Income Tax Theory

What Is Taxation?
Taxation is a term for when a taxing authority, usually a government, levies or

imposes a financial obligation on its citizens or residents. Paying taxes to
governments or officials has been a mainstay of civilization since ancient
times.
The term "taxation" applies to all types of involuntary levies, from income to
capital gains to estate taxes. Though taxation can be a noun or verb, it is
usually referred to as an act; the resulting revenue is usually called "taxes."
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What Is Direct Tax?

A direct tax is a tax that a person or organization pays directly to the entity that
imposed it. An individual taxpayer, for example, pays direct taxes to the
government for various purposes, including income tax, real property tax,
personal property tax, or taxes on assets. Example – Income Tax, Corporate
tax, Wealth tax etc.
What is indirect tax?

Indirect tax can be defined as a type of tax where the incidence and impact of
taxation does not fall on the same entity. It is collected by the government from an
pg. 1
Income Tax site :- www.incometax.gov.in
TDS Site :- www.tin-nsdl.com
intermediary such as a retailer or a manufacturer. The eventual tax amount is paid by
the buyer of the goods and services. To put it simply, indirect taxes are those taxes
that can be shifted from one individual to another. It is not levied directly on the
income of the taxpayer, but is levied on the expenses incurred by them. Some
examples of indirect taxes include GST, entertainment tax, excise duty, etc.
Assessee :- An income tax assessee is a person who pays tax or any sum
of money under the provisions of the Income Tax Act, 1961.
The term ‘assessee’ covers everyone who has been assessed for his
income, the income of another person for which he is assessable, or the
profit and loss he has sustained.
Assessment Year :- Assessment year is simply the time during which the income
earned in the financial year is assessed and this means that it is the year that comes
right after the financial year. Assessment year is simply the time during which the
income earned in the financial year is assessed.
Previous Year :- As per Section 3 of the Income Tax Act, 1961, Previous Year is the Year
immediately preceding the assessment year. Previous year is also known as Financial Year.
It basically means the period starting from April 1 and ending on March 31 of the next year.
The five main heads of income according to the Section 14 for the computation of the
Income Tax in India are:
• Income from Salary.
• Income from House Property.
• Income from Profits and Gains of Business or Profession.
• Income from Capital Gains.
• Income from Other Sources.
Income From Salary
Salary means U/S 15 to 17 Under Income Tax, 1961 :-
All the money you receive while rendering your job as a result of an
employment contract.
a) Wages,
b) Annuity or pension,
c) Any Gratuity,
d) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or
wages,
pg. 2
e) Any Advance of Salary, f) Leave Encashment etc.
Different receipts Tax treatment

Basic salary Taxable.
Dearness allowance/pay Taxable.
Advance salary Taxable in the year of receipt.
Arrears of salary Taxable in the year of receipt, if not taxed on due basis earlier.
Leave encashment while in service Taxable
Leave encashment at the time of retirement or at Exempt in the hands of a Government employee In the case of a non-
the time of leaving job. Government employee’, it is exempt in some cases
Salary in lieu of notice Taxable
Not chargeable under the head “Salaries? but taxable under the head
Salary to partner
‘Profits and gains of business or profession.
Fees and commission Taxable.
Bonus Taxable on receipt basis if not taxed earlier on due basis.
Exempt in the hands of a Government employee’. In the case of a non-
Gratuity
Government employee’, it is exempt in some cases
Monthly pension (i.e., uncommuted pension) Taxable
Lump sum payment of pension (i.e., commuted Exempt in the hands of a Government employee’. In the case of a non-
pension) Government employee’, it is exempt in some cases
Pension under National Pension Scheme
At the time of receipt of pension it is chargeable to tax.
(NPS)
Annuity from employer Taxable as salary.
1 Excess of employer’s contribution over 12% of salary is taxable.
Annual accretion to the credit balance in
2. Excess of interest over notified interest is taxable (notified rate of interest
recognized provident fund
is 9.5 %).
Exempt from tax to the extent of least of the following:
a. Amount calculated” under section 25F(b) of the industrial Disputes Act;
Retrenchment compensation
or
b. An amount specified by the Government (i.e, Rs. 5,00,000).
Remuneration for extra duties Fully taxable.
pg. 3
Compensation received under voluntary retirement
Exempt in some cases
scheme (VRS)
Profits in lieu of salary Taxable
Salary from UNO Not chargeable to tax.
Tricky Terms :-
a) House rent Allowance U/S 10(13A)
The deduction available is the least of the following amounts :-

I)Actual HRA received;
II)50% of [basic salary + DA] for those living in metro cities (40% for non-
metros);or
III)Actual rent paid less 10% of basic salary + DA.
b) Standard Deduction U/S 16(i) means a flat deduction individuals earning

salary or pension income of Rs.50000
c)Entertainment Allowances U/S 16(ii) for Govt. employees

The deduction available is the least of the following amounts :-
I) Actual entertainment allowance received;
II) Rs. 5000;
III) One-fifth of his or her salary.
d) Professional tax U/S 16(iii) is allowed as deduction. It is usually deducted by

the employer and deposited with the state government. In your income tax
return, professional tax is allowed as a deduction from your salary income.
Income From House Property
Income from house property you own; property can be self-occupied or rented out.
House Property Income of the assessee is addressed as Income from house property. Also,
amount of money that is received by the landlord from tenant(s) for using the property is
called rental income. Here, property refers to any building including
House, Factory, building ,.offices, shops, warehouse and other commercial

premises are included.
i) Building like garden, garage etc. are referred to as “land appurtenant”.
ii) Income from letting out of vacant land is taxable under the head
“income from other sources”.
iii) Income from subletting house is treated as “income from other sources”.
pg. 4
Tricky terms :-
a) Self Occupied Property: In SOP, Gross Annual Income (GVA) will be ‘nil’.
But, from GAV municipal taxes and interest on loan will be subtracted. Ultimately,
this would result in a loss.
b) Other type of property: Gross Annual Income is not ‘nil’ as that of SOP but if
the deductions claimed is more than the GVA, this would again result in loss.
Income from Profits and Gains of Business or Profession
A. Business
The term 'Income from business and profession' means any income shown in
profit and loss account after taking into account all the allowed expenditures by an
assessee. The income also includes both positive (profit) and negative incomes
(loss).
Basis of Charge of income under business and profession

The chargeable income under “Profits and gains of business or profession”
is given below:
1. The profits and gains from any business/profession carried on by the

assessee at any time during the previous year.
pg. 5
2. Any compensation /other payment due to or received by, —any
person, by whatever name, manage the whole or significant whole of
the affairs of an Indian company, at or connected to the termination
of his management or the modification of the terms and conditions.
3. Income obtained by a trade, professional or similar association from
specific services performed for its members.
4. The value of any perquisite/benefit from business or profession,
whether it is convertible into money or not.
5. Any interest, commission, salary, remuneration, or bonus due to, or
received by, a partner of a firm from a firm.
6. Any sum that is received under a Keyman insurance policy including
the sum given as a bonus.
7. Income from any speculative transactions.
8. Any sum, whether received / receivable, in cash/kind for:
1. For not carrying out any activity concerning any business or
2. For not sharing any know-how, patent, copyright, trade-mark,
licence, franchise or any other business/ commercial right.
9. Any profit that is made from the transfer of the Duty-Free
Replenishment Certificate.
10. Any profit made from the transfer of the Duty Entitlement Pass
Book Scheme.
Non-taxable incomes under business and profession

Now let us take a look at the non-taxable incomes under head “profits and
gains of business or profession:
▪ Rent of house property: It is taxable under the head “Income from

house property“. Even if the property constitutes stock-in-trade of
the recipient of rent, or he has a business of letting properties on rent.
▪ Deemed dividends on shares: This is taxable under the head
“Income from other sources”. But the dividend received from an
Indian company is not chargeable to tax in the hands of shareholders.
▪ Winnings from lotteries, races, etc: It is taxable under the head
“Income from other sources”. Even if we consider it as a regular
business activity.
pg. 6
pg. 7
B. Profession
Maintenance of Books of Accounts
Computation of Taxable Income
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Solution
pg. 8
Particulars Tax liability with Presumptive Tax liability without
taxation Presumptive taxation
Income Rs. 30,00,000 Rs. 30,00,000
Expenses Rs. 15,00,000 (50% of income is eligible Rs. 3,00,000

for deduction)
Taxable Rs. 15,00,000 Rs. 27,00,000

income
Tax liability Rs. 2,62,500 (excluding cess) Rs. 6,22,500 (excluding cess)
Income from Capital Gains
Definition: Capital gain is the profit one earns on the sale of an asset like stocks,
bonds or real estate. It results in capital gain when the selling price of an asset
exceeds its purchase price. Capital loss arises when the cost price is higher than the
selling price.
Description: When the selling price of an asset exceeds its cost price or purchase
price, it will result in a capital gain. Capital gains can be of two types: realised and
unrealised. 1) Realised capital gain can be described as the gain made on an
investment that has been sold for a profit. 2) Unrealised capital gain can be
described as the gain on an investment that has not been sold yet but can make
profit if sold later.
In simple terms, the difference between the selling price and cost/purchase price of
an investment can be described as capital gain/loss. If the selling price is higher than
cost price, it results in a capital gain and when the selling price is lower than the cost
price, it leads to capital loss.
Example: Suppose a person purchased 100 shares of Rs 100 each at a total cost
pg. 9
of Rs 10,000. (Case 1: Capital Gain) After some time, say one year, if he sells those
shares for Rs 130 each with the total selling price of those 100 shares being Rs
13,000, it would result in a profit of Rs 3,000. This amount is called capital gain.
(Case 2: Capital Loss) But if after one year, the person sells those shares for Rs 80
each, thus realising Rs 8,000 on those 100 shares, he will suffer a loss of Rs 2,000.
This amount would be called capital loss.
What is Capital Gain Tax :-
pg. 10
How to Calculate Short-Term Capital Gain:-
How to Calculate Long-Term Capital Gain:-
pg. 11
Income from Other Sources
Income from Other Sources is one of the heads of income chargeable to tax under
the Income tax Act. 1961. Any income that is not covered in the other four heads of
pg. 12
income is taxable under income from other sources, because of this, it is known as
residuary head of income. All the incomes excluded from salary, capital gains, house
property or business & profession (PGBP) are included in “income from other
sources”.
Income from other sources consist of two main categories and they are
recurring income and non-recurring income.
Recurring income: Any income received at regularly at equal intervals. This

generally includes interest income from the savings bank, post office savings,
fixed deposits, recurring deposits etc.
Non-recurring income: Any income received only once. This generally includes
Income from the lottery, gambling, horse racing etc.
Incomes taxable only in Income from other sources are

1.Dividend Income,
2.Income earned from winning lotteries, crossword puzzles, races (including horse
race), gambling or betting of any kind,
3.Interest earned on Securities,
4.Income received from the letting of a plant, machinery or furniture, with or without
building,
5.Any sum contributed towards provident funds, ESI, etc. by employee to the
employer, only if not deposited in the relevant fund,
6.Interest on compensation or enhanced compensation received,
7.INsome cases, gift is taxable under this head,
8. Any other income like…….
Fees received by director; agricultural income outside in India; salaries payable to an
M.P; remuneration received by a teacher for acting as an examiner; honorarium for
writing an article; income from royalties(if not chargeable U/S 28); insurance
commission; gratuity received by director; family pension; commission earned by
solicitor guaranteeing the overdraft of a third party to a bank; interest on excess
advance tax paid; interest on bank deposits & loans etc.
Deductions from Income from other sources(Sec.57) :-
a) Deduction for computing income from dividend or interest on securities;

b) Deduction in respect of income from the employees as contributions to any staff
welfare scheme;
c) Deduction in respect of rental income from machinery, plant or furniture let on fire;
d) Deduction in respect of income by way of family pension.
Amounts not deductible under this Head(Sec.58) :-
pg. 13
Amounts not deductible in computing the income under the head 'Income from Other
Sources' (Section 58).
The following payments shall not be deductible in computing the income chargeable
under the head 'Income from Other Sources':
1) Personal expenses of the assessee;

2) Interest paid outside India on which tax has not been deducted at source;
3) Salaries paid outside India on which tax is not deducted at source;
4) Any expenditure referred to in section 40A like excessive payments to
relatives [Section 40A(2)] and cash payments exceeding Rs.20,000 / Rs.35,000
made in a mode other than account payee cheque / draft [Section 40A(3)];
5) Income tax/wealth tax paid;
6) Any expenditure or allowance in connection with winning of lottery, crossword
puzzles, etc. However, expenditure incurred by the assessee for the activity of
owning and maintaining race horses shall be allowed as a deduction while
computing the income from this activity;
7) Wealth Tax.
Problem : 1
Mr. Shah furnishes the information of his income for previous year 2019-20.
Compute the income under the head "income from other sources".
1. Dividend income from equity shares RS.600/-

2. Dividend on Preference Shares RS.3200/-
3. Income from letting building and machinery Rs.17,000/-
4. Interest on Bank Deposits RS.2500/-
5. Directors sitting fee RS.1200/-
6. Ground rent received Rs.600/-
7. Income iron undisclosed sources Rs.10,000/-
8. Winning from deductions are claimed by him Rs.10,000/-
9. Following deductions are claimed by him, Rs.200/
i) Collection charges of preference share Rs.4,000/
ii) Allowable depreciation on building & M/C Rs.100/-
iii) Fire Insurance on Building & M/C
Solution :
1. Dividend income from equity shares Exempt

2. Dividend on Preference Shares Exempt
3. Income from letting building and machinery (Rs.17,000/- Rs.4000/- RS.100/-)
Rs.4000/ Depreciation Rs. 100/- Fire Insurance Rs.12,900/-
pg. 14
4. Interest on Bank Deposits RS.2500/-
5. Directors sitting fee RS.1200/-
6. Ground rent received Rs.600/-
7. Income from undisclosed sources Rs.10,000/-
8. Winning from deductions are claimed by him Rs.10,000/-
Total Taxable Income Rs.37,200/-
Allowed Limit
Section Deduction on (maximum) FY 2018-19
80C Investment in PPF Rs. 1,50,000

– Employee’s share of PF contribution
– NSCs
– Life Insurance Premium payment
– Children’s Tuition Fee
– Principal Repayment of home loan
– Investment in Sukanya Samridhi Account
– ULIPS
– ELSS
– Sum paid to purchase deferred annuity
– Five year deposit scheme
– Senior Citizens savings scheme
– Subscription to notified securities/notified deposits
scheme
– Contribution to notified Pension Fund set up by
Mutual Fund or UTI.
– Subscription to Home Loan Account scheme of the
National Housing Bank
– Subscription to deposit scheme of a public sector or
company engaged in providing housing finance
– Contribution to notified annuity Plan of LIC
– Subscription to equity shares/ debentures of an
approved eligible issue
– Subscription to notified bonds of NABARD
80CCC For amount deposited in annuity plan of LIC or any –

other insurer for a pension from a fund referred to in
Section 10(23AAB)
pg. 15
Allowed Limit
80CCD(1) Employee’s contribution to NPS account (maximum –

up to Rs 1,50,000)
80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of

salary
80CCD(1B) Additional contribution to NPS Rs. 50,000
80TTA(1) Interest Income from Savings account Maximum up to 10,000
80TTB Exemption of interest from banks, post office, etc. Maximum up to 50,000
Applicable only to senior citizens
80GG For rent paid when HRA is not received from Least of :
employer – Rent paid minus 10%
of total income
– Rs. 5000/- per month
– 25% of total income
80E Interest on education loan Interest paid for a

period of 8 years
80EE Interest on home loan for first time home owners Rs 50,000
80D Medical Insurance – Self, spouse, children – Rs. 25,000

Medical Insurance – Parents more than 60 years old – Rs. 50,000
or (from FY 2015-16) uninsured parents more than
80 years old
80DD Medical treatment for handicapped dependent or – Rs. 75,000

payment to specified scheme for maintenance of – Rs. 1,25,000
handicapped dependent
– Disability is 40% or more but less than 80%
– Disability is 80% or more
80DDB Medical Expenditure on Self or Dependent Relative – Lower of Rs 40,000 or

for diseases specified in Rule 11DD the amount actually
paid
pg. 16
Allowed Limit
– For less than 60 years old – Lower of Rs 1,00,000

– For more than 60 years old or the amount actually
paid
80U Self-suffering from disability : – Rs. 75,000

– An individual suffering from a physical disability – Rs. 1,25,000
(including blindness) or mental retardation.
– An individual suffering from severe disability
80GGB Contribution by companies to political parties Amount contributed

(not allowed if paid in
cash)
80GGC Contribution by individuals to political parties Amount contributed

(not allowed if paid in
cash)
80RRB Deductions on Income by way of Royalty of a Patent Lower of Rs 3,00,000 or

income received
COMPUTATION OF TOTAL INCOME
Computation of Incomefor an assessment Year ….

Particulars Rs. Rs.
Income From Salary
Salary [Sec.17(1)] xxxxx
Allowances received (taxable allowances) xxxxx
Taxable value of perquisite[Sec.17(2)] xxxxx
Profit in lieu of salary[Sec.17(3)] xxxxx
pg. 17
Gross Salary xxxxx
Less: Deduction under section 16
Standard Deduction[Sec.16(i)] xxxxx
Entertainment allowance[Sec.16(ii)] xxxxx
Professional Tax[Sec.16(iii)] xxxxx
Income From Salary (1) XXXXX
Income from house property
Adjusted net annual value xxxxx
Less: Deduction under section 24 xxxxx
=====
Income From House Property (2) XXXXX
Profit and gains of business and profession
Net Profit as per profit an d loss account xxxxx
Add:- Income which are debited to profit and loss account but not allowable
xxxxx
as deduction
Less:- Expenditure which are not debited to profit and loss account
xxxxx
but allowable as deduction
Less:-Income which are credited to profit and loss account but are
xxxxx
exempt under section 10 or taxable under any other head of income
pg. 18
Add:- Income which are not credited to profit and loss account but
xxxxx
are taxable under the head “Profit and gains of business or profession”
=====
Profit and gains of business and profession (3) XXXXX
Capital Gains
Amount of capital gain xxxxx
Less: Amount exempt under section 54 to 54H xxxxx
=====
Income From Capital gain (4) XXXXX
Income from other sources
Gross Income xxxxx
Less: Deduction under section 57 xxxxx
=====
Income From Other Sources (5) XXXXX
=====
Total Income (1+2+3+4+5) XXXXX
Less:- Adjustment on account of set-off and carried forwarder of

XXXXX
losses
=====
pg. 19
Gross Total Income XXXXX
Less:-Deduction under section 80C to 80U XXXXX
=====
Net Income rounded-off nearest Rupee ten XXXXX
Computation of tax liability
Tax on net income XXXXX
Less: Rebate U/s 87A XXXXX
=====
Balance XXXXX
Add:-Surcharge XXXXX
Tax and Surcharge =====
Add:-Education Cess XXXXX
Less:- Prepaid Taxes
Tax deducted as sources (TDS) xxxxx
Advance Tax xxxxx
Self-Assessment Tax Xxxxx XXXXX
=====
Tax Liability / Refund XXXXX
pg. 20
TRICKY TERMS ABOUT INCOME TAX RETURN :-
1)PAN :- PAN is a ten-digit unique alphanumeric number issued by the Income-tax Department.
PAN is issued in the form of a laminated plastic card (commonly known as PAN card). In this part
you can gain knowledge about various provisions relating to PAN.(This is user id of assessee in
Income tax portal)
2)E-payment :- There are two modes of payment of direct taxes (i) physical mode i.e. payment by
using the hard copy of the challan at the designated bank; and (ii) e-payment mode i.e. making
payment by using the electronic mode.(Challan No. 280)
3)Interest payable by the taxpayers :- Under the Income-tax Act, different types of interests are
levied for various kinds of delays/defaults. Section 234A, 234B and 234C dealing with interest for
(i) delay in filing the return of income; (ii) interest for non-payment or short payment of advance
tax; and (iii) interest for non-payment or short payment of individual instalment or instalments of
advance tax. Section 234D provides for levy of interest on excess refund granted to the taxpayer.
4)Minimum Alternate Tax (MAT) :- Initially the concept of Minimum Alternate Tax (MAT) was
introduced on companies and progressively it was made applicable to all other taxpayers in the
form of Alternate Minimum Tax (AMT).
5)Tax free Incomes :- Section 10 gives list of incomes which are exempt from tax. Agricultural
Income [Section 10(1)], Share of profit received by a partner from the firm [Section 10(2A)],
Certain interest to non-residents [Section 10(4)], Leave travel concession [Section 10(5)],
Allowance/perquisites to Government employee outside India [Section 10(7)], Death-cum-
retirement gratuity received by Government servants [Section 10(10)(i)], Gratuity received
by a non-Government employee covered by Payment of Gratuity Act, 1972 [Section
10(10)(ii)], Pension [Section 10(10A)], Leave salary [Section 10(10AA)], Retrenchment
compensation [Section 10(10B)], Amount paid on life insurance policy [Section 10(10D)],
House rent allowance [Section 10(13A)] etc.
6)Provision relating to payment of advance tax :- As per section 208, every person whose
estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form
of “advance tax”.
7)Refund of excess tax paid by the taxpayer:- When the tax paid by the taxpayer is more than
the required amount, he will be eligible to claim refund of the excess tax paid by him. Sections
237 to 245 deal with the provisions relating to refund of excess tax paid by the taxpayer.
8)Tax on presumptive basis in case of certain business :- To give relief to small taxpayers from
the tedious job of maintenance of books of account and from getting the accounts audited, the
Income-tax Law has framed the presumptive taxation scheme under sections 44AD and section
44AE.
9)Section 139 :- Return filed on or before due date- Sec139(1); Belated return filed after due
date-139(4), Revised Return after original return-139(5); Filed in response to notice to rectify the
defect-139(9).
10)Various Section :- Modified return-92CD; After condonation of Delay-119(2)(b); Return filed

against the assessing officer requires additional information and documents-142(1),
Return filed against notice for assessment-148.
11)About 115BAC:- you are opting for New tax Regime u/s 115BAC. You will not be
eligible to set-off House property loss and claim following deduction/allowances.
pg. 21
1) Certain allowances u/s section 10 (LTA, HRA, allowances granted to meet expenses in
performance of duties of office, Allowances granted to meet personal expenses in
performance of duties of office, Allowance received by MP/MLA/MLC)
2) Deductions u/s 16 (Standard Deduction ,Entertainment allowance and Professional tax)
3) Interest payable on borrowed capital for self occupied property
4) Standard Deduction in case of family pension
5) Chapter VIA Deduction (life insurance, health insurance premium, pension funds,
provident fund, donation etc except Contribution made by employer to notified pension
scheme u/s 80CCD(2))
12)What is Form-16?
Form-16 is a certificate issued by an employer to its employee annually. It provides a detailed
summary of the amount paid or credited to the employees, the TDS on same and deductions
claimed on account of investments made by employee. Form-16 is issued by employer to
employee annually.
13)What is Form-16A?
Form-16A is a certificate issued by a tax deductor on deduction of tax for payments made
towards commission, professional fees, bank interest, etc. It also ensures that the taxes
deducted have been deposited with Government. Form 16A is issued quarterly by the tax
deductor. The deductor will issue Form-16A quarterly.
14)What is Form-26AS?
Form-26AS displays various taxes that are deducted on your income by your employer, bank or
your tenant. It also displays your advance tax, self-assessment tax, tax collected at source,
refund, etc that have been paid during the financial year.
15)Advance Tax:- Advance tax is the amount of income tax that is paid much in advance
rather than a lump-sum payment at the year-end. Also known as earn tax, advance tax is to
be paid in instalments as per the due dates decided by the income tax department.
Both Corporate & non-corporate assessee
Advance Tax Due Dates Advance Tax Payable*
On or before 15th June 15%
On or before 15th September 45%
On or before 15th December 75%
On or before 15th March 100%
15) Self-Assessment Tax:- Self-assessment tax refers to any balance tax that has to be paid
by an assessee on his assessed income after the TDS and advance tax have been taken
into account before filing the return of income.
Which tax computed by the assessee at the end of financial year after deducting advance
tax & TDS that is called self-Assessment tax.
pg. 22
Example:-
Total Tax xxxx
Less: TDS xxxx

Less: Advance tax xxxx xxxx
SELF-ASSESSMENT TAX XXXX
a)Due date of payment of self-assessment tax is 30th September (for Corporate assessee);
b)Due date of payment of self-assessment tax is 31st July ( for non-Corporate assessee),
If non-Corporate assessee’s turnover exceeds Rs. 1 crore then due date is 30th September.
16)Regular assessment tax :- Tax on regular assessment is the tax that a taxpayer is
required to pay against a notice of demand from the Income-tax department. So when a
notice of demand is received and it is found that some additional tax is required to be paid.
After return submission which tax (Tax calculated by the Income tax department – self
assessment tax) paid within the assessment year in tax department that is regular
assessment tax.
Example:-
Tax provided by Income tax Department xxxx

Less: Advance Tax/TDS xxxx
Less: Self-assessment tax xxxx xxxx
Regular assessment Tax xxxx
17)TDS :- TDS full form is Tax Deducted at Source. Under this mechanism, if a person
(deductor) is liable to make payment to any other person (deductee) will deduct tax at source
and transfer the balance to the deductee. The TDS amount deducted will be remitted to the
Central Government.
a) For corporate assessee TDS applicable from 1st day.
b) Non-corporate assessee when turnover exceeds Rs. 1 crore then TDS applicable
c) For professional person when gross receipt exceed Rs. 50 lakhs then TDS applicable.
TAN- Tax deducted or deduction account number. It’s collect by above concern through form
49B. TAN is a 10 digit (DELA12345P) .
18)280 Challan :- Challan 280 is used for the payment of advance tax, self-assessment
tax, tax on regular assessment, surtax, tax on distributed profits of domestic company and
tax on distributed income to unit holders.
19)Sec.115H :- Where a person, who is a non-resident Indian in any previous year,

becomes assessable as resident in India in respect of the total income of any
subsequent year.
20)Sec.5A:- Section 5A was inserted by the Finance Act, 1994 and covers apportionment
of income between spouses governed by the Portuguese Civil Code as applicable to
the State of Goa.
21)Section of Tax Audit :- a)Maintenance of accounts by certain persons carrying on

pg. 23
business or profession (Sec.-44AA);
b) Audit of accounts of certain persons carrying on business or profession(Sec.- 44AB);
c) Special provision for computing profits & gains of business of plying, hiring or leasing
goods carriages(Sec.- 44AE);
d) Special provision for computing profits & gains of business on presumptive basis(Sec.-
44AD);
e) Special provision for computing profits & gains of profession on presumptive basis(Sec.-
44ADA); Report from an accountant to be furnished by persons entering into international
transaction or specified domestic transaction(Sec.-92E).
22)Residential Status :-
1. He is in India in the previous year for a period of 182 days or more *

2. He has been in India for a period of at least 60 days or more * during the
relevant previous year and 365 days * or more during 4 years immediately
preceding the relevant previous year.
23)Set off :- Intra head set off are i) Losses from speculative business ; ii) Losses
from activity of owning & maintaining horse races; iii) long term capital losses, iv)
Losses from specified business. Inter head set off are i) loss from house property;
ii) business losses other than speculative business.
24) ITR form :-
ITR-1 or SAHAJ
1.Income from Salary/Pension; or
2.Income from One House property (excluding cases where loss is brought
forward from previous years); or
3.Income from Other Sources (excluding Winning from Lottery and Income
from Race Horses);
4.Agricultural income up to Rs.5000.

ITR-2
1.Income from Salary/Pension; or
2.Income from more than one House Property; or
3.Income from Other Sources (including Winnings from Lottery and Income
from Race Horses);

4.(Total income from the above should be more than Rs 50 Lakhs);
pg. 24
5.If you are an Individual Director in a company;
6.If you have had investments in unlisted equity shares at any time during the
financial year;
7.Income from Capital Gains; or
8.Foreign Assets/Foreign income;
9.Agricultural income more than Rs 5,000.
ITR-3
ITR3 Form is to be used by an individual or a Hindu Undivided Family who have

income from proprietary business or are carrying on profession. The persons having
income from the following sources are eligible to file ITR 3 :
1.Carrying on a business or profession;
2.If you are an Individual Director in a company;
3.If you have had investments in unlisted equity shares at any time during the
financial year;
4.Return may include income from House property, Salary/Pension and Income
from other sources;
5.Income of a person as a partner in the firm.
ITR-4 or SUGAM
The current ITR 4 applies to individuals and HUFs, Partnership firms (other than
LLPs), which are residents and whose total income include:
1.Business income according to the presumptive income scheme under section
44AD or 44AE;
2.Professional income according to presumptive income scheme under section

44ADA;
pg. 25
3.Income from salary or pension up to Rs.50 lakh;
4.Income from one house property, not more than Rs.50 lakh (excluding the
amount of brought forward loss or loss to be carried forward);
5.Income from other sources having income not more than Rs.50 Lakh (excluding
income from lottery and race-horses );
Please note that any individual earning income from the above-mentioned sources
as a freelancer can also opt for a presumptive scheme if their gross receipts are not
more than Rs.50 lakhs.
ITR- 5
ITR 5 is for firms, LLPs (Limited Liability Partnership), AOPs (Association of
Persons), BOIs (Body of Individuals), Artificial Juridical Person (AJP), Estate of
deceased, Estate of insolvent, Business trust and investment fund.
ITR- 6
For Companies other than companies claiming exemption under section 11 (Income
from property held for charitable or religious purposes), this return has to be filed
electronically only.
ITR- 7
Scientific & Research Association, News Agency, Institutions, Hospital & Other
Medical Institution, College, University.
25)Due date of TDS :-
1st Quarter 1st April to 30th June 31st July 2019
2nd Quarter 1st July to 30th September 31st Oct 2019
3rd Quarter 1st October to 31st December 31st Jan 2020
4th Quarter 1st January to 31st March 31st May 2020
26)Rebate U/S 87A :- The rebate under Section 87A was first proposed in the year 2013 and
has been in effect for several years, with it being updated as recently as 2019. Under the
pg. 26
latest provisions of Section 87a, any individual with an annual taxable income of up to Rs 5
lakhs is eligible for an income tax rebate of Rs 12,500.
27)Surcharge :- A surcharge is an extra fee, charge, or tax that is added on to the cost of
a good or service, beyond the initially quoted price. Often, a surcharge is added to an
existing tax and is not included in the stated price of the good or service.
For the assessment year 2021-22 surcharge is applicable, if net total income of an individual
assessee exceeds Rs. 50 lakh then surcharge is @10% on tax and if total income exceeds
Rs. 1 crore then surcharge is 15% on tax liability. If surcharge applicable then E. cess is
also applicable on ( total tax+ Surcharge).
I. For Indian Company Surcharge applicable for the assessment year 2021-22 @7% , if net
income exceeds Rs. 1 crore but not exceeds 10 crore and surcharge is @12% if net income
exceeds Rs.10 crore.
II. For Foreign Company Surcharge applicable for the assessment year 2021-22 @2% , if
net income exceeds Rs. 1 crore but not exceeds 10 crore and surcharge is @5% if net
income exceeds Rs.10 crore.
28)Education Cess :- An education cess is an additional levy that is applied on the basic
tax liability by the Government to generate additional revenue to fund primary,
secondary and higher education. Apart from individuals, even corporations are required to
pay this cess every year at rates determined during the annual budgets. Education cess
@4% on tax.
29)BFLA :- In Schedule Brought Forward Loss Adjustment (BFLA), you can view the
details of income after set-off of brought forward losses of earlier years. In Schedule Carry
Forward Losses (CFL), you can view the details of losses to be carried forward to future
years.
30)CYLA :- In Schedule Current Year's Loss Adjustment (CYLA), you will be able to view
details of income after set-off of current year losses. The unabsorbed losses allowed to be
carried forward out of this are taken to Schedule CFL for carry forward to future years.
31)Tax Credit :- Tax credit is a sum that can be subtracted from the total payable tax and
offsets the overall liability. If an individual is charged more tax, then the excess tax is
given as a tax credit which can be adjusted against future tax liabilities.
32)TDS return form :- a) 24Q for salary & b) 26Q for other than salary.
33)281 No. Challan :- TDS payable paid by deductor through challan 281 on 7th day of the next
month.
34) TDS Certificate :- TDS certificate issued by deductor – a) for salary person form 16 (annually
issued); b) other than salary person form 16A ( quarterly issued).
35)282 No. Challan :- This is to be used in case of payment of Gift Tax, Wealth Tax,
Expenditure Tax, Estate Duty, Securities Transaction Tax and Other Direct Taxes.
36)283 No. Challan :- Income Tax Department form used for payment of Banking Cash
Transaction Tax and Fringe Benefit Tax.
37)Income tax return date :- a) For Corporate assessee ( Return date is 30st September) ;
pg. 27
b) For Non-Corporate assessee ( Return date is 31st July ), If
any non-corporate assessee turnover/ net sale exceed Rs. 2 crore Audit must be done (Tax
Audit) and return date is 30th September. In case of Professional person gross receipt
exceed 50 lakh then Audit must be done (Tax Audit) and return date is 30th September.
38) Tax rate on Corporate assessee is 30%(For Indian Company) and 40% (For Foreign
Company).
39)Tax Rate :- a) Normal Rate

Old Tax Regime For men & Women(Below 60 years)
Upto Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 500000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Rs. Above Rs. 10,00,000 30%
New Tax Regime for men & Women (Below 60 Years)

Upto Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 500000 5%
Rs. 5,00,000 to Rs. 7,50,000 10%
Rs. 7,50,000 to Rs 10,00,000 15%
Rs. 10,00,000 to Rs 12,50,000 20%
Rs. 12,50,000 to Rs 15,00,000 25%
Above Rs. 15,00,000 30%
b) Special Rate
1. Income arises from lottery, Horse race (Tax rate 30%)
2. Income from Short-term Capital gain ( Tax rate 15%)
3. Income from Long-term Capital gain ( Tax rate 20%)
40) 10IE of Income Tax :- The Central Board of Direct Taxes has released Form 10IE. Any
individual or HUF who wishes to pay income tax as per the new tax regime can
communicate to the income tax department by filing Form 10IE. Also, Form 10IE is required
to be filed if the taxpayers want to opt out of the new tax regime.
pg. 28

Income Tax Theory

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Income Tax Theory

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What Is Taxation?

Taxation is a term for when a taxing authority, usually a government, levies or

What Is Direct Tax?

What is indirect tax?

Income From Salary

Salary means U/S 15 to 17 Under Income Tax, 1961 :-

Different receipts Tax treatment

The deduction available is the least of the following amounts :-

b) Standard Deduction U/S 16(i) means a flat deduction individuals earning

c)Entertainment Allowances U/S 16(ii) for Govt. employees

d) Professional tax U/S 16(iii) is allowed as deduction. It is usually deducted by

Income From House Property

House, Factory, building ,.offices, shops, warehouse and other commercial

Income from Profits and Gains of Business or Profession

Basis of Charge of income under business and profession

1. The profits and gains from any business/profession carried on by the

Non-taxable incomes under business and profession

▪ Rent of house property: It is taxable under the head “Income from

Maintenance of Books of Accounts

Computation of Taxable Income

Income Rs. 30,00,000 Rs. 30,00,000

Expenses Rs. 15,00,000 (50% of income is eligible Rs. 3,00,000

Taxable Rs. 15,00,000 Rs. 27,00,000

Income from Capital Gains

What is Capital Gain Tax :-

How to Calculate Long-Term Capital Gain:-

Recurring income: Any income received at regularly at equal intervals. This

Incomes taxable only in Income from other sources are

Deductions from Income from other sources(Sec.57) :-

a) Deduction for computing income from dividend or interest on securities;

Amounts not deductible under this Head(Sec.58) :-

1) Personal expenses of the assessee;

1. Dividend income from equity shares RS.600/-

9. Following deductions are claimed by him, Rs.200/

i) Collection charges of preference share Rs.4,000/

ii) Allowable depreciation on building & M/C Rs.100/-

iii) Fire Insurance on Building & M/C

1. Dividend income from equity shares Exempt

80C Investment in PPF Rs. 1,50,000

80CCC For amount deposited in annuity plan of LIC or any –

80CCD(1) Employee’s contribution to NPS account (maximum –

80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of

80CCD(1B) Additional contribution to NPS Rs. 50,000

80TTA(1) Interest Income from Savings account Maximum up to 10,000

80E Interest on education loan Interest paid for a

80D Medical Insurance – Self, spouse, children – Rs. 25,000

80DD Medical treatment for handicapped dependent or – Rs. 75,000

80DDB Medical Expenditure on Self or Dependent Relative – Lower of Rs 40,000 or

– For less than 60 years old – Lower of Rs 1,00,000

80U Self-suffering from disability : – Rs. 75,000

80GGB Contribution by companies to political parties Amount contributed

80GGC Contribution by individuals to political parties Amount contributed

80RRB Deductions on Income by way of Royalty of a Patent Lower of Rs 3,00,000 or

COMPUTATION OF TOTAL INCOME

Computation of Incomefor an assessment Year ….

Income From Salary

Salary [Sec.17(1)] xxxxx

Allowances received (taxable allowances) xxxxx

Taxable value of perquisite[Sec.17(2)] xxxxx

Profit in lieu of salary[Sec.17(3)] xxxxx

Less: Deduction under section 16

Standard Deduction[Sec.16(i)] xxxxx

Entertainment allowance[Sec.16(ii)] xxxxx