Computation of Total Income

CHAPTER 8
COMPUTATION OF
TOTAL INCOME AND
TAX PAYABLE
LEARNING OUTCOMES
After studying this chapter, you would be able to–

 compute the tax liability of an individual as per the normal
provisions of the Income-tax Act, 1961;
 examine the applicability of the provisions of Alternate Minimum
Tax (AMT) and if applicable, compute the tax liability applying such
provisions and determine the tax credit, if any, to be carried
forward;
 compare the tax liability computed under the regular provisions of
the Act (including provisions relating to AMT, if applicable) with
the tax liability computed under section 115BAC of the Act and
determine which is more beneficial to the individual.
© The Institute of Chartered Accountants of India

8.2 INCOME TAX LAW
COMPUTATION OF TOTAL INCOME
Determination of residential status
Classification of Income under

5 heads
Income from Profits and gains

Salaries Capital Income from
house property from business or
gains other sources
profession
Compute income under each head applying the

charging & deeming provisions and providing for
permissible deductions/exemptions thereunder
Apply the clubbing provisions
Set-off/carry forward and

set-off of losses as per the provisions of the Act
Compute Gross Total Income (GTI)
Less: Deductions from Gross Total Income under Chapter VI-A
Total Income (TI)

COMPUTATION OF TOTAL INCOME AND TAX PAYABLE 8.3
1. MEANING OF TOTAL INCOME

The Total Income of an individual is arrived at after making deductions under
Chapter VI-A from the Gross Total Income. As we have learnt earlier, Gross Total
Income is the aggregate of the income computed under the 5 heads of income,
after giving effect to the provisions for clubbing of income and set-off and carry
forward & set-off of losses.
2. INCOME TO BE CONSIDERED WHILE

COMPUTING TOTAL INCOME OF
INDIVIDUALS
Capacity in which Treatment of income earned in each capacity
income is earned by
an individual
(1) In his personal Income from salaries, Income from house
capacity property, Profits and gains of business or
(under the 5 heads of profession, Capital gains and Income from other
income) sources.
(2) As a partner of a firm (i) Salary, bonus etc. received by a partner is
taxable as his business income.
(ii) Interest on capital and loans to the firm is
taxable as business income of the partner.
The income mentioned in (i) and (ii) above are
taxable to the extent they are allowed as
deduction to the firm.
(iii) Share of profit in the firm is exempt in the
hands of the partner.
(3) As a member of HUF (i) Share of income of HUF is exempt in the
hands of the member
(ii) Income from an impartible estate of HUF is
taxable in the hands of the holder of the
estate who is the eldest member of the HUF
(iii) Income from self-acquired property
converted into joint family property, without
adequate consideration

8.4 INCOME TAX LAW
(4) Income of other (i) Transferee’s income, where there is a

persons included in transfer of income without transfer of assets
the income of the (ii) Income arising to transferee from a
individual revocable transfer of an asset.
In cases (i) and (ii), income is includible in
the hands of the transferor.
(iii) Income of spouse as mentioned in section
64(1)(ii)/(iv)
(iv) Income from assets transferred otherwise
than for adequate consideration to any
person for the benefit of spouse [Section
64(1)(vii)].
(v) Income from assets transferred otherwise
than for adequate consideration to son’s
wife or to any person for the benefit of son’s
wife [Section 64(1)(vi)/(viii)].
(vi) Income of minor child as mentioned in section
64(1A)
3. COMPUTATION OF TOTAL INCOME AND TAX

LIABILITY OF INDIVIDUALS
Income-tax is levied on an assessee’s total income. Such total income has to be
computed as per the provisions contained in the Income-tax Act, 1961. The
procedure for computation of total income for the purpose of levy of income-tax
is detailed hereunder –
Step 1 – Determination of residential status
The residential status of a person has to be determined to ascertain which income
is to be included in computing the total income.
♦ In the case of an individual, the duration for which he is present in
India in the relevant previous year or relevant previous year and the
earlier previous years, as the case may be, determines his residential
status.
♦ An individual/HUF can be either a –
- Resident and ordinarily resident

- Resident but not ordinarily resident

- Non-resident
♦ An individual who is a citizen of India, having total income, other than the
income from foreign sources, exceeding ` 15 lakh during the previous year,
would be deemed resident in India in that previous year, if he is not liable to
tax in any other country or territory by reason of his domicile or residence
or any other criteria of similar nature. Such deemed resident would be a
resident but not ordinarily resident in India in that previous year.
♦ Persons, other than an individual and HUF, can be either resident or non-
resident.
♦ An Indian company is resident in India.
♦ A company, not being an Indian Company and having its place of effective
management in India in a particular year, would be resident in India for that
year.
♦ The determining factor for every other assessee is the place where the
control and management of its affairs are situated during that year i.e.,
whether in India or outside India.
♦ The residential status of a person determines the scope of his taxable
income.
♦ For example, income which accrues outside India and is received outside
India is taxable in the hands of a resident and ordinarily resident but is not
taxable in the case of a non-resident.
Step 2 – Classification of income under different heads
♦ There are five heads of income, namely, -
- Salaries,
- Income from house property,
- Profits and gains of business or profession
- Capital Gains
- Income from other sources
♦ The income of a person should be identified and grouped under the
respective head of income.

8.6 INCOME TAX LAW
♦ Each head of income has a charging section (for example, section 15 for
salaries, section 22 for income from house property).
♦ Deeming provisions are also contained under certain heads, by which
specific items are sought to be taxed under those heads.
For example, if bad debts allowed as deduction in an earlier year is
recovered in a subsequent year, then the amount recovered would be
deemed as business income of the person in the year of recovery.
♦ The charging section and the deeming provisions would help you to
determine the scope of income chargeable under a particular head.
Step 3 – Computation of income under each head
♦ Income is to be computed in accordance with the provisions governing a
particular head of income.
♦ Assess the income under each head by -
- applying the charging and deeming provisions,
- excluding items of income relating to that head in respect of which
specific exemptions are provided in section 10.
There are certain incomes which are wholly exempt from income-tax
e.g. agricultural income. These incomes have to be excluded and will
not form part of Gross Total Income.
Also, some incomes are partially exempt from income-tax e.g. House
Rent Allowance, Education Allowance. These incomes are excluded
while computing income under the relevant head only to the extent of
the limits specified in the Act.
- allowing the permissible deductions under that head, and
For example, while calculating income from house property, municipal
taxes paid by the owner and interest on loan are allowed as
deduction. Similarly, deductions and allowances are prescribed under
other heads of income.
- disallowing the non-permissible deductions.
For example, while computing income under the head “Profits and
gains from business or profession” expenditure of personal nature and
expenditure which is in the nature of offence are not allowable as
deduction. Hence, such expenditure, if any, debited to profits and loss

account, has to be added back while computing income under this

head.
Likewise, while computing net consideration for capital gains,
brokerage is a permissible deduction from gross sale consideration
but securities transaction tax paid is not permissible.
Step 4 – Clubbing of income of spouse, minor child etc.
♦ An individual in a higher tax bracket may have a tendency to divert his
income to another person who is not subject to tax or who is in a lower tax
bracket.
For example, an individual may make a fixed deposit in the name of his
minor son, so that income from such deposit would accrue to his son, who
does not have any other income.
♦ In order to prevent evasion of income-tax by such means, clubbing
provisions have been incorporated in the Income-tax Act, 1961, under which
income arising to certain persons (like spouse, son’s wife etc.) have to be
included in the income of the person who has diverted his income to such
persons for the purpose of computing tax liability.
Further, income of a minor child, not being a minor child suffering from any
disability of the nature specified in section 80U (other than income derived
from exercise of special skills/talent or manual work done by him) is
includible in the hands of the parent whose total income is higher before
including minor’s income. Such income will be included in the hands of the
parent after providing for deduction of up to ` 1,500 under section 10(32).
Step 5 – Set-off or carry forward and set-off of losses
An individual may have different sources of income under the same head of
income. He might have profit from one source and loss from the other. For
instance, an individual may have profit from his let-out house property and loss
from his self-occupied property. This loss can be set-off against the profits of the
let-out property to arrive at the net income chargeable under the head “Income
from house property”.
♦ Inter-source set-off of losses
- A person may have income from one source and loss from another
source under the same head of income. For instance, a person may
have profit from wholesale trade of merchandise and loss from the
business of plying vehicles.

8.8 INCOME TAX LAW
The loss of one business can be set-off against the profits of another
business to arrive at the net income under the head “Profits and gains
of business or profession”.
- Set-off of loss from one source against income from another source
within the same head of income is permissible, subject to certain
exceptions, like long-term capital loss cannot be set-off against short-
term capital gains though short-term capital loss can be set-off
against long-term capital gains.
♦ Inter-head set-off of losses
- Likewise, set-off of loss from one head (say, loss from house property)
against income from another head (say, Salaries) is also permissible,
subject to certain exceptions, like business loss cannot be set-off
against salary income; loss under the head “Capital Gains” cannot be
set-off against any other head of income.
- Also, loss under the head house property can be set-off against
income under any other head only to the extent of ` 2 lakhs.
♦ Carry forward and set-off of losses
- Unabsorbed losses of the current year can be carried forward to the
next year for set-off only against the respective head of income.
- Here again, if there are any restrictions relating to inter-source set-off,
the same will apply, like long-term capital loss which is carried forward
can be set-off only against long-term capital gains and not short-term
capital gains of a later year.
- The maximum number of years up to which any particular loss can be
carried forward is also provided under the Act.
For example, business loss can be carried forward for a maximum of 8
assessment years to be set-off against business income. However, loss
from specified business referred to in section 35AD can be carried
forward indefinitely for set-off against profits of any specified
business.
Step 6 – Computation of Gross Total Income
♦ The income computed under each head, after giving effect to the clubbing
provisions and provisions for set-off and carry forward and set-off of losses,
have to be aggregated to arrive at the gross total income.

♦ The process of computing GTI is depicted hereunder -

Add income → Apply → Apply the provisions for
computed under clubbing set-off and carry forward
each head provisions of losses
Step 7 – Deductions from Gross Total Income
Certain deductions are allowable from gross total income to arrive at the total
income. These deductions contained in Chapter VI-A can be classified as –
♦ Deduction in respect of certain payments, for example,
Section Nature of Payment/Deposit

80C Payment of life insurance premium, tuition fees of children,
deposit in public provident fund, repayment of housing loan
etc.
80D Medical insurance premium paid by an individual/ HUF for the
specified persons/ contribution to CGHS etc.
80E Payment of interest on educational loan taken for self or
relative
♦ Deduction in respect of certain incomes, for example,
Section Nature of Income

80QQB Royalty income of authors of certain books other than text books
80RRB Royalty on patents
♦ Deduction in respect of other incomes
Section Nature of Income

80TTA Interest on savings account with a bank, co-operative society
and post office.
80TTB Interest on deposit with a bank, co-operative society and post
office in case of senior citizens
♦ Other Deductions
Deduction under section 80U in case of a person with disability
These deductions are allowable subject to satisfaction of the conditions
prescribed in the relevant sections. There are limits in respect of deduction under

8.10 INCOME TAX LAW
certain sections. The payments/incomes are allowable as deduction subject to

such limits. For example, the maximum deduction under section 80RRB is
` 3 lakhs; under section 80TTA is ` 10,000 and under section 80TTB is ` 50,000.
Step 8 – Total income
♦ The gross total income as reduced by the above deductions under Chapter
VI-A is the total income.
Total income = GTI – Deductions under Chapter VI-A
♦ It should be rounded off to the nearest multiple of ` 10.
♦ Tax is calculated on the total income of the assessee.
Step 9 – Application of the rates of tax on the total income
♦ The rates of tax are specified in the Finance Act.
♦ For individuals, there is a slab rate and basic exemption limit. At present,
the basic exemption limit is ` 2,50,000. This means that no tax is payable by
individuals with total income of up to ` 2,50,000. The rates of tax and level
of total income are as under –
Level of total income Rate of tax

(i) where the total income does not NIL
exceed ` 2,50,000
(ii) where the total income exceeds 5% of the amount by which the
` 2,50,000 but does not exceed total income exceeds
` 5,00,000 ` 2,50,000
(iii) where the total income exceeds ` 12,500 plus 20% of the
` 5,00,000 but does not exceed amount by which the total
` 10,00,000; income exceeds ` 5,00,000
(iv) where the total income exceeds ` 1,12,500 plus 30% of the
` 10,00,000 amount by which the total
income exceeds ` 10,00,000
♦ For a senior citizen (being a resident individual who is of the age of 60 years or
more at any time during the previous year), the basic exemption limit is
` 3,00,000 and for a very senior citizen (being a resident individual who is of the
age of 80 years or more at any time during the previous year), the basic

exemption limit is ` 5,00,000. Therefore, the tax slabs for these assessees would
be as follows –
For senior citizens (being resident individuals of the age of 60 years or
more but less than 80 years)

(i) where the total income does not NIL
exceed ` 3,00,000
(ii) where the total income exceeds 5% of the amount by which
` 3,00,000 but does not exceed the total income exceeds
` 5,00,000 ` 3,00,000
(iii) where the total income exceeds ` 10,000 plus 20% of the
` 5,00,000 but does not exceed amount by which the total
` 10,00,000; income exceeds ` 5,00,000
(iv) where the total income exceeds ` 1,10,000 plus 30% of the
` 10,00,000 amount by which the total
income exceeds ` 10,00,000
For resident individuals of the age of 80 years or more at any time

during the previous year

(i) where the total income NIL
does not exceed ` 5,00,000
(ii) where the total income 20% of the amount by which the
exceeds ` 5,00,000 but total income exceeds ` 5,00,000
does not exceed
` 10,00,000;
(iv) where the total income ` 1,00,000 plus 30% of the amount
exceeds ` 10,00,000 by which the total income exceeds
` 10,00,000
♦ Companies and firms are subject to a flat rate of tax, without any basic
exemption limit.
♦ The rates of tax have to be applied on the total income to compute the tax
liability.

8.12 INCOME TAX LAW
♦ Rates of tax in respect of certain income are provided under the Income-tax
Act, 1961 itself. For instance, the rates of tax for long term capital gains on
certain assets, long-term capital gains on other assets, certain short-term
capital gains and winnings from lotteries, crossword puzzles, races etc. are
prescribed in sections 112, 112A, 111A and 115BB, respectively. The rates of
tax are 20%, 10%, 15% and 30%, respectively, in the above cases. Under
section 112A, long term capital gains exceeding ` 1,00,000 on transfer of
equity shares of a company or unit of equity oriented fund or a unit of a
business trust is taxable @10%.
♦ The special rates of tax have to be applied on the respective component of
total income and the general slab rates have to be applied on the balance
of total income after adjusting the basic exemption limit.
♦ The unexhausted basic exemption limit can, however, be adjusted against
long-term capital gains taxable under section 112/112A and short-term
capital gains taxable under section 111A in case of resident individual or
HUF.
Step 10 – Rebate under section 87A (where total income ≤ ` 5,00,000)/
Surcharge (where total income >` 50,00,000)
Rebate under section 87A: In order to provide tax relief to the individual tax
payers who are in the 5% tax slab, section 87A provides a rebate from the tax
payable by an assessee, being an individual resident in India, whose total income
does not exceed ` 5,00,000. The rebate shall be equal to the amount of income-
tax payable on the total income for any assessment year or an amount of
` 12,500, whichever is less.
However, rebate under section 87A is not available in respect of tax payable
@10% on long-term capital gains taxable under section 112A.
Surcharge: Surcharge is an additional tax payable over and above the income-
tax. Surcharge is levied as a percentage of income-tax.
In case where the total income of an individual/ HUF/ AOP (other than an AOP
consisting of only companies as members)/ BOI/ Artificial Juridical Person is
above ` 50 lakhs, the rate of surcharge applicable would be as follows:

Rate of Components of Applicable rate of

Particulars surcharge total income surcharge
on income-
tax
(i) Where the total 10% Example 1:
income (including
• Dividend ` 10 Surcharge would be
dividend income
lakhs; levied@10% on
and capital gains
• STCG u/s 111A income-tax
chargeable to tax
` 20 lakhs; computed on total
u/s 111A, 112 and
112A) > ` 50 • LTCG u/s 112 income of ` 90
` 15 lakhs; lakhs.
lakhs but ≤ ` 1
crore • LTCG u/s
112A ` 20
lakhs; and
• Other income
` 25 lakhs
(ii) Where total 15% Example 2:
income (including
• Dividend Surcharge would be
dividend income
income ` 10 levied@15% on
and capital gains
lakhs; income-tax
chargeable to tax
u/s 111A, 112 • STCG u/s computed on total
and 112A) > ` 1 111A ` 40 income of ` 1.90
lakhs; crores.
crore but ≤ ` 2
crore • LTCG u/s 112
` 55 lakhs;
• LTCG u/s 112A
` 35 lakhs; and
• Other income
` 50 lakhs
(iii) Where total 25% Example 3:
income (excluding
• Dividend Surcharge@15%
dividend income
income ` 51 would be levied on
and capital gains
lakhs; income-tax on:
chargeable to tax
u/s 111A, 112 • STCG u/s • Dividend income

8.14 INCOME TAX LAW
and 112A) > ` 2 111A ` 44 of ` 51 lakhs;

crore but ≤ ` 5 lakh; • STCG of ` 44
crore • LTCG u/s 112 lakhs chargeable
` 42 lakhs; to tax u/s 111A;
The rate of Not • LTCG u/s • LTCG of ` 42
surcharge on the exceeding 112A ` 55 lakhs chargeable
income-tax 15% lakh; and to tax u/s 112;
payable on the • Other income and
portion of ` 3 crores • LTCG of ` 55
dividend income lakhs chargeable
and capital gains to tax u/s 112A.
chargeable to tax
Surcharge@25%
u/s 111A, 112
would be leviable on
and 112A
income-tax computed
on other income of ` 3
crores included in
total income
(iv) Where total 37% Example 4:
income (excluding
• Dividend Surcharge@15%
dividend income
income ` 60 would be levied on
and capital gains
lakhs; income-tax on:
chargeable to tax
u/s 111A, 112 • STCG u/s • Dividend income
and 112A) > ` 5 111A ` 50 of ` 60 lakhs;
crore lakhs; • STCG of ` 50
• LTCG u/s 112 lakhs chargeable
Rate of surcharge Not
` 42 lakhs; to tax u/s 111A;
on the income- exceeding
tax payable on 15% • LTCG u/s 112A • LTCG of ` 42
the portion of ` 65 lakhs; and lakhs chargeable
dividend income • Other income to tax u/s 112;
and capital gains ` 6 crore and
chargeable to tax • LTCG of ` 65
u/s 111A, 112 lakhs chargeable
and 112A to tax u/s 112A.
Surcharge @37%
would be leviable on
the income-tax

computed on other
income of ` 6 crores
included in total
income.
(v) Where total 15% Example 5:
income (including
• Dividend Surcharge would be
dividend income
income ` 55 levied@15% on
and capital gains
lakhs; income-tax
chargeable to tax
u/s 111A, 112 • STCG u/s computed on total
and 112A) > ` 2 111A ` 60 income of ` 3.22
lakhs; crore.
crore in cases not
covered under (iii) • LTCG u/s 112
and (iv) above ` 42 lakhs;
• LTCG u/s 112A
` 55 lakhs; and
• Other income
` 1.10 crore
An AOP consisting of only companies as members
(a) In case of an AOP consisting of only companies as members, whose total
income > ` 50 lakhs but is ≤ ` 1 crore
Where the total income exceeds ` 50 lakhs but does not exceed ` 1 crore,
surcharge is payable at the rate of 10% of income-tax computed on total
income.
(b) In case of an AOP consisting of only companies as members, whose total
income > ` 1 crore
Where the total income exceeds ` 1 crore, surcharge is payable at the rate of 15%
of income-tax computed on total income.
Step 11– Health and Education cess (HEC) on Income-tax
The income-tax is to be increased by health and education cess@4% on income-tax
plus surcharge/ minus rebate under section 87A, wherever applicable. This cess is
payable by all assessees who are liable to pay income-tax irrespective of their level of
total income.

8.16 INCOME TAX LAW
Total Tax = Tax on total

+ Surcharge, at applicable + HEC@4%
Liability of income at rates, if total income >
an individual applicable rates
` 50 lakhs,
or
- Rebate u/s 87A, if total
income ≤ ` 5 lakh
Step 12 – Alternate Minimum Tax (AMT)
The Income-tax Act, 1961 contains profit-linked and investment-linked deductions
in order to encourage investment in various industries and infrastructure facilities.
Taxpayers who are eligible to claim such deductions end up paying no income-tax or
marginal income-tax though they are capable of paying higher taxes. It has to be
kept in mind that our Government also needs regular/consistent inflow of tax, which
is one of its major source of revenue, to fund various expenses for the welfare of the
country. Hence, in order to ensure payment of reasonable tax by such zero-tax
paying/ marginal-tax paying entities, the concept of alternate minimum tax has been
introduced in the Income-tax Act, 1961.
Chapter XII-BA contains the special provisions for levy of alternate minimum tax in
case of persons other than a company 1. Any person other than a company, who has
claimed deduction under any section (other than section 80P) included in Chapter VI-
A under the heading “C – Deductions in respect of certain incomes” or under section
10AA or investment-linked deduction under section 35AD would be subject to AMT
[Section 115JEE(1)].
The provisions of AMT would, however, not be applicable to an individual, HUF,
AOPs, BOIs, whether incorporated or not, or artificial juridical person, if the adjusted
total income of such person does not exceed ` 20 lakh [Section 115JEE(2)].
Further, the provisions of AMT would also not apply in case an individual or
HUF opting for concessional rates of tax under section 115BAC and co-
operative society opting for section 115BAD.
Note - At intermediate level, since profit-linked deductions provided under section 80-
IA to 80-IE, section 80JJA, 80LA, 80M, 80P and 80PA have been excluded from the
scope of syllabus by way of Study Guidelines and computation of total income and tax
liability is restricted to individual assessees only, the discussion in relation to AMT in
this chapter is limited with respect to deduction under section 10AA, section 35AD and
deduction under section 80JJAA, 80QQB & 80RRB only.
1
Since in respect of companies, minimum alternate tax (MAT) provisions are applicable, which
will be dealt with at the Final level.

Accordingly, where the regular income-tax payable by a person for a previous year
computed as per the provisions of the Income-tax Act, 1961 is less than the AMT
payable for such previous year, the adjusted total income shall be deemed to be the
total income of the person. Such person shall be liable to pay income-tax on the
adjusted total income @ 18.5% plus surcharge, if applicable, and HEC @4% [Section
115JC]. However, in case of a co-operative society, alternate minimum tax would
be 15% of adjusted total income plus surcharge, if applicable, and HEC @4%.
“Adjusted total income” would mean the total income before giving effect to
Chapter XII-BA as increased by
(i) the deductions claimed, if any, under section 10AA;
(ii) the deduction claimed under section 35AD, as reduced by the depreciation
allowable under section 32, as if no deduction under section 35AD was allowed
in respect of the asset for which such deduction is claimed; and
(iii) deduction under any section included in Chapter VI-A under the heading C-
Deductions in respect of certain incomes [For Intermediate level, the relevant
sections are 80JJAA, 80QQB & 80RRB].
Tax credit for AMT [Section 115JD]
Tax credit is the excess of AMT paid over the regular income-tax payable under the
provisions of the Income-tax Act, 1961 for the year. Such tax credit shall be carried
forward and set-off against income-tax payable in the later year to the extent of
excess of regular income-tax payable under the provisions of the Act over the AMT
payable in that year. The balance tax credit, if any, shall be carried forward to the next
year for set-off in that year in a similar manner.
AMT credit can be carried forward for set-off upto a maximum period of 15
assessment years succeeding the assessment year in which the credit becomes
allowable.
Tax Credit allowable even if Adjusted Total Income does not exceed ` 20 lakh in
the year of set-off [Section 115JEE(3)]
In case where the assessee has not claimed any deduction under section 10AA or
section 35AD or deduction under section 80JJAA, 80QQB & 80RRB in any previous
year and the adjusted total income of that year does not exceed ` 20 lakh, it would
still be entitled to set-off his brought forward AMT credit in that year.
Note: The provisions of the Income-tax Act, 1961 relating to advance tax, interest
under sections 234A, 234B and 234C etc. shall also apply to an assessee paying
alternate minimum tax.

8.18 INCOME TAX LAW
Step 13 – Examine whether or not to exercise the option under section

115BAC for availing concessional tax slab rates
I. Option to pay income-tax at concessional tax slab rates
As per section 115BAC, individuals or HUFs have an option to pay tax in respect of
their total income (other than income chargeable to tax at special rates under
Chapter XII such as section 111A, 112, 112A, 115BB etc.) at the following concessional
rates, subject to certain conditions specified under section 115BAC(2) –
(i) Upto ` 2,50,000 NIL
(ii) From ` 2,50,001 to ` 5,00,000 5%
(iii) From ` 5,00,001 to ` 7,50,000 10%
(iv) From ` 7,50,001 to ` 10,00,000 15%
(v) From ` 10,00,001 to ` 12,50,000 20%
(vi) From ` 12,50,001 to ` 15,00,000 25%
(vii) Above ` 15,00,000 30%
II. Conditions to be satisfied for availing concessional rates of tax: The

following are the conditions to be satisfied for availing concessional rates of tax:
S. No. Particulars
(1) Certain deductions/exemptions not allowable: Section 115BAC(2)

provides that while computing total income, the following
deductions/exemptions would not be allowed, if an individual or HUF
opts for concessional rates of taxes under section 115BAC(1):
Section Exemption/Deduction
10(5) Leave travel concession
10(13A) House rent allowance
10(14) Exemption in respect of special allowances or
benefit to meet expenses relating to duties or
personal expenses (other than those as may be
prescribed for this purpose) (See additional
point 1 on page no. 8.20).
10(17) Daily allowance or constituency allowance of
MPs and MLAs

10(32) Exemption in respect of income of minor child

included in the income of parent
10AA Tax holiday for units established in SEZ
16 (i) Standard deduction under the head
“Salaries”
(ii) Entertainment allowance
(iii) Professional tax
24(b) Interest on loan in respect of self-occupied
property
32(1)(iia) Additional depreciation
35(1)(ii),(iia),(iii) Deduction in respect of contribution to
or 35(2AA) - notified approved research association/
university/ college/ other institutions for
scientific research [Section 35(1)(ii)]
- approved Indian company for scientific
research [Section 35(1)(iia)]
- notified approved research association/
university/ college/ other institutions for
research in social science or statistical
research [Section 35(1)(iii)]
- An approved National laboratory/ university/
IIT/ specified person for scientific research
undertaken under an approved programme
[Section 35(2AA)]
35AD Investment linked tax incentives for specified
businesses
57(iia) Deduction in respect of family pension
80C to 80U Deductions under Chapter VI-A (other than

employers contribution towards NPS under
section 80CCD(2) and deduction in respect of
employment of new employees under section
80JJAA).
(2) Certain losses not allowed to be set-off: While computing total

income, set-off of any loss -

8.20 INCOME TAX LAW
(i) carried forward or depreciation from any earlier assessment

year, if such loss or depreciation is attributable to any of the
deductions referred to in (1) above; or
(ii) under the head house property with any other head of income;
would not be allowed.
(3) Depreciation or additional depreciation: Depreciation u/s 32 is to

be determined in the prescribed manner. Depreciation in respect of
any block of assets entitled to more than 40%, would be restricted to
40% on the written down value of such block of assets. Additional
depreciation u/s 32(1)(iia), however, cannot be claimed.
(4) Exemption or deduction for allowances or perquisite: While

computing total income, any exemption or deduction for allowances
or perquisite, by whatever name called, provided under any other
law for the time being force in India would not be allowed.
Additional points:
1. An individual opting for the provisions of section 115BAC would be
entitled for
- travelling allowance (i.e., allowance granted to meet the cost of travel
on tour or transfer);
- daily allowance (i.e., allowance granted on tour or for the period of
journey in connection with transfer, to meet the ordinary daily
charges incurred by an employee on account of absence from his
normal place of duty);
- conveyance allowance (i.e., allowance granted to meet the
expenditure incurred on conveyance in performance of duties of an
office or employment of profit, where free conveyance is not
provided by the employer); and
- exemption in respect of transport allowance granted to an employee
who is blind or deaf and dumb or orthopedically handicapped with
disability of the lower extremities of the body to the extent of ` 3,200
p.m.
2. An individual, being an employee opting for section 115BAC, would not
be entitled for exemption of perquisite of free food and non-alcoholic
beverages provided by an employer through paid vouchers

3. In case of an individual or HUF opting for section 115BAC, total income

should be computed without set-off of any loss brought forward or
depreciation from any earlier assessment year, where such loss or
depreciation is attributable to any of the deductions listed in (1) above
[Such loss and depreciation would be deemed to have been already
given effect to and no further deduction for such loss or depreciation
shall be allowed for any subsequent year]
Where there is a depreciation allowance in respect of a block of asset
from an earlier assessment year attributable to additional depreciation
u/s 32(1)(iia), which has not been given full effect to prior to A.Y. 2021-22
and which is not allowed to be set-off in the A.Y.2021-22 due to exercise
of option u/s 115BAC from that year, corresponding adjustment shall be
made to the WDV of such block of assets as on 1.4.2020 in the prescribed
manner i.e., the WDV as on 1.4.2020 will be increased by the unabsorbed
additional depreciation not allowed to be set-off. .
Example 6: Let us consider the case of Mr. X, who carries on business of
manufacturing of steel. He has unabsorbed depreciation as on 1.4.2020,
which includes amount attributable to additional depreciation u/s 32(1)(iia) of
P.Y.2019-20 or any earlier previous year in respect of block of plant and
machinery. If he exercises option under section 115BAC for P.Y.2020-21
relevant to A.Y.2021-22, the amount so attributable to additional depreciation
of earlier years remaining unabsorbed as on 1.4.2020 would not be eligible
for set-off against current year income. Accordingly, the WDV of the block as
on 1.4.2020 has to be increased by the said amount not allowed to be set-off.
III. Time limit for exercise of option: The concessional rate would be
applicable only if option is exercised in the prescribed manner -
(i) In case of an individual or HUF having no income from business or
profession: Where such individual or HUF has no business income, the
option has to be exercised along with the return of income to be
furnished under section 139(1) for a previous year relevant to the
assessment year. In effect, such individual or HUF can choose whether or
not to exercise the option in each previous year. He may choose to exercise
the option in one year and not to exercise the option in another year.
(ii) In case of an individual or HUF having income from business or
profession: The option has to be exercised on or before the due date
specified under section 139(1) for furnishing the return of income for

8.22 INCOME TAX LAW
any previous year and once such option is exercised, it would apply to
subsequent assessment years.
The option can be withdrawn only once where it was exercised by the
individual or HUF having business or profession income for a previous year
other than the year in which it was exercised. Thereafter, the individual or
HUF shall never be eligible to exercise option under this section, except
where such individual or HUF ceases to have any business income in which
case, option under (i) above shall be available.
IV. Consequences for failure to satisfy conditions mentioned in section
115BAC(2): The following are the consequences for failure to satisfy the
conditions mentioned above:
(i) In case of an individual or HUF having no income from business or
profession: On failure to satisfy the conditions mentioned in II. above in
any previous year, the option exercised would be invalid in respect of the
assessment year relevant to that previous year.
Consequently, the other provisions of the Income-tax Act, 1961 would apply
as if the option had not been exercised for the assessment year relevant to
that previous year.
(ii) In case of an individual or HUF having income from business or profession:
On failure to satisfy the conditions mentioned in II. above in any previous year,
the option exercised would be invalid in respect of the assessment year relevant
to that previous year and subsequent assessment years.
Consequently, the other provisions of the Income-tax Act, 1961 would apply
to the person as if the option had not been exercised for the assessment
year relevant to that previous year and subsequent assessment years.
AMT liability not attracted: Individuals or HUFs exercising option u/s 115BAC
are not liable to alternate minimum tax u/s 115JC.
Notes: (1) It may be noted that in case of individuals or HUFs not having income
from business or profession, the total income and tax liability (including
provisions relating to AMT, if applicable under normal provisions) may be
computed every year both in accordance with normal provisions of the Income-
tax Act, 1961 and in accordance with the provisions of section 115BAC, in order to
determine which is more beneficial and accordingly decide whether or not to opt
for section 115BAC for that year.

(2) Surcharge would be attracted at the same rates and above the same
thresholds of total income as under the regular provisions of the Income-tax Act,
1961. Further, HEC @4% would be attracted on income-tax so calculated plus
surcharge, if applicable.
(3) For the purpose of tax deduction at source, the CBDT has, vide Circular No. C1
of 2020, dated 13th April, 2020, clarified that an employee, having income other
than income under the head "Profits and gains of business or profession" and
intending to opt for the concessional rate under section 115BAC, is required to
intimate to the deductor, being his employer, of such intention for each previous
year and upon such intimation, the deductor shall compute his total income, and
deduct tax at source thereon in accordance with the provisions of section
115BAC. If such intimation is not made by the employee, the employer shall
deduct tax at source without considering the provisions of section 115BAC.
It is also clarified that the intimation so made to the deductor shall be only for the
purposes of TDS during the previous year and cannot be modified during that
year. However, the intimation would not amount to exercising option in terms of
section 115BAC and the person shall be required to do so alongwith the return to
be furnished under section 139(1) for that previous year. Thus, option at the time
of filing of return of income under section 139(1) could be different from the
intimation made by such employee to the employer for that previous year.
Further, in case of a person who has income under the head "Profit and gains of
business or profession" also, the option for taxation under section 115BAC once
exercised for a previous year at the time of filing of return of income under section
139(1) cannot be changed for subsequent previous years except in certain
circumstances.
Accordingly, a person having income under the head “Profits and gains from
business or profession” shall also intimate to his employer. However, the
intimation to the employer in his case for subsequent previous years must not
deviate from the option under section 115BAC once exercised in a previous year.
Step 14 – Credit for advance tax, TDS and TCS
♦ Tax is deductible at source at the time of payment of salary, rent, interest,
fees for professional services, royalty etc.
♦ The payer has to deduct tax at source at the rates specified in the respective
sections.

8.24 INCOME TAX LAW
♦ Such tax deducted at source has to be reduced by the payee to determine

his net tax liability.
♦ Tax is collectible by the seller in case of certain goods at the rate specified
in the respective section. Credit of such tax collection at source is allowable
to determine the tax liability.
♦ The Income-tax Act, 1961 also requires payment of advance tax in
instalments during the previous year itself on the basis of estimated income,
if the tax payable, after reducing TDS/TCS, is ` 10,000 or more.
♦ Both Corporate and non-corporate assessees are required to pay advance
tax in four instalments, on or before 15th June, 15th September, 15th
December and 15th March of the financial year.
♦ Assessees opting for presumptive provisions under section 44AD or under
section 44ADA can, however, pay the entire advance tax on or before 15th
March of the financial year.
♦ From the total tax due, deduct the TDS, TCS and advance tax paid for the
relevant assessment year to arrive at tax payable.
Tax payable =Total tax liability -TDS -TCS -Advance tax paid
Step 15 - Tax Payable/Tax Refundable
After adjusting the advance tax, tax deducted and collected at source, the
assessee would arrive at the amount of net tax payable or refundable. Such
amount should be rounded off to the nearest multiple of ` 10. The assessee has
to pay the amount of tax payable (called self-assessment tax) at the time of filing
of the return. Similarly, if any refund is due, assessee will get the same after filing the
return of income.
Note: Students are advised to read the above steps carefully and follow the given
procedure while solving problems on computation of total income and tax liability.

LET US RECAPITULATE
Computation of Total Income and Tax liability of Individuals:
Income-tax is levied on an assessee’s total income. Total income has to be
computed as per the provisions contained in the Income-tax Act, 1961. The
following steps has to be followed for computing the total income of an
assessee:
Step 1 – Determination of residential status
• Resident
- Resident and ordinarily resident
- Resident but not ordinarily resident
• Non-resident
Note – An Indian citizen who is a deemed resident in India would be a resident
but not ordinarily resident in India.
Step 2 – Classification of income under five heads
• Salaries,
• Income from house property,
• Profits and gains of business or profession
• Capital Gains
• Income from other sources
Step 3– Computation of income under each head
• Income under each head – exemptions - deductions
Step 4 – Clubbing of income of spouse, minor child etc.
Step 5 – Set-off current year losses and brought forward losses
• Inter-source set-off of losses
• Inter-head set-off of losses
• Set-off of brought forward losses
• Set-off of unabsorbed depreciation
• Carry forward of losses and unabsorbed depreciation
Step 6 – Computation of Gross Total Income
Gross Total = Add income → Apply → Apply the
Income computed under clubbing provisions for set-
each head provisions off and carry
forward of losses

8.26 INCOME TAX LAW
Step 7 – Deductions from Gross Total Income

• Deductions in respect of certain payments
• Deductions in respect of certain incomes
• Deduction in respect of other incomes
• Other deductions
Step 8 – Computation of Total income
• Gross Total Income – Deduction under Chapter VI-A
• Rounded off to the nearest multiple of ` 10
Step 9 – Application of rates of tax on total income in case of an
individual
Total income (in `) Rate of Tax
Upto ` 2,50,000 (below 60 years) Nil
Upto ` 3,00,000 (60 years or above but less than 80 years and
resident in India)
Upto ` 5,00,000 (above 80 years and resident in India)
` 2,50,001/ ` 3,00,001, as the case may be, to ` 5,00,000 5%
` 5,00,001 to ` 10,00,000 20%
Above ` 10,00,000 30%
Step 10 – Surcharge and Rebate
Surcharge
Total Income (assuming that the same does Surcharge
not include dividend, LTCG u/s 112A, 112
and STCG u/s 111A)
> ` 50 lakhs ≤ ` 1 crore 10% of income-tax
> ` 1 crore ≤ ` 2 crore 15% of income-tax
> ` 2 crore ≤ ` 5 crore 25% of income-tax
> ` 5 crore 37% of income-tax
It may be noted that the enhanced rates of surcharge@25% and 37% will not
apply in respect of dividend income, long-term capital gains taxable u/s 112A,
112 and short-term capital gains taxable u/s 111A. For detailed surcharge table,
see page 8.13 to 8.15.
Rebate under section 87A: Rebate of up to ` 12,500 for resident individuals
having total income of up to ` 5 lakh

However, rebate under section 87A is not available in respect of tax payable
@10% on long-term capital gains taxable under section 112A.
Step 11 – Health and Education cess on Income-tax:
Health and Education cess 4% of income-tax and surcharge, if applicable
Total Tax = Tax on total + Surcharge, at + H & EC@4%

Liability income at applicable rates, if
applicable rates total income > ` 50
lakhs,
or
- Rebate u/s 87A, if
total income ≤ ` 5
lakh
Step 12 – Examine the applicability of AMT
• Any person other than a company, who has claimed deduction under
section 10AA or under section 35AD or section 80JJAA, 80QQB & 80RRB
would be subject to AMT.
• The provisions of AMT would, however, not be applicable to an individual,
HUF, AOPs, BOIs, whether incorporated or not, or artificial juridical person, if
the adjusted total income of such person does not exceed ` 20 lakh
• Compute AMT [18.5% (15% in case of a co-operative society) of
adjusted total income plus surcharge, if applicable plus HEC @4%]
• If AMT > tax computed as per regular provisions, adjusted total income
would be deemed to be total income.
• Tax is leviable @18.5% (15% in case of a co-operative society) of
adjusted total income plus surcharge, if applicable plus HEC @4%
• Tax credit to be c/f = AMT less Tax computed as per regular provisions
• Individuals or HUFs exercising option u/s 115BAC and co-operative
society exercising option u/s 115BAD are not liable to alternate minimum
tax u/s 115JC.
Step 13 – Examine whether or not to exercise the option under section
115BAC for availing concessional tax slab rates
As per section 115BAC, individuals or HUFs have an option to pay tax in
respect of their total income (other than income chargeable to tax at special
rates under Chapter XII) at following concessional rates, if they do not avail
certain exemptions/deductions like LTC, standard deduction under the head
“Salaries”, interest on housing loan on self-occupied property, deductions

8.28 INCOME TAX LAW
under Chapter VI-A (other than 80CCD(2) or section 80JJAA), set-off of

brought forward loss or depreciation, if they relate to any of the above
deductions, set-off of loss from house property against income under any
other head, etc. –
(i) Upto ` 2,50,000 Nil
(ii) From ` 2,50,001 to ` 5,00,000 5%
(iii) From ` 5,00,001 to ` 7,50,000 10%
(iv) From ` 7,50,001 to ` 10,00,000 15%
(v) From ` 10,00,001 to ` 12,50,000 20%
(vi) From ` 12,50,001 to ` 15,00,000 25%
(vii) Above ` 15,00,000 30%
Surcharge would be attracted at the same rates and above the same
thresholds of total income as under the regular provisions of the Income-tax
Act, 1961. Further, HEC @4% would be attracted on income-tax so calculated
plus surcharge, if applicable.
Examine the tax liability computed under the regular provisions of the Act
(including provisions relating to AMT, if applicable) with the tax liability
computed under section 115BAC. Thereafter, if tax liability is lower as per the
provisions under section 115BAC, then opt to pay tax as per section 115BAC.
Note - If an individual or HUF having income from business or profession
exercises option to pay tax under section 115BAC in a previous year, then, the
said provisions would apply for all subsequent previous years.
An individual or HUF not having income from business or profession can
exercise the option to pay tax under section 115BAC for each previous year.
He may exercise the option in a particular previous year, but may not do so in
another previous year, depending on whether or not exercising the option is
beneficial to him in the respective previous year.
Step 14 – Credit for advance tax, TDS and TCS
Tax payable =Total tax liability - TDS - TCS - Advance tax paid
Step 15 – Tax payable/ Tax refundable

• Tax payable should be rounded off to the nearest multiple of ` 10.
• The assessee has to pay the amount of tax payable (called self-assessment
tax) at the time of filing of the return
• If any refund is due, assessee will get the same after filing the return of income.

TEST YOUR KNOWLEDGE

Question 1
Miss Charlie, an American national, got married to Mr. Radhey of India in USA on
2.03.2022 and came to India for the first time on 16.03.2022. She left for USA on
19.9.2022. She returned to India again on 27.03.2023. While in India, she had
purchased a show room in Mumbai on 30.04.2022, which was leased out to a
company on a rent of ` 25,000 p.m. from 1.05.2022. She had taken loan from a
bank for purchase of this show room on which bank had charged interest of
` 97,500 upto 31.03.2023. She had received the following cash gifts from her
relatives and friends during 1.4.2022 to 31.3.2023:
- From parents of husband ` 51,000
- From married sister of husband ` 11,000
- From two very close friends of her husband (` 1,51,000 and ` 21,000) ` 1,72,000
(a) Determine her residential status and compute the total income chargeable to tax
along with the amount of tax liability on such income for the Assessment Year
2023-24.
(b) Would her residential status undergo any change, assuming that she is a person of
Indian origin and her total income from Indian sources is ` 18,00,000 and she is
not liable to tax in USA?
Answer
I. Under section 6(1), an individual is said to be resident in India in any
previous year, if he/she satisfies any one of the following conditions:
(i) He/she has been in India during the previous year for a total period of
182 days or more, or
(ii) He/she has been in India during the 4 years immediately preceding
the previous year for a total period of 365 days or more and has been
in India for at least 60 days in the previous year.
If an individual satisfies any one of the conditions mentioned above, he/she
is a resident. If both the above conditions are not satisfied, the individual is
a non-resident.
Therefore, the residential status of Miss Charlie, an American National, for
A.Y.2023-24 has to be determined on the basis of her stay in India during

8.30 INCOME TAX LAW
the previous year relevant to A.Y. 2023-24 i.e., P.Y.2022-23 and in the
preceding four assessment years.
Her stay in India during the previous year 2022-23 and in the preceding four
years are as under:
P.Y. 2022-23
01.04.2022 to 19.09.2022 - 172 days
27.03.2023 to 31.03.2023 - 5 days
Total 177 days
Four preceding previous years
P.Y. 2021-22 [1.4.2021 to 31.3.2022] - 16 days
P.Y.2020-21 [1.4.2020 to 31.3.2021] - Nil
P.Y.2019-20 [1.4.2019 to 31.3.2020] - Nil
P.Y.2018-19 [1.4.2018 to 31.3.2019] - Nil
Total 16 days
The total stay of the assessee during the previous year in India was less than
182 days and during the four years preceding this year was for 16 days.
Therefore, due to non-fulfillment of any of the two conditions for a resident,
she would be treated as non-resident for the Assessment Year 2023-24.
Computation of total income of Miss Charlie for the A.Y. 2023-24
Particulars ` `
Income from house property
Show room located in Mumbai remained on rent
from 01.05.2022 to 31.03.2023 @ ` 25,000/- p.m. 2,75,000
Gross Annual Value [` 25,000 x 11] (See Note 1
below)
Less: Municipal taxes Nil
Net Annual Value (NAV) 2,75,000
Less: Deduction under section 24
30% of NAV 82,500
Interest on loan 97,500 1,80,000 95,000

Income from other sources

Cash gifts received from non-relatives is
chargeable to tax as per section 56(2)(x), if the
aggregate value of such gifts exceeds ` 50,000.
- ` 50,000 received from parents of husband Nil
would be exempt, since parents of husband
fall within the definition of ‘relative’ and gifts
from a relative are not chargeable to tax.
- ` 11,000 received from married sister of Nil
husband is exempt, since sister-in-law falls
within the definition of relative and gifts from
a relative are not chargeable to tax.
- Gift received from two friends of husband 1,72,000 1,72,000
` 1,51,000 and ` 21,000 aggregating to
` 1,72,000 is taxable under section 56(2)(x)
since the aggregate of ` 1,72,000 exceeds
` 50,000. (See Note 2 below)
Total income 2,67,000
Computation of tax liability by Miss Charlie for the A.Y. 2023-24
Particulars `
Tax on total income of ` 2,67,000 850
Add: Health and Education cess@4% 34
Total tax liability 884
Total tax liability (rounded off) 880
Notes:
1. Actual rent received has been taken as the gross annual value in the
absence of other information (i.e. Municipal value, fair rental value and
standard rent) in the question.
2. If the aggregate value of taxable gifts received from non-relatives exceed
` 50,000 during the year, the entire amount received (i.e. the aggregate
value of taxable gifts received) is taxable. Therefore, the entire amount of
` 1,72,000 is taxable under section 56(2)(x).

8.32 INCOME TAX LAW
3. Since Miss Charlie is a non-resident for the A.Y. 2023-24, rebate under
section 87A would not be available to her, even though her total income
does not exceed ` 5 lacs.
4. The tax liability of Miss Charlie would be the same even if she opts to pay
tax as per section 115BAC, since she would be eligible for deduction
under section 24(b), for interest on housing loan in respect of let out
property under regular provisions as well as under section 115BAC of the
Income-tax Act, 1961.
II. Residential status of Miss Charlie in case she is a person of Indian origin
and her total income from Indian sources exceeds ` 18,00,000
If she is a person of Indian origin and her total income from Indian sources
exceeds ` 15,00,000 (` 18,00,000, in her case), the condition of stay in India
for a period exceeding 120 days during the previous year and 365 days
during the four immediately preceding previous years would be applicable
for being treated as a resident. Since her stay in India exceeds 120 days in
the P.Y.2022-23 but the period of her stay in India during the four
immediately preceding previous years is less than 365 days (only 16 days),
her residential status as per section 6(1) would continue to be same i.e.,
non-resident in India.
Further, since she is not a citizen of India, the provisions of section 6(1A)
deeming an individual to be a citizen of India would not get attracted in her
case, even though she is a person of Indian origin and her total income from
Indian sources exceeds ` 15,00,000 and she is not liable to pay tax in USA.
Therefore, her residential status would be non-resident in India for the
previous year 2022-23.
Question 2
Dr. Niranjana, a resident individual, aged 60 years is running a clinic in Surat. Her
Income and Expenditure Account for the year ending March 31st, 2023 is as under:
Expenditure ` Income `
To Medicine consumed 35,38,400 By Consultation and 58,85,850
medical charges
To Staff salary 13,80,000 By Income-tax refund 5,450
(principal ` 5,000,
interest ` 450)

To Clinic consumables 1,10,000 By Dividend from units of 10,500

UTI (Gross)
To Rent paid 90,000 By Winning from game
show on T.V. (net of
TDS of ` 15,000) 35,000
To Administrative 2,55,000 By Rent 27,000
expenses
To Amount paid to 1,50,000
scientific research
association approved
u/s 35
To Net profit 4,40,400
59,63,800 59,63,800
(i) Rent paid includes ` 30,000 paid by cheque towards rent for her residential
house in Surat.
(ii) Clinic equipments are:
1.4.2022 Opening W.D.V. - ` 5,00,000
7.12.2022 Acquired (cost) by cheque - ` 2,00,000
(iii) Rent received relates to residential house property situated at Surat. Gross
Annual Value` 27,000. The municipal tax of ` 2,000, paid in December, 2022,
has been included in "administrative expenses".
(iv) She received salary of ` 7,500 p.m. from "Full Cure Hospital" which has not
been included in the "consultation and medical charges".
(v) Dr. Niranjana availed a loan of ` 5,50,000 from a bank for higher education
of her daughter. She repaid principal of ` 1,00,000, and interest thereon
` 55,000 during the previous year 2022-23.
(vi) She paid ` 1,00,000 as tuition fee (not in the nature of development fees/
donation) to the university for full time education of her daughter.
(vii) An amount of ` 28,000 has also been paid by cheque on 27 th March, 2023 for
her medical insurance premium.
From the above, compute the total income of Dr. Smt. Niranjana for the A.Y. 2023-24
under the regular provisions of the Income-tax Act, 1961, assuming that she has not
opted for to pay tax under section 115BAC.

8.34 INCOME TAX LAW
Answer
Computation of total income of Dr. Niranjana for
A.Y. 2023-24
Particulars ` ` `
I Income from Salary
Basic Salary (` 7,500 x 12) 90,000
Less: Standard deduction u/s 16(ia) 50,000 40,000
II Income from house property
Gross Annual Value (GAV) 27,000
Less : Municipal taxes paid 2,000
Net Annual Value (NAV) 25,000
Less: Deduction u/s 24@30% of 7,500 17,500
` 25,000
III Income from profession
Net profit as per Income and 4,40,400
Expenditure account
Less: Items of income to be treated
separately
(i) Rent received (taxable under the 27,000
head “Income from house
property”)
(ii) Dividend from units of UTI (taxable 10,500
under the head “Income from other
sources”)
(iii) Winning from game show on 35,000
T.V.(net of TDS) – taxable under
the head “Income from other
sources”
(iv) Income tax refund 5,450 77,950
3,62,450
Less: Allowable expenditure
Depreciation on clinic equipments

on ` 5,00,000@15% 75,000
on ` 2,00,000@7.5% 15,000
(On equipments acquired during the
year in December 2022, she is entitled
to depreciation @50% of normal
depreciation, since the same are put
to use for less than 180 days during
the year)
100% deduction is allowable in -
respect of the amount paid to
scientific research association
allowable, since whole of the amount
is already debited to Income & 90,000
Expenditure A/c, no further
adjustment is required.
2,72,450
Add: Items of expenditure not
allowable while computing business
income
(i) Rent for her residential 30,000
accommodation included in
Income and Expenditure A/c
(ii) Municipal tax paid relating to
residential house at Surat included
in administrative expenses 2,000 32,000 3,04,450
IV Income from other sources
(a) Interest on income-tax refund 450
(b) Dividend from UTI (taxable in 10,500
the hands of unit holders)
(c) Winnings from TV game show
(` 35,000 + ` 15,000) 50,000 60,950
Gross Total Income 4,22,900
Less: Deductions under Chapter VI-A:
(a) Section 80C - Tuition fee paid to

8.36 INCOME TAX LAW
university for full time education 1,00,000

of her daughter
(b) Section 80D - Medical insurance
premium (fully allowed since she 28,000
is a senior citizen)
(c) Section 80E - Interest on loan
taken for higher education is 55,000 1,83,000
deductible
Notes:
(i) The principal amount received towards income-tax refund will be excluded
from computation of total income. Interest received will be taxed under the
head “Income from other sources”.
(ii) Winnings from game show on T.V. should be grossed up for the
chargeability under the head “Income from other sources” (` 35,000 +
` 15,000). Thereafter, while computing tax liability, TDS of ` 15,000 should
be deducted to arrive at the tax payable. Winnings from game show are
subject to tax @30% as per section 115BB.
(iii) Dr. Niranjana would not be eligible for deduction u/s 80GG, as she owns a
house in Surat, a place where she is residing as well as carrying on her
profession.
Question 3
Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her
accounts on cash basis. Her Income and Expenditure account for the year ended
March 31, 2023 reads as follows:
Expenditure (` ) Income (` ) (` )
Salary to staff 15,50,000 Fees earned:
Stipend to articled 1,37,000 Audit 27,88,000
Assistants Taxation services 15,40,300
Incentive to articled 13,000 Consultancy 12,70,000 55,98,300
Assistants Dividend on 10,524
shares of X Ltd.,
an Indian
company (Gross)

Office rent 12,24,000 Income from UTI 7,600

(Gross)
Printing and 12,22,000 Honorarium 15,800
stationery received from
various
institutions for
valuation of
answer papers
Meeting, seminar 31,600 Rent received 85,600
and conference from residential
flat let out
Purchase of car (for 80,000
official use)
Repair, 4,000
maintenance
and petrol of car
Travelling expenses 5,25,000
Municipal tax paid 3,000
in respect of house
property
Net Profit 9,28,224
57,17,824 57,17,824
Other Information:
(i) Allowable rate of depreciation on motor car is 15%.
(ii) Value of benefits received from clients during the course of profession is
` 10,500.
(iii) Incentives to articled assistants represent amount paid to two articled
assistants for passing IPCC Examination at first attempt.
(iv) Repairs and maintenance of car include ` 2,000 for the period from 1-10-
2022 to 30-09-2023.
(v) Salary includes ` 30,000 to a computer specialist in cash for assisting Ms.
Purvi in one professional assignment.
(vi) The travelling expenses include expenditure incurred on foreign tour of
` 32,000 which was within the RBI norms.

8.38 INCOME TAX LAW
(vii) Medical Insurance Premium on the health of dependent brother and major son
dependent on her amounts to ` 5,000 and ` 10,000, respectively, paid in cash.
(viii) She invested an amount of ` 10,000 in National Saving Certificate.
(ix) She has paid ` 70,000 towards advance tax during the P.Y. 2022-23.
Compute the total income and tax payable of Ms. Purvi for the assessment year 2023-24.
Answer
Computation of total income and tax payable of Ms. Purvi for
the A.Y. 2023-24 under the regular provisions of the Act
Particulars ` `
Income from house property (See Working Note 1) 57,820
Profit and gains of business or profession 9,20,200
(See Working Note 2)
Income from other sources (See Working Note 3) 33,924
Less: Deductions under Chapter VI-A (See Working 10,000
Note 4)
Total Income 10,01,944
Total Income (rounded off) 10,01,940
Tax on total income
Upto ` 2,50,000 Nil
` 2,50,001 - ` 5,00,000 @5% 12,500
` 5,00,001 - ` 10,00,000 @20% 1,00,000
` 10,00,001 - `10,01,940 @ 30% 582 1,13,082
Add: Health and Education cess @ 4% 4,523
Total tax liability 1,17,605
Less: Advance tax paid 70,000
Less: Tax deducted at source on dividend income 1,052
from an Indian Company u/s 194
Tax deducted at source on income from UTI u/s 194K 760 1,812
Tax Payable 45,793
Tax Payable (rounded off) 45,790

Computation of tax payable in accordance with the

provisions of section 115BAC
Particulars ` `
[Income under the “Income from house property”
“Profits and gains from business or profession” and
“Income from other sources” would remain the same
even if Ms. Purvi opts for special provisions under
section 115BAC, since deduction claimed by her under
these heads is allowable even under section 115BAC]
Less: Deductions under Chapter VI-A [No deduction Nil
is allowable under Chapter VI-A, by virtue of section
115BAC(2)]
Total Income (rounded off) 10,11,940
Tax on total income
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @5% 12,500
` 5,00,000 - ` 7,50,000 @10% 25,000
` 7,50,000 - ` 10,00,000 @15% 37,500
` 10,00,000 – ` 10,11,940 @ 20% 2,388 77,388
Total tax liability 80,484
Less: Advance tax paid 70,000
Less: Tax deducted at source on dividend income 1,052
from Indian Companies u/s 194
Tax deducted at source on income from UTI u/s 760 1,812
194K
Tax Payable 8,672
Tax Payable (rounded off) 8,670
Since tax payable as per the provisions of section 115BAC is lower than the tax
payable under the regular provisions of the Income-tax Act, 1961, it would be
beneficial for Ms. Purvi to opt for section 115BAC. She has to exercise this option

8.40 INCOME TAX LAW
on or before the due date of furnishing the return of income i.e., 31st October
2023, in her case since she is liable to get her books of account audited. Further,
since she is having income from business or profession during the previous year
2022-23, if she opts for section 115BAC for this previous year, the said provisions
would apply for subsequent assessment years as well.
Working Notes:
(1) Income from House Property
Particulars ` `
Gross Annual Value under section 23(1) 85,600
Less: Municipal taxes paid 3,000
Less: Deduction u/s 24@30% of NAV 24,780 57,820
Note - Rent received has been taken as the Gross Annual Value in the
absence of other information relating to Municipal Value, Fair Rent and
Standard Rent.
(2) Income under the head “Profits & Gains of Business or Profession”
Particulars ` `
Net profit as per Income and Expenditure account 9,28,224
Add: Expenses debited but not allowable
(i) Salary paid to computer specialist in cash
disallowed under section 40A(3), since such 30,000
cash payment exceeds ` 10,000
(ii) Amount paid for purchase of car is not
allowable under section 37(1) since it is a 80,000
capital expenditure
(ii) Municipal Taxes paid in respect of residential 3,000 1,13,000
flat let out
10,41,224
Add: Value of benefit received from clients during
the course of profession [taxable as business 10,500
income under section 28(iv)]
10,51,724

Less: Income credited but not taxable under this

head:
(i) Dividend on shares of X Ltd., an Indian 10,524
company (taxable under the head “Income
from other sources")
(ii) Income from UTI (taxable under the head 7,600
“Income from other sources")
(iii) Honorarium for valuation of answer papers 15,800
(iv) Rent received from letting out of residential 85,600 1,19,524
flat
9,32,200
Less: Depreciation on motor car @15% (See Note
(i) below) 12,000
9,20,200
Notes :
(i) It has been assumed that the motor car was put to use for more than
180 days during the previous year and hence, full depreciation @ 15%
has been provided for under section 32(1)(ii).
Note: Alternatively, the question can be solved by assuming that motor
car has been put to use for less than 180 days and accordingly, only
50% of depreciation would be allowable as per the second proviso
below section 32(1)(ii).
(ii) Incentive to articled assistants for passing IPCC examination in their
first attempt is deductible under section 37(1).
(iii) Repairs and maintenance paid in advance for the period 1.4.2023 to
30.9.2023 i.e. for 6 months amounting to ` 1,000 is allowable since
Ms. Purvi is following the cash system of accounting.
(iv) ` 32,000 expended on foreign tour is allowable as deduction assuming
that it was incurred in connection with her professional work. Since it
has already been debited to income and expenditure account, no
further adjustment is required.

8.42 INCOME TAX LAW
(3) Income from other sources
Particulars `
Dividend on shares of X Ltd., an Indian company (taxable 10,524
in the hands of shareholders)
Income from UTI (taxable in the hands of unit holders) 7,600
Honorarium for valuation of answer papers 15,800
33,924
(4) Deduction under Chapter VI-A :
Particulars `
Deduction under section 80C (Investment in NSC) 10,000
Deduction under section 80D (See Notes (i) & (ii) below) Nil
Total deduction under Chapter VI-A 10,000
Notes:
(i) Premium paid to insure the health of brother is not eligible for
deduction under section 80D, even though he is a dependent, since
brother is not included in the definition of “family” under section 80D.
(ii) Premium paid to insure the health of major son is not eligible for
deduction, even though he is a dependent, since payment is made in
cash.
Question 4
Mr. Y carries on his own business. An analysis of his trading and profit & loss for
the year ended 31-3-2023 revealed the following information:
(1) The net profit was ` 11,20,000.
(2) The following incomes were credited in the profit and loss account:
(a) Income from UTI ` 22,000 (Gross)
(b) Interest on debentures ` 17,500 (Gross)
(c) Winnings from horse races ` 15,000 (Gross)
(3) It was found that some stocks were omitted to be included in both the
opening and closing stocks, the value of which were:
Opening stock ` 8,000.

Closing stock ` 12,000.

(4) ` 1,00,000 was debited in the profit and loss account, being contribution to a
University approved and notified under section 35(1)(ii).
(5) Salary includes ` 20,000 paid to his brother which is unreasonable to the
extent of ` 2,500.
(6) Advertisement expenses include 15 gift packets of dry fruits costing ` 1,000
per packet presented to important customers.
(7) Total expenses on car was ` 78,000. The car was used both for business and
personal purposes. ¾th is for business purposes.
(8) Miscellaneous expenses included ` 30,000 paid to A & Co., a goods transport
operator in cash on 31-1-2023 for distribution of the company’s product to
the warehouses.
(9) Depreciation debited in the books was ` 55,000. Depreciation allowed as per
Income-tax Rules, 1962 was ` 50,000.
(10) Drawings ` 10,000.
(11) Investment in NSC ` 15,000.
Compute the total income of Mr. Y for the assessment year 2023-24, assuming that
he has not opted to pay tax under section 115BAC.
Answer
Computation of total income of Mr. Y for the A.Y. 2023-24
Particulars `
Profits and gains of business or profession (See Working 11,21,500
Note 1 below)
Income from other sources (See Working Note 2 below) 54,500
Less: Deduction under section 80C (Investment in NSC) 15,000

8.44 INCOME TAX LAW
Working Notes:
1. Computation of profits and gains of business or profession
Particulars ` `
Net profit as per profit and loss account 11,20,000
Add: Expenses debited to profit and loss
account but not allowable as deduction
Salary paid to brother disallowed to the 2,500
extent considered unreasonable [Section
40A(2)]
Motor car expenses attributable to 19,500
personal use not allowable (` 78,000 × ¼)
Depreciation debited in the books of 55,000
account
Drawings (not allowable since it is 10,000
personal in nature) [See Note (iii)]
Investment in NSC [See Note (iii)] 15,000 1,02,000
12,22,000
Add: Under statement of closing stock 12,000
12,34,000
Less: Under statement of opening stock 8,000
Less: Contribution to a University approved and
notified under section 35(1)(ii) is eligible
for 100% deduction. Since whole of the
actual contribution (100%) has been
debited to profit and loss account, no
-
further adjustment is required.
12,26,000
Less: Incomes credited to profit and loss
account but not taxable as business
income
Income from UTI [taxable under the head 22,000
“Income from other sources”]

Interest on debentures (taxable under the 17,500

head “Income from other sources”)
Winnings from horse races (taxable under
the head “Income from other sources”) 15,000 54,500
11,71,500
Less: Depreciation allowable under the Income-
tax Rules, 1962 50,000
11,21,500
Notes:
(i) Advertisement expenses of revenue nature, namely, gift of dry fruits to
important customers, is incurred wholly and exclusively for business
purposes. Hence, the same is allowable as deduction under section 37.
(ii) Disallowance under section 40A(3) is not attracted in respect of cash
payment exceeding ` 10,000 to A & Co., a goods transport operator,
since, in case of payment made for plying, hiring or leasing goods
carriages, an increased limit of ` 35,000 is applicable (i.e. payment of
upto ` 35,000 can be made in cash without attracting disallowance
under section 40A(3))
(iii) Since drawings and investment in NSC have been given effect to in the
profit and loss account, the same have to be added back to arrive at
the business income.
(iv) In point no. 9 of the question, it has been given that depreciation as
per Income-tax Rules, 1962 is ` 50,000. It has been assumed that, in
the said figure of ` 50,000, only the proportional depreciation (i.e.,
75% for business purposes) has been included in respect of motor car.
2. Computation of “Income from Other Sources”
Particulars `
Dividend from UTI 22,000
Interest on debentures 17,500
Winnings from races 15,000
54,500

8.46 INCOME TAX LAW
Question 5
Balamurugan furnishes the following information for the year ended 31-03-2023:
Particulars `
Income from textile business (1,35,000)
Income from house property (15,000)
Lottery winning (Gross) 5,00,000
Speculation business income 1,00,000
Income by way of salary (Computed) 60,000
Long term capital gain u/s 112 70,000
Compute his total income, tax liability and advance tax obligations. Assume he
does not opt for section 115BAC.
Answer
Computation of total income of Balamurugan for the year ended 31.03.2023
Particulars ` `
Salaries 60,000
Less: Loss from house property (Can be set off from (15,000)
long term capital gain also)
Net Salary (after set off of loss from house property) 45,000
Profits and gains of business or profession
Speculation business income 1,00,000
Less: Business loss of ` 1,35,000 set-off to the extent (1,00,000)
of ` 1,00,000
Nil
Balance current year business loss of ` 35,000 to be
set-off against long-term capital gain
Capital Gains
Long term capital gain 70,000
Less: Balance current year business loss set-off (35,000)
Long term capital gain after set off of business loss 35,000

Income from other sources

Lottery winnings (Gross) 5,00,000
Computation of tax liability for A.Y.2023-24
Particulars `
On total income of ` 45,000 (excluding lottery winning and LTCG) Nil
On LTCG of ` 35,000 (unexhausted basic exemption limit can be Nil
adjusted against LTCG taxable u/s 112)
On lottery winnings of ` 5,00,000 @ 30% 1,50,000
1,50,000
The assessee need not pay advance tax since the total income (excluding lottery
income) liable to tax is below the basic exemption limit. Further, in respect of
lottery income, tax would have been deducted at source @ 30% under section
194B. Since the remaining tax liability of ` 6,000 (` 1,56,000 – ` 1,50,000) is less
than ` 10,000, advance tax liability is not attracted.
Notes:
(1) The basic exemption limit of ` 2,50,000 has to be first exhausted against
salary income of ` 45,000. The unexhausted basic exemption limit of
` 2,05,000 can be adjusted against long-term capital gains of ` 35,000 as
per section 112, but not against lottery winnings which are taxable at a flat
rate of 30% under section 115BB.
(2) The first proviso to section 234C(1) provides that since it is not possible for
the assessee to estimate his income from lotteries, the entire amount of tax
payable (after considering TDS) on such income should be paid in the
remaining instalments of advance tax which are due. Where no such
instalment is due, the entire tax should be paid by 31st March, 2023. The first
proviso to section 234C(1) would be attracted only in case of non-deduction
or short-deduction of tax at source under section 194B. In this case, it has
been assumed that tax deductible at source under section 194B has been
fully deducted from lottery income. Since the remaining tax liability of

8.48 INCOME TAX LAW
` 6,000 (` 1,56,000 – ` 1,50,000) is less than ` 10,000, advance tax liability is

not attracted.
Question 6
Mr. Rajiv, aged 50 years, a resident individual and practicing Chartered Accountant,
furnishes you the receipts and payments account for the financial year 2022-23.
Receipts and Payments Account
Receipts ` Payments `
Opening balance (1.4.2022) 12,000 Staff salary, bonus and 21,50,000
Cash on hand and at Bank stipend to articled clerks
Fee from professional 59,38,000 Other administrative 11,48,000
services (Gross) expenses
Rent 50,000 Office rent 30,000
Motor car loan from 2,50,000 Housing loan repaid to 1,88,000
Canara Bank (@ 9% p.a.) SBI (includes interest of
` 88,000)
Life insurance premium 24,000
(10% of sum assured)
Motor car (acquired in 4,25,000
Jan. 2023 by A/c payee
cheque)
Medical insurance 18,000
premium (for self and
wife)(paid by A/c Payee
cheque)
Books bought on 20,000
1.07.2022 (annual
publications by A/c payee
cheque)
Computer acquired on 30,000
1.11.2022 by A/c payee
cheque (for professional
use)
Domestic drawings 2,72,000
Public provident fund 20,000
subscription

Motor car maintenance 10,000

Closing balance 19,15,000
(31.3.2023) Cash on hand
and at Bank
62,50,000 62,50,000
Following further information is given to you:
(1) He occupies 50% of the building for own residence and let out the balance for
residential use at a monthly rent of ` 5,000. The building was constructed
during the year 1997-98, when the housing loan was taken.
(2) Motor car was put to use both for official and personal purpose. One-fifth of the
motor car use is for personal purpose. No car loan interest was paid during the year.
(3) The written down value of assets as on 1-4-2022 are given below:
Furniture & Fittings ` 60,000

Plant & Machinery ` 80,000
(Air-conditioners, Photocopiers, etc.)
Computers ` 50,000
Note: Mr. Rajiv follows regularly the cash system of accounting.
Compute the total income of Mr. Rajiv for the assessment year 2023-24 assuming
that he has not opted to pay tax under section 115BAC.
Answer
Computation of total income of Mr. Rajiv for the assessment year 2023-24
Particulars ` ` `
Self-occupied
Annual value Nil
Less: Deduction under section 24(b)
Interest on housing loan
50% of ` 88,000 = 44,000 but limited to 30,000
Loss from self occupied property (30,000)
Let out property
Annual value (Rent receivable has been

8.50 INCOME TAX LAW
taken as the annual value in the absence 60,000

of other information)
Less: Deductions u/s 24
30% of Net Annual Value 18,000
Interest on housing loan (50% of
` 88,000) 44,000 62,000 (2,000)
Loss from house property (32,000)
Profits and gains of business or
profession
Fees from professional services 59,38,000
Less: Expenses allowable as deduction
Staff salary, bonus and stipend 21,50,000
Other administrative expenses 11,48,000
Office rent 30,000
Motor car maintenance (10,000 x 4/5) 8,000
Car loan interest – not allowable (since the
same has not been paid and the assessee
follows cash system of accounting) Nil 33,36,000
26,02,000
Motor car ` 4,25,000 x 7.5% x 4/5 25,500
Books being annual publications@40% 8,000
Furniture and fittings@10% of ` 60,000 6,000
Plant and machinery@15% of ` 80,000 12,000
Computer@40% of ` 50,000 20,000
Computer (New) ` 30,000 @ 40% x 50% 6,000 77,500 25,24,500
Gross Total income 24,92,500
Less: Deductions under Chapter VI-A
Deduction under section 80C
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000

Total amount of ` 1,44,000 is allowed as 1,44,000

deduction since it is within the limit of
` 1,50,000
Deduction under section 80D
Medical insurance premium paid ` 18,000 18,000 1,62,000
Question 7
From the following details, compute the total income and tax liability of Siddhant, aged
31 years, of Delhi both as per the regular provisions of the Income-tax Act, 1961 and as
per section 115BAC for the A.Y.2023-24. Advise Mr. Siddhant whether he would opt for
section 115BAC:
Particulars `
Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by the employer 12,000
Rent paid by Siddhant for his accommodation 49,600
Bills paid by the employer for gas, electricity and water provided 11,000
free of cost at the above flat
Siddhant purchased a flat in a co-operative housing society in Delhi for ` 4,75,000 in

April, 2015, which was financed by a loan from Life Insurance Corporation of India of
` 1,60,000@15% interest, his own savings of ` 65,000 and a deposit from a
nationalized bank for ` 2,50,000 to whom this flat was given on lease for ten years. The
rent payable by the bank was ` 3,500 per month. The following particulars are relevant:
(a) Municipal taxes paid by Mr. Siddhant ` 4,300 (per annum)
(b) House Insurance ` 860
(c) He earned ` 2,700 in share speculation business and lost ` 4,200 in cotton
speculation business.
(d) In the year 2016-17, he had gifted ` 30,000 to his wife and ` 20,000 to his son
who was aged 11. The gifted amounts were advanced to Mr. Rajesh, who was
paying interest@19% per annum.
(e) Siddhant received a gift of ` 30,000 each from four friends.
(f) He contributed ` 50,000 to Public Provident Fund.

8.52 INCOME TAX LAW
Answer
Computation of total income and tax liability of Siddhant
for the A.Y. 2023-24
Particulars ` `
Salary Income
Bonus 11,000
Value of perquisites:
(i) Salary of servant 12,000
(ii) Free gas, electricity and water 11,000 23,000
3,69,000
Less: Standard deduction under section 16(ia) 50,000
3,19,000
Gross Annual Value (GAV) (Rent receivable is taken as 42,000
GAV in the absence of other information) (` 3,500 × 12)
Less: Deductions under section 24
(i) 30% of NAV ` 11,310
(ii) Interest on loan from LIC @15% of
` 1,60,000 [See Note 2] ` 24,000 35,310 2,390
Income from speculative business
Income from share speculation business 2,700
Less: Loss of ` 4,200 from cotton speculation business 2,700 Nil
set-off to the extent of ` 2,700
Balance loss of ` 1,500 from cotton speculation
business has to be carried forward to the next year as
it cannot be set off against any other head of income.

Income from Other Sources

(i) Income on account of interest earned from 3,800
advancing money gifted to his minor son is
includible in the hands of Siddhant as per section
64(1A)
Less: Exempt under section 10(32) 1,500
2,300
(ii) Interest income earned from advancing money
gifted to wife has to be clubbed with the income
of the assessee as per section 64(1) 5,700
(iii) Gift received from four friends (taxable under
section 56(2)(x) as the aggregate amount received
during the year exceeds ` 50,000) 1,20,000 1,28,000
Less: Deduction under section 80C
Contribution to Public Provident Fund 50,000
Particulars `
Tax on total income of ` 3,99,390 [` 3,99,390 – ` 2,50,000 = 7,470
` 1,49,390@5%]
Less: Rebate u/s 87A, since total income does not exceed 7,470
` 5,00,000
Tax liability Nil
Computation of total income and tax liability of Siddhant in accordance with

the provisions of section 115BAC for the A.Y. 2023-24
Particulars ` `
Salary Income
Bonus 11,000
Value of perquisites:

8.54 INCOME TAX LAW
(i) Salary of servant 12,000

(ii) Free gas, electricity and water 11,000 23,000
3,69,000
Less: Standard deduction under section 16(ia) [not Nil
allowable as per section 115BAC(2)]
3,69,000
Gross Annual Value (GAV) (Rent receivable is taken as 42,000
GAV in the absence of other information) (` 3,500 × 12)
Less: Deductions under section 24
(i) 30% of NAV ` 11,310
(ii) Interest on loan from LIC @15% of
` 1,60,000 [See Note 2] ` 24,000 35,310 2,390
Income from speculative business
Income from share speculation business 2,700
Less: Loss of ` 4,200 from cotton speculation business 2,700 Nil

set-off to the extent of ` 2,700
Balance loss of ` 1,500 from cotton speculation
business has to be carried forward to the next year as it
cannot be set off against any other head of income.
(i) Income on account of interest earned from advancing 3,800
money gifted to his minor son is includible in the hands
of Siddhant as per section 64(1A) [Exemption under
section 10(32) would not be available]
(ii) Interest income earned from advancing money
gifted to wife has to be clubbed with the income of
the assessee as per section 64(1) 5,700

(iii) Gift received from four friends (taxable under

section 56(2)(x) as the aggregate amount received
during the year exceeds ` 50,000) 1,20,000 1,29,500
Deduction under section 80C [No deduction under
Chapter VI-A would be allowed as per section Nil
115BAC(2)]
Particulars `
Tax on total income [5% of ` 2,50,000 + 10% of ` 890] 12,589
Add: Health and education cess @4% 504
Tax liability 13,093
Tax liability (rounded off) 13,090
Since Mr. Siddhant is not liable to pay any tax as per the regular provisions of the
Income-tax Act, 1961, it would be beneficial for him to not opt for section
115BAC for A.Y.2023-24.
Notes:
(1) It is assumed that the entire loan of ` 1,60,000 is outstanding as on
31.3.2023;
(2) Since Siddhant’s own flat in a co-operative housing society, which he has
rented out to a nationalized bank, is also in Delhi, he is not eligible for
deduction under section 80GG in respect of rent paid by him for his
accommodation in Delhi, since one of the conditions to be satisfied for
claiming deduction under section 80GG is that the assessee should not own
any residential accommodation in the same place.
(3) Alternatively, computation total income as per the special provisions of
section 115BAC can also be presented as follows:
Particulars ` `
Total Income as per regular provisions of the 3,99,390
Income-tax Act
Add:(i) Standard deduction u/s 16(ia), as it would
not be allowable under the special provisions 50,000

8.56 INCOME TAX LAW
(ii) Exemption under section 10(32), as it would 1,500

not be available under the special provisions
(iii) Deduction under section 80C, as no deduction
under Chapter VI-A would be allowed under the 50,000 1,01,500
special provisions
Question 8
Ramdin, aged 33 years, working as Manager (Sales) with Frozen Foods Ltd.,
provides the following information for the year ended 31.03.2023:
− Basic Salary ` 15,000 p.m.
− DA (50% of it is meant for retirement benefits) ` 12,000 p.m.
− Commission as a percentage of turnover of the Company 0.5 %
− Turnover of the Company ` 50 lacs
− Bonus ` 50,000
− Gratuity ` 30,000
− Own Contribution to R.P.F. ` 30,000
− Employer’s contribution to R.P.F. 20% of basic salary
− Interest credited in the R.P.F. account @ 15% p.a. ` 15,000
− Gold Ring worth ` 10,000 was given by employer on his 25 wedding anniversary.
th
− Music System purchased on 01.04.2022 by the company for ` 85,000 and was
given to him for personal use.
− Two old light goods vehicles owned by him were leased to a transport company
against the fixed charges of ` 6,500 p.m. Books of account are not maintained.
− Received interest of ` 5,860 on bank FDRs on 24.4.2022 and interest of ` 6,786
(Net) from the debentures of Indian Companies on 5.5.2022.
− Made payment by cheques of ` 15,370 towards premium on Life Insurance
policies and ` 22,500 for Mediclaim Insurance policy for self and spouse.
− Invested in NSC ` 30,000 and in FDR of SBI for 5 years ` 50,000.
− Donations of ` 11,000 to an institution approved u/s 80G and of ` 5,100 to Prime
Minister’s National Relief Fund were given during the year by way of cheque.

Compute the total income and tax payable thereon for the A.Y. 2023-24. Assume
Ramdin does not opt for section 115BAC.
Answer
Computation of Total Income for the A.Y.2023-24
Particulars ` `
Income from Salaries
Basic Salary (` 15,000 x 12) 1,80,000
Dearness Allowance (` 12,000 x12) 1,44,000
Commission on Turnover (0.5% of ` 50 lacs) 25,000
Bonus 50,000
Gratuity (See Note 1) 30,000
Employer’s contribution to recognized provident
fund
Actual contribution [20% of ` 1,80,000] 36,000
Less: Exempt (See Note 2) 33,240 2,760
Interest credited in recognized provident fund 15,000
account @15% p.a.
Less: Exempt upto 9.5% p.a. 9,500 5,500
Gift of gold ring worth ` 10,000 on 25th wedding
anniversary by employer (See Note 3) 10,000
Perquisite value of music system given for personal
use (being 10% of actual cost) i.e. 10% of ` 85,000 8,500
4,55,760
4,05,760
Profits and Gains of Business or Profession
Lease of 2 light goods vehicles on contract basis
against fixed charges of ` 6,500 p.m. In this case, 1,80,000
presumptive tax provisions of section 44AE will apply
i.e. ` 7,500 p.m. for each of the two light goods vehicle
(` 7,500 x 2 x 12). He cannot claim lower profits and
gains since he has not maintained books of account.

8.58 INCOME TAX LAW

Interest on bank FDRs 5,860
Interest on debentures (` 6786 x 100/90) 7,540 13,400
Gross total Income 5,99,160
Less: Deductions under Chapter VI-A
Section 80C
Premium on life insurance policy 15,370
Investment in NSC 30,000
FDR of SBI for 5 years 50,000
Employee’s contribution to recognized provident fund 30,000 1,25,370
Section 80D – Mediclaim Insurance 22,500
Section 80G (See Note 4) 10,600
Tax on total income
Income-tax [5% of ` 1,90,690 (i.e., ` 4,40,690 – 9,535
` 2,50,000)
Less: Rebate u/s 87A, since total income does not
exceed ` 5,00,000 9,535
Tax liability Nil
Less: Tax deducted at source (` 7,540 – ` 6,786) 754
Net tax refundable 754
Tax refundable (rounded off) 750
Notes:
1. Gratuity received during service is fully taxable.
2. Employer’s contribution in the recognized provident fund is exempt up to
12% of the salary i.e. 12% of (Basic Salary + DA for retirement benefits +
Commission based on turnover)
=12% of (` 1,80,000+ (50% of ` 1,44,000)+ ` 25,000)
=12% of 2,77,000 = ` 33,240
3. An alternate view possible is that only the sum in excess of ` 5,000 is taxable
in view of the language of Circular No.15/2001 dated 12.12.2001 that such
gifts upto ` 5,000 in the aggregate per annum would be exempt, beyond
which it would be taxed as a perquisite. As per this view, the value of

perquisite would be ` 5,000. In such a case the Income from Salaries would
be ` 4,00,760.
4. Deduction under section 80G is computed as under:
Particulars `
Donation to PM National Relief Fund (100%) 5,100
Donation to institution approved under section 80G (50% of
` 11,000) (amount contributed ` 11,000 or 10% of Adjusted
Total Income i.e. ` 45,129, whichever is lower) 5,500
Total deduction 10,600
Adjusted Total Income = Gross Total Income − Deductions under section

80C and 80D = ` 5,99,160 − ` 1,47,870 =` 4,51,290.
Question 9
From the following particulars furnished by Mr. X for the year ended 31.3.2023, you
are requested to compute his total income and tax payable for the assessment year
2023-24, assuming that he does not opt for paying tax under section 115BAC.
(a) Mr. X retired on 31.12.2022 at the age of 58, after putting in 26 years and 1
month of service, from a private company at Mumbai.
(b) He was paid a salary of ` 25,000 p.m. and house rent allowance of ` 6,000
p.m. He paid rent of ` 6,500 p.m. during his tenure of service.
(c) On retirement, he was paid a gratuity of ` 3,50,000. He was covered by the
payment of Gratuity Act. Mr. X had not received any other gratuity at any
point of time earlier, other than this gratuity.
(d) He had accumulated leave of 15 days per annum during the period of his
service; this was encashed by Mr. X at the time of his retirement. A sum of
` 3,15,000 was received by him in this regard. His average salary for last 10
months may be taken as ` 24,500. Employer allowed 30 days leave per
annum.
(e) After retirement, he ventured into textile business and incurred a loss of
` 80,000 for the period upto 31.3.2023.
(f) Mr. X has deposited ` 1,00,000 in public provident fund.

8.60 INCOME TAX LAW
Answer
Computation of total income of Mr. X for A.Y.2023-24
Particulars ` `
Income from Salaries
Basic salary (` 25,000 x 9 months) 2,25,000
House rent allowance:
Actual amount received (` 6,000 x 9 months) 54,000
Less : Exemption under section 10(13A)(Note 1) 36,000 18,000
Gratuity:
Actual amount received 3,50,000
Less: Exemption under section 10(10)(ii) (Note 2) 3,50,000 -
Leave encashment:
Actual amount received 3,15,000
Less : Exemption under section 10(10AA) (Note 3) 2,45,000 70,000
Gross Salary 3,13,000
2,63,000
Business loss of ` 80,000 to be carried forward as
the same cannot be set off against salary income Nil
Gross Total income 2,63,000
Less : Deduction under section 80C
Deposit in Public Provident Fund 1,00,000
Tax on total income (Nil, since it is lower than the Nil
basic exemption limit of ` 2,50,000)
Notes:
(1) As per section 10(13A), house rent allowance will be exempt to the extent of
least of the following three amounts:
`
(i) HRA actually received (` 6,000 x 9) 54,000

(ii) Rent paid in excess of 10% of salary (` 6,500 – ` 2,500) x 36,000

9 months
(iii) 50% of salary 1,12,500
(2) Gratuity of ` 3,50,000 is exempt under section 10(10)(ii), being the minimum
of the following amounts:
`
(i) Actual amount received 3,50,000
(ii) Half month salary for each year of completed service 3,75,000
[(` 25,000 x 15/26) x 26 years]
(iii) Statutory limit 20,00,000
(3) Leave encashment is exempt upto the least of the following:

`
(i) Actual amount received 3,15,000
(ii) 10 months average salary (` 24,500 x 10) 2,45,000
(iii) Cash equivalent of unavailed leave calculated on the
basis of maximum 30 days for every year of actual
service rendered to the employer from whose service he
retired (See Note 4 below) 3,18,500
(iv) Statutory limit 3,00,000
(4) Since the leave entitlement of Mr. X as per his employer’s rules is 30 days
credit for each year of service and he had accumulated 15 days per annum
during the period of his service, he would have availed/taken the balance 15
days leave every year.
Leave entitlement of Mr. X on the

basis of 30 days for every year of
actual service rendered by him to the = 30 days/year x 26= 780 days
employer
Less: Leave taken /availed by Mr. X
during the period of his service = 15 days/year x 26= 390 days
Earned leave to the credit of Mr. X at 390 days
the time of his retirement

8.62 INCOME TAX LAW
Cash equivalent of earned leave to the = 390 × ` 24,500 /30= ` 3,18,500

credit of Mr. X at the time of his
retirement
Question 10
Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in
1982 and settled at Canada since 1982. Mary got married and settled in Mumbai.
Both of them are below 60 years. The following are the details of their income for
the previous year ended 31.3.2023:
S. No. Particulars Rosy Mary

` `
1. Pension received from State Government -- 60,000
2. Pension received from Canadian Government 20,000 --
3. Long-term capital gain on sale of land at 1,00,000 1,00,000
Mumbai
4. Short-term capital gain on sale of shares of 20,000 2,50,000
Indian listed companies in respect of which
STT was paid
5. LIC premium paid -- 10,000
6. Premium paid to Canadian Life Insurance 40,000 --
Corporation at Canada
7. Mediclaim policy premium paid by A/c Payee -- 25,000
Cheque
8. Deposit in PPF -- 20,000
9. Rent received in respect of house property at 60,000 30,000
Mumbai
Compute the taxable income and tax liability of Mrs. Rosy and Mrs. Mary for the
Assessment Year 2023-24 and tax thereon. Ignore the provisions of section 115BAC.

Answer
Computation of taxable income of Mrs. Rosy and Mrs. Mary
for the A.Y.2023-24
S. Particulars Mrs. Rosy Mrs.

No. (Non- Mary
resident) (ROR)
` `
(I) Salaries
Pension received from State Govt. ` 60,000
Less: Standard deduction u/s 16(ia) ` 50,000 - 10,000
Pension received from Canadian Government - -
is not taxable in the case of a non-resident
since it is earned and received outside India
- 10,000
(II) Income from house property
Rent received from house property at Mumbai 60,000 30,000
(assumed to be the annual value in the
absence of other information i.e. municipal
value, fair rent and standard rent)
Less: Deduction under section 24(a)@30% 18,000 9,000
42,000 21,000
(III) Capital gains
Long-term capital gain on sale of land at 1,00,000 1,00,000
Mumbai
Short term capital gain on sale of shares of Indian
listed companies in respect of which STT was paid 20,000 2,50,000
1,20,000 3,50,000
(A) Gross Total Income [(I)+(II)+(III)] 1,62,000 3,81,000
Less: Deductions under Chapter VIA
1. Deduction under section 80C
1. LIC Premium paid - 10,000

8.64 INCOME TAX LAW
2. Premium paid to Canadian Life Insurance 40,000 -

Corporation
3. Deposit in PPF - 20,000
40,000 30,000
2. Deduction under section 80D – Mediclaim 25,000
premium paid
40,000 55,000
(B) Total deduction under Chapter VI-A is
restricted to income other than capital gains
taxable under sections 111A & 112 40,000 31,000
(C) Total income (A-B) 1,22,000 3,50,000
Tax liability of Mrs. Rosy for A.Y.2023-24
Tax on long-term capital gains @20% of
` 1,00,000 20,000
Tax on short-term capital gains @15% of
` 20,000 3,000
Tax on balance income of ` 2,000 Nil
23,000
Tax liability of Mrs. Mary for A.Y.2023-24
Tax on STCG @15% of ` 1,00,000 [i.e. ` 2,50,000
less ` 1,50,000, being the unexhausted basic
exemption limit as per proviso to section 111A]
[See Notes 3 & 4 below] 15,000
Less: Rebate under section 87A would be 12,500
lower of ` 12,500 or tax liability, since total
income does not exceed ` 5,00,000
2,500
Add: Health and Education cess@4% 920 100
Total tax liability 23,920 2,600
Notes:
(1) Long-term capital gains on sale of land is chargeable to tax@20% as per
section 112.

(2) Short-term capital gains on transfer of equity shares in respect of which

securities transaction tax is paid is subject to tax@15% as per section 111A.
(3) In case of resident individuals, if the basic exemption limit is not fully
exhausted against other income, then, the long-term capital gains u/s
112/short-term capital gains u/s 111A will be reduced by the unexhausted
basic exemption limit and only the balance will be taxed at 20%/15%,
respectively. However, this benefit is not available to non-residents.
Therefore, while Mrs. Mary can adjust unexhausted basic exemption limit
against long-term capital gains taxable under section 112 and short-term
capital gains taxable under section 111A, Mrs. Rosy cannot do so.
(4) Since long-term capital gains is taxable at the rate of 20% and short-term
capital gains is taxable at the rate of 15%, it is more beneficial for Mrs. Mary
to first exhaust her basic exemption limit of ` 2,50,000 against long-term
capital gains of ` 100,000 and the balance limit of ` 1,50,000 (i.e., ` 2,50,000
– ` 1,50,000) against short-term capital gains.
(5) Rebate under section 87A would not be available to Mrs. Rosy even though
her total income does not exceed ` 5,00,000, since she is non-resident for
the A.Y. 2023-24.
Question 11
Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in the financial
year 2018-19 for production of washing machines. The unit fulfills all the conditions
of section 10AA of the Income-tax Act, 1961. During the financial year 2021-22, he
has also set up a warehousing facility in a district of Tamil Nadu for storage of
agricultural produce. It fulfills all the conditions of section 35AD. Capital
expenditure in respect of warehouse amounted to ` 75 lakhs (including cost of land
` 10 lakhs). The warehouse became operational with effect from 1st April, 2022 and
the expenditure of ` 75 lakhs was capitalized in the books on that date.
Relevant details for the financial year 2022-23 are as follows:
Particulars `
Profit of unit located in SEZ 40,00,000
Export sales of above unit 80,00,000
Domestic sales of above unit 20,00,000
Profit from operation of warehousing facility (before considering 1,05,00,000
deduction under Section 35AD)

8.66 INCOME TAX LAW
Compute income-tax (including AMT under Section 115JC) liability of Mr. X for
Assessment Year 2023-24 both as per regular provisions of the Income-tax Act and
as per section 115BAC for Assessment Year 2023-24. Advise Mr. X whether he
should opt for section 115BAC.
Answer
Computation of total income and tax liability of Mr. X for A.Y.2023-24
(under the regular provisions of the Income-tax Act, 1961)
Particulars ` `

Profit from unit in SEZ 40,00,000
Less: Deduction u/s 10AA [See Note (1) below] 32,00,000
Business income of SEZ unit chargeable to tax 8,00,000
Profit from operation of warehousing facility 1,05,00,000
Less: Deduction u/s 35AD [See Note (2) below] 65,00,000
Business income of warehousing facility chargeable 40,00,000
to tax
Computation of tax liability (under the normal/
regular provisions)
Tax on ` 48,00,000 12,52,500
Add: Health and Education cess@4% 50,100
Computation of adjusted total income of Mr. X for levy of Alternate

Minimum Tax
Particulars ` `
Total Income (computed above as per 48,00,000
regular provisions of income tax)
Add: Deduction under section 10AA 32,00,000
80,00,000

Add: Deduction under section 35AD 65,00,000

Less: Depreciation under section 32
On building @10% of ` 65 lakhs 2 6,50,000 58,50,000
Adjusted Total Income 1,38,50,000
Alternate Minimum Tax@18.5% 25,62,250
Add: Surcharge@15% (since adjusted total 3,84,338
income > ` 1 crore)
29,46,588
Add: Health and Education cess@4% 1,17,863
30,64,451
Tax liability u/s 115JC (rounded off) 30,64,450
Since the regular income-tax payable is less than the alternate minimum tax
payable, the adjusted total income shall be deemed to be the total income and
tax is leviable @18.5% thereof plus surcharge@15% and cess@4%. Therefore, tax
liability as per section 115JC is ` 30,64,450.
Computation of total income and tax liability of Mr. X for A.Y.2023-24

(under the provisions of section 115BAC of the Income-tax Act, 1961)
Particulars ` `
Total Income (as computed above as per 48,00,000
regular provisions of income tax)
Add: Deduction under section 10AA (not allowable) 32,00,000
80,00,000
Add: Deduction under section 35AD 65,00,000
Less: Depreciation under section 32
On building @10% of ` 65 lakhs 3 (normal
depreciation under section 32 is allowable) 6,50,000 58,50,000
Total Income 1,38,50,000
2
Assuming the capital expenditure of ` 65 lakhs is incurred entirely on buildings
3
Assuming the capital expenditure of ` 65 lakhs is incurred entirely on buildings

8.68 INCOME TAX LAW
Computation of tax liability as per section

115BAC
Tax on ` 1,38,50,000 38,92,500
Add: Surcharge@15% 5,83,875
44,76,375
Add: Health and Education cess@4% 1,79,055
Notes:
(1) Deductions u/s 10AA and 35AD are not allowable as per section 115BAC(2).
However, normal depreciation u/s 32 is allowable.
(2) Individuals or HUFs exercising option u/s 115BAC are not liable to alternate
minimum tax u/s 115JC.
Since the tax liability of Mr. X under section 115JC is lower than the tax liability as
computed u/s 115BAC, it would be beneficial for him not to opt for section
115BAC for A.Y. 2023-24. Moreover, benefit of alternate minimum tax credit is
also available to the extent of tax paid in excess over regular tax.
AMT Credit to be carried forward under section 115JEE
`
Tax liability under section 115JC 30,64,450
Less: Tax liability under the regular provisions of the Income- 13,02,600
tax Act, 1961
17,61,850
Notes:
(1) Deduction under section 10AA in respect of Unit in SEZ =
Export turnover of the Unit in SEZ
Profit of the Unit in SEZ ×
Total turnover of the Unit in SEZ
`80,00,000
` 40,00,000 × = ` 32,00,000
` 1,00,00,000
(2) Deduction@100% of the capital expenditure is available under section 35AD

for A.Y.2023-24 in respect of specified business of setting up and operating

a warehousing facility for storage of agricultural produce which commences

operation on or after 01.04.2009.
Further, the expenditure incurred, wholly and exclusively, for the purposes
of such specified business, shall be allowed as deduction during the
previous year in which he commences operations of his specified business if
the expenditure is incurred prior to the commencement of its operations
and the amount is capitalized in the books of account of the assessee on
the date of commencement of its operations.
Deduction under section 35AD would, however, not be available on
expenditure incurred on acquisition of land.
In this case, since the capital expenditure of ` 65 lakhs (i.e., ` 75 lakhs – ` 10
lakhs, being expenditure on acquisition of land) has been incurred in the
F.Y.2021-22 and capitalized in the books of account on 1.4.2022, being the
date when the warehouse became operational, ` 65,00,000, being 100% of
` 65 lakhs would qualify for deduction under section 35AD.

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CHAPTER 8

After studying this chapter, you would be able to–

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