SYLLABUS

POST-MID SEM
1. HOUSE PROPERTY
2. PGBP
3. CAPITAL GAIN
4. OTHER SOURCES
5. CLUBBING OF INCOME
6. SET-OFF AND CARRY FORWARD
7. DEDUCTIONS (not coming in exam)
8. GST- DEFINITIONS, SCOPE OF SUPPLY (S. 7), COMPOSITION SCHEME, INPUT TAX CREDIT
9. INTERNATIONAL TAXATION- TRANSFER PRICING, TRANSFER PRICING RELATED TO ARMS-LENGTH
PRINCIPLE, DOUBLE TAXATION AVOIDANCE AGREEMENT
10. DIFFERENCE B/W TAX PLANNING V. TAX MANAGEMENT, TAX EVASION V. TAX AVIODANCE

• CLASS TEST 2 SCHEDULED ON NOV 6

• DEC 5,7,8- GRAND VIVA + REVISION

Deduction 30,31,32,32AD,33AB, 35, 35AB, 35ABA, 35ABB, 35AD, 36,37,

Basic Structure
Direct Tax
Includes income tax and gift tax
Something that is known to us, levied on income and earnings.

Indirect Tax
GST, VAT, Customs, Excise Duty, Service Tax
Not known to us, levied indirectly on sale of goods and services.

Indian Tax System

Three tier federal system- Central Government, State Government and Local Bodies.
• CG imposes tax such as custom duties, central excise duty, income tax, service tax.
• SG imposes income tax on agricultural income. State excise duty, professional tax, land revenue, stamp duty.
• Local bodies collect property tax and other tax on various services like water supply and sewage.

Tax Administrative Services

• Direct Tax by Central Board of Direct Taxes (CBDT) cones under Dept. of Revenue, Ministry of Finance. It is India’s
Financial Action Task Force. Selection of Members- IRS of India, IT Act, IT Rules.
• Indirect Tax by CBEC, new name CBIC (Central Board of Indirect Taxes and Customs), Dept. of Revenue, Ministry of
Finance.

GST ACT 2013, CENTRAL EXCISE ACT 1944, CUSTOMS ACT 1962
GST Council:-
Consists of representatives of centre and state authorities; makes recommendations to the Union and State on GST
Rates, Exemptions and Other Issues

Tax Authorities
Income Tax Authorities as per Section 133A of IT Act are-
1. Commissioner
2. Joint Commissioner
3. Director
4. Joint Director
5. Assistant Director
6. Deputy Director
7. Assessing Officer
8. Tax Recovery Officer
9. Inspector of Income Tax
Section 116- Hierarchy of IT
1. CBDT
2. Principal Director General of IT or Principal Chief Commissioner of IT
3. Directors General of Income Tax or Chief Commissioner of IT
4. Principal Director of IT or Principal Commissioner of IT
5. Directors of IT
6.
7.
8.
9.
10.
11.
12.

Section 117-
Central Govt. appoints principal director, director general, etc. and empowers them to appoint assistant commissioner or
below.

GST 2017-
Section 3,4- Hierarchy and Appointment same as IT.
Section 3- officers
Section 4- appointment
24.08.2023
Residential Status (Sec .
6)

If an individual or HUF

is resident
I
-

S 6-Test to
.

determine the resident status of an individual ?

· S .
6(1) -

An ind. is said to be resident in India in

any previous year if he
satisfies atteast one of the
following basic conditions :
(182 days) ↓ i) he is in India in the py
. .

period of 182 days or more or

for a
;

1365 days in (ii) he is in India for a

period of 365 days or more during the
4 +

60 days) 4
yrs immediately preceding the p Y
. .

+ 60 days or more

pY
during the . .

Eg. PY. :
2022-23 , Preceding 4
yus
:
2021-22 2021-20 2020-19 ,
, ,

2019-18 .

Note If ind doesn't satisfy of the

:

conditions he becomes
any any two ,

a non-resident .

·
6(6)(a) -

(for RNOR) an ind becomes a resident but not ordinary

resident India in of circumstances
in
any the
following
-

not in India for been in India 9 out

atleast a out
of 10 (i) If he has not
for atleast
of 10
the relevant
PYs py
preceding to py or
.

729 days on less (ii) he has been in India for a

period of 729
days orless
in 7 PYs p Ys relevant
in 7
preceding to the py
. . .

ROR =
Resident +
(for ROR) a ind resident is treated as resident &
resident in India if he satisfies the
two additional
ordinarily two additional conditionals
following
:

conditions
-

(i) he has been Resident in India in atleast 2 out of

P Y relevant
10 imm
preceding the p y and
. . · .

.,

(ii) he has been in India for a

period of 730
days or more

relevant
during =
yrs imm
preceding the py .
. - .

Note : It can be said that an individual becomes ROR in India , if he

satisfies at least
-
one of the basic conditions & two additional
conditions .
08 -
09 -
2023

Residential Status of an Individual [Sec 6(1)]

.

Explanation /(a)- Ind

being a citizen of India ,
who leaves India in any
prev

S highlighted from bare act)

in relation to that if "60 days" is subsituted
year as

with "182 days" -

sub-clause (c) -

365 days in &PYS to

preceding py
W

60 days in py (had been substitued

with 182 days in above cases .

/(b) -

any ind. being citizen of

a India orc
person of
Indian
origin I highlighted)
the words 60
days had been substituted with
182
days .

OR

In Such person
case .
having TI . .
(other than foreign
income) exceeds 15 lakhs
rupees during py .
the
word 60 days had been substituted with 120

days -

Eg
·

sub-clause (c) -

365 days in PPYs to the preceding py &

60 days in py (had been substitued
with 120 days in above cases .
 essential should be at place
YIt
that
It is not the
stay same .

is not
equally not that the stay should be
necessary
continuous .

") Similarly , the

place or
purpose of stay is not material .

iv) where a
person is in India
only for part of a a
day ,
the calculation

of physical presence in India in

respect of such broken period should be
made on an
hourly basis . A total
of 24 hus
of a
day spread over a no

of days has to be counted as to be equivalent to the

stay of 1 day .

Imp points
.

(u/s 5)

withine
Resident -> India
- Non-resident
↳
foreign income but
controlled in India
·Indian income is taxable in India ,
whether the person is resident or non-

resident .

conversly ,
a
foreign income of a
person is taxable in India only if such

is resident in India
person
.

non-taxable unless profession

Foreign Inc
of NR is in India bus. is
- .
.
or

settled in India .

Note :
· An assessee
may enjoy diff residential status for diff .

assessment
year .

is not that a person who is resident in

It
necessary
·

India cannot become resident in other country for

any
the same assessment
·
A
person atmay be dent in more than one

country the same time

for tax
purposes though
he cannot have two domiciles simultaneously ↑ It is

therefore
resident
not
in
necessary
India will
that
be
person who is
a

non-resident for all

other countries .

-
The burden lonus of proof is on assessee (be
.
Resid
law)
Staful is
qutn of fact .
not
question of .

Relaxation
During Covid Times

due to suspension of international flights vide circulal-

-
dated 8th
May 2020 has decided that for the
residential status
purpose of determing the
during the
pY . .
2019-20 in respect of an individual who has come to
India on a visit before 22nd March 2020
&
 25.08.2023
·
S .
6(2) talks about HUF firm or AOP .

control & management

-> vital decisions

Karta need not be a resident in India .

↳ s .
6(6)(b) -

conditions

Residential Status of HUF Firm or AOD (S 6(2)).

·
HUF like an individual is either R in India or NR in India .
A resident HUF

is either OR or NOR .

·A HUF is said to be R in India if control & mgmt of its affairs is

wholly
situated
or
partly in India .

·A HUE is NR in India if control & mgmt of its affairs is

wholly situated
outside India .

Control & Management

1) CIM is sit at a place where the head ,
seat & the
directing power are

situated .

2) The head & brain is situated where vital decisions are taken . Such as

raising finance & its appropriation for specific purposes appointment &
,

removal of stalf , extension , expansion or diversification of business are taken .

fact that the house in India where of its

Note Here family has a some
-

reside or the Karta is in India in p y ., does not

.
constitute that

place as the seat of

management as the affairs of the
family · Unless
the decisions
concerning the
family are taken at that place .

Mere absence of Karta from India doesnot make the

family NR .
 Occasional visit of NR of
would be insufficient to make HUF or in India .

S .
6 (6(b) -

A R HUF is OR in India if the

manager/Karta of the
family
satisfies the following two additional conditions :
-

(i) Karta has been Resident in India in atleast 2 out of

P Y relevant
10 imm
preceding the p y and
. . · .

.,

(ii)Karta has been in India for a

period of E30
days or more

relevant
during =
yrs imm
preceding the py .
. - .

Note -

If Karta doesn't satisfy the 2 add conditions ,

the
family is treated
as RNOR .

resident
Residential Status of a
company [S 6131_->
.
Indian Company
Foreign Co .
(4 .
0 = M
. . .
)
of Effective Management - (Circular No 6S
↑
Place .
Active business
⑮ O -

Passive Income

<Sister co
., subsidiary co .

i
-
control
=
-
 0

Illustration
- Refer to the circular No .
6 , 2017

residential Status of Company [S 6(3)] .

6/3(i) -
Indian co will
always be R in India
6(3)(2) -

A foreign co .
(whose turnover or
gross receipt
in pY
. .
is more

than 50 croves) ,
it will be resident in India if its
is in
P O EM
. . . .

during the relevant py

. . India .

6(3)(2) foreign (whose turnover or

gross receipt
-
A co .
in 4 y . .
is
50 croves or less) will always be NR in India .

Circular No .
6 ,
2017

·
Point No . -2 , 4 , 5(a) ,

5(c) ,
5(d) .

C write it down)
Circular No 6-
.

p 0 EM
-
~
. . .
.

I
verymp
:

topic

28.08.2023
Write Point 8 2 Circular No 6
.

of .
.

Illustrations -

Explanation 445 imp .

28.08.2023
Section 7 -

Income deemed to be received

Provident Fund (PF)

I

↓
1

Statutory PF/ Public PE

Recognised PE/ Unrecognised PF

GOVt .
PF
Employee's PF

Gout Services
·
.

Employee
·

NO GOVT .
EMPLOYMENT

⑪ annual accretion-deemed to be received-taxable -

Sch 4 -

,
Rule 6

Cup to 12% non-

taxable)

29.08.2023
Section 7 -

Income Deemed to be received

c tax A taxable
these needh
4
of .

11
ratatory emere replicable
Particulars unrecognised

Employer's contribution
is *aryI : awes
.

Basic +DA) is taxable .

yearly .

Interest credited
NottaxableFutempted
Amt in of
excess
Fully
.

9 5%
.

p
.
a .

s exempted .

tax able

I
ofeigen
I
Employee's contr
Eligible for Elig ible for Eligible for
deduction
deduction Us deduction
↓Is 80C .

80C
wh .

/s
Amt- received See i
Fully
Employee's
Fullpted
on the
refirement below contri not exempted .

note : taxable but

the int on employee's
contri taxable under
income from other sources

Note -

Amt ·
revd on maturity of RPF is
fully exempted .
In case
of
an employee who has rendered continuous service for a

periodwithin
of 5
Yes
,
or more . In case , the
maturity of RPF takes

place yrs the

5 .,
amt. reved
fully exempted only if service has

been terminated due to

employee's health ,
etc .
Indian income -
roud .
/deemed to be read in India

Foreign Income -

section 7-- shall be deemed

Following incomes to be roud In the p y .,
. .

the annual accretion in p y .

. to the balance & credit of an

employee participating in RPF (to an extent

given in
Rule 6) .

·
Transferred balance in a RPF (incase of a non-taxable portion
of unrecognised PF due to conversion of unirewg . PF to

recognised PF , the employee's contri .

interest will be
treated as income deemed to be recue)
Contri made other
by C G or
any employer in the p y to the
. . . .

acc .

of employee under the Pension Scheme "Is 80CD .

Section 9 -

Income deemed to accrue or arise in India

Applies to all assessee irrespective of their residential status &

place of business .

g(1)(i) All inc

accruing arising whether
directly indirectly
-

.
or or thru or
in India

from any business al property in India/ asset or source of income

in India/ transfer of capital asset in India

involves yFeldelatts! gallied out by
. an Mr
↑

Exceptions -
1 .
Incase of business other that bus connection in

to business India other than

significence economic

operations presence
.

31.08.2023
shall be deemed
2 incase
of a NR ,
no income to

accrue or arise in India to/from operations

which are confined to
purchase of goods
in India for the
purpose of export ..

s .
incase
of a NR , no inc .
shall be deemed
to accrue/arise in India , if a NR is

engaged in the business

of running a news

agency
or of publishing newspapers ,
magazines
or
journals from activities confined to collection

of news in India
for transmission out
of India .
 4 .
Incase of a NR , no income shall be deemed to

accrue/arise in India & fro operations which

to

are confined to
shooting of any cinematography
film in India .

5 .
incase
of a
foreign company engaged ,
in the

business of mining of diamonds ,

no income

shall be deemed to accrue arise in India .

& activities which confined

to
from the are

to
display of uncut/unaborted diamonds in

sec . q((i)

auto marblea
- cnadis evenma
Explanation
a s
5 (Refer) . ↳ Iimmorable ,
movable ,
can
tangible ,
ie
intangible)
-
capital gains- ? -

transfer of any capital arets for

Amendment
financial gains
↓

Finance Act ,
2012 has introduced
clarificatory amendment ols I

to supercede the
rulings of Sc incase
of Vodafone International
BV
Holding vs VOI
(2012) 204 Taxmann 408
. .
.
.
,

The amend .
Inserted in sec . 5 in sec :
9(1)(i) with the

retrospective effect from the year 1962 .

The explanation 5 clarifies that an asset or capital asset ,

being any
share
ols
or interest in a
company
always
incorporated
be situated
or
registered India shall be deemed to

in India , if the share or int derived directly/indirectly

assets situated in
its value
substantially from the

India .

Exception -

As per circular no
-

28/2017 , the board

has decided that exp't shall not

apply iro . Income

/arising
ccring tion
to

a NR , on an acc .

of redemy D or

buy-back of shares held rectly

·

indi in the
,

specific funds if such in access or

arises
from the transfer on shares or

in
securities held Indic
by the

specify funds & such inc is

changable
to tax in India .
 Sec .
9 (1) (ii) -

Income which falls under the head "Salaries"

·
Income is
changeable to fax under the head Salaries if it is earned in Indic ,
against
the services rendered in India & any Salary payable for rest or leave period
service Salaries
during the rendered in India will also be
regarded as .

(1) (iii) abroad

Sec a
Eg Ambassadors Salary payable by the Govt
- -
. . - .

to a citizen of India

Salary roud by Indian National Servants (working as ambaladdors in

Indian
embassy in
foreign country) from the Indian Govt in r S p
- . .
-

services rendered ols India is deemed to accrue or arise in India .

05.09.2023 (section a is only for non-residents)

Sec . 9(1) (iv) -
Dividend
paid by Indian
company
outside India

(recud)
sec .
9(1) (v) -
Income
by way of interest payable by Gout ,
or Resident or NR

then ,
it is considered inc deemed to accrue or arise in India .

Provided : -

income not debt incurred

->

on

case law-① Bank of Tokyo , M UFJ Hd .

Y .
ADIT [2014]
② Dentche Bank ~. Assit DIT

>
Int is reud by a
foreign bank in its head office ols India from its
Indian permanent (PE) establishment .
In the hands of Indian PE ,
it
deductible while hands
is computing · However
India
,
in the

of recipient head office , same is not taxable in was peer & receipent
are the same .

Illustrations -

X= NR in India ,
only Indian income is taxable in the hands
in India By 2022-23 he recieves interest
of x
during the , on

diff dates
.
. In all cases ,
interest is roud Ols India .

1) On 10th April 2022 ,

510 , 50 , 000 is ravd from Gout of India [Taxable]·
.

2) on Ist June 2022 ,

E 3 , 00 000 ,
is roud from BHd (a NR in India) I.

B ↳d . has utilised the capital borrowed for carrying on business or

profession ol India .
[Taxable 1

Sec .
9 (1) (vi) -

Income
by way of royalty
roud R , NR
Royalty inc .

from gort ,

business I
profession
ols India
(No)
Sec .
9(1) (vii) -

income by way of fees for technical services .

technical services will be

coming under the exemption part ↳ by Gout .

CIT v Havens India Hd .

(2012)
I, by
A NR reud technical fees from an Indian co , manuf

The count held that the export contracts were concluded

in India
.
Consequently , the source of inc was situated in India
the technical fees were deemed to accrue/arise in India
in the hands or receipent .

07.09.2023
1) Exemption 2) Deduction 3) Rebate / Relief
(not
forming the I part of total (claimed after
total
part of income but
may filing the tax ,

income claimed be claimed at the i.

e .
When you've
at the time
of time
of filing tax computed the tax

filing tax
eg-investment) Liability)
eg
-

agriculture
income)
General (available to all in
general)
Exemptions (Types)
Specific (as in SEZs , exemption for special/specific purposes)

SECTION 10- INCOMES NOT INCLUDED IN TOTAL INCOME

S .
10(1) -

Agricultural Income -

by state port .

I not central fort.

defined UIs 2 (1A)

08.09.2023

Agricultural Income
=

Agricultural t
Rent / Revenue ↓
produce fit to I agri . land
situated
Activity revd .

by receiver be taken to

or cultivator market in India

Sec . 2 (IA) -

Agricultural Income
(a) -
essentials -
① rent or revenue & situated in India used for
agri purposes
(b) -
 (C) rent roud from rented
buildings/land for storage is included
-

purposes
income
in
agri -
.

proviso- (i) used for three purposes still included in

agri, income
(ii) assessed at local rate

Exemption

Two
types
:
-
1) General 2) Specific

10(1) Us 2(IA) of
Sec
Agricultural Income It is defined the Income Tax Act
- -
.

& is exempted from tax because under consti .

Parliament has no
power
to
levy
method has been laid out levi tax
tax on
agri-income . However , a to on
agri-income
in an indirect
way (partial integration method) ,
under
entry 42 List # of schedule

7 where the S G income

can levy tax on
agri
.
.

Sec . 2(11) -

Definition of Agri .
Income -
It means-

(i) any rent or revenue derived from land which is sit in India
& is used for
agri. purposes
(ii) any income derived
from such land by agri operations inc
processing of
agri produce raised ,
or roud as rent-in-kind so as to render it as fit

for the market or sale of such produce .

(iii) any inc attributable to a

farmhouse/building subject to the cond that the

building is situated on or imm

vicinity and is used as
.

dwelling house or as store-house or other out-building The land is .

assessed to land revenue at local rate & where the land is not
assessed to land revenue ,
it should not be in the local limits of
municipality or cantonment board .

Rent or Revenue derived from land S .

2(1A) (a)

Rent is the
payment in
money or
kind (share of crops) by any person to the

owner of land in respect of grant of right to use land . It is not

necessary that

the
recipient of the rent/revenue should be the owner of land (sub-leasel .

Revenue means return , yield ,

profit or income (not in the sense of land revenue) :

The word "derived" The derived from

means
anising or
occuring .
revenue can be the land

only if the land is effective & immediate source of income & not the
secondary
source of income like dividend paid by the co. out of its agri income is not a

revenue derived from land .

Agri. land must be situated in India ,

the inc .

from foreign agri. land is outside the

scope of exemption & it

may be taxable in India
depending upon the residential
status of the recepient .
11.09.2023
Mid-sem Syllabus
1) Basic Structure

Income - Tax Authorities -

ITIGST
consti . Provisions

Definition -
Assessee ,
Person ,
Ay , PY ,?
Case Laws -

Diff .
kinds & forms of income

calculations -

# 5 5 .

5 6
Very Imp
.
.
(Ind , HUF , co .
) + covid circulars + I more circular
#s 7-income .
deemed to be revd -

#S 9 .

·
study
case (application & diversion)
#Exemption Agri Income Gratuity - .

, ,
HRA ,

[25 exemptions)

E
# S .
15

Salaries
I
1) Land situated in India
Rent or revenue would be
agri
-
income if the land is situated in India .

income from foreign agricultural land is ols the scope of exemption .

·
S .
10 (1)

may be taxable of receipent

status
consequently it in India
depending upon the residential
·
.
,

I11) land used for Agri .

Purposes [S 2(1A) (b) ]
.

The
primary cond to claim exemption as
agri - income is that land in
qusn
.
(of fact) should

used
be
for agri purposes -

·
Agriculture -
not been defined in the Act ,
but one must understand the term in common

parlance .

Agriculture" =

Agre + Culture
I
↳ field) + (cultivation of a field)
which implies expenditure of human skill labour upon the

land It includes
.
BASIC OPERATIONS
& SUBSEQUENT
OPERATIONS On the land I not
merely
the
growth of crops for man and animal .

Eg -Dairy
.

Farming , Poultry Farming ,

Animal

Husbandry ,
etc .

Agri .
Income doesnot contemplate sale of commodity in diff. from what is

↑vated
culve .
K .
Lakshmanan v .
CIT

in order
The assessee was
growing 'Mulberry Leaves' to silkworm to
get sick

coccous . The SC held that the income from silk coccoons is not agri-income .

CIT v ·

Raja Bijoy Kuman Sahas

Roy 1957 SC

In this case ,
Raja own a forest . The gen was whether the income derived

from sale of trees in this forest which was

originally a forest of
spontaneous & grown with the aid of human
growth
the trees were not

labour but on which the forestry operations carried out (which is pruning ,

weeding ,
felling guarding digging
, , ,
etc .

by the workers) constitute

agri income or

not ?

The SE laid
determ of
to serve as a
guide in .
O scope terms in
agri. purposes .

1) Basic Operation's olprior to

germination ,
some basic op is ess . to const ·

agri-
The basic operations would involve expenditure of human skill I labour
upo the land & not merely the
growth from the land .
Eg- Tiling
of land ,
sowing of seeds ,
planting ,
etc .

2) subsequent operation's besides B 0 .,

.
these are performed after the

produced sprouts of land

digging the soil around
such as
weeding , ,

the crop ,
removal of excel plants (undesirable plants) & all operations
which foster the
growth & preserve the same not only from the
insects but also from depriciation from outside .

[Eg harvesting
.

& rendering the

produce fit for the Market)
Mere performance of these so. on the
products of the land (where
such product have not been raised on the land by the performance of B0 . ·

It would not be
enough to constitute
agri operations .

Bes human skill labour rad . Therein can't be said to have been
land
spent on .
Produce Fit to be taken to market
• Sometimes it becomes difficult to find the ready market of the crop as harvested. In order to make the produce as a
saleable commodity, it becomes necessary to perform some kind of a marketing process on the produce.
• The income arising by way of enhancement of value of such produce is also considered as agricultural income.
However, the following conditions must be satisfied-
1. The operations or processes must be employed by a cultivator or receiver.
2. There is no market for the produce available. Eg- Tea Leaves without getting dried.
3. The process must be applied to render the produce fit to be taken to the market.
4. The produce must not change its original character. Eg- converting wheat into flour.

• Brihan Maharashtra Sugar Syndicate Limited v. CIT (1946)

• If the sugarcane is generally sold in the given market without being subjected to any process, the process of
converting sugarcane into gut would not be agricultural processes and income attributable to the process of
converting sugarcane into good would not be agricultural income.

• Example- Tobacco leaves are ordinarily dried to make them suitable for sale and is considered as agricultural
income. Moreover, if the marketing processes is performed on produce which can be sold in its raw form, income
derived from such process is partly agricultural and partly non-agricultural.

14.09.2023
Income from sale of agricultural produce [Sec. 2(1A)(b)(iii)]
• Explanation- Any income from the sale of any produce to the cultivator or receiver of rent-in-kind is agricultural
income provided the produce is not subjected to any process except process ordinarily employed to make it fit for
taking it to market. (the sale of rent-in-kind)

Section 2(1A)(c)- Income from Building/ Farmhouse

• building owned and occupied (not only by the cultivator but by the receiver of the rent-in-kind)
• The annual value of the farmhouse is taxable under section 22 (Second Head, Income from House Property).
However, income from the building attached to the agricultural land is exempted from tax, by virtue of section 10(1)
on the basis of following conditions:-
1. The building is occupied by the cultivator or receiver of rent-in-kind
2. It is on or in the immediate vicinity of land situated in India and used for agricultural purposes
3. The cultivator or receiver of rent-in-kind requires/use the building as dwelling house, or as store-house, or other out-
building
4. The LAND is assessed to land revenue or local rate which is situated in rural areas.

Examples of Agricultural Income:

1. Sale of re-planted trees
2. Rent for agricultural land received from sub-tenant
3. Income from nursery operations (including flowers and creepers)
4. Income from sale of seeds
5. Income as share of profit of a partner from a firm engaged in agricultural operations
6. Income derived by growing special quality of grass required for creating golf course is an agricultural income
Examples of Non-Agricultural Income
1. Income from pollutry farming
2. Income from bee-hiving
3. Income from fishery
4. Income from dairy farming
5. Income from sale of forest trees grown spontaneously without hum a intervention
6. Income from sale of salt
7. Income from supply of water by the assessee for irrigation purpose
8. Income from preservation, storage and sale of vegetables
9. Income form sale of agricultural land

Section 10(2)- HUF pays tax- members don't need to pay the tax on the same income (only members are given
exemption under this section under the impartible estate)

Section 10(2A)-

Section 10(5)- given only to members and family member traveling within India.

15.09.2023
Sum received by an individual as a member of HUF (S. 10(2))
• Any sum rcvd by any individual as a member of HUF, either out of income of family or out of income of estate
belonging to the family, is exempted from tax.
• The exemption is based upon the principle of avoidance of double taxation.

Share of profit from partnership firm (Section 10(2A))

• It is not taxable in the hands of the partner receiving the share of profits.

Leave travel concession (Section 10(5))

of an individual (not an Indian citizen)
• The leave travel concession or assistance received by the employees from their employer for proceeding to any
place in India along with his/her family is exempted.
• This exemption is availed by the employee during the employment to go on a leave or after the retirement/
termination of service.
• This benefit is available to the individuals (citizens as well as non-citizens).
• VALUATION OF LTC-
1. Where journey is performed by air, the amount of economy class air fare of the national carrier by the shortest route
or the amount spent, whichever is less, is exempted.
2. Where journey is performed by rail, the amount of AC First Class Rail Fare by the shortest route or the amount
spent, whichever is less, is exempted.
3. Where the place of origin of journey and destination are not connected by rail and is performed by public transport,
first class or deluxe class fare by the shortest route or the amount spent, whichever is less, is exempted from tax.

3. Where the place of origin of journey and destination are not connected by rail and is performed by public transport,
Note- Definition of family-
• The exemption is available to the family of an employee. Family includes spouse and children and also includes
parents, brothers and sisters of the employee, subject to the condition that they are wholly or mainly dependent on
employee.
• Family does not include more than two surviving children of an individual.
• This limit of two children born out of multiple births after one child will be treated as one child only.
Note-
• Exemption is available in respect of two journeys performed in a block of 4 calendar years.
• If an assessee has not availed travel concession or assistance during any of the specified four years, exemption can
be claimed in the first calendar year of the next vlog but only in respect of 1 journey [Carry Over Concession].

Remuneration received by foreign individual [Section 10(6)]

• 10(6)(ii)- Remuneration of Diplomat received by him for the services as an official of embassy, high commission,
allegation, consulate or trade representation of foreign state is exempted from tax, provided that remuneration
received by our corresponding government officer residing in that foreign country enjoys similar exemption and such
foreign member are not engaged in any business or profession or employment in India.

18.09.2023
• 10(6)(vi)- Remuneration received by foreign employees/individuals- Remuneration received by foreign individual as
employee of a foreign enterprise for the services rendered by him during his stay in India is exempted from tax, if
following conditions are fulfilled:-
1. Foreign enterprise is not engaged in any trade or business in India
2. His stay in India does not exceed a period of 90 days in PY
3. Remuneration is not liable to be deducted from the income of the employer in tax

• 10(6)(viii)- Remuneration/ Salary received by a non-resident (NR) as a member of ships’ crew- The salary received
by the employee (foreign national) as a member of ships’ crew is exempted from tax provided that his total stay in
India does not exceed 90 days in the PY.

• 10(6)(xi)- Remuneration received by a foreign trainee- Remuneration received by a foreign trainee as an employee
of a foreign government is exempted from tax, if the remuneration is received in connection with training in an
undertaking owned by:-
1. Government, or
2. Company owned by Central or State Govt., or
3. Any Co. who is subsidiary of (2), or
4. Any statutory corporation, or
5. Any co-orporative society wholly/ partly financed by Central or State Government.

Section 10(6A)- Royalty or fees for technical services received by a foreign company
• In case a foreign company deriving income by way of royalty or fees for technical services received from the
government (CG and SG) or an Indian concern (resident of India) in pursuance of an agreement made after 31st
March 1976 but before 1st June 2002.
• Note- This section will be read with Section 9(1)(vi) and 9(1)(vii).- It talks about income deemed to accrue or arise in
India if the agreement is signed or made between Government/ Indian Concern and foreign national on or before
• In case a foreign company deriving income by way of royalty or fees for technical services received from the
1st April 1976, it will be exempted from tax.

19.09.2023
• Agreement between foreign concern and Government of India from 31 March 1976 to 01 June 2002 - exempted
from tax.
• As per section 10(6A) further exemption was provided if the agreement was made between Govt./ Indina concern
and foreign national on or after 31st March 1976 but before 1st June 2002 is exempted from tax.

Section 10(7)- Allowances received by an Indian citizen outside India

• Allowances such as HRA, Fuel Allowances, Etc.
• Any allowances or perquisites paid or allowed outside India by the Government to an Indian citizen for rendering
services outside India is exempted from tax.
• Note- The above section will be read with 9(1)(iii) which says salaries payable by the Government to an Indian
Citizen outside India is income deemed to accrue or arise in India and is chargeable to tax.
• Allowances are exempted and Salaries are chargeable.

Section 10(10)- Gratuity (DCR)

• Gratuity is derived from the word ‘gratitude’. Represented as a gift for the service (min. of 5 years continuous
services must be provided). Gratuity is given in three situations: Death, Retirement (Superanimation | VRS),
Termination.
• Death-Cum-Retirement Gratuity- Gratuity means a gift or a present often in return for favours or services. It means a
gratuitous payment made by an employer to his employee for his services rendered to him. It is paid for long and
meritorious services rendered by employee.
• Gratuity is paid on the following conditions:
1. Death or Disablement of an employee
2. Retirement which includes Superanimation and VRS (Voluntary Retirement Scheme)
3. Termination of Service

• An Govt. or Non-Govt. employee can claim gratuity as per Payment of Gratuity Act, 1972.
• Government employees are fully exempted. - 10(10)(i) - wholly exempted
• Non-Government employee covered under PGA, 1972 is fully or partly exempted. - 10(10)(ii) - exempted up to Rs.
20 lakhs
• Non-Government employee not covered under PGA, 1972 is fully or partly exempted. - 10(10)(iii) -
• exempted up to Rs. 20 lakhs

21.09.2023
• In case of Government employee [10(10)(I)] any DCR gratuity received under revised pension rules of the Central
government or Central Civil Services (pension Rules or any other similar scheme applicable to the members of civil
services of Union and State or holders of the post connected with defence, or civil post under Union and State or
member of All Indian Services or employee of local authority is wholly exempted from tax.
• Ram Kawan Rana V. ITO (2016)- A professor or teacher of a university established under the act of parliament or
the state legislature is treated as government employee as per section 10(10)(i).
Any gratuity received by such employee is exempted from taxon the following basis:
1. 20 lakhs (statutory limit), or
2. Gratuity actually received, or
3. 15 days salary based on last drawn salary for each completed year of service, or
whichever is less.

Length of Service
1. 26 years 5 months 29 days = 26 years
2. 26 years 6 months = 26 years
3. 26 years 6 months 1 day = 27 years
4. 26 years 11 months 29 days = 27 years

[10(10)(I I I)]
• any gratuity received by such employee is exempted from tax on the following basis:
1. 20 lakhs,
2. Gratuity actually received
3. Half months average salary for each completed year of service
whichever is less.

Length of Sevice
1. 26 years 5 months 29 days = 26 years
2. 26 years 6 months = 26 years
3. 26 years 6 months 1 day = 26 years
4. 26 years 11 months 29 days = 26 years

Section 10(10A) - Pension

1. Pension is received from UNO by the employee or family member is not chargeable to tax.
2. Family pension rcvd. by families members of the armed forces after the death of the employee is exempted from tax.
3. Family pension rcvd. by family members in any other case after the death of the employee, it is taxable in the hands
of the recipient under the Income from Other Sources.
4. Pension rcvd. by employee during his lifetime but after retirement who has joined Central Government after 2004 or
any other employer (National Pension Scheme is applicable).
5. (I) Pension rcvd. by an employee in any other case (commuted and uncommuted). Uncommuted is periodical
payment and Commuted is lump-sum payment.
• Uncommuted Pension of government and non-government employee is chargeable to tax.
• Commuted pension of government employee is wholly exempted from tax.
• Commuted pension of non-government employees is fully or partly exempted from tax.

Status of employee Gratuity Roud -

Exemption "Is 10 (10A)
:Gout employee Yes exempted if ,
entire commuted pension is revd .

Yard of the pension is exempted from tax

Non-Govt Yes
.

2
.
.

3 :
Non-Gout .
No .
Ye of the pension is exempted from tax .
22.09.2023

Read it on
your own .

IOB ,
IOBB ,
IOBC , 10C 10CC
, ,

10 D .
26.09.2023
Section 10(13A)- House Rent Allowances read with Rule 2A
• either money or accomodation
1. 50% of salary or 40% of salary, where salary includes (Basic + DA)
2. HRA actually received
3. Not less than 10% of salary (HRA should be more than 10%)
least of the above will be exempted.

HRA is exempted on the basis of following:-

1. An amount equal to 50% of salary (basic + DA), where the residential house is situated at Bombay, Calcutta, Delhi or
Madaras and of amount equal to 40% of salary where the residential house is stuituated at any other place.
2. HRA actually received by employees in the previous year.
3. The excess of rent paid over 10% of the salary.

Q. Mr. X who receives 78,000 as basic pay during the PY. He stays in his father’s house upto 31st Aug 2022 for
which he does not pay any rent and thereafter in an accommodation taken on monthly rent of 3,000. The
employer however pays 700 per month as HRA throughout the PY. Discuss the tax treatment.

Salary
-> 6 , 500 m
p
:
. .

Rent
Monthly 3 , 000 m
=

p
. .

HRA actually roud : =

700 p
.
m .

1 500 2600
196
=

,
p m
-
.

2) HRA actually rawd . =

100
p
-
m .
exempted only 700 p .
m .
(as it is

the least) i .
e . 700x7 : 4 , 900

3) 3000 p .
m .

Mr. A receives 100000 as basic salary during the previous year. He pays 24000 p.m. As rent. His employer pays
18000 per month as HRA. Discuss the tax treatment.
->

Salary 1 , 00 , 000
:

140 % of 1 , 00, 000 =

40 , 000

2) 18 ,
000

3) 24 000,
Section 10(14)- Special Allowances
When exemption depends upon actual expenditure by the employee, the amount of exemption is
1. Amount of allowance, or
2. Amount utilised for specific purpose
whichever is lower.
Eg. Uniform Allowance, Research Allowance, Conveyance Allowance, Transfer Allowance

When the exemption does not depend upon the expenditure incurred by the employee, the amount of exemption is
1. Amount of allowance, or
2. Amount specified in Rule 2BB,
whichever is lower.
Eg. Hill Area Allowance (the amount of exemption varies from 30—7000 p.m.), Border Area Allowance (the amount of
exemption varies from 200-1300 p.m.), Children Education Allowance (100 p.m. per child, up to max. 2 children), Hostel
Expenditure (300 p.m. per child, Max. of 2 children).

28.09.2023
Section 10(16)- scholarship granted to meet the cost of education

Section 10(17A)- Awards or Rewards

• Awards, whether paid in cash or in kind, made in pursuance of public interest by central or state government are
exempted from tax.
• For instance, payment received during Olympic Games, asian games, etc.

Section 10(18)- Pension to Gallantry Awards Winner

• Pension received by an employee of Central or State Government and has been awarded “Param Vir Chakra”,
“Maha Vir Chakra” or “Vir Chakra” or any other notified gallantry awards is exempted from tax.
• The exemption is also available if family pension is received by the family members of that individual.

Section 10(19)- Family Pension of Armed Forces

• Family pension received by widow or children or nominated heirs of a member or the armed forces, where death of
such member has occurred in the course of operational duty is exempted from tax.

Section 10(23C)-
• Income of certain national funds- Any income received by any person on behalf of the following funds is exempted
from tax.
• Income of Educational Institutions- Income of any university or educational institution existing solely for educational
purposes and not for profit and which is wholly or substantially financed by government or if the aggregate annual
receipt of such university or educational institution do not exceed 5 crore rupees, is exempted from tax.
• Income of Hospital- Income of any hospital or other institution for the reception and treatment of persons suffering
from illness or mental effectiveness or requiring medical attention or rehabilitation, exists solely for philanthropic
purposes and not for profit is exempted from tax provided the hospital or other institution is substantially financed by
government or if the aggregate annual receipt of such university or educational institution do not exceed 5 crore
rupees, is exempted from tax.

Section 10(32)- Income of Minor

• Where income of an individual includes any income of a minor child, such individual is entitled to exemption of the
amount so includable under section 64(1A) of each minor or Rs. 1500, whichever is less.

Few Provisions of Special Exemption

Section 10A, 10AA, 11, 12, 13A, 13B

29.09.2023
Salaries [Section 15, 16,17]

• Salary is a vital term. EVERY PAYMENT made by an employer to his employee for his services rendered and is
chargeable to tax as income under head Salaries.
• Salary includes but monetary (bonus, commissions, etc) as well as non-monetary (rent free accommodation, etc)
• The essential agreement for under the head salary is thatthere must exist an employer employee relationship
between the assessee and the party making the payment.
• Payment rcvd by an individual from. The person other than his employer (cannot be termed as salty) and
consequently not chargeable to tan under the head salaries.
• Such payment may be chargable as PGBP or other sources.
for eg- (I)Commission rcvd from. Director from a company is salary if the director is an employee of the company.
However, the employer must be employee other cimlsnh, thesaid commission done has d
(I I) the salary made to a partner of the firm is nothing
Any salary, bonus, commission rcvd by partner of a firm from the firm shall not be regarded as salary.
• Tips received by waiters Is taxable under the head income from other sources and not the head salary.
• MP and mass is not treated as but chargeable under income from other sources.
• An advocate general holding the office under the state government terminable at the will and pleasure of the
governor and who gets a retainer fees is not treated as salaries as he is not an employee of the government and his
income is a professional income.
Union of India v. Pratibha Banerjee (1996)- It was held that high court judge is not an employee of the government
and also a member of parliament is not an employee of the government and he does not receive salary.

The above case was overruled by JUSTICE DEVKI NANDAN AGARWAL V. UNION OF INDIA (1999). SC held that
being constitutional functionaries like judges receive salaries just like an employee even in the absence of strict
employer-employee relationship and is chargeable to tax under the head Salaries.

Section 15- Basis of Charge

Salary is chargeable to tax either on due or receipt basis, whichever is earlier.
Due basis
If a salary of 2022-23 is due and has not been received in the said PY, it will still be taxable on due basis, even if it is
received in 2023-24
Receipt Basis
Any salary of 2023-24 paid or received in advance, it is includable in the previous year 2022-23 and shall be chargeable
to tax on receipt basis.

03.10.2023
Section 17(1)- Salary include- (9 pointers)
[Sec .
17 (1) (ix) ]
Head Salaries
Agnicorpus Fund (By Finance Act 2023)
- ↓
not taxable for people not enrolled in

17(1) 17(2) scheme

S .
S .
S .
17(3)

Salary prerequisit e -

profit in Lieu
of salary

Section 17(1)- Salary

• Wages means any payment given to any labourer for his (unskilled, skilled, manual, mechanical, technical, clerical
and supervisory.
• Annuity is a sum of money or grant payable yearly or at any rate periodically from. A source which is primarily a
personal estate.
• Gratuity is paid to an employee for his long and meritorious services rendered by him.
• Commissions is the percentage or allowance made to an agent for transacting business for another.
• Advance salary is taxable on receipt basis in the relevant previous year in which it is received (it does not include
loan).
• Leave salary- As per the service rule, employee gets different leaves. He may encash those early or it may be
accumulated or lapsed. (Refer Section 10(10AA, Leave Encashment).
 Section 17(2)- Perquisite
• Allowances are generally defined as fixed quantity of money or other substance given regularly in addition to the
salary for the purpose of meeting some particular requirement connected with the services rendered by the
employee. Eg- HRA
• Allowances can be of three kinds. (1) Fully taxable (For eg: Dearness Allowance, Sevant Allowanceto Govt.
Employee, Overtime Allowances, City Compensatory Allowances, Medical Allowance) (2) Partly taxable (For eg:
HRA, Entertainment Allowances, Special Allowances) (3) Fully Exempted (For eg: Allowances to the government
employees outside India, Sumptuary Allowance I.e. Paid to HC and SC Judges, Allowances paid to UNO
employees)
• Perquisite is defined as gain or profit incidental to employment in addition to regular salary or wages.
• Prerequisite are if three kinds. (1) Taxable in all cases [Sec. 17(2), 17(2)(I),(I I),(iv) (v), (vi), (vii), (vii)], (2) Non-
taxable [Section 17(2)(vii) Proviso, 17(2)(I I I)], (3) Taxable in the hands of specifies employees
• Value of any specified security of sweat quity shares

• value of rent free accomńdoation to his assesses

• Value of any accommodation provided to the assessee as the compernsion rate [Read with rule 3 and section 17(2)
(I I)]

05.10.2023
value of perquisite as
per Rules which is taxable .

cases unfurnished Furnished

accommodation is fee detrm.

1 .
Where
provided by G4SG to License value of peng . inc
rerp-
the
employees either
holding office/course in by CGISG in ex the licence fee of
coun .
w/ affairs of union or state .
of accommodation in unfurnished accom

acc .
with the rules + 10 %
p
.
a .
of the

framed by Gout cost of furniture .

2 Where the accommodation

.
is
provided by any other employer
<put ) .

i) where accommodation is owned

by employer i) 10% of salary of peng
the in value .
in

cities having popul clude rent of the

more than 40 lacs ·

unfurnished accom .

ii) 2 .
5% of salary in + 10 %
p
.
a .
of the

cost of furniture
cities
having populatio
.

blw 15 lacs -
40 lacs .

iii) 5% of salary in
the cities
having
population less

than 15 lacs .
 il
ii) where the accommodation is taken on Actual amt of lease value of peng .
in

lease or rent by the employer . rent paid by employ clude rent of the

unfurnished
10%
of Salary
accom
er or

4 10 % of
*
whichever is lower
. pa the

cost of furniture

3
·
Where the accommodation is provided by the NOT 24 % salary paid

employer in hotel/guest
a house APPLICABLE or
payable or

sonly for travel purpose) actual

(except
accommodation
where the employee is provided such
for a period not exceeding pair/changa beer
15
days on his transfer) whichever is
lower .

Section 17(2)(iv)
Any sum paid by the employer in respect of any obligation which would have been payable by the assessee. For
instance, X is a general manager in the company, he engages a domestic servant on the monthly salary of Rs. 2000.
The entire salary is paid by the company to the domestic servant is an obligation of the employee, Mr. X.

Section 17(2)(v)
Any sum payable by the employer directly or indirectly to effect and assurance of life of an employee or assessee is
taxable perquisite.
Exception : this will not be applicable towards-
1. Recognised provident fund
2. Approved super annation fund
3. Deposit link insurance fund

Section 17(2)(vi)- Sweat Equity Shares

The value of any specified liability or sweat equity shares allotted or transfer diectly or indirectky by th employer free of
cost or at the conventional rate to the assessee.

Section 17(2)(vii)
The annual aggregate of amount of any contradictions made to the account of assessee.
1. Recognised provident fund
1. Approved super accretion fund
2. Deposit link insurance fund

To the extent it recives 7.5 lacs.

Section 17(2)(viia)
Interest, dividend on the annual accretion in the previous year to the balance as the above funds.
Value of another Fringe Benefit

Perquiste taxable in the hands of specified employee- Section 17(2)( iii)

The value of any benefit granted free of cost or at concessional rate to the following specified employee.
1. Company’s employee who is a director (wholly or partly)
2. Company’s employee being a person who has a substantial interest in the company (substantial interest means if he
is a beneficial owner of equity shares carrying 20% or more of the voting power in the company).
3. An employee drawing salary in excess of 50,000 per annum.

Section 17(2)(viii) Proviso- Perquisite Non-Taxable

1. Medical Facility
Medical Facility availed in India—
1. If the hospital is maintained by the employer, the expenditure incurred is non-taxable.
2. If the hospital is maintained by central or state government or local authority, the expenditure incurred or reimbursed
is non-taxable.
3. If the hospital is approved by Principal Chief Commissioner or Chief Commissioner, for the expenditure of prescribed
disease or ailment specified in Rule 3A (cancer, tuberculosis, etc.), the expenditure incurred or reimbursed is non-
taxable.
4. Hospital maintained by any person for the treatment of covid-19, the expenditure incurred is non-taxable.
5. If there is a health insurance policy (employees and family members both) the insurance premium paid by the
employer is non-taxable.
6. If the hospital is maintained by any other person (private), the expenditure incurred or reimbursed is taxable.
Medical Facility Outside India—
1. Medical treatment of employee or his family member outside India, the expenditure shall be non-taxable to the
extent permitted by RBI.
2. Cost on travel of employee or his family members or one attendant who accompanies the patient outside India, the
expenditure shall be non-taxable only in the case of the employee whose gross total income is less than 2,00,000.
3. Cost of stay of employee or his family members or one attendant, the expenditure shall be non-taxable only to the
extent permitted by RBI.

2. LTC (Leave Travel Concession) (SECTION 10(5))

3. HRA
4. Gift Vouchers and Cards (not exceeding ₹5000 )
5. Laptop or any other movable asset provided by the employer to the employee

Section 17(3)- Profit in lieu of salary

Profit in lieu of salary includes-
1. the amount of any compensation due or received by an assessee from his employer in connection with the
termination of his employment or modification of terms and conditions.
2. Any payment due or received by an assessee from an employer other than gratuity section 10(10), pension section
10(10A), Retrenchment compensation section 10(10B), RPF section 10(11), PF section 10(12), Pension (NPS)
section 10(13), HRA section 10(13A).
3. Any amount due or received by any assessee from any person before joining the employment or after cessation of
employment.
4.
Section 16- Deductions under the head ‘salaries’
1. Standard Deduction of ₹50,000 or the amount of salary, whichever is less.
2. Entertainment Allowance- It is given only to the government employee and allowed as deduction, both central and
state, on the basis of following:
• ₹5,000
• 20% of the salary
• Allowance actually received
whichever is lower.
3. Professional Tax- It is levied by State Government under Art. 276 of Consti. And is allowed as deduction only when it
is actually paid by the employee during the previous year.

16.10.2023

Income from House Property [Section 22 to Section 27]

Section 22- Income from house property

• The assessee must be the owner.
• Property must be a land or building.
• Assessee must not use it for business or profession.

As per section 22, income is taxable under income from house property if following conditions are satisfied:-
1. property should consist of any building or land appurtenant thereto (attached to).
2. assessee should be the owner of the property.
3. property should not be used by the owner for his own business or profession carried on by him.

Property should consist of any building or land appurtenant thereto (attached to)
The term property is very wide, though under section 22 it is used for limited purpose. The rental income from vacant
plot is not chargeable from tax under income from house property but it is taxable under PGBP or other sources.

Building means a permanent, essentially box like construction having a roof and used for any of the wide variety of
activities, such as living, entertaining or manufacturing.
The word ‘building’ is wide enough to include residential house (either to let out or self-occupied), building let-out for
office or for storage or for use as a factory, music halls, dance halls, lecture halls, public auditorium and cinema theatre.

Land appurtenant thereto may be in the form of approach roads to or from public streets, compounds, courtyards,
backyards, playground, kitchen garden, garage, cattle shed, etc., attached to or forming the part of the building.

Note- A land would be called a land appurtenant thereto, if it is indivisible part and parcel of building for its use and
enjoyment by the occupiers and the land is not put to any other use. The above rationale was given in ITO v. Dr. KK
Bhatnagar (2009).

Assessee should be the owner of the property

The word owner means legal owner. for the purpose of section 22, the owner may be individual, firm, company,
cooperative society or AOP.
Annual value of the property is assessed to tax in the hand of the owner even if he is not in the receipt on his income or
even if income is received by some other person, in oother words, the owner must be that person who can exercuse the
right of the owner and not on behalf on owner but in his own rights. It is immaterial whether the owner is in the
possession of the property.

Income from subletting

The income from subletting is not taxable as income from house property but is taxable as business income or income
from other sources.

Deemed Owner- s. 27
Owner includes deemed owner. The following persons are to be treated as deemed owner of house property:-
• transfer to spouse or minor child-
1. Taxpayer is an individual.
2. He or she transfers a house property.
3. The property is transferred to his or her spouse (not being a transfer in connection with an arrangement to live apart)
or minor child (only unmarried daughters).
4. The property is transferred without adequate monetary condition.

• Holder of impartible estate.

1. HUF
2. Coparceners will be the deemed owners.
3. Member of co-operative society, company or AOP.
4. Person who has acquired property under power of attorney is a deemed owner (s. 53A)

19.10.2023
Property should not be occupied by the owner for his own business or profession
Annual value of the house property is not chargeable to tax under the head Income from House Property, if the following
conditions are satisfied:-
1. The owner of the property utilises the property for the purpose of carrying on his business or profession.
2. The income from business or profession is chargeable to tax.

Section 23- Annual value how determined | Determination of Annual Value.

(1) The annual value shall be deemed to be-
(a) the sum for which the property might reasonably be expected to let from here to here, OR
(b) where the property or any part of the property is let and the actual rent received by the owner is in excess of
reasonably expected rent the amount so receivable
(c) where the propwrty or any part of property is let or vacant during the whole or any part of the previous year and
owing to such vacancy the actual rent received is less than reasonably expected rent, the amount so received shall be
the annual value.

Proviso- the municipal taxes levied by the local authority in respect of the property shall be deducted in determining the
annual value.

GROSS ANNUAL VALUE (GAV)- the tax under the head income from house property is not the tax upon the rent of a
property
property. It is taxed on the inherent capacity of the building to yield income.
Following are the steps to determine GAV:
1. Find out reasonably expected rent of the property
2. Find out rent actually received after excluding unrealised rent
3. Find out which one is higher in step 1 or step 2
4. Find out loss because of vacancy (deduct with Step 3)

Reasonable Expected Rent

It is deemed to be the sum for which the property might be reasonably expected to be let out for year to year. In
determining the reasinable rent, several factors have to be taken in consideration, such as location of the property,
annual ratable value of the property fixed by the municipal of the property, rent of similar properties in the
neighbourhood, rent which the property is likely to fetch having regard to demand and supply and cost of construction of
the property.

However, reasonable expected rent can be determined by taking into consideration the following factors:
1. Municipal value, or
2. Fair rent
whichever is HIGHER, subject to the amount so computed cannot exceed standard rent (if the property is covered by
rent control act).

Q. Municipal value is 40000. Fair rent is 46000. Standard rent is 45000. What is reasonable expected rent?
A. 45,000 as it cannot exceed standard rent.

Q. Municipal value is 1,00,000. Fair rent is 1,40,000. Standard rent is 1,30,000. The house property has been let out for
13,000 per month and was vacant for 1 month during the previous year. Municipal taxes during the year were 50,000.
Compute the annual value for assessment year.
A. Reasonable expected rent= 1,40,000
Rent actually received= 1,43,000

Gross Annual Value= 1,43,000

Municipal Tax= (50,000)
Net Annual Value= 93,000
Section 23(2)
Where the property consist of a house which is in the occupation of the owner for the purpose of its own residence or
cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession, he
has to decide at any other place.
The annual value of such property shall be taken to be NIL.
Imp .
22 , 23 , 24 ,
27

Section 23(3)
The above provision shall not apply if the house is actually let during the whole or any part of the previous year or any
other benfit therefrom is

Section 23(4)
Where the property in subsection (2) consist of more than two houses, the provision of that subsection shall apply only in
respect of two houses, which the assesse may at his option specify in this behalf, and the annual value of the other
house shall be determined as per reasonably expected rent.

Section 23(5)
Where the property consist of any building or land there appurtenant to is held as stock-in-trade and the property is not
let during the whole or any part of the previous year, the annual value of such property shall be taken to be NIL, for the
period upto two years from the end of financial year in which certificate of completion of construction of the property is
obtained.

Unrealised Rent (Section 23(1)- Explanation)

• Read with Rule 4
Unrealised rent (which the owner could not realise) shall be excluded from rent received only if the following conditions
are satisfied:
1. The tenancy is bonafide.
2. The defaulting tenant has vacated or steps have been taken to compel him to vacate the property
3. The defaulting tenant is not in occupation of any other property of the assessee
4. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of unpaid rent

Section 24- Deductions from income from house property

1. Standard deduction (30% of the Net Annual Value)
2. Interest on borrowed capital

Deductions under the head income from house property:

1. Standard deduction is 30% of the Net Annual Value shall be allowed as a deduction.
2. Interest on borrowed capital- Where the property has been acquired, constructed, repaired, renewed or
reconstructed with borrowed capital (home loans, ) the amount of any interest payable on such capital shall be
allowed as deduction.

for the assessment year.

Q. Municipal value is 1,30,000. Fair rent is 1,10,000. Standard rent is 1,20,000. Property let out for a rent of 11,000 per
month throughout the previous year, unrealised rent was 11,000. And conditions are satisfied. He paid municipal taxes at
10% of municipal value. Interest on borrowed capital was 40,000 for the year. Compute the income from house property
for the assessment year.

A.

Reasonable expected rent =

- 1 , 30, 000

Actual rent recud : 1 ,

32 000
,

-
C) Unrealised rent :
(11 , 0001
GAV
=
1 , 21 , 000
(-) Municipal
-
Tax

000
NAV = 1 , 08 ,

Standard
Deduction -o
Interest on
:

(40 ,
0007

apital
add
Inc .

from house
property

Section 28
(iiic) Drawback Duties
26.10.2023

SECTION 28- WRITE ON YOUR OWN

BUSINESS (S. 2(13))
It includes any trade, commerce, manufacture, or any adventure or concern in the nature of trade, commerce or
manufacture.
The definition of business is not exhaustive and covers every facet of an occupation carried on by a person with a view
to earning profit.
Though profit motive is one of the primary requisites of business, it is not an essential ingredient of business.

Difference between ILLEGAL ACTIVITY v. PROHIBITED ACTIVITY.

Prohibited means explicitly written in a statute like breaking traffic rules.
Illegal means not expressdly written in a statute but not allowed like gambling.
Unlawful means not justifiable by law.

PROFESSION is defined under section 2(36) includes vocation. The word profession implies attainment of special
knowledge as distinguished from mere skill, which is to be acquired only after patient study and application. Examples,
lawyers, doctors, tax experts, chartered accountants, architects, engineers, etc.
A company being an artificial person cannot be said to possess any personal skills. A company does not have a mind
and body and therefore cannot be engaged in profession.

BUSINESS LOSS
Business losses can be allowed as deduction only if the following conditions are satisfied:
1. Losses should be revenue in nature
2. Losses should be incurred during the previous year
3. Losses should be incidental to business or profession carried on by the assessee
4. It should not be fictitious in nature and not merely anticipated to incur in future
5. Losses should not, directly or indirectly, be restricted under the Act

EXAMPLES OF LOSSES WHICH ARE DEDUCTIBLE FORM BUSINESS INCOME

1. Loss of stock-in-trade due to destruction of fire
2. Loss of stock-in-trade by an Act of God
3. Loss of stock-in-trade due to theft
4. Loss of currency notes in transit during the course of operation of business
5. Depriciation due to devaluation of foreign currency
6. Loss of cash and securities in a banking company on account of dacoty after banking hours
7. Loss on account of embezzlement by an employee
8. Loss arising from negligence or dishonesty of employee who have been given specified duties in the course of
business

Examples of losses which are not deductible

1. Loss of advances made for setting up a new business which ultimately could not be started
2. Anticipated future loss
3. Losses relating to any business or profession discontinued before commencement of previous year
4. Loss incurred by the assessee in encashment of cash certificate with bank prematurely for paying off its debt to the
said bank
27.10.2023
There are two kinds of deductions:
1. Expenses that are expressedly allowed as deductions (30-37) (30,31,32,32AD, 33AB,
2. Expenses that are not allowed as deductions (40,40A,43B)

Section 30- Rents, rates, taxes, repairs and insurance for buildings.
The following deductions are allowed in respect of rent, rates, taxes, repairs and insurance for premises used for the
purpose of business or profession:
1. Rent of premises if the assessee has occupied the premises as tenant and the amount of repairs if he has
undertaken
2. The amount of current repairs (not being capital expenditure), if the assessee has occupied the premises otherwise
than as a tenant
3. Any sum on account of land revenue, local rates or municipal taxes and
4. Amount of any premium in respect of insurance against risk of damage or destruction of the premises.

Section 31- Repairs and insurance of machinery and plants and furniture
The following expenditres are allowed as deductions in respect of machinery, plant or furniture used for thr purpose of
business or profession:
The amount paid on the account of current repairs and the amount of insurance premium paid in respect of insurance
against the risk of damage and

Section 32- Depreciation

Depreciation usually means loss of decline in value which occurs gradually over useful life of a material thing due to
physical wear, tear and decay. In order to avail it, following conditions must be satisfied:
1. Asset must be owned by the assesse
2. It must be used for the purpose of business or profession
3. It must be used during the relevant previous year
4. Depreciation is available on tangible as well as intangible asset.

Tangible- Building, machinery, plant or furniture

Intangible- Know-how, Patents, Copyright, Trademark, Licenses, Franchise or any other business/commercial rights (not
being goodwill of a business or profession)

Section 32AD- Investment in new plant or machinery in notified backward areas in certain states.
1. Certain states- if an undertaking is set up in the notified backward areas in Andhra Pradesh, Bihar, Telangana or
West Bengal by a company being an assessee, it shall be eligible to deduction if it fulfils the following
conditions:
• the assessee may be a company or any other person
• he sets up an undertaking/enterprise for manufacture or production of any article on or after 2015
• such undertaking must be set up in any backward areas notified by the CG
• he acquires and installs a new asset
• the new asset should be acquired and installed after 2015 but before 2020.

Note- A sum equal to 15% of the actual cost of new asset shall be allowed as a deduction.
The asset should not be sold or transferred within a period of five years from the date of installation. If the new asset is
sold within five years from its installation , the amount of deduction allowed shall be deemed to be the income of
assessee and will be taxable under PGBP, in addition to the taxability of capital gains.

30.10.2023
Section 33AB- Tea Development Account, Coffee Development Account and Rubber Development Account
Tea/ Coffee/ Rubber Development Board
Where an assessee can claim deduction as per the following condition:-
1. the assessee must ebe engaged in tea, coffee or rubber plantation
2. it must take a deposit in the specified account
3. the deposit should be made within specified time limit
4. the account of the assessee should be audited

The assessee must make the following deposit:-

1. deposit with national bank (NABARD) any amount in accordance with a scheme approved by Tea Board, Coffee
Board or Rubber Board, OR
2. deposit any amount in an account in accordance with a scheme framed by Tea Board, Coffee Board or Rubber
Board with the previous approval of the Central Govt.

Time Limit:-
The said amount shall be deposited within 6 months from the end of the previous year OR before the due date of
furnishing the return of income, whichever is earlier.

Amount of Deduction is-

1. A sum equal to amount deposited, OR
2. 40% of the business profit,
whichever is LESS.

Section 35- Expenditure on Scientific Research

• The term scientific research means any activities for the extension of knowledge in the fields of natural and applied
sciences including agriculture or animal husbandry or fisheries.
• When the assessee himself carries on the scientific research and incurs revenue expenditure during the previous
year, deduction is allowed for such expenditure only if the research relates to business.
• Balaji Amines v. CIT, 2015: The expenditure on matetial purchase for reaserch and development is allowed as
deduction under section 35, irrespective of the fact whether the material is consumed during the previous year or
held as closing stock.
• When the assessee does not himself carries on research but makes contribution to the following institutions, a
deduction is allowed as follows:
1. an approved scientific association- 100% deduction
2. an approved university, college or other institution for the use of scientific research- 100% deduction
3. an approved university, college or other institution for the use of reaserch in social science and statistical research-
100%

Section- 35AB, 35ABA,

31.10.2023

Section 35AD- Deduction in respect of expenditure on specified business

[Tax Free Sectors]
Specified Business= setting up and operating a cold chain facility, setting up and operating a warehouse facility
for agricultural produce, playing and operating a criss-country natural gas or crude or petroleum oil pipeline
network for distribution, building and operating a two star hotel anywhere in india, building and operating a
hospital with atleast 100 beds anywhere in india, developing and building an housing project under a notified
scheme for slum redevelopment or rehabilitation framed by CG or SG, production of fertiliser in India, bee-
keeping and production of honey, etc.

Note: 100% of capital expenditure incurred during the previous year wholly and exclusively for specified businesses
would be allowed as deduction.

Expenditure incurred on acquisition of any land, goodwill or financial instrument would not be eligible for
deduction.

02.11.2023
Section 36 & 37- Other deductions & General deductions
(1)(i)- Insurance Premium
Expenses or Deductions Not Allowed Under PGBP (important from exam pov)
Section 40, 40A and 40B

Section 40- Amount not deductible

(a) Following expenses are expressly disallowed-
(i) TDS default- if any assessee is supposed to deduct tax at source on the payment as interest, royalty, technical fees
or any other sum, payable as interest, outside India or to a non-resident/ foreign company, is disallowed as deduction if
such tax has not been deducted or after deduction has not been paid to the Government.

(ia) 30% of such expenditure on which tax is deductible at source is disallowed under PGBP if such tax has nit been
deducted or after deduction has not been paid to the Government.

(ic) any sum paid on account of fringe benefit tax

(ii) any sum paid on account of any tax rates levied on PGBP shall not be allowed as deduction

(iii) any payment which is chargeable under the head ‘salaries’ which is paybale outside India or to a non-resident in
India, if the tax has not been paid to the Govt. nor deducted at source shall not be allowed as a deduction

(iv) any payment to a provident fund for the benefit of the employees of the assessee is not allowed as deduction if the
assessee has not made effective arrangements to secure tax.

(03.11.2023) Section 40A-

PAYMENT TO RELATIVE
Any expenditure, by the way of payment to the persons (who is a relative or having a substantial interest in business or
profession of the assesse) is liable to be disallowed in computing business profits to the extent such expenditure is
considered to be excessive or unreasonable having regard to the fair market value of goods or services or facilities.

Relative means husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

Substantial interest- A person is deemed to have substantial interest in the business or profession if such person is the
beneficial owner of at least 20% of voting rights.

Section 43B- Certain expenses are deductible on payment basis.

1. Tax, Duty, Cess or Fee
2. Employer’s contribution towards provident fund or superannuation fund for the welfare of employees
3. Bonus or commission to employee for service rendered
4. Leave encashment payable by an employer
 INCOME FROM HEAD CAPITAL GAINS
SECTION 45(1)- CHARGEABILITY
Any profit or gain arising from the transfer of capital asset during a previous year is chargeable to tax under the head
capital gain, if it is not eligible for exemption under section 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G, 54H.
Following conditions must be satisfied-
1. There should be a capital asset
2. Capital asset is transferred by the assesee
3. Such transfer takes place during the previous year
4. Any profit or gain arises as the result of transfer
5. Such profit or gain is not exempted from tax
6. F

07.11.2023
Section 2(14)- Capital Asset

↓ Y I

whether securities held unit

property of any
kind held
by an assessee , any by FII
any
linked insurance
policy to which

or not connected with his business or profession exemption under sec .

10(10D) does not apply .

stowanereocha
Wi
rural
trade :e special Gold
agricult
.

land gold Bear Deposit

bond/ Bonds Bond
issued
ind
wearing 7% issued
bondyd
·

apparel + ent 4)
Gold
furniture held national
Gout
Deposit
defence
for personal use Scheme
gold bond
by assesse or his issued by
or
Deposit
certificates
family numbers Cent Govt
notified by
.

I Cent GOVI

iewte
Very
-

are; draw-paint ings

-
n

collections
scultures art
D exclusion from (exclusion/negat Tel ,

property of kind ind movable /

any ,

immovable , tangible) intangible assets .

The term
property is wider in
nature& hence ,
it
signifies any

possibleinterich R
a
person can
clearly
hold & enjoy .

SC in the case of Vodafone International

Holdings B v . .
v .
VOI (2012) held

that influencel persuasion of parent

Co over
subsidiary cannot be
its
·

as a
right in legal sense To supersede .

explanation is inserted
its ruling , an

by Finance Act , 201 below section 2((n)

with retrospective effect from Ist

to
April 1962 clarify that "property"
includes
any rights in in relation or to an indian co . ind
rights of mgmt
·
or control on
any
other
right
whatsoever -
 silver Utensils of an assence which are not in use
ordinarily & normally by the assence

but
only for certain occassions are
personal effects & hence will not be considered as

capital assets (Jayanti A Shah v. CIT)

.

& & for puja of deities ornamentation

Gold
silver loins bas used as a matter of pride or

& normally ,
intended for personal use are not
personal effects .

(Maharaja Rana Hemant

Singh
~ .
CIT , 1976)

09.11.2023

For instance, clothes meant for use at weddings or formal occasions are not used daily. Yet they are stitched for
personal use of wearer and would form a part of his personal effects. (CIT v. H.H. Maharani Usha Devi, 1998)

Jewellery is a capital asset and includes-

1. Ornaments made of gold, silver and platinum whether or not containing any precious or semi- precious stones and
whether or not worked or sewn into any wearing apparel.
2. Precious or semi-precious stones whether or not set in any furniture, utensils, or other article or worked or sewn into
any wearing apparel.

Rural Agricultural Land- It is not a capital asset. In order to qualify for agricultland in India, it is not necessary that the
land was once agricultural land. It must be agricultural land at the time of sale.

Note- Capital Asset is of two types, long term and short term. Short-term capital asset held by an assessee for not more
than 36 months immediately preceding to the date of transfer. In other words, capital asset held for more than 36 minths,
it is known as long-term capital asset.

Transfer- S. 2(47)
transfer", in relation to a capital asset, includes,-
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a
business carried on by him, such conversion or treatment;] or]
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company
or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever)
which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.- For the
purposes of sub- clauses (v) and (vi)," immovable property" shall have the same meaning as in clause (d) of section
269UA;]
The definition of transfer is merely exclusive and does not involve other kinds of transfer. In other words, the expression
transfer must be read widely and not narrowly. The definition of transfer is applicable only in relation to capital asset.

Transfer includes sale.

A sale may be defined as contract founded on money consideration by which absolute or general property in subject of
sale is transferred from seller to buyer.

Transfer includes exchange.

Transfer includes relinquishment.

10.11.2023
Transactions which do not constitute transfer.
1. Distribution of asset in kind by company to its shareholders at the time of liquidation
2. Distribution of capital asset on total or partial partition of HUF
3. Transfer of capital asset by a comoany to its 100% subsidiary company
4. Transfer of capital asset by a 100% subsidiary to its holding company
5. Transfer of capital asset in a scheme of amalgamation
6. Transfer of capital asset by a demerged company to resulting company

Transfer when COMPLETE & EFFECTIVE

Capital gain is taxable in the year in which capital asset is transferred. Different rules are applicable in the case of
movable/ immovable asset to find out when capital asset is transferred.
1. immovable property when documents are registered - when there is a conveyance deed executed and registered,
the transfer is completed and effective.
2. immovable property when documents are not registered - even if the documents are not registered but the following
conditions of section 53A of TPA are satisfied, ownership in the property is transferred.
i) if the contract is in writing
ii) the transferee has paid consideration or willing to perform his part of contract
iii) the transferee has taken the possession of the property
3. movable property - the title of movable property passes at a time when property is delivered pursuant to a contract to
sell.

Capital Gain Exempted From Tax

Sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G, 54H.

Capital Gains arising from the transfer of residential house (section 54)
Following conditions must be satisfied to claim exemption:-
1. the assessee must be an individual of HUF and no other person is eligible to claim exemption
2. only long term capital asset (residential house property) is eligible to claim exemption
3. the exemption is available only on one residential house property in India (building or land there appurtenant to) in
India. the assessee will have to purchase or construct one residential house property.
4. the time limit for acquiring the new asset (means new residential house property) is one year before or within two
years from the date of transfer of residential house property. In case of a construction, it shoukd be completed
withing three years from the date of the transfer of resodential house property. [note: amount of exemption is- (i)
investment in purchasing or constructing of the new capital asset or (ii) amount of capital gain, whichever is lower || if
the new asset is transferred within three years from the date of its acquisition or condition of construction, the
amount of exemption given earlier will be taken back and chargeable to tax under the head capital gain]

Capital gains arising from the transfer of land used for agricultural purposes (section 54B)
Following conditions must be satisfied to claim exemption:-
1. the assessee must be an individual of HUF and no other person is eligible to claim exemption
2. he must transfer an agricultural land (maybe long term or short term)
3. the agricultural land was used by the assessee being an individual or his parent or by HUF for agricultural purposes
for a priod of two years immediately preceding the date of transfer
4. the taxpayer has purchased another land for agricultural purposes within a period of two years from the date of such
transfer
[note: amount of exemption is- (i) investment in purchasing a new agricultural land or (ii) amount of capital, whichever is
lower || if the new agricultural land is transferred within three years from the date of its acquisition, the amount of
exemption given earlier will be taken back and chargeable to tax under the head capital gain]

Capital gains on compulsory acquisition of land forming part of industrial undertaking (section 54D)
1. The assessee may be individual, HUF, firm or any other person
2. The asset may be short term or long term
3. The capital gain arises on transfer by way of compulsory acquisition of land or building which forms a part of
industrial undertaking belonging to the taxpayer
4. such land or building was used by the assessee for the purpose of industrial undertaking for at least two years
preceding the date of compulsory acquisition
5. Assessee has purchased any other land or building within a period of three years from a date of receipt or
compensation or constructed a building within such period
6. Newly acquired land or buikding should be used for thr purpose of …… Or setting up another industrial undertaking
[note: the amount of exemption is investment in new land or building or amount of capital gain whichever is lower ||
if the new land or building is transferred within three years from the date of its acquisition or condition of
construction , the amount of exemption given earlier will be taken back and chargeable to tax under the head capital
gain]

Capital gains on the transfer of long-term capital asset other than house property (section 54F)
The following conditions must be satisfied to claim exemption:
1. The assessee must be individual or HUF
2. The asset must be long term capital asset but other than residential house property
3. The taxpayer will have to purchase one residential house or construct a residential house within the following time
limit:
i) for pipurchaidng a new house, it should be within …. Of the original asset
ii) for constructing a new house it should be completed within three years from the date of transfer of original assets
[note: section 54F does not provide an exemption incase of renovation/modification of an existing house. Amount of
exemption = cost of new house * capital gain / net sale consideration]

[note: If the assessee transfers the new house within three years of its purchase or construction, the amount of
exemption given earlier would be taken back and shall be treated as long term capital gain of that year. if the assessee
purchases within a period of two years from adte of transfer of original asset if constructs within a period of three years,
a residential house other than the amount of exemption given earlier would be taken back and shall be deemed to be
the income by way of long term capital gain]

Income from Other Sources

Section 56(ii)(i)- Dividend
winning form lotteries
(ic)
(id)
(iii)
winning form lotteries
Section 57- deductions- i, ia, ii, iv,

Section 58(a)(i), (ii), (iii), (iv)

20.11.2023
CUSTOMS DUTY
Customs Duty is an indirect tax imposed under Customs Act, 1962. The power to enact the laws is under Art. 265- Sch.
VII, List 1, Entry 83. This act is the basic statute which covers the entry and exit of different categories of vessels,
aircrafts, good, etc. into or outside the country. This act extends to the whole of India.

The primary purpose of this law is the levy and collection of duties but at the same time it has other equally important
purposes such as-
1. Regulation of imports and exports
2. Protection of domestic industry
3. Prevention of smuggling
4. Conservation and Augmentation (means supporting) of foreign exchange and so on.

• Section 12 of the Customs Act provides that duties of cutoms shall be levied at such rates as specified under
Customs Tarrifs Act, 1975.

• Customs Act, 1962 came into force on 1st Feb, 1963. It has 17 Chapters and 161 Sections.
• Section 2(11) defines exports which means taking goods out of India to a place outside India.
• Section 2(15) defines goods which includes vessels, aircrafts, vehicles, stores, baggage, currency and negotiable
instruments and other kind of movable property.
• Section 2(16) defines import which means bringing into India from a place outside India.

Taxable Event
The basic condition to levy custom duty is export or import of goods i.e. goods become liable to duty when there is
import into or export from India.
Types of Duties under Customs-
1. Basic Customs Duty
2. Additional Customs Duty/ Countervailing Duty
3. Special Additional Duty
4. Protective Duty
5. Safeguard Duty
6. Countervailing Duty on Subsidised Articles
7. Anti-dumping Duty
 Deemed Owner not liable to
pay tax .

21.11.2023
CLUBBING OF INCOME (S. 60-64)
• Generally the assessee is taxed only for his or her own income but under certain special circumstances some
incomes are clubbed along with the assessee’s income and assessee may be liable to pay tax on such clubbed
income.
• Section 60- Transfer of income where there is no transfer of asset-
• Section 61- Revocable transfer of asset

• Section 64- Income of individual to include income of spouse, minor child, etc.
• Section 64(1A) - Refer Sec. 80(U), pg. 602)

Section 60- Transfer of income without transfer of asset

When assessee/taxpayer retain the ownership of an asset but decide to transfer its income without consideration, the
income will be clubbed with the total income of the assessee.
Following conditions must be satisfied:-
1. The taxpayer owns an asset.
2. The ownership of the asset is not transfer.
3. The income from the asset is transfer to any person under a settlement, trust, covenant or agreement.
4. The above transfer maybe or may not be revocable.

Section 61- Revocable transfer of asset

When the tax payer transfer the ownership of an asset and make such transfer revocable, income from such an asset
will continue to be added to his total income.
• Revocable transfer means the transferor of an asset assumes a right to reacquire asset or income form such asset,
either wholly or impartly at any time in future, during the lifetime of the tranferee.

Section 64(1)(ii)- Income of Spouse

The income of an individual is assessable in respect of remuneration of spouse. The following conditions must be
satisfied:-
1. The taxpayer is an individual.
2. He or she has a substantial interest in a concern. (substantial interest means having 20% or more of the voting
power)
3. The spouse of taxpayer is employed in the above concern
4. The spouse is employed in the concern without any technical knowledge or professional knowledge or experience.

Section 64(1)(iv)-
When an individual is assessable in respect of income from asset transfer to spouse. The provision provides that if an
individual transferred the spouse any asset directly or indirectly without adequate consideration, the income arising to
the transferor/taxpayer out of such asset will be included in his total income.
Exception— It doesn’t include _____ where such asset in transfer in connection with an agreement to live apart.
(asset here means other than house property)
(the transfer should not be before marriage)

At the time of transfer, marriage should subsist. Spouse means legal wife and not illegal wife.
Section 64(1A)- Income of Minor Child
It provides that all income of a minor child (not being a minor child suffering from any disability of the nature specified
given under 80U) as arises or accrues to him is to be included/ clubbed in the income of his parent.

However, the income received by the minor from manual work or from any activity involving his application of skill, talent,
specialised knowledge and experience, will not be clubbed in the parent’s income.

(The income of minor will be included in the income of that parent whose total income is greater || Where the marriage of
the parent does not subsist, the income of the minor will be clubbed in the income of that parent who maintains the
minor child || Incase, both the parents are not alive, the minor income cannot be assessed in the hands of grandparents
or any other relatives or even in the hands of minor)

(Child includes stepchild and adopted child)

(As per section 10(32), incase of an assessee whose total income, the minor child’s incomeis to be clubbed, the
assessee is eligible to exemption upto 1500/-)

23.11.2023
Set-off and Carry Forward [S. 70-74B]
①
-> Inter-source

-
adjustment
set -

O If way ②
->
Inter-head ->
exception of PGBP be set-off by income
from 'salary'
:

loss cannot

③ arry -Forward
I
-

for 8
years (max ) .

Loss from one source of income can be set-off against the profit of any other source of income.
Note:
1. No losses from the exempted income can be set-off against any source of income. Example: Agricultural income
2. No losses can be set-off against casual income

• Set-off means adjusting the loss incurred in the previous year against the profit of the assessment year. If in case
there is no adequate profit to set- off the entire loss, it can be carry-forward to the next assessment year subject to
condition stated in the act.
There are two ways to set-off or adjust the loss: (i) Inter Source Adjustment and (ii) Inter Head Adjustment
Note: If both these two ways are not applied, then the losses can be carry-forward in the assessment year. It is
applicable to both resident and non-resident.

Section 70: Inter Source Adjustment

If in any year the taxpayer or assessee has incurred loss from any source under a particular head of income, then he is
allowed to adjust such loss against the income from any other source falling under the same head. For instance,
adjustment of loss from Business B against the profit of Business A.
Exception:
1. Loss from speculation business cannot be set-off against the income from any other business.
Exception: (a) But loss from speculation business can be set-off ONLY against the income of speculation business.
(b) Loss from non- speculation business can be set-off against the income of the speculation business.

2. Loss from specified business mentioned u/s 35AD cannot be set-off against the profit of any other business.
Exception: the loss from specified business can only be set-off against the income of specified business.

3. No loss can be set-off against the income of a casual nature such as winning from lotteries, horse race, card games,
etc.

4. Long-term capital loss can only be set-off against long-term capital gain.

5. Loss arising from purchase and sale of securities.

Section 71: Inter Head Adjustment

If in any year the taxpayer or assessee has incurred loss under one head of income and is having income under the
other head, then he can adjust the loss from the other head. For instance, loss under the head of house property to be
adjusted against salary income, business income, capital gain income, or income from other sources.

Exception:
1. Loss from speculation business cannot be set-off against the income from any other head of income.
2. Loss from specified business u/s 35AD cannot be set-off against the income of any other head.
3. No loss can be set-off against the income of a casual nature such as winning from lotteries, horse race, card games,
etc.
4. Long-term capital loss cannot be set-off against the income of any other head.
5. Loss arising from purchase and sale of securities cannot be set-off against the income of any other head.

Note : (a) If the losses could not be set-off under the same head or under different heads in the same assessment year,
such losses are allowed to be carry-forward and set-off from the income of the subsequent years.
(b) All the losses are not allowed to be carry-forward. Following losses are only allowed to be carry-forawrd and
set-off in the subsequent years: (i) loss from house property (ii) business loss (iii) capital loss (iv) loss on
account of owning and maintaining horse race.
Any loss can be carry-forward upto maximum 8 years.

Section 71B-74A: Carry Forward

If a loss cannot be set-off either under the same head or different heads because of inadequacy of the income of the
same year, it may be carry-forward and set-off against the income of the subsequent year.