Tax Laws DT Revsion Notes For Dec 22

CS EXECUTIVE
TAX LAW PRACTICE

DIRECT TAX
REVISE CUM MARATHON
NOTES FOR JUNE / DEC 2022 EXAM
E
REPRODUC
REVISE
READ
CMA VIPUL SHAH (MBA, MCOM, EXIM) YES ACADEMY

98812 36536 88885 45545
CMA VIPUL SHAH CS EXECUTIVE – DEC 22 DIRECT TAX - REVISION
DIRECT TAX – REVISION (June - 22/ Dec - 22)

INDEX
No. Chapter Name Page No.
1 BASIC CONCEPTS 2
2 RESIDENTIAL STATUS 16
3 INCOMES EXEMPT FROM TAX 27
4 INCOME FROM SALARY 51
5 INCOME FROM HOUSE PROPERTY 64
6 INCOME FROM BUSINESS OR PROFESSION 72
7 CAPITAL GAIN 87
8 INCOME FROM OTHER SOURCE 110
9 CLUBBING OF INCOME 114
10 SET OFF AND CARRY FORWARD OF LOSSES 117
11 DEDUCTIONS SEC 80C TO 80U 121
12 TDS & TCS 129
13 ADVANCE TAX 140
14 RETURN, ASSESSMENT PROCEDURE AND INTERST 142
15 COMPUTATION OF INCOME OF VARIOUS PERSON 153
16 APPEAL, REVISION, PENALTIES AND PROSECUTION 162
17 COLLECTION & RECOVERY OF TAX 173
18 REFUND 174
YES ACADEMY FOR CS 8888 235 235 1

Chapter 1
BASIC CONCEPTS
1. Component of Income Tax law
1) Income tax Act, 1961,
2) Finance Act,
3) Income Tax Rules, 1961,
4) Circulars / Notification from CBDT,
5) Supreme Court and High Court Decisions.
2. Classification of Tax
1) Direct Tax: Tax on Income
2) Indirect Tax : Tax on goods and services
3. Canon of Taxation
1) Canon of Equity
2) Canon of Certainty
3) Canon of Convenience
4) Canon of Economy
4. Constitutional Background
1) List - I (Union List) – Entailing the areas on which only the Central Government is competent to
make laws.
Entry no 82 Tax on income other than Agri. income
2) List - II (State List) – Entailing the areas on which only the State Legislature can make laws.
3) List - III (Concurrent List) – Listing the areas on which both the Parliament and the State
Legislature can make laws upon concurrently.
5. India
1) The territory of India as per Article 1 of the constitution,
2) Its territorial waters, seabed and subsoil underlying such waters,
3) Continental Shelf,
4) Exclusive Economic Zone, or
5) Any other specified Maritime Zone, and
6) The air space above its Territory and Territorial waters.
6. Income Tax Rules

CBDT is empowered to frame rules from time to time to carry out the purpose and proper
administration of the Act.
7. Circulars/Notifications
CBDT issues Circulars and Notifications from time to time
8. Types of Amendments
Prospective / Immediate/Retrospective effect
9. Types of definitions
1) Inclusive Definition 2) Exclusive Definition 3) Exhaustive Definitions
10. Person Sec 2(31)
Individual, HUF, Firm, Company, AOP, BOI, Local Authority, AJP.
11. Assessee Sec 2(7)
1) Assesse means any person who is liable to pay any tax or any other sum under the Income
Tax Act, 1961.
2) Every person in respect of whom any proceedings has been taken for the assessment of
income, loss and refund.
3) Deemed Assessee: Legal representative
4) Assessee in default: Fail to deduct TDs
12. Assessment year [Sec.2(9)]
12 months commencing 1st April of every day
13. Previous Year [Sec. 3]
Financial year prior to Assessment Year. In case of newly established business or profession
from the date of set up to the end of Financial year,
14. Exceptions to the general rule that income of a previous year is taxed in its assessment year
Details Assessment
Shipping Business of Non-Resident Mandatory
Persons leaving India Mandatory
AOP / BOI / AJP formed for a particular event or purpose Mandatory
Persons likely to transfer property to avoid tax Mandatory
Discontinued Business Assessment is discretionary
15. Cash Credits [Sec. 68]
Taxable in the FY in which it is found credited in books of accounts if Assessee offers
unsatisfactory explanation about its nature and source.
16. Unexplained Investments [Sec. 69]

Investments made by Assessee which are not recorded in books and he offers no explanation
or offers unsatisfactory explanation about its nature and source, then the value of investment
is deemed to be Income of the Assessee of such FY.
17. Unexplained money, Bullion, Jewel or valuable article etc [Sec. 69A]
Where in any FY the assessee is found to be the owner of Money, Bullion, jewellery, or any
valuable article and those are not recorded in books and he offers no explanations of offers
unsatisfactory explanation about its nature and source, then the value of those assets is
deemed to be Income of the Assessee of such FY.
18. Investments, etc. not fully disclosed in books of account [Sec. 69B]
Where in any FY the assessee has made investments or is found to be the owner of money,
Bullion, Jewellery, etc the AO finds that amount expended exceeds the amount recorded in
books and assessee offers no explanation or offers unsatisfactory explanation about excess
amount, then such excess amount is deemed to be Income of the assessee of such FY.
19. Unexplained Expenditure, etc. [Sec. 69C]
Where assessee incurred any expenditure and he offers no or unsatisfactory explanation about
source of expenditure or part thereof, then such amount may be deemed to be income of the
assessee of such FY. Such expenditure shall not be allowed as deduction under any head of
income.
20. Amount borrowed / repaid on Hundi expected by A/c Payee Cheque [Sec. 69D]
Where any amount borrowed on Hundi or repaid the same otherwise than through and Account
Payee Cheque drawn on Bank, then such amount shall be treated as income of the person for
the PY in which the amount borrowed or repaid. If the amount is taxed at the time of borrowing
the same cannot be taxed at the time of repayment. Amount repaid includes interest on
borrowed amount.
21. Sec. 68, 69, 69A, 69B, 69C, 69D
Income is chargeable under the head “Other Sources” at 60% + 25% SC + 4% Cess = 78%
No deduction in respect of any expenditure/ allowance or any set-off of any loss shall be
allowed. (Sec. 115BBE).
22. Income [Sec. 2(24)]
Includes –
1) Income chargeable under various heads,
2) Voluntary contributions received,
3) Employees’ contribution to Welfare Funds,

4) Amount received under Keyman Insurance Policy including Bonus,
5) Gift in kind,
6) Any sum of money or value of property as defined u/s 56(2)(vii)/ (viia),
7) Value of shares of a company (closely held company) received in any Previous Year, by a Firm
or a Company (closed held company), from any person(s),
8) Any consideration received for issued of shares as exceeds the Fair market Value referred
u/s 56(2)(viib),
9) Advance forfeited on failed negotiations for transfer of Capital Asset,
10) Subsidy, Duty Drawback, Grant (Whatever name called) received by the assessee from
central Govt/ State Govt/ any Authority, other than the grants which considered as cost of Asset
u/s.43(1).
23. Method of accounting
Relevant only for Profits and Gains from business or and Income from other sources. Based on
cash or mercantile system of accounting used regularly by Assessee, subject to specified
exceptions.
24. Exemption
Section 10 deals with income exempt from tax.
25. Deductions
Sec 80C to 80U deals with deductions. Assessee need to claim.
26. Relief
Exemptions & Deductions reduces income where as relief reduces income tax liability.
27. Heads of income & Source of Income
1) Salaries,
2) Income from house property,
3) profits and gains of business or profession,
4) capital gains, and
5) Income from other sources
Source is part of head of income.
28. Tax , Surcharge & Cess
1) Tax and surcharge is general purpose revenue.
2) Tax is applied on income.
3) Surcharge is applied on income tax.
4) Cess is specific purpose revenue. It is to be applied on tax plus surcharge.

29. Rounding off of Total Income & Tax [Sec. 288A & 288B]
Rounded off to nearest Ten Rupees.
30. Application of Income
An obligation to apply income, which has accrued or has arisen or has been received amounts
to merely the apportionment of Income. Essential are –
1) Income accrues to the assessee,
2) Income reaches the assessee, and
3) Income is applied to discharge an obligation, whether self-imposed or gratuitous.
31. Diversion of Income
An obligation to apply the income in a particular way before it is received by the assessee or
before it has arisen or accrued to the assessee results in diversion of income. The source in
charged with an overriding title, which diverts the income Essentials of “Diversion of Income”
are –
1) Income is diverted as source,
2) there is an overriding charge or title for such diversion, and
3) Charge / Obligation is on the source of Income & not on the receives.
CHARGING SECTION 4
1. Charging Section
Sec. 4 of the Income Tax Act provides that the shall be charged –
(a) For any assessment year (AY), at the rate(s) specified in the annual Finance Act for that year,
and
(b) In respect of the total income of the previous year of every person.
It lays down the rates for charging income – tax in certain cases, rates for deducting income tax
from income chargeable under the head ‘Salaries’ and the rates for computing advance – tax for
the financial year 2021 – 22 i.e. AY 2022 – 23.
First Schedule to Annual Finance Act: It contains four parts, which, as applicable for the Finance
Act, 2021 are as follows:
2. Part I
It specifies the rates at which income tax is to be levied on income chargeable to tax for the PY
2021 – 22.
3. Part II

It lays down the rate at which tax is to be deducted at source during the financial year 2021 – 22
i.e. AY 2022 – 23.
4. Part III
It lays down the rates for charging income – tax in certain cases, rates for deducting income tax
from income chargeable under the head ‘Salaries’ and the rates for computing advance – tax for
the financial year 2021 – 22 i.e. AY 2022 – 23.
5. Part IV
It lays down the rules for computation of net agricultural income.
TAX RATES FOR AY 21-22
Tax Rate Resident Individual Resident Individual Resident Individual
age < 60 (Male & (Age >= 60 during PY) (Age>=80 during PY)
Female), HUF, AOP, Senior citizen( Male& Super senior citizen(
BOI & AJP Female) Male & Female)
NIL 2,50,000 3,00,000 5,00,000
5% 2,50,000 to 5,00,000 3,00,000 to 5,00,000 NA
20% 5,00,000to 10,00,000 5,00,000 to 10,00,000 5,00,000 to 10,00,000
30% Above 10,00,000 Above 10,00,000 Above 10,00,000
Add: Surcharge Income Rate
50,00,001 to 1,00,00,000 10%
1,00,00,001 to 2,00,00,000 15%
200,00,001 to 5,00,00,000 25%
Above 5,00,00,000 37%
Add: Health &

Education 4% on Tax plus Surcharge
Cess
REBATE U/ 87A
1. Conditions
1. A resident individual whose net income does not exceed Rs. 5,00,000 can avail rebate u/s.
87A.
2. The amount of rebate is 100% of income tax or Rs. 12,500 whichever is less.

2. Key Notes
a. Net income = GTI – Deduction u/s 80C to 80U
b. It is to be deducted before H & EC.
NON RESIDENT ASSESSEE
a. For Non-Resident individual exempted income shall be upto Rs. 2, 50,000 irrespective of Age
b. Surcharge : as per table given above
c. Health & Education Cess @ 4% on Tax + SC
d. Rebate u/s 87A is not available.
SURCHARGE FROM THE ASSESSMENT YEAR 2021 – 2022
Different Nature and quantum of income of the Surcharge on Surcharge an
Situations assesse (i.e. individual, HUF, AOP, BOI or an amount of amount of
artificial juridical person) income tax income tax
computed on computed on
dividend income other incomes
and income
which is taxable
under section
111A and 112A
Situation 1 Total income (including dividend income and Nil Nil
income under section 111A and 112A) does not
exceed Rs.50 lakh
Situation 2 Total income (including dividend income and 10% 10%
income under section 111A and 112A) exceeds
Rs.50 lakh but does not exceed Rs.1 crore
Rs.1 crore but does not exceed Rs.2 crore
Situation 4 Total income (excluding dividend income and 15% 15%
income under sections 111A and 112A) exceeds
Rs.2 crore but does not exceed Rs.5 crore

Situation 5 Total income (excluding dividend income and 15% 15%
income under sections 111A and 112A) exceeds
Rs.5 crore
Rs.2 crore (but it is not covered by Situation 4
and Situation 5)
Alternative tax regime for individual / HUF – From the assessment year 2021 – 2022, an
individual / HUF can opt for the alternative tax regime within the parameters of section 115BAC.
(To be discuss later on)
FOR DOMESTIC COMPANIES
Surcharge
Particulars AY 21-22 Income between Above 10 Cr Cess
1 Cr to 10 Cr
• If turnover of or gross receipt during PY 25% 7% 12% 4%
16-17 dose not exceeds 250 cr
• If turnover of or gross receipt during PY 25% 7% 12% 4%
17-18 dose not exceeds 400 cr
• Otherwise 30% 7% 12% 4%
Key Note: A domestic company can opt for the alternative tax regime provided under section
115BA or section 115BAA or section 115BAB.
INCOME RANGE WHEN MARGINAL RELIEF IS APPLICABLE – MARGINAL RELIEF WILL BE
APPLICABLE IN CASE NET INCOME FALLS IN THE FOLLOWING RANGE –
Particulars Income Range
• Resident senior citizen Rs.50 lakh – Rs.51.9552 lakh
Rs.100 lakh – Rs.102.145 lakh
• Resident super Rs.50 lakh – Rs.51.9402 lakh
senior citizen Rs.100 lakh – Rs.102.1374 lakh

• Any other resident individual, any non – Rs.50 lakh – Rs.51.9589 lakh
resident individual, any HUF or AOP / BOI Rs.100 lakh – Rs.102.1469 lakh
MAXIMUM MARGINAL TAX RATES: MAXIMUM MARGINAL (TAX RATES (AT HIGHEST LEVEL) FOR
THE ASSESSMENT YEARS 2022 – 2023 AND 2023 – 2024 ARE GIVEN IN THE TABLE BELOW:
Individual / HUF / BOI / AOP / artificial juridical person 42.744%
Firm (including limited liability partnership) 34.944%
Co – operative society 34944%
Domestic com 29.12%, 34.944%
Foreign company 43.68%

ALTERNATIVE TAX REGIME FOR INDIVIDUALS / HUFS UNDER SECTION 115BAC
Income of individuals and Hindu Undivided Family
Currently, individuals / HUFs are taxable as per progressive tax slabs and the highest tax slab
rate is 30 per cent which is applicable if income exceeds Rs.10 lakh. Section 115BAC has been
inserted with effect from the assessment year 2022 – 2023 to provide new optional tax regime
to individuals / HUFs.
Rate of income tax under the alternative tax regime (Section 115BAC(1))
under the alternative tax regime income tax shall be computed at the option of the assesse as
per the rate given in the following table:
Total income Rate of tax
Up to Rs.2,50,000 Nil
From Rs.2,50,001 to Rs.5,00,000 5%
From Rs.5,00,001 to Rs.7,50,000 10%
From Rs.7,50,001 to Rs.10,00,000 15%
From 10,00,001 to Rs.12,50,000 20%
From Rs.12,50,001 to Rs.15,00,000 25%
Above Rs.15,00,000 30%
Exemption limit
Exemption limit is Rs.2,50,000. It is applicable even in the case of senior citizen and super
citizen. To put it differently, under normal provisions exemption limit for senior citizen is
Rs.3,00,000 and for super senior it is Rs.5,00,000. But in the case of alternative tax regime, it is
Rs.2,50,000 for any individual
Rebate under section 87A
Rebate under section 87A is available.
Tax on other incomes
If an individual / HUF (who has opted for the alternative tax regime) has other incomes which
are taxable under other provisions of Chapter XII (i.e. sections 110 to 115BBG but other than
section 115BAC), then tax on such other incomes will be calculated as per the rate(s) specified
by these sections and balance amount of income will be taxable under section 115BAC as per
the rate given in above table.
Restrictions on deductions/ exemptions (Section 115BAC(2))
The following conditions should be satisfied in order to avail the benefit of lower rate under the
alternative tax regime of section 115BAC:

It is optional Individual / HUF may be resident or non resident. Individual may be a salaried /
retired employee (having salary income) or a self employed person (having business income)
or any other person (having any other income).
• House rent allowance (section 10(13A))
• Special allowance(s) (other than those as may be prescribed) (Section 10(14))
• Allowance to MPs / MLAs (Section 10(17))
• Exemption up to Rs.1,500 available in the case of clubbed income of a minor child (section 10(32))
• Special economic zone (section 10AA)
• Standard deduction (section 16(ia))
• Entertainment allowance deduction (section 16(ii))
• Professional tax deduction (section 16(iii))
• Interest on housing loan in the case of one or two self – occupied properties (section 24(b))
• Additional depreciation (section 32(1)(iia))
• Investment allowance in the case of backward area (section 32AD)
• Tea / coffee / rubber development account (section 33AB)
• Site restoration fund (section 33ABA)
• Deduction for scientific research (section 35(1)(iia)/(iii), 35(2AA))
• Capital expenditure pertaining to specified business (section 35AD)
• Agriculture extension project (section 35CCC)
• Standard deduction in the case of family pension (section 57(iia))
• Deduction under sections 80C to 80U (except employer’s contribution towards NPS under
section 80CCD(2), deduction under section 80JJAA and deduction under section 80LA(1A))
Interest on public provident fund (as well as final payment at the time of maturity) will remain
exempt under section 10(11) even if a person opts for the alternative tax regime under section
115BAC. Likewise, interest on Sukanya Samriddhi Account (as well as withdrawal or final
payment from such account) will enjoy exemption under section 10(11A) even of the concerned
person has opted for the lower tax regime of section 115BAC). Moreover, the following
exemptions will be available even under the alternative tax regime of section 115BAC:
• Exemption under section 10(10) pertaining to gratuity
• Exemption under section 10(10A) pertaining to commutation of pension
• Exemption under section 10(10AA) pertaining to leave encashment
• Exemption under section 10(10B) pertaining to retrenchment compensation
• Exemption under section 10(10C) pertaining to compensation on voluntary retirement

separation
• Exemption under section 10(10CC) pertaining to tax on non monetary perquisites paid by
employer
• Exemption under section 10(D) pertaining to sum received under a life insurance policy
• Exemption under section 10(12) pertaining to interest and withdrawal from recognized provident
fund
• Exemption under section 10(12A) / (12B) pertaining to payment (including withdrawal) from NPS
• Exemption under section 10(13) pertaining to payment from approved superannuation fund.
Adjustment of losses
The total income of the individual / HUF is calculated without adjusting brought forward loss
(and / or additional depreciation) from any earlier year (if such loss / additional depreciation
pertains to any deduction under the aforesaid sections). Moreover, any loss under the head
“Income from house property” cannot be set off with any other income under any other head
of income.
Adjustment of depreciated value of block of assets
Brought forward loss / depreciation as mentioned above, shall be deemed to have been given
full effect to and no further deduction for such loss / depreciation shall be allowed for any
subsequent year. However, where unadjusted depreciation in respect of a block of assets has
not been given full effect to prior to the assessment year 2022 – 2023 corresponding
adjustment shall be made to the written down value of such block as on April 1, 2021 in the
prescribed manner (if option is exercised for the lower tax regime under section 115BAC for the
assessment year 2022 – 23).
Depreciation on prescribed mode
Total income of the individual / HUF is calculated after claiming depreciation (other than
additional depreciation) in such manner as may be prescribed.
Alternative minimum tax not applicable
Alternate minimum tax (AMT) under section 115JC is not applicable if the assesse opts for the
alternative tax regime under section 115BAC. Consequently, AMT tax credit of earlier years
cannot be adjusted against the tax liability which is computed under section 115BAC.
Option (section 115BAC(5))
An individual / HUF (who wants to avail the benefit of lower rate under the alternative tax regime
of section 115BAC) is required to upload an option in prescribed mode on or before the due date
of submission of return of income as follows:

1. Assesse does not have business / profession income
If the assesse does not have business / profession income, the option must be exercised along
with the return of income for every previous year.
Provisions illustrated: X is an individual and does not have any business / profession income
for the assessment year 2022 – 2023. He exercises the option for the alternative tax regime for
the assessment year 2022 – 2023. In this case, option is valid only for the assessment year 2022
– 2023. For the next assessment year, he may (or may not) avail of the alternative tax regime
under section 115BAC. If he wants to avail the benefit of lower tax taxation for the assessment
year 2023 – 2024, he will have to exercise a fresh option by uploading the relevant form on or
before the due date of submission of return of income for the assessment year 2023 – 2024.
2. Assesse has business / profession income
If the assesse has business / profession income, this option can be exercised for any previous
year relevant to the assessment year 2022 – 2023 (or any subsequent year). Once the individual
/ HUF has exercised the option of lower tax regime under section 115BAC for any previous year,
it remains valid for subsequent years (the assesse is not required to upload a fresh option in
the next year or subsequent years). However, the option cannot be withdrawn (except when he
ceases to have business / profession income in which case, option under (1) will be available).
If an individual / HUF (after opting for the alternative tax regime of section 115BAC), fails to
satisfy the above conditions in a subsequent year, the option becomes invalid in respect of the
year in which default is committed and subsequent years. Consequently, in such a case, it will
be assumed that the assesse has not exercised the option of lower tax regime under section
115BAC in the year in which default is committed and subsequent years.
3. Option by an employee under section 115BAC for lower tax regime
CBDT vide Circular no. C1/2020, dated April 13, 2020 has clarified that an employee (not having
income from business / profession) can opt for the lower tax regime under section 115BAC by
intimating the same to the employer (i.e. deductor) of such intention for each previous year.
Upon such intimation, the deductor shall compute the amount of tax deductible (under section
192) according to the provisions of section 115BAC. The following points should be noted:
a. The above intimation to the employer shall be only for the purpose of the TDS and cannot
be modified during that year.
b. Such intimation to the employer does not amount to exercise of option by the concerned
employee under section 115BAC(5). The concerned employee is required to exercise the
option under section 115BAC(5) at the time of submission of his return of income (such option

could be different from the intimation made to the employer).
c. If the above intimation is not made by the employee, the employer (or deductor) shall deduct
tax at source ignoring the provisions of section 115BAC.

Chapter 2
RESIDENTIAL STATUS
1. Why Residential status?
To decide where to pay tax in India or Outside India.
2. Criteria to decide Residential status
Person Criteria
Individual Period of stay in India
HUF Place of control and Management
Company Place of effective management
Other assessee Place of control and Management
3. Hints for determination of Residential status
1) Citizenship of a country and residential status of that country are different concepts.
2) If person is resident in India in the P.Y. relevant to an A.Y. in respect of any source of income,
he shall be deemed to be resident in India for his other source of income.
3) If an individual stays on a ship, which is in the territorial waters of India, then it shall be
treated as his presence in India.
4) 24 hrs. Shall be treated as one day.
5) It is not essential that stay should be at same place.
6) Continuous stay is not required.
Counting of number of days: If nothing is mentioned about the time of arrival and departure than
the day of arrival and the day of departure both shall be include for determining residential
status of an Individual
RESIDENTIAL STATUS AT A GLANCE
1. An individual is said to be resident in India if he satisfies any one of the following two conditions.
If he does not satisfy any conditions he becomes Non-resident in India.
Condition 1 - He is in India for a period of 182 days or more in the relevant previous year.
Sec. 6 (1)(a)
Condition 2 - He is in India for 60 days or more during the relevant previous year and has been
in India for 365 days or more during four previous years immediately preceding the relevant
previous year. Sec. 6(1) (C).

2. Exceptions to Condition 2 above - The period of 60 days replace by 182 days for a and for b
a. An Indian citizen who leaves India during the previous year for the purpose of employment
outside India. OR
An Indian citizen who leaves India during the previous year as a member of the crew of an
Indian ship.
b. Indian citizen or a person of Indian origin who comes on a visit to India during the previous
year.
Explanation 1 - And in case of the citizen or person of Indian origin having total income other
than income from foreign sources exceeding fifteen lakhs rupees during previous year the
period of 182 days shall be replaced by 120 days.
Key Note
• Person of Indian origin - A person is said to be of Indian origin if he or either of his parents or
any of his grandparents (maternal & paternal) were born in undivided India.
• Income from foreign source - It means income which accrues or arise outside India (except
income derived from a business controlled in or a professional set up in India)
3. Determination of Residential Status of Crew Member of a Ship
In the case of an Individual, being an Indian Citizen and a member of the Crew of a Foreign-
bound Ship leaving India, the period(s) of stay in India shall, in respect of such voyage, be
determined in the manner and subject to such prescribed conditions. For determining the period
of Stay in India, the following period shall not be included
Period beginning from - Date entered into the Continuous Discharge Certificate in respect of
joining the ship by the said individual for the eligible voyage
Period ending to - Date entered into Continuous Discharge Certificate in respect of the signing
off by that individual from the ship in respect of such voyage.
DEEMED RESIDENT 6(1A)]
(1A) notwithstanding anything contained in clause (1)
An individual shall be deemed to be Resident in India if he/she fulfills following 3 conditions
A. The assesse is an Indian citizen
B. His total income (other than the income from foreign sources) exceeds Rs.15,00,000 during
the relevant previous year, and
C. He is not liable to tax in any other country or territory by reason of his domicile or residence
or any other criteria of similar nature.

If these 3 conditions are satisfied, the individual would be resident but not ordinarily resident
in India.
ADDITIONAL CONDITIONS TO TEST AS TO WHEN A RESIDENT INDIVIDUAL IS ROR & RNOR [SEC.
6(6)]
Condition A - He has been resident in India in at least 2 out of 10 previous years immediately
preceding the relevant previous year.
Condition B - He has been in India for a period of 730 days or more during 7 years immediately
Condition C - a citizen of India, or a person of India origin, having total income, other than the
income from foreign sources, exceeding fifteen lakh rupees during the previous year, as
referred to in clause (b) of Explanation 1 to clause (1), who has been in India for a period or
periods amounting in all to one hundred and twenty days or more but less than one hundred
and eighty – two days; or
Condition D - a citizen of India who is deemed to be resident in India under clause (1A).
If assessee fulfils both of the above conditions (a and b) then he becomes ROR otherwise RNOR.
RULES FOR DETERMINING THE RESIDENTIAL STATUS OF HUF [SECTION 6[2]]
Place of Control & Management Residential status
Fully In India Resident
Partly in India Resident
Fully outside India Non-Resident
ADDITIONAL CONDITIONS TO TEST AS TO WHEN A HUF IS ROR & RNOR
Condition 1 - Karta has been resident in India in at least 2 out of 10 previous years immediately
Condition 2 - Karta has been in India for a period of 730 days or more during 7 years immediately
INCIDENCE OF TAX [SEC. 5]
For individual and HUF
Nature of Income Ordinarily Not ordinarily Non-resident
resident resident
• Income received in India (no matter where it is Taxable Taxable Taxable

earned)
• Income earned in India (no matter where it is Taxable Taxable Taxable
received)
• Income earned and received outside India from a Taxable Taxable Not Taxable
source controlled from India
• Income earned and received outside India from a Taxable Not Taxable Not Taxable
source not controlled from India
RESIDENTIAL STATUS OF A COMPANY [Sec.6 (3)]
Section Company Residential Status
6(3)(i) Indian company Always resident in India
6(3)(ii) A foreign company (whose turnover/ It will be resident in India if its place of
gross receipt in the previous year is effective management (POEM), during
more than Rs. 50 crore) the relevant previous year, is in India
6(3)(ii) A foreign company (whose turnover/ Always non-resident in India
gross receipt in the previous year is Rs.
50 crore or less)
Place of Control Indian Company Foreign Company
Place of Effective Management (POEM)
1. Wholly in India Resident Resident
2. Wholly outside India Resident Non - Resident
3. Partly in India and partly outside India Resident Resident
PLACE OF EFFECTIVE MANAGEMENT
1. Meaning
A. "Place Of effective management" (POEM) is an internationally recognised test for
determination of residence of a company incorporated in a foreign jurisdiction. Any
determination of the POEM will depend upon the facts and circumstances of a given case
B. The POEM concept is one of substance over form.
An entity may have more than one place of management, but it can have only one Place Of
effective management at any point of time. Since "residence" is to be determined for each

year, POEM will also be required to be determined on year to year basis.
2. Criteria
The process of determination of would be primarily based on the fact as to whether or not the
company is engaged in active business outside India
A. A company shall be engaged in active business outside India if
1. The passive income is not more than 50 per cent of its total income
2. Less than 50 per cent of its total assets are situated in India
3. Less than 50 per cent of total number of employees are situated in India or are resident
in India and
4. The payroll expenses incurred on such employees is less than 50 per cent of its total
payroll expenditure
Meaning of Passive Income
A. Income from the transactions where both the purchase and sale of goods is from/ to its
associated enterprises; and
B. Income by way of royalty, dividend, capital gains, interest or rental income
Exception - However, any income by way of interest shall not be considered to be passive
income in case of a company which is engaged in the business of banking or is a public financial
institution, and its activities are regulated as such under the applicable laws of the country of
incorporation
B. Management power exercised in India
If on the basis of facts and circumstances it is established that the board of directors of the
company are standing aside and not exercising the powers of management and such powers
are being exercised by either the holding company or a other person(s) resident in India, then
the place of effective management shall be considered to in India.
C. In case of companies not engaged in active business in India
First Stage - would be identification or ascertaining the person or persons who actually make
the key management and commercial decision for conduct of the company's business as a
whole.
Second Stage - would be determination of place where these decisions are in fact being made.
3. Guiding Principle
A. The location where a company's Board regularly meets and makes decisions may be the
company's place of effective management provided, the Board-
1. Retains and exercises its authority to govern the company; and

2. Does, in substance, make the key management and commercial decisions necessary for
the conduct of the company's business as a whole.
FOR DETERMINING THE RESIDENTIAL STATUS OF FIRM, AOP & BOI [SECTION 6(4)]
Place of Control and Management situated Status
Fully in India Resident in India
Partly in India Resident in India
Fully outside India Non-Resident
RESIDENTIAL STATUS & INCIDENCE OF TAX
Nature of income Resident Non – resident
• Income received in India (no matter where it is earned) Taxable Taxable
• Income earned in India (no matter where it is received) Taxable Taxable
• Income earned and received outside India from a source Taxable Not Taxable
controlled from India
• Income earned and received outside India from a source not Taxable Not Taxable
controlled from India
Note: Past year untaxed income brought in India shall not be taxable in the current year;
however, past year file shall be reassessed.
• Remittance v/s Receipt: Receipt is different from remittance. The receipt of income refers to the
first occasion when the recipient gets the money under his control. Once amount is received as
income any subsequent remittance of amount to India dose not result income in India.
• If income is accrued and received outside India in any year preceeding the previous year and
later on remitted to India in current financial year is not taxable.

SECTION 7 AND 9
What is received in India?
Received In India Accrued In India
Sec. 7 Sec. 9
Received In Deemed to be Accrue in Deemed to

India received in India India accrued in
India
Any income a) Contribution made by the employer to a) Income from connection in India
received in the recognised provident fund in b) Salary earned in India
India during excess of 12% of the salary of the c) Salary from Govt., by an Indian
employee. citizen for services rendered
PY, by any
b) Interest credited to the RPF of the outside India
assessee d) Income from dividend paid by
employee which is in excess of 9.5%
chargeable an Indian Company
p.a.
to tax c) Transfer balance from the e) Income from interest payable
unrecognised fund to a Recognised by specified person
Provident fund (It has been discussed in f) Income from royalty
the Chapter on Income from salaries). g) Income from technical services
h) Income from any property/assets
d) The contribution made, by the Central
or source of income in India
Government or any other employer in
i) Income on transfer of a capital
the previous year, to the account of an asset situated in India.
employee under a notified
contributory pension scheme referred
to in section 80CCD.
MEANING OF BUSINESS CONNECTION
• Includes
It includes a profession connection. It includes a person acting on behalf of a non-resident and
who performs any one or more the following –
1. He exercises in India an authority to conclude contracts on behalf of the non-resident (it does
not cover the activity of only the purchase of goods or merchandise for the non-resident)
2. He has no such authority but habitually maintains in India a stock of goods or merchandise
from which he regularly delivers goods or merchandise on behalf of the non-resident.
3. He habitually secures order in India (mainly or wholly) for the non resident or for non
residents under the same management.

4. He habitually plays the principal role leading to conclusion of contracts by the non-resident
and the contracts are
a) In the name of the non-resident; or
b) For the transfer of the ownership of (or for the granting of the right to use) property owned
(or the non-resident has right to use) by the non-resident; or
For the provisions of services by the non-resident.
5. Economic Presence Of NR
Moreover from the AY 19-20, significant economic presence of a non-resident in India shall
constitute “business connection” in India. It means
a) Transaction in respect of any goods, services or property carry out by a non-resident in India
(including provisions of download of data or software in India) if the aggregate of payments
arising from such transactions during the previous year exceeds such amount as may be
prescribed; or (Exceeds 2 Cr)
b) Systematic and continuous soliciting of business activities or engaging in interaction with
such number of users as may be prescribed, in India through digital means (No of users
atleast 2 lakhs)
• Does not include
1. In the case of a business, in respect of which all the operations are not carried out in India
[Explanation 1(a) to section 9(1) (i)]: In the case of a business of which all the operations are
not carried out in India, the income of the business deemed to accrue or arise in India shall
be only such part of income as is reasonably attributable to the operations carried out in
India. Therefore, it follows that such part of income which cannot be reasonably attributed
to the operations in India, is not deemed to accrue or arise in India.
2. Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]: In the case of non –
resident, no income shall be deemed to accrue or arise in India to him through or from
operations which are confined to the purchase of goods in India for the purpose of export.
3. Collection of news and views in India for transmission out of India [Explanation 1(c) to section
9(1) (i)]: in the case of a non – resident, being a person engaged in the business of running a
news agency or of publishing newspapers, magazines or journals, no income shall be
deemed to accrue or arise in India to him through or from activities which are confined to the
collection of news and views in India from transmission out of India.
4. Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]: In the case of a
non-resident, no income shall be deemed to accrue or arise in India through or from

operations which are confined to the shooting of any cinematograph film in India, if such
non-resident is:
a. An individual, who is not a citizen of India or
b. A which does not have any partner who is a citizen of India or who is resident in India; or
c. A company which does not have any shareholder who is a citizen of India or who is
resident in India.
5. Activities confined to display of rough diamonds in SNZs [Explanation 1(e) to section 9(1)(i):
In the case of a foreign company engaged in the business of mining of diamonds, no
income shall be deemed to accrue or arise in India to it through or from the activities
which are confined to display of uncut an unsorted diamonds in any special zone notified
by the Central Government in the Official Gazette in this behalf.
[Amendment Fin Act 2016]
INCOME FROM PROPERTY IN INDIA 9(1) (i)
Income arising through or from any property or any asset or source of income in India
INCOME FROM TRANSFER OF PROPERTY IN INDIA
Income arising through or from the transfer of a capital asset situated in India
SALARY INCOME [SEC 9(1) (ii)]
Salary income shall be deemed to be earned in India if services are rendered in India.
Exception to the above rule
If salary is payable to-
a) Government employee b) who is a citizen of India; c) for services rendered outside India
-then such salary (even service rendered outside India) shall be deemed to be earned in India.
Key Note: Any allowances or perquisites paid to above employee shall be exempted u/s 10(7).
Pension received in India by abroad: If an assessee, residing in India, receives pension from
abroad from past services rendered in foreign country, then such income shall be treated as
income accruing abroad, and shall not be liable to tax in India.
DIVIDEND INCOME [SEC 9(1) (iii)]
Any dividend Paid by an Indian company outside India shall be deemed to accrue to arise in
India.
Dividend income paid to a non- resident by Indian company is deemed to accrue or arise in India

only on payment and not on declaration.
INTEREST, ROYALTY & FEES FOR TECH. SERVICE-WHEN DEEMED TO ACCRUE OR ARISE IN INDIA
1. Accrual of Interest 9(1)(v) in India:
Payer Purpose of Payment Is the payment Taxability in the hands of
deemed to receiver
accrue or arise
in India
• Government Any purpose Yes All Assessee
• Resident For carrying on Business or No ROR – Taxable NOR – Not
profession outside India or Taxable NR – Not Taxable
earning income outside India [For NOR or NR – assumed
first receipt not in India]
• Resident For any other purpose Yes All Assessee
• Non-Resident For carrying on business or Yes All Assessee
profession in India
• Non-Resident For any other Purpose No ROR – Taxable NOR –Not
Taxable NR – Not Taxable
[for NOR or NR – assumed
2. Accrual of Royalty 9(1)(vi), and Fees for Technical Service 9(1)(vii) in India:
Payer Purpose of Payment Is the payment Taxability in the hands of
deemed to receiver
accrue or arise
in India
• Government Any purpose Yes All Assessee
• Resident For carrying on Business or No ROR – Taxable NOR – Not
profession outside India or Taxable NR – Not Taxable
earning income outside India [For NOR or NR – assumed
• Resident For any other purpose Yes All Assessee
• Non-Resident For carrying on business or Yes All Assessee

profession in India or any
Other source in India
• Non-Resident For any other Purpose No ROR – Taxable NOR –Not
Taxable NR – Not Taxable
[for NOR or NR – assumed

Chapter 3
INCOMES EXEMPT FROM TAX
AGRICULTURAL INCOME
INTRODUCTION
Conditions to treat Income as agricultural income
a) Land must be situated in India. (Urban or Rural)
b) Used for Agri purpose. (Basic & subsequent operations)
Note: Income from only subsequent operations shall not be treated as Agricultural income.
Agricultural Income Sec 2(1A)
1. Any rent or revenue derived from a land, which is situated in India & is used for agricultural
purposes.
• Rent may be in cash or in kind.
• Assessee may be the owner or tenant of such land.
2. Any income derived from such land on sale made by
a) The cultivator of the agricultural produce raised;
b) The receiver of rent in kind of the agricultural produce received. Without carrying on any
process, other than the process required to render it fit for the market.
3. Any income derived from a building subject to fulfilment of the following conditions
a) The building should be occupied by the cultivator or receiver of rent in kind.
b) The building should be on or in the immediate vicinity of the land, being situated in India
and used for agricultural purposes.
c) The building should be used as dwelling house or store-house or other out building.
d) The land is assessed to land revenue or situated in rural area.
Note: Profit on transfer of agricultural land: Profit on transfer of agricultural land shall not be
treated as agricultural income.
Examples of Agri incomes
Income from sale of Jute, cotton, flowers plants sold in pots.
Remuneration & interest on loan / capital to partner.
Saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

Compensation from insurance company
Examples of Non Agri Incomes
Salary to employees, poultry, dairy, fisheries,
Rearing of live stock
Interest to moneylender
Salary to Director of company
Dividend received from company engaged in agri activity.
Agri income earned outside India.
Sale of trees and grasses grown spontaneously (without any human effort). Is non-agri income.
APPORTIONMENT OF AGRICULTURAL INCOME

Agricultural
Rule Particulars Business Income Income
7 Manufacturing of product other than tea, Market value Net agricultural
coffee and rubber. (Income is partially of agricultural income will be
agricultural) produce will be exempt.
deducted.
7A Income from growing and manufacturing 35% of profit 65% of profit
of rubber
7B(a) Coffee grown and cured 25% of profit 75% of profit
7B(b) Coffee grown, cured, roasted and 40% of profit 60% of profit
grounded.
8 Tea 40% of profit 60% of perofit
LOSS FROM AGRICULTURAL INCOME
1. Where the result of the computation for the previous year in respect of any source of agricultural
income is loss, such loss shall be set off against the income of the assessee, if any, for that
previous year from any other source of agricultural income.
2. If such loss could not be set off in that previous year, it shall be carried forward and set off in
the following Assessment Years for not more than 8 A.Ys only against Agricultural Income.
CONDITIONS FOR INCLUDING AGRICULTURAL INCOME IN THE TOTAL INCOME OF THE ASSESSEE
Conditions

1) The assessee is an individual, HUF, BOI, an association of person or an artificial juridical
person.
2) The assessee has non-agricultural income exceeding the maximum amount of exemption
3) The agricultural income of the assessee exceeds Rs.5000
Treatment
Step 1: Compute income tax on total income of assessee including Agro-income.
Step 2: Compute income tax on (Agro-income + Maximum exempted limit
Step 3: Tax liability before cess = (Tax as per step 1) - (Tax as per step 2)
Note: Consider rebate u/s87A or surcharge if applicable and cess also.
Illustration 1
Assesse Agri Income Non-Agri Income Total Income
Mr. Sunami 12,000 2,90,000 3,02,000
Mr. Tumeri 4,000 2,90,000 2,90,000
Mr. Humeri 12,000 2,40,000 2,40,000
X Ltd 12,000 2,90,000 2,90,000
Illustration 2
Mr. Sourav Dadely age 42 years has non-agro income of Rs. 3,50000 and agro income of Rs. 1,80,000.
Compute his tax liability for the A.Y. 2022-23.
Solution
Particular Rs. Rs.
Step 1: Tax on Agri + non Agri ( 3,50,000 + 1,80,000) 530000
Upto 2,50,000 Nil
2, 50,000 to 5, 00,000 (5 %) 12500
5, 00,000 to 5, 30,000 (20%) 6000 18500
Step 2: Tax on Agri + max. exemption limit (2,50,000 + 1,80,000) 430000
Upto 2,50,000 Nil
2,50,000 to 4,30,000 9000 9000
Step 3: Tax as per step 1 – step 2 9500
Less: Rebate u/s 87 A 9500
= Tax
(+) 4% H & EC
Tax Liability 0000

OTHER INCOMES EXEMPT FROM TAX
1. Sec. 10(1) - Agricultural Income: Refer chapter Agricultural Income.
2. Sec. 10(2) - Member’s share in income of HUF [Sec. 10(2)]
Any sum received by an individual as a member of a Hindu Undivided Family:
1) Where such sum has been received out of the income of the family; or
2) Where such sum has been received out of the income of an impartible estate belonging to
the family.
3. Sec. 10(2A) - Share in Profit of firm Exempt in the hands of partner.
4. Sec. 10(6) - Remuneration of foreign citizens
1) Remuneration received by an official of an embassy, high commission, legation commission,
consulate, trade representation of a Foreign State, or as a member of the staff of any of
these officials, of services in such capacity, subject to the following conditions:
Remuneration of the corresponding officials or member of staff of the Indian government
resident for similar purposes in that country shall be exempt in that country.
Members of such staff are not engaged in any business or profession or employment in
Indian otherwise than as members of such staff.
2) Remuneration received by him as an employee of a foreign enterprises (which doesn’t carry
any business in India) for services rendered by him during his stay in India = < 90 days.
3) In case he is a non-resident, any remuneration due to his employment on a foreign ship
provided his total stay in India = < 90 days in the PY.
4) Any remuneration received by an employee of the foreign government in connection with
his training in any specified establishment or office, to the extent of his stay in India.
5. Sec. 10(7) - Allowance or perquisite paid outside India
Any allowance or perquisite paid outside India by the Government to a citizen of India for
rendering services outside India.
6. Sec. 10(10BC) - Compensation on account of any DISASTER
Any amount received or receivable from the Central Government or a State Government or a
local authority by an individual or his legal heir by way of compensation on account of any
disaster.
However, of the individual or his legal heir has been allowed any deduction under this act on
account of any loss or damage by such disaster, then compensation received will be taxable to
the extent of such deduction and excess, if any, will be exempt.
7. Sec. 10(10D) - Any sum received under the life insurance policy, including bonus on such policy.

However the following sums are not exempt:
1) Sum received from a policy u/s 80DD (Handicap policy); or
2) Sum received under a Keyman insurance policy; or
3) Any sum received under an insurance policy issued between 1-4-2003 and 31-03-2012 in
respect of which the premium payable for any year > 20% of the actual capital sum assured;
Exception: any sum received on the death of a person is not taxable
4) Any sum received under an insurance policy issued on or after 01/04/2012 in respect of which
the premium payable for any of the years > 10% of the actual capital sum assured:
5) In case of policy issued on or after 1/4/2013, on life of following persons, 10% shall be taken
as 15%
(a) A person with disability or severe disability as referred to u/s 80U; or
(b) Suffering from disease or ailment as specified in the rules made u/s 80DDB
6) ULIP policy issued on or after -1/02/2021 when amount of premium > 2,50,000 (in aggregate
or single policy)
Exception: Any sum received on the death of a person is not taxable
8. Sec. 10 (11A) - The following are the tax benefits envisaged in the Sukanya Samriddhi Account
Scheme: -
a. The investments made in the scheme will be eligible for deduction under section 80C.
b. The interest accruing on deposits in such account will be exempt from income tax.
c. The withdrawal from the said scheme in accordance with the rules of the said scheme will
be exempt from tax.
9. Sec. 10(12A) - Payment from NPS Trust to an employee on closure of his account or on his opting
out of the pension scheme exempt
Any payment from National Pension System Trust to an employee/ non-employee on account
of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it
does not exceed 60% [Amendment FA 2019] of the total amount payable to him at the time of
closure or his opting out of the scheme, shall be exempt from tax.
10. Sec. 10(12B) - Payment to employee on partial withdrawal from NPS.
Any payment from the National Pension System Trust to an employee under the pension
scheme referred to in section 80CCD, on partial withdrawal made out of his account in
accordance with the terms and conditions, specified under the Pension Fund Regulatory and
Development Authority Act, 2013 and the regulations made thereunder, to the extent it does not
exceed 25% of the amount of contributions made by him

11. Sec. 10(15) - Income Exempt u/s 10(15)
1. Post office savings bank account to an extent of interest of Rs. 3,500 for an individual
account & Rs. 7,000 for a joint account
12. Sec. 10(16) - Scholarships granted to meet the cost of education. Even if some amount is left still
not taxable.
13. Sec. 10(17) - Daily Allowance, etc. to MP and MLA [Sec. 10(17):
Any income by way of:-
1) Daily allowance received by any person by reason of his membership of parliament or of
any State Legislature or of any Committee thereof.
2) Any allowance received by any person by reason of his membership of Parliament.
3) Constituency Allowance received by any person by reason of his membership of State
legislature.
14. Sec. 10(17A) - Awards and rewards [Sec. 10(17A)] :
Any payment made, whether in cash or in kind :
1) In pursuance of any award instituted in the public interest by the Central Government or any
State Government or by any other approved body; or
2) As a reward by the Central Government or any State Government for approved purposes.
15. Sec. 10(18) - Pensions to gallantry award winners
Any pension received by an individual who has been awarded “Paramvir Chakra” or “Mahavir
Chakra” or “Vir Chakra” or such other gallantry award as notified by the government. It includes
family pension.
16. Sec. 10(19) - Family pension to widow or children of armed force:
Family pension received by the widow or children or nominated heirs, of a member of the armed
forces (including para-military forces) of the Union, where the death of such member has
occurred in the course of operational duties, in such circumstances and subject to such
conditions, as may be prescribed.
17. Sec. 10(19A) - Palace of ex-ruler
The annual value in respect of any one palace, which is in the occupation of an ex-rule.
18. Sec. 10(20) - Income of local authority:
Following income of a local authority is exempt :-
1) Income chargeable under the head income from House Property. Capital Gains or Income
from other Sources.
2) Income from the supply of commodities (other than water or electricity) or services, within

its own jurisdiction.
3) Income from the supply of water services or electricity within or outside its jurisdiction.
19. Sec. 10(23A) - Income of professional institutions
Any income (other than ‘Income from House Property’ or any income received for rendering any
specific services or income by way of interest from its investments) shall be exempt from tax
provided the following conditions are satisfied:
1) It is established in India with the object of control, supervision, regulation or encouragement
of the profession of law, medicine, accountancy, engineering, architecture, or any other
notified profession;
2) It applies its income, or accumulates it for application, wholly and exclusively for the objects
for which it was established
20. Sec. 10(23C) - Any Income received from by any person on behalf of:
1) PMNRF
2) PMF
3) National foundation for Communal Harmony
4) Any trust wholly for public religious purpose and charitable purpose.
5) Any university or other education institutions (wholly or substantially financed by state
government or having annual receipt up to 5 crore) existing only for Education purpose and
not for profit.
6) Any hospital (wholly or substantially financed by state government or having annual receipt
up to 5 crore) for specified treatment.
7) The Swachh Bharat Kosh set up by central government
8) The clean ganga Fund set up by central government
Amendment Finance Act 2020

The scheme of section 10(23C) has been modified with effect from October 1, 2020. All funds
or trusts or institutions or universities or other educational institutions or Hospitals or other

medical institutions which are currently approved for the purpose of Section 10(23C)(iv) /
(vi) / (via), are required to apply for a fresh approval under the amended scheme of section
10(23C). Likewise, all new entities which want exemption under section 10(23C) are required
to apply for approval under the amended provisions. The process of approval for the new
and existing entities will be completely electronic under which a unique approval number
shall be issued to all new and existing entities. Moreover, new entities (which are yet to

start their activities) will get provisional approval for 3 years. The table given below
summaries these amendments:
Different Time limit for Time limit for For which date / Validity of
entities uploading grant of year approval will approval
approval approval (Ninth be available (Second
application proviso to sec. (Eighth proviso to proviso to sec.
(First proviso to 10(23C) sec. 10(23C)) 10(23C))
sec. 10(23C))
Existing On or before Within 3 months From the 5 years

entities 30/06/20 from the end of assessment
(which have the month in year from which
approval which approval such trust or
for section application is institution was
10(23C) on uploaded earlier granted
or before approval
31/03/20)
New entities At least 1 Within 1 month From the Provisional

(which do month prior to from the end of assessment approval for a
not have the the month in year immediately period of 3

approval commencement which approval following the years from
for section of the previous application is financial year in the
10(23C) up year relevant uploaded which approval assessment
to to the application is year from
31/03/20) assessment uploaded which
or any other year from which approval is
entity not approval is sought
covered by sought
this table
Entity which At least 6 Within 6 months From the first of 5 years (to be
is months prior to from the end of the granted

provisionally expiry of the month in assessment years after

approved for provisional which approval for which it was satisfying
section approval or application is provisionally about the

10(23C) within 6 uploaded approved object of the
months of trust and
commencement geniuses of
of its its activities)
activities, (5 years time
whichever is – limit to be
earlier counted from
the first
year of
provisional
approval)
Entity which At least 6 Within 6 months From the 5 years (to be

has approval months prior to from the end of assessment granted after
(given after expiry of the month in year immediately satisfying
31/03/20) approval under which approval following the about the

for section section 10(23C) application is financial object of the
10(23C) received year in which trust and
approval genuineness
application of its
is received activities)
21. 10(23D) - Income of Mutual fund
Registered under SEBI.
Set by Public sector Bank or Public financial institution or authorized by RBI.
22. Sec 10(26AAA)
1) The following income, which accrues or arises to a Sikkim’s individual, would be exempt from
income tax –
(a) Income from any source in the State of Sikkim; or
(b) Income by way of dividend or interest on securities

2) However, this exemption will not be available to a Sikkim’s woman who, on or after 1st April,
2008, marries a non-Sikkim’s individual.
23. 10(32) - Income of Minor
Income upto Rs. 1500 is exempt in respect of each minor child whose income is clubbed u/s.
64(1A)
24. 10(34A) - Income of a shareholder on account of buy back of shares
• Different shares Exemptions to shareholders Tax distributed income u/s
u/s 10(34A) 115QA payable by a company
which buy-backs its own
shares
• Buy-back on unlisted shares Exemption available Tax payable by company u/s
(on or after June 1, 2013) 115QA
• Buy-back of listed shares Exemption available Tax payable by company
(where public announcement under section 115QA
pertaining to buy-back is
made after July, 5 2019)
25. 10(37)
If an urban land is compulsory acquired by the government then capital gain shall be exempted.
(Refer capital gain)
26. 10(45) - Allowance or perquisite
Any allowance or perquisite, as may be notified by the central government in the official gazette
in this behalf, paid to the chairman or a retired chairman or any other member or retired member
of the Union Public Service Commission.
27. 10(48) - Sale of Crude oil,
Any income received in India Currency by a Foreign Company on account of sale of Crude Oil, or
any other goods or rendering of services, as notified by Central Government in this behalf, to
any person is exempt, based on following conditions –
1. Such income is received in India by the Foreign Company, pursuant to an agreement or
agreement entered into by Central Government or approved by Central Government.
2. Having regard to the national interest, the Foreign Company and the agreement or notified
by the central Government. [Note: Some Notified Companies are – M/s temad – Iran, National
Iranian Oil Company.)

3. The foreign company is not engaged in any activity in India, other than the receipt of such
income.
28. 10(48A) - Storage of Crude Oil
Any income accruing or arising to a Foreign Company, on account of storage of crude oil in a
facility in India and sale of Crude Oil there from, to any person resident in India, is exempt.
Conditions:
1) The storage and sale by the Foreign Company is pursuant to an agreement or an
arrangement entered into by the Central Govt or approved by the central govt, and
2) Having regard to the national interest, the foreign company and the agreement or
arrangement are notified by the Central Government in this behalf.
29. 10(48B) - Sale of leftover stock of crude oil
Any income accruing or arising to a foreign company on account of sale of leftover stock of crude
oil, if any, from the facility in India after the expiry of the agreement or the arrangement referred
to in clause (48A) subject to such conditions as may be notified by the Central Government in
this behalf.
The above provisions of section 10(48B) have been amended (With effect from the AY 22-23) to
provide that any income accruing or arising to such foreign company on account of sale of
leftover stock of crude oil, if any, from such facility in India on the termination of the agreement/
arrangement [as referred to in clause (48A)], shall also be exempt (subject to the conditions as
may be notified).
30. 10(48C) - Exemption in respect of certain income of Indian Strategic Petroleum Reserves Ltd.
(Section 10(48C))
Section 10(48C) has been inserted with effect from the assessment year 2020 – 2021. It provides
exemption to any income accruing or arising to Indian Strategic Petroleum Reserves Ltd. (ISPRL),
being a wholly owned subsidiary of Oil Industry Development Board, as a result of an
arrangement for replenishment of crude oil stored in its storage facility in pursuance of the
directions of the Central Government in this behalf. This exemption shall be subject to the
condition that the crude oil is replenished in the storage facility within 3 years from the end of
the financial year in which the crude oil was removed from the storage facility for the first time.
31. 10(48D)/(48E) Clauses (48D) and (48E) have been inserted in sec 10 with effect from the
assessment year 2022-23 as follows -
• Sec 10 (48D): by virtue of this provision any income accruing or arising to an institution
established for financing the infrastructure and development (set up under an Act of

Parliament and notified by the Central Government) will not be chargeable to tax for a
period of 10 consecutive assessment years (beginning from the assessment year relevant
to the previous year in which such institution is set-up).
32. Sec 10 (48E): by virtue of this provision any income accruing or arising to a developmental
financing institution [licensed by RBI under the Act of Parliament referred to in clause
(48D)(supra) and notified by the Central Government] will not be chargeable to tax.
For a period of five consecutive assessment year (beginning from the assessment year
relevant to the previous year in which the development financing institution is set-
up). However the Central Government may (by notification) extend the period of exemption
for a further period, not exceeding five more consecutive assessment years, subject
to fulfilment of such conditions as may be specified.

SPECIAL ECONOMIC ZONE
1. Eligible Assessee
Units located in SEZ
2. Nature of Business
The unit in SEZ begins to mfg. or produces articles or things or provide services on or after
1/4/2005 but before 31/3/2021
3. Conditions
1) The unit in SEZ begins to mfg. or produces articles or things or provide services on or after
1/4/2005 but before 31/3/2021
2) It is not formed by splitting up or reconstruction of a business already in existence. But if
new undertaking is set up in an old building deduction is allowed.
3) Such new undertaking should not be formed by machinery or plant previously used for any
purpose subject to following exception.
a. Machinery or plant used outside India but not by the assesses is allowed Provided.
b. Such machinery was not previously in India
c. Such machinery or plant is imported into India
d. No deduction on account of depreciation has been allowed to any assesses before the
installation of the machinery or plant by the assesses
e. Total value of plant or machinery transferred to new business does not exceed 20% of the
total value of the machinery or plant used in that business.
4) The assesses has exported goods or provided services out of India from the SEZ.
4. Audit
Compulsory for no 56F
5. Amount of Deduction
𝐏𝐫𝐨𝐟𝐢𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐱 𝐄𝐱𝐩𝐨𝐫𝐭 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐨𝐟 𝐔𝐧𝐝𝐞𝐫𝐭𝐚𝐤𝐢𝐧𝐠
𝐓𝐨𝐭𝐚𝐥 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐨𝐟 𝐭𝐡𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐜𝐚𝐫𝐫𝐢𝐞𝐝 𝐨𝐧 𝐛𝐲 𝐭𝐡𝐞 𝐮𝐧𝐝𝐞𝐫𝐭𝐚𝐤𝐢𝐧𝐠.
Export Turnover” means the consideration received in, or brought into India by the assessee in
convertible foreign exchange within 6 months from the end of the PY or such time as may be
extended by the RBI, but does not include freight, telecommunication charges or insurance
attributable to the delivery of the articles or things or computer software outside India or
expenses, if any, incurred in foreign exchange in providing the technical services outside India”.
6. Allowable deduction
Years 1 to 5 - 100% of Export profits
Years 6 to 10 - 50% of Export Profits

Years 11 to 15 - Least of: (a) 50% of Export profits, or (b) Credit to Special reserve.
Note: no Double Deduction allowable u/s 10AA and Sec. 35AD for the same or any other A.Y
Note: amount transfer to reverse can be used for business purpose except dividend & buying
asset outside India.
7. Withdrawal of deduction
a. Has been mis utilized, the amount so utilized shall be deemed to be the profits in the year in
which it was so utilized, or
b. Has not been utilized before the expiry of 3 years, the amount not so utilized, shall be
deemed to be the profits in the year immediately following the period of 3 years.
8. Carry forward of loss
Available
9. Explanation
For the removal of doubts, it is hereby declared that the amount of deduction under this section
shall be allowed from the total income of the assessee computed in accordance with the
provision of this Act, before giving effect to the provisions of this section and the deduction
under this section shall not exceed such total income of the assessee

ASSESSMENT OF TRUST
1. What is a trust
A trust is an obligation annexed to the ownership of property and arising out of confidence
reposed in and accepted by the owner or declared and accepted by him, for the benefit of
another and the owner.
2. Charitable trust
It is defined to include:
1) Relief of the poor,
2) Education,
3) Medical relief
4) Yoga Development
5) The advancement of any other object of general public utility (not a business)
6) Preservation of environment (including watersheds, forests and wildlife) and preservation
of monuments or places or objects of artistic or historic interest.
Trust carrying General Public utility but charging fee [Amended w.e.f. A.Y. 2017-18]
Such activity is undertaken in the course of actual carrying out of such advancement of any other
object of general public utility; and
The aggregate receipt from such activity or activities during the previous year, do not exceed
20% of the total receipt, of the trust or institution.
3. Voluntary contribution
Corpus donations - Received with a specific direction from the donor that the donation shall form
part of corpus of the trust.
Anonymous donations - No record of the identity indicating the name and address of the person
making such contribution is maintained.
Other donation - Treated as income but exemption can be claimed subject to fulfillment of the
conditions.
4. Religious trust
Religious purpose is not defined under the Act. The expression should be taken to include the
advancement, support or propagation of a religion and its tenets (principles or beliefs). It may
be noted that charitable trust may always be public, while a religious trust may be private or
public
5. Registration
1) The trust has to make an application for registration of the trust or institution in the

prescribed form and manner to the Commissioner and obtain registration u/s 12AA. The
exemption u/s 11 and 12 shall be available from the previous year in which such application
is made
2) Registration to be granted in 6 months from the end of the month in which application for
registration is received.
3) The finance bill proposed to insert the following additional conditions in section 12 AA [FA
2019]
At the time of granting of registration to a trust or in situation, the Pr. CIT or CIT shall satisfy
himself about the compliance to requirements to any other law which is material for the purpose
of achieving its objects;
Pr. CIT or CIT may cancel the registration, if is it noticed that the trust or institution has violated
requirements of any other law which was material for the purpose of achieving its objects
6. Essential conditions/s 11
1) In the case of a charitable trust created on or after 1/4/1962, no part of its income should
ensure directly for the benefit of any particular community or caste. (Exception are
scheduled castes, Scheduled tribes, women and children).
2) In the case of a charitable / religious trust created on or after 1/4/1962, no part of the income
should ensure or utilized directly or indirectly for the benefit of the settlor or other specified
persons.
3) 85% of the income shall be applied for charitable or religious purpose or accumulated or set
apart should be invested or deposited in the forms or modes specified in sub-section (5).
4) The income is to be applied to charitable or religious purposes within India. Exception is
provided in certain circumstances u/s 11(1)(c).
(i) Where trust is created on or after 1/4/1952, income can be applied for charitable purposes
outside India which tends to promote international welfare in which India is interested, or
(ii) Where trust is created before the 1/4./1952, the income can be applied for such charitable
purposes outside India as provided in the trust deed.
5) Where the income exceeds the basic exemption limit for an accounting year, its accounts
shall be audited by a CA
6) The trust has to make an application or registration of the trust or institution in the prescribed
form and manner to the Commissioner and obtain registration u/s 12AA. The exemption
u/s 11 and 12 shall be available from the previous year in which such application is made.
7) Voluntary contributions shall be deemed to be income derived from property held under

trust unless they are made with a specific direction that they shall from part of the corpus
of the trust.
8) Where any income is required to be applied or accumulated or set apart for application, then,
deduction or depreciation will not be allowed in respect of any asset which has been claimed
as application of income under this section in PY.
9) Where a trust or an institution has been granted registration for the purpose of availing
exemption and the registration is in force in the relevant PY, the such a trust or institution
cannot claim any exemption under any provision of section 10 [Except exemption of
agriculture income u/s 10(1) and exemption available u/s 10(23C)]
Section 12AB has been inserted by the Finance Act, 2020 with effect from October 1, 2020. All
charitable institutions which are currently registered under section 12A / 12AA are required to
apply for a fresh registration under section 12AB. Likewise, all new entities which want
exemption under sections 11 and 12, are required to apply for registration under section 12AB.
The process of registration for the new and existing charitable institutions will be completely
electronic under which a unique registration number (URN) shall be issued to all new and
existing charitable institutions. Moreover, new institutions (which are yet to start their charitable
activities) will get provisional registration for 3 years. The table given below summarizes other
provisions of section 12AB:
The trust has to make an application for registration of the trust or institution in the
Prescribed form and manner to the Commissioner and obtain registration u/s 12AA.
New Section inserted Amendment Finance act 20

Section 12AB has been inserted by the Finance Act, 2020 with effect from October 1, 2021. All
charitable institutions which are currently registered under section 12A / 12AA are required
To apply for a fresh registration under section 12AB. Likewise, all new entities which want
exemption under sections 11 and 12, are required to apply for registration under section 12AB.
The process of registration for the new and existing charitable institutions will be
Completely electronic under which a unique registration number (URN) shall be issued to all
new and existing charitable institutions. Moreover, new institutions (which are yet to start
their charitable activities) will get provisional registration for 3 years. The table given
below summarizes other provisions of section 12AB:

Different entities Time limit for Time limit for For which date Validity of registration
uploading grant of / year (section 12AB(1))
registration registration exemption will
application (Section be available
(Section 12AB(3)) under section
12A(1)(ac)) 11 and 12
(Second
proviso to
section 12A(2))
Existing trusts On or before Within 3 From the 5 years

(which are June 30 2021 months from assessment
registered under the end of year from
section 12A / The month in which such
12AA on or which trust or
before registration institution was
31/03/21) application is earlier

uploaded granted
registration.
New trusts At least 1 Within 1 From the Provisional registration

(which are not month prior to month from assessment for a period of 3 years
registered under the the end of year from the assessment
section 12A / commencement the month in immediately year from which
12AA up to of the previous which following the registration is sought.

March 31 2021) year relevant registration financial year
or any other to the application is in which
trust not covered assessment uploaded. registration
by this table. year from application is
which uploaded.
registration is
sought.
Trust which is Alteast 6 Within 6 From the first 5 years (to be granted
provisionally months prior months from of the after satisfying about
registered under to expiry of the end of assessment the object of the trust
section 12AB provisional the month in years for and genuineness of its

registration or which which it was activities) (5 year time –

within 6 registration provisionally limit to be counted from
months of application is registered. the first year of
commencement uploaded. provisional registration)
of its
activities,
whichever is
earlier
Trust which is At least 6 Within 6 From the 5 years (to be granted

registered under months prior months from assessment after satisfying about
section 12AB to expiry of the end of year the object of the trust
registration the month in immediately and genuineness of its
under section which following the activities)
12AB registration financial year
application is in which
received registration
application is
received.
Trust At least 6 Within 6 From the 5 years (to be granted

registration of months prior months from assessment after satisfying about
which has to the the end of year the object of the trust
become in – commencement the month in immediately and genuineness of its
operative due to of the which following the activities)
section 11(7) assessment registration financial year
year from application is in which
which the said received. registration
registration is application is
sought to be received.
Made
operative.

A trust which Within 30 days Within 6 From the 5 years (to be granted
has adopted from the date months the assessment after satisfying about
modification of of the said end of the year the object of the trust
objects which do adoption or month in immediately and genuineness of its
not confirm to modification which following the activities)

conditions of registration financial year
registration. application is in which
received. registration
application is
received.
7. How to find out exemption u/s 11
Step 1: Find out taxable income of the trust
Step 2: 15% of the income from property held for charitable or religious purposes is exempt for
tax. This income can be accumulated for future without any specific time frame.
Step 3: Remaining 85% of the income from property held for charitable or religious purposes is
exempt if it is applied for charitable or religious purpose in India during the previous year.
In following cases exemption available even if amount is not spent
Amount received at the end of the year To be spent in the next FY
Amount not received To be spent in the year of receipt or next year
after receipt
Accumulate for specific purpose To be spent within 5 yrs.
8. When during the extended period, income is not utilised
Such income is taxable as follows:
• When option is exercised to apply the income in the year of receipt, then so much receipt
which is not spent during the year of receipt and immediately following year, shall be
taxable as the income of the immediately following year.
• When option is exercised to apply the income in the next year, then the amount not spent in
the next year shall be taxable as income of the next year.
9. How to determine application of income
What is considered as application of income: The following important points should be noted for
application of income:
• Whenever any loan, taken to fulfil one of the objects of the trust, is repaid then it shall be

taken as application of income.
• In the case of society or charitable trust, with the object of providing free or concessional
education to students, advances of any loan to the students for higher studies, it amounts
to application of income. On return of such loan, such amount will be taken as income of the
trust.
• Application of the amount can be for revenue or capital purpose.
• Any tax paid out of the current year’s income shall be taken as application for charitable
purpose.
• Donation given by the trust is an application of income. However it should not be given with
a specific direction that is shall form part of corpus of the other trust.
• [Amendment Finance Act 18] For calculating “application” of income if payment exceeding
Rs. 10,000 is made in cash or by bearer cheque, such payment will be disallowed from the
AY 19 – 20. Likewise, if tax is deductible but not deducted and payment is made to a resident,
30 per cent of such payment will be disallowed while calculating “application” of income for
the AY 19 – 20 (or any subsequent year).
10. Forfeiture of exemption
• Income for private religious purposes
• Income for the benefit of particular religious community
• Income for the benefit of interested persons
• Funds not invested in section 11(5) securities
• Education & medical facilities to specified persons
11. Transfer of capital assets
Exemption of Capital Gain arising on transfer of Capital Asset:
Where a capital asset, held wholly for charitable or religious purposes, is transferred
Amount invested for acquiring another capital Amount of exemption
asset to be so held
Whole of the net sale consideration Whole capital gain
Part of the net sale consideration Amount invested in new asset – cost of the
transferred asset
Ex: if an asset costing 1, 00,000 is transferred for 4, 00,000: Capital Gain is Rs. 3, 00,000.
Now if new asset is acquired at cost of Rs. 4, 00,000 or more, the whole capital gain shall be
exempt.
However if new asset is acquired at cost of Rs. 3,20,000/- only then exemption will be Rs.

2,20,000/- (i.e. Rs. 3,20,000 – Rs. 1,00,000).
ANONYMOUS DONATION [SEC. 13(7)]
Any anonymous donation is not eligible for deduction under sections 11 and 12.
The expression "anonymous donation" has been defined as follows
1. What is anonymous
donation [sec. -
a It is a voluntary contribution referred to in section 2(24)(iia).

b The person receiving such contribution does not maintain a
record of
The identity indicating the name and address of the
a
person making such contribution; and
b Such other records as may be prescribed.
2. special rate of tax "Anonymous donation" is taxable at the rate of 30 per cent•.
[sec. 7 - However, this provision is subject to the following propositions —
3. institutions affected The above provisions are in the case of following –

by the above a Trust or institution referred to in section 10;
provisions [sec. b Any university or other educational institution referred to in
115bbc- section 10(23C)(iiiad) and (vi);
c Any hospital or other institution referred to in section

10(23C)(iiiae) and (via);
Any fund or institution referred to in section 10(23C)(iv); and
d
e Any trust or institution referred to in section IO(23C)(v).
4. donations not The following anonymous donations shall not be covered by the
affected by the above provisions of section 1 15BBC
provisions [sec. Anonymous donations received by any trust or institution
a
15bbc(2)] created or established wholly for religious purposes; and
anonymous donations (not being donations received with a
b
specific direction that such donation is for any
university/other educational institution/ hospital/other
medical institution run by the recipient trust/institution)

received by any trust or institution created or established for
both religious as well as charitable purposes
5. conclusions – The following conclusions can be drawn from the aforesaid

discussion —
Institution receiving Tar treatment
anonymous donations
Case 1 - Wholly religious Section 115BBC is not applicable
entities
If anonymous donation is made to
an educational or medical institution
by such an entity, such anonymous
donation is taxable at the rate of 30
per cent. Any other anonymous
Case 2 - Partly religious and donation is not subject to tax under
partly charitable entities section 115BBC
All anonymous donations are taxed
Case 3 - Wholly charitable at the rate of 30 per cent [see Notes]
entities under section 115BBC

POLITICAL PARTY
CONDITIONS TO CLAIM EXEMPTION BY A POLITICAL PARTY
1. The political party keeps and maintains such books of accounts and other documents, as it
would enable the Assessing Officer to property deduce its income there from.
2. The political party keeps and maintains a record of each voluntary contribution in excess of Rs.
20,000 and of the names and address of persons who have made such contributions/
3. The accounts of the political party are audited by a chartered Accountant.
4. No donation > Rs. 2,000/- is received by such political party otherwise than by an account payee
cheque drawn on a bank an account payee bank draft or use of electronic clearing system
through a bank account or through electoral bond. (FA 2017)
5. In order to promote to digital transactions, the receipt through other notified electronics modes,
(i.e. e-wallets, etc.) have been proposed to be included in the list of acceptable mode of payment.
[Amendment FA 2019].
INCOME OF POLITICAL PARTY: SEC. 13A
Incomes exempt from tax:
1. Income from house property
2. Capital Gains
3. Income from Other Sources
4. Income by way of Voluntary Contributions.
INCOME OF ELECTORAL TRUST SEC. 13B
Entire income of an electoral trust is exempt if:
The trust distributes to political parties at least 95% of aggregate donations received by it during
the said previous year along with brought forward surplus. It follows the rules as may be
prescribed by the Central Government.

Chapter 4
INCOME FROM SALARY
1. Salary
Means any payment by the employer to employee.
2. Basis of charge
Salary is chargeable to tax either on 'due' basis or on 'receipt' basis, whichever is earlier.
Advance Salary: Taxable on Receipt basis.
Arrears of salary: Taxable on Receipt basis.
Advance Against salary: Treated as loan hence not table.
Illustration 1
Mr. Kadappa is getting salary of Rs. 12,000 pm since 01/06/17 & got increment of Rs. 1,000 on 01/04/21.
Calculate his annual salary if:
a) Salary becomes due on the last day of month
b) Salary becomes due on the 1st day of next month
Solution
Salary due on last day of the month
Particular Rs.
13,000 × 12=
Salary becomes due on 1st of the next month
Particular Rs.
Mar 21 – 12,000 × 1
April 21 to Feb 22 13,000 × 11
Total
3. Basic Salary
Fully taxable in all cases.
4. Fees
Fully taxable in all cases.
5. Commission
Fully Taxable.
6. Bonus
Contractual bonus is taxable as bonus whereas voluntary bonus is taxable as perquisite.
7. Pay scale
It is a system of payment where increment scale is pre-known to employee, e.g. Basic salary is

given Rs. 6000-2000-12000. This is called as increment schedule. As per this initial payment is
Rs. 6000 which increases by Rs. 2000 per year till salary reaches Rs. 12,000.
Illustration 2
Mr Badlapur joins Tony Ltd. on 1/10/2017
Salary scale = 16,000 – 2,000 – 30,000
Compute salary of Badlapur for PY 2021– 22
Solution
Working note
Computation of Salary for PY 2021 – 22
8. Salary received in lieu of notice period
Fully taxable.
9. Profits in lieu of salary [Sec. 17(3)]
Fully taxable.
ALLOWANCES
SR NO PARTICULARS EXPLANATIONS
1 a) City compensatory Fully Taxable.
Allowance Note:
b) Dearness allowance When nothing is given regarding DA it is assumed to be
c) Tiffin Allowance applicable.
d) Medical Allow.
e) Servant Allow.
f) Deputation Allow
g) Warden Allow
h) Non-practice allows
2 a) Traveling Allowance, Fully exempt to the extent of amount spent.
Transfer Allowance
b) Conveyance
Allowance
c) Daily allowance
d) Helper Allowance

e) Research Allowance
f) Professional
development
allowance
g) Uniform Allowance.
3 a) Allowance to Govt Fully exempt irrespective of amount spent
Employee outside India
b) Allowance received
from UNO
c) Allowance to high court
and supreme court
judge
d) Compensatory
allowance under article
222(2) of the
constitution
4 House rent allowance Minimum of the following is exempt from tax.
(HRA) 1) Actual HRA received
2) 50% / 40% of salary
3) Rent Paid - 10% of Salary.
Notes:
• Salary = Basic + DA(app) + comm. ( TO)
• Advance salary to be ignored for the calculation of HRA.
• Basis of deduction is place of accommodation.
• 50% for Mumbai, Delhi, Kolkata and Madras and other
cities 40%
5 Children Education Minimum of the following is exempted –
Allowance 1) Rs.100 per month per child (to the maximum of two
children)
2) Actual amount received.
Deduction is available even if amount in not spent.
Child includes adopted child, step child.
6 Children Hostel Allowance Minimum of the following is exempted
1) Rs. 300 per month per child (to the maximum of two
children)
Deduction is available even if amount in not spent.
Child includes adopted child, step child.
7 Truck Driver’s Allowance / Minimum of the following shall be exempted
daily allowance not (1) 70% of allowance (2) Rs. 10,000 p.m. whichever is less
receiving any daily
allowance
8 Transport Allowance Minimum of the following shall be exempted
1) Actual amount received; or
2) Rs. 1600 p.m. (in case of blind and orthopedically
handicapped employee Rs. 3200 p.m.).
9 Hill Compensatory Amount exempt from Rs. 300 per month to Rs. 7,000 per
Allowance month for the specified areas.

10 Border Area Allowance Amount exempt from Rs. 200 per month to Rs. 1,300 per
month for the specified areas.
11 Tribal Area Allowance Rs. 200 per month for the tribal areas of Madhya Pradesh,
Tamil Nadu, Uttar Pradesh, Karnataka, Tripura, Assam, West
Bengal, Bihar and Orissa.
12 Any other Allowance Any other allowance for which there is no specific provision
shall be fully taxable.
PERQUISITES [SEC 17(2)]
1. Meaning
Benefits given in cash or Kind.
2. Specified Employee [Sec. 17 (2) (iii)]
The following categories are treated as specified employees.
1) A director employee in a company.
2) An employee who has substantial interest in the employer company (i.e. holding beneficial
interest in voting power of 20% or more at any time during the previous year).
3) An employee (not covered above) whose income chargeable under the head ‘Salaries’
(excluding all amenities and benefits), by way of monetary – payments exceeds Rs. 50,000.
For the purpose of calculating monetary payment of Rs. 50,000, the following are to be
excluded/ deducted.
• All non-monetary benefits.
• Monetary benefits which are not taxable under Section 10, Deductions under Section 16
i.e. (i) Standard deduction, (ii) Entertainment allowance and (iii) Tax on employment
(professional tax).
Note: Where salary is received from more than one employer during the relevant previous year,
the aggregate of salaries received from these employees will have to be considered for
determining the status.
3. Non-Specified treated
Any employee other than specified employee is employee as non-specifies employee.
4. Members of household includes
1) Spouse (whether dependent or not).
2) Children and their Spouse (whether dependent or not)
3) Parents (whether dependent or not)
4) Servants and Dependents.
5. How to find Out value of Perquisite?

Step 1: Find out cost to the Employer
Step 2: (Less) Amount recovered from employee if any.
Step 3: (Less) Amount exempt if any = Value of Taxable Perquisite (if positive)
TAX FREE PERQUISITES
1. Medical facility in employer's hospital
Medical facility in Government's hospital
2. Refreshment provided by an employer to all employees during working hours in office
premises.
3. Subsidised lunch or dinner provided by employer to his employee.
4. Recreational facilities.
5. Amount spent on training of employees.
6. Accommodation provided in remote area & 15days in hotel
7. Computer or laptop provided whether to use at office or at home.
8. Any perquisite allowed outside India by Govt. to a citizen of India for rendering services outside
India.
9. Employer's contribution to staff group insurance scheme
10. Loan given to employee at concessional rate or nil rate of interest provided the aggregate
amount of loan does not exceed Rs 20,000 & interest free loan for medical treatment of diseases
specified in rule 3A
11. Sale or gift of movable asset other than car and electronic items to employee after being used
for 10 or more yrs.
12. Periodicals and Journals required for performing official duties
13. Telephone, Mobile phones: Expenses for telephone, mobile phones actually incurred on behalf
of employee by the employer whether by way of direct payment or reimbursement
14. Rent free accommodation
1) Rent free official residence provided to a judge of a High Court or the Supreme Court
2) Rent free furnished residence (including maintenance thereof) to Official of Parliament, a
Union Minister or a Leader of opposition in Parliament.
TAXABLE PERQUISITE
1. Rent-free accommodation
In hands of Government employee is taxable tithe extent of licence fee. [Central/ State]
Other Employee

Rent-free accommodation in hands of other employees is taxable as under:
1) Where accommodation is hired by the employer: 15% of salary or hire charges, whichever is
lower.
2) Where accommodation is owned by the employer: 15% / 10% / 7.5% of salary, depending on
population of city in which accommodation is provided. [ population exceeding 25 lakhs/15
lakhs/ 10 lakhs]
Valuation of rent-free furnished accommodation
Value of accommodation + Value of furniture being (10% of original cost (if owned by employer)
or Hire charge paid by employer)].
Valuation of accommodation provided at concessional rent.
Value of Rent free accommodation as usual (-) Rent payable by employee to employer for the
above facility.
Valuation of accommodation in case of employees on transfer
1) For the first 90 days of transfer: Where accommodation is provided both at existing place of
work and in new place, the accommodation, which has lower value, shall be taxable.
2) After 90 days: Both accommodations shall be taxable.
Meaning of salary for valuation of accommodation facilities
Salary includes Salary excludes
Basic Salary Other D.A.
D.A., if considered for retirement benefits Employer’s Contribution to PF
All Taxable Allowances Exempted Allowances
Bonus, Commission, fees Value of perquisites

Any other Monetary Payment (Lump sum
received at the time of termination like
gratuity/ Leave encashment/ VRS benefits/
Commuted pension)
2. Obligation of Employee paid by Employer
Fully taxable in the hands of employee
3. Sweat equity shares
The difference between fair market value of the specified securities or sweat equity shares and
amount paid by the employee shall be considered as taxable perquisite.
4. Motor-car facility

Owned Maintain by Used for Taxable Value
Employer Employer Personal purpose Maintenance +Depreciation
Both purpose Rs.1800/2400 p.m.
Employer Employer Personal purpose Depreciation
Both purpose Rs. 600/ Rs. 900 p.m.
Employer Employer Personal purpose Maintenance
Both purpose Actual expenditure by employer less
Rs.1800/2400 p.m. or higher deduction if
log book is maintained.
1. 600/ 1800 for lower capacity & 900/ 2400 for higher capacity car
2. Above 1600 CC higher capacity car and up to 1600 CC lower capacity car
3. Maintenance cost includes repairs, petrol, driver salary
Depreciation @ 10% of actual cost of the car. However, if the car is not owned by employer
then actual hire charge incurred by employer shall be considered.
4. Driver, add salary of driver (used for personal purpose) or Rs. 900 p.m. (partly used for
Personal purpose)
5. When car is used for both purpose amount recovered from employee shall not be
deducted.
The word month denotes completed month. Any part of the month shall be ignored.
6. Further reminded, conveyance facility to the judges of High Court or Supreme Court
is not taxable.
5. Credit Card
Expenditure incurred by employer in respect of credit card facility to employee shall be taxable
unless the card is wholly used for office purpose.
6. Gift, voucher or token given by employer
Cash gift is fully taxable. However, non-cash gift in excess of Rs. 5000 fully taxable.
7. Club expenditure
1) Expenditure incurred by employer in respect of club facility to employee shall be taxable.
2) Where such expenses are incurred wholly and exclusively for office purpose and specified
conditions are satisfied then nothing shall be taxable.

3) Health club, sports and similar facilities are not taxable.
4) Entrance fee of corporate membership is not taxable.
8. Manufacturing cost or hire charge of gas, electricity or water
a) Fully taxable.
b) If facility is in the name of employee then taxable in the hands of all employee.
c) If facility is in the name of employer then taxable in the hands of specified employee only.
9. Free education to family of employee
Children Education Allowance – already discussed
Employee - Fully Exempt
Family member other than child - Fully Taxable
Child - a) Provided in an institution owned by employer /Provided by virtue of employment in an
institution not owned by employer is exempt up to Rs 1000 per child per month
irrespective of number of children.
b) Reimbursement: Fully Taxable.
Child includes adopted child, stepchild of the assessee, but does not include grandchild or
illegitimate child
10. Domestic Servants
Fully Taxable. If RFA owned by employer is provided then Gardner salary is fully exempt
otherwise taxable
Servant Appointed by Value of Perquisite Taxable in the hands of
Employer Cost to the employer Specified employee
Employer Cost to the employer All employee
11. Interest free loan
1) Interest charged by employer > SBI Rates: NOT Taxable.
2) Interest charged is lower than SBI rates:
Interest at SBI rates on maximum outstanding balance
Less: Interest paid by the Employee on that loan.
Exceptions:
a. Medical Loan for treatment of diseases specified in Rule 3A except Loan reimbursed by
Medical Insurance
b. Loan not exceeding Rs. 20,000 in aggregate.
12. Use of movable asset: other than motor car, laptop and computers)
Valuation of perquisite in respect of use of movable assets shall be 10% of the original cost of

such asset (if asset is owned by the employer) or charges paid or payable by the employer (if
asset is hired).
13. Valuation of the perquisite in respect of movable assets sold
By an employer to its employee shall be 'the written down value - sale price".
The written down value shall be calculated considering the rate of depreciation for Electronic
items 50% (WDV. Motor-car 20% (WDV) and for other items 10 %(SLM) for the completed years
1) Electronic gadgets include Computer, Digital Diaries and Printers, but exclude washing
machines, Microwave ovens, Mixers, Hot Plates, Ovens etc.
2) Sale or gift of movable asset other than car and electronic items to employee after being
used for 10 or more years.
3) Completed year means actual completed year from the date of acquisition of asset to the
date of transfer of such asset to Employees.
14. Medical facility in India
1) Medical facility in a Government hospital or hospital maintained by the employer is
exempted.
2) Reimbursement of medical expenses in hospital, which is approved by the CCIT, for the
prescribed diseases is fully exempted.
3) Group medical insurance obtained by the employer for his employees is fully exempted.
4) Reimbursement of any insurance premium paid by the employee is fully exempted.
Medical facility provided outside India
1) Medical expenditure, cost of stay abroad (for patient + one caretaker) is exempted to the
extent permitted by the RBI.
2) Cost of travel (for patient + one care taker) is exempted only when GTI of the employee does
not exceed Rs. 200000 p.a.
15. Leave Travel Concession
If an employee goes on travel in India (on leave) with his family and traveling cost is reimbursed
by the employer, then such reimbursement is fully exempted for 2 journeys in a block of 4 years.
a) Carry-forward facility: Where concession is not availed during the preceding block (whether
on one occasion or both), then any one journeys performed in the first calendar year of the
immediately succeeding block will be additionally exempted (i.e. not counted in two journey
limit)
b) Restriction on number of children: Exemption can be claimed for any number of children
born on or before 30/9/98. In addition, exemption is available only for 2 surviving children

born on or after 1/10/98.
However, children born out of multiple birth, after the first child, will be treated as one child only.
Leave travel allowance is fully taxable.
RETIREMENT BENEFITS
1. Gratuity
1) Gratuity received during continuation of service is fully taxable in the hands of all
employees.
2) Gratuity received at the time of termination of service by Government employee is fully
exempted. [ Central / State / Local]
3) Gratuity received at the time of termination of service by non-government employee,
covered by the Payment of Gratuity Act shall be exempted to the minimum of the following:
b. Actual Gratuity received
c. Rs. 2000000, and
d. 15/26 *Completed year of service * Salary p.m.
Notes
• Completed year of service consider any fraction in excess of 6 months
• Salary = Basic + DA
4) Gratuity received at the time of termination of service by non-government employee not
covered under the Payment of Gratuity Act shall be exempted to the minimum of the
following.
a. Actual Gratuity received;
b. Rs. 2000000, and
c. ½ * Completed year of service * Average salary p.m. at the time of retirement
Notes
• Completed year of service ignores any fraction of the year.
• Salary = Basic + DA (if app) + comm. (T.O)
• Salary drawn during last 10 months immediately preceding the month of retirement shall be
considered.
5) Gratuity received after death of employee is exempt.
2. Leave Salary
1) Leave Salary during continuation of service is fully taxable in hands of all employees.
2) Leave salary received by Government employees fully exempted. [central /state]

3) Leave salary received by non-Government employee shall be exempted to the minimum of
the following
• Actual amount received as leave salary.
• Rs. 300000
• 10 * Average salary p.m.
• Average monthly salary X period of leave unveiled (in months)
Notes
• Salary = Basic + DA (if app) + comm. (T.O)
• Completed year of service ignores any fraction of the year.
• Salary drawn during last 10 months immediately preceding the retirement shall be
considered.
• Leave salary paid to the legal heir of deceased employee is not taxable as salary.
• How to find out period of leave earned:
Step 1: Find out duration of service without any fraction.
Step 2: Step 1 X leaves allowed by employer or 30 days whichever is less
Step 3: Step 2 minus leaves taken plus leaves encased
Step 4: Leaves Unavailed = Step 3 / 30 days
3. Pension [Sec. 17(1)(ii)]
1) Uncommuted pension is fully taxable in the hands of all employees.
2) Commuted pension received by a Government employee is fully exempt from tax. [ Central
/State/ Local Authority/Statutory Corporation]
3) Commuted pension received by an employee who also received gratuity: 1/3 of total pension
shall be exempted.
4) Commuted pension received by an employee who does not receive gratuity: ½ of total
pension shall be exempted.

𝐀𝐦𝐨𝐮𝐧𝐭 𝐑𝐞𝐜𝐞𝐢𝐯𝐞𝐝 𝐨𝐧 𝐂𝐨𝐦𝐦𝐮𝐭𝐚𝐭𝐢𝐨𝐧
Total Pension = 𝐑𝐚𝐭𝐢𝐨 𝐨𝐫 𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐨𝐟 𝐂𝐨𝐦𝐦𝐮𝐭𝐚𝐭𝐢𝐨𝐧
Notes
• Uncommuted Pension received by employee of UNO is exempt.
• Refer Sec 10 (18) & (19) for further exemptions.
4. Voluntary Retirement Compensation
Compensation received at the time of voluntary retirement shall be exempted to the minimum
of the following
a) Actual amount received as per guidelines; or

b) Rs. 500000.
5. Annuity [Sec. 17(1) (ii)]
Fully taxable.
6. Retrenchment compensation
Minimum of the following is exempt
2) Rs. 5,00,000
3) Amount calculated as per provisions of Industrial dispute Act 1947 = 15/30 X Average salary
for last 3 months X completed years of service
Notes
Salary = Basic + DA
Number of completed years in excess of 6 moths shall be taken as full month.
7. Approved superannuation fund
1) The employer’s contribution: It is exempt from tax. However, contribution exceeding Rs. 1.5
lakh will be taxable as perquisite
2) The employee’s contribution: It qualifies for deduction u/s 80C.
3) Interest on accumulated balance: It is exempt from tax
4) Payment from the tax: Section 10(13) grants exemption in respect of payment from the fund
8. Provident Fund
Particulars SPF RPF URPF PPF
Employer's Not taxable Exempted up to 12% Not taxable NA
contribution of Salary
Employee's Eligible for Eligible for Not eligible for Eligible for
contribution deduction deduction u/s 80C deduction u/s 80C Deduction/s
u/s.80C 80C
Interest Not Taxable Exempted @ 9.5% Not Taxable Not Taxable
p.a.
Lump sum Not Taxable Not Taxable if
Employer's Not Taxable.
employee retires
Contribution or interest
after 5 years of thereon is taxable as
service or due to salary. Interest on
inability to work. employee's
Otherwise it shall beContribution taxable as
taxable as URPF income from other
sources.
Salary = Basic plus DA (if applicable) plus commission based on turnover

EMPLOYERS CONTRIBUTION TO RECOGNISED PROVIDENT FUND, SUPERANNUATION FUND AND
NPS [SEC. 17(2)(VII)]
Sub-clause (vii) of section 17(2) has been substituted provides that the aggregate amount of
contribution made by the employer to the following retirement schemes, in excess of
Rs. 7,50,000 per year, is taxable as perquisite –
a. Recognised provident fund
b. Scheme of NPS, and
c. Approved superannuation fund
Further, a new clause (viia) of section 17(2) has been inserted to provided that annual accretion
by way of interest, dividend or any other amount of similar nature during the previous year to
the balance at the credit of the fund or scheme referred to above shall be treat as perquisite to
the extent it relates to the contribution referred to above (i.e., in excess of Rs. 7,50,000). Such
interest/ dividend/ similar amount shall be included in total income and shall be computed in
the prescribed manner with effect from the assessment year 2022 - 23.
DEDUCTION U/S 16
1. Sec 16(i)
Gross Salary or Rs 50,000 whichever is less [FA ACT 2019]
2. Entertainment allowance Sec 16(ii)
Is allowed as deduction u/s 16(ii) in hands of Government employee to the minimum of following
- a) Actual entertainment allowance b) Rs. 5000 c) 20% of Basic Salary.
3. Tax on employment or professional Sec 16(iiii)
Tax shall be allowed as deduction u/s 16(iii) on cash basis, whether paid by employee or by
employer (on behalf of employee) from gross taxable salary.
If Professional Tax paid by employer then it is added in salary as perquisites.

Chapter 5
INCOME FROM HOUSE PROPERTY
1. Annual value of a property
Annual value of a property shall be taxable under the head
"Income from house property" subject to fulfillment of the following conditions:
1) There must be a property consisting of any building or land appurtenant
thereto.
2) Assessee is the owner (including deemed owner).
3) Such property is not used in any assessable business or profession carried on by the
assessee.
2. Annual value of a property
Annual value of a property is assessed to tax only in the hands of the owner. Sub-letting is
taxable as business income or as income from other sources. Owner includes legal owner,
beneficial owner and deemed owner.
3. Deemed owner [Sec. 27]
1) Transfer of property to spouse or minor child (not being a married daughter)without
adequate consideration;
2) The holder of an impartible estate;
3) Property held by a member of a housing co-operative society; company, etc.
4) A person who acquired a property u/s 53A of the Transfer of Property Act against part
performance of contract;
5) Lessee of a building for more than 12 years u/s 269UA (f).
4. Co-owners
Co-owners are not taxable as an AOP provided their respective share is definite and
ascertainable share of each co-owner shall be taxable in his hands.
5. Other Points
1. Income from vacate plot treated as income from other source
2. When HP is provided by employer to his employees in the interest of his business then rent
received from such HP is treated as business income & not HP income.
3. Even if HP is located outside Indian such income is taxable in India on the basis of Residential
status of Assessee.

6. Exempted properties
Any one palace or part thereof of an ex-ruler (provided the same is not let out) a farm house,
house property of a local authority, of an approved scientific research association, of an
educational institution, of a hospital of a person being resident of Latah, of a political party, of a
trade union, house property held for charitable purpose.
7. Composite rent
Composite Rent = Rent for building for assets (+) Charges for various services.
Composite Rent
When rent is separable When rent is not separable
Case Property is Property is not Property is Property is not
acceptable by tenant acceptable by acceptable by acceptable by
without amenities tenant without tenant without tenant without
amenities. Amenities. amenities.
Income Rent for property 'Profits & gains of 'Profits &gains of
shall be 'Income from the business or business or
taxable head house property' profession' or profession' or
under income from other ‘Income from other
sources'. sources'.
8. Self-occupied property
The annual value of TWO house or part of the house shall be nil. If an assessee occupies more
than TWO house property as self-occupied, he is allowed to treat only TWO house as self-
occupied at his option. The remaining self-occupied properties shall be treated as 'Deemed to
be let out'. Interest on loan u/s 24(b) shall be allowed as under.
9. Property not occupied by the owner / Unoccupied property
Where an assessee has a residential house (kept for self-occupation) and it cannot actually be
occupied by him owing to his employment, business or profession and he has to reside at a
place not belonging to him, then such house shall be termed as unoccupied property. It shall be
treated at par with self-occupied property. (Limit is 2 now)
10. Deemed to be let-out house property
Where the assessee occupies more than two house property as self-occupied or has more than
two unoccupied property, then for any two of them, benefit u/s 23(2) can be claimed (at the
choice of the assessee) and remaining property or properties shall be treated as 'deemed to be
let out' and shall be treated same as let out house property.
11. Property held as stock in trade Sec23(5)
Where the building or land appurtenant thereto is held as stock in trade and the property or any

part of the property is not let during the whole or any part of the previous year, the annual value
of such property or part of the property, for the period up to TWO year from the end of the
financial year in which the certificate of completion of construction of the property is obtained
from the competent authority, shall be taken to be NIL.
12. Let-Out House Property: Gross Annual Value (GAV)
Steps Particulars Amount

1st FIND OUT EXPECTED RENT [RER]
Gross Municipal Value (a) xxx
Fair Rent (b) Xxx
Higher of the [(a) and (b)] [A] Xxx
Standard Rent as per Rent Control Act [B] Xxx
Reasonable Expected Rent [Lower of [(A) and (B)] Xxx
2nd ACTUAL RENT RECEIVED / RECEIVABLE [ARR]
Rent received /Receivable – unrealised Rent Xxx
3rd GAV = HIGHER OF 1 OR 2 Xxx
4th IF GAV IS LOWER DUE TO VACANCY ALLOWANCE THEN GAV SHALL BE ARR
Conditions to claim deduction on account of unrealized rent
Condition 1 - The tenancy is bona fide.
Condition 2 - The defaulting tenant has vacated or steps have been taken to compel him to
vacate the property.
Condition 3 - The defaulting tenant is not in occupation of any other property of the assessee.
Condition 4 - The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent.
Illustration 1
Find out the gross annual value in case of the following properties for the AY 22-23
(Rs. in thousand)
Particulars H1 H2 H3 H4 H5 H6
Gross Municipal Value p.a. 200 300 400 500 300 300
Fair rent p.a. 300 600 750 180 200 400
Standard rent under the Rent Control Act p.a. 300 180 280 225 250 240
Actual rent p.a. 600 900 300 240 216 240
Property remains vacant (in number of month) 1 3 2 1 2 1
Solution
Computation of gross Annual Value
(Rs. in ‘000)
Step Particulars Working H1 H2 H3 H4 H5 H6
1 Calculation of Higher of GMV and FR (RER 300 180 280 225 250 240
RER cannot exceed SR)
2 ARR For the period actually let 550 675 250 220 180 220
out

3 Higher of above Higher of step 1& step 2 550 675 280 225 250 240
4 Gross Annual 5501 6751 2501 2201 2501 2201
Value
Key Notes
1. In H1 and H2 Actual rent receivable is already higher than RER therefore vacancy period is not
making any impact (i.e. step 4 of computation discussed in theory) on GAV.
2. In H3 and H4, ARR is less than RER due to vacancy (otherwise ARR would have been Rs. 3,00,000
& Rs. 2,40,000 respectively). Therefore, GAV will be the ARR computed in step 2.
3. In H5, ARR is less than RER not only due to vacancy but also due to other factors. In such case,
value of RER shall be taken as GAV.
4. In H6, ARR is less than RER due to vacancy period otherwise ARR would have been equal to RER
13. Partly self-occupied and partly let-out
Case 1) Area wise Division: In this case, a house property consists of two or more independent
units and one or more of which are self-occupied and remaining units are let out.
Treatment: Self-occupied portion & let out portion shall be treated as two separate houses (i.e.
Unit A & Unit B). Income of both units shall be computed accordingly.
Case 2) Time wise division: In such case, the house property is self-occupied by the assessee
for a part of the year and let out for remaining part of the year.
Treatment: In such case assessee will not get deduction for the self-occupied period and
income will be computed as if the property is let out throughout the year. Reasonable expected
rent (RER) shall be taken for the full year but the actual rent receivable (ARR) shall be taken only
for the let-out period.
14. Municipal Taxes
1) Allowed as deduction to Landlord on paid basis including Advance M. Tax.
2) Interest, penalty and fine is not allowed as deduction.
15. Standard deduction
30% of net annual value are allowed irrespective of the actual expenditure incurred.
16. Interest on Loan (u/s 24 (b)
Type of Property Loan taken before Loan taken on or after

1.04.1999 01.04.1999
Self-Occupied Amount of deduction is If construction completed
minimum of the following: within 5 yrs from the of financial year in which
1) Interest paid loan is taken Amount of deduction is minimum
2) Rs. 30,000 of the following

1) Interest paid
2) Rs 2,00,000
Let out Amount of interest paid Amount of interest paid
Above deduction of interest for SO house property shall be for 2 house properties.
PRE-CONSTRUCTION PERIOD
It is a period commencing on
The date of commencement of construction or the day of borrowing whichever is later and
ending on (a) 31st March immediately prior to the date of completion of construction or (b) date
of repayment of loan whichever is earlier.
PRE CONSTRUCTION INTEREST
Pre-construction interest is deductible in 5 equal instalment commencing from the previous
year in which the house is acquired or constructed.
Illustration 2
Compute period of five years.
Completion of 1st year 2 nd year 3rd year 4th year 5th year Is deduction
construction available in
PY 21-22
17-18 17-18 18-19 19-20 20-21 21-22 Yes
21-22 21-22 22-23 23-24 24-25 25-26 Yes
14-15 14-15 15-16 16-17 17-18 18-19 No
Interest on Housing Loan
Loan for Construction Purchases Loan for Reconstruction Purchases

(Pre-Construction / Post (Renewal / Repairs)
Self-Occupied Let Out Self-Occupied Let Occupied
Interest paid Maximum Interest paid

Rs.30,000
Loan taken Loan taken on

before 1.4.99 or after 1.4.99
Amount of Acquisition or construction completed within 5 years from the

deduction end of the FY in which the capital was borrowed
Interest paid OR +
Rs.30, 000 certificate from lender specifying interest payable
Whichever is less

Analysis of Deduction u/s 24b

Nature of When loan was Allowable
Purpose of Loan
property taken Maximum (limit)2
Self-occupied On or after 1/4/99 Construction or purchase of house Rs. 2,00,000
property2
Self-occupied On or before For Repairs of house property Rs. 30,000
1/4/99
Self-occupied Before 1/4/99 Construction or purchase of house Rs. 30,000
property
Self-occupied After 1/4/99 For Repairs of house property Rs. 30,000
Let-out Any time Construction or purchase of house No Maximum
property limit
KEY NOTES
• Interest is allowed as deduction on accrual basis.
• Interest on unpaid interest is not deductible.
• No deduction is allowed for any brokerage for arranging loan.
• Interest on afresh loan, taken to pay the original loan is allowed a deduction.
• Interest payable out of India is allowed as deduction if tax is deducted at source
• If loan is taken by mortgaging one house property for the construction for another house
property, then the interest on such loan shall be eligible for deduction from the income of the
second house, since the purpose for which the loan amount is used is taken into consideration.
Illustration 3
Calculate pre-construction period from the following information
Date of loan taken Constructed completion Date of repayment Pre-construction period
01/06/2012 14/10/2015 10/01/2022
01/06/2012 27/01/2015 20/04/2023
01/06/2015 31/03/2017 10/12/2015
01/04/2021 28/03/2022 28/02/2022
RECOVERY OF UNREALISED RENTAND RECOVERY OF ARREARS OF RENT [SEC. 25A] [W.E.F AY 17-
18]
Meaning
Where any Unrealised rent is subsequently realized, and then such recovery shall be taxable
under the head ‘income from house property’.
Where the rent is increased by landlord (either suo-motu or due to the court instruction)
retrospectively, then the increased rent shall be treated as Arrear rent.
Tax treatment
Recovery shall be taxable after a standard deduction of 30%

Features
1. It shall be taxable on cash basis
2. It shall be taxable under the head ‘Income from house property’ whether assessee owns
such house in the year of recovery or not.
CO-OWNERSHIP [SEC. 26] RECOVERY
Meaning
If a house is owned by more than one owner than they are known as co-owners.
Tax treatment
Each co-owner shall be taxable separately for his share of income from house property.
Where the house property is used for self-occupation by co-owners then all of them can claim
benefit u/s 23(2) and interest on loan u/s 24(b) shall be to all the co-owner to the extent of Rs.
30000/ Rs. 2, 00,000 Separately.
• It is mandatory for the co-owners to apply the provisions of sec. 26.
• Normally co-owners are taxed as an Association of persons or body of Individual but for the
purpose of this section co-owners of a house are taxed separately as an individual (not as
AOP) for their respective share of income. This is another exceptional feature of this chapter.
PROPERTY ALLOTTED BY ASSESSEE TO HIS FIRM
If an assessee allots his property to his firm then treatment shall be as under:
Property has been allotted without rent but as Such property shall be taxable under the head
his share of contribution “Profit & gains of business or profession”. CIT
vs Narain & Rabindranath bhol
Property has been let out to the firm for a rent Annual value of a property shall be taxable
under the head “Income from house property”.
Ram Narain & Bros vs CIT
PROPERTY SITUATED OUTSIDE INDIA
Status of Individual Taxability
Resident Ordinarily Resident Taxable in India
Not Ordinarily Resident / Non – Resident If the Rent is first received in India, then
Income shall be taxable in India
Income accruing or received in Foreign Currency should be converted into India Rupees in TT

Buying Rate on the last day of the previous year. (Rule 115)
Any tax or expenditure incurred towards earning such income shall be allowed as a deduction

Chapter 6
INCOME FROM BUSINESS OR PROFESSION
1. Section. 28
Income chargeable under the head Profits & gains of business or profession.
1) Profits & gains of any business or profession
2) Compensation to Management agency
3) Income of trade or professional associations
4) Export incentive,
5) Perquisite from business or profession
6) Remuneration to partner,
7) Amount received or receivable for certain agreement
8) Key man Insurance Policy,
9) Recovery against any capital asset being covered by sec. 35AD.
10) Amount received or receivable for certain agreement
Not carrying out any activity in relation to any business; or profession
Income not taxable under the head "Profits and gains of business or profession are
1) Rent of house property
2) Dividend on shares even though the assessee deals in shares
3) Winning from lotteries, races etc.
4) Exempted income,
5) Sum taxable under the head ‘Capital gains'.
2. Speculative Transaction
It means a transaction in a contract for the purchase or sale of any commodity, including stocks
and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer
of the commodity or scrip: [Sec. 43(5)]
3. Profit or loss on sale of asset
Shall not be taxable under the head Profit & Gains of business or Profession, but shall be taxable
under the head “Capital Gains”. However, in case of sale of assets under the following section
the gains shall be taxable under the head “Profit & Gains of business or Profession”.
1) Sale of an asset of a power sector Undertaking[Sec. 41 (2)]
2) Sale of an asset used for scientific Research [Sec. 41 (3)]

3) Sale of an asset in respect of which deduction has been claimed u/s 35 AD
4. Section 30
Rent, rates, taxes, current repairs & insurance for premises used for the purpose of business or
profession shall be allowed.
5. Section 31
Current repairs & insurance of plant, machinery & furniture are allowed as deduction.
6. Section 32
Depreciation:
7. Conditions
Assessee must be the owner of the asset.
Hire purchase, Co-owner, beneficial owner
Meaning of Use
Asset should be ready to use actual use not necessary.
Significance of date of purchase: Where an asset is acquired by the assessee during the
previous year and is put to use in the same previous year for less than 180 days, the depreciation
in respect of such asset is restricted to 50% of the normal depreciation
Method of Depreciation
1) Depreciation shall be allowed on written down value method at the rates prescribed.
2) However, in certain cases depreciation is allowed on Strength Line method on an application
made by the assessee e.g., in case of Power Sector Undertaking if the assessee applies to
the department then depreciation is allowed on Strength line method.
STRAIGHT LINE METHOD
Terminal Depreciation and Balancing Charge: Applicable to assessee engaged in generation or
generation and distribution of power and following straight-line method of depreciation.
Terminal depreciation = +ve value of [WDV of assets - (Sale value or Scrap value)]
Balancing Charge = -ve value of [WDV of assets - (Sale value + Scrap value)] to the extent of
accumulated depreciation.
Section 50A :capital gain on SLM asset
For purpose of calculation of Capital Gain on SLM assets, the Cost of acquisition of such asset
shall be the WDV as adjusted by terminal depreciation or balancing charge, as the case may be.
The gain can be either long term or short term depending upon the period of holding of the asset.
REDUCING BALANCE METHOD
Block of asset sec 2(11)

Block of assets means group of asset falling within a class of asset
Determination of Written Down Value (WDV) [Sec. 43(6)]
Situation WDV
• Asset acquired during the Previous Year Actual cost to the assessee
• Asset acquired in earlier Previous Year(s) Actual cost to the Assessee Less All
depreciation allowed under IT Act.
• In case of Succession, Amalgamation or WDV of the Predecessor Company or
Demerger Transferor Company or Demerged Company
Actual cost of asset Sec 43 (1)
1) All expenses directly related to acquisition of such asset including travelling expenditure
incurred for acquiring asset.
2) Expenses necessary to bring the asset to site, installation, and to make it ready to use, e.g.
carriage inward, loading and unloading charges, installation cost, trial run cost, etc.
3) Expenses incurred to increase the capacity of the asset or to make it fit prior to its use
4) Loss on exchange rate
Provided further that where the assessee incurs any expenditure for acquisition of any asset or
part thereof in respect of which a payment or aggregate of payment bank or an account payee
bank draft or use of electronic clearing system through a bank account, > Rs. 10,000/-, such
expenditure shall be ignored for the purposes of determination of such cost
In order to promote digital transactions, the payments or receipts through other notified
electronic modes. Have been proposed to be included in the list of acceptable mode of payment.
8. Calculation of depreciation (at a glance)
Particulars Amount Rs.
W.D.V. of the block at the beginning of the previous year
Add: Purchase during the previous year
Less: Net Sale consideration of assets sold during the previous year
Value of block before depreciation
Less: Depreciation
WDV of the block at the end of the year
When depreciation is not charged:

1) When WDV is reduced to zero. The negative value is to be treated as short term capital gain.
2) When entire block is empty. In such case, the positive value shall be treated as short term
capital loss & negative value is treated as STCG.
9. Section 32(1)(iia)
Additional depreciation
Conditions
Applicable to Assessee engaged in the business of manufacture / production of any article /
thing or in the business of Generation or Transmission or distribution of power.
Rate of Depreciation
Asset is put to use for more than 180 days – 20%
Asset is put to use for less than 180 days – 10%
50% can be claimed in succeeding PY
Extra Additional Depreciation - New undertaking in backward area (given below) started on or
after 01-04-15 the rate of additional shall be 35% (more than 180 days) and 17.5% (less than 180
days). [ state: WB/B/T/AP]
Unabsorbed depreciation : Depreciation remaining unabsorbed can be carried forward for
indefinite period and can be set off against any income of the assessee.(Except salary and
casual income)
10. Section 33AB
• Special deduction for assessee engaged in growing & manufacturing Tea, Coffee or Rubber
Applicable to all assessee carrying on business of growing and manufacturing Tea; Coffee; or
Rubber in India.
• Assessee must deposit an amount in an account with NABARD or in any other account in
accordance with and for the purpose specified in a scheme approved by Tea Board or Coffee
Board or Rubber Board within 6 months from the end of the previous year or before the due date
of furnishing the return of income. Accounts of assessee must be audited.
• Deduction: Minimum of - Amount so deposited or 40% of the profit.
• Withdrawal of Deduction: Any amount released during any PY is not utilized. Such amount shall
be treated as business income of the PY
Any amount released during any PY or withdrawn by the assessee and utilized for the purchase
of buying specific asset.
• Period of holding of new asset: 8 yrs from the date acquisition.
11. Section 33BAB

Site Restoration Fund:
• Applicable to all assessee engaged in the business of a) Prospecting for petroleum of natural
gas in India; or b) Extraction or production of petroleum or natural gas in India; or c) Both.
• The Central Government has entered into an agreement with the assessee for such business.
• Assessee must deposit an amount with the State Bank of India or in an account maintained in
accordance with and for the purposes specified in a scheme approved by the Government of
India in the Ministry of Petroleum & Natural Gas. Such amount must be deposited before the end
of the previous year. Accounts must be audited.
• Deduction: Minimum of - Amount so deposited or 20% of the profit.
Deduction under section 33ABA is not available, if option is exercised for the alternative tax
regime by an individual / HUF (section 115BAC), domestic company (section 115BA / 115BAA /
115BAB) or a resident co – operative society (section 115BAD).
12. Section 35
Scientific research
1) In-house scientific research expenditure whether revenue (salary to research staff &
material) or capital (except land) shall be allowed if the research is related to business.
2) Above expenditures incurred 3 years prior to date of commencement of business shall be
allowed in the year of commencement of business.
3) All revenue expenditure incurred during the year shall be fully allowed
Section 35(2AB)
1) Assessee: company only engaged in Bio-technology or any business of manufacture or
production of any article or thing.
2) Expenditure: Capital or revenue expenditure excluding cost of any land and building.
3) Deduction: 100% of revenue and capital expenditure except cost of land & building.
Cost of building is not entitled for weighted deduction but eligible for 100% deduction u/s
35(1)(iv).
Cost of any land shall not be allowed any deduction
Note: pre-commencement expenses and cost of building is not allowed under section 35(2AB).
Hence they shall be entitled for 100% deduction u/s 35(1) and 35(2)
Deduction under section 35(2AB) is not available, if the option is exercised for the alternative
tax regime by an individual / HUF (section 115BAC), a domestic company (section 115BA / 115BAA
/ 115BAB) or a resident co – operative society (section 115BAD).

Research through outside agency ( even if not related to business)
Payment made to Deduction %
Any Research Association (or) University/ College, etc. for Scientific 100%
Research
Company approved by Prescribed Authority for Scientific R&D 100%
Any Research Association (or) University/ College, etc. for social 100%
science or statistical research
National Laboratory/ University/ IIT/ Specified Person 100%
Section 41(3) Sale of asset used for scientific research
Without having been used for other purpose, sale consideration to the extent of cost of such
asset shall be taxable as business income in the year of sale. The excess of sale consideration
over original cost (or indexed cost of acquisition) is taxable as capital gain u/s 45.
13. Section 35ABB Amortization of telecom-licence fee
If any assessee has incurred capital expenditure for
acquiring any right to operate telecommunication services and has actually made the payment,
then actual expenditure incurred and paid shall be allowed as deduction in equal installments
over the period for which the license remains in force.
Deduction = Amount paid / no of years left
14. Section 35AC Deduction for promoting social and economic welfare or upliftment of the public
If any assessee incurs any expenditure by way of payment of a sum to a public sector company,
local authority, an association or institution approved by the National Committee for carrying
out any eligible project or scheme, [directly in respect of eligible project (applicable in case of
company assessee only)] then such expenditure shall be fully allowed as deduction.
15. 35AD Deduction in respect of capital expenditure on specified business:
Deduction = 100% of capital expenditure
Ineligible Expenditure:
1. Any Capital expenditure in respect of which the payment or aggregate of payments made to
a person in a day, otherwise than by an account payee cheque drawn on a bank or an account
payee bank draft or use of electronic clearing system through a bank account, > Rs. 10,000,
2. Any expenditure incurred on the acquisition of any
Land, or Goodwill, or Financial Instrument
In order to promote digital transactions, the payment through other notified electronic modes
(i.e. e-wallets, etc) has been proposed to be included in the list of acceptable modes of

payments. [Amendment FA 2019]
Nature of business
1. Setting up and operating a cold chain facility or
2. Setting up and operating a warehousing facility for storage of agricultural produce or,
3. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline or
4. Building and operating, anywhere in India, a hospital with at least 100 beds for patients or
5. Building and operating, anywhere in India, a hotel of two-star or above Category or
6. Developing and building a housing project under a scheme for slum redevelopment or
rehabilitation or
7. Developing and building a housing project under a scheme for affordable Housing
8. Production of fertilizer in India shall be allowed as deduction. The deduction is subject to
certain conditions.
9. Setting up and operating an inland container depot or a container freight station notified or
approved under the Customs Act, 1962;
10. Bee keeping and production of honey and beeswax;
11. Setting up and operating a warehousing facility for storage of sugar in India shall be allowed
as deduction.
12. Laying and operating a Slurry Pipeline for the transportation of Iron Ore.
13. Setting up and operating semi-conductor Wafer Fabrication Manufacturing Unit notified by
CBDT.
14. w.e.f 1/4/2018 Business of developing or maintaining or operating or developing, maintaining
and operating a New Infrastructure Facility
Deduction under section 35AD is not available, if the option is exercised for the alternative tax
regime by an individual / HUF (section 115BAC), a domestic company (section 115BA / 115BAA /
115BAB) or a resident co – operative society (section 115BAD).
16. Section 35CCA
Payment to associations and institutions for carrying out rural development programmes shall
be fully allowed as deduction.
17. Section 35CCC
• Expenditure incurred on notified agricultural extension project is eligible for deduction @ 100%
of such expenditure.
• Conditions to claim deduction
a) Investment > 25 lakhs except land and building

b) Approved by Ministry of Agriculture
c) Deduction under section 35CCC is not available, if the option is exercised for the alternative tax
regime by an individual / HUF (section 115BAC), a domestic company (section 115BA / 115BAA /
115BAB) or a resident co – operative society (section 115BAD). Moreover, deduction under section
35CCD is not available, if the option is exercised for the alternative tax regime by a domestic
company (section 115BA / 115BAA / 115BAB).
18. Section 35CCD
Any expenditure incurred by company on notified skill development project is eligible for
deduction @ 100% of such expenditure.
19. Section 35D
An Indian company or a resident non-corporate assessee, who has incurred certain amount as
preliminary expenditure, can claim the total
Eligible preliminary expenditure as deduction in 5 equal installments. The total eligible
preliminary expenditure cannot exceed 5% of cost of project (in case of company, 5% of cost of
project or capital employed, whichever is higher). In the first year, audit report must be
submitted along with the return.
20. Section 35DD
If an Indian company has incurred certain expenditure wholly & exclusively for the purpose of
amalgamation or demerger, 1/5th of expenses so incurred shall be allowed for a period of 5
years commencing from the year in which amalgamation or demerger takes places.
21. Section 35DDA
Voluntary retirement compensation shall be allowed to all assessee in 5 equal installments
commencing from the year in which such expenditure was paid.
22. Section 36(1)(b)
Insurance premium for health of employees is allowed as deduction if the payment has been
made by any mode other than cash.
23. Section 36(1)(ii)
Bonus or commission to employees is allowed as deduction subject to sec. 43B.
24. Section 36(1)(iii)
Amount of interest paid in respect of capital borrowed for the purposes of business or
profession shall be allowed as deduction.
25. Section 36(1)(iiia)
Discount on Zero Coupon Bonds

• Application for infrastructure Capital Co. / Fund, Public Sector Co & Scheduled Bank.
• Written of over the period of the Bond.
26. Section 36(1)(iv)
Subject to sec. 43B, contribution towards RPF & approved superannuation fund is allowed as
deduction.
27. Section 36(1)(iva)
Contribution (subject to max, of 10% of salary of an employee) by an employer towards notified
pension scheme u/s 80CCD is allowed as deduction. [Salary = Basic + DA (if App)]
28. Section 36(1)(v)
Employer’s Contribution to an Approved Gratuity Fund allowed when paid before due date of
filling return [Sec. 43B]
29. Section 36(1)(vi)
Allowance in any respect of dead or permanently unless animals
Cost of Animal Less Insurance Claim or any other receipt. no amortization of cost is allowed.
30. Section 36(1)(vii)
Bad Debts
Any debt or part thereof, which becomes bad shall be allowed as deduction subject to following
conditions –
1) Debt must be incidental to the business or profession
2) The debt has been considered as income of the assessee
3) It must have been written off in the accounts of the assessee
4) Business must be carried on during the previous year or any part of the previous year
5) It must be of a revenue nature.
31. Section 36(1)(viia)
Provisions for Bad and Doubtful Debts
1) For Scheduled Banks, Non-Scheduled Banks, Co-operative Bank other than Primary
Agricultural Credit Society or Primary Co – operative Agricultural & Rural Development Bank:
8.5% of GTI + 10% of Average Rural Advances.
2) Banks incorporated outside India, Public Financial Institutions, SFCs, SIICs: 5% of GTI.
32. Section 36(1)(viii)
Special reserve created by specific entity carrying on Eligible Business
1) 20% of profit of Business or reserve created, whichever is less. Reserve should not exceed
twice the Paid Up Capital including general reserve.

2) Withdrawal treated as PGBP in year of withdrawal [Sec. 41(4A)]
33. Section 41(4)
Bad debt recovery: Taxable amount shall be [Amount recovered (Bad debt claimed - Bad debt
earlier allowed as deduction)]
34. Section 36(1)(ix)
Any expenditure incurred by a company for promotion of family planning among its employees
shall be allowed as deduction as under.
Revenue Expenditure: Full amount Capital Expenditure. In 5 equal instalments.
- Unabsorbed capital expenditure shall be treated same as unabsorbed depreciation.
- Unabsorbed revenue expenditure shall be treated as business loss
35. Section 36(1)(xv) Securities Transaction Tax Paid
Fully allowed as deduction only when paid if Income from such transaction is included as PGBP.
36. Section 36(1)(xvi) Commodities Transaction Tax paid
1) Taxable Commodities Transactions should be entered into in the course of the Assessees
business during the previous year.
2) Income arising from such transactions is included as PGBP.
37. Section 37(1)
General Deductions /Disallowances:
1) Interest on loan paid to proprietor is disallowed.
2) Salary paid to proprietor is disallowed.
3) Anticipated future expenditure or loss (e.g. incurred in the previous provision for bad debt)
is disallowed.
4) Professional tax is allowed expenditure
5) Litigation expenditure incurred in order to expenditure. Defend or maintain an existing title
to the assets is allowed.
Taxpoint: Litigation expenditure incurred for curing any defect in the title of asset shall not
be allowed (as because it is of capital nature).
6) Legal expenditure incurred to alter the Articles of Association of the company, in conformity
with the amendments in the law is allowed.
Taxpoint : Fee paid to ROC (Registrar of Companies) for alteration of MOA is disallowed
(being a capital expenditure)
7) Expenses on registration of trademark are allowed.
8) Compensation paid to a worker in order to dismiss him is allowed.

9) Annual listing fees paid to stock exchanges is allowed.
10) Fees paid for increase of authorized capital is disallowed.
11) Expenditure on raising equity and preference share capital is disallowed.
12) Penalty and damages paid in connection with infringement of law is disallowed.
38. Section 37(2B)
Expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract,
pamphlet or like, published by a political party is disallowed.
39. Section 40
Disallowed Expenditure
• Section 40(a)(i)
Interest royalty, fees for technical services payable to non-resident or outside India or in India
to a non-resident or to a foreign company on which tax is deductible but not deducted or after
deduction not deposited before the time limit shall be 100 % disallowed.
FA 2019 AMENDMENT
Relief shall be given only in case of non-deduction if recipient has declared such income in ROI
and paid tax on it
• Section 40(a)(ia)
Any payment made to a Resident, on which Tax is deductible/ after deduction, tax has not been
paid before the due date of furnishing Return u/s 139(1).
1. 30% of the Expense will not be allowed.
2. Allowable in the year of remittance of TDS.
Note: if Payer fails to deduct TDS, but is not deemed to be an assessee in default u/s 201(1), it is
deemed that TDS is deducted and paid on the date of furnishing Return of Income by the
Resident Payee.
FA 2019 AMENDMENT
Relief shall be given only in case of non-deduction if recipient has declared such income in ROI
and paid tax on it
• Section 40(a)(ib)
Payment to non-resident without equalization levy
Allowed as a deduction while computing income of the previous year in the year in which such
levy has been paid.
Section 40(a)(iii)
Salary paid outside India or to Non-resident Payment without TDS not allowed

Section 40(a)(v)
Tax on perquisites paid by Employer not allowed
40. Section 40(b) Partnership of firm
Interest on Capital or Loan
Conditions
1) Authorised by the partnership deed
2) Not pertaining to period prior to partner
Deduction
Actual interest paid to partner or 12% max whichever is less.
Remuneration to partner
Conditions
1) Paid only to a working partner
2) Authorised by the partnership deed
3) Not pertaining to period prior to partner
Deduction
Actual paid or max the permissible limit whichever is less
Book profit Maximum amount deductible in respect of
remuneration to partners
1. Book profit is negative Rs. 1,50,000
2. Book profit is positive — Rs. 1,50,000 or 90 per cent of book profit –
• On first Rs. 3 lakh of book profit whichever is more 60 per cent of book profit
• On the balance of the book profit
41. Section 40A(2) Any excess payment made to relative and person having substantial interest is
disallowed.
Relatives
1) Relative u/s 2(41) means the spouse, brother, sister or any lineal ascendant or descendant
or descendant of that Individual.
2) Voting power 20% ( in case of company)
3) Profit share more than 20% ( other than company)
42. Section 40A(3)
Applicable to expenses covered by sec 30 to 37
Where an assessee incurs any expenditure, for, which payment or aggregate of payment is
made to a person in a day is in excess of Rs. 10,000 ( Rs. 35,000 in case of payment made for

plying, hiring or leasing goods carriages), Otherwise than by an Account Payee Cheque drawn
on a Bank or an Account Payee Bank Draft, the whole of such expenditure shall not be allowed
as a deduction.
Exceptions - Government taxes; Payment financial institutes; Payment to cultivator
43. Section 40A(7)
In general provision or reserve is not allowed. However, provision for Gratuity is allowed
provided the amount has become due for payment.
44. Section 43B
Following expenses are allowed as deduction in PY if paid before the date of filing return (31July
or 30th Oct)
1) Any sum payable by way of duty, tax ,cess
2) Bonus, commission
3) Interest on loan from public financial institutions
4) Interest on loan from NBFC [FA ACT 2109]
5) Leave encashment
6) Employers contribution to SPR, RPF, gratuity fund etc
7) any sum payable by Assessee to the Indian Railways for use of Railway Assets.
45. Section 43CA
Full value of consideration for sale of land or building or both shall be higher of 110% of value
adopted by authority or actual value whichever is higher.
Where the date of agreement fixing the value of consideration for transfer of the asset and the
date of registration of such transfer of asset are not the same, the value referred to in above
para may be taken as the value assessable by any authority of a State Government for the
purpose of payment of stamp duty in respect of such transfer on the date of the agreement.
However, this benefit is available only in a case where the amount of consideration or a part
thereof has been received by any mode other than cash on or before the date of agreement for
transfer of the asset
In order to promote digital transactions, the payments or receipts through other notified
electronic modes. Have been proposed to be included in the list of acceptable mode of payment.
46. Section 44AA
Maintenance of Accounts
Person carrying on specified business
1) Gross receipts >Rs 150000 in all 3 yrs immediately preceding the previous year: maintain

accounts as per rule 6F
2) In any other case : Such records which will enable the AO to compute income
Person carrying on non- specified business
3) Profit > Rs 120000 (Rs 250000 in case of Individual or HUF) or total sales >Rs 1000000 (Rs
2500000 in case of Individual or HUF in any of the 3 yrs immediately preceding the previous
year: Such records which will enable the AO to compute income
4) In any other case: Not required to maintain any books of accounts.
Period of maintenance: 6 years from the end of relevant AY
Penalty for Non-maintenance : Rs 25,000
47. 44AB
• Audit is compulsory if turnover exceeds Rs 1CR and in case of profession gross receipts exceeds
Rs 50L.
• In order to reduce compliance burden on small and medium enterprises, the threshold limit
has been revised to increase it for a person carrying on business from Rs.1 crore to Rs.5 crore
if the following two conditions are satisfied:
Condition 1 – His aggregate of all receipts in cash during the previous year does not exceed 5
per cent of such receipt.
Condition 2 – His aggregate of all payments in cash during the previous year does not exceed 5
per cent of such payment.
• Revised limit is 10 cr.
PRESUMPTIVE TAXATION SCHEME FOR ASSESSEES ENGAGED IN ELIGIBLE PROFESSION

SPECIAL PROVISIONS FOR COMPUTING INCOME ON ESTIMATED BASIS
44AD 44ADA 44AE
Nature of Any business except the Specified Plying, Leasing or
Business business referred to in section Professions u/s Hiring goods carriages.
44AE. 44AA (Goods carriages may be
owned by the assessee or
taken on
hire purchase or
installment scheme
Assessee Resident Individual, HUF or a Resident Assessee Any Assessee
partnership firm, but not a LLP
firm;
Restriction Where an eligible assessee
declares profit for any PY in
accordance with this section
and he declares profit for any

of the next 5 AY’s not in

accordance with this section,
he shall not be eligible to claim
the benefit of this section for
next 5 AY’s [44AD(4)]
Restriction Gross receipts Gross receipts Own not more than 10
on =< Rs. 200 Lakhs. =< Rs. 50 Lakhs. goods carriages,
applicability anytime during the PY.
Estimated 8% of Gross Receipts 50% of Gross Other than Heavy Vehicle
Income received or receivable Receipts received or 1. Rs. 7,500 pm or part
during the PY, or higher sum receivable during during which the
claimed to have been earned the PY, or higher carriage is owned, or
by the assessee sum claimed to 2. Actual income earned
6% of total turnover or gross have been earned whichever is more
receipts which is received by by the assessee [Vehicles owned includes
an account payee cheque or an vehicles purchased on
account payee bank draft or Hire purchase or
use of electronic clearing Installment]
system through a bank account In case of Heavy Vehicle
during the previous year or Rs 1000 per month per ton.
before the due date u/s 139(1). Heavy vehicle
Payment through digital Heavy vehicle means
wallets is also allowed Gross weight > 12000kg
Deductions All deductions u/s 30 to 38 including depreciation are deemed to have been
u/s 30 to 38 allowed.
Depreciation Is deemed to have been claimed and allowed. WDV shall be calculated
Accordingly
Set of other The income from these businesses will be aggregated with other incomes of the
losses assessee, and loss from any other activity can be set off against the estimated
income in accordance with section 70, 71 or 72.
Chapter VI-A Deductions under chapter VI-A will be available to the assessee, from the
deductions estimated incomes under these sections.
Advance Tax 100% payable by 15th March 100% payable by 15th Required to be paid
March on relevant dates
Books of The assessee, who files the return, estimating income at prescribed rate or a higher
Accounts income, will not be required to maintain books of account u/s 44AA, nor required to
and Audit get them audited u/s 44AB, in respect of such businesses.
thereof
Can lesser If 44AD(4) applies then he shall Assessee may declare an income lower than the
income be have to maintain books of specified amount. In such case he shall have to
shown? accounts u/s 44AA and get maintain books of accounts u/s 44AA and get
them audited by a CA u/s 44AB them audited by a CA u/s 44AB, irrespective of
for that PY + next 5 PY’s the turnover -
If his TI > basic exemption limit If his TI > basic Even if TI < = basic
exemption limit exemption limit

Chapter 7
CAPITAL GAIN
1. Capital Gain
Profits or gains arising on transfer of a capital asset shall be treated as capital gain.
2. Capital asset
Capital asset means any kind of property securities held by FII/ ULIP issued on or after
01/02/2021 (premium > 2,50,000)
1. Stock in trade,
2. Personal effect but excludes.
a) Jewellery
b) Archaeological Collection
c) Drawings
d) Paintings
e) Sculptures
f) Any work of art.
Note: Any immovable property is not personal effects hence are capital assets.
3. Agricultural land in rural area,
4. 6.5% Gold Bond, 1977,
5. 7% Gold Bonds, 1980,
6. National Defense Gold Bond, 1980,
7. Special Bearer Bond, 1991 and
3. Types of Capital Asset
Nature of asset STCA LTCA
1. A security (other than unit) listed in a
recognized stock exchange in India,

POH <= 12 Months POH > 12 Months
2. Units of UTI or Equity oriented Mutual Fund
specified u/s 10(23D),
3. Zero coupon bond
4. Unlisted shares
5. Immovable property being land or building or POH <= 24 Months POH > 24 Months
Both

6. Any other Asset POH <= 36 Months POH > 36 Months
Period of holding
It means the period for which the asset is held by the assessee. It starts from the day following
the date of acquisition and ends on the date of transfer
4. Transfer
Transfer in relation to a capital asset includes:
1) Sale
2) Exchange
3) Relinquishment of the asset
4) Extinguishment of any right in an asset
5) Compulsory acquisition of an asset under any law
6) Conversion of asset into stock-in-trade by the owner
7) Any transaction of immovable property u/s 53A of the Transfer of Property Act, 1882
8) Any transaction, which has the effect of transferring or enabling the enjoyment of any
immovable property) Maturity or redemption of zero coupon bond.
5. Full value of consideration
1. It is a full value of consideration received or receivable by the transferor.
2. If consideration received in kind them fair market value of asset is considered as full value
of consideration.
3. Even if a consideration received in installments in different years full value of consideration
is important.
6. Expenses on Transfer
Shall be allowed as deduction.
7. Cost of Acquisition
1. Purchase Price of Asset + Expenditure incurred to purchase
2. Deemed cost of Acquisition: Cost to Previsions owner
3. Indexed cost of Acquisition: Inflation adjusted cost
Note: Cost of acquisition includes expenses incurred in acquiring the assets or completing the
title.
Cost Inflation Index for different financial years is as follows
Financial year Index Financial year Index
2001 – 02 100 2011 – 12 184
2002 – 03 105 2012 – 13 200

2003 – 04 109 2013 – 14 220
2004 – 05 113 2014 – 15 240
2005 – 06 117 2015 – 16 254
2006 – 07 122 2016 – 17 264
2007 – 08 129 2017 - 18 272
2008 – 09 137 2018 – 19 280
2009 – 10 148 2019-20 289
2010 – 11 167 2020-21 301
2021 – 22 317
Indexation benefit not available
1) Transfer of bonds and debentures other than capital indexed bonds issued by the
Government.
Exception: Indexation benefit shall be available in case of LTCG arising of transfer of Sovereign
Gold Bond and capital indexed cost
2) Transfer of an undertaking or division in a slump sale.
3) Certain transaction by non-resident.
4) Transfer of global deposit receipts
8. Computational Notes
1) If an asset is acquired before 1/4/2001 then its cost of acquisition will be higher of
a) Actual cost of acquisition; or b) Fair market value of the asset as on 1/4/01. In such case,
indexation benefit shall be available from the year 2001-02.
The above provision has been modified with effect from the Assessment Year 2021 – 22. The
modified version provides that in case of a capital asset (being land or building or both), the fair
market value of such an asset on April 1, 2001 shall not exceed the stamp duty value of such
asset as on April 1, 2001 where such stamp duty value is available.
2) Where an-asset is acquired through any mode specified in sec. 49(1), then indexation benefit
shall be available from the year when the previous owner first held the property.
3) The cost of acquisition in relation to the long-term capital assets being
• Equity shares in a company on which STT is paid both at the time of purchase and transfer
• Unit of equity-oriented fund or unit of business trust on which STT is paid at the time of
transfer.

Acquired before 1st February, 2018 shall be the higher of
i. Cost of acquisition of such asset; and
ii. Lower of
a) The fair market value of such asset; and
b) The full value of consideration received or accruing as a result of the transfer of the capital
asset.
9. How to Compute FMV ?

In a case where the capital asset is listed on any If there is trading in such asset on such
recognized stock exchange as on 31/01/2018 exchange on 31/01/2018
The highest price of the capital asset quoted on
such exchange on the said date
If there is no trading in such asset on such
exchange on 31/01/2018
The highest price of such asset on such
exchange on a date immediately preceding
31/01/2018 when such asset was traded on such
exchange
In a case where the capital asset is an equity An amount which bears to the cost of
share in a company which is acquisition the same proportion as CII for the
- Not listed on a recognized stock exchange as financial year 2017 – 18 bears to the CII for the
on 31/01/2018 but listed on such exchange on first year in which the asset was held by the
the date of transfer assesse or on 01/04/2001, whichever is later.
- Listed on a recognized stock exchange on the
date of transfer and which became the
property of the assesse in consideration of
share which is not listed on such exchange
as on 31/01/2018 by way of transaction not
regarded as transfer under section 47
10. Cost of Improvement
1. Cost of improvement means expenditure incurred to increase the productive quality of the
asset. It includes all expenditure of a capital nature incurred in making any additions or
alteration to the capital asset.
2. Deemed cost of Acquisition: Cost to Previsions owner
3. Indexed cost of Acquisition: Inflation adjusted cost
Notes:
• Any improvement expenditure incurred before 1/4/2001 shall be ignored.
• Improvement expenditure incurred by Assessee and previous owner after 1/4/01 shall be
considered.

TO CLACULATE INDEXED COST OF ACQUISITION & IMPROVEMENT
Indexed cost of acquisition [Explanation (iii) to Section 48)
Cost of acquisition X Cost inflation index for the year in which the asset is transferred
Cost inflation index for the PY in which the asset was 1st held by the assessee
Indexed cost of improvement [Explanation (iv) to Section 48)
Cost of improvement X Cost inflation index for the year in which the asset is transferred
Cost inflation index for the year in which the improvement to the asset took place
COMPUTATION OF CAPITAL GAIN IN CERTAIN CASES
CAPITAL GAIN IN CASE OF INSURANCE CLAIM RECEIVED ON DAMAGE OR DESTRUCTION OF
CAPITAL ASSETS SEC 45(1)
Compensation received from an insurance company for the specified damages is treated as
transfer.
• Specified Damage
Here specified damages mean flood, cyclone, earthquake, riot, civil disturbance, accidental fire,
enemy action etc.
• Sale consideration If compensation received is in cash: Compensation so received

If compensation received is in kind: Fair Market value
(As on date of receipt) of assets received as Compensation
• Indexation benefit Till year of destruction
available
• Taxable In the year of receipt of compensation
• Other Points
1) Compensation received for any damages to capital asset shall be treated as capital receipt
and shall not be taxable.
2) Compensation received for any damages to non-capital asset may be chargeable u/s 28 or
56. E.g. Compensation received on theft of stock in trade shall be treated as business
income.
ULIP ISSUED ON OR AFTER 01/02/21 SEC 45(1)
Taxable in the year of Receipt provided annual premium exceeds 2,50,000.

CAPITAL GAIN ON CONVERSION OF CAPITAL ASSETS INTO STOCK IN TRADE SEC 45(2)
Conversion of capital assets into stock shall be treated as transfer.
Sale consideration Fair Market value as on date of such conversion.
Indexation benefit available (if any) Till year of conversion
Taxable In the year in which such stock is actually sold

Tax rate As applicable in the year of actual sale of such
Converted stock.
Treatment of difference of actual sale It shall be treated as business Income.
value and Fair market value as on date
of conversion
TRANSFER OF SECURITIES BY DEPOSITORY [SECTION 45(2A)]
Sale consideration Value at which shares sold

Cost of acquisitionCost of acquisition & period of holding of any securities, shall be
determined on the basis of the FIFO method. This method is applicable to
dematerialized form. Securities held in physical forms shall be dealt
separately.
Indexation benefit As usual
Taxable In the year in which asset is sold
Expenses on As usual
transfer
CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS BY A PARTNER/MEMBER TO FIRM/AOP/BOL AS
CAPITAL CONTRIBUTION SEC 45(3)
Sale consideration The amount recorded in books of account of the firm.
Cost of acquisition/ improvement As usual
Taxable In the year of such transfer
Indexation benefit As usual
CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS BY A FIRM/AOP/BOL TO PARTNER/ MEMBER
BY WAY OF DISTRIBUTION ON ITS DISSOLUTION [SEC 45(4)]
Sale consideration Fair market value as on date of transfer
Cost of acquisition / Cost of improvement / As usual
Expenditure on transfer and Indexation
Taxable In the year of such transfer

CAPITAL GAIN ON TRANSFER BY WAY OF COMPULSORY ACQUISITION [SEC 45(5)]
Tax treatment of initial compensation received.
Sale consideration Total compensation or consideration received or receivable
Taxable In the year when such compensation is first received.
Indexation benefit available Till the year of compulsory acquisition.
Tax treatment of enhanced compensation
Sale consideration Total enhance compensation/consideration received/receivable
Expenditure on transfer Litigation expenses for getting the enhanced Compensation
Cost of acquisition/ Nil
Improvement
Taxable In year when enhanced compensation is first received.
Nature of gain As in case of initial compensation or consideration.
W.e.f. ASSESSMENT YEAR 2005 – 06 SECTION 10(37) HAS BEEN INSERTED, WHICH PROVIDES AS
UNDER
Applicable: An individual or an HUF.
Conditions:
1. Assessee has transferred urban agricultural land (being a capital asset).
2. Such land was used for agricultural purposes by such HUF or individual or his parents during
the period of 2 years immediately preceding the date of transfer.
3. Such land is transferred:
a. By way of compulsory acquisition under any law, or
b. For a consideration to be determined or approved by the Central Government or the RBI.
4. The compensation or consideration for such transfer is received by such assessee on or after
1.1.04.
• Treatment: Income on such transfer shall be exempted.

EC. 45(5A): CAPITAL GAIN ON TRANSFER OF LAND OR BUILDING OR BOTH, UNDER DEVELOPMENT
AGREEMENT
Asset Transferred Land or building or both, under a specified agreement

PY of taxability PY in which the certificate of completion for the whole or part of the project
is issued by the competent authority;
Full value of The stamp duty value, on the date of issue of completion certificate, of his
consideration: share, being land or building or both in the project, as increased by the
consideration received in cash, if any.
Exception provisions of this sub-section shall not apply where the assessee transfers
his share in the project on or before the date of issue of said certificate of
completion, and the capital gains shall be deemed to be the income of the
previous year in which such transfer takes place and the provisions of this
Act, other than the provisions of this sub-section, shall apply for the
purpose of determination of full value of consideration received or
accruing as a result of such transfer.
BUY BACK OF SHARES SEC 46A
Transfer Where a shareholder receives any consideration from the company for
purchase of its own shares Or other specified securities, it is a transfer
chargeable under the head Capital
Year of taxability Such Capital Gain is chargeable to tax in the previous year in which the
shares or securities are purchased by the Company.
Capital Gains Value of consideration received Less Cost of Acquisition or Indexed cost of
Acquisition.
No Deemed In case of buyback of shares, there is no question of Deemed dividend u/s
Dividend 2(22) (d).
CAPITAL GAIN ON CONVERSION OF DEBENTURES INTO SHARES SEC 49(2A)

Cost of old asset (convertible debentures) shall be taken as
Cost of acquisition of new asset cost of acquisition of new asset (converted share).
Holding Period Starts from the date of allotment of new asset
Indexation benefit Benefit of indexation shall be available from the date of
allotment of new asset.
SEC 49(2AA) GAIN ON SPECIFIED SECURITY OR SWEAT EQUITY SHARES
If the market value has been charged as perquisite under sec. 17 (2) (VI), the cost of acquisition
shall be the Market value at the time of exercising option to take ESO
SEC 49(2ABB) TRANSFER OF SHARE ACQUIRED ON REDEMPTION OF GDR BY NR ASSESSEE
Effective from: AY 2016-17

Cost of acquisition: of shares of a company acquired by a non-resident assessee on redemption
of GDRs [referred to in section 115AC (1) (b)] = price of such share or shares prevailing on any
recognised stock exchange on the date on which a request for such redemption was mode.
Period of holding of shares acquired on redemption of GDRs would be reckoned from the date
on which a request for such redemption was made.
CAPITAL GAINS IN THE CASE OF SLUMP SALE SEC 50B
Sale consideration As usual
Cost of Acquisition / Improvement Net worth of the undertaking
Indexation Benefit Not available
Nature of gain weather. short term If undertaking is owned & held for not more than 36 months,
or long term then capital gain shall deemed to be short-term capital gain
VALUATION OF CONSIDERATION IN CASE OF LAND OR BUILDING OR BOTH SEC 50C
In case of transfer of immovable capital asset being lane building or both, sale consideration
shall be higher of the following:
1. Actual consideration received or accrued on such transfer; of
2. 110% of the value adopted or assessed or assessable by Stamp Valuation authority for payment
of stamp duty
3. Where valuation is referred to the Valuation Officer, sale consideration of the asset shall be
taken as minimum value adopted or assessed or assessable for purpose of stamp duty or value
determined by Valuation Officer.
SEC 50D FAIR MARKET VALUE DEEMED TO BE FULL VALUE OF CONSIDERATION IN CERTAIN
CASES
Where the consideration received or accruing as a result of the transfer of a capital asset by an
assessee is not ascertainable or cannot be determined, then, for the purpose of computing
income chargeable to tax as capital gains, the FMV of the said asset on the date of transfer shall
be deemed to be the full value of the consideration received or accruing as a result of such
transfer.
TREATMENT OF ADVANCE MONEY RECEIVED & FORFEITED SECTION 51
Where any capital asset, was on any previous occasion, the subject of negotiations transfer, any

advance or other money received and retained by the assessee in respect of such negotiations,
shall be deducted from the cost for which the asset was acquired or the written down value or
the fair market value, as the case may be, in computing the cost of acquisition.
1. W.e.f from AY 15-16 any advance money received and forfeited shall be treated as Income from
other source and hence shall not be deducted from the cost of asset.
2. If advance money is received before 31-3-14 then it is to be reduced from the cost of acquisition
and if it is received on or after 1-4-14 then it shall be taxable as income from other source.
CAPITAL GAIN IN THE CASE OF SELF-GENERATED ASSETS
Goodwill of a business or profession, right to carry on a business, right to manufacture
or process any article

Sale Consideration Actual
Cost of acquisition Nil
Cost of improvement Nil
Expenditure on transfer Actual
Capital gain Sale consideration less expenditure on transfer
Tenancy right, route permits, loom hours, trade-mark & brand name associated with the
business.
Sale Consideration Actual
Cost of acquisition Nil
Cost of improvement Nil
Expenditure on transfer Actual
Sale consideration less cost (or indexed cost) of improvement less

Capital gain
expenditure on transfer.

CAPITAL GAIN IN CASE OF BONUS SHARE

Cost of Acquisition If bonus shares are allotted before Fair market value of such share as
1/4/2001 on 1/4/2001
If bonus shares are allotted after Nil

1/4/2001
CAPITAL GAIN IN CASE OF TRANSFER OF RIGHT SHARE AND RIGHT ENTITLEMENT

Case Right shares Right Entitlement Shares acquired by
Right Renounce
Cost of Acquisition Right issue price Nil Amount paid for right
entitlement+ Amount
paid to company
Period of holding Date of allotment The date of declaration The date of
starts from of such shares of such right by the allotment of such
company shares
CAPITAL GAIN ON TRANSFER OF SHARES / DEBENTURES BY A NON-RESIDENT

Applicable A non-resident assessee
Nature of asset Capital assets whether long-term or short term being shares in, or
debentures of an Indian company acquired by utilizing foreign currency
Step Conversion of Particulars Conversion rate
1 Sale Find sale consideration in At average exchange rate1 on the date of
consideration Indian currency and convert it transfer
into foreign currency
2 Expenditure Find expenditure on transfer in At average exchange rate on the date of
on transfer Indian currency and convert it transfer (not on the date when
into foreign currency expenditure was incurred)
3 Cost of Find cost of acquisition in At average exchange rate on the date of
acquisition Indian currency and convert it acquisition.
into foreign currency
4 Capital gain in Step 1 - Step 2 - Step 3 Not applicable
foreign
currency
5 Taxable Capital gain so calculated (in At buying rate2 on the date of transfer
Capital gain step 4) will be reconverted into
Indian currency
SECTION 46 & 47 – TRANSACTIONS NOT REGARDED AS TRANSFER
1 Sec. 46(1) Distribution of capital assets on liquidation of a company to its shareholders
in the hands of company.
Key note: Sale of asset at the time of liquidation of company shall be

taxable transfer.
2 Sec. 47(i) Distribution of capital assets on the partition of an HUF.
3 Sec. 47(iii) Gift, will or creation of irrevocable trust.
However, gift of shares acquired through ESOP is not exempted.
4 Sec. 47(iv) Any transfer of a capital asset by a holding company to its100% subsidiary
company, if the subsidiary company is an Indian company.
However, in the following cases the above exemption shall be withdrawn, if:
a Within 8 years from the date of the transfer, the capital asset to
transferred is converted by transferee-company into stock; or
b Within 8 years from the date of the transfer, the 100% relationship
between holding and subsidiary company reduces or cases to exist.
c Note: Exemption so withdrawn shall lead to reassessment.
5 Sec. 47(vi) Capital asset transferred in a scheme of amalgamation, by the amalgamating
company to the amalgamated Indian company.
6 Sec.47 (viab) Any transfer, in a scheme of amalgamation, of a capital asset, being a share
of a foreign company, referred to in Explanation 5 to Sec. 9(1)(i),which
derives, directly or indirectly, its value substantially from the share or
shares of an Indian company, held by the amalgamating foreign company
to the amalgamated foreign company; and
a At least 25% of the shareholder of the amalgamating foreign company
continue to remain
b Such transfer does not attract tax on capital gains in the country in
which the amalgamating company is incorporated.
7 Sec. 47 (vicc) Any transfer in demerger, of a capital asset, being a share of a foreign
company, referred to in Explanation 5 to Sec. 9(1)(i), which drives, directly or
indirectly, its value substantially from the share or shares of an Indian
company, held by a demerged foreign company to the resulting
8 Sec. 47(vib) Transfer of asset on a demerger by the demerged company to the resulting
company, if the transferee company is an Indian company
9 Sec.47 (vid) Transfer of shares in a scheme of demerger to the shareholder if the transfer
or issue is made is consideration of demerger of the undertaking.
10 Sec.47 (vii) a Any transfer of share(s),
b In a scheme of amalgamation

c In the amalgamating company, provided, the transfer is made in
consideration of the allotment of any share or shares in the
amalgamated, and
d The amalgamated company is an Indian company.
Key note: if the shareholders of amalgamating company receives W.e.f.
shares, debentures and cash in lieu of their old shareholdings then the
transfer shall be taxable.
A.Y. 13-14, it shall not be necessary for the amalgamated co. to issue
share to the shareholders of the amalgamating co. to the extent the
amalgamated co. itself is the shareholder in the amalgamating
company.
11 Sec.47 (viia) Any transfer of foreign currency convertible bonds or Global Depository
Receipts made outside India by a non-resident to another non-resident.
12 Sec.47 (viib) Any transfer of a capital asset, being a government security carrying a
periodic payment of interest, made outside India through an intermediary
dealing in settlement of securities, by a non-resident to another non-resident
shall not be considered as a transfer for the purpose of charging capital
gains.
13 Sec.47 (viic) Any redemption of Sovereign Gold Bond issued by RBI under the Sovereign
Gold Bold Scheme 2015 by an Individual shall not be considered as transfer
However of transfer of Sovereign Gold Bond shall be taxable and indexation
benefit is available on of long term of Sovereign Gold Bond.

transfer
Particulars Sovereign Gold Bonds, 2015 Monetization

Owned by an Owned by others
individual
Interest Taxable Taxable Not taxable u/s
10(15)(vi)
It is capital asset Yes Yes No
Capital gains arising Not Taxable u/s Taxable Indexation Not taxable
on time of 47(viic) available (as not an asset)
redemption
Capital gains arising Taxable Indexation Taxable Indexation Not taxable (as not an
on time of transfer available available asset)
14 Sec. 47(ix) Any transfer of a work of art, archaeological, scientific or art collection, book,
manuscript, drawing, painting, photograph or print, to the Government or a
University for the National, Museum, National art Gallery, National Archives

or any such other public museum or institution as may be notified by the
Central Government.
15 Sec.47(x) Any conversion of bonds or debenture into shares or debentures of that
company,
Note: However conversion of preference share into equity share shall be
treated as transfer.
16 Sec.47 (xiii) Any transfer in a scheme of succession by a firm to a company, subject to the
Exempted following conditions -
Transfer [Sec. 1 All assets and liabilities of a firm are transfer
46 & 47] 2 All the partners become the member of the company
3 Partners of the firm become member of the company in the same
proportion in which they held the capital in the books of the firm.
4 Partner receive consideration only by way of allotment of shares in the
company; and
5 The aggregate or the shareholding in the company of the partners of
the firm is not less than 50% of the total voting power in the company
6 Such shareholding must be maintained for a period of 5 years from the
date of succession.
Note:
1 If the share allotted to the partners is more than 50% then partners can
sell their excess share continue to get exemption u/s 47 (xiii)
2 Cost of acquisition of such assets in the hands of the succeeded
company shall be the price at which such assets have been transferred
by the firm to the company.
3 W.e.f. 1999-00, in case of conversion of sole-proprietorship concern or
firm into a company which is not regarded as transfer, the COA of the
asset in the hands of company will be the same as that in hands of sole-
proprietorship concern of firm as the case may be.
17 Sec. 47(xiiia) Any transfer of a membership right of a recognised stock exchange in India
for acquisition of shares and trading or clearing rights in that recognised
stock exchange in accordance with a scheme for demutualization which is
approved by SEBI.
18 Sec. 47 (xiiib) Any transfer of a capital asset or intangible asset by a private company or

unlisted public company (hereafter in this clause referred to as the company)
to a limited liability partnership as a result of conversion of the company into
a limited liability partnership in accordance with the provisions of section 56
or section 57 of the Limited Liability Partnership Act, 2008
1 Under Section 47(xiiib), any transfer of a capital asset or intangible
asset on conversion of a private company or unlisted public company
to a Limited Liability Partnership (LLP) shall not be regarded as transfer
as transfer of levy of capital gains tax, on fulfilment of certain
conditions.
2 The proviso to section 47(xiiib) stipulated the various conditions to be
fulfilled for the transaction to not constitute a transfer for the purpose
of capital gains. One of the conditions is that the company’s gross
receipts, turnover or total sales in any of the preceding three previous
years should not exceed Rs. 60 lakh
3 Clause (ea) has been inserted in the said proviso to stipulate an
additional condition for claim exemption under section 47(xiib).
Accordingly, the total value of assets as appearing in the books of
account of the company in any of the three previous years preceding
the previous year in which the conversion takes place, should not
exceed Rs. 5 crore.
(Amendment Finance Act 2016)
19 Sec. 47(xiv) If a sole proprietary concern in a scheme of succession transfer its capital
asset to the company then such transfer shall be exempted provided -
1 All assets and liabilities of the firm are transferred
2 The proprietor become the member of the company
3 The proprietor receives consideration only by way of allotment of
shares in the company;
4 The aggregate of the shareholding in the company of the proprietor is
not less than 50% of the total voting power in the company.
Lock in period: 5 years from the date of succession.
20 Sec. 47(v) Any transfer of a capital asset by a subsidiary company to its 100% holding
company, if the holding company is an Indian company.
However, in the following cases the above exemption shall be withdrawn, if:

1 Within 8 years from the date of transfer, the capital asset so
transferred is converted by the holding company is an Indian company.
2 Within 8 years from the date of the transfer, the 100% relationship
between holding and subsidiary company reduces or ceases to exist.
Note: Exemption so withdrawn shall lead to reassessment.
21 Sec. 47(via) Any transfer of shares in an Indian company by the amalgamating foreign
company to the amalgamated foreign company subject to following
condition:
1 At least 25% of a shareholder (stress is or number of shareholder rather
than value of shareholding) of the amalgamating foreign company
continue to remain shareholders of the amalgamated foreign company;
and
2 Such transfer is not taxable in the country, in which a amalgamating
company is incorporated
22 Sec.47(vii) Any transfer, in a scheme of amalgamation of a banking company with a
banking institution sanctioned and brought into for by a Central Government
u/s 45(7) of the Banking Regulation Act, 1949, of a capital asset by the banking
company to the banking institution.
Key Notes:
1 “Banking Company” shall have the same meaning as assigned to it in
clause (C) of section 5 of the banking Regulation Act, 1949
2 “Banking institution” shall have the same meaning as assigned to it u/s
45(15) of the Banking Regulation Act, 1949
23 Sec. 47(vic) Any transfer of shares in an Indian company by the demerged foreign
company to the resulting foreign company shall be exempted if following
conditions are satisfied -
1 The shareholders holding not less 3/4th in value of the shares
(irrespective of number of shareholder) of the demerged foreign
company continue to remain shareholders of the resulting foreign
company; and
2 Such transfer is not taxable in the country, in which the demerged
foreign company is incorporated.
24 Sec.47 (vica) Any transfer in a business reorganization, of a capital asset by the

predecessor co-operative bank to the successor co-operative bank
25 Sec. (vicb) Any transfer by a shareholder, in a business organization, of a capital asset
being a share or shares held by him in the predecessor co-operative bank if
the transfer is made in consideration of the allotment to him of any share or
shares in the successor co-operative bank.
26 Sec.47(xviii) Any transfer by a unit holder of a capital asset, being a unit or units, held by
him in the consolidating scheme of a mutual fund, made in consideration of
the allotment to him of a capital asset, being a unit or units, in the
consolidated scheme of the mutual fund:
Provided that the consolidation is of two or more schemes of equity oriented
fund or of two or more scheme of a fund other than equity oriented fund.
Explanation:
1 “consolidating scheme” means the scheme of a mutual fund which
merges under the process of consolidation of the schemes of mutual
fund in accordance with the securities and Exchange Board of India
(Mutual Funds) Regulations, 1996 made under the securities and
Exchange Board of India Act, 1992;
2 “Consolidated Scheme” means the scheme with which the
consolidating scheme merges or which is form as a result of such
merger;
3 “equity orient fund” shall have the meaning assigned to it in sec. 10(38);
4 “mutual fund” means a mutual fund specified u/s 10(23D)
As per Sec. 49(2AC), where the capital assets being unit in consolidated
scheme of a mutual fund became the property of the assessee in
consideration of a transfer referred to in sec. 47(xviii) the cost of acquisition
of asset shall be deemed to be the cost of acquisition to him of the unit in
consolidating scheme of the Mutual Fund. A.Y. 2016-17
27 Sec. 47(xvi) Any transfer of a capital asset by way of reverse mortgage under a notified
scheme shall not be treated as transfer.
Theme of Reserve mortgage
1 An old aged borrower
2 Who does not have a regular source of income
3 Can mortgage in house property

4 With scheduled bank of housing finance company
5 The lender will give the fixed regular installments during the life time
of borrower as per the scheme.
6 After death of borrower the money will be recovered by selling such
property by lender, and
7 If any surplus remains then it is returned to the legal heir of the
borrower.
28 Sec.47(xvii) Any transfer of a capital asset, being share of a special purpose vehicle, to a
business trust in exchange of units allotted by that trust to the transferor
shall not be regarded as transfer for the purpose of section 45.
Sec. 10(23fC).
Note: As per sec. 49, where the capital asset, being a unit of a business trust,
became the property of the assessee in consideration of a transfer referred
to in sec.47 (xvii) the cost of acquisition of the asset shall be deemed to be the
cost of acquisition to him of the share to in the said clause.
29 SEC. 47 XIX Transfer of units by holders on consolidation of plans within a mutual fund
scheme not to be regarded as transfer [Section 47(xix)]
Effective from: AY 2017-18
Exemption for consolidation of mutual fund schemes:
Under section 47(xviii), any transfer by a unit holder of a capital asset, being
a unit or units, held by him in the consolidation of the allotment to him of a
capital asset, being a unit or units, in the consolidated scheme of the mutual
fund is not regarded as a transfer and is, hence, not subject to capital gains
tax.

SUMMARY OF SECTION 54
Depos
Time limit
Applicab it Revocation of
Sec. Nature New Asset for Exemption
le schem benefit
investment
e
54 Long term Individu One / two Within 1 year Capital Yes If new asset is
Residenti al or HUF Residential before or 2 gains or sold within 3
al House House in years after amount years, then
India the date of invested, benefit
[FA 2019] transfer in whichever availed
provided case of is less earlier will be
LTCG does purchase, or revoked and
not exceed within 3 shall be
Rs 2 cr. years after reduced from
the date of cost of new
transfer, in asset.
case of new
construction
.
54B Agricultur Individu Agricultural Within 2 Capital Yes If new asset is
al land al Land years after gains or sold within 3
used for transfer amount years, then
agro invested. benefit
purpose Whichever availed
for 2 years is less? earlier will be
by him or revoked and
his shall be
parents. reduced from
cost of new
asset.
54D Land and Any Land and Within 3 Capital Yes If new asset is
building assesse Building for years after gains or sold within 3
used for e industrial receipt of amount years, then
industrial undertakin initial invested, benefit
undertaki g. compensati whichever availed
ng for 2 on. is less. earlier will be
years. revoked and
shall be
reduced from
cost of new
asset.
54E Land or Any Specified Within 6 Capital No. If bonds are
C building assesse bonds months gains or redeemed in 5
or both e redeemabl after amount yrs from the
e after 5 transfer invested. date of acquis
years in Authority Whichever ion then
National Rural is less. benefit

Highways Electrificatio availed

Authority or n Corp. Ltd. Max. Rs. 50 earlier shall
Rural lacs be revoked
Electrificati and deemed
on Corp. to be LTCG in
Ltd. the year of
redemption.
54F Any LTCA Individu Residential Within 1 year (Capital Yes If new asset is
other than al or HUF house before or Gain/Net sold within 3
residentia Assessee two years considerati years, or new
l house. should not after on) * asset
own more transfer in Amount acquired
than one case of invested within 3 years,
house. purchase or then earlier
3 years after exemption
transfer in shall be
case of revoked and
construction will be
. deemed to be
LTCG.
54E Any long Any Long term Within 6 Capital gain NO If specified
E term assesse specified months or amount assets is
capital e assets from the invested transferred/lo
asset date of whichever an taken in 3
transfer is lower yrs from the
date of acquis
ion then
benefit
availed
earlier shall
be revoked
and deemed
to be LTCG in
the year of
redemption.
54G Plant & Any Plant and Within one Capital gain Yes If new asset is
machiner assesse machinery year before or amount sold within 3
y or land & e. or land and or 3 year invested years then
building building after the whichever capital gain
for used for date of is lower. will be
industrial industrial transfer. revoked and
under under shall be
taking in taking in reduced from
urban non-urban cost of new
area area or asset.
(LTCA or meeting
STCA) expenses
of shifting.

54G Plant & Any Plant and Within one Capital gain Yes If new asset is
machiner assesse machinery year before or amount sold within 3
y or land & e. or land and or 3 year invested years then
building building after the whichever capital gain
for used for date of is lower. will be
industrial industrial transfer. revoked and
under under shall be
taking in taking in reduced from
urban SEZ area or cost of new
area meeting asset.
(LTCA or expenses
STCA) of shifting.
54G Long term Individu Equity Within due (Capital Yes If new asset is
B residentia al or HUF shares of date of Gain/ Net sold within 5
l property eligible furnishing considerati years, 3 yes in
company return of on *amount case of
income invested computer
Such software by
company Within 1 year an eligible
shall from the start up [FA
acquire date of such 2019 ] then
new assets subscription capital gain
in equity will be
shares revoked and
will be
deemed to be
LTCG.
Key Notes
1. Meaning of Eligible Company:
a. It is an Indian company:
The company should be incorporated during the period from the 1st day of April of the previous
year relevant to the assessment year in which the capital gain arises to the due date of
furnishing of return of income u/s. 139(1) by the assessee. E.g. : If Mr. X has transferred his
residential property as on 10/8/2021, then company should be incorporated between 01/04/2019
and due date of furnishing return u/s. 139(1) by Mr. X (i.e. 31/07/2022 assumng his accounts are
not liable for tax audit).
b. The company is engaged in the business of manufacture of an article or a thing.
c. It is a company in which the assessee has more than 25% share capital [ FA 2019] or more
than 25% voting rights [ FA 2019] after the subscription in shares by the assessee; and
d. It is a company which equalities to be a small or medium enterprise (i.e. SME) under the
Micro. Small and Medium Enterprises Act, 2006 (i.e. investment in plant and machinery is

more than Rs. 25 lakhs but does not exceed Rs. 10 crore). or is an eligible start up
New asset means new plant and machinery but does not include:
a. Any machinery or plant which before its installation by the assessee, was used either within
or outside India by any other person (Second hand machine),
b. Any machinery or plant installed in any office premises or any residential accommodation,
including accommodation in the nature of a guest-house.
c. Any office appliances including computers or computer software;
Note: W.e.f. 1/4./2016, New Asset includes Computers or Computer Software in the case of an
Eligible Start-Up, being a technology driven Start-Up so certified by the Inter-Ministerial Board
of Certification notified by the Central Government.
d. Any vehicle; or
e. Any machinery or plant for which 100% deduction is allowed (whether by way of depreciation
or otherwise) in computing the income chargeable under the head “profits and gains of
business or profession” of any previous year.
2. What is eligible start up or eligible business
Eligible business means a business which involves innovation, development, deployment, or
commercialized of new products processes or service driven by technology or intellectual
property.
Eligible start-ups means a company engaged in eligible business and satisfies he following
conditions
a. It is incorporated during 1/4/2016 – 31/3/2022
b. Total turnover of its business does not exceed Rs. 100 crore in any of the PY during 1/4/2016
to 31/3/2022
c. It holds a certificate of eligible business from the enter – Ministerial Board of certification
notified by the CG]
TAX RATES APPLICABLE TO STCG & LTCG
Special rates of tax

Sec. Natures of Income Tax Rate Basic Chapter VI-
exemption A Ded
111A STCG on @ 15% Allowed to Not Allowed
Resident
1 Equity shares or
2 Units of equity oriented fund

3 Unit of business trust on which STT is Individual /

paid HUF
(In case of sale on a RSE in International
Financial Service Centre in SEZ, payment of
STT is not required, if consideration is in
foreign currency)
Note: Short – term capital gains arising on Normal As per the Allowed
transfer of other short-term capital assets assessee
would be chargeable at normal rates of applicable
tax.
112 LTCG on any asset (STT not applicable) @ 20% Allowed to Not allowed
Resident
Individual /
HUF
LTCG on listed securities (other than a unit) @ 20% after Allowed to ‘R’ Not Allowed
STT not paid indexation, or Individual /
or @ 10% without HUF
indexation,
112A Tax @ 10% on long-term capital gains 10% Allowed to ‘R’ Not allowed
exceeding Rs. 1,00,000 on the transfer of Individual /
following long-term capital asset. HUF
• Listed equity shares, if STT has been
paid on acquisition and transfer of
such shares
• Units of equity oriented fund and unit

of business trust, if STT has been
paid on transfer of such units
• If such transaction undertaken on a
recognized stock exchange located in
an International Financial Services
Centre (IFSC), LTCG would be taxable
at a concessional rate of 10% where
the consideration for transfer is
received or receivable in foreign
currency, even though STT is not paid
in respect of such transaction.
1) Benefit of indexation and currency
fluctuation would not be available.
Bonds / Debentures 10%
(Benefit of indexation not available)
Note - Rebate u/s 87A is not available in respect of tax payable @ 10% on long-term Capital Gains
u/s 112A.

Chapter 8
INCOME FROM OTHER SOURCE
1. Introduction
A receipt shall be taxable under this head if such income does not specifically fall under any
one of the other four heads of income.
2. Basis of chargeability
Income under this head shall be chargeable on 'accrual' or 'cash' basis depending on the method
of accounting regularly followed by the assessee.
3. Dividend Sec 2(22)
Case Tax Treatment
a) Dividend from a domestic company Taxable in the hands of shareholder
including dividend u/s. 2(22)(e) [Amendment Fin Act 20]
b) Dividend from a non-domestic company. Taxable in the hands of recipient.
c) Dividend from a co-operative society Taxable in the hands of recipient.
DDT Rate
Removed W.e.f 01/04/20
Deemed Dividend
Sec 2(22)(a) Distribution of assets to the extent of accumulated profit

Sec 2(22)(b) Distribution of debentures stock & bonus shares to preference share holder
to the extent of accumulated profit
Sec 2(22)(c) Distribution on liquidation of company to the extent of accumulated profit
Sec 2(22)(d) Distribution of reduction of capital to the extent of accumulated profit

Sec 2(22)(e) Loan and advances by closely held company to share holder holding
substantial interest
4. Casual Income Sec 56(2)(ib)
Winning from lotteries, crossword puzzles, etc. are taxable under this head. Tax is charged on
such -come at a flat rate of 30% plus surcharge (if any) plus education cess& SHEC.
Notes
1) Any expenditure incurred to earn above income is not allowed as deduction.
2) Deductions u/s 80C to 80U not available.
3) TDS is to be deducted if income exceeds Rs 10,000.

5. Interest on securities Sec 56(2)(id)
As per Sec. 2(2BB) “interest on securities” means
a) Interest on any security of the Central Government or a state Government.
b) Interest on debentures or other securities issued by or on behalf of:
1) A local authority.
2) A company.
3) A corporation established by a central or state government
Expenditure allowed as deduction
• Collection expenditure
• Interest on loan.
6. Income from letting of machinery, plant or furniture
is charged to tax under this head, if such income is not chargeable Wider the head "Profits and
gains of business or profession".
7. Composite rent
If letting of building is inseparable from letting of machinery, furniture, etc. then income from
such letting is charged to tax under the head "Income from other sources" otherwise Income
from house property.
8. Sum received under key man insurance policy
Any sum received under a Keyman Insurance Policy including bonus, if not chargeable under
the head “PGBP” or “Salary”;
9. Family pension
It is taxable under the head "Income from other sources" after allowing standard deduction to
the minimum of a) 1/3rd of such pension; or b) Rs.15000.
10. Gift Sec 56(2)(vii)
Applicable to All person
Property includes –
a) Immovable property being land or building or both;
b) Share and securities
c) Jewellery
d) Archaeological collections;
e) Drawings
f) Paintings
g) Sculptures;

h) Any work of art; or Bullion
Category of gift Taxable if exceed Rs 50,000

Any sum of money (cash, cheque, draft, etc.) The whole of the aggregate value of such sum
from one or more persons. shall be considered as income of that previous
The aggregate value of such receipt during the year
previous year exceeds Rs 50,000
Immovable property is received without The stamp duty value of such property shall be
consideration. The stamp duty value of such considered as income of that previous year
property exceeds Rs. 50000.
Immovable property is received for Difference between SDV and the consideration
consideration. Which is less than stamp duty shall be taxable only if such difference is
value by an amount exceeding Rs. 50,000 greater than Rs 50,000 plus 10% [ F.act 2020] of
the consideration.
Movable property is received without The whole of the aggregate fair market value of
consideration. such property shall be considered as Income of
The aggregate fair market value of such the previous year
receipts during the previous year exceeds Rs.
50000.
Movable property is received for a The aggregate fair market value of such
consideration. property Less consideration paid shall be
Such consideration is less than the aggregate considered as income of the previous year.
fair market value of the property by an amount
exceeding Rs. 50000.
Exceptions:
a) Gift received from any relative,
b) Gift received on the occasion of the marriage of the individual,
c) Any sum of money which is received under a will or by way of inheritance,
d) Any sum of money which is received in contemplation of death of the payer
e) Any sum of money which is received from - local authority, any fund or foundation or
university or other educational institutions or hospital or other medical institutions or any
trust or institution referred u/s 10(23C) or a registered trust.
f) By way of transaction not regarded as transfer under clauses (i) / (vi) / (via) / (viaa) / (vib) /
(vic) / (vica) / (vicb)/(vid)or(vii)ofsection47
11. Compensation received in connection with employment Sec 56(2)(XI)
Any compensation or any other payment, due to or received by any person, by whatever name
called, in connection with the termination of his employment or the modification of the terms
and conditions relating to thereto shall be chargeable to tax under this head.
12. Share premium in excess of FMV of Share Sec 56(2)(viib)

Where a company not being a company in which the public are substantially interested,
receives, in any previous year from any person being a resident any consideration for issue of
shares that exceeds the face value of such shares, the aggregate consideration received for
such shares as exceeds the FMV of the shares shall be treated as income of the company.
13. Interest on Compensation Sec 56(2)(viii)
Taxable after deduction of 50%
14. Advance received & forfeited Sec 56(2)(ix)
Any sum forfeited against capital asset on or after 1-4-14 shall be treated as Income from Other
Sourse.
15. Deduction u/s 57
Commission or remuneration for is releasing interest on securities (section 57(i)):
Deduction in respect of employees’ contribution towards staff welfare schemes section 57 (ia):
Repairs, depreciation in the case of letting out of plant, machinery, furniture, building:
Standard deduction in the case of family pension section (57(iia)):
In the case of income in the nature of family pension, the amount deductible is Rs. 15000 or 33
1/3 present of such income, whichever is less.
for this purpose, “family pension” means a regular monthly amount payable by the employer to
a person belonging to the family of an employee in the event of his death.
Note:-If an individual opts for the alternative tax regime under section 115 BAC, deduction under
section 57 (iia) is not available from the assessment year 2021 - 22. [Finance Act - 20]
Any other expenses for earning income (section 57(iii)):
Expenditure incurred to earn dividend income other than deduction on account of interest
expense and in any previous year such deductions shall not exceed 20% of the dividend income
for income from units included in the total income for that Year Without deduction under section
57. [Finance Act - 20]

Chapter 9
CLUBBING OF INCOME
Key Notes:
1. Clubbing of income includes clubbing of negative income
2. The credit of TDS shall be given to the person in whose hands the income is taxable.
3. Income shall be clubbed even when form of the transferred asset is subsequently changed
4. Income arising from the accretion of such property is not to be clubbed.
5. Income on income is not to be clubbed.
6. Income shall be, first, computed in hands of recipient and then clubbing shall be made head
wise.
If the clubbed income is eligible for deduction u/s 80C to 80U, then such deduction shall be
allowed to the assessee in whose hands such income is clubbed.
1 Sec. 60
Where an income is transferred without transferring the asset yielding such income, then
income so transferred shall be clubbed in the hands of the transferor.
The above provision holds good: -
1) Whether the transfer is revocable or not, or
2) Whether the transaction is effected before or after the commencement of this Act.
2 Sec. 61
If an assessee transfers an asset under a revocable transfer, then income generated from such
asset, shall be clubbed in the hands of the transferor.
Revocable transfer means, there is any provision for the retransfer of any part or whole of the
income/assets to the transferor or gives the transferor a right to re-assume power over any part
or whole of the income/ assets.
Exceptions:
1) A transfer by way of creation of a trust which is irrevocable during the lifetime of the
beneficiary;
2) Any transfer which is irrevocable during the lifetime of the transferee;
• 64(1) (ii)
The total income of an individual shall include income arising (directly or indirectly) to the

spouse by way of salary, commission, fees or any other remuneration (whether in cash or in
kind) from a concern in which such individual has substantial interest.
Marital Relationship: The relationship of husband and wife must subsist on the date of transfer
of assets as well as on the date of accrual of income i.e.
no clubbing provision shall be attracted if :-
1) When such transfer is for adequate consideration; or
2) The transfer is under an agreement to live apart; or
3) Where the asset transferred is house property (as such transfer will be governed by Sec. 27)
4) Where the asset is transferred before marriage.
5) If on the date of accrual of income, transferee is not spouse of the transferor.
3 64(1) (vii)
If asset is transferred to other person or an AOP, for inadequate consideration, for immediate
or deferred benefit of spouse, then income on asset so transferred shall be clubbed in the hands
of the transferor.
4 64(1) (vi)
Income arising (directly or indirectly) from assets transferred to son's wife, without adequate
consideration, shall be included in income of transferor.
5 64(1) (viii)
If an asset is transferred to other person or an AOP, for inadequate. Consideration, for
immediate or deferred benefit of son's wife, then income on asset so transferred shall be
clubbed in the hands of the transferor.
6 64(1A)
Income of a minor child shall be clubbed with income of the parent whose total income
(excluding this income) is higher. Once clubbing is made with either parent, then in any
subsequent years clubbing shall be made with the same parent, unless the AO is satisfied. If
marital relationship does not subsist, income shall be clubbed with that parent who maintains
the minor child.
Exceptions:
a. Income arises or accrues to the minor child due to any manual work, his skill, talent; or
b. The minor child is suffering from any disability of nature specified u/s 80U.
Exemption u/s 10(32) lower of a) Rs.1500; or b) Income so clubbed.
7 64 (2)
Where an individual has converted his property into property of HUF, for inadequate

consideration, then income derived from such converted property shall be clubbed with
individual as under:
Before partition The entire income from such property
After partition Income from the assets attributable to the spouse of transferor.

Chapter 10
SET OFF AND CARRY FORWARD OF LOSSES
WHEN SET OFF IS AVAILABLE?
When these is a loss in one or more sources under one or more heads of income, the provisions
of set off and carry forward are applicable as under.
1. Inter Source Adjustment (Sec 70)
2. Inter head Adjustment (Sec 71)
3. Carry forward of losses.
1. Inter source adjustment (sec 70): Under this section loss from any source of income can be set
off against same head of income for the same assessment year.
NOTE: Assessee does not have any option to set off or not to set off.
SR. NATURE OF LOSS SET OFF AVAILABLE U/S. 70
1 House property loss House property income
2 Speculation business loss Profit from speculation business

2A Non-speculation business loss Profit from speculative, non-speculative &
specified business
2B Loss of Specified Business Sec. 35AD Income of Specified Business Sec. 35AD.
3 Short term capital loss Long term & short term capital gain
4 Long term capital loss Long term capital gain

Losses from activity of maintaining race Income from such business.
5A Horses
Winning from lotteries. Crossword
5B puzzles, card games, gambling or betting. Cannot be set off against any income.
5C Loss from other source except 5A & 5B Income from other source except casual
income.
6 Loss from income which is exempt u/s. 10 Cannot be set off against any income.
2. Inter head adjustment (Sec 71): Sec. 71 is appliance if loss cannot be set off against Sec. 70.
SR. NATURE OF LOSS SET OFF AVAILABLE U/S. 71.
1 House property loss (max 2 lakhs) Any income other than lottery, card games,
crossword puzzles, gambling or betting.

2 Non-speculation loss Any income other than salary, lottery, card
games, crossword puzzles, gambling or

betting.
3 Loss from other source except casual Income from other source except casual
income and income from owning and income.
maintaining race horse
4 Loss from income which is exempt u/s. 10 Cannot be set off against any income.
CARRY FORWARD OF LOSSES
If loss cannot be set off as per provision of sec. 70 & sec. 71 then it is to be carry forward under
the act. The following losses can be carried forward.
a) Business Loss (Non-Speculative)
b) Business Loss (speculative)
c) Loss under Capital Gain (Short term and Long term)
d) Losses from the activity of owning and maintaining race horses.
e) HP loss.
The table given below highlights the rule of carry forward of loss –
Type of loss to be carried Income against which For how Should the Is it
forward & set off carried forward loss can be many yrs source be necessary
set off in next year(s) loss can continued to submit
be return of
carried loss of loss
forward in time
Sec. 71B House property Income under the head 8 years No No
loss w.e.f. A.Y. 1999-2000] "Income from house
property"
Sec. 72 No speculation Any income under the head 8 years No Yes
business loss Business 'Profits &gains of business
losses (other than or profession'
depreciation etc.) (whether from speculation
or otherwise)
Sec. 32(2) On account of Any income other than Indefinite No No
unabsorbed depreciation, Income under the head years
capital expenditure on Salaries and winning from
scientific research and lotteries, etc.
family planning
Sec. 73 Speculation loss Income from speculation 4 years No Yes
Transaction.
Sec. 73A Loss of specified Income from any specified Indefinite No Yes
business covered u/s 35AD business. years

Sec. 74 Capital loss Income under the head 8 years No Yes

Short Term Long Term "Capital gains “Long term
capital gain”
Sec. 74A Loss from activity Income from the activity of 4 years Yes Yes
of owing and maintaining owing and maintaining
race horses race horses
Summary
Nature of loss Section 70 Section 71 Carry forward
House Property Yes Yes Yes
Speculation Loss Yes No Yes
Non-Speculation Loss Yes Yes Yes
Loss of Specified Business Yes No Yes
Capital Gain Yes No Yes
Casual Income No No No
Income from Owning & Maintaining Race Horse Yes No Yes
Other than casual Income Yes Yes No
CARRY FORWARD AND SET OFF OF LOSSES IN CASE OF CHANGE IN CONSTITUTION OF FIRM OR
ON SUCCESSION [SEC. 78]
Where a change occurred in the constitution of a firm, nothing in this chapter shall entitle the
firm to have carried forward and set off so much of the loss proportionate to the share of a
retired or deceased partner are exceeds his share of profits, if any, in the firm in respect of the
previous year.
As per Sec. 78(1), in case of death or retirement of partner (e.g. change in the constitution of a
firm), share of losses of the outgoing partner cannot be carry forward.
CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN COMPANIES [SEC. 79(a)]
Amendment to section 79
Section 79 regulates carry forward and set off of losses in case of a closely held company (i.e.
not being a company in which the public are substantially interested). Clause (a) of section 79
applies to all such companies (except an eligible start-up as referred to in section 80-IAC), while
clause (b) applies only to such eligible start-up. These provisions are as follows —

Clause (a) of section 79: Loss of a closely held company - Where a change in shareholding has
taken place during the previous year in the case of a closely held company, earlier year losses
shall be carried forward and set off against the income of the current previous year, only if the
persons beneficially holding 51 per cent of the voting power on the following two dates are same
a) On the last day of the previous year in which the loss was incurred
b) On the last day of the previous year in which the company wants to set off the brought
forward loss
Clause (b) of section 79 : Loss of a start-up - In case of a closely held start-up (as referred to in
section 80-IAC), brought forward loss can be set off against current year's income only if all the
shareholders of the company (who held shares carrying voting power on the last day of the
previous year in which the loss was incurred), continue to hold shares on the last day of the
current year (i.e., the year in which the company wants to set off the brought forward loss). This
restriction is applicable only for such loss which is incurred during the period of 7 years
beginning from the year in which such company is incorporated
SUBMISSION OF RETURN FOR LOSSES [SEC 80]
Notwithstanding anything contained in this chapter, the following losses shall not be allowed to
be carried forward unless a return of loss is filed in accordance with the provisions of section
139(3)-
a) Normal business losses u/s 72(2).
b) Speculation business loss u/s 73.
c) Loss under the head Capital Gains u/s 74, and
d) Loss from the activity of ‘Owning and maintaining racehorses’ u/s 74 A
Notes -
1. House property losses and special business losses (sec. 73A) can be carry forward even if
belated return is filed.
2. Intra head and inter head adjustments are not disallowed u/s 80
3. Losses of preceding’s PYs can be carried forward to subsequent PYs.

Chapter 11
DEDUCTIONS SEC 80C TO 80U
DEDUCTION NOT TO BE ALLOWED UNLESS RETURN FURNISHED. [SEC. 80AC]
Where in computing the total income of an assessee, any deduction is admissible u/s 80-IA or
80-IAB or 80-IB or 80-ICor 80-ID or 80-IE, 80JJA, 80LA, 80P, 80PA, 80QQB & 80RRB no such
deduction shall be allowed to him unless he furnishes a ROI for such assessment year on or
before the due date specified u/s 139(1)
SECTION 80C
1. Individual & HUF whether resident or non-resident
Life Insurance Premium including payment made by Govt. employee to the central Govt.
employees' insurance scheme.
a. Paid on his own life policy, life of the spouse or any child (child may be dependent/
independent, male/ female, major/minor or married/unmarried)
b. Deduction allowed is.
Date of issue of policy Policyholder suffering Any other
from disability/ disease
Before 1st April 2012 20% of sum assured 20% of sum assured
During 2012-13 10% of sum assured 10% of sum assured
On or after 1st April 2013 15% of sum assured 10% of sum assured
• If value of policy is not given then premium paid will be allowed
• Lock in period 2yrs
2. Contribution to Statutory provident fund and Recognized provident Fund
3. 1) Contribution towards Public provident fund (PPF) maximum 1, 50,000 per year. Subscription
should be in the name of such individual, his spouse and child whether major or minor & in
case of HUF any member of the family
2) Accrued interest which is deemed as reinvested is also qualified for deduction except all last
year
4. 1) Contribution to Unit linked insurance plan. Subscription should be in the name of such
individual, his spouse and child whether major or minor & in case of HUF any member of the
family

2) Lock period 5yrs
5. Contribution to National saving certificates including interest on NSC
6. Contribution to notified Mutual funds
7. Any sum paid as tuition fees to any university/college/ educational institution/play school/pre
nursery [Institute situated in India for full time education for max. 2 children]
8. Repayment of housing loan (principal amount)
9. Amount deposited under Senior citizen saving scheme
10. Amount deposited as term deposit for a period of 5 yrs or more in accordance with a scheme
framed by central government.
11. Subscription to any notified bonds of NABARD.
12. Stamp duty, registration fee and other expenses for the purpose of transfer of house property
13. Amount invested in approved debentures of and equity shares in a public company engaged in
infrastructure.
14. Tax benefits under section 80C for the girl child under the Sukanya Samriddhi Account Scheme
( Interest exempt/ Maturity amount exempt )
Following persons referred to in section 80C (4) (ba) shall be eligible for deduction under section
80C: (i) individual, or (ii) any girl child of that individual, or (iii) any girl child for whom such
person is the legal guardian, if the scheme so specifies.
15. Contribution by a Central Government employee to additional account under NPS [specified
account- Tier II] referred to in section 80CCD for a fixed period of not less than 3 years
If an individual / HUF opts for the alternative tax regime under section 115 BAC, deduction under
section 80C is not available from the assessment year 2021-22
Deduction - Amount invested or Rs 1500000 whichever is less
Sec. Applicable to Condition(s) Deduction

80CCC Individual Deposit in LIC or other Maximum Rs. 1,50,000
Pension insurer’s annuity plan. Notes:
fund If an individual / HUF opts • Pension or surrender value
for the alternative tax received from such pension
regime under section 115 scheme shall be taxable in the
BAC, deduction under hands of recipient on cash
section 80CCC is not basis.
available from the Interest or bonus accrued as per
assessment year 2022-23. the scheme shall not be eligible
for deduction but shall be liable to
tax.

80CCD An individual. Assessee has in the In case of salaried individual:

Specified previous year paid or Lower of the following
Pension deposited any amount in 1) The whole of the amount so
Fund his account under a paid or deposited
pension scheme notified 2) Maximum of 10% of his salary
by the Central in the previous year
Government. Plus
If an individual / HUF opts Employers contribution to the
for the alternative tax extent of 10% of salary & 14% in
regime under section 115 case of contribution made by
BAC, deduction under central government.
section 80CCD [except Salary means Basic +DA, if the
employers contribution terms of employment so provide.
NPS under section 80CCD Another cases: 20%of GTl
(2)] is not available from Additional deduction of Rs 50,000
the assessment year shall be allowed. (For salaried +
2022-23. Others)
Note
Aggregate deduction under Sec. 80C, 80CCC and 80CCD cannot exceed Rs. 1,50,000.(Excluding
employers contribution to NPS to the extent of 10% shall not be consider for calculating limit of Rs.
1,50,000)
Particulars Amount
Deduction u/s 80C ****
Deduction u/s 80CCC ****
Deduction u/s 80CCD [other than deduction in respect of Employer’s Contribution] ****
Total [Restricted to maximum of Rs. 1,50,000 u/s 80CCE] *****
Add: contribution of NPS by any individual allowable u/s 80CCD(1B) [sub. To ****
maximum of Rs. 50,000/-]
Add: Employer’s contribution to New Pension System referred to in Sec. 80CCD ****
[Subject to max. of 10% / 14% of salary]
Deduction available u/s 80C, 80CCC & 80CCD *****
80D Individual Paid medical insurance for Maximum Rs. 25,000 /Rs.50,000
Mediclaim (Himself/herself, relative by any mode other (in case insured is a senior citizen)
spouse or than cash from taxable (Additional
dependent income. Rs. 25,000 / Rs.50,000 for
children and Note: Individual can also parents) Above amount includes
parents) contribute' to the Central Rs.5,000 for preventive health
HUF Government Health check up
Any member of Scheme for himself / 1. Medical expenditure for super
the family spouse /dependent senior citizen Rs 50,000.
children 2. Above limits of 25,000/ 50,000
If an individual / HUF opts includes preventive health
for the alternative tax check up
regime under
section 115 BAC, deduction

under section 80D is not

available from the

assessment year 2022-23
80DD Resident 1) Assessee has disable 1) Rs. 125000 for severe
Disability individual dependent relative. disability.( 80% or more)
Spouse, 2) Assessee deposited 2) Rs. 75000 for non-severe
children, medical with return. disability
parents, If an individual / HUF opts
brothers and for the alternative tax
sisters of the regime under section 115
individual. BAC, deduction under
Resident HUF section 80DD is not
available from the
Any member of
assessment year 2022-23.
the Hindu
Undivided
Family.
80DDB As above 1) Assessee himself or Quantum of deduction
Specified his relative is suffering 1) Actual expenditure on medical
Disease from specified treatment or Rs. 40,000 (in
diseases case of senior citizen & Super
2) Assessee deposited senior citizen Rs. 1,00,000)
medical certificate whichever is less, is
along with return. deductible.
Where the patient is a 2) Deduction under this section
senior citizen shall be reduced by the amount
If an individual / HUF opts received, if any under
for the alternative tax insurance from an insurer or
regime under section 115 reimbursed by the employer
BAC, deduction under for the medical treatment of
section 80DDB is not the person referred to above.
available from the
assessment year 2022 -23.
80E Individual/ Assessee is repaying the Interest paid during the year for a
Interest on Spouse/ Child/ interest on loan (taken for maximum period of 8 years
Education Adopted child higher education).
Loan If an individual / HUF opts
for the alternative tax
regime under section 115
BAC, deduction under
section 80E is not
available from the
assessment year 2022-23.
80EE Individual Payment of Interest on 1. Conditions:
loan taken by Assessee a. Amount of Deduction:
from any Financial deduction shall not exceed Rs.
Institutional for the 50,000
purpose of acquisition of a b. Period: Beginning from AY
Residential Property. 2018-19 and subsequent AY’s

If an individual / HUF opts c. Loan section period: 1/4/2017

for the alternative tax to 31/3/2018.
regime under section 115 d. Maximum Loan Amount: 35
BAC, deduction under lakhs
section 80EE is not e. HP Value: Value of Residential
available from the House Property does not
assessment year 2022-23. exceed Rs. 50 Lakhs.
f. No other house: The assessee
should not own any
Residential House Property on
the date of sanction of loan.
2. No Further Deduction: Where a
deduction u/s 80EE is allowed
for any interest, deduction
shall not be allowed in respect
of such interest under any
under provision of this Act for
the same or any other
assessment year
80EEA Individual Payment of Interest on Conditions:
loan taken by Assessee a) Amount of Deduction:
from any Financial deduction shall not exceed Rs.
Institutional for the 1,50,000
purpose of acquisition of a b) Loan section period: 1/4/2019
Residential Property. to 31/3/2022.
If an individual / HUF opts c) HP Value: Value of Residential
for the alternative tax House Property does not
regime under section 115 exceed Rs. 45 Lakhs.
BAC, deduction under d) No other house: The assessee
section 80EEA is not should not own any
available from the Residential House Property on
assessment year 2022-23. the date of sanction of loan.
e) No Further Deduction: Where a
deduction u/s 80EE is allowed
for any interest, deduction
shall not be allowed in respect
of such interest under any
under provision of this Act for
the same or any other
assessment year
80EEB In Individual Loan for purchase of an • Loan Taken from Financial
electric vehicle institution.
No Deduction if assessee • Interest payable, subject to a
opt for Alternate tax maximum of Rs. 1,50,000.
regime. • No deduction under any other
section.

80G All assessee Assessee donated an 50% or 100% of amount donated

Donation amount (otherwise than in (subject to limit applicable, if any,
kind) to specified on amount of donation)
organizations or funds. Donation exceeding 2,000 must
No Deduction if assessee be any mode other than cash.
opt for Alternate tax
regime.
80GG Individual 1) Assessee is paying Minimum of the
Rent Paid rent. following-
2) He or his relative has 1) Rs. 5,000 p.m.
no house at the place of 2) 25% of Adjusted GTl
employment of the 3) Rent paid - 10%n of adjusted
assessee. GTl
3) He is neither receiving If an individual / HUF opts for the
HRA nor has claimed alternative tax regime under
any benefit for self- section 115 BAC, deduction under
occupied property. section 80GG is not available from
the assessment year 2022-23.
80GGA Any assessee Assessee has contributed Amounts contributed.
Rural not having certain amount for rural
Development income under development, scientific
No deduction shall be allowed
the head “Profits research, etc.
under this section in respect of
& gains of
any sum exceeding Rs. 2,000
business or
unless such sum is paid by any
profession"
mode other than cash
No deduction if assessee opt for
alternate tax regime.
80GGB Indian Company Assessee contributed an Amount so contributed
Political amount to political party No deduction if assessee opt for
party or an electoral trust alternate tax regime.
80JJA Any assesse Business of collecting & 100% of profits for first 5 yrs
processing of Bio-
degradable waste
80JJAA Any assessee Employment of new 30% of additional wages
subject to tax workmen
audit
80M Assesse is a Income of the assesse aggregate dividend income (as

domestic includes dividend from per section 8) of the investor
company domestic companies, company during the previous
foreign companies or year from domestic or foreign
business trusts. company/companies or business
trust(s) [it includes final dividend
interim dividend and even
deemed dividend under section
2(22)(a)/(b)/(c)/(d)/(e)]

80PA Certain producer Carrying eligible business 100% profit for 5 yrs. starting from
company AY 20-21
80QQB Resident 1) Assessee is author of Minimum of the following (as the
Royalty Individual the specified book. case may be)
2) He earned royalty 1) Royalty fee (to the maximum of
income (whether 15% of the value of the book
received in lump sum sold; or
or otherwise). 2) Lump sum fee;
3) A certificate from the 3) Income brought into India
payer in Form 10CCDis inconvertible foreign
to be submitted along exchange; or
with return of income. 4) RS.3,00,000
4) In case income is
earned outside India, Note:
money must be No deduction if assessee opt for
brought into Indian alternate tax regime.
convertible foreign
exchange and a
certificate must be
obtained from the
prescribed authority.
80RRB Resident Resident Individuals, Rs 3,00,000 or amount received
Individual being a patentee in receipt whichever is less
of any income by way of
royalty in respect of a Note:
patent registered on or No deduction if assessee opt for
after 1.4.2014 under the alternate tax regime.
patents Act, 1970
80 TTA Individual & Interest from saving Max Rs. 10,000
Interest on HUF account in bank, post Assessee claiming deduction u/s
Saving office or cooperative 80TTB can not claim deduction
society under this section.
Note:
80TTB Resident Senor Interest on deposits Max Rs 50,000
Interest on citizen [Savings + Recurring + Note: Cannot claim deduction
deposits Fixed] again under Sec 80TTA.
80U Resident 1) Assessee himself 1) Severe disabilityRs.1,25,000
Disability Individual suffering from 2) Non-Severe disabilities. 75,000
disabilities. Note:
2) Medical certificate No deduction if assessee opt for
submitted along with alternate tax regime.
return

80-IA An Indian Infrastructure Facility 100% of profit for 10 yrs out of 15

Company AY starting from commencement.
No deduction New Telecommunication 100% of profit for 5 yrs and 30%
if assessee undertaking Facility for next 5 yrs. out of 15 AY starting
opt for from commencement.
alternate tax New Industrial Park or 100% of profit for 10 yrs out of 15
regime. undertaking Special economic zone AY starting from commencement.
New Power Generation 100% of profit for 10 yrs out of 15
undertaking /distribution AY starting from commencement.
Any assesse Reconstruction/Revival 100% of profit for 10 yrs out of 15
of power generation AY starting from commencement.
unit
80-IAB Developer of Development of SEZ 100% of profit for 10 yrs out of 15
SEZ AY starting from commencement.

80 IAC Eligible start up Deduction in case of 100% profit exempt for 3 yrs out of
specified business 7 yrs.
Sec 80 IB New Production/Refining of 100% of profit for 7 yrs

undertaking Mineral oils & commercial No deduction if assessee opt for
production of natural gas alternate tax regime.
Any assesse Processing, preservation 100% of profit is deductible for the
and packing of fruits or first 5 years and 30% for next 5 yrs
vegetables (25% for non-corporate assessee)
80-IBA All assessee Business of developing 100% of the Profits & Gains
and building Housing derived from such Business.
Projects Period of completion 5 yrs.
instead of earlier 3 yrs.
80-ID Any assesse Hotel or convention Centre 100% of profits for first 5 years.
in NCR
80-IE Any assesse Certain undertaking in 100% for first 10 yrs
North-Eastern states

Chapter 12
TDS & TCS
TAX DEDUCTED AT SOURCE

Important
1. TDS means pay tax as you earn. Notes
2. The main objective of introducing TDS/TCS is quicker realization of tax and effective
realization tax.
3. In few cases an individual or HUF cannot deduct TDS if their books of accounts are not required
to be audited.
4. Surcharge on TDS for FY 21-22 shall be added in following cases:
Applicability of surcharge and education cess while computing TDS
1. On salary resident or non-resident Surcharge, E CESS and SHEC shall be considered.
2. Any other payment to resident No. S.C., E. CESS and SHEC
3. Any other payment to non-resident
4. Where amount of such payment be Surcharge (5%) E CESS and SHEC shall consider.
exceeds Rs. 10 crore
5. Where amount of such payment Surcharge (2%) education cess & SHEC shall be
exceeds Rs. 1 crore considered
6. Where amount of such payment does Education cess & SHEC shall be considered.
not exceed Rs. 1 crore
Sec. Nature of Person Recipient Time of Rate of TDS Maximum

payment responsible deduction payment up
to deduct to which tax
tax shall not be
deducted
192 Salary Employer Employee At the time Average rate Basic
of payment of tax exemption
Limit
Salary Employer is allots any within 14
start up specified days- from
security/ a) expiry of
sweat 48 month
equity from the end
shares/ of relevant

ESOP to its AY b) from

employees, the date of
sale c) from
the date of
leaving
organisatio
n
192A RPF The Any At the time 10% Rs 50,000
Trustees of Employee of payment
the EPF
Scheme
193 Interest on Payer of Resident At the time 10% Central Govt
securities interest on person of payment 8% & 7.75%
securities or crediting bonds >
(Central or the payee, 10,000 & Int
state whichever is to Ind/ HUF
government earlier up to 5,000
, Local by account
Authority, payee
Company or cheque
Corporation
established
under the
central or
State Act)
194 Dividend Domestic Resident At the time 10% Rs. 5,000
Company person of payment Amount
paid to
Individual
by any mode
and if
recipient is
LIC,GIC etc
194A Interest other Any person Resident At the time @10% Rs. 5,000
than interest other than person of payment (Subject to
on securities individual or crediting certain
and HUF the payee, conditions)
whose whichever is (Rs. 40,000
accounts are earlier. in case of
not required Bank FD &
to be Recurring)
audited Rs 50,000 in
during case of
immediately senior
preceding citizen
previous
year

194B Winning from Any person Any person At the time 30% plus SC Rs. 10,000
Lotteries, etc. paying such of payment and cess in
income case of NR
194BB Winning from Any person Any person At the time 30% plus SC Rs, 10,000
horse races paying such of payment and cess in
income case of NR
194C Contract work Any Resident At the time Payee is a. Rs.30,000
specified person of payment Individual or (provided
person or crediting HUF 1% other aggregate
including the payee, payee 2%. Till amount paid
individual whichever is 13th may and during the
and HUF earlier from 14th May financial
whose to 31st March year does
accounts are 0.75% and not exceed
required to 1.5% Rs.
be audited respectively. 1,00,000).
during b. No TDS for
immediately any sum
preceding credited or
previous paid to
year contractor
owns 10 or
less goods
carriage at
any time
during PY &
providing
PAN.
c. contract of
personal
nature
194D Insurance Any person 5% and 10% Rs. 15,000
Commission for domestic
company
194D Payment of Any person Resident At the time 5% Rs 1,00,000
A life Insurance of payment
policy
194E Sports person Any person Non- At the time 20% Nil
or entertainer paying resident of payment
specified foreign or crediting
income citizen the payee,
sportsman whichever is
or sports earlier.
association
or
entertainer

194EE Deposit in NSC Post Office Any person At the time 10% Rs. 2,500
of payment
194G Commission Any person Any person At the time 5% Rs. 15,000
on sale of paying of payment
lottery tickets commission or crediting
on sale of the payee,
lottery whichever is
tickets earlier
194H Other Any person Resident At the time 5% Rs. 15,000
commission other than person of payment
individual or crediting
and HUF the payee,
whose whichever is
accounts are earlier
not required
to be
audited
during
preceding
P.Y.
194 I Rent Any person Resident At the time Plant & Rs. 2,40,000
other than of payment machinery
individual or crediting 2% Other
and HUF the payee, asset 10%
whose whichever is
accounts are earlier
not required
to be
audited
during
preceding
P.Y.
194 IA Acquisition of Any person Resident At the time 1% of Rs.
immovable who is of payment consideratio 50,00,000
property other acquiring or crediting n
than rural such the payee,
agro land. property whichever is
earlier
194IB Rent Individual or Resident At the time 5% of rent Rent <
HUF of credit of 50,000 pm
rent for last or part
month of thereof
previous
year or last
month of
tenancy or
date of
payment

whichever
earlier
194IC Amount Any Person Resident At the time 10%. Nil
payable under of payment
agreement or crediting
specified the payee,
under Sec whichever is
45(1A) earlier
194J Professional Any person Resident At the time 10% & 2% for Aggregate
or technical other than person of payment payment of payment
service or individual or crediting being person does not
director fees and HUF the payee, engaged in exceed Rs.
(not covered whose whichever is business of 30,000 in a
u/s. 192), accounts are earlier call center & FY for each
Royalty, Sum not required Royalty of nature
received for to be related to except for
not carrying audited films. director
out any during fees.
activity Sec 28 preceding
(va) P.Y.
194K Income from Any person Resident At the time Tax shall be Rs. 5000
units person of payment deducted at
or crediting the rate of
the payee, 10%
whichever is
earlier
194M For carrying It may be Resident At the time 5% No tax is
out any work, noted that of payment required to
By way of only or crediting be deducted
commission, individuals the payee, where such
By way of fees and HUFs whichever is sum or, as
for [other than earlier the case
professional those who may be,
services are required aggregate
to deduct amount of
income-tax such sums
as per the credited or
provisions paid to a
of section resident
194C or 194H during the
or 194J] are financial
required to year does
deduct tax not exceed
in respect of Rs.
the above 50,00,000.
sums
payable
during the

financial
year to a
resident
194N Cash Banking Account At the time 2% of sum The
withdrawal company, holder of payment exceeding 1cr government
Cooperative Case 1 ,
society, and If no ITR is file Banking
Post office 20 laks to 1cr company,
2% and above Cooperative
1cr 5% society, and
Post office,
white label
ATM
operator,
RBI
194LA Compensatio Any person Resident At the time 10% Rs. 2,50,000
n for responsible of payment
compulsory for such in cash or by
acquisition of payment cheque or
immovable draft or by
property other mode,
(other than whichever is
agro land) earlier
194O Payment by ECO E- Tax is Tax in 1)An
ECO Commerce deductible deductible at Individual or
participant by E - the rate of 1% HUF
s commerce 2) Gross
operator at amount up
the time of to 5 lakhs
credit of 3)
amount of Submission
sale of of PAN or
goods / Aadhar card
services to to ECO
the account
of an E-
Commerce
participants
or at the
time of
payment
thereof o
such e-
Commerce
participants
buy any
mode,

whichever is
earlier
NO DEDUCTION TO BE MADE IN CERTAIN CASES. SEC 197A
A declaration in writing in duplicate to the effect that the tax on his estimated total income of
the previous year in which such income is to be included will be NIL.
Payee Section Form No Not Application

Resident 194 and 194EE 15G The amount of such income or the
individual (15H by person aggregate of such incomes credited
Person (Not being 192A, 193, 194A => 60 years or paid or likely to be credited or
a company or firm) and 194DA paid during the PY < BEL
The deduct or shall deliver or cause to be delivered to the principal chief commissioner or chief
commissioner or principal commissioner one copy of the declaration on or before the 7th day of
the month next following the month in which the declaration is furnish to him.
DUE DATE FOR PAYMENT OF TDS [SEC. 200 READ WITH RULE 30]
Due date for deposit of TDS or Amount Sec. 192(1A)
S No Deductor Cases Due Date

Tax paid without production of an income-tax
1 Same day
challan
Government
7 days from end of
2 Tax paid accompanied by an income- tax challan
month
7 days from end of
3 Deduction made in the months of April to Feb
Any other month
person If income is credited or paid in the month of
4 30th April
March
TABLE B: DUE DATE OF FILING QUARTERLY STATEMENT [RULE 31A (2)]
S.No. Date of ending of the Due date

quarter of the financial
year
1. 30th June 31th July of the financial year.
2. 30th September 31th October of the financial year
3. 31st December 31th January of the financial year
4. 31st March 31th May of the financial year immediately following the
financial year in which deduction is made.
TABLE C: TIME LIMITS FOR ISSUE OF CERTIFICATE [RULE 31(3)]
S.No. Form No. Periodicity Due date

1 16 & 12BA Annual By 31st day of May of the financial year immediately
following the financial year in which the income was paid
and tax deducted.
2 16A Quarterly Within 15 days from the due date for furnishing the
statement of tax deducted as source under rule 31A.
3 16 B Within 15 days from the due date for furnishing the challan –
(Sec 194 – IA) cum statement in Form No. 26QB
4 16 C Within 15 days from the due date for furnishing the challan –
(Sec 194 – IB) cum statement in Form No. 26QC
5. 16D (Sec Within 15 days from the due date for furnishing the challan –
194M) cum statement in Form No. 26QD
INTEREST FOR FAILURE TO DEDUCT AND PAY TAX AT SOURCE [SEC. 201(1A)]
Condition: Where a person, responsible for deducting tax at source, fails to:
a) Deduct tax at source; or
b) Deposit such tax after deducting the same.
Amount on which interest is to be charged: On the amount of such tax.
RATE OF INTEREST
Period Rate of Interest
From the date on which such tax was Simple interest @ 1% per month or part thereof.
deductible to the date on which such tax is
deducted.
From the date on which such tax was deducted Simple interest @ 1.50% per month or part
to the date on which such tax is actually paid thereof.
Period: From the date on which such tax was deductible to the date on which such tax is actually
paid to the Government.
FEE FOR DEFAULTS IN FURNISHING STATEMENTS (SECTION 234E)
Condition: Where a person fails to deliver a quarterly TDS / TCS return within the prescribed
time.
Amount of fee: Rs.200 for every day during which the failure continues subject to maximum of
amount of TDS / TCS.
Key Note
• The fee shall be paid before delivering a statement.
• The fee is in addition to other consequences of non – delivering such return.

TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER (SECTION 203A)
Every person, deducting tax or collecting tax, who has not been allotted a tax – deduction
account number or tax collection account number, shall within specified time, apply to the
Assessing Officer for the allotment of a “tax deduction and collection – account number” in Form
49B.
REQUIREMENT TO FURNISH PERMANENT ACCOUNT NUMBER SEC. 206AA
Any person entitled to receive any sum or income or amount, on which tax is deductible shall
furnish his PAN to the person responsible for deducting such tax, failing which tax shall be
deducted at the higher of the following rates, namely:
a. At the rate specified in the relevant provision of this Act; or
b. At the rate of rates in force; or
c. AT the rate of 20%.
TAX COLLECTION AT SOURCE
Meaning of important terms
1. “Seller” means –
a) The Central Government; or
b) State Government; or
c) Local authority; or
d) Statutory corporation; or
e) Authority established by or under a Central, State or Provincial Act; or
f) Company; or
g) Firm; or
h) Co – operative society; or
i) An individual or HUF, whose books of account are required to be audited under section 44AB
during the financial year immediately preceding the financial year in which such goods are
sold.
2. “Buyer” means a person who obtains in any sale (by way of auction, tender or any other mode)
specified goods or the right to receive any such goods but does not include,:
a. A public sector company, the Central Government, a State Government and an embassy,
a High Commission, legation, Commission, consulate and the trade representation, of a
foreign state and a club; or

b. A buyer in the retail sale of such goods purchased by him for personal consumption.
3. “Specified goods” includes:
Particulars Rate as a % of the amount

payable by the buyer or licensee
or lessee*
1 Alcoholic liquor for human consumption 1%
2 Tendu leaves 3.75%
3 Timber obtained under a forest lease 2.5%
4 Timber obtained by any mode other than under a forest 2.5%
lease
5 Any other forest produce (not being timber or tend 2.5%
leaves)
6 Scrap 1%
7 Specified minerals 1%
8 Parking lot, toll plaza, mining and quarrying 2%
9 Motor car 1%
10 (foreign remittance through LRS and overseas tour
package) (applicable from October 1, 2020)-
E1- Foreign remittance through liberalised remittance 5%
scheme (LRS) of Rs. 7 lakh or more in a financial year.
E2- selling of overseas tour package 5%
11 (sale of any other goods) (applicable from October 1, 0.1%
2020)-
F1- sale of any other goods of the value (or aggregate of
such value) exceeding Rs. 50 lakh in a previous year by
a person whose total sale / gross receipts/ turnover
from business exceeds Rs. 10 crores during the
immediately preceding financial year (tax to be
collected on sale consideration of exceeding Rs. 50
lakh)
DEPOSIT OF TAX (SECTION 206C(3))
Assessee in default – Same as TDS.
COLLECTION OF TAX AT SOURCE AT LOWER RATE (SECTION 206C(9))
Where buyer or licensee or lessee applies to the Assessing Officer in Form 27F, and receives a
certificate authorizing the seller to collect tax at lower rate, seller or lesser may collect tax at
the rate specified in the certificated till the cancellation of such certificate.

REQUIRED TO FURNISH PAN BY COLLECTEE. SEC 206CC
Notwithstanding anything contained in any other provisions of this Act, any collected shall
furnish his PAN to the collector, failing which tax shall be collected at the higher of the following
rates, namely: -
a) At twice the rate specified in the relevant provision of this Act; or
b) At the rate of 5%

Chapter 13
ADVANCE TAX
SCHEME OF ADVANCE TAX [SEC. 208]
Where the advance tax liability of the assessee is Rs. 10000 or more, the assessee should pay
such tax in the previous year itself within the due date.
ADVANCE TAX LIABILITY [SEC. 209]
Particulars Amount Rs.
Estimated Gross Total Income xxx
Less: Deduction under chapter VIA xxxx
Estimated Total Income xxxx
Gross tax liability on Estimated Total Income xxxx
Add: Surcharge (if applicable) xxxx
Total and surcharge payable xxxx
Add: Education cess & SHEC xxxx
Total liability after education case xxxx
Less: Tax deducted or collected at source. xxxx
Advance Tax Liability xxxx
If Advance tax is payable by Resident Individual Then Relief u/s. 87 A should be considered.
INSTALLMENTS OF ADVANCE TAX AND DUE DATES [SECTION 211]
Due date of Installment in the Other than 44AD or 44ADA Eligible assessees carrying on
relevant previous year eligible business u/s 44AD or
44ADA
On or before June 15 15 % of such advance tax
On or before September 15 45% of Advance Tax Payable
On or before December 15 75% of Advance Tax Payable
On or before March 15 100% of Advance Tax Payable 100% of Advance Tax Payable

Key Notes
a. Any amount paid under section 211 on or before 31st March of the previous year, shall be treated
as advance tax paid during the financial year.
b. Provisions of advance tax is not applicable in the following cases:
Where an assessee is a senior citizen and does not have any income chargeable under the head
“Profits and gains of business or profession”. In other words, senior citizen not having business
income is not liable to pay advance tax.
c. Every income including capital gain, winning from lotteries, etc. is subject to advance tax.
However, it is not possible to estimate capital gain or casual gain, therefore, where the assessee
has paid the whole of the amount of tax payable in respect of such income:
1. As part of the remaining instalments of advance tax which were due; or
2. Where no instalments were due, by March 15 of the financial year immediately preceding
the assessment year,
Then it is deemed that all the provisions are complied.
d. If the last day for payment of any instalment of advance tax is a day on which the receiving bank
is closed the assessee can make the payment on the next working day. In such case, the
mandatory interest leviable under section 234B and 234C would not be charged (Circular no. 676
dt. 14.1.1994)
e. While calculating advance tax, net agricultural income shall also be taken into consideration for
computing tax liability.
f. If any assessee does not pay any instalment within due date he shall be deemed to be an
assessee in default in respect of such instalment (Section 218).
g. Any sum, other than a penalty or interest, paid by an assessee as advance tax shall be treated
as a payment of tax and credit for such shall be given to the assessee in the regular assessment
(Section 219).
The advance on certain income can be paid after its occurrence as it cannot be estimated
1) LTCG
2) Casual income
3) Dividend income chargeable u/s 115BBDA

Chapter 14
RETURN, ASSESSMENT PROCEDURE AND
INTERST
Filling of return: Following person need to file a return of income.
Assessee Size of income

A company or a firm or any Irrespective of size of income
University/College/ other institution
referred to on Sec.35(1)(ii) or (iii)
Individual , HUF Every individual, HUF, etc. must file return of income of its
Gross Total Income before claiming deduction u/s 10(38),
80C to 80U & Sec 54
Trust Must file return if income before exemption u/s. sec. 11 or
12 exceeds maximum amount not chargeable to tax.
Political party Must file return if GTI before exemption u/s 13A exceeds
maximum amount not chargeable to tax.
Scientific research association; News Must file return if income before giving effect u/s. 10
agency; etc. exceeds maximum amount not chargeable to tax.
MANDATORY FURNISHING OF RETURN OF INCOMES BY CERTAIN PERSONS [SEC.139]
Under the amended version, a person (other than a company or firm) shall be mandatorily
require to file is return of income, if during the previous year -
• He has deposited an amount (or aggregate of the amount) exceeding Rs. 1 Crore is one or more
current account maintained with a banking company or a co-operative bank; or
• Has encored expenditure of an amount (or aggregate of the amount) exceeding of 2 lakhs for
himself or any other person for travel to the foreign country; or
• has incurred expenditure of an amount (or aggregate of the amount) exceeding Rs. 1 Lakh
towards consumption of electricity or,
FORMS – RETURN OF INCOME
Rule 12 provides following Form for filing return of income for different assessee:
1 [sahaj] For individuals having income from Salary / Pension / Income from One House
Property (excluding loss brought forward from previous years) / income from
Other Sources (Excluding Winning from Lottery and income from Race Horses).
2 For Individuals & HUFs not having income from Business or Profession.
3 For Individuals/HUFs being partners in firms and not carrying out business or

profession under any proprietorship.
4 For Individuals & HUFs having income from a proprietary business or profession.
4S-Sugam For Person having income from presumptive business.
5 For firms, AOPs and BOIs
6 For Companies other than companies claiming exemption under Sec. 11
7 For persons including companies required to furnish return under section 139(4A)
or section 139(4B) or section 139(4C) or section 139(4D).
ITR-V Indian Income tax Return Verification Form [Where the data of the Return of
Income in Form ITR-1, ITR-2, ITR-3, ITR-4, ITR-4S & ITR-5 transmitted electronically
without digital signature].
TIME LIMIT FOR FILING RETURN OF INCOME [EXPLANATION 2 TO SEC. 139(1)]
Return should be filed on or before the following due date (of respective assessment year)
Assessee Company Due date
Where the company is required to furnish a report in Form 3CEB u/s. 30th November.
92E pertaining to international transaction(s)
In case of any other company. 31st October
Any other assesse
Where accounts of the assessee are required to be audited under any 31st October
law.
Where the assessee is a working partner in a firm and the accounts of 31st October
the firm are required to be audited under any law
In any other case. 31st July.
1. Loss-Return Sec 139(3)
A Company must file its return of income even when there is loss to the company. Other
assessee must file their loss-return within time if they want to claim the loss to be carried
forward.
However, the following losses cannot be carried forward if the return of loss is not submitted
within the time allowed u/s. 139(1).
1. Business loss (speculative or otherwise).
2. Capital loss

3. Loss from the activity of owning and maintaining race horses.
Notes:
1) Loss declared in belated return cannot be carried forward. However, set-off of losses of
current year is not prohibited while computing the total income, even if the return of loss is
filed after the due date.
2) Delay in filing the return of loss may be condoned in certain cases.
3) Unabsorbed depreciation u/s. 32 and loss under the head “Income from House Property”
can be carried forward even if the loss return is filed after the due date u/s. 139(1).
4) Although the loss of the current year cannot be carried forward unless the return of loss is
submitted before the due date but the loss of earlier years can be carried forward if the
return of loss of that year was submitted within the due date.
2. Belated Return: A return which is filed after due date of filing return. Sec 139(4)
Time Limit: Assessee may file such return:
1) Dec 31st of relevant AY or
2) Before the completion of assessment (u/s. 144).
Whichever is earlier
However, if an assessee files a belated return, he would be liable to penal interest u/s. 234A.
3. Return of income of Charitable Trust
A charitable trust must file its return of income if Gross total income (before allowing exemption
u/s 11 or 12) exceeds the maximum amount not chargeable to tax, before the due date as per sec.
139(1).
Penalty: Where an assessee fails to file return of income under this section, within the time
limit. It shall be liable to pay a penalty of Rs. 100 per day during which such failure continues
[Sec. 272A (2)].
4. Return of income of Political Party
The chief executive officer of any political party must file return of income, if the amount of
gross total income (before allowing exemption u/s 13A) exceeds the maximum amount not
chargeable to tax.
Penalty : Where an assessee fails to file return of income under this section, within the time
limit, it shall be liable to pay a penalty of Rs. 100 per day during which such failure continues
[Sec. 272A(2)].
5. Return of research association, etc
Every research association, etc. who are eligible for exemption u/s 10 are require to file their

return of income, if the total income without giving exemption u/s 10, exceeds the maximum
amount not chargeable to income tax.
6. Revised Return
If an assessee discovers any omission or wrong statement (Bonafide in nature) in return
originally filed, he can revise his return u/s. 139(5).
Conditions to file a revised return:
a. Only return filed u/s. 139(1) or in pursuance of a notice u/s. 142(1) can be revised.
b. Revised return can be filed only if the assessee discovers any omission or wrong statement
in return originally file in other words, an assessee cannot revise a return if the omission or
error in the original return was pre-known to him.
Time Limit: Assessee may file the revised return:
Dec 31st of relevant AY or
Before completion of regular assessment, whichever is earlier
7. Defective Return
The assessee must rectify the error within a period of 15 days from the date of intimation (served
on the assessee) or within such extended time as allowed by the Assessing Officer.
Consequence when defect is not rectified:
If defect is not rectified within the time limit, the Assessing Officer will treat the return as an
invalid return and provisions of the Act will apply as if the taxpayer had failed to furnish the
return at all.
8. Signing of Return Sec 140
Assessee Case Signed and verified by

Individual In general Individual himself.
Where the individual concerned is Individual himself or by the duly
absent from India. authorized person of such
individual.
Where the individual is mentally Guardian of such individual or any
incapacitated. other person competent to act on
his behalf.
Where by any other reason it is not Any person duly authorized by him.
possible for the individual to sign the
return.
Note: When return is signed by any authorized person in that case the return
should be accompanied with power of attorney.
HUF In General Karta
Where the ‘Karta’ is absent from India or Any adult member of the family
is mentally incapacitated.

Firm In general Meaning partner

If due to any reason it is not possible for Any adult partner.
meaning partner to sign or where there
is no managing partner.
Limited liability In general Designated partner.
partnership
If due to an unavoidable reason such Any partner.
designated partner is not able to sign
and verify the return, or where there is
no designated partner as such.
Local authority Principal officer
Political Party Chief Executive Officer In general
Company If due to any reason it is not possible for Managing Director (MD)
MD to sign or where there is no MD Non- Any Director
resident company.
Company in process of winding up. A person holding a valid power of
Where the management of the company attorney.
has been taken over by the Central or Copy of such power of attorney
State Government. must be attached with the return.
Liquidator of the company.
Any other Any other person
association Principal Officer.
Any other Such person or any other person
competent to act on its behalf.
9. PAN
It’s a 10 digit alpha numeric code assign by Income tax department.
PENALTY FOR FAILURE TO APPLY FOR PAN
Failure to apply for PAN or to quote PAN in prescribed documents
(discussed later in this chapter) attract penalty of Rs. 10000 u/s. 272B.
Form of Application – Form 49A. However, from 01.11.2011, the prescribed forms are as under:
Case Form No.
For Indian Citizen / Indian Company / Entitles incorporated in India / 49A
Unincorporated entitled formed in India
For Individuals not being Indian Citizen / Entitles incorporated outside India / 49AA
Unincorporated entitles formed outside India.
QUOTING OF AADHAAR NUMBER SEC. 139AA
1. Every person who is eligible to obtain number shall, on or after the 1st day of July, 2017, quote

Adhaar number –
(i) In the application form for allotment of PAN
(ii) In the RIO:
Provided that where the person does not possess the Aadhar Number, the Enrolment ID of
Aadhar application form issued to him at the time of enrolment shall be quoted in the
application for PAN or, as the case may be, in the RIO furnished by him.
2. Every person who has been allotted PAN as on the 1st day of July, 2017 and who is eligible to
obtain Aadhar number, shall intimate his Aadhar number to such authority in such form and
manner as may be prescribed, on or before a date of to be notified by the Central Government
in the Official Gazette:
Provided that in case of failure to intimate the Aadhar number, the PAN allotted to the person
shall be deemed to be invalid and the other provisions of this Act shall apply, as if the person
had not applied for allotment of PAN.
3. The provisions of this section shall not apply to such person or class or classes of persons or
any State or part of any State, as may be notified by the Central Government in this behalf, in
the Official Gazette.
ASSESSMENT PROCEDURE
1. Inquiry before assessment
a. If the assessee has not submitted a return of income within the time allowed u/s 139(1),
the Assessing Officer may -require him to submit a return. 142(1)
b. The Assessing Officer may ask assessee to produce such documents or accounts as he
may require. 142(1) book of accounts can be asked for 3 yrs prior to relevant PY for which
notice was served.
c. Assessing Officer may require the assessee to furnish in writing information in such form
and on such points or matters as he may require.
d. For the purpose of obtaining full information in respect of the income (or loss) of any
person, the AO may make such inquiry, as he considers necessary 142(2)
e. The AO may direct the assessee to get his accounts audited even the accounts of the
assessee have already been audited. Audit report must be furnished within specified period
not exceeding 180 days [ SEC 142 (2A) TO (2D)]
Consequences of failure to get books of account audited : In case assessee fails to get books of
account audited, it :- Will be liable to Best Judgement Assessment u/s. 144; and Attracts penalty

u/s. 271(1)(b) and prosecution u/s. 276D
2. Faceless enquiry & valuation [sec 142B]
Section 142B has been inserted with effect from 1st November, 2020 to empower the Central
Government to notify the scheme for faceless processes for eliminating physical interface.
Faceless Scheme The Central Government is empowered to make a scheme (faceless
[Section 142B(1)] enquiry and valuation scheme) by notification in the official gazette
for the purpose of:
a Issue notice u/s 142(1) or
b Making enquiry to obtain full information in respect o income

or loss of any person u/s 142(2) or
c directing the assessee to get his accounts audited by an

accountant u/s 142(2A) or
d making a reference to the valuation officer to estimate the

value of any asset, property or investment u/s 142A.
The objective of the scheme is to impart greater efficiency, transparency and accountability
by
3. Summary Assessment [Sec.143 (1):
This is not a regular assessment.AO merely sends an intimation to the assessee when any tax
or interest is found payable or refundable, on the basis of return filed, before the expiry of 1 year
from the end of financial year in which return of income is filed.
4. Scrutiny Assessment u/s 143(3):
If AO considers it necessary or expedient to ensure that the assessee has not understated his
income, declared excessive loss or under-paid the tax, he can make a scrutiny in this regard. AO
shall serve a notice (before expiry of 3 months from the end of the financial year in which the
return is furnished) requiring the assessee, on a particular date, to produce any evidence in
support of the return. After collecting such information and evidence as he deems fit and on the
basis of such information and evidence so collected, he shall pass an assessment order. Such
order shall be treated as regular assessment order. Assessment u/s 143(3) should be completed
within 9 months from the end of the relevant assessment year.
5. Best Judgment Assessment [Sec.144]:
In the following situation, assessment shall be made by the Assessing Officer to the best of his
judgment after considering all relevant materials, which he has gathered.
a. If the person fails to file the return; or

b. If the person fails to comply with the terms of notice u/s 142(1); or
c. If the person fails to get his accounts audited u/s 142(2A); or
d. if the person fails to comply with the notice u/s 143(2) requiring in presence or production of
evidence and documents.
Best judgment assessment must be made before 9 months from the end of relevant
assessment year.
6. Faceless Assessment [Sec. 144B]

Procedure for Section 144B(1) provides that assessment under section 143(3), i.e.,
Faceless regular assessment / scrutiny assessment or best judgment
Assessment assessment under section 144 in respect of such territorial area or
[Section 144B(1)] – persons or classes of persons or incomes or class of incomes or cases

or class of cases, as specified by the CBDT under section 144B(2), has to
be made in faceless manner in accordance with the following
procedure:
NFAC/RFACs/AUs/VUs/Rus to be set up for For the purpose of faceless assessment, the

the purpose of faceless assessment CBDT, may set up the following Centres and
[Section 144B(3)] Units and specify their respective
jurisdiction:
National Faceless To facilitate the conduct of faceless assessment proceedings in a
Assessment
Center (NFAC) centralised manner, NFAC to be set up, which shall be vested with the
jurisdiction to make faceless assessment.
Regional Faceless To facilitate the conduct of faceless assessment proceedings in the
Assessment
Center (RFAC) cadre controlling region of a Principal Chief Commissioner, RFACs to be
set up, which shall be vested with the jurisdiction to make faceless
assessment.
Assessment Units To facilitate the conduct of faceless assessment, Assessment Units, as
(AUs)
deemed necessary, may be set up to perform the function of making
assessment, which includes
identification of points or issues material for the determination of
any liability (including refund) under the Act,
•
seeking information or clarification on points or issues so
identified,
•
analysis of the material furnished by the assessee or any other
•

person, and
such other functions as may be required for the purposes of
making faceless assessment.
•
Verification Units To facilitate the conduct of faceless assessment, Verification Units
(VUs)
(VUs) as deemed necessary, may be set up to perform the function of
verification, which includes.
enquiry, cross verification, examination of books of account,
examination of witnesses and recording of statements, and
•
such other functions as may be required for the purposes of
verification
•
Technical Units To facilitate the conduct of faceless assessment, Technical Units (TUs)
(TUs)
as deemed necessary, may be set up to perform the function of
providing technical assistance which includes any assistance or advice

on legal, accounting, forensic, information technology, valuation,
transfer pricing, data analytics, management or any other technical
matter which may be required in a particular case or a class of cases,
under this section.
RECTIFICATION OF MISTAKE [SEC. 154]
An income-tax authority, is empowered (suo moto or on application by assessee) to :-
a) Rectify any mistake apparent in an order passed by him; or
b) Amend any intimation issued u/s. 143(1) or deemed intimation.
Tax Point: Such order of rectification must be passed in written:
Within 4 years from the end of the financial year in which the order sought to be amended was
passed.
However, in respect of an application made by the assessee, the authority shall, within a period
of 6 months from the end of the month in which the application is received by it, pass an order
a. Making the amendment, or
b. Refusing to allow the claim.
OPPORTUNITY OF BEING HEARD [SEC. 154(3)]
If such rectification order is prejudicial to the assessee, an opportunity of being heard must be
given to the assessee, before passing such order

INTEREST
Interest u/s 234A, 234B and 234C
Points 234A 234B 234C

Rounded off Previous Rs. 100 Previous Rs. 100 Previous Rs. 100
Rate of Interest 1% per month or part 1% per month or part 1% per month or part
thereof thereof thereof
Condition a. fails to furnish a. advanced tax not a) Failure to pay the
return paid at all amount or lesser
b. furnishes it after the b. advanced tax paid amount as required
due date specified less than 90% of by the schedule.
u/s 139 (1) assessed tax
Amount on which Tax on Assessed Tax on assessed income Tax on Declared income
interest is to be income (-) TDS / TCS (-) TDS / TCS
calculated (-)TDS / TCS Advanced (-) Advanced Tax (-) Advanced Tax
Tax (-) MAT
When period of after the last date of from the first day of during previous year
default will filing return assessment year when required amount
begin? instalment is not paid
How to Calculate a. If return is not filed - a) From the first day of a) Period 3 months (1
period of default? up to date of assessment year till the month for last
assessment date of assessment. Instalment)
b. If return is filed after
the due date - up to
date of filing return
INTEREST FOR EXCESS REFUND GRANTED TO ASSESSEE SEC 234D
Condition: Where any refund is granted to the assessee under section 143(1) and:
a. No refund is due on regular assessment; or
b. The amount refunded exceeds the amount refundable on regular assessment;
Rate of interest: Simple interest @ ½ % for every month or part of the month.
Amount on which interest is to be charged: On the whole or excess amount refunded.
Period: From the date of grant of refund to the date of such regular assessment.
FEE FOR DIFFICULT IN FURNISHING RETURN OF INCOME 234F
Without prejudice to the provisions of this Act, where a person required to furnish a return of
income u/s 139, fails to do so within the time prescribed in section 139(1), he shall pay, by way of
fee, a sum of, -
a) Rs. 5,000/-,
Provided that if the total income of the person does not exceed Rs. 5 lakh, the fee payable under

this section shall not exceed Rs. 1,000/-.The provisions of this section applicable from AY 18 – 19
FEE FOR DEFAULT RELATING TO STATEMENT/ CERTIFICATE OF DONATION [SEC.234G,
APPLICABLE FROM OCTOBER 1, 2020]

With effect from October 1, 2020 sections 35 and 80G have been amended to provide that
deduction under these sections will be available to the entity covered by these sections
only if these entities deliver the statement of donations, as prescribed by the board, and
also furnishes a certificate of donation to the donors.

In order to insure compliance of these provisions, section 234G has been inserted with
effect from October 1, 2020. It provides for leavy of Fee of Rs. 200 per day if these entities
fail to submit such statement of donation and / or certificate of donation within the
prescribed time. However the fee, shall not exceed the amount in respect of which the
failure has occurred. Such fees shall be paid before submitting such statement of donation
or before furnishing of certificate of donation.

Chapter 15
COMPUTATION OF INCOME OF VARIOUS
PERSON
ALTERNATE MINIMUM TAX SEC 115JC
1. Applicability
The provisions shall be applicable to a person, other than a company, whose regular income –
tax payable for a previous year is less than the alternate minimum tax payable.
2. Adjusted total income to be deemed income
If regular income tax payable for a previous year is less than the alternate minimum tax payable
then the adjusted total income shall be deemed to be the total income of that person for such
previous year and he shall be liable to pay tax on such income @ 18.5% of adjusted total income.
3. Meaning of Adjusted Total Income
Adjusted Total Income shall be the total income as increased by:
a. Deductions claimed under sections 80IA to 80RRB (other than section 80P);
b. Deduction under section 10AA; and
c. Deduction claimed, if any, under section 35AD as reduced by the amount of depreciation
allowable in accordance with the provisions of section 32 as if no deduction under section
35AD was allowed in respect of the assets on which the deduction under that section is
claimed. (Bold portion amended by Finance (No.2) Act, 2014 w.e.f. 1.4.2015 i.e. AY 2015 – 16).
4. Provisions applicable when adjusted total income exceeds Rs.20 lakhs
The above provisions shall not apply to an individual or HUF or an AOP / BOI, whether
incorporated or not, or an artificial juridical person, if the adjusted total income of such person
does not exceed Rs.20 lakhs.
5. Report to be obtained from a Chartered Accountant
Every such person shall obtain a report, in prescribed form, from a chartered Accountant,
certifying that the adjusted total income and the alternate minimum tax have been computed in
accordance with the provisions of this Chapter and furnish such report on or before the due date
of filing of return under section 139(1).
6. Tax credit for alternate minimum tax (Section 115JD):
The credit for tax paid by a person under section 115JC shall be allowed in accordance with the
provisions of this section as under:
a. Tax credit to be allowed = Alternate minimum tax paid – regular income tax payable

b. No interest shall be payable on tax credit so allowed.
c. The tax credit so allowed shall be credited forward and set – off during 15 subsequent
assessment years.
d. If the regular income tax exceeds the alternate minimum tax, the tax credit shall be allowed
to be set off to the extent of the excess of regular income tax over the alternate minimum
tax and the balance of the tax credit, if any, shall be carried forward.
INCOME OF CO-OPRATIVE SOCIETY
Meaning
Co-operative society means a co-operative society registered under the Co-operative Societies
Act, 1912
Meaning of Specified Activity facilities to its members,
a. Banking business or providing credit
b. Cottage industry;
c. Marketing of the agricultural produce grown by its members; or
d. Purchase of agricultural implements, seeds, livestock or other articles intended for
agriculture for the purpose of supplying them to its members; or
e. Processing, without the aid of power, of the agricultural produce of its members; or
f. Collective disposal of the labour of its members; or
g. Fishing or allied activities like catching, curing, processing, preserving, storing or
marketing of fish or the purchase of materials and equipment in connection therewith for
the purpose of supplying them to its members.
h. Supplying milk, oilseeds, fruits or vegetables raised or grown by its members to (only in the
case of a primary society) :
Deduction u/s. 80P in respect of co-operative societies
Applicable to A co-operative society.
Quantum of Deduction Income derived from Deduction
Specified Activities 100% of income from such activities
Activity other than specified activities Assessee is a consumers' co-operative society
Rs. 100000 In any other case Rs. 50000
Following income of any co-operative society is also exempt:
1. Interest or dividends from its investments with any other co-operative society.

2. Letting of godowns or warehouses for storage, processing of facilitating the marketing of
commodities; and
3. Interest on securities or any income from house property, provided certain conditions are
satisfied.
ASSESSMENT OF AOP/BOI
In case of AOP/BOI income will be determined as under
1. If any salary, bonus, commission or remuneration is paid by AOP/BOI to its members, it will not
be deductible. [Sec 40(ba)]
2. Similarly any interest paid by AOP/BOI to its members on loan, capital or borrowings by
whatever name called is not deductible. [Sec 40 (ba)]
3. When interest is paid by the AOP/BOI to any of its member who has paid interest to the AOP/BOI,
the amount of interest to be disallowed shall be limited to the amount by which the payment of
interest by AOP/BOI to the member exceeds the payment of interest by the member to the
AOP/BOI.
PUTATION OF TAX OF AOP/BOI
When none of
the members
AOP/BOI When one or more partners is a foreign company
is a foreign
company
Tax incidence Tax incidence on Tax incidence on Tax incidence on
on AOP/BOI members AOP/BOI members
A) When shares of Income is Share of Share of foreign Share of
members are taxable as If members shall company shall be member is not
determinates AOP/BOI is an be included in taxable at the rate taxable.
A1) When none of the individual taxable income applicable to
members has income and if AOP/ of members the (40%) and the
exceeding the company BOI remaining income
maximum amt. has paid tax is taxable at the
chargeable to tax then the maximum
members can marginal rate
claim rebate (30%)
under section
86.
A2) When one or more Income will Share of As given above As given above
members has income be taxed at member is not
exceeding the the maximum taxable.

maximum amount marginal rate.

chargeable to tax (30%)
B)When shares of As given As given above At the rate As given above
members are above (30%) applicable to the
indeterminate foreign company
ASSESSMENT OF NON RESIDENT
Meaning of Non-Resident
Under Income Tax Act, non-resident in India can be of two types:-
A. Non-resident Indian
1. The definition of this term is given under section 115C (Chapter XII-A) which deals with special
provisions relating to certain income of non-resident Indians.
2. According to section 115C (e), non-resident Indian means an individual, being a citizen of India
or a person of Indian origin who is not a resident.
3. A person shall be deemed to be of Indian origin if he, or either of his parents or any of his
grand-parents, was born in undivided India;
4. Non-resident Indians can only be individuals.
B. Any other non-resident person i.e. Foreign Nationals (other than individuals of Indian origin) or
foreign companies or Overseas financial organizations (Offshore funds) or foreign institutional
investors, etc. Therefore, in the following discussion wherever the term non-resident in India is
used, it includes persons covered in category (a) and (b) above.
On the other hand where the term non-resident Indian is used, it refers to individuals only of
category (a) mentioned above.

ASSESSMENT OF NON RESIDENT
TYPES OF NON-RESIDENT IN INDIA
Under Income Tax Act, non-resident in India can be of two types:

a
Non-resident Indian
The definition of this term is given under section 115C (Chapter XII-A) which deals
with special provisions relating to certain income of non-resident Indians.
According to section 115C, non-resident Indian means an individual, being a citizen

of India or a person of Indian origin who is not a resident.
• A person shall be deemed to be of Indian origin if he, or either of his parents
or any of his grand-parents, was born in undivided India;
• Non-resident Indians can only be individuals.

b Any other non-resident person i.e. Foreign Nationals (other than individuals of Indian
origin) or foreign companies or Overseas financial organisations (Offshore funds) or

foreign institutional investors, etc.
Therefore, in the following discussion wherever the term non-resident in India is
used, it includes persons covered in category (a) and (b) above. On the other hand
where the term non-resident Indian is used, it refers to individuals only of category
(a) mentioned above.
TAXATION OF NON-RESIDENT
SPECIAL PROVISIONS FOR COMPUTING PROFITS AND GAINS IN CASE OF NON-RESIDENTS

ENGAGED IN CERTAIN BUSINESSES [SECTION 44B, 44BB, 44BB A AND 44BBB]:
Particulars Section 44B Section 44BB Section 44BBA Section 44BBB
Nature of Shipping Operation of Business of providing Business of civil P&M
business business aircraft services or facilities in construction or the

connection with, or business of erection of
supplying P&M on hire or testing or
used, or to be used, in commissioning
the prospecting for, or thereof, in connection

extraction or with turnkey power
production of, mineral projects approved by
oils. the CG.

Eligible NR NR NR Only Foreign Company
assessee
Presumptive 7.5% of 5% of 10% of specified sum 10% of specified sum
income specified specified sum
sum
i i
Specified Amt paid or payable Amt paid or payable Amt paid or payable on
sum on a/c of carriage of on a/c of the a/c of such civil
passengers, provision of such construction, erection,
livestock, mail or services or facilities testing or

goods shipped at/ for the aforesaid commissioning.
from any port/ place purposes in India;
in India; and and
ii ii
Amt reed or deemed Amt reed or in India
to be reed in India on deemed to be reed
a/c of the carriage of on a/c of the
passengers, provision of
livestock mail or services or facilities

goods shipped at/ for the aforesaid
from any port/ place purpose outside
outside India India.

Option to Not available Lower profits may be claimed u/s 44BB and
declare u/s 44BBB provided the assessee maintains
lower profits BOA u/s 44AA and gets them audited u/s
44AB.

ASSESSMENT OF COMPANIES
MAT CREDIT (SEC 115JAA)
When the amount tax on book profit is more than tax payable under normal provisions of the
act, the excess paid shall be allowed to be carried forward for 15 assessment year. The set off is
available only if tax payable under normal provision is more than MAT.
MAT credit = Tax paid under Sec 115JB minus tax payable on the total income under normal
provision of the act.
MAT Rate : 15% plus SC and CESS
SPECIAL PROVISIONS OF TAX ON CERTAIN INCOME OF DOMESTIC MANUFACTURING

COMPANY AND OTHER DOMESTIC COMPANY AS PER PROVISIONS OF SECTION 155BAB AND
SECTION 115BBA OF THE INCOME-TAX ACT, 1961.
(1) (2) (3) (4)
Particulars Section 115BAB Section 115BAA
1 Applicability Domestic manufacturing Any domestic company
company
2 Rate of tax 15% 22%
3 Rate of surcharge 10% 10%
4 Effective rate of tax 17.16% 25.168%
[including surcharge &

cess]
5 Applicability of tax on The rate of tax [i.e., 17.16%] is The rate of tax [i.e. 25.168%] is 1961
concessional rate of notwithstanding anything notwithstanding anything
total income of contained in the Income-tax contained in the Income-tax Act,
company. Act, 1961 but subject to the but subject to the provisions of
provisions of Chapter XII, Chapter XII, other than section
other than section 115BA and 115BAand 115BAB.
115BAA.

EQUALISATION LEVY
Section Subject Provisions
166 Person responsible Every person being a resident in India, who carries out
for deduction of business / profession, or a non-resident who has a
equalization levy permanent establishment in India shall deduct
equalization levy from the amount paid / payable to a
non-resident in respect of the specified service
Rate 6% of the amount of consideration for a specified or

service, received/ receivable by a non-resident, not
having permanent establishment in India, from a

resident in India, who carries out business/ profession,
from a non-resident who has a permanent
establishment in India, rounded off to the nearest ten
rupees
Threshold Equalization Levy is deductible if the aggregate amount

of consideration for a specified service in a previous
year exceeds INR 100,000
The Equalization Levy so deducted during any calendar

month shall be paid by every assessee to the credit of
Time-period
the Central Government by the 7th of following month
167
Furnishing the Every assessee shall, within the time prescribed after
statement the end of the FY, submit a statement in the prescribed
Form # 1, on or by 30th June immediately following the

FY, setting forth all details for specified services
pertaining to that FY
Revised Statement If the assessee notices omissions / errors / wrong

details, he can furnish a revised statement before the
expiry of 2 years from the end of the FY in which the

specified service was provided
Notice by the Where any assessee has failed to file the statement of
Assessing Officer within the prescribed time, the A.O. is empowered to
(A.O.) issue a notice calling for the statement and in which
case the statement has to be furnished within 30 days
date of serving of such notice
172
Penalty for delay in If the assessee fails to furnish the statement within
furnishing the 30th June of the following FY, or within 30 days of the
Statement
notice served by the A.O., a penalty of INR 100 per day
is leviable on the assesse.

An assessee aggrieved by an order of the A.O., may appeal to the Commissioner of Income
Tax (Appeals) within 30 days of receipt of date of order.

An assessee aggrieved by an order of the Commissioner, may appeal to the Appellate
Tribunal within 60 days of receipt of date of order.

Chapter 16
APPEAL, REVISION, PENALTIES AND
PROSECUTION
Appeal is not a natural right of assessee. Each and every order of AO cannot be appealed.
Following 7 matters cannot be appealed against:
1) An order levying interest u/s 234A, 234B, 234C.
2) A revisionary order passed u/s 264 by CIT
3) An order u/s 264 by CIT rejecting the application for revision u/s 263.
4) An order of Settlement Commission.
5) An order of Advance Ruling Authority
6) An order passed by ITAT involving matter of Fact.
7) An order of CIT u/s 273A(1) or 273A(4) (Power to waive penalty)
Hierarchy of Appellate authorities in Income Tax Act
Alternative One – Appeal

Appeal Appellant Appellate Authorities Against the order of
Final Assessee Supreme Court High Court
Appeal Or,
3rd The commissioner of High Court ITAT (the case must
Appeal Income Tax involve substantial
question of law)
2nd Income Tax Appellate Commissioner (Appeals)
Appeal Tribunal (ITAT)
1st Appeal Assessee only. Commissioner of Assessing officer
Income Tax (Appeals)
Alternative Two – Revision under section 263

Nature of action Against which order it can be Who can prefer
taken
Revision under section 263 order of the Assessing Officer Action can be taken by the
if it is prejudicial to the Commissioner of Income-tax
interest of revenue himself
First appeal Appeal to ITAT against the Taxpayer
revision order under section
263
Appeal to High Court See under Alternative One
Appeal to Supreme Court See under Alternative One

Alternative Three – Revision under section 264

nature of action Against which order it can be Who can prefer
taken
Revision under section 264 Order of the Assessing The taxpayer may apply the
Officer Commissioner for revision
under section 264 or the
Commissioner can suo motu
take action
1. First Appeal – Commissioner Appeal Sec 246
Who can apply?
Only Assessee
Time Limit to file application Sec 249(2)
The appeal should be filed within a period of 30 days of ;-
The date of service of notice of demand relating to assessment or penalty if the appeal relates
to assessment or penalty ; or
The date of which intimation of the order sought to be appealed against is served it relates to
any other cases.
From no: 35
Document to be submitted
• Appeal in duplicate
• memorandum of appeal
• statement of facts
• The grounds of appeal
• Notice of Demand in original
• In case appeal against penalty the Assessment order also.
Fees for Appeal
• Assessed income less than 1,00,000 – Rs 250
• Assessed income more than 1,00,000 but less than 2,00,000 – Rs 500
• Assessed income less than 2,00,000 – Rs 1,000
• Appeal in any other case – Rs 250
Procedure in hearing of Appeal Sec 250:
a) The following persons shall have a right of being heard at the hearing of the appeal :
1) The appellant either in person or through authorized representative

2) The Assessing Officer either in person or through a representative
b) The order of the appellate authority disposing off the appeal shall be in writing and shall
state the points for determination the decisions thereon and the reason for the decision.
c) The order passed by the Commissioner (Appeals) shall be communicated to the assessee
and to the Commissioner of income tax
Time limit For disposal of appeal
If possible, within 1 year from the end of the financial year in which such appeal was filed
Power of Commissioner Appeal Sec 251
a) In an appeal against an order of assessment he may confirm reduce enhance or annual
the assessment or
b) In an appeal against an order imposing a penalty he may confirm or cancel such order or
very it so as either to enhance or to reduce the penalty
c) In any other case – he may pass such orders in the appeal as he thinks fit
2. Second Appeal – Income Tax Appellate Tribunal (ITAT) Sec 252
Who can apply?
Assessee or Department
Time Limit to file application Sec 253 (3)
The appeal to the Appellate Tribunal shall be filed within 60 days of the date on which the order
sought to be appealed against. It communicated to the assessee or to the CIT, as the case may
be.
Time Limit to file cross objection (4)
30 days from the date of receiving notice.
Delay is above period may be permitted by ITAT.
From no : 36 and 36A from cross objection
Fees Payable by Assessee for Appeal
• Assessed income less than 1,00,000 – Rs 500
• Assessed income more than 1,00,000 but less than 2,00,000 – Rs 1000
• Assessed income less than 2,00,000 – 1 % of the assessed income (subject to a maximum of
Rs. 10,000)
• Appeal in any other case – Rs 500
No Fees payable when
1. The appeal is filed by the Commissioner or
2. Where the memorandum of cross objections is filed either by the assessee or the

department [section 253(6)]
Time limit For disposal of appeal Sec 254
In every appeal, the Appellate Tribunal, where it is possible, may hear and decide every such
appeal within a period of 4 years from the end of the financial year in which such appeal is filed.
Rectification of Order
• Within 4 years from the date of order
• Any application filed by the assessee for rectification shall be accompanied by a fee of Rs.50.
Copy of order
The appellate tribunal shall send a copy of any orders passed to the assessee and the Principal
Commissioner or Commissioner.
Note: ITAT can be challenged only when case involves a question law and not fact.
3. Appeal to High Court: Sec 260A
Time limit for appeal for assessee or department
The CCIT / CIT / assessee aggrieved by any order passed by the Appellate Tribunal may file an
appeal to the High Court and such appeal shall be –
• Filed within 120 days from the date on which the order appealed against is received by the
person filing the appeal;
Other procedure
As per code of civil procedure 1908
4. Appeal to Supreme Court Sec 261 & 262
An appeal shall lie to the Supreme Court against any order of the High Court made in respect of
an appeal filed under section 260A provided the case is certified by the High Court to be a fit
one for appeal to the Supreme Court.
Time limit for appeal for assessee or department
90 days from the date of receiving order of high court
Other procedure
As per code of civil procedure 1908
REVISION BY PRINCIPAL COMMISSIONER OR COMMISSIONER (SEC 263 AND 264)
1. Revision of orders prejudicial to revenue (Section 263):
When revision can be done?
any order passed therein by the Assessing Officer is erroneous so far that is prejudicial to the
interests of the revenue,

(a) The order the passed without making inquiries or verification which should have been made
(b) The order is passed allowing any relief without inquiring into the claim;
(c) the order has not been passed in accordance with any order, direction or instruction issued
by the board u/s 119; or
(d) The order has not been passed in accordance with any decision which is prejudicial to the
assessee, rendered by the jurisdictional High Court or supreme court in the case of the
assessee an any other person.
He may, after giving the assessee an opportunity of being heard and after making the necessary
inquiry, pass such order thereon as the circumstances of the case justify, including an order
enhancing or modifying the assessment, or cancelling the assessment and directing a fresh
assessment.
Time – limit for passing of order:
The order for revision should be passed within 2 years from the end of the financial year in which
the order sought to be revised was passed.
Appeal can be filed to tribunal:
An appeal against the revision order so passed by the Principal Commissioner or Commissioner
can be filed before the Appellate Tribunal.
2. Revision order to be passed either on own motion or on application of assessee Sec 264:
When Revision can be done?
a) In the case of any order, other than an order to which section 263 applies, passed by an
authority subordinate to him, the Principal Commissioner or Commissioner:
b) Either of his own motion or on an application by the assessee for revision,
c) Call for the record of any proceeding in which any such order has been passed, and
d) May make necessary inquiry and may pass such order thereon, not being an order
prejudicial to the assessee.
Time limit for filing of application:
The application must be made by the assessee within 1 year from the date on which the order in
question was communicated to him or the date, on which he came to know of it, whichever is
earlier. ( fee Rs 500)
Time limit for passing of revision order:
In case of suo moto within 1 year from the date of order
In case of application by assessee within 1 year from the end of FY in which application received.
Case where revision cannot be done?

a) Where an appeal against the order lies to the Commissioner (Appeals) or Appellate Tribunal
but has not been made and the time within which such appeal may be made has not expired
and the assessee has not waived his right of appeal; or
b) Where the order has been made the subject of an appeal to the Commissioner (Appeals) or
Appellate Tribunal.
No appeal but writ petition can be filed:
No appeal can be filed against such order. However, such order can be challenged before the
High court by a writ petition and before the Supreme Court by a special Court by a special leave
petition.
PENALTIES
Section Nature of default Quantum of Penalty

221(1) When assessee is in default or is deemed to Such amount as the Assessing
be in default in making a payment of tax. Officer may direct but not exceeding
amount of tax in arrears.
271(1)(b) Failure to comply with notice issued under Rs.10,000 for each failure (See note).
section 142(1) / 143(2) or with a direction
issued under section 142(2A).
271(1)(c) Concealment of particulars of income or 100% to 300% of tax sought to be
furnishing inaccurate particulars of income. evaded.
271A Failure to keep, maintain or retain books of Rs.25,000
accounts or documents, etc. as required by
section 44AA or the rules made there under.
271AA In respect of an international transaction or 2% of value of each international
specified domestic transaction: transaction or specified domestic
a) Failure to keep and maintain any transaction entered into by such
information and document as required by person.
section 92D(1) or 92D(2), or
b) Failure to report such transaction as he is
required to do so, or
c) Maintains or furnishes an incorrect
information and document.
271AAA Penalty on undisclosed income in case 10% of undisclosed income
where search has been initiated on or before
30.6.2012
271AAB Penalty on undisclosed income in case a. 10% or
where search has been initiated on or before b. 20% or
1.7.2012. c. 30% to 90% of undisclosed
income of specified previous
year, as the case may be.

271B Failure to get accounts audited in respect of a. 0.5% of the total sales, turnover or
any previous year(s) relevant to an gross receipts of the business or
assessment year or furnish a report of such profession; or
audit as required under section 44AB. b. Rs.1,50,000,
Whichever is less. (see note)
271BA Failure to furnish report under section 92E. Rs.1,00,000 (see note)
271C Failure to: Amount of tax which such person
a. Deduct the whole or any part of TDS failed to deduct or pay (see note).
under Chapter XVII – B, or
b. Pay the whole or any part of the tax as
required under section 115 – O(2) or
second proviso to section 194B.
271CA Failure to collect tax at source. Amount of tax which such person
failed to collect
271D Loan or deposit taken or accepted in Amount of the loan or deposit so
contravention of the provisions of section taken or accepted
269SS.
271DA Receiving an amount of Rs 2 lakh or more 100 % of Receipt of such amount
( F. Act otherwise than account payee
2017) cheque/draft/use of electronic clearing
system through a bank account in
contravention of provision of Sec 269ST
271E Loan or deposit referred to in section 269T Amount of the loan or deposit so
repaid otherwise than in accordance with the repaid
provisions of that section.
271F Failure to furnish a return of income as Rs. 5,000
required under section 139(1) or by the
proviso to that section before the end of the
relevant assessment year.
271FA Failure to furnish statement of financial Rs.100 for every day during which the
transaction or reportable account within the failure continues.
prescribed time under section 285BA. (Bold Rs.500 for every day for which
portion as amended by Finance (no. 2) Act, default continues, starting from the
2014 w.e.f. 1.4.2015) day immediately following the day
on which the time specified in notice
under section 285BA(5) for
furnishing the statement expires till
the date of furnishing of statement.
(bold portion as amended by Finance
(no. 2) Act, 2014 w.e.f. 1.4.2015) (see
note)
271FAB Penalty for failure to furnish statement or Rs 5,00,000 (Finance Act 15)
information or document by an eligible
investment fund
271G Failure to furnish any information or The Assessing Officer or the Transfer
document under section 92D(3). Pricing Officer as referred to in
section 92 CA or the Commissioner

(Appeals) may direct a penalty equal

to 2% of the value of international
transaction or specified domestic
transaction for each failure.
271GA Penalty for failure to furnish information or a. A sum equal to 2%of the value of
document under section 285A (Indian transaction in respect of which
concern fails to furnish any information or such failure has taken place in a
document which is required to be furnished case where such transaction had
under section 285A) the effect of directly or indirectly
(Finance Act 2015) transferring the right of
management or control in
relation to the Indian concern
b. A sum of Rs 5,00,000 in any other
case
271H Failure to furnish submit quarterly TDS/TCS Rs 1,00,000
returns
271-I Penalty for failure to furnish information AO may direct that such person shall
inaccurate information under section 195 pay by way of penalty a sum of Rs
If a person who is required to furnish 1,00,000
information under section 195(6) fails to (Finance Act 15)
furnish information
272A(1) 1) Refusal to answer any question put to a Rs. 10,000 for each such failure or
person legally bound to state the truth of default.
any matter touching the subject of his
assessment, by an Income Tax Authority
in exercise of its powers under this Act, or
2) Refusal to sign any statement made by a
person in the course of any proceedings
under this Act, which an Income Tax
authority may legally require him to sign;
or
3) Omission to attend to give evidence or
produce books of account or other
documents at a certain place or time as
required by the summons issued under
section 131(1) (see note)
272B Failure to comply with the provisions of Rs.10,000
section 139A.
272BB Failure to comply with the provisions of Rs.10,000
section 203A.
271DA No person should receive an amount of Rs 2 Penalty equal to amount of receipt
[FA 17] lakh or more otherwise than by way of
account payee cheque or ECS (aggregate
amount or in a day)
271J Penalty for incorrect information in statutory Rs 10,000 for each such report
[FA 17] report by accountant/ banker/valuer

Key Notes
Penalty not to be imposed in certain cases (section 273B): No penalty shall be impossible on the
person or the assessee, as the case may be, for any failure referred to in the said provisions, if
he proves that there was reasonable cause for the said failure.
PROSECUTION REMOVEL, CONCEALMENT, TRANSFER OR DELIVERY OF PROPERTY TO THWART
TAX RECOVERY (SECTION 276)
a. Type of offence: Fraudulent removal, concealment, transfer or delivery to any person, any
property or any interest therein, intending thereby to prevent that property or interest
therein from being taken in execution of a certificate under the provisions of the Second
Schedule.
b. Imprisonment and Fine: Rigorous imprisonment for a term which may extend to 2 years and
with fine.
WILLFUL ATTEMPT TO EVADE TAX, ETC. (SECTION 276C(1))
a. Type of offence: Willful attempt to evade any tax, penalty or interest chargeable or
imposable under this Act.
b. Imprisonment and Fine:
1) Where the amount sought to be evaded exceeds Rs.25,00,000: Rigorous imprisonment for
a term which shall not be less than 6 months but which may extend to 7 years and with
fine.
2) In any other case: Rigorous imprisonment for a term which shall not be less than 3 months
but which may extend to 2 years and with fine.
Explanation: A wilful attempt to evade any tax, penalty or interest chargeable or impassable
under this Act or the payment thereof shall include a case where any person:
3) Has in his possession or control any books of account or other documents (being books of
account or other documents relevant to any proceeding under this Act) containing a false
entry or statement; or
4) Makes or causes to be made any false entry or statement in such books of account or
other documents; or
5) Wilfully omits or causes to be omitted any relevant entry or statement in such books of
account or other documents; or

6) Causes any other circumstance to exist which will have the effect of enabling such person
to evade any tax, penalty or interest chargeable or imposable under this Act or the
payment thereof.
WILFUL ATTEMPT TO EVADE PAYMENT OF TAX (SECTION 276C(2))
a. Type of offence: Wilful attempt to evade the payment of any tax, penalty or interest under
this Act.
b. Imprisonment and Fine: Rigorous imprisonment for a term which shall not be less than 3
months but which may extend to 2 years and shall, in the discretion of the court, also be
liable to fine.
Explanation: Same as discussed above in section 276C(1).
FALSE STATEMENT IN VERIFICATION, ETC. (Section 277)
a. Type of offence: If a person makes a statement in any verification under this Act or under
any rule made thereunder, or delivers an account or statement which is false, and which he
either knows or believes to be false, or does not believe to be true.
b. Imprisonment and Fine:
1. Where the amount of tax, which would have been evaded if the statement or account had
been accepted as true, Rs.25,00,000 – Rigorous imprisonment for a term which shall not
be less than 6 months but which may extend to 7 years and with fine;
2. In any other case: Rigorous imprisonment for a term which shall not be less than 3 months
but which may extend to 2 years and with fine.
FALSIFICATION OF BOOKS OF ACCOUNT OR DOCUMENT, ETC. (Section 277A)
a. Type of offence: If any person wilfully and with intent to enable any other person to evade
any tax or interest or penalty chargeable and imposable under this Act, makes or causes to
be made any entry or statement which is false and which the first person either knows to be
false or does not believe to be true, in any books of account or other document relevant to
or useful in any proceedings against the first person or the second person, under this Act.
b. Imprisonment and Fine: The first person shall be punishable with rigorous imprisonment for
a term which shall not be less than 3 months but which may extend to 2 years and with fine.
Explanation: For the purposes of establishing the charge under this section, it shall not be
necessary to prove that the second person has actually evaded any tax, penalty or interest

chargeable or imposable under this Act.
ABATMENT OF FALSE RETURN, ETC. (Section 278)
a. Type of offence: If a person abets or induces in any manner another person to make and
deliver an account or a statement or declaration relating to any income chargeable to tax
which is false and which he either knows to be false or does not believe to be true or to
commit an offence under section 276C(1).
b. Imprisonment and fine:
1. Where the amount of tax, penalty or interest which would have been evaded, if the
declaration, account or statement had been accepted as true, or which is wilfully
attempted to be evaded, exceeds Rs.25,00,000
• Rigorous imprisonment for a term which shall not be less than 6 months but which
may extend to 7 years and with fine;
2. In any other case – Rigorous imprisonment for a term which shall not be less than 3
months but which may extend to 2 years and with fine.
PUNISHMENT FOR SECOND AND SUBSEQUENT OFFENCES (SECTION 278A)
a. Type of offence: If any person convicted of an offence under section 276B or 276C(1) or 276CC
or 276E or 277 or 278 is again convicted of an offence under any of the aforesaid provisions,
he shall be punishable for the second and for every subsequent offence.
b. Imprisonment and fine: Rigorous imprisonment for a term which shall not be less than 6
months but which may extend to 7 years and with fine.
Key Notes
Directorate of Income tax (Criminal Investigation) – DCI (w.e.f. 30.5.2011): The President of India
has granted its approval to create DCI as a subordinate office to CBDT, which will perform
functions in respect of criminal matters having any financial implication punishable as an
offence under Income Tax or Wealth – tax.

Chapter 17
COLLECTION & RECOVERY OF TAX
1. Sec 156
Section 156 lays down that the Assessing Officer shall serve upon the assessee a notice of
demand in Form No. 7, when any tax interest or penalty, fine or other sum is payable
inconsequence of any order passed under the Act.
2. Sec 220(1)
This section deals with time limit for payment of tax 30 day from the date of service of notice
3. Sec 220(2)
Interest for delay 1% per month after 30 days.
4. Sec 220(3)
Extension in payment of tax is given
5. Sec 220(4)
If demand not paid then assessee is treated as Assessee in default.
6. Section 221
1) Penalty for non- payment of tax as AO may direct.
2) Penalty cannot be more than amount of tax in arrears.
3) Opportunity of heard must be given to assessee.
7. Sec 226: Mode of Recovery
1) Deduction from salaries [Section 226(2)]:
2) Attachment of deposit [Section 226(3)]:
3) Money in court custody [Section 226(4)]:
4) Distrait and Sale of movable property [Section 226(5)]:
5) Recovery against the assesses property in foreign country [Section 228A]

Chapter 18
REFUND
1. Person eligible to claim refund:
Following persons can claim refund –
• Sec. 137
A person who has paid tax in excess of the amount for which he is chargeable under this Act.
• Sec. 138(1)
In case income of a person is clubbed in the hands of the other person, then the letter can claim
refund for tax paid for tax paid on such clubbed income.
• Sec. 238(2)
In case an assessee is unable to claim or receive any refund due to him on account of death,
incapacity, insolvency, liquidation or any other cause, then his legal representative, trustee,
guardian or receiver, as the case may be, can claim and receive such refund for the refund for
the benefit of such person or his estate.
Form and Time Limit for claiming refund
A claim for refund should be made in Form 30 & from 1-9-19 along with return of income
under section 139
[Sec. 239] Refund shall be claimed within 1 year from the end of relevant assessment year
2. Interest payable to Assessee Sec 244A
Rate of interest: Simple interest @ ½ % per month or part thereof.
Period for calculation of interest:
Interest if return is timely filed: Section 244A inter alia provides that an assessee as entitled to
interest on refund arising out of excess payment of advance tax, tax deducted or collected at
source from the 1st April of the assessment year and till the date on which refund is granted.
Interest if return is timely not filed: In case where the return is filed after the due date, the period
for grant of interest on refund shall being from the date of filing of return.
Interest on refund of self-assessment tax: In the interest of fairness and equity, it is further
purposed to provide that an assessee shall be eligible to interest on refund of self-assessment
tax for the period beginning from the date of payment of tax or filing of return, whichever is
later, to the date on which the refund is granted.

For the purpose of determining the order of adjustment of payments received against the taxes
due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.
Refund arises out of appeal: It is also provided that where a refund arises out of appeal effect
being delayed beyond the time prescribed u/s 153(5), the assesse shall be entitled to receive, in
addition to the interest payable u/s 224A(1), an additional interest on such refund amount
calculated at the rate of 3% per annum, for the period beginning from the date following the date
of expiry of the time allowed u/s 153(5) to the date on which the refund is granted.
Note: In case where extension is granted by the Principal Commissioner or Commissioner by
invoking proviso to section 153(5), the period of additional interest, if any, shall being from the
expiry of such extended period.
Key notes:
• Interest on refund due to TDS or TCS shall be allowed, provided the amount of refund is not
less than 10% of the tax liability as determined u/s 143(1) or regular assessment
• Tax liability of refund
Refund of tax : Not Taxable
Interest on delayed refund : Taxable as IFOS

Tax Laws DT Revsion Notes For Dec 22

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Tax Laws DT Revsion Notes For Dec 22

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CS EXECUTIVE

TAX LAW PRACTICE

CMA VIPUL SHAH (MBA, MCOM, EXIM) YES ACADEMY

DIRECT TAX – REVISION (June - 22/ Dec - 22)

3 INCOMES EXEMPT FROM TAX 27

4 INCOME FROM SALARY 51

5 INCOME FROM HOUSE PROPERTY 64

6 INCOME FROM BUSINESS OR PROFESSION 72

8 INCOME FROM OTHER SOURCE 110

9 CLUBBING OF INCOME 114

10 SET OFF AND CARRY FORWARD OF LOSSES 117

11 DEDUCTIONS SEC 80C TO 80U 121

12 TDS & TCS 129

13 ADVANCE TAX 140

14 RETURN, ASSESSMENT PROCEDURE AND INTERST 142

15 COMPUTATION OF INCOME OF VARIOUS PERSON 153

16 APPEAL, REVISION, PENALTIES AND PROSECUTION 162

17 COLLECTION & RECOVERY OF TAX 173

YES ACADEMY FOR CS 8888 235 235 1

1. Component of Income Tax law

1) Income tax Act, 1961,

3) Income Tax Rules, 1961,

4) Circulars / Notification from CBDT,

5) Supreme Court and High Court Decisions.

1) Direct Tax: Tax on Income

2) Indirect Tax : Tax on goods and services

Entry no 82 Tax on income other than Agri. income

Legislature can make laws upon concurrently.

1) The territory of India as per Article 1 of the constitution,

2) Its territorial waters, seabed and subsoil underlying such waters,

4) Exclusive Economic Zone, or

5) Any other specified Maritime Zone, and

6) The air space above its Territory and Territorial waters.

6. Income Tax Rules

YES ACADEMY FOR CS 8888 235 235 2

administration of the Act.

CBDT issues Circulars and Notifications from time to time

Prospective / Immediate/Retrospective effect

1) Inclusive Definition 2) Exclusive Definition 3) Exhaustive Definitions

10. Person Sec 2(31)

Individual, HUF, Firm, Company, AOP, BOI, Local Authority, AJP.

11. Assessee Sec 2(7)

Tax Act, 1961.

income, loss and refund.

3) Deemed Assessee: Legal representative

4) Assessee in default: Fail to deduct TDs

12. Assessment year [Sec.2(9)]

12 months commencing 1st April of every day

13. Previous Year [Sec. 3]

from the date of set up to the end of Financial year,

Shipping Business of Non-Resident Mandatory

Persons leaving India Mandatory

AOP / BOI / AJP formed for a particular event or purpose Mandatory

Persons likely to transfer property to avoid tax Mandatory

Discontinued Business Assessment is discretionary

15. Cash Credits [Sec. 68]

Taxable in the FY in which it is found credited in books of accounts if Assessee offers

unsatisfactory explanation about its nature and source.

16. Unexplained Investments [Sec. 69]

YES ACADEMY FOR CS 8888 235 235 3

is deemed to be Income of the Assessee of such FY.

deemed to be Income of the Assessee of such FY.

19. Unexplained Expenditure, etc. [Sec. 69C]