CS Executive Tax Laws

TAXATION & LAW CODE Page |1
For CA, CS & OTHER PROFESSIONAL 2014
COURSES
CS-EXECUTIVE TAX
LAWS PART-1
TAXATION & LAW CODE

PRESENT’S
BY: KETAN SARDANA
JMD taxation & LAW CODE Page |2
PREFACE TO MY FIRST EDITION
It gives me immense pleasure, in helping the student

community in particular by writing some notes in a simple,
lucid manner.
Since, the book assumes no previous knowledge of the subject
on the part of, the Reader, its aims complete clarity for the
beginner and simplicity which makes the text self-explanatory,
I express my sincere gratitude to, all those who have stood by
me, in this noble task.
I, take this opportunity, in thanking my parents, my friends,
readers, my well-wishers, and yes God for their blessings and
support,
I feel confident that the notes will meet a real need. If it is
widely read and wisely used, I shall feel amply rewarded.
I shall gratefully acknowledge any suggestions to further
increase the utility of the book, and readily incorporate them
for the betterment of my next edition of notes
DON’T COPY, RESPECT EFFORT BEHIND THIS.
Link to contact me:-

@ Copyright: KETAN SARDANA;ketanhsardana@gmail.com
Contact: https://www.facebook.com/pages/Taxation-Law-CODES/185533964799625
https://www.facebook.com/groups/caketansardana/
https://www.facebook.com/ketan.sardana2
@ Copyright: KETAN SARDANA; ketanhsardana@gmail.com ;

Contact: - https://www.facebook.com/pages/Taxation-Law-CODES/185533964799625
This Book is dedicated to LORD GANESHA

and VAISHNO MAA

INDEX
Chapter Page
1 Basic Concepts 4
2 Residential Status 16
3 Income from Salaries 24
4 Income from House 48
Property
5 Profits & Gains from 69
Business or
Profession
6 Capital Gains 107
7 Income from Other 139
Sources
8 Clubbing of Income 151
9 Set off & Carry 158
forward of losses
10 Deductions from 172
Gross Total Income
11 Tax deducted at 188
Source
12 Advance Tax 194
13 Agricultural Income 201
14 Filling of Return 208
15 Exempted Income 220
16 Mixed Topics 232

BASIC
CONCEPTS
&
DEFINITIONS
@ Copyright:
BY: KETAN KETAN SARDANA; ketanhsardana@gmail.com ;
SARDANA JMD
1. BASIC CONCEPTS & DEFINITIONS

Section Provision
Sec. Person
2(31)
Sec. 3 Previous Year
Sec. 2(9) Assessment Year
Sec. 2(7) Assessee
Sec. Income
2(24)
Sec. Total Income
2(45)
Marginal Relief
Sec 87A Rebate for Individual

Concept of Income
Revenue Every revenue receipt is Capital 1. Receipt for which there do
receipt derived from source of receipt not exist a source of
income. Source of income income is a capital receipt.
can be a tangible asset or 2. Sale of source of income.
intangible assets.
Tax Every revenue receipt is Tax Every capital receipt is not
treatment taxable, unless otherwise treatment taxable unless otherwise
expressly exempted under expressly taxable.
the Act.
Revenue Expenditure incurred for Capital Expenditure incurred for
expenditure maintenance of source of expenditure acquisition of source of
income. income.
.
Every person whose total income of the previous year exceeds the maximum income
not chargeable to tax is an assessee and chargeable to income tax at the rates
Prescribed in the finance Act for the relevant assessment year.

Person Sec. 2(31)
Person includes seven types of persons namely

 Individual;
 Hindu undivided family (HUF);
 Company;
 Firm (Partnership firms including Limited Liability Partnerships);
 Association of Persons (AOP) or a Body of Individuals (BOI);
 Local authority;
 Every artificial juridical person not falling within any of the preceding sub clauses.
Association of person Vs. Body of individual
The 2 basic differences between AOP and BOI are:

 In BOI there are only individuals but i AOP there can be any type of persons.
 BOI is creation of law whereas AOP can be created by different persons coming together for
doing some income producing activity on the voluntary basis.
Assessee Sec. 2(7)
Assessee means any person by whom tax, interest or penalty is payable under any provision of
Income-tax Act, 1961 and includes:
(a) Deemed Assessee
(b) Assessee in default
(c) Person against whom any income tax proceedings have been started for the assessment of his
income or loss or the income of some other person or the loss for whom he is liable.
Assessment Year Sec. 2(9)
Assessment year means the period of 12 months starting from 1st April every year and ending on
31st march of the succeeding year.
Previous Year Sec. 2(34)
Previous year means the year immediately preceding to assessment year. Income for the previous
year is always taxed in the assessment year.

Total income Sec. 2(25A)

The Total income of an individual is arrived at after making deductions under Chapter VIA from
the Gross Total Income. Gross Total Income is the aggregate of the net income computed under
the 5 heads of income, after giving effect to the provisions for clubbing of income and set-off and
carry forward and set-off of losses.
Gross total income Sec. 14
Gross total income is the aggregate of income from all five heads of Income, namely:
(1) Salaries
(2) Income from House Property
(3) Profits & Gains of Business or Profession
(4) Capital Gains
(5) Income from Other Sources
Total/Taxable Income Sec. 2(45)
Total income is income after reducing the deduction under Chapter VI-A from the gross total
income. This income is also called taxable income on which tax has to be imposed.
Tax on income referred under Sec. 68, 69, 69A, Sec. 115BBE
69B, 69C, 69D
 If Total Income includes any income referred under above sections, income-tax shall be
payable @ 30%
 No deduction in respect of any expenditure/allowance shall be allowed under any provision
of this Act in computing his income referred under above sections.
Rounding off of total income Sec. 288A

The total income shall be rounded off in the multiples of ` 10.
Rounding off of tax liability Sec. 288B

The amount payable by the assessee and the amount of refund due, under the provisions of the
Income Tax Act, 1961 shall be rounded off to the nearest ` 10.
Education cess Sec. 288A

Education cess for the AY 2013-14 is 2% for primary education and 1% for higher and secondary
education.

JMD taxation & LAW CODE P a g e | 10
Computation of total income of …… For AY 2013-14

Particulars Amt. (`)
Income under the head Salary ……
Add: Income under the head House Property ……
Add: Income under the head Business and Profession ……
Add: Income under the head Capital Gains ……
Add: Income under the head Other Sources ……
Gross Total Income ……
Less: Deduction under Chapter VI-A [Sec. 80C-80U] ……
Total/Taxable Income ……
TAX ON TOTAL INCOME
Special Income Casual Income Normal Income [NI = TI – SI – CI]

LTCG 20% flat Indian Foreign Ind / HUF /
Lottery Income 30% Company Company AOP / BOI
STCG etc flat / Firm
15% flat
STT 30% flat 40% flat Slab rate
Basic exemption Surcharge (Tax on Tax) See the last table
allowed from
SI if NI < BE. But
1st allowed from NI
& then from SI. Education cess & SHEC 3% 3% 3%
Rebate u/s 87A is
available.
Domestic Foreign Firm Ind / HUF/ Local Co-opera-
Company Company / AOP / Authority tive society
LLP BOI / AJP
• Total Income 5% 2% 10% 10% 10% 10%
exceeds ₹ 1 Cr.
• Total Income
10% 5% NA NA NA NA
exceeds ₹ 10 Cr.

SLAB RATE
Income Rate of Tax (Method 1) Amount of Tax (Method 2)

Upto ₹ 2,00,000 Nil Nil
₹ 2,00,001 to 10% of (NI – 2,00,000) – upto ₹ 2,000 for 10% of NI – 20,000 – upto ₹ 2,000 for
5,00,000 resident individual. S 87A resident individual. S 87A
₹ 5,00,001 to 20% of (NI – 5,00,000) + 30,000 20% of NI – 70,000
10,00,000
Exceeds ₹ 30% of (NI – 10,00,000) + 1,30,000 30% of NI – 1,70,000
10,00,000
TAX CONCESSION
Person Age Basic Tax concession

Exemption
1. Resident senior citizen atleast 60 years at any time 2,50,000 ₹ 5,000
during the relevant PY.
2. Resident super senior citizen atleast 80 years at any time 5,00,000 ₹ 30,000
during the relevant PY.
3. Woman (R / NR) less than 60 years 2,00,000 Nil
4. Non-resident senior citizen / Any age 2,00,000 Nil
5. HUF / AOP / BOI / AJP NA 2,00,000 Nil

Domestic Foreign Firm / Individual / HUF /
Company Company LLP AOP / BOI / AJP
Tax on Long Term Capital Gain 20% flat 20% flat 20% flat 20% flat
Tax on Short Term Capital Gain 15% flat 15% flat 15% flat 15% flat
(STT paid)
Tax on Lottery Income. (Casual Y) 30% flat 30% flat 30% flat 30% flat
Tax on Normal Income slab rate with rebate u/s
30% flat 40% flat 30% flat
87A.
• TI exceeds ₹ 1 Cr.upto 10 Cr. 5% 2% 10% 10%
• TI exceeds ₹ 10 Cr. 10% 5% NA NA
Whether marginal relief available Yes Yes Yes Yes
Education cess & SHEC 3% 3% 3% 3%

Marginal Relief
 Marginal relief is amount of relief in tax.

 In case income exceeds Rs.1 crore
 and increment in tax including surcharge on income exceeding Rs. 1 crore
 Is greater than increase in income exceeding Rs. 1 crore
 Marginal relief shall be allowed of an amount equivalent to difference between the
amount of tax including surcharge
 Because of income exceeding Rs. 1 crore and income exceeding Rs. 1 crore as if no
surcharge was there.

Relief for Individual Sec 87A
Rebate of upto Rs. 2000 for resident individual having total income of upto Rs. 5 lakh
In order to provide tax relief to the individual tax payers who are in the 10% tax slab
 Section 87A has been inserted
 To provide a rebate
 From the tax payable by an assesse
 Being an individual resident in INDIA
 Whose total income does not exceeds RS 5,00,000
Amount of Rebate: - Tax or 2000; whichever is less
Consequently, any individual having total income upto Rs. 2,20,000 will not be required to pay
any tax. Further, every individual having total income above Rs. 2,20,000 but not exceeding Rs.
5,00,000 shall get a tax relief of Rs. 2,000. In effect, the rebate would be the tax payable or Rs.
2000, whichever is less

Income of one PY taxable in same year
The following are the exceptions to the general rule that income of every previous year is chargeable to
tax in the relevant assessment year.
Cases where income of PY is assessed in the same year
AOP formed
Shipping Persons likely
Person for the Discontinued
business of to transfer
leaving purpose of a business or
Section a non- property to
India particular profession
resident avoid tax
event
[Sec. 172] [Sec. 174] [Sec. 174A] [Sec. 175] [Sec. 176]
Applicabi Non- Appears to Appears to Appears to AO Where any
lity Resident Assessing AO that any that any person business/
owner/ Officer (AO) AOP formed is likely to sell profession
Charterer of that any for particular any of his assets is
Ship individual event/purpose during a PY discontinued
Carrying may leave and is likely with a view to
in any PY
passengers, India during to be avoid payment
livestock, current PY dissolved of any liability
goods or shortly during PY
shipped after its
at expiry &
Indian Port has no
during PY intention of
returning to
India
Income 7.5 % of Total Total Income Total Income of Business or
amount on Income of of such such person Profession
account of individual association commencing income
such carriage from first commencing from first day of commencing
day of PY from first dayPY up-to date from first day
up-to of PY up-to of of PY up-to
probable date of its commencement date of
date of his dissolution of proceedings discontinuance
departure by AO under
from India this section
When Chargeable Chargeable Chargeable to Chargeable Chargeable to
Taxable? to tax in the to tax in tax in to tax in tax in the same
same PY the the the same PY PY at
same PY same PY discretion of
AO

Heads Salary House PGBP Capital Other
Property Source
s
Sections 15 to 17 22 to 27 28 to 45 to 55A 56 to 59
44D
Nature of 15 22 28 45 56
Income ER & EE Annual value Profit on sale Profit on If income is
(Chargeability) relationship of building of transfer of not charged
SIT capital asset under first 4
head
In which year Due or Annual Method of In the year of Method of
income is receipt Value accounting transfer accounting
recognised to whichever followed by followed by
tax matures the assessee the assessee
(Taxable event) earlier (145) (145)
Nature of Only Only Expenditure Only specified Expenditure
expenses specified specified incurred for expenses are incurred for
expenses are exp. are the purpose allowed as the purpose of
allowed as allowed as of business or deduction earning such
deduction deduction profession. which are income
which are which are (many only 3 (many
only 2 only 3 expenses) COA + COI + expenses)
PT + EA MT + SD + TE
Interet
Computation of 17 – 16 23 – 24 + 28 – (30 to 36 FVC xx 56 – 57 subject
Income. 25AA + 25B + 37) subject (–) xx to 58
Exempted to section 40 COA (restriction)
income to 43B
(–) xx
specified u/s 10 (restriction)
COI
do not form part
of TI (–) xx
TE
CG xx
Rates of Tax Normal Normal Normal • LTC STC Other

Income Income Income G G Lotte income
Normal Ind / HUF slab rate • STC ry
Income : G TV
Company Flat 30% /
STT game
40%
s etc

LTCG 20% Speci Norm Casu Normal

al al al Income
STCG STT 15% Incom Incom Inco
e e me
Causal 30% flat
Income
Set off and No losses Can be set Can be set off LT with LT Can be set off
carry forward of arises off with any with any head ST with both with any head
losses head of of income ST and LT of income.
income except However
salary (Spec lottery losses
Loss only cannot be set
with SP) off with any
heads.

RESIDENTAL STATUS &

SCOPE OF TOTAL INCOME
@ Copyright:
SARDANA JMD
2. RESIDENTAL STATUS & SCOPE OF TOTAL INCOME

Section Provision
Sec. 5 Scope of Income
Sec. 6(1) Residential Status of Individual
Sec. 6(2) Residential Status of HUF/Firm/AOP/BOI
Sec. 6(3) Residential Status of Company
Sec. 6(4) Residential Status of other persons (Local
Authority/Artificial Judicial Person)
Sec. 6(6)(a) RNOR – Individual
Sec. 6(6)(b) RNOR – HUF
Sec. 9 Income deemed to accrue and arise in India and
definition of Royalty
Sec. 115C Person of Indian origin

Scope of Income Sec. 5

Types of Income Particulars ROR RNOR NR
Due in India & receivable
Yes Yes Yes
anywhere
Indian income Due outside & Received
in Yes Yes Yes
India
Foreign income (Due & Recd. B or P income controlled
Yes Yes No
Outside from India
India) Other Income Yes No No
Section 6 : Determination of Residential

Status
(1) (2) (3) (4) (5) (6)
Ind HUF, Firm, Company Local Auth. / Ind / HUF
AOP/BOI AJP
Basic Condition Additional condition
Satisfies Do not satisfy x Satisfies Do not
satisfy
Resident Non Resident R-OR R-NOR
S 6(1) & 6(6). Determination of Residential

Status of Individual.
S Basic Condition
6(1)
If an Individual is present in India
(a) for period or periods of at least Satisfies any one Resident
182 days in the relevant PY; or basic condition in
India.
(b) for at least 60 days in the relevant Do not satisfies any Non
PY & at least 365 days in last 4 basic condition Resident
years immediately preceding the in India.
relevant PY. }
Exceptions-check only 182 days
(a) If an Indian Citizen leaves India for the purpose of employment or leaves
India as a crew member of Indian Ship.
(b) If an Indian Citizen or Person of Indian Origin comes to India on a visit
from outside India.

As per explanation to S 115C (e) A Person is said to be of Indian Origin if he

himself or his Parents / Grandparents are borne in undivided India. Check
date of birth should be before 15-8-1947 and place of birth is in India,
Pakistan or Bangladesh.
S Additional Condition
6(6)
(a) Resident in India for atleast 2 years in If satisfies both the
last 10 years immediately preceding the Additional Condition then
}
relevant PY; and RS is R-OR otherwise R-
NOR.
INDIVIDUAL
Basic (A) or
Basic (B)
NO NON-RESIDENT
YES
Resident And Satisfies BOTH Additional Conditions
Resident and Ordinary Resident
ELSE Resident BUT Not Ordinary

Resident

Residential Status of Hindu Undivided Family Sec. 6(2)

(HUF) Sec. 6(6)
Status of HUF Conditions
Resident & Ordinarily Resident Any part of Control & Management (C&M)
(ROR) situated in
India during PY and
Karta satisfying both additional conditions
Resident & Not Ordinarily Any part of C&M situated in India during PY and
Resident (RNOR) Karta not satisfying additional conditions together
Non-Resident (NR) No part of C&M situated in India during PY
HUF
IF THE CONTROL AND MANAGEMNET OF
ITS AFFAIRS* ARE SITUATED IN INDIA
NO NON-RESIDENT
YES
Resident And Satisfies BOTH Additional Conditions
Resident and Ordinary Resident
ELSE
Resident BUT Not Ordinary Resident
* Affairs=Decision

Residential Status of Firm, AOP & Other Corporate Sec.

Assessee 6(2)
Status of Firm, AOP & Other
Conditions
Corporate Assessee
Resident & Ordinarily Resident Any part of C&M situated in India during PY
(ROR)
AOP/BOI/FIRMS
IF THE CONTROL AND MANAGEMNET OF

ITS AFFAIRS* ARE SITUATED IN INDIA
NO NON-RESIDENT
YES
Resident
Residential Status of Company Sec.

6(3)
Status of Company Conditions
Resident & Ordinarily Resident Indian company or foreign company 100%
(ROR) C&M in India during PY
Non-Resident (NR) Foreign company any part of C&M outside India
during PY
COMPANIES
IF THE CONTROL & IF THE CONTROL &

MANAGEMENT OF MANAGEMENT OF
ITS AFFAIRS* ARE SITUATED ITS AFFAIRS* ARE SITUATED
IN INDIA OUTSIDE INDIA
OR
+
Its an Indian Co. Its NOT an Indian Co.

YES YES
Resident Non-Resident
Residential Status of Other Sec.
Assessee 6(4)
Status of Company Conditions

Resident & Ordinarily Resident Any part of C&M situated in India during PY
(ROR)
Due includes Deemed cases Sec. 9
1. Income from a Business Connection in India

2. Income from property asset or source in India
3. Capital gain from Capital asset situated in India
4. Salary from services rendered in India
5. Salary to Indian citizen from Govt. of India [Sec 10(7): Allowance & Perquisite
exempt]
6. Dividend from Indian company [Sec 10(34): Dividend is exempt from Tax]
7. Interest/Royalty/Fee for Technical services from Government of India
8. Interest/Royalty/Fee for Technical services from Resident
(Except money/service is utilized for business outside India)
9. Interest /Royalty/Fees for Technical services from Non resident
(Provided money/service is utilized for Indian business)
Special points
 Where income is deemed to accrue or arise in India under Point 7, 8 and 9
 such income shall be included in total income of non-resident
 whether or not non-resident has a
(i) Residence or Place of business or Business connection in India OR
(ii) Rendered Services in India
10. Interest credited to Recognised Provident Fund (RPF) in excess of 9.5% p.a.
11. Employer contribution to RPF in excess of 12% of salary of employee
12. Transferred balance in RPF

Income deemed to accrue or arise in India

Sec 9
(i) • Income from Business Exceptions to the Business Connection.
Connection. a. All operation not carried out in India.
Business outside India and part b. Purchase for export.
activity of business carried out in
India. c. Collection of news.
d. Shooting of film in India by foreign
Also called permanent
citizen.
establishment or territorial nexus.
• Assets located in India.
(ii) Services rendered in India by any person.
(iii) Services rendered outside India by Indian Citizen. Employer is Govt. of India.
However as per S 10(7) allowances and perquisites are exempt from tax. Only
basic salary is taxable.
(iv) Dividend from Indian Company. However it is exempt from tax u/s 10(34)
(v) Interest on Loan which is used in India. If interest, royalty or FTS is payable
(vi) Royalty from knowledge which is used in by
India. Govt. of India then such income
deemed to accrue or arise in India
(vii) Fees from technical services where whether there is business connection
technical agreement is implemented in or not.
India.
Section 2(25A). India includes territorial waters of India, its Oil Rig
continental shelf, air space above territorial waters and
exclusive economic zone.

INCOME FROM
SALARY
@ Copyright:
SARDANA JMD
Section Provision
Sec. 15 Chargeability section
Sec. 16(ii) Deduction for Entertainment Allowance
Sec. 16(iii) Deduction in respect of Professional/Employment Tax
Sec. 17(1) Meaning of Salary
Sec. 17(2) Meaning of Perquisites
Proviso to Sec. Treatment of Medical Facility
17(2)
Sec. 17(3) Profit in lieu of Salary
Rule Valuation of Perquisites under Income Tax Rules, 1962
Rule 3(1) Valuation of rent free accommodation
Rule 3(2) Valuation of car facility
Rule 3(3) Valuation of servant facility
Rule 3(4) Valuation of gas, electricity, water facility
Rule 3(5) Valuation of education facility
Section Exemption under the head Salary
Sec. 10(5) Exemption for leave travel concession
Sec. 10(10) Exemption for Gratuity
Sec. 10(10A) Exemption for Commuted Pension
Sec. 10(10AA) Exemption for Leave Encashment upon retirement
Sec. 10(10B) Exemption for retirement compensation
Sec. 10(10C) Exemption for VRS
Sec. 10(13A) Exemption for HRA
Sec. 10(14) Exemption for other Allowances
Schedule IV Provident Fund
Basic Concept Sec. 5

Any amount received by an individual shall be treated as salary only if the relationship
between payer and payee is that of an employer and employee. The employee may be a
full time employee or part-time employee.

Basis of charge Sec. 5
 For charging tax under income under the salary the foremost requirement is that the
relationship of employer and employee must subsist between the payer and payee.
 Even if the person is in employment with more than one employer, all kinds of benefits
extracted from such kind of contract would be taxable under income under the head
salaries.
 The basic difference one must remember between forgone and surrender of salary is
that even if forgone, salary is taxable but when salary is voluntarily transferred to the
central government, such salary is not taxable.
 Salary is taxable on due or receipt basis whichever is earlier. Accounting method
of employee is not relevant.
Salary [Sec. 17(1)]
It means any kind of:

 Wages
 Annuity
 Gratuity, fees, bonus, commission, perk or profit in lieu of salary or wages
 Any advance of salary
 Any amount on account of leave encashment
 Any contribution to RPF to the extent it is taxable
 Any interest on RPF to the extent it is taxable Any contribution under Sec.
80CCD under scheme framed by CG

Basic Pay
Basic pay is calculated from the pay scale generally given like:
10000 – 100 – 10500 – 200 – 12500
So the pay is Rs.10000 and annual increment is Rs.100 and when the pay raised upto
10500 then increment after that is Rs.200 upto Rs. 12500.
Taxation of advance salary & arrears of

salary
 Any advance salary received would be taxable in the previous year in which it is
received on receipt basis and any arrears of salary received which is not taxed earlier
would be taxable in the year in which they are allowed , however recipient would be
entitled to claim relief under Sec. 89 in respect of such arrears.
 However it is to be noted that Advance salary is different from advance against
salary and such advance against salary is taxable when salary becomes due.
Allowances = Cash + Particular Rule 3(2)

Purpose + Fixed
S 10(7). ER : CG. EE : Indian Citizen Allowances to High Salary to
working abroad then allowances and Court / Supreme Court UNO
perquisites fully exempt. Judges is fully exempt. employees is
fully exempt.
Fully Basic Allowances Perquisites

Exempted Salary
Allowances
S 10(7). ER : CG. EE : Indian Taxable Exempt Exempt
Citizen working abroad
High Court / Supreme Court Taxable Exempt Taxable
Judges
UNO employees Exempt Exempt Exempt
Servant City Compensatory Overtime Project Entertainment
Fully
Taxable Dearness Rural Absent Fixed Medical Tiffin
Allowances High cost of living Marriage Telephone Holiday Home
Physically fit allowance Lunch Breakfast Dinner
Special Part 1 Amount spend towards Part 2 Amount as specified in
Allowances exemption official or specified purpose. exemption Income Tax Rules.

Transport upto ₹ 800 pm / ₹ 1600

THAR DUCT
allowance pm is exempt.
Children upto ₹ 100 pm is exempt.
Transfer Helper Academic R&D
education Max 2 child.
upto ₹ 300 pm is exempt.
Daily Uniform Conveyance Travelling Hostel
Max 2 child.
10,000 p.m. or 70% of
Outstation
allowance whichever is
allowances
lower is exempt.
Tax Free Fully Taxable Partly Taxable
1. Allowance to U.N.O 1. Dearness Allowance 1. House Rent Allowance
Member 2. Marriage Allowance 2. Education Allowance
2. Allowance to High & 3. Dog Allowance 3. Hostel Allowance
Supreme Court judge. 4. Family Allowance 4. Transport Allowance
3. Foreign Allowance 5. Warden Allowance 5. Underground
(Received outside) 6. City Compensatory Allowance
4. Allowance to M.P/ Allowance (CCA) 6. Traveling/Helper/
M.L.A/ M.L.C 7. Medical Allowance Uniform Allowance
8. Tiffin Allowance 7. Remote/Border area
9. Overtime Allowance Allowance
10. Any other cash 8. Personal/ Daily/
Allowance. Running Allowance
(2) Partly Exempt Allowance Sec. 10(15)

Interest on Post Office Savings Bank Account
Individual Account ` 3,500 and
Joint account ` 7,000
House Rent Allowance and Exemption Available [Rule 2A] Sec. 10(13A)
House Rent Allowance actually received XXX
Less: Exempt under Sec. 10(13A): Minimum of
(a) Actual amount received
(b) Rent paid – 10% Salary
(c) 50% of salary – If accommodation is in Mumbai, (XXX)
Kolkata, Delhi, Chennai 40% of salary – For any other place XXX
Taxable House Rent Allowance

Detail of Partly Taxable Allowances:
House Rent Allowance (H.R.A)

1. Actual Amount Received
2. Rent paid – 10% of Salary
3. 50% of Salary in Metro cities  Least is Exempt
Or
40% of Salary in other cities
Meaning of Salary: Basic Pay + D.A (if enter) + Commission on Sales

Taxable Amount: Amount Received – Amount Exempt
Note: if Employee lives in own house then H.R.A is fully taxable
Traveling/Conveyance/Helper/Uniform Allowance
Taxable Amount= Amount Received – Actual Expenses
Transport Allowance
Exempted upto Rs. 800 per month.
Exempted upto Rs. 1600 per month for Handicaps
Education Allowance
Exempted upto Rs. 100 per month per child upto 2 Children
Hostel Allowance
Exempted upto Rs. 300 per month per child upto 2 Children
Underground Allowance
Exempted upto Rs. 800 per month
Personal/Daily/Running Allowance
1. Rs. 6000 per month
 Least is Exempt
2. 70% of Amount Recd.
Remote Area/Border Area/Difficult Area Allowance

Exempted Rs.200 to Rs.1300.

Deduction u/s 16(ii) : Deduction u/s 16(iii) :

Entertainment Allowance Professional Tax
Deduction allowed only to Govt. EE. Professional tax / Employment tax
Maximum 5,000 Least is Deduction allowed in the financial year of
deductible payment. Where this tax is paid by ER on behalf
Actual Actual
of EE then it is first added and then deduction is
Formula 20% of basic allowed.
Salary
Perquisites Sec. 17(2)

S 17(2). Perquisites. [Category A Perquisites: AFLO SUL
GMHCC EA].
Taxable in both the case of employees: Specified EE
and Non Specified EE.
A Accommodation
Cities having a population (Census of 2001)
of
Accommodation upto 10 Lakhs more than 10 exceeds
is Lakhs & upto 25 Lakhs
25 Lakhs
Owned by 7.5% of AS is 10% of AS is 15% of AS
employer taxable taxable is taxable
Hired by ‘Lease rent’ or ‘15% of AS’ whichever is
employer lower is taxable
AS shall be computed on due basis for the period accommodation is occupied by EE.
AS = Accommodation Salary = BS + DA() + Commission + all taxable allowances
+ Fees (excluding perquisites, ER’s contribution towards PF and DA not forming
part of salary.
Hotel Accommodation : 24% of AS or hire charges whichever is lower is taxable.
Exempt for upto 15 days if hotel accommodation is provided to EE if transferred
from one city to another city.
F Furniture Owned by 10% pa of the original cost of the asset is
Employer : taxable.
Hired by Actual hire charges is taxable.
Employer :
L Life Paid by EE. Deduction allowed u/s 80C.

Insurance Paid by ER on behalf Taxable under head Salary on due basis and
Premium of EE. deduction allowed u/s 80C on paid basis.
Exempt. Staff group insurance is fully exempt from tax.
O Obligation of EE Official Purpose Fully exempt Taxable on
discharged by ER Personal Purpose Amount re imbursed is fully paid basis.
taxable.
S Sale of movable Purchase price of the movable asset Xxx
assets.
Less : Depreciation for completed year
a. Computer or electronic item related to 50%

computer WDV
EXEMPT if :
b. Motor Car 20%
WDV
Sale of SIT c. Other Asset 10%
1. by ER to EE SLM (xxx)
Cost of the asset to the employer Xxx
Gift of asset Less : Sale price of asset to employee (xxx)

2. upto ₹
5,000. Value of sale of movable asset Xxx
U Use of asset Owned by 10% pa of the original cost of the asset is

Employer : taxable.
Hired by Actual hire charges is taxable.
Employer :
Exempt Use of computer, laptop and telephone is
exempt from tax.
L Loan Facility SBI lending rate as on 1-4 x amount of each loan outstanding on
from ER’s own the last day of each month.
account Not taxable if 1. If aggregate of loan amount do not
exceeds ₹ 20,000.
2. Loan is taken for medical treatment of
specified disease.
G Gifts in Kind upto ₹ 5,000 is exempt from tax.

in cash fully taxable. It is bonus taxable on

receipt basis.
M Meal Facility Own canteen Meals Taxable Cost to the
provided employer
during office Exempt upto ₹ 50 per meal
hours at office
premises.
Outsourced canteen Meals Taxable Amount paid
provided Exempt upto ₹ 50 per meal
during office
hours and
eatable at
eating joints.
Exempt • Tea or snacks fully exempt from tax.
• Meal provided in remote area or off shore
installation fully exempt from tax.
H Holiday Home / Provided uniformly to all employees Cost to the employer
Facility : is taxable.
Tour, Travel Provided only to keyman / selected Market fees of
& employees. similar guest house /
Accommodation hotel is taxable.
Exempt Official purpose is exempt.
C Credit Card Personal Purpose Amount paid / re imbursed is taxable
Facility Official Purpose Exempt. Proper record has to be maintained for
claiming exemption.
C Club Facility Personal Purpose Amount paid / re imbursed is taxable
Official Purpose Exempt. Proper record has to be maintained for
claiming exemption.
Exempt Corporate membership is Health Club for all
exempt. EE is exempt.
E ESOP FMV on exercise date less recovery is taxable.
A Approved Superannuation Fund ER’s contribution in excess of ₹ 1,00,000 is
taxable.

Category B Perquisites. [GET MSc]. Taxable only in case of Specified EE on

provided basis.
If GETMSc is re- imbursed then it becomes obligation of EE discharged by ER. Any
amount re-imbursed is taxable in both the cases of EE - specified EE / Non
Specified EE
G Gas/ Electricity / Own Manufacturing cost per unit is
Water facility taxable
Purchase from Cost to the employer is taxable
outside agency
E Education Own Taxable Market Exempt ₹ 1,000 p.m. per child is
Facility fees exempt
Hired Cost to the employer is
taxable
Exempt Scholarship is exempt u/s Training of employee is
10(16) exempt.
T Transport Railways / Airline Exempt
Facility
M 1. Employer’s Own Fully exempt. Family members :
(m Hospital Box 1 Box 2
e
d 2. Private Hospital Exempt upto ₹ Self, Spouse Parents,
i 15,000. & children Brother
c 3. Govt. Hospital Fully exempt. (dependent / not & Sister
a dependent) (only
l) 4. Treatment of prescribed Fully exempt.
disease in approved dependent)
hospital
5. Re imbursement Exempt upto ₹
15,000.
S Servant Facility Cost to the employer is taxable or Salary of servant is
taxable.

C Car Valuation of CAR FACILITY RULE3(2)

Facility
C Cas Car is RE Car used wholly for Car is used for
A RE =
Regu- es owned borne personal purpose mixed purpose
R
lar or by
f expenses hired
a by
c Use :
i 10% A ER ER Use+ upto 1,800 recov
l of Cat regular 1600 cc p.m. ery
i original B expenses + taxable
t salary of not
y cost Exceeds 2,400
driver – 1600cc p.m. applic
recovery is taxable able
taxable.
Driver 900 p.m.
taxable
B ER EE Use+ Upto 600 p.m.
Cat salary of 1600cc taxable
B driver – Exceeds 900 p.m.
recovery is 1600cc taxable
taxable.
Driver 900 p.m.
taxable
C EE ER regular Upto 1,800 p.m.
Cat expenses + 1600cc exempt.
A salary of Exceeds 2,400 p.m. exempt.
driver – 1600cc
recovery is Driver 900 p.m. exempt.
taxable. Recovery is applicable.
Category C Perquisites : FULLY EXEMPTED

PERQUISITES
1. Staff group insurance. 11. HHF – official purpose exempt.
2. Use of laptop, computer & telephone is 12. Meal upto ₹ 50 per meal is exempt.
exempt.
3. Gifts in kind upto ₹ 5,000 is exempt. 13. Meal in remote area is exempt.

4. Sale of SIT to its employees is 14. Hotel accommodation – transfer

exempt. and upto 15 days.
5. The other asset which is 10 year old is 15. Education facility upto ₹ 1,000
exempt. p.m. / child.
6. Loan facility upto ₹ 20,000 is exempt. 16. Training of EE’s
7. Loan given for treatment of specified 17. S 10(16). Scholarship.
disease.
8. Credit card / club if given for official 18. Medical facilities upto ₹ 15,000.
purpose.
9. Health club – for all employees 19. Medical facility in Own / Govt.
hospital.
10. Corporate membership – initial fees is 20. Medical treatment of specified
exempt disease in an approved hospital
Summary of Perquisites
Here are three categories of Perquisites:
1. Tax free Perquisites for all Employees
2. Taxable Perquisites for all Employees
3. Taxable Perquisites for Specified Employees
1. Tax free Perquisites

Ration to Army employees
Telephone Facility
Refreshment
Refresher Courses
Shares at concessional Rate.
Laptop/Computer for official & personnel use.
Health insurance premium paid by employer.
Any Perquisites outside India.
Residential Accommodation provided at site.
Employer contribution to staff group insurance.

2. Taxable Perquisites for all Employees

Rent Free Accommodation (R.F.A)
If house is owned by Employer
If population Exceed 25 Lac then 15% of Salary.
If population Exceed 10 Lac but less than 25 Lac then10% of Salary.
If population Less than 10 Lac then 7.5% of Salary.
If house is rented by Employer
Rent paid by Employer

 Least is Taxable
15% of salary
Meaning of salary for R.F.A:
Basic Pay + D.A (If enter) + Commission + Bonus + All Taxable Allowance + Leave Salary
(C.Y)
In case of furnished house
1. Furniture owned by Employer: 10% of cost is taxable
2. Rented Furniture: Actual rent paid is Taxable
R.F.A for Govt. Employees
Amount given in the Question like Fair Rental value or Rent paid by employer is taxable.
Note: R.F.A in Remote is fully exempt.
Gas/ Electricity/Water
1. Owned By Employer – Cost is Taxable
2. Rented – Actual rent paid is Taxable
Food/ Beverage
Up to Rs. 50 per mile is exempt
Credit Card
Fully Taxable

Medical Facility
___________________________________________________
Hospital Owned Other Hospital

By Employer
Tax free In India outside India
Private Permitted Gross Income Gross Income

by Govt. > 2 Lac < 2Lac
Exempt upto Tax free

Rs.15000 Fully Taxable 1 Patient &
1 Attendant
Tax free
Education Facility
School Owned by Employer Other School
Up to Rs. 1000Pm or Exp. In same Up to Rs. 1000 Pm

Standard school higher is exempt is exempt
Assets at Concessional Rate

Taxable Value = WDV of asset – Amount Charge by Employer
Method of Depreciation on Assets
1. Computer/ Electronic goods Written down value 50%
2. Motor Car Written down value 20%
3. Others Straight line 10%
Loan at Concessional Rate

1. Loan up to Rs.20000 if tax free.
2. Loan for notify Dieses is tax free
3. Taxable Value = S.B.I Rate – Interest Rate charged by Employer

Hotel Accommodation
Up to 15 days More than 15 days
Tax free least is 24% of Salary

Taxable Or
Meaning of Salary: Same as R.F.A Actual Rent
paidpaid
Gifts
Tax free up to Rs. 5000. (if made by cheque or cash then fully taxable)
Car Facility
Car owned by Employer/Employee
Running Exp. made Running Exp. made

By employer by employee
Office Personal Partly Office/ Small Car Big Car

Use Use Personal Use
Rs.600 P.M Rs.900 P.M
Taxable Taxable
Tax free Taxable
Small Car* Big Car*
Rs.1800 P.M Rs.2400 P.M

Taxable Taxable
Note: If driver facility provided by employer then Rs.900 P.M added.
Small Car: Cubic capacity is less than 1.6 litre
Big Car: Cubic capacity is more than 1.6 litre
Payments at the time of Retirements

Leave Travel Concession

1. First class travel fair
Least is Exempt
2. Actual Expenses
Taxable Amount = Amount Received – Amount Exempted
Specified Employee. If any of the 3 condition is satisfied an

employee is treated as specified employee. [17(2)(iii)]
1. Employee + Director
2. Employee + Substantial Interest. S 2(32) An employee holding at least
20% voting power in a company.
3. Income from Salary less salary in kind exceeds ₹ 50,000
Non Specified Employee.
If none of the conditions are satisfied then employee is treated as non-specified employee.
PROVIDENT SPF PPF URPF RPF

FUND
1. Employer’s Not Taxable Excess of
contribution 12%
Not Does not At the time
towards PF. of SAS is
Taxable contribute of lump Taxable under the head
taxable
sum SALARY
withdrawal
2. Employee’s Not Available
contribution
towards PF. At the time
Available Available of lump Not Taxable since Available
Whether
deduction u/s 80C sum already taxed.
available? withdrawal
3. Interest credited to Not Taxable
PF. Interest on
At the time Taxed under the Excess of
Not Not ER’s
of lump head 9.5% is
Taxable Taxable contrib.
sum SALARY taxable
withdrawal EE’s Taxed under the
contrib. head OS
4. Lump sum Exempted Exempted Exempted u/s
withdrawal from u/s 10(11) u/s 10(11) Taxable 10(12)
PF.
EEE EEE EET EEE

Provident Fund
Recognised Provident  Employer’s contribution – excess of 12% salary

Fund (Taxable)
 Interest on provident fund – excess of 9.5%
(Taxable)
Unrecognised Provident  Employer’s contribution – Taxable (Salary)
Fund  Interest on Employer’s contribution – Taxable
(Salary)
 Interest on Employee’s contribution – Taxable
(Other sources)
Gratuity and exemption available Sec. 10(10)

Case Particulars Amt. `
(1) Government Gratuity Received XXX
employees and Less: Exempt under Sec. 10(10)(i):
employees of Amt. of gratuity recd. XXX
local authorities: Taxable Gratuity NIL
(2) Government Gratuity Received XXX

employees and Less: Exempt under Sec. 10(10)(ii):
employees of Minimum of following will be exempt:
local authorities: (a) Actual Gratuity Recd.
Completed years
(b) (Last Basic Salary
(XXX)
DA) Part in excess of six XXX
months
(c) Notified Limit: ` 10,00,000
Taxable Gratuity
Notes:
1. Salary = Basic Salary + Dearness Allowance (DA)
2. in case of employees of a seasonal establishment.

3. In the case of piece rated employees, average salary for last
three months, immediately preceding retirement should be
considered.

(3) Other employees Gratuity Received XXX

Less: Exempt under Sec. 10(10)(iii):
Minimum of following will be exempt:
(a) Actual Gratuity Recd.
(b) Average Salaries (XXX)
Completed years Only XXX
(c) Notified Limit: `
10,00,000 Taxable Gratuity
Notes: :. Salary = Basic Salary + Dearness Allowance (DA) +
Commission (% of turnover)
Gratuity
Govt. Covered under Not Covered

Employee Gratuity Act under gratuity Act
Tax free 1. Rs.10,00,000

2. Actual Amount Recd.
Least is Exempt  3. Year Completed x 15/26 x L.M.S
Year Completed  Over 6 Months = 1 year

Meaning of Salary B/P + D.A (Always) + 1. Rs.10,00,000
Commission on sale 2. Actual Amount Recd.
L.M.S Last Month Salary 3. Year Completed x ½ x A.M.S
Least is Exempt
Year Completed Over 6 Months  1 Year

Meaning of Salary B/P + D.A (if enter) + Commission
A.M.S Average Monthly Salary of last 10 Months

Pension [Exemption Available] Sec. 10(10A)

Uncommuted Meaning: Monthly or periodical pension
pension: Taxability: Fully taxable for all employees (including Government Employees)
Commuted Cases Particulars `
pension: (1)Employees for Pension received on commuted basis Less: XXX
Govt./ Local Exemption under Sec. 10(10A)(i): Full amt.
auth./ recd. as pension (commuted basis)
Statutory Taxable Pension (Fully exempt, so) (XXX)
corp. NIL
(2) Employees Pension received on commuted basis XXX

recd.Gratuity Less: Exemption under Sec. 10(10A)(ii)
as well (XXX)
rd of 100% commuted pension
Taxable Pension XXX
(3) Employees Pension received on commuted basis XXX

recd. does Less: Exemption under Sec. 10(10A)(iii)
not recd. (XXX)
(half) of 100% commuted pension
Gratuity XXX
Taxable Pension
Pension
Regular Computed
Fully Taxable
Govt. Employee Other Employee
Tax Free
If Gratuity is if Gratuity is not

received received
Exempt 1/3 of Exempt ½ of

Total Pension Total Pension
Taxable Amount Amount Received – Exempt

Leave Salary and Exemption Sec.

available 10(10AA)
Govt. Private Employees
Employees
Maximum Fully 3,00,000 (life time exemption) Least is exempt
from tax
Actual exempt Actual Leave Salary
from
Formula 1 10 x Average SAS
tax.
Formula 2 Earned leave (in months) x Average
SAS
SAS SAS = BS + DA () + Commission (if)
Avg SAS is computed for last 10 months immediately
preceding the DATE of retirement.
Leave Encashment
During the Service At the time of

Time Retirement
Taxable
Govt. Employee Other Employee
Tax Free 1. Rs.300000/-

2. Actual Recd.
Least is
3. AMS x 10
Exempt 4. AMS x Balance
due
Meanings:
AMS: - Average monthly salary of last 10 months.
Balance Due: - Leave allowed by I. Tax – Leave availed
Salary: - Basic Pay + D.A (if enter) + Commission on Sale

Retirement compensation and Sec.

Exemption available 10(10B)
Retrenchment compensation actually received XXX
Less: Exempt under Sec. 10(10B): Minimum of
(b) Amount calculated as per the provisions of the Industrial
Disputes Act, 1947; which is equal to 15 days average pay for
every completed year of service or part thereof in excess of 6 (XXX)
months XXX
(c) Notified limit: ` 3,50,000
Taxable Retrenchment Compensation
Voluntary retirement compensation Rule

2BA
Conditions:
(i) 10 years of service or 40 years of age
(ii) For all employees
(except directors of the company)
(iii) Reduction in number of employees
(iv) Not to be filled up
(v) No same management
* Rules refers to Income Tax Rules, 1962
Exemption available Sec. 10(10C)

Particulars Amt.
(`)
Voluntary retirement compensation actually received XXX
Less: Exempt under Sec. 10(10C): Minimum of
(b) Last drawn salary3 months No. of completed years of

services
(XXX)
(c) Last drawn salary Balance months' services left XXX
(d) Notified Limit: ` 5,00,000
Taxable voluntary retirement compensation

Meaning of salary in different cases
(1) For entertainment allowances Basic Salary only

(2) Gratuity for employees (Covered under Gratuity Act) Basic Salary + DA
(3) Gratuity for employees (not covered under Gratuity Act)
(4) Leave Salary Basic Salary + DA (if forming part
(5) Voluntary retirement compensation of retirement benefit) + Commission
(6) Contribution to RPF as a fixed percentage turnover
(7) House rent Allowances
(8) Rent free accommodation Basic salary + DA (for R.B.) + Bonus or commission +
Taxable Allowances Basic salary + DA (form part of
(9) Employer’s contribution towards employee pension salary) (Excludes all Allowances
and scheme referred under Sec. 80CCD perks
Relief Sec 89(1)
Where by reason of his having received in any one financial year salary for more
than 12 months (arrears/salary received in advance), assesses income is assessed at
the higher rate, the assessing officer shall, on an application made to him in this
behalf, grant such relief as may be prescribed. No benefit is available in respect of
VRS payment.
It may be noted that surcharge and education cess shall be first computed and
thereafter relief u/s 89 shall be reduced.
Computation of relief in case of relief when salary has been received in arrears or in
advance under section 89(1) (in terms of section 89 read with rule 21A):
1. Calculate the tax payable on the total income, including the additional salary of the
relevant previous year in which the same is received.
2. Calculate the tax payable on the total income, excluding the additional salary of the
relevant previous year in which the same is received.
3. Find out the difference in tax at (1) and (2) above.
4. Compute the tax on the total income after excluding the additional salary in the
previous year to which such salary relates.
5. Compute the tax on the total income after including the additional salary in the previous
year to which such salary relates.
6. Find out the difference in tax at (4) and (5) above.

7. The excess of tax computed at (3) over the tax computed at (6) is the amount of relief
admissible u/s 89(1). No relief is however admissible if the tax computed at (3) is less
than the tax computed at (6). In such a case the assessee–employee need not apply for
relief
Income under the head Salary [Format]

Amt. Amt.
Particulars (`)
(`)
Basic Salary ……
Dearness Allowance/Pay ……
Bonus ……
Commission (Based on turnover) ……
Commission (Fixed or Other) ……
Other Taxable Allowances
Medical allowance ……
Add: City compensation allowance ……
Add: Split duty allowance ……
Add: Tiffin/lunch allowance ……
Add: Deputation allowance ……
Add: Overtime allowance ……
Add: Servant or warden allowance ……
Add: Non-practicing allowance …… ……
Allowances exempt with conditions
Amount received ……
Less: Exempt amount (……) ……
Allowances exempt without conditions
Amount received ……
Employers contribution to RPF ……
Interest on balance of RPF ……
Employer’s contribution to notified pension fund ……
Value of perquisites ……
Leave encashment (Current Year) ……
Retirement benefit
Gratuity ……
Leave encashment upon retirement ……
Pension:

Un-commuted pension ……
Commuted pension ……
Less Exempted amount (……) ……
Compensation under VRS ……
Less: Exempted amount (……) ……
Retrenchment compensation ……
Less: Exempted amount (……) ……
Amount received from URPF upon retirement ……
GROSS SALARY ……
Less: Deduction under Sec. 16
Deduction for Entertainment Allowance [Sec. 16(i)] (……)
Deduction for Professional/Employment Tax [Sec. 16(ii)] (……)
INCOME UNDER THE HEAD SALARY ……

INCOME FROM HOUSE

PROPERTY
@ Copyright:
SARDANA JMD
Section Provision
Sec. 22 Basis of charge (i.e. Charging Section)
Exp. to Sec. Unrealised rent
23(1)
Sec. 24(a) Statutory deduction
Sec. 24(b) Interest on borrowed capital
Sec. 25A
Recovery of unrealised rent
Sec. 25AA
Sec. 25B Arrears (Outstanding) rent received
Sec. 26 Property owned by co-owners
Sec. 27(i) Deemed ownership – Transfer to Spouse
Sec. 27(ii) Deemed ownership – Holder of an impartible estate
Sec. 27(iii) Deemed ownership – Member of co-operative society etc.
Sec. 27(iiia) Deemed ownership – Person in profession of property as
per Sec. 53A of Transfer of Property Act, 1882
Sec. 27(iiib) Deemed ownership – Person having right in property for a
period not less than 12 years

Basis of charge Sec. 22

 There must be a property consisting of building or land appurtenant thereto
 The Assessee should be owner of that property
 Such property should not be used for Business or profession of assessee the profits of
which are chargeable to tax
Ownership
s
It includes legal owner as well as deemed owner. The term
ownership include kind and includes:  Freehold Property
 Leasehold property
 Deemed ownership
Annual Value Sec. 23

Step Take higher of
1 (a) Expected rent (which is computed by taking higher of municipal value or fair
rent whichever is higher but limited to standard rent) or,
(b) Actual rent received or receivable
(c) But in this clause c, we compute actual rent which would have been there if
there would have been no vacancy, if such rent is higher than expected rent,
then rent computed under this clause (c) would be used otherwise rent
computed in clause (a) that is the expected rent would be used.
Step From this Calculate GAV by taking rent as per above provisions and subtracting
2 vacancy allowance on the basis of actual rent from the same.
Step This is our Gross Annual Value (GAV)
3
Step From GAV deduct Standard deduction @ 30% of GAV and municipal taxes
4 actually paid and borne by the owner during the previous year.
Step Finally we have computed our Net Annual Value or annual value
5
Annual Value is value after deduction of municipal tax. GAV xxx

Municipal Tax. Its deduction is allowed in the financial year in Less :
which payment is made by the owner. PAID basis + Owner. Tenant MT (xxx)
pays deduction not allowed. NAV xxx

Deductions from Income from House Property Sec. 24
Standard Deduction Sec 24a

Standard Deduction allowed is 30% of NAV. It is automatic deduction i.e. even if
question do not provide it this deduction must be allowed. No Standard deduction if NAV
is nil or negative.
Interest on borrowed capital Sec 24b

1. The loan should be borrowed for 2. The interest is 3. Interest is allowed as
5
PCR . Purchase, Construction, Re - allowed as deduction from that
construction, Repairs. Renovation, deduction on PY in which
Renewal, Repayment of existing accrual basis. Even construction of
housing loan. Note: Deduction not if interest is not building is
allowed if loan is borrowed for paid deduction is completed or
payment of MT, interest on interest allowed. building is
or penal interest. purchased.

Pre-construction period interest Post construction period interest

Total Interest before the FY in allowed Allowed from FY in which building
which building comes into from FY in comes into existence. This interest
existence which keeps on decreasing with the re payment
---------------------------------------- building of loan.
----- = comes into
5 existence.
Let out / DLOP / SOP - Residence
Vacant
Any amount Interest both pre + post limited to
of ₹ 1,50,000 if all the following 3 otherwise ₹ 30,000.
interest is conditions are satisfied.
allowed
as deduction. 1. The loan is borrowed on or after 1-4-1999 The loan is
(No Limit) borrowed before 1-
4-1999
2. The loan is borrowed for purchase or The loan is
construction of residential house property. borrowed for
repairs, renewal.
3. The building comes into existence within 3 The building comes
years from the FY in which loan is borrowed. into existence after
[FYloan + 3 years] 3 years.
Restriction on deduction of interest Sec 25

Where interest is payable outside India but is paid without deducting tax at source then
such interest is not allowed as deduction.
Deduction in case of Self-occupied property

Deductions as written above are not fully applicable in case of a self-occupied property. The
changes case of self-occupied property are as follows: -
(1) No standard deduction of 30% would be allowed
(2) Deduction in case of money borrowed: Here also deduction is allowed subject to certain terms
and conditions:-
These conditions are as follows:
 Money is borrowed after 1-4-1999
 Money is borrowed for construction or acquisition of property
 Construction or acquisition of property is completed within 3 years from end of financial year in
which money is borrowed

 Creditor gives a certificate that amount was borrowed for construction or acquisition of property.
In Case above 4 provisions are satisfied the amount of deduction is Actual interest (inclusive of
pre-construction period interest) or ` 150000 otherwise the amount of interest deduction would be
` 30000.
However, Interest would not be allowed as a deduction if such interest is paid out of India and
No TDS has been deducted from it and there is no person in India who can be assessed in
respect of person to whom interest is paid.

Cases for computation of Sec. 23

Annual Value









Recovery of unrealised rent and arrears of rent:

Recovery of unrealised rent Recovery of arrears of rent
Sec25AA Sec 25B
Timing of In the year of receipt In the year of receipt
taxation
Head House Property even if building is House Property even if building is
transferred transferred
Standard Not available Available @ 30% of arrears of
Deduction. rent.
Co-owner Property Sec 26

1. Co - owner not assessed as AOP.
2. Each owner treated as individual.
3. Each owner entitled to benefit of SOP-R whose GAV is nil.

4. Each co-owner entitled to deduction of interest to a max of ₹ 30,000 / 1,50,000.
Deemed Ownership Sec. 27

The various cases in which owner would be counted as deemed owner of property are as follows:-
(i) An individual (Transferred) who transfers House Transferrer Transferee
Property to spouse without consideration, then individual
Husband - DO Wife
who transfers the property is treated as deemed owner.
Wife - DO Husband
Exception: Property is transferred with an agreement to
live apart then registered owner (transferee) is treated as
Husband Wife - RO
owner.
(ii) An individual (Transferrer) who transfers House Transferrer Transferee
Property to a minor child, without consideration such
individual who transfers the property is treated as deemed Father - DO Minor Child
owner.
Exception : Where the minor child is a married daughter Mother - DO Minor Child
then deemed owner concept is not applicable. Income
Minor
from HP chargeable in the hands of minor married Father / Mother
married
daughter itself.

daughter -
RO
(iii) Holder of an impartible estate.
(iv) A member of a Co-operative society, Company or other Registered Deemed

association of person who is allotted a building under a Owner Owner
house building scheme of such society. Co-operative Member
Society
(v) A person who is allowed to take or retain possession of Seller (received Buyer (has
any building or part thereof in part performance of a the full key of
contract where every formality of sale is completed price) property)
except registration of property with Stamp Valuation
Registered Owner Deemed Owner
Authority.
(vi) A person who acquires any right in any building by way of lease Lease Terms Lessor Lessee
for a term of at least 12 years. 12 years RO DO
11 years RO Tenant
Composite rent
Composite rent can be on amount of
 Provision of facilities with House Property
 Provision of assets with House Property
(a) Rent On account of House Property and Other facilities like gas, etc. should be separated and
rent on account of House Property would be taxed under income from House Property and
rest would be taxable under either under the head Business & Profession or income under the
head other sources.
(b) Rent on account of House Property and hire charges of assets is treated as follows:
 If assets form an integral part of lending, whole of the rent should be taxed under either
Income under the head “Profits and gains from Business and Profession” (PGBP) or
Income under the head “Income from Other Sources” as the case may be.
• If asset do not form an integral part of lending, rent should be separated into :-
Rent for H.P. and should be taxed under H.P.
• Rent for assets must be taxed under P.G.B.P. or income from other sources
House property let out during part of year and Rule 4

part of year self -Occupied
 The Income from such property is calculated as if let out for whole of the year. In This case,
expected rent would be taken for whole year but actual rent would be taken for let out period
only and no special allowance for this purpose is allowed.

 However where property is acquired during the year itself, expected rent would be taken for
only that portion for which property has been owned by assessee and rest provisions remains
the same.
Unrealised rent Rule 4

Sometimes owner is not able to recover some portion of rent from the tenant such a rent is called
as unrealized rent, Unrealized rent is allowed as a deduction only when following 4 conditions
given in Rule 4 are satisfied:
 Tenancy is bonafide
 Every step has been taken to get the property vacated
 Every step has been taken to recover unrealized rent
 Tenant is not in occupation of any other property of Owner
There are a number of conflicting views regarding treatment of unrealized rent due to difference
of opinion created by income tax law and income tax return form, However Taking in to account
the provisions of law; the appropriate provisions are written below:
Just deduct amount of unrealized rent from Step 1 Point (b) and Point (c) of above Steps
i.e. While Computing figures for actual rent, these are allowed as a deduction. The Rest of
Steps Follow in the same manner as written above.
Treatment of vacancy + unrealised rent

If the problem is such that adjustment is required both for Vacancy and unrealized rent then
following treatment follows which is a combination of provisions written in Point “Unrealised
rent” and Point
“Vacancy” above:
 The amount of unrealized rent would be deducted from Step 1 Point (b) and Point (c)
 Next, the treatment of unrealized rent is same as per provisions written in point “Annual
Value” in the next steps.
Income from House property – Self occupied
Income from House Property – Self Occupied for Residence
When property is:

 Self-occupied for residence or
 Cannot be self-occupied for residence owing to reason of employment and he has to reside at
some other place not belonging to him
Then, Annual Value of such property would be taken to be NIL.
Annual value not NIL:
 House Property Actually let out during the year  Any other benefit is derived from property.

Case where more than one house is for self-occupation:

Then the assesse has option to take any of the above houses as self-occupied and the other one
would be treated as deemed let out property.
Notes:
• Annual value here denotes value after municipal taxes.
• This option is available only to individuals and Hindu undivided families.
• Where an assessee let out his house to the employer and the employer in return allots the same
to assessee only then, then tax treatment would be as follows:-  Tax on income of house
property and
 Tax on the matter of rent free or concessional accommodation provided by employer taxable
under income under the head salaries.
Can Annual Value be negative?

Yes annual value can be negative.
In Case of Self-occupied property: Yes, annual value of a property can be negative but only to
the extent of ` 1,50,000 / ` 30,000
In Case of Let-out property: The annual Value can be negative Because of deduction on account
of municipal taxes and interest.
There is no limit to which such income can be negative.
Income under the head House [Format]

Property
In case of t In case of Self occupied
Le out property
Particulars
property (`)
(`)
Gross Annual Value …… ……
Less: Municipal (……) (……)
Taxes Net
…… ……
Annual Value
Less: Deduction under Sec. 24
Standard Deduction @ 30% (……) Not Allowed
Deduction on account of Interest (……) (1,50,000 or 30,000)
Income under the head House …… ……

Property

SUMMARY OF THE CHAPTER

Basic Points to be Kept in Mind:-
 There should be Building and Land appurtenant thereto
 Must be Owner (Maalik)
 Property Use should not be for Business purpose
Deemed Owner (Maan Naa Hai To Maano ..Nahi To Maan Naa Padegah..)
I.e
Transfer To Spouse, Minor Child
Holder of Impartible Estate
Member of Co-operative Society
Holder of Property as per sec 53A Of Transfer Of property act
COMPUTATION
IF LET-OUT/OR Partially Let Out & Self -Occupied
Gross Annual Value
If Vacant
Bcse of
Tenant
Expected rent* OR Actual rent received The we
(H) will Take
* ER= Municipal value OR Fair rent value(H) Lower of
ER OR
Subject to:""Mere Sey jaida Nahi Beta Ji" ARR
*****
Standard rent
Less: Unrealised Rent {Rent that is IR-Recoverable As tenant has Vacated/Bankrupt Etc.} Less:
Taxes Paid and Bourn By The Owner:
Net Annual Value
Less: Standard Deduction @30%* NAV U/s 24
Less: Interest On Borrowing capital
# Interest For The Current year

# Interest For the period Before Completion Of House Property for Next 5 Years
Proportionately.
(For Prior Period take interest calculation upto the 31-03 of the previous Year)

COMPUTATION FOR
IF Self-occupied IND&
HUF
Gross Annual Value NIL
Less: Unrealised Rent NIL
Less: Taxes Paid and Bourn By The Owner: NIL
Net Annual Value NIL
Less: Standard Deduction @30%* NAV U/s 24 NIL
Less: Interest On Borrowing capital *****
# Interest for the Current year

# Interest For the period Before Completion of House Property for Next 5 Years
Proportionately.
(For Prior Period take interest calculation upto the 31-03 of the previous Year)
SUBJECT O MAX RS. 1,50,000 IF LOAN FOR ACQUISION OR
T CONSTRUCTION OF NEW HOUSE
AFTER 1999 AND COMPLETED
1.4. WITHIN 3 YEARS
ELSE
RS . 30,000/-(For Repairs and renewals na dif acquired before 1-4-1999)
THEREFORE
SEPRATE TREATMENTIF BOTH SELF -OCCUPIED HOUSES
TAKE ONE AS SELF OCC. AND THE OTHER AS

DEEMED TO BE LET OUT

INCOME FROM PROFIT &

GAIN OF BUSINESS &
PROFESSION
@ Copyright:
SARDANA JMD
5. PROFIT & GAIN OF BUSINESS & PROFESSION
SECTIONS PARTICULARS
28 Profits & gains of business or profession chargeability/ scope of income u/h
29 Income from profits and gains of business or profession, how computed?
30 Rent, rates, taxes, repairs and insurance for buildings
31 Repairs and insurance of machinery, plant and furniture
32 Depreciation
32(2) Treatment of unabsorbed depreciation
33AB Tea development account/Coffee development A/c and Rubber development A/c
33ABA Site restoration fund
35 Expenditure on scientific research
35ABB Expenditure for obtaining licence to operate telecommunication services
35AC Expenditure on eligible projects or schemes
35AD Deduction in respect of expenditure on specified business
Expenditure by way of payment to association and institutions for rural
35CCA development programmes
35CCC Expenditure on agricultural extension project
35CCD Expenditure on skill development project
35D/Rule 6AB Amortisation of certain preliminary expenses
35DD Amortisation in case of amalgamation or demerger
35DDA Amortisation of expenditure incurred under voluntary retirement scheme
36 Other deductions
36(1)(i) Insurance premium of stocks
36(1)(ia) Insurance premium of cattle
36(1)(ib) Insurance on health of employees
36(1)(ii) Bonus or commission to employees
36(1)(iii) Interest on borrowed capital
36(1)(iiia) Discount on zero coupon bonds
36(1)(iv) Employer’s contribution to a recognised provident fund or approved
superannuation fund
36(1)(v) Employer’s contribution to an approved gratuity fund
Sums received from employees towards certain welfare schemes if credited to their
36(1)(va) accounts before the due date
36(1)(vi) Allowance in respect of dead or permanently useless animals
36(1)(vii) Bad debts
Provisions for bad and doubtful debts in respect of rural branches of scheduled
36(1)(viia) banks or non-scheduled banks
36(1)(ix) Expenditure on promoting family planning amongst the employees
37 General deductions
38 Building, etc., partly used for business and partly for personal purpose.
40 Amounts not deductible

40A Expenses or payments not deductible in certain circumstances

40A(2) Payments to relatives/related persons
40A(3)/ Disallowance out of cash expenditure exceeding 20,000
Rule 6DD
40A(7) Disallowance in respect of provision for gratuity
40A(9) Disallowance in respect of contribution to non-statutory funds
41 Deemed profits chargeable to tax
43(1) Actual cost
43B Certain deductions to be only on actual payment
44AA/Rule 6F Maintenance of accounts by certain persons carrying on business or profession
44AB/Rule 6G Compulsory audit of accounts
44AD Special provisions for computing profits and gains of business of civil
construction
44AE Special provisions for computing profits and gains of business of plying, hiring or
leasing goods carriage
44B Special provisions for computing profits and gains of shipping business in the case
of non-residents
Special provisions for computing profits and gains of business of operation of
44BBA aircraft in the case of non-residents
 Profit and Gain of any Business or Profession

 Compensation or any payment due to receive by Indian Company, other company in
India, Agency, Govt.
 Income derived by Trade, professional, similar association from specific services
performed for its member
 The value of any benefit or perquisite, whether convertible into money or not, arising
from B. or P.
 Any profit on transfer of the Duty Entitlement pass Book Scheme and duty free
replenishment certificate
 Export incentive available to Exporters
 Sum received for not carry out any activity in relation to any business or not to share a
Know-how, patent, copyright, trademark, etc…
 Sum received under Key man Insurance Policy including Bonus
 Profit and Gains of managing agency,
 Income from speculative transaction
 Sum received in cash or kind, on account of any capital asset ( other than land and
Goodwill or financial instrument ) Being demolished, destroyed, discarded or transferred,
if whole expenditure is allowed as deduction under section 35AD.

Business  Have skills, talent, knowledge

 Special qualities
Occupation  Carried on business with intension of profit
 Don’t have skill or talent
 No qualitative
 Bonus or commission earned
Particulars ` `
Balance as per profit and loss or Income - expenditure account ……
Add: Expenses expressly disallowed but not debited to P & L A/c ……
Expenses not allowed but debited to P&L A/c ……
Incomes or receipts taxable under this head but not credited to P& L A/c
Capital expenses debited to P & L A/c ……

Personal expenses debited to P & L A/c ……
Expenses in excess of the allowed amount, debited to P & L A/c ……
Losses not allowed but debited to P & L A/c ……
Expenses not relating to the previous year but debited to P & L A/c …… ……
Under-valuation of closing stock or over-valuation of opening stock ……
Less: Expenses expressly allowed but not debited to P & L A/c ……

Expenses relating to the previous year but not debited to P & L A/c ……
Losses allowed but not debited to P & L A/c ……
Incomes or receipts not taxable under this head but credited to P & L A/c
Capital receipts credited to P & L A/c ……
Incomes or receipts taxable under other head but credited to P & L A/c
……
Over-valuation of closing stock or under-valuation of opening stock …… (……)
Profits taxable under the head incomes from business or profession. …… ……
Profits and Gains of Business or Profession

Rent of the premises paid to others / Firm is allowed as deduction.
Insurance of premises is allowed as deduction.

Municipal tax, land revenue subject to S 43B is allowed as deduction.
Current repairs is allowed as deduction. On capital repairs depreciation can be

claimed.
Current Repairs
Replacement of part of asset.
Renovation of that premises from where sale is made. E.g. Restaurant.
1. Rent of the PMF paid to others / Firm is allowed as deduction u/s 37.
2. Insurance of PMF is allowed as deduction.

3. Not applicable
4. Current repairs is allowed as deduction. On capital repairs depreciation can be

claimed.
Capital Repairs
1. Replacement of whole of asset / Addition of asset.
2. Renovation of administrative premises. E.g. Godown.
Note: Any expenses incurred for increasing efficiency of machinery will be also treated
as revenue nature and it will be deductible.

If any assesse has acquired any assets during the year & it was put to use for less than
180 days, in that case depreciation is allowed at half the normal rate but if assets is
put to use for 180 days or more, depreciation shall be allowed at full rate.
If asset is not at all put to use during the year, no depreciation shall be charged.
‘’Put TO Use’’ do not mean actual use rather it means making an asset ready for use
i.e. installation of assets is called ‘put to use’
For Example : ABC Ltd purchased one P&M on1/7/12 & it was installed
on1/10/12 & it was brought on actual w.e.f 1/3/13 & it was purchased for Rs
60lakh in this case, depreciation allowed be.
60*7.5% = 4.5 lakh if less than 180days
But, 60*15% = 9 lakh if more than 180days
If any assesse purchased or acquired any assets during a particular year but it
was put to use in the subsequent year, dep. Shall be allowed @ full rate in the
year in which the assets was put to use.
For Example : ABC purchased one plant on1/7/12 for Rs 60lakh it was put to
use on 31/3/2012 in that case, dep. Allowed shall be full in the year PY 13-14 as
9lakh. But if the plant is put to use on 31/3/15 dep. Allowed shall be PY14-15
as full i.e.9 lakh.
If any assesse has sold any assets during the year no depreciation shall be charged
in that yr.

The term ‘block of assets’ means a group of assets falling within a class of assets
in respect of which same percentage of depreciation is prescribed. (Similar assets
having same rate of depreciation).
Depreciation under Income Tax Act is not computed on the basis of individual
asset rather it is computed on the basis of ‘Block Of Assets’ which means a group
of similar type of assets having a same rate of depreciation & depreciation shall
be computed as given below:
 Take opening written down value of Block of Assets as on1/4/20xx of the

PY.
 Add purchase of the same block & deduct sale of the same block or scrap
value or insurance claim & charge dep. on balance.
 If any assets has been put to use less than 180 days its , value shall be
separated & depreciation shall be charged @ half the normal rate & on
balance the depreciation shall charge at full rate. But if w.d.v. of block
assets is less than the value of assets put to use for less than 180days, dep.
Shall be charged @ half rate on total w.d.v of block of assets.
Asset Full rate of Half rate of

depreciation depreciation
1. Building. It means superstructure only and does not Asset is purchased and
include site put to use in the same
a. General 10% previous year for less
than 180 days.
b. Residential Building 5%
c. Hotel Building 10% Nil depreciation if
d. Temporary Building 100% Closing WDV is
1. nil or negative; or
2. Furniture or fittings including electrical fittings 10%
2.

3. Plant & “Plant” includes ships, vehicles, books, scientific BOA do not
Machinery apparatus and surgical equipment used for the exists.
purposes of the business or profession. It does not Section 32.
[S 43(3)] include tea bushes or livestock or buildings or Conditions for
furniture and fittings. claiming depreciation
a. General 15% 1. Asset is owned
b. Motor Vehicle 15% wholly or partly
by the Assessee.
c. Annual books used by professional 100%
Asset is put to
d. Other books used by professional 60% use in the
2.
relevant previous
e. Any books used in business 15%
year.
f. Computer including software 60%
g. Ships 20% Asset is put to
h. Aeroplane and aero engines 40% use for the
3. purpose of
i. Pollution control equipment 100% business or
4. Intangible Know-how, patents, copyrights, 25% profession.
Assets trademarks, licences, franchises or any It is mandatory to
other business or commercial rights of claim depreciation. In
similar nature passive use
depreciation is
available.
Conditions
1. Assessee Assessee is a company.
2. Nature of business Assessee company is engaged in the business of manufacture or
production of any article or thing.
3. Timing of Assessee acquires and installs new asset on or after 1-4-2013 and
investment upto 31-32015.

4. Minimum Aggregate amount of cost of asset should exceeds ₹ 100 crore.

investment.
New Asset: New asset means new plant & machinery but does not include the following assets:
1. Second hand plant & machinery weather was used in India or outside
India.
2. Any machinery or plant installed in any office premises or any New asset
residential accommodation, or guest house. purchased
Lock in
3. Any office appliances including computer or computer software.
period 5
4. Any vehicle, ship or aircraft. years.
5. Any machinery or plant, where 100% deduction or depreciation is
allowed.
Amount of deduction: If all the above conditions are satisfied then there shall be allowed.
1. for PY A deduction of 15% of aggregate amount of actual cost of new assets
2013-14 acquired and installed during the FY 2013-14 if the cost of such assets
exceeds ₹ 100 Crore.
2. for PY A deduction of 15% of aggregate amount of actual cost of new assets
2014-15 acquired and installed during the period beginning on 1-4-2013 and ending
on 31-3-2015, as reduced by the deduction allowed for PY 2013-14.
Note : The investment allowance @15% under this section is in addition to the depreciation and
additional depreciation allowable under section 32(1). Further, the investment allowance would
not be reduced to arrive at the written down value of plant and machinery.
P1: What will be the amount of investment allowance u/s 32AC in the following cases ? Amount
in crores.
X Ltd Y Ltd Z Ltd
Actual cost of new asset acquired & installed during PY 70 150 60
2013-14
Actual cost of new asset acquired & installed during PY 50 50 40
2014-15
Solution :
Deduction u/s 32AC in the PY Nil 15% of 150 = 22.5 Nil
2013-14
Deduction u/s 32AC in the PY 15% of 120 = 18 15% of 200 – 22.5 = Nil
2014-15 7.5
P2: B Ltd., a company engaged in the business of manufacture of sports equipment, furnishes the
following particulars pertaining to PY 2013-14 and PY 2014-15. Compute the depreciation
allowable under section 32 as well as the investment allowance allowable under section 32AC for
AY 2014-15 and AY 2015-16, while computing its income under the head “Profits and gains of

business or profession”. Also, compute the written down value of plant and machinery as on
1.4.2014 and 1.4.2015.
S.. Particulars ₹ Cr
1. Written down value of plant and machinery (15% block) as on 01.04.2013 25
2. Sold plant and machinery on 20.5.2013 (15% block) 4
3. Purchase of second hand machinery (15% block) on 29.5.2013 for business 12
purpose (the machinery was put to use immediately)
4. Purchased new computers (60% block) on 8.11.2013 for office 0.40
5. Acquired and installed new plant and machinery (15% block) on 31.7.2013 90
(₹ 50 crore) and on 31.10.2013 (₹ 40 crore)
6. New air conditioners purchased and installed in office premises on 30.6.2013 0.15
7. Acquired and installed new plant and machinery (15% block) on 2.4.2014 15
Computation of normal and additional depreciation for AY 2014-15
P & M (15%) P & M (60%)
Opening WDV as on 1-4-2013 25 Nil
+ Purchases
• Second hand machinery on 29-5-2013 (Full rate) 12
• Computer on 8-11-2013 (Half rate) 0.40
• Plant & Machinery on 31-7-2013 (Full rate) 50
• Plant & Machinery on 31-10-2013 (Half rate) 40
• AC in office on 30-6-2013 (Full rate) 0.15
Less : Sale of plant & machinery (4)
Closing WDV as on 31-3-2014 123.15 0.40
Less : Depreciation
• Normal Half rate : 7.5% of 40 = 3
Depreciation
Full rate : 15% of 83.15 = 12.4725 (15.47)
Half rate : 30% of 0.40 = 0.12 (0.12)
• Additional Depreciation
Acquired and installed new P & M (20% 10
of ₹ 50 crore)
Acquired and installed new P & M (10% 4
of ₹ 40 crore) (14)
Opening WDV as on 1-4-2014 93.68 0.28

Note : Additional depreciation & investment allowance u/s 32AC is not available on
• Second hand machinery. • New computers for office. • New AC in office premises.
Computation of normal and additional depreciation for AY 2015-16
P & M (15%) P & M (60%)
Opening WDV as on 1-4-2014 93.68 0.28
+ Acquired and installed new plant and machinery (Full 15.00
rate)
Closing WDV as on 31-3-2015 108.68 0.28
Less : Depreciation
• Normal depreciation 15% of 108.68 = (16.30)
60% of 0.28 = (0.17)
• Additional depreciation (20% of 15) (3)
Opening WDV as on 1-4-2015 89.38 0.11
Computation of investment allowance u/s 32AC for AY 2014-15
For the AY 2014-15, the company would not be entitled for investment allowance under section
32AC since the investment in new plant and machinery acquired and installed during the year is
only ₹ 90 crores (i.e., less than ₹ 100 crores).
Note : Investment allowance u/s 32AC is not available on
• Second hand machinery. • New computers for office. • New AC in office premises.
Computation of investment allowance u/s 32AC for AY 2015-16
Acquired and installed new plant and machinery in AY 2014-15 90 cr
Acquired in plant and machinery in AY 2015-16 15 cr
Total Investment 105 cr
Investment allowance allowed in AY 2014-15 nil
Investment allowance allowed in AY 2015-16 (15% of 105) 15.75 cr
Depreciation under INCOME TAX ACT, is allowed to be debited only to the extent income
is available u/n B/P. Unadjusted dep. Is allowed to be set off from any income of any head
except casual income as per sec 58(4). Carry forward is allowed for unlimited period & in

the subsequent yrs. Also it can be set off from any income under any head except casual
income.
If any assesses has brought forward loss & also dep.; loss shall be adjusted first & then
dep.
Expenditure & depreciation shall be adjusted as given below:-
- Current yr expenses
- Current yr dep.
- Brought frwd. losses
- Brought frwd .dep.
Every assesse shall be additional dep. Of 20% but only with regard to plant & machinery
which is used for manufacturing i.e. such plant & machinery should not be used in office
premises or in resident building.
ADDITIONAL DEP. Is not allowed in case of buildings furniture & fixtures also it not
allowed on road transportation vehicle, ships or aeroplane.
Additional depreciation. Is not allowed on second hand plant &machinery & only
allowed once in ayear.in which has been ‘put to use’. If it is purchased & put to use for less
than 180days additional depreciation shall be allowed @10% & balanced 10% shall not be
allowed in subsequent year.
In case of power generating units the assesse will have the option to claim depreciation
either on the basis of W.D.V or S.L.M & any option once taken shall be irrevocable & if
the assesse has opted for W.D.V depreciation shall be computed in the normal manner.
If the assesse has opted for SLM, RATE OF DEP. Shall be prescribed under IT Act
depreciation shall be computed on the basis of industrial cost assets. i.e. concept of block
of assets shall not be applicable. However, concept of 180 days shall be applicable.
If any assets has been sold, any loss on sale on sale of assets shall be called terminal dep.
& shall be allowed to be debited to P& L a/c.
Any profit shall be taxable of B/P &shall be called’ balancing charge’ as per
sec 41(2). But only to the extent dep. has been debited to the P&L a/c with regard to such
assets & excess over it shall be called Capital gain v/s 50A.

For Example: ABC ltd is a power generating unit & it has claimed dep. On the basis of
SLM & the company purchased one plant & machinery on 1/11/2010 & was put to use on
the same date. It was purchased for Rs 10lakh &rate of dep. Is7.8% on SLM.
THE CO. SOLD THE ASSETS ON 1/7/12 FOR a) 5lakh b) 12lakh
Solution: PY 10-11 Cost of plant 1000000

(-) Dep. On SLM (39000)
PY-11-12 COST of plant 1000000

(-) Dep. (78000)
PY12-13 VALUE OF PLANT AFTER DEP. 883000
(a) Tax treatment on sale (b)

Sale value 500000 Sale value 1200000
Less: value on1/4 (883000) Less (883000)
Terminal dep. (383000) Balancing charge Rs 317000
U/s41 (2) its Rs 117000
Short term gain on 50A 200000
In case of amalgamation or demerger or conversion depreciation shall be computed as if

no much amalgamation or demerger etc. has taken place & dep. So computed shall be
appointed b/w the processor of successor on the basis of no. of days. The assets was used
by each of them.
For Example: ABC ltd has plants P1, P2, P3 & W.D.V as on1/4/12 is Rs 60l & the co
purchased plant P4 on 7/10/12. Amalgamation takes place on27/12/12 & ABC ltd was
taken over by XYZ ltd. In this case. Dep. Allowed to both company shall be:
ABC DAYS :-
1/04/12 P1 P2 P3 60 Lakh ABC XYZ
7/10/12 P4 20 Lakh A=30 S=30 D=05
80 Lakh M=31 Q=31 J=31
60*15% =900000 J=30 N=30 F=28
20*7.5% =150000 J=31 D=26 M=31
A=31
270 95
Depreciation of P1,P2,P3 @15% Dep. Of P4@7.5%
XYZ = 900000*95/365= 2342246.5 XYZ=150000*81/365 =6903.09

ABC=900000*270/365=665733.42 ABC=150000*95/365=90965.91
Applicable Tea or Coffee or rubber

Time Limit Six months of end of P/Y or before ROI
Deposit NABARD or TCR board
Deduction 40% of profits of such business (max. limit)
Petroleum or natural gas

Before end of P/Y
SBI or Scheme of Ministry of P & G
20% profit of such business (mix. limit)
Common provision in case of Sec. 33AB & 33ABA

Deduction withdrawn  Purchase for office or residence, office appliances (other than computer)
Deduction allowed  In one year, XIth Schedule, sale before 8 years from end of PY
In house research : Research should be related to the Contribution to

business outsiders
After COB Before COB (only Research may or may not
(100% / 100%) (only 3 years) be related to the business.
200%)

Revenue expenditure National 200%

Laboratory
a. Rent of premises allowed Not allowed IIT’s 200%
allowed except Approved 200%
perquisites of University,
b. Salary to scientist allowed
scientist Colleges,
institution.
c. Raw material / allowed allowed Social statistical 200%
inputs research
d. Salary of support allowed not allowed
staff
Capital Expenditure 200% if
allowed a. Company
a. Cost of building (only 100%) allowed b. Research in all
products except
Cost of plant & tobacco, cold drinks
b. allowed allowed c. Research is approved
machinery
and expenses audited
The XIth (Eleventh) schedule: List of articles or things
 Beer, wine and other alcoholic spirits.

 Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biros, smoking
mixtures for pipes and cigarettes, chewing tobacco and snuff.
 Cosmetics and toilet preparations.
 Tooth paste, dental cream, tooth powder and soap.
 Aerated waters in the manufacture of which blended flavouring concentrates in any form
are used.
 Confectionery and chocolates.
 Gramophones, including record-players and gramophone records.
 Projectors.
 Photographic apparatus and goods.
 Office machines and apparatus such as typewriters, calculating machines, cash registering
machines, cheque writing machines, intercom machines and tele-printers.
 Steel furniture, whether made partly or wholly of steel.
 Safes, strong boxes, cash and deed boxes and strong room doors.
 Latex foam sponge and polyurethane foam.
 Crown corks, or other fittings of cork, rubber, polyethylene or any other material.

 Pilfer-proof caps for packaging or other fittings of cork, rubber, polyethylene or any other
material.
Before 1/4/1998  Allowed in 14 equal annual

instalments On or after  Depreciation at 25%
(WDV)
If any assesses has taken license for tele communication services & has license fee such license
fee shall be allowed in instalment & shall be on payment basis starting from the yr. in which
payment has been made & ending with the yr. in which the license expired.
Expenditure is not allowed on due basis even if the assesses has maintain book of mercantile
system of accounting.
FOR EXAMPLE: ABC LTD has taken a license for tele communication service from 1/4/12 to
31/3/17 & total amount payable is Rs.30l & co. made payment on 1/7/13 in that case, expend.
Shall be given be allowed.
P.y.12-13 p.y.13-14 p.y.14-15 p.y.15-16 p.y.16-17
30/4 30/4 30/4 30/4
7.5l 7.5l 7.5l 7.5l
(1) Eligible expenditure  Payment to public sector company, local authority, approved
association, direct expenditure incurred on eligible project
(For Company only)
(2) Amount deduction  Actual payment OR Actual expenditure

(3) Disallowance unless assesses furnishes along with his Return of Income Tax a
certificate
 In Form No. 58A from entity in respect of contribution (Expenditure or Donation)
made
 In case where the expenditure is directly incurred (only for companies), a certificate
from the Chartered Accountant.
Eligible expenses: Incurred before COB (trial run) or incurred for extension / expansion
of business.
a. Preparation of feasibility f. Legal charges for drafting, printing of
report. MOA & AOA.
b. Conducting market survey or g. Registration fees of a company paid to
any other survey necessary for Registrar of Companies. (Stamp duty).
the business.
c. Preparation of project report. h. Expenses and legal charges incurred in
drafting, printing and advertising for
prospectus.
d. Engineering services relating i. Expenditure incurred on issue of shares or
to the business. debentures like underwriting commission,
brokerage. (Entire public issue expenses).
e. Legal charges for drafting any Note : What is not preliminary expenses.
agreement relating to the (a) Salary to employees (b) Rent of premises.(c)
setting up or conduct of the Interest
business.
Applicability Amount of deduction
1. Indian 5% of Cost of project or 5% of capital employed lower
Company whichever is higher; or } 5
Eligible expenses
2. Other 5% of Cost of project or Eligible expenses whichever is lower
Residents 5
Cost of project : All cost of assets Capital employed : Share capital +
long term loans
QUES What is meant by Specified Business?

ANS. Certain business Listed u/s 35AD SHALL BE CALLED SPECIFIED BUSINESS.
IN CASE OF SPECIFIED BUSINESS the assesses is allowed to debit even capital expend.
To the P&LA/C. except the expense regard to: -
 Purchase of land
 Purchase of goodwill
 Purchase of financial instrument
In case, of some of the business, assesses shall be allowed to debit 1.5 times of the amount
incurred by the assesses.
List of business are:-
1) Cold chain facility for storage of agriculture produce or other similar goods.
2) Production of fertilizer.
3) Warehousing for storage of agriculture produce.
4) Hospitals with minimum100 beds
5) Housing for development slums area
The assesssee shall be allowed to debit the amount equal to the expenses in the
following cases:-
1) Pipeline network for petroleum or natural gases
2) Hotels of two stars or above category
3) Warehouse for storage of sugar
4) Bee-keeping & production of honey
5) Inland container depot
6) Housing being affordable houses as per scene of the govt.
If any assesses has incurred any loss from a specified business, such loss is not
allowed to be set off from any head as per sec73A.rather it can be adjust from
income of any other specified business. Even in the subsequent yr. , it can be set
off only from income off specified business carry forward is allowed for
unlimited period.
QUES. Explain briefly the provision of amortization preliminary expense?

ANS. Expense incurred before commencement of business shall be allowed after commencement
of business in 5 equal installment. But the expense are allowed only to a Indian co & also any
other RESIDENT. i.e. it is not allowed for a foreign co. and nonresident assesses
The expense allowed u/s 35D. ARE GIVEN AS BELOW:

1) Expenditure incurred on project report feasibility report expenditure on conducting market
survey in connection with engineering service provided the work cost was taken up by an
organization which is approved by CBDT OR THE WORK HAS BEEN TAKEN UP BY
ASSESSEE ITSELF .
2) Expenditure in connection with drafting & registration of legal agreement related to business.
3) Expenditure in connection with the incorporation of the co. i.e. incorporation fee
4) Expenditure in connection with drafting & painting MOA& AOA.
5) Expenditure in connection with ISSUE OF SHARE CAPITAL or depric. Like drafting &
painting , or payment of brokerage to brokers or payment of concession to underwriters or
rather similar expenses
If the assesses has incurred any other expense before commencement of business it is not allowed.
the expense incurred before commencement can be to max.5% of project cost but Indian co. has
the option to take 5% of capital employed.
Project cost means total of the actual cost of all the fixed assets as on the last day of the year in
which the assesse has commenced business
Capital employed means total of issued share capital & deb. & long term borrowings as on the last
day of the year in which business has commenced.

Assesse contribute for

(i) National fund for Rural Development
(ii) National Urban poverty Eradication fund,
The assessee shall be allowed a deduction of the amount of such expenditure incurred
during the PY.
If any assesse has given donation in connection with agriculture extension project as notified by
government, in such, cases, assesse shall be allowed to debit 1.5 times of expenses incurred by
him in P&L A/c
If any Company assesse has incurred any expenses on skill development project not being
expenses on land or building . The assesse shall be allowed to debit 1.5 times of expenditure
incurred,
Who can claim? Indian companies

Deduction:
th of expenditure (in 5 equal instalments)
Deduction:
th of expenditure (in 5 equal instalments)
Amended  Where a private company or unlisted company is succeeded
[on AY 2011-12] (purchased) by a LLP, the provision of Sec. 35DDA shall apply
to the successor (purchaser) LLP, as they would have applied to
predecessor (sold) company.

 However, as per Sec. 35DDA (5), no deduction under Sec.

35DDA shall be allowed to the predecessor (sold) company in the
PY in which conversion takes place.
36(1)(i) Insurance premium of stock in trade is allowed as deduction.

Insurance premium on health of employees is allowed as deduction if
36(1)(ib) a. Health Insurance is taken on health of all employees; and
b. Health insurance premium is not paid in cash.
Bonus or commission to employees is 43B: Bonus is allowed as
36(1)(ii)
allowed as deduction. deduction if actually paid.
Interest on borrowed capital used for the purpose of business or profession
is allowed as deduction. Interest till the asset is put to use is not allowed as
36(1)(iii)
deduction. As per S 43B if interest to Banks / FI is actually paid then
deduction is allowed.
Employer’s contribution paid towards Restriction on deduction
recognised provident fund or an S 40A (7): Contribution towards
36(1)(iv)
approved superannuation fund is allowed unapproved gratuity fund is not
as deduction. allowed as deduction.
Employer’s contribution towards
36(1)(iva) pension scheme referred in section S 40A (9): Contribution towards
80CCD is allowed as deduction. any Non-Statutory fund or
Employer’s contribution paid towards unapproved fund is not allowed as
an approved gratuity fund is allowed as deduction. Also
deduction.
36(1)(v) As per S 43B if ER’s contribution to Contribution made towards any
above funds is actually paid in other fund not allowed as
respective funds then deduction is deduction.
allowed.
Bad Debts is allowed as deduction if
debt was treated as income in the earlier
PY. Recovery of bad debt is taxable
36(1)(vii) under the head business if earlier it was
allowed as deduction. Such recovery
always taxed under the head business
even if business is closed down.
Revenue expenses. Capital
36(1)(ix)
expenses

Applicable to Company who incurs 100% allowed 1/5th

expenditure on promotion of family allowed
planning amongst employees.
Securities transaction paid allowed as Business Capital
deduction if profit from shares is Gain
36(1)(xv)
charged under the head business. Allowed Not
Allowed
Expenditure is not Losses covered u/s 28. E.g. Under valuation / Over valuation of stock.
1.
covered u/s 30 to 36.
Expenditure is Expenditure incurred on EE’s. Maintenance of assets.
incurred wholly & Expenditure incurred on clients. Expenditure incurred on
2.
exclusively for the reputation of
purpose of business. organisation.
Expenditure is not of E.g. Public issue expenses is capital
3. Note : Advertisement expenses
capital in nature. expenditure.
incurred in a brochure of
political
Expenditure is not party not allowed as deduction.
4. E.g. Household expenses.
personal nature.
Expenditure should
not be in nature of Payment of bribe, Penalty for infringement of law not allowed as
5.
offence or prohibited deduction. Payment of ransom money, hafta is allowed as deduction.
by Law.
1. Expenditure incurred Yes No Yes No allowed

on development of
website
2. Salary to Staff Yes No Yes No allowed
3. Expenditure incurred Yes No Yes No allowed
on issue of bonus
shares
4. Listing fees Yes No Yes No allowed
5. Rent of building Yes Yes Yes No Not
which is owned by allowed
proprietor

6. Interest on loan taken Yes No Yes No allowed

for payment of
dividend.
7. Income Tax / Wealth No Yes Yes No Not
Tax allowed
8. Indirect Tax Yes No Yes No allowed
If any assesse has any asset in use for business or profession and also for personal use, in that
case, expenses shall be allowed only to the extent of the assets was used in B/P.
For Example: If any person has any assets in business or as motor car which is used to of 60%
in the business & 40% for personal use, all expenditure shall be allowed to be debited of the
extent of 60%.
(1) Salary, Interest, Royalty, etc. for non-resident (without TDS)

(2) Interest, Commission, Royalty, etc. for resident (without TDS)
(3) Fringe benefit tax
(4) Income tax/Dividend tax
(5) Wealth Tax
In Brief
Payment of income tax & wealth tax or additional tax is not allowed because they are considered
to be personal liability not business profession. However as per sec43B sale tax, custom duty,
service tax, municipal tax, licences fee is allowed because. These are considered to be personal
liability.
If any interest has been paid for the loan taken for payment of income tax, wealth tax,
interest is not allowed. But if interest is been paid for the loan taken for sale tax, custom duty etc.
interest is allowed u/s 36(1) (iii).
If there is any income tax or wealth tax refund it will not be considered income but if there
is a sale tax refund excise refund, service tax refund etc. it will be considered to be income
sec.41(1)
If any person has paid fine or any penalty in connection with income tax, wealth tax, sale tax. It
will not be allowed.
Under sec36 (1) (xv) security tax transaction shall be debited
If any employer has paid income tax on behalf of the employee, employer shall be allowed to
debit even such income tax to the P&L A/c because for the employer it is salary paid to employee.

If the employer has paid on income tax on behalf of the employee in connection with non-
monetary perquisite/facility such income tax shall not debited to P&L A/c &also it will not be
considered to be income of employee as per sec.10 (10cc).
If any person has paid salary to any person outside India or salary has been paid to non-
resident In India & TDS has not paid expense are disallowed.
 Payment outside India without TDS SEC. 40 (A).
If any assesses has paid any interest , royalty , technical fee outside India to any person or it has
been paid in India to a NRI or foreign co. & tax was to be deducted at source as per TDS provision
but such assesses has not deducted at source up to the relevant of the previous yr. in such cases
expd. Is not allowed.
If the assesses has deducted tax at source up to end of Feb. tax must be deposited up to the
end of relevant previous yr. & if it was deducted in the month of March. It must be deposited
max. Within the limit allowed u/s200. i.e. 30 apr. of A.Y.
Otherwise expnd. Is disallowed however, it will be allowed in the yr. in which tax has
been paid to the govt.
 Payment in India without TDS to resident sec. 40(a)
If any assesses has paid any interest, royalty, rent, commission etc. & tax has to be deducted as
per TDS PROVISION & payment has been made to a resident person in India, in such cases,
assesses must deduct tax at source maximum up to the end of relevant P.Y. Also it should be
deposited maximum up to the last date of ROI FILLING. Otherwise expenditure is disallowed
but it will be allowed in the year in which the assesses has made the payment
 Payment of interest to any partner  Minimum of (1) as per deed or (2) 12% p.a.  For
payment of salary, bonus to working partner:
Specified Profession Firm Other Firm
On the first ` 3,00,000 of the book profit or in case` 1,50,000 or at the rate of 90% of the book profit,
of loss whichever is more
On the balance of the book profit 60% of book profit
As per sec. 40A (2) if any person has made any payment to a relative/ related person & such payment
is excessive / unreasonable in that case, expend. Shall be disallowed to the extent it is unreasonable or
exclusive.

For Example: MRX has one business & he has paid Rs5 lakh in connection with advertisement
of business to his brother MRX. Who has one advertising agency but payment is excessive Rs 2 lakh,
in this case, Rs 2l is disallowed.
This term relative / related person include-
In case of any individual it will include relative of individual in case of co. or partnership
firm etc. it will include any partnership or director etc. Also relative of such director / partners etc. if
payment is given to any person who has sub stained interest in the business of the assesses has or the
assesses has sub stained interest in the business of the person who has recd. The payment.
As per sec 40(3) Rule6DD , if any assesse has incurred any revenue expenditure. & payment or
payment made during a particular day with regard to such expense is exceeding Rs20000 in such case,
such payment should be by a/c payee cheque / draft otherwise expenses/ expenditure is dis allowed
If payment is made to a good transport agency in connection with transportation of goods limit of
Rs20000 shall be taken as Rs35000.
If any person is maintaining any books of account on the basis of mercantile system of accounting
& expenses has been claimed on due basis. & it is exceeding Rs 20000 in that case it is allowed. But
subsequently payment should be made by A/C. payee cheque or draft only. Otherwise it will be
considered to be income of the yr. in which the assesse has made the payment.
For Example: (1) ABC Ltd has incurred a expenditure Of 32000 on 1/7/12 & payment was made
in cash / bearer cheque or crossed cheque & expenditure is not allowed but if payment is made by a/c
payee or draft its expenditure allowed to be debited.
2) MRX incurred an expenditure of 35000 on 1/7/12 & payment was made in cash in two instalment of
17500 each, in this case, entire expenditure is disallowed but if Rs 17500 is on 1/7/12 & balance 17500
on 2/7/12 in this case expenditure is allowed
3) If RS. 31000 was paid on 1/7/12 & balance on 2/7/12 in cash expenditure disallowed shall be
Rs.21000.
4) ABC Ltd incurred two exp. Of Rs.17000 & 18000 on 1/7/12 & payment is to be made to MRX. &
the co. made payment in cash on 1/7/12 in this case, expenditure is allowed because payment of
individual expense shall be considered not of individual payment.

As per Rule 6DD, THE ABOVE PROVISION SHALL NOT BE AVAILABLE IN FOLLOWING
CASES:
1) If payment is being made to farmer / cultivator for purchasing agriculture products or the
products of animal husbandry/dairy farming / poultry farming / horticulture or other similar act.
2) If payment is being made in village / town & there is no bank in that village or town on the date
making the payment & payment is being made to a person who has b/p at that place or he resides
at that place.
3) If payment is being made for purchasing the product of cotton industry & goods are
manufactured without using electricity & payment is made directly to manufacture.
4) Payment through Debit Card/ Credit Card or by debiting & crediting the bank A/c or
Payment through Letter of Credit.
5) If payment is being made to Bank / Govt. / Lic. Or other similar organization.
6) If any employer is retired & terminal payment are up to Rs50000
7) If banks are closed due to strikes or otherwise.
8) Any other exception given under Rule6DD.
Cash Expenditure Sec 40A (3).

Applicability Non Applicability
Expenses in cash exceeding ₹ 20,000 in 1. Payment made to Banks, FI, Govt.
a single day to same person shall not be 2. Payment made to farmers for its
allowed as deduction. produce.
Note: For truck operator take ₹ 35,000. 3. Payment made at a place not served by
Bank.
As per sec 40A (7) In general no provision is allowed under income tax act. However special
case, as provision for gratuity allowed provided gratuity has become due to payment.
If any assesses has made provision for contribution to approved gratuity fund, such
provision is allowed provided it is actual valuation.

If the employer has contributed to recognized fund approved superannuation fund, approved
gratuity fund or any other similar fund required under any other act. Such, contribution is
allowed, but payment have to be made up to
The last date of ROI. As per sec43B
In case of depreciable assets, depreciation shall allowed on actual cost which means total of the
expenditure incurred up to date of putting the assets to use.
If it is consumption variant or income variant, input tax paid on purchase of plant and
machinery shall not be added to actual cost. But in case of gross product variant input tax shall
be added to actual cost.
If the assesse has recd. Any subsidy with regard to capital assets, it will be deducted
while computing actual cost.
For Example: ABC Ltd has taken a loan of Rs50lakh from SBI on 1/4/12 @10% p.a. for purchasing
P&M. WHICH IS PURCHASED & PUT TO USE on 30/9/12 & co. has incurred following
additional expenditure.
- Exp. On transportation 3lakh
- Transit insurance 20000
- Construction of platform for P&M. 2.5l
- PAYMENT TO EXPERTS TO INSTALL 4l
- + subsidy 10l
Solution: Total expense: Purchase 5000000

Transportation 300000
Transit insurance 20000
Construction 250000

Expert pay. 400000

Subsidies 100000
Interest till9/12 250000
Actual cost 5220000
If the assesses has any building in personnel use but it was t/f to the business or profession in such
cases, actual cost shall be the actual cost to the assesses less dep. Allocable if the building was
in the B/P right from the beginning.
For Example : MRX has purchased commercial building on 1/11/09 Rs 20l & it was t/f to
business on 10/11/12, in that case actual cost & dep. Allowed be :-
Solution: Dep:- 1/11/9- -20
09-10 = 100000 So purchase 2000000
10-11 =190000 - 100000
11-12 =171000 - 190000
- 171000
Cost on 1/4/12 Rs 1539000
If any assesse has any personnel car & it has been t/f to his business or profession in such cases,
actual car of a motor to an assesse shall be presumed to be actual cost for the purpose of B/P.
For Example: If any assesses has any personal car & it has been t/f & actual cost is 20lakh,
depreciation allowed in previous yr. 12-13 shall be 20l*15%
As per sec.1454 every person/assesse has the option to maintain books of accounts either on basis
of mercantile or cash basis.
If the assesse has maintained the books on mercantile basis all the expenditure are allowed
on due basis but the exp. Listed u/s 43B are never allowed on due basis.
Rather expense shall be allowed on actual payment basis but the payment can be made till the
last date filling ROI otherwise expenditure is disallowed in that previous period bit, it will be
allowed in the yr. in which assesse has made the payment.
The expense covered under sec. 43B ARE AS GIVEN BELOW:
1) PAYMENT OF TAX /DUTY/ LICENSE FEE OR CESS TO THE GOVT.

2) Payment of bonus or commission by the employer to employee
3) Payment of leave salary by employer to employee

4) Employer contribution to recognized provident fund or approved superannuation or

recognized gratuity fund or employer state insurance or any other recognized fund.
5) Interest on loan or advance taken from bank or financial institution
As per sec 40A (a) employer contribution to any fund is allowed only if such fund is recognized
under any act i.e. if the employer has contributed any amt. to any fund which is not recognized
under any act, expenditure is not allowed.
As per sec. 44AA/Rule6F, for the purpose of maintaining books of accounts various person shall be
divided into various category.
I) Person having specified Profession –
Every person having specified profession should maintain any books of a/cs which may help the
assessing officer to compute his income. But if the gross receipt has exceed 150000 in all the three
preceding previous yr. in that case assesses should maintain prescribed of a/cs
i.e. complete system of account should follow.
If any person has started specified profession during the current yr. he should not be
compulsory i.e. he can maintain any book of accounts. But if gross receipt exceed Rs150000 he
should maintain prescribed books of accounts.
For Example : A Doctor started his profession on 1/5/12 he should maintain any book of account
but if gross receipt exceed Rs150000 on 31/12/12.he should maintain prescribed book of account.
w.e.f on 31/12/12.
Specific Profession shall include:

 Medical profession
 Emerging profession
 Architectural profession
 Legal profession
 profession of accounting
 technical consultancy
 interior decorator
 company secretary
 authorized representative
 information technology
 film artist
If any person is required to maintain prescribed book of accounts such person must retain the book
of account at least for period of 6yrs from the end of relevant assessment yr.

II) Person carrying on any business or profession not specified above

If any assesses has business or non-specified profession such person is required to maintain any
books of accounts if their gross receipt exceed 10lakh & income exceed 120000 in any of three
proceeding relevant previous yr.
III) Person whose business income is to be computed on presumptive basis u/s44AD & u/s44AE
If any person is computing his income on presumptive basis u/s44AD & u/s44AE such
person has rejected presumptive income in that case, such person is require to maintain any
book of accounts. Also audit is required.
If any person has violated the provision of Sec 44 AA, in that case penalty of Rs. 25000 can be
imposed.
.If any person is engaged in a business and turnover from business has exceed Rs100lakh, in that
case, audit is required in that particular year.
If any person is engaged in profession whether specified or non-specified & gross receipt exceed
Rs 25lakh in any year in that case, audit is required in that particular year.
Audit report shall be submitted in form NO. 3CD. IF AUDIT IS REQUIRED, audit report
must be submitted to the department max. up to the last date of filing ROI.
IFANY person computed income on presumptive basis u/s44AD/44AE & such person rejected
presumptive income in that case, such person is also required to get account audited.
If any person has not complied with the provision of sec44AB, PENALTY MAY BE
IMPOSED @0.5% OF TURNOVER but max. Up to 150000 as per sec.271B.
If any Non-Resident is engaged in shipping business his income shall be presumed to be 7.5% of
the following accounts:-
 Amount recd. In India in connection with loading of goods outside India.

 Amount recd. Or receivable in connection with loading of goods etc. in India

It will also include any amount by way of handling charging or any other amount of similar
nature.
As per sec.44BBA, any non-residence is engaged in the business of operating of aircraft,

his income shall be computed in the similar manner. however7.5% taken as 5%.
1. Section 30 to 44D is not applicable. It means further business deduction is neither

allowed nor disallowed. Section 32(2) not applicable. Section 40 to 43B not
applicable. Other income can be added to this income.
2. Losses u/s 70 to 80 can be adjusted with this Where however the business is
income. carried on a partnership basis,
3. Deduction u/s 80C to 80U is allowed from this remuneration to partner and
income. interest to partner is allowed as
deduction u/s 37 but subject to
4. Administrative a. S 44AA & 44AB not section 40b.
convenience. applicable
b. No need to pay advance tax
Section 44AD Section 44AE
Applicability a. Ind / HUF / Firm a. Any person.

b. Resident b. Resident / Non Resident
Turnover upto ₹ 1 Crore No such requirement instead total truck

should not exceed 10 at any time during
the PY.
Not Profession, Agency Business, No such requirement
applicable

Commission or brokerage
income.
Presumptive 8% of Turnover Heavy Truck ₹ 5,000 during which
income p.m. truck is
Medium / ₹ 4,500 owned
Light p.m.
SEC.44AD Presumptive taxation

If any person has any business & turnover from business is maintained 100lakh in that case such
person is allowed to compute u/n B/P on presumptive basis. It will be presumed to be 8% of
turnover &no further exp. Is allowed u/n B/P.
However, if the assesse is a partnership firm salary & interest to the partner is allowed as per Sec40
(b).
It is applicable only in case, of individual /HUF/Partnership i.e. not applicable in case of company
& LLP.
SEC.44AD is not applicable for profession assesse has opted for presumptive income u/h 44AD,
IN THAT CASE, of dep. is not allowed but b/f of loss shall be allowed to adjust.
SEC.44AE business of plying, hiring or leasing goods carriage

If any person is engaged in business of transportation of goods & such person do not have more
than 10 goods carriage in his name at any time during the year in such case, such person shall have
the option to compute his income on presumptive basis.
Income shall be presumed to 25000pm per heavy good vehicle & Rs 4500pm or part of
per month per light good vehicle.
No further deduction is allowed u/s28 to44 however. If the assesse is partnership firm, interest or
salary allowed.
QUES Exception that income from B/P can be assessed only of PY?
ANS. Income covered u/s 41(1)/ 41(2)/41(3)41(4) are called deemed income & such
income are taxable u/n B/P even if the assessee do not have any B/P in the year which the
assesse recd. That income.
As per sec41 (1), if any assesses has debited any amt. to P&L a/c & subsequently it
was recovered by him it will be considered to be his income.

As per sec. 41(2), In case, of power generating unit, if any assets has been sold or
destroyed etc. & dep. was claimed on SLM basis, any amount recd. On sale etc. Considered
to be income u/n B/P & shall be called ‘balancing charge’.
As per sec41 (3), If any assesses has incurred capital expenditure on scientific
research & amount was debited to P&L a/c but subsequently assets was sold in such cases
amount so recd. Shall considered to be income of the assesse u/n B/P & u/s 41(3).
AS per sec. 41(4), if any amt. was allowed as bad debts & subsequently it was
recovered in the subsequent yr. in such cases, amount so recovered shall be considered to
be income u/n B/P of the yr.
AS per sec. 41(5), If any assesses has closed down his business / profession & there
is loss of such business/ profession of the yr. in which B/P WAS CLOSED DOWN. Such
losses shall be allowed to be carried forward. Even after expiring of 8 yrs. But after 8yrs.
Such loss can be set off the loss only from income u/s 41(1)/ 41(2)/41(3)41(4) of such
business.
The above provision are not applicable for speculation business.
Compulsory clauses Optional agreement

1. There is written agreement amongst 1. Interest on loan or capital contributed
partners. partners.
(Partnership Deed : PD)
2. Profit sharing ration (PSR) is specified 2. Remuneration payable to partners.
in PD.
3. PD is filed with tax department with If conditions of S 184 satisfied then interest
first ROI. and remuneration to partners is allowed as
All the above 3 points satisfied then a Firm deduction in the hands of firm and taxable in
is created. Once created always assessed as the hands of partners u/h PGBP
Firm.
Rate of tax of firm : 30% flat + education cess @ 3%
Interest Remuneration to working partner

upto 12% Remuneration to working partner as specified in PD or remuneration as per

p.a. following table whichever is lower.
or rate of Book Profit Limit
interest
specified First ₹ ₹ 1,50,000 or 90% of book profit whichever
in PD 3,00,000 is more
whichever Balance 60%
is lower. Remuneration should be distributed in remuneration ratio.
Computation of Book Profit
Net profit as per P & L A/c after making all adjustments u/ss 28 to A
44D except S 40b
Less : Interest allowed to partners under section 40b (B)
Book profit C
It provides that an amount equal to the CTT paid by the assessee (seller) in respect of the taxable
commodities transactions entered into in the course of his business during the previous year shall
be allowable as deduction, if the income arising from such taxable commodities transactions is
included in the income computed under the head “Profits and gains of business or profession”.
Rate of CTT is 0.01%.
As per clause (e) trading in commodity derivatives will not be considered as a speculative
transaction if carried out electronically on screen based systems.

State Governments levy privilege fee, license fee, royalty, etc. exclusively on its
undertakings. State Government undertakings are separate legal entities than the State and
are liable to income-tax. The issue is whether such fees, royalty etc. are deductible while
computing the business income of such undertakings.
In order to protect the tax base of State Government undertakings vis-à-vis exclusive levy
of fee, charge, etc. or appropriation of amount by the State Governments from its
undertakings, to provide that –
(1) Any amount paid by way of royalty, licence fee, service fee, privilege fee, service
charge, etc., which is levied exclusively on, or
(2) Any amount appropriated, directly or indirectly, from a State Government
undertaking, by the State Government, shall not be allowed as deduction while computing
the income of such undertakings under the head “Profits and gains of business or
profession”.
1. Sub clause (a) of sec. 36(1)(vii) restrict the claim of deduction for provision for bad &
doubtful debts.
For scheduled banks (not incorporated outside India) non-scheduled bank &
cooperative banks to
(i) 7.5% of gross total income (before deduction under this clause)of such banks
(ii) And 10% of the aggregate average advance made by the rural branches of such
bank
2. In respect of foreign banks, public financial institution, state financial corporation or

state industrial investment corporation, sub clause (b) and (c) of sec. 36(1)(viia).
Restrict the limit to 5% of gross total income (before deduction under this clause)
3. Under section 36(1)(vii)
 Bad debts actually written off as irrevocable in the books of account of assesses
is deductible.
 However in case, of entities for which provision for bad & doubtful debts is
allowable under sec. Sec. 36(1)(viia).

 Deductions for bad debts written off under said clause (vii) shall be limited to
the amount.
 By which the bad debts written off exceed
 The credit balance in the provision for bad & doubtful debts
For Example: THE FOLLOWINGS ARE THE PARTICULARS IN RESPECT OF A

SCHEDULED BANK INCORPORATED IN INDIA
PARTICULARS RS. INLAKHS

1. Provision for bad & doubtful debts u/s 36(1)(viia) up to assessment yr. 13-14 100
2. Gross total income of A.Y. 14-15(before deduction under section 36(1)(viia) 800
3. Aggregates average advances made by rural branches of the bank 300
4. Bad debts written off( for first time) in the books of accounts ( in respect of urban advances
only)during the P.Y.13-14 210 Compute the
deduction allowable under sec. 36(1)(vii) for the A.Y. 13-14
ANSWER
PARTICULARS RS. IN LAKHS
Bad debts written off (for the first time) in the books of accounts 210
Less: credit balance in the” provision for bad & doubtful debts “under
Section 36(1)(viia) as on 31.3.2014
(i) Provision for bad & doubtful debts under
section 36(1)(viia) up to A.Y 13-14 100
(ii) Current year provision for bad & doubtful debts

under section 36(1)(viia) (7.5% of ?800lakhs+10% of?300lakhs) 90 (190)
Deduction under section 36(1)(viia) in respect of bad debts written off for 20
A.Y.14-15
Net profit as per Profit and Loss A/c ……

Add: Expenses debited to Profit and Loss A/c but not ……
allowed as deduction
Less: Expenses not debited to Profit and Loss A/c but (……)
allowed as deduction

Less: Incomes credited to Profit and Loss A/c but eitherble

exempt or taxa
under other heads of income (……)
Add: Incomes not credited to Profit and Loss A/c but taxableher
under ot
heads of Profit and Gain from Business or Profession ……
Add: Adjustment of over-valuation of opening stock ……
Less: Adjustment of under-valuation of opening stock (……)
Add: Adjustment of under-valuation of closing stock ……
Less: Adjustment of over-valuation of closing stock (……)
Add: Adjustment of goods withdrawn by proprietor
Cost Price ……
Less: Price charged (……) ……
Less: Adjustment of goods withdrawn by proprietor (……)
Price charged ……
Less: Cost Price (……) ……
Add: Depreciation as per books of accounts ……
Less: Depreciation as per Income Tax Rules (……)
PROFITS AND GAINS FROM BUSINESS OR ……
PROFESSION

TAXATION & LAW CODE P a g e | 107
INCOME FROM
CAPITAL GAIN
@BY:
Copyright:
KETANKETAN
SARDANASARDANA; ketanhsardana@gmail.com ; JMD
6. INCOME FROM CAPITAL GAIN

2(14) Meaning of capital asset

45(1) Transfer of capital assets
45(1A) Capital gains in case of insurance claims
45(2) Transfer of capital assets into stock-in-trade
45(2A) Transfer of securities by a depository
45(3) Profits or gains arising from the transfer of a capital asset by a person to a
firm or Association of person or Body of individual
45(4) Profits or gains arising from the transfer of a capital asset by way of
distribution of capital assets on the dissolution of a firm or Association of
person or Body of individual
45(5) Transfer of a capital asset by way of compulsory acquisition
46 Capital gains on distribution of assets by companies in liquidation
46A Capital gains on purchase by company of its own shares or other specified
securities
47 Transactions not regarded as transfer
49 Cost with reference to certain modes of acquisition
50 Special provision for computation of capital gains in case of depreciable
assets
50A Special provision for cost of acquisition in case of power generating units
50B Special provision for computation of capital gains in case of slump sale
50C Special provision for full value of consideration in certain cases
50D Fair market value deemed to be full value of consideration in certain cases
51 Advance money received
54 Exemption from capital gains on transfer of property used for residence
54B Exemption from capital gain on transfer of land used for agricultural
purposes
54D Exemption from capital gains on compulsory acquisition of lands and
buildings of industrial undertaking.
54EC Exemption from capital gain on transfer of any capital asset
54F Exemption from capital gain on transfer of long term capital assets except
residential house
54G Exemption from capital gains on transfer of assets in case of shifting of
industrial undertaking from urban area
54GA Exemption of capital gains on transfer of assets in cases of shifting of
industrial undertaking from urban area to any Special Economic Zone
54GB Capital gain on transfer of residential property not to be charged in certain
cases
54H Determination of time period in case of compulsory acquisition of capital
asset

55(1) Meaning of “cost of improvement”

55(2)/55(3) Meaning of “cost of acquisition”
55A Reference to valuation officer
112 Computation of tax on long term capital gains
111A Computation of tax on short term capital gains in certain cases
2(47) What is transfer
2(22B) Fair market value defined
2(29A) Long-term capital asset
2(29B) Long-term capital gain
2(42A) Short-term capital asset
2(42B) Short-term capital gain
2(42C) Slump sale defined
10(37) Capital gains on compulsory acquisition of agricultural land
10(38) Capital gains on transfer of equity shares or units
Profit or gain arising from the transfer of capital asset during PY is chargeable under the head Capital
Gains if following conditions are satisfied:
Condition 1 There should be a capital asset
Condition 2 There is transfer of capital asset
Condition 3 Transfer takes place during the PY
Condition 4 Any profit or gain arises as a result of transfer
Condition 5 Such profit or gain is not exempt from tax under Sec. 54, 54B, 54D, 54EC,
54F, 54G and 54GA

Capital Asset means property of any kind held by an assesse whether or not connected with
his business or profession, but does not include the following:
 Stock in trade, Raw materials and consumables stores held for the purpose of business
or profession.
 Personal effects of movable nature, such as furniture, utensils and vehicles held for
personal use by the assesse or any dependent member of his family.
 Agricultural land in India which is not situated in any specified area.
 Gold Bonds issued by the government of India including gold deposit bond issued
under the gold deposit scheme notified by the Central Govt.
 Rural agricultural land (Within municipal limits and population less than 10,000. If
outside municipal limits at least 8 km away from municipal limits )
 Special Bearer Bonds, 1991 issues by Central Govt.
 Gold deposit bonds issued under a Gold Deposit Scheme, 1999
1. Sale, Exchange and Relinquishment 2. The extinguishment of any rights

of the asset. therein.
3. The compulsory acquisition of the 4. Conversion of asset into stock-in-trade.
asset by the Govt.
5. Possession of any immovable 6. Any transaction which has the effect of
property in part performance of a transferring, or enabling the enjoyment
contract. of, any immovable property.
7. Maturity or redemption of zero
coupon bond.
What is not transfer Gift, will or inheritance of property
QUES Write a short note on not regarded as transfer?

ANS. No capital gain shall be computed in case of certain transaction covered under 47 &
such transaction are
1) Distribution of capital assets by HUF in connection with partition of HUF.
2) Transfer of capital assets to gift or will or inheritance.
3) Transfer of capital assets by holding co. to its subsidiary co. in an Indian co.&100 %
of the share capital of subsidiary co. is held by its holding co.
4) Transfer of capital assets by its subsidiary co. to its holding co. provided holding co.
is an Indian co. & 100% of share capital of subsidiary co. is held by its holding co.

5) Transfer of capital assets by amalgamating co. to the amalgamation co. provided

amalgamated co. is an Indian co.
6) Transfer of capital assets by a demerger co. to the resulting co. provided resulting
co. is an Indian co.
7) Conversion of deb. Or bond into shares.
8) Transfer a work of art or archaeological collections or drawings or painting etc. to a
national museum or national art gallery .
9) Transfer of capital assets in case of conversion of proprietary concern or partnership
firm into a co. or converting a co. Into LLP.
10) ANY OTHER TRANSACTION NOTIFIED UNDER SEC.47
(1) Computation of Short Term Capital Gain:

Full value of consideration Less Transfer expenses, COA, COI, Exemption u/s 54B, 54D
& 54G
(2) Computation of Long Term Capital Gain:
Full value of consideration Less Transfer expenses, ICOA, ICOI, Exemption u/s 54-54H
Types of Capital Assets
Short Term Capital Assets Long Term Capital Assets
Asset held by assesse for not more than 36 An asset which is not a short term capital asset.
months immediately preceding date of
transfer
Notes:
(1) In case of following assets the period of 36 months is reduced by 12 months:-
 Equity or preference shares
 Any other security on recognized stock exchange
 Units of UTI or mutual fund
 Zero coupon bonds
(2) For calculating period of 36 months or 12 months, the date of transfer should
be excluded.
Types of Capital Gains

Short Term Capital Gain Long Term Capital Gain
On transfer of Short Term Capital Asset On transfer of Long Term Capital Asset
The need for such distinction arises because STCG is taxable at normal rates and added to
gross total income whereas LTCG is taxable at concessional rate of 20%.

Section 48. Computation of STCG Section 48. Computation of

LTCG
Full value of consideration xxx Full value of consideration xxx
(–) Cost of Acquisition (COA) (xxx) (–) Indexed Cost of Acquisition (xxx)
(COA)
(–) Cost of Improvement (COI) (xxx) (–) Indexed Cost of Improvement (xxx)
(COI)
(–) Expenses on transfer (xxx) (–) Expenses on transfer (xxx)
STCG xxx LTCG xxx

How to Know Short Term Capital Assets (STCA), Long Term Capital Assets
(LTCA)& Short Term Capital Gain/Loss (STCG/L) or Long Term Capital Gain/Loss
(LTCG/L) ?
STCG/L LTCG/L
Transfer of STCA Sec.2 (42A) Transfer OF LTCA Sec.2 (29A)
A-List B-list
1. Share Capital Asset other than A-list

2. Listed Securities 1. UAL (Urban Agriculture Land)
3. Unit of UTI/ Unit of Mutual 2. Unlisted Securities
Fund specified U/s 10 (23D) 3. Jewellery, drawing, painting
4. “0” (zero) Copan Bond any art work, archaeological collation
Sculptures
Hold up to 12 month
Hold For 36 month
A-list B-list
Hold for more than 12 month Held exceeding 36 month
General Consideration in Amount received or receivable.

cases cash
Consideration in FMV of asset.
kind
Special 50C Land & Building: Higher of Stamp value or
Cases consideration.
45(1A) Insurance claim.
45(2) FMV on date of conversion of asset into SIT.
45(3) Admission of partner. Amt. recorded in books of A/c.
45(4) Dissolution of firm. FMV as on date of distribution.
45(5) Initial compensation.

The cost incurred to acquire any asset by the assesse is called as its cost of acquisition. It is
to be noted that cost of acquisition includes deemed cost of acquisition where asset was
acquired by some other person other than assesse but was gradually passed on to assesse and
in such a case cost means cost incurred by previous owner.
General Purchase price + Brokerage paid on acquisition of asset

COA if asset is (Purchase price + Brokerage) or FMV as on 1-4-1981 whichever
acquired before 1-4- is higher.
1981
COA of shares.
a. In case of original Purchase price + brokerage.
STT is ignored both at shares
the time of purchase b. In case of bonus Nil
& at the time of sale. shares
However if bonus FMV as on 1-4-1981.
shares are allotted
before 1-4-1981
c. Right shares
• Existing Purchase price paid to Company

shareholder
• New Shareholder Price paid to Co. + Price paid to
renouncer.
d. Right share Nil
entitlement
COA of self-
generated assets. COA COI
Note: If the asset is
purchased then a. Brand name & Trademark associated Nil NA
purchase price is the with the business. (not of a
COA. profession)
Note : FMV as on b. Tenancy rights. Nil NA

1-4-1981 is ignored. c. Goodwill of a business (not of a Nil Nil

profession)
d. Right to manufacture, produce or Nil Nil
process any article or thing, for a
consideration (Patent)
Section 49(1). In case the asset is acquired through a mode given in section 47
Deemed cost of (Gift to relative or will) then cost of acquisition is cost to the
acquisition previous owner. Previous owner is the person who acquires the
asset by paying the price. Period of holding shall be computed
from the date the previous owner acquires the asset.
Section 49(4). In case of Land and Building
Amount taxed under the head
Deemed cost of is gifted and S 56(2) is
OS.
acquisition where applicable then COA =
value is taxed u/h
In case of Land and Building Purchase price + Amount taxed
‘Other Sources’
is sold and S 56(2) is applicable under the head OS.
then COA =
In case of JAD PB SAS is
gifted and Amount taxed under the head
S 56(2) is applicable then COA OS.
=
In case of JAD PB SAS is sold Purchase price + Amount taxed
and under the head OS.
S 56(2) is applicable then COA
=
Indexation Benefit is not available in the following cases:

 Short term Capital Assets
 Bonds and debentures
 Where option of 10% tax rate is availed u/112
 Slump sale u/s50B
 Sale of shares by non-resident

Cost incurred to add value to the asset is called its cost of improvement. It is calculated as
follows:
Formula for indexation
Indexed COA = Indexed COI =
Index value of transfer year Index value of transfer year x COI

---------------------------------------------------- ----------------------------------
x COA --------
Index value of acquisition year in which Index value of improvement
the assesse first acquired the asset year
Note: No Indexation bonds or debentures even if LTCA.
[Proviso 3 to S 48]
Indexed Cost of Improvement (ICOI):-
Is COI is
Yes b4
01/04/198
1
Ignore it
Is original
assets is LTCA
COI = Nil Yes N0
ICOA/ICOI STCA
LTCA
Indexation benefit shall be available from the year in which Improvement done
irrespective of year of Improvement by present/previous owner

Cost Inflation Index (CII)
The Central Govt. has notified the CII for the purpose of LTCG as follows:
Financial Financial Financial Financial
CII CII CII CII
Year Year Year Year
1981-82 100 1991-92 199 2001-02 426 2011-12 785
1982-83 109 1992-93 223 2002-03 447 2012-13 852
1983-84 116 1993-94 244 2003-04 463 2013-14 939
1984-85 125 1994-95 259 2004-05 480 2014-15 1024
1985-86 133 1995-96 281 2005-06 497
1986-87 140 1996-97 305 2006-07 519
1987-88 150 1997-98 331 2007-08 551
1988-89 161 1998-99 351 2008-09 582
1989-90 172 1999-00 389 2009-10 632
1990-91 182 2000-01 406 2010-11 711

If any capital asset destroyed due to it fire or natural calamities like flood etc. & assessee has
the need of insurance claim it will be considered to be transfer for the purpose of capital gain.
Capital gain shall be computed in the year in which asset has been destroyed& such capital
gain shall be taxable in which assessee has need claim. While computing gain the amount of
claim shall be considered to FVC. (Amount of claim need)
For example : ABC Ltd. Has one plant and machinery which was destroyed in 1-1-2012 and
claim need by the company of Rs. 20 lakh on 1-04-2012 and W.D.V of machine on 1-04-
2012 is Rs1 8 lakh in this case S.T.C.G is Rs. 2 lakh shall be taxable in the year 2012-13.
If any assessee converted any capital asset in to stock in trade w.e.f 1-04-1984 onwards, in
that case it will be considered transfer for the purpose of capital gain. Capital gain must be
computed in the year of conversion and market value shall be taken as FVC but capital gain
so computed shall be taxable in the year which the stock in trade has been sold.
No capital gain shall be computed if conversion has taken place before 1-04-1984 as per
Supreme Court decision in ‘’BAL Shirin bai K.Kooka V CIT ‘’
For example: Mr X purchased a gold on 1-7-81 of Rs. 2 lakh and he start his business of sale
and purchase of gold on 1-7-2001 and he transferred the gold to his business on 1-07-01 when
market value was Rs. 22 lakh & sold half of the stock in trade on 1-07-2012 of Rs. 14 lakh
and balance on 1-07-2013 Rs 16 lakh
Solution P.Y 01-02 F.V 22 lakh

- C.O.I 852000
L.T.C.G 1348000
P.Y 12-13 P.Y 13-14
L.T.C.G 674000 L.T.C.G 674000
Income u/h B/P 1400000 Income u/h B/P 1600000

(1100000) (1100000)
B/P 3000000 B/P 5000000

If any depository sold shares or securities held in demat form gain or loss shall that of
Beneficiary not of depository. Further FIFO method shall be adopted.
If any person has transferred any capital asset to the partnership firm or BOI or AOP to
become a partner, it will be considered to be a ‘Transfer’ and capital gain shall be computed.
FVC shall be the credit given in the book of accounts and market value shall not be
considered.
For example : Mr X Purchase one building on 1-07-2009 for Rs. 10 lakh and he has
transferred the building1 -5-12 to become a partner and his capital account was credited for
Rs. 18 lakh but M.V is Rs. 20 lakh. In that case F.V.C shall be Rs. 18 lakh and capital gain
Rs. 8 lakh
In case of distribution of Firm / BOI / AOI, if asset has been distributed F.V.C shall be the
market value not the agreed consideration.
For example: X.Y partnership firm purchased land on 1-7-2001 of Rs. 2 lakh. Dissolution
has taken place on 1-7-12 & land was given to one of the partner in settlement of his claim of
Rs. 18 lakh but its M.V is Rs. 25 lakh, Capital gain in the hand of partnership firm shall be
L.T.C.G Rs. 1648000 & F.V.C taken is Rs. 25 lakh.

In case of Depreciable assets Gain or loss shall always be short term and indexation is not
applicable and capital shall be computed in manner given below:-
F.V.C xxx
- W.d.v of asset as on day of relevant P.Y (xxx)
- cost of improvement (xxx)
- selling exp. (xxx)
S.T.C.G (xxx)
Sale of particular unit for a lump sum consideration is called (slump sale) i.e. sale is not for a
particular asset rather all the asset are sold together. In such case capital gain shall be
computed in the manner given below:
F.V.C xxx
-Net worth of the unit on date of sale (xxx)
- Selling exp. (xxx)
S.T./L.T.C.G xxx
If the unit had been sold with in the period of 3 year capital gain shall be short term
otherwise capital gain shall be long term & indexation is not applicable even if it is long term.
If the company repurchased its shares & securities, it will be the transfer for the purpose of
Capital Gain. Capital Gain shall be computed in the hands of the holder of securities.
For Example: Mr Satnam Singh has purchased 100 shares of ABC on 1-10-95 @ Rs. 10 per
share & subsequently these shares were repurchased by the company on 1-10-12 @ Rs. 75 per
share, in this case, Capital Gain shall be computed in the hands of Mr. Singh as given below:-

F.V.C 7500.00
(-) I.C.O.A (3032.03) [1000*852/281]
L.T.C.G 4467.97
 It would not be regarded as transfer

 On sale of such shares, COA of these shares would be deemed to be that part of cost of
debentures as surrendered by the assessee.
Period of holding of shares: Date of allotment of shares to date of sale of such shares.
If any person has sold Deb. or bond, in that case capital gain shall be computed in the normal
manner but indexation is not applicable even if it is long term capital assets.
However, in case of capital index bond assessee will have the option to apply indexation.
If indexation not been applied L.T.C.G. Shall be taxable @10% +E.C./SHEC.
“Capital indexed bond means such bond where rate of return cannot be less than rate of
inflation’
For Example: Mr. X has purchased 1000deb. Of Rs.10000 each on 1/7/2002 & sold on
1/7/12@ 18000 per deb. In this case, tax liability of Mr. X .shall be,
F.V.C [1000*18000] 18000000

(-) C.O.A (10000000)
L.T.C.G (8000000)
 This transaction is regarded as a transfer

 Capital gain on date of allotment of shares
Sale consideration: FMV of equity on date of transfer

 This section deals with compulsory acquisition of an asset

 It does not include compulsory acquisition of urban agricultural land
 Period of holding till date of acquisition
 Capital gain taxable in year when either whole or part of amount is actually received.
 Enhanced compensation:
• Capital gain in nature of original capital gain
• COA is NIL
• Expenses of realization allowed
 If the amount of compensation is in dispute then also taxable at original value first. And
if amount of compensation is subsequently reduced, the capital gain would be recomputed
by A.O. and necessary relief would be provided.
If any person has sold any intangible assets, in this case, also capital gain shall be computed
in the normal manner & intangible assets may be
 Goodwill
 Brand names/Trades marks
 Right to manufacture any product
 Right to carry on any Business or Profession
 Stage Carriage Permits
 Tenancy Rights
 Loom Hours
CAPITAL gain shall be computed in a normal manner however there will be special
treatment:-
Cost of improvement shall be taken to be nil in case of following intangible assets
1) Goodwill
2) Right to manufacture any product
3) Right to carry on business profession

In case of self-acquired / self-generated no capital gain shall be computed as per Supreme

Court decision in B.C. Srinarvsa V CIT. (BECAUSE COST OF ACQUISTION CANNOT
BE DETERMINED)
However cost of acquisition shall be taken to be nil in case of following self-acquired assets
as per Sec.55 (2)
1) Goodwill of the business
2) Trademark/brand name
3) Right to manufacture any product
4) Right to carry on any business
5) Tenancy right
6) Stage carriage permit
7) Loom hours
If there is any other self-acquired intangible assets like goodwill of profession, no capital
gain shall be computed in the decision by Supreme Court judgement.
If any person has transferred any land or building or building & FVC claimed by him is
less than the value adopted by stamp valuation authority of state govt. in that case FVC shall
be the value adopted by the stamp value authority & if the assessee claims that the value
adopted by the stamp value authority is higher than the market value, in that case, assessing
officer shall refer the matter to the valuation officer & value determined by valuation officer
shall be taken into consideration. But if the value determined by SVD is more than the value
determined by SVA shall be taken into consideration.
For Example: - Mr. X has land on 1/7/12 Rs 40lakh but value determined by SAV is
Rs60lak in this case FVC SHALL BE Rs 60lakh. But if the assessee has disputed short value
, matter shall be refer to VD has determined the value to be Rs 50lakh ,FVC shall be Rs
50lakh but if it is determined to be Rs 70lakhthan FVC shall be Rs 70lakh.
If any person has transferred any assets and full value of consideration cannot be determined
or cannot be ascertained in such cases, market value shall be considered to be FVC.

If any person has entered into an agreement to sell any assets & some advance money is
received. But the buyer refused to purchase the assets & advance money was forfeited,
subsequently same assets was sold, in such cases, COA shall be reduced by the amount so
forfeited by the assesse.
If any advance money has been forfeited by the previous owner who transfer the assets
through transaction of SEC 47 it will not deducted.
For Example: Mr X purchased one house on 1/4/81 of Rs. 2 lakh & he entered into a contract
to sell the house on 1/7/01 & advance money of Rs. 40000 was received but the buyer backed
out & advance money was forfeited & subsequently the assets was sold for Rs. 45 on 1/7/12,
in this case, Capital Gain shall be computed in the manner given below:-
F.V.C 4500000
(-) I.C.O.A (1363200) [200000-4000*852/100]
L.T.C.G 3136800
(1) Sale consideration < FMV

(2) Difference between FMV and sale consideration (more than ` 25,000 or 15%)
 Individual or HUF  Consideration determined by CG or RBI

 Holding period 2 year or more  On or after 1/4/2004
Transfer on or after 1/10/2004 Through recognized stock exchange Security transaction

tax applicable

ock exchange
Tax @ 15% on STCG Transfer on or after 1/10/2004 Through
recognized st
Security transaction tax applicable
Minimum of
(1) Tax @ 20% on LTCG after Indexation or
(2) Tax @ 10% on LTCG without indexation
 STCG: Simply taxed at normal rates and added to income of assessee.

 STCG Referred in Sec. 111A: Taxable at special rate of 15% and No deduction under
chapter VI A is allowed from this income.
 LTCG: Taxable at special rate of 20% and No deduction under chapter VI A is allowed
from this income
 Besides this there are some rates prescribed in “Tax on LTCG from listed Securities”
which are to be taken care of.
 It is to be noted that above rates are exclusive of education cess, secondary and higher
education cess and surcharge which re charged separately at the normally prescribed rates.
 Earlier (before this amendment) there were no provision to treat the cost of assets of a
proprietary concern, converted into a company, or a firm converted into a company as the
cost of the assets in the case of the company.
 It is now provided, w.e.f. A.Y. 1999-2000, that the cost of assets on conversion of a
proprietary concern or a firm into a company under Sec. 47(xiii), or 47 (xiv), in the hands
of the company shall be the same as in the hands of the converting enterprise.
 Similarly, when an unlisted company is converted into LLP under Sec. 47(xiiib), the cost
assets in the case of the company shall be treated as cost in the case of the LLP.

Sec. 45(1A) Insurance claim on loss of assets Year of receipt of Insurance claim
claim received Less COA or
COI
Sec. 45(2) Conversion of capital assets into Year of transfer of FMV of the capital
Stock-in-trade (Key note: Indexation converted stock asset on conversion
based on year of conversion, not on Less COA or ICOA
year of sale) Business income= Sale
consideration Less
FMV considered as
above
Sec. 45(2A) Sale of shares held as depository Year of transfer Consideration for
(FIFO method) transfer Less COA or
ICOA
Sec. 45(3) Introduction of capital assets by Year of distribution Amount credited in
partner into firm partners’ capital a/c in
the books of the firm
Less COA or ICOA
Sec. 45(4) Distribution of capital asset by Year of first receipt FMV on date of
partners/ members on dissolutions of transfer Less COA or
firm/AOP/BOI ICOA
Sec. 45(5) Compulsory acquisition of capital
asset by Government
(a) Normal compensation Year of first receipt Whole of normal
compensation received
or receivable Less
COA or ICOA
(b) Enhanced compensation Year of receipt of Enhanced
claim compensation Less
Expenses incurred
Sec. 45(6) Redemption 80CCB Units Year of repurchase Repurchase price Less
Amount invested (no
indexation)
Sec. 46 Receipts of Assets/cash from Year of receipt FMV of asset received
company on liquidation Add Amount received
in Cash Less Deemed
dividend under Sec.
2(22)(c) Less COA or
ICOA of hares
Sec. 46A Repurchase/bay back of Year of repurchase Consideration for
shares/Specified securities transfer Less COA or
ICOA

Where the consideration on transfer of land or building (other than capital asset) is less than
the value adopted or assessed or assessable by any stamp valuation authority for the purpose
of payment of stamp duty, the value so adopted shall be deemed to be the full value of the
consideration. (Similar to section 50C)
Note: The Stamp Duty Value shall be seen on the date of agreement and not the date of
registration if consideration or its part is paid in cheque before the date of agreement.
Question
S Date of Actual Stamp duty value Stamp duty value
N transfer consideration on the date of on the date of
agreement registration
1. 28-3- ₹ 150 ₹ 180 ₹ 300
2013 1-7-2012 1-2-2013
2. 28-6- ₹ 150 (Received ₹ 20 ₹ 180 ₹ 300
2013 lakhs by cheque on 1-8- 1-10-2012 1-6-2013
2012)
3. 28-6- ₹ 150 (Received ₹ 20 ₹ 180 ₹ 300
2013 lakhs by cash on 1-8- 1-10-2012 1-6-2013
2012)
4. 30-3- ₹ 150 (Full amount ₹ 180 ₹ 300
2014 received on the date of 2-5-2013 1-3-2014
registration).
Solution
S N Full value of Provision
consideration
1 ₹ 150 S 43CA not applicable since date of transfer is before 1-4-
2013.
2 ₹ 180 Stamp duty value on the date of agreement to be adopted as
full value of consideration since amount is paid through
cheque.
3 ₹ 300 Stamp duty value on the date of registration to be adopted as
full value of consideration since amount is paid in cash.
4 ₹ 300 Stamp duty value on the date of registration to be adopted as
full value of consideration since full payment is made on the
date of registration.

Earlier, Urban agricultural land means

(a) Agricultural land situated in any area within the jurisdiction of municipality or
cantonment board having population of not less than 10,000 according to last
preceding census
OR
(b) Agricultural land situated in any area within such distance not exceeding 8 km from
the local limit of any municipality or cantonment board as notified by the Central
Government having regard to the extent and scope of urbanisation and other relevant
factors .
Accordingly, both the agricultural land described in (a) and (b) above will be considered as
urban agricultural land and it will be considered as capital asset
The Finance Act 2013 as amended item (b) above

 "Capital asset " would include agricultural land
 situated in any area with such distance
 measured aerially
 in relation to range of population to the last preceding census as shown thereunder
Shortest aerial distance from Population according to the last

the local limit of municipality preceding census of which relevant
or cantonment board figure have been published
referred to in item (a) before the first day of
above previous year
i) Less than or equal to 2 km >10,000 <= 1,00,000

ii) Less than or equal to 6 km >1,00,000 <= 10,00,000
iii) Less than or equal to 8 km >10,00,000
Seems to be confused??? #@$#@%$^$@^#%%!((

Now check it out

Serial Distance Population Result
No (in Kms)
1 0-2 Less than equal to 10,000 Rural

0-2 greater than 10, 000 Urban
2 2.1-6 Less than equal to 1,00, 000 Rural
2.1-6 Greater than 1, 00,000 Urban
3 6.1-8 Above 10,00,000 Rural
6.1-8 Any population Urban
4 Above 8 Population (any) Rural
Immovable property received by an individual or

HUF for inadequate consideration to attract the
taxability, if the difference between the stamp duty
and actual consideration exceeds 50,000
1) Section 56(2) brings to tax

any sum of money if the aggregate sum received exceeds Rs 50, 000
OR
The value of property received by an individual or HUF without
consideration where the stamp duty value (in case of immovable property)
or aggregate fair market value (in case of movable property) exceeds Rs
50,000
OR
The value of the property , other than immovable property received by an
individual or HUF for inadequate consideration , if the difference between
the aggregate for market value and actual consideration exceed Rs 50,000
2) Therefore immovable property received for inadequate consideration was kept aside
the scope of section 56 (2) (vii)
3) In order to prevent the tax avoidance

 by transferring immovable property at prices significantly lower than circle
rates
 section 56(2)(vii) has been amended with effect from A.Y 2014-2015
 to provide that where immovable property is received
 for a consideration which is less than the stamp duty value of the property

 by amount exceeding Rs 50, 000 shall be chargeable to tax in the hands of

individual or HUF as "Income from other sources"
4) The taxability provisions under Section 56(2)(vii) w.e.f A.Y 2014-2015 summarised
as under:-
Sr. No Nature of Particulars Taxable Value

Assets
1 Money Without The whole amount if the same exceeds
consideration Rs 50,000 in aggregate
2 Movable Without The aggregate FMV value of the
property consideration property if it exceeds Rs 50,000
3 Movable Inadequate The difference between the FMV
property consideration and consideration exceeds Rs 50,000
4 Immovable Without The stamp duty value of the property
property consideration if it exceeds Rs 50,000
5 Immovable Inadequate The difference between the stamp duty
property consideration value and consideration exceeds Rs 50,000
5) Taking into consideration the possible time gap between the date of agreement and the
date of registration , the stamp duty value may be taken on the date of agreement
instead of the date of registration, if the date of the agreement fixing the amount of
consideration for the transfer of immovable property and date of registration are the
same provided at least a part of consideration has been paid by any other mode other
than cash on or before the date of agreement
EXAMPLE: - Mr Hari a Property Dealer sold a building in the course of business to his
friend Rajesh who is an automobile spare dealer for Rs 90 lakhs on 1.1.2014(stamp duty
value 150 lakhs). The agreement was however entered o 1.7.201, when the stamp duty value
was Rs 140 lakhs. Mr Hari received down payment of Rs 15 lakhs from Rajesh by cheque on
the date of agreement. Discuss the implication in the hands of Hari and Rajesh assuming that
Hari purchased the building for Rs 75 lakhs on 12th July 2012.
Would your answer be different if Hari was a Share Broker instead of Property Dealer?

Solution:-
Case A: - MR Hari is a Property Dealer
In the case of MR Hari: - In the hands of Hari, the provisions of section 43 CA wood \ be
attracted since the building represents the stock in trade and has transferred the same for a
consideration less than the stamp duty on the date of agreement. Therefore Rs 65 lakhs
(being the difference) between the stamp duty on the date of agreement Rs 140 lakhs and
purchase price Rs 75 lakhs would be chargeable as business income in the hands of Mr Hari.
In the hands of Mr Rajesh: - Since Mr Rajesh, a dealer in automobile spare parts the
building purchased would be capital assets in hand. The provision of Section 56(2) (vii)
would be attracted in the hands of Mr Rajesh who has received immovable property being a
capital asset for adequate consideration. Therefore Rs 50 lakhs being the difference between
the stamp duties value (Rs 140 lakhs) and actual consideration (Rs 90 lakhs) would be
chargeable in hands of Rajesh
Case A: - MR Hari is a Property Dealer

If Mr Hari is a stock broker: - Then the building would represent his capital asset and not
stock in trade. In such case Section 50 C is attracted, in the hands of Mr Hari the difference
between the stamp duty (150 lakhs) and purchase price (75 lakhs) is Rs 75 lakhs would be
chargeable as capital gain.
It may be under section 50C there is no option to adopt the stamp duty value on the
date of agreement, even if the date of agreement is different from the date of registration and
part of consideration has been received on the date of agreement otherwise than by cash
In case of Rajesh: - There would be no difference in the taxability in the hands of Mr

Rajesh, whether Mr Hari is a stock broker. Therefore all the provisions of section 56(2)(vii)
are attracted, in the hands of Mr Rajesh who has received immovable property for
inadequate consideration. Therefore Rs 50 lakhs being the difference between the stamp duty
value and consideration would be taxable under section 56(2)(vii) in the hands of Mr Rajesh.

Purchase: 1 year before or 2

54 Long term residential Individual/HUF years after N.A. 3 years from date of
house Construct: 3 years after the date purchase/construction
of transfer
Land should have been used by
54B Agricultural Land Individual/HUF Purchase new agricultural land assesse/parent for agricultural 3 years from the date of
(LT or ST) (HUF w.e.f. AY (rural/urban) within 2 years of purposes. during 2 years purchase
13-14) date of transfer immediately preceding the date of
transfer
Transfer by compulsory
Land/buildings
54D ANY Purchase or Construct within 3 acquisition. Building: no actual 3 years from date of
forming part –of an
years from date of POH Land: take actual POH. Used purchase/construction
industrial undertaking
transfer for industrial purposed for 2
(LT or ST)
preceding years.
For transfer or
54EC Any LTCA ANY Invest within 6 months, in Investments during any ONE PY ≤s conversion into money
NHAI or RECL bonds ` 50 Lakhs etc.
redeemable after 3 years 3 years from date of
acquisition
@ Copyright: KETAN SARDANA; ketanhsardana@gmail.com ; Contact: - https://www.facebook.com/pages/Taxation-

Law-CODES/185533964799625
Doesn’t own > 1 house (Except

54F Any LTCA other Individual/HUF SAME AS Sec. 54 new) 3 years from date of
than residential Doesn’t within 1 year purchase, or purchase/construction
house construct within 3 years, from date
of transfer of original asset (Except
new)
Purchase, acquire, spend 1
P&M, building, land year before or 3 years after the
54G ANY Shifting industrial undertaking 3 years from date of
or any right therein of date of transfer For P&M, bldg. from urban area purchase/construction
industrial undertaking or land
SAME AS Sec. 54G
54GA SHIFTING FROM URBAN AREA TO SEZ
COA of new asset will be reduced by

Lower of: Will be taxed as LTCG of Previous amount of exemption granted earlier
54 1) Amount of Capital Gains Year in which the period of 3 years from date in the year of transfer. This net amount will be deducted
2) Investment in new asset of transfer of original asset expires. from FVC of new asset.

Law-CODES/185533964799625
Will be taxed as LT/STCG of COA of new asset will be reduced by

Lower of: Previous Year in which the period of amount of exemption granted earlier
54B 1) Amount of Capital Gains 2 years from date of transfer of original asset in the year of transfer. This net amount will be deducted
2) Investment in new asset expires. from FVC of new asset.

Lower of: amount of exemption granted earlier
Previous Year in which the period of
54D 1) Amount of Capital Gains in the year of transfer. This net amount will be
2 years from date of transfer of original asset
2) Investment in new asset deducted from FVC of new asset.
expires.
Lower of: CG exempt earlier will be taxed as
54EC 1) Amount of Capital Gains N.A. LTCG of PY in the year of transfer/conversion into
2) Investment in bonds money etc.
Will be taxed as LT/STCG of
CG exempt earlier will be taxed as
𝐴𝑚𝑜𝑢𝑛𝑡 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 Previous
𝑖𝑛 𝑛𝑒𝑤 ℎYear
𝑜𝑢𝑠𝑒 in which the period of
54F 𝐺 𝑟 𝑜𝑠𝑠 𝐿𝑇𝐶𝐺 × LTCG of PY in the year of transfer/conversion into
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒 𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
money etc.
expires.
54G 1) Amount of Capital Gains in the year of transfer. This net amount will be
expires
54GA 1) Amount of Capital Gains in the year of transfer. This net amount will be
expires

Law-CODES/185533964799625
54
APPLICABLE FOR SALE & PURCHASE OF RESIDENTIAL HOUSE
54 B
NOT
APP.
TO
HUF
APPLICABLE FOR SALE OF AGRICULTURE LAND IN URBAN AREA

54 D 54 F
54 G
ONLY ASSETS:
PLANT & MACHINERY
LAND & BUILDING

Notes:
1) Amount of investment in new asset or bonds includes amount actually invested + amount deemed to be
invested. This deemed amount is nothing but the balance in Capital Gains Deposit Account not utilized
till the due date of submission of return of income u/s 139(1). This applies to Section 54F too.
2) Calculation at the time of premature transfer will be as follows:
Particulars Amount (`)
Full Value of Consideration XX
Less: Net Cost of Acquisition
Original Cost of Acquisition X

Less: Exemption granted earlier (X) (XX)
Capital Gains chargeable to tax XX
Income under the head Capital Gains [Format]

Amt. Amt.
Particulars (`)
(`)
Sale consideration ……
Less: Cost of Acquisition (COA) ……
Cost of Improvement (COI) ……
Transfer Expenses …… (……)
……
Less: Exemption under Sec. 54B, 54D, 54G & 54GA (……)
SHORT-TERM CAPITAL GAIN ……
Amt. Amt.
Particulars (`)
(`)
Sale consideration ……
Less: Indexed Cost of Acquisition (ICOA) ……
Indexed Cost of Improvement (ICOI) ……
Transfer Expenses …… (……)
……
Less: Exemption under Sec. 54, 54B, 54D, 54EC, 54F 54G & 54GA (……)
LONG-TERM CAPITAL GAIN ……


I} Capital Gain – if the assets acquired by way of gift, will, inheritance from HUF as
member at the time of partition. In such case COA in hand of assessee shall be the cost
of previous owner.
Goodwill in Business
Self-Generated Acquired
COA= Nil COA= actual amount paid
 Market value as on 01/04/1981 is irrelevant.
Bonus Shares
If allotted before 01/04/1981 if allotted on or after 01/04/198
COA= market value as on 01/04/1981 COA= Nil

Right Shares
If the right shares are acquired base if right shares are acquired by purchasing
On right given in favor of assessee by company right
COA of right = Nil COA of right= actual amount paid
COA of Shares = Amount Paid to company COA of Shares = Amount Paid to

company
 Market value as on 01/04/1981 is irrelevant.
Tenancy Right
If nothing is paid Acquired by paying consideration
COA= Nil COA= actual amount paid

 Market value as is irrelevant.

INCOME FROM OTHER

SOURCES
@BY:
Copyright:
KETANKETAN
7. INCOME FROM OTHER SOURCES

Section Provision
Sec. 56(1) Basis of charge
Sec. 145 Method of accounting
Sec. 8 Basis of charge of dividend income
Sec. 56(2) Specified incomes chargeable under the head IOS
Sec. 57 Deductions of expenses from specific incomes chargeable
under the head IOS
Sec. 58 Amount not deductible in computing the income under
the head IOS
Sec. 59 Deemed income chargeable under the head IOS
Sec. 68 Taxation of unexplained cash credit
Sec. 115BB Special rate of income-tax in case of winning from
lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or gambling or
betting of any form or nature whatsoever
Sec. 115BBE Tax rates on incomes taxable by virtue of sections 68 to
69D
Sec. Income to include gift of money and/or property
56(2)(vii)
Sec. Income to include transfer of shares in case of recipient
56(2)(viii) firms and companies
Sec. Issue of shares at more than FMV
56(2)(viib)
Income which is not exempt and which cannot be taxed under any other head of
income is taxable under the head ‘Income from Other Sources’

Specific incomes which shall be chargeable to Income-tax under the head 'Income from
other sources' are:
 Dividends
 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; and
 Income by way of interest on securities.
 Income from letting of machinery, plant or furniture along with building or not.
 Any sum received under a Keyman Insurance Policy including bonus.
 Any sum of money
 aggregate value of which exceeds Rs. 50,000
 received without consideration
 by an individual or a Hindu undivided family
 From any person or persons

 Lottery, Gambling, Batting, Horse Race, Cross Ward, Puzzle

 Any other casual income
 Interest other than interest on securities
 Interest on Securities
 Commission (If it is not a part of one’s main Business or Profession)
 Family Pension
 Royalty
 Director’s Fee
 Subletting of House
 Dividend
 Tuition Income
After the death of the employee, if there is any family pension received by the legal
heirs of the deceased, it will deemed to be the income of the legal heir and will be taxable
under the head 'Income from Other Sources'.
On such pension, as per section 57(iia) a standard deduction shall be allowed to the legal
heir @ 331/3% of such pension, or Rs. 15,000, whichever is less.
For the purpose of clause (iia) of section 57 i.e. the standard deduction, family pension
means a regular monthly amount payable the employer to a person belonging to the
family of an employee in the event of his death.
Rs.15000/- or 1/3 of Actual Amount received, whichever is less, is exempt.
Taxable = Actual Amount Received – Exempted Amount
The following payments shall not be deductible in computing the income chargeable
under the head 'Income from Other Sources':
• Personal expenses of the assessee;
• Interest paid outside India on which tax has not been deducted at source;
• Salaries paid outside India on which tax is not deducted at source;
• Any expenditure referred to in section 40A like excessive payments to certain
specified persons [Section 40A (2)] and cash payments exceeding Rs. 20,000
[Section 40A (3)];

• Income-tax/wealth-tax paid;
• 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.
• Interest from Capital Investment Bond
• Interest on Post Office Savings
• Interest on National Relief Bond
• Any Allowance to a M.P. (Member of Parliament)
** Salary to M.P is Taxable under this head

If Debenture interest is received up to Rs.2500/- and
Received by Account payee Cheque, No TDS will be deducted hence no need to gross
up
Any sum of money

 aggregate value of which exceeds Rs. 50,000
 received without consideration
 by an individual or a Hindu undivided family
 from any person or persons
 is taxable in the hands of the recipient.
Gift is not taxable if received from
Relative
On the occasion of the In contemplation of death
marriage of the of the payer
Any local
individual
authority, trust,
Under a will or by way of
university, etc.
inheritance

GIFTS sec 56(2)

Part A Part B Part C
Nature of gift Cash Gift Land & Building JAD PB SAS

on or after 1-10- on or after 1-10-
2009 2009
Donor Any person Any person Any person
Donee Ind / HUF Ind / HUF other than Ind / HUF other than
relative relative
Consideration Nil Nil Nil or inadequate
consideration
In excess of Cash in excess (a) Stamp value (a) FMV in excess
of ₹ 50,000. exceeds ₹ of ₹ 50,000.
50,000.
(b) Difference = (SDV (b) Difference = (FMV
– PP) in excess of – PP) in excess of ₹
₹ 50,000 50,000
Taxable Whole of Whole amount Whole of aggregate
aggregate taxed u/h OS amount taxed u/h OS
amount taxed
u/h OS
Exceptions to Part A, B & C
1. Gifts received from any 2. Gifts received on the marriage of the
relative. individual.
3. Gifts received under a will 4. Gifts received in contemplation of death of the
or inheritance. payer.
5. Money received from local 6. Money received from a registered charitable
authority. institute.
7. Money received from any fund, foundation, university, other educational
institution, medical institution.

Any winnings from:

(i) lotteries,
(ii) crossword puzzles,
(iii) races including horse races,
(iv) card games and other games of any sort,
(v) gambling or betting of any form or nature whatsoever,
are chargeable to tax as "income from other sources".
- No deduction of any expense is allowed from the income.
- No deduction under chapter VI-A is allowed.
- Income is taxable at the flat rate of 30% + surcharge as applicable + EC @ 2% +
SHEC @ 1%.
- Expenses relating to the activity of owning and maintaining race horses are
allowable.
The basic exemption of income (say Rs. 1,50,000) is not available to the assessee.
Brother or sister
Spouse of
of the individual Brother or sister of
the
individual either of the parents of
the individual
Brother or sister
of the spouse of
the individual
Relative
Any lineal ascendant

Or descendant
Any lineal
of the spouse
ascendant or
descendant of of the individual
the individual Spouse of all persons
mentioned above are also covered

If any expense was claimed by the assessee in any year and subsequently it was
recovered by him, it shall be included in his income.
Income chargeable under this head shall be computed on the basis of books of accounts
maintained by the assessee and the assessee has the option to maintain the books of
accounts either on the basis of mercantile system of accounting OR on cash basis.
If owner of any security sell it just before due date and again acquires them after due
date, he will be able to avoid payment of tax on interest.
In such case, interest would be deemed to be income of the transferor and not
transferee.
Exceptions:
 If there is no avoidance of tax
 Avoidance of tax is exceptional or is unsystematic.
If any person has purchased shares/units within 3 months prior to record date and after
receiving the dividends, the shares were sold within 3 months or the units were sold
within 9 months after the record date, in such cases, any loss incurred to the extent
dividend were received shall not be taken into consideration.
If any person has purchased units within 3 months prior to record date and after
receiving the additional units, the original units were sold within 9 months after the
record date, in such cases, any loss incurred shall not be taken into consideration.

Interest on following notified bonds/certificates are exempt from tax: -

 Post office saving bank account
 Interest on PPF
 Notified bonds issued by PSU or local authority or state pooled finance entity
 Capital Investment Bonds
 Notified Relief Bonds
 Gold deposit Bonds
INTEREST ON SECURITIES
Less Tax Security Tax free Security
Govt. Commercial
No need to if % is given if amt is given

Gross up
No need to gross up Listed/ Unlisted
Amt. Recd *100/90
Govt. Commercial
Exempt from Tax whether % is given or

Amount is given always
Gross up
Listed/ Unlisted
Amt. Recd *100/90

(1) CG/SG securities No TDS

(2) Listed securities 10%
(3) Unlisted Securities 20%
30% of such income
Dividend includes disbursements by the company to the shareholders, to the extent of

accumulated profits, whether capitalized or not:
(a) Any distribution by a company if such distribution reduces company’s assets
(b) Distribution of debenture/ deposit certificates to shareholder and bonus shares to
preference shareholders
(c) Distribution of accumulated profits at the time of liquidation except to preference
shareholders
(d) Distribution of accumulated profits on reduction of share capital to preference
shareholders
(e) Any advance/loan by a closely held company to
a. An equity shareholder, or to any person on behalf of such equity shareholder,
who holds not less than 10% voting power.
b. Any concern in which such shareholder is having not less than 20% voting
power or 20% profit sharing
 Such advance/loan shall be considered to be dividend in the hands of shareholder
but only to the extent of accumulated profits excluding capitalized profits.
 If any such advance/loan has been repaid by the shareholder, even in that case, it
will be considered to be dividend
 However, if any such company has business of lending money i.e. it is a banking
company, then provisions of Sec. 2(22)(e) shall not apply.
Dividends covered under Sec. 2(22)(a), (b), (c), (d) are exempt under Sec. 10(34) in the
hands of shareholder but dividends under Sec. 2(22)(e) shall be taxable in the hands of
employees under the head ‘Income from other sources’

1) Shifting of interest income not allowed in certain cases: If the owner of securities
sells the security just before the due date when the interest becomes due and buys back
the same after that date just to avoid tax on interest, In this case, interest is deemed to
taxable in the hands of transfer.
The provisions of sections 94(1) or 94(2) are, however, not applicable, if the owner
proves that:
(a) there has been no avoidance of Income-tax; or
(b) the avoidance of Income-tax was exceptional and not systematic and that there
was no avoidance of income-tax by such a transaction in any of the three preceding
years.
(2) Loss arising from purchase and sale of securities not allowed in certain cases:
Where—
(a) any person buys or acquires any securities or unit within a period of three months
prior to the record date;
(b) such person sells or transfers:
(i) such securities within a period of three months after such date or
(ii) such units within a period of 9 months after such record date;
(c) the dividend or income on such securities or unit received or receivable by such
person is exempted,
then, the loss, if any, arising to him on account of such purchase and sale of securities or
unit, to the extent such loss does not exceed the amount of dividend or income received
or receivable on such securities or unit, shall be ignored for the purposes of computing
his income chargeable to tax.
Record date means such date as may be fixed by a company or a Mutual Fund or the
Unit Trust of India for the purpose of entitlement of the holder of the securities or the
unit holder to receive dividend or income, as the case may be.
(3) Bonus stripping in case of units [Section 94(8)]: Where —
(a) a person buys or acquires any units within a period of three months prior to the
record date;

(b) such person is allotted or is entitled to additional units on the basis of such units
without making any payment;
(c) he sells all or any of such units while continuing to hold all or any of the additional
units within a period of 9 months after such date,
then, the loss, if any, arising to him on account of such purchase and sale of units shall
be ignored for the purpose of computing his income chargeable to tax.
Further, the amount of loss so ignored shall be deemed to be the cost of purchase or
acquisition of such additional units as are held by him on the date of such sale or
transfer.
 On the occasion of the marriage of individual

 Received under a will / Inheritance
 Contemplation of death of the payer
 Receipt from Local Authority
 From any fund, foundation, university, other educational institution,
hospital, medical institution, any trust or institution u/s {Sec 10(23C)}.
 From any charitable institute registered u/s 12AA.

CLUBBING OF INCOME
@BY:
Copyright:
KETANKETAN
8. CLUBBING OF INCOME
Section Provision
Sec. 60 Transfer of income when there is no transfer of asset
Sec. 61 Revocable transfer of assets
Sec. 62 Transfer of asset which is revocable
during the lifetime of the
beneficiary/transferee
Sec. 63 Meaning of ‘revocable transfer’
Sec. 64(1)(ii) Clubbing of income of spouse
Sec. Clubbing of income from asset transferred to spouse
64(1)(iv)
Sec. Clubbing of income from asset transferred to son’s wife for
64(1)(vi) inadequate consideration
Sec. Clubbing of income from asset transferred for inadequate
64(1)(vii) consideration to any person for the benefit of the spouse
Sec. Clubbing of income from asset transferred for inadequate
64(1)(viii) consideration to any person on or after 1/4/1973 for the benefit
of the son’s wife
Sec. 64(1A) Clubbing of income of minor child
Sec. 10(32) Exemption of ` 1,500 for each minor child to parent whose
Total Income
(excluding minor’s income) is greater
Sec. 64(2) Conversion of self-occupied property into HUF property
Sec. 288A Rounding off of total income
Sec. 288B Rounding off of tax etc.
Where there is a transfer of an income by a person to another person, without the

transfer of the asset from which the income arises, such income shall be included in
the total income of the transferor.

Where there is a revocable transfer of an asset by a person to another person,

any income arising/derived from such assets shall be included in the total
income of the transferor.
A transfer is revocable if:

(a) it contains any provision for the re-transfer the whole or any part of the income
or assets to the transferor, during the life time of the beneficiary or the
transferee as the case may be, or
(b) it gives the transferor a right to re-assume power directly or indirectly over the
whole or any part of the income or assets during the life time of the beneficiary
or the transferee as the case may be.
However, as per section 62(1), the provisions of revocable transfer, discussed above,
shall not apply in following circumstances—
(a) in the case of transfer by way of trust, the transfer is not revocable during the
life time of the beneficiary;
(b) in the case of any other transfer, the transfer is not revocable during the life
time of the transferee;
(c) in case the transfer is made before 1-4-1961, the transfer is not
revocable for a period exceeding 6 years.

 If any person has transferred any asset through irrevocable transfer, in such cases,
clubbing provisions shall not apply.
 If any person has transferred any asset for the lifetime of the transferee, it will be
considered to be irrevocable and clubbing provisions shall not apply.
Transfer shall be deemed to be revocable if:

(1) If whole or any part of the income or assets can be re-transferred
to transferor
(2) If transferor can re-assume power over the whole or any part of
income or assets
(3)
Sec. 64(1)(ii), (iv) & (vii).
S 64(1)(ii) Condition: Remuneration received by spouse shall be clubbed in the hands

Remuneration of that individual who has substantial interest in a concern. If both husband
to Spouse and wife is having substantial interest in a concern then remuneration shall
be clubbed in the hands of that spouse whose total income excluding the
remuneration to be clubbed is greater.
No clubbing: If spouse possess knowledge or experience and
remuneration is attributable to such knowledge or experience then
remuneration is not clubbed.
Substantial Interest: A person has substantial interest if he along with
relatives holds atleast 20% voting power or 20% Profits in a concern.
S 2(41). Husband Father Grand father
Relative : Wife Mother Grand mother
Lineal Children Brother Grand son
ascendant Sister Grand daughter
& Descendant

S 64(1)(iv) Condition Applicable:

Asset 1. Asset transferred by individual to his or her Clubbing provision
transferred to spouse, shall be applicable
spouse only when marriage
2. without adequate consideration subsist both at the
3. then income arising to spouse from the time of transfer of
transferred asset shall be clubbed in the hands asset & at the time
of transferor. when income arises.
S 64(1)(vii) Condition Exception : Where
Asset 1. Asset transferred by individual to his or her the asset is
transferred to spouse, transferred with an
for the benefit agreement to live
2. without adequate consideration
of spouse apart then clubbing
3. then income arising to spouse from the provision is not
transferred asset shall be clubbed in the hands applicable.
of transferrer to the extent benefit arises to
spouse.
S 64(1)(vi) Condition Applicable if :

Asset 1. Asset transferred by individual to his or her
transferred Father in Daughter in
son’s wife,
to son’s Law & Law
wife. Mother in Daughter in
3. then income arising to son’s wife from the Law & Law
transferred asset shall be clubbed in the
hands of transferrer. relationship subsists both
at the
time of transfer of asset &
at the time of accrual of
income.
S 64(1)(viii) Condition A transfers asset to Mrs. A.
Asset 1. Asset transferred by individual to his or her Mrs A transfer same asset to
transferred son’s wife, her son’s wife. The income
to for the arising to son’s wife shall be
benefit of clubbed ?
3. then income arising to son’s wife from the
son’s wife Genuine Fraud
transferred asset shall be clubbed in the
Transfer Transfer

hands of transferrer to the extent benefit Mr. A Mrs. A

arises to son’s wife.
 The income of a minor child is to be clubbed in the hands of either of his parents.
 The income shall be clubbed in the hands of that parent whose total income (excluding
the income of the minor) is greater.
 If the marriage of his parents does not subsist, the income shall be clubbed in the hands
of that parent who maintains the minor child in the previous year.
 Where any income is once included in the total income of either parent, any such income
arising in any succeeding year shall not be included in the total income of the other
parent, unless the AO is satisfied, after giving that parent an opportunity of being heard,
that it is necessary so to do.
 If income is clubbed in the hands of a parents, the exemption is available to the lower of
–
o Income clubbed

o Rs. 1500 per child p.a. (SEC 10(32))

 The following income of a minor shall not be clubbed and will be taxable in the hands
of the minor himself:
 Any income of a minor child suffering from any disability ;
 Such income which accrues or arises to the minor child on account of any manual work
done by him
 Such income which accrues or arises to the minor child on account of any activity
involving application of his skills, talent or specialized knowledge and experience.

If an Individual, who is a member of HUF, converts his self-acquired property into HUF
property then income derived by HUF from such property shall be included in the hands of
transferor.
Implication in case of subsequent partition: After partition of HUF, income arising from
any asset received by the spouse shall be clubbed in the hands of transferor.
Even though the income arising from the transfer of assets is clubbed in the hands of
transferor, tax on such income may also be demanded from the transferee.
Spouse / Minor
Son’s Wife Child
1. Income from transferred asset is to be clubbed. Correct Correct
2. Income from income cannot be clubbed. Correct Wrong
3. Income from accretion of asset cannot be clubbed. Correct Wrong

SET-OFF OR CARRY
FORWARD AND SET-OFF
LOSSES
@BY:
Copyright:
KETANKETAN
9. SET-OFF OR CARRY FORWARD AND SET-OFF LOSSES
70 Set off of loss from one source against income from
another source under the same head of income
71 Set off of loss from one head against income from
another head
71B Carry forward and set off of loss from house property
72 Carry forward and set off of business losses
72A Carry forward and set off of accumulated loss and
unabsorbed depreciation allowance in amalgamation or
demerger, etc.
73 Losses in speculation business
73A Losses by specified business
74 Losses under the head “Capital gains”
74A Losses from certain specified sources under the head
“Income from other sources”

Assessee having a loss in one source of income & a profit in the other source of income
under the same head of income shall be entitled to set off losses against profits.
Exceptions:
• Loss from a speculative business can be set off only against profits from a speculative
business.
• Loss from activities of owning and maintaining race horses can be set off only against
profits from such activities.
• Loss cannot be set off against winnings from lotteries, races including horse races etc.
• Loss from a source which is exempted from tax.
• Long term capital loss can be set off only against LTCG.
Assessee having a loss in one head of income and a profit in another head of income,
shall be entitled to be set off the loss against his income.
Exceptions:
• Losses from Speculation business.
• Losses from activity of owning and maintaining race horses.
• Losses cannot be set off against winnings from lotteries, cross word puzzles, card
games, betting’s etc.
• Loss from a source which is exempted from tax.
• Losses under the head capital gains can be set off only against the income from the head
capital gains.
• Loss under PGBP can’t be set off against salary income.

Where loss is in full or in part can’t set off against the income under other heads under
Sec.71, such loss can be carried forward for 8 assessment years subsequent to the
assessment year in which the loss is first computed, for set off against income from
house property.
• Losses could be carried forward and set off only against the income under the head
PGBP.
• Can be c/f and set off up to 8 assessment year’s succeeding the assessment year in
which the loss is first computed.
• In case the assessee is having both unabsorbed depreciation u/s 32(2) and unabsorbed
business / profession losses, firstly the unabsorbed business losses should be set off.
• Loss can be carried forward and set off even if the business/profession has been
discontinued.
• Further the conditions as laid down by Sec.80 are to be complied with.
Amalgamation The unadjusted loss and unabsorbed depreciation of the amalgamating

company shall be deemed to be the loss of the amalgamated company as if
incurred in the year of amalgamation, if :
 The amalgamated company continues the business of amalgamating
company for a period of at least 5 years
 The amalgamated company continues to hold at least 75% of the book
value of assets for a period of 5 years.
 Fulfil other conditions as prescribed
Demerger Unadjusted losses and depreciation of the demerged company is allowed to be
carried forward and set off by the resulting company for the remaining period.
Conversion of Unadjusted losses and depreciation of the proprietorship/ partnership firm
proprietorship or shall be deemed to be the losses of company as if incurred in the year of
partnership firm conversion, if conditions laid down under Sec. 47 are complied with.
into company
Conversion of Unadjusted losses and depreciation of the private or unlisted
private or unlisted company shall be deemed to be the losses of LLP as if incurred in
company into LLP the year of conversion, if conditions laid down under Sec. 47 are
complied with.

• Where there is unabsorbed speculation business loss, such loss shall be carried forward
to be set off in the subsequent years against income from any speculation business.
• Can be c/f and set off up to 4 assessment years succeeding the assessment year in which
the loss is first computed
• Loss can be c/f and set off even if the speculation business has been discontinued.
• In case the assessee is having both unabsorbed depreciation & unabsorbed speculation
business losses, firstly the unabsorbed speculation business losses should be set off.
• Further the conditions as laid down by Sec.80 are to be complied with.
• Where Sec 35AD business suffers loss, Sec 73A provides for setoff of such loss only
against the profits of any other ‘specified businesses.
• Even during the carry forward mode, setoff of losses of specified business against the
profits from non- specified business is not allowed.
• Loss of specified business may be carried forward for setoff for an indefinite period.
Loss Years Set off against

STCL 8* Any income under capital gains
LTCL 8* Only against LTCG.
* Conditions as laid down by Sec.80 are to be complied with.
 Losses from activities under the head other sources (except maintaining and owning race
horses) is allowed to be set-off within same head or any other head except casual income.
 Carry forward of loss under head other source is not allowed.
 Losses from owning and maintaining race horses is allowed to be set off only against
profit of owning and maintaining race horses and unadjusted losses is allowed to be
carried forward for a maximum period of 4 years and it can be set-off only against the
profit of owning and maintaining race horses in subsequent years.

RECONSTITUTION: Where a change has occurred in the constitution of a firm the

loss attributable to the share of a retired or deceased partner remaining unabsorbed
shall not be allowed to be carried forward by the firm
This restriction shall not apply to: Change in PSR, Admission & Unabsorbed depreciation.
SUCCESSION OF ANY PERSON: Where business or profession has been

succeeded, otherwise than by inheritance, then the successor cannot have the loss of
the predecessor carrying forward and set off against his income.
• In the case of company in which public are not substantially interested

• Where a change in shareholding has taken place in the current previous year
• Then loss incurred in any year prior to the current previous year shall be carried
forward and set off against the income of the current previous year only if
• The shareholding to the extent of not less than 51% in the current previous year is
held by the same persons who held such shares in the previous year in which such
loss was incurred.
Exceptions:
• Death of the shareholder.
• Gift by a shareholder to his relative.
Note: Applicable only for carry forward of losses, but not for unabsorbed depreciation
Losses (except losses under the head House Property) can be carried forward only if loss has
been determined as per a return of loss filed on or before the date under Sec. 139(1).

Salary NA NA NA NA NA
Non-speculative  Same head
  Except 8 years
PGBP Salary
Speculative   4 years Same head
Short term    8 years Same head

Capital
gains Long term    8 years Same head
Owning
and
   4 years Same head
maintenance of
Other
race horses
Sources
Winning from
  
lottery etc.
Interest etc.   
Section 71B.
• Brought forward HP loss can be set off only
House with HP.
Property Yes Yes • It can be carried forward for 8 AY’s.
Loss
• Section 80 is not applicable. It means even if
return of loss is not filed or filed late loss can be
carried forward & set off.
Section 72
Business Yes except • Set off with both business income &
Yes
loss salary. speculation income.
• Carry forward for 8AY.

• Section 80 applicable. It means if return of loss

is not filed or filed late business loss cannot be
carried forward.
• Assessee who has incurred the loss can only set
off that loss [6 exception]
• Even if business is discontinued business loss
can be set off.
Specula- Section 73
tion loss Past year speculation loss can be set off only
(Same day •
with speculation income.
sale
& pur- • Carry forward for 4AY.
chase i.e. • Section 80 applicable. It means if return of loss
without is not filed or filed late speculation loss cannot
Yes No
taking be carried forward.
delivery)
S 43(5)
off that loss
[exception not applicable]
• Even if business is discontinued business loss
can be set off.
Section 74
Yes
LT can be set • LT can be set off only with LT. ST can be set
Loss under off only with off with both LT & ST.
the head LT. ST No • Carry forward for 8AY.
capital gain can be set off
with both LT
is not filed or filed late capital gain (loss)
& ST.
cannot be carried forward.
Loss from Section 74A
activity of • Past year horse loss can be set off only with
owning & horse income.
maintaining
race horses • Carry forward for 4 AY.
Yes No is not filed or filed late business loss cannot be
carried forward.
off that loss
[exception not applicable]
• If business is discontinued then loss cannot be
set off.

Loss from No No No
lotteries etc Note: No other loss can be set off against this income. Deduction u/s 57 not
available. Deduction u/s 80C to 80U not available. Basic exemption not available.
Flat rate 30%.
Other Yes Yes No
losses In case of choice this loss should be set off first since it cannot be carried forward.
S 32(1) S 32(2)
Current year depreciation Unabsorbed depreciation
Rules to set off unabsorbed depreciation
1. The unabsorbed depreciation can be set off with any head’s of income except casual income
and salary income. But it shall be first set off with Business Income then with any other
income. Do note that current year depreciation can be set off only with business income if
cannot be set off then it shall be carried forward which becomes unabsorbed depreciation.
2. The unabsorbed depreciation can be carried forward for unlimited period.
3. Section 80 is not applicable. It means even if return of loss is not filed or filed late loss can
be carried forward & set off.
4. Even if business is discontinued business loss can be set off.
5. Assessee who has incurred the loss can only set off that loss [6 exception]
Rules to set off the losses Priority to set off the losses
1. First S 71, then S 72 and then adjust past 1. Current year depreciation u/s 32(1).
year losses.
2. Income exempted u/s 10 cannot be set off 2. Brought forward business loss u/s 72.
with taxable income.
3. It is mandatory to set off the loss. 3. Unabsorbed depreciation u/s 32(2)
Exceptions to the rule that assessee who has incurred the loss
can only set off that loss. This exception is applicable only to S
72 & S 32(2).
1. 72A. Accumulated business loss of amalgamating company can be carried forward and set off
by amalgamated company.
2. 72A. Accumulated business loss of demerged company can be carried forward and set off by
resulting company.
3. 72A. Conversion of sole proprietorship concern into a company.
4. 72A. Conversion of firm into a company.

5. 72A. Conversion of Pvt. limited Company to LLP or Unlisted Company to LLP. (Limited
Liability Partnership).
6. 78(2). Losses of business acquired on inheritance. Father dies and son inherits the business
then son can set off the business loss.
Summary of the chapter

@ Copyright: KETAN SARDANA; ketanhsardana@gmail.com



1.
2.
3.

DEDUCTION UNDER
CHAPTER VI
BY: KETAN https://www.facebook.com/groups/caketansardana/
SARDANA JMD
10. DEDUCTION UNDER CHAPTER VI

Every person shall be allowed to certain concessions from GTI & such concessions are
called Deductions U/s 80C-80U or Deductions under Chapter VIA, however no such
deductions are allowed from long term capital gain/ casual income/STCGIIIA
 Investment in national savings certificate issued by post office

NSC are issued for 5yrs/ 10yrs & interest is allowed 8.6%/8.9% pa & interest
is taxable every year on accrual basis& deduction for interest is allowed u/s 80
considering it to be reinvestment but no deduction is allowed for the interest
for last yr. principal amt. recd. On maturity is exempt from income tax.
 Investment in fixed deposit with a schedule bank for a period of 5yr
Investment must be a period of 5yr. & it should be in the name of self & HUF
can invest the amount in the name of any of its member.
The assesse has the option to receive interest either at periodicals intervals or
maturity& either case it is tax.
Deduction u/s 80c is not allowed for interest. Amount recd. On maturity
shall be exempt from income tax.
 Repayment of having loan provided loan was taken for purchase or construction
of residential house & loan should be taken from notified institution.
 Investment in eligible issue I.e. investment in equity shares or debentures of
infrastructure development company
 The yr. post office time deposit account & interest shall be paid on yearly basis
& interest is taxable.
 Pre mature payment but it will be considered to be income of the yr in which
assesse has recd. Premature payment interest is allowed at rate of 8.5%pa
 Investment in PPF and account can be open in the name of self/spouse/ children
& HUF CAN open the account in the name of any of its member & a/c can be
pen in bank/post office and payment is allowed after 15yrs. & interest is allowed
at 8.8%pa & interest is exempt from income tax.
 And no deduction is allowed for accrued interest of PPF. PRINCIPAL AMT &
INTEREST recd. On maturity shall be exempt.

 Payment of tuition fee to school/clog. Etc. in in connection with the children of

assesse & further for max. 2 children & it should be whole time education.
 Investment in units of unit trust of India or in units of mutual fund.
Deduction u/s 80c shall be available only for the premium paid toward policy issued.
Before 1-4-2012 20% of actual capital sum
After1-4-2012 10% of actual capital sum
After1-4-2013 15% of actual capital sum
But only for person who is referred u/s 80U& 80DDB
 Employer’s contribution to recognized PF.
 INVESTMENT IN NOTIFIED SCHEME OF national housing bank
 Investment in notified bond of NABARD
 ANY OTHER INVESTMENT NOTIFIED UNDER SEC.
Section Assesse Nature of payment Amount of Other

Deduction Points
80C Individu 1. LIP for self, spouse & child. (max 10% Combined 1. Payment
al / of assured amount). Maturity amount Maximum out of loan
Contrib exempt if (a) premium for all years do deduction u/s
HUF or exempted
ution to not exceed 10% of assured amount. (b) 80C + income
LIP, Resident on death. 80CCC deduction
PF, / Otherwise taxable u/h other sources. + 80CCD allowed.
NSC,
All PF (SPF, RPF, (only EE’s
Non
ELSS 2. ULIP 8.
resident
etc. 3. FD for 5 years PPF, ASAF) except contribution
URPF. ) ₹ 1,00,000
Indian /
Saving 2.
Foreign
& Deduction
Citizen
Expend 4. ELS 5 NS 9. Tuition fees in is allowed
iture S . C India (max 2 child) in the FY of
6. Infrastructure (formal payment.
shares school/university/c
/ bonds ollege)
7. Pension funds 10 Repayment of

of MF . housing loan

Deduction is allowed only to an individual in case, of contribution to certain pension fund i.e.
in case of payment of payment of premium for life policy in which premium is allowed instead
of lump sum payment.
For Example - payment of premium towards jeevan suraksha policy or other similar policy.
Policy should be taken in the name of self-i.e. deduction is not allowed to HUF.
Section Assesse Nature of payment Amount of Deduction Other Points

80CCC Individual Contribution to Pension Combined Maximum Payment should
Pension R/NR Fund of insurance deduction u/s 80C + be made out of
fund IC/FC companies. (Annuity 80CCC + 80CCD (only taxable income.
scheme or any other EE’s contribution) ₹
Pension Plan) 1,00,000
 Add full contribution of employer in salary & then deduction allowed from GTI
only up to 10% of basis +DA(UNDER TERMS)
 Employer contribution is allowed up to 10% deduction

Sectio Asses Nature of Amount of Deduction Other Points

n se payment
80CCD Indivi Contribution to max 10% SAS for ER + max 10% of Payment
dual Pension Fund set SAS for EE but should be
Pension up by
R/NR Maximum combined deduction u/s made out of
fund CG. (New Pension
IC/FC 80C + 80CCC + 80CCD (only EE’s taxable
Scheme) income.
contribution) ₹ 1,00,000

MAXIMUM DEDCTION allowed u/s 80c+80ccc+80ccd shall be Rs100000 but it does

not include 80CCD (2)
Conditions:
 . The GTI of the assessee for relvant assessment yr. should be less than or equal
to Rs1200000
 . The assessee should be new retail investor
 . investment in listed units of equity oriented fund.
 . Minimum period in book is 3yr
Deduction allowed @ 50% of investment but maximum of Rs 25000 & also
deduction shall be allowed for max. 3yr.
Section Assessee Nature of payment Amount of Deduction

80CCG Resident Investment in equity shares 50% of amount invested in the
Rajiv Individual or units of equity oriented specified scheme or ₹ 25,000
Gandhi fund as per Rajiv Gandhi whichever is lower for 3 years if GTI
equity Equity Scheme. do not exceeds ₹ 12 lakhs.
scheme
 Deduction is allowed only to an individual or HUF provided the assesse has

paid premium towards mediclaim policy or amount has been contributed
towards central govt. health scheme (CGHS) or amount has been paid for
preventic health checkups(PHC)

 Individual can make the payment for self/ spouse/ dependent children’s or parents
whether dependent or independent.
 Maximum deductions allowed is Rs15000 & Rs 20000 for senior citizen
 Maximum deductions allowed in case, of HUF , shall be Rs 15000 but additional
Rs 5000 for senior citizen
 Maximum deductions for PHC shall be Rs 5000 but it will be within the limits
mention above. No deduction is allowed in case of PHC.
 The assessee should make payment otherwise than in cash but payment of PHC
can be made in any manner.
Section Assesse Nature of Pay Amount of Deduction Other Points

80D Ind / Contribution Self, Spouse & Parents Payment
HUF to health Dependent (dependent / Not should be
Health made out of
R/ NR insurance children dependent)
Insurance taxable
IC/FC premium & Max 15,000. Max 15,000.
Premium income.
for preventive (Resident (Resident
health check- Senior Citizen Senior Citizen Payment of
up. max ₹ max ₹ premium in
Contribution in CGHS scheme 20,000) 20,000) cash deduction
dedn allowed.. Over all deduction Preventive health Preventive health not allowed.
cannot exceed 15,000 / 20.000 / check-up max ₹ check-up max ₹
35,000 / 40,000. 5,000 even in 5,000 even in
cash. cash.
Deduction is allowed only to resident individual or resident HUF provided the assesses
has incurred expenditure on treatment / training /education or rehabilitation of
handicapped person .Individual can incur expenditure for souse/ children/ brother/ sister
or parents provided they are dependent or individual .
HUF can incur expenditure for any of its member provided such member is dependent
on HUF. Deduction allowed shall be Rs. 50000 irrespective o0f expend. Incurred but
in case of serve disability amt. exceed to Rs100000.

Section Assesse Nature of Amount of Deduction Other Points

payment
80DD Only Maintenance Spouse & Brothers, Sisters Certificate of
resident + normal children & Parents disability is
Disabled
dependent Individual
medical Wholly or mainly dependent on furnished.
treatment of such individual for his support and Double benefit
/ dependent
HUF maintenance. of 80DD &
person with
disability. Normal disability Fixed ₹ 80U not
IC/FC (at least 40%) 50,000 available.
Severe disability Fixed ₹
(at least 80%) 1,00,000
Deduction is allowed to resident individual or resident HUF provided the assesses has
incurred expenditure on treatment on treatment of specialized disease listed under rule
DD & EXP. SHOULD BE incurred for treatment of self or dependent relatives & HUF
can incur expend. On treatment of any of its member who is dependent.
Deduction shall be allowed equal to the expend. Incurred but max. 40000 & in case of
senior citizen max. of Rs 60000.
If any such assesses has read any claim under med claim policy or any payment has been
given by his employer in such case amt. of deduction shall be recd. by the amount so
required.
Section Assesse Nature of Amount of Deduction Other Points

payment
80DDB Only Medical Self, Spouse & Brothers, Sisters & Specified
resident treatment children Parents disease. Cancer,
Medical AIDS,
of Wholly or mainly dependent on such
treatment Individual specified Neurological
of specified / individual for his support and
disease. maintenance. disease etc
disease HUF
Actual expenditure or ₹ 40,000 (in case
IC/FC of RSC take

₹ 60,000) whichever is lower less

medical insurance is the amount of
deduction.
Deduction is allowed only to a resident individual provided such resident individual is a

handicapped person & deduction allowed is 50000 irrespective of expenditure incurred
and in case, of serve disability deduction allowed shall be Rs.100000
Section Assesse Title Amount of Deduction Other Points

80U Only Assesse Normal disability (at Fixed ₹ 50,000 Double
resident himself is least 40%) benefit of
Disabled Individual
disabled. Severe disability (at Fixed ₹ 1,00,000 80DD & 80U
(IC/FC) least 80%) not available.
Deduction is allowed only to an individual for the interest paid in connection with loan
taken for pursuing higher education & loan can be taken for the education of self/ spouse/
children & loan should be taken only from notified organization like bank or financial
institution etc.
Higher education shall include any recognized educational course after passing
secondary examination
Deduction shall be allowed for the period of 8 years starting from the yr. in which the
interest has been paid for fixed time &deduction is equal to the amount of interest paid.
Section Assesse Title Amount of Deduction Other Points

80E Individual Interest on Any amount of interest is allowed Loan is taken by ind
Interest (R/NR / loan taken for as deduction for max 8 years. for himself, spouse
on IC/FC) higher Repayment of loan is not allowed or for child.
as deduction.

higher education after

ed. + 2.
1) Person entitled- Individual ( resident or non-resident)

2) Payment regarding – interest payable on loan taken for acquisition of house property.
3) Quantum of deduction- . max deduction allowed for Rs 100000
. if interest payable is less than Rs 100000 in AY.14-15 than
deduction
For balance shall be claimed in AY 15-16
 Condition for deduction - Loan is sanctioned between financial institution in PY13-14
o LOAN AMOUNT DOES NOT EXCEED 25LAKH
o Value of house property is up to 40lakh
o No house property owned by assesse on date of loan
For Example: Loan 24l from SBI on 1/5/13 @ 12% house purchased for 35lakh
Solution: GAV NIL
(-) MT NIL
NAV NIL
(-) 24(a) -
(-) 24(b) 150000
Loss of HP 150000
U/s 80EE 100000
Section Assesse Title Amount of Deduction Condition

80EE Individual Additional One time deduction of 1. Lender : Bank or FI
additional (R/NR Interest interest payable not 2. Loan sanctioned upto ₹ 25
Interest / IC/FC) for exceeding ₹ 1,00,000 Lakhs in FY 2013-14.
First time shall be allowed in PY
home 2013-14. If interest 3. Purchase price upto ₹ 40
buyers. payable is less than Lakhs.
1,00,000 then balance 4. Do not own any house on the
interest deduction can be date of sanction of loan.
claimed in PY 2014-15.

Deduction is allowed to all assesse provided the assesse has given the donation to any of the
institution or fund mention below & deduction allowed shall be 50%/100% of donation
- Prime minister drought relief fund (50%)
- Jawaharlal Nehru memorial fund (50%)
- Rajiv Gandhi foundation (50%)
- Indira Gandhi memorial trust (50%)
If donor has been given to any other organization which is notified u/s 80G. In that case
deduction is allowed but deduction allowed shall be 50% of qualifying amount. & if
donation is given to the govt. / local authority for promotion of family planning
deduction allowed shall be 100% of qualifying amt.
Qualifying amount = 10% of adjusted gross total income or donation except donation to
28 funds whichever is less.
Adj. GTI =GTI-LTCG- STLGIIIA- ALL DEDUCTION OF 80C TO 80CC
EXCEPT 80G.
For Example: - P.G.B.P =1320000; LTCG =135000; Casual 47000

Mediclaim = Rs20000, Jjeevan suraksha Rs7000
Donated to national defence fund Rs12000, 4000 to Rajiv Gandhi & 45000
to a charitable institution.
Solution: - Computation of Total TAXABLE INCOME

Income u/h B/P 1320000
Income u/h capital gain 135000
Income from other sources 47000
G.T.I 1502000
Less: Deduction 80CCC 7000
DEDUCTION 80G 2000
1) NDF 12000
2) Rajiv Gandhi 2000
3) Charitable 22500 (W.N)
Total Income Rs. 1458500

W.N. - AGTI= GTI-LTCG –STCG u/SIIA- Deductions (except 80G)

=1502000 -135000-7000
=1360000
Qualifying amount = 10% of AGTI or donation whichever is less

=136000 or 45000
=45000
50% of qualifying amount =Rs22500
Deduction is allowed only to an individual provide such individual is not getting any
house rent allowance from the employer & also he is not getting any rent free
accommodation from the employer & also he do not have any house in his name or in
the name of spouse/ minor child /HUF of which he is the member at the place of his
work or at place where they resides ordinarily in such cases deduction is allowed u/s
80GG.
The assesses may have house at any other place but it should not be declared self-
occupied. Deduction allowed shall be:
.Rent paid over 10%of adj. GTI. 2000P.M. 25%of adjusted GTI. Least.
Section Assesse Condition Amount of Deduction (Least is deductible)

80GG Individual Deduction for rent paid.
(R/ Rent is paid to third person or to the M ₹ 2,000 p.m.
Rent
NR / IC/ ER.
FC) F 25% of adjusted GTI
He is not in receipt of HRA F Rent Paid – 10% of
Rent is not paid to HUf, spouse or his adjusted GTI
minor child.

Deduction is allowed to all the assesses provided that the assesses do not have any
business or profession & deduction allowed shall be equal to amount of donations &
donations are given below:
- Deduction to a notified research association as per sec.35
- Deduction to a notified institution for eligible project as per sec.35AC AND
ELIGIBLE PROJECT MEANS project of social or economic importance like
construction of house for poor person or drinking water projects.
- Donation to notified organization as per sec 35CCA for rural development
including donation to rural fund set up by central govt. or donation to national
urban poverty eradication programme.
If the assesse has any business profession such donation is allowed to be debited to P&L
a/c and other person can claim deduction u/s 80GGA. DONATION IN EXCESS OF Rs
10000 must be otherwise than in cash
Section Assesse Title Donation is made to Other Points
80GGA All Donation 1. Approved research association for Cash donation

assesse for scientific research.
Donation
not research 2. PSU / Local authority for eligible upto ₹ allowed
for SR / rural
having project or scheme. 10,000
business development
income 3. Institution for Rural development Corresponding
programme section of PGBP is S
4. National Urban Poverty Eradication 35, 35AC, 35CCA.
Fund / National Fund for Rural
Development.
 If any Indian company has given donation to any political party electoral trust
deduction is allowed equal to donation as PER sec. 80GGB.

 If any person has given donation to any political party or electoral trust
deduction is allowed equal to donation as per sec.80GGC
 All donation must be otherwise that in cash.
 Electoral trust means the trust which will be required to donate at least 95% of it
income to various political party.
80GGB 80GGC
Applicable to Indian Company All assesse

Not applicable to Others Local authority & every artificial
juridical person wholly or partly funded
by the Govt.
Contribution to Political party or Electoral Political party or Electoral Trusts
Trusts
Amount of deduction 100% of contribution 100% of contribution
Cash donation any not allowed not allowed
amount
Deduction is allowed to all the assesses provided the assesses of business of collecting or
processing or treating etc. of biodegradable waste to make organic manner or to use it in
biogas plant or to use it as free or to use it any other manner & deduction is allowed equal
to the amount of income & deduction is allowed for continuous period of 5yrs and after
that income is taxable.
Deduction is allowed to an Indian co. which engaged in manuf. & the company has given
employment to more than 100 regular workmen in the first year itself.
Deduction allowed shall be 30% of additional wage & additional wages mean
wages paid to the regular workmen in excess of 100 and deduction shall be allowed for a

continuous period of 3 yrs. however, the company give additional employment to the extent
of at least 10% of exiting no. of employees at the end of preceding year.
For Example:- ABC Ltd. Is an Indian co. & is engaged in manufacturing & has
commenced business in P.Y 13-14 & has given employment t0 220 regular workmen &
additional wages paid are Rs9000000 deduction allowed shall be Rs2700000
(90l*30/100)
The company has given employment to 12 regular workmen in P.Y. 14-15 no
deduction is allowed in P.Y.14-15.
The co. has given employment to 70 regular workmen in p.y.15-16 & additional
wages paid are Rs13000000 deduction allowed shall be Rs 3900000(130l*30/100)
Deduction is allowed to resident individual provided such individual has royalty

income in connection with copyright of book of literary or scientific nature & also it
should not be help book /guide/textbook etc. & deduction is allowed equal to the
royalty recd. but max. 300000& if royalty is paid as percentage of printed price excess
over 15% of printed price shall not be taken into consideration.
If any such author is getting royalty from outside India , in that case, also deduction
shall be allowed in this similar manner .however, assesses should bring foreign
currency in India, within prescribed time period.
Deduction is allowed only to a resident individual provided such individual has royalty
income in connection with patent right & deduction is allowed equal to the amount of
royalty but max. Rs. 300000. If royalty has been recd. From outside India in that case also

deduction is allowed in the similar manner provided foreign exchange has been brought in
India with prescribed time period.
Section Assesse Title Amount of Nature of income

Deduction
80QQB Resident Royalty Amount of Books: Literary, Artistic or Scientific nature.
/ Individual from royalty or Annual Royalty: If royalty is earned
/ HUF books / ₹ 3,00,000 cannot exceeds 15% outside India then it
80RRB Patents whichever is of sales. should be brought into
lower Lump sum royalty: India within 6 months by
Any amount. 30th Sept.
Deduction is allowed to an Individual & HUF in connection with SAVING ACCOUNT

INTEREST and a/c can be open with bank or post office & deduction is allowed equal to
the amount of interest but max. Rs10000. If any person has saving bank a/c within a post
office in such case , interest up to 3500p.a. is exempt from income tax u/s10(5) & also
deduction is allowed u/s 80TTA
Section Assesse Title Nature of Amount of Deduction

income
80TTA Resident Interest on Banks Max ₹ 10,000.
Individual saving bank Deduction is not available on interest on
/ HUF a/c. fixed deposits. It is only on interest on
saving.


PROVISION REGARDING
TAX DEDUCTED AT
SOURCE (TDS)
SARDANA JMD
192 Salary Employer Payment (P) Slab rate + Ed cess Basic

exemption
Other Employee can give all other income details to his employer on which tax shall
Points be deducted. However employee cannot provide detail of losses of other
heads. But he can provide losses under the head house property which the
employer shall adjust while computing TDS.
193 Interest on Company or Payment or 10% ₹ 5,000 (listed
securities Govt. credit / unlisted | ind/
whichever date huf | acc payee
is earlier (PCD) cheque)
No TDS also on 1. DEMAT 2. Central / 3. Interest on Gold 4. Zero
followings securities. State Govt. Deposit Bonds Coupon Bonds.
Tax free securities. Tax since exempt u/s Tax free
securities free securities 10(15). securities
194 Dividend u/s Closely held Payment (P) 20% nil
2(22)(e) company 10(34)
Loan / advance
194A Interest other than All person Payment or Domestic 20% ₹ 10,000 paid
interest on except ind/ credit Co by
securities HUF* whichever date Bank / Post
is earlier (PCD) Office
Ind /HUF/ 10% ₹ 5,000 other
Firm Interest
No TDS also on 1. Interest to 2. Interest paid 3. Exempted 4. Interest from
followings banks. by firm to its interest u/s 10(15) micro banks.
partners.
194B Winning from Any person Payment (P) 30% ₹ 10,000
Lottery/crossword
puzzles
194BB Winning from Any person Payment (P) 30% ₹ 5,000
horse race

194C Payment to All person Payment or Firm / D. 2% Single :

contractor. except ind/ credit which Co 30,000.
Works / labour HUF* ever date is Ind / HUF 1% Aggregate :
contract : Advt, earlier (PCD) 75,000.
Catering, TV, Truck + nil Personal
Transporters, Job PAN contract :
Work. Truck no 20% No TDS
PAN
194D Insurance Any person Payment or Domestic 20% ₹ 20,000
commission credit which Co.
ever date is Ind /HUF/ 10%
earlier (PCD) Firm
194E Payment to Non-resident At the time of 20% 20,000
non-resident cum payment
sportsmen non-citizen
entertainer
performing in
India (e.g. in
IPL)
194G Commission on Any person Payment or 10% ₹ 1,000
sale of lottery credit which
tickets ever date is
earlier (PCD)
194H Commission or All person Payment or 10% ₹ 5,000
brokerage other except ind/ credit which
than share HUF* ever date is
brokerage. earlier (PCD)
Examples 1. Order 2. Guarantee 3. Recruitment 4. Property
: procurement commission commission dealer
commission
194I Rent All person Payment or P&M 2% ₹ 1,80,000.
except ind/ credit which Building & 10% Rent paid to
HUF* ever date is Furniture Govt
earlier (PCD) / Local
authority
/ RBI
194IA TDS on transfer Any person Payment or 1% less than
of land & (buyer) credit which ₹ 50,00,000
building other han ever date is
agricultural land earlier (PC)

194J Professional / All person Payment or 10% ₹ 30,000 for

technical fees / except ind/ credit which each income
Royalty / Non HUF* ever date is except director
competing fees / earlier (PCD) fees where
Director fees. base amount is
nil
194LA Compensation on Govt Payment (P) 10% ₹ 2,00,000
compulsory
acquisition of L &
B.
194LB Income by way of Non-resident At the time of Any amount
interest from or to a payment or credit 5%
infrastructure debt foreign whichever earlier.
fund company.
194LC Income by way of Payer (i.e. At the time of 5% Interest on money borrowed
interest from Indian Indian payment or credit between 01/07/2012 and
company Company) whichever earlier. 30/06/2015 in foreign currency
pays to non- under loan agreement or by issue
resident or of long term infrastructure bond
foreign
company
195 Any sum except Any person Payment or Rate of TDS the 10(34)
salary to Non- credit which amount of tax
resident or to a ever date is payable by NR in
foreign company earlier (PC) India.**
199 The tax deducted at source shall be treated as tax paid in PY which shall be adjusted from
final tax computed in AY. Tax computed in AY – Tax paid in PY = Self-assessment tax.
** Surcharge and education cess as applicable shall be added to basic rate for deduction of tax at source.

Section 197 Section 197A
Title Certificate of TDS at lower deduction Declaration of nil deduction of tax.

or nil rate.
Issued by Assessing Officer Assessee
Application Assesse On its own.
by
Income All kinds of incomes which are Only interest income subjected to TDS
subjected to TDS u/s 193 & 194A.
Condition for If assesse is of the opinion that his final For Ind / HUF For senior citizen
application income tax amount shall be lower than If interest < If interest > Basic
tax to be deducted. Basic exemption exemption but tax
&
on TI is nil.
Tax on TI is nil.
* PY 12-13 PY 13-14 PY 14-15

Turnover exceeds TDS is required to be deducted
₹ 1 Crore / 25 by Individual / HUF
Lakhs
Turnover exceeds ₹ TDS is required to be
1 Crore / 25 Lakhs deducted by Individual /
HUF
200 Due date of deposit of TDS with Govt. TDS return S 203. TDS certificate
April 7th May Aug 7th Sep Dec 7th Jan AMJ 15th July AMJ 30th July
May 7th June Sept 7th Oct Jan 7th Feb JAS 15th Oct JAS 30th Oct
June 7th Jul Oct 7th Nov Feb 7th Mar OND 15th Jan OND 30th Jan
July 7th Aug Nov 7th Dec Mar 30th Apr JFM 15th May JFM 30th May
E filing / E payment compulsory Form 16 (others)/ 16A (Salary)
200A Correction in TDS return if there is arithmetical errors, error in rate of TDS, wrong deduction
1. of tax then intimation shall be sent to assesse for correct deposit of TDS along with interest.
2. Intimation shall be sent within a period of 1 year from the end of the financial year in which
statement was filed.
201 Consequences of not deduction of tax at source or deducted but not deposited with the Govt.

a. Interest @ 1% p.m. / 1.5% p.m. b. Penalty : Max tax c. In PGBP these expenses shall
in arrears not allowed as deduction
203 TDS certificate should be furnished quarterly within 15 days of deposit of tax. Tax deductor
shall provide Unique Transaction Number to payee. It is proof of deposit of TDS with the Govt.
203A Tax Deduction & Collection Account No. TDCAN should be applied in Form No 49B
by every assesse who is required to deduct tax at source. This TDCAN should be
quoted in every challan, return & in every correspondence with income tax department.
203AA Annual tax statement in Form No 26AS should be issued in E-Mail by NSDL to every
assesse whose tax has been deducted at source by any tax deductor.
206AA If assesse do not furnishes PAN to the tax deductor then tax deductor shall deduct tax at
source at following higher rates.
a. Basic rate of TDS / PAN should be quoted in all declaration and application.
TDS at slab rate Wrong quotation of PAN shall also entail higher deduction of
tax.
b. 20%
Grossing up of income
Amount (net of Mr. Tax crazy receives interest on listed debentures of ₹

Gross income TDS) 9,000 (net of TDS). Find out the gross interest which is
= ------------------------- included in his income. Ans : 10,000
- 100 – rate of TDS
Statement of TDS/TCS to be issued to taxpayer under Sec. 203AA Form 26AS
or Second proviso to Sec. 206C(5)

ADVANCE TAX
SARDANA JMD
12. Advance payment under section 207 to sec 219
Pay as you earn Scheme
As per section 207 every person has to pay advance tax

AS per Section 208 every person who is paying advance tax has to be paid only if tax payable
(tax payable =tax liability-TDS) is 2, 10, 000 or more
 Advance tax shall not have be payable by any resident individual in India who,
a) Is of the age of 60 or more at any time during the previous year

b) Does not have any income chargeable under the head "profits and gains from
business and profession"
Is advance tax payable on all income?

Yes, advance tax is payable on all income whether it can be estimated or not. In case of that
income which cannot be estimated like LTCG, STCG STT paid, Gifts advance tax is required
to be paid in the same PY in which it arises.
 Who is required to pay advance tax?

Every person.
 When a person is required to pay advance tax?

If his estimated advance tax after deduction of TDS exceeds ₹ 10,000.
Any Exceptions?
Yes. 2 Exceptions:-
 Exception 1:- Assessee claiming income under section 44AD or 44AE

(presumptive basis of taxation) is not required to pay advance tax.
 Exception 2. All conditions should be satisfied :-

1. Person is resident individual aged at least 60 years.
2. Such individual is not earning any business income.
Advance tax should be paid under the given manner

1. Estimate the current income of the previous year.
2. Compute tax including SC, EC & SHEC.
3. Allow relief, TDS & TCS and subject to amount.
4. The balance is the advance tax provided it is >Rs.10,000.

Sec.210: Payable in instalments as per Sec.211.
Corporate Non-Corporate Assessee

Assessee
• By 15th June 15% Nil
• By 15th September 45% 30 %
• By 15th December 75% 60 %
• By 15th March 100% 100 %
Note:
a. Tax on the total income declared in the ROI.
b. TDS, TCS & Relief u/s 89.
If any assessee has paid income tax after the last date of ROI, interest shall be charged u/s
234A @ 1% per month or part of month for a period beyond last date of filing ROI
If any person has paid tax after the expiry of the relevant previous year in such cases , interest
is payable at the rate of 1 % per month from 1st April to the date of payment, but if advance
tax is paid more than 10 % of tax payable then interest u/s 234 B shall not be charged

If any person has failed to pay advance tax, such person has to pay interest under Sec 234 @
1% per month for a period of 3 month on the amount of default but for the last instalment,
interest is to be paid only for 1 month
If advance tax is paid by company upto 15th June is 12% of total payable upto 15%
Sept, it is 36% of tax payable, in such cases no interest shall be charged for such default
instalment
Due date Advance Tax to be Advance tax paid (b) Shortfall Interest
paid (a)
By 15th June 15% If advance tax paid is (a) – (b) 1 % of shortfall
atleast 12 % then x 3
interest is nil
By 15th 45% If advance tax paid is (a) – (b) 1 % of shortfall
September atleast 36 % then x 3
interest is nil
By 15th 75% no relaxation (a) – (b) 1 % of shortfall
December x 3
By 15th March 100% no relaxation (a) – (b) 1 % of shortfall
x 1
Particular 234A 234B 234 C

Nature of default ROI not filed by DD Advance tax < 90% of Advance tax not paid in
assessed tax. time
Default period Due date to filing date 1-4 to assessment date Payment after 15th quarter
3 33 1
Tax due Assessed tax – TDS – Assessed tax – TDS – Returned tax – TDS –
Advance Tax Advance Tax Advance Tax
If any assessee has paid income tax in excess, such excess shall be refunded along with
Interest @ 0.5% p. m or a part of month from the beginning of the financial year till the date
of granting of refund

As per rule 119 A, amount on which interest is to be computed should be rounded off in or
multiple of 100 for this purpose any fraction of 100 shall be ignored
IF any company has paid advance upto 15th June of previous year, at least 12 % of
actual tax that no interest be charged under section 234 c
If any assessee has defaulted in the payment of advance tax because of casual income or
capital gain, in that case no interest shall be charged u/s 234C, but advance tax shall be paid in
instalments after accrual, of casual income or capital gains, otherwise interest shall be charged
on such subsequent instalments
Example: ABC ltd has paid advance tax in the following manner
15/6/2013 40,000
15/9/2013 1, 00,000
15/12/2013 2,00,000
15/3/2014 4,00,000
The company has income from business and profession 10 lakhs and capital gain income
(long term) of 10 lakhs on 1-12-2014. Compute interest payable under Sec234C.
Solution:-
Tax liability on 10 lakhs Total income = 20,00,000

Tax + E.Ces/S.H.E.C = Rs. 30, 900 (LTCG+ business income)
TAX + E.Cess+ S.H.E.C = Rs. 5,51,500
Interest & tax calculation :-

Paid Original
15/6/2013 40,000 46,350
15/9/2013 1,00,000 1.39,050
Interest = 139050-100000 = 39000*1%*3
= Rs.1170 (Rule 119A Applicable)
15/12/2013 2,00,000 3,86,250

Interest = 386250-200000 = 186200*1%*3
= Rs.5586 (Rule 119A Applicable)

15/3/2014 4,00,000 5,15,500

Interest = 515000-400000 = 115000*1%*1
= Rs.1160
Total Interest = 1170+5586+1160 = Rs.7916
No interest on shortfall of advance tax due on the returned income if:

a. On account of underestimate/failure to estimate CG’s or income referred to in Sec.
2(24)(ix) and
Has paid the whole of the amount of tax payable in respect of such income, as part of remaining
instalments/paid before the end of the financial year.

AGRICULTURAL
INCOME
SARDANA JMD
13. AGRICULTURAL INCOME

2(1A) Definition of agricultural income
2(1A)(a) Rent or revenue derived from agricultural land
2(1A)(b) Income derived from agricultural land by agricultural
operations
2(1A)(c) Income of a farm building
10(1) Exemption of agricultural income
Rule 7 Income which is partially agricultural and partially from
business
Rule 7A Income from growing and manufacturing of rubber
Rule 7B Income from growing and manufacturing of coffee
Rule 8 Income from growing and manufacturing of tea

The term agriculture is defined under sec. 2(1A) OF Income Tax Act & meaning is given
in three parts:
 Rental income from letting out of agriculture land 2(1A)(a)
 Income from agriculture operation 2(1A)(b)
 Income from a farm building 2(1A)(c)
(a) (b) (c)

Rent from agricultural land Growing of crops from land Rent from building
situated in the immediate
situated in India used for situated in India. Also saplings
agricultural purpose in a nursery. vicinity of
agricultural land situated in
Basic Yes Yes No
India and used for
operation
agricultural purpose and not
Subsequent Yes No Yes situated in urban area.
operation Exception : If let out for
purpose other than
agriculture then NAI
Whether Yes Yes No
AI?
Computation u/h Other Computation u/h Business Computation u/h House
Sources Property
S 56 to 59 S 28 to 44D S 22 to 27
Rent xxx Sale of crops xxx GAV xxx
Less : taxes on land xxx Less : all business xxx Less : MT xxx
expenses
Less : Collection • Salary NAV xxx
charges
• Irrigation expenses Less : SD xxx
xxx
xxx • Depreciation Less : Interest xxx
OS AI
xxx xxx
BI AI HP AI

If any person has let out any agriculture land rental income shall be called agriculture income.
E.g. MRX. HAS 10 acres of agriculture land which he has given on lease to MR.Y & he has
recd. Amount of rent of Rs3lakh in that case it will be called agriculture income .& shall be
exempt from income tax but there will be partial agriculture .
If rent has been recd. In kind, its market value shall be considered to be agriculture income &
if such crop etc. has been sold further, such income shall also be considered to be agriculture
income.
If any person has not recd. Rent in time & has recd. Interest on area of rent, such interest shall
not to be considered to be agriculture income rather it will be his income & taxable u/h other
source.
If any person has Income from agriculture operation, it is considered to be agriculture income.
if any co. has income from agriculture in India it will also be exempt but if any such co. has
distributed dividend to it shareholders it will not be considered to be agriculture income of
the shareholders rather it will be considered as income of shareholders .
If any partnership firm has agriculture income, it will also be exempt from income tax & if
partners has recd. Share out of profits of partnership firm, it will be exempt from income tax.10
(2A).
If any partner has recd. Any salary or interest on capital gain the firm having agriculture
activity, it will be considered to be agriculture income u/s 10(1).
If any person has sold forest produce it will not be considered to be agriculture income i.e. if
any person has sold trees or other forest produce it will not be considered to be agriculture
income.
In order to constitute agriculture, agriculture will include:-
1) Basic operations
2) Subsequent operations
(1) Basic operation – shall include ploughing the fields, using fertilizer & sowing the
seeds.
(2) Subsequent operations- shall include watering of plants at regular interval & using
insecticides /pesticides to protect the plant & also looking after plant.
 If any person is engaged in agriculture activities as well as industrial activity in such
case income shall be computed as per Rule 7 of income tax rule.
 As per rule 7, it will be presumed that the assesses has transferred the agriculture
produce to be industrial undertakings at the ‘Market Price’. Agriculture income shall be
computed after deducting expense of agriculture while computed income of business,

such market price shall be debited as cost of raw material & income shall be computed
accordingly.
For Example: - MRX. Has sugar cane held & also sugar factory & he has incurred Rs3lakh
on seed fertilizer etc. to grow sugar cane crop. After that entire crop was transfer to his sugar
factory when M.P. was Rs 10lakh. in this case agriculture income shall be Rs700000. For B/P
income Rs10lakh shall be debited as the cost of raw material while computing income.
 As per RULE7A, if any person is growing & manufacturing rubber income shall be
computed for growing +manufacturing & 35% of such income shall be business income
&65% of such income shall be agriculture income.
As per Rule7B, IF ANY PERSON IS ENGAGED IN growing & manufacturing of coffee,
income shall be computed combined as 40% of such income will be as business income &
balance 60%of such income agriculture income.
If the assessee is engaged in growing & coffee income should be computed combined.
25% of such income shall be considered to be business income & balance shall be agriculture
income.
 As per Rule8, if any person is growing & manufacturing tea income should be
computed combined (mix).40% of such income shall be business income & balance
agriculture income.
“Profit on selling “agriculture rent is to be considered as capital gain but if the land is to be in
rural area then it is exempt from income tax.
If any person is engaged in dairy farming, poultry, fisheries or animal husbandry or any other
similar activity it will be B/P income
Income from ‘farm building’ shall be considered to be agriculture income. Farm building
means any building which is in the agriculture field or very near to the agriculture field & it’s

being used for storing agriculture produce or agriculture implements or it is being used by
farmer itself as a dwelling unit.
Such building should be in the urban area &if it is in the urban area it should be constructed on
the land which is classified as ‘agriculture land’
. “A farm house “is house property & its income is taxable, it will not be considered to
be farm building
. If any person is employed in Agriculture University his salary income shall not be
considered to be income of agriculture rather it is income u/h salary.
If any person is trading in agriculture produce, the income shall be taxable and if
agriculture income outside India shall be taxable.
Agricultural income as defined under section 2(1A) is fully exempt from tax but with a rider.
Since agricultural income is exempt from tax it doesn’t form part of total income. Also
Constitution of India gives exclusive powers to the State Legislature to make laws with
respect to taxes on agricultural income. (Entry No. 46 of
State List)
Computation of income which is partly agricultural & partly
non agricultural
AI NAI
Rule Manufacture of rubber. 65% 35%

7A
Rule Sale of coffee grown and cured by seller. 75% 25%
7B(1)
Rule Sale of coffee grown, cured, roasted and grounded by 60% 40%
7B(1A) seller in India with or without mixing chicory or other
flavouring ingredients.
Rule 8 Growing and manufacturing tea in India. 60% 40%
 Income should be derived from land

 Land must be situated in India

 Land must be used for basic operations of agriculture. Land may also be used for
subsequent operations but such subsequent operations can only be with conjunction or
together with the basic operations. These are what are called as agricultural operations and
classified into basic and subsequent operations.
 Income from nursery (It is always exempt)
 Partial integration of agriculture income :-
If any person has agriculture income as well as non-agriculture income, in that case his
tax liability, shall be computed in the manner given below:
1) Compute income tax on total of agriculture income + non agriculture income but
without education cess.
2) Compute income tax on total of agriculture income + exemption limit but without
education cess.
3) Deduct tax from step2 to step1 and apply education cess
4) LTCG/STIIA/CASUAL INCOME SHALL NOT BE TAKEN INTO consideration

for the purpose of partial income i.e. income tax shall be computed separately on
such income.
5) If agriculture income is up to Rs 5000 or non-agriculture income is up to exemption

limit their will not be any partial agriculture /integration.
6) Partial integration is not applicable in case of partnership & company.

SARDANA JMD
FILING OF RETURN

14. FILING OF RETURN
139(1) Submission of return of income
139(3) Return of loss
139(4) Belated return
139(4A) Return of income of charitable institutions
139(4B) Return of income of political party
139(4C) Return of income of certain associations and institutions
139(5) Revised return
139(9) Defective return
139A Permanent account number
139B Scheme for submission of returns through Tax Return Preparers
140 Return by whom to be signed

a. CBDT.
b. Chief Commissioner/Director General of IT.
c. Commissioner/ Commissioner (Appeals)/ Directors of IT.
d. Additional Commissioner/Add. Comm. (Appeals)/ Add. Director of IT.
e. Joint Commissioner/Joint Director of IT.
f. Deputy Commissioner/Deputy Director of IT
g. Asst. Commissioner/Asst. Director of IT.
h. Income Tax Officer.
i. Tax Recovery Officer.
j. Inspector.
OBLIGATION ,
.
Of the Assessee Of the Income Tax

Department
To file Return To complete the

assessment
In response to
Voluntary Obligatory
Return notice u/s.142, 147, 153 A
Returns

The following persons shall be required to file return of income:

 Every company or partnership firm shall be required to file ROI
 Any other person, if gross total income is exceeding the exemption limit i.e. with
allowing deductions v/s 80c to 80v.
 If any person is assesse in behalf of another person and such other person has gross
total income exceeding exemption limit.
As per SEC 139(4A), Every charitable or religious trust or other similar organization shall
be required to file ROI, if their total income before permitting exemption under sec 11,
12,13 is exceeding the exemption limit.
As per SEC 139(4B), every political party having income more than the exemption limit
before permitting exemption v/s 13A shall be required to file ROI.
As per SEC (4C)(4D), if certain organization like trade union, news agency, professional
association, scientific research association etc. have total income more than the exemption
limit before permitting exemption they will be exempt from filing ROI.
If any individual has total income up to 5lakh, such individual is exempt from filling ROI
but should be salary income. However, it may include interest also from saving bank a/c
with up to Rs.10000.
If any individual is ROR and he has any asset outside India or has any financial interest in
any entity outside India, such individual shall require to file ROI.
DATE OF FILLING THE RETURN OF INCOME

ROI is required to be filed up to 30th July of assessment year. But ROI can be filled up to
31st September of assessment year in the following cases:
 Company
 Any other assesse if audit is required.
 Working partner of partnership firm provided the accounts of partnership firm are
required to be audited.
If any person has not filed ROI up to the end of relaxant A.Y, in that case, penalty shall
be imposed v/s 271F of Rs.5000.

Individual / HUF / Company / Firm

AOP / BOI / AJP
If GTI exceeds basic They should file ROI irrespective of income or loss. Irrespective
exemption then they whether business has started or not. As soon as the company is
should file the ROI. incorporated or partnership deed is signed they are required to file ROI.
Person [Explanation to Section 139(1)] Last day of filing of
ROI
1. Any person who is required to file transfer pricing audit report. 30th - 11 of AY1
2. A company. 30th - 9 of AY1
3. A person (other than a company) whose accounts are required to be 30th - 9 of AY1
audited under any LAW (Audit is compulsory u/s 44AB, Section
11, 12 or 13A etc.).
4. A working partner of a firm whose a/cess are required to be audited 30th - 9 of AY1
under any LAW.
5. In case of any other assesse. (Salary, HP, Capital Gain or Income 31st - 7 of AY1
from other sources)
S 142(1). Compulsory filing of return of income.
1. Can AO issue notice to assesse for filing f ROI? Yes

2. Is assessed bound to file ROI u/s 142(1)? Yes, even if his TI is less than basic
exemption.
3. What is the time limit of filing of ROI? As specified in the notice
4. When can notice u/s 142(1) be issued? At any time after due date or after AY1
Due date of furnishing return of income Expl. 2 to Sec. 139(1)
Particulars Due date (of AY)
Company Not undertaking international transaction 30th September

Undertaking international transaction 30th November
Other than Where the accounts of the assesse are required 30th September
company under this Act or any other law to be audited or
where the assessee is a working Partner in a firm
whose accounts are required to be audited under
this Act or under any other law for the time being
in force
In case of other assessee 30th July

If any assesse has loss v/n B/P or capital gain or loss in form owing and maintaining of race
horses, in such cases, the assesse should file return of loss and only after that carry forward of
loss is allowed , neither it will be not allowed if return is not filed I time, SEC 80.
If any assesse has loss v/n HP or it is unabsorbed depreciation in such cases return of
loss is not required.
Any return of loss filed v/s sec 139(3) shall be considered to be return v/s 139(1).
Every assesse should file ROI in time. However, belated ROI is allowed but maximum one year
from the end of the relevant assessment year. However assesse has to pay penalty of Rs. 5000 v/s
271 F after expiring of relevant year of assessment.
If any assesse has not filed ROI in time and it has come to the notice of the assessing
officer, in such cases, A.O can issue a notice v/s 142(1) and the assesse shall be bound to file ROI
within the time allowed by AO otherwise, AO shall have the powers to the best judgment
assessment v/s 144 and tax determined by AO has to be paid and no ROI shall be accepted after
completion of best judgment assessment v/s 144.
If ROI has been filed after last date given v/s 142(1), but before best judgment assesse
completion, such cases, ROI shall be accepted with a penalty of Rs.10000.
If an assesse has not submitted his return of income

 on or before the due date mentioned under Sec. 139(1) or 142(1),
 he can still file the return of income to be called as belated return
 at any time before the expiry of following on the basis of whichever is earlier
 1 year from end of the relevant AY
 earlier before the completion of the assessment
, or Whichever is less

If any person has filed a return v/s 139(1) or 142(1) and has deducted any bona fide error
subsequently, such person is allowed to file revised return. But max. Within one year from the
end of relevant assessment year.
If an assesse, after furnishing the return of income:

(a) Under Sec. 139(1), or
(b) In pursuance of to a notice under Sec. 142(1),
Discovers any omission or any wrong statement in the return filed, he may furnish a revised
return at any time
 before the expiry of 1 year from
 before the completion of the assessment end of the relevant AY , or Whichever is
earlier
1. Is it compulsory to file Yes, if assessee wishes to carry forward the losses. For
loss return? Company / Firm it is compulsory to file ROI whether loss or
profit.
2. What is the time limit of Loss return should be filed on or before the due date of filing of
filing loss return? return i.e. on or before 30-9 or 31-7 then only loss can be carried
forward and set off.
3. Consequences if loss Following losses cannot be Following loss can be carried
return is not filed in carried forward? forward & set off even if loss
time? (a) Business loss (b) return is not filed.
Speculation loss (c) Capital (a) Loss from house property &
gain loss (d) Loss from (b) Unabsorbed depreciation
activity of owning &
maintaining race horses.
4. What if loss return is Loss cannot be carried forward since loss return is filed after due
filed in time as specified date.
in S 142(1)?

If any person has filed any defective return of Income or Loss, in such cases the Department
shall issue a notice to such person directly him to rectify the defect & a time period of 15 days
shall be allowed.
If the assesse has rectify the defect, it will be considered to be a valid return but if assesse
has not rectify the defect, it will be considered to be Invalid Return i.e. it will be presumed that
the return has filed.
A return shall be considered ‘Defective’ if all the columns of the return have not to be
filled in properly or the column has been left blank.
Any unsigned return shall not be considered to be defective return rather it will
considered to be invalid return. Assessing Officer can extent the time period of 15 days as the
request of the assesse.
PROVISION FOR FILING RETURN OF INCOME

Return of income filed without payment of self-assessment tax (along with interest) under
section140A CONSIDER DEFECTIVE Section139 (9)
1. Under sec. 139(9), if the assessing officer consider that the return of income furnished
by the assessee is defective, he may intimate the defect to the assessee & give him an
opportunity to rectify the defect within the periods of 15 days or such further period
which the assessing officer may allow at his discretion on an application made in this
behalf made by the assessee. If the defect is not rectified within the time allowed by the
assessing officer, the return is treated as invalid return. The provision of the income tax
act1961 would apply as if the assessee had failed to furnish the return. The explanation
to section 139(9) provides the condition, the no fulfilment of which would render the
return defective.
2. Under section140A, WHERE ANY TAX IS PAYABLE on the basis of any return
after taking into account the prepaid taxes, the assessee shall be liable to pay such tax
together with interest payable under any provision of this act for any return in
furnishing the return or any default or delay in payment of advance tax, before
furnishing the result.
3. However, since quite a few assessee s file their return of income without payment of
self-assessment, clause (aa) has been inserted in the section139 (9) to provide that the
return of income shall be regarded as defective unless the tax together with interest. if
any, payable in accordance with the provision of section 140A. Has been paid on or
before the date of furnishing the return.

The following persons have to apply for allotment of PAN:

 Every person whose total income is more than exemption limit and also every person
who is assessable on behalf of any other person and such other person has a total
income exceeding the exemption limit.
 Every person who has business/profession and has his turnover likely to exceed 2.5
lakhs.
 Every charitable trust requires to file return v/s 139 (4A).
 Every person notified by the government.
 Every person in whose case tax has been deducted at source.
 Any person who has been directed by assessing officer.
 Any other person who is willingly to take the number.
The department shall allot a 10 digit alpha no., laminated card which will contain
photograph of the assesse. This purpose of issuing PAN was to have better identification of
the assesse and it will facilitate faster correspondence b/w the dept. and the assesse.
PAN is being used to detect concealed income and for this purpose PN has to mention in the
following transaction:
 Sale/purchase of immovable property of Rs. 5 lakh or more.
 Sale/purchase of shares and securities exceeding Rs. 1 lakh .
 Opening any a/c with bank except time deposit a/c.
 Opening time deposit with bank for an amount exceeding Rs. 50000.
 Applying for telephone number.
 Sale/purchase of motor vehicle.
 Making payment of hotel or restraint bill exceeding Rs.25000.
 Purchase of jewellery or bullion of 5 lakhs or more.
 Payment of premium of LIC exceeding Rs. 50000.
 Purchase of shares directing from company Rs.50000 or more.
 Any other transaction notified for this purpose.

 CBDT may, by way of notification, frame a scheme providing that such persons may
furnish their returns of income through a Tax Return Preparer authorised to act as such
under the scheme.
 This scheme is not applicable for a company or a person who is required to undergo a ‘tax
audit’ or ‘audit under any other law’.
 It has also been provided that a TRP may be an individual other than a person who is
• Any officer of a scheduled bank in which the assessee maintains a current account or
has regular dealings.
• A legal practitioner or
• A chartered accountant (CA).
Individual (1) The individual himself; or

(2) Where he is mentally incapacitated from attending to his affairs, by his
guardian or any other person competent to act on his behalf;
(3) Where he is absent from India, by the individual himself or by some
person duly authorised by him on his behalf;
HUF (1) Only by the Karta
(2) Any other adult member of the family where the Karta is absent from I
Company  The managing director or any director, if no MD or MD is not in India

Firm/LLP  The managing partner or any partner, if no MP or MP is not in India
Local authority  The principal officer
Political party  The chief executive officer of such party
Any other  Any member of the association or the principal officer
association
Any other person (1) That person or
(2) Some person competent to act on his behalf.
Every person, before submitting a return of income is under an obligation

 To make a self-assessment of his income and

Pay the self-assessment tax, if due.
Self-assessment tax = Total Tax Liability including interest, if any – Advance Tax Paid – TDS
– TCS

1. Assessees: Mandatorily required to make E-payment of taxes:

a. Corporate assessees,
b. Non-corporate assessees subject to audit u/s 44AB
2. Mode of payment:
a. Internet banking or
b. Credit or Debit Cards.
3. Meaning of tax: Tax includes interest and penalty.

Payment • Can make e-payment from
through account of any other person.
account of • The Challan must indicate the
another person PAN of the assessee
Tax includes ‘Tax’ includes TDS or TCS
collected by the Deductor.
The CBDT is empowered to make rules providing for:

a. The class/classes of persons who shall be required to furnish ROI in electronic form.
b. The form and the manner in which the return in electronic form may be furnished.
c. The documents, statements etc. not be furnished along with the ROI but shall be
produced before the AO on demand.
d. The computer resource or the electronic record to which the return in electronic form
may be transmitted.

Ques. Discuss exception to general rule that the income of previous year is taxed in the
assessment year?
Ans. In general income of a previous year shall be taxable in its assessment year but in the
following cases income shall be taxable in the P.Y itself.
 As per section 172, in case of non-resident having shipping business, income shall be
taxable in the previous year itself in connection with its ship which has entered India
i.e. the ship shall not be allowed to leave India unless tax has been paid and return has
been filed.
For ex. XYZ ltd. Is a U.K based non-resident shipping company and its ship has
entered India on 1-12-12 and the ship is expected to leave India on 31-3-2013, in this
case , ship shall be allowed to leave India only if tax has been paid and return has been
filed.
 As per section 174, if any person is planning to leave India with no present intention of
coming back, in such cases also, the assesse shall be required to pay tax and file ROI,
before leaving India.
For ex., Mr. X is planning to leave India on 1-12-12 with no present intention of
coming back; in this case he should pay tax and file return.
 As per section A, if any BOI or AOP has come into existence during a particular year
and it is likely to be dissolved during the same year and it was only for a specific event,
in such case, also the assesse should pay tax and file ROI.
For ex. XY BOI has come into existence on 1-7-12 for a particular event and it is likely
to be dissolved on during the same year and it was only for a specific event, in such
case, also the assesse should pay tax and file ROI.
 As per sec. 175, if any person is transferring any assets or cash to any other person or is
selling of his assets to avoid payment of income tax, in such cases, he will not be
allowed to do so unless he has paid the tax or has filed the return.
 As per section 176, if any person has closed down his business/ profession, such
person is required to inform the department regarding the closing down of B/p within
15 days of such clause and the dept. may issue notice directly the assesse to pay his tax
and file his ROI within the time allotted by dept.

EXEMPTED INCOME

SARDANA JMD
Section 10 is specifically dedicated to grant various exemptions to assessees of all

class on Incomes earned by them. Below is a comprehensive summary of such
exemptions:-
Eligible Type of Conditions for claiming

Section Limits
Assessee Income Exemption
Any Agricultural
10(1) Entire amount 1. Rent or Revenue
assessee Income
Any Amount Only those members can claim

individual, received as exemption who are entitled to
10(2) being a Share of Entire amount demand share on partition or
member of income from entitled to maintenance
HUF the HUF under Hindu Law.

1. Exemption is allowable
only if the partnership
Any
firm of which the
assessee, Amount
assessee is a partner is
being a received as
assessed as such.
10(2A) partner of share of Entire amount
2. Emoluments other than
a profits from
share of profit received
partnershi the firm
from the firm such as
p firm.
remuneration, interest,
etc. remain taxable.
Amount
received as Entire amount
leave travel received or the For Conditions in detail
An concession amount actually refer ‘Leave Travel
10(5)
individual from spent for the Concession’ under Salaries
employer or purpose of travel Head.
former whichever is less.
employer
1. Income must be derived

in pursuance of an
agreement entered into
Foreign
with the Central
companies Royalty or
Government
notified by fees for
10(6C) Entire amount 2. The agreement must be
the Central technical
for providing services in
Governme services.
projects connected with
nt.
the security of India.
3. Services may be provided
in India or outside.
As per conditions For Conditions in detail

An
10(10) Gratuity. specified in the refer Gratuity under Salaries
individual
section Head.
As per conditions For Conditions in detail
An Commuted
10(10A) specified in the refer ‘Pension’ under Salaries
individual pension
section Head.
As per conditions For Conditions in detail refer
10(10A An Leave
specified in the ‘Encashment ’under Salaries
A) individual encashment
section. Head.

Least of
(i) an amount
calculated as per 1. The limits do not apply
section 25F (b) of to any compensation
An Retrenchment the Industrial received in accordance
10(10B)
individual Compensation Disputes Act, with any scheme of the
1947; or Central Government.
(ii) Rs. 5, 00,000 or
(iii) actual amount
received.
1. The scheme of voluntary

Compensation
An Maximum retirement should be
for voluntary
10(10C) employee of Rs. framed as per Rule
retirement
individual 5,00,000. 2BA of the Income Tax
(V.R.S)
Rules.
1. Tax can be paid by the

Tax on non-
employer not
An monetary
10(10C withstanding Section
employee perquisites Entire amount
C) 200 of the Companies
individual paid by the
Act.
employer
The provident fund should fall

within the purview of the
Payments Provident Funds Act, 1925 or
An received from should be set up and notified by
10(11) Entire amounts
individual a provident the Central Government.
fund
(For Detailed discussion
see Salaries Module)

Least of the
following:
i.) HRA actually
received
ii. Rent paid – 10%
of Salary.
iii. 50% of Salary if As per rule 2A
An House rent residing in Kolkata,
10(13A) Mumbai, Delhi or
individual allowance (For Detailed discussion
Chennai and 40% of see Salaries Module)
Salary in other cases;
wherein salary
includes Basic +DA
+ commission based
on fixed % of
turnover.
Scholarships should be received

to meet the cost of education. It’s
An
10(16) Scholarships Entire amount not necessary that the
individual
scholarship should be financed
by Govt. only.
Amendment: Under the

amendment provided in Finance
Bill 2006 the Pattern of
exemptions will be as follows:
1. Daily Allowance – Fully

A Member
exempt for Member of
of
Parliament as well as for
Parliament
Members of State
or of any
Prescribed Legislature
10(17) State Entire amount
Allowances 2. Constituency Allowance
Legislatur
– Fully exempt for
e or of any
Member of Parliament as
Committe
well as for Members of
e thereof.
State Legislature
3. Any Allowance – Fully
exempt for Member of
Parliament as well as for
Members of State
Legislature

The award/ reward should have

been instituted by the Central or
State Government, or by any
other body and approved by the
Awards
Any Central Government.
10(17A) received in Entire amount.
assessee
cash or kind.
 For a comprehensive list
of awards exempted
please
refer Section10(17A)
The individual was in service of

Central or Central/ State govt. & should
State Pension/ have been awarded either
10(18) Governme Family Entire amount "Param Vir Chakra" or the
nt Pension "Maha Vir Chakra" or the "Vir
employee. Chakra" or such other notified
gallantry award.
The death of a member of the

armed forces (including para
military forces) of Union occurs:
Widow or
children or  During performance of
nominated operational duties
Family
10(19) heirs of the Entire amount under notified
pension
armed circumstances
forces of  A certificate to this effect
the union. has been obtained from
Head of the deptt. where
the deceased member had
last served.
Income should be received on

10(23A Any behalf of any Regimental fund or
Any Income Entire amount
A) person Non-Public Fund established by
the armed forces.

Fund should be established for

following purposes & for the
welfare of the employees or
their dependents:
 Cash benefits to a
member of the fund in
case of Superannuation;
Event of his illness/ of
spouse/ of dependent
children; to meet cost of
education of dependent
children.
 Cash benefits to the

dependents of a member
10(23A Any
Any income Entire amount of the fund in the event
AA) person
of death of such member.
Employees are members of the

fund.
Application of fund’s income

exclusively towards the Set
objectives.
Investment of fund’s income &

members’ contribution in modes
set
The fund has been duly approved

by the commissioner as per rules
on this behalf.
Income should be received on

behalf of a fund established by
10(23A Any LIC or any other insurer under a
Any income Entire amount
AB) person pension scheme duly approved
by the Controller of Insurance/
IRDA

 The Fund must be

registered with SEBI; or
 The Fund should be a

Mutual Entire amount u/s
10(23D) Any income notified one set up by a
Funds 11(5)
Public sector bank/
Public financial
institution/ is authorized
by RBI on this behalf.
 The trade union should

be registered under the
Trade Unions Act’
Income from 1925.
House
Trade Property &  The union should have
10(24) Entire amount
Unions from Income been primarily formed
from Other for the purpose of
Sources regulations between
employer & workmen
or between workmen
themselves.
Corporatio
n The corporation must be formed
10(26B establishe for the purpose of promoting the
B) d under interest of the notified minority
Central/ communities.
State govt.
Corporatio
n
establishe The corporation must be formed
10(26B d for for the purpose of welfare &
BB) welfare of economic upliftment of Ex-
Ex- servicemen.
serviceme
n

Rs. 1,500 or
Income of the
For detailed discussion
Minor,
10(32) Individual Any income refer Clubbing of Income
module
Whichever is
lower.
 Transfer of such units

takes place on or
after April 1st’2002.
Income arising  Noticeable fact is that a

from transfer loss on sale of US 64
Any of Unit units cannot be setoff
person acquired against any income in
under U/s 64 its year of purchase
Scheme. since income from US
64 is exempt from tax
and no deduction can be
allowed against already
exempt income.
Following incomes are exempt

from tax:
 Any income by way of

dividend received on
which Corporate
Dividend tax is payable.
Dividend
10(34)
Any received from  Any income in respect of
& Entire amount
person an Indian units of Mutual funds.
10(35)
company
 Income received from a
Unit holder of UTI.
 Remember that
Dividend received from
a Co-operative Society
is not exempt from tax.

 An eligible equity share

being a Long term
capital asset is
transferred.
 Such shares are acquired

Any Long Term
10(36) Entire amount after March 1st’ 2003
person Capital Gains
but before March 1st’
2004.
 Such shares are held by

the taxpayer for more
than 12 months.
1. The capital gains must

arise from compulsory
acquisition of agricultural
land held in an urban area
and compensation is
received on or after 1st
April, 2004
2. Such land was used by
the HUF or in case of
individual by himself or
Capital gains his parents, for a period
on transfer of of 2 years immediately
agricultural preceding the date of
land situated transfer.
Individual
10(37) in area Entire amount 3. Such transfer is by way
or HUF
specified in of compulsory
item(a) or (b) acquisition under any
of section law, or a transfer whose
2(14)(iii) consideration is
determined or approved
by the Central
Government or the
Reserve Bank of India.
4. The consideration or
compensation for such
transfer is received by the
assessee on or after 1st
April, 2004

 Long term Capital gain

must arise on transfer of
equity shares of a listed
company or units of
equity oriented mutual
funds(a mutual fund
wherein investible funds
Any Long term are invested in domestic
person Capital Gain companies for more
than 65% of the total
proceeds of such
fund)
 Such transaction is
chargeable to Securities
Transaction Tax.

Mixed Topic
SARDANA JMD
Entertainment allowance Basic Salary

Gratuity covered Basic salary + 100% of DA
Gratuity others SAS. Average of last 10 months preceding the month of retiring
Leave Salary SAS Average of last 10 month preceding the date of retirement
HRA SAS
Accommodation Basic Salary+ DA () + Any commission + taxable allowances
80CCD SAS
Members of household Family Relative
Members
Relative word is used in 3 chapters. PGBP,
Both the above words are used in Chapter Salary.
Other Sources & Clubbing of Income.
 Eligible Assessee: An entrepreneur who begins in SEZ as defined under SEZ Act, 2005.
 Profits from the export of articles/computer software derived by a newly established
industrial undertaking qualify for deduction.
 Profits derived from on site development of computer software including services for
development of software outside India is deemed to be export & eligible for deduction
 Any loss U/s 72(1)/74 shall be allowed to be c/f and set off.
 Shall furnish report from CA.
 Shall furnish ROI on or before the due date specified U/s 139(1).
 Should have made a claim in ROI in the respective AY.
 Formula for computation of deduction:
Export turnover of the SEZ unit × Profits of the business of the SEZ unit Total turnover
of the SEZ unit

 The deduction is as follows:
First 5 consecutive assessment 100% of the profits derived from the exports
years
Next 5 consecutive assessment
50% of such profits
years
Next 5 consecutive assessment Amount transferred to “SEZ Reinvestment
years Reserve” or 50% of profits, which ever is lower.
 Conditions for utilizing the reserve:

o For acquiring machinery & put to use before the expiry of 3 years in which reserve
created.
o Until the acquisition, can be utilized for business purposes.
 Assessee shall furnish the particulars of machinery along with the return of income
during the assessment year in which it was first put to use.
 Withdrawal of exemption: In case of violation
Special reserve is utilized
The amount so utilized for any purpose other than shall be chargeable the
specified purpose.
Not utilized within 3yr. The amount unutilized years shall be deemed to be the
Profits
 For 10 years, depreciation is deemed to have been allowed.

 The undertaking is not formed by splitting up, or the reconstruction of a business already
in existence.
 The undertaking is not formed by transfer to a new business of machinery or plant
previously used for any purpose.
 If the eligible undertaking got amalgamated before the expiry of the specified period,
the amalgamated company shall be entitled to claim the deduction for the remaining
period.
 Deductions U/S 32 to 36 shall be deemed to have been allowed.

Meaning of charitable purpose Sec 2(15)

Relief Education Medical Preservation Preservation Advancement of object
to the Relief of of of general public utility
poor environment monuments
Exception No exception any amount charged or not charged If amount from
activities shall be treated as charitable purpose. specified activity
upto ₹ 25 Charitable
Lakhs
exceeds Non
₹ 25 Charitable
Income of charitable purpose Sec 11 & 12
Income of property held under xxx
trusts
Less : 15% statutory deduction ( xxx )
Less : Income accumulated (xxx) Max period of accumulation: 5 years.
Less : Income not received (xxx) To be applied in the year of receipt or by next year.
Less : Income received in last (xxx) To be applied by next year.
moment
Less : Income applied ( xxx )
Income of charitable trust. xxx
Registration of Trusts Sec 12AA.
Application to whom? CIT
When should application may be At any time after the creation of trust.
made for registration?
What CIT shall check before it He shall satisfy himself about the objects of the trust or
grants registration? institution and the genuineness of its activities.
By what time CIT shall grant He shall grant registration within 6 month after the expiry of
registration? month of application.
What if CIT neither grant Registration shall be deemed to be granted.
registration nor refuses
registration within 6 month.

What is the effective date of 1 st April of the year in which registration is granted.
registration?
Tax Treatment of Anonymous donation

Wholly Wholly religious Both charitable & religious trust
charitable Trusts
Anonymous Yes No Only specific donation that such
donation whether donation is for any university /
taxable? educational institution /medical
institution.
Anonymous donation xxx
Less : 5% of total donation or 1,00,000 whichever is xxx
higher
Taxable anonymous donation (Flat 30%) xxx
 The following categories of income are exempted to a political party.

 Income by way of voluntary contribution.
 Income chargeable u/s.22, 45 & 56.
The following conditions are to be satisfied:
 Should be registered with the Central Election Commission.
 Should maintain the reasonable books which enable the AO to compute income.
 Should maintain record of contributions >20,000 and names and addresses of
such persons.
 BOA must be audited by C.A.
 Shall file a report to Election Commission before the due date u/s 139(1)
containing
 The contributions > Rs.20,000 received in a financial year by such political
party
 The contributions > Rs.20,000 received from co.’s other than Govt. co.’s

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TAXATION & LAW CODE Page |1

For CA, CS & OTHER PROFESSIONAL 2014

TAXATION & LAW CODE

PREFACE TO MY FIRST EDITION

It gives me immense pleasure, in helping the student

Link to contact me:-

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This Book is dedicated to LORD GANESHA

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1. BASIC CONCEPTS & DEFINITIONS

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Person Sec. 2(31)

Person includes seven types of persons namely

Association of person Vs. Body of individual

The 2 basic differences between AOP and BOI are:

Assessee Sec. 2(7)

Assessment Year Sec. 2(9)

Previous Year Sec. 2(34)

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Total income Sec. 2(25A)

Gross total income Sec. 14

Total/Taxable Income Sec. 2(45)

Rounding off of total income Sec. 288A

Rounding off of tax liability Sec. 288B

Education cess Sec. 288A

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Computation of total income of …… For AY 2013-14

TAX ON TOTAL INCOME

Special Income Casual Income Normal Income [NI = TI – SI – CI]

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Income Rate of Tax (Method 1) Amount of Tax (Method 2)

Person Age Basic Tax concession

5. HUF / AOP / BOI / AJP NA 2,00,000 Nil

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 Marginal relief is amount of relief in tax.

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Relief for Individual Sec 87A

Amount of Rebate: - Tax or 2000; whichever is less

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Income of one PY taxable in same year

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Rates of Tax Normal Normal Normal • LTC STC Other

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LTCG 20% Speci Norm Casu Normal

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RESIDENTAL STATUS &

2. RESIDENTAL STATUS & SCOPE OF TOTAL INCOME

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Scope of Income Sec. 5

Section 6 : Determination of Residential

S 6(1) & 6(6). Determination of Residential

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As per explanation to S 115C (e) A Person is said to be of Indian Origin if he

Resident and Ordinary Resident

ELSE Resident BUT Not Ordinary

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Residential Status of Hindu Undivided Family Sec. 6(2)

Resident and Ordinary Resident

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Residential Status of Firm, AOP & Other Corporate Sec.

IF THE CONTROL AND MANAGEMNET OF