Direct Taxation (Chapter 1 to 10) (By Atul Agarwal)

Chapter 1
Basic Concepts
Types of Tax

Direct Tax:—

Income Tax
Tax Payer Tax Government

(Assessee) Tax (Department)

Any person who is CBDT = Central Board of

liable to pay tax, Direct Tax
penalty, Interest under
Income Tax Act, 1961

Indirect Tax:—
Goods and Service Tax
End User Intermediator Government

Penalty 
Interest 
 

Income Tax – Basics

 Income tax Act, 1961 as amended upto date by Finance Act 2019.
 Levy by Central Govt. by entry No. 82 of union List.

 Individual – Natural Person

 HUF – Hindu Undivided Family
 Firm – Partnership Act, 1932, LLP Act 2008
7 Types of  AOP/BOI – Association of Person and Body of Individual.
Persons
 Company – Companies Act 2013,
 Local Authority – Example - JDA, DDA
 Artificial Juridical Person – High Court, Temple etc.

5 Heads of Income
(1) Income From Salary
(2) Income From House Property
(3) Income From Business and Profession
(4) Income From Capital Gain
(5) Income From other Source
Legal V/s Illegal Income = Both Income are taxable

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 Assessment Year
 Assessment Year is tax payment year
 12 Month Period
 1st April……………… to 31st March…………….

Previous Year
 Previous Year is Income earning Year
 12 Month Period (except new business)
 1st April……………… to 31st March…………….
Or
Date of commencement of business…….... to 31st March…….
 Previous year is just preceding Assessment year.

General Rule – Income of previous year is taxable in assessment year

Exception to General Rule

Cases where income of previous year is taxable in previous year
(1) Income of non-resident shipping company.
(2) Income of person leaving India permanently or for long duration.
(3) Income of person who is trying to transfer his assets for avoiding tax.
(4) AOP/BOI/AJP formed for short duration.
(5) Income of Discontinued Business.

Cases where income is taxable in year in which it comes to the notice of

Department (Assessing Officer)

Cash Credit Unexplained Investment not Unexplained

Investment fully Disclosed Expenditure
(No deduction, taxable
also)

Taxable @ 78%

Subsidy
Capital Subsidy Revenue Subsidy
 On capital Assets  Credited to P& L A/c
 Deducted From Cost of Assets

Section 4 (charging section) — Income tax shall be levied on Total Income of

every person at rate specified in –
Schedule I of Finance Act (Normal Rate)
or
Income Tax Act, 1961. (Special Rate)

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Steps for Calculation of total income
Step 1:— Determine Residential Status (Chapter 2)
Step 2 — Determine Income under following heads (Chapter 4)
Salary XX
House Property XX
Business or Profession XX
Capital Gains XX
Other Sources XX
Gross Total Income XXXX
Step 3— Clubbing of income of spouse, minor child etc. (Chapter 5)
Step 4— Setoff and carry forward of losses (Chapter 6)
Step 5 — Deduction under chapter VI-A (Chapter 7) (XX)

Total Income/Taxable Income XXXX

Tax Rates
For Individual, HUF, AOP/BOI, Artificial Juridical Person :—
SLAB Rate Tax Tax Amount
Upto 2,50,000 Nil Nil
2,50,000 to 5,00,000 5% < 12,500
5,00,000 to 10,00,000 20% < 1,00,000
Above 10,00,000 30% XX

For Resident Individual plus age of 60 years or more but less than 80 years at
any time during previous year or 1st day of Assessment year. (Resident Senior
Citizen)

SLAB Rate Tax Tax Amount

Upto 3,00,000 Nil Nil
3,00,000 to 5,00,000 5% < 10,000
5,00,000 to 10,00,000 20% < 1,00,000
10,00,000 or Above 30% XX

For Resident Individual plus age of 80 years or more at any time during previous
year or 1st day of assessment year. (Resident Super Senior Citizen)
SLAB Rate Tax Tax Amount
Up to 5,00,000 Nil Nil
5,00,000 to 10,00,000 20% < 1,00,000
Above 10,00,000 30% XX

Rebate to resident individual (Sec. 87A)

Rs. 12,500
Or Whichever is less
Income Tax Payable
If total income does not exceed Rs. 5,00,000

Firm or local authority — Flat Rate @ 30%

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Company —
Domestic Company Foreign Company

Indian Company Company who Other than Domestic Company

Or made
arrangement for
declaration &
payment of
dividend in India

If total Turnover Other Case

or Gross Receipt
upto Rs. 400
crore in previous
year 2017-18

25% Tax Rate 30% Tax Rate 40% Tax Rate

Surcharge [Tax on tax]

Individual/HUF/ AOP/BOI/Artificial Juridical Person

Total Income
Upto Exceed Exceed 1 Crore Exceed 2 Crore Exceed 5 Crore
50 50 lac but upto 2 crore but upto 5 crore
lacs but upto
1 crore

Nil 10% 15% 25% 37%

Firm / Local Authority

Total Income
Upto 1 crore Above 1 crore

Nil 12%

Company
Domestic Foreign Company

If Total Income If Total Income

Upto 1 Exceed 1 Exceed 10 cr. Upto 1 Exceed 1 Exceed 10 Cr.
Cr. Cr. but Cr. Cr. but
upto 10 Cr. upto 10 Cr.

Nil 7% 12% Nil 2% 5%

Health & Education Cess

On Tax + Surcharge At END @ 4%
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Marginal Relief
When tax exceed income due to surcharge
Mr. Rohan
Total Income Total Income
51,00,000 50,00,000
Upto 2,50,000 Nil Upto 2.5 lac Nil
2,50,000 – 5 lac 12,500 2.5 lac 12,500
5 lac – 10 lac 1,00,000 5 lac – 10 lac 1,00,000
41 lac 12,30,000 40 lac 12,00,000
13,42,500 13,12,500
+ Surcharge 1,34,250
14,76,750
Tax on 50 lac = 13,12,500
(+) excess Income = 1,00,000
above 50 lacs (51–50)
Tax to be paid = 14,12,500

Marginal Relief = Actual Tax – Tax to be

paid
14,76,750 - 14,12,500
= 64,250

Steps for calculation of marginal relief

Steps —
(i) Calculate Tax on original total income
(ii) Calculate tax on Rs. 50 lac / 1 crore as per case
(iii) Tax to be paid = Tax on Rs. 50 lac/ 1cr + Additional Income above 50 lac/ 1
cr.
(iv) Marginal relief = Original Tax – Tax to be paid

Average Rate of Tax

Total Tax
ART 
Total Income

Maximum Marginal Rate

Highest slab rate apply to Individuals plus surcharge and cess
30% Tax + 37% surcharge + 4% cess
= 30% + 11.1% + 1.644%
= 42.744%

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 Chapter 2
Residential Status

Residential Status of Individual

Individual

Resident Non Resident

If satisfy any one or both basic conditions If not satisfy both basic conditions

Basic Conditions
If individual fulfill any one Basic condition, he/she is resident in India.
 An individual must be resides in India for at least 182 days during the relevant
previous year.
OR
 An Individual must resides in India for at least 60 days during the relevant previous
year AND 365 days or more during 4 preceding previous year.

Cases where only 1st basic condition is applicable

 Crew member of India ship
 Indian citizen leaves India for employment outside India.
 Indian citizen or Person of Indian origin comes India for visit
*Indian Citizen = Citizenship of India
*Person of Indian origin = If he or either of his parents or grandparents were born
in undivided India.

Resident Individual

Resident but ordinarily Resident Resident but not ordinarily Resident

(ROR) (RNOR)

If satisfy – both Additional conditions If not satisfy any one or both Additional
conditions

Additional Conditions

 An individual must be resident in India for at least 2 years during 10 preceding

previous years.
OR
 An Individual must resides in India for at least 730 days during 7 preceding
previous years.

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Other Points
 For considering stay in India, It includes both day of departure & day of
arrival
 Stay in Territorial Waters of India (12 Nautical miles from base line) is to be
treated as stay in India
 Citizenship & residential status are Different.

Residential Status of Crew member of Indian ship

Period to be excluded from India-
From Date entered into continuous discharge Certification at time of joining the ship
TO
Date entered into Continuous Discharge certificate at time of sign off

Resident status of HUF

If control and management (Central Control)

Wholly or partly situated in India Wholly situated outside of India

Resident Non-resident
Note — If Karta satisfy both additional conditions of individual, then HUF = ROR,
otherwise RNOR

Residential Status of AOP, BOI, Firm, Local Authority, AJP

If control & Management wholly or If control & management wholly outside

partly in India India

Resident Non-resident

Residential status of Company

If Indian Co. If any other company

Always Resident Place of Effective Management

In India Outside in India

Resident Non-Resident

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Scope of Total Income
Resident Resident but Non
and not Resident
ordinarily ordinarily
Resident resident
 Income accrued/earned or T T T
deemed to be earned in India
 Income received or deemed to be T T T
received in India [Means first
received in India] (not remittance)
 Income earned and received T T X
outside India but business is
controlled from India
 Income earned, received & control T X X
all outside India

Income deemed to be earned in India

 Income through Business connection in India (Agent)
 Salary by Government to Indian citizen for service rendered outside India.
Allowance & perquisites to such person are exempt.
 Income from Interest, royalty and fees for Technical services.

Received From Central Government Received from any person but

use/utilized for business in India

Following are not business connection (Not deemed to earned in India)

 Purchase of Goods in India for Export.
 Shooting of cinematograph films in India.
 Collection of News in India
 Activities relating to display of Diamonds in SNZ

Note—Past Foreign Untaxed income remitted/brought to India is not taxable.

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 Chapter 5
House Property
Charging Section (Section 22):— Notional Basis

Annual Value of property is taxable under this head if following conditions are
satisfied:
(1) Property must consist of building or Land appurtenant there to.
(2) Assessee must be owner of such House Property (ownership of land is not
required).
(3) Property shall not be used by owner for his business or profession.

Other Points
 Rent Income from vacant plot — B&P or Other Source
 Sub letting — B&P or Other Source
Eg. A Rent B Rent
  C


Owner Sublet
(HP) (B&P/OS)
 Assessee engage in business of letting/renting of properties — B&P
 Rent for putting up hoarding on building Other Source

Cases where House property Income is exempt

(1) Property held for charitable purpose.
(2) Property use for own business/profession.
(3) Self-occupied/Unoccupied House Annual value of two self-
occupied/Unoccupied House is Nil
(4) House property Income of local authority.
(5) Farm House use for Agriculture purpose.

Calculation of Income from House Property

Gross Annual Value (Sec. 23) XXX
Less: Municipal Tax (paid by owner of any year)
(not due basis) (not by tenant) (in India/outside India) (XX)
Net Annual Value XXX
Less: Deductions
Sec. 24(a) — Standard Deduction @ 30% of NAV (XX)
Sec. 24(b) — Interest on Borrowed Capital (due basis) (XX)
Income from House Property (XXX)

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Gross Annual Value (Sec. 23)
Expected Rent
Or  Higher
Actual Rent

Step 1—
Municipal Value
Or  Whichever is Higher (Full year)
Fair Rent

Step 2—
Step 1
Or  Whichever is lower (Full year)
Standard Rent

Step 3 —
Actual Rent — Unrealized Rent

From renting
date to end of
financial year

Step 4—
Step 2
Or whichever is higher
Step 3

Step 5—
Step 4 — loss due to vacancy (only if not self-occupied by owner during vacancy)

Self-Occupied or un-occupied property

If it is self-occupied/un-occupied for whole year.

GAV Nil
Less M.T. Paid (No Deduction) Nil
NAV Nil
Less: Deduction
24(a) Standard Deduction Nil
24(b) Interest on borrowed capital (XX)
Income from House Property (XX)

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Interest on Borrowed Capital [Section 24(b)]

Pre Construction period Post Construction period

Start – Date of taking loan Start – After ending of pre construction

period
Note – When there is no pre construction
period, It start from date of taking loan.
End– 31st March just before date of End – Date of full repayment of loan
completion or purchase of HP

Interest for pre period will be calculated

totally ÷ 5

Instalment – It is deduction Deduction

Received in 5 post period years in 5 Pre period Interest on loan in

instalments (one instalment per year) deduction (one post period
instalment) (if any) (current year)

Deduction limit of interest on borrowed capital

If Let Out If Self Occupied

No limit — full deduction Maximum limit

30,000/2,00,000 (for 2 self-

occupied/unoccupied house)

Following conditions to be satisfied for

limit of Rs. 2,00,000 :-
 Loan taken for purchase or
construction of HP,
 construction must be completed
within 5 years,
 Loan is taken on or after 1-4-1999

Other Point
 Interest deduction is allowed only from that house property for which loan
amount is used.
 No deduction for brokerage or commission for arranging loan.
 Interest on fresh land taken for repay original loan is allowed as deduction.
 Interest payable/paid outside India is allowed only if TDS is deducted.

If house is let out, then vacant and in vacancy, self-occupied by owner

 Actual Rent is taken of only let out month = Date of Renting to before vacancy
 and there is no loss due to vacancy (no step 5)

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If three properties are self-occupied
Treat two as self-occupied and one as deemed let out
Steps
 Calculate income from H.P. Treating all as let out
 Calculate income from H.P. Treating all as self-occupied
 Then make pair
Pair 1 Pair 2 Pair 3
House 1 Let out Self-occupied Self-occupied
House 2 Self-occupied Let out Self-occupied
House 3 Self-occupied Self-occupied Let out
 Pair which makes least income will be selected.

Portion of house property is self-occupied and portion is let out

 In this case all values such as:—
Municipal Value MV

Fair Rent FR
Shall be allotted in
Standard Rent SR proportion to

Municipal Tax
Let out Self
Interest occupied
 Then normal calculation of Income from H.P.

Section 25(A) — Recovery of realised rent / Arrears of Rent

Ownership is not required at the time of recovery
Amount Received XXX
(–) 30% deduction (XX)
Income from H.P. XXX

Section 26 — Co owned Property

Owned by two or more persons — Share definite & ascertainable
Taxed Individually and not as AOP

Self-occupied Let out

Each co-owner is entitled to deduction of Income from H.P. computed in Normal

Rs.30,000/2,00,000 Manner

Then Income apportion among co-owner

as per given share.
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Deemed ownership (Section 27)
 Transfer to spouse without adequate consideration — Transferor shall be
deemed as owner
 Transfer to minor child (other than minor married daughter) without adequate
consideration — Transferor shall be deemed as owner
 If property leased for 12 or more year — Lessee will be owner

Other Miscellaneous Points

Composite Rent
If House Rent includes other Amenities Rent
Separable Not Separable

House Rent Amenities Rent Whole Rent

H.P. Other Source Other Source

House property held as stock in Trade

 Gross annual value (GAV) will be nil for 1 year from end of financial year in
which completion certificate is obtained.
 After that — Taxable as House property Income.

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 Chapter 6
Profit & Gains of Business & Profession (PGBP)

Section 28 — Charging Section

Income Taxable under this head
(1) Profit of any business or profession carried by assessee during previous year.
(2) Compensation received relating to B&P.
(3) Export incentive, Assistance etc.
(4) Interest, salary, bonus, commission received by partner of firm (taxable upto
deduction allowed to firm)

Calculation of Income under Business & Profession

Profit / Loss as per P&L A/c XX/(XX)
Add: 1. Depreciation debited to P&L A/c XX
2. Provisions, Reserves, Income Tax debited to P&L XX
3. Expenses debited to P&L A/c but not allowed as per XX
income tax act/under this head.
4. Income not credited to P&L A/c but taxable under XX
this head.
XXX
Less: 1. Depreciation as per Income Tax Act, 1961 (XX)
2. Expenses not debited to P&L A/c but allowed under (XX)
this head
3. Income credited to P&L A/c but not taxable under (XX)
this head/income tax act
Income from Business & Profession XXX

Method of Accounting for B&P & Other Sources

Cash Or Mercantile
All Cash income of B/P XX
Less: All Cash Exp. Of B/P (XX) Above Computation
Income from B/P XXX

Section 29– Loss due to theft, natural calamity etc. allowed as deduction.
Section 30, 31 —Current Repairs to Fixed Assets allowed as deduction.

Depreciation as per Income tax Act (Section 32)

Depreciation for Tangible Assets/Intangible Assets
Owned wholly or partly by assessee
Used in B & P
Depreciation shall be allowed on WDV
of Block of Assets
at Prescribe Percentage
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Block of Assets — Same Class of Asset and Same percentage of Depreciation

Depreciation Rates
Building —
Block 1 — Residential Building — 5%
Block 2 — Commercial Building — 10%
Furniture & Fittings—
Block 1 — 10%
Plant & Machinery—
Block 1 — Aeroplanes, Pollution control Equipment,
Energy saving Device, Annual Publications,
Books, Computer including Computer software, 40%
Windmill
Block 2—Motor car used in Business of running on hire — 30%
Block 3—Other Plant & Machinery, other Motor Car — 15%
Ships —
Block 1 — 20%
Tangible Assets—
Block 1 — 25%

 No depreciation on land
 Mandatory to claim Depreciation

Calculation of WDV of Block for Depreciation

Opening WDV as on 1st day of P.Y. XXX
Add: Actual cost of Purchase during the year XX
Less: Amt. received on sale discard, demolish, destroyed (XX)
Closing WDV of Block as on last day of P.Y. XXX
Depreciation = Closing WDV × Dep. Rate

Depreciation Restricted to 50%

If Asset put to use for less than 180 days.
If Asset put to use upto 3rd October — Full Rate
If Asset put to use after 3rd October — Half Rate

Capital Gain/Loss on Depreciable Asset

IP Closing WDV is Negative If all asset of block is sold

Short Term Capital Gain If WDV is positive If WDV is Negative

Short Term Capital Short Term Capital

Loss Gain

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Other points to Depreciation—
(1) No depreciation for Asset use in Scientific Research [sec. 35]
(2) If Assets use as partly business party personal — Depreciation allowed only
for business use.
(3) Actual cost of Purchase :
Purchase price XX
Add: All expenses related to purchase XX
Add: Interest upto put to use XX
Actual cost of Purchase XXX
(4) If payment for assets exceeding Rs.10,000 in a single day by Cash or Bearer
Cheque or Cross Cheque to single person. (No Depreciation Allowable —
Ignore such amount)
(5) Actual cost of purchase of asset which convert from personal to business use
Building Other Assets

Purchase Price XXX Actual Cost = Purchase Price

Less: Depreciation upto (XX)
yet
Actual Cost XXX

Depreciation for undertaking engaged in Generation of power

WDV of Block SLM for each assets separately

Same as Section 32 (Loss) Terminal [Profit] Balancing

Depreciation WDV – Charge
Sale Price Sales Price – WDV

Deduction Allowed Taxable as BI

Additional Depreciation
In Case of any New Plant & Machinery (Other than ships & Aircrafts)
 Acquired and Installed after 31/3/2005
 By Assessee engage in business of Manufacture or Production (Factory,
Industry, Power Generating units) of any article of Goods

— 20% (If put to use upto 3 Oct.)

 Additional Depreciation Allowed as
— 10% (If put to use after 3 Oct.) Deduction

of Actual Cost

No Additional Depreciation in following cases —

(a) Second hand/used Plant & Machinery
(b) Plant & Machinery installed in office premise or residence or guest house

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 (c) Road transport vehicles [Car, Truck etc.]
(d) Any Plant & Machinery whose 100% deduction is already allowed. Example—
Scientific Research Assets.

Proportionate Depreciation
In case of Succession / Conversion of firm or proprietorship by company,
Conversion of company into LLP, Amalgamation/Demerger of company

Depreciation shall be apportioned between Predecessor and Successor

In Ratio of numbers of days for which assets were used by them.

Section 32(2) - Unabsorbed Depreciation

Profit before deducting depreciation as per Income Tax Act XX
Less: Depreciation as per Income Tax Act. (XXX)
Unabsorbed Depreciation (XXX)
 Can be set off from any head of Income (Except Salary)
 Can be carried forward for Setoff Indefinitely

Section 32 AD — Assessee engage in manufacture of production setup

business in notified backward areas of Andhra Pradesh, Bihar,
Telangana, West Bengal

 Additional Deduction = 15% of Actual Cost of new Plant & Machinery Acquired
& Installed during year.
 (New Plant & Machinery = Consider same as Additional Depreciation)
 Additional Depreciation rate will also be 35% (put to use upto 3 October) and
17.5% (put to use after 3 October)

Section 35— Scientific Research Expenditure

In House Out side

Within 3 years After Given to Any Any IIT,

before commencement of Indian university, university,
commencement of Business Company college for Laboratory,
business for social college for
Scientific science or scientific
Research statistical Research
research

Revenue Capital Revenue Capital 100% 100% 150%

(Except

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 land)

100% deduction in 100% deduction In

year of year of expense
commencement incurred

If company
engaged in mfg. /
production

150% [except
Land & Building]
Building = 100%

If scientific research depreciable asset is sold—

If sold after using in business If sold without using in Business

Actual cost of purchase = Zero Sale Amount

or — Lower
Deduction Allowed

Taxable as Business Income

Balance Taxable as CG

Section 35 AD — Expenditure on Specified Business

Specified Businesses
1. Cold chain facility.
2. Natural gas or oil pipeline.
3. Hotel of 2 star or above category.
4. Hospital with at least 100 beds for patient.
5. Housing project of Govt.
6. Production of fertilizers in India.
7. Inland container depot.
8. Honey production.
9. Warehousing facility for storage of sugar.
10. Warehousing facility for storage of agriculture produce.

Amount of Deduction (Other than Land)

If expenditure incurred before If expenditure incurred after

commencement of business commencement of business

100% in year of commencement 100% in year of expenditure incurred

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 Other Points
(1) Loss from specified business is set off only profit of any specified business.
(2) Loss from specified business can be carry forward indefinitely.
(3) If payment exceeding Rs. 10,000 in cash / bearer cheque/ cross cheque —
No deduction
(4) If specified business capital asset is sold = Amount received taxable as
business Income
(5) If specified business capital asset converted/ transferred to Non specified
business

Deduction allowed/actual XXX Deduction allowed/actual XXX

cost cost
Less: Dep. For each full F.Y. XXX Less: Dep. For each full F.Y. XXX
Business income XXX Actual Cost of Purchase XXX
for non-specified business

Section 35CCC — Deduction of expense incurred on notified

agricultural extension project
— 150% of Expenditure [Excluding land or Building]

Section 35CCD — Deduction of expense incurred by Company on

National Skill development project
— 150% of expenditure [Excluding land or Building]

Section 35D — Preliminary Expenses

— Deduction only to Indian Company or other Resident
Maximum Limit of Deduction
Company Others
5% of [Cost of project or capital 5% of cost of Project
employed] Which is higher
Cost of Project = Book Value of Fixed Assets as on last day of PY in which business
commence
Capital Employed = Issued share capital + Debentures + Long Term Borrowings as
on last day of PY in which business commence

Amount of Deduction
Actual Expense
Or Lower {Allowed in 5 Years in 5 Instalment}
Limit

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Section 35DDA — Expenditure incurred under voluntary retirement
scheme (VRS)
 Deduction in 5 years in 5 equal instalments of amount paid
 I.e. deduction = 1/5 × Amount paid for VRS

Section 36 — Other Deductions

(1) Insurance premium of stock
(2) Health/medical Insurance premium paid for employees (Other than cash)
(3) Bonus on commission paid to employees [Subject to sec. 43B]
(4) Interest on borrowed capital
— Borrowed money must be used in B & P
— Interest on own capital is not allowed
Borrowed Capital
For depreciable assets Other Case

Interest upto put to After purchase Deduction u/s 36

use

Capitalize (Part of
purchase) Deduction u/s 36

(5) Employer contribution towards PF, Super Annuation fund, Gratuity Fund
[Subject to sec. 438]
(6) Employee contribution towards PF/ ESI (If amount deposited on or before due
date of fund by employer)
(7) Employer contribution in pension scheme u/s 80CCD - Actual Pension Yojna
Maximum limit — 10% of [Basic salary + DA(if) + Commission on sales]
Amount contributed in excess of above — disallowed u/s 40(a)
Deduction = Actual Contribution or Limit — whichever is lower
(8) Bad debts
 Actual bad debts written off as irrecoverable in books — Deduction allowed
 No deduction allowed for provision for Bad debts
 However provision for bad debts is allowed in case of banking sector
Limit of Provision —
Schedule Banks, Non-Scheduled 8.5% of Gross Total Income
Banks, Co-operative Banks
Rural Branches of such banks 10% of Aggregate average advances
Foreign Banks, Public Financial 5% of Gross Total Income
Institution, NBFC

Page 20 of 45
 Actual Bad debts deduction in case of banking sector—
Total Actual bad debts W/O XXX
Less: provision upto yet (XXX)
Deduction XXX

Recovery of Bad debts — Taxable

(9) Securities Transaction Tax (STT), Commodities transaction Tax (CTT) —
Allowed as deduction
(10) Family planning expenditure (deduction allowed for Companies)
Revenue = 100% deduction
Capital = In 5 years in 5 equal Instalment

Section 37— General Deductions

Any other expenditure of Revenue nature is allowed as deduction
Condition
 Not Capital Expenditure
 Incurred wholly for B & P
 Not personal Nature

 Penalties —
 For violation / Infraction of law — Not allowed as deduction
 For breach of contract— Allowed as deduction
 CSR Expenditure — Not allowed as deduction
 Interest paid on Indirect Tax (Example-GST) — Allowed as deduction
 Interest paid on Income Tax/TDS — Not allowed as deduction
 Income tax refund — not taxable
 Expenditure on Advertisement in souvenir, Boucher, pamphlet etc. published by
political party — Not allowed as deduction.
 Provision for gratuity — Not allowed as deduction
 Tax on [Non-monetary perquisite] of employee Paid by Employer — Not
allowed as deduction
 Expenses incurred on exempt income — Not allowed as deduction

Section 40(a)(i) — Non Deduction of TDS - NR

Any amount payable:
 Outside India
 In or outside India to non-resident or foreign company
On which TDS is deductible
 But not deduct during Previous Year
OR

Page 21 of 45
  After deduction, not paid / deposit to govt. upto due date of Return of Income
(ROI) u/s 139(1)

— 100% Disallowed
— Allowed in year of deposit to Govt., if deposit after due date of ROI

Section 40(a)(ia) — Non Deduction of TDS - R

Any amount payable to resident on which TDS is deductible
 But not deduct during Previous Year
OR
 After deduction, not paid / deposit to govt. upto due date of Return of Income
(ROI) u/s 139(1)

— 30% Disallowed
— Allowed in year of deposit to Govt., if deposit after due date of ROI

Section 40A (2) — Payment to Specified Persons

In Excess of fair market value — excess payment disallowed

Payer Specified Person
(Who incurred expenditure) (To whom payment is made)
Individual Spouse, Brother, Sister, or any lineal
ascendant or descendent of individual.
HUF Member of HUF or relative of members
Firm Partner of firm or relative of partner
Company Director, relative of director,
person having substantial Interest (20%
or more profit / voting power) in the
concern

Section 40A(3) — Cash Payments

If aggregate payment for expenses in a single day to a single person by a single bill
is exceeding Rs. 10,000 by Cash or Bearer cheque or Cross cheque

100% Disallowed which is paid in cash

Limit will be Rs. 35,000 — if business of plying, hiring or leasing goods carriage

Not Applicable in following Cases

 Payment by A/c payee cheque, DD, ECS
 Payment made to any banking company
 Payment made to LIC
 Payment to Government (Interest, Tax etc.)

Page 22 of 45
  Payment made in a village/town where there is no bank
 Payment made on a day when bank is closed. (15 Aug., 26Jan., 2 Oct., Strike)
 Payment to cultivator or produce of agriculture, forest etc.

Note— Share income received by partner from partnership firm is not Taxable.

Section 40(b) — Deduction for partnership firm

Interest paid to partner — on capital / loan etc.
If not authorised by deed If authorized by deed

No Deduction Interest upto 12% p.a. is allowed as

deduction

Salary, Bonus, Commission, Remuneration etc. paid to partners

If not authorised by deed Other case
Or
Paid to non-working partner

Limit
No Deduction Deduction = or Lower
Total Payment

Calculation of Limit
On first 3,00,000 book profit On balance book profit
Or
In case of loss

Rs.1,50,000 60% of balance book profit

Or Higher
90% of book profit

Book Profit
Profit as per Income Tax (Section 28 to 43B) XX
ADD: Remuneration etc. to partners (if debited to P&L) XX
ADD: Interest to partner disallowed (if debited to P&L) XX
Book profit XXX

Section 43(B) — Deduction on actual payment basis

(1) Any tax, duty, cess or fees under any law
(2) Interest on loan from public financial institution, state financial corporation
or schedule Bank (No deduction for interest converted into loan)
(3) Bonus or commission to employees/staff

Page 23 of 45
 (4) Leave encashment to employees
(5) Employer contribution to PF, Gratuity fund or other funds
(6) Payment to railways for use of Railway Assets.

If actually paid upto due date of ROI Deduction in CY (year of expense)

If actually paid after due date of ROI Deduction in year of payment

Section 43 CA — Sale Value of land or building if held as stock in trade

Full value of consideration / Sale consideration of land or building —
Stamp duty value
Or — whichever is higher
Actual sale amount
Note — If stamp duty value is upto 105% (or difference upto 5%) of actual sale
amount, Then actual sale amount = Sale consideration

If date of agreement and date of registration are not same

If part or full amount received by A/c Other case

payee cheque/DD/ECS on or before
date of agreement

Stamp duty value on Date of Agreement Stamp duty value on Date of Registration

Section 44AA — Compulsory maintenance of Books of Accounts

(1) Maintenance of Books of Accounts by [Notified Profession] — Legal, Medical,
Engineering, Architecture, Film Artist, Accountant
If Gross Receipt exceed Rs. 1,50,000 in Other Case
all 3 preceding PY
Or
Likely to exceed in current PY (If new
business)

Maintain Prescribed Books Maintain Normal Books

• Cash Book
• Journal
• Ledger
• Carbon copies of bills exceed Rs. 25
• Daily case register — In medical
• Stock Register — In medical

(2) Maintenance of Books of Accounts by other Business & Profession

Individual/HUF Other Person
Required to Not required to Required to Not required to

Page 24 of 45
 maintain maintain maintain maintain

If Other Cases If Other Cases

Total sales exceed Total sales exceed
Rs. 25 lakhs Rs. 10 lakhs
Or Or
Income from B&P Income from B&P
exceed Rs. 2.5 lacs exceed Rs 1.2 Lacs

In any one of 3 In any one of 3

preceding PY preceding PY

Section 44 AB — Tax Audit

 By Chartered Accountant
 On or before due date of ROI (30th Sep.)
 Assessee shall submit Audit Report in form — 3CA/3CB/3CD
In following Cases:—
 If total sales in Business exceed Rs. 1 crore in PY
 If gross receipt in profession exceed Rs. 50 lakh in PY

Presumptive Taxation
OPTIONAL and If wants to declare higher profit — Then you can
Particular Section 44AD Section44ADA Section 44AE
Eligible Resident Individual Any Resident Any Assessee engaged in business
Assessee HUF, firm (Not LLP) assessee of playing, hiring, leasing goods
engaged in any engaged in carriage
business other than— notified
 Notified profession profession
 Commission Business
 Agency Business
 Business of plying,
hiring, leasing goods
carriage
Eligible Any business whose Notified Assessee owns not more than 10
Business total sales/turnover isprofession goods carriage at any time during
/Professi upto Rs. 2 crores in whose gross P.Y.
on P.Y. receipt is upto
Rs. 50 lakhs in
P.Y.
Presumpt If sales Other Income from Heavy goods vehicle Other than
ive received by case Profession = (Goods weight heavygoods
Income A/c payee, — 50% of Gross exceed 12 ton) Vehicle
cheque, DD, 8% of receipt
ECS, during such Rs.100 per ton of Rs.7,500 for
PY or upto sale gross vehicle weight every
due date of for every month or month or
ROI — 6% of part of month — part of

Page 25 of 45
 such sale Vehicle owned by month —
Assessee. Vehicle
i.e. {1000 * weight in owned by
ton * ownership Assessee.
months}
Expenses No deduction No deduction No Deduction
Deductio Sec. 28 to 43B N.A. Sec. 28 to 43B Sec. 28 to 43B N.A.
n N.A.
Maintaina If 44AD followed If 44ADA If 44AE followed
nce of followed
books of Not required Not required
A/c & Not required
Audit
If 44AD not followed If 44AE not followed
If 44ADA not
Required followed Required

Required

Calculation of Income when it is partly agriculture and partly business

 Income from Agriculture in India — Fully Exempt
 Income from Agriculture from foreign country — Fully Taxable
 Income from sapling or seedling grown in a nursery is Agricultural income —
Exempt
Business Agricultural
income Income
Growing & Manufacturing Tea in India 40% 60%
Growing & Manufacturing Rubber (Latex) in India 35% 65%
Grown & Cured Coffee in India 25% 75%
Grown, Cured, Grounded, Roasted Coffee in India 40% 60%

Agriculture Income —
• Income from sale of Agriculture produce
• Rent from agricultural land use for Agriculture purpose
Fully Exempt
• Income from Sale of seeds
• Income from saplings or seedlings grown in nursery

Page 26 of 45
 Chapter 7
Capital Gains

Section 45 – Charging Section

Capital Gain shall be taxable if-
 There is a Capital Asset
And
 Transfer of such capital asset during PY

Capital Asset
Property of any kind held by assessee whether Business & Profession property or
Personal property.
Excludes
o Stock in Trade
o Personal and Movable Property (example - car, AC, TV, Fridge)
 But Excludes = Jewellery, Drawing, Paintings, Archaeological Collection, Any
work of Art
o Rural Agricultural Land in India
o Gold Bonds

Transfer
 Sale of Capital Asset
 Capital Asset destroyed and amount/other asset received from Insurance Co.
 Capital Asset converted into stock in trade
 Capital Asset transfer/introduce to firm/AOP/ BOI by partner as capital
contribution
 Capital Asset distributed on dissolution of firm/AOP/BOI
 Compulsory acquisition of Capital Asset
 Distribution on liquidation of Company
 Buy back of shares
 Slump Sales

Transactions not regarded as Transfer

 Transfer under gift, will etc. (previous owner)
 Distribution on total/partial partition of HUF
 Transfer/Distribution under amalgamation/merger/demerger of companies
 Transfer of capital asset between subsidiary & holding company
 Conversion of bonds/debentures into shares.
 Transfer of capital assets under Reverse Mortgage
 Conversion of Private Company or Public Company into LLP

Page 27 of 45
Period of Holding
Normal case — Date of purchase to date of sale/transfer
Special case —
 When asset becomes property by gift/will — Includes period of previous owner
 Share held in a company in liquidation — upto date of liquidation
 Asset destroyed case — upto date of destruction.
 Conversion of capital asset into stock in trade — upto date of conversion
 Compulsory Acquisition — upto date of compulsory acquired
 Conversion of bond/debenture into shares — Includes period of previous asset

Calculation of Capital Gain

Short term Capital Gain:
Sale Consideration XXX
Less : Transfer Expenses (Expenses at the time of sale) (XX)
(No deduction of STT)
Net Sale Consideration XXX
Less: Cost of Acquisition/Purchase XX
Less: Cost of Improvement XX
Short term Capital Gain (STCG) XX

Long Term Capital Gain:

Sale Consideration XXX
Less: Transfer Expenses (Expenses at the time of sale) (XX)
(No deduction of STT)
Net Sale Consideration XXX
Less: Index cost of Acquisition/Purchase (XX)
Less: Index cost of Improvement (XX)
Long Term Capital Gain (LTCG) XX

Cost of Acquisition/Purchase
Normal Case — Purchase Price including all expenses relating to purchase
Special Case —
 When Asset become property by gift /will — Purchase Price of previous owner
 Goodwill, brand name, trade mark etc.

It Self-Generated If Purchased

Nil Purchase Price

No capital gain on self-generated Goodwill of profession

 Bonus Shares
If allotted before 1/4/2001 — If allotted on or after 1/4/2001 —
Fair Market Price as on 1/4/2001 Nil

Page 28 of 45
  Sweat Equity Shares — Fair market value on date on which option is exercise
 Right shares
If purchased by Assessee — Purchase Price
Right offer sold by assessee — Nil

 If Asset acquired before 1/4/2001

Fair Market Value as on 1/4/2001
OR Higher
Actual cost of purchase of Asset by assessee/previous owner

Index cost of Acquisition

Cost of Acquisitio n
 Index for Assets transfer year
Index for Asset Rceived yaar
Index
2019 – 20 = 289
2001 – 02 = 100
If asset received/purchased before 1/4/2001 = Index for Received Year = 2001- 02=100
Cost of Improvement
All expenditure of capital nature incurred on improvement of asset by assessee/
previous owner

On or after 1/04/2001 (If incurred before 1/4/2001 = Ignore)

Note: In case of Goodwill/Trademark/Brand name-Cost of Improvement will be Nil

Index cost of Improvement

Cost of Improvemen t
 Index for Transfer year
Index for Improvemen t

Capital Gains in Special Cases

(1) Capital Asset destroyed and amount/asset received from Insurance Co.
 Sale Consideration = Amount Received/FMV of Asset Received
 Capital Gain taxable in year in which it is received
 Index for Transfer year = Year of Distribution
 If No claim is received — No capital gain and loss is dead loss.

(2) Capital Asset converted into stock in trade

 Sale Consideration = FMV of Asset on date of conversion
 Capital Gain taxable in year in which converted stock is sold.

Page 29 of 45
  Index for Transfer year = Year of Conversion
 Business Income = Sale Amount of Stock – FMV of Asset on date of conversion

(3) Capital Asset introduce in Firm/AOP/BOI by partner/member as capital

contribution
Sale Consideration = Amount credited in partner capital A/c

(4) Capital Asset distributed by Firm on Dissolution

Sale consideration = FMV on date of transfer
If Non depreciable Asset purchase Purchase Price
by firm
Cost of Depreciable Asset WDV
Acquisition If Asset Introduce by Partner as Amount credited in
Capital Contribution Partner Capital A/c

(5) Capital Gain on Compulsory Acquisition

 Normal Compensation
 Sale Consideration = Compensation Amount
 Taxable in year in which compensation received Full Amount is Taxable,
Even is part is received
 Index for Transfer year = Year in which asset is compulsory acquired
 Enhanced Compensation
 Taxable in year in which it is received
 Sale Consideration = Enhanced Compensation Amount
 COA = Nil
 Interest on Compensation/Enhanced Compensation = Taxable under OS
 Exemption on Compulsory Acquisition of Urban Agriculture land
 Available to Individual/HUF
 If such land is used for Agriculture for immediately 2 preceding years by
himself/parents Capital Gain will be Exempt

(6) Capital Asset distributed on liquidation of Company

In hands of Company In hands of Shareholder

Not Taxable Taxable

FMV of Asset received + Amount Received XXX

Less: Shareholder interest in accumulated
profits of company (XX)
Sale Consideration XX
Less: COA/ICOA = Purchase price of shares (XX)
STCG/LTCG XX

Page 30 of 45
 (7) Buy Back of Shares
Listed Shares Unlisted Shares

Company — Not Taxable Company — Taxable @ 23.96%

Shareholder — CG Arise Shareholder — CG Exempt u/s 10(34A)

(8) Slump Sale

Sale of Unit/Undertaking
If held for more than 36 months = LTCG
If held for upto 36 months = STCG
Calculation of Capital Gain
Sale Consideration XXX
Less: Transfer Expenses (XX)
Less: CoA = Net worth of unit/undertaking (No Indexation) (XX)
Capital Gain XX

Calculation of Net worth of unit/undertaking

Value of Total Asset of unit/undertaking XXX
Less: Book Value of Liabilities of unit/undertaking (XX)
Net worth of unit/undertaking XXX

Value of Total Asset of unit/undertaking —

 Depreciable Asset — WDV as per Income Tax Act
 Sec. 35 AD Asset — Nil
 Other Asset — Book value
* Ignore Revaluation effect

Sale Consideration / Full value of consideration of Land or Building

Full value of consideration / Sale consideration of land or building —
Stamp duty value
Or — whichever is higher
Actual sale amount
Note — If stamp duty value is upto 105% (or difference upto 5%) of actual sale
amount, Then actual sale amount = Sale consideration

If date of agreement and date of registration are not same

If part or full amount received by A/c Other case

payee cheque/DD/ECS on or before
date of agreement

Stamp duty value on Date of Agreement Stamp duty value on Date of Registration

Page 31 of 45
Reference to Valuation Officer (VO)
If assessee not agree with Assessing Officer, AO refer the case to VO for
determining Sale Consideration
 If Valuation Amount > Stamp Duty Value — Stamp Duty Value
 If Valuation Amount < Stamp duty Value — Valuation Amount

Sale Consideration of unlisted shares

Fair Market Value
Or — whichever is lower
Actual Sale Amount

Sale consideration if sale amount is not determinable

Fair Market Value

Advance Money Forfeited

If forfeited before 1/4/2014 If forfeited on or after 1/4/2014

Deduct from COA, when such Asset is sold Taxable as Other Source
If Forfeited by previous owner — Ignore

Exemption from Capital Gain

Particulars Section 54 Section Section 54D Section Section Section 54F
54B 54EC 5EE
1. Eligible Individual Individual/ Any Person Any Any Individual/HUF
Assessee / HUF HUF Person Person
2. Asset Residential Urban Compulsory land or Any Any Assets other
Transfer House Agriculture acquisition building Capital than residential
property land of land/ (LTCG) Asset house property
(LTCG) (STCG/LTC building of (LTCG) (LTCG)
G industrial
unit
(STCG/LTCG)
3. Other — Such land is Land & — — Assessee does not
condition used in Building own more than one
Agriculture used in residential house
for 2 years Industry for property at time of
preceding 2 years transfer
date of
Transfer by
himself/
parents
4. Asset in One Agriculture Land & Bonds of Unit of One residential
which residential land Building for NHAI/ specified house property in
capital House in Industry RECI funds of India
Gain is India Redeemable Central
invested after 5 Govt.

Page 32 of 45
 years
5. Time Purchase Within 2 Within 3 Within 6 Within 6 Purchase within 1
limit of within 1 years from years from month months year before or 2
Investment year date of date of from date from year from transfer
before or 2 transfer transfer of transfer date of or construct within
year within transfer 3 years from
date of transfer
transfer or
construct
within 3
year from
transfer
6. Exemption Capital Capital Gain Capital Gain Capital Capital Amount Invested
limit Gain Or Or Gain Gain Net Sale Consideration
Or Amt. Amt. Or Or  LTCI
Amt. Invested Invested Amt. Amt.
Invested Or Invested Invested
(Lower) Rs. 50 Lacs Or
(Lower) Rs. 50 Lacs (Lower)
(Lower)
(Lower)

Section 111A — Tax Rate on Short Term capital Gain on Certain Assets
STCG on:—
 Listed Equity Shares
 Unit of Equity Oriented Fund Taxable @ 15%
 Unit of Business Trust

Other Short Term Capital Gain — Taxable @ Normal Rates

Section 112A — Tax Rate on Long Term capital Gain on Certain Assets
LTCG on:—
 Listed Equity Shares Upto Rs. 1 lakh — Exempt
 Unit of Equity oriented Fund
 Unit of business Trust Exceeding Rs. 1 lakh — Taxable @ 10%
(Without Indexation)

COA = Purchase Price or FMV as on

31/01/2018 (Higher)

Other Long Term Capital Gain (Section 112) — Taxable @ 20%

Other Points
 No Deduction under Chapter VI-A From Section 111A, 112A, 112
 Benefit of Basic Exemption Limit — First From other income, then from STCG u/s
111A, LTCG u/s 112, 112A (only in case of resident)

Page 33 of 45
 Chapter 8
Other Source

Section 56 — Charging Section

Income is taxable under this head if —
Income is not taxable under other head
And
Income is not exempt

Following Incomes are taxable under this head —

1. Dividend Income
2. Casual Income — Winning from lotteries, Puzzles, Card Games, Racing
including horse race, Betting, Gambling
3. Interest on securities, FD, Saving Bank A/c, Current A/c, Interest on Income
tax refund etc.
4. Interest on compensation/enhanced compensation
5. Advance money forfeited on or after 1/4/2014
6. Income from renting/letting of Plant & Machinery, Furniture (if not taxable
under B&P)
7. Family Pension
8. Income of MP/MLA
9. Interest on employee contribution in case of URPF
10. Amount received in excess of FMV of shares by private company
11. Gift Received in excess of Rs. 50,000
12. Any Other income not taxable under other heads

Dividend Income
In hands of shareholder

Dividend From Indian Company Dividend From Foreign Company

Actual Dividend Deemed Dividend Fully Taxable

Upto Exceeding Fully Exempt

Rs. 10 Rs. 10
lakh lakh

Fully Excess
Exempt amount
Taxable
@ 10%

Page 34 of 45
 For Resident Person (other
than company)

• No deduction of Expenditure
• No setoff of losses
In the hands of Company

Actual Dividend Deemed Dividend

Taxable @ 15% Taxable @30%

Deemed Dividend u/s 2(22) (e)

Any payment by a closely held company (Private Company)

By way of loan/advance to

 Share holder holding not less than 10% voting power

Or
 Any concern/entity in which such shareholder is a member or partner and has
substantial interest (20% or more profit)

To the extent of accumulated profits of the company

Is deemed to be dividend

Non Applicability
o If loan/Advance is given in ordinary course of Business.
o Trade Advance

Casual Income
Income from lottery, Card Games, Betting, Races including horse Racing, Game
show etc. — Taxable @ 30%

Other Points
• No deduction of any expenditure
• No deduction under chapter VI– A
• No SLAB Benefit
• No Set-off of loss

Interest on Securities, FD, Saving A/c, Current A/c, Interest on refund

Exempt Interest —
 Interest on PPF
 Interest on Post office Savings A/c
 upto 3,500, If Normal A/c
 upto 7,000, If Joint A/c

Page 35 of 45
Interest on Compensation/Enhance Compensation
Taxable in year in which it is received
Interest on compensation/enhance compensation received XXX
Less: 50% Deduction (XX)
Taxable Amount XXX
Note — No other Deduction

Advance Money Forfeited

If forfeited Before 1/4/2014 If Forfeited On or After 1/4/2014

Deduct From Cost of Acquisition Income From Other Source

Income from renting of P&M, Furniture (If not taxable under B & P)
Rental Income XXX
Less: Deduction (Repairs, Insurance Premium,
Depreciation, Other expenses) (XX) (same as B & P)
Income from OS XXX

Family Pension
Received by employee’s family from employer after death of employee.
Rs. 15,000
Or — whichever is lower
1/3 of Family Pension Allowed as Deduction

Income of MP/MLA
Following Allowances are exempt:
 Daily Allowance
 Constituency Allowance

Amount Received in Excess of FMY of shares issued by closely held

Company (Private Company)
 Applicable if shares are issued at premium
 Not applicable if issued at par or discount
 Income of Company = Issue Price – Fair Market Value

Page 36 of 45
Gift Received in excess of Rs. 50,000 [Section 56(2) (X)]
Gift = Money or Capital Asset for recipient

Particulars Taxable
Amount
Gift In Money — whole money
Money Received > 50,000 during PY received will be
taxable
Gift in Movable Property — whole FMV will
Without Consideration  FMV > 50,000 be taxable
Without adequate consideration  Difference Amount > whole difference
50,000 amount will be
(Difference Amount = FMV - Consideration) taxable

Gift in Immovable Property — whole stamp

Without Consideration  Stamp Duty Value > 50,000 duty value will
be taxable
Without adequate consideration  Difference Amount > whole difference
50,000 amount will be
(Difference Amount = Stamp Duty Value - Consideration) taxable

Exempted Gifts
Gift Received:—
(1) From Relative
(2) On marriage of individual [not on anniversary, engagement]
(3) Under will or Inheritance
(4) From Local Authority
(5) From Charitable Institution/Trust

Definition of Relative:—
For HUF — any member of HUF
For Individual
(1) Spouse of individual
(2) Brother or sister of individual
(3) Brother or sister of spouse of individual
(4) Brother or sister of either of parents of individual
(5) Any lineal ascendant or descendant of the individual
(6) Any lineal ascendant or descendant of spouse of individual
(7) Spouse of person referred in (2) to (6) point

Page 37 of 45
 Chapter 9
Income of other person included in assessee Total Income

General Provision of Clubbing

Transfer of income without Transfer of Income arising from Transfer of Asset

Asset

Income Taxable in hands of Transferor Revocable Irrevocable

Transfer (Can be Transfer
Re transfer)

Income Taxable Income Taxable in

in hands of hands of
Transferor Transferee

Clubbing of spouse or son’s wife Income

Remuneration to spouse Income arising to Income from Asset
from a concern in which spouse/son’s wife from asset Transferred to other
Individual has transferred without adequate person for benefit of
substantial Interest consideration spouse/son’s wife

Taxable in hands of Clubbed/Taxable in hands of Taxable /Clubbed in

Individual Transferor Hands of Transferor
Exception: If spouse has Other Points
technical or professional
qualification
1. Income earned by Investing
such income is not clubbed
2. Income from accretion of
transferred asset in not
clubbed
3. If transferred asset is
invested spouse in any
business, Then income to be
clubbed

Amt.investedof assetTransferreed on firstdayof PY

ProfitOf business
Totalinvestmentof transferee on firstof PY

Page 38 of 45
Clubbing of Minor Child Income
Income of Minor Child Shall be clubbed/Taxable in hands of parents whose Total
Income is Greater.

Exception — Income of Minor Child is not clubbed in following cases:

 Minor child suffering from disability specified u/s 80U of income Tax Act.
Or
 Income earned by minor child by manual work or skill, talent, knowledge &
experience. However, Income earned by investing such income is clubbed.

If minor child income is clubbed

Exemption

Rs. 1500 per minor child Or clubbed Income of Minor child

whichever
is lower

Cross Transfer

Page 39 of 45
 Chapter 10
Setoff & Carry Forward of Losses

Types of Set off of losses

Inter Souce set off Inter head set off

Set off from same head of Income Set off from different head of Income

Example - Business loss from business Example - Business loss from HP

profit, CG loss from CG profit Income, HP Loss from Salary Income

Set off Current year losses Set off of brought forward losses

 First Inter Source Only Inter Source

 Then Inter Head

Exceptions in Inter Source Set off

Speculation Long Term Section 35AD Loss from activity of
business loss Capital Loss Business loss owning & maintaining
race horses

Set off only from Set off only Set off only from Set off only from this
speculative from long term section 35AD profit
Business Profit Capital Gain Business Profit

Exceptions in Inter Head Set off

Loss from B&P Speculative loss, STCL/LTCL cannot Loss from house
cannot be set off section 35AD loss, be set off from any property can be
from salary horse racing loss, other head of set off from
cannot be set off income other head of
from any other Income only
head of income upto Rs. 2 lakh

Losses which cannot be set off & carry forward

Casual Income Loss Loss from exempt Source

Cannot be set off Cannot be set off

& &
Cannot be carry forward Cannot be carry forward

Page 40 of 45
 Maximum Period of Carry forward of Losses

Unabsorbed HP Business Speculation Specified Capital Loss

Depreciation loss Loss Business Business Loss From
Loss Losses owning &
(35AD) maintain
race
horses

Indefinite 8 AY 8 AY 4 AY Indefinite 8 AY 4 AY
period

Note — Filing of ROI U/s 139(1) within due date is mandatory for carry
forward of above losses except:
HP Loss Unabsorbed Depreciation

Note — No Loss can be set off from Casual Income.

Page 41 of 45
 Chapter 11
Deductions (upto sec. 80E)

 Deductions cannot exceed Gross Total Income (GTI)

 Deduction is not available from incomes which are taxable at special rates
(Section 111A, 112A, 112, Casual Income etc.)
 Types of deduction
Expenditure /Investment based Income Based Deduction
deduction

Section 80C to 80GGC Section 80IA to 80TTB

Section 80C “Deduction in respect of investment in specified assets”

Available to: Individual/HUF
Maximum Deduction = Rs. 1,50,000

(1) Life insurance premium Paid to any Insurance Company —

Individual = Self/Spouse/Children
HUF = Any member of HUF
20% of Policy Amt./Sum Assured
Policy taken before 1/4/12 Or Lower
Premium paid
10% of Policy Amt./Sum Assured
Policy taken between 1/4/12 to Or Lower
31/03/13 Premium paid
If person suffered from disability
Policy taken on or after 1/4/13 u/s 80U — 15% of policy amount Lower
or Premium paid
Normal person — 10% of policy Lower
amount or Premium paid

(2) Investment in PPF —

Individual — Self /Spouse/Children
HUF — Any member of HUF
(3) Employee contribution in SPF, RPF, PPF
(4) NSC
(5) Mutual funds units
(6) Repayment of Housing Loan
• Loan for purchase or construction of house property
• House property shall be completed
• Loan taken from Govt., Bank, Employer, Company

Page 42 of 45
 (7) Tuition fees (but not donation/development fees or coaching fees) for full
time education of any two children of individual to any university, college or
other educational institution in India.
(8) Fixed deposit with Schedule Bank for not less than 5 years
(9) NABARD Bonds
(10) Five years’ time deposit in post office

Section 80CCC — “Investment in Pension funds”

Available to: Individual/HUF
Maximum Deduction = Rs. 1,50,000

 Investment in annuity plan of any insurance company for receiving annuity/

pension

Section 80CCD — “Contribution to pension scheme of central

government”
— Atal Pension Yojna, NPS Trust
Section 80CCD(1)
Eligible Assessee Deduction Limit
Employee of CG/Other Employer 10% of Salary
Or Lower
Actual Contribution
Self Employed 20% of GTI
Or Lower
Actual Contribution
*Salary = (Basic Salary + DA(IF) + Commission on Sales)
Section 80CCD(1B)
 Balance Contribution of 80CCD(1) can be claimed under Section 80CCD(1B)
upto Rs. 50,000
Section 80CCD(2) — Employer contribution
 First, Taxable under head Salary
 Then, Deduction allowed under this section —
10% of Salary
Or Lower
Actual Contribution

Section 80CCE
Deduction under Sec. 80C + Sec. 80CCC + Sec. 80CCD(1) = Maximum Rs. 1,50,000

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Section 80D — “Deduction in respect of Health/Medical Insurance
Premium”
Available to: Individual/HUF
Premium Paid for Nature of Payment Limit of Deduction
1 For self, spouse &  Health/Medical Insurance Rs. 25,000
dependent children Premium Paid other than Or Lower
Cash Premium paid
Or
 Contribution to Central Rs. 50,000
Govt. Health Scheme Or Lower
(CGHS) Premium paid
Or (If person is 60 years or
 Preventive health check up more plus resident)
2 For Parents [whether  Health/Medical Insurance Rs. 25,000
dependent or not] Premium Paid other than Or Lower
Cash Premium paid
Or
 Preventive health check up Rs. 50,000
Or Lower
Premium paid
(If person is 60 years or
more plus resident)
Note — Preventive health checkup — Minimum Rs. 5,000 allowed for (1+2)

Section 80DD — “Maintenance including Medical Treatment of a

Disable Dependent”
Resident Individual — HUF —
Spouse, Children, Brother, Sister, Parents Dependent Member
who are dependent on individual

Limit of Deduction —
Flat Deduction
Rs. 75,000
Or
Rs. 1,25,000 (If severe disability, i.e. 80% or more)

Section 80DDB — “Deduction in respect of Medical Treatment of

Specified Disease”
Resident Individual — HUF —
Self, Spouse, Children, Brother, Sister, Dependent Member
Parents who are dependent on individual

Limit of Deduction —
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 Rs. 40,000*
Or Lower XXX
Amount paid
(*Rs. 1,00,000 for senior citizen)

Less: Amount received from Insurance Company (XX)

Deduction Amount XXX

Section 80 E — “Interest paid on loan taken for higher education”

 Available to: Individual
 Interest paid for self, spouse, children

Higher education — After Class XIIth
 Deduction can be claimed for 8 years or tenure of loan (lower)
 Deduction Amount = Interest Paid

Section 80EE — “Interest on loan borrowed for acquisition of House

Property”
Deduction limit = 50,000
Conditions
• Loan shall be sanctioned during P.Y. 16–17
• Loan sanctioned upto Rs. 35 Lacs
• HP Value up to Rs. 50 lacs
***********************

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