DIRECT

TAX
THEORY
Prof. Minhaj Shaikh
LIGHT OF COMMERCE
Any 10 Items of Incomes which are exempt under section 10 of
Income tax act 1961
1. Agricultural Income: Income from agriculture is exempt from income tax.
2. Long-Term Capital Gains on Equities: Gains from the sale of listed equities held for more than one year are
exempt from tax.
3. Gratuity: Gratuity received by employees is exempt, subject to certain conditions.
4. Life Insurance Proceeds: The maturity amount or death benefit from a life insurance policy is exempt.
5. HUF Income: Income earned by a Hindu Undivided Family (HUF) is exempt from tax.
6. Educational Institutions: Income of educational institutions is exempt if certain conditions are met
7. Charitable Trusts: Income of charitable trusts and institutions, if used for charitable purposes, is exempt.
8. Allowances and Perquisites: Certain allowances and perquisites provided to employees may be exempt.
9. NRE Account Interest: Interest earned on Non-Resident External (NRE) accounts is tax-exempt
10. Leave Travel Allowance (LTA): LTA received by employees for travel within India is exempt under certain
conditions.

Prof. Minhaj Shaikh

LIGHT OF COMMERCE
Deduction under section 80C of the income tax act
Life Insurance Premium: Premiums paid for life insurance policies, including those for yourself, your
spouse, and your children.
Employee Provident Fund (EPF): Contributions to your EPF account are eligible for deductions under
Section 80C.
Public Provident Fund (PPF): Contributions made to a PPF account are eligible for deduction.
National Savings Certificate (NSC): Investments in NSC qualify for deductions.
5-Year Fixed Deposit: Certain bank fixed deposits with a lock-in period of 5 years are eligible for
deduction.
Repayment of Home Loan Principal: The principal amount repaid on a home loan is eligible for deduction.
Sukanya Samriddhi Account: Investments in this scheme for the benefit of the girl child are eligible for
deduction.
Tax-Saving Fixed Deposit: Fixed deposits with a lock-in period of 5 years in specified banks are eligible for
deduction.
Equity-Linked Saving Scheme (ELSS): Investments in ELSS mutual funds are eligible for deduction.
Tuition Fees: Tuition fees paid for up to two children's education can be claimed as a deduction.

Prof. Minhaj Shaikh

LIGHT OF COMMERCE
Long Term Capital Gain In Income Tax act 1961
Long-Term Capital Gains (LTCG) in the Income Tax Act, 1961, pertain to the profits made from the sale of specified
assets held for an extended period. Here are the key aspects of LTCG under the Income Tax Act:

Definition of Long-Term Capital Asset: For most assets, if you hold them for more than 24 months (previously 36
months before April 1, 2017), they are considered long-term capital assets. However, the holding period for some
assets like equity shares and equity-oriented mutual funds is 12 months.

Calculation of LTCG: LTCG is calculated as the difference between the sale price of the asset and its cost of
acquisition. If you have held the asset for a long term, you get the benefit of indexation, which adjusts the cost for
inflation.

Tax on LTCG: As of my last knowledge update in January 2022, LTCG on listed equities and equity-oriented mutual
funds was exempt from tax up to a certain limit (subject to conditions). Beyond that limit, it was taxed at a flat rate
of 10%. For other assets, the LTCG tax rate was 20% with indexation benefits.

Exemptions: Certain assets are exempt from LTCG tax, such as agricultural land in rural areas, gold bonds, etc. Also,
exemptions are available under Section 54 and 54F when LTCG is reinvested in residential property or specified
bonds.
Prof. Minhaj Shaikh
LIGHT OF COMMERCE
Commuted Pension and uncommuted pension in income tax act 1961

Commuted Pension:

Commuted pension refers to the lump-sum payment received by a taxpayer in exchange for a part of their pension.
It is the amount that a pensioner receives upfront in lieu of a portion of their future pension.
Under the Income Tax Act, the commuted portion of the pension is tax-exempt for government employees. For non-
government employees, the exemption is calculated based on a specified formula. The maximum amount that can
be commuted varies based on the type of pension, age of the recipient, and other factors.
The tax exemption for the commuted pension is available under Section 10(10A) of the Income Tax Act.

Uncommuted Pension:

Uncommuted pension refers to the regular periodic payments that a pensioner receives without commuting any
part of the pension into a lump sum.
Uncommuted pension is fully taxable as per the individual's income tax slab. It is treated as salary income and is
subject to regular income tax rates.
The taxpayer needs to include the entire uncommuted pension in their total income while filing their tax return.

Prof. Minhaj Shaikh

LIGHT OF COMMERCE
Deductions under head of Income from house property
Standard Deduction: As of my last knowledge update in January 2022, a standard deduction of 30% of the net
annual value (rental income) is allowed to account for repairs and maintenance expenses.

Interest on Home Loan: Interest paid on a home loan is deductible from the income from house property. The
maximum limit for this deduction is up to ₹2 lakh for self-occupied property, while there is no upper limit for let-out
or deemed let-out properties. However, for properties under construction, the interest is deductible in five equal
installments beginning from the year of completion.

Principal Repayment on Home Loan: The principal amount repaid on a home loan is eligible for deduction under
Section 80C, but this deduction falls under the overall limit of ₹1.5 lakh for all eligible investments and expenses.

Municipal Taxes: Municipal taxes paid on the property are allowed as a deduction from the annual rental value.

Deduction for Loss from House Property: If the interest paid on the home loan and other deductions exceeds the
rental income from the property, the excess can be set off against other heads of income, subject to certain
conditions.

Co-ownership: In the case of co-ownership of a property, each co-owner can claim a separate deduction based on
their share in the property.
Prof. Minhaj Shaikh
LIGHT OF COMMERCE
Deductions under head of Income from salary
Standard Deduction: Standard deduction of ₹50,000 was allowed for salaried individuals. This deduction was introduced to replace the
earlier transport allowance and medical reimbursement, which were taxable. Please check the latest regulations for any changes.

Professional Tax: The professional tax paid by the employee to the state government is allowed as a deduction.

House Rent Allowance (HRA): HRA received by an employee is partially exempt from tax, subject to certain conditions. The exemption is
based on the actual HRA received, rent paid, and the city of residence.

Leave Travel Allowance (LTA): LTA received for domestic travel within India can be claimed as an exemption, subject to certain conditions.

Deductions under Section 80C: Certain investments and expenses, such as Employee Provident Fund (EPF) contributions, Public Provident
Fund (PPF) contributions, life insurance premiums, and tuition fees for children, can be claimed as deductions under Section 80C

Deductions under Section 80D: Premiums paid for health insurance policies for self and family are eligible for deductions under Section 80D.

Deductions under Section 80E: Interest on loans taken for higher education is eligible for deductions under Section 80E.

Deductions under Section 10: Certain allowances like travel allowance, conveyance allowance, and daily allowance are exempt from tax up to
specified limits.

Tax on Employment: In some cases, the employer is responsible for deducting and paying the income tax on behalf of the employee under the
"Tax on Employment" section.

Prof. Minhaj Shaikh

LIGHT OF COMMERCE
Define Person
Individuals: This is the most common understanding of a "person" in taxation, referring to natural persons or human beings who earn income
and are subject to income tax.

Hindu Undivided Families (HUF): An HUF is recognized as a separate tax entity under Indian tax laws, and it is assessed as a "person" for tax
purposes. HUFs have their own PAN (Permanent Account Number) and are subject to tax on their income.

Companies: Companies, whether they are private, public, or foreign, are considered legal persons for tax purposes. They are subject to
corporate income tax.

Trust and Associations: Certain types of trusts and associations of persons can be assessed as separate entities for tax purposes and may
have their own tax obligations.

Artificial Juridical Persons: This category can include entities like universities, associations, and other organizations that are recognized as
artificial persons under the tax laws.

Firms and Partnerships: Firms, partnerships, and limited liability partnerships (LLPs) are treated as separate persons for tax purposes and are
liable to pay tax on their income.

Prof. Minhaj Shaikh

LIGHT OF COMMERCE
Provision under section 32 and the concept of block of asset as per the
income tax act
Depreciation Deduction: Section 32 allows for the deduction of depreciation on tangible assets and intangible assets used for business or
professional purposes. Depreciation represents the decrease in the value of these assets over time due to wear and tear, obsolescence, or
other factors.

Types of Depreciation: Section 32 differentiates between depreciation on buildings, machinery, plant, furniture, and intangible assets. The
depreciation rates and methods may vary for different types of assets.

Block of Assets: The concept of a "block of assets" is central to Section 32. Instead of calculating depreciation for individual assets, the Income
Tax Act groups assets into specific blocks. A block of assets consists of assets of a similar nature and use, such as plant and machinery.

Pooling of Depreciation: Within a block of assets, depreciation is calculated collectively. The total cost of assets in the block is considered, and
depreciation is calculated on the block's total cost. When an asset is added or disposed of within the block, it affects the depreciation of the
entire block.

Depreciation Rates: The Income Tax Act prescribes depreciation rates for various types of assets and blocks of assets. These rates are specified
in the Income Tax Rules and are periodically updated.

Residual Value: Section 32 allows for the consideration of a residual value when calculating depreciation. Residual value is the estimated value
of an asset at the end of its useful life, and it can be factored into depreciation calculations.

Methods of Depreciation: The Act provides for different methods of calculating depreciation, including the straight-line method and the
reducing balance method.
Prof. Minhaj Shaikh
LIGHT OF COMMERCE
THANK
YOU !
Prof. Minhaj Shaikh
LIGHT OF COMMERCE