Taxes are financial charges imposed by government on earnings, commodities, services, activities, or

transactions.
Taxes are govt’s primary source of income and are used for nation and citizens benefit through policies,
regulations, and practices
Income tax (IT) is prescribed direct tax levied on all annual income earned by individuals, HUF,
Companies, Firms etc subject to deductions. Taxable income means income calculated under the
provisions of the Income Tax Act 1961 (ITA 1961)
ITA 1961 governs income tax legislation in India, along with the help of certain income tax rules,
notifications, circulars, and judicial pronouncements, including tribunal judgments
Features ITA : Income tax is a means by which the government guarantees that community activities
and public tasks are carried out properly and in a timely way
1 Central Tax 2. Direct Tax 3. Tax on Taxable Income 4. Progressive rates of Tax 5. Scope of Taxation
not only with individual but also with firm, company, HUF, Trust & Co-Operative Societies 6. Tax
Exemption limit 7. Burden on rich class persons 8. Separate Administration 9. Distribution of Tax
between Central and State Government. 10. It is largest source of revenue. 11. Tax for country welfare
12. History of income Tax in India is about 150 years old. 13. Control on Income by Income tax 14.
Beginning of Income Tax by sir James Wilson in 1860 in India.
Applicability : ITA extend to whole of India providing for
The basis for charging revenue.
Income that is not subject to income tax.
Income computation under multiple categories.
Income grouping.
Losses are set off and carried forward.
Allowable deductions.
Rebates and tax breaks.
In certain exceptional circumstances, taxation is determined.
Dividends paid by domestic corporations are subject to taxation.
Income Tax Authorities and their Authorities.
Surveillance, search, and seizure.
Procedures for assessing.
Tax collection and recovery, as well as tax deduction at source (TDS).
Advance tax payment.
Reimbursement.
Revisions and appeals.
Immovable property acquisitions.
Punishment and prosecution
Need : primary source of income for the government is taxes.
The revenue generated by taxes is used to cover government expenses such as education, infrastructure
amenities such as roads and dams, and so on.
Taxes are collected for the fundamental aim of generating adequate income for the state.
Taxes have come to be seen as a tool by which the economic and social ideals of a welfare state may be
attained
Purpose / Aim ITA :
To reduce income and wealth distribution inequalities.
To accomplish the twin goals of better yields.
To quicken the pace of the country’s economic growth and development.
To preserve appropriate economic stability and security of long-term inflationary pressures and short-
term foreign price fluctuations.
To make funds available for economic development.
Minimize excessive wealth, income, and consumerism inequality through indeterminate productivity
gains, offence, justice, and peace and stability.
To encourage the purchase of new capital goods.
To direct investment toward the industries that yield the most to growth in the economy
S-4 Every person whose total income of previous year exceeds maximum income not chargeable to
tax is an assessee & chargeable to income tax at the rates prescribed by ITA 1961 for relevant AY.

S-2(24) Income includes (enumerates certain receipts / items statutorily treated as income, thus
providing for inclusive but not exhaustive meaning)
1. Profit and gains ;
2. Dividend ;
3. Voluntary contributions received by a trust.
4. The value of a perquisite or profit in lieu of salary.
5. Any special allowance or benefit other than above said perquisites
6. Any allowance granted to the assessee either to meet his personal expenses at the place
where the duties of his office
7. The value of any benefit or perquisite obtained from a company.
8. Any compensation
9. Profit on sale of License
10. Cash assistance received
11. Any interest, salary, bonus, commission/remunerations
12. Profit/gain of mutual or co-operative insurance co.
13. Capital gain arising from transfer of capital gain
14. Any sum received under a key man insurance police.
Features of Income :
Income may be received in cash or kind, Income arises either on receipt basis or on accrual basis, Even
temporary income is taxable same as permanent income, Income whether received in lump sum or in
instalments is liable to tax, Gifts of personal nature do not constitute income, Revenue or Capital
Receipt not income, existence of a source for income is somewhat essential to bring a receipt underthe
charge of tax, Income must Come from Outside, Income earned legally or illegally remains income,
Tax Treatment of Income :
Taxable Income : These incomes from part of total income and are fully taxable. These are salaries,
rent, business profits, professional gains, capital gain, and interest dividend and so on.
Exempted Income: These incomes do not from part of total income either fully or partially. Hence, no
tax is payable on such incomes.
Rebateable (Tax Free Incomes): These incomes form part of total income and are fully taxable, but
rebate is granted.
Causal Income means such income the receipt of which is accidental and without any stipulation,
which is in nature of an unexpected windfall, however causal income is fully taxable.
More so the CI like lottery, race income are taxable at special rate of 30% and CI cannot be set
off against other CI or for setting off loss of other head.
2(22) Dividend Income : is payments made by corporation to shareholder, being portion of corporate
profits, resultant of company's earnings or profits.
Types :
cash dividends (S-10 (34) paid in cash against stock holdings) and
stock dividends (are in addition to the existing shares)
Purpose is to attract investors and increase the value of stock
Important Dates are i) announcement date, ii) record date, iii) ex-dividend date and iv) payment date.
DI is taxable u/s 194 at slab rate of shareholder, i.e. TDS of 10%.
DI is source of financial security that reaps high returns to investor and builds company's intrinsic
value. Navnitlal CIT 1971, Jamnadas CIT 1973
S-4 Every person whose total income of previous year exceeds maximum income not chargeable to
tax is an assessee & chargeable to income tax at the rates prescribed by ITA 1961 for relevant AY.

2(7) Assessee : means 'a person by whom any tax or any other sum of money is payable
under ITA 1961 and includes
a. Every person
i) liable to pay any
a) tax or
b) other sum of money (e.g. interest, penalty, etc)
ii) against whom proceeding under ITA 1961 has been taken for assessment of
a) his own income (normal assessee) or
b) income of any other person for which he is assessable / liable (assessee's
representative)
c) loss sustained or
d) refund due or
b. Deemed Assessee : who is liable to pay tax not only on his own income but on
the income of any another person being legal representative, agent of non resident, guardian
or manager of an infant and lunatic, trustees and administrators etc.
c. Assessee in Default : who fails to comply with it's statutory duties imposed
under ITA 1961

2(31) Person : includes

Individual (natural born persons / human beings only i.e. male/female/minor/
unsound)
Hindu Undivided Family
Company (Domestic Indian or Foreign companies)
Partnership Firm (including LLP having separate entity)
Association of persons or Body of individuals, whether incorporated or not
Local authority like Municipalities, Panchayats, Boards, Port, Trusts etc.
Every artificial juridical person i.e. idols, deity, LIC, University etc.
2(8) Assessment (examination/ scrutiny/ processing of IT Returns by IT Department) is a
process of examining / assessing the correctness / validity of assessee’s claimed income for
computing and imposing the tax payable / liability.
Types :
140A Self-Assessment : assessee himself determines the income tax payable
143 (1) Intimation / Summary Preliminary Assessment / Refund Order or Demand
Order
143 (3) Limited Scrutiny Assessment/Regular Assessment based on evidence
144 Best Judgments Assessment
147 Re-assessment/Income escaping assessment/Re computation

2(9) Assessment Year : financial year consisting of 12 months (starting from 1 April to 31
March) in which income tax is to be paid, thus is also called 'tax year' as assessee’s income
from previous year is taxed at the rates specified by ITA. AY is a FY which immediately
succeeds PY, thus Current AY is 2023-24.
Financial year : consist of 12 months commences from 1 April and ends on 31 March every
year.
S-3 Previous Year : FY in which income is earned, which would be subjected to tax in AY, thus
is also called 'income year' PY is a FY which immediately precedes AY, thus running PY is
2022-23.
General Rule : Income earned in PY is taxable in next AY
Exceptions:
Situations where income of PY taxable in the PY itself instead of AY
Non-resident shipping business (S-172)
Assessment of persons leaving India (S-174)
Association of person /Body of Individuals or artificial judicial person formed for a
particular event or purpose (S-174A)
Assessment of person trying to dispose assets with a view to avoid tax (S- 175)
Discontinued business (S-176)
Residential Status : C 2, S 5-9 is basis of taxation & is significant for accessing tax liability in
India.
Tax incidence of assessee or its inclusion depends on it's RS not on it's citizenship / status,
thus even foreign nationals / entities in India or Indian nationals earning foreign income are
taxable ,
RS is determined / based on physical stay of individual in relevant FY as well as preceding ten
tax years.
S-6 Classification / Determination of assessee on basis of RS :
6(1) Basic Conditions :
B1 - Residing / domicile in India in PY for more than 182 days or
B2 - Stay in India in PY for more than 60 days and for more than 365 days during 4 years
preceding the PY
6(6) Additional Conditions :
A1 - Resident for at least 2 out of 10 years preceding the PY and
A2 - has been in India for more than 730 days during 7 years preceding the PY.
Explanations :
1. For counting days, both day of entry and departure are included.
2. Stay need not be continuous, and also place and purpose of stay is immaterial.
Exceptions: (only B1 - stay more than 182 days in PY is required for Indian citizens leaving
India during PY)
a) for the purpose of job
b) as a crew of an Indian ship.
c) person of Indian origin who comes to India on a visit.

Rule of Residence for Assessment :

i) Resident & Ordinarily Resident (R & OR) : Assessee must satisfy at least one of the
basic conditions (B1or B2) and both of additional conditions (plus A1 & A2)
ii) Resident but Not Ordinarily Resident (R - NOR) : Assessee must satisfy at least one of
the basic conditions (B1orB2) and non of additional conditions (minus A1 or A2)
iii) Non Resident (NR) : Assessee is not satisfying any of conditions (neither B1- B2 nor A1
– A2)
a) For Individuals (human beings / natural persons)
R & OR R - NOR NR
Satisfies any one of Basic Condition Satisfies any one of Basic Condition No Condition is satisfied
and both Additional Conditions

b) For HUF/Companies/Firms/Associations (artificial persons/separate entity)

Status HUF AoP/ Firm Other Persons Companies
Resident Control & Mangement Same as HUF Same as HUF i) Indian Co. or ii) Foregin Co.
of it's affairs is wholly / having place of effective
partly is in India. management in India
R & OR Karta satisfies both
additional conditions
 (A1 & A2)
R - NOR Karta does not satisfies
any additional
conditions (A1 & A2)
NR Control & Mangement Same as HUF Same as HUF Foregin Co. having place of effective
is wholly out of India management out of India

Place of Effective Management (POEM): means a place where key management and
commercial decision that are necessary for conduct of business of an entity as a whole are, in
substance made.

S- 5 Scope of Total Income of a person / assessee depends upon

i) it's RS for relevant AY, thus incidence of tax depends upon RS alongwith
ii) place / location of accrual or receipt of income (Indian income) and
iii) point of time of accrual (PY) as follows
R & OR R - NOR NR

1. Income received / deemed to be received in India Taxable Taxable Taxable

2. Income accruing/arising/ deemed to accrue in India Taxable Taxable Taxable

3. Income accruing or a) Business controlled in India or Taxable Taxable Not Taxable

arising outside India profession set up in India
from :
b) any other source Taxable Not Taxable Not Taxable

S- 7 : Indian income : Income received, accrued or arise or deemed so, in wholly or partly in
India during PY is taxable for all R & OR, R – NOR and NR in India, thus any income received in
India by any assessee during PY is taxable in India, regardless of assessee’s RS or location
where income was earned.
S- 9 Income Deemed to Accrue or Arise in India : even though they may actually accrue or
arise outside India, directly or indirectly through or from
a) any property, asset or source of income in India.
b) transfer of a capital asset situated in India.
c) income chargeable & payable under head “Salaries” for i) service rendered in India & ii)
rest or leave period forms part of contract of employment.
d) salary paid by Govt to citizen of India for services outside India.
e) dividend paid by Indian Co. outside India.
f) any income through or from any business connection in India
g) Interest, royalty and fees for technical services paid by Govt or residents

Foreign income & it's taxability : Income (other than Indian income) received, accrued or arise
or deemed so, in wholly outside India during PY, is taxable only for R & OR and R – NOR but
not taxable for NR in India
Gross Total Income means aggregate amount of taxable income computed under five heads of
income i.e. salaries, house property, business & profession, capital gains and other sources.
GTI means total income computed in accordance with the provisions of ITA 1961
before making any deduction under S 80C to 80U.
GTI is aggregate amount of the following heads of income as :
(i) Salaries (S 15 - 17 cash receipts & perquisites from employer),
(ii) Income from House Property (S 22 - 27 rental income)
(iii) Profits an Gains of Business or Profession (S 28 - 44)
(iv) Capital Gains from transfer of movable and immovable assets (S 45 - 55),
(v) Income from other Sources i.e. interest, royalty, lottery etc. (S 56 - 59)
Add (i) Clubbing provisions (S 60-65)
(ii)Deemed income (S 66-69)
(iii)Set off & carried fordward of losses (S 70-79) = GTI
Less: Chapter VIA deductions (80A to 80U) = Taxable income / Net total income
The aggregate amount of income computed under the above heads, after making
adjustments of set off and carry forward of losses and clubbing of income is GTI.
Total Income is ’taxable income of an assesses, thus Income Tax Liability is calculated on such
income. It is computed as per provisions and rules of ITA 1961
S- 2 (45) TI means the total amount of income referred to in S-5, computed in the manner laid
down in ITA 1961
TI means the amount left after making the deductions u/s 80C to 80U from GTI
Gross Total Income Total Income
Meaning Aggregate of various heads of income salary, After deducting deduction u/s
house property, business / profession, capital 80C to 80U from GTI the
gains and other sources remaining amount is TI

Tax Calculation Not done on GTI Done on TI

Scope Includes TI, the is equal to or more than TI Always less then GTI

Rounded off Not applicable Applicable to nearest tens

Agricultural income Not included Included only for tax purpose.

Income which do not form part of total Income : C -3 : S- 10 are exempted income, not at
all charged or considered for any taxes / mandates total deduction, thus while calculating GTI
these incomes are totally excluded / exempted, providing tax relief on very basis of source /
inception.
Tax exemption is a personal allowance or specific monetary exemption which maybe claimed
by an individual to reduce taxable income.
EI for all assesses :
Agricultural Income 10(1),
Share of income from partnership firm 10 (2A),
Share of HUF Income 10(2),
Scholarships 10(16),
Income as divided 10 (34 & 35),
Capital gain on transfer u/s 64 10 (33),
Allowance of M.P./MLA 10 (17),
Award / reward 10 (17A),
Pension to gallantry award winner 10(18),
Family Pension received by the family members of armed forces 10(19),
Capital gain on compulsory acquisition of urban Agriculture land 10(37),
Interest on notified Government Securities 10(15),
Income of minor child which is clubbed 10(32),
Compensation under Bhopal Gas Leak Disaster 10(10BB),
Income of subsidy from Tea Board 10(30),
Income of schedule Tribe members 10(26),
Amount received under a life Insurance Policy 10(10D),
Income of subsidy from Rubber/Coffee /Spices or other notified Board 10(31),
Income from Sukanya Samriddhi Account 10(11)A,
EI for specified assesses : Exemptions for newly established industrial undertaking
i) in free trade zones 10 (A)
ii) in special Economic Zone 10 (AA)
iii) 100% export oriented undertakings 10(B)
iv) Deduction for export of artistic hand made articles 10 (BA)
v) Income of charitable/religions trusts 11
Fully EI u/s 10 :
Agricultural income, Government awards, Compensation received in lieu of disasters,
Interest on NRE account of a person resident outside India, Pension received by gallantry
awards recipients, Share of partner, Allowances paid by Indian government to Indian citizens
outside India, Received by a member of the HUF (Hindu Undivided Family)
Partially EI u/s 10 :
Gratuity, Leave encashment, House Rent Allowance (HRA), NPS withdrawals in cases
of closing or opting outs, Receipts from LIC, Commuted pension, Clubbed income, Income of
member of ST (Scheduled Tribe), Retrenchment compensation
S- 2(1A) Agricultural Income means and include
any income, rent, revenue or receipt derived from
(a) land which is situated in India and used for agricultural purposes,
(b) land by agriculture or by process rendering produce marketable or sale by cultivator
or receiver of rent in kind,
(c) building i) in immediate vicinity of agriculture land, ii) occupied by cultivator, iii) used
as a dwelling / store /out house, iv) land assessed to land revenue.
(d) any income derived from saplings/seedling grown in a nursery
Exclude though income is connected with land but not AI
1. profit on purchasing standing crop.
2. Income from mines
3. Income from self grown grass, trees/bamboos
4. Divided from a company engaged in Agricultural
5. Income from warehouses and godowns.
6. Income from land used for brick making
7. Income from supply of water for irrigation purposes.
8. Remuneration for managing agricultural property.
9. Income from dairying.
10. Interest accrued on promissory notes executed for arrears of rent.
Tax Liability of AI -
Though AI is exempt and it is not included in computation of total income of assessee
but from tax calculation point of view it is added to total income. AI is integrated with non-AI
in those cases where assessee has both incomes. Such integration is done only in the case of
individual, HUF, AOP/BOI and artificial juridical person.
Conditions for Integration
(i) Non AI of assessee exceeds maximum exemption limit
(ii) Net agricultural income exceed Rs. 5,000
Income not included in total Income
a) Salaries :
Leave Travel Concession 10(5)
Allowance payable outside India by Govt it's citizen 10(7)
Gratuity 10(10)
Payment in commutation of pension 10(10A)
Leave Encashment 10(10AA)
Retrenchment Compensation 10(10B)
Voluntary Retirement Receipts 10(10C)
Income-tax paid by employer on non-monetary perquisite [10(10CC)
Payment from Provident Fund 10(11)
Accumulated balance due or payable from recognised PF 10(12)
Payment from Superannuation Fund 10(13)
House Rent Allowance 10(13A)
Special Allowance or benefit to meet expenses relating to duties or personal expenses
10(14)
b) Capital Gains :
Capital gain on transfer of a unit of Unit Scheme 10(33)
Income received on buy-back of shares of domestic company [10(34A)
Capital gain on compulsory acquisition of agricultural land withins pecified urban
limits 10(37)
Transfer of specified capital asset under Land Pooling Scheme [10(37A)
Income received in transaction of reverse mortgage 10(43)
c) Income from Other Sources :
Interest income arising to certain persons 10(15)
Family pension received by widow/ children/ nominated heirs of armed forces
members 10(19)
d) Income of Other Persons included in Assessee's Total Income :
Exemption in respect of minor's income included in the hands of parent 10(32),
e) Gross Total Income :
Receipts from LIC 10(10D)
Payment from NPS Trust to an assessee on closure of his account or on his opting out of
the pension scheme 10(12A)
Payment from NPS Trust to an employee on partial withdrawal [10(12B)
f) Assessment of Charitable or Religious Trusts and Institutions, Political Parties and
Electoral Trusts" 10(23C)
S– 10A : Special provisions / exemptions / deductions in respect of newly established units in
Free Trade Zone / Special Economic Zones :
FTZ / SEZ are a specified, delineated and duty-free geographical region having progressive
taxation / economic laws to encourage / promote growth, investment, industrialization,
economy & increase exports, earn foreign exchange, transfer latest technologies, stimulate
direct foreign investment and generate additional employment.
FTZ are free port or area within which goods may be landed, handled, manufactured or
reconfigured, and re-exported without intervention of authorities.
Eligibility Condition :
i) assesse is an entrepreneur as per FTZ / SEZ,
ii) units begin to manufacture or produce article / things or provide services during
previous AY, between year 2005 to 2021
iii) not formed by the splitting up or reconstruction of existing business,
iv) not formed by the transfer of old machinery or plant ,
v) assesse should derive income from export of articles or services.
vi) assesse should be audited by CA in prescribed form - 56F and report enclosed with ITR
Benefits : Tax Holiday / Exemption / Deduction for 15 years.
Export Turnover of Unit
Amount of Deduction = Profits of Business Unit x
Total Turnover of assessee Unit

Export Turnover is amount received or brought into India by assessee in convertible foreign
exchange
Period of Deduction available for 15 years :
First 5 years : 100% of profits and gains derived from export of articles or from services. Next
5 years : 50% of such profits.
Last 5 years : amount transferred to SEZ reinvestment reserve account (SEZRARA) or 50% of
profit provided that, such amount be utilized for
(a) acquiring /using new plant & machinery within 3 years from creation of reserve
(b) in meantime, until above acquisition, amount can be used for purpose of business.
(c) subject to furnishing form 56FF
Carry forward of losses Loss u/s 72 - 74, is allowed in any AY
Withdrawal of deduction : amount credited to SEZRARA is deemed as taxable profit / income,
if same has been:
a) mis utilized or
b) not utilized before expiry of 3 years
Tata CIT 2008
S 11–13 Income from property held under Charitable or Religious purposes or 13A Income
of Political Parties or Electoral Trust are exempt from tax liability, their following incomes
are totally excluded / exempted, providing tax relief on very basis of source / inception as
income from House Property
income from other sources
voluntary contribution from any person
capital gains
Eligibility Condition : exemption available, subject to
proper maintenance of account books & audited documents, to enable AO to deduce
relevant information
proper record / detailed receipt for voluntary contribution above Rs20,000
accounts audited by CA
submit report u/s 29 RPA 1951
Charitable purpose 2(15) means relief of poor, education, medical relief, preservation of
environment, historical monuments or advancement general public utility not involving
commercial activity or profit. Charity of public character, thus trust / institution created for
benefit of all not a particular community or caste,
Godrej CIT 2010
Harish CIT 2004
Tei Tech 2012
Sesa Goa 2013
Income from House Property : C 4, S 22 -27
S- 22 annual value (earning capacity) of house property (complete building or land attached
thereto), owned by assessee is taxable / chargeable as IfHP,
Conditions :
i) there must be house property (only complete building or land attached thereto, like
residential house, office, go down, showroom, commercial premises etc)
ii) assessee must be owner of HP (inclusive of legal and deemed owner like spouse /
minor child, member of co-op society, association, co-owners, co pacners, holder of un
partitioned estate, in part performance of contract or adverse possession ),
Exceptions (HP is not considered)
HP in self used by assessee for own taxable business or profession
Letting out (subletting/sub-tenancy) of HP is incidental to business (income from staff-
quarters)
HP Let out to Govt authorities for police station, fire brigade, bank, insurance etc.
Exemptions : income from HP is not taxable, if income is from :
1. self-residential house (if many house, only one house of choice is exempted)
2. agricultural farm house 10(1A)
3. official residence/palace of former rulers 10(19)
4. social, educational & charitable institutions, trust (Hospitals etc) 11
5. trade union, boards / local authority 10(20),
6. political party property 13A
Deductions u/s 24 :
i) Standard deduction 30% of NAV, irrespective of actual expenditure or even paid by
others (repairs & collection charges)
ii) Municipal / Local taxes deducted on actual payment basis
iii) Interest on loan / borrowed capital deducted on due basis (utilized for purchase,
construction, renovation, repairing and reconstruction of HP)
Computation of IFHP :
Gross Annual value (earning capacity of HP, fair rent or municipal value)
(less) i) Municipal / local taxes
ii) Approved unrealized actual rent as HP remained vacant in PY
(=) Net Annual value (NAV)
(Less) i) Deduction u/s 24 i.e. Standard deduction 30% of NAV (repairs, municipal taxes
& collection charges) and
ii) Interest on loan / borrowed capital (for purchase, construction, renovation,
repairing and reconstruction of HP)
(=) Income from house property
Profit & Gains of Business or Profession : C 4, S 28 - 44
S-28 provides for scope of income from B&P, which is called P&G, while calculating income
(PFoBP) certain expenses (specified 29-35 & general 36-37) are expressly allowed as
deductions while others expenses (40-43) are not allowed as exempted.
2(13) Business includes any trade, commerce or manufacture or any adventure / concern in
nature thereto.
2(36) Profession involves occupation based on controlled skill including Vocation natural
ability / talent to do particular work.
Example : Income of traders, manufactures, suppliers, banks, lawyers, doctors, engineers etc.
is PFoBP
Computation of PFoBP (29)
Turnover / income / P&F of BP
include (deemed income - profit from trading activities, compensation, receipts from
profession, profit from speculation business, brokerage, commission, import-export
incentives, income of trade associations, royalty etc.)
exclude (business income not taxable / inadmissible income - rental income of
property dealer, dividend on shares, winning from lottery, crossword puzzle, Betting,
Gambling etc.
minus expenses (specified deductions 29-35 & general deductions 36-37)
= taxable income of BF
Conditions : for allowing deduction, expenditure must be :
1. in revenue nature, (thus capital expenditure is not allowed).
2. related to business/profession.
3. actually made (reserve/provision made for any expenses is not allowed).
4. not personal/domestic
5. paid/ payable during AY.
Deductions : expressly allowed as expenses & allowances (30 – 37)
a) Specified Deductions (29-35) allowed for particular business :
S-30 Rent, taxes, insurance, repairs etc. of building
S-31 Repairs & insurance of plant & machinery, furniture, motor car, other assets etc
S-32 Depreciation at prescribed rates (residential building 5%, commercial building
10%, furniture 10%, motor vehicle 15%, plant & machinery 15%, intangible assets like
patent, copyright 25%, computer 60%, professional books 100%)
Full deduction allowed for expenditures on (scientific research 35, contribution to
national laboratory 35A, patents, copyright, technical know how, prospecting of
minerals, family planning programs, rural development program, security, transaction
tax,
for preliminary expenses at the rate of 20% pa
b) General Deductions (36-37) allowed for everyone :
S-36 Payment / Contribution allowable as deduction (Insurance premium, Bonus, Bad
Debts, Commission, Interest on capital, Contribution to PF / Gratuity fund)
 S 37 expenditure allowable as deduction, expenditure relating to (sale-purchase /
manufacturing, for running business, for remuneration to employees, paid as
compensation/ damages, as legal expenses, indirect taxes, for raising loans, on
advertisement, other expenses are allowed as per business needs)
c) Deductible expenses (43) on actual payment basis as :
Govt. dues- (tax/ duty etc.), bonus, commission etc. payable to employees, interest on
institutional loan, contribution to provident fund
d) Allowable losses : loss of cash or stock due to (embezzlement by employees, theft or
robbery, war or natural calamity, lapse of advance)

Varghese CIT 2012,

Bhandari CIT 2015,
Income from Capital Gain : C 4, S 45-55
S-45 profit or gain arising from sale or transfer of capital asset is chargeable to tax as 'Capital
Gains',
2(14) Capital Asset means any movable / immovable asset like land, building, plot, gold, silver,
jewellery, shares, securities etc. Profit/Loss arising from transfer of such assets is computed as
IfCG.
Types :
Short term CA
i) shares, securities, bonds, units held for less than 12 months before transfer by assessee
ii) assets on which deprecation has been allowed.
iii) other capital asset which is held for less than 36 months before transfer by assessee

Long term CA
i) shares, securities, bonds, units held for more than 36 months before transfer
ii) other capital asset which is held for more than 36 months before transfer
Exception – property of any kind not include as CG -
1. Stock in trade
2. Personal effect Assets (which is personally used by assessee and family member)
3. Agricultural land in rural area
4. Gold Bonds
5. Special Bearer Bonds
6. Gold deposit bonds
Items included under CG : S- 45
1. Profit from transfer of CA 45 (1)
2. Insurance Claim 45 (1A)
3. Conversion of CA into stock in trade.45 (2)
4. Assets transferred to Firm/AOP 45 (3)
5. Profit from distribution of CA on dissolution 45(4)
6. Profit arises from compulsory acquisition of CA 45 (5).
7. CG on repurchase of units of mutual fund 45 (6)
Exemption of Capital Gains (S-10)
1. CG on transfer of units u/s 64 - 10 (33)]
2. exemption of long-term CG arising from sale of shares and units - 10(38)]
3. CG on compulsory acquisition of urban agriculture land 10(37)
CG exempt from tax u/s 54 to 54H
Income from Other Sources C 4, S 56-59
56 residual head of charge of income, an income which does not specifically fall under any one
of preceding heads of income (viz Salaries. Income from house property, Profits and gains of
business or profession or Capital gains) is to be computed and brought to charge under
Income from: -
(1) Sub-letting of House Property.
(2) Director’s Sitting Fees.
(3) Family Pension.
(4) Income from Undisclosed Sources.
(5) Remuneration received by MP/MLA.
(6) Examination Fees from non-employer.
(7) Rent from a vacant piece of Land.
(8) Interest on URPF on Employer’s Contribution.
(9) Agriculture Income from land situated outside India.
(10) Guarantee Commission/Underwriting Commission to Directors.
(11) Gratuity received by a Director not as an employee.
(12) Gift Tax: Money (Cash) received by Individual/HUF without consideration from any
person(s), if exceeds Rs.50,000 then whole amount shall be taxable.
(13) Award to Profession Sportsman is Taxable. Award to Non-Profession Sportsman is not
Taxable
(14) Composite Rent Separable: HP and PGBP, Not separable: Whole in OS.
(15) Lottery Prize: Books Maintain: Accrual Basis, No Books: In the year of Receipt. In
another case: Only on receipt basis.
Commissioner of Income Tax C-13, S 116-138
116 - IT Authorities (from AO to CBDT) ensure efficient & effective tax administration, by
securing assessment, collection and recovery of tax.
117 CIT appointed by Central Govt., to head IT administration of specified jurisdiction ( 120
territorial area, class of persons or incomes )
131 – 138 Powers : CIT as head of administration is vested with both administrative,
supervisory & judicial powers.
Administrative Powers / Functions :
may exercise all powers of assessing officer.
to transfer any case from one AO to another 127
grant approval for an order issued by AO
grant prior approval for reopening of assessment.
revise an order passed by AO
Judicial Powers to :
discovery, production of evidence etc. 131
search & seizures 132
requisition & retention of account books / documents / articles 132A
seizure of requisitioned assets 132B
call information 133
inspect registers of companies 134
set off refunds against tax remaining payable.
dispose of appeals.
impose penalty.
rectify mistake or amend record or orders
receive evidence on affidavit / examine witness
demand documents or attendant for investigation
extend limitation period for filling a revision petition,
decide revision petitions
direct to institute appeal
impose penalty for default
make best judgment assessment
take steps for recovery of tax / amount
make inventory of articles found during search
make provisional assessment for defaulting assessee
notice filing ITR & pay tax
retain documents for prosecution
permit change method of accounting
Income Tax Appellate Tribunal (ITAT) C 10, S 252-255 - quasi-judicial appellate authority
to institute, hear & decide appeals against assessment & orders of inferior IT authorities, both
aggrieved assessee & CIT can institute appeal.
ITAT is final fact-finding authority, thus it's decision is deemed final on factual matters.
Composition 252A : Central Govt constitute and appoint as
i) President – Judge of HC having 7 years experience but retiring age at 67 years
ii) Zonal Vice President – District Judge having 10 years experience
iii) Members (Judicial & Accountant) – having 10 years experience in legal, taxation or
account field to deal with appellate matters
Jurisdiction 253 : functions under Govt / Ministry of Law & Justice, through zonal / regional
benches having regional jurisdiction for different regions / zones, to dispose of matters
involving taxable income upto Rs 50 lakh
Bench constituted by President, must consisting of both Judicial & Accountant member)
Special Bench of 3 or more members
Function (254-255)
final fact-finding authority
forum to institute, hear & decide appeals against assessment & orders of inferior IT
authorities alongwith IRS orders
second appellate forum to hear IT appeals after CIT (Appeals).
is subordinate & functions under supervision & jurisdiction of High Court
should follow precedent set (law laid / case decided) by jurisdictional High & Supreme
Court.
Orders Appealable before ITAT : as passed by
-CIT (Appeals)
-Jurisdictional Commissioner
-AO under directions of Dispute Resolution Panel
-Assessing Officer,
-Penalty imposed by CIT
-on applications for stay of tax demands
-on applications for recall of orders.
Recovery of Tax C 17, S 122, 220-232 if assessee fails to pay any sum imposed by way of
interest, fine, penalty or any other sum payable under ITA 1961, then same shall be
recoverable as recovery of arrears of tax.
Conditions :
-assessee is in default or is deemed to be so,
-default making a payment of tax, interest, fine, penalty etc
-Tax Recovery Officer (collector / Gazetted Officer) excising local jurisdiction
-may draw up a certificate qua amount of arrears due
-then proceed to recover such specified amount as arrears of tax
-through prescribed modes & rules provided in Second Schedule
Modes 220-232:
- attachment & sale of assessee’s
a) movable property or
b) immovable property
- arrest & detention in prison of assessee
- appointing a receiver for management of assessee’s properties.
other Modes 226:
- Deduction from Salary,
- Collection from persons who owe money to assesee (garnishee order)
- Application to Court for payment of money in court’s custody
- Restraint and Sale of Movable Property
- Recovery through State Government 227
- Recovery by filing suit in Court 232
Refund of Tax C 19, S 237-245 (return of excess tax paid over and above due amount by
assessee)
Conditions : 237-239
-any person or assessee (right of claimant)
-within prescribed period / time limit of 1 year (239)
-on filling & verified by authorized person (238) as per Form No.30
-satisfies AO that tax paid amount
-during any previous AY
-exceeds it's proper chargeable tax liability
-is entitled to refund of excess amount of tax paid.
-IT authorities after duly considering / verifying facts & circumstances of case
-issue order for refund of excess tax paid
- if refund arise on appeal, then no need to draw claim as it is duty of AO to refund
excess amount (240)
-Interest on delayed RoIT @ 15% pa (243)
Refund arise in cases, when excess / higher tax is :
-deducted at source from salary, interest on securities, debentures, dividend on higher
rate -more than actual tax liability
-in advance tax exceeds actual tax liability during regular assessment.
-due to mistake, rectified later on.
-payment given to non-residents
-due to double taxation, entitling relief
Penalties C-21, S 270-275) & Prosecutions for offenses (C-22, S 275A-280)
Default / failure / omission in complying with provisions of or with mandatory conditions
prescribed under ITA attract penalties / fines whereas in critical/willful cases it invite
prosecution / punishment.
Modes to encouraging tax compliance :
(a) Charge of interest (compensatory in character),
(b) imposition of monetary penalty (strong deterrent)
(c) launching of prosecution against tax delinquents (penal / punitive).
Rule: Before imposing penalty, reasonable opportunity of being heard must be granted.
Waiver : 273 CIT may reduce / waive, penalty imposed, if prescribed conditions are satisfied.
-assessee voluntarily & in good faith make full & true disclosure of taxable income
prior to detection,
-genuine hardship,
-assessee has co-operated in enquiry relating to the assessment and recovery of taxes. -
waiver/reduction is discretion, not to be claimed as matter of right
Penalties (C-21, S 270-275)
Section Defaults (Failure to /non furnish / not pay) Penalty
271 return of income Rs. 5000
221 tax/interest Min – imposed by AO /Max – arrears tax
158 in time return in search cases Min – as tax leviable/Max – upto 300%
221 tax with in time Min – imposed by AO /Max – arrears tax
271 present Account, document etc. Rs. 10,000 for each default
272 answer the question “
272 sign the statement “
271 produce evidence and books of accounts “
271 concealment of particulars Min. – 100% /Max. – 300% of tax
271 wrong distribution of profit 150% of tax
271 maintain books of accounts Rs. 25,000
- non information foreign transaction 2% of each transaction
271 get account audited Min – ½% of Sales /Max –Rs. 1,00,000
92 file report Rs. 1,00,000
271 deduct tax at source Equal to tax amount
271 undisclosed income in search cases 10% of income
271 accepting & repaying loan without cheque/draft upto amount of loan
272 non information Rs. 1000
206 comply provision of tax collection Rs. 10,000
272 comply with provision of PAN “
272 other defaults Rs. 100 per day

Prosecutions for offenses (C-22, S 275A-280D)

Imprisonment / punitive punishment has more dreaded & deterrent consequence,
imposed in more serious/willful defaults for effective implementation of tax laws.
Conditions for prosecuting :
-any person (even other than assessee),
-for artificial / juristic persons (Company/Firm) person in charge / responsible for
business
-is liable to be prosecuted & punished
-refutable presumption as to guilty mind, in case of willful omission 278
Section Nature of offence (willful failure to) Min / Max period of imprisonment
275 dealing with seized assets, violating search order upto 2 years & fine
275 ensure inspection of electronic records “
276 concealment /transfer of property, thwart tax recovery “
276 comply with directions of liquidator at least 6 months to 2 years & fine
276 acquisition of property, thwart tax process “
276 deposit tax / PF in Govt. treasury at least 3 months to 7 years & fine
276 pay/deposit credit of Govt tax “
276 attempt to evade tax, exceeding Rs.1 lakh “
276 non filing of return u/s 139 or in response to notice u/s 142 (1) “
or 148, tax evaded exceeding Rs.1 lakh
277 making false statement / account in verification “
278 abetment to make false statement or declaration.
276 attempt to evade payment tax, penalty or interest at least 3 months to 3 years & fine
276 non filing of return of total income u/s 158BC. “
276 produce books of account and documents u/s 142 upto 1 year and fine @ Rs. 10 per day
278 repetitive / subsequent offences u/s 276 -278 at least 6 months to 7 years & fine
280 disclosure by public servants violation u/s 138 (2) upto 6 month & fine
139(4) Belated Return : ITR filed after specified due date / prescribed period i.e. 31 July for
individuals / HUF, however ITR can be filed at belated stage though subject to penalty,
limitations & additional interest on taxes.
-Any person who has not furnished a return
-within time u/s-139(1) or
-within the time allowed in notice issued by Tax authority u/s-142 (1)
-may furnish return for any PY
-at any time before expiry of one year from the end of A.Y. or before completion of A.Y.
(which ever is earlier)
Belated ITR is mandatory for assessee having
i) income more than 2.5 lakhs or
ii) bank deposit more than 1 crore.
Consequences :
-Interest penalty u/s 234A at the rate of 1% pm till filling,
-Late Filing Fees u/s 234F at the rate of Rs.5,000,
Limitations :
-No losses are allowed to carry forward,
-Deductions u/s 10, 80 are not allowed,
-lose interest on refund u/s 244A,
-Cannot change to / choose a new tax regime
House Rent Allowance (HRA) C 3, S 10(13a):
-special allowance
-specifically granted to employee by employer
-to meet expenditure actually incurred
-on payment of rent qua residential accommodation
-actually occupied by assessee during PY,
-is exempt to extent of least of following:
a) actual amount of allowance received or
b) rent paid over 10% of salary [rent paid – 10% of salary which is Basic Pay + Dearness
allowance + Commission (but excludes all other allowances and perquisites)
c) amount equal to one-half of salary due to assessee where such accommodation is
situated at Metro Cities otherwise /other place @ two-fifth
Appeal – C 20, S 246-250 : pursuit for justice, based on rule of law, is complaint to superior
court of injustice by inferior court, Right to appeal must be express Harihar CIT 1971
Appellate Hierarchy :
Appeal Appellate Authority Appealable order of authority against which Appellant
1st CIT (Appeals) 246 -250 Assessing Officer Assessee only
2nd
IT Appellate Tribunal 252-255 Commissioner (Appeals) Both assessee
or CIT
3 rd
High Court 260 ITAT (for substantial question of law )
Final Supreme Court 261 High Court (fit case certified by HC )

Format : appeal in prescribed Form No. 35, duly verified u/s 140, accompanied by documents
i.e. appealable order, statement of facts, grounds of appeal, notice of demand & challan, with in
30 days.
Procedure : Admission by fixing date, hearing, adjournment, inquiry, order, communication of
orders.
S- 2(8) Assessment is a process of examining / assessing the correctness / validity of the
assessee’s claimed income and computing the amount of tax payable by him, followed by the
practice of imposing that tax responsibility on that individual. (examination / scrutiny /
processing of IT Returns by IT Department)
Types :
140A Self-Assessment : assessee himself determines the income tax payable while filing the
return of income as it is his duty to find whether he is liable to pay any tax.
143 (1) Intimation / Summary Preliminary Assessment / Refund Order or Demand Order :
Assessment carried out without any human intervention or without calling assessee as the
information submitted in ITR is cross-checked against the information of IT department by
automatically examining / verifying the reasonableness and correctness of the return, thus ITR
gets processed online, and adjustment for arithmetical errors, incorrect claims, and
disallowances are automatically done. After making the aforementioned adjustments, if the
assessee is required to pay tax, he will be sent an intimation under Section 143(1). The
assessee must respond to this intimation accordingly
143 (3) Limited Scrutiny Assessment/Regular Assessment based on evidence : IT
Department has set certain parameters, based on which a taxpayer’s case gets picked for a
scrutiny assessment / conduct of assessment by AO with aim to ensure that the assessee has
neither understated his income or overstated any expense or loss or underpaid any tax
a. If an assessee is subject to a scrutiny assessment, the Department will send a notice well in
advance. However, such notice cannot be served after the expiry of 6 months from the end of
the Financial year, in which return is filed.
b. The assessee will be asked to produce the books of accounts, and other evidence to validate
the income he has stated in his return. After verifying all the details available, the assessing
officer passes an order either confirming the return of income filed or makes additions. This
raises an income tax demand, which the assessee must respond to accordingly.
144 Best Judgments Assessment : If the assessee does not submit return of income or does
not furnish the accounts etc. then assessing officer is assess the tax without any compliance by
assessee on his notice and done by him on the basis of information available with him about
assessee, using the best of his judgement execute compulsory BJA- in case of non co-operation
of assessee or when assessee is in default as regards supplying information like
• Fails to file my return u/s 139 (1)/belated/revisal return.
• Fails to comply with all the terms and conditions of notice issued by assessing officer
u/s 142.
• Falls to get the accounts audited by an accountant nominated by commissioner/fails to
submit a report within time.
• Having filed a return but fails to comply with all terms & conditions of notice.
147 Re-assessment/Income escaping assessment/Re computation : AO has sufficient reasons
to believe that any income chargeable to tax has escaped assessment for any assessment year.
He may reassess the income/loss/depreciation allowed in following cases-
(1) No return of income has been furnished, though liable to file.
(2) An assessee already taken or claim for excessive loss, deduction etc., in return
(3) Income chargeable to tax has been under assessed/at too low rate.
(4) Excessive relief was taken in return.
(5) Notice is issued by assessing officer to an assessee where income has escaped
assessment (Sec.148).
(6) Time limit for notice issued is within 4 years from the end of A.Y. when escaped any
income is less than Rs. 1,00,000 otherwise within 6 years when escaped income is more than
Rs. 100000.
(7) Within 30 days of giving notice assessee have to submit a return of income & Assessing
officer have to maintain record for the reason of notice.

144B Faceless Assessment : means the assessment proceedings are conducted electronically
in the “e-proceeding”facility through the assessee’s registered account in the designated
portal.

Tax Avoidance:Tax avoidance means taking undue advantage of the loopholes, lacunae or
drafting mistakesfor reducing tax liability and thus avoiding payment of tax which is lawfully
payable. Generally it is done bytwisting or interpreting the provisions of law and avoiding
payment of tax. Tax avoidance takes into accountthe loopholes of law. Though it has a legal
sanction, it means following the provisions of law in letter butkilling the spirit of the law.Tax
Evasion:Tax evasion means avoiding tax by illegal means. Generally, it involves suppression of
facts,falsifying records, fraud or collusion. It is an attempt to evade tax liability with the help of
unfair means. Tax Evasion is illegal and would result in punishment by way of penalty, fines
and sometimes prosecution. Tax Planning :Tax planning may be defined as an arrangement of
one’s financial affairs in such a way that withoutviolating in any way the legal provisions of an
Act, full advantage is taken of all exemptions, deduction,rebates and reliefs permitted under
the Act, so that the burden of the taxation on an assessee, as far aspossible, is the least. It is
within the framework of law.

Set Off and Carry Forward of Losses

Income tax is levied on the total income of any assessee of previous year, Gross total income is
calculated
by aggregation the income of the assessee under different sources of income falling under one
head of
income and then all the heads of income are put together to find out the net result in the shape
of cross
total income. It is not necessary that every source shall result into a profit every year. The
provisions
regarding set off and carry forward can be discussed under two categories below-
1. Set off of losses
2. Carry forward and set off of losses

Set off of losses

Computation of total income is to lump together all sums of income falling under one head and then all
heads are pooled to find the net result in gross total income. It, therefore, follows that where the net
result
in respect of any source is a loss, it can be set off against profit in respect of another source of income
under the same head. The provisions regarding set off and carry forward one discussed below-
1. Set off under the same head (Sec-70) – Set off loss from one source against income from other
sources under the same head of income is first step of set off of losses. It is called inter source
adjustment. Inter source adjustment is allowed only in case of loss from income from house property,
loss from normal business, loss in respect of interest income.
Exceptions- In the following cases loss from one source of income although it falls under the same
headi.
Loss from speculation business
ii. Long term capital loss
iii. Loss from the activity of owing and maintaining race houses (sec 74 A)
iv. Loss cannot be set off against winnings from lotteries, cross word puzzles etc.
v. Loss from a source which is exempt.
2. Set off against income other heads (Sec. 71) – Set off loss from one head against the income of
another head in the same assessment year. Inter-head adjustment is discussed under sec -71. Where
the net result of the computation under any head of income in respect of nay accounting year is a loss,
the assesee shall be entitled to have such amount of loss set off against his income assessable for this
assessment year under any other head of income.

Exemptions- The following losses cannot be set off against the income of other heads or a particular
head
i.Loss of normal business
ii. Loss in a speculation business
iii. Loss from the activity of owing and maintaining race horses.
iv. Loss under the head <capital Gain=

Carry forward and set off of losses

If it is not possible to set off the losses in the same assessment year in which they accurred so much at
the
loss as has not been so set off out of the following losses can be carried forward for being set off against
his income in the succeeding years. All losses are not allowed to be carried forward. The following
losses
are only allowed to be carried forward and set off in the subsequent assessment years-
1. Loss under the head :income from house property= (Sec 71) B
2. Loss of non-speculation business or profession (Sec 72)
3. Loss of speculation business (Sec 73)
4. Short term capital loss/ long term capital loss. (Sec 74)
5. Loss from activity of owing and maintaining race horses. (sec 74 A)
6. Unabsorbed Depreciation (Sec 32 (2))