Income Tax

(A.Y. 2011-12 & 2011-

12)
 INDEX
1. Introduction
2. Residential Status
3. Tax Rates
4. Income from Salary
5. Income from House Property
6. Income from Business & Profession
7. Capital Gains
8. Income from Other Sources
9. Clubbing of Income
01/14/12 2
 Contd…
1. Set-off Carry Forward
2. Deductions from Gross Total Income
3. Agricultural Income

01/14/12 3
01/14/12 4
 Charge of Income Tax
 Income tax is charged in assessment year at rates
specified by the Finance Act applicable on 1st April of
the relevant assessment year.
 It is charged on the total income of every person for
the previous year.
 Total Income is to be computed as per the
provisions of the Act.
 Income tax is to be deducted at source or paid in
advance wherever required under the provision of
the Act.

01/14/12 5
 Important Definitions
1. Person u/s 2(31) includes,
a. An Individual,
b. Hindu Undivided Family (HUF),
c. A Company,
d. A Firm,
e. An Association of or Body
Persons(AOP) Individuals (BOI), of
f. A Local Authority,
g. Every other Artificial Juridical Person

01/14/12 6
Contd…

ssessment Year u/s 2(9) means, the period of 12

months commencing on the 1st April every year. It is
the year (just after previous year) in which income is
earned is charged to tax. The current Assessment
is 2011-2012.

revious Year u/s 2(34) means, the year in which

income is earned.

01/14/12 7
Contd…
• Gross Total Income (G.T.I) :- The aggregate
income under the 5 heads of income (viz. Salary,
House Property, Business or Profession, Capital
Gains & Other Sources) is termed as “Gross Total
Income”.
• Total Income (T.I) :- Total Income of assessee is
gross total income as reduced by the amount
permissible as deduction under sections 80C to
80U.

Index
01/14/12 8
01/14/12 9
 Types of Residential Status

The different types of residential status are:-

Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

01/14/12 10
 Residential Status of Individual
The residential status of individual will be determined as under-

Assessee Basic Condition Additional Condition

He must satisfy at one of the basic

Resident conditions. Not required.

He must satisfy either one or both

He must satisfy at least one of the
Not Ordinarily Resident the additional conditions given u/s
basic conditions.
6(6).

Should not satisfy any of the basic

Non-Resident conditions. Not required.

01/14/12 11
 Contd…
Basic Conditions u/s 6(1):
ii. He must be in India for a period of 182 days or more during
the previous year; or
iii. He must be in India for a period of 60 days or more during the
previous year and 365 days or more during the four years
immediately preceding the previous year.
Additional Conditions u/s 6(6):
v. He must be a non-resident in India in nine out of the ten
previous years preceding that year; or
vi. He must be in India during 7 preceding previous years for
aggregate period of 729 days or less.

01/14/12 12
 Residential Status of HUF
The residential status of HUF depends upon the control and
management of its affairs.
– Resident HUF: If the control and management of the affairs of
HUF is situated wholly or partly in India then HUF is said to be
Resident in India.
– Non- Resident HUF: If the control and management of the
affairs of HUF is situated wholly outside India then HUF is said
to be Non- Resident in India.
– Not Ordinarily Resident HUF: A resident HUF is said to be ‘Not
Ordinarily Resident’ in India if Karta or manager
thereof, satisfies any of the additional
conditions u/s 6(6).

01/14/12 13
 Residential Status
According to section 6(3) an Indian Company is always
Resident in India. A foreign Company will be resident in India
if Control or Management of its affairs is wholly situated in
India.
Residential Status of a firm or AOP or other person depends
upon control and management of its affairs.
 Resident: If the control and management of the affairs of a firm or
AOP or other person is situated wholly or partly in India then such
a firm or AOP or other person is said to be resident in India.
 Non-Resident: If the control and management of the affairs of a
firm or AOP or other person is situated outside India then such a
firm or AOP or other person is said to be non-resident in India.

01/14/12 14
 Incidence of Tax
Tax Incidence
Particulars
R NOR NR

Income received in India by or on behalf of assessee Yes Yes Yes

Income deemed to received in India by or on behalf of assessee Yes Yes Yes

Income accruing or arising in India Yes Yes Yes

Income deemed to accrue or arise in India Yes Yes Yes

Income which accrues or arise outside India Yes No No

15
01/14/12 16
 RATES OF INCOME TAX (Assessment Year 2009-10)

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical

Person.
S.No INCOME TAX RATE

1 Up to 180000 NIL

2 180010-500000 10%

3 500010-800000 20%

4 Above 800000 30%

01/14/12 17
Contd…
1. In case of resident women below 65 years of age.

S.No INCOME TAX RATE

1 Up to 190000 NIL

2 190010-500000 10%

3 500010-800000 20%

4 Above 800000 30%

01/14/12 18
Contd…
• In case of resident senior citizen i.e. age of 65 years or above

S.No INCOME TAX RATE

(A.Y. 2010-11)

1 Up to 250000 NIL

2 250010-500000 10%

3 500010-800000 20%

4 Above 800000 30%

01/14/12 19
Contd…
PERSONS TAX RATE

FIRMS 30%

DOMESTIC COMPANY 30%

FOREIGN COMPANY 40%

LOCAL AUTHORITIES 30%

CO-OPERATIVE SOCIETIES
Up to 10000 10%
10000-20000 20%
Above 20000 30%

4/12
01/1 20
 Surcharge & Cess
PERSON RATE OF SURCHARGE

Individual / AOP / BOI / HUF / Artificial

10% of tax liability if Income Exceeds Rs 10 Lacs
Juridical Person

Firm 10% of tax liability, if Income exceeds Rs. 1 Crore

Domestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore

Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore

Co-operative Society N.A.

Local Authority N.A.

Education Cess and Secondary & Higher Education Cess is applicable

on every person @ 2% & 1% respectively on tax liability and surcharge
applicable, if any.

01/14/12 Index 21
01/14/12 22
 Meaning
Salary includes [section17(1)] :-
ii. Wages
iii. Any annuity on pension
iv. Any gratuity
v. Any fees, commission, bonus, perquisite on profits in lieu of
or in addition to any salary on wages
vi.Any advance of salary
vii.Any earned leave
viii.Employers contribution (taxable) towards recognized
provident fund.

01/14/12 23
 BASIS OF CHARGE
Income is taxable under head “Salaries”, only if there exists Employer -
Employee Relationship between the payer and the payee. The following
incomes be chargeable to income-tax under the
shall “Salaries”:- head
2. Salary Due
3.Advance Salary [u/s 17(1)(v)]
4.Arrears of Salary
Note:
(i) Salary is chargeable on due basis or receipt
basis, whichever is earlier.
(ii) Advance salary and
Arrears of salary
are chargeable to tax on receipt basis only.

01/14/12 24
 Allowances
Allowance is generally defined as a fixed quantity of
money or other substance given regularly in addition
to salary for the purpose of meeting some particular
requirement connected with the services rendered by
the employee or as compensation for unusual
conditions of that service.
•Dearness Allowance - It is Always Taxable.
•City Compensatory Allowance - It is Always Taxable.

01/14/12 25
Contd…
1. House Rent Allowance
Exemption In Respect Of House Rent allowance is regulated by
rule 2A. The least of the three given below is Exempt from Tax.

n Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay,

1
Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential
House is situated at any Other Place.

House Rent Allowance Received by The Employee in Respect of The Period during which
2
Rental Accommodation is Occupied by the Employee during the Previous Year.

3 The Excess of Rent Paid over 10 % of Salary.

01/14/12 26
Contd…
• Entertainment allowance [sec.169(ii)]-
Entertainment allowance is first included in salary in come under
the head “salaries” and thereafter a deduction is given on the basis
enumerated below:

Status of Employee

Non- Government Government

Least of the Following is deductible :

Nothing is deductible
1. Rs. 5000
2. 20 % of basic salary
3.Amount of entertainment
allowance grated during the previous
01/14/12 year 27
Contd…

• Special allowances prescribed as exempt under

section 10(14) – In the cases given below the
amount of exemption under section 10(14) is :–
i. The amount of the allowance ; or
ii.The amount utilized for the specific purpose for
which allowance is given.
Whichever is lower.

01/14/12 28
 Contd…
Exemption is available on the aforesaid basis in the case of following allowances :-

NAME OF ALLOWANCE NATURE OF ALLOWANCE

Travelling Allowance/ Transfer Any allowance granted to meet the cost of travel on tour or on transfer
Allowance (including sum paid in connection with transfer, packing and transportation
of personal effects on such transfer).

Conveyance Allowance Conveyance allowance granted to meet the expenditure on conveyance in

performance of duties of an office (expenditure for covering the journey
between office and residence is not to be included).

Daily Allowance Any allowance whether granted on tour or for the period of journey in
connection with transfer, to meet the ordinary daily charges incurred by an
employee on account of absence from this normal place of duty.

01/14/12
29
Contd…

• When exemption does not depend upon

expenditure - In the cases given below, the
amount of exemption does not depend upon
expenditure incurred by the employee.
Regardless of the amount of expenditure, the
allowances given below are exempt to the
extent of –
i. the amount of allowance ; or
ii. the amount specified in rule 2BB,

Whichever is lower.
01/14/12 30
 Contd…
Name of allowance
Special Compensatory
(Hill Areas) Allowance
Border area allowance
Tribal areas/ scheduled areas
allowance
Allowance for transport
employees
Children education allowance
Hostel expenditure allowance
Compensatory field area
allowance
01/14/12
Exemption as specifiedin rule 2BB
Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per
month
The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per
month
Rs. 200 Per Month
The amount of exemption is-
b.70 per cent of such allowance; or
c.Rs. 6,000 per month, whichever is lower.
The amount exempt is limited to Rs. 100 per month per child up to a
maximum of two children.
It is exempt from tax to the extent of Rs. 300 per month per child up to a
maximum of two children.
Exemption is limited to Rs. 2,600 per month in some cases.
31
 Contd…

Name of Allowance Exemption as Specified in Rule 2BB

Compensatory modified area

Exemption is limited to Rs.1,000 per month in some cases.
allowance

Counter insurgency allowance Exemption is limited to Rs.3,900 per month in some cases.
It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of
Transport allowance
an employee who is blind or orthopedically handicapped)

Underground allowance Exemption is limited to Rs. 800 per month.

It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to
High altitude allowance
15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).

Highly active field area

It is exempt from tax up to Rs. 4,200 per month.
allowance

Island duty allowance It is exempt up to Rs. 3,250 per month.

01/14/12 32
Contd…

• Allowance to Government employees outside

India [Sec. 10( 7)] - Any allowance paid or
allowed outside India by the Government to an
Indian citizen for rendering service outside India
is wholly exempt from tax.
• Tiffin allowance - It is taxable.
• Fixed medical allowance – It is taxable.
• Servant allowance - It is taxable.

01/14/12 33
 Contd…
• Allowance to High Court and Supreme Court
Judges - Any allowance paid to High Court
Judges under section & 22C of the High Court
Judges (Conditions of Service) Act, 1954 is not
chargeable to tax.
• Allowance received from a United Nations
Organization - Allowance paid by a United
Nations Organization to its employees is not
taxable by virtue of section 2 of the
UN (Privileges and Immunities) Act,
1974.

01/14/12 34
 PERQUISITES

Perquisite may be defined as any Casual Emolument

or Benefit attached to an office or position in Addition to
Salary or Wages. It also denotes something that
benefits a man by going to his own
in Perquisites may pocket. in cash
be provided
Perquisites are included in salaryor income
in kind.only if
they are received by an employee from his employer.

01/14/12 35
“Perquisites” as defined u/s 17 (2)

The term “perquisites” is defined by section 17 (2)

as including the following items:
•The value of Rent-free Accommodation provided to
the assessee by his employer
•The value of any concession in the matter of rent
respecting any accommodation provided to the
assessee by his employer

01/14/12 36
 Contd…
• The value of any benefit or amenity granted or provided
free of cost or at concessional rate in any of the
following cases :
i. By a company to an employee who is a director thereof ;
ii. By a company to an employee, being a person who
has substantial interest in the company ;
iii. By any employer (including a company) to an
employee to whom provisions of (i) and (ii) above do not
apply and whose income under the head “salaries” exclusive
of the value of all benefits or amenities not provided for by
way of
monetary benefits, exceeds Rs. 50,000

01/14/12 37
 Contd…
• Any sum paid by the employer in respect of any
obligation which but for such payment would have been
payable by the assessee. Obligation of Employee met
by Employer.
• Any sum payable by the employer, whether directly or
through a fund other than a recognized provident fund
or approved superannuation fund or a deposit-linked
insurance fund, to effect an assurance on the life of the
assessee or to effect a contract for an annuity
• The value of any other fringe benefits or amenity as
may be prescribed

01/14/12 38
 TERMINAL BENEFITS
• Gratuity [Sec.10(10)] – Gratuity is a retirement benefit. It is generally
payable at the time of cessation of employment and on the basis of
duration of service. Tax treatment of gratuity is given below:

Status of Employee

Government Employee Non-government employee Non-government employee not

covered by the payment of covered by the payment of
Gratuity Act, 1972 Gratuity Act, 1972
It is fully exempt from
tax under section
10(10)(i) Least of following is exempt:
Least of following is exempt: •“½ month avg. salary” x “Length of
•“15 days’ salary” x “Length of service”
•Rs. 3, 50, 000
service”
•Rs. 3, 50, 000
•Gratuity actually received.
•Gratuity actually received.

01/14/12 39
 Contd…

• PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as follows :-

PENSION

COMMUTED UNCOMMUTED

Government Non-Government
Employee Employee
Taxable for
If Gratuity If Gratuity not Government as well
Entire Commuted Received as Non-
Pension is exempt Received Government
whether or not Gratuity employees
received. 1/3 of commuted 1/2 of commuted
pension is pension is
exempt exempt

01/14/12 40
 Contd…
• Annuity [Sec. 17(1)(ii)] – An annuity payable by a present
employer is taxable as salary even if it is paid voluntarily
without any contractual obligation of the employer. An annuity
received from an ex-employer is taxed as profit in lieu of
salary.
• Retrenchment compensation [Sec. 10(10B)] – Compensation
received by a workman at the time of retrenchment is exempt
from tax to the extent of the lower of the following:
a. an amount calculated in accordance with the provisions of sec. 25F(b)
of the Industrial Disputes Act, 1947; or
b. such amount as notified by the Government (i.e., Rs, 5, 00, 000); or
c. the amount received.

01/14/12 41
Contd…

• Compensation received at the time of

Voluntary Retirement [sec.10 (10C)] -
Compensation received at the time of
voluntary retirement is exempt from tax,
subject to certain conditions. Maximum
amount of exemption is Rs. 500000.

01/14/12 42
 Provident Fund

Provident Fund Scheme is a welfare scheme

for the benefit of employees. The employee
contributes certain sum to this fund every
month and the employer also contributes
certain sum to the provident fund in
employees A/c. the employers contribution
to the extent of 12% is not chargeable to tax.

01/14/12 43
 LEAVE SALARY
Encashment of leave by surrendering leave standing to one’s credit is
known as “leave salary”.

LEAVE ENCASHMENT

Retirement / Leaving the Job

During Employment

Government Non-Government
Chargeable to Employee Employee
Tax

Least of following is exempt :-

• Earned Leave on the basis of Average
Fully Exempt Salary
• 10 x Average monthly salary
• Rs. 300000
• Leave Salary Received

01/14/12 44
 Deductions Admissible in Computing
Income under head ‘SALARIES’
• Entertainment allowance granted by employer
[Sec.16(ii)]: This deduction is available in case of
Government employees only.
• Employment Tax / Professional Tax [Sec.16(iii)]:
Any sum paid by assessee on account of a tax on
employment within the meaning of Article 276(2).
Under the said article employment tax cannot
exceed Rs. 2500 p.a.

01/14/12 45
 Relief in respect of
Advance or Arrears of Salary u/s 89
When an assessee is in receipt of a sum in
the nature of salary, being paid in arrears or in
advance, dueto which his total income is
assessed at a rate higher thanthat atwhich
it would otherwise have beenassessed,
Relief is granted on an application made by
the assessee to the assessing officer.

01/14/12 Index 46
01/14/12 47
 Basis of Charge
• The basis of charge of income under the head
‘income from house property’ is the Annual Value of
the property. Annual Value is inherent capacity of the
property to earn an income. It is the amount for
which the property might reasonably be expected to
let from year to year.
• Income from house property is charged to tax on
Notional Basis, as generally tax is not on receipt of
income but on the inherent potential
of the house property to generate
income.

01/14/12 48
 Conditions to be Satisfied
• The property must consist of buildings or lands
appurtenant to such buildings.
• The assessee must be the owner of such house
property.
• The property should not be used by the owner
thereof for the purpose of any business or
profession carried on by him, the profits of which
are chargeable to tax.

01/14/12 49
Computation of Gross Annual Value
(GAV)

Step 1 : Calculate Expected Rent as follows:-

Particulars Amount Amount

(a) Fair Rent of the House xxx

(b) Municipal Value of House xxx

(c) Whichever is more of (a) and (b) XXX

(d) Standard Rent xxx

Expected Rent [whichever is less of (c) and (d)] XXX

01/14/12 50
Contd…
Step 2 : CompareExpected Rent &
Actual Rent Receivable (ARR).
Where the property or any part thereof is let out,
 If ARR is more than ER referred to in Step 1,
then,
GAV = ARR
 If ARR is less than ER and it is due the vacancy
of property then, GAV = ARR
 If ARR is less than ER not owing to vacancy GAV = ER

Note: ARR = Rent

Received /
Receivable
01/14/12 less Unrealized Rent 51
 Net Annual Value (NAV)

Net Annual Value is the sum computed after

deducting from Gross Annual Value, the taxes
levied by any local authority in respect of the
property.
NAV = GAV – Municipal Taxes Paid

01/14/12 52
 Meaning
• Municipal Valuation :- For collecting municipal taxes,
local authorities make a periodical survey of all
building in their jurisdiction. Such valuation may be
taken as strong evidence representing the earning
capacity of a building.
• Fair Rent of the Property :- Fair rent of the property
can be determined on the basis of a rent fetched by a
similar property in the same or similar locality.
• Standard Rent :- Standard rent is the maximum rent
which a person can legally recover from his tenant
under a Rent Control Act.

01/14/12 53
Self-occupied Property [Sec. 23(2)]

Property is considered to be self – occupied where,

 the property consisting of house or part thereof is
in the occupation of the owner for the purposes of
his own residence; or
 such property cannot actually be occupied by the
owner by reason of the fact that owing to his
employment, business or profession carried on at
any other place, he has to reside
at that other place in a building not
belonging to him.

01/14/12 54
Contd…

In case of Self-occupied House Property

Net Annual Value is always Zero.
Since NAV is zero, the municipal taxes paid
by the owner of the house are not deductible.

01/14/12 55
 Deduction Admissible u/s 24

• Statutory deduction :- 30% of Annual Value (i.e.

30% of NAV)
• Interest payable on capital borrowed for
acquisition, construction, repair, renewal or
reconstruction of house property :- Actual amount
of interest for the year on accrual basis plus 1/5th
of the interest, if any, pertaining to the pre-
acquisition or pre-construction period.

01/14/12 56
 Deduction for Interest on
Capital Borrowed in case of SOP
Maximum limit of deduction in respect of interest on
capital borrowed in case of a Self-occupied property
whose annual value is assessed at NIL, is Rs. 1,50,000
MAXIMUM
CASE DEDUCTION

Interest on capital borrowed on or after 1-4-1999 for

acquisition or construction of house 1,50,000

In any other case 30,000

01/14/12 57
 Recovery of Unrealized Rent
[Section 25AA]
Any amount of rent realized by the assessee during
the previous year, which he could not realize from a
property let to a tenant, shall be deemed to be
income chargeable under the head “Income from
house property”.
100% of the amount actually received is taxable in
the previous year in which it is realized.

01/14/12 58
 Arrears of Rent [Section 25B]

Arrears of rent shall be deemed to be income

chargeable under the head “Income from house
property”. It shall be charged to income tax as
income of previous year in which it is received.
Taxable amount is computed as under :-

PARTICULARS AMOUNT

The amount received as arrears of rent XXX

Less: 30% of such amount xxx
Amount taxable as arrears of rent XXX

01/14/12 Index 59
01/14/12 60
 Basis of Charge [sec. 28]
The following income is chargeable to tax under the head
“Profits and gains of business or profession”:
2. Profits and gains of any business or profession;
3.Any compensation or other payments due to or received
by any person specified in section 28(ii);
4.Income derived by a trade, professional or similar
association from specific services performed for its
members;
5.The value of any benefit or perquisite, whether convertible
into money or not, arising from business or the exercise of a
profession;

01/14/12 61
Contd…
1. anyprofit on transfer of the Duty Entitlement
Pass Book Scheme.
2. Any profit on the transfer of the duty
free replenishment certificate;
3. Export incentive available to exporters;
4. Any interest, salary, bonus, commission or
remuneration received by a partner from firm; Any
sum received for not carrying out any activity in
relation to any
business or not
to share any
know-how, patent,
copyright, trademark, etc.
01/14/12 62
Contd…
1. Any sum received under a Keyman
insurance policy including bonus;
2. Profits and gains of managing agency; and
3. Income from speculative transaction.

Income from the aforesaid activities is computed in

accordance with the provisions laid down in section
29 to 44D.

01/14/12 63
 Expenses Expressly Allowed
1. Rent, rates, taxes, repairs and insurance for
building [Sec. 30]
2. Repairs and insurance of machinery, plant
and furniture [Sec. 31]
3. Depreciation allowance [Sec. 32]
4. Tea/coffee/rubber development account [Sec. 33AB]
5. Expenditure on acquisition of patent rights
and copyrights [Sec. 35A]
6. Insurance premium [Sec. 36 (1) (i)]
7. Premier for insurance on health of employees
[Sec. 36(1) (ib)]

01/14/12 64
Contd…
1. Bonus or commission to employees [Sec. 36(1)(ii)]
2. Interest on borrowed capital [Sec. 36(1)(iii)]
3. Employer’s contribution to recognized provident fund
and approved superannuation fund [Sec. 36(1)(iv)]
4. Contribution towards approved gratuity fund
[Sec. 36(1)(v)]
5. Employee’s contribution towards welfare
staff schemes
6. Bad debts [Sec. 36(1)(vii)]
7. Family planning expenditure [Sec. 36(1)
(ix)]

01/14/12 65
Contd…

1. Banking cash transaction tax, securities

transaction tax and commodities transaction
tax.
2. Advertisement expenses [Sec. 37(2B)].
3. General Deduction [Sec. 37(1)].

01/14/12 66
 EXPENSES NOT DEDUCTIBLE
[Section 37(1)]

1. Damages and penalty paid for transgressing

the terms of agreement with the State.
2. Penalty and damages paid in connection
with infringement of law.
3. Litigation expenditure incurred for curing any defect
in the title of assets or completing that title.
4. Litigation expenses for registration of shares.
5. Fees paid for increase of authorized capital.

01/14/12 67
 Contd…
1. Expenditure on raising equity share capital and
preference share capital. However, expenditure on
issue of bonus shares id deductible.
2. Amount paid for acquiring technical know-how which is
to be utilized for the purpose of manufacturing any
new article and such know-how is to become the
property of the assessee at the end of the stipulated
period.
3. Amount expended for acquiring a business or a right of
permanent character or an asset
which generates income or for
avoiding compensation in business.

01/14/12 68
Contd…
1. Payments made for acquisition of good will.
2. Expenditure incurred for acquiring right over
or in land to win minerals.
3. Fees paid to obtain license to investigate
and search minerals.
4. Payment made in consideration of
acquiring a monopoly right to manufacturer a
producer (royalty payable on the basis of goods
produced under the same arrangement
is, however,
deductible).

01/14/12 69
 Contd…
1. Tax paid by the assessee (who is defaulter by not
deducting tax at source under section 195) on behalf of
non-resident.
2. Compensation paid to contracting party with the object of
avoiding an unnecessary investment in capital assets.
3. Expenditure on shifting of registered office.
4. Insurance premia paid by a firm on life insurance policies
of its partners.
5. Amount paid by liquor contractor to police staff and other
officer to enable it to make unauthorized purchases and
sales of liquor.

01/14/12 70
Contd…
1. Amount paid by a company to the Registrar of
Companies as filing fee for enhancement of capital
base of the company.
2. Payment made by assessee company which was
partner in a firm, to outgoing partners of firm on
account of their agreeing to restrain from carrying
on similar business for a period of 15 years.

01/14/12 71
 Specific Disallowances
1. Interest, Royalty, fees for Technical Services payable
outside India,if on such amount tax is deductible but tax
has not been deducted or deposited with Government.
[Sec. 40(a)(i)]
2. Fringe Benefit Tax [Sec. 40(a)(ic)]
3. Income-Tax [Sec. 40(a)(ii)]
4. Salary Payable Outside India without Tax
Deduction [sec. 40(a)(iii)]
5. Provident Fund Payment without tax
Deduction at Source [Sec. 40(a)(iv)]
6. Certain specified expenses in case of Partnership Firm

01/14/12 72
Contd…
1. Interest paid by an AOP/ BOI to its members is not
allowed as deduction by virtue of sec. 40(ba)
2. Payment to relatives in excess of fair value – not
deductible [Section 40A(2)]
3. Expenditure in excess of Rs. 20,000 in aggregate in
a day paid otherwise than by account payee
cheque drawn on a bank or account payee bank
draft – Not allowable [Section 40A(3))]
4. Amount not deductible in respect of certain unpaid
liabilities [Sec.43B]

01/14/12 73
Books of Accounts to be maintained
[Section 44AA]
The persons carrying on specified professions are required
to maintain specified books of account only if the gross
receipts of their profession have exceeded Rs. 1,50,000
Every other person carrying on business or profession
shall keep and maintain such books of account and other
documents as may enable the Assessing Officer to
compute his total income in accordance with the provisions
of this Act.
» If his income from business or profession
exceeds Rs. 1,20,000;
» Total sales/turnover/ receipts
gross exceeds thereof
» Rs.10,00,000
the assessee has claimed his income
lower than deemed profits

01/14/12 74
 Tax Audit u/s 44AB
This section applies to following :-
Person carrying on - Accounts are to be audited for previous year in which -

Business Total sales, turnover or gross receipts exceed Rs. 40,00,000

Profession Gross receipts exceed Rs. 10,00,000

Business covered u/s 44AB, He has claimed his income to be lower than the profits or gains
44AE, 44AF, 4BB and 44BBB so deemed under the respective section.

• The assessee is required to get his accounts of such

previous year audited by a Chartered
Accountant before 30th September of
the assessment year.

01/14/12 75
 Special Provisions for Computing Income on
Estimated Basis 44AD, 44AE & 44AF
Not withstanding anything contained in Sections 28 to 43C,
the following provisions will apply.
Sec. 44 AD Sec. 44 AE Sec. 44AF

Business of Civil construction or supply of Plying, hiring or leasing goods Retail trade in any
Assessee labour for it. carriages owned by him. goods
or
merchandise.
This Section Gross receipts of such Goods carriages owned by Total
applies if business during the previous assessee at any time during business turnover in
year do not exceed Rs. 40 previous year doesn’t exceed that previous
lacs. 10 lacs year
doesn’t exceed Rs.
40 lacs.
Deemed 8% of Gross receipts (No. of heavy goods 5% of Gross receipts
Profits vehicle x Rs. 3500 x NM) + or such higher sum
(No. of other vehicles x Rs. as declared by him
3150 x NM) in his Return of
NM = No. of months Income.

76
 DEPRICIATION [Sec. 32]
• Depreciation allowance [Sec. 32] - Depreciation shall be
determined according to the provisions of section 32.
• Conditions for claiming Depreciation - In order to
avail depreciation, one should satisfy the following
conditions:
– Asset must be owned by the assessee.
– It must be used for the purpose of business or profession.
– It should be used during the relevant previous year.
– Depreciation is available on tangible as well as intangible
assets.

01/14/12 77
Contd…
• Block of Assets [Sec. 2(11)] - The term “block of
assets” means a group of assets falling within a
class of assets comprising –
– tangible assets, being buildings, machinery, plant or
furniture;
– intangible assets, being know-how, patents,
copyrights, trade marks, licenses, franchises or any
other business or commercial rights of similar nature.
– In respect of which the same percentage of
depreciation is prescribed.

01/14/12 78
Contd…
• Written Down Value [Sec. 43(6)] - Written down value for
the assessment year 2009-10 will be determined as
under:
Find out the depreciated value of the block on the April 1, 2008.
Step 1

To this value, add “actual cost” of the asset (falling in the block) acquired
Step 2 during the previous year 2008-09.

From the resultant figure, deduct money received/receivable (together with

scrap value) in respect of that asset (falling within the block of assets)
which is sold, discarded demolished or destroyed during the previous year
2008-09.
Step 3

01/14/12 79
 Contd…
• Meaning of “Actual Cost” [Sec. 43(1)] - It means the
actual cost to the assessee as reduced by the proportion
of the cost thereof, if any, as has been met, directly or
indirectly, by any other person or authority.
• If written down value of the block of asset is reduced to
zero, though the block is not empty - No depreciation is
admissible.
• If the block of assets is empty or ceases to exist on the
last day of the previous year though the
written down value is not zero - No
depreciation is admissible.

01/14/12 80
Contd…
Additional depreciation @ 20% is available on new plant or
machinery acquired & installed after 31.03.05, if used in
production or manufacturing.
If asset is used for less than 180 days during the previous year,
in which its purchased, then deprecation & additional
depreciation is restricted to 50% of actual depreciation.
However in subsequent year full depreciation is allowed
irrespective of use.
When a depreciable asset(on which depreciation is claimed on
straight line basis) of a power generating
unit is disposed in a previous year, then
terminal depreciation (loss) is deductible or
balancing charge (gain) is taxable.

01/14/12 81
 Partnership
Deductibility of interest paid to partners by firm depends
upon following :-
– Payment of interest should be authorized by the
partnership deed
– Payment of interest should pertain to the period after
the partnership deed.
– Rate of interest should not exceed 12 percent
Deduction of Remuneration to Partners can be claimed
if paid :-
– to a Working Partner
– According to the Partnership Deed
– Does not exceed the Permissible Limits.

01/14/12 82
 Contd…
• The maximum amount of salary paid to all the partners
during the previous year should not exceed the limits given
below :-
In case of a firm carrying of a profession referred to in section 44AA

On the first Rs. 1,00,000 of the book profit or in Rs. 50,000 or at the rate of 90 percent of the book
case of a loss profit, whichever is more

On the next Rs. 1,00,000 of the book profit At the rate of 60 percent

On the balance of the book profit At the rate of 40 percent

In the case of any other firm

On the first Rs. 75,000 of the book profit or in case Rs. 50,000 or at the rate of 90 percent of the book
of a loss profit, whichever is more

On the next Rs. 75,000 of the book profit At the rate of 60 percent

On the balance of the book profit At the rate of 40 percent

83
 Minimum Alternate Tax (MAT)
Applicability of Minimum alternate tax (MAT) sec. 115JB :-
•Minimum alternate tax (MAT) sec. 115 JB MAT
is applicable in case of companies only.
•If tax liability of a company under normal provision
is lower than 10% of book profit.
•In such case, book profit shall be deemed as total income
& 10% of book profits should be deemed as tax liability.
•Up to assessment year 2001-02 these provisions
were covered by sec. 115 JA.

01/14/12 84
Contd…

• A company is allowed credit of tax paid u/s 115-

JB for the assessment year 2006-07 and
onwards in accordance with the provisions of
section 115-JAA.
• MAT credit can be carried forward for a period of
seven years.

Index
01/14/12 85
01/14/12 86
 Basis of Charge
Capital Gain’s tax liability only when the
arises following conditions are
satisfied:
••There should
The capital be aiscapital
asset asset.by the assessee
transferred
•Such transfer takes place during the previous year.
•Any profit or gains arises as a result of transfer.
•Such profit or gains is not exempt from tax
under
section 54, 54B,
54D,
54EC,
54F,
01/14/12 87
54G, and 54GA
 Capital Assets
“Capital asset” is defined to include property of any kind,
whether fixed or circulating, movable or immovable, tangible or
intangible. However, following are excluded from the definition
of “capital assets”:
2.Any stock-in-trade, consumable stores or raw material held for
the purposes of business or profession.
3.Personal effects of the assessee, that is to say, movable
property including wearing apparel and furniture held for his
personal use or for the use of any member of his family
dependent upon him. However, Jewellery,
Archaeological Collections, Drawings,
Paintings, Sculptures, or Art Work will not
be considered as “personal effects”.

01/14/12 88
 Contd…
1. Agricultural land in India provided it is not situated –
– in any area within the territorial jurisdiction of a municipality
or cantonment board, having a population of 10,000 or
more; or
– in any notified area.
2. 6½ percent Gold Bonds, 1977 or 7 percent Gold Bonds,
1980 or National Defense Gold Bonds, 1980 issued by the
Central Government.
3. Special Bearer Bonds, 1991.
4. Gold Deposit Bonds issued under Gold Deposit Scheme,
1999.

01/14/12 89
 Short-term / Long-term
Capital Assets
“Short term capital asset” means a capital asset held by an
assessee for not more than 36 months, immediately prior to
its date of transfer. In other words, if a capital asset is held
by an assessee for more than 36 months, then it is known
as “long term capital asset.”
However in following cases 36 months will be replaced by
12 months :-
• Equity or preference shares in a company
•Listed Securities
•Units of UTI
•Units of a mutual fund specified under section 10(23D)
•Zero coupon bonds

01/14/12 90
 Important Terms
• Transfer of Capital Asset :- Transfer, in relation to capital
asset, includes sale, exchange or relinquishment of the
asset or the extinguishment of any rights therein or the
compulsory acquisition thereof under any law [sec.
2(47)].
• Full Value of Consideration :- The expression “full value”
means the whole price without any deduction
whatsoever.
• Expenditure on Transfer :- The expression “expenditure
on transfer” means expenditure incurred which is
necessary to effect the transfer.

01/14/12 91
Contd…
• Cost of Acquisition :- Cost of acquisition of an asset
is the value for which it was acquired by the
assessee. In case of Depreciable Asset COA is the
WDV of asset in the beginning of the year. In case
of Slump Sale COA is the Net Worth of the
undertaking.
• Cost of improvement :- Cost of
improvement is capital expenditure
incurred by an assessee in
making any additions/ improvement to
the capital asset.

01/14/12 92
Contd…
• Indexed Cost of Acquisition :- the amount which bears
to the COA, the same proportion as CII for the year in
which the asset is transferred bears to the CII for the
first year in which the asset was held by the assessee
or on 01.04.1981, whichever is later.
• Indexed Cost of Improvement :- an amount which
bears to the COI, the same proportion as CII for the
year in which the asset is transferred bears to the CII
for the year of improvement.

01/14/12 93
 Capital Gain Exemption
• Profit on sale of property used for residence [S. 54]:-
Available to Individual & HUF on transfer of Long-term
Residential Property and new residential House
property is purchased or constructed.
• Capital gains on transfer of agricultural land [S.54B]:-
Available to Individual on transfer of Agricultural land
used by individual or his parent for agricultural
purposes during 2 year preceding date of transfer and
Agricultural land (urban or rural) is
purchased.

01/14/12 94
Contd…

• Investment in certain bonds [S.54EC] :-

Available to all assesses on transfer of any
long-term capital asset for purchase of Bonds,
redeemable after 3 years issued by
(a) National Highway authority of India; or
(b) Rural Electrification Corporation,

01/14/12 95
Contd…

• Capital gain on transfer of certain capital assets

not to be charged in case of investment in
residential house [S. 54F]:- Available to
Individual & HUF on transfer of Long-term Asset
other than Residential house Property and
residential House property is purchased or
constructed.

01/14/12 96
Contd…

• Compulsory acquisition of land & building

[S.54D]:- Available to all assesses on
Compulsory acquisition of land or building
which was used in the business of industrial
undertaking during 2 years prior to date of
transfer, if New land or building for the industrial
undertaking is purchased or constructed.

01/14/12 97
Contd…
• Shifting of undertaking to rural area [Sec.54G]:-
Available to all assesses on Transfer of plant,
machinery or land or building for shifting industrial
undertaking from under area to rural area, if (a)
Purchase/ Construction of plant, machinery, land or
building in such rural area or, (b) Shifting original
assets to that area or, (c) Incurring notified
expenses.

01/14/12 98
Contd…
• Shifting of undertaking to SEZ [Sec.54GA]:-
Available to all assesses on Transfer of plant,
machinery or land or building for shifting
industrial undertaking from urban area to
special Economic Zone, (a) Purchase/
Construction
if of plant, machinery, land or
building in such SEZ or (b) Shifting the original
asset to SEZ or, (c) Incurring notified expenses.

01/14/12 99
 Computation of Short-term
Capital Gains
Particulars Amount

Full Value of Consideration XXX

xxx
ess: Expenses incurred wholly and exclusively for
ttrraann
such
ssffeerr
Net Consideration XXX

Less: Cost of Acquisition xxx

Less: Cost of Improvement xxx

Less: Exemption u/s 54B, 54D, 54G, 54GA xxx

Taxable Short -term Capital gains XXX

01/14/12 100
 Computation of Long-term
Capital Gains
Particulars Amount

Full Value of Consideration XXX

xxx
ess: Expenses incurred wholly and exclusively for
ttrraann
such
sfsfeerr
Net Consideration XXX

Less: Indexed Cost of Acquisition xxx

Less: Indexed Cost of Improvement xxx

Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA xxx

Taxable Long- term Capital gains XXX

01/14/12 101
 Indexed Cost

Cost Inflation Index

Cost of (CII) for the first year
Indexed Cost acquisition / in which the asset was
improvement held by the assessee
of
x Cost or for the year
Acquisition /
inflation Index beginning on
Improvement of the year of 1.4.1981, whichever is
transfer later / the year of
improvement

01/14/12 Index 102

01/14/12 103
 General [Section 56(1)]

Income of every kind, which is not to be

excluded from the total income and not
chargeable to tax under any other head, shall
be chargeable under the head “Income from
Other Sources”.

01/14/12 104
 Specific Income [Section 56(2)]
• Dividends.
• Lottery winnings etc.: Winnings from lotteries,
crossword puzzles, races including horse races, card
games and other games of any sort or from gambling or
betting of any form or nature whatsoever.
• Any sum received by an employer-assessee from his
employees as contributions to any welfare fund, if the
same is not chargeable under the head ‘Profits and
Gains of Business or Profession.’
• Income way of interest on securitiesif not as
by Profits and Gains of Business
chargeable or
Profession
01/14/12 105
Contd…
1. Income from letting on hire of Plant, machinery or
furniture belonging to the assessee, if not chargeable
to under the head ‘Profits and Gains of Business or
Profession’.
2. Income from letting on hire of machinery, plant or
furniture and also buildings, and the letting of
buildings is inseparable from letting of such
machinery, plant or furniture, if the same is not
chargeable to income tax under the head ‘Profits and
Gains of Business or Profession.’
3. Interest on bank deposits and loans

01/14/12 106
Contd…
1. Any sum received under a Keyman insurance policy
including the sum allocated by way of bonus on such
policy, if the same is not chargeable to income-tax
under the head ‘Profits and Gains of Business or
Profession’ or under the head “Salaries.”
2. Cash Gifts exceeding Rs. 50,000
3. Interest on foreign government securities
4. Agricultural income received from outside India
5. Income from sub-letting
6. Director’s fee
7. Income of race establishment

01/14/12 Index 107

01/14/12 108
 Cases where Clubbing Applies
• Transfer of income without transfer of asset [Sec.
60] :– The income from the asset would be taxable in
the hands of the transferor.
• Revocable transfer of assets :- Income from such
asset is taxable in the hands of the transferor.
• An individual is assessable in respect of remuneration
of spouse [Sec. 64(1)(ii)] :- When Spouse is employed
in the concern without any technical or professional
knowledge or experience or when
he/ she has substantial interest in
that concern.

01/14/12 109
Contd…
• An individual is assessable in respect of income
from assets transferred to spouse:- When the asset
is transferred otherwise than (a) for adequate
consideration, or (b) in connection with an
agreement to live apart.
• An individual is assessable in respect of income
from assets transferred to son’s wife [Sec. 64(1)
(vi)]:- When the asset is transferred otherwise
than (a) for adequate consideration

01/14/12 110
Contd…
• An individual is assessable in respect of income from
assets transferred to a person for the benefit of
spouse [Sec. 64(1)(vii)] :- It is transferred for the
immediate or deferred benefit of his/her spouse. The
transfer is without adequate consideration.
• An individual is assessable in respect of income from
assets transferred to a person for the benefit of son’s
wife [Sec. 64(1)(viii)] :- It is transferred for the
immediate or deferred benefit of his/her
son’s wife. The transfer is without
adequate consideration.

01/14/12 111
Contd…
• An individual is assessable in respect of income of
his minor child [Sec. 64(1A)] :- The income of minor
will be included in the income of that parent whose
total income [excluding the income includible under
section 64(1A)] is greater.
• Clubbing in case of transfer of property to HUF
[Section 64(2)] :- When Income from asset
transferred to HUF for inadequate consideration.

01/14/12 112
 Undisclosed Income / Investments

• Cash credit [Sec. 68] - Where any sum is found

credited in the books of an assessee
maintained for any previous year and the
assessee offers no explanation about the
nature and source thereof, the sum so credited
may be charged to income-tax as the income of
the assessee of that previous year.

01/14/12 113
Contd…
•Unexplained investments [Sec.69] –
Where in the financial year immediately
preceding the assessment year, the
assessee has made investments
which are not recorded in the books
of account maintained by him and the
assessee offers no explanation about the
nature and source of the investments, the
value of the investments may be deemed to
be the income of the assessee of such
financial year.

01/14/12 114
Contd…
• Unexplained money, etc [sec. 69A] -
Where in any financial year the assessee is
found to be the owner of any money,
bullion, jewellery,or other valuable article which
are not recorded in the books of account
maintained by him and the assessee offers
no explanation about the
nature and source of acquisition then
value of suchthings may be deemed to the
income of the assessee for such financial
year.

01/14/12 115
Contd…
• Amount of investments, etc., not fully
disclosed in books of account [Sec.69B] – Where in
any financial year the assessee has made
investments or is found to be the owner of any
bullion, jewellery or other valuable article,
and theA.O. finds that the amount
expended on making such investments or in acquiring
such things exceeds the amount recorded in
the books of account maintained by the assessee,
and he offers no explanation about such excess
amount, the excess amount may be deemed to be
the income of the assessee, for such
financial year.
01/14/12 116
 Contd…
• Unexplained expenditure, etc. [Sec. 69C] – Where in any
financial year an assessee has incurred any expenditure & he
offers no explanation about the source of such expenditure,
the amount covered by such expenditure, may deemed to be
the income of the assessee for such financial year.
• Amount borrowed or repaid on hundi [Sec. 69D] – Where any
amount is borrowed on a hundi, or any amount due thereon is
repaid otherwise than through an account payee cheque, the
amount so borrowed or repaid shall be deemed to be the
income of the person borrowing or
repaying for the previous year in which
the amount was borrowed or repaid.

01/14/12 Index 117

01/14/12 118
 Process of Set-off & Carry Forward
The process of setting off of losses and their carry forward may be
covered in the following steps:

Step 1 Inter-source adjustment under the same head of income

Inter-head adjustment in the same assessment year. Step 2 is applied

Step 2
only if a loss cannot be set off under Step 1.

Carry forward of loss. Step 3 is applied only if a loss cannot be set off
Step 3
under Steps 1 and 2.

01/14/12 119
 Unabsorbed Depreciation
While dealing with unabsorbed depreciation one should keep in mind
the following points:
Depreciation allowance of the previous year is first deductible from the
income chargeable under the head “Profits and gains of business or
Step 1 profession”.

If depreciation allowance is not fully deductible under the head “Profits and
gains of business or profession” because of absence or inadequacy of
profits, it is deductible from income chargeable under other heads of income
Step 2 [except income under the head “Salaries”] for the same assessment year.

If depreciation allowance is still unabsorbed, it can be carried forward to the

subsequent assessment year(s) by the same assessee.
Step 3

01/14/12 120
 Inter-Source Set Off [Section 70]
Loss arising from one source of income under a head can be
set off against income arising from any other source under the
same head, except in the following cases –

Loss Set-off allowed against

Long-term capital Loss Long-term Capital Gain

Speculation business loss Speculation business gain

Loss from business of owning and Income from business of owning and
maintaining race horse maintaining race horse

Loss from lottery, card games, gambling Income from lottery, card games, gambling
betting etc. betting etc.

01/14/12 121
 Inter-Head Set-off [Section 71]
Loss arising under one head of income can be set off against
income under any other head, except in the following cases –
2.Loss arising under the head capital gain cannot be setoff
from income under any other head
3.Losses under the head “Profits and gains of business or
profession” cannot be set off against income under the head
“Salaries”.
Note: Unabsorbed depreciation of past year(s) is carried
forward u/s 32(2); therefore, the same can be set-off
against income under the head ‘Salaries’.

01/14/12 122
 Provisions relating to carry forward
and setoff of losses
Income against which the No. of years for which it
Sec. Loss to be carried forward
loss can be setoff can be carried forward

71B Loss from house property Income from house property 8 years from the end of the
relevant A.Y.

72 Losses under ‘Profits & Gains of Profits of any 8 years from the end of the
Business or Profession’, except Business/Profession relevant A.Y.
speculation business loss. (including speculation
business profits
also)
73 Losses in speculation business. Income from speculation 4 years from the end of the
business relevant A.Y.

74 Losses under the head Capital Capital Gains 8 years from the end of the
gains. relevant A.Y.

74A Loss incurred in activity of Income from owning 4 years from the end of the
owning and maintaining race and maintaining race horses relevant A.Y.
horses.

01/14/12
Index
123
01/14/12 124
 Meaning
“Agricultural Income” means:
2. Any rent or revenue derived from land which is situated in
India and used for agricultural purposes [sec. 2(1A) (a)].
3. Any income derived from such land by agricultural operations
including processing of the agricultural produce, raised or
received as rent-in-kind so as to render it fit for the market or
sale of such produce [sec. 2(1A)(b)].
4. Income attributable to a farm house subject to certain
conditions.
5. With effect from the assessment year 2009-10, any income
derived from saplings or seedlings grown in a nursery shall be
deemed to be agricultural income.

01/14/12 125
Partially Agricultural & Partially Business
Income [Rules 7, 7a, 7b And 8]
BUSINESS AGRICULTURAL
INCOME
INCOME INCOME

Growing and manufacturing tea in India 40% 60%

Sale of centrifuged latex or cenex or latex based

creps (such as pale latex crepe) or brown crepes 35% 65%
(such as estate brown crepe, remilled crepe,
smoked blanket crepe or flat bark crepe) or
technically specified block rubbers manufactured or
processed from field latex or coagulum obtained
from rubber plants grown by the seller in India

Sale of coffee grow and cured by seller 25% 75%

Sale of coffee grown, cured, roasted and grounded 40% 60%

by seller in India with or without mixing chicory or
other flavoring ingredients

01/14/12 126
 The Scheme of Partial Integration of
Non-Agricultural Income with Agricultural Income
The scheme of partial integration of non-agricultural
income with agricultural income is applicable if the
following conditions are satisfied –
The taxpayer is an individual, a Hindu undivided family, a body of individual,
an association of persons or an artificial juridical person.
Condition 1

The taxpayer has non-agricultural income exceeding the amount of

exemption limit [i.e., Rs. 1,80,000(in case a resident woman below 65 years),
Rs. 2,25,000 (in case of a resident senior citizen 65 years or more) and Rs.
1,50,000 (in case of any other individual or every HUF for the assessment
Condition 2
year 2009-10]

The agricultural income of the taxpayer exceeds Rs. 5,000.

Condition 3

01/14/12 127
 Contd…
Income-tax will be computed for the assessment
year 2009-10 in the following manner:
Step 1 Net agricultural income is to be computed as if it were income chargeable to income-tax.

Step 2 Agricultural & non-agricultural income of the assessee will then be aggregated & income-tax is
calculated on the aggregate income.

Step 3 The net agricultural income will then be increased by the amount of exemption limit and income-
tax is calculated on net agricultural income, so increased, as if such income was the total income
of the assessee.

Step 4 The amount of income-tax determined at Step two will be reduced by the amount of income-tax
determined under Step three.

Step 5 Find out the balance. Add surcharge; education cess & SHEC.

Step 6 The amount so arrived will be the total income-tax payable by the assessee.

Index
01/14/12 128
01/14/12 129
 Introduction
• Deductions to be made [Section 80A] :
• The total income of an assessee is to be computed
after making deductions permissible u/s 80C to 80U.
However, the aggregate amount of deductions cannot
exceed the Gross Total Income.
• No deduction from certain (following) Incomes :
Long term Capital Gains referred u/s 112, and Short Term
Capital gains referred u/s 111A.
Winnings from lotteries, races, etc. as referred to in section
115BB.
Incomes referred to in section 115A (1) (a), 115AC, 115ACA,
115AD, 115BBA and 115D.

01/14/12 130
 Deduction for Payment of
Life Insurance Premia, etc., [Section 80C]
Deduction under this section is allowed as follows –
Deduction is available only in respect of ‘specified
sums’ actually paid or deposited during the previous
year (sum not actually paid and outstanding is not
allowed)
Specified sums must have been paid/deposited by an
Individual or HUF; and
 The total amount of deduction under this section is
subject to a maximum limit of
Rs.1,00,000.

01/14/12 131
 Contribution To Certain Pension Funds
[Section 80CCC]
• Amount paid or deposited by individual in the previous
year –
– out of his income chargeable to tax
– to effect or keep in force a contract for any annuity plan of LIC
or any other insurer
– for receiving pension from the fund referred to in
section 10(23AAB).
• Quantum of Deduction: Deduction shall be allowed
to the extent of lower of the following –
– Amount so paid or deposited; or
– Rs. 1,00,000

01/14/12 132
 Contribution to Pension Scheme of Central
Government or any Other Employer [Sec. 80CCD]

• Deduction in respect of: Deduction is available

in respect of both of the following –
– Sum deposited by assessee in his account in notified
pension scheme; and
– Contribution made by Central Govt. or any other
employer to assesse’s A/c.
• Quantum of Deduction: Deduction shall be allowed
to the extent of aggregate of the following -

Sum paid/deposited by assessee to the credit of his a/c or 10% of

salary, whichever is lower
Sum contributed by the employer in assesse’s A/c or 10% of salary, whichever is
lower

01/14/12 133
Aggregate Limit u/s 80C, 80CCC & 80CCD

The aggregate amount of

deductions under section 80C,
section 80CCC and section
80CCD shall in any case,
exceed
not, Rs.1,00,000.

01/14/12 134
 Deduction In Respect Of
Health Insurance Premia [Sec. 80D]
• Deduction is available in respect of the amount paid to
effect or to keep in force health insurance under a
scheme –
– made by General Insurance Corporation of India (GIC) and
approved by Central Government; or
– made by any other insurer and approved by Insurance
Regulatory and Development Authority.
• Deduction shall be to the extent of lower of –
– Health insurance premia paid in respect of health of any member
of that HUF; or
– Rs. 15,000 (Rs. 20,000 in case the insured is a senior citizen).

01/14/12 135
 Maintenance of A Dependant Being
Person With Disability [Section 80DD]
• Deduction is available in respect of –
– expenditure incurred for medical / treatment / nursing / training/
rehabilitation, or
– amount paid under scheme LIC / UTI other insurer approved by
CBDT for maintenance, of a “dependant”, being a person with
disability.
• Deduction shall be allowed to the extent of –
– Rs. 50,000 (Rs. 75,000 in case of dependant suffering with severe
disability), irrespective of expenditure incurred or sum paid.

01/14/12 136
 Deduction in respect of
Medical Treatment, etc. [Sec. 80DDB]
• Deduction is available in respect of sum actually paid
during previous year for medical treatment of prescribed
disease or ailment for the following –
– In case of individual: himself or his spouse, children, parents,
brothers and sisters,
– In case of HUF: its member(s),
– dependant mainly on such individual or HUF for his support and
maintenance.
• Deduction shall be available to the extent of lower of the
following –
– sum actually paid; or
– Rs. 40,000 (Rs. 60,000 in case of a senior citizen).

01/14/12 137
Deduction in respect of Interest on Loan
taken for Higher Education [Sec.80E]

• Deduction in available in respect of sum

paid by the assessee in the previous year,
out of his income chargeable to tax, by
way of interest on loan taken –
– for his higher education, or
– for the higher education of his relative.
• 100% of the amount of interest on such
loan Deduction will be admissible.

01/14/12 138
 Deduction in respect of Donations
[Section 80G]
• Deduction is allowed under this section to all assesses
in respect of donations of sum of money in the
following manner –
– 100% deduction will be allowed if donations are given to any
of the 19 specified funds.
– 50% deduction will be allowed if donations made to any of the
5 specified funds.
– 100% deduction shall be allowed subject to the qualifying
amount if donations are made for promoting family planning.
– 50% deduction shall be allowed subject to the qualifying
amount if donations are made towards any of the 5 specified
purposes.

01/14/12 139
Deductions in respect of Rents Paid
[Sec.80GG]
• Rent actually paid for any furnished or
unfurnished residential accommodation occupied
by the Individual, who is not in receipt of any
House Rent Allowance (HRA).
• The deduction shall be allowed to the extent of
least of the following –
– Rs. 2,000 per month;
– 25% of adjusted total income;
– Rent paid less 10% of adjusted Total Income.

01/14/12 140
 Deduction in respect of person with
Disability [Section 80U]

• Eligible Assessee: Individual resident in

India, who, at any time during the previous
year, is certified by the medical authority to
be a person with disability
• Deduction: Rs. 50,000 (Rs. 75,000 for
severe disability). Severe disability means
80% or more of disability.

01/14/12 141
 Other Deductions
Deduction in respect of certain Donations for
Scientific Research or Rural Development [Sec.80GGA]
Deduction in respect of Contribution to Political
Parties [Sec. 80GGB & 80GGC]
Profits & Gains from Industrial Undertaking engaged
in Infrastructure Development [Sec. 80 IA]
Profits & Gains from Undertaking engaged
in Development of SEZs [Sec. 80IAB]
Profits & Gains from Industrial Undertaking engaged
in other than in Infrastructure Development [Sec.80IB]

01/14/12 142
Contd…
Deduction available to certain Undertakings in
certain Special category States [Sec.80IC]
Profits & Gains from business of Hotels & Convention
Centre in Specified Areas [Sec. 80ID]
Special provisions in respect of certain Undertakings in
North-Eastern States [Sec. 80IE]
Deduction available to assessee in the business
of Collecting & Processing Bio-Degradable
Waste
[Sec.80JJA]
Deduction in respect of Employment of New Workmen
[Sec. 80JJAA]
01/14/12 143
Contd…
Deduction from incomes of Off-shore Banking Units
& International Financial Services Centre [Sec.80LA]
Deduction in respect of income of Co-operative
Society [Sec. 80P]
Deduction in respect of Royalty Income, etc. of
Author of certain Books other than Text Books
[Sec.80QQB]
Deduction in respect of Royalty Income of Patents
[Sec. 80 RRB]

Index
01/14/12 144
01/14/12 145
 Liability to pay Advance Tax
Every person is liable to pay tax on income in
advance i.e. from completion of the previous
year (advance tax) if tax payable is Rs. 5,000 or
more. All items of income are liable for payment
of advance tax.
However, from Assessment 2010-2011
liability to pay advance tax arises, if the tax
payable is Rs. 10,000 or more

01/14/12 146
 Due Dates

Amount payble by Corporate Amount payble by Non-

Due Date
Assessee Corporate Assessee

On or before June 15 of the Up to 15 percent of advance

-
previous year tax payable

On or before September 15 of Up to 45 percent of advance Up to 30 percent of advance

the previous year tax payable tax payable

On or before December 15 of Up to 75 percent of advance Up to 60 percent of advance

the previous year tax payable tax payable

On or before March 15 of the Up to 100 percent of advance Up to 100 percent of advance

previous year tax payable tax payable

01/14/12 147
 Default in payment of Advance Tax
[Sec. 234B]
Under section 234B(1), interest is payable as follows:
When interest is Interest is Rate of interest Period for which interest is payable
payable payable on

An assessee who is Interest is Simple interest @ 1 From April 1 of the assessment

liable to pay payable percent for every year to the date of determination of
advance tax, has on accessed tax month or part of income under section 143(1) or
failed to pay such month where regular assessment is made
tax to the date of regular assessment

An assessee who Assessed tax Simple interest @ 1 From April 1 of the assessment
has paid advance minus advance percent for every year to the date of determination of
tax but the amount tax month or part of income under section 143(1) or
of advance tax paid month where regular assessment is made
by him is less than to the date of regular assessment
90 percent of
assessed tax.

01/14/12 148
 Deferment of Advance Tax
[Sec. 234C]
Interest is payable under section 234C if an
assessee has not paid advance tax or
underestimated installments of advance tax.
Simple Interest at the rate of 1% per month is
payable for period 3 months for each installment
due.

Index
01/14/12 149
01/14/12 150
 Time for filing Return of Income
[Sec. 139(1)]
Different Situations Due Date for filing Return

1. Where the assessee is a company September 30

2. Where the assessee is person other than a

company –
b)In case where accounts of the assessee are
required to be audited under any law September 30
c) Where the assessee is “working partner” in
a firm whose accounts are required to be
audited under any law September 30

e)In any other case

July 31

01/14/12 151
 Filing of Return in Electronic Form
[Sec. 139D]
Section 139D has been inserted from June 1, 2006. It
provides that the Board may make rules providing for the
class or classes of persons who shall be required to furnish
the return of income in electronic form; the form and the
manner in which the return of income in electronic form may
be furnished; the documents, statements, receipts,
certificates or audited reports which may not be furnished
along with the return of income in electronic form but shall be
produced before the Assessing Officer on demand; the
computer resource or theelectronic
record to which the return of income in
electronic form may be transmitted.

01/14/12 152
 Filing of Return after Due Date
[Sec. 139(4)]
If the return is not furnished within the time
allowed under section 139(1) or within the time
allowed under section 142(1), the person may
(before the assessment is made), furnish the return
of any previous year at any time before the end of
one year from the end of relevant assessment
year.

01/14/12 153
 Consequences of Late Submission
If return is submitted after the due date of submission of
return of income, the following consequences will be
applicable. These rules are applicable even if a belated
return is submitted within the time-limit given above –
– The assessee will be liable for penal interest u/s 234A.
– A penalty of Rs. 5,000 may be imposed u/s 271F if
belated return is submitted after the end of assessment year.
– If return of loss is submitted after the due date, a few losses
cannot be carried forward.
– If return is submitted belated, deduction under section 10A, 10B,
80-IA, 80-IB, 80IC, 80-ID and 80-IE will not be available.

01/14/12 154
 Interest for defaults in furnishing
Return of Income [Section 234A]
If any person fails to furnish his return of income u/s 139 for
any assessment year or furnishes such return after due
date specified in section 139(1), then, he will liable to pay
interest at the rate of 1% per month for the period beginning
from the date immediately following the due date of
furnishing return of income and ending on the Date of
furnishing the return or completion of assessment,
whichever is earlier, calculated on the
amount of self-assessment tax payable.

Index
01/14/12 155