What is Capital Gains Tax?

- Types, Tax Rates, Calculation, Exemptions & Tax Rates

You've just made a savvy investment in the stock market, watched your portfolio grow, and decided to cash
in on your success by selling some of your stocks. But before you celebrate your financial triumph, there's
one thing you can't overlook: capital gains tax.
Capital Gain Tax in India is the tax imposed by the government on the profit earned from the sale of certain
assets, such as stocks, bonds, real estate, or other investments. This tax applies to both individuals and
businesses.
In this guide, we have covered important aspects related to capital gains tax, capital gains tax in
India, capital assets, their calculation, the Cost Inflation Index (CII), and much more in a very lucid and
comprehensive manner.
Contents
What is Capital Gains?
Capital gains tax is a tax imposed on the profits realized from the sale of assets such as stocks, bonds, real
estate, and other investments. It is the tax applied to the difference between an asset's purchase price (or
"cost basis") and its selling price.
When you sell an asset for more than you paid for it, you have a capital gain. Conversely, if you sell an asset
for less than you paid for it, you have a capital loss. Capital gains tax is typically only applied to capital
gains, not to the total amount received from the sale.
To understand capital gains, you need to understand the concept of capital assets.

What are Capital Assets?

Capital assets are the property you own and can be transferred, like land, buildings, shares, patents,
trademarks, jewelry, leasehold rights, machinery, vehicles, etc.
Here is a list of assets that do not fall under the category of capital assets:–
 The stock of consumables or raw materials held for use in business or profession.
 Personal belongings meant for personal use like clothes, furniture, etc.
 A piece of agricultural land is located in a rural area.
 Special bearer bonds, 6.5% gold bonds (1977), 7% gold bonds (1980), or national defense gold
bonds (1980) which the Central Government has issued.
 Gold deposit bond (1999), issued under the gold deposit scheme or deposit certificate issued under
the Gold Monetisation Scheme, 2015, notified by the Central Government.

What are the Different Types of Capital Assets?

Capital assets are divided into two types based on the period after which they are sold. The types of capital
assets are as follows –
 Short-term Capital Assets
 Long-term Capital Assets

What are Short-term Capital Assets?

Short-term capital assets are those held for less than or equal to 36 months. This means that if you sell off
the asset within 36 months of buying it, it would be called a short-term capital asset. However, in some
cases, the holding period is reduced to 24 months and 12 months. These cases include the following –
 If the asset is an immovable property like land, building, or house, then the holding period would be
considered 24 months. This means that if you sell off an immovable property within 24 months of
buying it, it would be called a short-term capital asset.
 Similarly, equity shares of a company listed on the Recognized stock exchange, securities listed on
the Recognized stock exchange, UTI units, equity-oriented mutual fund units, and zero-coupon
bonds have a holding period of 12 months. If these assets are sold off before 12 months of purchase,
they would be called short-term capital assets.
What are Long-term Capital Assets?
Long-term capital assets are those held for more than 36 months and then sold off. Immovable property sold
after 24 months would be categorized as a long-term capital asset. In the case of equity shares, securities,
mutual fund units, etc., however, the holding period of 12 months is applicable. If sold off after 12 months,
they would be called long-term capital assets.
Generally, the holding period of capital assets to be considered as long-term is 36 months. However, there
are certain exceptions to this rule. Here’s a summary of different types of capital assets and the period of
holding, after which they are considered long-term capital assets -
Capital Assets Holding Period

Equity Shares or Preference Shares in a company (listed) 12 months

Equity Shares or Preference Shares in a company (unlisted) 24 months

Immovable Property (land or building or both) 24 months

Securities like bonds, debentures, derivatives, and government 12 months

securities (listed)

Units of UTI (Unit Trust of India) (listed or unlisted) 12 months

Units of equity-oriented mutual funds (listed or unlisted) 12 months

Units of debt-oriented mutual funds (listed or unlisted) 36 months

Zero coupon bonds (listed or unlisted) 12 months

How are Inherited Capital Assets Classified?

When acquiring an asset through gift, will, succession, or inheritance, the duration for which the previous
owner held the asset is considered.
 For bonus shares or rights shares, the holding period starts from the date of allotment of bonus
shares.
 This consideration applies to determining whether the asset qualifies as short-term or long-term
capital asset.

What are the Different Types of Capital Gain Tax?

Now that you have understood what capital assets are and their types, it’s time to understand the types of
capital gains. Capital gains are divided into short-term capital gains and long-term capital gains –

Short-Term Capital Gain Tax

Short-term capital gains (STCG) are the profits you earn when you sell off your capital assets within one
year of holding them. Note that the holding period varies as per the capital asset.
 When the security transaction tax is applicable: Short-term capital gain tax is 15%
 When a security transaction tax is not applicable, the short-term capital gain tax will be calculated
based on the taxpayers' income and will be automatically added to the taxpayer's ITR and charged at
normal slab rates.
Long-Term Capital Gain Tax
Long-term capital gain tax (LTCG) are the profits you earn when you sell off your capital assets after one
year. Note that the period of holding for different assets to be claimed as long-term assets varies according to
the asset.
 Long-term capital gain tax is applicable at 20% except on the sale of equity shares and the units of
equity-oriented funds.
 Long-term capital gains are 10% over and above Rs 1 lakh on the sales of equity shares and units of
equity-oriented funds.
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How to Calculate Capital Gains Tax?
Short-term capital gains Calculations
Full value of consideration xxxxx

(-) Expenses incurred on transferring the asset (xxxx)

(-) Cost of acquisition (xxxx)

(-) Cost of the improvement (xxxx)

Short-term capital gains xxxxx

Let’s understand it with an example. A house property was bought on 1st January 2021 for INR 50 lakhs. On
1st January 2022, INR 5 lakhs were spent on improving the house. On 1st November 2022, the house was
sold for INR 65 lakhs.
Since the house was sold after 22 months of buying it, it would be categorized as a short-term capital asset.
The gain from selling the house would be called a short-term capital gain, and it would be calculated as
follows –
The full value of consideration INR 65 lakhs

(-) Cost of acquisition INR 50 lakhs

(-) Cost of improvement INR 5 lakhs

Short-term capital gains INR 10 lakhs

Long-Term Capital Gain Calculations
Full value of consideration

(-) Expenses incurred in transferring the asset

(-) Indexed cost of acquisition

(-) Indexed cost of the improvement

(-) expenses allowed to be deducted from the full value of the consideration

(-) exemptions available under Sections 54, 54EC, 54B and 54F, etc.

Long-term capital gains

Let’s understand this with the help of an example -
A house property was purchased on 1st January 2000 for INR 20 lakhs. On 1st January 2005, repairs were
done on the house, which amounted to INR 5 lakhs. On 1st January 2023, the house was sold for INR 75
lakhs. A brokerage was paid to the broker, which was INR 1 lakh. What would be the capital gain amount?
Solution:
Since the asset has been held for more than 36 months, it is a long-term capital asset, and the gain is a long-
term capital gain. The gain would be calculated as follows –
Particulars Calculation Amount

The full value of - INR 75,00,000

consideration
 Less: indexed cost of Cost of acquisition * CII of the INR 66,20,000
acquisition year in which the asset is sold /
CII of the year in which the asset
was acquired = 20 lakhs * (CII of
2022-23 / CII of 2001-02 since it
is the base year)= 20 lakhs *
(331/100)

Less: indexed cost of Cost of improvement * CII of the INR 14,64,602

improvement year in which the asset is sold /
CII of the year in which the asset
was improved = 5 lakhs * (CII of
2022-23 / CII of 2004-05)= 5
lakhs * (272/113)

Less: brokerage paid - INR 1,00,000

Long term capital gain or - INR -6,84,602

Long term capital Loss

What is Indexation?
Indexation of costs is done to factor in the inflation over the years when you hold the capital asset. Since
inflation decreases the value of money, indexation of the acquisition and improvement costs increases the
amount of these costs, thereby lowering the capital gain earned. To calculate indexation, Cost Inflation
Index (CII) accounts for the inflation incurred over the holding period. To calculate the indexed costs, the
following formula is used –

The base year for CII has changed from 1981 to 2001. That is why, when calculating the indexed cost of
acquisition, CII of 2001-02 is considered if the asset was purchased before the financial year 2001-02.
With the shift in the base year, the CII numbers have also changed. The CII for different years, as
determined by the Central Government, are as follows –
Financial year Cost Inflation Index (CII)

2016-17 264

2017-18 272

2018-19 280

2019-20 289

2020-2021 301

2021-2022 317

2022-2023 331

2023 - 2024 348

Note: Getting help from tax experts can make capital gains tax calculation extremely easy and quick. All
you have to do is hire an online CA and give them a summary of your capital gain transactions during the
year. These experts will not only calculate your capital gains tax but also file your ITR accurately on time.

What is Surcharge?
Income tax surcharge is the additional tax charged on the income tax payable. It is levied on the taxpayers
having a higher income inflow during the year. Given below are the surcharge rates on STCG and LTCG for
individuals, HUF, AOP, BOI, and AJP -
Nature of Income Range of Total Income

Up to More than More than More than More than Rs. 5

Rs. 50 Rs. 50 lakhs Rs. 1 Rs. 2 crores crores
lakhs but up to Rs. crore but but up to
1 crore up to Rs. Rs. 5 crores
2 crores

Short-term capital Nil 10% 15% 15% 15%

gain covered under
Section
111A/115AD

Long-term capital Nil 10% 15% 15% 15%

gain covered under
Section
112A/115AD

What are the Expenses Allowed for Capital Gains?

These are the expenses that were necessary to be incurred when selling the asset. Without these expenses,
the asset would not have been purchased. These expenses, since mandatory, are allowed to be deducted from
the full value of the consideration, which lowers the selling price / increases the cost of acquisition, and also
decreases the capital gain. The expenses allowed to be deducted include the following –
Expenses Allowed for Property, Shares and Jewelry
House Property Shares Jewelry

. Stamp paper cost Commission Commission paid to the

. Brokerage or commission paid to a broker for arranging paid to the broker for arranging a
a buyer broker for buyer for the jewelry
. Traveling expenses incurred for the sale of the asset selling the
. Expenses incurred in obtaining succession certificates, shares.
paying the executor of the Will, and other legal
procedures if the property is acquired through a Will or
inheritance
Capital Gains Tax Rates
Given below is the summary of the holding period and the capital gains tax rates for different capital assets -
Capital Asset Holding Period for Long Term Short Term Remarks
Long Term Capital Capital Gain Tax Capital Gain
Asset (LTCG) Tax (STCG)

Stocks > 12 months 10% of gain 15% of gain LTCG

applicable if
total exceeds Rs.
1 Lakh in a
financial year.

Unit Linked > 12 months 10% of gain 15% of gain LTCG

Insurance applicable if
Plan (ULIPs) total exceeds Rs.
1 Lakh in a
financial year.

Equity > 12 months 10% of gain 15% of gain LTCG

Oriented applicable if
Mutual Funds total exceeds Rs.
1 Lakh in a
financial year.

Other Mutual > 36 months 20% with inflation Taxed based on

Funds indexation income tax slab

Government > 36 months 20% with inflation Taxed based on

and Corporate indexation income tax slab
Bonds

Gold > 36 months 20% with inflation Taxed based on

indexation income tax slab

Gold ETF > 12 months 10% of gain Taxed based on LTCG

income tax slab applicable if
total exceeds Rs.
1 Lakh in a
financial year.

Immovable > 24 months 20% with inflation Taxed based on

Property indexation income tax slab

Movable > 36 months 20% with inflation Taxed based on No tax for
Property indexation income tax slab LTCG
reinvested in
approved assets.

Privately held > 24 months 20% with inflation Taxed based on

Stocks indexation income tax slab
Note: Taxes mentioned do not include any surcharge levied on income tax.
Tax Exemption on Capital Gain
Because capital gains tax tends to erode a significant portion of earnings, it becomes critical for individuals
to utilize tax-saving strategies to help them reduce their tax liability. To assist individuals in minimizing their
capital gains tax liability, the government provides a list of exemptions under capital gains. These tax
exemptions are known as capital gains exemptions.
Exemption Under Section 54: Sale of House Property on Purchase of Another House Property
The exemption on two house properties shall be available once in a lifetime to a taxpayer, provided the
capital gains do not exceed Rs. 2 crores. The taxpayer is only required to invest the number of capital gains,
not the complete sale proceeds. The exemption will be limited to the total capital gain on sale if the purchase
price of the new property is higher than the number of capital gains.
The following conditions must be met to enjoy the benefit:
 The new property can be purchased either one year before or two years after the previous property
has been sold.
 Gains can also be invested in property construction, but construction must be completed within three
years of the sale date.
 In the 2014-15 Budget, it was made clear that only one house property could be purchased or built
with capital gains to qualify for this exemption.
 Please remember that this exemption can be revoked if the new property is sold within three years of
its purchase or completion of construction.
Exemption Under 54B: Transfer of Land Used for Agricultural Purposes
An exemption is available under Section 54B when you make short-term or long-term capital gains from the
transfer of land used for agricultural purposes – by an individual, the individual's parents, or a Hindu
Undivided Family (HUF) – for two years before the sale. The lesser of the capital gain on the sale of
agricultural land or the investment in new assets is exempt from tax. You must reinvest in new agricultural
land within two years of the transfer date.
 The new agricultural land purchased to claim capital gains exemption should not be sold within three
years of its purchase date.
 If you cannot purchase agricultural land before the due date for filing your income tax return, the
number of capital gains must be deposited in any branch (except rural branches) of a public sector
bank or IDBI Bank before the due date.
 Exemptions can be claimed for the amount deposited. If the amount deposited under the Capital
Gains Account Scheme was not used to purchase agricultural land, it should be treated as capital
gains of the year in which the period of two years from the date of sale of land elapsed.
Exemption Under Sections 54 E, 54EA, and 54EB – Profits from Investments in Certain Securities
This capital gains exemption applies to capital gains derived from the transfer of long-term capital assets.
Individuals can take advantage of such long-term capital gain exemptions if they reinvest in securities such
as targeted debentures, UTI units, government securities, government bonds, etc.

The following conditions must be met–

Amendment to Section 54 - Capital Gain Exemption

Investing in property has long been a favored strategy for individuals seeking secure and potentially
profitable investments. The approach of buying property, holding it for a few years, and selling it at a higher
price has been embraced by many as a reliable investment mantra.
In many cases, the owners of residential properties need to sell their houses due to reasons like moving to a
new city, switching jobs, retirement, etc. Under Section 54 of the Income Tax Act, if the seller of a
residential property acquires or constructs another residential property from that amount, he or she gets
benefits from capital gains tax. In this case, the objective is not to earn income from selling the old house but
to acquire another suitable house. In other words, when an assessee sells a residential property and purchases
or constructs another residential house property, he or she gets an exemption from capital gains under
Section 54 of the Income Tax Act.
Revised Section 54 – For individuals or Hindu Undivided Families (HUFs) selling a residential house
property (Long Term Capital Asset), the exemption on capital gains will be limited to Rs. 10 crore. Even if
the new house purchased exceeds this limit, the maximum exemption allowed will be capped at Rs. 10 crore.
For instance, if the capital gain is Rs. 18 crore and the individual buys a new house worth Rs. 18 crore, the
exemption will be restricted to Rs. 10 crore.
Revised Section 54F – Similarly, for individuals or HUFs selling a capital asset other than residential
property (Long Term Capital Asset), the maximum exemption on capital gains will also be limited to Rs. 10
crore. Any investment exceeding this limit will not be considered for exemption. A provision is added to
exclude the portion of net consideration exceeding Rs. 10 crore from the calculation of exemption under this
section. For example, if the consideration from selling a plot is Rs. 15 crore, with a capital gain of Rs. 8
crore, and the individual invests Rs. 12 crore in a new residential house, the exempted gain will be
calculated as Rs. 8 * 10/15 = Rs. 5.33 crore, and the taxable amount will be Rs. 8 - 5.33 crore = Rs. 2.67
crore.
These amendments also apply to the provisions related to Capital Gains Accounts Scheme (CGAS), ensuring
that the maximum exemption allowed is restricted to Rs. 10 crore. These changes aim to streamline and
regulate the exemption provisions under the capital gains head.

ITR Filing for Capital Gains

If you have any capital gains in the previous year, you must mandatorily file ITR. Capital gains/losses
during the year have to be reported in ITR-2 and ITR-3. You can also claim the available exemptions while
filing your ITR.
However, filing ITR for capital gains can be complicated. Don’t worry! Our tax experts can help you file
your ITR while ensuring that you don’t miss out on any potential deductions. If you are looking to save
income tax on capital gains, book an online CA Now.

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How is Income from Other Sources Taxed in India?
Income from Other Sources is one of the five heads of income subject to taxation under the Income Tax Act,
1961. Any income that is not covered in the other remaining four heads of income is taxed under income
from other sources. It is referred to as residuary head of income. Incomes excluded from salary, house
property, business & profession (PGBP) or capital gains are covered in Income from Other Sources, barring
incomes that are exempt under the Income Tax Act.
Section 56: Incomes Taxable Only in Income from Other Sources – Criteria
Under Section 56 of the Act, the following three conditions must be satisfied for a receipt of earning to come
under the ‘income from other sources’ head –
1. You have an income
2. Such income is not tax-exempt under any other Sections of the Income Tax Act 1961
3. Such income cannot be categorized as salary, profits, and gains from business or profession, income from
house property, or capital gains
Click here to use - Income Tax Calculator
What does ‘Income from Other Sources’ Include?
The following types of receipts of income fall under the Income from Other Sources’ category –
1. Dividends
Dividends are taxable under ‘income from other sources,’ based on the residential status of the source
company that paid out the dividend.
2. Dividend from an Indian Company
If any company has paid Dividend Distribution Tax (or DDT) on this receipt of income, the dividend is
exempted from tax. Under Section 115BBDA of the Act, however, if a resident individual, firm, or HUF
receives dividends over Rs 10 lakhs from an Indian company, then the excess amount over Rs 10 lakhs is
subject to taxation at 10%.
3. Dividend from a Foreign Company
Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’
4. One-time Income
One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games, gambling or
betting of any form are categorized under ‘Income from Other Sources.’
5. Interest on Compensation
Interest received by you (as assesse) on the amount of reimbursement or compensation paid out in situations
such as compulsory acquisition is subject to taxation under ‘Income from Other Sources’ head.
6. Gifts
Gifts received in the form of any sum of money, movable or immovable property, are also taxable.
Then, there are the following receipts of income, which can only be classified under ‘Income from Other
Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –
a) Employees’ contribution to any welfare scheme
b) Interest on securities such as debentures or government bonds
c) Rental income received from letting out the plant, furniture, or machinery owned by the assessee
d) Rental income received from letting out the plant, furniture, or machinery along with a building (here,
these two cases of letting out are inseparable)
e) Receipts of income under a Keyman Insurance Policy
Examples of Receipts that are Chargeable Under ‘Income from Other Sources’
The following are some of the examples of other receipts of income that automatically fall under the
‘Income from Other Sources’ category –
a) Income received from subletting a house property by a tenant
b) Insurance commissions received by you (i.e., assesse)
c) Casual income
d) Family pension payments received by the lawful heirs of dead employees
e) Interest earned on deposits with companies and bank deposits
f) Interest on loans
g) Remuneration received by the Members of Parliament (MP)
h) Rental income earned from a vacant plot of land
i) Agricultural income received from an agricultural land situated outside of India
j) Interest paid out by the Government on excess payment of advance tax
Section 57- Expenditures Allowed as Deductions
The following expenditures are subject to tax deductions under the ‘Income from Other Sources’ category:

Section Nature of Income Deductions allowed

57(i) Dividend or interest earned on Any reasonable sum paid as commission or remuneration
securities to a banker or any other person to realize interest or
dividend on securities

57(ia) Employee’s contribution In case the employees’ contribution is credited to their

towards Provident Fund (PF), respective accounts in relevant fund before or on the due
Superannuation Fund (SF), or date
ESI Fund setup for employees’
welfare

57(ii) Rental income received from Rent, taxes, rates, repairs, depreciation and insurance, etc
letting of plant, furniture,
machinery or building

57(iia) Family Pension One-third of the family pension, subject to a maximum of

Rs. 15,000

57(iii) Any other income Any other expenditure (apart from capital expenditure)
expended exclusively and wholly for earning such income

57 (iv) Interest on the compensation or 50% of such interest received (subject to specific
enhanced compensation conditions)

58(4) Income from any activity of All expenditures relating to such activity
Proviso maintaining or owning race
horses
Section 58- Expenses not Deductible while Calculating Income Tax
Section Nature of Income

58(1)(a)(i) Personal expenses

58(1)(a)(ii) Interest subject to tax, which is payable outside India (there has been no previous tax
deduction on this interest)

58(1)(a) ‘Salary’ payable outside India on which no tax is deducted at source or paid
(iii)

58(1A) Wealth-tax

58(2) Expenditures specified in section 40A

58(4) Expenditure associated with winnings from lotteries, races, crossword puzzles, games,
gambling, or betting

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 Section 80C – Income Tax Deduction under Section 80C
Section 80C is the most popular income tax deduction for tax saving. 80C deduction limit for the current FY
2023-24 (AY 2024-25) is Rs.1,50,000. For claiming the tax benefit,
Tax exemptions under 80C are applicable only for individual taxpayers and Hindu Undivided Families.
Corporate bodies, partnership firms, and other businesses are not eligible to avail of tax exemptions under
Section 80C.
In this guide, we have explained all the investment options available under 80C, along with their eligibility
criteria.

About Section 80C of the Income Tax Act

Section 80C is an income tax deduction that helps you reduce your taxable income and thus helps in
reducing the tax outgo. It covers specified investment and payment options that can reduce your taxable
income by an amount of up to Rs 1.5 lakhs. Although the deduction is claimed when filing your income tax
return, the investment must be made during the relevant financial year.
For example, For FY 2023-24, i.e., AY 2024-25, you need to invest in the specified options under section
80C between 1st April 2023 and 31st March 2024. The benefit can be claimed at the time of filing your
income tax return

Eligibility of Section 80C of Income Tax Act

Individuals and HUF can save their taxes by investing in different tax-saving options available under section
80C. This section also applies to both Indian residents and non-resident Indians. Companies, partnerships,
and other corporate bodies are not eligible for the deduction.

How much can be claimed under Section 80C?

You can claim a maximum deduction of up to Rs. 1.5 lakh from your total income under Section 80C.
What is covered under Section 80C?
Public Provident Fund (PPF):
It’s the safest investment option under 80C.
Eligibility: You can make investments in the name of:
In the case of a Resident Self
Individual: Spouse or
Any child of such individual

In the case of HUF: Any member of HUF

Amount of Investment : The minimum deposit limit is Rs. 500, and the limit for maximum deposit is Rs
1,50,000 during a year.
Lock-in-Period : The PPF account matures after 15 years, but part of the money can be withdrawn after six
years.
Taxability : It’s EEE-rated, which means it's tax-exempt at the time of investment, returns, and
withdrawals.
Sukanya Samriddhi Yojana(SSY) Account:
Prime Minister Narendra Modi launched this scheme in line with the Beti Bachao, Beti Padhao campaign on
22 January 2015.
Eligibility : Resident Individual parents with a girl child can invest in this scheme until age 10.
Amount of Investment : The minimum deposit limit under this account is Rs 250 annually, and the
maximum limit is Rs 1,50,000.
Lock-in-Period : The amount is required to be deposited for 15 years. After 21 years, this account will
mature.
Taxability : It’s EEE rated.
Mutual Funds (Equity Linked Saving Scheme):
If you like to take some risks & invest in the stock market, then ELSS can be a good option for you. For
80C, you can invest in units of UTI or mutual funds specified u/s 10(23D) of Income Tax India, 1961.
Amount of Investment : You can start investing from Rs 500 without an upper limit.
Lock-in-Period : 3 years.
Taxability : The investment is exempt under section 80C upto Rs 1.5 lakhs and the long-term gains on
withdrawals are exempt upto Rs 1 lakh. The dividends received (if any) will be chargeable to tax under the
head “Income from other sources”.
5-Year Tax Saving FDR:
Almost everyone invests in FDR, but did you know you can claim a deduction for it, too? Yes, the income
tax deduction is available on a 5-year FD done with banks or post offices.
Amount you can invest : The minimum deposit limit is Rs. 1000
Lock in Period : 5 Years. If you break the FD before the completion of the lock-in period, then the
deduction taken will be added back to your income.
Taxability : The amount invested is eligible for deduction under section 80C, but the withdrawals and
interest are taxable. Senior citizens can claim tax benefits of up to Rs 50,000 on the interest amount
earned u/s 80TTB.
If you have a good amount of idle cash accumulated, making a Fixed Deposit will benefit you.
National Saving Certificate (NSC):
Investments in a National Savings Certificate (NSC) are considered very secure.
Eligibility : Only individuals can buy an NSC; HUFs are not allowed to do so.
Amount you can invest : The minimum investment amount is Rs 100, and there is no cap on the highest
ceiling.
Lock in period : 5 Years
Tax benefit : The investment is tax deductible under section 80C, and the interest earned is chargeable to
tax under the head “Income from other sources.”
One interesting thing about NSC is that when interest is accrued, it is deemed to be re-invested in NSC. This
gives you an extra tax benefit on the reinvested interest amount.
Senior Citizen Saving Scheme:
SCSS (Senior Citizen Saving Scheme) is one of the most lucrative investment options for investing the lump
sum money received at retirement by resident senior citizens in India.
Amount you can invest : There is 1000 minimum investment limit but on the higher side, the investment
amount shall not exceed Rs 30 lakhs or the amount received on retirement (whichever is higher)
Lock in Period : 5 Years
Tax Benefit : Investment is tax-deductible u/s 80C. Interest income tax benefits up to Rs 50,000 can be
taken u/s 80TTB. One of the best things about this scheme is that it can be foreclosed after one year.
Unit Linked Insurance Plan (ULIP):
This is a life insurance policy cum investment option. ULIP provides risk cover and investment options in
large no. of qualified investments such as stocks, mutual funds, or bonds. In most ULIPs, the minimum life
cover offered is ten times the annual premium, with an option to select a higher life cover.
Eligibility : You can make investments in the name of:
In the case of an Individual: Individual,
Spouse or
Any child of such an individual

In the case of HUF: Any member of HUF

Amount you can invest : There is no such limit for making investments in the ULIP, but the premium
should not be more than 10% of the sum assured for taking the benefit of tax under section 80C.
Lock in Period : Minimum 5 years
Tax Benefit : On investment: Upto Rs 1.5 lakh
On Maturity : As per The Finance Act, 2021, certain ULIP plans will no longer have exemptions in case:
 The policies are issued on or after February 1, 2021, and
 If you have paid an insurance premium of Rs 2.5 lakh or more for any of the previous years, then the
amount received (including the bonus) at the time of maturity will be taxable.
 In case an individual has purchased multiple ULIP plans and the aggregate amount paid is more than
Rs 2.5 lakh, then it comes under the ambit of taxation.
National Pension Scheme (NPS):
The investment in NPS has manifold tax benefits. Section 80C and 80CCD(1) cumulatively provide a tax
benefit of Rs 1.5 lakh for the NPS contributions.
Eligibility : Individuals aged 18-60 years
Amount you can invest : There is no limit on the amount that can be invested, but a minimum deposit of Rs
6000/- cumulatively is required in a year.
Lock in Period : Till retirement
Tax Benefit : On investment Upto Rs 1.5 lakh
On Returns : Exempt Partially
Life Insurance Premium (LIP):
Under section 80C, the deduction is allowed in respect of life insurance premiums. The premium must be for
the Life insurance policy taken in the name of:
In case of an Individual: Individual,
Spouse or
Any child of such individual

In case of HUF: Any member of HUF

Children's Tuition Fees:
You can claim a deduction for the payment of tuition fees of your children to any university, college, school,
or any other educational institution in India for education. However, the deduction would not be allowed for
payment toward development fees, donations, or payments of a similar nature. Certain conditions must be
kept in mind if you want to claim this benefit.
1. The deduction is available for two children only.
2. It needs to be paid for full-time education only.
3. It should be paid to any university, college, school, or other educational institution in India.
Principal Repayment of Housing Loan:
You can claim a deduction of principal repayment of your housing loan taken to purchase or construct
residential house property.
This deduction is available for both individuals and HUF.
But keep in mind that if you sell/transfer such house property before the expiry of 5 years from the end of
the financial year in which possession was taken, then the deduction availed in the earlier years will become
taxable.
Deferred Annuity Plan
You can claim a deduction for your payment under the Deferred Annuity Plan. This annuity may be in your
name, your spouse's name, or the name of any of your children. But to claim a deduction under this annuity
plan, there should be no provision for receiving cash in lieu of an annuity. And, if you're a government
employee and any sum is deducted from your salary under a deferred annuity plan, then the deduction is
restricted to only 1/5th of your salary.
Stamp Duty & Registration Charges Deduction
While purchasing or constructing a new house, you must have paid stamp duty & registration charges. These
charges may look small compared to the price of the house, but they do make a dent in one’s pocket. Sec
80C allows you to take the deduction regarding these charges as well.

Other 80C Deduction Options

 Contribution towards Approved Superannuation Fund.
 Subscription to any deposit scheme/pension fund of the National Housing Bank (NHB)
 Subscription to bonds issued by the National Bank for Agriculture and Rural Development
(NABARD)
 Deposit in an account under the Senior Citizen Savings Scheme.
 Subscription to notified deposit scheme of
 Public Sector Housing Finance Company
 Housing Development Authority of cities, towns, and villages
 Contribution towards annuity plans of LIC like Jeevan Dhara, Jeevan Akshay, etc. or any other
insurer as approved by the Central Government.
 Subscription to equity shares or debentures of a Public Company or any Public financial institution
forming part of an eligible issue of capital approved by the Board where proceeds are utilized for
infrastructure company.
Note:- TOTAL AMOUNT OF DEDUCTION U/S 80C CANNOT EXCEED Rs 1,50,000.

Tax Saving Investment Options under section 80C

80C Investment Lock In Return Risk Taxability
Option Period

PPF 15 Years 7.1% Risk Interest: Exempt

Free Withdrawal : Exempt

SSY 21 Years 8.2% Risk Interest: Exempt

Free Withdrawal : Exempt

ELSS 3 Years 12-15% Risky Dividend is exempt

(approx)
 FD 5 Years 7-8% (approx) Risk Interest is taxable
Free

NSC 5 Years 7.7% Risk Interest is taxable

Free

SCSS 5 Years 8.2% Risk Interest is Taxable

Free

ULIP 5 Years 8-10% (approx) Risky Returns are taxfree

subject to certain
conditions taxable

NPS Till Retirement 7-8% (approx) Risk Return : Partially

Free exempt
Note:
 The interest /return rates are subject to periodical changes. In the case of post office saving schemes
like PPF, SSY, SCSS, NSC, FD, etc the interest rates are announced quarterly.
 The tax benefit on investment amount in all of the above cases is based upon the amount invested or
Rs 1.5lakh (whichever is lower) for all options.

How to calculate Section 80C deduction?

Calculating the Section 80C deduction involves summing up the eligible investments and expenses made during the financial year.
Let's consider a scenario where an individual's gross taxable income is Rs 9,00,000 per annum. The individual benefits from the
standard deduction of Rs 50,000 per year and invests Rs 1.5 lakh in an ELSS fund under Section 80C.
Without Section 80C Deduction:
Gross Taxable Income = Rs 9,00,000
Standard Deduction = Rs 50,000
Taxable Income = Rs 9,00,000 - Rs 50,000 = Rs 8,50,000
Tax Liability Calculation without Section 80C Deduction:
As per Income Tax Slab for individuals below 60 years:
 Up to Rs 2,50,000: No tax
 Rs 2,50,001 to Rs 5,00,000: 5% on income exceeding Rs 2,50,000
 Rs 5,00,001 to Rs 8,50,000: 20% on income exceeding Rs 5,00,000
Taxable Income falls in the 20% tax slab.
Tax = 12500 + 20% of (8,50,000-5,00,000) = 12500+ 70000 = 82500
Total Tax Liability without Section 80C Deduction = Rs 82500
With Section 80C Deduction:
Gross Taxable Income = Rs 9,00,000
Standard Deduction = Rs 50,000
Section 80C Deduction = Rs 1,50,000
Taxable Income = Rs 9,00,000 - Rs 50,000 - Rs 1,50,000 = Rs 7,00,000
Tax Liability Calculation with Section 80C Deduction:
As per Income Tax Slab for individuals below 60 years:
 Up to Rs 2,50,000: No tax
 Rs 2,50,001 to Rs 5,00,000: 5% on income exceeding Rs 2,50,000
 Rs 5,00,001 to Rs 7,00,000 : 20% on income exceeding Rs 5,00,000
Taxable Income falls in the 20% tax slab.
Tax = 12,500 + 20% of (7,00,000 - 5,00,000) = 52,500
Total Tax Liability with Section 80C Deduction = Rs52,500
Savings due to Section 80C Deduction = Rs 82,500 - 52,500 =30,000 -
In this scenario, by utilizing the Section 80C deduction of Rs 1.5 lakh, the individual reduces their tax liability from Rs 82,500 to
Rs 52,500 resulting in tax savings of Rs 30,000
You can also easily calculate the tax savings under Section 80C with Tax2win calculator. Click here to calculate.
Maximize Your Tax Savings with Professional Guidance in Filing
Missed out on 80C deductions or investments not accounted for by your employer? Don't worry about excess TDS deductions.
With the right proofs, you can still claim these deductions when e-filing your taxes. Connect with Tax Experts
 What is Income Tax Return?

Every citizen of India has to pay tax on their income to the Government of India as per the Income tax rules
and regulations. Whether you are an individual, association or a firm, LLP, local authority or a Hindu
undivided family, your income for each financial year is taxed in accordance with Income Tax laws. Hence,
filing your Income Tax return (ITR) on an annual basis is essential. You may choose to file income tax
return online or offline, as per your convenience.
What is Income Tax Return?
Income Tax Return (ITR) is a form that an individual submits to the Income Tax Department of India to file
information about his income and taxes payable during that year. Information filed in an ITR should be
applicable for a particular financial year between 1st April to 31st March of the next year.
The income you earn can be from sources such as salary, profit in business, sale of house or property,
dividend or capital gains, and interest received among others. If you have paid tax in excess during a year,
you will get a refund by the Income Tax Department.
Is Filing ITR Compulsory?
Income Tax rules dictate that if you earn more than the limit that is exempted from being taxed by the
Government, you are mandatorily required to file your tax return according to the tax slabs for each year.
Filing your ITR post the due date may attract a penalty and also become a deterrent in getting a loan or visa
approved in the future.
Who is Required to File ITR?
Now that you know what an income tax return is, let us take a look at the list of people as well as enterprises
that are mandated by law to file income tax return every financial year.
1. Any individual who is less than 59 years and has an annual income of more than Rs. 2.5 Lakhs
should file an IT. The exemption limit for senior citizens between 60 to 70 years of age is Rs. 3
Lakhs. For super senior citizens (80 years and above), the limit is Rs. 5 Lakhs. Income calculation
should be done without allowing deductions specified under Section 10 of the Income Tax Act.
2. A registered company with yearly income, even if it has not made any profit during the period
3. An individual who wants to claim a refund on surplus income tax or tax that was deducted from the
annual income.
4. An individual having an asset or any other financial interest outside of the country.
5. A company out of India with treaty benefits on transactions made within the country.
6. NRIs who earn above the basic yearly exemption limit of Rs 2.5lakh.
What Documents do you Need to File ITR?
When you start the process of filing your income tax return, apart from your salary slips, bank savings
account passbook, Aadhar card and PAN card, there are a few other documents that you will require to ease
your tax filing process:
1. Form 16: It is provided by your employer and contains details of the salary paid by them to you and
the Tax deducted at source (TDS) on it.
2. Form 16A: It contains details on TDS deducted on interest received from deposits such as fixed or
recurring bank deposit.
3. Form 16B: If you sell a property, TDS applies on the amount received from you by the buyer, the
details of which are present in this form.
4. Form 16C: TDS details of the rent paid by your tenant to you are recorded here.
5. Form 26AS: This form represents your comprehensive statement of taxes against the PAN number.
It includes TDS by your employer, bank or any other organization that has made a payment to you.
Advance taxes or self-assessment taxes paid, proof of tax saving investments such as deductions as
prescribed from Section 80C to 80U including life insurance policy or a term plan are also listed.
How to File ITR Online?
You can now submit your tax return sitting at home if you have an internet connection. This has been made
possible with e-filing that uses pre-approved tax preparation software by the Income Tax Department. More
and more taxpayers are increasingly filing their returns online given its benefits such as:
1. Getting Refund: If tax has been deducted at source on the payment made to you and you want to
claim a refund of the amount, you need to furnish your ITR for the financial year for the refund to be
processed.
2. Verification Proof: When you apply for a loan, your eligibility is measured using your yearly
income as the yardstick. An ITR form with details of your earnings gives the borrower a clear picture
of your previous income, lending credibility to your application. Similarly, visa applications also
require income proofs for which tax returns are the most accepted documents.
3. Proof of Income: When you buy a term plan your insurer might require your ITR to decide the
compensatory amount to be paid to your nominees in the event of death or disability. The ITR is
considered as an officially verifiable proof of income for the purpose.
Which ITR to File?
There are seven different types of ITR forms for different categories of individuals and source of income.
The Income Tax Department has different forms for each taxpayer depending on the category of income
generation:
i. ITR - 1: This form is applicable only for resident individuals (not applicable to NRIs/HUF/any other
entity) having total income up to Rs 50 lacs and who has income under the following heads:
ii. a) Income from Salary/Pension; or
b) Income from One house property
c) Income from Other Sources
iii. ITR - 2: ITR-2 form applies to all individual / HUF who are not eligible to file ITR- 1 and who are
having income from any source other than income from Business or Profession.
 iv. ITR - 3: This form is applicable for individuals and HUF who have income from profits and gains
from business or profession.
v. ITR - 4: This form applies to all resident individual / HUF / Firms (other than LLP) having total
income up to Rs 50 lacs & having income under the following heads:
vi. a) Income from business or profession computed on presumptive basis under section 44AD or 44AE
or 44ADA
b) Income from Salary/Pension
c) Income from One House Property
d) Income from other sources
vii. ITR - 5: ITR-5 form applies to persons other than Individuals, HUF, Companies & persons filing
form ITR 7. Ideally, this form covers all partnership firms, LLP, AOP, BOI, Artificial Judicial Person,
Co-Operative Societies, and Local Authorities. The form is also used by investment funds, business
trusts, and estates of the deceased and insolvents.
viii. ITR - 6: This form applies to all Companies other than companies claiming exemption under section
11. Section 11 pertains to charitable trusts / religious trusts for which ITR 7 is applicable.
ix. ITR - 7: This form applies to persons including companies required to furnish return u/s 139(4A),
139(4B), 139(4C) or 139(4D) or 139(4E) or 139(4F). This includes religious & charitable trusts,
political parties, scientific research associations, universities & colleges.
Due Dates for Filing ITR
Category of Taxpayer Due Date for Filing Tax

Individual / HUF/ AOP/ BOI 30th Sep 2021 (extended from 31st July)

Businesses (Requiring Audit) 30th Nov 2021 (extended from 31st October 2021)

Businesses (Requiring TP Report) 31st December (extended from 30th Nov 2021)
How to Check Your ITR Status Online?
After you have submitted your tax return, you can check its status online easily on the e-filing website of the
Government of India. Depending on whether or not you have created a login account on the website, here
are a few simple steps to check your ITR status:
1. Without login details: Click on the ITR status link displayed on the left of the website. It will direct
you to a page wherein you need to fill details of your PAN number, ITR acknowledgement number
and captcha code. Your tax filing status appears once you have keyed them in.
2. With login details: Login to the website using your username and password. Then, click on the
‘view returns or forms’ option. Select the assessment year and income tax returns from the dropdown
menu. Post this, you can see whether your ITR has been verified or processed.
How to Download ITR V Form Online?
After you have duly submitted your tax return, the Income Tax Department generates a verification form
that lets you authenticate the e-filing of your taxes done online. This is allowed only for those who file their
returns without digital signature. Let us take a look at how to download the ITR V form online:
1. Visit the Income Tax Department of India website
at https://portal.incometaxindiaefiling.gov.in/e-Filing/UserLogin/LoginHome
2. Click on 'View Returns/ Forms' to view your e-filed return
3. Then select income tax returns from the available options
4. This will display the returns filed for all years by you
5. Download ITR V by clicking on the acknowledgement number and selecting 'ITR-V Acknowledgment'
6. When asked for your password, enter PAN number in lower case and your date of birth to open the document
7. Take a print out of the document and sign it. Send it by post to CPC Bangalore within 120 days of having e-
filed your tax return. The other option is to generate Aadhar OTP via net-banking, ATM etc and complete e-
verification of your ITR. File your ITR on time and avoid missing the due dates to stay on the safer side. If
you somehow miss the due date for filing ITR, you can file your ITR on a later date on or before 31st March
of the next year. That means either you can file your ITR before the completion of assessment year or by the
end of the assessment year.
=============================================================================
 Income Tax Assessment Procedure
Assessment Procedure under Income Tax Act, 1961
Assessment in income tax is estimation of total income and tax thereon either by assessee himself or by
income tax officer. Assessment is broadly covered in following types:
(1) Self-assessment u/s 140A

Every assessee before filing income tax return under various sections viz. 139, 142(1),
148 or 153A is supposed to find whether he is liable for any tax, interest or penalty.

Procedure of self-assessment is as follows: Self-assessment calculation Summary:

If
Amount
Particulars

Compute total income XX

Calculate tax payable on total XX

income

Add Edu. Cess +Surcharge if any XX

Less Relief under section 89, 90, XX

91 & 90A

Less MAT credit under 115JAA or XX

115JD

Less TDS/TCS XX

Less Advance tax Paid, if any XX

Add Interest u/s 234A, 234B, XX

234C

Amount Payable as Self-Assessment u/s 140A XX

any amount is payable under section 140A then amount so paid shall be adjusted against interest
payable first and then balance amount to be adjusted toward tax payable
Enquiry before assessment – secton 142 Section 142(1) – for making assessment, the assessing officer
may take any / all of the following steps:
i) Notice u/s 142 (1)(i): this notice can be issued to assessee (only those who have not filed return) requiring
him to furnish return when no any return has been u/s 139(1) has been filed, within the time allowed u/s
139(1) or before the end of the relevant assessment year.
ii) Notice u/s 142 (1)(ii): this notice can be issued to all assessees who filed return or not to produce or
cause to be produced such accounts or documents as the assessing officer may require but shall not require
the assesse to produce any accounts relating to period of more than three years prior to the previous year
along with accounts of previous year under assessment. Example: suppose assessment for AY 2018-19 is to
be made then accounts for last 3 years FY 2014-15, FY 2015-16, FY 2016-17 and previous year 2017-18
may be required by officer.
iii) Notice u/s 142 (1)(iii): this notice can be issued to ay assessee who has filed a return of income of whose
time to file return u/s 139(1) has been expired, to furnish, in writing and verified in prescribed manner
information in such form as he may require and he may also ask for a statement of all assets and liabilities of
the assessee for any number of previous year.
Enquiry from other u/s 142(2):
This section empowers assessing officer to collect information from sources other than assessee in view of
the provisions of sections 131, 133(6), 142(2).
Audit of accounts u/s 142(2A) to (2D):
The assessing officer may, at any time at any stage of the assessment, direct the assesse to get the accounts
audited by a Chartered Accountant nominated by Chief Commissioner / Commissioner of Income Tax, such
a decision may be taken by assessing officer, if having regard to the nature, volume, multiplicity of
transactions, doubts about the correctness of accounts, specialized nature of business activity and in the
interest of revenue is of opinion that it is necessary to do so. Above direction of Audit can be given even if
accounts are already audited under the income tax Act or any other law. Audit report instructed under this
notice shall be submitted in Form 6B not later than 180 days from the date of such direction. Expenses of
such Audit determined by Chief Commissioner / Commissioner shall be paid by Central Govt.

Section 142(3):
The assessing officer before using such information gathered u/s 142(2) and 142(2A) for any assessment
shall give an opportunity of being heard to the assessee. However no such opportunity is necessary when the
assessment is made u/s 144.

Consequences of non-compliance of section 142(1) and section 142(2A):

a) best judgement assessment u/s 144 b)penalty u/s 271(1)(b) which has been fixed at Rs. 10000/- c)
prosecution u/s 276D – rigorous imprisonment up to 1 year or fine from Rs. 4 to Rs. 10 per day or both d)
issue of warrant u/s 132 for search
(2) Summary Assessment u/s 143(1)

Where a return under section 139 or in response to notice under section 142 (1) is filed then u/s 143(1) this
return is checked form the point of arithmetical accuracy and will not be scrutinized in detail, in following
way: 1) the total income or loss shall be computed after making the following adjustments, namely:—
(i) any arithmetical error in the return; or
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was
furnished beyond the due date specified under sub-section (1) of section 139;
(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the
total income in the return;
(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section
80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in
computing the total income in the return. However no adjustment shall be made under this in relation to a
return furnished for the assessment year commencing on or after the 1st day of April, 2018
However no such adjustments shall be made unless intimation is given to the assessee of such adjustments
either in writing or in electronic mode: The response received from the assessee, if any, shall be considered
before making any adjustment, and in a case where no response is received within thirty days of the issue of
such intimation, such adjustments shall be made.

2 .the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a);
3. the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of
the tax and interest and fee, if any, computed under clause (b) by any tax deducted at source, any tax
collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or
section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any
tax paid on self-assessment and any amount paid otherwise by way of tax or interest and fee;
4. an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be
payable by, or the amount of refund due to, the assessee under clause (c); and
5. the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be
granted to the assessee.

An intimation u/s 143(1) shall also be sent if loss declared is adjusted but no any tax/interest/fee/ is payable
by or no refund is due to him. No intimation u/s 143(1) shall be sent after the expiry of one year from the
end of the financial year in which return is filed. In case of revised return (section 139(5)) the one year
period shall be counted from end of financial year in which return was revised.

(3) Scrutiny assessment u/s 143(3)

Scrutiny assessment u/s 143(3) is also known as regular assessment. To initiate assessment u/s 143(3),
assessing officer has to issue notice u/s 143(2), which can only be issued in case where return u/s 139 or in
response to section 142(1) has been filed by the assessee. Means notice u/s 143(2) and assessment u/s 143(3)
cannot be issued / done if no return is filed. Assessing officer, u/s 143(2), if consider it necessary or
expedient to ensure that –

i) the assessee has not understated the income or

ii) has not computed excessive loss or
iii) has not under paid the tax in any manner shall require assessee to attend his office to produce
documents / evidences in support of return.

Note:
1. No notice u/s 143(2) shall be served on the assessee after the expiry of 6 months from the end of financial
year in which return is furnished. Example: suppose return for FY 2016-17 was filed on 30/07/2017 then
notice u/s 143(2) can be issued on or before 30/09/2018 Suppose above return was revised on 24/05/2018
then notice u/s 143(2) can be issued on or before 30/09/2019.
2. Fresh notice u/s 143(2) is requied to be issued if return is revised u/s 139(5).
3. Non-compliance of notice u/s 143(2) may result in ex parte, best judgement assessment u/s 144 and may
also attract penalty u/s 271(1)(b) which has been fixed at Rs. 10000/-.
Assessment u/s 143(3)

On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after
hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may
require on specified points, and after taking into account all relevant material which he has gathered, the
Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the
assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such
assessment.

2. No order of assessment/ reassessment under section 143(3) shall be made after the expiry of 21 months
(18 months for A.Y. 2018-19 and 12 months wef A.Y. 2019-20) from the end of relevant Assessment Year.

Example: Last date for assessment order u/s 143(2): for FY 2015 -16 (AY 2016-17) – 31st Dec. 2018 for FY
2016 -17 (AY 2017-18) – 31st Dec. 2019 for FY 2017 -18 (AY 2018-19) – 30th Sep. 2020 for FY 2018 -19
(AY 2019-20) – 31st Mar. 2021 3.Where a reference has been made to Transfer Pricing Officer to determine
Arm’s Length Price, then no order of assessment/ reassessment under section 143(3) shall be made after the
expiry of 33 months(30 months for A.Y. 2018-19 and 24 months wef A.Y. 2019-20) from the end of relevant
Assessment Year.

(4) Best judgment assessment u/s 144

Where any person — (a) fails to make the return required u/s 139 (1) / 139(4) or 139(5) depending upon
circumstances, or
(b) fails to comply with (i) all the terms of a notice issued u/s 142(1) or (ii) directions issued under sub-
section (2A) of that section], or
(c) fails to comply with all the terms of a notice issued under sub-section (2) of section 143,
the Assessing Officer, after taking into account all relevant material which he has gathered, shall, after
giving the assessee an opportunity of being heard (not necessary in case where notice u/s 142(1) is already
served), make the assessment of the total income or loss to the best of his judgment and determine the sum
payable by the assessee on the basis of such assessment : Provided that such opportunity shall be given by
the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be
specified in the notice, why the assessment should not be completed to the best of his judgment.

Note: The assessing officer under this section cannot assess income below the returned income or cannot
assess the loss higher than the returned income. No order of assessment/ reassessment under section 144
shall be made after the expiry of 21 months(18 months for A.Y. 2018-19 and 12 months wef A.Y. 2019-20)
from the end of relevant Assessment Year. Example: Last date for assessment order u/s 143(2): for FY 2015
-16 (AY 2016-17) – 31st Dec. 2018 for FY 2016 -17 (AY 2017-18) – 31st Dec. 2019 for FY 2017 -18 (AY
2018-19) – 30th Sep. 2020 for FY 2018 -19 (AY 2019-20) – 31st Mar. 2021 Where a reference has been
made to Transfer Pricing Officer to determine Arm’s Length Price, then no order of assessment/reassessment
under section 144 shall be made after the expiry of 33 months (30 months for A.Y. 2018-19 and 24 months
wef A.Y. 2019-20) from the end of relevant Assessment Year.

(5) Protective Assessment

Sometimes it may happens that one particular income is assessed in one more than one hand i.e. one
assessing officer is treating the some income in the hands of ‘A’ and same income might be treated in the
hands of ‘B’ by some different assessing officer. And some time same officer may assess the same income in
the hands of one person and also in the hands of a firm / family also. It has been held by the Supreme Court
in Lalji Haridas v. ITO, (43 ITR 387), that the officer may, when in doubt, to safeguard the interest of
revenue, assess it in more than one hand. But this procedure is allowed at the level of assessment only and at
higher level it is possible to give clear findings as who is really liable to be assessed leaving the one and in
such case department should provide relief suo motu to one of them. (ITO vs. Bachu lal kapoor (1966) 60
ITR 74 (SC))

(6) Income escaping assessment u/s 147 Subject to provisions of section 148 to 153, if any assessing officer
believes that any income, chargeable to tax, has escaped assessment for any assessment year, he may: a)
assess or reassess such income which has escaped assessment; b) recompute the loss or depreciation
allowance or any other allowance as the case may be, for the assessment year concerned i.e. the relevant
assessment year Deemed cases of escapement: a) where no return has been filed and no assessment is done
but his total income or total income of any other person in respect of which he is assessable, exceeds the
maximum amount which is not chargeable to tax b) where a return of income filed but no assessment is done
and assessing officer noticed understatement of income or excessive claim of loss, deduction, allowance or
relief etc. c) where assessee fails to report international transactions u/s 92E d) where assessment u/s 143(3)
/ 144 has been made but income chargeable to tax: (i) has been under assessed; or (ii) has been assessed at
low rate; or (iii)has been assessed with excessive relief; or (iv) excessive loss or depreciation or other
allowance has been computed Note: if any case is pending under appeal / revision then that case cannot be
opened under section 147. Notice u/s 148 (1) Before making any assessment u/s 147, the assessing officer
shall serve on the assesse a notice requiring him to furnish a return of his income or income of any other
person in respect of which he is assessable during the previous year corresponding to the relevant
assessment year with in such period as may be specified in the notice. Note: i) even though notice u/s 139 or
142(1) have been issued, then also notice under section 148 is must. ii) return filed in response to notice u/s
148 (1) shall be treated as if the same is filed u/s 139 and for making assessment u/s 147 read with section
143(3), assessing officer is required to issue notice u/s 143(2) within a period of 6 months from the end of
financial year in which such return is filed by the assessee. iii) As per section 148(2), assessing officer is
required to record the reasons for issuing notice u/s 148(1). iv) However as per explanation 3 to section 147,
reassessment can be done for an issue which is not already recorded. v) Separate notice u/s 148(1) is
required for each assessment year for which income has escaped. Time limit and sanctions for issue of notice
– section 149 /151 As per section 149(1) notice u/s 148(1) can be issued only – a) within 4 years from the
end of the relevant assessment year for any income escaping assessment’ or Example: for FY 2015 -16
notice u/s 148(1) can be issued on or before 31st March 2021. b) within 6 years from the end of the relevant
assessment in cases where the amount of income escaping assessment is likely to be Rs. 1,00,000/- or more
for that year, or c) within 16 years from the end of the relevant assessment year if the income in relation to
any asset (including financial interest in any asset) located outside India, chargeable to tax, has escaped
assessment. In clause b) and c) above notice can be issued only after getting sanction from Principle Chief
Commissioner or Chief Commissioner or Principle Commissioner or Commissioner. Proviso to section 147
Where an assessment u/s 143(3) or 147 has already been made for relevant assessment year no any action
u/s 147 is possible after expiry of 4 year as mentioned in clause b) and c) above, unless any income
chargeable to tax has escaped assessment by reason of the failure on the part of assessee. However above
proviso do not apply in relation to income from asset located outside India. No time limit for issue of notice
u/s 148 (1) in following situation: If the notice u/s 148(1) is required to be issued to give effect to any
finding or direction contained in a passed by: i) By any authority in any proceeding under this Act by way
appeal or revision ii) By a Court / Supreme Court / High Court iii) CIT Appeal u/s 250, ITAT u/s 254,
Commission u/s 263 or 264 of Income Tax Act

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