Government of India.
➢ to a citizen of India.
1F

➢ for services rendered outside India.

- shall be deemed to accrue or arise in India.
 Any allowances or perquisites paid by the Government to a citizen of India for services
rendered outside India shall be exempted [Sec. 10(7)]

23
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 Income from dividend [Sec. 9(1)(iv)]

Any dividend paid by an Indian company outside India is deemed to accrue or arise in India
and would be taxable in the hands of shareholders at normal slab rates.

n
Income from Interest, royalty, technical services [Sec. 9(1)(v), (vi), (vii)
Amount payable by The Government A resident person A non-resident

ar
person

Income from No condition Exception: Exception:

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Interest, Money borrowed
[Sec. 9(1)(v) and used for the Money borrowed by
purpose of the non-resident for
any purpose in India
➢ Business other than a business

go
or profession or profession, will
carried on by not be deemed to
him outside accrue or arise in
India. India.
➢ Earning any
di
income from any
source outside
India.
In
will not be deemed
to accrue or arise
in India.
By

Income from royalty, No condition Exception: The right, property,

Sec. 9(1)(vi) information or
[Lumpsum royalty Where it is payable services must be
(for Computer in respect for the utilised for the
software) not transfer of any purpose of -
deemed to accrue right or the use of ➢ Business or
any property or
IN

arise in India] Profession carried

information used on by such person
or for the in India; or
Note: Consideration utilization of ➢ Earning any
for sale, distribution services for the income from any
1F

or exhibition of purposes of a source in India.

cinematographic business or
films is covered profession carried
within the scope of on by such person
royalty w.e.f. outside India or for
A.Y.2021-22. the purposes of
making or earning
any income from
24
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 any source outside
India.
Income from No condition Exception: Such services must be
technical services utilised for the
[Sec.9(1)(vii) Where the fees are purpose of -
payable in respect ➢ Business or
of technical Profession carried
services utilised in on by such person

n
a business or in India; or
profession carried ➢ Earning any

ar
on by such person income from any
outside India or for source in India.
the purpose of
making or earning

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any income from
any source outside
India.

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Section 9(1)(viii) Any sum of money paid by a resident Indian to a non-corporate
non- resident or foreign company
di
➢ Paid by - Indian resident person
➢ Paid to - a non-corporate non-resident or foreign company
➢ Income - Income (any sum of money received without consideration in aggregate
In
exceeds Rs.50,000) arising outside India related to any sum of money or value of
property referred to in clause (x) of sub-section (2) of section 56 [Income from other
sources]
➢ Conditions – Paid on or after 5th July 2019
By
IN
1F

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 ILLUSTRATIONS ON RESIDENTIAL STATUS - ILLUSTRATIONS
Problem 1
X, a German national, came to India for the first time on 1.7.2012.
During the period from 1.7.2012 to 31.3.2019, he stayed in India as follows--

n
From To

ar
1.07.2012 31.10.2012

1.05.2013 31.10.2013

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1.11.2014 31.12.2014

1.07.2017 31.08.2018

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During the previous year ended on 31.3.2019, X’s income consisted of:
(a) Business in India: 40,000.
(b) Interest from an Indian company: 2,000.
(c) Dividends from non-Indian companies received in Germany but remitted to India: 5,000.
di
(d) Business in Germany (controlled from India): 25,000.
(e) Income from house property in Germany: 8,000.

Determine, giving full reasons, the gross total income of X for the assessment year 2019-20 after
In
ascertaining his residential status for the purpose of income-tax.

Problem 2
By

X is a citizen of Bangladesh.
➢ His grandmother was born in a village near Dhaka in 1940.
➢ He came to India for the first time since 1981 on 3.10.2018 for a visit of 190 days.

Find out the residential status of X for the assessment year 2019-20 on the assumption that wife of
IN

X is a resident in India for the same year.

Problem 3
1F

During the previous year 2018-19, X, a foreign citizen, stayed in India for just 69 days.
Determine his residential status for the assessment year 2019-20 on the basis of the following
information:
(i) During 2015-16, X was present in India for 365 days.
(ii) During 2012-13 and 2011-12, X was in Japan for 359 and 348 days respectively and for
the balance period in India.
(iii) Mrs. X is ‘resident’ in India for the assessment year 2019-20.

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 Problem 4
‘A’, a citizen of India, on 21.10.2016 left India for employment abroad. Earlier to this date, he was
always in India. During 2017-18 and 2018-19 he came to India for 168 days and 185 days respectively:
Determine his residential status for assessment year 2019-20.

n
Problem 5

Mr. Kohli, a citizen of India, is an export manager of Arjun Overseas Limited, an Indian Company,

ar
since 1.5.2013
He has been regularly going to USA for export promotion.
He spent the following days in U.S.A. for the last five years:

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Previous year ended No.of days spent in USA

31.3.2015 318 days

31.3.2016

31.3.2017
150 days

271 days
go
di
31.3.2018 310 days

31.3.2019 295 days

In

Determine his residential status for assessment year 2019-20 assuming that prior to 1.5.2013 he had
never travelled abroad.
By

Problem 6

A Ltd. Is an Indian Co.

It carries on business in New Delhi and London. The place of effective management of A Limited is
situated outside India. 80% of the total income of the company is from the business in London.
What is the status of A Ltd.?
IN

Problem 7

(a) R was born in Lahore in 1948. He has been staying in America since 1970. He came to
visit India on 2.10.2018 and returns on 31.3.2019.
Determine his residential status the assessment year 2019-20.
1F

(b) Share Warne, an Australian cricket player, has been coming to India since 1991-92
every year to play cricket and has been staying here for about 4 months.
What will be his residential status for the assessment year 2019-20?

Problem 8
Determine the residential status in the following cases for the assessment year 2021-22:
27
1Fin by IndigoLearn
 (i) The control and management of a HUF is situated in India. The manager of the
H.U.F. visited England with his wife from 14.8.2020 to 30.6.2021. Earlier to that he was
always in India.
(ii) In a partnership firm, there are three partners namely A, B and C. A and B reside in India
while C lives in Germany. The firm is fully controlled by C. During the previous year, Mr.
C stayed for 6 months in India.
(iii) A V.I.P. pvt ltd is in India, whose director Mr. X belongs to China. The Club is controlled
fully by Mr. X. In the previous year. Mr. X did not come for a single day to India.

n
Problem 9

ar
From the following incomes earned by Mr. Rajesh during the financial year 2020-21,
determine his total income for the assessment year 2021-22 if he is

Le
(1) resident and ordinarily resident.
(2) not ordinarily resident.
(3) non-resident.

go
Particulars Rs.

a. Profit from a business in Bombay managed from London. 1,60,000

b. Pension for services rendered in India but received in Burma. 15,000

di
c. Interest on U.K. Government Bonds half of which is received in India 4,000
In
d. Income from property situated in Pakistan received there. 20,000

e. Past foreign untaxed income brought to India during the previous year. 7,000

f. Income from agricultural land in Nepal received there and then brought to India. 30,000
By

g. Income from profession in Kenya, which was set up in India, received there 12,000

Problem 10
IN

‘A’ earns the following income during the financial year 2020-21.
Particulars Rs.

(a) Interest paid by an Indian company but received in London 2,00,000

1F

(b) Pension from former employer in India, received in USA 8,000

(c) Profits earned from business in Paris which is controlled in India,

half of the profits being received in India. 40,000

28
1Fin by IndigoLearn
 (d) Income from agriculture in Bhutan and remitted to India 10,000

(e) Income from property in England and received there 8,000

(f) Past foreign untaxed income brought to India 20,000

Determine the total income of ‘A’ for the assessment year 2021-22 if he is
(i) Resident and ordinarily resident,
(ii) Not ordinarily resident, and

n
(iii) Non-resident in India.

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Problem 11
From the following, compute the taxable income of R when his residential status

Le
is
(i) Resident and ordinarily resident,
(ii) Not ordinarily resident, and
(iii) Non-resident.

Particulars

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a. Interest for debentures in an Indian company received in London
Rs.

5,000
di
b. Interest on a company deposit in India but received in Germany 22,000

c. Interest on U.K. Development Bonds 50% of interest received in India 40,000

In
d. Dividend from British Co. received in London 10,000

e. Profits on sale of plant at Germany 50% of profits are received in India 60,000

f. Income earned from business in Germany which is controlled from Delhi,

By

Rs.40,000 is received in India 70,000

g. Profits from property in London deposited in an Indian Bank at London,

brought to India 45,000

IN

h. Interest received in London on money lent to a resident in India in

London, brought to India 50,000

i. Interest received in London on money lent to a resident in India in

1F

London, but the same money was used in India 46,000

j. Fees for technical services rendered in India but received in London 25,000

k. Royalty received in London for a IPR given to non-resident in India to be used 34,000
for business in India

29
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 RESIDENTIAL STATUS – ADDITIONAL ILLUSTRATIONS

Illustration 1

n
• Compute the tax liability of Mr. A (aged 42), having total income of Rs.51 lakhs for
the Assessment Year 2021-22.

ar
• Assume that his total income comprises of salary income, Income from house
property and interest on fixed deposit.

Le
• Assume that Mr. A has not opted for the provisions of section 115BAC.

Illustration 2

go
• Compute the tax liability of Mr. B (aged 51), having total income of Rs.1,01,00,000
for the Assessment Year 2021-22.
• Assume that his total income comprises of salary income, Income from house
property and interest on fixed deposit.
di
• Assume that Mr. B has not opted for the provisions of section 115BAC.

Illustration 3
In

• ‘R’ was born in Dhaka in 1945.

• He has been staying in Canada since 1947.
• He has an ancestral property in Kolkata.
By

• He comes to visit India on 13.10.2020 to sell the property and made capital gains of
Rs.25 lakhs on sale and returns on 29.3.2021.
• Determine residential status of Mr. R for assessment year 2021-22.
IN

Illustration 4

• ‘U’ was born in 1976 in India.

• His parents were also born in India in 1948.
1F

• His grandparents were, however, born in England.

• ‘U’ was residing in India till 16.3.2018.
• Thereafter, he migrated to England and took the citizenship of that country on
15.3.2020.
• He visits India during the previous year 2020-21 for 90 days.

30
1Fin by IndigoLearn
 • Determine the residential status of ‘U’ for assessment year 2021-22 if-
Case(i) – His income from House property in India for PY 2020-21 is Rs.16 lakhs.
Case(ii) – His Income from business in England for PY 2020-21 is Rs.20 lakhs.

Illustration 5

• ‘M’ an Indian citizen left India for the first time on 24.9.2019 for employment in

n
USA.

ar
• He works for a company incorporated in India and has gone on deployment and
has gone to manage the overseas branch of the Indian company.
• His salary for the period is Rs.48 lakhs per annum.

Le
• During the previous year 2020-21 he comes to India on 5.6.2020 for 165 days.
• Determine the residential status of ‘M’ for the assessment year -
➢ 2020-21 and

go
➢ 2021-22.

Illustration 6
di
Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian
ship engaged in carriage of passengers in international traffic departing from Chennai
port on 6th June,2020.
In
From the following details for the P.Y. 2020-21, determine the residential status of
Mr. Anand for A.Y. 2021-22, if his stay in India in the last 4 previous years (preceding
P.Y. 2020-21) is 400 days:
By

Particulars Date
Date entered into the Continuous Discharge Certificate in 6th June 2020
respect of joining the ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in 9th December 2020
respect of signing off the ship by Mr. Anand
IN

Illustration 7
1F

Brett Lee, an Australian cricket player visits India for 100 days in every financial year.
This has been his practice for the past 10 financial years.
• Find out his residential status for the assessment year 2021-22.
• Would your answer change if the above facts relate to Srinath, an Indian citizen
who resides in Australia and represents the Australian cricket team?
• What would be your answer if Srinath had visited India for 120 days instead of 100
days every year, including P.Y.2020-21?
31
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 Illustration 8

Compute the total income in the hands of an individual aged 35 years, being a resident
and ordinarily resident, resident but not ordinarily resident, and non-resident for the

n
A.Y. 2021-22 –
• Interest on UK Development Bonds, 50% of interest received in India - Rs.10,000

ar
• Income from a business in Chennai (50% is received in India): Rs 20,000
• Short term capital gains on sale of shares of an Indian company received in
London: Rs.20,000

Le
• Dividend from British company received in London: Rs.5,000
• Long term capital gains on sale of plant at Germany, 50% of profits are received in
India: Rs.40,000
• Income earned from business in Germany which is controlled from Delhi

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(Rs.40,000 is received in India): Rs.70,000
• Profits from a business in Delhi but managed entirely from London: Rs.15,000
• Income from house property in London deposited in a Bank at London, brought to
India (Computed): Rs.50,000
di
• Interest on debentures in an Indian company received in London: Rs.12,000
• Fees for technical services rendered in India but received in London: Rs. 8,000
• Profits from a business in Mumbai managed from London: Rs.26,000
In
• Income from property situated in Nepal received there (Computed): Rs.16,000
• Past foreign untaxed income brought to India during the previous year: Rs.5,000
• Income from agricultural land in Nepal, received there and then brought to India:
Rs. 18,000
By

• Income from profession in Kenya, which was set up in India, received there but
spent in India: Rs.5,000
• Gift received on the occasion of his wedding: Rs.20,000
• Interest on savings bank deposit in State Bank of India:Rs.12,000
• Income from a business in Russia, controlled from Russia: Rs.20,000
IN

• Dividend from Reliance Petroleum Limited, an Indian Company: Rs.5,000

• Agricultural income from a land in Rajasthan. Rs.20,000

Illustration 9
1F

Examine with reasons whether the following transactions attract income-tax in India in
the hands of recipients:
• Salary paid by Central Government to Mr. John, a citizen of India Rs.7,00,000 for the
services rendered outside India.
• Interest on moneys borrowed from outside India Rs.5,00,000 by a non-resident for
the purpose of business within India say, at Mumbai.
32
1Fin by IndigoLearn
 • Post office savings bank interest of Rs.19,000 received by a resident assessee, Mr.
Ram, aged 46 years.
• Royalty paid by a resident to a non-resident in respect of a business carried on
outside India.
• Legal charges of Rs.5,00,000 paid in Delhi to a lawyer of United Kingdom who
visited India to represent a case at the Delhi High Court.

n
ar
Le
go
di
In
By
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 CHAPTER 3 - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Overview

Conditions to be
Sec 10 - Incomes that
satisfied for
are exempt from tax
claiming exemption

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Sec 10(1) – Agricultural income
 Meaning
➢ By virtue of sec. 2(1A), agricultural income means

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“Any rent or revenue derived from a land, which is situated in India & is used for
agricultural purposes”

1. Rent may be in cash or in kind.

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2. Assessee may be the owner or tenant of such land.
3. Any income derived from such land by
• Agriculture or
• Any process ordinarily employed by a cultivator or receiver of rent to render
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the produce fit to be taken to market or
• Sale of such agriculture produce raised or received by him.
4. The process must be employed only to convert ‘the produce or rent in kind’ in
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marketable form. If marketing process is performed on the ‘produce or rent in kind’,
which can be sold in its raw form in market, then income derived from such product is
partly agricultural & partly non-agricultural income.
5. The land must be situated in India.
6. Any income derived from a farm building is exempt subject to fulfillment of the
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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 either situated in –
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• Rural area; or
• Urban area and assessed to land revenue or local rates.
7. Income derived from land being let out for storing crop shall not be agricultural income.
8. Building should be owned and occupied by the land-holder if he receives rent or
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revenue from the land. On the other hand, in case of cultivator or receiver of rent in
kind, it is enough that the building is occupied by him.
9. Profit on transfer of agricultural land: Profit on transfer of agricultural land shall not
be treated as agricultural income.
10. Capital gains on transfer of urban agricultural land shall not be treated as agricultural
income but will be taxable under section 45.

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 Urban land

Situated Within a Situated Outside a

Municipality/

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Municipality/Cantonment
Cantonment

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Population > 10,000 Shortest aerial distance from the local
limits of a municipality

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Upto 2 Kms Upto 6 Kms Upto 8 Kms

10,000 go
100,000
Population
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<Population <Population
>10,00,000
<=1,00,000 <=10,00,000
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11. Agriculture - Cultivation of a field involving human skill and labour on the land can be
broadly termed as agriculture. It primarily involves basic operations and subsequent
operations.
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Basic Subsequent
operations Those operations operations Operations to be
which are absolutely performed after the
necessary for the produce sprouts
purpose of from the land
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effectively raising (eg:weeding, digging

produce from land etc).
These operations
will be considered
agricultural only
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when taken in
conjuction with and
as a continuation of
basic operations

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  Treatment of partly agricultural & partly non-agricultural income [Rule 7]

In case assessee is engaged in an integrated activity, comprising of agricultural activity as well

as non- agricultural activity, then profit of such integrated activity shall be segregated into
agricultural income and non-agricultural income in the following manner –

Tea Rubber Coffee

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Grown, cured,
Growing and Growing and Grown and

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roasted and
manufacturing manufacturing cured
grounded

With or without

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mixing Chicory/
flavouring
ingredients

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Rule Case Agriculture Non-agro -
income income
8 Business of growing and manufacturing tea in 60% 40%
India
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7A Business of growing and manufacturing rubber 65% 35%
in India
7B Coffee grown and cured by the seller in India 75% 25%
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7B Coffee grown, cured, roasted and 60% 40%
grounded by the seller in India, with
or without mixing chicory or other flavouring
ingredients
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Salary and interest received by a partner from a firm growing and manufacturing tea,
coffee or rubber: Such remuneration or interest shall be treated as partly agricultural income
and partly business income as stated above.

For computing agricultural income from a business having both agricultural as well as non-
agricultural income,
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1. Assessee is required to prepare two Profit or Loss statements, one for agro-business &
another for non-agro-business
2. Agro expenses debited to Agro Profit or Loss and non-agro expenses shall be debited to Non
agro-business Profit or Loss
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Note: Non-apportionable expenditure, related to composite business of agriculture and non-

agriculture, is fully charged to non-agricultural business.
3. Market value of any agricultural produce, which is utilised as raw material in such business,
is to be treated as income for agro-business and expenditure for non-agro-business.

Determination of market value - There are two possibilities here:

(I) The agricultural produce is capable of being sold in the market either in its raw
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 stage or after application of any ordinary process to make it fit to be taken to the
market. In such a case, the value calculated at the average price at which it has
been so sold during the relevant previous year will be the market value.
(II) It is possible that the agricultural produce is not capable of being ordinarily sold
in the market in its raw form or after application of any ordinary process. In such
case the market value will be the total of the following:—
• The expenses of cultivation;
• The land revenue or rent paid for the area in which it was grown; and

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• Such amount as the Assessing Officer finds having regard to the circumstances
in each case to represent at reasonable profit

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 Instances of agricultural (agro) income
➢ Income from growing trade or commercial products like jute, cotton, etc.

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➢ Income from growing flowers and creepers.
➢ Plants sold in pots are an agro income provided basic operations are performed.
➢ Remuneration and interest to partner: Any remuneration (salary, commission, etc.)
received by a partner from a firm engaged in agricultural operation)
➢ Interest on capital received by a partner from a firm, engaged in agricultural operation.

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➢ Any fee derived from land used for grazing of cattle, being used for agricultural
operation,.
➢ Any income derived from saplings or seedlings grown in a nursery.
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 Instances of non-agricultural (non-agro) income
➢ Salary received by an employee from any business (having agricultural income)
➢ Dividend received from a company engaged in agricultural operation.
➢ Income from fisheries, poultry farming, dairy farming, butter & cheese making, etc.
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➢ Breeding & rearing of livestock is non-agro income.
➢ Royalty income from mines.
➢ Remuneration to a Director or Managing Director from a company engaged in
agricultural business.
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➢ Interest on arrears of rent receivable in respect of agricultural land is non-agro income.

➢ Income from a land situated outside India.
➢ Annuity received by a person in consideration of transfer of agricultural land.
➢ Income from sale of trees and grasses grown spontaneously (without any human
effort)
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 Partial integration of agricultural income with non-agricultural income

➢ Sec. 10(1) of the Act exempts agricultural income from tax as our Constitution does not
provide power to the Parliament to levy tax on agro-income.
➢ However, agriculture income is consider to apply higher rate of tax-slab on non-
agricultural income. This method is called partial intergration.
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 Conditions for including agricultural income in the total income of the assessee
1. The assessee is an individual, a Hindu-undivided family, a BOI, an AOP or an AJP. (These
provisions do to apply to company, LLP, firm, co-operative society and local authority)

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 2. The assessee has non-agricultural income exceeding the maximum amount of exemption
(i.e. in case of Senior citizen Rs. 3,00,000, Super Senior citizen Rs. 5,00,000 and in case
of other individual/ HUF/AOP / BOI /artificial juridical person Rs. 2,50,000)
3. The agricultural income of the assessee exceeds Rs. 5,000.

 Method of computation

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Step 1: Compute income tax on total income of assessee including Agro-income.
Step 2: Compute income tax on (Agro-income + Maximum exempted limit)

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Step 3: Tax liability before cess = (Tax as per step 1) - (Tax as per step 2)
Step 4 : Provide rebate u/s 87A (if applicable) and add H&E cess@4%

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Sec. 10(2) - Member’s Share in Income of HUF
➢ Any sum received by an individual as a member of a Hindu undivided family is exempt
where such sum is received –

● out of the income of the family; or

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● out of the income of an impartible estate belonging to the family.
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Sec. 10(2A) - Share of Profit from a Firm
➢ Share in the total income of the firm is exempt in the hands of partner.
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Taxability of partner’s share, where income of the firm is exempt under Chapter III/ deductible
under Chapter VI-A (Circular No. 8/2014 dated 31.03.2014)

Sec. 10(4)/(4B) - Interest Income of Non-resident

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➢ Sec. 10(4)(i) - Interest on specified securities or bonds, including premium on redemption

of such bonds is exempted in the hands of a non-resident.
➢ This exemption will no more be available in respect of any further issue of bonds or
securities on or after 1.6.2002
➢ Sec. 10(4)(ii) - Interest on Non-Resident (External) Account in any bank in India to a
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person who is a resident outside India as defined in sec. 2(w) of the FEMA, 1999 or is a
person who has been permitted by the Reserve Bank of India to maintain the aforesaid
Account.
• The joint holders of the NRE Account do not constitute an AOP by merely having these
accounts in joint names.
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•The benefit of exemption under section 10(4)(ii) will be available to such joint account
holders, subject to fulfillment of other conditions contained in that section by each of
the individual joint account holders.
➢ Sec. 10(4B) - Interest on notified savings certificates issued before 1-6-2002 by the
Central Government to a non-resident, being a citizen of India or a person of Indian origin

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 is exempt provided it is subscribed in convertible foreign exchange remitted from a
country outside India in accordance with the provisions of the FEMA, 1999.

Sec. 10(6)- Remuneration to Person who is not a Citizen of India in certain cases
 Following remuneration to an individual who is not a citizen of India shall be exempt –

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➢ Sec. 10(6)(ii) - Remuneration received by him as an official of an embassy, high
commission, legation, commission, consulate, or the trade representation of a foreign state
or as a staff of any of these officials provided corresponding Indian officials in that foreign

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country enjoy similar exemptions in their country.
• The above-mentioned officials should be the subjects of the respective countries
represented and should not be engaged in any other business or profession or

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employment in India.

➢ Sec. 10(6)(vi) - Remuneration received as an employee of a foreign enterprise for services

rendered by him during his stay in India provided -
• The foreign enterprise is not engaged in any business or profession in India.

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• His stay in India does not exceed 90 days in aggregate: and
• Such remuneration is not liable to be deducted from the income of the employer

➢ Sec. 10(6)(viii) - Remuneration for services rendered in connection with his employment
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on a foreign ship provided his total stay in India does not exceed 90 days in the previous
year
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➢ Sec. 10(6)(xi) - Remuneration received as an employee of the Government of a foreign
State during his stay in India in connection with his training in any undertaking owned by
Government, Government company, subsidiary of a government company, corporation
established by any Central, State or Provincial Act and any society wholly financed by the
Central or State Government.
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Sec. 10(6D) - Income from service provided to National Technical Research

Organization
➢ Any income arising to a non-resident or to a foreign company, by way of royalty from, or
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fees for technical services rendered in or outside India to, the National Technical Research
Organization is exempt.
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Sec. 10(10BC) - Compensation for any Disaster

➢ Any amount received or receivable from the Central Government or a State Government
or a local authority by an individual or his legal heir by way of compensation on account of
any disaster is exempt.
➢ However, exemption would not be available in respect of compensation for alleviating any
damage or loss, which has already been allowed as deduction under the Act

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 Sec. 10(11A) - Payment from Sukanya Samriddhi Account
➢ Any payment from an account, opened in accordance with the Sukanya Samriddhi Account
Rules, 2014 made under the Government Savings Bank Act, 1873 in exempt.

➢ The interest accruing on deposits in, and withdrawals from any account under the said
scheme would be exempt.

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Sec. 10(16) - Scholarship
➢ Scholarships granted to meet the cost of education is exempt.
➢ Cost of education also includes incidental expenses incurred for education.
➢ The exemption is irrespective of actual expenditure.

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Sec. 10(17) - Daily Allowance, etc. to MP and MLA
➢ The following incomes of Members of Parliament or State Legislatures will be exempt:

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• Daily Allowance of MPs and MLAs
• Constituency Allowance of MPs and MLAs
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Sec. 10(17A) - Awards and Rewards
➢ Any payment made, whether in cash or in kind
a. in pursuance of any award instituted in the public interest or for approved purpose
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b. by the Central Government or any State Government or by any other approved body;
is exempt
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Sec. 10(18) - Pension to receiver of Gallantry Awards

➢ Any income by way of Pension received by an individual
• who has been in the service of the Central or State Government and
• has been awarded "Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such
other notified gallantry award ; or
• family pension received by any member of the family of such individual.
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➢ Family means - spouse, children, parents or siblings (if wholly or mainly dependent on the
assessee)

➢ Disability pension granted to disabled personnel of armed forces who have been
invalidated on account of disability attributable to or aggravated by such service is exempt.
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(Circular No. 13/2019, dated 24.06.2019)

Sec. 10(26AAA) - Income of Sikkimese

➢ Following income of an individual, being a Sikkimese, is exempt:
• from any source in the State of Sikkim; or

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 • by way of dividend or interest on securities:
➢ The exemption is not available to a Sikkimese woman who, on or after 1/4/2008, marries
an individual who is not a Sikkimese.

Sec. 10AA - Holiday for units established in special economic zones

 Applicable to: All assessee

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 Conditions to be satisfied

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1. The assessee is an entrepreneur as defined in Sec.2(j) of SEZ Act, 2005.

2. Assessee has been granted a letter of approval from development commissioner.

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• If LOA has been issued on or before 31.03.2020 and the manufacture/ production has
not begun on or before 31.03.2020
The date of Manufacture/production has been extended to on or such other date after
31.03.2021, as notified by CG.

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3. The undertaking has begun or begins to manufacture or produce articles or things or
provide services on or after 01/04/2005 but before 31/03/2020 in any SEZ.
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4. Business should not be formed by splitting up or reconstruction of an existing business.
Exception to the above condition:
However, this condition is not applicable when conditions given u/s 33B are satisfied, which
are as follows -
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a) The business of an industrial undertaking carried on in India is discontinued in any
previous year by reason of extensive damage to, or destruction of, any building, P&M or
furniture owned by the assessee being used for business purpose.
b) Such damage was caused due to -
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i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

ii) riot or civil disturbance; or
iii) accidental fire or explosion; or
iv) action by an enemy or action taken in combating an enemy (whether with or without a
declaration of war),
c) Such business is re-established, reconstructed or revived by the assessee at any time
before the expiry of 3 years from the end of previous year in which such damage was
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caused.

5. Such undertaking should not be formed by transfer of P&M previously used for any
purpose.
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Exception to the above condition:

a) A P&M is deemed as a new asset if the following conditions are satisfied
i) Such P&M is imported into India;
ii) Depreciation on such asset has not been allowed under this Act to any person; and
iii) The assessee was the first user of such asset in India.
b) Where the total value of old plant and machinery transferred to the new business does
not exceed 20% of total value of plant and machinery used in such business, then this
condition is deemed to be satisfied.
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 6. A report of a chartered accountant in Form 56F must be filed with the return of income
certifying that the deduction has been correctly claimed, before the date specified in
section 44AB i.e., one month prior to the due date for furnishing return of income u/s
139(1).

 Quantum of deduction:

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Period Deduction
For first 5 years

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from the Profits of the business of the undertaking × Export turnover
commencement Total turnover of the business carried on by the undertaking
of operation

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For next 5 years 50% of [Profits of the business of the undertaking × Export turnover]
Total turnover of the business carried on by the undertaking

For next 5 years

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50% of [Profits of the business of the undertaking × Export turnover]
Total turnover of the business carried on by the undertaking
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 Conditions: Such profit must be credited in reserve account
called “SEZ Re-investment Allowance Reserve A/c”.
 Utilisation of such Reserve:
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➢ Such reserve shall be utilised for the purposes of acquiring new P&M
which is first put to use before the expiry of a period of next 3 years
following the PY in which the reserve was created.
➢ Until the acquisition of new P&M, such reserve can be utilised for any
purpose of the business of the undertaking other than for
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• distribution by way of dividends or profits or

• remittance outside India as profits or
• creation of any asset outside India
➢ The prescribed particulars in Form 56FF have been furnished by the
assessee in respect of new P&M along with the return of income for
the AY relevant to the PY in which such plant or machinery was first
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put to use.

 Mis-utilisation of Reserve:
➢ Where any amount credited to such reserve
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a)Has been misutilised; or

b) Has not been utilised before the expiry of the specified period,
– then such amount shall be deemed to be the taxable profits of the PY
in which the amount was so misutilised or after the expiry of 3 years,
as the case may be.

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  Points to remember:

➢ Meaning of Export turnover: It means the consideration received in India or brought

into India by the assessee in respect of export by the undertaking being the unit of
articles or things or services.
However, it does not include freight, telecommunication charges, insurance attributable
to the delivery of the articles or things outside India or expenses incurred in foreign
exchange in rendering of services (including computer software) outside India.

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➢ Profits and gains derived from on-site development of computer software

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(including services for development of software) outside India shall be deemed to be
profits and gains derived from the export of computer software outside India.

➢ Business loss or loss under the head ‘Capital Gains’ relates to such unit shall be

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allowed to be carried forward.

➢ Conversion of FTZ into SEZ – Where an undertaking initially located in any FTZ or
EPZ is subsequently located in a SEZ by reason of conversion, the period of 10

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consecutive assessment years shall be reckoned from the AY relevant to the PY in
which the undertaking begins to manufacture or produce such articles or things or
computer software in such FTZ or EPZ.
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➢ However, where a unit initially located in any FTZ or EPZ has already completed the
period of 10 consecutive assessment years, it shall not be eligible for further
deduction from income w.e.f. A.Y.2006-07.
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➢ No deduction under section 80-IA and 80-IB shall be allowed in relation to the
profits and gains of the undertaking

➢ The assessee can claim deduction either under this section or under sec 35AD
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➢ Consequences of Amalgamation or Demerger – Where any undertaking is

transferred by an Indian company to another Indian company in a scheme of
amalgamation or demerger -
● Amalgamating or the demerged company shall not be eligible for deduction under
this section from the PY in which the amalgamation or the demerger takes place; and
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● Amalgamated or the resulting company shall be entitled to deduction under this

section from the PY in which the amalgamation or the demerger takes place in the
same manner if the amalgamation or demerger had not taken place.

➢ Inter unit transfer – Where the assessee carries on 2 businesses and one of them is
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eligible for deduction under this section then any inter unit transfer between the 2
businesses is allowed only when it is at fair market value.

Sec. 14A - Expenditure related to Exempted Income

➢ For the purposes of computing the total income, no deduction shall be allowed in respect
of expenditure incurred in relation to exempt income.

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 ➢ The AO can determine the disallowable expenditure in accordance with the method
prescribed by the CBDT in the following cases:
● Where he is not satisfied with the correctness of the claim of such expenditure by
assessee,
● where an assessee claims that no expenditure has been incurred by him in relation
to exempt income.

➢ Rule 8D lays down the method for determining the amount of such expenditure

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➢ Expenditure in relation to income =

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• Amount of expenditure directly relating to exempt income +
● an amount equal to one per cent of the annual average of the monthly average of

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the opening and closing balances of the value of investment, income from which does
not or shall not form part of total income.

➢ However, any disallowance computed under this Rule cannot exceed total expenditure
claimed by assessee.

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➢ Sec. 14A read along with Rule 8D (Method of determining amount of expenditure in
relation to income not includable in total income) provides for disallowance of expenditure
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even where the taxpayer has not earned any exempt income in a particular year.

➢ The provisions of this section shall apply and shall be deemed to have always applied in a
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case where the income, not forming part of the total income under this Act, has not accrued
or arisen or has not been received during the previous year relevant to an assessment year
and the expenditure has been incurred during the said previous year in relation to such
income not forming part of the total income.
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 CHAPTER 4 - INCOME FROM SALARIES

Overview

Sec 15 Sec 16 sec 17 Sec 10

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Basis of charge Deductions Definitions Exemptions

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General provisions

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Pre-requisites

Employer- employee
relationship
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service

➢ A payment can be construed as salary only if the payer is the employer and payee, is the
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employee.
➢ The payment is in pursuance of a contract of service and not contract for service.
➢ Cases where income is taxed under other heads
(i) Salary received by a partner – Taxed under PGBP
(ii) Remuneration of agent – taxed under PGBP
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(iii) Salary received by sole proprietor - is not an income.

(iv) Payment to a non-executive director – Taxed under other sources
(v) Pension received by the widow or legal heir of deceased employee - Taxed under other
sources
(vi) Remuneration of an official liquidator – Taxed under salaries
(vii) Salaries of MPs and MLAs – Taxed under other sources
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➢ Once salary has been earned by an employee, its subsequent waiver does not make it
exempt from tax liability.
➢ Salary from former, present, or prospective employer is chargeable to tax under the
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head “Salaries”.
➢ Salary surrendered to central government under the provisions of voluntary surrender
of salaries (exempt from taxation act 1961, is exempt from taxation
➢ Place of accrual – Where services are rendered.
• Exceptions to the above rule is Sec 9(1)(iii) – Salaries paid by Government of India to a
citizen of India for services rendered outside India is deemed to accrue or arise in India.
• However, any perquisites or allowances paid to such a person is exempt u/s 10(7)

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 ➢ Salary paid tax-free: the employer bears the burden of the tax on the salary of the
employee. In such a case, the income from salaries in the hands of the employee will consist
of his salary income and the tax on this salary paid by the employer.
• The income-tax paid by the employer on non- monetary perquisites on behalf of the
employee would be exempt in the hands of the employee - Sec(10(10CC)

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Sec 15- Basis of Charge

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Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
➢ Advance salary – Taxed on Receipt basis
(‘Advance salary’ is different from ‘Advance against salary’ which is treated as loan)

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➢ Advance against salary – Treated as loan.
➢ Outstanding salary – Taxed on due basis.
➢ Arrear salary – If already assessed on due basis, the same cannot be taxed again when it
is paid.

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Sec -17 – Definitions
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Sec.17
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17(1) - 17(2) - 17(3) - Profits

Salaries Perquisites in lieu of salary
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Salaries –
a) Wages
b) Any annuity or pension.
c) Any gratuity.
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d) Any fees, commission, perquisite, or profits in lieu of or in addition to any salary or wages.
e) Any advance of salary.
f) Any payment received in respect of any period of leave not availed of by the assessee.
g) The portion of the annual accretion in any previous year to the balance at the credit of an
employee, participating in recognised provident fund, to the extent it is taxable.
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h) Transferred balance in a Recognised Provident Fund to the extent it is taxable.

i) Contribution made by the employer in the previous year, to the account of an employee
under a pension scheme referred to in sec. 80CCD [National Pension Scheme and Atal
Pension Yojana].

Note: National Pension scheme is a scheme approved by the Government for Indian citizen
aged between 18-60 years. When an employee, is a subscriber of the NPS account, employer
may also contribute into the employee’s account. However, while computing total income of
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 the employee-assessee, a deduction under section 80CCD is allowed to the assessee in
respect of the employer’s as well as employee’s contribution under a pension scheme
referred therein.

Annuity

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Past employer Other than an
Present employer Employer

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Taxed as profits in Taxed under
Taxed as salary
lieu of salary Other sources

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Allowances
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Partly Wholly
Fully taxable
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taxable exempt

Exempt to the Exempt to the Exempt subject to

HRA - Exempt to extent of amount extent of amount limits and
extent specified
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expended [sec notified [sec computations

[Sec 10(13A)] 10(14)(i) ] 10(14)(ii)] specified in sec 10

Fully taxable allowances

1. Entertainment Allowance – Given to meet the expenses towards hospitality in receiving
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customers etc.
Government employees a deduction u/s 16(ii)

2. Dearness Allowance
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3. Overtime Allowance

4. Fixed Medical Allowance

5. City Compensatory Allowance (to meet increased cost of living in cities)

6. Interim Allowance

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 7. Servant Allowance

8. Project Allowance

9. Tiffin/Lunch/Dinner Allowance

10. Any other cash allowance

11. Warden Allowance

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12. Non-practicing Allowance – given to a professional to refrain from practicing his

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profession

13. Transport allowance to employee other than blind/ deaf and dumb/ orthopedically
handicapped employee. – (paid for the purpose of commuting between the place of his

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residence and the place of his duty)

Wholly exempt allowances

i) Allowances to Supreme court/ High Court Judges

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ii) Allowance paid by the United Nations Organization
Note - Section 2 of the United Nations (Privileges and Immunities) Act, 1947 grants exemption
from income-tax to salaries and emoluments paid by the United Nations to its officials.
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iii) Compensatory Allowance received by a judge under Article 222(2) of the constitution
iv) Sumptuary allowance granted to High Court or Supreme Court Judges
v) Allowance granted to Government employees outside India. [Sec 10(7)]
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Partly exempt allowances

Exempt to the extent of amount expended [sec 10(14)(i)]
➢ These are paid to meet expenses incurred exclusively in the performance of the duties.
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➢ For the allowances under this category, there is no limit on the amount which the employee
can receive from the employer.
➢ Whatever amount is received should be fully utilized for the purpose for which it was
given to him.

i) Travelling Allowance - allowance granted to meet the cost of travel on transfer

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ii) Daily allowance - allowance granted to meet the ordinary daily charges incurred by an
employee on account of absence from his normal place of duty.

iii) Conveyance Allowance - allowance granted to meet the cost of commuting from one
1F

place to another within the city

iv) Helper Allowance - granted to meet the expenditure incurred on a helper

v) Research allowance/ Academic allowance - any allowance granted for encouraging

the academic, research and training pursuits in educational and research institutions

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 vi) Uniform allowance - any allowance granted to meet the expenditure on the purchase
or maintenance of uniform

If an assessee opts for the provisions of Section 115BAC would be entitled for exemption only
in respect of travelling allowance, daily allowance and conveyance allowance.

Partly exempt allowances

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Exempt to the extent of amount notified in Rule 2BB [sec 10(14)(ii) ] –
➢ Allowances granted either to meet his personal expenses at the place where the duties of

ar
his office are ordinarily performed by him or at the place where he ordinarily resides or to
compensate him for the increased cost of living
➢ There is a limit on the amount which the employee can receive from the employer. Any

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amount received by the employee in excess of these specified limits will be taxable in his
hands.
➢ It does not matter whether the amount which is received is actually spent or not by the
employee for the purpose for which it was given to him.

1. Special allowance – Special Compensatory

Hilly area/ High altitude allowance/
uncongenial climate allowance/snow go
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bound area allowance or avalanche
allowance.
2. Any Special Compensatory Allowance in
the nature of border area allowance or
In
remote locality allowance or difficult area
allowance or disturbed area allowance
3. Special Compensatory (Tribal
area/Schedule areas/ Agency areas)
By
Rs.800 per month or Rs.300 per month
depending upon the specified
locations.
Rs. 7,000 per month in Siachen area of
Jammu and Kashmir
Rs. 1,300 or 1,100 or 1,050 or 750 or
300 or 200 per month depending upon
the specified locations
Rs.200 per month for specified
location

allowance [Specified states]

4 Transport allowance granted to an 70 % of such allowance upto a
employee working in Transport system maximum of Rs. 10,000 per month
provided that such employee is not in
receipt of daily allowance
5 Children education allowance Rs.100 per month, per child up to a
maximum of two children
IN

6 Hostel expenditure for employee’s children Rs.300 Per month, per child up to a
maximum of two children
7 Compensatory field area allowance Rs.2,600 per month for specified
[Specified area in specified states] location
1F

8 Compensatory Modified field area Rs.1,000 per month for specified

allowance [Specified area in specified location
states]
9 Special allowance in the nature of counter Rs.3,900 per month whole of India
insurgency allowance granted to the
member of armed forces operating in areas

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 away from their permanent locations for a
period of more than 30 days.
10 Special compensatory highly active field Rs.4,200 per month
area allowance granted for armed forces
11 High altitude allowance granted to Rs.1,060 per month for 9k to 15k feet
members of armed forces operating in high Rs.1,600 per month for above 15K feet
altitude areas
12 Island duty allowance granted to armed Rs.3,250 per month.

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forces in Andaman, Nicobar and
Lakshadweep islands

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13 Underground allowance Rs. 800 p.m.
14 Transport allowance granted to an Rs. 3,200 per month in case of blind or
employee to meet his expenditure for the orthopedically handicapped

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purpose of computing between the place of employees
his residence and the place of his duty.
(Also exempt to employee opting Section
115BAC)
➢ Any assessee claiming exemption in respect of allowances mentioned at serial numbers 7,

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8 and 9 shall not be entitled to exemption in respect of the allowance referred at serial
number 2.
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Partly exempt allowances
Exempt to the extent of limits specified under various clauses of sec 10
In
House rent allowance [sec 10(13A)] – Least of the following is exempt
In Mumbai, Delhi, Chennai and Kolkata In other cities

1. Actual HRA received Actual HRA received

2. 50% of Salary 40% of Salary

By

3. Rent paid (Less) 10% of salary Rent paid (Less) 10% of salary

➢ Salary = Basic + DA (if forms part of retirement benefit) + Turnover based

Commission
➢ Fully taxable, if HRA is received by an employee who is living in his own house or if
IN

he does not pay any rent

➢ It is mandatory for employee to report PAN of the landlord to the employer if rent
paid is more than Rs. 1,00,000
➢ If employee opts for 115BAC, exemption of HRA cannot be claimed
1F

Pension – sec 17(1)(ii), Commuted pension [sec 10(10A) and Family Pension (Sec 57)
➢ Pension is a periodic payment made to the employee in consideration of past service
payable after his retirement.
➢ Uncommuted pension refers to pension received periodically.
➢ Commutation means inter-change. Commuted pension means lump sum amount taken by
commuting the whole or part of the pension.

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 Pension

Commuted Uncommuted Family

pension

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Pension pension
(Taxed
under 'Other

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sources')

Government Non-govt Fully taxable

employee employee (always)

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Family of
Others
armed forces
Employee
Fully exempt Employee
does not
u/s receives
receive
10(10A)(i) gratuity
gratuity

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1/3rd of
Fully exempt
pension or
Exemption u/s Exemption u/s Rs.15000
10(10A)(ii)(a) = 10(10A)(ii)(b) = ½ whcihever is
1/3rd of the of the amount of less is
amount of pension pension which he exempt
di
which he would would have
have received had received had he
he commuted the commuted the
whole of the whole of the
In
pension. pension.

➢ Judges of the Supreme Court and High Court will be entitled to exemption of the
commuted portion.
By

➢ Any commuted pension received by an individual out of annuity plan of the Life Insurance
Corporation of India (LIC) from a fund set up by that Corporation will be exempted.

Gratuity [Sec 17(1) and Sec 10(10)]

IN

➢ Gratuity is a voluntary payment made by an employer in appreciation of services

rendered by the employee.
➢ Retirement gratuity received under the Pension Code or Regulations applicable to
members of the Defence Service is fully exempt.
1F

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 Gratuity

Received Received at the

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while in time of death or
service retirement

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Fully taxable Employees of Central
Government/ Other Employees
Members of Civil

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Services/ local
authority employees
etc
Covered under the Not covered under
Payment of the Payment of
Gratuity Act, 1972 Gratuity Act, 1972
Fully exempt
u/s 10(10)(i)

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Least of the
following would be
Least of the
following would be
di
exempt u/s exempt u/s
10(10)(ii): 10(10)(iii):
i ) 20 lakh i) 20 lakh
In
ii) Actual gratuity ii) Actual gratuity
received received
iii) Last drawn salary* iii) Average salary**
X every completed X every completed
year of service or part year of service X 1/2
in excess of 6 months
By

X 15/26

* Salary (generally) = Basic salary + D.A

** Average salary - 10 months average salary [i.e., Basic salary + dearness allowance, (if forms
part of retirement benefits) + Commission which is expressed as a fixed percentage of
IN

turnover.]
➢ Retirement gratuity received under Pension code or Regulations applicable to members
of the Defence Service is fully exempt.
1F

➢ Where gratuity is received from 2 or more employers in the same year then aggregate
amount of gratuity exempt from tax cannot exceed Rs. 20,00,000/Rs. 10,00,000, as the
case may be.
➢ Where gratuity is received in any earlier year from former employer and again received
from another employer in a later year, the limit of Rs. 20,00,000 will be reduced by the
amount of gratuity exempt earlier.
➢ The exemption in respect of gratuities would be available even if the gratuity is received

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 by the widow, children or dependents of a deceased employee.

Leave encashment [sec 10(10AA)]

The payment received on account of encashment of unavailed leave would form part of salary.
➢ However, section 10(10AA) provides exemption in respect of amount received by way of
encashment of unutilised earned leave by an employee at the time of his retirement,
whether on superannuation or otherwise.

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Leave encashment

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Received on
Received during the retirement, whether

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period of service on Superannuation or
otherwise
di
Fully taxable By a By any other
Government employee
In
employee
By

Least of the following is exempt

Fully exempt u/s u/s 10(10AA)(ii)
10(10AA)(i) 1. Actual leave salary received
2. Rs.3,00,000
3. Average salary X 10
4.Average salary X leaves at the
IN

credit of an employee taking 30

days in a year for every
completed year of service
(fraction of the year is ignored)
1F

➢ Where leave salary is received from two or more employers in the same year, then the
aggregate amount of leave salary exempt from tax cannot exceed Rs. 3,00,000.
➢ Where leave salary is received in any earlier year from a former employer and again
received from another employer in a later year, the limit of Rs. 3,00,000 will be reduced
by the amount of leave salary exempt earlier.
➢ Salary = Basic salary + dearness allowance, (if forms part of retirement benefits) +
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 commission which is expressed as a fixed percentage of turnover.
➢ ‘Average salary’ will be determined on the basis of the salary drawn during the period of
ten months immediately preceding the date of his retirement whether on superannuation
or otherwise.

Provident fund
Provident fund scheme is a scheme intended to give substantial benefits to an employee at the

n
time of his retirement.

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Statutory PF Public PF Recognised PF Unrecognised
PF
Governed by Governed by Governed by Governed by

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Provident fund Provident fund Provident fund Provident fund
Act 1925 Act 1968 Act 1952 Act 1952
Applies to Membership of PF recognised PF not
employees of the fund is open by CIT recognised by
government, to every CIT
railways, semi-
government
institutions,
local bodies,
individual

go
though it is
ideally suited to
self-employed
di
universities and people
all recog
educational
In
institutes
Employee Deduction u/s Deduction u/s Deduction u/s No deduction
contribution 80C 80C 80C u/s 80C
Employer Exempt u/s 10 N.A. (as there is Exempt upto Not taxable
contribution only assessee’s 12% of salary yearly
By

contribution) Excess is
taxable
Interest on Exempt u/s 10 Exempt u/s 10 Exempt upto Taxable under
Employee 9.5% p.a “other sources”
contribution Excess is at the end of the
taxable term
IN

Interest on Exempt u/s 10 N.A Exempt upto Not taxable

Employer 9.5% p.a yearly
contribution Excess is
taxable
Lumpsum @ Exempt u/s Exempt u/s Exempt u/s Employer
1F

retirement 10(11) subject 10(11) subject 10(12) subject contribution +

to certain to certain to certain interest thereon
conditions conditions conditions is taxed under
“Salaries”

➢ Salary = Basic salary + dearness allowance,(if forms part of retirement benefits) +

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 commission which is expressed as a fixed percentage of turnover.

➢ Any transfer from an unrecognised PF to Recognised PF is also taxable in the year of

transfer.
➢ Exemption in respect of payment received by employee from Superannuation fund [Sec
10(13)]
➢ Employee’s share from lumpsum payment received on maturity Unrecognised provident
fund:

n
− Not taxable
− Interest on such = Taxable as Income from other sources

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➢ PPF => For deduction u/s 80C, a member is required to contribute a min of Rs. 500 in a
year. Max Rs. 1,50,000 is qualified for such deduction as per PPF rules.

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Exemption of Accumulated balance of RPF, payable to an employee

Has the employee rendered continuous service of

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at least 5 years with the employer?
di
Yes No
In

Exempt
Services terminated due to
(i) his ill-health
By

(ii) contraction or discontinuance of employer’s

business or
(iii) any other cause beyond the control of the
employee.
IN

Yes No
1F

Exempt Taxable

➢ If, after termination of his employment with one employer, the employee obtains
employment under another employer, then, only so much of the accumulated balance in his
provident fund account will be exempt which is transferred to his individual account in a
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 recognised provident fund maintained by the new employer. In such a case, for exemption
of payment of accumulated balance by the new employer, the period of service with the
former employer shall also be taken into account for computing the period of five years’
continuous service.
➢ The exemption under section 10(11) or 10(12) would not be available in respect of income
by way of interest accrued during P.Y. to the extent it relates to aggregate amounts of
contribution made by that person is > Rs. 2,50,000 in any P.Y on or after 01-04-2021
➢ If there is no employer’s contribution, higher limit of Rs. 5,00,000 would be applicable for

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such contribution and interest accrued in any P.Y. on or after 01-04-2021 would be exempt.

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Profits in lieu of salary [Section 17(3)]
The amount of any compensation due to or received by an assessee from his employer or
former employer at or in connection with the

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(a) termination of his employment,
(b) modification of the terms and conditions of employment.
(c) Payment from provident fund or other fund
Any payment due to or received by an assessee from his employer or former employer
except the following:

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● Gratuity exempted u/s 10(10).
● House rent allowance exempted u/s 10(13A);
● Commuted pension exempted u/s 10(10A);
● Retrenchment compensation exempted u/s 10(10B);
di
● Payment from an approved Superannuation Fund u/s 10(13);
● Payment from statutory provident fund or public provident fund u/s 10(11);
● Payment from recognised provident fund to the extent it is exempt u/s 10(12).
In
Any payment from unrecognised provident fund or such other fund to the extent to which it
does not consist of contributions by the assessee or interest on such contributions.
Any sum received by the employee under the Keyman Insurance Policy including the sum
allocated by way of bonus on such policy.
By

Any amount due to or received by the employee (in lump sum or otherwise) prior to
employment or after cessation of employment.

Retrenchment compensation [Section 10(10B)]

➢ Compensation paid under Industrial Disputes Act, 1947 or under any Act, Rule, Order or
Notification issued under any law.
IN

➢ Amount exempted u/s 10(10B) - Least of the following –

• Actual amount received
• Rs. 5 lacs
• 15 days average pay x every completed year of service or part thereof in excess of 6
months. (Sec 25F of Industrial disputes act, 1947)
1F

➢ where the compensation is paid under any scheme approved by the Central Government
for giving special protection to workmen under certain circumstances- nothing is taxable.

Average pay means average of the wages payable to a workman

in the case of monthly paid workman,
in the case of weekly paid workman
in the case of daily paid workman,
1Fin by IndigoLearn
In 3 complete calendar months
In the 4 calendar weeks
In the 12 full working weeks
56
 If he has not worked for the above period, Average of the wages payable during the
then period he actually worked.

Wages includes – Wages excludes –

• all remuneration capable of being • any bonus.
expressed in terms of money, • contribution to a retirement benefit
• any value of non-monetary benefits like scheme.
• any gratuity payable on the termination

n
– the value of any house
accommodation, or of supply of light, of his service
water, medical attendance, or other

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amenity etc.

➢ Notice pay is fully taxable.

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Voluntary retirement compensation [sec 10(10C)]
➢ Eligible Undertakings – Central government, State government, Local authority, PSUs,
any other company, Co-operative society etc.,

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➢ Amount exempted – Least of the following:
1. Actual amount received
2. Rs. 5 lacs
3. 3 months x salary last drawn x completed year of service
di
4. Salary last drawn x Balance of months left for retirement/superannuation

➢ Salary = Basic salary + dearness allowance, (if forms part of retirement benefits) +
commission which is expressed as a fixed percentage of turnover.
In

➢ Conditions to satisfy
• Such compensation should be at the time of his voluntary retirement or termination of
his service, in accordance with any scheme of voluntary retirement.
By

•Rule 2BA prescribes the following guidelines for the purposes of the scheme
1. It applies to an employee who has completed 10 years of service or
completed 40 years of age.
However, this requirement is not applicable in case of an employee of a public sector
company under the scheme of voluntary separation framed by the company.
2. It applies to all employees by whatever name called, except directors of a company
IN

or a cooperative society.
3. The scheme of voluntary retirement or separation must have been drawn to result
in overall reduction in the existing strength of the employees.
4. The vacancy caused by the voluntary retirement or separation must not be filled up.
1F

5. The retiring employee of a company shall not be employed in another company or

concern belonging to the same management.
➢ No exemption u/s 10(10C) if the employee has already taken relief u/s 89
➢ Exemption u/s 10(10C) is allowed only once in lifetime.
➢ Exemption will be available even if such compensation is received in instalments.

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 Perquisites – Sec 17(2)
General meaning -
Any casual emoluments or benefits attached to an office or position, in addition to salary or
wages, which is availed by an employee
➢ It may be provided in cash or in kind.
➢ Reimbursement of expenses incurred in the official discharge of duties is not a perquisite.
➢ Perquisite will become taxable only if it has a legal origin. An unauthorised advantage taken

n
by an employee without his employer’s sanction cannot be considered as a perquisite under
the Act.

ar
Definition as per sec 17(2)

Value of rent-free accommodation

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Value of concession in rent in respect of accommodation.
The value of any benefit or amenity granted or provided free of cost or at concessional
rate to ‘specified employees’.
Amount paid by an employer in respect of any employee’s obligation
Life insurance/annuity contract payments

go
Any contribution in excess of Rs. 7,50,000 in an RPF, NPS in an approved superannuation
fund by the employer in respect of the assessee.
Annual accretion in excess of Rs. 7,50,000 to the credit of RPF, NPS, an approved
superannuation fund by the employer and included in total income of the assessee.
di
Value of ESOPs /Sweat equity shares provided free of cost or at concessional rate
Value of any other fringe benefit or amenity
In
By
IN
1F

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 Specified employee

An employee whose

n
A director employee. An employee who has aggregate salary from all
substantial interest in the employers together
employer company.

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exceeds Rs. 50,000 p.a.

It is immaterial -

a) whether he is a
nominee of the workers,
financial institutions,
etc. on the board;
b) whether the
Le
A person has a For computing the sum
substantial interest in a of Rs.50,000, following
company if he is a are to be excluded /
beneficial owner of deducted:
equity shares carrying a) All non-monetary

go
employee is full time -> 20% or more of the benefits;
director or a part time; voting power in the b) Exemptions
and company or allowabel u/s 10
c) whether he was a -> 20% or more share
in profits in case of any c) Deduction u/s 16(ia),
director throughout the
di
other entity 16(ii) and 16(iii)
previous year or not.
d) Employer’s
contribution to
Provident Fund.
In

Taxability of perquisities
By

Taxable only in the

Taxable in the case of all Exempt from tax in the hands of specified
employees case of all employees employees
IN

Perquisites taxable in the case of all employees

Value of rent-free accommodation
Value of concession in rent
1F

Amount paid by an employer in respect of any employee’s obligation

Amount payable directly or indirectly to effect an assurance on the life of the assessee
Value of ESOPs and Sweat equity shares
The amount of any contribution to an approved superannuation to the extent it exceeds Rs.
7,50,000.
The value of any other fringe benefit or amenity as may be prescribed by the CBDT - Interest
free or concessional loan, Travelling, touring and accommodation, Gift, voucher or token in
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 lieu of such gift, Credit card expense, club expenditure, use of movable assets, Transfer of
movable assets are some of the benefits covered under Rule 3(7)

Perquisites exempt from tax in the case of all employees

Telephone provided by an employer to an employee at his residence
Transport facility provided by an employer engaged in the business of carrying of passengers
or goods to his employees either free of charge or at concessional rate

n
Privilege passes and privilege ticket orders granted by Indian Railways to its employees;
Perquisites allowed outside India by the Government to a citizen of India for rendering

ar
services outside India.
Employer’s contribution to staff group insurance scheme.
Refreshment provided to all employees during working hours in office premises

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Subsidized lunch or dinner provided
Recreational facilities, including club facilities, extended to employees in general i.e., not
restricted to a few select employees;
Amount spent on training of employees
Sum payable by employer to a RPF or an approved superannuation fund

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Rent-free official residence provided to a Judge of a High Court or the Supreme Court
Rent-free furnished residence including maintenance provided to an Officer of Parliament,
Union Minister and a Leader of Opposition in Parliament;
Conveyance facility provided to High Court Judges
di
Leave travel concession, subject to the conditions specified under section 10

Perquisites taxable in the hands of specified employees only

In
Any monetary obligation of the employee which is discharged by the employer is perquisite in
the hands of all employees as per section 17(2)(iv). However, sometimes instead of discharging
employee’s obligation, employer provides perquisites in the form of facility to the employee.
Such perquisites are taxable in the hands of specified employees only.
By

For example:
Nature of perquisite Specified Non-
Employee Specified
Employee
Motor car and other conveyance owned by Employee and Taxable Taxable
expenses met by Employer
IN

Motor car owned by the employer Taxable Not taxable

Watchman, Gardener, Sweeper, Personal attendant engaged by Taxable Taxable
employee and expenses met by employer
Above servants engaged by the employer Taxable Not taxable
Gas, Electricity, wat Taxable Taxable
1F

er, etc for household consumption in the name of employee and

expenses met by employer
The above facilities in the name of the employer Taxable Not taxable

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 Leave travel concession – Sec 10(5)
➢ This clause exempts the leave travel concession (LTC) received by employees from their
employers for proceeding to any place in India,
• either on leave or
• after retirement from service or
• after termination of his service
➢ Family includes spouse and children of the individual and parents, brothers and sisters of
the individual or any of them wholly or mainly dependent on the individual.

n
➢ The exemption referred to shall not be available to more than two surviving children of an

ar
individual after 1.10.1998. This restrictive sub-rule shall not apply in respect of children
born before 1.10.1998 and also in case of multiple births after one child.
➢ The exemption in all cases will be limited to the amount actually spent
➢ Under Rule 2B, exemption will be available in respect of 2 journeys performed in a block

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of 4 calendar years commencing from the calendar year 1986. The current block is 2018-
2021
➢ Where such travel concession or assistance is not availed by the individual during any

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block of 4 calendar years, one such unavailed LTC will be carried forward to the
immediately succeeding block of 4 calendar years and will be eligible for exemption.
For Example:
An employee does not avail any LTC for the block 2018-21. He is allowed to carry forward
maximum one unavailed LTC to be used in the succeeding block of 2022-25.
di
➢ The cap limit for exemption is

Journey by air Economy fare of national carrier by shortest

In
route.
Journey by rail 1st class AC rail fare by shortest route.
Journey by any other mode where rail 1st class AC fare, through recognised public
service exists transport by shortest route.
a recognised public transport system exists -
By

1st class deluxe fare by shortest route.

A recognised public transport system does
not exists - amount equivalent to 1st class AC
fare by rail through shortest route.
IN

Medical facilities [Sec 17(2)]

➢ The following medical facilities will not amount to a perquisite
1. Value of medical treatment in any hospital maintained by the employer
2. Reimbursement of expenditure actually incurred on medical treatment in
1F

• any hospital maintained by the Government/Local Authority and

• in respect of the prescribed disease or ailments in any hospital approved by the
Principal Chief Commissioner.
• In respect of any illness relating to COVID-19 subject to such conditions as the Central
Government may, by notification in the Official Gazette, specify in this behalf
The employee shall attach with his return of income a certificate from the hospital
specifying the disease

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 3. Premium paid to effect an insurance on the health of employee under a scheme approved
by the Central Government or IRDA for the purposes of section 36(1)
4. Payment of premium on personal accident insurance policies – because it is taken in
their business interest only
5. Reimbursement of premium paid to effect an insurance on the health of employee or for
the family of an employee under a scheme approved by the Central Government or the
IRDA for the purposes of section 80D

n
6. Amount paid towards expenditure incurred outside India on medical treatment

medical treatment of the employee or any exempt only to the extent permitted by the

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member of the family RBI
travel and stay abroad for such treatment exempt only to the extent permitted by the
RBI

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travel and stay abroad of one attendant who exempt if the employee’s gross total income
accompanies the patient as computed before including the said
expenditure does not exceed Rs. 2 lakh

➢ Family = Spouse + children + Parents & siblings if wholly dependent on the assessee.

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➢ Hospital includes a dispensary or a clinic or a nursing home.
di
In
By
IN
1F

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 Valuation of perquisities
Value of rent free accommodation

Rent free accomodation

Unfurnished
Furnished house Hotel

n
house

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Government Value of
others unfurnishe Value =
employer
d house + Actual cost

Le
Value of or 24% of
amenity salary
whichever
is lower
License fee (-
) any charges Owned by Leased by

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paid by employer employer
employee Value of
amenity
di
Lower of
10 lacs < Population Lease rent
Population Population < 10 lacs OR 15% of
> 25 Lacs <= 25 lacs Amenity
salary Lease by
owned by
Employer
In
employer

Value = Value = Value =

Value =
By

15% of 10% of 7.5% of Actual

salary salary 10% of
salary lease
original
charges
cost
IN

➢ For computing the value of a furnished accommodation, first find the value of the
unfurnished accommodation and then find the value of amenities. The aggregate is the value
of furnished accommodation.
➢ All the above values will be reduced with the amount actually collected by the employer from
the employee.
1F

➢ In case of hotel accommodation, where the employee is provided such accommodation for a
period not exceeding in aggregate 15 days on his transfer from one place to another, there
would be no perquisite.
➢ Where an employee is transferred from one place to another and he is provided with an
accommodation at new place also, the value of perquisite shall be taken for only one such
house having lower value for a period not exceeding 90 days. Thereafter, the values of both
such houses are taxable.

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 ➢ Where the accommodation is provided by the Central Government or any State Government
to an employee who is serving on deputation with anybody or undertaking under the control
of such Government, then the value is computed based on the population assuming such body
or undertaking to be the employer.
➢ Rent-free official residence provided to a Judge of a High Court or to a Judge of the Supreme
Court.
➢ Any accommodation provided to an employee working at a mining site; or an on-shore oil
exploration site; or a project execution site; or a dam site; or a power generation site; or an

n
off-shore site, which
i. being of a temporary nature and having plinth area not exceeding 800 sq.ft. is located

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not less than 8 kms away from the local limits of any municipality or a cantonment
board; or
ii. is located in a remote area. (Remote area here means an area located at least 40 K.M.

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away from a town having population not exceeding 20,000 as per latest published
census.)

➢ Definition of salary -
Includes all allowances, bonus and commission and Excludes

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(a) Dearness allowance if it does not form part of retirement benefit (only DA* is included)
(b) Employer’s contribution to the provident fund account of the employee.
(c) Allowances which are exempted u/s 10
(d) The value of perquisites u/s 17(2)
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(e) Any payment or expenditure specifically excluded under proviso 17(2)
(f) Lump-sum payments received at the time of termination of service or superannuation
or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary
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retrenchment benefits, commutation of pension and similar payments.

Value of any concession in the matter of rent respecting any accommodation provided
to the assessee by the employer [Sec 17(2)(ii)]
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➢ The difference between the specified rate in respect of the period during which said
accommodation was occupied computed as per the above flowchart and the amount of
rent recoverable/recovered from the employee would be deemed to be the concession in
the matter of rent.
➢ All the above points with regard to hotel accommodation and 2 accommodations will
remain the same
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➢ Definition of salary is also the same as mentioned above.

➢ Rule 3(1) is applicable in computation of taxable perquisite, in case of deemed concessions.

1F

Value of perquisite per calendar month –motor car / car / another vehicle [Rule 3(2)]
Owner/hirer Expenses met / Purpose Taxable value
of the car reimbursed by
Employer Employer Fully official Not a perk
Employer Employer Fully personal Actual expense on running and maintenance
+ Driver’s salary +10% Dep on cost –
Amount charged from EE

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 Employer Employer Partly official CC < 1.6 Lts – 1800 pm + 900 pm
and partly CC > 1.6 lts - 2400 pm + 900pm
personal CC = Cubic capacity of the engine
900 Pm for chauffer is considered only if
driver is employed.
Employer Employee Partly official CC < 1.6 Lts – 600 pm + 900 pm
and partly CC > 1.6 lts - 900 pm + 900pm
personal CC = Cubic capacity of the engine

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900 Pm for chauffer is considered only if
driver is employed.

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Employee Employer Fully official Not a perk
Employee Employer Partly official Actual exp – (1800+900) (if CC < 1.6 Lts) OR
and partly Act exp – (2400+900) (if CC > 1.6 lts) as the

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personal case may be

Any other automotive conveyance

Employee Employer Fully official Not a perk
Employee Employer Partly official Actual exp – 900 pm

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and partly
personal
➢ If the employee uses more than 1 car owned or hired by ER, then 1 will be assumed to be
used partly for personal use and the other will be assumed to be used fully for personal
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purposes.
➢ The employer has to maintain a complete record of all details like journey undertaken for
official purpose which may include date of journey, destination, mileage, and the amount
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of expenditure incurred thereon in case it is used fully for official purpose. The employer
gives a certificate to the effect.
➢ The normal wear and tear of the motor car shall be 10% p.a of actual cost of such car.
➢ The use of any vehicle provided by an employer for journey by the assessee from his
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residence to his office or other place of work, and back home shall not be regarded as a
benefit given or provided to him free of cost or at concessional rate.

Valuation of fringe benefits

Benefit Valuation
Provision of domestic Actual cost to the employer i.e., total amount of salary paid or
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servants like sweeper, payable by the employer as reduced by any amount paid by the
a gardener, a employee for such service.
watchman or a If servants are engaged by the Taxable in the hands of all
personal attendant employee and employer pays or employees
[Rule 3(3)] reimburses the cost
1F

If the domestic servants are Taxable in the hands of

engaged by the employer. specified employees only.

Gas, Electricity or Circumstances Value of benefit

water supplied by If payment is made to agency Sum equal to the amount paid
employer [Rule 3(4)] supplying of gas, electricity etc. on that account by the employer

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 to the agency supplying the gas,
electric energy or water
If supply is made from Manufacturing cost per unit
resources owned by the incurred by the employer
employer
➢ Any payment made by employee in respect of such service shall
be deducted from the above value so arrived.

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Free or concessional If the fees is paid or reimbursed Value = sum equal to the
educational facilities by the employer amount of expenditure incurred

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[Rule 3(5)] by the employer
If the educational institution is Then it is taxed only in the
maintained and owned by the hands of specified employees

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employer or If free educational Value = cost of such education in
facilities are allowed in any a similar institution in or near
other educational institution by the locality
reason of his being in There would be no perquisite if
employment of that employer the cost of such benefit per

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child does not exceed Rs. 1,000
p.m.
➢ Any payment made by employee in respect of such service shall
be deducted from the above value so arrived.
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Note: The exemption of Rs.1,000 p.m is allowed only in case of
education facility provided to the children of the employee not to
other household members.
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Fee or concessional Value at which such benefit or amenity is offered by such employer
tickets by the to the public (–) amount recovered.
employer who is
engaged in the Value = Nil in case of employees of an airline or the railways.
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carriage of passengers
or goods [Rule 3(6)]

Interest-free or Maximum outstanding monthly balance x SBI rate of interest on

concessional loan (for loans for same purpose on 1st day of PY (-) interest recovered.
all employees or any
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member of his Value = Nil if

household) [Rule 1) Loan < = 20,000 and
3(7)(i)] 2) Loan for medical treatment for prescribed disease.
(But no exemption if medical exp reimbursed by insurance)
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➢ Maximum outstanding monthly balance => Outstanding

balance for each loan as on the last day of each month.

Travelling, touring and

accommodation [Rule For any holiday availed of by the Value = Actual expenses paid for
3(7)(ii)] employee or any member of his or borne or reimbursed by the
household reimbursed by employer
employer
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 If such facilities are maintained Value = value at which such
by employer to particular facilities are offered by other
employees only agencies to the public.
Expenses on any member of Value = the amount of
household accompanying such expenditure so incurred for that
employee on office tour member
If official tour is extended as Value = Actual exp during
vacation vacation period.

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Free or concessional Amount of expenditure incurred by such employer.
food and non-alcoholic The following would not be treated as a perquisite:

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beverages [Rule
3(7)(iii)] 1. Provided during working hours at office or business premises
2. Provided through paid vouchers which are not transferable and
usable only at eating joints, (not exceeding Rs. 50 per meal) [No

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exemption is available to assessee, who opts for Section 115BAC]
3. Provided in a remote area or an offshore installation

Gift, voucher or token Actual value of such gift.

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in lieu of such gift – Taxable Value = nil if value of gift is less than Rs. 5000
given to employee or
by member of his
household on
ceremonial occasions
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or otherwise [Rule
3(7)(iv)]
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Credit card expenses Actual Amount of expenditure including membership fees and
(incurred by the annual fees
employee or any ➢ If it is for official purpose then, it is not taxable if,
member of his − complete details in respect of such expenditure are
household) [Rule maintained by the employer and
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3(7)(v)] − the employer gives a certificate to that effect.

Club expenditure Actual expenditure (met by the employer) + annual periodical fees
(incurred by the
(–) amount recovered from the employee.
employee or any
member of his ➢ If Employer has taken corporate membership, then the initial
household) [Rule fees is not considered as perk.
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3(7)(vi)] ➢ If it is for official purpose then, it is not taxable if complete

details in respect of such expenditure are maintained by the
employer and the employer gives a certificate to that effect.
➢ No perquisite for use of health club, sports and similar facilities
1F

provided uniformly to all employees by the employer

Other benefit or Value = cost to the employer under an arms' length transaction as
amenity [Rule reduced by the employee's contribution, if any.
3(7)(ix)] ➢ If an employer pays or reimburses telephone bills or mobile
phone charges of employee, there will be no taxable perquisite.

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 Valuation with regard to usage or transfer of Moveable property [Rule 3(7)(vii) & (viii)]

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Movable asset

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Usage
Transfer

Laptops Other assets

and Computers and Any
Motor
computers electronic items other

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cars
assets
10% of Actual
actual hire
Depreciated
Nil cost if charges value Depreciated Depreciated
asset is if asset [depreciation value value
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owned is hired is computed [depreciation [depreciation
@50% on is computed is computed
WDV for each @20% on @10% on SLM
completed WDV for each for each
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year of usage] completed completed
year of usage] year of usage]

➢ Note: Any payment made by employee in respect of such perquisites shall be deducted
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from the above respective values so arrived.

Valuation of specified security or sweat equity share

The FMV of any specified security or sweat equity share, being an equity share on the date on
which the option is exercised is determined in the following manner –
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If shares are If shares are If no trading in share If shares are In case of

listed on RSE listed on more on RSE not listed securities
than one RSE other than
equity shares
1F

FMV = average FMV = average FMV = closing price FMV FMV

of the opening of the opening on the date closest determined determined
price and price and to the date of by a by a merchant
closing price of closing price of exercising of the merchant banker on the
the share on the share on option immediately banker on the specified date.
that date. that date in the preceding such date specified
RSE which OR date.
records the
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1Fin by IndigoLearn
 highest volume closing price on the
of trading in the date closest to the
share date of exercising in
the RSE records the
highest volume of
trading in the share
as the case may be.

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Tax on perquisite of specified securities and sweat equity shares allotted by
employer is required to be paid

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➢ Generally, = In the year of exercising the option.
➢ Current employer, being eligible start-up is taxable in the year.
− after expiry of 48 months from the end of the relevant A.Y

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− in which sale of such shares or securities are made by the assessee
− in which the assess ceases to be the employee of such employer
Whichever is earlier

RSE – Recognised stock exchange

date

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Specified Date – date of exercising of option or any date not exceeding 180 days prior to that

➢ Note: Any amount has been recovered from employee in respect of such service shall be
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deducted from the above respective values so arrived.

Computation of taxable perquisite under 17(2)(vii) and 17(2)(viia) [Rule 3B]

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➢ Any contribution in excess of Rs. 7,50,000 in an RPF, NPS or in an approved
superannuation fund by the employer in respect of the assessee. (17(2)(vii))
➢ Annual accretion in excess of Rs. 7,50,000 to the credit of RPF, NPS, an approved
superannuation fund by the employer and included in total income of the assessee.
(17(2) (viia)
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Rule 3B
Annual accretion by way of interest, dividend or any other amount of similar nature during
the previous year o balance to the credit of the fund or scheme referred in 17(2)(vii) shall be
the amount computed as per the formula
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TP = (PC/2) x R + (PC1 + TP1) x R

TP Taxable perquisite under 17(2) (viia) for current previous year
TP1 Aggregate of taxable perquisite under 17(2) (viia) for the previous year
commencing on or after 01-04-2020
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PC Aggregate amounts of principal contribution made by the employer in

excess of Rs. 7.5 Lakh to the fund or scheme specified in 17(2)(vii)
PC1 Aggregate amounts of principal contribution made by employer in excess
of Rs. 7.5 lakh to the fund or scheme specifies in 17(2)(vii) for the previous
year or years commencing on or after 1st day April 2020 other than the
current previous year.
R I / Favg

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 I Aggregate of amounts of income accrued during the current previous year
in the fund
Favg Average of aggregate of amounts of balance to the credit of the fund on first
day of previous year and on last day of previous year
Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate
of amounts of balance to the credit of the specified fund or scheme on the first day of the
current previous year, then the amount in excess of the amount or aggregate of amounts of

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the said balance shall be ignored for the purpose of computing the amount or aggregate of
amounts of TP1 and PC1.

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Deductions from salary

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Deductions

Standard deduction go
Entertainment Professional tax [Sec
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[Sec 16(ia)] allowance [Sec 16(ii)] 16(iii)]
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Rs.50,000 1. Deduction only in respect 1. Levied by state
or the Government employees
2. Allowed as
amount of 2.Least of the following: deduction only when
salary, a. 20% of basic salary it is actually paid by
whichever b. Rs.5,000 or the employee during
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is lower c. Entertainment allowance the previous year

received. 3.Shall not exceed
3. Amount actually spent is 2500 p.a
not relevant

➢ Assessee opted for section 115BAC cannot claim deduction under section 16.
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➢ Salary, Pension and emoluments paid by United Nations to its officials is exempt from
Income tax. [Sec 2 of United Nations (Privileges and Immunities) Act, 1947]
1F

Definition of Member of household for the purpose of valuation of Perquisites:

Include-
(a) spouse(s),
(b) children and their spouses,
(c) parents, and
(d) servants and dependants

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 Relief u/s 89
➢ When an assessee is charged for –
o Arrear or Advance salary; or
o Gratuity, Commuted pension, etc.
then he may fall under higher rate of tax (of progressive tax-slab) e.g. instead of 20% he
may have to pay tax @ 30%. To compensate aggrieved assessee from such higher rate,

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sec. 89(1) provides for ‘Relief’.
➢ Applicable to: An assessee, who is in receipt of –

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• Arrear salary or Advance salary or in any other way is in receipt, in any one
financial year of salary for more than 12 months; or
• Profit in lieu of salary u/s 17(3) e.g. gratuity, commuted pension, etc.; or

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• Family pension, being paid in arrears.
➢ Note: An assessee, who receives leave encashment during continuation of his service, can
also claim relief u/s 89.
➢ Assessee has made an application in this behalf to the Assessing Officer.
➢ Quantum of Relief: As computed by method provided in Rule 21A

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➢ No relief at the time of Voluntary retirement or Termination of service.
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 INCOME FROM SALARY - ILLUSTRATIONS
Problem 1 - Gratuity

After serving for 34 years in an Indian Company, Mr. X retires from service on 1.1.2019
➢ The company pays him a gratuity of 3,00,000.

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➢ His monthly basic salary during the calendar years has been:
Calendar Year Amount (Rs.)

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2015 9,000
2016 10,000
2017 11,000

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2018 12,000
➢ His annual increment became due on 1st January, every year.

You are required to determine the amount of gratuity exempt under section 10(10)

Problem 2 - Gratuity
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Shri Naresh Reddy an employee completed 27 years and 8 months of service with M/s
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Kanpur Iron & Steel Ltd.
➢ And at the time of retirement on 1.1.2021, he received 3,30,000 as gratuity.
➢ His monthly salary on the date of retirement was 19,500.
In
➢ He was drawing 19,000 p.m. prior to July 2020.

Find out the amount of taxable gratuity if payment of Gratuity Act, 1972 applies.
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Problem 3 - Gratuity

Shri Rajesh was employed since 1.1.1984 in a commercial establishment.

➢ His salary was fixed at Rs.14,800 in the grade of Rs.14,000 -400 -22,000 with effect
from 1.7.2016.
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➢ He got 15% of his salary as dearness allowance, which is treated as salary for
computation of retirement benefits.
➢ He retired from service on 1.2.2019. He received Rs.3,40,000/- as gratuity from his
employer.
1F

Calculate his gross income under the head ‘salaries’ for the assessment year 2019-20, if-
Payment of Gratuity Act, 1972 applies,
Payment of Gratuity Act, 1972 does not apply.

Problem 4 - Gross Salary computation

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 R, a General manager of R company Ltd., retired from the company on 15.6.2020.
➢ At the time of such retirement, his basic salary was Rs. 68,000 p.m
➢ He was also entitled to dearness allowance @ 20% of his basic salary
➢ 60% of the dearness allowance forms part of the salary as per the terms of
employment
➢ He had worked with the company for 20 years 11 months and 15 days
➢ He got an increment of Rs. 6,000 in his basic salary w.e.f. 1.2.2020

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➢ At the time of his retirement, the company paid him a gratuity of Rs. 8,00,000
➢ R had earlier worked with S company Ltd., from where he had received a gratuity and

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have availed of an exemption of Rs. 1,20,000.

Compute his salary for the assessment year 2021-22

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Problem 5 – Gross Salary

A joined a service in the grade of Rs.10,400 – 400 - 16,000 -500 – 20,000 on 1.7.2002 and
resigned from the service on 15.9.2020.

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➢ He was also entitled to dearness allowance @ 50%, which from part of salary for
retirement benefits.
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➢ On retirement, he received a gratuity of Rs. 2,40,000.
➢ He was entitled to a pension of Rs.8,000 per month w.e.f. 16.9.2020.
➢ He got 75% of his pension commuted w.e.f. 1.1.2021 and received a sum of
In
Rs.6,00,000 as commuted pension.

Compute his gross salary for assessment year 2021-22.

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Problem 6 – Gross Salary (retirement)

X was employed with ABC Ltd. retired w.e.f. 1.2.2021 after completing a service of 24
years and 4 months.
He submits the following information:
Particulars Rs.
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Basic Salary (at time of retirement) Rs.10,000 per

month
Dearness Allowance (40% of basic salary forms part of Salary 120% of basic
as per terms of employment) salary
1F

Last Increment Rs.1,000 w.e.f.

1.7.2020

➢ His pension was determined at Rs.6,000 per month.

➢ He got 50% of the pension commuted w.e.f. 1.3.2021 and received a sum of
Rs.2,00,000 as commuted pension.
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 ➢ In addition to this, he received a gratuity of Rs.2,40,000 and leave encashment
amounting to Rs.1,12,000 on account of accumulated leave of 240 days. He was
entitled to 40 days leave for every year of service.

Compute his gross salary for assessment year 2021-22 assuming that he is not covered
under payment of Gratuity Act.

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Problem 7 - HRA

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Compute the exemption available under section 10(13A) in the following cases:
Name of Employee A B C D E

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Place of Residence Delhi Noida Mumbai Patna Bengaluru
Salary p.m. 4,000 6,000 8,000 3,000 5,000
HRA p.m. 1,500 1,200 5,000 1,000 1,500
Rent paid p.m. Nil 1,000 6,000 800 400

Problem 8 – Gross Salary (incl HRA)

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R is employed with XY Limited on a basic salary of Rs.5,000 per month.
➢ He is also entitled to dearness allowance @ 100% of basic salary, 50% of which is
included in salary for the purpose of retirement benefits as per the terms of
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employment.
➢ The company gives him HRA of Rs.3,000 per month which was increased to Rs. 3,500
w.e.f. 1.1.2019.
➢ He also got an increment of Rs 500 in his basic salary w.e.f. 1.2.2019.
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➢ Rent paid by him during the previous year 2018-19 is as under:

April & May = Nil, as he stayed with his parents
June to October = Rs. 3,000 per month for an accommodation in Ghaziabad
November to March = Rs. 4,000 per month for accommodation in Delhi.

Compute his gross salary for assessment year 2019-20.

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Problem 9 – Entertainment Allowance

1F

M, who is employed with X company Limited since 1.06.1958 submits the following
particulars:
S.No. Particulars Rs.
(i) Basic Salary 3,60,000
(ii) Dearness Allowance (60% of which forms part of salary) 1,20,000
(iii) Bonus 72,000

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 (iv) Entertainment Allowance 18,000

Is he eligible for deduction in respect of entertainment allowance? If yes, what is the

amount of deduction?

Problem 10 – Taxable Salary

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S is a lecturer in college.

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Following are the details of his income for the previous year 2020-21
• Basic salary @ Rs. 34,000 p.m.
• Dearness allowance @ Rs.12,000 p.m.

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• City company compensatory allowance Rs.12,000
• House rent allowance Rs.10,200 p.m.
• Remuneration as examiner Rs. 4,000
• He is a member of statutory provident fund to which he contributes 10% of his salary,

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the college contributing an equal amount.
• During the previous year he spent Rs.12,000 on books purchased for teaching purpose
and used his own car for personal as well as college work.
• He lives in his own house. He was sent by the college to attend orientation seminar.
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The college spent Rs.12,000 for the purpose (including his first-class fare to and fro,
seminar fees, etc).
• He received medical reimbursement of Rs. 12,000 for his nephew.
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Compute S’s taxable salary for the assessment year 2021-22.
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Problem 11 – Perquisite (Medical)

Compute the taxable value of the perquisite in respect of medical facilities availed of by
X from his employer in the following situations.
(a) The employer reimburses the following medical expenses:
S.No. Particulars Rs.
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(i) Treatment of X by his family physician 8,400

(ii) Treatment of Mr. X in a private nursing home 7,200
(iii) Treatment of X’s mother (dependent upon him) 2,400
(iv) Treatment of X’s brother (not dependent upon him) 800
1F

(v) Treatment of X’s grandfather (dependent upon him) 3,000

(b) The employer reimburses an insurance premium of Rs.6,000 paid by X under a

health insurance scheme on the life of X and his wife.
(c) The employer maintains a hospital for the employees where they and their family
members are provided free treatment. The expenses on treatment of X and his family
members during the previous year were as under:
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 S.N0. Particulars Rs.
(i) Treatment of X’s major son (dependent upon him) 4,400
(ii) Treatment of X 10,400
(iii) Treatment of X’s uncle 9,200
(iv) Treatment of Mrs. X 16,000
(v) Treatment of X’s widowed sister (dependent upon him) 8,200
(vi) Treatment of X’s handicapped nephew 5,000

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(d) Expenses on a cancer treatment of married daughter of X at Tata Memorial

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Hospital, Mumbai (Approved Hospital) paid by the employer Rs.1,00,000 and
reimbursement of expenses for medical treatment of himself amounting to Rs.40,000.
(e) The following expenses on treatment of X’s major son outside India were

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paid by the employer:
S.No. Particulars Actual Expenses
expenses permitted
(Rs.) (Rs.)
(i)
(ii)

(iii)
Actual medical expenses
Expenses on stay abroad of X’s son and
brother who accompanied
Travelling expenses of X’s son and X’s
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1,30,000

2,40,000
1,20,000
90,000

-
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brother

Assume that the other income of X is (a) Rs.1,20,000 (b) Rs.1,80,000 (including income
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under the head salary excluding the above taxable perquisite)

Problem 12 – Perquisite vs Allowance (accommodation vs HRA)

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R, an individual employed by a company, draws a salary of Rs.12,000 per month and

C.C.A. Rs.1,000 p.m. his employer gives him the choice of one of the two alternatives
given below:
➢ Getting a rent-free unfurnished house at Delhi for which the rent is Rs.13,000 per
month which the company will pay,
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(or)
➢ Getting a cash house rent allowance of Rs.13,000 per month.

R opts for the second alternative and takes the cash house rent allowance of Rs.13,000
1F

per month. He takes a house in Ghaziabad at a rent of Rs.13,000 per month. Has he made
a wise choice? Discuss.

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 Problem 13 – Retirement Benefits taxability (Gratuity and PF)

On retirement after 24 years of continuous service on 5.8.2020, R received the under-

noted sum:
a) Retirement gratuity of Rs.3,60,000 based on one months’ salary for each year of
service.
• His salary in calendar year 2020 was Rs.10,000 p.m.

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• It had increased @ Rs.1,000 each year.
• His salary is due on the last day of every month.

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b) A sum of Rs.3,08,000 from an unrecognized provident fund, the composition being.
S.No. Particulars Rs.
(i) Employee’s Contribution 1,60,000

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(ii) Interest thereon 16,000
(iii) Total 3,08,000

State giving reason what amount if any, out of the above noted receipt are chargeable to

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income tax in the assessment year.

Problem 14 – Income from Salaries (Retirement)

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R was a manager in a factory in Delhi which is not covered under the payment of Gratuity
Act, 1972. He got:
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S.No Particulars Rs.(p.m)
i) Basic pay 3,000
ii) Dearness allowance (under the terms of employment) 6,000
iii) House rent allowance (He resides in his own house) 3,750
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iv) Conveyance allowance (for commuting between office and 1,300

residence)

➢ He retired on 1.1.2021 and got Rs.6,00,000 as gratuity Rs.5,00,000 as accumulated

balance in his recognized fund. (His own contribution and that of the factory to this
fund was equal.)
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➢ Rs.3,60,000 being the amount of salary including dearness allowance for ten months
earned leave to his credit at the time of retirement. (He was entitled to one month
leave per year).
➢ He was allowed to get pension of Rs.15,000 per month three fourths of which was
1F

commuted for Rs.4,50,000.

➢ He commenced service at this factory on 1.4.1986.
➢ Employment tax payable to State Government was Rs.2,000 but he paid only Rs.1,000
during the previous year against the due amount.

Calculate his income from salaries for the assessment year 2021-22.

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 Problem 15 – Income from Salaries

R was appointed as the branch manager of a company at Jaipur on 1.2.2017 in the pay
scale of Rs.16,000- 1,000- 24,000.

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➢ He also receives 10% of his pay as D.A.
➢ Rs.1,500 p.m. as medical allowance and

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➢ Rs.3,000 p.m. as conveyance allowance.
➢ The company has given him a rent- residential since 1.7.2018. The fair return of the
house is Rs.1,00,000 p.a.

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➢ The company has incurred the following expenses in respect of this house from July,
2018 to March 2019.
S.No Particulars Rs.
i) Repairs 20,000

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ii) Electric bills 3,500
iii) Water bills 2,000
iv) Telephone bills 800
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➢ The electric capacity and water bills are in the name of employer but telephone bill
was in the name of employee.
➢ On 1.10.18, his conveyance was stopped, and he was given a motor car with 1.4cc
In
engine capacity for both official and personal use.
➢ All the expenses of running and maintains of car including salary of driver, are paid
by the company.
➢ He as well as the company contribute 14½ % of his pay to a recognized provident
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fund. Interest credited during the previous year to his provident fund a/c @ 12½ %
p.a. Rs.12,500.

Compute his taxable income under the head salaries for the assessment year 2019-20
assuming that he has not spent any amount of conveyance for official duties. Further,
assume that the population of Jaipur is more than 25 lakhs.
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Problem 16
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Mr. Lal is employed in Bharat Textiles Ltd. Mumbai on a monthly salary of Rs.20,000.
➢ In addition to this fixed salary, he is entitled to a commission @ 5% on the sales made
by him.
➢ During the previous year 2020-21, he had received following allowances and
amenities from his employer:

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 • Dearness allowance @ Rs.2,000 per month which is granted to him under the terms
of employment and counted for retirement benefits.
• Bonus equal to two months basic salary.
• House rent allowance @ Rs.5000 per month.
• Entertainment allowance @ Rs.250 per month.
• The company paid Rs.1,000 as his Income-tax penalty.
• In September, 2020 during leave he went on a visit to Kashmir with his family. The

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expenditure amounting to Rs.16,000 as passage by air were paid to him by
employer as leave travel assistance.

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• He had been provided with the amenities of gas, electricity and water, the
expenses of which amounting to Rs.12,000 were paid by the company.
•

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Commission on sales of Rs.10,00,000 @ 5%.
• He was given titan watch worth Rs.9,000 by his employer on the foundation day of
the company.
• He and his employer each contribute 12.5% of his salary to recognized provident

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fund. The interest credited to this fund for the previous year at 13.5% rate of
interest amounted to Rs.27,000.

Compute the taxable income from salary of Mr. Lal for the assessment year 2021-22
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keeping in mind that he spent Rs.6,000 p.m. as rent of the house hired by him.
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Problem 17

From the following information submitted by A compute his taxable salary for the
assessment year 2021 – 22.
• Basic salary Rs.10,000 p.m.
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• D.A Rs.1,000 p.m. (60% of which forms part of the salary for retirement benefits).
• CCA Rs.100 p.m.
• HRA Rs.2,000 p.m. He pays Rs.3,000 p.m. as rent for a house situated in Delhi.
• CEA Rs.120 p.m. for 3 children.
• Hostel expenditure allowance Rs.700 p.m. for 2 children.
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• Medical allowances Rs.500 p.m. He spends Rs.3,000 during the year on his own
medical treatment and Rs.2,000 on the medical treatment of his brother not
dependent on him.
• He was also provided with the facility of a watchman, sweeper and gardener X Ltd.,
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the employer, pays wages @ Rs.1,000 p.m. each to said persons.

• He has also been provided with a motor car of 1400 cc engine cubic capacity rating
with driver which he uses partly for his official purposes and partly for his personal
purposes.
• His professional tax of Rs.300 is paid by employer.

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 • He contributes Rs.600 p.m. to his recognized provident fund to which his employer
contributes equal amount.
• The interest @ 11% p.a. amounting to Rs.22,000 was credited to his provident fund
for year ending 31.3.2021.

Problem 18

A, an Indian citizen is an employee of the Government of India.

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➢ He was transferred to London in Indian High Commission on 1.1.2020.
➢ During the previous year 2020 – 21 he did not come to India at all.

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➢ He was entitled to the following emoluments in London:
• Basic Salary Rs.17,000 p.m.
• Overseas Allowances Rs.20,000 p.m.

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• Rent-free furnished accommodation at London, whose FRV is Rs. 1,20,000 p.a and
cost of furniture provided is Rs.1,00,000.
• His elder son was studying in London School of Economics and he was allowed Rs.

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12,000 p.m. as education allowance for his education.
• His younger son was studying in a school run by Indian High Commission in London.
• He was provided with a car of 1800 cc engine cubic capacity which he drives
himself and uses the same partly for official purposes and partly for personal
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purposes.
• He has also been provided with the services of a gardener, watchman, sweeper and
a cook; the salary of each being Rs.2,500 per month.
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Compute his income from salary for the assessment year 2021-22.

Problem 19
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Mr. Sriram (32 years) is a computer programmer and employed by Y Ltd., Bengaluru.
➢ He gets Rs. 1,80,000 per month as salary and Rs. 3,00,000 per annum as bonus.
➢ Besides, Y Ltd. provides the following;
• Conveyance allowance for official purposes: Rs. 1,000 per month (expenditure for
official use for the previous year is Rs. 11,500).
• Transport allowance (to cover journey between the office and residence): Rs.
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1,600 per month (actual expenditure is not more than Rs. 1,200 per month).
• Fixed medical allowance: Rs. 500 per month (Sriram claims that the entire amount
is used for the medical treatment of the family).
• Medical facility in a hospital which is owned by Y Ltd. Cost to Y Ltd. for providing
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this facility to Sriram: Rs. 25,000.

• Medical facility in a State Govt./Central Govt. hospital: Rs. 20,000.
• Medical facility in a private hospital in Bengaluru (the same hospital is
recommended by the Govt. of Karnataka for the medical treatment of Govt.
employees): Rs. 24,000.

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 • Medical facility (Rule 3A) in an hospital approved by the Chief Commissioner of
Income Tax: Rs. 42,000.
• Medi-claim insurance premium paid by Y Ltd. to Sriram and his family: Rs. 28,000.
• Reimbursement by A Ltd. of other medical expenditure: Rs. 19,000.

Problem 20

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Rahul and Santosh are employed in Gyaan Ltd. (Salary being Rs. 48,000 per month)

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➢ As per the company’s policy, an employee is entitled for car (1600 cc) and a driver.
The car can be used for official and personal purposes.
➢ A car owned by the company can be provided along with driver and the company will

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bear running the maintenance expenditure up to a maximum of Rs. 72,000 per
annum and actual salary of the driver(up to Rs. 60,000 per annum).
➢ An employee, at this option, can use his own car for official and personal purposes
and company will reimburse actual expenditure on maintenance of the car but up to

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a maximum of Rs. 72,000 per annum and salary of the driver up to Rs. 60,000 per
annum.
➢ Rahul has taken a car and a driver from the company for official and personal
purposes (actual maintenance expenditure is approximately Rs. 72,000 per annum for
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a car and Rs. 60,000 per annum for driver).
➢ However, Santosh has used his own car for official and personal purposes (amount of
actual expenditure reimbursed on this account is approximately Rs. 72,000 for car
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and Rs. 60,000 per annum for driver).
➢ Logbooks of the cars is not maintained. It is not possible to determine the
expenditure attributable for private use of cars.
➢ Find out the taxable value of the perquisite in the hands of Rahul and Santosh for the
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assessment year 2021-22.

➢ A nominal amount of Rs. 1,000 per annum is recovered from Rahul and Santosh for
providing this perquisite.
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 INCOME FROM SALARIES – ADDITIONAL ILLUSTRATIONS

Illustration 1

Mr. Srikant has two sons. He is in receipt of children education allowance of Rs.150
p.m. for his elder son and Rs.70 p.m. for his younger son. Both his sons are going to
school. He also receives the following allowances:

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Transport allowance: Rs.1,800 p.m.

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Tribal area allowance: Rs.500 p.m.

Compute his taxable allowances –

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• If he opts for provisions of section 115BAC
• If he does not opt for provisions of section 115BAC.

Illustration 2

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Mr. Dutta received voluntary retirement compensation of Rs.7,00,000 after 30 years 4
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months of service. He still has 6 years of service left. At the time of voluntary
retirement, he was drawing basic salary Rs.20,000 p.m. Dearness allowance (which
forms part of pay) Rs.5,000 p.m. Compute his taxable voluntary retirement
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compensation, if he does not claim any relief under section 89.

Illustration 3
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Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the list of perquisites
provided by the company to him for the entire financial year 2020-21:
• Domestic servant was provided at the residence of Bala. Salary of domestic servant
is Rs.1,500 per month. The servant was engaged by him, and the salary is
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reimbursed by the company (employer). In case the company has employed the
domestic servant, what is the value of perquisite?
• Free education was provided to his two children Arthy and Ashok in a school
maintained and owned by the company. The cost of such education for Arthy is
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computed at Rs.900 per month and for Ashok at Rs.1,200 per month. No amount
was recovered by the company for such education facility from Bala.
• The employer has provided movable assets such as television, refrigerator, and air-
conditioner at the residence of Bala. The actual cost of such assets provided to the
employee is Rs.1,10,000.

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 • A gift voucher worth Rs.10,000 was given on the occasion of his marriage
anniversary. It is given by the company to all employees above certain grade.
• Telephone provided at the residence of Shri Bala and the bill aggregating to
Rs.25,000 paid by the employer.
• Housing loan @ 6% per annum. Amount outstanding on 1.4.2020 is Rs.6,00,000.
Shri Bala pays Rs.12,000 per month towards principal, on 5th of each month.

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Compute the chargeable perquisite in the hands of Mr. Bala for the A.Y. 2021-22.

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The lending rate of State Bank of India as on 1.4.2020 for housing loan may be taken
as 10%.

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Illustration 4

In the case of Mr. Hari, who turned 68 years on 28.3.2021, you are informed that the
salary (computed) for the previous year 2020-21 is Rs.10,20,000 and arrears of salary

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received is Rs.3,45,000.

Further, you are given the following details relating to the earlier years to which the
arrears of salary received is attributable to:
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Previous year Taxable Salary (Rs.) Arrears now received (Rs.)
2010 – 2011 7,10,000 1,03,000
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2011 – 2012 8,25,000 1,17,000
2012 – 2013 9,50,000 1,25,000

Compute the relief available under section 89 and the tax payable for the A.Y. 2021-22.
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Assume that Mr. Hari does not opt for section 115BAC.

Rates of Taxes
Slab rates of income-tax
For resident individuals of the For other resident individuals
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Assessment
age of 60 years or more at any
Year
time during the previous year
Slabs Rate Slabs Rate
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2011-12 Upto Rs.2,40,000 Nil Upto Rs.1,60,000 Nil

Rs.2,40,001 - Rs.5,00,000 10% Rs.1,60,001 - 10%
Rs.5,00,000
Rs.5,00,001 - Rs.8,00,000 20% Rs.5,00,001 - 20%
Rs.8,00,000
Above Rs.8,00,000 30% Above Rs.8,00,000 30%

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 2012-13 Upto Rs.2,50,000 Nil Upto Rs.1,80,000 Nil
Rs.2,50,001 - Rs.5,00,000 10% Rs.1,80,001 - 10%
Rs.5,00,000
Rs.5,00,001 - Rs.8,00,000 20% Rs.5,00,001 - 20%
Rs.8,00,000
Above Rs.8,00,000 30% Above Rs.8,00,000 30%

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2013-14 Upto Rs.2,50,000 Nil Upto Rs.2,00,000 Nil
Rs.2,50,001 - Rs.5,00,000 10% Rs.2,00,001 - 10%

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Rs.5,00,000
Rs.5,00,001 - Rs.10,00,000 20% Rs.5,00,001 - 20%
Rs.10,00,000

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Above Rs.10,00,000 30% Above Rs.10,00,000 30%
Note – Education cess@2% and secondary and higher education cess@1% was
attracted on the income-tax for all above preceding years.

Illustration 5

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From the following details, find out the salary chargeable to tax for the A.Y.2021-22
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assuming he has not opted for the provisions of section 115BAC –

• Mr. X is a regular employee of Rama & Co., in Gurgaon. He was appointed on

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1.1.2020 in the scale of Rs.20,000 - Rs.1,000 - Rs.30,000.
• He is paid 10% D.A. & Bonus equivalent to pay one month based on salary of March
every year.
• He contributes 15% of his pay and D.A. towards his recognized provident fund and
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the company contributes the same amount. DA forms part of pay for retirement
benefits.
• He is provided free housing facility which has been taken on rent by the company at
Rs.10,000 per month.
• He is also provided with following facilities:
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o Facility of laptop costing Rs.50,000.

o Company reimbursed the medical treatment bill of his brother of Rs.25,000,
who is dependent on him.
o The monthly salary of Rs.1,000 of a housekeeper is reimbursed by the
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company.
o A gift voucher of Rs.10,000 on the occasion of his marriage anniversary.
o Conveyance allowance of Rs.1,000 per month is given by the company
towards actual reimbursement of conveyance spent on official duty.
o He is provided personal accident policy for which premium of Rs.5,000 is paid
by the company.
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 o He is getting telephone allowance @Rs.500 per month.

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 CHAPTER 5 - INCOME FROM HOUSE PROPERTY

Overview
Sec 25A
Sec 25 Taxability
Sec 22 Sec 23 of Sec 26 Sec 27
sec 24 Inadmisibili
Charging Computatio unrealised Co- Deemed
Deductions ty of

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section n of GAV rent & ownership owner
deduction Arrears of
rent

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Chargeability [Section 22]

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The annual value of any property (computation given in sec 23) comprising of building or
land appurtenant thereto, of which the assessee is the owner, is chargeable to tax under
the head “Income from house property”.

Conditions for Chargeability

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HP OS/PGBP Not taxable
Residential and commercial Vacant land – OS Used by the assess for his
building business or profession
Land connected to building Subletting – OS Let out to firm by the partner
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like garden, garage etc.
Held as stock in trade Letting out is incidental to One palace of ex-ruler
main business – PGBP
Letting – owner (including Display of advertisement Income from farm building
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deemed owner) hoarding used for agriculture purposes

Building on freehold / Letting with other facilities – Property held on charitable
leasehold land like cotton mill with trust
machinery. ( if 2 lettings are
inseparable)
Assessee engaged in the House property owned by
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business of letting out of local authority or registered

properties – PGBP trade union

❖ Assessee must be the owner of the property

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(a) who is entitled to receive income (beneficial owner)

(b) Registration of the sale deed is not warranted.
(c) The person who owns the building need not also be the owner of the land upon which
it stands.
(d) Owner - during the previous year. It is not material whether he is the owner in the
assessment year.
In case of recovery of unrealised rent and arrears of rent, ownership is not relevant.

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 (e) Title of the ownership of the property is under dispute in a court of law, the
decision as to who will be the owner chargeable to income-tax under section 22 will
be of the Income-tax Department till the court gives its decision to the suit filed in
respect of such property.

Deemed owner – u/s 27

In the following cases the Transferor is deemed to be the owner of assessed property.

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Sr.No. Case Condition
1. Transfer to spouse 1. Without adequate consideration or

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2. Not in connection with an agreement to live apart

2. Transfer to minor child 1. Without adequate consideration not being minor

married daughter.

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Where cash is transferred to spouse or minor child and
the transferee acquires property out of that money, then
transferor will not be treated as deemed owners, but

3.

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clubbing provision will be attracted.
Holder of an impartible Impartible estate – property which is not legally
estate divisible.
Holder of an impartible estate is deemed to be the
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individual owner of all properties comprised in the
estate.
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4. A member of co- The building is allotted on house building scheme
operative society,
company or any other
AOP
5. Person in possession of Sec 53A of Transfer of property act –
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a property 1. Possession handed over

2. Consideration paid
3. Power of attorney or agreement to sell executed.

6. Leased for at least 12 where any person acquires any right by way of sale /
years exchange/ lease for at least 12 years.
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Exception – In case the person acquiring any rights by

way of lease from month to month or for a period not
exceeding one year, such person will not be deemed to
be the owner.
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Composite Rent

Income from building + Other services like, Lifts, Security, Power backup. Etc.
If the building and amenities are If they are not separable
separable

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 Income from Building – Taxed u/s 22 and
Income from facilities - Taxed u/s 56 or 28
as the case may be
Applicable even if composite rent is
received by the assessee from his tenant for
two lettings.
If letting of building is not acceptable without
the letting of other assets – then OS / PGBP as
the case may be.
Even if income is fixed separately

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House property
situated outside India

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ROR NR & RNOR
Taxable whether or not it is Taxable only if received in
brought into India. India.

Determination of Annual value - Sec 23

Particulars
Gross Annual Value (GAV)
(Less) Municipal taxes (paid by owner)
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XXX
(xx)
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Net Annual Value (NAV) XXX
(Less) - Deduction u/s 24
(a) Standard deduction (30% of NAV- flat) xxx
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(b) Interest on borrowed capital xxx (XXX)

Income under the head House property XXX

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Computation of GAV

1 Let out property GAV = ER or AR (actual rent received/ receivable)

throughout the year whichever is higher.
ER (Expected Rent)
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Step 1- Compare FR (fair rent) or MV (municipal value)

whichever is higher
Step 2- Compare step 1 and SR (standard rent)
whichever is lower
Step 3 –Compare step 2 (ER) and Actual rent
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received/receivable – Whichever is higher

Step 2 gives ER and step 3 gives GAV

If property is vacant for part of year and Actual Rent is less

because of vacancy, then AR shall be GAV.

2 Self-occupied GAV = Nil.

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 No deduction of Municipal taxes.

3 Unoccupied for GAV = Nil

whole year No deduction of Municipal taxes.
Unoccupied only because assessee is working in different
Place. (This is available only to Individual & HUF) (provided
no other benefit is derived from such property)

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➢ The benefit of ‘Nil’ AV is available only up to 2 Self-
occupied or Un-occupied properties.

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➢ The benefit of 2 Self-occupied properties mentioned
above is only for Individual/HUF.

4 Self-occupied for ER for whole year compared with AR for let out period &

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part of year and let whichever is higher is taken as GAV. [Treated as if let out for
out for other part entire year]

Municipal taxes for whole year allowed.

5 Deemed to be let out GAV = ER,

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(in case of more than NAV = GAV – Municipal Taxes
2 properties are self- Deemed at the option of assessee. Option can be changed
occupied) year after year.
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6 Portion let out and Treated as separate unit and computed separately. Taxes
portion self- split based on area (sft).
occupied
7 Property being held GAV would be treated as NIL for a period of 2 years from the
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as stock in trade end of the financial year in which certificate of completion of
construction of the property is obtained from the competent
authority, if such property is not let-out during such period.

GAV = ER after 2 year from the end of financial year in which

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certificate of completion of construction of the property is

obtained from the competent authority.

➢ In certain circumstances for computation of tax, Notional income is used instead of real
income.
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Treatment of unrealised rent [Explanation below section 23(1)]

(1) The Actual rent received/receivable should not include any amount of rent which is not
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capable of being realised.

(2) However the conditions prescribed in Rule 4 should be satisfied. They are –
(a) the tenancy is bonafide;
(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate
the property;
(c) the defaulting tenant is not in occupation of any other property of the assessee;
(d) the assessee has taken all reasonable steps to institute legal proceedings for the
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 recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings
would be useless.

Property taxes (Municipal taxes)

Deducted from GAV if,
− borne by assessee(owner) and

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− actually paid during the previous year
Deduction is allowed only in the year of actual payment irrespective of the period of liability.

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For property situated outside India, taxes levied by local authority of such country is
deductible.
If Annual value is ‘Nil’, deduction is not allowed.

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Deduction u/s 24

self occupied property or

unoccupied property where
annual value is nil goLet out
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Standard deduction
S.24(a) is a flat rate
S.24(a) Standard deduction - irrespective of actual
30% of NAV
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Standard deduction - expenses.
Nil

S.24(b)
S.24(b) Interest on borrowed
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Interest on borrowed capital - No Limits

capital - Subject to
limits shown below

Interest on loan taken to repay the existing loan is also allowed as deduction.
Interest on interest is not allowed.
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Interest to pay municipal taxes not allowed.

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 Loan borrowed - Self
Occupied

For repairs, renewal or reconstruction Loan taken for construction /

of house property purchase

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If loan is If loan is
Whether before or after
1.4.99: taken before 1.4.99 taken on or after 1.4.99

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Max allowable -
Max allowable -
Rs.30,000 Acquisition or construction completed
Rs.30,000

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within 5 years from the end of the FY
in which the capital was borrowed
+
Certificate from lender specifying
interest payable

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Rs.30,000
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The above limit is including the pre-construction period interest
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Interest
Pre-construction period interest Post construction period interest
Allowed in 5 equal installments from the PY Deduction allowed in the year of accrual
in which building comes into existence.
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Pre-construction period: Can be fully claimed in the year

Starts from – 1st year when loan is borrowed irrespective of date of
Ends on – 31st March immediately prior to completion/acquisition.
date of completion of construction or
acquisition of property OR date of repayment
of loan whichever is earlier.
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Inadmissible deductions [Section 25]

Interest chargeable under this Act which is payable outside India shall not be deducted if
(a) No TDS - tax has not been paid or deducted from such interest and
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(b) No agent - there is no person in India who may be treated as an agent under section 163.

Arrears of rent and Unrealised [Section 25A]

➢ Rent payable increased retrospectively- such arrears is taxed in the year of receipt.
➢ Standard deduction of 30% is allowed.

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 ➢ Taxed - whether the assessee is the owner of that property or not

Treatment of income from co-owned property [Section 26]

If shares are definite, and ascertainable If shares are not ascertainable
Income of each co-owner should be determined in Assessed as AOP.
individual assessment

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If it is self-occupied - then each is entitled to an
aggregate deduction of Rs. 30,000 / Rs. 2,00,000, as the

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case may be
If it is let out, the income from such property shall be
computed as if the property is owned by one owner and

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thereafter the income so computed shall be apportioned
amongst each co-owner as per their specific share.

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 INCOME FROM HOUSE PROPERTY – ILLUSTRATIONS

Problem 1
Mr. N has 3 houses in Delhi, particulars for the financial year are as
below:

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Particulars I House II House III House

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(i) Construction started on 1.4.1995 1.8.1995 1.7.1991
(ii) Constructed completed on 31.12.1996 31.1.1996 31.12.1991

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Actual rent received 35,000 19,000 Self-occupied
Standard rent 45,000 40,000 N.A
Municipal value 60,000 19,000 27,800
Municipal taxes (paid by owner) 6,000 1,900 12,000
Cost of repairs (borne by tenant) Z 1,000 7,000 -

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Collection charges 1,500 1,300 -
Insurance premium 1,000 1,200 2,600
(Paid) (Not paid) -
Interest on loan taken for 2,400 3,000 6,000
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renovation of house
Unrealized rent allowed in the 2,000
past recovered
➢ Mr. N resided in Bombay for three months during the previous year in connection with his
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business and for all these months the house remained vacant.
➢ During the period of his stay in Delhi he did not occupy any other house of his own.

Compute Mr. N’s income from the house property.

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Problem 2
Mr. Sehgal owns a house in Bangalore
➢ Construction of which was completed on 1.7.2002.
➢ Half portion is let out for residential purposes on a monthly rent of
➢ Rs.8,000.
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➢ However, this portion remained vacant for three months (from 1st Jan to 31st March)
during the previous.
➢ 1/4th portion is used by Mr.Sehgal for the purposes his profession while the remaining
1/4th portion is used for his own residence for the full year.
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➢ The other expenses regarding the house were:

S.No Particulars Rs.
(i) Municipal taxes 10,000
(ii) Repairs 5,000
(iii) Interest on loan for renovation of house 40,000
(iv) Ground rent 2,000
(v) Annual charge 10,000
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 (vi) Fire insurance premium 4,000

Compute the taxable income from House Property for the Assessmant Year.

Problem 3

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Mrs. Goel owns a house property at Allahabad, which is let out for residential
purposes, particulars of which are as follows:

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S.No. Particulars Rs.
(i) Annual rent 60,000
(ii) Municipal valuation 48,000

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(iii) Municipal taxes (paid tenant) 4,000
(iv) Expenses incurred
(a) Repairs met by tenant 3,000
(b) Fire insurance premium paid 1,500

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(c) Electricity and water charges paid by Shri Goel 5,400
(d) Lift maintenance charges paid by Shri Goel 2,400
(e) Collection charges including Rs.300 of Litigation Expenses 1,800

➢ During the previous year 2008-2009, he had claimed a deduction of unrealized rent of
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Rs.22,500 out of which Rs.16,500 was allowed as deduction for that year.
➢ On 10.8.2020, however, he recovered Rs.10,500 from the defaulting tenant. Rs.60,000 is a
composite rent of property, as well as amenities provide to the tenant.
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Compute the “Income from house property” for the assessment year.
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Problem 4

Mr. X is the owner of a residential house, whose construction was completed on

31.8.2007.
➢ It has been let out from Dec.2007 for residential purposes.
➢ Its particulars for the financial year 2020-21 are given below:
IN

S.No. Particulars Rs.

(i) Municipal valuation 55,000

(ii) Expected fair rent per annum 60,000
(iii) Standard rent under the rent control Act 6,000 p.m.
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(iv) Actual monthly rent 6,000 p.m.

(v) Municipal taxes (including Rs.5,000 paid by tenant) paid 15,000
(vi) Water/sewage benefit tax levied by SG but disputed in Court. 6,000

(vii) Fire insurance payable 800

(viii) Interest on loan taken for the construction of the house. The 10,000
interest has been paid outside India to a non-resident without
deduction of tax at source, as the non-resident agreed to pay
income tax on such interest directly to the Government.
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 (ix) Legal charges for the recovery of rent 4,000
(x) Stamp duty and registration charges of the lease 2,000
agreement of the house

➢ The unrealized rent of the earlier year amounted to Rs.10,000 but a deduction claimed so
far was only for Rs.7,000.
➢ Now, there is a recovery of Rs.8,000 from the defaulting tenants.
Compute his income from house property for the assessment year 2021-22.

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Problem 5

For the assessment year, X submits the following information:

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Particulars House I House II
Rs. Rs.
Property income:
Fair rent 75,000 85,000

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Rent 78,000 78,000
Municipal valuation 76,000 75,000
Municipal taxes (due) 13,000 14,000
Repairs 3,500 4,700
Insurance 2,000 3,000
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Land revenue (paid) 2,500 4,000
Ground rent (due) 1,600 6,000
Interest on capital borrowed by mortgaging 14,000
House I (funds are used for construction of House 2)
In
Nature of occupation Let out for Let out for
residence business

Determine the taxable income of X for the assessment year.

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Problem 6

X owns two houses which he occupied for his own residence.

➢ He submits the following particulars in respect of these houses for the financial year:
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House I House II
Municipal value 3,20,000 3,24,000
Fair rent 3,50,000 3,27,000
Standard rent under rent control Act. 2,90,000 3,20,400
1F

Municipal tax paid Amount 18,000 22,400

spent on repairs 19,200 43,000
Interest paid/payable on loans taken for building the 2,03,000 2,36,000
houses.

➢ X also has income from interest on Government Securities amounting to Rs.3,65,000

during the previous year.

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 X requests you to compute his total income in a manner which minimizes his
incidence of tax.

Problem 7

Ram and his three brothers Laxman, Bharat and Shatrughan are the equal owners of a house

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property consisting of 8 flats.
➢ The four brothers are occupying 1 flat each for their residential purpose and balance.

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➢ Flats are let out for residential purpose.
➢ The actual rent received from the rented flats is Rs.2,500 p.m. per flat.

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➢ Municipal taxes paid for the entire property is Rs.32,000.
➢ The construction of the house property was completed on 31.8.2009.
➢ The following expenses are incurred by them during the year ended 31.3.2021 in respect
of the property.

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Particulars Amount
(Rs.)
Repairs 20,000
Fire insurance premium 5,000
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Interest on money borrowed for 1,30,000
construction
Ground rent 2,000
Collection charges 5,000
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➢ One of the flats remained vacant for 3 months.

➢ The other income of Ram, Laxman, Bharat and Shatrughan was Rs.50,000, Rs.30,000, Rs,70,000
and Rs.80,000 respectively.
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You are required to determine the income from house property for each of the co-owners as well as
their Gross Total Income for the assessment year.

Problem 8
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A owns a house property at Delhi.

➢ 60% of the house property is self-occupied for residence and
➢ 40% is let out on a monthly rent of Rs.5,000.
1F

➢ The let-out portion was also self-occupied from 1.10.2020 to 31.12.2020.

➢ However, w.e.f. 1.1.2021 the entire house was let out for Rs.12, 500 p.m.
➢ The construction of the house property was completed on 31.12.1999.
➢ The following expenses were incurred for the above house property during the year ending
on 31.3.2021.

Particulars Amount (Rs.)

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 Municipal taxes paid:
For Financial Year 2019-20 5,000
For Financial Year 2020-21 10,000
For Financial Year 2021-22 15,000
Insurance premium paid 3,000
Land revenue due 6,000
Interest on money borrowed for construction 18,000

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of house property

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Calculate income under the head House property of A for Assessment Year.

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Problem 9

R is employed in G Ltd. on a salary of Rs.10,000 p.m.

➢ He owns a house at Delhi whose construction was completed on 31.3.2020.
➢ He has let out this house from 1.4.2020 @ Rs.6,300 p.m.
➢ The house is vacated by the tenant on 1.9.2020.

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➢ From 1.11.2020 he has let out the house to his employer G Ltd. @ Rs.7,000 p.m.
➢ The company has allotted the house to R.
➢ Other particulars in respect of the house for the financial year 2020-21 are given below:
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• Municipal value Rs.60,000 p.a.;
• Municipal tax paid Rs.6,000;
• Rs.10,00,000 borrowed from HUDCO on 1.4.2018 @ 12% p.a. interest for the
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construction of the house.
• He refunded entire loan in lump sum on 31.12.2020.
Compute the total income of R for the assessment year 2021-22.
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Problem 10

X owns 5 houses. These houses are used by him for his residential purposes. These houses
are not let out during any part of the previous year 2019-20. No other benefit from these
houses. The following information is noted from the record of X
IN

House 1 House 2 House 3 House 4 House 5

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Municipal rent or fair rent 12,00,000 12,70,000 27,60,000 4,90,000 15,90,000
1F

whichever is higher. (Subject

to maximum of standard rent)
Municipal taxes paid by X 40,000 1,20,000 1,90,000 30,000 1,20,000
Interest on capital borrowed - 11,000 1,70,000 2,00,000 2,30,000
to purchase properties (date
of borrowing in all cases is
after April 1, 1999)

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 Interest on capital borrowed 2,10,000 7,89,000 14,00,000
to finance repair, renewal or
reconstruction of house
property

Business income of X is Rs. 32,00,000. He is entitled for a deduction of Rs. 2,40,000 under
sections 80C and 80D etc. Compute net income for the assessment year 2021-22

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In
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IN
1F

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 CHAPTER 6 - CAPITAL GAINS

Overview

Sec 47 to 50
Sec 45 Sec 2 Capital gains in Sec 54 to 54H

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Charging section Definitions special Exemptions
circumstances

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Sec.45 (1) – Chargeability

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Profits or gains arising on transfer of a capital asset in the previous year shall be chargeable
under the head “Capital Gains”.

Sec 2(14) – Capital asset

Includes
Any Immovable asset go Excludes
Stock-in-trade (other than securities
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held by FII per SEBI regulations)
Movable items – including following personal Personal effects. Example: Wearing
effects apparel, furniture, vehicles etc.
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Jewellery –includes utensils and even sewn in
wearing apparel, Archaeological collections
Drawings and paintings, Sculptures and
Any work of art
Securities held by a FII - invested per SEBI Act
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1992
Any unit linked insurance policy issued on or
after 01.02.2021, to which exemption under
section 10(10D) does not apply on account of
(i) Premium payable > Rs. 2,50,000 for
any P.Y. during the term of such
IN

policy.
(ii) Aggregate amount of premium > Rs.
2,50,000 for any P.Y.
Urban agriculture land [exempt u/s10(37 – in Agricultural land in Rural area
case of compulsory acquisition)]
1F

Financial assets 6½ per cent Gold Bonds, 1977,

7% gold bonds 1980
& national defence gold bonds
issued by government
Intangible asset - eg. License, goodwill etc. Special Bearer Bonds 1991 issued by
government

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 Any rights in or in relation to an Indian Gold Deposit Bonds issued under gold
company, including rights of management or deposit scheme.
control or any other rights whatsoever

Urban agriculture land

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Urban land

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Situated Within a Situated Outside a

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Municipality/Cantonment Municipality/
Cantonment

Population > 10,000

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Shortest aerial distance from the local
di limits of a municipality

Upto 2 Kms Upto 6 Kms Upto 8 Kms

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Population Population
Population
>10,000 < 1,00,000 >10,00,000
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<=1,00,000 <=10,00,000

➢ Population, according to the last preceding census of which the relevant figures
have been published before the first day of the previous year, shall be considered.
IN

➢ If such land is not agricultural land, it will be treated as capital asset irrespective of
its location.
➢ If agricultural land is located outside India, it will be treated as capital asset
1F

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 Sec 2(42A) – Period of holding

Capital asset

Short term capital Long term capital

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asset (STCA) asset (LTCA)

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Period of holding

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Period for which the asset was held
by the assessess immediately

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preceeding the date of transfer

STCA if held for <=12
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months &
LTCA if held for >12 m
In
1.Listed securities
(other than units)
2. Units of equity
oriented fund / units
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STCA if held for <= 24
months &
LTCA if held for > 24 m
1. Unlisted shares
2. Land or building or
STCA if held for <= 36
months &
LTCA if held for > 36 m
1. Unit of debt
oriented fund
2. Unlisted securities

of UTI both other than shares

3. Zero coupon 3. Other assets.
bonds
IN

Sn. Instances Period of holding

1. Transfer The date on which the asset is
transferred is to be excluded.
2. Liquidation The period after the date of
1F

commencement of liquidation is to
be excluded.
3. Right shares, Bonus shares and starts from date of allotment
ESOPs
4. When right to subscribe any Period from the date of offer of such
share is renounced in favour of right by the company or institution is
another person considered.
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 5. Conversion of Includes the period for which the
preference shares into equity preference shares were held.
shares
6. In case of amalgamation and The Period for which shares were
demerger held in the amalgamating Co.
/demerged company should also be
included.

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7. When asset becomes the Period of holding of previous owner
property of the assessee by virtue should be included.

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of sec 49(1)
8. When stock in trade is converted Period from the date of conversion
into Capital asset should be taken.

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9. Where a transfer enables the Starts from the date of allotment of
enjoyment of any immovable shares or date on which such right is
property whether by way of obtained
becoming a member of, or
acquiring shares in a co-
operative society, company or
other AOP go
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10 Where any specified securities or starts from date of allotment/
sweat equity shares are transfer
allotted/transferred by employer
to employee (incl. former)
In
➢ Transfer by way of conversion of bonds or debentures, debenture-stock or deposit
certificates in any form of a company into shares or debentures of that company is not
regarded as transfer for levy of CG tax.
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IN
1F

Sec 2(47) – Transfer

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 Sale,
Exchange,
Member of Reliquishment
co-operative
socity/AOP
Estinguishment
to trasfer
of any right
rights on

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Immovable
asset

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Transfer
Sec 2(47)
Part Maturity /

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performance redemption
u/s 53a of of zero
TPA coupon bond

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Conversion
Compulsory
of capital
acquition
asset into
under any
stock in
law
trade
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➢ In case of exchange though there is only one transaction the tax liability arises on both
the parties. The sale consideration shall be taken as the fair market value of assets
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received.
➢ Cancellations of license, forfeiture of shares are examples of extinguishment of right.
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Sec 47- Transactions not regarded as transfer

1) Any distribution of capital assets on the total or partial partition of an HUF.
2) Any transfer of a capital asset under a gift or will or an irrevocable trust.
(Exception: Gift of shares acquired through Employees Stock Option Plan (ESOP)
IN

shall be treated as transfer)

3) Any transfer of a capital asset by a 100% holding company to its Indian subsidiary
company.
1F

4) Any transfer of a capital asset by a 100% subsidiary company to its Indian holding
company
5) Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating
company to the amalgamated company if the amalgamated company is an Indian
company.
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 6) Any transfer in a scheme of demerger, of capital asset by the demerged company to
the resulting company, if the resulting company is an Indian company.
7) Any transfer or issue in a scheme of demerger, of shares by the resulting company
to the shareholders of demerged company as a consideration.
8) Any transfer in a scheme of amalgamation, of shares held by a shareholder in the

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amalgamating company in consideration of shared in amalgamated company being
Indian company.

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9) Any transfer made outside India, of a capital asset being rupee denominated bond
of an Indian company issued outside India, by a non-resident to another non-

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resident.
(Any gains arising on account of appreciation of rupee against a foreign currency
at the time of redemption of rupee denominated bond of an Indian company held

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by him, shall be ignored for the purposes of computation of full value of
consideration)
10)Any transfer made outside India, of a capital asset being Government securities
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carrying periodic payment of interest, through intermediary dealing by a non-
resident to another non-resident.
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11)Any transfer of Sovereign Gold Bond issued by the RBI under the Sovereign Gold
Bond Scheme, 2015, by way of redemption, by an assessee being an individual
12)Any transfer of a capital asset being a work of art, archaeological, scientific or art
collection, book, manuscript, drawing, painting, photograph or print, to the
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Government or a University or the National Museum, National Art Gallery,

13)Any transfer by way of conversion of bonds or debentures, debenture-stock or
deposit certificates in any form of a company into shares or debentures of that
company.
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14)Any transfer by way of conversion of preference shares of a company into equity

shares of that company.
15)Any transfer of a capital asset in a transaction of reverse mortgage under a scheme
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made and notified by the Central Government.

Mode of disbursement of Loan to Max period of loan
Reverse Mortgagor

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 Directly 20 years from the date of signing
agreement by Reverse Mortgagor and
approved lending institutions.
In part/ full to annuity sourcing Residual lifetime of borrower
institution for periodic payment by
way of annuity
➢ Any Amount under reverse mortgage scheme, received by senior citizen as a

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loan, either in lump sum OR instalments would be exempt.

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Sec 48 – Mode of computation of capital gains

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Short term capital gain/loss Long term capital gain/loss
Full value consideration: xxx Full value consideration: xxx
(-) Exp wholly or exclusively in (-) Exp wholly or exclusively (xx)
(xx)

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connection with such in connection with such
transfer transfer
Net Sale consideration xxx Net Sale consideration xxx
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(-) Cost of Acquisition (xx) (-) Indexed Cost of
(-) Cost of Improvements (xx) Acquisition
(xx)
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Capital Gains (STCG) xxx (-) Indexed cost of
(-) Exemption u/s 54B /54D (xx) Improvements
(xx)
/54G Capital Gains (STCG)
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(-) Exemption u/s 54/ 54B/ xxx

54D/ 54EC/ 54EE /54G
(xx)

➢ Indexed cost of acquisition

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= COA X CII for the PY in which the asset was transferred

CII for the year in which the asset was first held by the assessee
Or CII for PY 2001-02, whichever is later
1F

➢ CII = Cost inflation Index

➢ CII for PY 2001-02 = 100 and for 2022-23 is 331
➢ In case asset is acquired by the owner/previous owner on or before 1.4.2001
then
COA = FMV on 1.4.2001 or actual cost whichever is higher.

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 ➢ Indexed cost of improvement
= COI X CII for the PY in which the asset was transferred
CII for the year in which improvement was made
➢ Any improvement made before 1.4.2001 is not considered.
➢ No deduction of STT as an expense.

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➢ No indexation in following cases -
➢ case of Bonds & Debentures except

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o Capital indexed bonds issued by GOI &
o Sovereign gold bond issued by RBI

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➢ Slump Sale
➢ Equity shares and equity-oriented fund referred to in sec. 112A
➢ Transactions by a non-resident - u/s 115AB, 115AC, etc.

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➢ Transfer of Global Depository Receipt.
➢ Depreciable asset
 Sec 48 - Special provision for non-residents –
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➢ In case of transfer of shares & debentures of an Indian company
➢ which were purchased in foreign currency
➢ Cost of Acquisition, Expenses wholly or exclusively in connection with such
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transfer and Full value consideration should be converted into same foreign
currency with which shares were acquired.
➢ Resultant capital gain reconverted into Indian currency.
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➢ No indexation benefit in this case.

 Special provision in case of Rupee denominated bonds -
➢ Any gains arising due to appreciation of rupee against a foreign currency at the
time of redemption of rupee denominated bond of an Indian company, shall be
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ignored for the purposes of computation of full value of consideration.

➢ No benefit of indexation or currency conversion.
 Non-residents and foreign companies in which public are not substantially
1F

interested => tax at concessional rate @10% on LTCG from transfer of unlisted
securities/ shares
 No Indexation benefit in case of LTCG arising from transfer of;
(i)equity shares on which STT is paid at the time of acquisition and transfer

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 (ii)unit of equity-oriented funds or unit of business trust on which STT is paid at
the time of transfer.
(iii) STT was introduced in 2004
 Redemption or maturity or sale of Zero-coupon bonds
➢ Full value consideration = Redemption price, Maturity value or sale proceeds as

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the case may be.

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Sec 49(1) – Circumstances in which the assessee became the owner of the capital
asset otherwise than by acquisition.

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(i) on any distribution of assets on the total or partition of a HUF.
(ii) under a gift or will.
(iii) by succession, inheritance or devolution.

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(iv) on any distribution of assets on the liquidation of a company.
(v) under a transfer to revocable or an irrevocable trust.
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(vi) under any transfer of capital asset by a holding company to its wholly owned
subsidiary Indian company or by a subsidiary company to its 100% holding Indian
company, referred to in section 47(iv) and 47(v) respectively.
In
(vii) under any transfer referred to in section 47(vi) of a capital asset by amalgamating
company to the amalgamated Indian company, in a scheme of amalgamation.
(viii) under any transfer referred to in section 47(vib), of a capital asset by the
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demerged company to the resulting Indian company, in a scheme of demerger.

(ix) by conversion by an individual of his separate property into a HUF
property, by the mode referred to in section 64(2).
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Cost of acquisition
Case COA
Where the capital asset became the If ascertainable, Cost of previous owner
property of the assessee through any shall be deemed to be the COA.
1F

mode mentioned u/s 49(1) If not ascertainable, then FMV of the

asset on the date on which the previous
owner acquired it.
Indexation benefit will be available from
the year in which it was first held by the
assessee.

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 Shares of amalgamated Indian company
received as consideration in a scheme of
amalgamation.
Shares received by way of conversion of
bonds or debentures, debenture-stock
or deposit certificates
Shares acquired through ESOPs or
sweat equity shares
Equity Shares received at the time of
conversion of preference shares.
Units acquired under consolidated
scheme of mutual fund or under a
consolidated plan of mutual fund
scheme
Shares received in a resulting company
in a scheme of demerger.
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Property subject to tax u/s 56(2)(x)
Capital asset which was used by the
assessee as an inventory
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Goodwill of business, right to
manufacture, produce or process any
article or thing, right to carry on
business or profession
Goodwill of profession, trademark,
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brand name, tenancy rights, stage
carriage permits/loom hours
However, in case of capital asset, being goodwill of a business or profession, in respect
of which a deduction on account of depreciation u/s 32(1) has been obtained in any
1F
P.Y. (up to P.Y. 2019-20)
Cost of Acquisition = Purchase price – depreciation obtained by the assessee u/s
32(1)
Original shares (which form the basis of Amount actually paid for acquiring the
entitlement of rights shares)
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Cost of acquisition of the shares in the
amalgamating company.
That part of the cost of debentures,
debenture stock, bond or deposit
certificate in relation to which such asset
is acquired by the assessee.
Benefit of indexation shall be available
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from the date of allotment of the new
asset i.e.. converted shares.
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FMV taken into account while computing
the value of perquisite u/s 17(2)(vi).
Part of cost of preference share in
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relation to which the shares are
converted.
Cost of units in the consolidating plan of
the scheme of the mutual fund shall be
deemed to be the cost of units in a
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consolidated plan of a mutual fund
scheme.
COA = A x B/C
A = Cost of acquisition of shares held in
the demerged company
B = Net book value of the assets
transferred in a demerger
C = Net worth of the demerged company
the value taken into account for the
purposes of section 56(2)(x)
FMV of the inventory as on the date on
such conversion determined in the
prescribed manner.
If purchased, COA = Purchase price.
Any other case, COA = Nil
COI = Nil
If purchased, COA = Purchase price.
Any other case, COA = Nil
COI = Expense incurred by assessee /
previous owner after 1.4.2001
original shares.
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 Rights entitlement (which is renounced
by the assessee in favour of a person)
Rights shares acquired by the assessee
Rights shares which are purchased by
the person in whose favour the assessee
has renounced the rights entitlement
Bonus shares
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,
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2018
Capital asset which becomes property
of assessee
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 If a Capital asset which becomes property of assessee (discussed in i & ii above) is
land/ building/ both, the FMV of such asset on 1.04.2001 shall not exceed the
1F
Stamp Duty Value as on 1.04.2001 (wherever available).
 Meaning of FMV for the above purpose –
➢ In a case where the capital asset is listed on any recognized stock
exchange as on 31.01.2018
Case Value
1Fin by IndigoLearn
COA = Nil
Amount actually paid for acquiring the
rights shares
Purchase price paid to the renouncer +
amount paid to the company which has
allotted the rights shares.
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If allotted before 1.4.2001,
COA = FMV as on 1.4.2001 (at the option
of the assessee)
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If allotted after 1.4.2001 –
COA = Nil
Cost of acquisition shall be the higher of
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(i) COA of such asset; and
(ii) Lower of
• the fair market value of such
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asset; and
• the full value of consideration
received or accruing as a result of
the transfer of the capital asset.
(i) Generally
Before 1-4-2001 = COA to assessee or
FMV on 1-4-2001 (at the option of
the assessee)
(ii)By modes specified in Sec 49(1)
COA to Previous owner
Before 1-4-2001 = FMV as on
1.4.2001 (at the option of the
assessee)
(iii)On distribution on liquidation
If Assessed under Sec 46, COA is FMV
on the date of distribution
109
 If there is trading in such asset on such
exchange on 31.01.2018
If there is no trading in such asset on
such exchange on 31.01.2018
The highest price of the capital asset
quoted on such exchange on the said date
The highest price of such asset on such
exchange on a date immediately preceding
31.01.2018 when such asset was traded

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on such exchange.

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➢ In a case where the capital asset is a unit which is not listed on any
recognized stock exchange as on 31.01.2018
• The net asset value of such unit as on the said date

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➢ In a case where the capital asset is an equity share in a company which is
➢ not listed on a recognized stock exchange as on 31.01.2018 but listed on such
exchange on the date of transfer

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➢ listed on a recognized stock exchange on the date of transfer and which became
the property of the assessee in consideration of share which is not listed on
such exchange as on 31.01.2018 by way of transaction not regarded as transfer
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u/s 47
• An amount which bears to the cost of acquisition the same proportion as CII
In
for the financial year 2017-18 bears to the CII for the first year in which the
asset was held by the assessee or on 01.04.2001, whichever is later.
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IN
1F

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 Sale of depreciable asset (sec 50)

Opening WDV xx
(+) Purchases during the year xx

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(+) Expenses wholly incurred for sale xx

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A xx
(-) Full value consideration B xx

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Where B > A Whrere B < A

B (-) A = Stort
term capital gain
Where there are

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assets in the block
A(-)B = Closing WDV
Where there are no
assets in the block ie.
the block ceases to
exist
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on which depreciation
will be computed A(-)B = Short term
capital loss
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Where goodwill of a business or profession forms part of a block of asset for A.Y 2020-
21 and depreciation thereon has been obtained by the assessee under the Act, the
written down value of that block of asset and short-term capital gain, if any, shall be
determined in such manner as may be prescribed.
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For Example:
Block of Intangible Assets
Opening WDV XXX
Less: Closing WDV of Goodwill for P.Y. 2019-20 XXX
Adjusted WDV of the block XXX
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Reduction of the amount of goodwill of a business or profession, from the block of asset
in accordance with sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section
43 shall be deemed to be transfer.
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 Cost of acquisition and capital gain in case of
depreciable assets of electricity companies
[sec 50A]

Same formula as given above in Sec 50

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IF B < A If B > A

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Balancing charge = [Lower of actual cost

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/ sale consideration] (–) WDV
B (-) A = Terminal depreciation which (PGBP income u/s 41 (2)
is written off in the year of sale
Capital gain = sale consideration (–)
actual cost.

Sec 50B - special provisions in case of slump sale

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Sale Consideration xx
Less : Expenses exclusively for sale (xx)
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Less : Net worth of the undertaking (xx)
Capital gain xx

• LTCG if the undertaking is held for more than 36 months otherwise STCG
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• No indexation benefit
• Sale consideration is higher of actual sale consideration or FMV.
Net worth of the undertaking = Total assets - outside liabilities
Value of total assets =>
In case of depreciable assets = WDV as per Sec 43(6)
In case of assets wholly allowed as deduction u/s 35AD = Nil
IN

Self generated goodwill of business or profession = Nil

In case of other assets = Book value
Value of Liabilities = Book value
1F

 Slump sale means transfer of one or more undertakings, by any means, for a lump
sum consideration without values being assigned to the individual assets and
liabilities in such sale.
 Every assessee shall furnish a prescribed form on or before the specified date
referred under Sec 44AB a certified report of Chartered Accountant.

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 Sec. 50C - Valuation of consideration in case of land or building or both
 Conditions
➢ Capital asset being land or building or both is transferred.
➢ Value adopted or assessed or assessable by the stamp valuation authority

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− exceeds 110% of actual consideration.
− If does not exceed 110% of actual consideration => Consideration so

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received shall be full value of consideration
 Tax treatment

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➢ Full value of consideration = value adopted or assessed (i.e. Stamp duty Value)
 Reference to Valuation Officer
➢ The Assessing Officer can refer the case to the Valuation Officer if following

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conditions are satisfied:
• Assessee claims that the value adopted or assessed by Stamp Valuation
authority exceeds the FMV of the property as on the date of transfer; &
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• The value so adopted or assessed or has not been disputed in any appeal or
revision or no reference has been made before any other authority, court or the
In
High Court.
 Consequences where the value is determined by the Valuation Officer
➢ sale consideration of the asset shall be taken as minimum of the following –
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• Value adopted or assessed or assessable for the purpose of stamp duty;

• Value determined by the Valuation Officer.
 Date of stamp duty value:
➢ Where the date of the agreement and the date of registration are not the same
Full value consideration = Stamp duty value on the date of agreement if
IN

following conditions are satisfied:

• Whole or part of consideration is paid
1F

• By any mode other than cash

• On or before the date of agreement.
 Revision of value of such asset:
If the value adopted for stamp duty purposes is revised in any appeal, revision or

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 reference, the assessment earlier made shall be amended to re-compute the capital
gains by taking the revised value as sale consideration [Sec. 155]

Sec 50CA - Special provision for full value of consideration for transfer of unlisted
shares
 Applicable to - Transfer of unquoted shares (prescribed persons may be exempted

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from this section if prescribed conditions are satisfied)

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 Condition - consideration < FMV
 Tax treatment - In such case Full Value consideration = FMV

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 How to compute FMV for the purpose of 50CA
➢ Option 1 – Obtain valuation certificate from Merchant banker / CA
➢ Option 2 – Compute Net asset value as per Rule 11UA

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Net asset value =
Book value of all the assets of the company xx
Asset excludes - Jewellery, artistic work, securities and immovable property.
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Ignore – Fictitious assets like Income tax refund, miscellaneous expenditure,
deferred tax etc
(+) Fair market value of Jewellery and artistic work xx
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(+) Fair value of securities xx

(+) Stamp duty value of immovable property xx
Total assets xx
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(-) Book value of outside liabilities (xx)

Net asset value xx
Net asset value X Paid up value of each share
Paid up value of the company
IN

Sec
50D - Fair market value of the capital asset on the date of transfer to be taken as sale
1F

consideration, in cases where the consideration is not determinable

 Applicable -
➢ Where the consideration received or accruing as a result of the transfer of a capital
asset is not ascertainable or cannot be determined.
 Consequence –

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 ➢ Full value of the consideration = FMV of the said asset on the date of transfer

Sec 45 - Scope and year of chargeability

Sec Transaction Full value Year of Additional

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consideration chargeability condition
45(1) Transfer of a Agreed PY in which
capital asset consideration transfer takes

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place
45(1A) Damage of Insurance PY in which 1. Indexation
capital asset due compensation money/ asset benefit

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to (money) + is received available (if
1.Natural FMV (on the from insurance any) till year
calamities, date of company of destruction
2.civil receipt) of any 2. Damage
disturbance/riot asset due to any
3 Accidental fire
4. Action by an
enemy
combating
or
an go other reason
is not
considered as
transfer
di
enemy.
45(1B) Received any Proceeds from PY in which If ULIP is
amount under a the policy such amount equity-
In
ULIP issued on was received oriented fund,
or after taxable under
01.02.2021, to section 112A.
which 10(10D)
is not applicable If the
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premium is
i.e., ULIP issued payable, by a
on or after person, for
1.2.2021 and more than
premium one ULIPs,
payable > Rs. issued on or
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2,50,000 for any after 01-02-

P.Y. 2021, the
provisions of
this clause
shall apply
1F

only with
respect to
those ULIPs,
where the
aggregate
amount of
premium >

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 Rs. 2,50,000
in any P.Y
45(2) Conversion of FMV as on the PY in which Indexation
capital asset into date of stock in trade benefit
stock in trade conversion is sold/ available (if
transferred any) till year
of
Conversion.

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Capital gain = FMV on the date of conversion (–) Cost / Indexed cost of
acquisition (-) cost of improvement

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PGBP income = Sale price of stock in trade (-) FMV on the date of
conversion.
45(2A) Transfer of Agreed PY in which FMV as on the

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beneficial consideration transfer takes date of
interest in place. transfer
securities Date of
(transfer made contract of sale
through will be treated

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depository) as date of
transfer.
45(3) Capital Amount at PY in which
contribution by which such transfer takes
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partner / asset is place.
member to recorded in
firm/AOP/BOI books of the
firm/AOP/BOI
In

45(5) Compulsory Compensation PY in which Indexation

acquisition or awarded compensation benefit
any transfer is first available till
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where received. the year of

consideration is compulsory
determined by acquisition.
CG/RBI
➢ Additional points:
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➢ In case of compensation is enhanced, the additional amount is taxed.

Cost of acquisition & Cost of improvement is taken as nil.
➢ In case compensation is reduced capital gain is recomputed.
1F

➢ Compensation received by interim order is taxed in the year in which

final order is received.
➢ If transferor dies before receiving the compensation, it is taxed in the
hands of the recipient.
45(5A) Joint Stamp duty In the year in Benefit of
development value on the which indexation is
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 agreement with date of issue of completion available upto
regard to completion certificate for the year in
immovable certificate of the whole or which
property his share being part of the completion
land/building/ project is certificate is
both in the issued by the issued.
project + cash competent
consideration authority.

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Additional points:

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➢ The assessee is an individual or a HUF.
➢ Such assessee transfer capital asset being land or building or both under
a specified agreement to another person

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➢ Specified agreement means a registered agreement in which a person
owning land or building or both, agrees to allow another person to
develop a real estate project on such land or building or both, in

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consideration of a share, being land or building or both in such project,
whether with or without payment of part of the consideration in cash.
➢ Cost of acquisition for the assessee on subsequent transfer of such share
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- Proportionate cost of the asset transferred ie. the proportion of full
value consideration (mentioned above) attributable to the
In
proportionate sale.
➢ Where the assessee transfers his share in the project on or before the
date of completion certificate, in that case, aforesaid provision is not
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applicable, and the capital gains shall be taxable in the previous year in
which such transfer takes place. Further, capital gain shall be computed
as per other provisions.
Sec 48 Full value consideration for shares, debentures or warrants issued under
IN

ESOP to an employee which is transferred under a gift or irrevocable trust

= FMV on the date of transfer
1F

Note:
Provisions relating to taxability or otherwise of ULIPs issued on or after 01.02.2021
are not being made applicable at intermediate level.

Sec 46 - Capital gain on distribution of assets by companies in its liquidation

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 Money received + Full value
FMV of the asset consideratio
Subject to
distributed (-) ns for the
capital gains
deemed dividend purpose of
In the hands u/s 2 (22)(c) sec 48
of
shareholder

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Distribution
Distribution attributable to Deemed Income from
of assets by accumulated dividend u/s Other

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companies in profits of the 2(22) (c) Sources
liquidation cmpany
In the
hands of

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the
company
Distribution Not subject
is not a to capital
transfer gains

Sec 46A - Buyback of shares or other securities

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di
In the hands of
Exempt u/s 10(34A)
Shareholder
Shares of
In
Domestic
Company In the hands of Subject to additional
Company income tax @23.296%
Buyback
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In the hands of Taxable as capital gains

Shareholder u/s 46A
Other securities
In the hands of
Not subject to tax
Company
IN
1F

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 Advance money forfeited

Advance forfeited

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Before 1.4.2014 On or After 1.4.2014

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Sec.51 Sec 56(2)(ix)

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Amount forfeited is deducted Amount forfeited is taxed
from Cost of acquition under under Other sources
capital gains

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Taxed in the year of transfer
di Taxed in the year of forfeiture

Tax rates under capital gains

Sec 111A - Tax on STCG on transfer of certain assets on which Security transaction
tax (STT) has been charged
In
 Applicable to - All assessee

 Conditions to be satisfied
➢ A short-term capital asset, being an equity share in a company or a unit of an equity-
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oriented fund or a unit of a business trust.

➢ Such transaction is chargeable to STT
➢ Concessional rate shall be applicable on short term capital gain arises from a
transaction undertaken in a foreign currency on a recognised stock exchange
IN

located in any International Financial Services Centre even though STT is not
applicable on such transaction
 Tax rate - 15% + surcharge (if applicable) + Health and Education Cess.
1F

 Sec 112 - Tax on long term capital gains – Generally 20%

Persons Tax rate Particulars
Resident individuals 20%
and HUF
Resident AOPs and BOIs 20%

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 Resident Firms & LLPs 20% In case of transfer of listed securities (other
Domestic companies 20% than units) and zero coupon bonds LTCG
Non-corporate, non 20% would be taxable at the lower of
resident and foreign 1. 10% without indexation benefit
companies 2. 20% with indexation benefit

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Non-corporate, non 10%
resident and foreign without

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companies – In case of benefit of
unlisted securities or Indexation/

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shares of a private currency
limited company fluctuation

➢ Applicable to: All assessee

 Conditions:
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 Sec 112A – Tax on long term capital gain in certain cases
di
➢ The capital gains arise from the transfer of a long-term capital asset being an equity
share in a company or a unit of an equity-oriented fund or a unit of a business trust.
In
➢ Securities Transaction Tax (STT) has been levied:
➢ The condition of payment of STT in either case is not applicable in case where
transfer has been undertaken on a recognised stock exchange located in any
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International Financial Services Centre provided the consideration for such transfer
is received or receivable in foreign currency.
 Tax rate:
Case Rate of taxation
IN

Where such long-term capital gain does not Nil

exceed Rs. 1,00,000
Where such long-term capital gain exceeds Rs. 10% on income exceeding Rs.
1F

1,00,000 1,00,000
➢ In case of a resident individual or a Hindu Undivided Family (HUF), the long-term
capital gain taxable u/s 112 or 112A or short-term capital gain taxable u/s 111A shall
be reduced by the unexhausted basic exemption limit and the balance shall be subject
to tax.

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 ➢ Equity oriented fund means a fund set up under a scheme of a mutual fund specified
under 10(23D) or under a scheme of an insurance company comprising ULIPs to which
exemption under 10(10D) does not apply on account of the applicability of the fourth
and fifth provisos thereof and
i. Invests directly ≥ 65% of total proceeds of the fund is invested in equity shares

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of domestic companies listed in recognised stock exchange
ii. Invests into another Fund ≥ 90% of total proceeds and such other Fund also

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invests ≥ 90% of total proceeds in equity shares of domestic companies listed
in recognised stock exchange.

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➢ No deduction under Chapter VI-A can be claimed in respect of such long-term capital
gain chargeable to tax u/s 112 or u/s 112A or short-term capital gain chargeable to tax
u/s 111A.

Gains u/s 112A.

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➢ Rebate u/s 87A is not available in respect of tax payable @10% on Long-term Capital

➢ Enhanced surcharge of 25% and 37% would not be levied on dividend income, STCG
di
and LTCG respectively.
➢ Indexation benefit is not available u/s 112A
In

Exemptions u/s 10
10(10D) Any sum received under a life insurance policy, including the sum allocated
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by way of bonus on such policy, other than

(a) any sum received under Section 80DD(3) or 80DDA(3)
(b) any sum received under a Keyman insurance policy
(c) any sum received under insurance policy issued between 01-04-
IN

2003 to 31-03-2012 of which premium payable for any of the years

during the policy term is > 20% of actual capital sum assured. (Not
applicable in case of death)
1F

(d) any sum received under insurance policy issued on or after 01-04-
2012, of which premium payable for any of the years during the
policy term is > 10% of actual capital sum assured. (Not applicable in
case of death)

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 (e) Policy issued on or after the 1st day of April, 2013, is for insurance on
life of any person, who is a person to whom Section 80U applies or
suffering from disease specified in Section 80DDB, of which premium
payable for any of the years during the policy term is > 15% of actual
capital sum assured. (Not applicable in case of death)

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10(33) Income from transfer of units of UTI of unit scheme of 1964 of UTI
10(37) Income by way of compensation for compulsory acquisition of urban

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agriculture land.
Conditions

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• The Land was used for agriculture either by the assessee or his
parents for at least 2 years prior to the date of transfer.
• The compensation is received on or after 1.4.2004
10(43)

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The amount received by a senior citizen as a loan either in lumpsum or in
instalments in a transaction of reverse mortgage.
di
In
By
IN
1F

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 Exemptions
Sec. Eligib Old New asset Time limit Conditions Quantu Doe
le asset for to be m of s CG
asses investment fulfilled exempti dep
see on osit
sch

n
eme
app
ly

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54 Indiv Long- One new For 1. Two Investm
idual term residential purchase - residential ent in Yes.
/HUF reside house or at 1 year house new

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ntial the option before, or 2 should be asset OR
house of assessee yrs after, in India. capital
2 the date of gain
residential transfer & 2. Capital whichev
house if CG For asset must er is less.

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<= 2 crores constructio be long
n - Within 3 term
years after
the date of
transfer
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54B Indiv Urban New land Within 2 1. Old asset Investm Yes.
idual Agricul for agricul- years after must have ent in
In
/HUF -ture tural the date of been used new
land purpose. transfer. by the asset OR
(long The new individual capital
term land may or his gain
or be in urban parents or whichev
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short area or by such er is less.

term) rural area. HUF
for
agricultural
purposes
for at least
2 years,
IN

prior to its
transfer.
54D All Any purchase Within 3 1.Old asset Investm Yes
asses land or any land or years after is ent in
1F

ses buildin building or the date of compulsori new

g or construct a receipt of ly acquired asset OR
any building, compensati under any capital
right for the on or any law for the gain
therein shifting or part time being whichev
, re- thereof. in force. er is less.
formin establishin 2. It was
g part g the said used for
of an under- industrial
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 indust taking or purpose for
rial setting up at least 2
under- another years prior
taking. industrial to its
under- transfer.
taking
54E All Long- Long-term Within 6 The Investm No
C asses term specified months investment ent in

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ses capital asset after the made new
asset means any date of during the asset OR
being bond transfer financial capital

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land or redeemabl year gain
buildin e after 5 in which whichev
g or years, the original er is less.
both. issued by asset or

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a) NHAI , assets are
b) RECI transferred
c) PFCL and in the
d) IRFC subsequent
e) any financial
other bond
being
notified by
the Central go year
cannot
exceed
Rs.50 lakhs.
di
Govern. Earlier
benefit
shall be
revoked if
In
such bond
is
transferred
or
converted
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into money
within 5
years of its
acquisition
or a loan is
taken on
security of
IN

the new
asset
within the
said period.
54F Indiv Long- One For 1.New Investm Yes
1F

idual term residential purchase - house ent X

or capital house 1 year should be Capital
HUF asset before, or 2 situated in gain
other yrs after, India. Net sale
than a the date of 2. Assessee consider
reside transfer & does not ation
ntial For own more Or
house constructio than one

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 proper n - Within 3 residential Capital
ty. years after house gain
the date of property, Whichev
transfer on the date er is less
of transfer.
3. Also does
not
purchase

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(within2
yrs) or
construct

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(within 3
yrs) any
other house
property.

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Otherwise,
the exempt
income will
be deemed
to be long

Common Points to remember go term

capital gain.
di
➢ If the new asset is not acquired till the due date of submission of return of income, then
the taxpayer will have to deposit the money in ‘Capital Gains Deposit Account’ with a
nationalized bank. The proof of deposit should be submitted along with the return of
income.
In
➢ If the amount held in Capital Gains Deposit Account Scheme (1988) is unutilized,
then such amount shall be taxable as long-term capital gain in the previous year in which
the period of 3 years from the date of transfer expires.
➢ In case of 54F, proportionate amount will be taxable.
➢ In case of compulsory acquisition, time limit for new investment starts from the date of
By

receipt of compensation.
➢ Consequences of violation - U/s 54, 54B , 54D
If the new asset is transferred within 3 years from the date of its acquisition then the
benefit availed earlier shall be reduced from cost of acquisition of new asset.
➢ Consequences of violation - U/s 54EC, 54F
Such revoked income shall be treated as long-term capital gain in the year of transfer of
IN

new asset.
➢ An assessee can claim exemption under more than one section (from sec. 54 to 54GB) if
conditions of the respective sections are fulfilled.
➢ Sec 54H
1F

• Where the transfer of the original asset is by way of compulsory acquisition under
any law; and
• Amount of compensation awarded is not received on the date of such transfer.
• The period for acquiring the new asset or the period available to the assessee for
depositing the amount of capital gain in relation to such compensation (sec. 54, 54B,
54D, 54EC and 54F) shall be reckoned from the date of receipt of such compensation.
• In case of enhanced compensation, the period for acquiring the new asset shall
commence from the date of receipt of such enhanced compensation.
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 Sec 55A – Reference to Valuation officer
➢ With a view to ascertaining the fair market value of a capital asset for the purposes of
this chapter [e.g. sec. 45(1A),45(2), 45(4), 46(2), 55 and 2(47)] the Assessing Officer may

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refer the valuation of capital asset to a Valuation Officer.
➢ Cases where reference to Valuation Officer can be made

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Case Condition
Where the value of the asset as claimed If the Assessing Officer is of opinion that the

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by the assessee is in accordance with value so claimed is at variance with its FMV
the estimate made by a registered
valuer.

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In any other case If the Assessing Officer is of the opinion—
1. That the fair market value of the asset
exceeds the value of the asset as claimed by
di
the assessee by more than
● 15% of the value of the asset as so claimed;
In
or
● by more than Rs. 25,000 whichever is less.
2. That having regard to the nature of the
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asset and other relevant circumstances, it is

necessary to do so.
IN
1F

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 CAPITAL GAINS - ILLUSTRATIONS

Year Cost Inflation index

2001-02 100

2002-03 105

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2003-04 109

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2004-05 113

2005-06 117

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2006-07 122
2007-08 129

2008-09 137

2009-10

2010-11 go148

167
di
2011-12 184

2012-13 200
In
2013-14 220

2014-15 240

2015-16 254
By

2016-17 264

2017-18 272

2018-19 280
IN

2019-20 289

2020-21 301

2021-22 317
1F

2022-23 331

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 Problem 1

Ramesh purchased a home in Banswadha in 1970 for Rs.1,00,000.

➢ Ramesh had added two rooms and a verandah in the house at a cost of Rs.50,000/- in May 1975.
➢ Ramesh had added 1 more room in the house at a cost of Rs.2,50,000 in May 2005.

n
➢ In June 2007 he gifts the house to his son Suraj.
➢ Ramesh dies in 2008 and Suraj sells the house on 1.7.2022 for Rs.25,00,000.

ar
➢ Find out the capital gain or loss if the fair market value of the house on 1.4.1981 is Rs.2,00,000.
FMV as on 1.4.2001 – 5,60,000/-

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Problem 2

Mr. Rahul purchased listed debentures of A Ltd for Rs. 1,00,000 on 1-2-2013 and transferred

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the same on 15th December during the previous year for Rs. 4,50,000. Compute capital gains
& tax thereon assuming he has other income of Rs. 4,56,000/-
di
Problem 3
In
During the previous year, Mr. Ramesh sells the following capital assets:

Description Sales Cost of Year of FMV on

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proceeds in Acquisition Acquisition 1.4.2001 in Rs.

Rs. in Rs.
Land 2,98,00,000 18,50,000 1977 28,00,000
Gold 19,86,000 2,40,000 1980 2,41,000
Listed 1,57,000 75,000 1975 40,000
debentures
IN

Assuming that his business income is Rs.1,46,000, determine his gross income for the
assessment year.
1F

Problem 4

R purchased a house property for Rs.26,000 on 10.5.1962.

➢ He gets first floor of the house constructed in 1976-78 by spending Rs.40,000. He died on
12.9.1978.
➢ The property is transferred to Mrs. R by his will. Mrs. R spends Rs.30,000 and Rs.26,700 during
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1Fin by IndigoLearn
 1979-80 and 2005-06 respectively for renewals/reconstruction of the property.
➢ Mrs. R sells the house property for Rs.20,70,000 on 15th March during the previous year,
brokerage paid by Mrs. R is Rs.12,000.
➢ The fair market value of the house on 1.4.2001 was Rs.1,60,000.

Find out the amount of capital gain chargeable to tax for the assessment year

Problem 5

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A is an agriculturist.

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(i) He has been using his agricultural land for the last two and half years for agriculture purpose.
➢ Such land was acquired by him by way of will from his father on 15.6.1992.
➢ The father, in turn, inherited that land from his father in 1982-83.

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➢ The grandfather of A had acquired the agricultural land in 1978 for Rs.3,00,000.
➢ The market value of this land as on 1.4.2001 was Rs.5,00,000.
➢ The above agricultural land was acquired by government by issue of notification on 16.4.2009
and the compensation was fixed at Rs.15,00,000 which he received on 28.3.2022.

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(ii) A purchased rural agricultural land on 25.4.2022 for Rs.4,00,000.
➢ A was not satisfied with the compensation and as such filed a suit in the court.
➢ The court vide its judgment on 29.1.2023 enhanced the compensation by Rs.2,00,000, which
was received on 4.4.2024, out of which he deposited Rs.1,50,000 in capital gain scheme for
di
purchase of agriculture land on 16.8.2024.
➢ The rural agriculture land was sold by A on 15.9.2024 for Rs.5,00,000.

Compute the capital gain for various assessment years assuming the last date of filing return of
In
income in his case is 31st July.
By

Problem 6

R acquired a plot of land on 30.6.2001 for Rs.1,10,00,000. The funds invested were borrowed at the
rate of 9% per annum (the amount was repaid by R on 31.3.2005). R sells the plot of land on 30 th
June for Rs.1,40,00,000.
IN

What will be the amount of capital gains for the assessment year?

Problem 7

A had acquired gold ornaments in 1947 for Rs.50,000.

1F

➢ The market value of gold ornaments as on 1.4.2001 was Rs.5,00,000.

➢ The above gold was converted into stock-in trade, as on 15.6.2009, when the market value was
Rs.30,00,000.
➢ The above gold ornaments were sold on 15.2.2023 for Rs.33,40,000.

Compute capital gain and other income, taxable for the assessment year.

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 Question 8

Mr. Sriram sold his residential house in Mumbai and purchased three residential flats adjacent to
each other on the same day vide three separate registered sale deeds from two different persons.

n
➢ The builder had certified that he had affected necessary modification to make it two residential

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apartments.
➢ Mr. Sriram sought exemption under section 54 in respect of the investment made in purchase of
the three residential flats.
➢ The Assessing Officer, however, gave exemption under section 54 to the extent of purchase of

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one residential flat only contending that sub-section (1) of section 54 clearly restricts the benefit
of exemption to purchase two residential houses only and the three flats cannot be treated as
two residential unit since-
(i) The flats were purchased through different sale deeds; and

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(ii) It was found by the Inspector that, before its sale to the assessee, the residential
flats were in occupation by different tenants.

Examine the correctness of the contention of the Assessing Officer.

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Question 9

Suraj, an individual, owned three residential houses which were let out.
In
Besides, he and his four brothers co-owned a residential house in equal shares.

➢ He sold one residential house owned by him during the previous year relevant to the assessment
year.
➢ Within a month from the date of such sale, the four brothers executed a release deed in respect
By

of their shares in the co-owned residential house in favor of Suraj for a monetary consideration.
➢ Suraj utilised the entire long-term capital gain arising out of the sale of the residential house for
payment of the said consideration to his four brothers.
➢ Suraj is not using the house, in respect of which his brothers executed a release deed, for his
own residential purposes, but has let it out to another person, who is using it for the residential
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purposes.

(i) Is Suraj eligible for exemption under section 54 of the Income-tax Act, 1961 in respect of the
long-term capital gain arising from the sale of his residential house, which he utilised for
acquiring the shares of his brothers in the co-owned residential house?
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(ii) Will the non- use of the new house for his own residential purposes disentitle him to exemption?

Question 10

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 Srujan had taken a loan under registered mortgage deed against the house, which was purchased by
him on 26.05.2001 for Rs.5 lacs.

➢ The said property was inherited by his son Ranjan in financial year 2008-09 as per Will.
➢ For obtaining a clear title thereof, Ranjan paid the outstanding amount of loan on 12.02.2009 for
Rs.15 lacs.
➢ The said house property was sold by Ranjan on 16.03.2023 for Rs.50 lacs.

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Examine with reasons the amount chargeable to capital gains for A.Y. 2023-24.

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Question 11

SH Traders was a company carrying on business of manufacture and sale of art-silk cloth.

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➢ It purchased machinery worth Rs.4 lacs on 1.5.2007 and insured it with United India Assurance
Ltd against fire, flood, earthquake etc.
➢ The written down value of the asset as on 1.04.2022 was Rs.2,08,800.
➢ The insurance policy contained a reinstatement clause requiring the insurance company to pay
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the value of the machinery, as on the date of fire etc., in case of destruction of loss.
➢ A fire broke out In August 2022 causing extensive damage to the machinery of the assessee
rendering them totally useless.
➢ The assessee company received a sum of Rs.6 lacs from the insurance company on 15 th march,
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2023.

Discuss the issues arising on account on the transactions and their tax treatment.
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Question 12

X Limited has transferred its Unit N to Y Limited by way of slump sale on November 30, 2022

➢ The summarised Balance Sheet of X Limited as on that date is given below:

Liabilities Rs. (in lakhs) Assets Rs. (in lakhs)
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Paid up capital 1700 Fixed Assets:

Reserves & Surplus 620 Unit L 150
Liabilities: Unit M 150
Unit L 40 Unit N 550
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Unit M 110 Other Assets:

Unit N 90 Unit L 520
Unit M 800
Unit N 390
Total 2560 Total 2560

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 Using the further given information given below, compute the capital gain arising from slump
sale of Unit N and tax on such capital gain.
(i) Lump sum consideration on transfer of Unit N is Rs.880 lakhs. FMV on date of transfer is also
Rs. 880 Lakhs.
(ii) Fixed assets of Unit N include land which was purchased at Rs.60 lakhs in August 2006 and
revalued at Rs.90 lakhs as on March 31, 2022.

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(iii) Other fixed assets are reflected at Rs.460 lakhs (i.e., Rs.550 lakhs less value of Land) which
represents written down value of those assets as per books. The written down value of these

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assets under section 43(6) of the Income-tax Act, 1961 is Rs.410 lakhs
(iv) Unit N was set up by X Limited in July, 2006.

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Question 13

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X Ltd., a domestic Indian company having two undertakings engaged in manufacture of cement and
steel, decided to hive off cement division to Y Ltd., a domestic Indian company, by way of demerger.
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➢ The net worth of X Ltd. immediately before demerger was Rs. 40 crores.
➢ The net book value of assets transferred to Y Ltd. was Rs.10 crores.
➢ The demerger was made in January 2023. In the scheme of demerger, it was fixed that for each
equity share of Rs.10 each (fully paid up) of Y Ltd., two equity shares of Rs.10 each (fully paid up)
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were to be issued.
➢ One Mr. Naik held 25,000 equity shares in X Ltd. which were acquired in the financial year 2003
– 04 for Rs.6,00,000. Mr. N.K. received 50,000 equity shares from Y Ltd. consequent to demerger
in January 2023.
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➢ He sold all the shares of Y Ltd. for Rs.8,00,000 in March 2023. In this background you are
requested to answer the following:
(i) Does the transaction of demerger attract any income tax liability in the hands of X Ltd. and
Y Ltd.?
(ii) Compute the capital gain that could arise in the hands of Mr. Naik on receipt of shares of Y
Ltd.
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(iii) Compute the capital gain that could arise in the hands of Mr. Naik on sale of shares of Y Ltd.
(iv) Will the sale of shares by Mr. Naik affect the tax benefits availed by X Ltd. and/or Y Ltd.?
(v) Is Mr. Naik eligible to avail any tax exemption under any of the provisions of the Income –
tax Act, 1961 on the sale of shares of Y Ltd.? If so, mention in brief.
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Question 14

The balance sheet of KPR Limited as on 31-03-2022 reads as under: Paid up capital Rs. 2,52,00,000

Particulars Unit A Unit B

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 Fixed Assets 1,00,00,000 1,50,00,000
Debtors 1,00,00,000 75,00,000
Liabilities 28,00,000 50,00,000
Stock in trade 50,00,000 25,00,000
Reserves 1,48,00,000
Share Premium 22,00,0000

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➢ The company acquired Unit B on 1.04.2019. They made certain capital additions in the form of

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Generator Set and additional building etc., for Rs.25 lacs during the year 2019-20.
➢ The members of the company have authorized board in their meeting held on 28.01.2022 to
dispose of Unit B.
➢ The company decides to sell Unit B by way of slump sale for 225 lacs as consideration.

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➢ KPR Ltd. has offered 1 % discount if the buyer closes the sale and makes payment before
31.03.2022.
➢ However, this discount would not be available if the sale is completed (and payment is made)
after 31.03.2022.

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You are required to advise the company as a measure of tax planning to determine the date of sale
keeping in view the capital gains tax. Assume that the written down value of fixed assets as per
section 43(6) is Rs.120 Lacs.
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Note: Total turnover for the P.Y. 2019-20 was Rs.290 crores.
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 CAPITAL GAINS – ADDITIONAL ILLUSTRATIONS

Illustration 1

• R owned 5 acres of agriculture land within the city limits of Madras which he had
purchased on 1.10.1982 for Rs.5,00,000.
• On 1.1.2021 he sold the land for Rs.65,00,000.

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• The FMV as on 1.4.2001 is Rs. 17,00,000.

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• On 5.1.2021, he purchased a coffee estate for Rs.20,00,000.
• This estate is situated in a remote village and the nearest town is about 20
kilometres away from the estate.

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• On 28.4.2021, he sold the estate for Rs.35,00,000.

You required to compute the income the chargeable to tax under the head “Capital
Gains” for the assessment years 2021-22 & 2022-23.

Illustration 2

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R sells agriculture land situated in an urban area for Rs.11,31,000 (brokerage paid @
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2%) on 31.3.2021.
• Cost of acquisition Rs.1,05,000 on 1.3.1986
• FMV as on 1.4.2001 – Rs.2,30,000
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• It was used for agriculture purposes, from 1990 to date of sale.
• On 31.3.2021, he owns only one residential house property.
• On 6.4.2021, he purchases the following assets:
Agriculture land for Rs.1,50,000
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▪
▪ A residential house property for Rs.5,00,000
Find out the capital gains chargeable to tax for the assessment year 2021-22.

Illustration 3
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• Mr. J. Maruthi holds vacant land within the city of Madras, which he purchased in
2007 for Rs.55,00,000.
• On 1.4.2010 he negotiated its sale and received an advance of Rs. 5,00,000.
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• This was later on forfeited and the transaction did not go through.
• A similar instance occurred when he attempted to sell the land in 2017-18 an
amount of Rs. 7,00,000 was forfeited.
• On 1.10.2020 he sold it for R.1,40,00,000.
• He invested Rs.50,00,000 in capital gains account with a Bank for acquiring a
Residential House Property.

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 Ascertain Capital Gains.

Illustration 4

• Hari has acquired a residential house property in Delhi on 15th April 2001 for Rs.
9,00,000 and decide to sell the same on 3rd May 2004 to Ms. Pari and an advance of
Rs. 25,000 was taken from her.

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• The balance money was not paid by Ms. Pari and Hari has forfeited the entire
advance sum.

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• On 3rd June 2020, he has sold this house to Mr. Santosh for Rs.35,00,000.
• In the meantime, on 4th April 2020, he had purchased a residential house in Delhi

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for Rs. 8,00,000, where he was staying with his family on rent for the last 5 years
and paid the full amount as per the purchase agreement.
• However, Hari does not possess any legal title till 31st, March 2021, as such transfer
was not registered with the registration authority.
•

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Hari has purchased another old house in Chennai on 14th October 2020 from Mr. X,
an Indian resident, by paying Rs. 5,00,000 and the purchase was registered with the
appropriate authority.
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Determine the taxable capital gain arising from above transactions in the hands of Hari
for Assessment Year 2021-22.
[Cost inflation Index - 2001-02: 100; 2004-05: 113; 2019-20: 310]
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Illustration 5

Following are the details of income provided by Mr. Singh, the assessee for the
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financial year ended 31st March 2021:

Rental income - Rs. 3,00,000

Property at Bangalore Standard Rent - Rs.2,50,000
Fair Rent – Rs.2,80,000
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Municipal and water tax Current year Rs. 35,000

paid during 20-21 Arrears- Rs.1,50,000
Interest on loan borrowed towards major repairs to the property Rs.1,50,000.
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Arrears of rent of Rs. 30,000 received during the year, which was not charged
to tax in earlier years.
Further, the assessee furnished following additional information regarding sale of
property of Chennai.

1. Mr. Singh’s father acquired a residential house in April 2005 for Rs. 1,25,000 and
thereafter gifted this property to the assessee, Mr. Singh on 1st March 2006.
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 2. The Property, so gifted, was sold by Mr. Singh on 10th June 2020, the consideration
received was Rs.25,00,000.
3. Stamp duty charges paid by the purchaser at the time of registration @ 13% (as per
statutory guidelines) was Rs.3,90,000.
4. Out of the sale consideration received:
a. On 02/01/2021, the assessee had purchased two adjacent flats, in the same

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building and made suitable modification to make it as one unit. The investment
was made by separate sale deeds, amount being Rs.8,00,000 and Rs.7,00,000,

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respectively.
b. On 10/10/2020, Rs.10 lakhs were invested in bonds issued by National Highways
Authority of India, but the allotment of the bonds was made on 1.2.2021.

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Compute Mr, Singh’s taxable income for assessment year 2021-22.

(Cost inflation index: F.Y.2005-06:117 F.Y.2020-21:301)

Illustration 6

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Compute the long-term capital gains/loss on transfer of listed equity shares (STT paid
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both at the time of acquisition and transfer of shares) for the A.Y 2021-22, in the four
independent cases given below:

Particulars Mr. Ganesh Mr. Rajesh Mr. Sridhar Mr. Vaibhav

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Name of Co. A Ltd. B Ltd. C Ltd. D Ltd.
No. of shares 1,000 2,000 3,000 4,000
Date of 28.12.2016 30.11.2016 1.1.2017 15.1.2017
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acquisition
Cost of Rs.1,000 Rs.3,000 Rs.2,000 Rs.4,000
acquisition (per
share)
Date of Transfer 1.5.2020 1.6.2020 1.7.2020 1.8.2020
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Sale price (per Rs.2,500 Rs.5,000 Rs.3,000 Rs.2,500

share)
FMV as on Rs.2,000 Rs.6,500 Rs.1,500 Rs.6,000
31.1.2019 (per
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share)

Illustration 7

▪ Mrs. Yuvika bought a vacant land for Rs.80 lakhs in May 2004.
▪ Registration and other expenses were 10% of the cost of land.
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 ▪ She constructed a residential building on the said land for Rs.100 lakhs during the
financial year 2006-07.
▪ She entered into an agreement for sale of the above said residential house with Mr.
Johar (not a relative) in April 2015.
▪ The sale consideration was fixed at Rs.700 lakhs and on 23-4-2015, Mrs. Yuvika
received Rs.20 lakhs as advance in cash by executing an agreement.

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▪ However, due to failure on part of Mr. Johar, the said negotiation could not
materialise and hence, the said amount of advance was forfeited by Mrs. Yuvika.

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▪ Mrs. Yuvika, again entered into an agreement on 01.08.2020 for sale of this house
at Rs.810 lakhs.
▪ She received Rs.80 lakhs as advance by RTGS. The stamp duty value on the date of

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agreement was Rs.890 lakhs.
▪ The sale deed was executed and registered on 14-1-2021 for the agreed
consideration.
However, the State stamp valuation authority had revised the values, hence, the

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▪
value of property for stamp duty purposes was Rs.900 lakhs.
▪ Mrs. Yuvika paid 1% as brokerage on sale consideration received.
▪ Subsequent to sale, Mrs. Yuvika made following investments:
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▪ Acquired two residential houses at Delhi for Rs.130 lakhs and Rs.50 lakhs on
31.1.2021 and 15.5.2021.
▪ Acquired a residential house at UK for Rs.180 lakhs on 23.3.2021.
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▪ Subscribed to NHAI capital gains bond (approved under section 54EC) for Rs.50
lakhs on 29-3-2021 and for Rs.40 lakhs on 12-5-2021.

Compute the income chargeable under the head 'Capital Gains' of Mrs. Yuvika for
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A.Y.2021-22. The choice of exemption must be in the manner most beneficial to the
assessee.

[Cost Inflation Index: F.Y. 2004-05 – 113; F.Y. 2006-07 – 122; F.Y. 2020-21 – 301].

Illustration 8
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• X Ltd. has a building acquired on 17/08/2019 for Rs.5,00,000.

• The assessee, as a tenant, earlier used the building, for industrial purpose since last
7 years and even after purchase it is continuously used for industrial purpose.
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• Such building is compulsorily acquired by Government at an agreed value of

Rs.12,00,000 as on 15/07/2020.
• The compensation was received on 1/03/2021.
• The written down value of the block (consist of 3 buildings) as on 1/04/2020 is
Rs.7,50,000.

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 • The company acquired a new building for industrial purpose for Rs.2,00,000 as on –
▪ Case A - 31/03/2021
▪ Case B - 2/04/2021.

Determine his taxable capital gain.

Illustration 9

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Mr. X has sold following assets during the year 2020-21

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Items Cost of acquisition Sale consideration Year of acquisition
Land Rs.10 lakhs Rs.150 lakhs 1998-99

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Jewellery Rs.30 lakhs Rs.120 lakhs 2008-09

On 31/03/2021, he has purchased a residential house for Rs.30,00,000 for self-

occupation as he had no other house till date. Compute capital gain.

Illustration 10
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R purchased 500 listed equity shares of Rs.10 each for Rs.40 per share in year 2002-03
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and incurs an expenditure of Rs.400 on brokerage.
• In May 2006, he receives 100 bonus shares
• In December 2019, he gets 100 right shares for Rs.20 each.
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• He sold 100 shares in November 2020 at Rs. 100 per share.
• 100 bonus share and 100 right shares at Rs.100 per share was sold in December
2020.
• The bonus as well as right shares were kept in a separate depository and all of the
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sale was made through stock exchange.

• Rs.15 was paid as security transaction tax.
• Find out the capital gain for AY 2021-22
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 CHAPTER 7 - PROFITS OR GAINS OF BUSINESS OR PROFESSION

Overview

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Sec 43A &43B Sec 44AD,
Sec 28 Sec 30 to 37 Sec 40 and 40A Sec. 44AA &

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Actual cost & 44ADA & 44AE
Charging Allowable Disallowed 44AB -
Expense on - Presumptive
section deductions expenditure Compliances
cash basis income

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General provisions
 Business [Sec. 2(13)]
➢ Business includes –
● any trade, commerce, or manufacture; or

 Profession[Sec. 2(36)]
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● any adventure or concern in the nature of trade, commerce, or manufacture.

➢ Profession includes vocation. Profession requires purely intellectual skill or manual skill
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on the basis of some special learning and qualification gathered through past training or
experience e.g., CA, doctor, lawyer etc
➢ Vocation implies natural ability of a person to do some particular work e.g., singing,
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dancing, etc.

 Following elements shall be considered to judge a transaction as business transaction:

● Nature of commodity ● Intention of the party ● Efforts applied in transaction
● Periodicity of transaction ● Nature of transaction (whether incidental to a
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business or not)
 Meaning of profits:
➢ Profits may be realised in cash or in kind
➢ Capital receipts are generally not considered as income.
➢ Voluntary receipts are also considered as income.
Gains made by providing service to community by public body
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➢
➢ Income from illegal business is also subject to tax
➢ The profits of each distinct business should be computed separately
➢ The charge is not on gross receipts but on income/gain.
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➢ Income is computed in Cash or Mercantile system other than.

Interest by way of compensation or enhanced compensation Income from other sources
Subsidy or grant or cash incentive or duty drawback ow Income of the previous year
waiver or concession or reimbursement by CG, SG or any in which received
authority or local body in cash or kind

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 Sec 28 – Income chargeable under the head profits & gains of business or profession
➢ Profits & gains of any business or profession
➢ Income of trade or professional association’s - from rendering specific services to its
members shall be taxable under this head.
➢ An export incentive in form of profit on sale of import license or duty entitlement
passbook, cash assistance, duty drawback etc.
➢ Perquisite from business or profession - the value of which is whether convertible into

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money or not.
➢ Compensation to Management agency: Any compensation/other payment due to or

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received –
By In connection with
Any person managing the affairs of an Termination or modification of terms and

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Indian Company conditions of his appointment.
Any person managing the affairs of any
company in India
Any person holding an agency in India Termination of agency or the modification
for any part of the activities relating to of terms and conditions in relation thereto
the business of any other person.
Any person

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1. The vesting in the Government or in any
corporation owned/controlled by the
Government, of the management of any
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property or business.
2. The termination or the modification of
the terms and conditions, of any contract
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relating to his business

➢ Remuneration to partner – Includes any interest salary, bonus, commission etc.

➢ Non-compete fees – Fees for
• not carrying out any activity in relation to any business or profession; or
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• not sharing any know-how, patent, copyright, trademark, licence, franchise or any
other business or commercial right.
➢ Keyman Insurance Policy [Sec. 28(vi)]: - including bonus on such policy.
➢ Conversion of stock into capital asset - The fair market value of inventory as on the date
on which it is converted into, or treated as, a capital asset.
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➢ Recovery against certain capital assets covered u/s 35AD

➢ Speculation business
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Sec 43(5) – Speculation business

➢ Speculation business - Speculative transaction means a transaction in which contract for
purchase and sale of any commodity including stock and shares, is periodically or ultimately
settled otherwise than by the actual delivery or transfer of the commodity or scripts. Sec.
43(5)
➢ As per explanation to sec. 73, where any part of the business of a company consists of purchase
and sale of shares of other companies, such company shall be deemed to be carrying on
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 speculation business to the extent of purchase and sale of shares. However, this rule is not
applicable in case of companies -
a) of which gross total income mainly consists of income which is chargeable under the head
“House property”, “Capital gains”, and “Other sources”; or
b) of which principal business is the business of trading in shares or banking or granting of
loans and advances.
➢ Notes: Above explanation covers only transactions of purchase and sale of shares. Debentures,

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units of UTI or of Mutual Funds are not covered by this explanation.
➢ Following transactions are not deemed to speculative transactions:

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• Hedging contract in respect of raw material and merchandise to safeguard loss through
future price fluctuations
• Hedging contract in respect of stocks and shares

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• Forward contract to guard against loss arising in the ordinary course of business
• Trading in derivatives
• Trading in commodities derivatives carried out in a recognised stock exchange– on which
commodity transaction tax is paid

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Note – The requirement of chargeability of commodity transaction tax is not applicable in
respect of trading in agriculture commodity derivatives from AY 2019-20.

Sec 145 – Method of accounting

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➢ Income chargeable under the head “Profits & gains of business or profession” or “Income from
other sources”, is to be computed in accordance with the method of accounting (i.e., either on
cash or on accrual basis) regularly followed by the assessee.
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➢ However, there are certain expenditures specified u/s 43B, which shall be deductible only on
cash basis.
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Admissible deductions – Sec.30 to 37

Sec 30 - Rent, Rates, Taxes, Repairs & Insurance for Building

➢ Premises are occupied by assessee as tenant.
➢ If the building is partly used for the purpose of business or profession and partly for other
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purpose, then deduction shall be restricted to a fair proportion of the expenditure which is
attributable to the use for the purpose of business.
➢ Rent paid to proprietor is disallowed but rent paid by firm to its partner for using his
premises is an allowed expenditure.
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➢ The income from sub-letting is netted off with the expenditure.

➢ Only current repairs are allowed as deduction.
➢ Cost of repairs and current repairs other than capital nature is allowed as deduction
➢ Municipal taxes: Rates & taxes (for e.g., land revenue, municipal tax, etc) are deductible on
cash basis [Sec. 30 read with sec. 43B],
➢ Taxes levied by foreign government is also allowed.
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 Sec 31 - Repairs & Insurance of machinery, plant & furniture
➢ Only current repairs are allowed as deduction.
➢ Only repairs & insurance is covered under this section. Rent paid for use of such assets is
deductible u/s 37(1)
➢ If the building is partly used for the purpose of business or profession and partly for other

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purpose, then deduction shall be restricted to a fair proportion of the expenditure which is
attributable to the use for the purpose of business.

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➢ Repairs and insurance of discarded asset is not allowed as deduction.
➢ Repairs excludes replacement and reconstruction.

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Sec.32 – Depreciation
 Mandatory provision
➢ Depreciation is a deduction for diminution in the value of asset.

computing his total income.

 Sec. 32 provides for depreciation on – go

➢ It shall be made compulsorily whether or not the assessee has claimed the deduction in
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Tangible assets Building, Machinery, Plant and Furniture.
Intangible assets Know-how, patents, copyrights, trademarks, licences,
franchises or any other business or commercial rights of
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similar nature, being intangible assets acquired on or after the
1st day of April 1998, not being goodwill of a business or
profession

➢ Plant includes ships, vehicles, books, scientific apparatus and surgical equipment & does
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not include warehouses for storage purposes, tea bushes, Horses, livestock, Cinema
theatres, Hotel Building, Human body. P&M is residuary block.
➢ Buildings includes within its scope roads, bridges, culverts, wells, and tube wells.
➢ No depreciation on cost of land.
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 Conditions to claim depreciation

➢ Asset must be owned by the assessee.
• Assessee need not be a registered owner, even a beneficial owner can claim
depreciation.
• In case of joint ownership, depreciation is allowed in proportion to the cost contributed
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by each owner.
• Possessor of an immovable property u/s 53A of Transfer of Property Act can claim
depreciation even though he is not the owner.
• In case of hire purchase, the buyer can claim depreciation
• Where an assessee being a lessee of a property incurs any capital expenditure by way
of improvement, extension, super construction, etc. on a building being used for his

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 business or profession, he is entitled to depreciation in respect of such capital
expenditure.
➢ Asset must be used for the purpose of business or profession during the previous year.

• Both active and passive use are included. Passive use includes ‘ready to use’. Thus,
stand by equipment and fire extinguishers can be capitalized.
• If the building is partly used for the purpose of business or profession and partly for
other purpose, then deduction shall be restricted to a fair proportion of the expenditure

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which is attributable to the use for the purpose of business.

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 Method of Depreciation
➢ Depreciation shall be allowed on written down value method at the rates prescribed.

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 Significance of Date of purchase -
➢ Where,
(a) an asset is acquired by the assessee during the previous year; and
(b) 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.

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➢ This applies only in the year of acquisition and not in subsequent years.

 Block of assets
➢ "Block of assets" means a group of assets falling within a class of assets comprising—
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a. tangible assets, being buildings, machinery, plant or furniture.
b. intangible assets, being know-how, patents, copyrights, trademarks, licences,
franchises or any other business or commercial rights of similar nature, not being
goodwill of a business or profession
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 Calculation of depreciation (at a glance)

Particulars Amount
1. W.D.V of the block at the beginning of the current previous year Xxx
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2. Add: Assets (falling within the block) acquired during the previous Xxx
year (Not being on account of acquisition of goodwill of a business or
profession)
3. Total (1+2) Xxx
Less:
4. Full value of consideration received or accruing i.r.o any asset falling Xxx
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within the block, which is sold, discarded, demolished, destroyed

during the year.
(Such amount cannot exceed 3)
If Goodwill was part of block on which depreciation was allowed up Xxx
to P.Y. 2019-20,
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5. Actual cost of goodwill

Less: Depreciation allowable to the assessee for goodwill as if
goodwill was the only asset
(Amount cannot exceed WDV)
6. WDV at the end of the year (3- 4- 5) Xxx
7. Depreciation at prescribed rate Xxx

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 (WDV x Rate of Depreciation)

➢ If the full value of consideration received or accruing as a result of transfer of assets in the
same block exceeds the aggregate of
(i) Transfer expenses
(ii) WDV at the beginning of the PY
(iii) Actual cost of any asset acquired during the P.Y.

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Such excess hall be deemed to be the capital gains arising from the transfer of short-term
capital assets.

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➢ When value of block before depreciation is positive but the block does not have any asset.
In such case, such positive value shall be treated as short term capital loss.
➢ Depreciation in case of succession of firm/ sole proprietary concern by a company or

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business reorganization or amalgamation or demerger of companies’ depreciation
calculated at the prescribed rates as if the succession, business reorganization,
amalgamation or demerger had not taken place.
➢ Depreciation shall be apportioned between the two entities in the ratio of the number of

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days for which the assets were used by them.

 Rule 5(2) - Increased rate of depreciation for certain assets

➢ The below asset qualifies for depreciation @40%.
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➢ Any new machinery or plant installed to manufacture or produce any article or thing
• by using any technology or other know-how developed in or
• is an article or thing invented in a laboratory owned or financed by the Government
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• or a laboratory owned by a public sector company or a university or an institution
recognized by the Secretary, Department of Scientific and Industrial Research
➢ Conditions to satisfy:
• The right to use such technology or other know-how or to manufacture or produce such
article or thing has been acquired from the owner of such laboratory or any person
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deriving title from such owner.

• The return filed for any previous year in which the said machinery is acquired, should
be accompanied by a certificate from the Secretary, Department of Scientific and
Industrial Research, Government of India
• The machinery or plant is not used for the purpose of business of manufacture or
production of any article or thing specified in the Eleventh schedule.
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Sec 43(1) - Actual cost of assets

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Cost price (Purchase price) of the asset xxx

Add: Expenses directly related to acquisition e.g., travelling expenditure xxx
Add: Expenses necessary to bring the asset to site, installation, and to xxx
make it ready to use, e.g., carriage inward, loading and unloading charges,
installation cost, trial run cost, etc.
Add: Expenses incurred to increase the capacity of the asset or to make it xxx
fit prior to its use.
Add: Interest on borrowed capital up to the date the asset is put to use Xxx
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 Less: portion of cost which has has been met directly or indirectly by any Xxx
other person or authority (e.g., Government subsidy)
Less: Taxes & Duties (if Cenvat / Input credit is availed) xxx
Less / Add – Forex Gain or loss xxx
Actual cost of the asset on which depreciation is computed xxx

➢ If any payment as mentioned above, exceeding Rs. 10,000 is paid in cash to any person in
a day, then such amount is ignored in computing actual cost.

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➢ Further, actual cost in various situations in mentioned below:

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S.N Mode acquisition Actual cost
1 Assets acquired for scientific research Actual cost (-) deduction availed u/s 35
subsequently bought into business use

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2 Conversion of inventory into capital asset FMV on the date of conversion
3 Asset acquired by way of gift or inheritance Actual cost to the previous owner (-)
depreciation allowable to him.
4 Asset acquired from any person using the Actual cost to be determined by the AO
asset for his business or profession with a with the prior permission of Joint

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view to avoid tax
Reacquisition of transferred asset

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WDV at the time of first transfer or the
price paid for reacquisition, whichever is
lower
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6 Asset acquired by an assessee from WDV of the asset to the transferor
another person and given on lease to the
same person who had earlier claimed
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depreciation
7 Building used for personal purpose Cost of purchase or construction
subsequently brought into business (-)notional depreciation by applying the
rate applicable on the date of such
conversion
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8 Asset, which was acquired outside India, Actual cost to the assessee,(-) depreciation
brought by a non-resident assessee to India calculated at the rate in force that would
and used for the purposes of his business or have been allowable had the asset been
profession used in India for the said purposes
since the date of its acquisition.
9 Any capital asset transferred by a holding Actual cost to the transferee company shall
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company to its 100% subsidiary company be taken to be the same as it would have
or vice versa where transferee company is been if the transferor company had
an Indian company. continued to hold the capital asset for the
purpose of its business
10 Any capital asset transferred by the Actual cost to the amalgamated company
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amalgamating company to the shall be same as it is for the amalgamating

amalgamated company where the company.
amalgamated company is an Indian
company
11 Any capital asset transferred by the Actual cost to the resulting company shall
demerged company to the resulting be same as it is for the demerged company

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 company where the resulting company is
an Indian company
12 Capital asset is acquired by the assessee Actual cost of the asset shall be deemed to
under a scheme for corporatisation of a be the amount which would have been
recognised stock exchange in India regarded as actual cost had there been no
such corporatisation
13 The actual cost of any capital asset on Actual cost of the asset shall be taken as
which deduction is allowable u/s 35AD NIL.

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14 Where an assessee was not required to Actual cost shall be reduced by the total
compute his total income under Income tax amount of depreciation on such asset,

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Act for any previous year(s) preceding the provided in the books of account (as
relevant PY. adjusted by amount attributable to the
revaluation of assets) in respect of such PY

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15 Composite income * The total amount of depreciation shall be
computed as if the entire composite income
is chargeable under the head PGBP. The
total depreciation is allowed to arrive at the
WDV.

Rule * Composite income

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(taxable)
income Agriculture
income(exempt)
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7A Income from manufacture of Rubber 35% 65%
7B Income from manufacture of Coffee
Sale of coffee grown and cured 25% 75%
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Sale of coffee grown, cured, roasted, and 40% 60%
grounded
8 Income from manufacture of Tea 40% 60%
Sec 32(1)(i) - Depreciation in case of power units
 Applicable to -
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➢ An undertaking engaged in the business of generation or generation and distribution of

power

 Condition to satisfy-
➢ Such unit may charge depreciation (in respect of asset acquired after 31/3/1997) at its
choice under –
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• Written-down value method as followed by all other assessee (usual); or

• Straight-line method at the prescribed rate in ‘Appendix IA’ of the Income Tax Rules on
actual cost of asset (not the block value of asset)
➢ Such option shall be exercised before the due date of furnishing return of income.
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➢ Once the option is exercised, it shall be applicable for all subsequent assessment years.

 Consequence of opting for SLM method-

➢ Additional depreciation is not available to the assessee who claims depreciation as per
SLM.
➢ Loss on transfer of any asset is treated as terminal depreciation.
• Terminal depreciation = + ve value of [WDV of assets – (Sale value or Scrap value)]
• Terminal depreciation is written off in the books of accounts.
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 ➢ Profit on transfer of such asset to the maximum of accumulated depreciation shall be
treated as balancing charge.
• The difference between sale price and actual cost shall be treated as capital gain.
• Balancing Charge = - ve value of [WDV of assets – (Sale value + Scrap value)]
• As per sec. 41(2), balancing charge is fully taxable as business income

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Sec. 32(1) (iia) - Additional depreciation
 Applicability

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➢ Additional depreciation is applicable on all assessee engaged in the business of
manufacture or production of any article or thing or in the business of generation,
transmission, or distribution of power And

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➢ Who has acquired and installed after 31st March 2005, a new plant or machinery.
➢ Following is not included in P&M –
1. Ships and Aircrafts
2. P&M which was used either within or outside India by any other person before such

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installation; or
3. P&M which is installed in office premises or any residential accommodation or guest
house; or
4. Any office appliances or road transport vehicle; or
5. P&M which is allowed for 100% deduction (whether by way of depreciation or
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otherwise) in the PY.

 Rate of additional depreciation

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Additional If the asset is acquired
rate and put to use for less
than 180 days
Normal undertaking 20% 10%
Undertaking set up in the notified 35% 17.5%
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backward area of Andhra Pradesh or Bihar

or Telangana or West Bengal during the
period 1-4-2015 to 31-3-2020

➢ Note - additional depreciation shall be available only on plant and machinery and not on
other asset like furniture, building, etc.
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➢ New plant and machinery acquired and installed in such notified backward areas on or
after 1.04.2020, Sec 32AD deduction is not allowed.

Sec 32(2) – Unabsorbed depreciation

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 Meaning
➢ Depreciation which could not be fully deducted from profits and gains of current year of
business or profession (due to insufficient profit), is termed as unabsorbed depreciation.

 Treatment:
➢ The unabsorbed depreciation can be deducted from income under any other head (except
with Casual income and Salaries) of the same assessment year.

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 ➢ If depreciation still remains unabsorbed, it can be carried forward for indefinite period
and can be set off against any income (except with Casual income and Salaries) of the
assessee.
 Order of set off
➢ For set-off purpose following order is to be followed:
Current year Brought forward Unabsorbed
depreciation business loss depreciation

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 Additional points

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➢ Unabsorbed depreciation can be carried forward even if return of income has not been
filed.
➢ It is not necessary that the same business should be continued.

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 Sec. 35 - Scientific research
Scientific research -
Deductions

Inhouse Donations
research

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2 conditions - Need not be
related to
1. Related to business
business
2. Scientific in nature

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Scientific in Social and
Revenue exp. Capital exp. nature statistical in
nature

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1. Donation to a company
1.Incurred after which
1.Incurred after
commencement of commencement a. is registered in India Donation to
busin. - 100% is of busin. - b. has as its main object University,
allowed 100% is scientific research and college or other
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allowed (except development approved
2. Incurred within 3 on land) institution -
years immediately c. Approved by
2. Incurred prescribed authority Where such
preceeding the year of college/universi
commencement of within 3 years
d. fulfill conditions as ty/institution is
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busi.. - The following immediately
preceeding the prescribed - approved by
exp is allowed if Central
certified by year of 100% is allowed.
commencement government -
prescribed authority 2. Donation to any 100% allowed.
of busi. - 100% scientif. research asso.
a. Salaries (excluding Allowed in the
perquisities) which has as its object
year of
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the undertaking of scient.

b. Purchase of commencement research -
material.
100% allowed.
3. Donation to University,
college or other approved
institution - Where such
college/ university /
institution is approved by
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Central government -
150% allowed.
4.Donation to national
laboratory, IIT or any
university - Approved by
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prescb. autho. -
100% allowed

➢ Deduction allowed on contribution which qualifies under this act, will not be entitled to
any deductions under any other provisions of the act.
➢ Where deduction is allowed in any previous year in respect of any capital expenditure
under this section, then no deduction u/s 32 shall be allowed on such asset.
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 ➢ Withdrawal of approval: Deduction shall not be denied merely on the ground that
subsequent to the payment made by the assessee, the approval granted to the association,
university, IIT, etc. has been withdrawn.
➢ Carry forward of unabsorbed scientific research expenditure: Unabsorbed capital
expenditure can be carried forward for unlimited years and set off in any subsequent
assessment year(s) like unabsorbed depreciation.
➢ Effect of amalgamation [Sec. 35(5)]: Provisions of sec. 35 shall apply to the amalgamated

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company, as it would have been applied to the amalgamating company if the latter had not
transferred such asset.

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➢ Sale of asset used for scientific research [Sec. 41(3)]
Without having Sale consideration to the extent of cost of such asset shall be taxable as
been used for business income in the year of sale. The excess of sale consideration over

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other purpose original cost (or indexed cost of acquisition) is taxable as capital gain u/s
45. This is applicable even if the business is not in existence in that year)
After being Sale consideration shall be subtracted from relevant block of assets. It is
used for other to be noted that at the time of conversion of scientific research asset into
purposes normal business asset, the cost of acquisition shall be taken as nil in the
relevant block.

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Sec. 35(2AB) - In-house research & development expenses incurred by certain companies
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 Applicable to
➢ Company engaged in the business of biotechnology or any business of manufacture or
production of any article or thing (other than those specified in the 11th Schedule)
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 Conditions to be satisfied
➢ The expenditure shall be incurred on in-house scientific research and development facility
including capital expenditure (other than cost of any land or building).
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➢ In-house research and development facility shall be approved by the Secretary,

Department of Scientific and Industrial Research.
➢ The assessee must enter into an agreement with the prescribed authority
• for co-operation in such research and development facility; and
• fulfils such conditions with regard to maintenance of accounts and audit thereof and
• furnishing of reports in such manner as may be prescribed.
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 Quantum of deduction
➢ 100% of expenditure
➢ Such expenditure should not be in the nature of cost of Land and Building.
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➢ Where deduction is allowed in any previous year in respect of any capital expenditure
under this section, then no deduction u/s 32 shall be allowed on such asset.

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 Sec. 35AD - Deduction in respect of expenditure on specified business
 Applicable to
➢ Specified assessee engaged in the business of:
1. Setting up and operating a cold chain facility for specified products.
2. Setting up and operating a warehousing facility for storage of agricultural produce; or
3. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline

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network for distribution, including storage facilities being an integral part of such network.
Note: The project has been approved by the Petroleum and Natural Gas Regulatory Board

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and being notified by the Central Government.
4. Building and operating, anywhere in India, a hotel of two-star or above category as
classified by the Central Government.

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5. Building and operating, anywhere in India, a hospital with at least 100 beds for patients.
6. Developing and building a notified housing project under a scheme for slum
redevelopment or rehabilitation framed by the Central Government (or a State
Government)

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7. Developing and building a notified housing project under a scheme for affordable housing
framed by the Central Government (or a State Government)
8. Production of fertilizer in India.
9. Setting up and operating an inland container depot or a container freight station notified
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or approved under the Customs Act, 1962;
10. Beekeeping and production of honey and beeswax.
11. Setting up and operating a warehousing facility for storage of sugar.
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12. Laying and operating a slurry pipeline for the transportation of iron ore
13. Setting up and operating a semi-conductor wafer fabrication manufacturing unit, and
which is notified by the Board in accordance with such guidelines as may be prescribed.
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14. Developing or maintaining and operating or developing, maintaining, and operating a new
infrastructure facility.

 Quantum of deductions
➢ 100% of capital expenditure incurred during the previous year.
➢ Pre-commencement expenditure: - Allowed as deduction in the PY in which business
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commences
➢ Capital Expenditure shall not include:
• Acquisition of any land or goodwill or financial instrument
• Any expenditure in respect of which the payment or aggregate of payments made to a
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person in a day, in cash exceeds Rs.10,000

 Conditions to satisfy –
➢ The assessee should opt for deduction under Section 35AD.
➢ Splitting of existing business - Such business should not be set up by splitting up, or the
reconstruction, of a business already in existence.
➢ 2nd Hand Machinery - Such business should not be set up by the transfer to the specified
business of machinery or plant previously used for any purpose.
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 ➢ However, it is not a violation if the used P&M,
• Is less than 20% of the total P&M used in such business.
• Is imported into India from a foreign country.
➢ Deduction u/s Chapter VI A and sec 10AA - Once the assessee has claimed the benefit of
deduction under section 35AD for a particular year, he cannot claim benefit under
Chapter VI-A under the heading “C - Deductions in respect of certain incomes” or section
10AA for the same or any other year and vice versa.

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➢ Set off & carry forward of losses - The loss from specified business can be set-off against
the profit of another specified business under section 73A, irrespective of whether the

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latter is eligible for deduction under section 35AD.
➢ Transactions to be in Market value – In case of any transfer of goods or services between
specified business and any other business carried on by the assessee, the profits and gains

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of the specified business shall be computed as if the transfer was made at market value.
➢ Compulsory audit and furnishing of report with return on income - The accounts of the
assessee for the relevant previous year have been audited by a chartered accountant and
the assessee furnishes the audit report in the prescribed form, duly signed, and verified by
such accountant along with his return of income.

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➢ Use of such asset for 8 years - Section 35AD(7A) provides that any asset in respect of which
a deduction is claimed and allowed under section 35AD shall be used only for the specified
business for a period of eight years beginning with the previous year in which such asset
is acquired or constructed.
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➢ Transfer of such asset taxed as PGBP income - If such asset is demolished, destroyed,
discarded, or transferred, the sum received or receivable for the same is chargeable to tax
u/s 28(vii).
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➢ PGBP income is asset is used otherwise – If the asset is used for any purpose other than
the specified business during such 8 years, then –
Total deduction claimed u/s 35AD in one or more PYs xxx
Less – Depreciation allowable u/s 32 (as if no deduction claimed u/s 35AD) (xx)
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Deemed income (Chargeable under PGBP) xxx

➢ However, the deeming provision under sub-section (7B) shall not be applicable to a
company which has become a sick industrial company under section 17(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985, during the intervening period of
eight years specified in sub-section (7A).
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➢ Transfer of operations - The assessee shall be deemed to be carrying on the specified

business of building and operating hotel if
• He builds a hotel of two-star or above category
• Thereafter, he transfers the operation of the hotel to another person;
• He, however, continues to own the hotel
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Sec. 35D - Amortisation of preliminary expenses

 Preliminary expenses -
➢ Expenses in connection with –
● Preparation of project report.
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 ● Preparation of feasibility report.
● Conducting market survey or any other survey necessary for the business.
● Engineering services related to the business.
Note: Above work must be carried on by the assessee himself or by a concern, which is
approved by the Board.
➢ Legal charges for drafting any agreement between the assessee and any other person for
any purpose related to the setting up or conduct of business.

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➢ Legal charges for drafting & printing of Memorandum of Association & Articles of
Association (in case of company-assessee only).

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➢ Registration fees under provisions of the Companies Act, 1956 (in case of company-
assessee only).
➢ Expenses in connection with public issue of shares in or debentures of the company being

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underwriting commission, brokerage & charges for drafting, typing, printing &
advertisement of the prospectus (in case of company-assessee only).
➢ Any other prescribed expenditure.

 Applicability

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➢ In case of new business - Preliminary expense is incurred before commencement of
business for setting up a new undertaking or business.
➢ In case of existing business - Preliminary expense is incurred in connection with extension
of any undertaking or in connection with setting up a new unit.
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 Eligibility
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Applicable to
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Indian company Non-corporate resident assessee

Qualifying amount Qualifying amount

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Minimum of Minimum of
a. Actual expenditure & a. Actual expenditure &
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b. 5% of cost of project or 5% of b. 5% of cost of project

capital employed which is higher

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 Cost of project Cost of capital

In case of new business: In case of new business:

Actual cost of fixed assets per Issued share capital + Debentures
books as on the last day of + Long-term borrowings

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the PY in which the business
commences. as on the last day of the PY in
which the business commences.

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In case of an existing business:
Actual cost of fixed assets per tthe In case of existing business:

books as on the last day of the PY in
which the extension of industrial
undertaking is completed or new
industrial undertaking commences
production or operation, Cost of capital
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Issued share capital + Debentures +
Long term borrowings
as on the last day of the PY in which the
extension is completed.

 Quantum of deduction

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➢ 1/5th of the total eligible preliminary expense is allowed in 5 equal annual installments
starting from the year in which the business commences, or unit expanded, or the new unit
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commences production or operation. (ie. 20% of expense allowed every year)

 Conditions to satisfy
➢ Report of a chartered accountant: In the case of a non-corporate assessee, an audit report
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from a chartered accountant should be submitted along with the return of income before
the date specified in Section 44AB i.e., 1 month prior to the due date for furnishing return
of income u/s 139(1).
➢ And the assessee has by then should have furnish, report of audit for the first year in which
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deduction is claimed.

 Points to remember
➢ A foreign company, which is resident in India, is not covered under this section.
➢ Effect of amalgamation or demerger
In case of transfer of undertaking under the scheme of amalgamation or demerger, the
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amalgamated company or resulting company (being Indian company) entitled to claim

deduction u/s 35D for the residual period
Note: In the year of amalgamation or demerger, deduction shall be available
amalgamated company or resulting company as the case may be.
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Sec. 35DDA - Amortisation of expenditure incurred under VRS

 Applicable to:
➢ All assessee

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  Conditions to satisfy
➢ Assessee has incurred any expenditure, by way of compensation to employees in
connection with their voluntary retirement.

 Quantum of deduction:
➢ 1/5th of expenditure so paid for a period of 5 years commencing from the year in which
such expenditure was paid.

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 Points to remember
➢ Effect of amalgamation or demerger: In case of transfer of undertaking under the scheme

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of amalgamation or demerger, the amalgamated company or resulting company (being
Indian company) as the case may be, shall be entitled to claim deduction u/s 35DDA for
the residual period.

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➢ Effect of succession of business: Where there has been reorganisation of business,
• whereby a firm or proprietary concern is succeeded by a company fulfilling the
conditions laid down in sec. 47 (xiii) & (xiv) or
• A private company or unlisted public company is succeeded by a limited liability

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partnership fulfilling the conditions laid down in sec. 47 (xiiib),
The provisions of this section shall apply to the successor concern, as they would have
applied to the predecessor, if reorganisation of business had not taken place.
➢ No deduction shall be allowed to amalgamating company, demerged company, a firm,
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proprietary or other concern in the previous year in which amalgamation, demerger, or
succession, as the case may be, takes place.
➢ No deduction shall be allowed in respect of such expenditure under any other provisions
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of the Act.
➢ Sec. 10(10C) {under the head “Salaries”} and Sec. 35DDA {under the head “Profits & gains
of business or profession”}
● Exemption u/s 10(10C) is not available to employee of the partnership firm, HUF,
proprietorship firm, etc. Deduction u/s 35DDA can be claimed by all assessee.
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● Exemption u/s 10(10C is available only if the scheme is approved by the Board.
Deduction can be claimed u/s 35DDA even if the scheme is not approved by the Board.

Sec Further deductions allowed in full

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Sec. 36(1)(i) Insurance Premium

Insurance premium paid against risk of damage or destruction of stocks &
stores, used for the purpose of business or profession is allowable as deduction
in full.
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Sec. 36(1)(ia) Any amount paid as insurance premium by a federal milk co-operative society
on the lives of cattle owned by the members of a primary milk co-operative
society affiliated to it, is allowed as deduction in full.
Sec.36(1)(ib) Any premium paid (other than by cash) by the assessee as an employer to effect
or to keep in force an insurance on the health of his employees under a scheme
framed in this behalf by—

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 ● the General Insurance Corporation of India & approved by the Central
Government
● any other insurer and approved by the Insurance Regulatory and
Development Authority
- shall be allowed as deduction.
Sec. 36(1)(ii) Any bonus or commission (other than in lieu of profit or dividend) paid to
employees shall be allowed as deduction.

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Such amount must have been actually paid before the due date of furnishing
return [Sec. 43B]

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Sec.36(1)(iii) Amount of interest paid in respect of capital borrowed for the purposes of
business or profession shall be allowed as deduction.
Other points to remember
1. Interest paid to another person: Interest should be paid to another person.

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Hence, interest on capital to proprietor is disallowed expenditure. However,
interest on capital to partners is allowed u/s 40(b).
2. Interest paid to relative is allowed as deduction subject to sec. 40A(2) i.e., if
the interest paid is in excess of market rate then excess portion shall be

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disallowed.
3. If borrowed money is utilised in earning non assessable income, interest on
such borrowing shall not be allowed as deduction.
4. Interest on money borrowed to pay income tax is not allowed
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Note: Interest on money borrowed for payment of sales tax is allowed as
deduction.
5. Interest paid outside India without deducting tax at source is not allowed.
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6. Amount borrowed may be applied for the purpose of revenue expenditure
or capital expenditure.
7. Other interest: Interest other than interest on borrowed capital e.g., interest
on deferred payment for purchased of asset, interest on delayed payment of
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electricity charges, interest on purchase price of raw material, etc. shall not be
allowed under this section but can be claimed u/s 37(1)
8. Interest on borrowings made for acquiring & installing assets:
Prior to commencement of business Interest is to be added to actual cost
After commencement of business but of the asset
before asset is put to use
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After asset is put to use Interest is allowed u/s 36(1)(iii)

.
Sec.36(1) Discount on issue of zero-coupon bonds
(iiia) “Zero Coupon Bond” means a bond—
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• issued by any infrastructure capital company or infrastructure capital fund

or public sector company or scheduled bank on or after 1/6/2005.
• in respect of which no payment and benefit is received or receivable before
maturity or redemption from the issuer; and
• which the Central Government may, by notification in the Official Gazette,
specify in this behalf.
Treatment: Discount on issue of Zero-Coupon Bonds shall be allowed on pro
rata basis having regard to the period of life of such bond.
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 Discount – Difference between amount received/receivable on issue of the bond
and the amount payable on redemption/maturity.
Life of the bond – From the date of issue to the date of redemption.
Sec.36(1)(iv) Contribution towards RPF & Superannuation fund
Any sum paid , by the employer towards recognised provident fund or an
approved superannuation fund is allowed as deduction in full.
Points to remember

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Contribution towards unrecognised provident fund is not allowed as deduction.
Contribution towards statutory provident fund is allowed u/s 37(1).

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Sec. Contribution towards notified pension scheme u/s 80CCD
36(1)(iva) Any sum paid by the assessee, as an employer, by way of contribution towards
a pension scheme, as referred to in section 80CCD, on account of an employee is
allowed as deduction.

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Maximum Limit: Such contribution should not exceed 10% of the salary of the
employee in the previous year.
“Salary” includes dearness allowance, if the terms of employment so provide,
but excludes all other allowances and perquisites.

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Sec. 36(1)(v) Contribution towards approved gratuity fund
Any sum paid as employer’s contribution towards an approved gratuity fund
created by him exclusively for the benefit of his employees under an irrevocable
trust is allowed as deduction.
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Such amount must have been actually paid before the due date of furnishing
return [Sec. 43B]
Sec.36(1)(va) Employee’s contribution towards staff welfare scheme
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Any sum received by an employer from his employees as contribution towards
● Provident Fund; or
● Superannuation Fund; or
● Any other fund set up under the provision of the Employee’s State Insurance
Act, 1948; or
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● Any other fund for the welfare of such employees

- is treated as an income of the employer. Subsequently, when such sum is
credited by the employer to the employee’s account in the relevant fund on or
before the due date of crediting such contribution prescribed under the relevant
Act, then deduction is allowed.
Example: As per the provisions Employee State Insurance Act, 1948 (ESI), all
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the contributions under this Act are to be deposited within 21 days of the
following month. Similarly, all contributions under the Employees’ Provident
Fund and Miscellaneous Provisions Act, 1952 must be deposited within 15 days
of the following month.
Provisions of section 43B shall not apply and shall be deemed never to have
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been applied for the purposes of determining the "due date" under this clause
Sec. 36(1)(vi) Allowance in respect of dead or useless animals
Conditions
(a) Animals are used for the purpose of business or profession.
(b) Such animals are not held as stock-in-trade.
(c) Such animals have died or become permanently useless for such purpose.
Quantum of deduction
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 Difference between actual cost of the animals to the assessee and the amounts
realised, if any, in respect of carcasses or sale of animals is allowed as deduction.
Sec.36(1)(vii) Bad debts
Any debt or part thereof, which becomes bad shall be allowed as deduction.

Conditions
1. Debt must be incidental to the business or profession of the assessee. There

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must be a close nexus between the debt and the business of the assessee.
2. The debt has been considered as income of the assessee of that previous year
or of earlier previous years.

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Debt taken into account in the computing the income of the assessee on the
basis of notified ICDS to be allowed as deduction in the PY in which such debt
or part thereof becomes irrecoverable.

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3. It must have been written off in the accounts of the assessee.
(Provision for bad debt is not allowed as deduction.)
4. Business must be carried on during the previous year or any part of the PY.
Bad debt of a discontinued business is not allowed as deduction even though
the assessee has any other business continued.
5. It must be of a revenue nature.

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Bad debt arising due to insolvency of a debtor for sale of an asset (not goods) is
not allowed as deduction.
Notes:
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a. Bad debts are also allowed in the hands of successor of the business.
Recovery of bad debts [Sec. 41(4)]
Amount recovered xxx
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Less: Bad debt claimed – Bad debt allowed as deduction (xx)
Taxable bad debt recovery xxx
Such recovery shall be taxable irrespective of the fact whether the business is
continued or not.
Sec.36(1)(ix) Expenditure on promotion of family planning among employees Applicable
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to: Company only

Purpose of such expenditure: Such expenditure must have been incurred for
promotion of family planning among its employees.
Quantum of Deduction
● Revenue expenditure is fully allowed as deduction.
● Capital expenditure shall be allowed in 5 equal installments commencing
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from the previous year in which it is incurred.

Note: Where deduction is allowed in respect of any expenditure under this
section then no deduction shall be allowed u/s 32 or any other provisions of this
Act.
Treatment of unabsorbed capital expenditure: As in case of unabsorbed
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depreciation.
Sale of assets acquired for family planning: Treated in the same manner as in
case of sale of assets used for scientific research.
Sec.36(1)(xiv) Credit guarantee fund trust
Any sum paid by a public financial institution by way of contribution to specified
credit guarantee fund trust for small industries shall be allowed as deduction.

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 Sec.36(1)(xv) Securities transaction tax
Any amount of Securities Transaction Tax (STT) is allowed as deduction
provided income arising from such transactions is included in the income
computed under the head PGBP.
Sec.36(1)(xvi) Commodities transaction tax
Any amount of Commodities Transaction Tax (CTT) paid in respect of the
taxable commodities transactions entered into in the course of his business

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during the PY shall be allowed as deduction provided income arising from such
transactions is included in the income computed under the head PGBP
➢ Taxable Commodities Transaction means; transaction of Sale of commodity

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derivatives or Sale of commodity derivatives based on
− price or indices of price of commodity or
− option on commodity derivatives/in goods in respect of commodities

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other than agricultural commodities, traded in Recognised Stock
exchange.

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Sec. 37(1) - General deductions – Residuary section
Any expenditure which is not specifically provided in any provisions (discussed earlier) of the Act
is allowed under this section. For e.g., theft, embezzlement, destruction of asset etc. However, it
should fulfil following conditions-
1. It must be real and not notional, fictitious, or in lieu of distribution of profit.
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2. It must be expended wholly & exclusively for the purpose of business or profession carried on
by the assessee.
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3. It must have been incurred in the previous year.
4. It must not be a personal expenditure.
5. It must not be a capital expenditure.
6. It must be lawful and not have been incurred for any purpose, which is an offence or prohibited,
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under any law.

Note:
“Expenditure incurred by an assessee for any purpose which is an offence or which is
prohibited by law" shall include and shall be deemed to have always included the expenditure
incurred by an assessee
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(i) for any purpose which is an offence under, or which is prohibited by, any law for the time
being in force, in India or outside India; or
(ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not
carrying on a business or exercising a profession, and acceptance of such benefit or perquisite
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by such person is in violation of any law or rule or regulation or guideline, as the case may be,
for the time being in force, governing the conduct of such person; or
(iii) to compound an offence under any law for the time being in force, in India or outside
India
However, the following expenditure are specifically not allowed.

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 ➢ Corporate Social Responsibility: Any expenditure incurred on the activities relating to
corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not
be deemed to be an expenditure incurred for the purposes of the business or profession.
➢ Expenditure prohibited under law : The claim of any expense incurred in providing any Gift,
Travel facility, Hospitality, Cash or monetary grant or similar freebees in violation of the
provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations,
2002 shall be inadmissible being an expense prohibited by the law.

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Sec. 37(2B) - Advertisement in souvenir etc. of a political party

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➢ Expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract,
pamphlet or like, published by a political party is disallowed.

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Sec. 40a - Disallowed expenditure
Sec.40(a)(i) - Interest, royalty, fees for technical services payable to a non-resident or
outside India
➢ Any interest, royalty, fees for technical services or other sum chargeable under this Act, which

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is payable ,—
● outside India; or
● in India to a non-resident (not being a company) or to a foreign company,
- on which tax is deductible at source under Chapter XVIIB; and such tax -
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● has not been deducted; or
● after deduction, has not been paid to the credit of Central government within the due date of
submission of return of income u/s 139(1).
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➢ Where, in respect of any such sum,
●tax has been deducted in any subsequent year, or
● has been deducted during the previous year but paid after the due date of submission of return
of income u/s 139(1),
● such sum shall be allowed as a deduction in computing the income of the previous year in which
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such tax has been paid.

➢ Where an assessee fails to deduct the whole or any part of the tax but is not deemed to be an
assessee in default under the first proviso to section 201(1), then, it shall be deemed that the
assessee has deducted and paid the tax on such sum on the date of furnishing of return of
income by the payee.
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Sec. 40(a)(ia) – Any sum payable to a resident on which TDS provision is applicable
➢ 30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-
B is disallowed if such tax:
● has not been deducted; or
● after deduction, tax has not been paid on or before the due date of furnishing return of income
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➢ The amount disallowed earlier (i.e., 30% portion) shall be allowed as deduction in the
following assessment year if
● such tax has been deducted in any subsequent year, or
● tax has been paid after the due date of furnishing return of relevant assessment year,
➢ Where an assessee fails to deduct the whole or any part of the tax but is not deemed to be an
assessee in default under the first proviso to section 201(1), then, it shall be deemed that the

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 assessee has deducted and paid the tax on such sum on the date of furnishing of return of
income by the payee.
➢ This relaxation is not available where the payer has deducted tax but fails to deposit such tax
to the credit of the Central Government.

Sec. 40(a)(ib) - Consideration on which Equalisation Levy is applicable

➢ Any consideration paid or payable to a non-resident for a specified service on which

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equalisation levy is deductible and such levy:
● has not been deducted or
●after deduction, has not been paid on or before the due date of furnishing return of income.

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➢ Where in respect of any such consideration, the equalisation levy has been deducted in any
subsequent year or has been deducted during the previous year but paid after the due date of
furnishing return of income, such sum shall be allowed as a deduction in computing the

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income of the previous year in which such levy has been paid.

Sec. 40(a)(ii) - Income tax

Even, income tax paid by the assessee on income of predecessor is not deductible.

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Professional tax is an allowed expenditure

The term "tax" shall include and shall be deemed to have always included any surcharge or cess,
by whatever name called, on such tax
Sec. 40(a)(iib) - Royalty, licence fees, etc. payable by State Government Undertaking
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➢ Any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any
other fee or charge, by whatever name called, which is levied exclusively on; or
➢ which is appropriated, directly or indirectly, from, a State Government undertaking by the
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State Government.

Sec. 40(a)(iii) – Salaries for non-resident

Any payment which is chargeable under the head “Salaries” if it is payable—
(i) outside India; or (ii) to a non-resident,
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and if the tax has not been paid in India thereon nor deducted therefrom under chapter XVII-B.

Sec. 40(a)(iv) – Payment from provident fund or any other fund without deducting tax
Any payment to a provident fund or any other fund established for the benefit of employees of
the assessee in respect of whom the assessee has not made effective arrangement to secure that
tax shall be deducted at source from any payment made from the fund, which are taxable under
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the head ‘Salaries’.

Sec. 40(a)(v) – Tax on non-monetary perquisite paid by employer

Any tax on non-monetary perquisite [which is exempt in the hands of employee u/s 10(10CC)]
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actually paid by employer on behalf of employee is disallowed.

Sec 40(b) – Deductions disallowed in the hands of firm and LLP

The following amounts are not deducted while computing business income in case of a firm
assessable as such or an LLP.

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 1. Remuneration (salary, commission or by whatever name called) paid to a non-working partner.
2. Remuneration to a working partner or Interest on capital to any partner which is not
authorised by the deed.
3. Remuneration or interest to a partner authorised by deed but relates to an earlier period. Ie.
The remuneration or interest pertains to the period prior to the date of current deed.
4. Interest to any partner in excess of 12% simple interest per annum.
5. Remuneration to a working partner in excess of the below mentioned prescribed limits

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Book profits Quantum of deduction
On the first 3 lacs of the book profits or in case Rs. 1,50,000 or 90% of book profits whichever

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of loss is higher
On the balance of books profits 60% of book profits

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Computation of book profit
Step 1 Find out the net profit as per P&L account
Step 2 Make adjustment as per sec 28 to 44DB (including the adjustment of interest on

Step 3
Step 4
partner’s capital)

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Add partner’s remuneration (if debited to P&L a/c)
Subtract unabsorbed depreciation but do not subtract brought forward losses.
Note – Due to subtraction of unabsorbed depreciation the residual profit should not
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be less than the brought forward losses which are to be set off in the current year
Step 5 The resultant figure is the book profit.
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Sec 40A (2) - Payment made to relatives in excess of requirement

Any payment made by an assessee to a related person or to a person having substantial interest
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shall be disallowed to the extent it is excess or unreasonable as per the Assessing Officer.
Relative Spouse, brother, sister or any lineal ascendant or descendant of that
individual.
substantial ●In case of company - beneficial owner of equity share carrying not less than
interest 20% of voting power
●In any other case - beneficially entitled to not less than 20% of the profits
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Excessive or Decided after considering –

unreasonable ●The FMV of the goods, services or facilities for which payment is made.
●The legitimate need of the business or profession
●The benefit arising to the assessee there from
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Assessee Related Person means

An Individual ●Relative
●A person in whose business or profession the individual has substantial
interest.

A Company ●Director of the company or any relative of the director

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 ●A person in whose business or profession the company or any of its director
or relative of such director has substantial interest.
●Any other company carrying on business or profession in which the
aforesaid company has substantial interest.
A Firm ●Partner of the firm or relative of partner
●A person in whose business or profession the firm or any of its partner or
relative of such partner has substantial interest.
An AOP ●A member of the Association or a relative of the member.

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●A person in whose business or profession the AOP or any of its member or
relative of such member has substantial interest.

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An HUF ●A member of the family or relative of such person
●A person in whose business or profession the HUF or any of its member or
relative of such member has substantial interest.

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➢ Where an assessee sells his goods at a lower rate, there is no expenditure incurred by him,
hence sec. 40A(2) shall not be invoked.

Sec. 40A(3)/(3A) - Consequences of payment exceeding Rs. 10,000/- otherwise than by

account payee cheque or demand draft
 Applicability:

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➢ 100% of any expenditure in respect of which payment has been made in excess of specified
amount in a day otherwise than by an account payee cheque or account payee bank draft
or use of electronic clearing system through a bank account is disallowed.
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Case specified amount
Payment made for plying, hiring, or Rs. 35,000
leasing goods carriages
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Payment made for other expenses Rs.10,000

➢ Cash payment made in excess of above limits shall be deemed to be income of the
subsequent year if expense has been allowed as deduction in any PY on due basis.
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 This provision is not applicable in the following cases ;

➢ If an assessee makes payment of two different bills (none of them exceeds Rs 10,000 /Rs.
35,000) at the same time in cash to the same person.
➢ If an assessee makes payment of a single bill (exceeding Rs. 10,000 / Rs. 35,000) on
different days to the same person in cash, this provision is not attracted, provided any of
the payment does not exceed the limit.
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➢ Where payment is made over Rs. 10,000 (or Rs. 35,000) at a time, partly by account payee
cheque & partly in cash but the payment in cash alone at one time does not exceed
Rs.10,000 (or Rs. 35,000).
➢ Loan transactions – Because advancing of loan and repayment of principal amount is not
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an expenditure
➢ Payment to a commission agent – because cost of goods received on consignment basis is
not an expenditure.
➢ The provision of sec. 40A(3) is attracted only when such expenditure is claimed as
deduction u/s 30 to 37.

 Exceptions [Rule 6DD]

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 Under the following circumstances, provision of Sec.40A(3) is not attracted even if the payment
is in excess of Rs.10,000 (or Rs.35,000) has been made through cash
(a) Where the payment is made to—
● The RBI or any banking company
● The SBI or any subsidiary bank
● Any co-operative bank or land mortgage bank.
● Any primary agricultural credit society or any primary credit society
● The Life Insurance Corporation of India

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(b) Where the payment is made to the Government and, under the rules framed by it, such
payment is required to be made in legal tender.

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(c) Where the payment is made by—
● Any letter of credit arrangements through a bank.
● A mail or telegraphic transfer through a bank.

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● A book adjustment from any account in a bank to any other account in that or any other
bank.
● A bill of exchange made payable only to a bank.
● The use of electronic clearing system through a bank account.

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● A credit card or debit card
(d) Where the payment is made by way of adjustment against the amount of any liability incurred
by the payee for any goods supplied or services rendered by the assessee to such payee i.e., Book
Adjustment.
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(e) Where the payment is made for the purchase of the following to the cultivator, grower, or
producer of such articles, produce or products;
● Agricultural or forest produce; or
● The produce of animal husbandry (including livestock, meat, hides and skins) or dairy or
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poultry farming; or
● Fish or fish products; or
● The products of horticulture or apiculture,
(f) Where the payment is made for the purchase of the products manufactured or processed
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without the aid of power in a cottage industry, to the producer of such products.
(g) Where the payment is made in a village or town, which on the date of such payment is not
served by any bank, to any person who ordinarily resides, or is carrying on any business,
profession, or vocation, in any such village or town;
(h) Where any payment is made to an employee of the assessee or the heir of any such employee,
on or in connection with the retirement, retrenchment, resignation, discharge, or death of such
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employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the
aggregate of such sums payable to the employee or his heir does not exceed Rs. 50,000.
(i) Where the payment is made by an assessee by way of salary to his employee after deducting
the income-tax from salary in accordance with the provisions of section 192 of the Act, and when
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such employee -
●is temporarily posted for a continuous period of 15 days or more in a place other than his
normal place of duty or on a ship: and
●does not maintain any account in any bank at such place or ship.
(j) Omitted
(k) Where the payment is made by any person to his agent who is required to make payment in
cash for goods or services on behalf of such person.

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 (l) Where the payment is made by an authorised dealer or a money changer against purchase of
foreign currency or travellers’ cheques in the normal course of his business.

Sec. 40A(7)- Provision for gratuity

No deduction shall be allowed in respect of any provision (by whatever name called) made by the
assessee for the payment of gratuity to his employees.
Exceptions: Any provision made by the assessee for the purpose of payment of a sum
● by way of any contribution towards an approved gratuity fund; or

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● for the purpose of payment of any gratuity, that has become payable during the previous year.
- shall be allowed as deduction.

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Sec. 40A(9) - Certain contributions not deductible
No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards

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setting up or formation of, or as contribution to, any fund, trust, company, AOP, BOI, society or
other institution for any purpose.
Exception:
●Where such sum is paid by way of contribution towards approved superannuation fund,
recognised provident fund, approved gratuity fund, NPS as per the requirements under any law,

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then such sum is allowed.
●Contribution to unrecognized provident fund is disallowed.
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Sec 41 - Deemed profit chargeable to tax as business income
The following receipts are chargeable to tax as business income even if the business to which such
receipt is related is not in existence during the previous year.
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Section Contents
41(1) Recovery against any deduction
41(2) Balancing charge
41(3) Sale of asset used for scientific research
41(4) Recovery of Bad debts
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41(5) Brought forward losses of defunct business

41(1) - The pre-requisite for the application of this section is that an allowance or deduction must
have been made previously while computing the taxable income . Later where such expense is
recovered or any benefit is accrued due to the liability, it shall be taxed in such PY.
Where benefit has been obtained by the successor in business, such benefit shall be taxable in
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hands of successor.

41(5) – In cases where a receipt is deemed to be profit of business u/s 41, relating to a business
which ceased to exist and there are unabsorbed losses (not being speculation loss) which arouse
in that business during the PY in which it ceases to exist, it would be set off against income which
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is chargeable under this section.

Sec. 43A- Consequence of changes in rate of exchange of currency

 Conditions
1. Assessee has imported an asset.

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 2. In consequence of a change in the rate of exchange during any PY after the acquisition of such
asset, there is an increase or reduction in the liability (as compared to the liability existing at the
time of acquisition of the asset) at the time of making payment -
a. towards the whole or a part of the cost of the asset; or
b. towards repayment of the whole or a part of the moneys borrowed by him from any person,
directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset
along with interest.

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 Tax Treatment
The amount by which such liability is increased or reduced at the time of making the payment

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(irrespective of the method of accounting adopted by the assessee) shall be added to or deducted
from the actual cost (as reduced by depreciation already claimed) of the asset.

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 Points to remember
● If such increase or decrease arises after the depreciable asset is transferred (but block
exists), then such increase or decrease shall be adjusted in the WDV. If, however block cease to
exist, then such amount shall be treated as capital receipt or expense.
● Where the whole or any part of the liability aforesaid is met, directly or indirectly, by any

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other person or authority, the liability so met shall not be taken into account for the purposes
of this section.
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Sec. 43B - Expenditures allowed on cash basis
 Applicability
Deduction in respect of following expenses are allowed
● only if payment is made
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● on or before the due date for furnishing return of income u/s 139(1) of the PY in which such
liability is incurred
1. Any tax, duty, cess, fee, by whatever name called, under any law for the time being in force.
2. Bonus or commission to employees.
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3. Interest on loan or borrowing from any

➢ Public financial institutions (i.e., IFCI, LIC, etc.); or
➢ State financial corporation; or
➢ State industrial investment corporation.
➢ deposit taking non-banking financial company or
➢ systemically important non-deposit taking non-banking financial company (NBFC not
accepting/holding public deposits and having total assets of ≮ Rs. 500 crores as per last
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audited Balance sheet and is also registered with RBI)

4. Interest on any loans and advances from a scheduled bank or a co-operative bank other than
a primary agricultural credit society or a primary co-operative agricultural and rural
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development bank.
5. Salary in lieu of any leave (i.e., leave encashment).
6. Employer’s Contribution to any provident fund, superannuation fund, gratuity fund or any
other fund for the welfare of employees.
7. Any sum payable to the Indian Railways for the use of railway assets.

 Points to remember :
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 1. Deduction can, however, be claimed in the year of payment.
2. Where outstanding interest on loan (taken from Banks, PFIs, etc.) is converted into loan or
borrowing or debenture or any other instrument by which the liability to pay is deferred to a
future date then such interest is not deemed as interest paid.
3. As per sec. 36(1)(va), any sum received by an employer from his employees as contribution
towards provident fund, superannuation fund, any other fund set up under the provision of the
ESI Act, 1948 or any other fund for the welfare of such employees, is treated as an income of the

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employer. Subsequently, when such sum is credited by the employer to the employee’s account
in the relevant fund on or before the due date of crediting such contribution prescribed under the

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relevant Act, then deduction is allowed. If such contribution is not deposited within time allowed
as per the provisions of the relevant Act, the deduction shall never be allowed.

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Sec 43CA – Stamp duty value of land and building to be taken as the full value of
consideration in respect of transfer, even if the same are held by the transferor as stock in
trade.
 Applicability

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➢ where in respect of transfer of an asset (other than capital asset), being land or building or
both,
The stamp duty value > 110% of the consideration, then,
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Full value of the consideration = the stamp duty value for the purposes of computing income
under the head PGBP.
➢ In case of transfer of an asset, being a residential unit,
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The stamp duty value > 120% of the consideration, then,
Full value of the consideration = the stamp duty value for the purposes of computing income
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Conditions for 120% of

consideration
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Transfer of residential
unit takes place during
the period between
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The consideration
Such transfer is by way of
received or
first time allotment of the accruing as a

residential unit to any result of such

12.11.2020 and person
30.06.2021 transfer ≤ Rs. 2
crores

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 "Residential unit" means an independent housing unit with separate facilities for living,
cooking, and sanitary requirement, distinctly separated from other residential units within
the building, which is directly accessible from an outer door or through an interior door in a
shared hallway and not by walking through the living space of another household

 Date of stamp duty value:

➢ Where the date of the agreement and the date of registration are not the same -
➢ Full value consideration = Stamp duty value on the date of agreement if following

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conditions are satisfied:
• Whole or part of consideration is paid

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• By any mode other than cash
• On or before the date of agreement.
 Reference to Valuation Officer

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➢ The Assessing Officer can refer the case to the Valuation Officer if following conditions are
satisfied:
• Assessee claims that the value adopted or assessed by Stamp Valuation authority
exceeds the FMV of the property as on the date of transfer; &

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• The value so adopted or assessed or has not been disputed in any appeal or revision or
no reference has been made before any other authority, court, or the High Court.
 Consequences where the value is determined by the Valuation Officer
➢ sale consideration of the asset shall be taken as minimum of the following –
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• Value adopted or assessed or assessable for the purpose of stamp duty;
• Value determined by the Valuation Officer.
Sec 44AA – Maintenance of books of accounts
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Maintenance of books of accounts

(Sec 44AA)
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Who should Where should How long

What books
maintain they be should they be
should be
maintained retained
maintained
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1.Assessees carrying
on specified Place where the
professions assessee is carrying on Should be
Mentioned in business or maintained for a
2. Assessees carrying profession. minimum of 6
on business or other below chart
years from the
If there is more than
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professions end of relevant

one place then he can
(both are subject to AY
maintain either at
threshold limits each such place or the
mentioned below) principal place of
3. Presumptive income business
cases (if income
declared lesser -
discussed below)

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 Who should maintain
books of accounts

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Persons carrying Others (ie. assessees Assessees following

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on Specified carrying on any business Presemptive income
professions as or any other profession)
defined u/s 44AA

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Individuals / Others
If Gross HUF
receipts Gross
exceeds receipts

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1,50,000 in does not Assesse
ALL of the exceed An assessee who
1,50,000 in If profits from declares
3 years If profits from (covered
any one of such exceeds profit u/s
immediately such busin./ u/s 44ADA,
the 3 years Rs. 2,50,000 44AE, 44BB 44AD but
Or profes. exceeds
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preceding immediately or 44BBB) declares
preceding Rs. 1,20,000 Or
the PY. Turnover/ Turnover/ who claims lower
the PY gross receipts gross receipts income to profit
exceeds Rs. exceeds Rs. 10 be lower (than the
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25 lacs lacs in ANY of than the specified
in any of the the 3 years deemed limit) in
Maintain income any 5
such books 3 years immeidately
immeidately preceeding the computed succeeding
of accounts in AYs
and other preceeding PY
the PY accordance
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documents with
as may be
prescribed the
in rule 6F respective
Maintain such books sections.
of accounts and
couments as may
enable to AO to
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compute total income

1F

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 Books to be maintained as per Rule 6F

• Cash book; Ledger

• Journal, if mercantile system of accounting is followed

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• Carbon copies of machine numbered bills, exceeding Rs.25, issued by the
person and

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• Original bills wherever issued to the person and receipts in respect of
expenditure incurred by the person or, where such bills and receipts are
not issued, and expenditure incurred does not exceed Rs. 50, payment

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vouchers prepared and signed by the person.
Assessee engaged in medical profession are required to maintain two more
books
• Daily Case Register in Form 3C.

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• Inventory records of drugs, medicines and other consumable accessories
used in the profession.
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Specified profession -
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1. Legal 2. Medical, 3.Engineering, 4. Architectural profession
5. Profession of accountancy, 6. Technical consultancy, 7. Interior decoration, 8.
Information technology, 9. Company secretary, 10. Authorised representative, 11.
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Film artist OR
• Any other profession as is notified by the Board in the Official Gazette
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 Sec 44AB – Tax audit

Assessees required to get their accounts audited by a CA

and to furnish audit report in a specified form
(3CA/3CD/3CB) on or before due date of furnishing return

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An assessee An assessee An assessee
carrying on An assessee
carrying on covered u/s

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business covered u/s
profession 44ADA and
44AE
44AD (4)

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Total sales,
Gross receipts Assessee has Assessee has
turnover or
of profession claimed that claimed that
gross-receipts
for the his income his income is
of business for
previous year from such lower than the
the previous
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exceeds Rs. 50 business is presumptive
year exceeds
lacs. lower than the income and his
Rs.1 crore.
deemed income exceeds
In
income Basic
computed in exemption
accordance limit
with the
respective
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section.
➢ In case of person carrying business [aggregate cash receipts (incl. sales, turnover, gross
receipts)/payments (incl. amount incurred for expenditure) in the relevant P.Y does not exceed
5% of total receipt or payments respectively] => Total sales, turnover or gross receipts of
exceeds Rs. 10 crores for relevant P.Y.
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➢ Where the accounts are required to be audited under any other law before the specified date, it
would be sufficient if such audit is carried on and the said report is furnished within the due
date.
➢ This section does not apply to persons who declare income on presumptive basis u/s 44AD and
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his total sales or gross receipts does not exceed 2 crores.

➢ In case of 44AD, books of accounts are required to be maintained if the assessee opts out of the
scheme and declares a lower income.
➢ In case of any violation, provisions of sec 271B applies.

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 Particulars Sec 44AD Sec 44ADA Sec 44AE
Eligible ➢ Resident individual, HUF or Assessee being An assessee owning
assessee Partnership firm engaged in individual or a not more than 10
eligible business and who partnership firm goods carriages at any
has not claimed deduction other than LLP is time during the
under section 10AA or engaged in profession P.Y.
Chapter VIA under “C– referred u/s 44AA(1),
Deductions in respect of namely, legal,

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certain incomes” medical, engineering,
➢ Non-applicability of section architecture or

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44AD in respect of the Profession of
following persons: accountancy or
1. LLP technical consultancy

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2. A person carrying on or interior decoration
profession specified u/s or notified profession
44AA(1) (authorized
3. A person earning income in representative, film
the nature of Commision or artist, company

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brokerage secretary, profession
4. A person carrying on any of information
agency business. technology)
Eligible Any business, other than Any profession Business of plying,
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business/ business referred to in section specified under sec. hiring or leasing
profession 44AE, whose total turnover/ 44AA(1), whose Goods carriage
gross receipts in the P.Y. ≤ Rs. total gross receipts
200 lakhs ≤ Rs. 50 lacs in the
In
relevant P.Y.
Presumptive ➢ 8% of total turnover/ 50% of total gross For each heavy goods
income sales/ gross receipts or a receipts of such vehicle
sum higher than the profession or a sum Rs. 1,000 per ton of
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aforesaid sum claimed to higher than the gross vehicle weight

have been earned by the aforesaid sum or unladen weight, as
assessee. claimed to have the case may be, for
➢ 6% of total turnover/ gross been earned by the every month or part
receipts in respect of the assessee. of a month and
amount of total turnover/ For other than heavy
sales/ gross receipts
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goods vehicle,
received by A/c payee Rs. 7,500 per month
cheque/ bank draft/ ECS / or part of a month
prescribed electronic mode during which such
during the P.Y. or before due vehicle is owned by
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date of filing of return u/s the assessee or an

139(1) in respect of that amount claimed to
P.Y. have been actually
earned from such
vehicle, whichever is
higher.

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 Relief from maintenance of books of accounts and audit : - Assessees opting for presumptive
scheme are not required to maintain books of accounts under 44AA and get it audited u/s 44AB.
This relives them from compliance and administrative burden.
Requirement After declaring profits on If the assessee claims If the assessee claims
of presumptive basis u/s 44AD, his profits to be lower his profits to be lower
maintenance say, for A.Y.2019-20, non- than profits than profits computed
of books u/s declaration of profits on computed by by applying
44AA and presumptive basis for any of applying presumptive rate, he

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audit u/s the 5 successive A.Y.s presumptive rate, he has to comply with sec
44AB thereafter (i.e., from A.Y.2020- has to comply with 44AA and 44AB .

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21 to A.Y.2024-25), say, for sec 44AA and 44AB if
A.Y. 2021-22, would disentitle his total income
the assessee from claiming exceeds basic

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profits on presumptive basis exemption limit.
for 5 successive AYs
subsequent to the AY relevant
to the PY of such non
declaration (ie from AY 2022-

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23 to 2026-27). In such a case
the assessee is subject to both
Sec.44AA and 44AB if his total
income exceeds basic
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exemption limit.
Declaration of The assessee can declare a higher amount than the presumptive income in his
higher income return.
Deduction u/s ➢ Deduction allowed u/s 30 to 38 shall be deemed to have been given full
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30 to 38 effect to and no further deduction shall be allowed.
➢ Even in case of firm, salary and interest paid to partners is not deductible.
However, in case of sec 40AE, it is subject to limit specified in sec 40(b)
WDV of asset WDV of any asset of an eligible business/ profession shall be deemed to have
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been calculated as if the eligible assessee had claimed and had been actually
allowed depreciation for each of the relevant assessment years
Advance tax Such assesses are required to pay advance tax by 15th March of the financial year.
(i.e., only one instalment)
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 Rates of depreciation
(for income-tax)
Block of assets

TANGIBLE ASSETS

I. BUILDING

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(1) Buildings which are used mainly for residential purposes except hotels 5
and boarding houses

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(2) Buildings other than those used mainly for residential purposes and not 10
covered by sub-items (1) above and (3) below

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(3) Buildings acquired on or after the 1st day of September, 2002 for 40
installing machinery and plant forming part of water supply project or
water treatment system and which is put to use for the purpose of
business of providing infra- structure facilities under clause (i) of sub-
section (4) of section 80-IA

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(4) Purely temporary erections such as wooden structures

II. FURNITURE AND FITTINGS

40
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Furniture and fittings including electrical fittings 10

III. MACHINERY AND PLANT

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(1) (i) Motor cars, other than those used in a business of running them on 30
hire, acquired on or after the 23rd day of August, 2019 but before the 31st
day of March, 2020 and is put to use before the 31st day of March, 2020.

(ii) Motor cars, other than those used in a business of running them on hire, 15
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acquired or put to use on or after the 1st day of April, 1990 except those
covered under entry (i);

(2) (i) Motor buses, motor lorries and motor taxis used in a business of 45
running them on hire, acquired on or after the 23rd day of August, 2019
but before the 1st day of April, 2020 and is put to use before the 1st day
of April, 2020.
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(ii) Motor buses, motor lorries and motor taxis used in a business of 30
running them on hire other than those covered under entry (1).

(3) Moulds used in rubber and plastic goods factories 30

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(4) Aeroplanes - Aeroengines 40

(5) Specified Air pollution control equipment, Water pollution control 40

equipment, Solid waste control equipment and Sold waste recycling and
resource recovery system

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 (6) Plant and machinery used in Semi-conductor industry covering all 30
Integrated circuits (Ics)

(7) Life-saving medical equipment 40

(8) Machinery and plant, acquired and installed on or after the 1st day of 40
September, 2002 in a water supply project or a water treatment system
and which is put to use for the purpose of business of providing

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infrastructure facility under clause (i) of sub-section (4) of section 80-IA

(9) Oil wells 15

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(10) Renewal energy saving devices (as specified) 40

(i) Windmills and any specially designed devices which run on wind- 40

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mills installed on or after April 1, 2014

(ii) Any special devices including electric generators and pumps running 40
on wind energy installed on or after April 1, 2014 would be eligible
for dereciation

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(iii) Windmills and any specially designed devices which run on wind-
mills installed on or before March 31, 2014 and any special devices
including electric generators and pumps running on wind energy
15
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installed on or before March 31, 2014

(11) Computers including computer software 40

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(12) Books (annual publications or other than annual publications) owned by 40
assessees carrying on a profession
(13) Books owned by assessees carrying on business in running lending 40
libraries
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(14) Plant and Machinery [Generally rate] 15

IV. SHIPS
(1) Ocean-going ships including dredgers, tugs, barges, survey launches and 20
other similar ships used mainly for dredging purposes and fishing vessels
with wooden hull
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(2) Vessels ordinarily operating on inland waters, not covered by sub-item 20

(3) below

(3) Speed boats operating on inland waters 20

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INTANGIBLE ASSETS

Know-how, patents, copyrights, trademarks, licences, franchises or any other 25

business or commercial rights of similar nature, not being goodwill of business or
profession

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 PROFITS & GAINS OF BUSINESS OR PROFESSION - ILLUSTRATIONS

Problem 1

Mr. Ravi engaged in manufacturing business furnishes the following particulars: Opening WDV of

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Plant and Machinery = Rs. 30L

➢ New Plant and Machinery purchased and put to use on 8th June Rs. 20L

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➢ New Plant and Machinery purchased and put to use on 15th December Rs. 8L
➢ Computer acquired and installed in the office premises on 2nd January Rs. 3L

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Compute the amount of depreciation and additional depreciation as per the Income tax Act, 1961
(Assume that all the accounts were purchased by way of Account payee cheque).

Problem 2

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A newly qualified Chartered Accountant Mr. Neeraj commenced practice and has acquired the
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following Assets in his office during the financial year.

➢ At the cost shown against each item, Calculate the amount of depreciation can be claimed from
his professional Income (Assume that all the Assets are purchased by way of Account payee
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cheque).
Particulars Amount (Rs.)
Computer including Computer software 35,000
Date of Acquisition: 27th September
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Date it was put to use: 1st October

Computer UPS 8,500
Date of Acquisition: 2nd October
Date it was put to use: 8th October
Computer Printer 12,500
Date of Acquisition: 1st October
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Date it was put to use: 1st October

Books 13,000
Out of which, Annual Publications= Rs.12K)
Date of Acquisition: 1st April
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Date it was put to use: 1st April

Office furniture 3,00,000
(Acquired from a practicing CA)
Date of Acquisition: 1st April
Date it was put to use: 1st April
Laptop 43,000
Date of Acquisition: 26th September
Date it was put to use: 8th October
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 Problem 3

ABC Ltd. has a block of Assets carrying 15% rate of depreciation whose Written down value on 1st
April was Rs. 40L.

➢ It purchased another Asset (a second-hand Plant and Machinery) of the same block on 1st

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November for Rs is. 14.4L and put to use on the same day.
➢ ABC Ltd. was amalgamated with XYZ Ltd. with effect from the 1st January.

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(i) You are required to compute the depreciation allowable to ABC Ltd. and XYZ Ltd. for the

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previous year assuming the Assets were transferred to XYZ Ltd. at Rs. 60L.
(ii) Also assume that the Plant and Machinery were purchased by way of Account payee cheque.

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Problem 4

KSK Ltd, engaged in the business of generation of power, furnishes the following particulars
pertaining to PY 2022-23.
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Compute the depreciation allowable under section 32 for AY 2023-24 while computing its income
under the head Profits or Gains of Business or Profession.
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The company has opted for depreciation allowance on the basis of Written Down Value (WDV).

Assume that all assets were purchased by way of account payee cheques
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S.No Particulars Amount (Rs)

1 Opening WDV of P&M (15% block) as on 01.04.2022 (Purchase value Rs 5,78,000

8,00,000)
2 Purchase of second hand machinery (15% block) on 29.12.2022 for 2,00,000
business purposes
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3 Machinery Y (15% block) purchased and installed on 12.07.2022 for 8,00,000

power generation
4 Acquired and installed for use a new air pollution control equipment on 2,50,000
31.07.2022
5 New air conditioner purchased and installed in office premises on 3,00,000
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08.09.2022
6 New machinery Z (15% block) acquired and installed on 23.11.2022 for 3,25,000
generation of power
7 Old machinery X sold during the year (Purchase value Rs 4,80,000, WDV 3,10,000
as on 01.04.2022 – Rs 3,46,800)

Problem 5
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 Matrix Ltd furnishes the following particulars for the P.Y.2021-22.

➢ Compute the deduction allowable under section 35 for A.Y.2022-23, while computing its income
under the head “Profits and gains of business or profession”
Particulars Rs.
1. Amount paid to notified approved Indian Institute of Science, 1,00,000
Bangalore, for scientific research

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2. Amount paid to IIT, Delhi for an approved scientific research 2,50,000
program

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3. Amount paid to X Ltd., a company registered in India which has as 4,00,000
its main object scientific research and development, as is approved
by the prescribed authority
4. Expenditure incurred on in-house research and development

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facility as approved by the prescribed authority

(a) Revenue expenditure on scientific research 3,00,000

(b) Capital expenditure (including cost of acquisition of land 7,50,000

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Rs.5,00,000) on scientific research
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Problem 6

Mr. Amruth commenced operations of the businesses of setting up a warehousing facility for storage
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of food grains, sugar and edible oil on 1.4.2022.

➢ He incurred capital expenditure of Rs. 80 lakhs, Rs. 60 lakhs and Rs. 50 lakhs, respectively, on
purchase of land and building during the period January 2021 to March 2022 exclusively for the
above businesses and capitalized the same in its books of account as on 1st April 2022.
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➢ The cost of land included in the above figures is Rs. 50 lakhs, Rs. 40 lakhs and Rs. 30 lakhs,
respectively
➢ Further, during the P.Y.2022-23, he incurred capital expenditure of Rs. 20 lakhs, Rs. 15 lakhs &
Rs. 10 lakhs, respectively, for extension/ reconstruction of the building purchased and used
exclusively for the above businesses.
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➢ The profits from the business of setting up a warehousing facility for storage of food grains, sugar
and edible oil (before claiming deduction under Section-35AD and Section-32) for the A.Y. 2023-
24 is Rs. 16 lakhs, Rs. 14 lakhs and Rs. 31 lakhs, respectively.

(i) Compute the income under the head “Profits and gains of business or profession” for the
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A.Y.2023-24 and the loss to be carried forward, assuming that Mr. Amruth has fulfilled all the
conditions specified for claim of deduction under Section-35AD and has not claimed any
deduction under Chapter VI-A under the heading “C – Deductions in respect of certain
incomes”.
(ii) Also, assume in respect of expenditure incurred, the payments are made by account payee
cheque or use of ECS through bank account.

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 Problem 7

Atluri Ltd is a company having two units –

(i) Unit A-carries on specified business of setting up and operating a warehousing facility for storage
of sugar

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(ii) Unit B-carries on non- specified business of operating a warehousing facility for storage of edible
oil.

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➢ Unit A commenced operations on 1.4.2020 and it claimed deduction of Rs. 100 lacs incurred
on purchase of two buildings for Rs. 50 lacs each (for operating a warehousing facility for
storage of sugar) under Section-35AD for A.Y.2021-22.

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➢ However, in February 2022, Unit A transferred one of its buildings to Unit B.
Examine the tax implications of such transfer in the hands of Atluri Ltd.

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Problem 8

Sri Shakthi Ltd. contributes 20% of basic salary to the account of each employee under a pension
scheme referred to in Section-80CCD.
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➢ Dearness Allowance is 40% of basic salary and it forms part of pay of the employees.

(i) Compute the amount of deduction allowable under Section-36(1)(iva), if the basic salary of the
In
employees aggregate to Rs. 10 lakhs.
(ii) Would disallowance under Section-40A(9) be attracted, and if so, to what extent.
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Problem 9

Dafcore Ltd. credited the following amounts to the account of resident payees in the month of March
2023 without deduction of tax at source.

➢ What would be the consequence of non-deduction of tax at source by Dafcore Ltd. on these
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amounts during the financial year 2022-23, assuming that the resident payees in all the cases
mentioned below, have not paid the tax, if any, which was required to be deducted by Dafcore
Ltd.?
Particulars Amount (Rs.)
1F

(1) Salary to its employees 12,00,000

(2) Director’s remuneration 28,000

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 Problem 10

Hari Surya, an individual, carried on the business of purchase and sale of agricultural commodities
like paddy, wheat, etc.

➢ He borrowed loans from Andhra Pradesh State Financial Corporation (APSFC) and Indian Bank and
has not paid interest as detailed hereunder:
Particulars Amount(Rs)

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1. Andhra Pradesh State Financial Corporation (P.Y. 2021-22 & 2022-23) 15,00,000
2. Indian Bank (P.Y. 2022-23) 30,00,000

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TOTAL 45,00,000

➢ Both APSFC and Indian Bank, while restructuring the loan facilities of Hari Surya during the year

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2022-23, converted the above interest payable by Hari Surya to them as a loan repayable in 60
equal instalments.
➢ During the year ended 31.3.2023, Hari paid 5 instalments to APSFC and 3 instalments to Indian
Bank.

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➢ Hari claimed the entire interest of Rs. 45,00,000 as an expenditure while computing the income
from business of purchase and sale of agricultural commodities.
Discuss whether his claim is valid and if not, what is the amount of interest, if any, allowable.
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Problem 11
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Vikas is a person carrying on profession as film artist. His gross receipts from profession are as under:

Financial year Amount (Rs.)

2017-18 1,15,000
By

2018-19 1,80,000
2019-20 2,10,000

What is his obligation regarding maintenance of books of accounts for assessment year under
Section-44AA of Income-tax Act, 1961?
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Problem 12
Mr. Prakash engaged in retail trade, reports a turnover of Rs. 1,98,50,000 for the financial year 2022-
1F

23.

➢ His income from the said business as per books of account is Rs. 13,20,000 computed as per the
provisions of Chapter IV-D “Profits and gains from business or Profession” of the Income-tax Act,
1961. Retail trade is the only source of income for Mr. Prakash.
➢ A.Y. 2022-23 was the first year for which he declared his business income in accordance with the
provisions of presumptive taxation under Section-44AD.
1. Is Mr. Prakash eligible to opt for presumptive taxation scheme in respect of his income from
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 retail trade for the assessment year?
2. If so, determine his income from retail trade as per the applicable presumptive provision
assuming that whole of the turnover represents cash receipts.
3. In case Mr. Prakash does not opt for presumptive taxation of income from retail trade, what
are his obligations under the Income-tax Act, 1961?
4. What is the due date for filing his return of income under both the options?

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Problem 13

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Mr. Reddy commenced the business of operating goods vehicles on 1.4.2022.

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➢ He purchased the following vehicles during the P.Y.2022-23. Compute his income under Section-
44AE for A.Y.2023-24.
Gross Vehicle Weight (in Number Date of
kilograms) purchase

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(1) 7,000 2 10.04.2022
(2) 6,500 1 15.03.2023
(3) 10,000 3 16.07.2022
(4) 11,000 1 02.01.2023
(5) 15,000 2 29.08.2022
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(6) 15,000 1 23.02.2023
Total 10
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Problem 14

Compute the quantum of depreciation available under section 32 of the Income-tax Act, 1961 in
respect of the following items of Plant and Machinery purchased by PQR Textile Ltd., by paying
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through account payee cheque, which is engaged in the manufacture of textile fabrics, for the year
ended 31-3-2023:

(Rs. In crores)
1st
New machinery installed on May 84
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New Windmill purchased and installed on 18th June 22

Items purchased after 30th November (Others)

Lorries for transporting goods to sales depots 3
Fork-lift-trucks, used inside factory 4
Computers installed in office premises 1
Computers installed in factory 2
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 New imported machinery 12

➢ The new imported machinery arrived at Chennai port on 30-03-2023 and was installed on 3-4-
2024.
➢ All other items were installed during the year ended 31-3-2023.
➢ The company was newly started during the year.
Also, compute the WDV of the various blocks of assets as on 1.4.2023.

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Problem 15

The following is the Profit and Loss Account of Rahul for the year ended 31.3.2023. Compute his

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taxable income from business for that year:

Opening stock 15,00,000 Sales 1,07,00,000

Purchases 75,20,000 Closing stock 20,00,000
Wages 20,00,000 Gif from father 1,00,000

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Rent 60,000 Sale of car 1,70,000
Repairs of car 30,000 Income-tax refund
30,000
Wealth-tax paid 20,000
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Medical expenses 30,000
General expenses 1,10,000
Depreciation of car 30,000
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Advance income-tax paid 1,00,000
Profit for the year 16,00,000
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1,30,00,000 1,30,00,000

Following further information is given:

(i) Rahul carries on his business from rented premises half of which is used as his residence
(ii) Rahul bought a car during the year for 2,00,000. He charged 15% depreciation on the value of
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car. The car was sold during year for 1,70,000. The use of the car was 3/4th for the business and
1/4th for personal purposes.
(iii) Medical expenses were incurred during sickness of Rahul for his treatment
(iv) Wages include 60,000 on account of Rahul’s driver.
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Problem 16

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 R is Chartered Accountant and has prepared the following income and expenditure account for the
year ending 31.3.2023
Expenses Amount (Rs.) Income Amount (Rs.)

Office expenses 1,00,000 Audit fees 7,05,000

Employee’s salary 50,000 Gift from Father-in-Law 50,500
Tax Magazines 6,000 Dividend 80,000
Personal expenses 1,70,000 Profit on sale of investment

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Donation to N.D.F. Interest 5,000 Tax consultancy fees 64,500
on Professional 15,00,000

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Loan 7,000
Car expenses 1,33,000
Telephone expenses 20,000

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Net surplus 19,09,000
24,00,000 24,00,000

You are required to compute his professional income for the assessment year considering the
following points ---

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(a) Rs.10,000 domestic servant’s salary is included in employee’s salary.
(b) R is the owner of a building.
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• Its written down value is Rs.8,00,000 on 1.4.2022.
• The building is used for office.
Besides this, furniture costing Rs.3,00,000, whose WDV on 1.4.2022 is Rs.2,50,000 is used for
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profession.

Problem 17
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Rahul, who is carrying on a business whose accounts have been subject to tax audit regularly, submits
his profit & loss account for the year ending 31.3.2023.

Expenses Rs. Income Rs.

Office expenses 25,600 Gross profit 4,03,600
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Audit fees 32,000 Sundry receipt 11,000

Legal expenses 18,000 Customs duties recovered
Depreciation on Machinery 24,000 from the government (Earlier
not allowed as
Salary to staff Bonus to staff 84,000 deduction) 22,000
1F

45,000
Bad debts recovered 6,000
Contribution to an approved 24,000 (Earlier allowed as deduction)
Gratuity fund
Gift from son 30,000
Outstanding liability in 24,000

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 respect of excise duty General
expenses 36,000
Net Profit 1,60,000
4,72,600 4,72,600

Other relevant particulars:

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1. Bonus payable to employees according to the payment of Bonus Act, 1965, comes to Rs.40,000.
2. Depreciation on machinery shown in the Profit and Loss Account is calculated according to the

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income-tax provisions.
3. General expenses include payment of Rs.12,000 to an approved and notified education institute
for the purpose of carrying on research in social sciences. The research is, however, not related

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to the business of the assessee.
4. During the previous year, R also makes a capital expenditure of Rs.25,000 expenditure is,
however, not recorded in the Profit and Loss Account.
5. Outstanding liability in respect of excise duty is paid as follows: Rs.5,000 on 11.4.2023; Rs.3,000

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on 5.5.2023; Rs.6,000 on 30.6.2023 and the balance on 10.11.2023.
6. Audit fee of Rs.32,000 was credited on 31.3.2023. No tax has been deducted at source.

Compute his income from business for the assessment year 2023-24. Assume the due date of filing
return of income is 30th October.
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Problem 18

From the following Profit & Loss Account of Mr. Vinay Jain ascertain his income from business and
Gross Total Income for the assessment year
By

Particulars Rs. Particulars Rs.

To Salary (including 45,000 By Gross profit 1,22,000
proprietor’s salary) By bad debt recovered 2,000
To General expenses 5,000 (Not allowed earlier
To Advertisements 3,000 by Assessing Officer
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To Interest on proprietor’s 2,000 Due to lack of evidence)

capital
To Interest on bank loan 4,500 By Rent received 3,000
To Provision for bad debts 2,000 By Interest on fixed 1,000
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deposit in a bank
To Fire Insurance Premium (on 100
house)
To Depreciation 4,000
To Reserve for VAT 10,000
To Advance income-tax 2,000
To Donation to Central Library 1,000

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 To Corporation – tax on house 500
property
To Motor car expenses 1,000
To Wealth – tax paid 3,500
To Income-tax 4,000
To Stationery 1,900
To Net profit 38,500

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1,28,000 1,28,000

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Other information

a. General expenses include Rs.300 given to a poor student to enable him to pursue his studies.
b. Depreciation is in excess by Rs.1,500.

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c. Motor car expenses include Rs.300 for personal purposes.
d. Central library is an approved institution.
e. The proprietor draws Rs.500 p.m. by way of salary.

Problem 19

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Dr. J.L. Gupta is a renowned medical practitioner who maintains books of account on cash basis.
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The following is the “Receipts and Payments A/c” for the financial year 2020-21:
In
Receipts Amount Payments Amount

Balance b/d 44,000 Rent of clinic

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Consultation fees 2019-20 24,800

2019-20 5,000 2020-21 1,200

2020-21 1,35,000 Water & Electricity Bills 2,000

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Purchase of professional
Visiting fees 30,000 books 40,000
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Loan from bank 1,25,000 Household expenses 47,800

Collection charges for

Sale of medicines 60,000 dividend income 100

Gifts and presents 5,000 Motor car purchased 1,30,000

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 Royalties for articles Surgical equipment
published in journal 6,000 purchased 24,800

Dividend 10,000 Income-tax 7,000

Interest on Government

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securities 7,000 Office Expenses 3,000

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Salary to staff 15,000

Life Insurance Premium 15,000

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Gift to son 5,000

Interest on loan 11,000

Car expenses

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Purchase of medicines
15,000

40,000
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Balance c/d 45,300
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4,27,000 4,27,000
By

Compute his income from profession for the assessment year 2021-22 after taking into account the
following information:

(a) Books worth Rs. 25,000 were purchased on 15.5.2020, which were annual publications and the
balance on 5.2.2021 which were books other than annual publication.
(b) Car was purchased on 1.1.2021 and the surgical equipment on 4.9.2020.
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(c) It is estimated that 1/3 of the use of car is for his personal use.
(d) Gifts and presents include Rs.2,000 from patients in appreciation of his medical service and
Rs.3,000 received as birthday gifts.
(e) Opening and closing stock of medicines amounted to Rs.10,000 and Rs.6,000 respectively.
1F

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 CHAPTER 8 - INCOME FROM OTHER SOURCES

(Residuary head)

Overview

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Sec 57 Sec 58 Sec 145
Sec 56 Sec 59
Deductions Deductions not Method of
Charging section Deemed income
allowed allowed accounting

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Sec.56 – Income chargeable under this head

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Sec. Income
56(2)(i) Dividend - Includes dividend defined u/s 2(22)(a) to (e)
56(2)(ib) Casual income - winnings from lotteries, cross- word puzzles, races including

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horse races, card games and other games of any sort, gambling, betting etc.
56(2)(viib) Consideration received in excess of FMV of shares issued by a closely held
company to be treated as income of such company, where shares are issued at a
premium.
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56(2)(viii) Interest received on compensation/enhanced compensation.
➢ Taxed on receipt basis (irrespective of method of accounting followed by
the assessee)
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56(2)(ix) Advance money forfeited – due to failure of negotiations for transfer of a capital
asset
56(2)(x) Any sum of money or value of property received without consideration or for
inadequate consideration
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56(2)(xi) Compensation or any other payment received in connection with termination of

his employment.
Includes compensation for the modification of the terms and conditions relating
thereto.
Income, if ➢ Any sum received by an employer from his employees as contributions to
not any provident fund, superannuation fund or any other fund for the welfare
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chargeable of the employees.

under the ➢ Interest on securities
head (Includes, Interest from Non-SLR Securities of Bank as per Circular No. 18,
“Profits dated 2.11.2015)
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and gains
of business ➢ Income from letting out on hire of machinery plant or furniture.
or ➢ Where letting out of buildings is inseparable from the letting out of
profession” machinery, plant or furniture, the income from such letting.
➢ Keyman insurance policy including bonus on such policy.
(if such sum is received by any person other than the employer who took the
policy and the employee in whose name the policy was taken)
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 Any income chargeable to tax under the Act, but not falling under any other head
of income
Residual Any income which is not chargeable under any other income. For eg.
income ➢ Salaries of MPs and MLAs
➢ Income from sub-letting
➢ Income from vacant plot

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Points to remember regarding casual income

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1. Taxed at a flat rate of 30% + surcharge + cess under section 115BB.
2. Expenses not allowed – except in case of owning & maintaining racehorses.
3. No chapter VIA deductions.

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4. No benefit of basic exemption limit
5. Taxed under this head even if the assessee deriving such income claims to carry on any
trade/business.
6. Losses cannot be set off except loss from owning & maintaining racehorses.
7. Income of Jockey& winning from motor car rally – taxed as professional income – as it
calls for skill.

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8. Lottery held as stock – taxed as business income – incidental to business.
9. Grossed up in case TDS is deducted.
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Sec. 2(22)(a) to (e) – Deemed Dividend
Sec.2(22)(a) Distribution of accumulated profits, entailing the release of company’s assets.
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➢ Whether accumulated profits are capitalised or not.
➢ For example, if accumulated profits are distributed in cash - it is dividend
in the hands of the shareholders.
➢ Where it is distributed in kind, for example by delivery of shares etc.
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entailing the release of company’s assets, the market value of such shares
on the date of such distribution is deemed as dividend in the hands of the
shareholder.
Sec.2(22)(b) Distribution of debentures, deposit certificates to shareholders and bonus shares
to preference shareholders
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➢ Distribution to the extent of accumulated profits Whether capitalised or

not
➢ Bonus shares given to equity shareholders are not treated as dividend.
➢ Value of debentures, debenture stock etc. = market rate
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➢ And if there is no market rate - then valued according to accepted

principles of valuation
Sec.2(22)(c) Distribution on liquidation –
➢ To the extent accumulated profits of the company immediately before its
liquidation, whether capitalised or not.

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 ➢ Distribution after the date of the liquidation is not considered as dividend.
Sec.2(22)(d) Distribution on reduction of capital - to the extent accumulated profits -
Whether capitalised or not
Sec.2(22)(e) Advance or loan by a closely held company to its shareholder or to a specified
concern.
Conditions -

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➢ Advance / loan given by Private limited company.
➢ Shareholder - who is the beneficial owner of 10% or more of the equity

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capital.
➢ Specified concern - (i.e., HUF/ Firm/ AOP/ BOI/ Company) – in which such
shareholder has substantial interest.

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➢ To the extent accumulated profits
➢ No exemption even if the loan is repaid before the end of the year.
Exceptions –

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➢ Loan is granted in the ordinary course of its business.
➢ Where a loan had been treated as dividend and subsequently, the
company declares and distributes dividend and the dividend so paid is set
off by the company against the previous borrowing, the adjusted amount
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will not be again treated as a dividend.
➢ Trade advances in the nature of commercial transactions.
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General exceptions to above rule
➢ Purchase of its own shares by the company
➢ Any distribution of shares on demerger by the resulting companies to the shareholders
of the demerged company
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Accumulated profits –
In case of company not Up to the date of distribution or payment .
in liquidation
In case of company in Up to the date of liquidation
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liquidation
In case liquidation is Shall not include any profits of the company prior to the 3
consequent to the successive previous years immediately preceding the
compulsory acquisition previous year in which such acquisition took place
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In case of 2(22)(e) Up to the date of grant of such loan or advance

Trade advance not to be treated as deemed dividend under
section 2(22)(e) [Circular No. 19/2017, dated 12.06.2017]
− Dividend include any sum paid by a company in which
public are not substantially interested by way of
advance or loan to Shareholders.

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 Year in which it is
Normal dividend
declared

Basis of charge Year in which it is

Interim dividend
(sec 8) made available

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Year in which it is
Deemed dividend
distributed /paid

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 If dividend is declared before 31st March 2020 on which the company is liable to pay
Dividend Distribution Tax and is paid on or after 1st April 2020, the dividend would be

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exempt u/s 10(34)

Sec. 56(2)(viib) - Share premium in excess of fair market value of shares

the public are substantially interested.

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1. Company, receiving, any consideration for issue of shares is not being a company in which

2. Such consideration is received from a resident person.

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3. Such shares are being issued at premium (ie. above face value)
4. Taxable amount = Consideration – FMV of such shares
5. Taxed in the hands of recipient company.
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6. The provision is not applicable when shares are issued at par or at discount even
though issue price of such shares exceeds the fair market value.
7. The provision is not applicable if such company is converted into a company in
which the public are substantially interested during the previous year itself after
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issuance of shares.
8. For the purpose of computation of FMV, the value of assets would include the value of
intangible assets being goodwill, know-how, patents, etc.
9. Exceptions: - consideration for issue of shares is received:
(1) by a Venture Capital Undertaking (VCU) from a Venture Capital Fund (VCF) or
Venture Capital Company (VCC); specified fund or
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(2) by a company from a class or classes of persons as notified by the Central

Government for this purpose. On failure of fulfilling conditions, the company
shall be deemed to have under-reported, and it shall be deemed to be income
in such year of non-fulfilment of conditions.
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 56(2)(ix) – Advance money forfeited

Advance forfeited

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Before 1.4.2014 On or After 1.4.2014

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Sec.51

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Sec 56(2)(ix)
Amount forfeited is deducted
Amount forfeited is taxed
from Cost of acquition under
under Other sources
capital gains

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Taxed in the year of transfer Taxed in the year of
forfeiture
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Sec 56(2)(x) – Gifts
Nature of asset Consideration Taxable value
In
Money Exceeding Rs.50,000. The whole amount if the same exceeds
Rs.50,000.
Movable Without consideration The aggregate fair market value of the
property property, if it exceeds Rs.50,000.
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Inadequate consideration The difference between the aggregate fair

market value and the consideration, if such
difference exceeds Rs.50,000.
Immovable Without consideration The stamp value of the property, if it exceeds
property Rs. 50,000.
Inadequate consideration The difference between the stamp duty value
and the consideration if such difference is
IN

more than the higher of Rs. 50,000 and 10%

of consideration.
In case of transfer of residential unit held as stock in trade by the seller, a higher threshold
limit of 20% of stamp duty value under Section 43CA [For seller] and Section 56(2)(x) [For
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Buyer]. However, the transfer should be by way of first-time allotment of residential unit and
consideration is ≤ 2 Crores. The residential unit is transferred during the period between
12.11.2020 and 30.06.2021
If the stamp duty value of immovable property is disputed by the assessee, the AO may refer
to valuation of such property to a valuation officer.

Gifts received in the following circumstances is not taxable u/s 56(2)(x)

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 (a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be; or
(e) from any local authority; or
(f) from any fund or foundation or university or other educational institution or hospital

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or other medical institution or any trust or institution; or
(g) from or by any trust or institution registered; or

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(h) by any fund or trust or institution or any university or other educational institution or
any hospital or other medical institution.
(i) by way of transaction not regarded as transfer under section 47(i)/(iv)/ (v)/

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(vi)/(vib)/(vid)/(vii).
Transfer of money or property between a holding company and its wholly owned
Indian subsidiary company or between a subsidiary company and its 100% Indian
holding company, shall not be subject to tax by virtue of the provisions contained in

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section 56(2)(x).
(j) from an individual by a trust created or established solely for the benefit of relative of
the individual.
(k) by an individual, from any person, in respect of any expenditure actually incurred by
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him on his medical treatment or treatment of any member of his family, for any illness
related to COVID-19 subject to such conditions, as the Central Government may, by
notification in the Official Gazette, specify in this behalf
In
(l) by a member of the family of a deceased person—
(A) from the employer of the deceased person; or
(B) from any other person or persons to the extent that such sum or aggregate of such
sums does not exceed ten lakh rupees,
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where the cause of death of such person is illness related to COVID-19 and the payment
is—
(i) received within twelve months from the date of death of such person; and
(ii) subject to such other conditions, as the Central Government may, by notification in
the Official Gazette, specify in this behalf.
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“Family", in relation to an individual, shall have the same meaning as assigned to it in Section
10(5)

Definition for the purpose of above section

1F

 Property - Capital asset being.

o Immovable property being land or building or both,
o Shares and securities,
o jewellery,
o Archaeological collections,
o Drawings,

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 o Paintings,
o Sculptures,
o Any work of art or
o Bullion.
Relative –
 In case of an individual
➢ Spouse,

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➢ Any lineal ascendant or descendant of the individual or spouse
➢ Siblings of the individual or spouse

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➢ brother or sister of either of the parents of the individual
➢ spouse of any of the persons referred above.
 In case of HUF – any member of family

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Sec. 57 – Allowable deductions
Sr.no Income Deductions

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1. Dividend (Mutual funds) or Interest Expense only - Up to 20% of such
Income in respect of units of income included in Total income for that year
Mutual funds/Specified company without deductions under this section
2. Dividend or Interest on securitiesAny reasonable sum paid by way of commission
or remuneration to a banker or any other person
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3. Contributions received by Amount remitted before the due date under the
employer from employees respective acts, as per sec.36(1)(va)
towards P.F./ Superannuation. /
In
Other funds
4. Income derived from letting of Current repairs, Insurance premium &
P&M and furniture Depreciation/unabsorbed depreciation
5. Family pension 1/3rd of the income or Rs.15,000, whichever is
less
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6. Interest on compensation or 50% of such income

enhanced compensation
7. Other Income Any other expenditure (not being in the nature
of capital expenditure) laid out or expended
wholly and exclusively for the purpose of making
or earning such income
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Sec.58 – Deductions not allowed

Sr.No. Deductions
1F

1. Personal expenses
2. Interest payable outside India and from which income tax has not been paid or
deducted at source.
3. Salaries payable outside India but on which tax has been paid or deducted there from
at source
4. 30% of payment made to a resident on which TDS is applicable but not deducted.

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 5. Disallowance u/s 40A –
Eg. 1. Payment to relative in excess of reasonable amount
2. Cash payment in excess of Rs.10,000 other than by account payee cheque/bank
draft or ECS through bank account or other electronic modes (Credit card, Debit
card, net banking, IMPS, UPI, RTGS, NEFT and BHIM Aadhar pay).
6. No deduction on casual income except from owning & maintaining racehorses.

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Sec.59 – Deemed income

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➢ Remission or cessation of a trading liability or receipt of any amount in respect of any loss
or expense allowed as deduction in any previous year will be deemed to be income for the
PY in which such remission or receipt take place.

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➢ Similar to sec 41(1)
➢ This holds good even in case of succession or remission.

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Sec.145 – Method of accounting
Income chargeable under this head is computed as per cash or mercantile system of accounting
regularly employed by the assessee.
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Exemptions relevant to this chapter:
➢ The family pension of such member in service received by
− any member of the family of such individual who has been awarded ‘Param Vir
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Chakra’ or ‘Vir chakra’ or other notified gallantry award. [Sec 10(18)(ii)]
− the widow or children or nominated heirs, of a member of the armed forces
(including para-military forces) [Sec 10(19)]
➢ Notified interest u/s 10(15)
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Interest income arising to certain persons exempt u/s 10(15)

➢ On Post Office Savings Bank Account be exempt up to Rs. 3,500(individual account) and Rs.
7,000(Joint account).
➢ On Securities held by Issue Dept. of Central bank of Ceylon (now Sri Lanka).
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➢ Payable to Nordic Investment Bank on loan advanced by it (as per Memorandum of

Understanding entered between CG and Bank on 25.11.86).
➢ Payable to European Investment bank on loan granted by it (as per framework agreement
for financial cooperation entered between CG and Bank on 25.11.1993).
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➢ Interest payable by Scheduled bank to Non-Resident/Non-Ordinarily Resident in India

Public sector companies on specified bonds and debentures Government of India on
deposits made by employee of CG/SG/PSU (Not applicable to non-Govt employees)
➢ On securities held by Welfare Commissioner, Bhopal Gas Victims in RBI a/c.
➢ On Gold Deposit Bond issued under Gold Deposit Scheme 1999/ deposit certificate issued
under the Gold Monetization Scheme, 2015.
➢ On bonds issues by a Local authority or a State Pooled Finance Entity.
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 ➢ From Offshore Banking Unit to Non-Resident/Non-Ordinarily Resident in India on deposits
made on or after 1.4.2005.
➢ Receivable by a NRI from a unit located in IFSC on money borrowed by it on or after
1.9.2019.

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In
By
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1F

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 INCOME FROM OTHER SOURCES – ADDITIONAL ILLUSTRATIONS

Illustration 1

Mr. A, a dealer in shares, received the following without consideration during the

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P.Y. 2020-21 from his friend Mr. B,

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• Cash gift of Rs.75,000 on his anniversary, 15thApril, 2020.
• Bullion, the fair market value of which was Rs.60,000, on his birthday, 19th June,2020.

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• A plot of land at Faridabad on 1stJuly, 2020, the stamp value of which is Rs.5lakh on
that date. Mr. B had purchased the land in April 2009.

Illustration 2

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Discuss the taxability or otherwise of the following in the hands of the recipient under
section 56(2)(x) the Income-tax Act, 1961 -
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• Akhil HUF received Rs.75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s
sister). Akhil is the Karta of the HUF.
• Nitisha, a member of her father’s HUF, transferred a house property to the HUF
In
without consideration. The stamp duty value of the house property is Rs.9,00,000.
• Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his
25th marriage anniversary. The fair market value on that date was Rs.100 per share.
He also received jewellery worth Rs.45,000 (FMV) from his nephew on the same day.
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• Kishan HUF gifted a car to son of Karta for achieving good marks in XII board
examination. The fair market value of the car is Rs. 5,25,000

Illustration 3
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Mr. Hari, a property dealer, sold a building in the course of his business to his friend
Rajesh, who is a dealer in automobile spare parts, for Rs. 90 lakhs on 1.1.2021, when the
stamp duty value was Rs.150 lakh.
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The agreement was, however, entered into on 1.9.2020 when the stamp duty value was
Rs.140 lakh. Mr. Hari had received a down payment of Rs.15 lakh by a crossed cheque
from Rajesh on the date of agreement.

Discuss the tax implications in the hands of Hari and Rajesh, assuming that Mr. Hari has
purchased the building for Rs.75 lakh on 12th July 2019.

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 Would your answer be different if Hari was a share broker instead of a property
dealer?

Illustration 4

Compute taxable income under the head Income from other sources of Mrs. X from the
following data:

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Particulars Amount

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Private tuition fee received 10,000
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000

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Pension from employer of deceased husband 25,000
Interest on bank deposit 25,000
Director’s fee (Gross) 5,000

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Letting out of vacant land 25,000
Remuneration for checking the examination copy of employer’s 10,000
school
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Remuneration for checking the examination copy of C.A 10,000 5,000
Income tax refund
Interest on income tax refund 100
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Composite rent (related expenditures are Rs. 5,000) 10,000
Income tax paid 2,000
Payment made for personal expenses 18,000
Payment made to LIC as premium 2,000
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Illustration 5

Shri Anil follows Cash basis of accounting and has furnished the Receipts & Payment
A/c of previous year 2020-21 for computing his income:
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Particulars Receipts (₹) Payments (₹)

Interest on listed debenture of A Ltd. 16,200

1F

Letting of building & machinery @ Rs.15,000 p.m.

under a composite lease 1,50,000

Collection charges 1,000

Repairs 5,000
Capital repairs 16,000

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 Interest paid outside India without deducting tax
on loan taken for construction of building 8,000

Gift from father 6,000

Ground rent received (related to financial year
600
2019-20)

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The following additional information are also provided –

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• Allowable depreciation on Building and Machinery – Rs.4,000
• Fire Insurance on Building and Machinery (not paid) - Rs.1,000.

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Illustration 6

Examine whether the following are chargeable to tax and the amount liable to tax.

•
his son’s marriage Praveen.
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Sum of Rs.1,20,000 was received as gift from a non-relative by Raj on the occasion of

Interest on enhanced compensation of Rs.96,000 received on 12th March 2021, for

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acquisition of urban land. Of which 40% relates to PY 2019-20.

Illustration 7
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Examine the following transactions in the context of Income-tax Act, 1961:

• Mr. B transferred 500 shares of R (P) Ltd. to M/s. B Co. (P) Ltd. on 10.10.2020 for Rs.
3,00,000 when the market price was Rs.5,00,000. The indexed cost of acquisition of
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shares for Mr. B was computed at Rs. 4,45,000. The transfer was not subjected to
securities transaction tax. Determine the income chargeable to tax in the hands of
Mr. B and M/s. B Co. (P) Ltd. because of the above said transaction.
• Mr. Chezian is employed in a company with taxable salary income of Rs. 5,00,000.
He received a cash gift of Rs.1,00,000 from Atma Charitable Trust (registered under
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section 12AB) in December 2020 for meeting his medical expenses. Is the cash gift
so received from the trust chargeable to tax in the hands of Mr. Chezian?
• Mrs. Hemali celebrated her daughter's wedding on 21.2.2021, her friend assigned in
Mrs. Hemali's favour, a fixed deposit held by the said friend in a scheduled bank; the
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value of the fixed deposit and the accrued interest on the said date was Rs. 52,000.
Is it Taxable in the hands of Mrs. Hemali?

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 CHAPTER 9 - INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL
INCOME

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Overview

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Sec 60 Sec 64
Transfer of income Sec 61 Income of Spouse,

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without transferring Revocable Transfer minor child and
assets son's wife

General points to remember

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➢ The income, which is to be clubbed, shall be first computed in the hands of recipient, all
expenditure related to such income shall be allowed as per the respective provisions of the
Act, and thereafter the net income shall be clubbed.
➢ Clubbing shall be made head wise.
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➢ If the clubbed income is eligible for deduction u/s 80C to 80U, then such deduction shall be
allowed to the assessee in whose hands such income is clubbed.
➢ Includes clubbing of negative income.
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➢ Clubbing provisions is mandatory and shall be applied even in those cases where the
application of such provision causes loss of revenue to the Income tax department.
➢ The credit of TDS shall be given to the person in whose hands the income is taxable.
➢ The advance tax paid by the income earner (say spouse or minor child) with reference to
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such income is not eligible for adjustment towards the tax liability of the individual in
whose hands such income has been clubbed. In such case, it is open to the payer of advance
tax to apply for refund of advance tax so paid.
➢ Sec. 65 empowers the income tax authorities to serve demand notice (in respect of tax of
clubbed income) upon transferee.
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Sec 60 – Transfer of income without transferring assets

➢ Where an income is transferred without transferring the asset yielding such income – Such
income is clubbed in the hands of the transferor.
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▪ whether the transfer is revocable or not; or

▪ whether the transaction is affected before or after the commencement of this Act.

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 Sec 61 – Income arising from Revocable transfer of assets
➢ If an assessee transfers an asset under a revocable transfer, then income generated from
such asset, shall be clubbed in the hands of the transferor.
➢ Transfer shall be deemed to be revocable if -
▪ It contains any provision for the retransfer (directly or indirectly) of any part or whole
of the income/assets to the transferor; or
▪ It, in any way, gives the transferor a right to re-assume power (directly or indirectly)

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over any part or whole of the income/assets.

➢ Sec 62 – Exceptions to the above rule

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➢ Sec. 61 shall not apply to an income arising to a person by virtue of
▪ A transfer by way of creation of a trust which is irrevocable during the lifetime of the

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beneficiary
▪ Any transfer which is irrevocable during the lifetime of the transferee
▪ Any transfer made before 1.4.61, which is not revocable for a period exceeding 6
years

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Sec. 64(1)(ii) - Remuneration to spouse
➢ Income of spouse by way of salary, commission, fees or any other remuneration (whether
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in cash or in kind) from a concern in which such assessee has substantial interest will be
included in the total income of the assesse.
➢ Any other income, which is not specified above is not clubbed.
In
➢ Income generated through technical or professional qualification of the spouse is not to be
clubbed in the total income of the individual.
➢ Where both, husband and wife, have substantial interest in a concern and both are drawing
remuneration from that concern without possessing any specific qualification.
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▪ Remuneration from such concern will be included in the total income of husband or
wife, whose total income excluding such remuneration, is higher
▪ In any subsequent years, such income cannot be included in the total income of the
other spouse without prior intimation by the Assessing officer and after giving an
opportunity of being heard to such spouse.
▪ If both are not having any other income, then income will not be clubbed.
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 Substantial interest

In case of a company In other cases

The individual beneficially holds not
less than 20% of its equity shares at
any time during the previous year. Such
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He is entitled to not less than 20% of
the profits of such concern at any
time during the previous year. Such

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share may be held by the assessee or share of profit may be held by the
partly by assessee and partly by one or assessee himself or together with his
more of his relatives. relatives.

➢ Relative here includes spouse, brother or sister or any lineal ascendant or descendant of
that individual [Sec. 2(41)].

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Sec. 64(1)(iv) - Income from asset transferred to spouse
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➢ Income arising from assets transferred to spouse without adequate consideration, shall be
included in the income of that individual.

➢ Clubbing provision shall not be attracted

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▪ When such transfer is for adequate consideration
▪ The transfer is under an agreement to live apart
▪ Where the asset transferred is house property (as such transfer will be governed by
Sec. 27)
▪ The relationship of husband and wife does not subsist either on the date of transfer of
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assets or on the date of accrual of income

▪ Income from assets acquired by spouse out of pin money or household savings

➢ Points to remember with regard to house property

▪ Where house property is transferred with adequate consideration & not in pursuance
to an agreement to live apart - Income generated from such property is clubbed in the
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hand of the transferor by virtue of sec 27

▪ When such asset is sold - Capital gain generated will be clubbed in the hand of the
transferor by virtue of sec 64 (1)(iv).
▪ When money is gifted and the spouse purchases house property from such amount -
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Income generated from such property is clubbed in the hand of the transferor by
virtue of sec 64(1)(iv)
➢ Asset transferred to spouse are invested in the business by the transferee, the
proportionate income/interest(contribution to capital) is clubbed in the hand of the
transferor. [Such proportion shall be computed on the invested value as on the first day
of the previous year.]

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 Sec. 64(1)(vii)] - Assets transferred to AOP or other person for the benefit of spouse
➢ In case an asset is transferred to another person or an AOP,
➢ otherwise, than for adequate consideration,
➢ for immediate or deferred benefit of spouse,
➢ then income on such asset shall be clubbed in the hands of the transferor

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Sec. 64(1)(vi) & (viii) - Income from assets transferred to son’s wife

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➢ Assets transferred to son’s wife (after 31.5.1973), without adequate consideration -
Income from such asset clubbed with the income of the transferor.
➢ Aforesaid relationship must subsist on the date of transfer of assets as well as on the date

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of accrual of income
➢ Asset is transferred to other person or an association of persons (after 31.5.1973),
without adequate consideration, for immediate or deferred benefit of son’s wife - then
income on asset so transferred shall be clubbed in the hands of the transferor.

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Sec. 64(1A) - Income of minor child

➢ All Income of a minor child shall be clubbed with income of the parent as follows:
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Case Clubbing
When marriage subsists Parent whose total income (excluding this income) is higher.
When marriage does not That parent who maintains the minor child in the previous
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subsist year
➢ Child includes a stepchild, adopted child and a minor married daughter
➢ When child attains majority and afterwards, it is taxable in the hands of the child itself.
➢ Once clubbing is done with that of one parent will continued to be clubbed with the same
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parent in subsequent years.( Can be clubbed with other parent, if approved by AO)

➢ Exceptions
The above clubbing provision shall not apply in the following cases -
▪ The income arises or accrues to the minor child due to any manual work done by him;
or
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▪ The income arises or accrues to the minor child due to his skill, talent, specialised
knowledge or experience; or
▪ The minor child is suffering from any disability of nature specified u/s 80U.

➢ Exemption [Sec. 10(32)] - The assessee (parent) can claim exemption of

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(i) Amount clubbed or (ii) Rs. 1500 => whichever is less

Sec. 64(2) - Conversion of self-acquired property into HUF property

➢ Asset was originally self-acquired property of the individual

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 ➢ Such asset is transferred directly or indirectly to HUF (in which he is member) for
inadequate consideration
Case Income to be clubbed in hands of transferor
Before partition The entire income from such property
After partition Income from the assets attributable to the spouse of transferor.

Common points to remember for all transfers

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➢ Consideration must be measurable in terms of money.

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➢ If property has been transferred for inadequate consideration then only the part of income
which is attributable to transfer for inadequate consideration, shall be clubbed.
➢ Income arising to the transferee from the accretion of such property shall not be clubbed
in the total income of the transferor.

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➢ Income arising on accretion of income arising from transferred asset be clubbed in case of
Minor child.
➢ Profit on sale of property, which is gifted to spouse, minor child or son’s wife, shall be
clubbed in hands of the transferor.

provision of sec. 64(1) shall be applicable.

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➢ Where an asset is transferred under a trust for the benefit of spouse or son’s wife the

➢ In case of cross transfers, the income is assessed in the hands of the deemed transferor. If
the transfer is intimately connected to form of single transaction and each transfer is
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made with an intention to avoid the provisions of this section.
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 CHAPTER 10 - SET OFF AND CARRY FORWARD OF LOSSES

Overview

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Sec 70 Sec 71B to 79
Sec 71
Carry forward

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Inter source Inter head
adjustment adjustment and set off of
losses

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Sec 70 & Sec 71 – Inter source and Inter head set off
➢ For computation of Gross Total Income (GTI), income from various sources is computed
under the five heads of income and aggregated. If certain source(s) or certain head(s) have
negative income (i.e. loss) then such loss needs to be adjusted with income of another

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source(s) or head(s). Set off means adjustment of loss from one source or one head against
income from another source or another head.
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Income
Income from Income
HP 2 Income from HP
from
from
HP1
PGBP
In
Loss Loss
from from
HP 3 Capital
gains
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Sec 70 - Set off of losses from Sec 71 - Set off of losses

sources covered under same from sources covered
head. Also called Intra head under differet head. Also
set off called Inter head set off

➢ Loss which could not be adjusted shall be carried forward to next year subject to certain
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conditions and exceptions.

➢ Sec 71 will be applicable after application of sec. 70.
➢ Losses which cannot be carried forward should be adjusted first
➢ Sec. 70 and 71 are mandatory ie. there is no choice or option whether to set off the loss or
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not.
➢ From the clubbed income, one can set off the losses

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 Exceptions to sec.70 Exceptions to sec.71
Long term capital loss can be set off only Loss under the head ‘Capital gains’ cannot be
against long term capital gain. short-term set off against income under any other head.
capital loss can be set off against any capital
gains
Loss of a speculation business can be set off Loss from speculation business cannot be set

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only against the profits of a speculation off against any other income except profits of
business. speculation business.

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Loss of a specified business covered u/s Loss of a specified business covered u/s
35AD can be set off only against the profits 35ADcannot be set off against income
of other specified business. taxable under other head.

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Loss incurred in activity of owning and Loss due to activity of owning and
maintaining race-horses can be set off maintaining race-horses cannot be set off
against income from such activity only against any other income except profit from
activity of owning and maintaining race-

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horses
Loss from a source, income of which is Loss in excess of Rs.2,00,000 under the head
exempt u/s 10, cannot be set off against any ‘Income from house property’ cannot be set
income off with income under other heads of
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income.
No loss can be set off against casual income Loss under the head “Profits and gains of
business or profession” cannot be setoff
from income under the head “Salaries”
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Loss from a source, income of which is
exempt u/s 10, cannot be set off against any
income
No loss can be set off against casual income
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Sec 70 - Loss from any normal business can be set off against income from specified
business or income from speculation business.
Sec 71- Loss under any other head can be set of against income under above exceptions.
For e.g. business loss, shall be allowed to be set off against income under the head ‘Capital
gains’, Loss under ‘House property’ can be set off against any business income including
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specified business or speculation business.

 CARRY FORWARD OF LOSS

Section Loss under Carried forward Period for file return own the
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the head and set off which of income same house

against carry- on or before or continue
forward time the same
shall be specified business to
allowed u/s 139(1) carry
forward

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 71B House House property 8 assessment No. No.
property years
72 PGBP other PGBP other than 8 assessment Yes No.
than speculation loss years
speculation
loss
32(2) Unabsorbed Any income other Indefinite No No.
depreciation than salaries & period

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casual income
73 speculation speculation 4 assessment Yes No.

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business business years
73A specified specified business Indefinite Yes No.
business covered u/s 35AD period

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covered u/s
35AD
74 Long term Long term Capital 8 assessment Yes NA
Capital loss gains years
Short term Any capital gain 8 assessment Yes NA

74A
Capital loss
Activity of
owning and
maintaining
and maintaining years
race-horses go
years
Activity of owning 4 assessment Yes Such Activity
must be
carried on in
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race-horses the previous
year in
which set off
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is claimed
➢ Loss of assessee claiming deduction u/s 35AD in respect of specified business can be set-
off against profit of another specified business u/s 73A irrespective of being eligible u/s
35AD.
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Points to remember
Sec 41(5)
➢ Where any part of loss (not being a speculation loss), which arose during the previous
year remains unabsorbed in the previous year in which business ceased to exist
➢ Such loss shall be allowed to be carried forward for any number of years (without
restriction of 8 years) against income chargeable to tax u/s 41(1); (3); (4); (4A).
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➢ Such loss can be set off even if the return of loss is not submitted in time

Sec 72
➢ The business losses can be carried forward, even the business in respect of which the
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loss was originally computed, is not carried on during the previous year.
➢ Unabsorbed depreciation, unabsorbed scientific research expenditure and unabsorbed
family planning expenditure are not covered by sec. 72. Such losses can be carried
forward for any number of years.
➢ In case of insufficient profit, losses shall be set off in the following order:

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 a) Current year’s depreciation [Sec. 32(1)], capital expenditure on scientific research
[Sec. 35(1)] and capital expenditure on family planning [Sec. 36(1)(ix)];
b) Brought forward business or profession losses [Sec. 72(1)],
c) Unabsorbed depreciation [Sec. 32(2)], unabsorbed expenditure on family planning
[Sec. 36(1)(ix)], unabsorbed capital expenditure on scientific research [Sec. 35(4)]
Sec 73
➢ Speculative transaction means a transaction in which contract for purchase and sale of

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any commodity including stock and shares, is periodically or ultimately settled
otherwise than by the actual delivery or transfer of the commodity or scripts.

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➢ where any part of the business of a company consists of purchase and sale of shares of
other companies,
➢ such company shall be deemed to be carrying on speculation business to the extent of

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purchase and sale of shares.
➢ However, this rule is not applicable in case of companies -
a) of which gross total income mainly consists of income which is chargeable under the
head “Income from house property”, “Capital gains”, and “Income from other

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sources”; or
b) of which principal business is the business of trading in shares or banking or granting
of loans and advances.
➢ Notes: Above explanation covers only transactions of purchase and sale of shares.
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Debentures, units of UTI or of Mutual Funds are not covered by this explanation.

Sec 74A
➢ Sec. 74A states only about losses from activity of owning and maintaining race horses,
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other race animals are governed by sec. 72.

In case of no income by In case assessee has income

way of stake money by way of stake money
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Loss = Revenue Loss = Stake

expenditure money - Revenue
incurred wholly expenditure
and exclusively incurred for the
for the purpose purpose of
of maintaining maintaining race
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race horses horses

Income by way of
stake money’ means
the gross amount of
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prize money
received on a race
horse by the owner
thereof.

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 AGGREGATION, SET OFF & CARRY FORWARD – ADDITIONAL ILLUSTRATIONS

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Illustration 1

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Compute the gross total income of Mr. F for the A.Y. 2021-22 from the information
given below –

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Particulars Rs.
Income from house property (computed) 1,25,000
Income from business (before providing for depreciation) 1,35,000

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Short term capital gains on sale of unlisted shares 56,000
Long term capital loss from sale of property (brought (90,000)
forward from A.Y. 2020-21)
Income from tea business 1,20,000
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Dividends from Indian companies carrying on agricultural 80,000
operations (Gross)
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Current year depreciation 26,000
Brought forward business loss (loss incurred six years ago) (45,000)

Illustration 2
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Mr. Soohan submits the following details of his income for the assessment year 2021-
22:

Particulars Rs.
IN

Income from salary 3,00,000

Loss from let out house property (40,000)
Income from sugar business 50,000
Loss from iron ore business b/f (discontinued in P.Y. 2015 -16) (1,20,000)
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Short term capital loss (60,000)

Long term capital gain 40,000
Dividend 5,000
Income received from lottery winning (Gross) 50,000
Winnings from card games (Gross) 6,000

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 Agricultural income 20,000
Short-term capital loss under section 111A (10,000)
Bank interest on Fixed deposit 5,000
Calculate gross total income and losses to be carried forward.

Illustration 3:

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Mr. Batra furnishes the following details for year ended 31.03.2021:

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Particulars Rs.
Short term capital gain 1,40,000

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Loss from speculative business 60,000
Long term capital gain on sale of land 30,000
Long term capital loss on sale of unlisted shares 1,00,000
Income from business of textile (after allowing current year

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50,000
depreciation)
Income from activity of owning and maintaining racehorses 15,000
Income from salary (computed) 1,00,000
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Loss from house property 40,000
Following are the brought forward losses:
• Losses from activity of owning and maintaining racehorses-pertaining to A.Y.2018-
In
19 is Rs.25,000.
• Brought forward loss from business of textile Rs.60,000 - Loss pertains to A.Y.
2013-14.
Compute gross total income of Mr. Batra for the Assessment Year 2021-22. Also
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determine the losses eligible for carry forward to the Assessment Year 2022-23.

Illustration 4:

Mr. A furnishes you the following information for the year ended 31.03.2021:
IN

Particulars Rs.
Income from plying of vehicles (computed as per books) 3,20,000
(He owned 5 light goods vehicles throughout the year)
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• Income from retail trade of garments (Computed as per 7,50,000

books) (Sales turnover Rs.1,35,70,000)
• Mr. A had declared income on presumptive basis under
section 44AD for the first time in A.Y. 2020-21.
• Assume 10% of the turnover during the previous year 2020-21
was received in cash and balance through A/c payee cheque
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 and all the payments in respect of expenditure were also
made through A/c payee cheque or debit card.

He has brought forward depreciation relating to A.Y. 2019-20 1,00,000

Compute taxable income of Mr. A and his tax liability for the assessment year 2021- 22
with reasons for your computation. Assuming that he does not opt for section 115BAC.

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Illustration 5

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Mr. Rajat submits the following information for the financial year ending 31st March
2021. He desires that you should:

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(a) Compute the total income and
(b) Ascertain the amount of losses that can be carried forward.

Particulars Rs.
(i) He has two houses:

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a. House No. I – Income after all statutory deductions

b. House No. II – Current year loss

72,000

(30,000)
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(ii) He has three proprietary businesses:
a. Textile Business:
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• Discontinued from 31st October 2020 – Current year loss (40,000)

• Brought forward business loss of A.Y.2016-17 (95,000)

b. Chemical Business:
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• Discontinued from 1st March 2018 – hence no profit/loss Nil

• Bad debts allowed in earlier years recovered during this 35,000

year

• Brought forward business loss of A.Y. 2017-18 (50,000)

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c. Leather Business: Profit for the current year 1,00,000

d. Share of profit in a firm in which he is partner since 2007 16,550

[Exempt u/s 10(2A)]
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(iii) Capital gains

a. Short-term capital gain 60,000

b. Long-term capital loss (35,000)

(iv) Contribution to LIC towards premium 10,000

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 Illustration 6

Ms. Geeta, a resident individual, provides the following details of her income / losses
for the year ended 31.3.2021:

• Salary received as a partner from a partnership firm Rs.7,50,000. The same was

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allowed to the firm. [PGBP]
• Loss on sale of shares listed in BSE Rs.3,00,000. Shares were held for 15 months and

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STT paid on sale and acquisition. [Section 112A]
• Long-term capital gain on sale of land Rs.5,00,000. 19290
• Rs.51,000 received in cash from friends in party. [Income as per Section 56(2)(x)]

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• Rs.55,000, received towards dividend on listed equity shares of domestic companies.
• Brought forward business loss of assessment year 2019-20 Rs.12,50,000.

Compute gross total income of Ms. Geeta for the Assessment Year 2021-22 and ascertain

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the amount of loss that can be carried forward.

Illustration 7
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Mr. P, a resident individual, furnishes the following particulars of his income and other
details for the previous year 2020-21:
In
Particulars Rs.
Income from salary (computed) 18,000
Net annual value of house property 70,000
Income from business 80,000
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Income from speculative business 12,000

Long term capital gain on sale of land 15,800
Loss on maintenance of racehorse [Section 74A] 9,000
Loss on gambling 8,000
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Depreciation allowable under the Income-tax Act, 1961, comes to Rs.8,000, for which no
treatment is given above.

The other details of unabsorbed depreciation and brought forward losses (pertaining to
A.Y. 2020-21) are:
1F

Particulars Rs.
Unabsorbed depreciation 9,000
Loss from speculative business 16,000
Short term capital loss 7,800

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 Compute the gross total income of Mr. P for the Assessment year 2021-22, and the
amount of loss that can or cannot be carried forward.

Illustration 8

Mr. & Mrs. Om both are working in A Ltd. without possessing any technical or
professional qualification.

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From the following details compute their income for the A.Y. 2021-22:

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Particulars Mr. Om Mrs. Om
Taxable Salary from A Ltd. Rs.2,20,000 Rs.70,000

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Other income Rs.50,000 Rs.80,000
Share of holdings:
Case 1 15% 6%
Case 2 3% 17%
Case 3

Illustration 9
18%

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Mr. B is the Karta of a HUF, whose members derive income as given below:

Particulars Rs.
In
Income from B' s profession 45,000
Mrs. B' s salary as fashion designer 76,000
Minor son D (interest on fixed deposits with a bank which were 10,000
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gifted to him by his uncle)

Minor daughter P's earnings from sports 95,000
D's winnings from lottery (gross) 1,95,000
Examine the tax implications in the hands of Mr. and Mrs. B.
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Illustration 10

• A proprietary business was started by Smt. Rani in the year 2018.

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• As on 1.4.2019 her capital in business was Rs.3,00,000.

• Her husband gifted Rs.2,00,000 on 10.4.2019, such sum is invested by Smt. Rani in
her business on the same date.
• Smt. Rani earned profits from her proprietary business for the financial year 2019-
20, Rs.1,50,000 and financial year 2020-21 Rs.3,90,000.

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 Compute the income, to be clubbed in the hands of Rani’s husband for the Assessment
year 2021-22 with reasons.

Illustration 11

• Mr. A has gifted a house property valued at Rs.50 lakhs to his wife, Mrs. B, who in
turn has gifted the same to Mrs. C, their daughter-in-law.

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• The house was let out at Rs.25,000 per month throughout the year.
• Compute the total income of Mr. A and Mrs. C.

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Will your answer be different if the said property was gifted to his son, husband of Mrs.
C?

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Illustration 12

During the previous year 2020-21, the following transactions occurred in respect of Mr.
A.

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• Mr. A had a fixed deposit of Rs.5,00,000 in Bank of India. He instructed the bank to
credit the interest on the deposit @ 9% from 1-4-2020 to 31-3-2021 to the savings
bank account of Mr. B, son of his brother, to help him in his education.
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• Mr. A holds 75% profit share in a partnership firm. Mrs. A received a commission of
Rs.25,000 from the firm for promoting the sales of the firm. Mrs. A possesses no
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technical or professional qualification.
• Mr. A gifted a flat to Mrs. A on April 1, 2020. During the previous year 2020- 21, Mrs.
A’s “Income from house property” (computed) was Rs.52,000 from such flat.
• Mr. A gifted Rs.2,00,000 to his minor son who invested the same in a business and
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he derived income of Rs.20,000 from the investment.

• Mr. A’s minor son derived an income of Rs.20,000 through a business activity
involving application of his skill and talent.

During the year, Mr. A got a monthly pension of Rs.10,000. He had no other income. Mrs.
A received salary of Rs.20,000 per month from a part time job.
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Examine the tax implications of each transaction and compute the total income of Mr.
A, Mrs. A and their minor child.
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Illustration 12

Balamurugan furnishes the following information for the year ended 31-03-2021:
Particulars Rs.
Income from textile business (1,35,000)

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 Income from house property (15,000)
Winning from Lottery (Gross) 5,00,000
Speculation business 1,00,000
Income by way of Salary (Computed) 60,000
Long term capital gain u/s 112 70,000

Compute his total income, tax liability and advance tax obligations. Assume he does

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not opt for Sec 115BAC.

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In
By
IN
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 CHAPTER 11 - DEDUCTIONS FROM GROSS TOTAL INCOME

Overview
Sec 80C to 80GGC Sec 80JJAA to 80
Sec 80A to 80B TTB Sec 80U
General Deduction in
respect of Deductions in Other deductions

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provisions
payment respect of income

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General provisions
➢ The deductions specified in sections 80C to 80U, shall be allowed from his gross total
income.

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➢ Deductions under chapter VIA are not available from -
• Long-term capital gain;
• Short term capital gain covered u/s 111A (i.e., STCG on which STT is charged); and
• Casual income like winning from lotteries, races, etc. and

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• Income referred in Sec.115A, 115AB, 115AC, 115ACA, etc
➢ Deduction under chapter VIA shall be available only if the assessee claims for it.
➢ The aggregate amount of the deductions cannot exceed the gross total income of the
assessee.
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➢ In the case of AOP/BOI, if any deduction is admissible under section
80G/80GGA/80GGC 1, no deduction under the same section shall be made in computing
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the total income of a member of the AOP or BOI.
➢ Where deduction under any section of chapter VIA has been claimed then the same shall
not qualify for deduction in any other section.
➢ Once the assessee has claimed the benefit of deduction under section 35AD for a
particular year in respect of a specified business, he cannot claim benefit under Chapter
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VI-A under the heading “C.-Deductions in respect of certain incomes” for the same or
any other year and vice versa
➢ Sec 80AC - Section 80AC stipulates compulsory filing of return of income on or before the
due date specified under section 139(1), as a pre-condition for availing benefit of deductions
under any provision of Chapter VI-A under the heading “C. – Deductions in respect of certain
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incomes”.
➢ The heading “C. – Deductions in respect of certain incomes” consists of following
sections - 80-IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, 80-IC, 80-IE, 80JJA, 80JJAA, 80LA, 80M,
80P, 80PA, 80QQB and 80RRB.
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Sec 80C - Deduction in respect of investment in specified assets

 Applicable to –

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 ➢ Only to an Individual or a Hindu Undivided Family
Investment made Conditions
Life insurance premium ➢ Insurance policy can be taken on life of the
following:
(a) In case of an individual: Himself, spouse and
child (whether major or minor) of such individual;
(b) In case of HUF: Any member of the HUF.

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Maximum limit: Premium on insurance policy in
excess of following % of the actual sum assured shall

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be ignored.
Policy issued Insured is Insured is any other
disable* or person

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suffering
from disease
specified u/s
80DDB
Upto 31-03- 20% 20%

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2012
During P.Y. 10% 10%
2012-13
On or after 15% 10%
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01-04-2013
➢ For the purpose of calculating the actual capital
sum assured,
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• The value of any premiums agreed to be
returned or
• The value of any benefit by way of bonus or
otherwise, over and above the sum actually
assured, shall not be taken into account.
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➢ Note- Applicability of exemption-

• Any sum received under a LIP including the
sum allocated by way of bonus is exempt u/s
10(10D). However, exemption would not be
available if the premium payable for any of
the years during the term of the policy
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exceeds the limits specified in the above table

• Exemption u/s 10(10D) is not available in
respect of amount received from an
insurance policy taken for disabled person
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under section 80DD.

• Exemption is not available in respect of the
sum received under a Keyman insurance
policy.

Premium paid in respect of a ➢ Applicable to Individual only

contract for deferred annuity

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 ➢ Annuity may be taken in the name of the
individual, spouse and any child of such
individual.
➢ Such contract does not contain a provision for the
exercise by the insured of an option to receive a
cash payment in lieu of the payment of the
annuity.

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Any sum deducted from the Maximum limit: 20% of salary of the employee

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salary payable of a Government
employee for securing a deferred
annuity
Contribution to SPF/PPF/RPF Contribution can be made in the name of the

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individual, his spouse and any child of the
individual, and any member of the family, in case
of a HUF.
Contribution must not be in form of repayment of

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loan.
The maximum limit for deposit in PPF is ₹1,50,000
in a year.

Contribution to approved
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superannuation Fund
Contribution to approved annuity
plan of LIC
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Subscription towards notified
units of mutual fund or UTI
Any sum paid or deposited in
Sukanya Samridhi Account
Contribution in Unit-linked
By

Insurance Plan 1971

Contribution in Unit-linked
Insurance Plan of LIC Mutual
Fund
Subscription to National Savings
Certificates VIII
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Contribution to National
Housing Bank (Tax Saving)
Term Deposit Scheme, 2008
Subscription to notified deposit The deposit scheme should be notified by the
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scheme Central Government, for example, public deposit

Payment of tuition fees to any
university, college, school or
other educational institutions
within India for full-time
education for maximum 2
children
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scheme of HUDCO.
Such payment does not include any payment
towards any development fees or donation or
payment of similar nature.
Private tuition fee is not covered.
217
 5 year time deposit in an account
under the Post Office Time Deposit
Rules, 1981
Investment as term deposit for a
period of 5 years or more with a
scheduled bank.
Notified Bonds issued by the
National Bank for Agriculture and

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Rural Development (NABARD)
Senior Citizens Savings Scheme

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Rules, 2004
Any payment for purchase or ➢ This deduction can only be claimed for
construction of a residential house repayment of home loan taken from specified

property including stamp duty,
registration fee and other
expenses and Repayment of
housing loan
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entity like banks, Housing Finance Companies.
Etc.
➢ The following are not admissible for deduction
under this section:

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1. Any expenditure in respect of which
deduction is allowable u/s 24
2. Repayment of loan borrowed for acquiring
commercial property
3. Repayment of loan taken for repair,
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alteration, renovation, addition
4. Admission fee, cost of share and initial
deposit which a shareholder of a company or
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a member of a co-operative society has to pay
for becoming a shareholder or member

Contribution to (additional account ➢ Central Govt. Employee to make the

under NPS) a specified account of contribution
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the pension scheme u/s 80CCD ➢ For a period not less than 3 yrs
➢ Scheme notified by the central govt.

 Quantum of deduction – lower of

a. Aggregate of the eligible expenditure or investments OR
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b. Rs. 1,50,000

 Further points
➢ In case of Termination of Insurance Policy or Unit Linked Insurance Plan or transfer of
House Property or withdrawal of deposit:
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➢ The amount allowed as deduction shall be deemed to be the income chargeable to tax
in the Previous year in which such transfer happens.
➢ For the purpose of Deduction u/s 80C, amount paid, invested or deposited shall be
considered on payment basis.

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 Sec. 80CCC - Deduction in respect of contribution to pension fund
 Applicable to
➢ An individual only.
 Conditions to be satisfied
➢ During the previous year, assessee has paid or deposited a sum under an annuity plan of
the Life Insurance Corporation of India (LIC) or any other insurer for receiving pension
from the fund referred to in Sec. 10(23AAB).

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➢ The amount must be paid out of income which is chargeable to tax. However, it is not
necessary that such income relates to current year.

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➢ Taxable at the time of withdrawal from such fund. Interest or bonus received from such
fund shall also be taxable.

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 Deduction u/s 80C will not be available
 Quantum of deduction
a. Amount deposited or
b. 1,50,000
Whichever is less.

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80CCD - Deduction in respect of contribution to pension scheme notified by Central
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Government
 Applicable to
➢ An individual
 Condition to be satisfied
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➢ Assessee has paid or deposited any amount in his account under a pension scheme
notified by the Central Government (New Pension System and Atal Pension Yojna)
 Deemed Income
➢ The amount standing to the credit of the assessee in the pension account (for which
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deduction has already been claimed by him under this section) and accretions to such
account, shall be taxed as income in the year in which such amounts are received by
the assessee on -
(a) closure of the account or
(b) his opting out of the said scheme or
(c) receipt of pension from the annuity plan purchased or taken on such
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closure or opting out.

➢ If the amount is received by the nominee on the death of the assessee under the
circumstances referred to in (a) and (b) above, shall not be deemed to be the income
of the nominee.
1F

➢ Where amount withdrawn is used for purchasing an annuity plan in the same previous
year (i.e. year of withdrawal), such receipt shall not be taxable.

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 Exemption on payment from
NPS Trust to an employee

on closure of his account on partial

or on his opting out of the withdrawal
pension scheme

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Sec 10(12B)
Sec 10(12A)

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60% of the withdrawal 25% of the withdrawal
amount is exempt amount is exempt

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 Quantum of deduction

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80CCD(1) 80CCD(2) 80CCD(1B)
In
In case of salaried Lower of
individual by Lower of
-CG on or after In case of others a. Amount
contributed by a. Amount
1.4.2004 deposited Or
-any other employer Employer or
b. Rs.50,000
b.14% of Salary if
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contribution
Lower of Lower of made by CG/SG
a. Amount a. Amount c. 10% of salary if
deposited b. deposited made by any
10% of salary b. 20% of GTI other employer
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➢ Salary = Basic + DA (if forms part of retirement benefit)

1F

80CCE: limit on deductions U/S 80C, 80CCC and 80CCD

Particulars Amount
Deduction u/s 80C xx
Deduction u/s 80CCC xx
Deduction u/s 80CCD [Other than deduction in respect of Employer’s xx
Contribution and additional deduction u/s 80CCD(1B)]
Total [Restricted to maximum of Rs.1,50,000 u/s 80CCE] xx
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 Add: Contribution to the pension scheme by any individual allowable u/s xx
80CCD(1B) [Sub. to maximum of Rs. 50,000/-]
Add: Employer’s contribution to New Pension System referred to in Sec. xx
80CCD [Subject to max. of 10% of salary]
Deduction available u/s 80C, 80CCC & 80CCD xx

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Sec. 80D- Deduction in respect of medical insurance premium

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 Applicable to
➢ Individual and HUF

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 Quantum of deduction

Deduction

1. Payment of
Individual

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HUF

Amount paid
on account of
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Medi- claim 1. Payment of Amount Mediclaim medical
insurance Mediclaim paid for insurance expenditure
premium; or insurance medical premium provided
premium expenditure mediclaim
2. Contribution to provided
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the Central Gov- 2. Preventive insurance is
health check mediclaim not paid on
ernment Health insurance is Any
Scheme or any up expense member of the health of
not paid on such person
other notified the health of family
Health Scheme such person
3. Preventive Least of
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health check up Any

a. Aggregate Least of member
expenditure
of all a. Premium of
Individual, family
payments paid
spouse,
b. 25,000 dependent b. Rs.25,000
Himself/herself,
spouse or (In case any children and (In case any
dependent person is either or person is Least of
senior cittizen both parents
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children senior a. Aggregate

then the citizen then of medical
ceiling limit is the ceiling expenses
Rs. 50,000 limit is Rs.
Least of b. 50,000
Least of 50,000
a. Aggregate of
a. Aggregate of all medical
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payments expenses
b. 25,000 b. 50,000
(In case any person
is senior citizen
then the ceiling
limit is Rs. 50,000

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  Conditions to satisfy
➢ Deduction in respect of payment towards preventive health check-up - to the extent of ₹
5,000 shall be allowed.
➢ ₹5,000 is within the overall limit of ₹25,000 or ₹ 50,000 as specified above.
➢ For claiming deduction under section 80D, the payment can be made by any mode other
than cash in all other cases.
➢ However preventive check-up can be made in cash.

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➢ The medical insurance should be in accordance with a scheme made in this behalf by GIC
approved by Central government or IRDA.

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➢ The amount must be paid out of income, which is chargeable to tax.
➢ Where lumpsum health insurance premium is paid (single premium) covering insurance
for more than a year, then, deduction is available on proportionate basis.

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➢ Senior citizen means an individual resident in India who is of the age of 60 years or more
at any time during the relevant previous year.
Sec. 80DD - Deduction in respect of maintenance of dependent disable relative
 Applicable to –

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➢ A resident individual (irrespective of citizenship) or a resident HUF
 Conditions to be satisfied
➢ Assessee has a dependent disable relative.
In the case of Relative includes (wholly or mainly dependant)
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Individual Spouse, children, parents, brothers and sisters of the individual
HUF Any member of the Hindu Undivided Family
➢ No benefit u/s 80U to disable relative
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➢ Assessee has -
• Incurred any expenditure for the medical treatment (including nursing), training and
rehabilitation of a dependent, being a person with disability; or
• Paid or deposited any amount in an approved scheme for the maintenance of a disable
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dependent being framed by the Life Insurance Corporation or any other insurer or
the Administrator or Unit Trust of India.
➢ Deduction shall be irrespective of actual expenditure incurred i.e. deduction is
statutory in nature.
➢ Furnish a copy of the certificate issued by the medical authority$ along with the return
of income
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 Quantum of deduction
Relative is suffering from severe disability (more than 80% disability) ₹1,25,000
Relative is suffering from disability but not severe disability ₹75,000
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The scheme provides for payment of annuity or lump sum amount for the benefit of a
dependant, being a person with disability,
(i) in the event of the death of the individual or the member of the Hindu undivided family
in whose name subscription to the scheme has been made; or
(ii) on attaining the age of sixty years or more by such individual or the member of the
Hindu undivided family, and the payment or deposit to such scheme has been
discontinued
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 The assessee nominates either the dependant, being a person with disability, or any other person
or a trust to receive the payment on his behalf, for the benefit of the dependant, being a person
with disability.
➢ If the dependant, being a person with disability, predeceases the individual or the
member of the Hindu undivided family, an amount equal to the amount paid or deposited
shall be deemed to be the income of the assessee of the previous year in which such
amount is received by the assessee and shall accordingly be chargeable to tax as the
income of that previous year.

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The above provision shall not apply to the amount received by the dependant, being a

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person with disability, before his death, by way of annuity or lump sum by application of
the conditions

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Sec. 80DDB - Deduction in respect of medical treatment

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 Applicable to
➢ A resident individual (irrespective of citizenship) or a resident HUF
 Conditions to be satisfied
➢ The assessee has, during the previous year, actually paid any amount for the medical
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treatment of a specified disease or ailment as prescribed in rule 11DD for treatment of
himself or for a dependent relative.
➢ Dependent - same as 80DD
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➢ Assessee should obtain the prescription for such medical treatment from the prescribed
specialist.
Quantum of deduction
➢ Minimum of the following -
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a) Actual expenditure incurred by the assessee; OR

b) Rs.40,000 (Rs.1,00,000 in case of senior citizens)
➢ Deduction shall be reduced by the amount received, if any -
• under an insurance from an insurer; or
• reimbursed by an employer
Sec. 80E - Deduction in respect of repayment of loan for higher education
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 Applicable to
➢ An Individual (irrespective of residential status and citizenship of the individual).
 Conditions to be satisfied
➢ The assessee has taken a loan for the purpose of pursuing higher education of
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a) himself/herself b) spouse c) Children (dependent or not) d) the student for whom

the individual is the legal guardian
➢ The loan is taken from a financial institution or an approved charitable institution
➢ The amount must be paid out of income chargeable to tax. However, it is not necessary
that such income relates to the current year.
 Quantum of deduction
➢ Amount paid during the year by way of payment of interest.
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 ➢ The deduction is available for a maximum period of 8 consecutive years.
➢ The period starts from the year in which the assessee starts paying the interest on such
loan.

Sec. 80EE - Deduction in respect of interest on loan taken for residential house

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property
 Applicable to
➢ An Individual (resident or non-resident).

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 Conditions to be satisfied
➢ The assessee has taken loan for acquisition of the residential house property

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➢ The loan has been sanctioned by the financial institution during the PY 2016-17
➢ The amount of loan sanctioned does not exceed Rs. 35 lakhs.
➢ The value of the residential house property does not exceed Rs.50 lakhs.
➢ The assessee does not own any residential house property on the date of sanction of the

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loan.
 Quantum of deduction
➢ Minimum of
a. Interest payable
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b. Rs.50,000
➢ In case of self-occupied property any interest over and above ₹2,00,000 can be claimed
under this section.
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Sec. 80EEA- Deduction in respect of interest on loan taken for residential house
property
 Applicable to
➢ An Individual (resident or non-resident) who is not able to claim deduction u/s 80EE.
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 Conditions to be satisfied
➢ The assessee has taken loan for acquisition of the residential house property
➢ The loan has been sanctioned by the financial institution during the PY 2019-20 and 31st
March 2022.
➢ The value of the residential house property does not exceed Rs.45 lakhs.
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➢ The assessee does not own any residential house property on the date of sanction of the
loan.
➢ Interest is not claimed elsewhere under any other provision.
 Quantum of deduction
1F

➢ Minimum of
a. Interest payable
b. Rs.150,000
➢ In case of self-occupied property any interest over and above ₹2,00,000 can be claimed
under this section.

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 Sec. 80EEB- Deduction in respect of interest on loan taken for electric vehicle
 Applicable to
➢ An Individual (resident or non-resident).
 Conditions to be satisfied
➢ The assessee has taken loan for purchase of electric vehicle
➢ The loan has been sanctioned by the financial institution during the PY 2019-20 and PY

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2022-23
Quantum of deduction

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➢ Minimum of
a. Interest payable
b. Rs.1,50,000

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Electric Vehicle - A Vehicle which is powered exclusively by an electric motor whose traction
energy is supplied exclusively by traction battery installed in the vehicle. The vehicle should
have electric regenerative braking system, which during braking provides for the conversion
of vehicle kinetic energy into electrical energy.

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Sec. 80G - Deduction in respect of donations to certain funds, etc.
 Applicable to
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➢ All assessee.
 Conditions to be satisfied
➢ The assessee must donate (not in kind) to specified Funds or Organisations
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➢ Donation in excess of Rs. 2,000 shall not be made in cash
➢ Proof of donation, in original, should be attached with the return of income.
➢ Where deduction under this section has been allowed, the same shall not qualify for
deduction under any other section for the same or any other Assessment Year.
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➢ Donation by employees through employer –

• where employees make donations to the Prime Minister’s National Relief Fund, the
Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund
• through their respective employers,
• in the form of a consolidated cheque
• claim in respect of such donations is admissible on the basis of the certificate issued by
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the Drawing and Disbursing Officer (DDO)/Employer in this behalf.

There are four categories of deductions. The following table gives the details of the institutions
and funds to which donations can be made for the purpose of claiming deduction under
section 80G:
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I - Donation qualifying for 100% deduction, without any qualifying limit

The National Defence Fund
Prime Minister’s National Relief Fund.
Prime Minister’s Armenia Earthquake Relief Fund
The Africa (Public Contributions-India) Fund
The National Children’s Fund

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 Chief Minister’s Earthquake Relief Fund, Maharashtra
Any Zila Saksharta Samiti constituted in any district
National Blood Transfusion Council or any State Blood Transfusion Council
Any State Government Fund set up to provide medical relief to the poor
The Army Central Welfare Fund or Indian Naval Benevolent Fund or Air Force Central
Welfare Fund
The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996

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The National Sports Fund
The National Cultural Fund

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The Fund for Technology Development and Application
The Swachh Bharat Kosh, & The Clean Ganga Fund - contribution made not in pursuance
to sec 135(5) of Companies Act 2013

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The National Fund for Control of Drug Abuse
Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund (PM Care Fund)
II - Donation qualifying for 50% deduction, without any qualifying limit
The Jawaharlal Nehru Memorial Fund
Prime Minister’s Drought Relief Fund
Indira Gandhi Memorial Trust
Rajiv Gandhi Foundation go
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III Donation qualifying for 100% deduction, subject to qualifying limit
The Government or to any approved local authority, institution or association for promotion
of family planning
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Sum paid by a company as donation to the Indian Olympic Association or any other
association/institution established in India, as may be notified by the Government for the
development of infrastructure for sports or games, or the sponsorship of sports and games in
India
IV Donation qualifying for 50% deduction, subject to qualifying limit
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The Government or any local authority or Any Institution or Fund established in India for
charitable purposes fulfilling prescribed conditions
Any Corporation established by the Central Government or any State Government for
promoting the interests of the members of a minority community
for renovation or repair of Notified temple, mosque, gurdwara, church or other place of
historic, archaeological or artistic importance
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An authority constituted in India by or under any other law enacted either for dealing with
and satisfying the need for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages, or both.
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Steps for computation of qualifying limit

Step 1: Compute adjusted total income i.e., the GTI as reduced by the following:
(i) Deductions under Chapter VI-A, except under section 80G
(ii) Short-term capital gain taxable under section 111A
(iii) Long-term capital gains taxable under sections 112 & 112A
(iv) Any income on which income-tax is not payable
Step 2: Calculate 10% of adjusted total income

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 Step 3: Calculate the actual donation, which is subject to qualifying limit (Total
of Category III and IV donations, shown in the table above)
Step 4: Lower of Step 2 or Step 3 is the maximum permissible deduction.
Step 5: The said deduction is adjusted first against donations qualifying for 100%
deduction (i.e., Category III donations). Thereafter, 50% of balance qualifies
for deduction under section 80G.

Quantum of deduction

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Category I and II donations xxx
Category III and IV (as computed above) xxx

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Deduction u/s 80G xxx

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Sec. 80GG - Deduction in respect of house rent paid
 Applicable to

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➢ An Individual (irrespective of the residential status and citizenship of the individual)
 Conditions to be satisfied
➢ Assessee is not receiving House Rent Allowance (HRA).
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➢ He or his spouse or minor child or HUF of which he is a member, should not own any
residential house at a place where the assessee resides, perform the duties of his office,
or employment or carries on his business or profession.
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➢ Assessee should not treat any residential house situated at other places as self-
occupied property u/s 23(2)(a) or 23(4)(a).
➢ A declaration in Form 10BA should be filed for expenditure incurred by him towards
payment of rent.
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➢ Where an assessee has been provided an accommodation by his employer at

concessional rent, then rent paid by him shall be
• deducted while valuing such perquisite; and
• eligible for deduction u/s 80GG.
 Quantum of deduction
➢ Minimum of the following:
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a. ₹5,000 per month;

b. Actual rent paid (-) 10% of the total income before allowing the deduction, or
c. 25% of such total income (arrived at after making all deductions under Chapter VI A
but before making any deduction under this section)
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Sec.80GGA - Deduction in respect of donations for scientific research, etc.

 Applicable to
➢ Any assessee not having income chargeable under the head “Profits and gains of
business or profession
 Conditions to be satisfied
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 ➢ Any contribution made to approved association or institution, any approved university
or college for the purposes mentioned u/s 35CCA(2); 35CCA(2A), 35CCA(1)(c),
35CCA(1)(d), 35(1)(ii), 35(1)(iii), 35AC(2)(a), NUPEF
➢ Payment in excess of ₹ 2,000 to aforesaid purpose shall be made by any mode other
than cash.
➢ Deduction shall not be denied merely on the ground that subsequent to the
contribution made by the assessee, the approval granted (or notification notifying
eligible projects) has been withdrawn.

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 Quantum of Deduction
➢ 100% of such contribution made in the previous year.

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Sec.80GGB - Deduction in respect of contributions to political parties
 Applicable to
➢ An Indian company
 Conditions to be satisfied

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➢ Assessee has contributed any sum (by any mode other than cash), in the previous year,
to any political party or an electoral trust.
 Quantum of Deduction
➢ 100% of such contribution made in the previous year.
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Sec.80GGC - Deduction in respect of contributions given by any person to political
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parties
 Applicable to
➢ All assessee except local authority and every artificial juridical person wholly or partly
funded by the Government
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 Conditions to be satisfied
➢ Assessee has contributed any sum (by any mode other than cash), in the previous year,
to any political party or an electoral trust.
 Quantum of Deduction
➢ 100% of such contribution made in the previous year.
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Sec 80JJAA -Deduction in respect of employment of new workmen

 Applicable to
1F

➢ Any assessee subject to tax audit under sec. 44AB

 Conditions to be satisfied
➢ New Business: Business is not formed by splitting up, or the reconstruction, of an
existing business.
➢ No business reorganization: Business is not acquired by the assessee by way of transfer
from any other person or as a result of any business reorganization.

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 ➢ Audit: Books of account should be audited and report thereof should be submitted
before 30th Sep of A.Y., being the specified date referred to in Sec 44AB (i.e., one month
prior to due date for filing return of income u/s 139(1).
➢ Claimed in the return: No deduction shall be allowed if the deduction has not been
claimed in the return of income.
 Quantum of Deduction
➢ 30% of additional employee cost incurred in the previous year, for 3 assessment years
including the assessment year relevant to the previous year in which such employment

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is provided.
 Important definitions

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➢ Additional employee cost - Total emoluments paid or payable to additional
employees employed during the previous year.
➢ The additional employee cost shall be nil, if:

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• There is no increase in the number of employees from the total number of
employees employed as on the last day of the preceding year;
• Emoluments are paid in cash or bearer cheques or account payee bank draft or
use of electronic clearing system through a bank account or through any other
prescribed electronic mode.

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➢ Additional employee - Employee who has been employed during the previous year
but does not include –
1. Employee whose total emoluments are more than ₹25,000 per month; or
2. Employee for whom the entire contribution is paid by the Government under the
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Employees' Pension Scheme
3. Employee employed for a period of less than 240 days (150 days in case of an
assessee who is engaged in the business of manufacturing of apparel or footwear or
leather products) during the previous year; or
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4. Employee who does not participate in the recognised provident fund.
➢ Emoluments - any sum paid or payable in lieu of his employment by whatever name
called, but does not include:
1. Any employer contribution to any pension fund or provident fund or any other fund
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2. Any lump-sum payment paid or payable to an employee at the time of termination

of his service or superannuation or voluntary retirement, such as gratuity,
severance pay, leave encashment, voluntary retrenchment benefits, commutation of
pension and the like.
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Sec 80QQB - Deduction in respect of royalty income of authors of books

 Applicable to
➢ A resident individual
 Conditions to be satisfied
1F

➢ Assessee is an author or joint author of a book.

➢ The book should be a work of literary, artistic or scientific nature.
➢ It shall not include brochures, commentaries, diaries, guides, magazines, journals,
newspapers, pamphlets, text-books for school, tracts and other publications of similar
nature, by whatever name called.
➢ Gross total income includes any lump sum consideration for the assignment or grant
of any of his interest in the copyright of book; or any other copyright fees
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 ➢ However, when such income is earned from a source outside India then –
• Such receipts should be brought into India in convertible foreign exchange within
6 months from the end of the previous year or within such further period as the
competent authority may allow in this behalf; and
• The assessee must furnish a certificate in the Form 10H (obtained from the
prescribed authority) along with his return of income.
 Quantum of Deduction

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Income earned and received in Lumpsum Income received in a mode other than
lump sum

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Income earned in Income earned Income earned in Income earned
India outside India India outside India
Minimum of – Minimum of – Minimum of – Minimum of -
a)100% of such a) Money brought a)100% of such a) Money brought

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income into India in income (Receipts (–) in India in
(Receipts(–) convertible foreign Expense relating to convertible foreign
Expense exchange within such income) exchange within
b) ₹ 3,00,000 time limit (–) b) ₹ 3,00,000 time limit (–)

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Expenditure c) 15% of sale value Expense incurred
incurred relating to of the book – relating to such
such income Expense relating to income
b) ₹ 3,00,000 such income b) 15% of sale
value of the book
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(–) Expense
incurred relating
to such income
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c) ₹ 3,00,000

Sec 80RRB - Deduction in respect of royalty on patents

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 Applicable to
➢ A resident individual being a patentee who is registered as first inventor of the
invention and whose name is entered on the Patent register in accordance with the
Patent Act, 1970 and includes co-owner of a patent.
 Conditions to be satisfied
➢ Assessee has earned income (either in India or outside India) by way of royalty in
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respect of patent registered on or after 1-4-2003 under the Patents Act, 1970.
➢ It does not include any capital sum received for sale of patent, which is chargeable
under the head Capital gains.
➢ when such income is earned from a source outside India, then
1F

➢ Such receipts should be brought into India by the assessee in convertible foreign
exchange within 6 months from the end of the previous year or within such further
period as the competent authority may allow in this behalf and
➢ The assessee must furnish a certificate in the Form 10H from the prescribed authority
along with his return of income
➢ Earlier deduction allowed under this section shall be deemed to be wrongly allowed
and Assessing Officer has the power to rectify the assessment-order within 4 years
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 from the end of the previous year in which such order of the High Court or the
Controller was passed
 Quantum of Deduction
Income earned in India Minimum of the following -
a. 100% of such income; OR
b. ₹3,00,000
Income earned outside India Minimum of the following –
a. Income in respect of money brought into India in

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convertible foreign exchange within 6 months or
b. ₹3,00,000

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Sec 80TTA - Deduction in respect of interest on deposits in savings account
 Applicable to
➢ An individual (other than senior citizen covered u/s 80TTB) or a Hindu Undivided
Family
 Conditions to be satisfied

• A banking company
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➢ Gross total income includes any income by way of interest on deposits with

• A co-operative society engaged in carrying on the business of banking

• A Post Office
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➢ Interest on Post Office Saving Bank is exempt u/s 10(15(i) to the extent of the interest
of ₹ 3,500 (in case of single account) and ₹ 7,000 (in case of joint account)
➢ Where such income is derived from any deposit held by, or on behalf of, a firm, an
In
association of persons or a body of individuals, no deduction shall be allowed.
 Quantum of Deduction
➢ Minimum of
a. Interest amount
b. ₹10,000
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Sec 80TTB - Deduction in respect of interest on deposits in case of senior citizens

 Applicable to
➢ Senior Citizen
 Conditions to be satisfied
➢ Gross total income includes any income by way of interest on deposits with
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• A banking company
• A co-operative society engaged in carrying on the business of banking
• A Post Office
➢ Where such income is derived from any deposit held by, or on behalf of, a firm, an
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association of persons or a body of individuals, no deduction shall be allowed.

 Quantum of Deduction
➢ Minimum of
a. Interest amount
b. ₹ 50,000

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 Sec 80U - Deduction in respect of person with disability
 Applicable to
➢ A resident individual (irrespective of citizenship of the individual)
 Conditions to be satisfied
➢ Assessee is a disabled individual.
➢ Assessee must furnish a copy of the certificate issued by the medical authority in the
prescribed form along with the return of income, in respect of the assessment year for
which the deduction has been claimed.

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➢ Deduction under this section is irrespective of actual expenditure incurred

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 Quantum of Deduction
disability but not severe disability ₹75,000
severe disability (i.e. disability to the extent of 80% or more) ₹1,25,000

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 DEDUCTIONS FROM GTI – ADDITIONAL ILLUSTRATIONS:

Illustration 1

Examine the following statements with regard to the provisions of the Income-tax Act,
1961:

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a) For grant of deduction under section 80JJAA, filing of audit report in prescribed form
is must for a corporate assessee; filing of return within the due date laid down in

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section 139(1) is not required.
b) Filing of belated return under section 139(4) of the Income-tax Act, 1961 will debar
an assessee from claiming deduction under section 80M.

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Illustration 2

Compute the eligible deduction under section 80C for A.Y.2021-22 in respect of life

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insurance premium paid by Mr. Ganesh during the P.Y.2020-21, the details of which are
given here under –
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Date of issue Actual capital Insurance premium paid
Person insured
of policy sum assured (₹) during 2020- 21 (₹)
30/3/2012 Self 5,00,000 51,000
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1/5/2016 Spouse 1,50,000 20,000
1/6/2018 Handicapped son 4,00,000 80,000
(section 80U disability)
By

Illustration 3

• The basic salary of Mr. A is Rs.1,00,000 p.m.

• He is entitled to dearness allowance, which is 40% of basic salary.
• 50% of dearness allowance forms part of pay for retirement benefits.
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• Both Mr. A and his employer, ABC Ltd., contribute 15% of basic salary to the pension
scheme referred to in section 80CCD.
• Explain the tax treatment in respect of such contribution in the hands of Mr. A.
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Illustration 4

• Mr. A, aged 40 years, paid medical insurance premium of Rs.20,000 during the P.Y.
2020-21 to insure his health as well as the health of his spouse.
• He also paid medical insurance premium of Rs.47,000 during the year to insure the
health of his father, aged 63 years, who is not dependent on him.
• He contributed Rs.3,600 to Central Government Health Scheme during the year.
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 • He has incurred Rs.3,000 in cash on preventive health check-up of himself and his
spouse and Rs.4,000 by cheque on preventive health check-up of his father.
• Compute the deduction allowable under section 80D for the A.Y. 2021-22.

Illustration 5

• Mr. A, a resident individual aged 61 years, has earned business income (computed)

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of Rs.1,35,000, lottery income of Rs.1,20,000 (gross) during the P.Y. 2020-21.
• He also has interest on Fixed Deposit of Rs.30,000 with banks.

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• He invested an amount of Rs.1,50,000 in Public Provident Fund account.
• What is the total income of Mr. A for the A.Y. 2021-22?

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Illustration 6

• Mr. X is a resident individual. He deposits a sum of Rs.50,000 with Life Insurance

Corporation every year for the maintenance of his handicapped grandfather who is

•
wholly dependent upon him.

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The disability is one which comes under the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995.
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• A copy of the certificate from the medical authority is submitted.
• Compute the amount of deduction available under section 80DD for the A.Y. 2021-
22.
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• What will be the deduction if Mr. X had made this deposit for his dependant father?

Illustration 7
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X completed his studies on 1-04-2019 and was immediately employed by the State
Government on the following terms –

Basic Salary Rs.20,000 p.m.

DA Rs.5,000 p.m. (forming a part of retirement benefit)
Bonus Rs.50,000
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• During the year, his employer contributed Rs.33,000 to the pension scheme being
notified u/s 80CCD of the Income Tax Act, 1961. X also contributed similar amount.
• His income from house property is Rs.50,000.
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• During the year he contributed Rs.15,000 to pension plan of LIC, to PPF Rs.1,00,000
and paid LIC premium of Rs.16,000 (Policy value Rs.1,20,000). Compute his total
income.

Illustration 8

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 X, 40 years old, paid following sums by cheque –

Person Insured Amount (₹)

Mediclaim Insurance premium for X 18,000
Mediclaim Insurance premium for Mrs. X (not dependant on X) 5,000
Contribution to the Central Government Health Scheme for 3,000
Dependant Daughter

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Mediclaim Insurance premium for Son (not dependant on X) 3,000

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Contribution to the Central Government Health Scheme for Brother 1,000
(dependant on X)
Mediclaim Insurance premium for Mother-in law (dependant on X 900

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age 70 years)
Mediclaim Insurance premium for Mother (dependant on X age 59 26,500
years)
Mediclaim Insurance premium for Grandparents (dependant on X) 1,600

61 years)
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Mediclaim Insurance premium for Father (not dependant on X age

Contribution to the Central Government Health Scheme for Father

32,000

2,000
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Total 68,000
Compute deduction available to Mr. X u/s 80D.
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Illustration 9

The following are the particulars relating to Mr. A, Mr. B, Mr. C and Mr. D, salaried
individuals, for A.Y. 2021-22 –
By

Particulars Mr. A Mr. B Mr. C Mr. D

Amount of loan taken Rs.43 lakhs Rs.45 lakhs Rs.20 lakhs Rs.15 lakhs
Loan taken from HFC Deposit Deposit Public
taking NBFC taking NBFC sector bank
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Date of sanction of loan 1.4.2020 1.4.2019 1.4.2019 30.3.2019

Date of disbursement of 1.5.2020 1.5.2019 1.5.2019 1.5.2019
loan
Purpose of loan Acquisition Acquisition Purchase of Purchase of
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of of residential electric electric

residential house vehicle for vehicle for
house property for personal personal
property for self- use use
self- occupation
occupation
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 Stamp duty value of Rs.45 lakhs Rs.48 lakhs - -
house property
Cost of electric vehicle - - Rs.22 lakhs Rs.18 lakhs

Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.

Compute the amount of deduction, if any, allowable under the provisions of the Income-
tax Act, 1961 for A.Y.2021-22 in the hands of Mr. A, Mr. B, Mr. C and Mr. D. Assume that

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there has been no principal repayment during the P.Y.2019-20 and P.Y. 2020-21.

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Illustration 10

Find the amount of deduction u/s 80DDB for the following cases:

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Name of the
P Q R S T
Assessee
Residential Ordinarily Not Non- Resident Resident Resident
status of the resident
assessee
ordinarily
resident
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Indian
Citizen
not
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Expenditure Rs.6,000 Rs.80,000 Rs.1,00,000 Rs.72,000 Rs.80,000
incurred for
medical
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treatment
(specified
disease) of
dependant
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brother
Age of 28 63 68 88 52
Brother
Residential Resident Non- Resident Resident Resident
status of resident
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dependant
Medical - - - - Rs.8,000
Insurance
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claim
received.

Illustration 11

Mr. Gurnam, aged 42 years, has salary income (computed) of Rs.5,50,000 for the
previous year ended 31.03.2021. He has earned interest of Rs.14,500 on the saving bank
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 account with State Bank of India during the year. Compute the total income of Mr.
Gurnam for the assessment year 2021-22 from the following particulars:

• Life insurance premium paid to Birla Sunlife Insurance in cash amounting to

Rs.25,000 for insurance of life of his dependent parents. The insurance policy was
taken on 15.07.2018 and the sum assured on life of his dependent parents is
Rs.2,00,000.

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• Life insurance premium of Rs.25,500 paid for the insurance of life of his major son

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who is not dependent on him. The sum assured on life of his son is Rs.2,50,000 and
the life insurance policy was taken on 30.3.2012.
• Life insurance premium paid by cheque of Rs.22,500 for insurance of his life. The

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insurance policy was taken on 08.09.2017 and the sum assured is Rs.2,00,000.
• Premium of Rs.26,000 paid by cheque for health insurance of self and his wife.
• Rs.1,500 paid in cash for his health check-up and Rs.4,500 paid in cheque for

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preventive health check-up for his parents, who are senior citizens.
• Paid interest of Rs.6,500 on loan taken from bank for MBA course pursued by his
daughter.
• A sum of Rs.5,000 donated in cash to an institution approved for purpose of section
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80G for promoting family planning.
Illustration 12
In
Mr. Ganesh, a businessman, whose total income (before allowing deduction under
section 80GG) for A.Y.2021-22 is Rs.4,60,000, paid house rent at Rs.12,000 p.m. in respect
of residential accommodation occupied by him at Mumbai.
By

Compute the deduction allowable to him under section 80GG for A.Y.2021-22.

Illustration 13

Mr. Shiva aged 58 years, has gross total income of Rs.7,75,000 comprising of income
IN

from salary and house property. He has made the following payments and investments:
• Premium paid to insure the life of his major daughter (policy taken on 1.4.2017)
(Assured value Rs.1,80,000) – Rs.20,000.
• Medical Insurance premium for self – Rs.12,000; Spouse – Rs.14,000.
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• Donation to a public charitable institution registered under 80G Rs.50,000 by way of

cheque.
• LIC Pension Fund – Rs.60,000.
• Donation to National Children’s Fund – Rs.25,000 by way of cheque
• Donation to Jawaharlal Nehru Memorial Fund – Rs.25,000 by way of cheque

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 • Donation to approved institution for promotion of family planning – Rs.40,000 by
way of cheque
• Deposit in PPF – Rs.1,00,000.
Compute the total income of Mr. Shiva for A.Y. 2021-22.

Illustration 14

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• For the Assessment year 2021-22, the Gross Total Income of Mr. Chaturvedi, a

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resident in India, was Rs.8,18,240 which includes long-term capital gain of
Rs.2,45,000 taxable under section 112 and Short-term capital gain of Rs.58,000.
• The Gross Total Income also includes interest income of Rs.12,000 from savings bank

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deposits with banks and Rs.40,000 interest on fixed deposits with banks.
• Mr. Chaturvedi has invested in PPF Rs.1,20,000 and also paid a medical insurance
premium Rs.51,000.
• Mr. Chaturvedi also contributed Rs.50,000 to Public Charitable Trust eligible for

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deduction under section 80G by way of an account payee cheque.

Compute the total income and tax thereon of Mr. Chaturvedi, who is 70 years old as on
31.3.2021. Ignore the provisions of section 115BAC.
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Illustration 15
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Mr. A has commenced the business of manufacture of computers on 1.4.2020. He
employed 350 new employees during the P.Y. 2020-21, the details of whom are as
follows.
No. of Date of Regular/ Total monthly emoluments per
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employees employment Casual employee (Rs)

75 1.4.2020 Regular 24,000
125 1.5.2020 Regular 26,000
50 1.8.2020 Casual 24,500
100 1.9.2020 Regular 24,000
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The regular employees participate in recognized provident fund while the casual
employees do not.
Compute the deduction, if any, available to Mr. A for A.Y. 2021- 22, if the profits and gains
derived from manufacture of computers that year is Rs.75 lakhs and his total turnover
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is Rs. 5.16 crores.

What would be your answer if Mr. A has commenced the business of manufacture of
footwear on 1.4.2020?

Illustration 16

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 Compute total income for the A.Y.2020-21 of Miss Dipika, a resident individual, from
the following details:
Particulars Amount
Profits and gains of business or profession 80,000
Income from Other Sources 10,000
Long-term Capital Gains 5,00,000
Payment of medical insurance premium on own life 5,000

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Donation to National Foundation for communal harmony 4,000

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Donation to the fund set up by the Gujarat Govt. for providing 5,000
Relief to victims of earthquake in Gujarat
Donation to Indira Gandhi Memorial Trust 1,000

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Donation to Prime Minister’s Drought Relief Fund 5,000
Donation to Approved Charitable Institution 12,000
Donation to Central Government for promotion of family planning 3,000
Donation to a poor boy for higher education 10,000

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Donation of cloth to an approved institution worth 12,000
Donation to charitable institution for construction of home for a 8,000
particular community
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Illustration 17

Mr. X is suffering from low vision, certified as a severe disability. He has a following
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Income details.
• Net Salary: Rs.45,000
• Short term capital gain: Rs.45,000
• Long term capital gain: Rs.1,50,000
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• Mrs. X, suffering from leprosy, certified as 50% disabled is fully dependent on Mr.
X.
Find out his Total Income.

Illustration 18
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Examine the following statements with regard to the provisions of the Income-tax Act,
1961:
• During the financial year 2020-21, Mr. Amit paid interest on loan availed by him for
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his son's higher education. His son is already employed in a firm. Mr. Amit will
get the deduction under section 80E.
• Subscription to notified bonds of NABARD would qualify for deduction under
section 80C.
• In order to be eligible to claim deduction under section 80C,
investment/contribution/subscription etc. in eligible or
approved modes, should be made from out of income chargeable to tax..
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 • Mrs. Sheela, widow of Mr. Satish (who was an employee of M/s. XYZ Ltd.),
received Rs. 7 lakhs on 1.5.2020, being amount standing to the credit of Mr.
Satish in his NPS Account, in respect of which deduction has been allowed under
section 80CCD to Mr. Satish in the earlier previous years. Such amount received by
her as a nominee on closure of the account is deemed to be her income for
A.Y.2021-22.
• Where an individual repays a sum of Rs.30,000 towards principal and Rs.14,000 as

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interest in respect of loan taken from a bank for pursuing eligible higher studies,
the deduction allowable under section 80E is Rs.44,000.

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Mr. Vishal, a Central Government employee, contributed Rs. 50,000 towards Tier-II
account of NPS. The same would be eligible for deduction under section 80CCD.

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 CHAPTER 12 - ALTERNATE MINIMUM TAX (AMT)

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Overview

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Sec 115 JC
Special provisions for Sec 115 JD
payment of tax by Tax Credit for AMT

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certain persons other
than companies

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Sec 115 JC - Special provisions for payment of tax by certain persons other than a company
➢ Chapter XII-BA contains the special provisions for levy of alternate minimum tax in case
of persons other than a company.
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➢ Where the regular income-tax payable for a previous year by a person, other than a
company, is less than the alternate minimum tax payable for such previous year-
• The adjusted total income shall be deemed to be the total income of that person for
such previous year, and
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• Assessee shall be liable to pay income-tax on such total income at the rate of
eighteen and one-half per cent.
➢ Assessee shall obtain a report, before the specified date referred to in section 44AB, in
such form as may be prescribed, from an accountant certifying that the adjusted total
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income and the alternate minimum tax have been computed in accordance with the
provisions of this Chapter and furnish such report by that date.
➢ Where the person referred therein, is a unit located in an International Financial
Services Centre and derives its income solely in convertible foreign exchange, assessee
shall be liable to pay income tax on such total income at the rate of nine percent.
➢ For a cooperative society, the assessee shall be liable to pay income tax on such total
income at the rate of fifteen percent.
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➢ These provisions shall not apply to a person who has exercised the option under Sec
115BAC and Sec 115BAD
➢ The provisions of AMT would, however, not be applicable to an individual, HUF, AOPs,
BOIs, whether incorporated or not, or artificial juridical person, if the adjusted total
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income of such person does not exceed Rs. 20 lakhs

 Meaning of Adjusted total Income:

➢ Adjusted total income shall be the total income before giving effect to this Chapter as
increased by

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 • Deductions claimed, if any, under any section (other than section 80P) included in
Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" [
Eg: 80JJAA, 80QQB, 80RRB]
• Deduction claimed, if any, under section 10AA
• 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.

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Sec 115JD – Tax credit on AMT
➢ Tax credit is the excess of AMT paid over the regular income-tax payable under the
provisions of the Income-tax Act, 1961 for the year.

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➢ Tax credit to be carried forward = AMT less Tax computed as per regular provisions
➢ AMT credit can be carried forward for set-off up to a maximum period of 15 assessment
years succeeding the assessment year in which the credit becomes allowable
➢ Tax Credit allowable even if Adjusted Total Income does not exceed Rs. 20 lakhs in the
year of set-off.

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➢ The provisions of the Income-tax Act, 1961 relating to advance tax, interest under sections
234A, 234B and 234C etc. shall also apply to an assessee paying AMT.
➢ These provisions shall not apply to a person who has exercised the option under Sec
115BAC and Sec 115BAD.
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 GROSS TOTAL INCOME - ILLUSTRATIONS

Illustration 1

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From the following details and information compute the total income of Sriram (date of

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birth - 20th Mar 1960), an individual for the Assessment Year 2023-24.

Profit & Loss Account for the year ending 31/3/2023

Rs. Particulars Rs.

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Salaries to staff 6,32,000 Trading profits 22,60,000
Drawings for household 4,10,000 Rent from portion let out 4,80,000
expenses
Life insurance premium 25,000 Interest on fixed deposit 70,000

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(sum insured in 2009 with bank
Rs.2,00,000)
Contribution to PPF 15,000 Income from units from UTI 15,000
Depreciation on 91,000 Gold coins received on Diwali 46,000
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assets used in business from a family friend Y
Advertisement expenses 26,000
Printing and Stationary 31,000
Interest on loan 42,000
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Net Income for the year 15,99,000
28,71,000 28,71,000

Further details –
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1. Interest was on a loan for Rs.4,00,000 taken in June previous year for purposes of
buying shares of a public limited company. The Company did not declare any dividends
after purchase of shares by Sriram.
2. An analysis of the fixed assets ledger revealed the following:
(a) Sriram has purchased an accounting machine in June 2011 for Rs.86,000. Its written down
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value, as per Income tax records, as on April 1st of the previous year was Rs. 54,000. In
October of the previous year, it was sold for Rs. 98,000
(b) Depreciated value of other assets on April 1 of the previous year is
Rs.6,54,000 (rate of depreciation : 15%)
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3. Included in salaries was salary of Rs.96,000 drawn by Sriram and a payment of Rs.1,08,000 to
his brother’s son, who was a student of the tenth standard and did not attend to Sriram’s
business
4. Sriram owned two house properties. The first floor of the first property was used half for
running the business and the other half was let out at Rs.40,000 per month. The second
property was wholly used as a resident by Sriram. Municipal taxes for the two properties were
same at Rs.48000 per annum. The business and the let-out premises were insured against loss
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 by fire and the annual insurance premium was Rs.12,000. The payment of municipal taxes and
the insurance premium was included in household expenses.
5. Included in advertisement expenses were donations of Rs.5,000 to the Prime
Minister’s National Relief Fund.
6. During the previous year, Sriram has given a donation of Rs.2,15,000 to Bhartiya Vidya
Bhavan, an organisation recognised under section 80G. It is not included in the above
profit and loss account.

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7. Value of gold coins given in the profit and loss account is cost of the gold coins
purchased by Y in 1998. However, the fair market value of these coins on Diwali of

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the previous year and March 31st of the previous year 1,40,000 and Rs. 1,55,000
respectively.

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Illustration 2

Dr. Suraj, 63 years, civil surgeon was in Govt. service till 30th June of the previous year.
➢ He joined as an adviser (part time) from October 1st of the previous year in a charitable

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dispensary on an honorarium of Rs.60,000 per month.
➢ He owns a house property. Ground floor is occupied by him for his residence, the annual
value of which is Rs.6,00,000. First floor was built by him and let out from June 1st of
the previous year on a monthly rent of Rs.55,000, after its completion on May 31st of
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the previous year.
➢ He is also a visiting surgeon to various hospitals.
➢ From the following further information furnished for the year ending March 31st, find out his
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income and tax liability for the assessment year 2023-24

Particulars Rs.
Salary from Govt. Service 9,50,000
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House rent allowance 1,10,000

Gratuity received 8,30,000
Leave at credit encashment 4,48,000
Provident Fund 11,75,000
Commuted Pension 7,30,000
Pension 3,10,000
IN

Gross receipts from various hospitals as visiting surgeon 31,34,000

Car hire charges (car is used only for visiting various hospitals and hire charges 2,10,000
are paid without deduction of tax at source under section 194-I)
Salary of driver 56,000
Car maintenance expenditure 72,000
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Books and periodicals [eligible for depreciation @ 100%] 40,000

Donation to Prime Minister’s National Relief Fund 30,000
Amount withdrawn from National Savings Scheme, 1987 (principal Rs.10,000 25,000
and interest Rs.15,000)

Royalty received on the textbooks authored by him and recommended as text 3,20,000
book for Pune University
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 Municipal tax on house property
• Ground floor 40,000
• First floor paid on April 15 of the A.Y. 60,000
Repayment to HDFC Ltd. (paid in June of the A.Y – Principal Rs.74,000 +
interest Rs.45,000 on loan taken for construction of first floor)
Deposit into public provident fund account 70,000
Contribution to Government’s provident fund from 1st April to 30th June of 60,000
the previous year

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Illustration 3

Compute the taxable income and tax liability of Chandu (63 years) for the Assessment year

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2023-24.

Particulars Rs.
Net Income from computer hardware business 17,55,000

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Interest on Post Office Savings Account 13,000
Share of Profit from a Partnership Firm 2,00,000
Salary drawn by him as a sleeping partner from the aforesaid firm 2,10,000
Short term capital gain on transfer of land 6,24,000
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Long term capital gain on house property (after indexation) 5,55,000
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Long term capital gain on transfer of aforesaid house property (if 9,00,000
computed without indexation ) (Chandu wants to pay tax at the rate of
10% of Rs.9,00,000 and not at the rate of 20% of Rs.5,55,000)
Share of income from HUF in which he is a member 82,000
Winning from horse races (net of TDS) 57,400
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Loss from betting 10,000

Interest on bank fixed deposits:
• in his own name 40,000
• in name of his minor son 600
• in name of minor daughter 3,200
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• in the name of major unmarried daughter 60,000

Expenditure incurred for the medical treatment of his 67 years old 8,000
elder brother (dependent on Chandu, being a person with disability)
Repayment of loan taken for part-time studies of major daughter for 80,000
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graduate course in management (loan is taken from a notified

charitable institute)
Payment of interest of the aforesaid loan 17,000
Donation to the aforesaid charitable institute 5,000
Brought forward loss of a discontinued business pertaining to the A.Y 40,000
2016-17

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 Purchase of a work of art on 1st Nov of the previous year from a friend 84,000
for Rs.84,000 (market value is, however, Rs.4,00,000)
Purchase of painting on 1st Dec of the previous year from a registered 60,000
dealer for Rs.60,000 (invoice value of Rs.60,000. However, a similar
painting is not available for less than Rs.3,00,000
Payment of a disputed sales tax liability of the previous year 2019-20 34,000
pertaining to computer hardware business (not deducted from the
income given above)

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Deposit in public provident fund account 1,10,000

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Illustration 4

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Aditya (42 years) submits the following information for the previous year ending March
31, 2022 –

1. On October 11 of the previous year, he gets a commercial property by way of gift from

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his friend. Stamp duty value of the property is Rs.25,00,000. Stamp duty value is
challenged by Aditya before the Assessing Officer. The Department Valuation Officer
(DVO) has determined Rs.21,50,000 as value of the property.
2. On 15th October of the previous year, Aditya purchases a residential house
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from Kishen for Rs.8,00,000 (stamp duty value is Rs.14,00,000)
3. On 1st November of the previous year, Aditya gets a plot of 30 meter in a village in
Andhra Pradesh by way of gift from a friend of his grandfather. Stamp duty value is
In
Rs.45,000
4. On 1st September of the previous year, Aditya gets a gift of a residential plot from his
friend without consideration. Stamp duty value is Rs. 14,00,000
5. On 1st December of the previous year Aditya gets a gift of 1,000 sq. ft. commercial
space in a mall from his father-in-law. Stamp duty value is Rs.12,00,000.
By

➢ Income of Aditya from other sources is bank FD interest Rs.6,90,000and Post Office Savings
Bank interest of Rs.18,500. Aditya does not have any other income.
➢ However, he is entitled to claim Rs.40,000 as deduction under section 80CCC.

You are required to determine the following:

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1. The amount of income and tax liability for the assessment year 2022-23
2. Determine “cost of acquisition” of the aforesaid properties in the hands of Aditya for
the purpose of calculating capital gain at the time of the transfer of these properties
in future.
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Illustration 5
Dr.Teddy’s Ltd. is a manufacturing Indian Company. For the previous year ending March
31st, 2022, net profits as per profit and loss account is Rs.17,80,000. It is calculated after
including compensation and interest of Rs. 4,05,000 as given below:

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 1. Dr.Teddy’s Ltd. was the marketing agent of Pineapple Inc. (a foreign company). The
agency was terminated by the foreign company during April. A compensation of
Rs.4,00,000 is received during January and it is credited to the profit and loss
account of the year ending 31st March 2022.
2. From the foreign company, Dr.Teddy Ltd. has collected an interest of Rs.78,000. After
deducting expenditure for collecting interest of Rs.73,000 Rs.5,000 is credited to the
profit and loss account. Rs. 73,000 is paid to a law firm for collecting this amount.

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During the previous year, Dr. Teddy’s Ltd. has received an enhanced compensation of
Rs.25,00,000 from the Telangana Govt.

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• A plot of land of the company was acquired by the Punjab Govt. 12 years back and
for which a compensation of Rs.55,00,000 was paid after 2 years of acquisition.
• On appeal filed by the company, the Telangana High Court increased the

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compensation to Rs.80,00,000.
• Telangana Government paid Rs.25,00,000 on June 13th of the previous year.
• Along with enhanced compensation of Rs.25,00,000, Dr.Teddy’s Ltd. has received
interest of Rs.3,00,000. It pertains to previous years from year of acquisition to the
current previous year .

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• Interest and Compensation are not credited to profit and loss account.

Determine the net income and tax liability of Dr.Teddy’s Ltd. for the assessment year
2022-23 taking into consideration the following additional information:
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1. For realization of enhanced compensation and interest thereon, legal expenditure of
the company is Rs.1,40,000. It is not debited to current year’s profit and loss
account.
In
2. Dr.Teddy’s Ltd. has contributed Rs.61,500 towards National Defence Fund on August
15th, during the previous year .
3. Dr.Teddy’s Ltd. maintains books of account on mercantile basis.
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Illustration 6

Vidyasagar is an advocate by profession. From the information given below, determine the
income of Vidyasagar for the assessment year 2022-23:
1. On April 30th of the previous year, he purchased 10 paintings of Raja Ravi Verma for
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Rs.9,00,000 (fair market value is, however, Rs.35,00,000). These paintings are
purchased from an advocate (who is not a registered dealer under sales tax or VAT or
GST). Up to March 31st these paintings are not sold.
2. Income of Vidyasagar from legal profession is Rs.60,00,000 during the previous year.
1F

3. On June 30th of the previous year, he purchases jewellery from a person (other than
recognised dealer) for Rs.8,00,000 (fair market value is Rs.9,10,000). On December
2nd the jewellery is transferred for Rs.9,50,000.
4. Minor son of Vidyasagar gets a gift of Rs.75,000 from his maternal uncle on his
9th birthday.

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 5. Minor daughter of Vidyasagar gets gift of Rs.60,000 from friends of Vidyasagar and his
wife on her 5th birthday .
6. On December 10th of the previous year, Vidyasagar purchased a Tagore painting from
the Jain Art Gallery, Cochin. Jain Art Gallery is a registered dealer under VAT or GST.
The painting is purchased under invoice number 485 issued by Jain Art Gallery and the
invoice price / purchase price is Rs.5,00,000. However, the same painting will not be
available for less than Rs.7,50,000 from any other gallery.

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7. On December 15th of the previous year, Vidyasagar purchases jewellery
from Tanishq (a registered dealer under VAT or GST). Invoice price / purchase price is

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Rs.3,70,000. However, the same jewellery will not be available for less than
Rs.4,40,000 from any other jewellery shop.

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Illustration 7

Gross total income of XYZ India Ltd. is Rs.46,00,000 for the previous year. It is
calculated as follows:

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Rs.
Profits from overseas project 17,00,000
Profit from domestic project 8,00,000
Dividend from Foreign companies 10,00,000
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Royalty from Indian Companies for using patents owned by XYZ 11,00,000
Ltd. (the assessee wants to claim deduction u/s 80RRB)
In
During the previous year, XYZ India Ltd. has given following donations / contributions by
cheque-

1.Donation to a political party Rs.2,60,000

2.Donation to Prime Minister’s Drought Relief Fund Rs.40,000
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3.Donation to notified temples for repair Rs.30,000

4.Donation to Punjab Govt. for improving family planning Rs.2,15,000
5.Donation in kind to Prime Minister’s National Relief Fund 1 kg gold
((Market value of donation is Rs.25,45,000)
6.Donation to poor students for their higher studies Rs.25,000
7. Donation of books to Govt. School 800 books
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(purchase price Rs.2,76,000)

8. Donation to a Trust (which is not notified) Rs.1,00,000
for construction of community hall
9. Donation to a notified trust for construction Rs.55,000
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of ghat for hindus

10. Donation to a notified charitable trust Rs.6,75,000

Determine the net income and tax liability of XYZ India Ltd. for the assessment year 2023-
24 (applicable tax rate is 30%)

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 Illustration – 8

From the following information given below, find out tax liability of Santhosh (43 years)
for the assessment year 2023-24

• Santhosh is a resident and ordinary resident in India

• He is a partner in a limited liability partnership. His share of profit from the firm for the
previous year 2022-23 is Rs. 10,70,000

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• He is a member of HUF. His share of profit from the family is Rs. 2,65,000
• During the previous year, he had received a scholarship of Rs. 40,000

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• Santhosh is employed by a company on part time basis. Annual salary is Rs. 2,90,000
• Interest on government securities is Rs. 9,46,000
• Santhosh is qualified to claim a deduction of Rs. 10,000 under section 80GGC

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Illustration – 9

From the information given below, find out the net income of Kamal (30 years) for the
assessment year 2023-24

Particulars
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Income from activity of owning and maintaining racehorses
Amount
2,10,000
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Winning from camel races in Dubai 9,77,000
Winnings from MP Government lottery 4,00,000
Expenditure on earning above winnings 8,000
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Salary from A Ltd. (It includes entertainment allowance of Rs. 10,50,000
10,000)
Interest income of minor child (of deposit made out of gift received 80,000
by child from brother of Mrs. Kamal)
Income of Mrs. Kamal [It is interest on company deposit (50 % 2,16,000
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deposit is made out of gift received from Kamal and 50% is made out
of gift received from her brother), Mrs. Kamal does not have any
other income]
Public Provident fund contribution 1,05,000
IN

Illustration – 10

X(64 years), a salaried employee (drawing Rs. 8,38,983 as annual salary) has occupied
three houses for his residential purposes, particulars of which are as follows:
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House 1 House 2 House 3

(in Rs.) (in Rs.) (in Rs.)
Standard rent 63,000 11,85,000 73,000
Municipal valuation 70,000 11,90,000 69,000
Fair Rent (FR) 53,000 11,78,000 71,000
Municipal taxes paid 4,000 42,000 6,000
Repairs Nil Nil Nil
Ground rent due but outstanding 600 Nil 800
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 Insurance premium due but outstanding 9,000 2,000 1,200

X borrows from a relative Rs. 40,00,000 @ 9% per annum for construction of House
2(Date of borrowing June 1, 2018, date of repayment of loan May 31, 2021)

Construction of all houses is completed in August 2020. Determine the taxable income
and tax liability of X for the assessment year 2023-24 on the assumption that X

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contributes Rs. 46,000 towards statutory provident fund and Rs. 8,000 towards National
relief bonds.

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COMPUTATION OF TOTAL INCOME AND TAX PAYABLE – ADDITIONAL ILLUSTRATIONS

Illustration 1

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Ramdin, aged 33 years, working as Manager (Sales) with Frozen Foods Ltd., provides the
following information for the year ended 31.03.2022:
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Basic Salary Rs.15,000 p.m.
DA (50% of it is meant for retirement benefits) Rs.12,000 p.m.
Commission as a percentage of turnover of the Company 0.5 %
In
Turnover of the Company Rs.50 lacs
Bonus Rs.50,000
Gratuity Rs.30,000
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Own Contribution to R.P.F. Rs.30,000

Employer’s contribution to R.P.F. 20% of basic salary
Interest credited in the R.P.F. account @ 15% p.a. Rs.15,000

• Gold Ring worth Rs.10,000 was given by employer on his 25th wedding anniversary.
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• Music System purchased on 01.04.2021 by the company for Rs.85,000 and was given
to him for personal use.
• Two old light goods vehicles owned by him were leased to a transport company
against the fixed charges of Rs.6,500 p.m. Books of account are not maintained.
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• Received interest of Rs.5,860 on bank FDR’s on 24.4.2021 and interest of Rs.6,786

(Net) from the debentures of Indian Companies on 5.5.2021.
• Made payment by cheques of Rs.15,370 towards premium on Life Insurance policies
and Rs.22,500 for Mediclaim Insurance policy for self and spouse.
• Invested in NSC Rs.30,000 and in FDR of SBI for 5 years Rs.50,000.

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 • Donations of Rs.11,000 to an institution approved u/s 80G and of Rs.5,100 to Prime
Minister’s National Relief Fund were given during the year by way of cheque.
Compute the total income and tax payable thereon for the A.Y. 2022-23. Assume Ramdin
does not opt for section 115BAC.

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Illustration 2

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From the following details, compute the total income and tax liability of Siddhant, aged
31 years, of Delhi both as per the regular provisions of the Income-tax Act, 1961 and as

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per section 115BAC for the A.Y.2022-23.
Advise Mr. Siddhant whether he would opt for section 115BAC:

Particulars Rs.
Salary including dearness allowance
Bonus
Salary of servant provided by the employer go 3,35,000
11,000
12,000
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Rent paid by Siddhant for his accommodation 49,600
Bills paid by the employer for gas, electricity and water provided 11,000
free of cost at the above flat
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Siddhant purchased a flat in a co-operative housing society in Delhi for Rs.4,75,000 in

April 2015, which was financed by a loan from Life Insurance Corporation of India of
Rs.1,60,000 @15% interest, his own savings of Rs.65,000 and a deposit from a
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nationalized bank for Rs.2,50,000 to whom this flat was given on lease for ten years.
The rent payable by the bank was Rs.3,500 per month. The following particulars are
relevant:
a. Municipal taxes paid by Mr. Siddhant - Rs.4,300 (per annum)
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b. House Insurance - Rs.860

c. He earned Rs.2,700 in share speculation business and lost Rs.4,200 in cotton
speculation business.
d. In the year 2015-16, he had gifted Rs.30,000 to his wife and Rs.20,000 to his son who
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was aged 11. The gifted amounts were advanced to Mr. Rajesh, who was paying
interest @ 19% per annum.
e. Siddhant received a gift of Rs.30,000 each from four friends.
f. He contributed Rs.50,000 to Public Provident Fund.

Illustration 3
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 Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in the financial year
2017-18 for production of washing machines. The unit fulfils all the conditions of section
10AA of the Income-tax Act, 1961.

During the financial year 2020-21, he has also set up a warehousing facility in a district
of Tamil Nadu for storage of agricultural produce. It fulfils all the conditions of section
35AD. Capital expenditure in respect of warehouse amounted to Rs. 75 lakhs (including

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cost of land Rs. 10 lakhs).

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The warehouse became operational with effect from 1st April 2021 and the expenditure
of Rs.75 lakhs was capitalized in the books on that date.
Relevant details for the financial year 2021-22 are as follows:

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Particulars Amount
Profit of unit located in SEZ 40,00,000
Export sales of above unit 80,00,000
Domestic sales of above unit
Profit from operation of warehousing facility
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(Before considering deduction under Section 35AD)
20,00,000
1,05,00,000
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Compute income-tax (including AMT under Section 115JC) liability of Mr. X for
Assessment Year 2021-22 both as per regular provisions of the Income-tax Act and as
In
per section 115BAC for Assessment Year 2021-22.
Advise Mr. X whether he should opt for section 115BAC.
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Illustration 4

Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her
accounts on Cash basis.
Her Income and Expenditure account for the year ended March 31, 2022, reads as
follows:
IN

Expenditure Rs. Income Rs. Rs.

Salary to staff 15,50,000 Fees earned:
Stipend to 1,37,000 Audit 27,88,000
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articled Assistants
Incentive to 13,000 Taxation services 15,40,300
articled Assistants
Office rent 12,24,000 Consultancy 12,70,000 55,98,300
Printing and 12,22,000 Dividend received on 10,524
stationery 30.4.2021 on shares

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 of X Ltd., an Indian
company (Gross)
Meeting, seminar, 31,600 Income from 7,600
and Conference UTI (Gross), received
on 25.4.2021
Purchase of car (for 80,000 Honorarium received 15,800
official use) from various

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institutions for
valuation of answer

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papers
Repair, 4,000 Rent received from 85,600

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maintenance, and residential flat let out
petrol of car
Travelling expenses 5,25,000
Municipal tax paid in 3,000

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respect of
house property
Net Profit 9,28,224
57,17,824 57,17,824
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Other Information:
a) Allowable rate of depreciation on motor car is 15%.
b) Value of benefits received from clients during the course of profession is
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Rs.10,500.
c) Incentives to articled assistants represent amount paid to two articled assistants
for passing IPCC Examination at first attempt.
d) Repairs and maintenance of car include Rs.2,000 for the period from 1-10-2021 to
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30-09-2022.
e) Salary include Rs.30,000 to a computer specialist in cash for assisting Ms. Purvi in
one professional assignment.
f) The travelling expenses include expenditure incurred on foreign tour of Rs.32,000
which was within the RBI norms.
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g) Medical Insurance Premium on the health of dependent brother and major son
dependent on her amounts to Rs.5,000 and Rs.10,000, respectively, paid in cash.
h) She invested an amount of Rs.10,000 in National Saving Certificate.
i) She has paid Rs.70,000 towards advance tax during the P.Y. 2021-22.
1F

Compute the total income and tax payable of Ms. Purvi for the assessment year 2022-
23.

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 Illustration 5

Dr. Niranjana, a resident individual, aged 60 years is running a clinic in Surat. Her
Income and Expenditure Account for the year ending March 31st- 2022 is as under:
Expenditure Rs. Income Rs.
By Consultation and medical
To Medicine consumed 35,38,400 58,85,850
charges

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By Income-tax refund
To Staff salary 13,80,000 (principal Rs.5,000, interest 5,450

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Rs.450)
By Dividend from units of UTI
To Clinic consumables 1,10,000 10,500

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(Gross)
By Winning from game show
To Rent paid 90,000 on T.V. (net of TDS of 35,000
Rs.15,000)

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To Administrative
2,55,000 By Rent 27,000
expenses
To Amount paid to
scientific research
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1,50,000
association approved
u/s 35
To Net profit 4,40,400
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59,63,800 59,63,800

Additional information -
a) Rent paid includes Rs.30,000 paid by cheque towards rent for her residential house
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in Surat.
b) Clinic equipment’s are:
01.04.2021 Opening W.D.V. Rs.5,00,000
07.12.2021 Acquired (cost) by cheque Rs.2,00,000
c) Rent received relates to property situated at Surat. Gross Annual Value Rs.27,000.
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The municipal tax of Rs.2,000, paid in December 2021, has been included in
"administrative expenses".
d) She received salary of Rs.7,500 p.m. from "Full Cure Hospital" which has not been
included in the "consultation and medical charges".
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e) Dr. Niranjana availed a loan of Rs.5,50,000 from a bank for higher education of her
daughter. She repaid principal of Rs.1,00,000, and interest thereon Rs.55,000
during the previous year 2021-22.
f) She paid Rs.1,00,000 as tuition fee (not in the nature of development fees/
donation) to the university for full time education of her daughter.

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 g) An amount of Rs.28,000 has also been paid by cheque on 27th March 2022 for her
medical insurance premium.
From the above, compute the total income of Dr. Smt. Niranjana for the A.Y. 2022-23
under the regular provisions of the Income-tax Act, 1961, assuming that she has not
opted for to pay tax under section 115BAC.

Illustration 6

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Mr. Y carries on his own business. An analysis of his trading and profit & loss for the

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year ended 31-3-2022 revealed the following information:
a) The net profit was Rs.11,20,000.
b) The following incomes were credited in the profit and loss account:

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a. Dividend from UTI Rs.22,000 (Gross)
b. Interest on debentures Rs.17,500 (Gross)
c. Winnings from horse races Rs.15,000 (Gross)
c) It was found that some stocks were omitted to be included in both the opening

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and closing stocks, the value of which were:
Opening stock Rs.8,000. Closing stock Rs.12,000.
d) Rs.1,00,000 was debited in the profit and loss account, being contribution to a
University approved and notified under section 35(1)(ii).
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e) Salary includes Rs.20,000 paid to his brother which is unreasonable to the extent
of Rs.2,500.
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f) Advertisement expenses include 15 gift packets of dry fruits costing Rs.1,000 per
packet presented to important customers.
g) Total expenses on car were Rs.78,000. The car was used both for business and
personal purposes. ¾th is for business purposes.
h) Miscellaneous expenses included Rs.30,000 paid to A &Co., a goods transport
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operator in cash on 31-1-2022 for distribution of the company’s product to the

warehouses.
i) Depreciation debited in the books was Rs.55,000. Depreciation allowed as per
Income-tax Rules, 1962 was Rs.50,000.
j) Drawings Rs.10,000.
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k) Investment in NSC Rs.15,000.

Compute the total income of Mr. Y for the assessment year 2022-23, assuming that he
has not opted to pay tax under section 115BAC.
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Illustration 7

Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1982
and settled in Canada since 1982. Mary got married and settled in Mumbai. Both of
them are below 60 years. The following are the details of their income for the previous
year 2021-22:
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 S.No. Particulars Rosy Rs. Mary Rs.
1. Pension received from State Government - 60,000
2. Pension received from Canadian Government 20,000 -
3. Long-term capital gain on sale of land at Mumbai 1,00,000 50,000
4. Short-term capital gain on sale of shares of Indian 20,000 2,50,000
listed companies in respect of which STT was paid
5. LIC premium paid - 10,000

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6. Premium paid to Canadian Life Insurance 40,000 -

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Corporation at Canada
7. Mediclaim policy premium paid vide account - 25,000
payee cheque

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8. Investment in PPF - 20,000
9. Rent received in respect of house property 60,000 30,000
at Mumbai

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Compute the taxable income and tax liability of Mrs. Rosy and Mrs. Mary for the
Assessment Year 2022-23 and tax thereon, ignoring the provisions of Section 115BAC.
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In
By
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 CHAPTER 13 - ADVANCE TAX, TDS AND TCS

General provisions

Tax collected in
the previous year
itself by way of

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Advance tax Self
Tax deducted at Tax collected
(sec 207 to assessment tax
source at source
211) (Sec.140A)

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Advance tax – Sec 207 to Sec 211
➢ The scheme of advance tax is based on the concept “Pay as you earn”.
➢ Under this scheme assessee needs to estimate its income and tax liability of the previous

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year and pay tax on basis of such estimation in the previous year itself.
 Applicable to
➢ All assessee whose advance tax payable is ₹ 10,000 or more.
 Not applicable to
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➢ Senior citizens (age being 60 years or more) not having any income chargeable under the head
“Profits and gains of business or profession”
 Computation of advance tax
A. On assessee’s own motion
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1. Make an estimate of current year’s income (excluding income covered u/s 44AD or
44ADA), considering brought-forward losses, after deducting all allowable deductions
under chapter VIA.
(The estimate is not required to be filed with the tax authorities.)
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2. Compute the tax liability on above estimated income at the rates in force during the
financial year and reduce rebate, If any.
3. Add surcharge (if applicable). And Health and Education cess.
4. Deduct tax deducted or collected at source.
(Only if tax has actually been deducted at source, the same can be reduced for computing
advance tax liability of the payee. Tax deductible but not so deducted cannot be reduced
for computing advance tax liability of the payee)
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5. The amount so derived is the advance tax payable.

6. For subsequent instalment, check if estimate of income made earlier requires revision.
7. If so, revise the estimation and recompute tax liability.
8. From the advance tax payable for that instalment deduct the amount already paid.
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9. Pay the remaining amount.

B. On receipt of order from the Assessing Officer

Conditions to be satisfied for issuing such order
1. The assessee has already been assessed by way of a regular assessment in any previous
year.
2. The Assessing Officer is of opinion that such person is liable to pay advance tax.

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 3. Such order can be passed at any time during the financial year but not after last day of
February.
4. Such order must be made in writing.
5. Such order also specifies the amount of advance tax and the instalments thereof to be paid
by the assessee.
Note: Such order can be issued even if assessee has paid any instalment of advance tax during
the year, which is, in the opinion of the Assessing Officer, not as per provision of sec. 211.
The above order can be served by the Assessing Officer at any time during the financial

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year but not later than the last date of February.
Determination of advance tax by the Assessing Officer

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The amount determined by the Assessing Officer shall be the higher of the following –
1. Tax on latest assessed income as per regular assessment; or
2. Tax on income declared by the assessee in the return relating to the previous year

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subsequent to the previous year for which regular assessment has been made.

 Procedure to be followed by assessee on receipt of such order

Case Advance tax to be paid Whether intimation to
by the assessee AO is required

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Where income estimated by the On the basis of the order No
Assessing Officer is correct of the Assessing Officer
Where assessee estimates his On the basis of his own No
current income to be higher than that estimate
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estimated by the Assessing Officer
Where assessee estimates his On the basis of his own Yes, Assessee shall submit
current income to be lower than that estimate his own estimate to the
estimated by the Assessing Officer Assessing Officer (in
In
Form 28A)

 Due date for payment of advance tax [Sec. 211]

Assessee Due date of instalment Minimum amount payable
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(of previous year)

An eligible assessee On or before March 15 100% of advance tax liability
referred to in sec. 44AD
or 44ADA
Other Assessee On or before June 15 Up to 15% of advance tax liability
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On or before September 15 Up to 45% of advance tax liability

On or before December 15 Up to 75% of advance tax liability
On or before March 15 Up to 100% of advance tax liability

➢ Any amount paid u/s 211 on or before 31st March of the previous year, shall be treated as
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advance tax paid during the financial year.

➢ Where it is not possible to estimate

• capital gain
• casual gain
• income under the head “Profits and gains of business or profession” accrues for the first
time, or
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 • the amount of dividend income
the assessee can pay whole of the amount of tax payable in respect of such income, had
such income been a part of the total income, as part of the remaining instalments of
advance tax which are due or where no such instalments are due, by the 31st day of March
of the financial year
➢ Net agricultural income has to be considered for the purpose of computing advance tax.
➢ If any assessee does not pay any instalment within due date he shall be deemed to be an
assessee in default in respect of such instalment.

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➢ Any sum, other than a penalty or interest, paid by an assessee as advance tax shall be treated
as a payment of tax and credit for such shall be given to the assessee in the regular

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assessment.
➢ If advance tax payable is less than ₹ 10,000 then interest u/s 234B and 234C for defaults in
payment of advance tax is not applicable. However, interest u/s 234A regarding interest for

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belated filing of return would be attracted.

Sec 234B - Interest for non-payment or short-payment of advance tax

 Applicability -
➢ Interest under section 234B is attracted for
• non-payment of advance tax or

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• payment of advance tax of an amount less than 90% of assessed tax.
 Interest –
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➢ The interest liability would be 1% per month or part of the month from 1st April following
the financial year up to the date of determination of income under section 143(1).
➢ Such interest is calculated on the amount of difference between the assessed tax and the
In
advance tax paid.
➢ Assessed tax is the tax calculated on total income less TDS or TCS; relief u/s 89; Tax credit
allowed as per 115JD.
➢ However, where self-assessment tax is paid by the assessee under section 140A or
otherwise, interest shall be calculated up to the date of payment of such tax and reduced
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by the interest, if any, paid under section 140A towards the interest chargeable under this
section.
Note:
(i) "tax on total income as determined under Section 143(1)" shall not include the
additional income-tax, if any, payable under section 140B or section 143; and
(ii) tax on the total income determined under such regular assessment shall not include
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the additional income-tax payable under section 140B.

Sec 234C - Interest payable for deferment of advance tax

1F

Assessee Due date Shortfall in advance Period

tax
An eligible On or before March 100% of tax due on Simple Interest @ 1% per
assessee referred 15 returned income (-) month or part of the
to in sec. 44AD or advance tax paid month
44ADA

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 Assessee Due date Shortfall in advance tax Period
Other Assessee On or before 15% of tax due on returned Simple Interest @ 1% per
June 15 income (-) advance tax paid month or part of the
up to 15th June month for 3 months
➢ If the advance tax paid is
not less than 12% of the tax
due on the returned

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income then no interest is
payable

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On or before 45% of tax due on returned Simple Interest @ 1% per
September 15 income (-) advance tax paid month or part of the
up to 15th September month for 3 months

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➢ If the advance tax paid is
not less than 36% of the tax
due on the returned
income, then no interest is
payable

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On or before 75% of tax due on returned Simple Interest @ 1% per
December 15 income (-) advance tax paid month or part of the
up to 15th December month for 3 months
On or before 100% of tax due on returned Simple Interest @ 1% per
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March 15 income (-) advance tax paid month or part of the
up to 15th March month for 1 month

 Non-applicability of interest under section 234C in certain cases:

In
➢ where such shortfall is on account of under-estimate or failure to estimate –
(i) The amount of capital gains.
(ii) Casual Income
(iii) Income under the head “Profits and gains of business or profession” in cases where
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the income accrues or arises under the said head for the first time.
(iv) The amount of dividend
However, the assessee should have paid the whole of the amount of tax payable in respect of
such income as part of the remaining instalments of advance tax which are due or where no
such instalments are due, by the 31st day of March of the financial year.
IN

Sec 190 – Deduction of tax at source and advance payment

 Applicability -
• All assessee
 Explanation–
1F

➢ Income tax is recovered through TDS, TCS, and Advance tax and for non-monetary
perquisites as per section 192(1A).
➢ Amount of tax to be paid after adjusting TDS, TCS, tax relief as per Section 89, tax credit to
claimed as per section 115JD, any tax or interest payable according to the provisions of
Section 191(2) and advance tax.

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 Sec 191 – Direct payment of tax
➢ Section 191(1): In the following cases, tax is payable by the assessee directly –
(1) in the case of income in respect of which tax is not required to be deducted at source; and
(2) income in respect of which tax is liable to be deducted but is not actually deducted.

➢ The proceedings for recovery of tax necessarily had to be taken against the assessee whose

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tax was liable to be deducted, but not deducted.
➢ If any person, including the principal officer of the company –

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(1) who is required to deduct tax at source; or
(2) an employer paying tax on non-monetary perquisites under section 192(1A),
does not deduct the whole or part of the tax, or after deducting fails to pay such tax

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deducted, then, such person shall be deemed to be an assessee-in-default.
➢ However, if the assessee himself has paid the tax, this provision will not apply.

➢ Section 191(2): If Income of assessee, includes value of specified security or sweat equity
shares allotted or transferred free of cost/ concessional rate by his employer being eligible

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start-up then income-tax on such has to be paid by assessee within 14 days from the earliest
of
− After expiry of 48 months from the end of relevant A.Y; or
− From the date of the sale of such by the assessee; or
di
− From the date of assessee ceasing to be employee of such employer
In
Summary of TDS provisions

Sec. Income Threshold limit Payer Payee Tax rate

Time of
for deduction deduction
By

192 Salary Basic exemption Employer Employe Average At the time

limit (₹2,50,000/ e rate of of payment
₹3,00,000) income- tax
as the case may computed
be). on the basis
of the rates
IN

in force
192A Premature Payment or Trustees of Individual 10% At the time
withdrawal aggregate EPF scheme or (Employee [In case of of payment
from payment ≥ any ) PAN not
Employee ₹ 50,000 authorised furnished
1F

Provident person under TDS@

Fund the Scheme Maximum
Marginal
Rate]
193 Interest on > ₹ 10,000 in a Any person Any 10% At the time
securities F.Y., in case of responsible resident [In case of of credit of
interest on 8% PAN not such
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 Savings for paying the furnished income to
(Taxable) Bonds, income TDS@ the account
2003/7.75% 20%] of the payee
Savings or at the
(Taxable) Bonds, time of
2018. payment,
whichever
> ₹ 5,000 in a F.Y., is earlier.

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in case of interest
on debentures

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issued by a
public company

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No threshold
specified in any
other case.
194 Dividend - Principle Resident 10% Before
distributed officer of sharehol making any

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or paid domestic der payment by
company any mode
194A Interest > ₹ 40,000 in a Any person Any 10% At the time
other than F.Y., in case of (other than Resident of credit of
di
interest on interest credited an individual such
securities or paid by – or HUF whose income to
total sales, the account
(i) A banking Co.
of the payee
In
gross receipts
(ii) A Co- opera or at the
or turnover
tive society time of
from
engaged in payment,
business or
banking business whichever
profession do
(iii) A post office
By

not exceed the is earlier.

on any deposit
limits Rs. 1
under a notified
crore and Rs.
scheme.
50 lakhs
In all the above respectively
cases, if the payee during the
is resident senior immediately
IN

citizen, tax preceding

deduction limit is F.Y.)
₹50,000.
>₹50,000 interest
1F

on the
compensation
amount awarded
by the Motor
Accidents Claims
Tribunal
> ₹5,000 in a F.Y.,
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 in other cases.
194B Winnings > ₹10,000 The person Any 30% At the time
from any responsible Person of payment
lottery, for paying the
crossword income
puzzle or
card games
or other

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games of
any sort

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(including
Winning by
Jack pot)

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194B Winnings > ₹ 10,000 Book maker Any 30% At the time
B from horse or a person Person of payment
race holding
licence for
horse racing

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or for
arranging for
wagering or
betting in any
di
racecourse.

194C Payments Single sum Central/state Any 1% of sum At the time

to credited or paid govt., Local Resident paid or of credit of
In
contractors > ₹ 30,000 (or) authority, contracto credited, if such sum to
and Sub- The aggregate of Central/State r for the payee is the account
contractors sums credited or provincial carrying an Individ. of the payee
paid to a corp., out any or HUF or at the
By

contractor company, work 2% of sum time of

during the FY > firm, trust, Co- (includin paid or payment
₹1 lac operative g supply credited, if whichever
Individual or society, of the payee is is earlier.
HUF need not university labour) any other
deduct tax where established person.
sum is credited under
IN

or paid Central/State
exclusively for provincial act,
personal Govt of
purposes. foreign state
1F

or foreign
entp.
Individual/
HUF/
AOP/BOI
whose total
sales, gross

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 receipts or
turnover
from
business or
profession
exceed the
limits Rs. 1
crore and Rs.

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50 lakhs
respectively

ar
during the
immediately
preceding

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F.Y.)

194D Insurance > ₹15,000 Any person Any 5% At the time

Commission in a FY responsible Residen of credit of
for paying any t such sum to

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the account
Income by
of the payee
way of remu-
Or the time
neration or
of payment
reward for
di
whichever
soliciting or
is earlier.
procuring
insur. busin.
In
194D Any sum ≥ ₹1,00,000 Any person Any 5% At the
A under a Life (aggregate responsible resident time of
Insurance amount of for paying payment
Policy payment to a any sum
payee in a under a LIP,
By

financial year) including the

sum allocated
by way of
bonus
194E Payment to Any person Non- 20% (Plus At the time
non- responsible resident surcharge if of credit of
IN

resident for making sportsma applicable such sum

sportsmen the payment n and health to the
or sports (includin and account of
association g educational the payee
1F

of income Athlete) cess @ 4%) or at the

referred to or enter- time of
in sec. tainer payment,
115BBA who is Whichever
not a is earlier.
citizen of
India or
non-
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 resident
sports
associ. or
institutio
n
194E Payment of ≥ ₹ 2,500 in a FY Any person Individua 10% At the
E deposit responsible l time of
under for paying payment

n
or HUF
National
Saving

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Scheme
194F Repurchase Any amount Any person Any 5% At the
of units by liable to pay person time of

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Mutual as per Section payment
funds or 80CCB(2)
Unit Trust of
India
194G Commission > ₹ 15,000 in FY Any person Any 5% At the time

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on sale responsible for person of credit of
of lottery paying any stocking, such sum
tickets income by way distributi or at the
of commission ngpurcha time of
di
remuneration, sing, or payment,
prize on lottery selling Whichever
tickets lottery is earlier.
tickets.
In
194H Commission > ₹ 15000 in a FY Any person Any 5% At the time
or (other than resident of credit of
brokerage an Ind./ HUF such sum
whose to the
By

total sales, account of

gross receipts the payee
or turnover or at the
from time of
payment,
business or
profession do Whichever
IN

not exceed is earlier.

the limits Rs.
1 crore and
Rs. 50 lakhs
1F

respectively
during the
immediately
preceding
F.Y.
responsible
for paying
commission
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 or brokerage.
194-I Rent > ₹2,40,000 in a Any person Any For P & M or At the time
financial year (other than resident equip.- 2% of credit of
Indiv./HUF such sum
whose total For L&B, to the
sales, gross land appurt- account of
receipts or enant to a the payee
turnover from building, or at the

n
does not furnitureor time of
exceed the fittings - payment,

ar
limits Rs. 1 10% Whichever
crore and Rs. is earlier.
50 lakhs

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respectively
during the
immediately
preceding
F.Y.

194- Payment on Consideration

for
rent.
Any go
responsible
paying

person Resident 1% of such At the time

di
IA transfer of for the transfer being transfer sum or the of credit of
certain of an immovable transferee or stamp duty such sum
immovable property and the other than a value of to the
In
property stamp duty value person such account of
other than of such property, referred in sec. property, the payee
agriculture are both, < ₹ 50 194LA, WIH or at the
land Lakhs responsible for time of
(Consideration paying the payment,
By

includes club compensation Whichever

membership fee, compulsory is earlier.
car parking fee, acquisition of
electricity or immovable
water facility fee, property. (No
maintenance fee, requirement to
IN

advance fee or obtain TAN u/s

any other 203A for the
charges of payer)
similar nature,
which are
1F

incidental to
transfer of the
immovable
property
194- Payment of > ₹ 50, 000 for a Individual/ Any 5% At the time
IB rent by month or part of HUF (other Residen [In case of of credit of
certain a month than those t PAN not rent, for the

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 individuals referred in furnished last month
or HUF Section 194- TDS@ of the PY or
I) 20%] the last
month of
(No In case of tenancy, if
requirement TDS as per the
to obtain TAN Section property is
u/s 203A for 206AA or vacated

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the payer) 206AB, such during the
deduction is year, as the

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≤ amount of case may be,
rent payable to the
for the last account of

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month of the the payee or
previous at the time
year or the of payment,
last month of whichever
the tenancy is earlier
194-
IC
Payment
under
specified
agreement
No threshold
specified.

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Any person
responsible
for paying any
sum by way of
Any
Residen
t
10% At the time
of credit of
such
income to
di
referred to consi- the account
in section deration not of the
45(5A) being in kind payee or at
In
under a the time of
registered payment,
agreement, whichever
where in L or is earlier
B or both are
By

handed over
by the
owner for
development
of real estate
project, for a
IN

consideration,
being a share
in L or B or
both in such
project, with
1F

payment of
part
consideration
in cash.

1.Fees for > ₹ 30,000 in a Any person, Any 2% - In case At the time
194J Professional FY, for each other than an Residen Payee of credit of
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 Services. category of individual or t engaged such sum
2. Fees for income. HUF; only in the to the
technical (However, this However, in business of account of
services, limit does not case of fees for operation the payee
3. Royalty apply in case of professional or of call or at the
4. Non- payment made technical centre time of
compete to director of services paid payment,
a company). or credited by Whichever

n
fees, 2%- in case
5. Director’s individual/ of fee for is earlier.
remunertion HUF whose technical

ar
total sales, or service (not
gross receipts being
exceeds the professiona

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limits Rs. 1 l services)
crore and Rs. or royalty
50 lakhs in the
respectively nature of
during the considerati

go
immediately
preceding F.Y
is liable to
deduct tax u/s
on for sale,
distributio
n
exhibition
or
di
194J, except of
where such cinematogr
fees aphic films
In
credited or
paid 10% - In all
exclusively for other cases
his personal
purposes
By

194K Income in > ₹ 5,000 in a FY Any person Any 10% At the

respect of (not applicable (UTI/Mutual resident time of
units to income from Fund) credit of
Capital gains) such sum
to payee
IN

194L Compensa- > ₹ 2,50,000 in Any person Any 10% At the

A tion on a FY responsible Residen time of
acquisition for paying any t payment
sum in the
Of certain
nature of
1F

immovable
compensation
property
or enhanced
other than
compensation
agriculture
on compulsory
land
acquisition of
immovable
property

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 194M Contractual > ₹ 50,00,000 in Any person, Any 5% At the time
commissio a FY being an resident of credit of
n (not individual or a such sum or
being Hindu at the time
insurance undivided of payment
commissio family (other whichever
n referred than those is earlier
to in who are

n
section required to
194D) or deduct

ar
brokerage income-tax as
or by way per u/s 194C,
of fees for 194H or 194J)

Le
professiona [For Sec 194C,
l services 194H or 194J
during the Indv/HUF
financial whose total
year, sales, gross
receipts

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turnover from
business
profession
or

or
di
exceed the
limits Rs. 1
crore and Rs.
In
50 lakhs
respectively
during the
immediately
preceding F.Y
By

is liable to
deduct tax]
194N TDS on Being the Every person Any 2% of sum At the time
cash amount or (being a person paid of payment
Withdrawa aggregate of banking maintain
l amount as the company, a ing one
IN

case may be in co-operative or more

cash > Rs. 1 crore society account
during the P.Y carrying on
banking
business, post
1F

office)
194- Certain > Rs. 5 lakh e-commerce e- 1% At the time
O payments (Gross amount of operator commer of credit of
by e- sales or services ce such sum or
commerce or both) particip at the time
operator to ant of payment
e-
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 commerce whichever
participant is earlier
194 P Deduction Basic Exemption Banking Senior Deduct tax
of tax in Limit (Rs. company as Citizen – on such total
case of 3,00,000 or the central
Resident income
specified 5,00,000 as the government , Age ≥ based on
senior case may be) may notify in75 years, rates in
citizen Official having force after

n
Gazette pension giving effect
and to Chapter

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interest VIA and
income rebate
from under

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specified section 87A
bank
194Q Deduction Being the Buyer, whose Resident TDS at 0.1% Time of
of tax at amount > 50 total sales, Seller of such sum credit or
source on Lakhs gross receipts exceeding time of

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payment of or T/O from Rs. 50 Lakhs payment
certain sum the business is whichever
for > Rs. 10 crores Calculation is earlier.
purchase of during the FY of threshold
di
goods immediately of ₹ 50 If tax is
preceding the Lakhs shall deducted at
[w.e.f FY in which be the time of
01.07.2021 purchase of computed credit,
In
] goods is from 1st deduct tax
carried out. April 2021. on amount
credited
T/O or without
By

receipts from including

non-business such GST
activity is not
counted for If tax is
calculation of deducted at
limit of ₹ 10 the time of
Crores payment,
IN

deduct tax
on whole
amount.
194R Any benefit Value or Any person, Resident 10% of the
1F

or aggregate of other than an value/aggre

perquisite, value of the individual or gate value of
whether benefit or HUF. such benefit
convertible perquisite or
into money provided or However, perquisite
or not, likely to be provisions of
arising provided during this section
from shall apply to a
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 business or the financial year person being
profession, > ₹ 20,000 an individual
by such or a Hindu
resident undivided
family, whose
total sales,
gross receipts
or turnover > ₹

n
1 Crore in case
of business or

ar
₹ 50 Lakhs in
case of
profession,

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during the
financial year
immediately
preceding the
financial year

go
in which such
benefit or
perquisite, as
the case may
di
be, is provided
by such person

Additional points to remember

In
Sec 192 –
➢ For computation of total income in case employee intents to opt for concessional rate of
tax u/s 115BAC and
➢ Intimates his deductor (employer) => Deduct tax as per provisions of Section 115BAC
By

➢ Do not intimate his deductor (employer) => Deduct tax without considering provisions of
Section 115BAC
➢ In cases where an assessee is simultaneously employed under more than one employer
or the assessee takes up a job with another employer during the financial year, he may furnish
the details of the income under the head “Salaries” due or received by him from the other
employer, the tax deducted therefrom and such other particulars to his current employer.
➢ Thereupon, the subsequent employer should take such information into consideration and
IN

then deduct the tax remaining payable in respect of the employee’s remuneration from
both the employers put together for the relevant financial year.
➢ Deduction of tax at source should be made after allowing relief under section 89(1), where
eligible.
1F

➢ A tax payer can declare the following additions information for allowing to the employer
to compute TDS:
➢ particulars of such other income;
➢ particulars of any tax deducted under any other provision;
➢ loss, if any, under the head ‘Income from house property’. (Only loss from house property
is considered and not losses under other head)

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 ➢ The employer shall furnish to the employee (whose salary exceeds ₹ 150,000), a statement
in Form No. 12BA giving correct and complete particulars of perquisites or profits in lieu
of salary provided to him and the value thereof.
➢ It is the responsibility of the employer to obtain from the assessee, the following evidence
or proof or particulars of prescribed claims
House Rent Allowance Name, address and PAN of the landlord(s)
where the aggregate rent paid during the
previous year exceeds ₹ 1 lakh.

n
Leave Travel Concession or Assistance Evidence of expenditure
Deduction of interest under the head “Income Name, address and PAN of the lender

ar
from house property”
Deduction under Chapter VI-A Evidence of investment or
expenditure.

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Sec 192 A –
➢ The withdrawal of accumulated balance by an employee from the RPF is exempt from
taxation.

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➢ However premature withdrawal, before continuous service of five years (other than the
cases of termination due to ill health, contraction or discontinuance of business, cessation
of employment etc.) is subject to tax.
di
Sec 193 -
➢ No tax deduction is to be made from any interest payable:
➢ on 4¼% National Defence Bonds 1972, held by resident
In
➢ on 4¼% National Defence Loan, 1968 or 4¾% National Defence Loan, 1972
➢ on National Development Bonds
➢ on 7-year National Savings Certificates (IV Issue)
➢ on debentures issued by any institution or authority or any public sector company or any
By

co-operative society as notified by the Central Govt.

➢ on securities to LIC, GIC, subsidiaries of GIC or any other insurer in which they have full
beneficial interest
➢ on any security issued by a company, where such security is in dematerialised form and is
listed on a recognised stock exchange in India.

Sec 194 –
IN

Non-applicability of TDS under section 194

➢ The dividend is paid by any mode other than cash and.
➢ The amount of such dividend or aggregate of dividend distributed or paid or likely to be
distributed or paid during the financial year by the company to such shareholder does not
1F

exceed Rs. 5,000.

➢ Dividend credited or paid to LIC, GIC, subsidiaries of GIS or any insurer provided, the
shares are owned by them/them have full beneficial interest in such shares, business trust
or any other person as may be notified by the CG in the Official Gazette.

Sec 194A –
➢ Where the bank or co-operative society is following core banking system, tax shall be
272
1Fin by IndigoLearn
 deducted at source on
➢ accrual of interest at the end of financial year or
➢ at periodic intervals as per practice of the bank or
➢ as per the depositor's / payee's requirement or
➢ on maturity or on encashment of time deposits,
➢ whichever event takes place earlier,

n
➢ whenever the aggregate of amounts of interest income by the banks exceeds the limits
specified in section 194A.

ar
➢ Non-applicability of TDS under section 194A
o Interest paid or credited by a firm to any of its partners.

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o Income paid or credited by a co-operative society (other than a co- operative
bank) to a member thereof or to any other co-operative society.
o Interest paid or credited in respect of deposits under any scheme framed by the
Central Government and notified by it in this behalf.
o Interest income credited or paid in respect of deposits (other than time deposits

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made after 1.7.1995) with a bank for which the Banking Regulation Act, 1949
applies.
o Interest credited or paid in respect of deposits with primary agricultural credit
society or a primary credit society or a co-operative land mortgage bank or a co-
di
operative land development bank.
o Interest income credited or paid by the Central Government under any
provisions of the Income-tax Act, 1961, the Wealth- tax Act, 1957, the Gift-tax Act
or the Interest Tax Act.
In
o Interest paid or credited to the following entities:
▪ banking companies, or co-operative societies engaged in the business of
banking, including co-operative land mortgage’ banks
▪ Financial corporations established under any Central, State or Provincial
Act.
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▪ Life Insurance Corporation of India.

▪ Companies and co-operative societies carrying on the business of
insurance.
▪ the Unit Trust of India; and
▪ notified institution, association, body or class of institutions, associations or
bodies (National Skill Development Fund has been notified by the Central
IN

Government for this purpose) [ No notification to be issued in this regard on

or after 1.4.2020]
o income paid or payable by an infrastructure capital company or infrastructure
capital fund or infrastructure debt fund or public sector company or scheduled
1F

bank in relation to a zero-coupon bond issued on or after 1.6.2005.

➢ A Co-operative society under this section is liable to deduct tax if: -
− Total sales, Gross receipts or Turnover exceed Rs. 50 Crores during the F.Y
immediately preceding the F.Y in which interest is credited and
− The amount of interest is credited or paid or likely to be credited or paid, during
the F.Y is more than Rs. 50,000 (being senior citizen) or Rs. 40,000 (other cases)

➢ Interest credited or paid of Co-operative society:

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 − To its members or any other co-operative societies
− In respect of deposits with a primary agricultural credit society or a primary
credit society or a co-operative land mortgage bank or a co-operative land
development bank.
− In respect of deposits with a co-operative bank other than co-operative society
or bank engaged in carrying on business of banking.

➢ Central Government is entitled to issue notification for non-deduction of tax at source

n
or at lower rate from such payment to such class of persons specified in such
notification.

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Sec 194 C
➢ This section will apply only in relation to ‘works contracts’ and ‘labour contracts’ and
will not cover contracts for sale of goods.

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➢ Work includes –
o advertising.
o broadcasting and telecasting including production of programmes
o carriage of goods or passengers by any mode of transport other than by
railways.

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o catering.
o manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from such customer or
its associate, being a person related to the customer as defined u/s 40A(2)(b).
di
o If goods are purchased from some other supplier, then it would become sale.
➢ Where the material component has not been separately mentioned in the invoice, tax shall
be deducted on the whole of the invoice value
➢ Non-applicability of TDS (Section 194C(6))
In
➢ TDS is not applicable to a contractor, who fulfills the following three conditions
cumulatively:
➢ is engaged in the business of plying, hiring or leasing goods carriages
➢ owns ten or less goods carriages at any time during the previous year
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➢ has furnished a declaration to this effect along with his PAN

Sec 194E
➢ Income referred to in section 115BBA
o income received or receivable by a non-resident sportsman (including an
athlete) by way of-
▪ participation in any game or sport in India (However, games like
IN

crossword puzzles, horse races etc. taxable under section 115BB are not
included herein); or
▪ advertisement; or
▪ contribution of articles relating to any game or sport in India in
1F

newspapers, magazines or journals.

o Guarantee amount paid or payable to a non-resident sports association or
institution in relation to any game or sport played in India. However, games like
crossword puzzles, horse races etc. taxable under section 115BB are not included
herein.
o income received or receivable by a non-resident entertainer (who is not a citizen
of India) from his performance in India.

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 Sec 194H –
➢ Non-applicability of TDS
➢ Amount payable to person carrying on specified profession as per Sec 44AA
➢ Commission or brokerage payments by BSNL or MTNL to their public call office (PCO)
franchisees
➢ In case of advertising business –
➢ Payment by client to the advertising agency – TDS is deductible u/s 194C

n
➢ Fees/charges taken or retained by advertising companies from media companies for
canvasing/booking advertisements - subject to 194H

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Sec 194 I –

Le
➢ “Rent” means any payment, by whatever name called, under any lease, sub- lease,
tenancy or any other agreement or arrangement for the use of (either separately or
together) of P&M / L&B / F&F whether or not they are owned by the payee.
➢ Non-applicability of this section -
➢ Cooling charges paid by the customers of the cold storage. However, 194C would apply

go
to such case.
➢ Payment of PSF (Passenger service fee) by an airline to Airport Operator.
➢ Lump sum lease premium or one-time upfront lease charges, which are not adjustable
against periodic rent, paid or payable for acquisition of long-term leasehold rights over
di
land or any other property
➢ 194-I would be required to be made on the amount of rent paid/payable without
including the GST component.
In
Sec 194 J –
➢ “Professional services” includes
➢ Those defined u/s 44AA (specified professions)
➢ Notified by the CBDT for the purposes of section 44AA (authorised representatives, film
artist & company secretary)
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➢ Persons in relation to the sports activities, as notified by the CBDT (Umpires and Referees,
Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers,
Commentators, Anchors and Sports Columnists.)
therefore, all other professions would be outside the scope of section 194J.
➢ Fees for technical services includes:
1. Managerial services 2. Technical services 3. Consultancy services 4.Provision of
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services of technical or other personnel.

➢ Following are excluded from technical services:
➢ Consideration for any construction, assembly, mining or like project, or
➢ Consideration which is chargeable under the head ‘Salaries’
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➢ TPAs (Third Party Administrator’s) who are making payment on behalf of insurance
companies to hospitals for settlement of medical/insurance claims etc. under various
schemes sec. 194J is applicable.
➢ The consideration for use or right to use of computer software is royalty. Hence, 194J
would be attracted in respect of consideration for use or right to use computer software.

Sec 194 N –

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 ➢ 1) If recipient not furnished return of Income for all the last 3 years, the sum of payment
shall mean the aggregate of amounts, as the case may be in cash > Rs. 20 lakhs during the
P.Y.
2) Tax deducted at 2% of sum (aggregate amount being cash paid > Rs. 20 lakhs but ≤ Rs.
1 crore); 5% of sum (aggregate amount being cash paid > Rs. 1 crore)
➢ Every person has to furnish particulars of amount paid or credited on which tax was not
deducted in consequence of exemption as per Rule 31A.
➢ As per Rule 37BA(3A) credit for TDS shall be given to person from whose account tax is

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deducted and paid to CG account for A.Y relevant to P.Y in which such tax deduction is
made.

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➢ Non-applicability of TDS:
1)Any payment made to
➢ Government

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➢ Any banking company or co-operative society engaged in carrying on the business of
banking or post-office
➢ Any business correspondent of a banking company or co-operative society engaged in
carrying on the business of banking, in acc with RBI guidelines
➢ Any white label ATM operators of banking company or co-operative society engaged in

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carrying on the business of banking, in acc with RBI guidelines under Payment and
Settlement System Act, 2007.
2) Cash Replenishment Agencies and franchise agents of white label ATM Operators;
Commission agent or trader, operating under Agriculture Produce Market Committee
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and registered under any law relating to Agriculture Produce Market.
Full-fledged money changers licenced by RBI and its franchise agent.

Sec 194 O –
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➢ Deemed credit: any payment made by a purchaser of goods or receipt of service directly
to an e-commerce participant for the sale of goods or providing services or both.
➢ Non-applicability of TDS:
1)Any amount paid to individual/HUF where gross amount of such sale or service or both
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does not exceed Rs. 5 lakh and has furnished his PAN/ Aadhar.
2) if already deducted by e-commerce operator under this section (No exemption if e-
commerce operator for hosting advertisement or providing any other services which are
not in connection of sale of goods or providing services or both.
➢ In case of difficulty arising in giving affect to the prov of this section, CBDT may issue
guidelines for the purpose of removing the same with approval of CG.
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Sec 194P –
The provisions of section 139 shall not apply to a specified senior citizen for the
assessment year relevant to the previous year in which the tax has been deducted under
this section.
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Sec 194Q –
Tax is not required to be deducted under this section i.r.o a transaction on which
• Tax is deductible under any of the provisions of the Act.
• Tax is collectible under the provisions of section 206C, other than section 206C(1H).

In case of transaction to which both Section 206(1H) and Section 194Q applies, tax is required to
be deducted under section 194Q
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 Section 194Q is not applicable to
➢ Any sum credited or paid before 1st July 2021.
➢ Transactions in securities and commodities which are traded through recognized stock
exchanges or cleared and settled by the recognized clearing corporation, including those
located in IFSC
➢ Transactions in electricity, renewable energy certificates and energy saving certificates
traded through registered power exchanges.

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➢ Non-resident whose purchase of goods from seller resident in India is not effectively
connected with the permanent establishment of such non-resident in India.

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➢ Purchase of goods from a person, being a seller, who as a person is exempt from income
tax under the Act.
➢ Provisions shall not apply to a buyer in the year of incorporation

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➢ If tax has been deducted by the e-commerce operator on a transaction u/s 194-O, that
transaction shall not be subjected to tax deduction u/s 194Q.
➢ If a transaction is both within the purview of section 194-O as well as section 194Q, tax is
required to be deducted u/s 194-O and not u/s 194Q.
➢ If a transaction is both within the purview of section 194Q as well as section 206C(1H),

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then, tax is required to be deducted u/s 194Q

If tax was deducted on purchase and buyer returned the goods and seller refunded the money –
➢ TDS may be adjusted against the next purchase against the same seller.
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➢ No adjustment is required if the purchase return is replaced by the goods by the seller.

Tax shall be deducted u/s 194Q on the amount credited without including GST. However, if the
tax is deducted on payment basis, the tax would be deducted on the whole amount.
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Goods which are subject to VAT/Sales tax/Excise duty/CST, tax is deducted at the time of credit
of amount in the account of the seller and VAT/Sales tax/Excise duty/CST is indicated separately
in the invoice, Tax has to be deducted on the amount credited (without including such VAT/ Sales
tax/ Excise duty/CST. If tax is deducted on payment basis, tax has to be deducted on the whole
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amount.

If department of government is carrying on business/commercial activity, it can be regarded as a

buyer and Section 194Q is applicable subject to fulfilment of conditions.

Department of Central government and State government shall not be treated as seller. Hence no
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tax can be deducted under section 194Q

194R -
➢ This section is with effect from 1st July 2022.
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➢ Where the benefit or perquisite, is wholly in kind or partly in cash and partly in kind but
such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole
of such benefit or perquisite, the person responsible for providing such benefit or
perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be
deducted has been paid in respect of the benefit or perquisite

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 ➢ CBDT may, with the previous approval of the Central Government, issue guidelines for the
purpose of removing the difficulty under this section.

Miscellaneous provisions
Sec 195A –

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➢ Where any income is paid ‘net of tax’ (i.e., tax chargeable on such income shall be borne by the
payer), then for the purpose of deducting tax, such income is required to be grossed up .

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➢ However, grossing up is not required in case of tax on non-monetary perquisite paid by the
employer.
➢

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Sec 196 –
➢ No deduction of tax shall be made by any person from any sums payable to-
(i) the Government; or
(ii) the Reserve Bank of India; or
(iii) a corporation established by or under a Central Act, which is, under any law for the time

(iv) a Mutual Fund specified u/s 23D

Sec 197 – go
being in force, exempt from income-tax on its income; or
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➢ On an application being made (in form 13), the Assessing Officer shall issue a certificate for
deduction of tax at such lower rate or no deduction of tax. Wherever he is satisfied that it is
justified by the Assessee.
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➢ Such an application can be made in case of income receivable u/s 192, 193,194, 194A, 194C,
194D, 194G, 194H, 194I, 194J, 194K and 194LA, 194LLB, 194LLC, 194M and 194-O.
➢ Such certificate shall be valid for such period of the previous year as may be specified in the
certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the
specified period.
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➢ The certificate shall be valid only with regard to the person responsible for deducting the tax
and named therein.
➢ The certificate shall be issued direct to the person responsible for deducting the tax under
advice to the person who made an application for issue of such certificate.

Sec 197A –
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➢ No deduction shall be made under any section from any payment made to New Pension System
Trust referred to in sec. 10(44).
➢ No deduction of tax shall be made u/s 194 (Dividend) and 194EE (NSS), u/s 192A(payment of
accumulated balance of provident fund) or 193 (interest on securities) or 194A (other
interest) or 194D (insurance commission) or 194DA (payment in respect of life insurance
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policy) or 194-I (rent) or 194-K(Units), if

1. The payee is a resident individual.
2. The aggregate amount of income paid or credited does not exceed basic exemption limit
3. Such individual furnishes to the payer, a declaration in writing in duplicate in the Form
15G (Form 15H in case of senior citizen).
4. Such declaration states that the tax on his estimated total income of the previous year in
which such income is to be included in computing his total income will be nil.

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 5. On receipt of the declaration, the person responsible for making payment should deliver
one copy to Chief commissioner or Commissioner on or before 7th of the month following
the month in which the declaration is furnished.
➢ No tax will be deducted from interest payments by an offshore banking unit to a non-resident
or not ordinarily resident in India.
➢ No deduction shall be made from such specified payment to notified institution, association or
body as notified by Central government.

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Sec 198-
➢ All sums deducted under this chapter shall be deemed as income for the purpose of computing

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the assessee’s total income.
However
➢ tax u/s192A on non-monetary perquisites shall not be deemed as income.

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➢ the sum deducted in accordance with the provisions of section 194N for the purpose of
computing the income of an assessee, shall not be deemed to be income received

Sec 199-
➢ Tax deducted at source in accordance with above provisions and paid to the credit of central

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government shall be treated as payment of tax on behalf of the person from whose income it is
deducted. Thus the person can claim credit of the same while filing his return of income.
➢ CBDT has powers to frame rules in this behalf. It can also specify the AY for which such credit
may be taken.
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➢ Where whole or part of income is assessable in the hands of another person, credit of the tax
deducted from such income shall be given to such other person and not the deductee.
➢ The deductee should file a declaration with the deductor and the deductor should report the
tax deduction in the name of the other person.
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Sec 200 –
➢ The persons responsible for deducting the tax at source should deposit the sum so deducted
to the credit of the Central Government.
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IN
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 Time limit for paying TDS to the
credit of Central government

Deductor - An Tax deducted Special cases -

Deductor -
office of u/s 194IA and where AO with
Others
Government 194IB prior approval

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of JCIT permits
On or before 7 quarterly
Without within 30

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With days from the payment of TDS
production end of the days from the u/s 192, 194A,
production of
of IT month in end of month 194D and 194H
IT challan
challan which of deduction

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deduction is On or before 7
On or made A challan
before 7 days from the
On the cum end of the
days from On or before statement in
same day the end of Quarter for first
30th April form 26QB 3 quarters
the month where and 26QC

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in which income/amou has to be
deduction is nt is credited furnished On or before
made /paid in the 30th April in
month of respect of
March quarter ending
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31st March
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➢ TDS returns have to be furnished by the due dates specified below:
For the quarter ending 30th June 31st July
For the quarter ending 30th September 31st October
For the quarter ending 31st December 31st January
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For the quarter ending 31st June 31st May of the AY

TDS return forms
For TDS on salaries Form 24Q
For TDS on all payments other than salaries Form 26Q
For TDS on interest, dividends to non-residents Form 27Q
For TCS Form 27EQ
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Sec 234E –
➢ A fee of ₹ 200 for every day would be levied for late furnishing of TDS statements from the due
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date of furnishing to the date of actual date of furnishing.

➢ However, the total amount of fee cannot exceed the total amount of TDS / TCS.
➢ Such fee has to be paid before delivering the TDS statements.

Sec 200A –
➢ All statements and returns in respect of TDS and TCS is made in electronic mode.

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 ➢ During computerised processing, a correction of any arithmetic error or adjustment to an
incorrect claim can be made.
➢ The sum payable by, or the amount of refund due to, the deductor has to be determined after
adjustment of interest and fee against the amount paid under section 200 or section 201 or
section 234E and any amount paid otherwise by way of tax or interest or fee.
➢ An intimation will be prepared and generated and sent to the deductor, specifying his tax
liability or the refund due, within one year from the end of the financial year in which the

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statement is filed. The refund due shall be granted to the deductor.

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Sec 201-
 Consequences of failure to deduct or pay
➢ Any person who is obligated per above sections, does not deduct the whole or any part of the

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tax or after deducting fails to pay the tax will deemed as ‘Assessee in default.’
➢ However such person shall not be deemed to be an assessee-in-default in respect of such tax
if such payee –
• has furnished his return of income under section 139;
• has taken into account such sum for computing income in such return of income; and

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• has paid the tax due on the income declared by him in such return of income,
• and the payer furnishes a certificate to this effect from an accountant in such form as may
be prescribed.
➢ Assessee-in-default has to pay interest
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• @ 1% per month or part of month on such tax from the date on which tax was deductible
to the date on which such tax was actually deducted and
• @1.5 % for every month or part of month from the date on which tax was deducted to the
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date on which such tax is actually paid.
• Where an order is made by the Assessing Officer for the default under sub-section (1), the
interest shall be paid by the person in accordance with such order
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Sec 203 – Certificate for TDS

➢ Every person deducting tax at source shall issue a certificate to the effect that tax has been
deducted and specify the amount so deducted, the rate at which tax has been deducted and
such other particulars as may be prescribed.
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 In case of Salaries
15th June of the AY
(Form 16)

In case of 194IA and

Due date for furnishing 194IB or 194M within 15 days from the
TDS certificates to the date of payment in Form
(form 16B, 16C or 16D No. 26QB, 26QC or 26 QD
deductees

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respectively)

For Q1 - 15th August

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In all other cases For Q2 - 15th November
(form 16A) For Q3 - 15th February
For Q4 - 15th June of AY

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without deduction of tax
 Applicability -
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Sec 206A - Furnishing of statements in respect of payment of any income to residents

➢ on every banking company or co-operative society or public company referred to in the

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proviso to section 194A(3)(i) to prepare such statement, for such period as may be
prescribed –
− if they are responsible for paying to a resident,
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− the payment should be of any income not exceeding Rs. 40,000, where the payer is a
banking company or a co-operative society, and Rs. 5,000 in any other case.
− such income should be by way of interest (other than interest on securities)
➢ CBDT may cast responsibility on any person other than a person mentioned above, who is
responsible for paying to a resident any income liable for deduction of tax at source.
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➢ A statement has to be delivered or caused to be delivered to the prescribed income-tax

authority correction statement -
(a) for rectification of any mistake; or
(a) to add, delete or update the information furnished in the statement delivered.
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Sec 206AA – Requirement to furnish Permanent Account Number

➢ Any person whose receipts are subject to TDS shall mandatorily furnish his PAN to the
deductor.
➢ If deductee fails to furnish PAN, deductor shall deduct TDS at higher of the following
rates
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• The rate prescribed under the Act

• The rate in force
• At 20% [ 5% in case tax is required to be deducted at source u/s 194-O and 194Q]
➢ Tax is deductible at higher rates even when taxpayer files declaration in Form 15G or
15H u/s 197A but does not provide PAN
➢ Where the Permanent Account Number provided to the deductor is invalid or does not
belong to the deductee, it shall be deemed that the deductee has not furnished his
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 Permanent Account Number to the deductor
➢ The deductor and deductee have to compulsorily quote the PAN of the deductee in all
correspondence, bills, vouchers and other documents exchanged between them.

Sec 206AB – Special provision for deduction of tax at source for non-filers of income-tax
return.
Section 206AB requires tax to be deducted at source under the provisions of this Chapter on any
sum or income or amount paid, or payable or credited, by a person to a specified person, at higher

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of the following rates
(i) at twice the rate prescribed in the relevant provisions of the Act;

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(ii) at twice the rate or rates in force i.e., the rate mentioned in the Finance Act; or
(iii) at 5%

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This section is not applicable to section 192, 192A, 194B, 194BB, 194-IA, 194-
IB, 194LBC, 194M or 194N
If the provisions of section 206AA is applicable to a specified person, in addition to the provision
of this section, the tax shall be deducted at higher of the two rates provided in this section and

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in section 206AA.
"Specified person" means
➢ A person who has not furnished the return of income for the assessment year relevant to
the previous year immediately preceding the financial year in which tax is required to be
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deducted, for which the time limit for furnishing the return of income under sub-section
(1) of section 139 has expired and
➢ The aggregate of TDS and TCS is ≥ Rs. 50,000 in each of these two previous years
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The specified person does not include a non-resident who does not have a permanent
establishment in India.
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Sec 206C – Tax collection at source

Applicability
➢ Seller, shall collect tax from the buyer of any specified goods
➢ Every person, who grants a lease or a license or enters into a contract or otherwise
transfers any right or interest in-
➢ any parking lot; or
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➢ toll plaza; or
➢ mine or quarry excluding mines or quarrying of mineral oil (mineral oil includes
Petroleum and Natural gas),
to another person (other than a public sector company) for the use of such parking lot or toll
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plaza or mine or quarry for the purpose of business

Time of collection
➢ Debiting the amount payable by the buyer to the account of the buyer/ licensee / lessee or
➢ Receipt of such amount
whichever is earlier

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 ➢ In case of sale of motor vehicle exceeding Rs.10 lacs or Rs. 50 lakhs on sale of goods, tax
shall be collected at the time of receipt of such amount.

Meaning
➢ Overseas tour program package : For section 206C(1G) Any tour package which offers visit
to a country/(ies) or territory/(ies) outside India. It includes expenses for travel or hotel
stay or boarding or lodging or any other expenditure of similar nature or in relation
thereto.

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➢ Seller –
1)For Sec 206C(1H): A person whose total sales, gross receipts or turover from Business

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carried on by him exceed Rs. 10 crore during the F.Y immediately preceding the F.Y in
which sales are carried out.
2)For Section 206C(1) and 206(1F): It does not include an individual or HUF whose books
of accounts is not required to be audited u/s 44AB during the FY immediately preceeding

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the FY in which goods are sold.
With effect from 1st Oct, 2020 seller include an individual or HUF whose total sales, gross
receipts or turover from Business or Profession carried on by him exceed Rs. 1 crore in
case of business and Rs. 50 lacs in case of profession.

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➢ Buyer For sec 206C(1H) means a person who purchase any goods but does not include:
(a) The Central Government, a State Government and an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
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(b) a local authority; or
(c) a person importing goods into India or any other person as the Central Government may,
by notification in the Official Gazette, specify for this purpose, subject to stipulated
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conditions
➢ Buyer" (for specified goods other than motor car) - means a person who obtains in any
sale (by way of auction, tender or any other mode) specified goods or the right to receive
any such goods but does not include, —
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(i) A public sector company, the Central Government, a State Government and an embassy,
a High Commission, Legation, Commission, consulate and the trade representation, of a
foreign state and a club; or
(ii) A buyer in the retail sale of such goods purchased by him for personal consumption.
➢ Buyer in case of motor car means a person who obtains in any sale, motor care, but does
not include:
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(a) The Central Government, a State Government and an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
(b) a local authority; or
(c) a public sector company which is engaged in the business of carrying passengers
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 Rate of TCS in case of collection by Authorized dealer
S. Amount and purpose of remittance Rate of TCS
No.
Nil (No tax
(i) (a) Where the amount is remitted for a purpose other than
to be collected
purchase of overseas tour programme package; and
at source)
(b) the amount or aggregate of the amounts being remitted by a
buyer is less than Rs. 7 lakhs in a financial year

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5% of the amt
(ii) (a) where the amount is remitted for a purpose other than

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or agg. of amts
purchase of overseas tour programme package; and
in excess of Rs.
(b) the amount or aggregate of the amounts in excess of Rs. 7 7 lakh
lakhs is remitted by the buyer in a financial year

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0.5% of the
(a) where the amount being remitted out is a loan obtained from
amt or agg. of
any financial institution, for the purpose of pursuing any
amts in excess
education; and
of Rs. 7 lakh

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(b) the amount or aggregate of the amounts in excess of Rs. 7
lakhs is remitted by the buyer in a financial year

TCS u/s 206C(1G) would not be applicable if the buyer is an individual who:
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(i) is not a resident in India [in terms of section 6(1) and (1A)]; and
(ii) who is visiting India
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Cases where no tax to be collected

(i) No TCS by the authorized dealer on an amount in respect of which the sum has been
collected by the seller
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(ii) No TCS, if the buyer is liable to deduct tax at source under any other provision of the
Act and has deducted such tax

(iii) No TCS, if the buyer is the Central Government, a State Government, an embassy, a
High Commission, a legation, a commission, a consulate, the trade representation of a
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foreign State, a local authority or any other person notified by the Central
Government, subject to fulfillment of conditions stipulated thereunder
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Sale of goods of value exceeding Rs. 50 lakh [w.e.f. 1.10.2020]

➢ As per section 206C(1H), tax is also required to be collected by a seller, who receives any
amount as consideration for sale of goods of the value or aggregate of such value exceeding
Rs. 50 lakhs in a previous year [other than exported goods or goods covered under sub-
sections (1)/(1F)/(1G)].
a) Tax is to be collected at source @0.1% u/s 206C(1H) of the sale consideration
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 exceeding Rs. 50 lakhs, at the time of receipt of consideration.
b) The provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at
source under any other provision of this Act on the goods purchased by him from the
seller and has deducted such amount
c) In case of non-furnishing of PAN or Aadhar number by the buyer to the seller, tax is
required to be collected at the higher of –
twice the rate specified in this sub-section; and

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(i)
(ii) 1%.

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Power to the CBDT to issue guidelines

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➢ In case of any difficulty arises to give effect to the provisions of section 206C(1G)/(1H), the
CBDT is empowered to issue guidelines, with the approval of the Central Government, for
the purpose of removing the difficulty.
➢ Every guideline issued by the CBDT shall be laid before each House of Parliament, and shall
be binding on the income-tax authorities and on the person liable to collect tax

➢ Specified goods and Tax rates

Nature of Goods goFrom 1.4.2020 to
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13.5.2020
Alcoholic liquor for human consumption 1%
Tendu leaves 5%
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Timber obtained under a forest lease 2.5%
Timber obtained by any mode other than under a 2.5%
forest lease
Any other forest produce (not being timber or tendu 2.5%
leaves)
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Scrap 1%
Specified minerals 1%
Motor car value of which exceeds Rs. 10 lakh 1%
Parking lot, toll plaza, mining and quarrying 2%

➢ However, where the purchaser or licensee or lessee is a non-resident non-corporate

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assessee or a non-domestic company, then surcharge (if any applicable), health and
education cess is also required to be deducted along with aforesaid rates

➢ Overseas remittance or an overseas tour package (w.e.f. 1.10.2020)

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As per Sec 206C(IG) provides for collection of tax by every person being
➢ being an authorized dealer, who receives amount, under the Liberalised Remittance
Scheme of the RBI, for overseas remittance from a buyer, being a person remitting such
amount out of India;
➢ being a seller of an overseas tour programme package who receives any amount from the
buyer who purchases the package
➢ at the rate of 5% of such amount
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 Time limit for paying TCS to the credit of Central government

Without
production of IT On the same day
challan
An office of

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Government
On or before 7 days
With production from the end of the

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Person of IT challan month in which
collecting TCS collection is made

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Within 1 week from the
Others last day of the month in
which collection is made

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➢ Points to remember
➢ Any person paying any sum, on which tax is collectible at source shall furnish his PAN to
the person responsible for collecting such tax, failing which tax shall be collected at the
higher of the following rates:
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➢ At twice of the specified TCS rate; or
➢ At the rate of 5%.
➢ No TCS in case of resident buyer, if
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➢ Such buyer furnishes a declaration in writing in prescribed form
➢ That the goods are to be utilised for the purpose of manufacturing, processing, or
producing articles or things or for the purpose of generation of power and not for trading
purposes.
➢ TCS @ 1% on sale of motor vehicle is at retail level and not at manufactures or dealers
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level.
➢ An individual who is liable to audit u/s 44AB during the FY preceding the FY in which
motor vehicle is sold shall be liable for TCS.
➢ The person responsible for collection of tax shall deliver or cause to be delivered to Chief
Commissioner or Commissioner a copy of declaration on or before 7th of the month next
following the month in which declaration is furnished.
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Sec 206CC & 206CCA – Higher rate of TCS for non-filers of income-tax return and on
furnishers of PAN
➢ Section 206CCA requires tax to be collected at source on any sum or amount received by a
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person(collectee) from a specified person, at higher of the following rates

(a) at twice the rate specified in the relevant provision of the Act.
(b) at 5%

➢ The provisions of section 206CC require tax collection at the higher of the following two
rates, in case of failure by the person paying any sum or amount on which tax is collectible
at source to furnish PAN to the person responsible for collecting tax at source –
a. at twice the rate specified in the relevant provision of the Act
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 b. at 5% [1%, in case tax is required to be collected at source u/s 206C(1H)]

➢ In case the provisions of section 206CC are also applicable to the specified person, in
addition to the provisions of section 206CCA, then, tax is required to be collected at higher
of the two rates provided in section 206CC and section 206CCA

"Specified person" means

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➢ A person who has not furnished the return of income for the assessment year relevant to
the previous year immediately preceding the financial year in which tax is required to be
collected, for which the time limit for furnishing the return of income under sub-section

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(1) of section 139 has expired and
➢ The aggregate of TDS and TCS is ≥ Rs. 50,000 in each of these two previous years.

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The specified person does not include a non-resident who does not have a permanent
establishment in India.

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In
By
IN
1F

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 ADVANCE TAX, TDS & TCS – ADDITIONAL ILLUSTRATIONS

Illustration 1

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Find out the amount of advance tax payable by A on specified dates for the financial
year 2021-22:

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• Business income (Tax of Rs.4,704 is deducted at source): Rs. 5,11,000
• Agricultural income: Rs. 86,000

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Illustration 2

Examine the TDS implications under section 194A in the cases mentioned hereunder–
• On 1.10.2021, Mr. Harish made a six-month fixed deposit of Rs.10 lakh@9% p.a.

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with ABC Co-operative Bank. The fixed deposit matures on 31.3.2022.
• On 1.6.2021, Mr. Ganesh made three nine months fixed deposits of Rs.3 lakh each,
carrying interest@9% with Dwarka Branch, Janakpuri Branch and Rohini Branch of
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XYZ Bank, a bank which has adopted CBS. The fixed deposits mature on 28.2.2022.
• On 1.10.2021, Mr. Rajesh started a six-month recurring deposit of Rs.2,00,000 per
month @ 8% p.a. with PQR Bank. The recurring deposit matures on 31.3.2022.
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Illustration3

Examine the applicability of the provisions for tax deduction at source under section
194DA in the following cases -
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• Mr. X, a resident, is due to receive Rs. 4.50 lakhs on 31.3.2022, towards maturity
proceeds of LIC policy taken on 1.4.2019, for which the sum assured is Rs.4 lakhs
and the annual premium is Rs.1,25,000.
• Mr. Y, a resident, is due to receive Rs. 3.25 lakhs on 31.3.2022 on LIC policy taken
on 31.3.2012, for which the sum assured is Rs. 3 lakhs and the annual premium is
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Rs. 30,100.
• Mr. Z, a resident, is due to receive Rs.95,000 on 1.8.2021 towards maturity
proceeds of LIC policy taken on 1.8.2014 for which the sum assured is Rs.90,000
and the annual premium was Rs.10,000.
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Illustration 4

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 • Mr. X sold his house property in Bangalore as well as his rural agricultural land for
a consideration of Rs.60 lakh and Rs.15 lakh, respectively, to Mr. Y on 1.8.2021.
• He has purchased the house property and the land in the year 2020 for Rs.40 lakh
and Rs. 10 lakhs, respectively.
• The stamp duty value on the date of transfer, i.e., 1.8.2021, is Rs. 85 lakh
and Rs. 20 lakhs for the house property and rural agricultural land, respectively.
• Examine the tax implications in the hands of Mr. X and Mr. Y and the TDS

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implications, if any, in the hands of Mr. Y, assuming that both Mr. X and Mr. Y are
resident Indians.

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Illustration 5

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• Mr. X, a salaried individual, pays rent of Rs. 55,000 per month to Mr. Y
from June 2021. Is he required to deduct tax at source?
• If so, when is he required to deduct tax? Also, compute the amount of tax to be
deducted at source.
•
•
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Would your answer change if Mr. X vacated the premises on 31st December 2021?
Also, what would be your answer if Mr. Y does not provide his PAN to Mr. X?
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Illustration 6

Ashwin doing manufacture and wholesale trade furnishes you the following
information:
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Total turnover for the financial year
Particulars Amount (Rs.)
2019-20 1,05,00,000
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2020-21 95,00,000
Examine whether tax deduction at source provisions are attracted for the below said
expenses incurred during the financial year 2020-21:
Particulars Amount (Rs.)
Interest paid to UCO Bank on 15.8.2020 41,000
Contract payment to Raj (2 contracts of Rs.12,000 each) on
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24,000
12.12.2020
Shop rent paid (one payee) on 21.1.2021 2,50,000
Commission paid to Balu on 15.3.2021 7,000
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Illustration 7

Compute the amount of tax deduction at source on the following payments made by
M/s. S Ltd. during the financial year 2020-21 as per the provisions of the Income-tax
Act, 1961.
Date Nature of Payment
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 1-10-2020 Payment of Rs.2,00,000 to Mr. “R” a transporter who owns 8 goods
carriages throughout the previous year and furnishes a declaration
to this effect along with his PAN.
1-11-2020 Payment of fee for technical services of Rs.25,000 and Royalty of
Rs.20,000 to Mr. Shyam who is having PAN.
30-06-2020 Payment of Rs.25,000 to M/s X Ltd. for repair of building.
01-01-2021 Payment of Rs.2,00,000 made to Mr. A for purchase of diaries made

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according to specifications of M/s S Ltd. However, no material was
supplied for such diaries to Mr. A by M/s S Ltd or its associates.

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01-01-2021 Payment made Rs.1,80,000 to Mr. Bharat for compulsory acquisition
of his house as per law of the State Government.

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01-02-2021 Payment of commission of Rs.14,000 to Mr. Y.

Illustration 8

Examine the applicability of TDS provisions and TDS amount in the following cases:

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• Rent paid for hire of machinery by B Ltd. to Mr. Raman Rs.2,60,000 on 27.9.2020.
• Fee paid on 1.12.2020 to Dr. Srivatsan by Sundar (HUF) Rs.35,000 for surgery
performed on a member of the family.
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• ABC and Co. Ltd. paid Rs.19,000 to one of its Directors as sitting fees on 01-01-
2021.
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Illustration 9

Examine the applicability of tax deduction at source provisions, the rate and amount of
tax deduction in the following cases for the financial year 2020-21:
• Payment of Rs. 27,000 made to Jacques Kallis, a South African cricketer, by an
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Indian newspaper agency on 02-07-2020 for contribution of articles in relation to

the sport of cricket.
• Payment made by a company to Mr. Ram, sub-contractor, Rs.3,00,000 with
outstanding balance of Rs. 1,20,000 shown in the books as on 31-03-2021.
• Winning from horse race Rs.1,50,000 paid to Mr. Shyam, an Indian resident.
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• Rs.2,00,000 paid to Mr. A, a resident individual, on 22-02-2021 by the State of Uttar

Pradesh on compulsory acquisition of his urban land.

Illustration 10
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• Mr. Jay having total income of Rs.8,70,000, did not pay any advance tax during the
previous year 2020-21.
• He wishes to pay the whole of the tax, along with interest if any, on filing the return
in the month of July, 2021.
• What is total tax which Mr. Jay has to deposit as self-assessment tax along with
interest, if he files the return on 29.07.2021?
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 • Assume that he does not exercise the option under section 115BAC.

Illustration 11

Find out the amount of advance tax payable by Mr. A on specified dates under the
Income tax Act, 1961 for the financial year 2020-21:
Particular Amount

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Business income 4,85,000
Long term capital gain on 31-5-2020 60,000

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Winning from lotteries on 12-6-2020 50,000
Interest on loan 10,000
Other income 5,000

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Investment in PPF 10,000
Tax deducted at source:
Case 1 38,000

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Case 2 di 15,000
In
By
IN
1F

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 CHAPTER 14 - RETURN OF INCOME AND ASSESSMENT

Overview

Sec 139(1) - Sec 139(3) - 139 A and Sec 140- Sec.234A

Mandatory 139(9) - 139AA - PAN Authorisation Sec 140A - Self &234F -

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filing and due Types of & Aadhar to veify the assessment Interest & fee
dates return number return for defalut

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SEC.139(1) – COMPULSORY FILING OF RETURN OF INCOME
 A return of income is the declaration of income by the assessee in the prescribed format.

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 The particulars of income earned under different heads, gross total income, deductions from
gross total income, total income and tax payable by the assessee are generally required to be
furnished in a return of income.
 The format for filing of returns by different assesses is notified by the CBDT.

➢ Company
➢ Firms
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 The following persons should mandatorily file return of income on or before the due date.

➢ Individual, HUF, AOPs or BOIs and artificial juridical persons

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• Having total income* exceeding basic exemption limit
• Before giving effect to the provisions of Chapter VI-A , Sec 10(38), sec 10A, sec 10B
or Sec 10BA, 54 to 54GB
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➢ Person being Resident other than Not Ordinarily Resident,
• Who is not required to furnish a return of income u/s 139(1) AND
• Who satisfies the below conditions.
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IN
1F

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 Person being Resident other than Not Ordinarily Resident

who is not required to furnish return u/s 139(1)

AND

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who at any time during PY

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A B

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Is a beneficiary of any
Holds as benefial asset (including financial During the
owner , any asset previous year
Has a signing interest in any entity)
(including located outside India
authority in any

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financial interest
account located
in any entity )
outside India
located outside
India
However where any
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income arising from - Deposited Rs. 1
such asset is crore or more in
includible in the current accounts
hands of the person - Spent > 2 lakh on
specified in (A) , an
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Foreign Tour
individual being a - Incurred > 1 lakh
beneficiary of such on electricity
asset is not required - Other condition
to file return
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*total income = includes income of any other person in respect of which he is assessable.

Rule 12AB
The following persons also have to file the return compulsorily under section 139(1)
Case Prescribed Transactions Monetary Threshold
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A person carrying on total sales, turnover or gross > ₹ 60 lakhs during the
business receipts, relevant P.Y.
A person carrying on Total gross receipts in > ₹ 10 lakhs during the
profession profession relevant P.Y.
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A resident individual who is
aged ≥ 60 years at any time
during the relevant P.Y.
Any other person
The aggregate of TDS and ≥ ₹ 50,000 during the
TCS in his case relevant P.Y.
The aggregate of TDS and ≥ ₹ 25,000 during the
TCS in his case relevant P.Y.

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 A person having savings The deposit in one or more ≥ ₹ 50 lakhs during the
bank account savings bank account of the relevant P.Y.
person, in aggregate

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SEC. 139(1) – EXPLANATION 2 – DUE DATE FOR FILING RETURN OF INCOME

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Assessee Due date
Where the assessee is required to furnish a report in Form 3CEB u/s 30th November
92E pertaining to international transaction(s)

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Where the assessee is a Company not having international transaction(s)
Any other assessee, Where accounts are required to be audited under
any law 31th October
Where the assessee is a partner in a firm and the accounts of the firm
are required to be audited under any law
In any other case

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SEC. 139(1A) - RETURN FILED TO EMPLOYER BY SALARIED EMPLOYEES / BULK FILING OF
RETURN BY SALARIED EMPLOYEE
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➢ The Scheme is optional and provides an additional mode of furnishing return of income by
persons deriving salary income.

➢ Under the scheme, the employee may furnish his return of income in the prescribed Form
together with relevant documents to his eligible employer.
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➢ The employer will transcribe the data of such returns on computer readable media using an
authorised Bulk Return Preparation Software (BRPS) and shall furnish these returns in
specified form and in specified manner, including in a computer readable media (like floppy,
CD- ROM, diskette, magnetic cartridge tape) to the designated Assessing Officer on or before
the due date.
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➢ The return furnished under such scheme shall be deemed to be a return furnished u/s 139(1).

SEC 139(1C) - SPECIFIED CLASS OR CLASSES OF PERSONS TO BE EXEMPTED FROM FILING

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RETURN OF INCOME
➢ For reducing the compliance burden of small taxpayers, the Central Government is
empowered to notify the class or classes of persons who will be exempted from the
requirement of filing of return of income, subject to satisfying the prescribed conditions.

➢ Every notification issued under section 139(1C) shall, as soon as may be after its issue, be laid
before each House of Parliament while it is in sessio, for a total period of thirty days. If both
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 Houses agree in making any modification in the notification, the notification will thereafter
have effect only in such modified form. If both Houses agree that the notification should not
be issued, the notification shall thereafter have no effect.

SEC. 139(3) - RETURN OF LOSS

 Compulsory requirement:

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➢ The following losses cannot be carried forward if the return of loss is not submitted within
the time allowed u/s 139(1) -

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• Sec 72(1) - Business loss
• Sec 73(2) - Speculative business loss
• Sec 73A(2) – Loss from business specified u/s 35AD

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• Sec 74(1) &(3) - Capital loss;
• Sec 74A (3) - Loss from the activity of owning and maintaining race horses
Thus, any assessee suffering from any of the above loss must compulsorily file his return of
loss on or before the due date.

 Points to remember

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➢ Loss declared in belated return cannot be carried forward. However, set-off of losses of
current year is not prohibited while computing the total income, even if the return of loss
is filed after the due date.
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➢ Delay in filing the return of loss may be condoned in certain cases.
➢ Unabsorbed depreciation u/s 32 and loss under the head “Income from house property”
can be carried forward even if the loss return is filed after the due date u/s 139(1).
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➢ Although the loss of the current year cannot be carried forward unless the return of loss is
submitted before the due date, but the loss of earlier years can be carried forward if the
return of loss of that year was submitted within the due date.
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SEC. 139(4) - BELATED RETURN

➢ If an assessee fails to file return within the time limit allowed u/s 139(1) or within the time
allowed under a notice issued u/s 142(1), he can file a belated return.
➢ Time limit: Assessee may file such return
● Any time before three months prior to the the end of the relevant assessment year; or
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● before the completion of assessment

- whichever is earlier.
➢ However, if an assessee files a belated return, he would be liable to fee u/s 234F and interest
u/s 234A.
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SEC. 139(5) - REVISED RETURN

 Requirement
➢ If an assessee discovers any omission or wrong statement (bonafide in nature) in the
return filed, he can revise his return u/s 139(5).

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  Time limit:
➢ Assessee may file the revised return
• Any time before three months prior to the the end of the relevant assessment year;
or
• before completion of assessment,
whichever is earlier.

 Points to remember

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➢ Replacement of original return: Once a revised return is filed, it replaces the earlier return.
This signifies that the revised return should be complete in itself and not merely an

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accessory to the original return.
➢ Revision of revised return: A revised return can again be revised i.e. a second revised
return can be filed u/s 139(5) for correcting any omission or wrong statement made in the

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first revised return within specified time.
➢ A belated return u/s 139(4) can be revised.
➢ A loss return u/s 139(3) can be revised.
➢ Return filed pursuant to notice u/s 142(1) cannot be revised.

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SEC. 139(6) - PARTICULARS TO BE FURNISHED WITH THE RETURN
➢ The prescribed form of the return shall, in certain specified cases, require the assessee to
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furnish the particulars of -
(i) income exempt from tax;
(ii) assets of the prescribed nature and value, held by him as a beneficial owner or
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otherwise or in which he is a beneficiary;
(iii) his bank account and credit card held by him;
(iv) expense exceeding the prescribed limits incurred by him under prescribed heads; &
(v) such other outgoings as may be prescribed.
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SEC. 139(6A)- PARTICULARS TO BE FURNISHED WITH RETURN OF INCOME IN THE

CASE OF AN ASSESSEE ENGAGED IN BUSINESS OR PROFESSION
➢ The prescribed form of the return shall, in the case of an assessee engaged in any
business or profession, also require him to furnish –
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➢ The report of any audit referred to in section 44AB.

➢ The particulars of the location and style of the principal place where he carries on the
business or profession and all the branches thereof.
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➢ The names and addresses of his partners, if any, in such business or profession.
➢ If he is a member of an association or body of individuals, the names of the other
members of the association or the body of individuals; and the extent of the share of the
assessee and the shares of all such partners or members, as the case may be, in the
profits of the business or profession.

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 SEC. 139(8A)- UPDATED RETURN
➢ Any person, whether or not he has furnished a return 139(1), (4),(5) for an assessment
year may furnish an updated return of his income or the income of any other person in
respect of which he is assessable under this Act, for the previous year relevant to such
assessment year, at any time within twenty-four months from the end of the relevant
assessment year

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➢ The above shall not apply, if the updated return
(a) is a return of a loss; or

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(b) has the effect of decreasing the total tax liability determined on the basis of return
furnished under 139(1),(4) or (5)
(c) results in a refund or increases the refund due on the basis of return furnished under
Section 139(1),(4) or (5)

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of such person under this Act for the relevant assessment year:
➢ A person shall not be eligible to furnish an updated return where—

(a) a search has been initiated or books of account or other documents or any assets are

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requisitioned
(b) a survey has been conducted
(c) a notice has been issued to the effect that any money, bullion, jewellery or valuable
article or thing, seized or requisitioned
(d) a notice has been issued to the effect that any books of account or documents, seized or
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requisitioned in the case of any other person, pertain or pertains to, or any other
information contained therein, relate to, such person,
for the assessment year relevant to the previous year in which such search is initiated
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or survey is conducted or requisition is made and any assessment year preceding such
assessment year

➢ No updated return shall be furnished by any person for the relevant assessment year,
where—
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(a) an updated return has been furnished by him under this sub-section for the relevant
assessment year; or
(b) any proceeding for assessment or reassessment or recomputation or revision of income
under this Act is pending or has been completed for the relevant assessment year in his
case; or
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(c) the Assessing Officer has information in respect of such person for the relevant
assessment year in his possession under the Smugglers and Foreign Exchange
Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976) or the Prohibition
of Benami Property Transactions Act, 1988 (45 of 1988) or the Prevention of Money-
laundering Act, 2002 (15 of 2003) or the Black Money (Undisclosed Foreign Income and
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Assets) and Imposition of Tax Act, 2015 (22 of 2015) and the same has been
communicated to him, prior to the date of furnishing of return under this sub-section; or
(d) information for the relevant assessment year has been received under an agreement
referred to in section 90 or section 90A in respect of such person and the same has been
communicated to him, prior to the date of furnishing of return under this sub-section; or

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 (e) any prosecution proceedings under the Chapter XXII have been initiated for the relevant
assessment year in respect of such person, prior to the date of furnishing of return under
this sub-section; or
(f) he is such person or belongs to such class of persons, as may be notified by the Board in
this regard:
➢ If any person has sustained a loss in any previous year and has furnished a return of loss in
the prescribed form within the time allowed under section 139(1) and verified in the

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prescribed manner and containing such other particulars as may be prescribed, he shall be
allowed to furnish an updated return where such updated return is a return of income

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➢ If the loss or any part thereof carried forward under Chapter VI or unabsorbed depreciation
carried forward under Section 32(2) or tax credit carried forward under section 115JAA or
under section 115JD is to be reduced for any subsequent previous year as a result of

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furnishing of return of income under this sub-section for a previous year, an updated return
shall be furnished for each such subsequent previous year.

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SEC. 139(9)- DEFECTIVE RETURN
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 When a return is termed defective –
For the purposes of this sub-section, a return of income shall be regarded as defective unless all
the following conditions are fulfilled, namely :—
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(a) the annexures, statements and columns in the return of income relating to computation of
income chargeable under each head of income, computation of gross total income and total
income have been duly filled in;
(b) the return is accompanied by a statement showing the computation of the tax payable on
the basis of the return;
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(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where
the report has been furnished prior to the furnishing of the return, by a copy of such report
together with proof of furnishing the report;
(c) the return is accompanied by proof of—
(i) the tax, if any, claimed to have been deducted or collected at source and the advance
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tax and tax on self-assessment, if any, claimed to have been paid :

Provided that where the return is not accompanied by proof of the tax, if any,
claimed to have been deducted or collected at source, the return of income shall not
be regarded as defective if—
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(a) a certificate for tax deducted or collected was not furnished under section
203 or section 206C to the person furnishing his return of income;
(b) such certificate is produced within a period of two years specified under sub-
section (14) of section 155;
(ii) the amount of compulsory deposit, if any, claimed to have been made under the
Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974

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 (ca) the return is accompanied by the proof of payment of tax as required under section 140B,
if the return of income is a return furnished under Section 140(8A)
(d) where regular books of account are maintained by the assessee, the return is accompanied
by copies of—
(i) manufacturing account, trading account, profit and loss account or, as the case may
be, income and expenditure account or any other similar account and balance sheet;
(ii) in the case of a proprietary business or profession, the personal account of the

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proprietor; in the case of a firm, association of persons or body of individuals,
personal accounts of the partners or members; and in the case of a partner or

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member of a firm, association of persons or body of individuals, also his personal
account in the firm, association of persons or body of individuals;
(e) where the accounts of the assessee have been audited, the return is accompanied by copies

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of the audited profit and loss account and balance sheet and the auditor's report and, where
an audit of cost accounts of the assessee has been conducted, under section 233B 51 of the
Companies Act, 1956 (1 of 1956), also the report under that section;
(f) where regular books of account are not maintained by the assessee, the return is
accompanied by a statement indicating the amounts of turnover or, as the case may be, gross

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receipts, gross profit, expenses and net profit of the business or profession and the basis on
which such amounts have been computed, and also disclosing the amounts of total sundry
debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year:
Provided that the Board may, by notification in the Official Gazette, specify that any of the
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conditions specified in clauses (a) to (f) to the Explanation shall not apply to such class of
assessees or shall apply with such modifications, as may be specified in such notification.
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 Effect:
➢ Where the Assessing Officer considers that the return of income furnished by the taxpayer
is defective, he may intimate the defect to the taxpayer and give him an opportunity to
rectify the defect(s).
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 Time limit for rectification:

➢ The assessee must rectify the error within a period of 15 days from the date of intimation
(served on the assessee) or within such extended time as allowed by the Assessing Officer.
Where the taxpayer rectifies the defect after the expiry of the period of 15 days or such
extended period but before the assessment is completed, the Assessing Officer can
condone such delay.
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➢ If defect is not rectified within the time limit, the AO will treat the return as an invalid
return and provisions of the Act will apply as if the taxpayer had failed to furnish the return
at all.
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 Note:
➢ Currently, the assessee is required to furnish paper-less return. i.e., no documents, proof
or report (other than some specified report required to be furnished electronically) is
required to be attached with return of income. In this regard, return of income shall not be
considered as defective return. However, the assessee should retain these documents,
proof or report with himself. If called for by the income-tax authority during any
proceeding, it shall be incumbent upon the assessee to furnish/produce the same.
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 Intimation by
Defect rectified Yes Valid return
AO to provide
by Assessee
Defective details within
within time
return 15 days (can
provided by
be extended by No Invalid return
AO
AO)

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SEC 139A – PERMANENT ACCOUNT NUMBER (PAN)
 Meaning
➢ Permanent Account Number (PAN) is an alpha-numeric (ten characters) code given to a
person by income tax department for the purpose of identification of the assessee.

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➢ A person can have only one PAN.

 Compulsory application for allotment of PAN

➢ As per sec. 139A & rule 114, following persons are under statutory obligation to apply

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for PAN within the time limit stated as under:
Who is to apply for PAN When to apply for PAN
Any person whose total income exceeds maximum exempted
limit.
Any resident person other than an individual, which enters into
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a financial transaction of an amount aggregating to Rs. 2,50,000 On or before 31 May of the
or more in a financial year relevant assessment year.
Any person who is the managing director, director, partner,
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trustee, author, founder, karta, chief executive officer, principal
officer or office bearer of the person referred above or any
person competent to act on behalf of the person referred above
Any person who intends to enter such transaction as may be
prescribed by the Board in the interest of revenue
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Any person whose sales or turnover or gross receipts are likely

to exceed Rs.5,00,000 in any previous year
Any person who is required to furnish return u/s 139(4A) i.e. On or before the end of the
trust and charitable institution relevant financial year
Any person who is entitled to receive any sum or income, on
which tax is deductible under in any financial year
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Any person who requires export-import code Before making any export
or import.
Assessee under the GST Before making application
for registration under
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GST.

 Sec 139A(1A) - The Central Government is empowered to specify, by notification in the

Official Gazette, any class or classes of persons by whom tax is payable under the Act or any
tax or duty is payable under any other law for the time being is force. Such persons are
required to apply within such time as may be mentioned in that notification to the Assessing
Officer for the allotment of a PAN.

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  Sec 139A(1B) - For the purpose of collecting any information which may be useful for or
relevant to the purposes of the Act, the Central Government may notify any class or classes of
persons, and such persons shall within the prescribed time, apply to the Assessing Officer for
allotment of a PAN.

 Sec 139A(2) -The Assessing Officer, having regard to the nature of transactions as may be
prescribed, may also allot a PAN to any other person (whether any tax is payable by him or
not) in the manner and in accordance with the procedure as may be prescribed.

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 Sec 139A(3) - Any person, other than the persons mentioned in (1) or (4) above, may apply

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to the Assessing Officer for the allotment of a PAN and the Assessing Officer shall allot a
PAN to such person immediately.

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 Sec. 139A(5) - Mandatory provision
➢ A person to whom a PAN is allotted, is required to quote that number in -
● All his returns to; or
● Any correspondence with; or
● Any other documents to,

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- Income-tax authority.
➢ A person to whom a PAN is allotted, is required to quote that number in challans for
payment of any sum due under this Act.
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 Sec. 139A(5)(c) & Rule 114B
➢ Every person shall quote its PAN in all documents pertaining to following transactions
entered into by him –
1. Transactions relating to sale or purchase of a motor vehicle (other than two wheeled
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vehicles), which requires registration.
2. Opening an account [other than a time-deposit and a Basic Savings Bank Deposit
Account] with a banking company or a co-operative bank .
3. Making application for issue of a credit card or debit card.
4. Opening of a demat account.
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5. Payment in cash exceeding Rs. 50,000 to a hotel or restaurant against a bill or bills at
any one time.
6. Payment in cash exceeding Rs. 50,000 in connection with travel to any foreign
country or payment for purchase of any foreign currency at any one time
7. Payment exceeding Rs. 50,000 to any mutual fund for purchase of its units.
8. Payment exceeding Rs. 50,000 to a company or an institution for acquiring debentures
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or bonds issued by it.

9. Payment exceeding Rs. 50,000 to RBI for acquiring bonds issued by it.
10. Deposit in cash exceeding Rs. 50,000 during any one day with a banking company or
a co-operative bank.
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11. Purchase of bank drafts or pay orders or banker’s cheques from a banking company
or a co-operative bank in cash for an amount exceeding Rs. 50,000 during any one
day.
12. A time deposit of an amount exceeding Rs. 50,000 or aggregating to more than Rs. 5
lakh during a financial year with:
(i) a banking company or a co-operative bank; or
(ii) a Post Office; or
(iii) a Nidhi referred to in section 406 of the Companies Act, 2013; or
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 (iv) a non-banking financial company
13. Payment in cash or by way of a bank draft or pay order or banker’s cheque of an
amount aggregating to more than Rs.50,000 in a financial year for one or more pre-
paid payment instruments, as defined in the policy guidelines for issuance and
operation of pre-paid payment instruments issued by Reserve Bank of India u/s 18 of
the Payment and Settlement Systems Act, 2007, to a banking company or a co-
operative bank
14. Payment aggregating to more than Rs. 50,000 in a financial year as life insurance

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premium to an insurer.
15. A contract for sale or purchase of securities (other than shares) where transaction

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value exceeds Rs. 1 lakh
16. Sale or purchase, by any person, of shares of a company not listed in a recognised
stock exchange where transaction value exceeds Rs. 1 lakh

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17. Sale or purchase of any immovable property where amount exceeds Rs. 10 lakh or
stamp value exceeds Rs.10 lakh
18. Sale or purchase, by any person, of goods or services of any nature other than those
specified above where transaction value exceeds Rs. 2 lakh

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 Sec.139A (5A) - Every person who receives any amount from which tax has been deducted
at source shall intimate his PAN to the person responsible for deducting such tax.
Every buyer or licensee or lessee referred u/s 206C shall intimate his PAN to the person
responsible for collecting such tax.
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 Sec.139A (5B) – Deductor needs to furnish PAN in returns, statements and certificates
 Sec.139A (5C) – Buyer shall furnish PAN to Seller in case of TCS.
 Sec.139A (5D) – Person collecting tax at source shall quote PAN of buyer in all returns,
statements and certificates
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Every person collecting tax at source with the provisions of Sec 206C shall quote PAN in all
returns, statements and certificates.
 Sec.139A (5E) – Aadhar number can be used in lieu of PAN even when PAN has not been
issued.
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 Points to remember :
➢ Where a person, entering into any of the aforesaid transaction, is a minor and who does
not have any income chargeable to tax, he shall quote the PAN of his father or mother or
guardian, as the case may be, in the document pertaining to the said transaction.
➢ Any person who does not have a PAN and who enters into any of the aforesaid
transaction, he shall make a declaration in Form No.60 giving therein the particulars of
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such transaction.
➢ The provisions of this rule shall not apply to the following class or classes of persons,
namely:
• the Central Government, the State Governments and the Consular Offices;
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• the non-residents in respect of the transactions other than a transaction referred above
with .
➢ If there is a change in the address or in the name and nature of the business of a person,
on the basis of which PAN was allotted to him, he should intimate such change to the
Assessing Officer.

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 SECTION 139AA – QUOTING OF AADHAR NUMBER
 Mandatory quoting of Aadhar Number
➢ Every person who is eligible to obtain Aadhar Number is required to mandatorily quote
Aadhar Number, on or after 1st July, 2017:
(a) in the application form for allotment of Permanent Account Number (PAN)
(b) in the return of income

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 Mandatory quoting of Enrolment Id, where person does not have Aadhar Number
➢ If a person does not have Aadhar Number, he is required to quote Enrolment ID (28

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digits) of Aadhar application form issued to him at the time of enrolment
(a) in the application form for allotment of Permanent Account Number (PAN) or
(b) in the return of income furnished by him.

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 Intimation of Aadhar Number to prescribed Authority
➢ Every person who has been allotted Permanent Account Number (PAN) as on 1st July,
2017, and who is eligible to obtain Aadhar Number, shall intimate his Aadhar Number

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to prescribed authority on or before 31st March 2022.

 Consequences of failure to intimate Aadhar Number

➢ If a person fails to intimate the Aadhar Number, the permanent account Number (PAN)
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allotted to such person shall be made inoperative.

➢ However CBDT has notified that the permanent account number (PAN) of those who do
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not have Aadhaar and who do not wish to obtain Aadhaar for the time being, will not be
cancelled so that other consequences under the Income-tax Act for failing to quote PAN
may not arise
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 Provision not to apply to certain persons or class of persons

➢ The provisions of section 139AA relating to quoting of Aadhar Number would, however,
not apply to an individual who does not possess the Aadhar number or Enrolment ID
and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
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(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India
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SEC.139B - SCHEME FOR SUBMISSION OF RETURNS THROUGH TAX RETURN PREPARERS

 Meaning:
➢ A TRP is an individual who has been authorized to enable any specified class(es) of
person to prepare and furnish their returns of income.
➢ The TRP shall also affix his signature on such return.

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 ➢ Specified class(es)of person means resident individual and resident HUF other than
person whose accounts are required to be audited.
➢ Such specified person may, at his option, furnish his return of income under section 139
for any assessment year after getting it prepared through a Tax Return Preparer

 CBDT has framed the Tax Return Preparer Scheme, 2006,

 Person not eligible to become TRP

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➢ Accountant
➢ Any legal practitioner who is entitled to practice in any civil court in India.

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➢ Any officer of a scheduled bank cannot be the TRP of the assessee who maintains a
Current account or has other regular dealing with such bank.
➢ Any employee of the specified class(es)of persons

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(Note - Employees of companies and persons whose accounts are required to be audited under
section 44AB or any other law for the time being in force are eligible to act as TRPs)

 Educational Qualification of TRP

institution, or

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➢ An individual, who holds a bachelor degree from a recognised Indian University or

➢ has passed the intermediate level examination conducted by the ICAI or ICSI or ICMAI
shall be eligible to act as Tax Return Preparer.
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 When return cannot be filed through a TRP
An individual or a HUF cannot furnish a return of income for an assessment year through a
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TRP
➢ who is carrying out business or profession during the previous year and accounts of the
business or profession for that previous year are required to be audited under section
44AB or under any other law for the time being in force; or
➢ who is not a resident in India during the previous year
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➢ an individual or a HUF cannot furnish a revised return of income for any assessment year
through a TRP unless he has furnished the original return of income for that assessment
year through such or any other Tax Return Preparer
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SEC. 139C & 139D - POWER OF CBDT TO DISPENSE WITH FURNISHING DOCUMENTS ETC.
WITH THE RETURN AND FILING OF RETURN IN ELECTRONIC FORM
➢ Section 139C provides that the CBDT may make rules providing for a class or classes of
persons who may not be required to furnish documents, statements, receipts, certificate,
reports of audit or any other documents, which are otherwise required to be furnished
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along with the return under any other provisions of this Act.
➢ However, on demand, the said documents, statements, receipts, certificate, reports of audit
or any other documents have to be produced before the Assessing Officer.

➢ Section 139D empowers the CBDT to make rules providing for –

(a) the class or classes of persons who shall be required to furnish the return of income
in electronic form;
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 (b) the form and the manner in which the return of income in electronic form may be
furnished;
(c) the documents, statements, receipts, certificates or audited reports which may not be
furnished along with the return of income in electronic form but have to be produced
before the Assessing Officer on demand;
(d) the computer resource or the electronic record to which the return of income in
electronic form may be transmitted.

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SEC.140 - PERSONS AUTHORISED TO VERIFY RETURN OF INCOME
Assessee Case Verified by
In general Individual himself

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Where the individual concerned is absent Individual himself or any person
from India duly authorized person by him
Where the individual is mentally Guardian of such individual or any
Individual Incapacitated other person competent to act on
his behalf
Where by any other reason it is not

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possible for the individual to verify the
return.
Any person duly authorised by him

Note: When return is verified by any authorised person in that case the return should be
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accompanied with power of attorney.

In general Karta
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HUF Where the ‘karta’ is absent from India or Any adult member of the family.
is mentally incapacitated
In general Managing partner
Firm If due to any reason it is not possible for Any partner of the LLP or any other
managing partner to verify or where person as may be prescribed for
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there is no managing partner this purpose

In general Designated partner
Limited If due to any unavoidable reason such Any partner or any other person as
liability designated partner is not able to verify may be prescribed for this purpose
partnership the return, or where there is no
designated partner as such
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Local Principal Officer

authority
Political Chief Executive Officer
party
In general Managing Director (MD)
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If due to any reason it is not possible for Any director or any other person
MD to verify or where there is no MD as may be prescribed for this
purpose
Non-resident company A person holding a valid power of
Company attorney.
Copy of such power of attorney
must be attached with the return.
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 Company in process of winding up Liquidator of the company

where any person has been appointed as Liquidator of the company

the receiver of any assets of the company
Where the management of the company Principal officer
has been taken over by the Central or
State Government.
Any other Any member or principal officer

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association
Any other Such person or any other person

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person competent to act on its behalf.

“Any other person” shall be the person, appointed by the Adjudicating Authority for discharging

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the duties and functions of an interim resolution professional, a resolution professional, or a
liquidator.

SEC 140A - SELF-ASSESSMENT

➢ In self-assessment, assessee itself is responsible to determine its taxable income, tax liability
and to pay tax accordingly.

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➢ Where any tax is payable (after deducting relief, rebate, advance payment of tax or tax
deducted or collected at source or MAT or AMT credit, any tax or interest payable as per the
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provisions of Sec 192(2)if any) on the basis of return furnished the assessee is required to
pay such tax before filing the return.
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➢ A return furnished without paying self-assessment tax & interest, if any, shall be treated as
defective return.

➢ If any interest is payable for delayed filing of return (u/s 234A) or default in payment of
advance tax (u/s 234B) or for deferment of advance tax (u/s 234C) or fee (u/s 234F) is
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payable for filing return after due date, then such interest or fee should be paid along with
self-assessment tax.

➢ While calculating above interest for the purpose of self-assessment, tax on the total income
declared in the return shall be considered.
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➢ Where the amount paid by the assessee falls short of the aggregate of tax, interest and fee,
the amount so paid shall first be adjusted towards fee and thereafter towards interest
payable and the balance, if any, shall be adjusted towards tax payable.

➢ If an assessee fails to pay whole or any part of such tax or interest or both in accordance
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with the provisions of sec. 140A, he shall be deemed to be an assessee in default.

SEC 140B - TAX ON UPDATED RETURN

➢ If return was filed under Section 139(8A), the assessee shall be liable to pay such tax
together with interest and fee payable under any of the provisions of this Act for any delay in

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 furnishing the return or any default or delay in payment of advance tax, along with the
payment of additional income-tax before furnishing the return.

➢ Where, return of income under Section 139(1), (4), (5) has been furnished by an assessee
and tax is payable on the basis of return to be furnished by such assessee under Section
139(8A)
(a) after taking into account,—
(i) the amount of relief or tax referred to in sub-section (1) of section 140A, the credit for

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which has been taken in the earlier return;

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(ii) tax deducted or collected at source, in accordance with the provisions of Chapter
XVII-B, on any income which is subject to such deduction or collection and which is
taken into account in computing total income and which has not been included in the
earlier return;

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(iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account
of tax paid in a country outside India on such income which has not been included in
the earlier return;
(iv) any relief of tax claimed under section 90A on account of tax paid in any specified

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territory outside India referred to in that section on such income which has not been
included in the earlier return;
(v) any tax credit claimed, to be set off in accordance with the provisions of section
115JAA or section 115JD, which has not been claimed in the earlier return; and
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(b) as increased by the amount of refund, if any, issued in respect of such earlier return,
the assessee shall be liable to pay such tax together with interest payable under any provision of
this Act for any default or delay in payment of advance tax along with the payment of additional
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income-tax, as computed in accordance with sub-section (3), as reduced by the amount of interest
paid under the provisions of this Act in the earlier return, before furnishing the return and the
return shall be accompanied by proof of payment of such tax, additional income-tax, interest and
fee.
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➢ The additional income-tax payable at the time of furnishing the return under Section
139(8A) shall be equal to,—
(i) 25% of aggregate of tax and interest payable, if such return is furnished after
expiry of the time available under Section 139(4), (5) and before completion
of the period of twelve months from the end of the relevant assessment year
(ii) 50% of aggregate of tax and interest payable, if such return is furnished after the
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expiry of twelve months from the end of the relevant assessment year but before
completion of the period of twenty-four months from the end of the relevant
assessment year.
➢ For the purposes of computation of "additional income-tax", tax shall include surcharge and
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cess, by whatever name called, on such tax.

➢ If any difficulty arises in giving effect to the provisions of this section, the Board may, with
the approval of the Central Government, by notification in the Official Gazette, issue
guidelines for the purpose of removing the difficulty.
➢ For the purposes of this clause, the interest paid in the earlier return shall be nil if such return
is an updated return referred to in sub-section (1).

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 Sec. 234A - Interest for default in furnishing return of income
➢ Interest under section 234A is payable where an assessee furnishes the return of income after
the due date or does not furnish the return of income.

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➢ Assessee shall be liable to pay simple interest @1% per month or part of the month for the
period commencing from the date immediately following the due date and ending on the
following dates –

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Circumstances Ending on the following dates
Where the return is furnished after due date The date of furnishing of the return
Where no return is furnished The date of completion of assessment

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➢ The interest has to be calculated on the amount of tax on total income as determined under
section 143(1) or on regular assessment as reduced by the advance tax paid and any tax
deducted or collected at source.

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➢ where the assessee has paid taxes in full on or before the due date, interest under section 234A
is not leviable.
➢ The interest payable under section 234A shall be reduced by the interest, if any, paid on self-
assessment under section 140A towards interest chargeable under section 234A
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Note:
(i) "tax on total income as determined under Section 143(1)" shall not include the additional
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income-tax, if any, payable under section 140B or section 143; and
(ii) tax on the total income determined under regular assessment shall not include the
additional income-tax payable under section 140B.
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Sec. 234F - Fee for default in furnishing return of income

➢ Where a person who is required to furnish a return of income under section 139, fails to do so
within the prescribed time limit under section 139(1), he shall pay, by way of fee, a sum of
• Rs. 5,000, if the return is furnished on or before the 31st December of the assessment
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year;
➢ However, if the total income of the person does not exceed Rs. 5 lakhs, the fees payable shall
not exceed Rs. 1,000.
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Sec. 234H - Fee for default relating to intimation of Aadhaar number.

➢ Where a person is required to intimate his Aadhaar number under 139AA(2) and such person
fails to do so on or before such date, as may be prescribed, he shall be liable to pay such fee,
as may be prescribed, not exceeding one thousand rupees, at the time of making intimation
under sub-section (2) of section 139AA after the said date.

➢ Person would be liable to pay, by way of fee, an amount equal to,

(a) ₹ 500, in a case where such intimation is made within three months from the date referred
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 in section 139AA(2) i.e., by 30.06.2022; and
(b) ₹ 1,000, in all other cases.

Rule 114AAA:
If PAN of a person has become inoperative, the following are the implications:
➢ The person would not be able to file return using the inoperative PAN
➢ Pending returns will not be processed
➢ Pending refunds cannot be issued to inoperative PANs

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➢ Pending proceedings as in the case of defective returns cannot be completed once the PAN
is inoperative

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➢ Tax will be required to be deducted at a higher rate as PAN becomes inoperative
➢ Difficulties at various banking channels for KYC.

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It is clarified that the impact of Rule 114AAA(2) would come into effect from 1st April, 2023; and
the period from 1st April, 2022 to 31st March, 2023, would be the period during which Rule
114AAA(2) would not have its negative consequences.
However, the tax payer would be liable to pay a fee in accordance with section 234H read with
Rule 114(5A).

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