Salaries, House Property and

Profits & Gains

By
S. Venkatesh
'B' Section , 3rd LLB
Government Law College, Madurai

Symposium on Taxation
Organized, Coordinated and Facilitated by Asst. Prof. N. Mohamed Rabi
Government Law College, Madurai
21st November, 2022
 Outline
 Introduction
 Overarching Theme

 Salaries

 House Property

 Profits & Gains of Business and

Professions
 Exam Problem Solving

 References
 Introduction
“No tax shall be levied or collected except by
authority of law” - Article 265 of the Constitution of India
Taxing Income : Exclusive power of the Union (except
“ Agricultural”) - Item No. 82 in List I - The Union List of Schedule VII
of the Constitution of India

The Income-Tax Act, 1961 - The Principal Governing Taxing

Statute
– Provides for the general scheme of taxation
– Definition, Levy and Charge, Computations & Calculations...

The Finance, Act yyyy

– Annually enacted by Parliament
– Provides for the Tax Slabs, Income Tax rates , Advance Tax...
Heads of Income
Section 14
1. Salaries
2. Income from House Property
3. Profits and gains of
Business or Profession
4. Capital gains
5. Income from other Sources
 Overarching Theme - Simplified
For each Head
- Definition
- Deduction (specific)
- Net Income for the Head
Add all Net Incomes of 5 heads
= Gross Total Income
[Gross Total Income] - [General Deductions]
= Net Taxable Income
Determine Tax liability from the Finance Act
 Salaries
Sections 15 to 17

Section 15 - Charging section

Section 16 - Specific Deductions

Section 17 - Definitions
 Definition - Section 17
1. Salary U/S 17(1)
 Wages
 Annuity or Pension
 Gratuity
 Fees, Commission, Perquisite in lieu of salary
 Advance salary
 Leave encashment
 Interest on recognized Provident Fund
 Transferred balance to newly recognized PF
 Contribution to pension scheme under Section 80CCD
-National Pension Scheme (NPS),Atal Pension Yojana
2. Perquisite U/S 17(2)
Ex: Rent free accommodation, employers contribution to
approved superannuation fund

3. Profits in lieu of salary U/S 17(3)

 Charge - Section 15
a) Salary due in the previous year, whether paid or not by current
or former employer

b) Salary paid or allowed though not due in the previous year by

current or previous employer

c) Arrears paid or allowed by current or former employer if not

charged in the previous year

Explanation1 - Advance salary included in any previous year is

not included

Explanation2 - any amount (salary, bonus, commission or

remuneration or whatever name) received by
partner in a firm not included
 Deductions - Section 16

a) Rs. 50,000 or amount of salary - whichever is less

b) Government employee: Entertainment allowance or 1/5th

Salary* or Rs. 5,000 - whichever is less
* excluding allowance, benefit or perquisite

c) Tax on employment ( Professional Tax ) as per Article

276(2) of the Constitution, which specify a upper bound of
Rs. 2500
Income from House Property
Sections 22 to 27
Section 22 - Charging section
Section 23 - Calculation
Section 24 - Specific Deductions
Section 25 - Not deductible
Section 25A - Special provision
Section 26 - Co-ownership
Section 27 - Definitions
 Definitions - Section 27
Deemed Owner of House Property

Individual transferor

Individual holder of indivisible estate

Member of co-operative society, company or other

association of persons

Person in possession from:

part performance of contract U/S 53A of TP Act 1882;
transaction U/S 269UA (f) if IT Act, 1961
(lease term exceeding 12 years)

Taxes levied by a local authority shall be deemed to

include service tax
 Charge - Section 22

a) Annual value of building owned

b) Annual value of lands belonging to the building owned

Exclusion:

Portion for own occupation for business or

profession,profits and gains from which are charged
as Income under the Head profits and gains of
business or profession.
 Calculation - Section 23
Let out - U/S 23 (1)
i)Annual rent reasonable expected or actual rent received,
whichever is higher in case of entire previous year

ii)In case of part vacancy in previous year, the lower of actual

rent received and the expected rent

Proviso to Section 23(1): Taxes levied , paid by owner, to be

deducted in both the above cases

Own occupation - U/S 23 (2)

Annual value Nil
for two only houses U/S 23(4)

Stock-in-trade and not let out - U/S 23 (5)

Annual value Nil
up to two years after completion of construction (certified)
 Deductions - Section 24,25A
a) 30% of annual value U/S 24(a)
b) Interest*** on borrowed loan U/S 24 (b) on self
occupied property^ subject to a maximum of:
– Rs. 2,00,000**, in case of acquisition or construction
and capital borrowed on or after 01.04.1999;
– Rs. 30,000* all other cases
* First Proviso to Section 24(b)
** Second Proviso to Section 24(b)
*** Excluding interest payable outside India on which tax not paid or
deducted, and no agent in Section 25
^ In case of let out property any interest amount, no limit

c) 30% of arrears or realised rent U/S 25A(2)

 Profits and Gains of Business
and Profession
Sections 28 to 44DB

Charge - Section 28
Computation - Section 29
Deductions Allowed - Sections 30 to 35E
Other Deductions - Section 36
General - Section 37
Deductions Not Allowed - Sections 40, 40A
Definitions - Section 43
Special Provisions
 Charge - Section 28
1) profits and gains from business or profession carried out any
time in the previous year - U/S 28(i)
2) any compensation or payments received by any person
managing Indian company upon termination or contract
alteration - U/S 28(ii)(a)
3) any compensation or payments received by any person
managing affairs in India of any company upon termination or
contract alteration - U/S 28(ii)(b)
4) any compensation or payments received by any agent
upon termination or contract alteration - U/S 28(ii)(c)
5) any compensation or payments received by any person
managing affairs property or business vested with Government -
U/S 28(ii)(d)
6) any compensation or payments received by any person upon
termination or contract alteration related to his business -
U/S 28(ii)(e)
 Charge - Section 28 continues...

7) income from trade, professional or similar association from

specific services performed for its members - U/S 28(iii)
8) profits on sale of a licence:-
granted under the Imports (Control) Order, 1955, or;
made under the Imports and Exports (Control) Act, 1947
- U/S 28(iiia)
transfer of the Duty Entitlement Pass Book Scheme
- U/S 28(iiid)
transfer of the Duty Free Replenishment Certificate
- U/S 28(iiie)
9) cash assistance received or receivable by any person against
exports under any scheme of the Government of India
- U/S 28(iiib)
10) Drawback under the Customs and Central Excise Duties
Drawback Rules, 1971 - U/S 28(iiic)
 Charge - Section 28 continues...

11) Any benefit or perquisite arsing from business or profession

- U/S 28(iv)

12) Sum received for not carrying out any activity related to
business or profession - U/S 28(va)(a)

13) Sum received for not sharing the IPR - U/S 28(va)(b)

14) Sum (including bonus) received under Keyman Insurance policy

- U/S 28(vi)

15) Fair market value of inventor converted or treated as capital

assets - U/S 28(via)

16) Sum derived from transfer or commit to waste of capital asset

(except goodwill, land, financial instrument) - U/S 28(vii)
 Deductions - Sections 30 to 38
Illustrative group (not exhaustive)

1) Rent, repair, maintenance, taxes, insurance

2) Depreciation

3) Investment allowances and certain investments

4) Development rebate, allowance

5)Expenditure on scientific research, acquisition of IPR,

prospecting on certain minerals, spectrum usage

....
 Deductions Not allowed -
Sections 40
Illustrative list (not exhaustive)
1) Interest, IPR etc payable* outside India - U/S 40(a)(i)(A)
2) Interest, IPR etc payable* in India to a NR other than
company - U/S 40(a)(i)(B)
3) Interest, IPR etc payable* in India to a foreign company -
U/S 40(a)(i)(A)
* if TDS and not deducted

4) any sum paid on account of fringe benefit tax under Chapter

XIIH, or wealth tax
5 ) Expenditure on scientific research, acquisition of IPR,
prospecting on certain minerals, spectrum usage etc
Exam problem solving
 Overview
Salary (-) Specific Net Income
Deductions
Section 15 to 17 U/S 16
from Salary

F House Property (-) Specific Net Income

i Deductions
Section 22 to 27 U/S 24
from House
v Property
e
Profits & Gains of Net Income
Business or (-) Specific from Profits
H Professions
Deductions
& Gains
U/S 32
e Section 28 to 44DB
a Net Income
(-) Specific
d Capital Gains Deductions from Capital
s Section 45 to 55A U/S 55 Gains

(-) Specific Net Income

Other Income Deductions from Other
Section 56 to 59 U/S 57 sources
 Overview Continues...
(+)
Net Income
from Salary Gross (-) General
Total Deductions
Net Income (+) Income U/S 80A to 80U
from House
Property
Net Taxable Income
Net Income (+)
from Profits Apply
& Gains Slab & Rates

Net Income (+)

from Capital Tax
Gains (+) Cess = 4% of Tax

Net Income (+)

from Other
sources
Total Tax Liability
 Problem involving only Salary
Let,Gross Salary = Rs. x
Net Salary = Rs. x - (Specific Deductions U/S 16 )
For Government Employees:-
Net Salary = Rs. x - Rs.50,000 - PT- (lower of EA or x/5 or
Rs. 5,000)
For others:-
Net Salary = Rs x - Rs.50,000 - PT

As only Salary income is present, income from all other heads is

Nil, hence:
Gross Total Income = Net Salary

Net Taxable Income = Net Salary - (General Deductions U/S

80A to 80 U)
Gross Salary = Basic + DA + HRA + CCA
= Rs. 4,00,000 + Rs.3,00,000 + Rs. 60,000 +Rs. 8,000
= Rs. 7,68,000
Net Salary = Gross Salary - (Specific Deductions U/S 16)
= Rs. 7,68,000
(-) Rs. 50,000 ...... U/S 16(ia)
(-) Rs. 2,500 ...... U/S 16(iii)
Net Salary = Rs. 7,15,500
Since Income from other Heads are Nil, the
Gross Total Income = Net Salary = Rs. 7,15,500
General Deductions = (Rs. 3,000 + Rs. 3,000 ) ...... U/S 80G
(-) Rs. 70,000 [10% of Salary U/S 80CCD(1)(a)]
= Rs. 76,000
Net Taxable Income = Rs. 7,15,500 (-) Rs. 76,000 = Rs. 6,39,500
Net Taxable Income = Rs. 6,39,500

Tax Payable

Rs. 0 to Rs. 2,50,000 = 0% Rate = Rs. 0

Rs. 2,50,000 to Rs. 5,00,000 = 5% of Rs. 2,50,000 = Rs. 12,500

Rs. 5,00,000 to Rs. 1,39,500 = 20% of Rs. 1,39,500 = Rs. 27,900

Tax = Rs. 40,400

Total Tax Liability = Tax +4% of Tax

= Rs. 40,400 + Rs. 1,616
Total Tax Liability = Rs. 42,016
 Problem involving only House
Property
Let,Gross Annual Value = Rs. x
Net Annual Value = Rs. x - (Municipality Tax)
Gross Income from House Property = Net Annual Value [NAV]

Net Income from House Property = [NAV] - (Specific Deductions

U/S 24 )
(Specific Deductions) = [NAV]x30/100 + Interest paid if any

As only income from House Property is present, income from all

other heads is Nil, hence:
Gross Total Income = Net Income from House property

Net Taxable Income = Net Income - (General Deductions U/S

80A to 80 U)
Net Annual Value = Gross Annual Value - [MT] ...... U/S 23
= Rs.6,20,000 - Rs.15,000
Net Annual Value = Rs.6,05,000

Net Income from HP = Net Annual Value

- (Specific Deductions U/S 24 )
= Rs .6,05,000
- Rs.6,05,000x30/100 ...... U/S 24(a)
- Rs.40,000 ...... U/S 24(b)

Net Income from HP = Rs.3,83,000

Since Income from other Heads are Nil, the

Net Taxable Income = Net Income from HP = Rs. 3,83,000
Net Taxable Income = Rs.3,83,000

Tax Payable
Rs.0 to Rs. 2,50,000 = 0% Rate = Rs. 0
Rs. 2,50,000 to Rs.3,83,000 = 5% of Rs.1,33,000 = Rs.6650

Tax = Rs.6650

Rebate U/S 87A in case of Total Income < Rs.5,00,000:

Max allowed Rs.12,500

Hence Tax Liability = Nil

 Reference

THE INCOME-TAX ACT, 1961 - Bare Act

THANK YOU