Income

Tax
(A.Y. 2011-12 &
2012-13)
T.VENKATARAMANAN.FCMA.FCS

Define tax

Tax is a payment made to

the government of a
country with out quid pro
quoi.e. nothing in return.

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From where government get

authority to tax? WHAT DOES IT
SAY?

The authority to tax is derived by the government from

the constitu tion of the country.-i.e. article 265 of the
INDIAN CONSTITUTION.
It states that no tax shall be levied or collected by the
government without the authority of law.

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What are the objective of

taxation ?

The objective of taxation

may be expressed as 4 Rs
1)Revenue to the
government(2)redistribution
of wealth
(3)Reprising
(4)representation

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Briefly describe Indian tax system

India has a well developed tax structure with a three-tier federal
structure, comprising the Union Government, the State Governments
and the Urban/Rural Local Bodies. The power to levy taxes and duties is
distributed among the three tiers of Governments, in accordance with the
provisions of the Indian Constitution(article 246)& vii schedules.
The main taxes/duties that the Union Government is empowered to levy
are Income Tax (except tax on agricultural income, which the State
Governments can levy), Customs duties, Central Excise and Sales Tax and
Service Tax. The principal taxes levied by the State Governments are Sales
Tax (tax on intra-State sale of goods),
Stamp Duty (duty on transfer of property), State Excise (duty on manufacture
of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural
purposes), Duty on Entertainment and Tax on Professions & Callings. The
Local Bodies are empowered to levy tax on properties (buildings, etc.),
Octroi (tax on entry of goods for use/consumption within areas of
the Local Bodies), Tax on Markets and Tax/User Charges for utilities
like water supply, drainage, etc.
5

Match the following:

1

Entry no 82

83

84

4
5
6

85

Any other item

Income tax other than

agrl.

Customs including
export

Excise excluding
liquor/norcotics

Inter state sales &

services

Corporate tax

92 A,B,C
97

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What are the two types of taxes ?

Distinguish between them.

The two types of taxes are (1)DIRECT

(2)INDIRECT

NO

DIRECT

INDIRECT

ON PERSONS

ON GOODS &services

Collected from assessee

direct

Collected by dealers
&remitted to govt.

Burden not shiftable

Cannot be shifted

On income

On sale/purchase

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Direct tax
Income tax

INDEX
1.
2.
3.
4.
5.
6.
7.
8.
9.

Introduction
Residential Status
Tax Rates
Income from Salary
Income from House Property
Income from Business & Profession
Capital Gains
Income from Other Sources
Clubbing of Income
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9

Contd
10.Set-off

Carry Forward
11.Deductions from Gross Total Income
12.Agricultural Income

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10

Introduction
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11

Charge of Income Tax

Income tax is charged in assessment year at

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

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12

Important Definitions
1.

Person u/s 2(31) includes,

An Individual,
Hindu Undivided Family (HUF),
A Company,
A Firm,
An Association of Persons(AOP) or Body of
Individuals (BOI),
f. A Local Authority,
g. Every other Artificial Juridical Person
a.
b.
c.
d.
e.

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13

AOP & BOI

SEC 2(31) WHICH DEFINES A PERSON ALSO INCLUDES AOP & BOI
The supreme court in CIT Vs Indra balakrishna 39 ITR 546defines AOP to mean
Two or more persons joining in a common purpose or common action with a view
To produce income .however conclusion can be drawn in this regard only on the basis
of facts & circumstances
It may noted that the provisions relating to AOP & BOI ARE ONE & THE SAME
As regards computation & taxability of income

The main difference between the two is that , in the case of association of persons
Even body corporates & firms can be members where as in BOI ONLY
INDIVIDUALS canbe members.

14

DIVERSION & APPLICATION OF INCOME

15

X inherits a property subject to the right of residence in favour

of his mother , a part of the sale consideration paid to his
mother to forego her right of residence is diversion of
income.such diversion of income is at source by over riding title
then such income cannot be taxed in the assessees hands

Application of income
an aSSESSEE either on his own volition or otherwise foregoes
his income for any reason it amounts to application of income &
cannot be excluded from his total income

Contd
2.

Assessment Year u/s 2(9) means, the period

of 12 months commencing on the 1st April
every year. It is the year (just after previous
year) in which income is earned is charged to
tax. The current Assessment is 2011-2012.

3.

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

which income is earned.

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16

Contd
Gross Total Income (G.T.I) :- The aggregate
income under the 5 heads of income (viz.
Salary, House Property, Business or
Profession, Capital Gains & Other Sources) is
termed as Gross Total Income.
5. Total Income (T.I) :- Total Income of assessee
is gross total income as reduced by the
amount permissible as deduction under
sections 80C to 80U.
4.

Index
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17

Residential Status
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18

Types of Residential Status

The different types of residential status
are:Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

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19

Residential Status of
Individual
residential status of individual will be determined

The
under-

Assessee

Resident

Not Ordinarily Resident

Non-Resident

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Basic Condition

as

Additional Condition

He must satisfy at one of

Not required.
the basic conditions.
He must satisfy at least He must satisfy either one
one
of
the
basic or both the additional
conditions.
conditions given u/s 6(6).

Should not satisfy any of

Not required.
the basic conditions.

20

Contd
Basic Conditions u/s 6(1):
He must be in India for a period of 182 days or more
during the previous year; or
ii. He must be in India for a period of 60 days or more
during the previous year and 365 days or more during
the four years immediately preceding the previous
year.
i.

Additional Conditions u/s 6(6):

iii.He

must be a non-resident in India in nine out of the

ten
previous years preceding that year; or
iv.He must be outside India during 7 preceding previous
years for aggregate period of 729 days or less.
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21

Residential Status of HUF

The residential status of HUF depends upon the control
and management of its affairs.
Resident HUF: If the control and management of the

affairs of HUF is situated wholly or partly in India then

HUF is said to be Resident in India.
Non- Resident HUF: If the control and management of
the affairs of HUF is situated wholly outside India then
HUF is said to be Non- Resident in India.
Not Ordinarily Resident HUF: A resident HUF is said to
be Not
Ordinarily Resident in India if Karta or
manager
thereof, satisfies any of the
additional
conditions u/s 6(6).

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22

Residential Status
According to section 6(3) an Indian Company is always
Resident in India. A foreign Company will be resident in
India if Control or Management of its affairs is wholly
situated in India.
Residential Status of a firm or AOP or other person depends
upon control and management of its affairs.

Resident: If the control and management of the affairs of a firm

or AOP or other person is situated wholly or partly in India then
such a firm or AOP or other person is said to be resident in India.

Non-Resident: If the control and

management of the affairs of a firm or AOP or
other person is situated outside India then such a
firm or AOP or other person is said to be nonresident in India.
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23

Residential status Mr,A a British citizen, comes to India for the first time during 2004-5 .his stay in
India for 2005-6, 2006-7 .2007-8, 2008- 9,& 2009 -10 are as follows
a)55 days; 60 days ;80 days ,160 days & 70 days respectively .
Determine his residential status for AY 2010-11

ANS :HIS STAY IN INDIA

For 2009-10 is 70 days ;
(b) stay in the
preceeding 4 years355. days.he fails in both conditionsd
therefore he is a NONRESIDENT

24

Residential Status continued

Mr. B a Malaysian , leaves India after a period of 10 years stay on
01/06/2007.During FY 2008-9 HE COMES TO INDIA FOR 46
DAYS .Later he returns to India for good on 10/10/2009.Determine
his residential status for the AY 2010-11.Will your answer be
different if his date of departure was15/05/2007?

B stays from 10/10/2009 for 173.days.he

does not satisfy the 1st condition.but he has
stayed for more than 365 days in the
preceding 4 yrs. Hence he is resident.he
was resident in 9 out of 10 yrs & has been
in India for more than 729 days in the
preceding 7 yrs Therfore BisR.O.R.

25

Ans:1)yes may be legal or illegal(2)yes

3)no (4)yes
(5) no. (6) no.

State with reasons whether the following receipts are

income u/s 2(24) of the IT.ACT
1)INCOME EARNED BY SMUGGLING GOLD INTO INDIA
2)Gift received by a doctor from a patient
3)Gift received by son from father on his marriage
4)Award received by a sports person
5)Award received by a nonprofessional sport person
6)Reimbursement of travelling expenses by a sales person

26

Determine the legal status of the following persons:

1)Chaitali coop H.S.ltd(6)XYZ & CO unregd firm

2)Mr.janakinandan
(7)Jt.family of Rajesh,his wife &children
3)Mukund Iron Ltd.
(8)Shramik sena
4)Mr.Badri prasad
(9)mumbai municipal corporation
5)Union Bank of Allahabad (10)mumbai university

Ans :1)AOP (2)An Individual (3) co.

(5) Co (6) AOP/BOI (7)HUF (8)boi
(10)Artificial judicial person

(4 )individual
(9)local authority

27

Incidence of Tax
Particulars

Tax Incidence
R

NOR

NR

Income received in India by or on behalf of

assessee

Yes

Yes

Yes

Income deemed to received in India by or on

behalf of assessee

Yes

Yes

Yes

Income accruing or arising in India

Yes

Yes

Yes

Income deemed to accrue or arise in India

Yes

Yes

Yes

Income which accrues or arise outside India

Yes

No

No

28

From the following details calculate total income of Mr. S for the financial year
2012 -13 (a) as resident (b) not ordinarily resident ( c ) non resident

No

Details of income

Rs

Income from property remitted

from lanka to the assessee in
india

210,000

Profit from business in india

100,000

Loss from business in lanka

,managed from india

80,000

Dividend from foreign cos recd.

o/s India

Interest on deposits from

Indian cos

120,000

Total

5,17,000

60,000

29

Total income of Mr. S for the financial year 2012 -13

(a) as resident (b) not ordinarily resident ( c ) non resident
N
o

Details of income

NoR

Non R

Income from
property remitted
from lanka to the
assessee in india

210,00
0

210,00
0

210,00
0

Profit from business

in india

100,00
0

100,00
0

100,00
0

Loss from business

in lanka ,managed
from india

(80000 NT
(80000 )
)

Dividend from
foreign cos recd. o/s 60,000
India

Not
taxabl
e

Not
taxable

Interest on deposits
from Indian cos

120,00
0

120,00
0

120,00
0

Total

410,00
0

350,00
0

430,00
0

30

TAX RATES
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31

RATES OF INCOME TAX (Assessment Year 2009-10)

1.

In case
of every Individual/
HUF/ AOP/BOI artificial
juridical
S.No
INCOME
TAX RATE
Person.
1

Up to 200,000

NIL

200,010-500000

10%

500010-1000000

20%

Above1000000

30%

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32

Contd
2.

In case of resident women below 65 years of age.

S.No

INCOME

TAX RATE

Up to 200000

NIL

200010-500000

10%

500010-1000000

20%

Above 1000000

30%

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33

Contd
3.

In case of resident senior citizen i.e. age of 65 years or above

S.No

INCOME
(A.Y. 2010-11)

TAX RATE

Up to 250000

NIL

250010-500000

10%

500010-1000000

20%

Above 1000000

30%

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34

Contd
PERSONS

TAX RATE

FIRMS

30%

DOMESTIC COMPANY

30%

FOREIGN COMPANY

40%

LOCAL AUTHORITIES

30%

CO-OPERATIVE SOCIETIES
Up to 10000
10000-20000
Above 20000

10%
20%
30%

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35

Surcharge & Cess

PERSON

RATE OF SURCHARGE

Individual / AOP / BOI / HUF /

Artificial Juridical Person

10% of tax liability if Income Exceeds Rs 10 Lacs

Firm

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

Domestic Company

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

Foreign company

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

Co-operative Society

N.A.

Local Authority

N.A.

Education Cess and Secondary & Higher Education Cess is

applicable on every person @ 2% & 1% respectively on tax
liability and surcharge applicable, if any.
Note: surcharge on personal income-tax will be
eliminated from A.Y. 2010-11
4/12/15

Index
36

Income not Included in total income

1)Agricultural income u/s 10(1)

2)Receipt from HUF U/S 10 (2)
3)Share of profits from firm10(2A)
4)Interest to NON RESIDENT
5)Interest from govt sec to NRI
6)LTC
(7)Remuneration of foreign diplomat
(8)Foreign allowance
(9)Income consultant u/s10(8A)
(10)gratuity

37

Income from Salary

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38

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

4/12/15
39

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

4/12/15
40

Allowances
Allowance is generally defined as a fixed
quantity of money or other substance given
regularly in addition to salary for the purpose of
meeting some particular requirement connected
with the services rendered by the employee or
as compensation for unusual conditions of that
service.
1.Dearness Allowance - It is Always Taxable.
2.City Compensatory Allowance - It is Always
Taxable.
4/12/15
41

Contd
3.

House Rent Allowance

Exemption In Respect Of House Rent allowance is
regulated by rule 2A. The least of the three given below is
Exempt from Tax.

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

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

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

The Excess of Rent Paid over 10 % of Salary.

4/12/15
42

Contd
4.

Entertainment allowance [sec.169(ii)]Entertainment allowance is first included in salary in come

under the head salaries and thereafter a deduction is
given on the basis enumerated below:
Status of Employee

Non- Government

Nothing is deductible

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Government
Least of the Following is
deductible :
1. Rs. 5000
2. 20 % of basic salary
3. Amount of entertainment
allowance grated during the
previous year
43

Contd
5.

Special allowances prescribed as exempt

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

specific
purpose for which allowance is given.
Whichever is lower.

4/12/15
44

Contd
Exemption is available on the aforesaid basis in the case of following allowances
NAME OF ALLOWANCE

:-

NATURE OF ALLOWANCE

Travelling Allowance/
Transfer Allowance

Any allowance granted to meet the cost of travel on

tour or on transfer (including sum paid in connection
with transfer, packing and transportation of personal
effects on such transfer).

Conveyance Allowance

Conveyance allowance granted to meet the expenditure

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

Daily Allowance

Any allowance whether granted on tour or for the period

of journey in connection with transfer, to meet the
ordinary daily charges incurred by an employee on
account of absence from this normal place of duty.

4/12/15

45

Contd
6.

When exemption does not depend upon

expenditure - In the cases given below, the
amount of exemption does not depend upon
expenditure incurred by the employee.
Regardless of the amount of expenditure, the
allowances given below are exempt to the
extent of
i.
ii.

the amount of allowance ; or

the amount specified in rule
2BB,

Whichever is lower.

4/12/15

46

Contd
Name of allowance

Exemption as specifiedin rule 2BB

Special Compensatory
(Hill Areas) Allowance

Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per
month

Border area allowance

The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per
month

Tribal areas/ scheduled areas

allowance

Rs. 200 Per Month

Allowance for transport

employees

The amount of exemption isa.70 per cent of such allowance; or

b.Rs. 6,000 per month, whichever is lower.

Children education allowance

The amount exempt is limited to Rs. 100 per month per child up to a
maximum of two children.

Hostel expenditure allowance

It is exempt from tax to the extent of Rs. 300 per month per child up to a
maximum of two children.

Compensatory field area

allowance

Exemption is limited to Rs. 2,600 per month in some cases.

4/12/15

47

Contd
Name of Allowance

Exemption as Specified in Rule 2BB

Compensatory modified area

allowance

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

Counter insurgency allowance

Exemption is limited to Rs.3,900 per month in some cases.

Transport allowance

It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of
an employee who is blind or orthopedically handicapped)

Underground allowance

Exemption is limited to Rs. 800 per month.

High altitude allowance

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

Highly active field area

allowance

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

Island duty allowance

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

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48

Contd
7.

8.
9.

Allowance to Government employees

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

4/12/15
49

Contd
11. Allowance

to High Court and Supreme Court

Judges - Any allowance paid to High Court
Judges under section & 22C of the High
Court Judges (Conditions of Service) Act,
1954 is not chargeable to tax.
12. Allowance received from a United Nations
Organization - Allowance paid by a United
Nations Organization to its employees is not
taxable by virtue of section 2 of the
UN
(Privileges and Immunities) Act, 1974.
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50

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

4/12/15
51

Perquisites as defined u/s

17 (2)
The term perquisites is defined by section
17 (2) as including the following items:
1.The

value of Rent-free Accommodation

provided to the assessee by his employer
2.The value of any concession in the matter of
rent respecting any accommodation provided to
the assessee by his employer

4/12/15
52

Contd
3.

The value of any benefit or amenity granted or

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

4/12/15
53

Contd
4.

5.

Any sum paid by the employer in respect of any

obligation which but for such payment would have
been payable by the assessee. Obligation of Employee
met by Employer.
Any sum payable by the employer, whether directly or
through a fund other than a recognized provident fund
or approved superannuation fund or a deposit-linked
insurance fund, to effect an assurance on the life of
the assessee or to effect a contract for an annuity
6.
The value of any other fringe benefits
or amenity as may be prescribed

4/12/15
54

TERMINAL BENEFITS
1.

Gratuity [Sec.10(10)] Gratuity is a retirement benefit. It is

generally payable at the time of cessation of employment
and on the basis of duration of service. Tax treatment of
gratuity is given below:
Status of Employee

Government
Employee

It is fully exempt
from
tax
under
section 10(10)(i)

4/12/15

Non-government
employee covered by
the payment of
Gratuity Act, 1972

Least of following is exempt:

1) 15 days salary x Length of
service
2) Rs. 3, 50, 000
3)
3) Gratuity
Gratuity actually
actually received.
received.

Non-government
employee not covered by
the payment of Gratuity
Act, 1972

Least of following is exempt:

1) month avg. salary x
Length of service
2) Rs. 3, 50, 000
3)
3) Gratuity
Gratuity actually
actually received.
received.
55

Contd
2.

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

follows :PENSION

COMMUTED

Government
Employee

Entire
Entire Commuted
Commuted
Pension is exempt
whether or not
Gratuity received.

4/12/15

UNCOMMUTED

NonGovernment
Employee
If Gratuity
Received

If Gratuity not
Received

1/3
1/3 of
of
commuted
pension is
exempt

1/2
1/2 of
of
commuted
pension is
exempt

Taxable for
Government as
well as NonGovernment
employees

56

Contd
3. Annuity

[Sec. 17(1)(ii)] An annuity payable by a present

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

4/12/15
57

Contd
5.

Compensation received at the time of

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

4/12/15
58

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

4/12/15
59

TAX TREATMENT OF PROVIDENT FUNDS

SL.N
O

PART St.P
Icula F
rs
EMPL
OYER

RPF

UNR
ECO
G PF

WHO EXEM EXE

LLY
PT 12 MPT
EXEM %
PT

8.5%

PPF

NO
cont
ribut
ion
by
empl
oyer

60

LEAVE SALARY
Encashment of leave by surrendering leave standing to ones
credit is known as leave salary.
LEAVE ENCASHMENT

During Employment

Chargeable to
Tax

Retirement / Leaving the Job

Government
Employee

Fully Exempt

4/12/15

Non-Government
Employee

Least of following is exempt :1) Earned Leave on the basis of

Average Salary
2) 10 x Average monthly salary
3) Rs. 500000
4) Leave Salary Received
61

Computation of income from salaries

Salary

Allowance

Perks

Profit in lieu
of salary

basic

DA

Rent free
accommodatio
n

EPF &
INTEREST

fees

HRA

Concession in
rent

Puja bonus &

incentives

commission

Conveyance

Amenities free
of cost

Key man
insurance
policy

Pension

CCA

Obligation of
employee paid
by employer

gratuity

Lunch allce

LIP
EMPLOYEE/ann
uity

Leave salry

Medical allce

Fringe benefit

Annuity

Servant allce

62

Deductions Admissible in Computing

Income under head SALARIES
Entertainment
allowance
granted
by
employer [Sec.16(ii)]: This deduction is
available in case of Government employees
only.
2. Employment
Tax
/
Professional
Tax
[Sec.16(iii)]: Any sum paid by assessee on
account of a tax on employment within the
meaning of Article 276(2). Under the said
article employment tax cannot exceed Rs.
2500 p.a.
1.

4/12/15
63

Relief in respect of
Advance or Arrears of Salary u/s 89

When an assessee is in receipt of a sum in the

nature of salary, being paid in arrears or in
advance, due to which his total income is
assessed at a rate higher than that at which it
would otherwise have been assessed, Relief is
granted on an
application made by the
assessee to the assessing officer.
4/12/15

Index
64

Compute the income of Sri Avinash

working in central railway from the
following particulars for the PY 2012-3:
1) Monthly basic salary Rs 58,000p.m
2) DA rs 5000.pm.
3)Spl allce Rs 3000/ pm
4) Bonus Rs 25,000
5) Car perk value Rs 13,500
6) Entertainment allce since 1/4/94/Rs 2000.pm
Of which he has already spent Rs 8000/=
7)Books Rs 1500 & professiontax paid Rs 2500
Ans:696,000+ 60,000+36000+25000+13500+24000=854,000
Less
EA 5000/=+P.TAX 2500=
7500
=847,500

4/12/15

65

Income from
House Property
SECTIONS -22, 23, 24, 25, 26, &27

4/12/15
66

Basis of Charge
The basis of charge of income under the head
income from house property is the Annual
Value of the property. Annual Value is inherent
capacity of the property to earn an income. It is
the amount for which the property might
reasonably be expected to let from year to
year.
Income from house property is charged to tax
on Notional Basis, as generally tax is not on
receipt of income but on the inherent potential
of the house property to generate income.
4/12/15
67

Conditions to be Satisfied
The property must consist of buildings or
lands appurtenant to such buildings.
2. The assessee must be the owner of such
house property.
3. The property should not be used by the
owner thereof for the purpose of any
business or profession carried on by him, the
profits of which are chargeable to tax.
1.

4/12/15
68

Computation of Gross Annual Value (GAV)

Step 1 : Calculate Expected Rent as follows:Particulars

Amount

(a) Fair Rent of the House

xxx

(b) Municipal Value of House

xxx

Amount

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

XXX

(d) Standard Rent

xxx

Expected Rent

[whichever is less of (c)

XXX

and (d)]
4/12/15
69

Contd
Step 2 : Compare Expected Rent & Actual Rent
Receivable (ARR).
Where the property or any part thereof is let out,
If ARR is more than ER referred to in Step 1, then,
GAV = ARR
If ARR is less than ER and it is due the vacancy of
property then, GAV = ARR
If ARR is less than ER not owing to vacancy GAV =
ER
Note: ARR = Rent Received / Receivable
Unrealized Rent

less

4/12/15
70

Net Annual Value (NAV)

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

4/12/15
71

Meaning
1.

2.

Municipal Valuation :- For collecting municipal

taxes, local authorities make a periodical survey of
all building in their jurisdiction. Such valuation may
be taken as strong evidence representing the
earning capacity of a building.
Fair Rent of the Property :- Fair rent of the property
can be determined on the basis of a rent fetched
by a similar property in the same or similar locality.
3.
Standard Rent :- Standard rent is
the maximum rent which a person
can legally recover from his tenant
under a Rent Control Act.

4/12/15
72

Self-occupied Property [Sec.

23(2)]

Property is considered to be self occupied

where,
the property consisting of house or part
thereof is in the occupation of the owner for
the purposes of his own residence; or
such property cannot actually be occupied by
the owner by reason of the fact that owing to
his employment, business or profession
carried on at any other place, he has to reside
at that other place in a building not
belonging to him.
4/12/15
73

Contd
In case of Self-occupied House Property
Net Annual Value is always Zero.
Since NAV is zero, the municipal taxes
paid by the owner of the house are not
deductible.

4/12/15
74

Deduction Admissible u/s 24

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

4/12/15
75

Deduction for Interest on

Capital Borrowed in case of SOP
Maximum limit of deduction in respect of interest
on capital borrowed in case of a Self-occupied
property whose annual value is assessed at NIL, is
Rs. 1,50,000
MAXIMUM
CASE
Interest on capital borrowed on or after 14-1999 for acquisition or construction of
house
In any other case

DEDUCTION

1,50,000
30,000

4/12/15
76

Recovery of Unrealized Rent

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

4/12/15
77

Arrears of Rent [Section 25B]

Arrears of rent shall be deemed to be
income chargeable under the head
Income from house property. It shall be
charged to income tax as income of
previous year in which it is received.
PARTICULARS
AMOUNT
Taxable amount
is computed as under
:The amount received as arrears of rent
Less: 30% of such amount
Amount taxable as arrears of rent

4/12/15

XXX
xxx
XXX

Index
78

INCOME EXEMPT FROM TAX

U/S 10

79

INCOME FROM HP is
exempted in the following
cases:1)any one palace of
ex ruler (2)local
authority(3)scientific
research assn.
See sec 10 (19) to (27) p/78

4/12/15

Paramveer is the owner of a residential house

occupied by tenants X.Y.&Z the particulars of the
houses are given below
Partic
ulars

Ist unit

Ii unit

III UNIT

GROSS
RATEABLE
VALUE

12,000

14,000

15,000

FAIR RENT

9,000

15,000

16,000

ACTUAL
RENT

11,400

10,800

18,000

Municipal
tax

3240

3780

4050

Expenses
on repair

1000

Nil

nil

Expenses
on
collection

Nil

500

nil

Municipal taxes for I unit borne by owner II & III are borne by tenants
4/12/15

80

Computation of Income from residential house

occupied by tenants X.Y.&Z
Partic
ulars

Ist unit

Ii unit

III UNIT

GROSS
RATEABLE
VALUE

12,000

14,000

15,000

FAIR RENT

9,000

15,000

16,000

ACTUAL
RENT

11,400

10,800

18,000

Annual
value

12,000

15,000

18,000

Municipal
tax

3240

3780*

4050*

Net AV

8760

15,000

18,000

DEDUCTIO 2628
4500
5400
NS U/S 24
30 % OF AV
Municipal taxes for I unit borne by owner II & III are borne by tenants
4/12/15

81

Income from
Business & Profession
SECTION 28 -44

4/12/15
82

Basis of Charge [sec. 28]

The following income is chargeable to tax under the
head Profits and gains of business or profession:
1.Profits and gains of any business or profession;
2.Any compensation or other payments due to or
received by any person specified in section 28(ii);
3.Income derived by a trade, professional or similar
association from specific services performed for its
members;
4. The
value of any benefit or
perquisite, whether convertible into
money or not, arising from business
or the exercise of a profession;
4/12/15
83

Contd
5.
6.
7.
8.

any profit on transfer of the Duty Entitlement

Pass Book Scheme.
Any profit on the transfer of the duty free
replenishment certificate;
Export incentive available to exporters;
Any interest, salary, bonus, commission or
remuneration received by a partner from firm;
Any sum received for not carrying out any
activity in relation to any business or not to
share any know-how, patent, copyright,
trademark, etc.

4/12/15
84

Contd
9.
10.
11.

Any sum received under a Keyman insurance

policy including bonus;
Profits and gains of managing agency; and
Income from speculative transaction.

Income from the aforesaid activities is computed

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

4/12/15
85

Expenses Expressly Allowed

1.
2.
3.
4.
5.

Rent, rates, taxes, repairs and insurance for building

[Sec. 30]
Repairs and insurance of machinery, plant and
furniture [Sec. 31]
Depreciation allowance [Sec. 32]
Tea/coffee/rubber development account [Sec. 33AB]
Expenditure on acquisition of patent rights and
copyrights [Sec. 35A]
6. Insurance premium [Sec. 36 (1) (i)]
7. Premier for insurance on health of
employees [Sec. 36(1) (ib)]

4/12/15
86

Contd
Bonus or commission to employees [Sec. 36(1)(ii)]
9. Interest on borrowed capital [Sec. 36(1)(iii)]
10. Employers contribution to recognized provident fund
and approved superannuation fund [Sec. 36(1)(iv)]
11. Contribution towards approved gratuity fund [Sec.
36(1)(v)]
12. Employees
contribution towards staff welfare
schemes
13.
Bad debts [Sec. 36(1)(vii)]
14.
Family planning expenditure [Sec.
36(1) (ix)]
8.

4/12/15
87

Contd
15.

16.
17.

Banking cash transaction tax, securities

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

4/12/15
88

EXPENSES NOT DEDUCTIBLE

1.
2.
3.

4.
5.

[Section 37(1)]

Damages and penalty paid for transgressing

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

4/12/15
89

Contd
6.

7.

8.

Expenditure on raising equity share capital and

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

4/12/15
90

Contd
Payments made for acquisition of good will.
10. Expenditure incurred for acquiring right over
or in land to win minerals.
11. Fees paid to obtain license to investigate and
search minerals.
12. Payment made in consideration of acquiring
a monopoly right to manufacturer a producer
(royalty payable on the basis of goods
produced under the same arrangement is,
however, deductible).
9.

4/12/15
91

Contd
13.

14.
15.
16.

Tax paid by the assessee (who is defaulter by not

deducting tax at source under section 195) on behalf of
non-resident.
Compensation paid to contracting party with the object
of avoiding an unnecessary investment in capital assets.
Expenditure on shifting of registered office.
Insurance premia paid by a firm on life insurance
policies of its partners.
17.
Amount paid by liquor contractor to
police staff and other officer to enable it
to make unauthorized purchases and
sales of liquor.

4/12/15
92

Contd
Amount paid by a company to the Registrar
of Companies as filing fee for enhancement
of capital base of the company.
19. Payment made by assessee company which
was partner in a firm, to outgoing partners of
firm on account of their agreeing to restrain
from carrying on similar business for a period
of 15 years.
18.

4/12/15
93

Specific Disallowances
1.

2.
3.
4.

Interest, Royalty, fees for Technical Services payable

outside India,if on such amount tax is deductible but
tax has not been deducted or deposited with
Government. [Sec. 40(a)(i)]
Fringe Benefit Tax [Sec. 40(a)(ic)]
Income-Tax [Sec. 40(a)(ii)]
Salary Payable Outside India without Tax Deduction
[sec. 40(a)(iii)]
5.
Provident Fund Payment without tax
Deduction at Source [Sec. 40(a)(iv)]
6.
Certain specified expenses in case of
Partnership Firm

4/12/15
94

Contd
7.
8.
9.

Interest paid by an AOP/ BOI to its members is not

allowed as deduction by virtue of sec. 40(ba)
Payment to relatives in excess of fair value not
deductible [Section 40A(2)]
Expenditure in excess of Rs. 20,000 in aggregate
in a day paid otherwise than by account payee
cheque drawn on a bank or account payee bank
draft Not allowable [Section 40A(3))]
10. Amount not deductible in respect
of
certain
unpaid
liabilities
[Sec.43B]

4/12/15
95

Books of Accounts to be maintained [Section 44AA]

The persons carrying on specified professions are required
to maintain specified books of account only if the gross
receipts of their profession have exceeded Rs. 1,50,000
Every other person carrying on business or profession
shall keep and maintain such books of account and other
documents as may enable the Assessing Officer to
compute his total income in accordance with the
provisions of this Act.
a)

b)
c)

If his income from business or profession

exceeds Rs. 1,20,000;
Total
sales/turnover/gross
receipts
thereof
exceeds Rs.10,00,000
the assessee has claimed his income lower than
deemed profits

4/12/15
96

Tax Audit u/s 44AB

This section applies to following :Person carrying on -

Accounts are to be audited for previous year in which

-

Business

Total sales, turnover or gross receipts exceed Rs.

40,00,000

Profession

Gross receipts exceed Rs. 10,00,000

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

The assessee is required to get his accounts of such

previous year audited by a Chartered
Accountant before 30th September of
the
assessment year.
4/12/15
97

Special Provisions for Computing Income

on Estimated Basis 44AD, 44AE & 44AF

Not withstanding anything contained in Sections 28

to 43C, the following provisions will apply.
Sec. 44 AD

Sec. 44 AE

Sec. 44AF

Business of
Assessee

Civil
construction
supply of labour for it.

or

Plying, hiring or leasing

goods carriages owned by
him.

Retail trade in any

goods
or
merchandise.

This Section
applies if

Gross receipts of such

business
during
the
previous year do not
exceed Rs. 40 lacs.

Goods carriages owned by

assessee at any time
during
previous
year
doesnt exceed 10 lacs

Total
business
turnover in that
previous
year
doesnt
exceed
Rs. 40 lacs.

Deemed
Profits

8% of Gross receipts

(No. of heavy goods

vehicle x Rs. 3500 x NM) +
(No. of other vehicles x Rs.
3150 x NM)
NM = No. of months

5%
of
Gross
receipts or such
higher sum as
declared by him in
his
Return
of
Income.

98

DEPRICIATION [Sec. 32]

Depreciation allowance [Sec. 32] - Depreciation shall
be determined according to the provisions of section
32.
Conditions for claiming Depreciation - In order to avail
depreciation, one should satisfy the following
conditions:
Asset must be owned by the assessee.
It must be used for the purpose of business or

profession.
It should be used during the relevant previous year.
Depreciation is available on tangible as well as
intangible assets.
4/12/15
99

Contd
Block of Assets [Sec. 2(11)] - The term block of
assets means a group of assets falling within a
class of assets comprising
tangible

assets, being buildings, machinery,

plant or furniture;
intangible assets, being know-how, patents,
copyrights, trade marks, licenses, franchises or
any other business or commercial rights of
similar nature.
In respect of which the same
percentage of depreciation is
prescribed.
4/12/15
100

Kamal started business with the following

assets you are required to form block of assets
& compute depreciation for the ay 2011-12

SL. PARTICULARS
NO

RATE OF DEP
%

RS

OFFICE building

10

23,00,000

Factory building

10

18,00,000

Residential for workers

900,000

officefurniture

15

200,000

Residential furniture

15

100,000

Copy rights trade marks

25

600,000

Plant & m/c normal

20

900,000

Do- computer

60

100,000

Do- delivery van

20

100,000
4/12/15

101

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

Step 2

Step 3

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

From the resultant figure, deduct money received/receivable

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

4/12/15
102

Contd
Meaning of Actual Cost [Sec. 43(1)] - It means the
actual cost to the assessee as reduced by the
proportion of the cost thereof, if any, as has been
met, directly or indirectly, by any other person or
authority.
If written down value of the block of asset is reduced
to zero, though the block is not empty - No
depreciation is admissible.
If the block of assets is empty or ceases to exist on
the last day of the previous year though the written
down value is not zero - No
depreciation is admissible.
4/12/15
103

Contd
Additional depreciation @ 20% is available on new plant or
machinery acquired & installed after 31.03.05, if used in
production or manufacturing.
If asset is used for less than 180 days during the previous
year, in which its purchased, then deprecation & additional
depreciation is restricted to 50% of actual depreciation.
However in subsequent year full depreciation is allowed
irrespective of use.
When a depreciable asset(on which depreciation is claimed
on straight line basis) of a power generating
unit is
disposed in a previous year, then
terminal depreciation
(loss) is deductible or balancing charge (gain) is taxable.
4/12/15
104

Partnership
Deductibility of interest paid to partners by firm
depends upon following : Payment

of interest should be authorized by the

partnership deed
Payment of interest should pertain to the period after the
partnership deed.
Rate of interest should not exceed 12 percent

Deduction of Remuneration to Partners can be

claimed if paid :

to a Working Partner
According to the Partnership Deed
Does not exceed the Permissible Limits.

4/12/15
105

Contd
The maximum amount of salary paid to all the
partners during the previous year should not exceed
the limits given below :In case of a firm carrying of a profession referred to in section 44AA
On the first Rs. 1,00,000 of the book profit
or in case of a loss

Rs. 50,000 or at the rate of 90 percent of

the book profit, whichever is more

On the next Rs. 1,00,000 of the book profit

At the rate of 60 percent

On the balance of the book profit

At the rate of 40 percent

In the case of any other firm

On the first Rs. 75,000 of the book profit or
in case of a loss

Rs. 50,000 or at the rate of 90 percent of

the book profit, whichever is more

On the next Rs. 75,000 of the book profit

At the rate of 60 percent

On the balance of the book profit

At the rate of 40 percent

106

Minimum Alternate Tax

Applicability of Minimum(MAT)
alternate tax (MAT) sec. 115JB :

Minimum alternate tax (MAT) sec. 115 JB MAT is

applicable in case of companies only.
If tax liability of a company under normal provision is
lower than 10% of book profit.
In such case, book profit shall be deemed as total
income & 10% of book profits should be deemed as
tax liability.

Up to assessment year 2001-02 these

provisions were covered by sec. 115
JA.

4/12/15
107

Contd

A company is allowed credit of tax paid

u/s 115-JB for the assessment year 200607 and onwards in accordance with the
provisions of section 115-JAA.
MAT credit can be carried forward for a
period of seven years.

Index
4/12/15
108

Income from Capital

Gains
4/12/15
109

Basis of Charge
Capital Gains tax liability arises only when the
following conditions are satisfied:
1.There should be a capital asset.
2.The capital asset is transferred by the
assessee
3.Such transfer takes place during the previous
year.
4.Any profit or gains arises as a result of
transfer.
5.Such profit or gains is not exempt from tax
4/12/15
under
section 54, 54B, 54D, 54EC,11054F,

Capital Assets
Capital asset is defined to include property of any kind,
whether fixed or circulating, movable or immovable,
tangible or intangible. However, following are excluded
from the definition of capital assets:
1.Any stock-in-trade, consumable stores or raw material
held for the purposes of business or profession.
2.Personal effects of the assessee, that is to say, movable
property including wearing apparel and furniture held for
his personal use or for the use of any member of his family
dependent upon him. However, Jewellery,
Archaeological
Collections, Drawings,
Paintings, Sculptures, or Art Work
will not be considered as personal effects.
4/12/15
111

Contd
3.

Agricultural land in India provided it is not situated

4.

in any area within the territorial jurisdiction of a

municipality or cantonment board, having a
population of 10,000 or more; or
in any notified area.

6 percent Gold Bonds, 1977 or 7 percent Gold

Bonds, 1980 or National Defense Gold Bonds, 1980
issued by the Central Government.
5. Special Bearer Bonds, 1991.
6. Gold Deposit Bonds issued under
Gold Deposit Scheme, 1999.
4/12/15
112

Short-term / Long-term
Capital Assets

Short term capital asset means a capital asset held by

an assessee for not more than 36 months, immediately
prior to its date of transfer. In other words, if a capital
asset is held by an assessee for more than 36 months,
then it is known as long term capital asset.
However in following cases 36 months will be replaced
by 12 months : Equity or preference shares in a company

Listed Securities

Units of UTI

Units of a mutual fund specified

under section 10(23D)

Zero coupon bonds

4/12/15
113

Illustration

1)Discuss the liability to taxation of capital gains ,in the following cases.give
reasons for your answer.
a)Mr.kantilal ,a manager of a public ltd co , Receiving remuneration had a
personal car,which he had bought For Rs 70,000/=in 1992.He sold it for the
previous year95-96 for Rs 65,000/=&claimed the difference as an allowable loss
b)Mrs. Asha purchased a diamond necklace , in 1990,for Rs 1.lakh. She sold
it for Rs 450,000 in the year 94-95
a) u/s 2(14) personal car owned by Mr.Kanthilal falls within personnel effect.
Therefore car is not a capital asset.
b)In this case jewellery is specifically excluded from personal effects therefore
Sale of diamond necklace is chargeable to tax as capital gain

4/12/15

114

Determine whether short term

or long term?

115

1)Mr.R had purchased a house

property on 31/01/2009 & sold
it to sham in 23/01/2012.
2)Mr Vinit purchased shares of
m/s Bongaigaon refinery on
10/01/2010.
&sold the same on 09/07/2011.

1)For nonfinancial assets ,holding period is not more than 36, months it is
short term, in this case it is only 35 months &24 days.Therefore this is STCG.
2) FOR FINANCIAL ASSETS it is one year .therefore this is LTCG.

4/12/15

Important Terms
1.

2.

Transfer of Capital Asset :- Transfer, in relation to

capital
asset,
includes
sale,
exchange
or
relinquishment of the asset or the extinguishment of
any rights therein or the compulsory acquisition
thereof under any law [sec. 2(47)].
Full Value of Consideration :- The expression full
value means the whole price without any deduction
whatsoever.
3.
Expenditure on Transfer :- The
expression expenditure on transfer
means expenditure incurred which is
necessary to effect the transfer.
4/12/15
116

Contd
Cost of Acquisition :- Cost of acquisition of an
asset is the value for which it was acquired
by the assessee. In case of Depreciable Asset
COA is the WDV of asset in the beginning of
the year. In case of Slump Sale COA is the
Net Worth of the undertaking.
5. Cost of improvement :- Cost of improvement
is capital expenditure incurred by an
assessee in
making any additions/
improvement to
the capital asset.
4.

4/12/15
117

Contd
6.

7.

Indexed Cost of Acquisition :- the amount which

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

4/12/15
118

Capital Gain Exemption

Profit on sale of property used for residence [S.
54]:- Available to Individual & HUF on transfer of
Long-term Residential Property and new
residential House property is purchased or
constructed.
2. Capital gains on transfer of agricultural land
[S.54B]:- Available to Individual on transfer of
Agricultural land used by individual or his parent
for agricultural purposes during 2 year
preceding date of transfer and
Agricultural
land (urban or rural) is purchased.
1.

4/12/15
119

Contd
Investment in certain bonds [S.54EC] :Available to all assesses on transfer of
any long-term capital asset for purchase
of Bonds, redeemable after 3 years issued
by
(a) National Highway authority of India; or
(b) Rural Electrification Corporation,
3.

4/12/15
120

Contd
4.

Capital gain on transfer of certain capital

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

4/12/15
121

Contd
5.

Compulsory acquisition of land & building

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

4/12/15
122

Contd
6.

Shifting of undertaking to rural area

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

4/12/15
123

Contd
7.

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

4/12/15
124

Computation of Short-term
Capital Gains
Particulars

Amount

Full Value of Consideration

XXX

Less: Expenses incurred wholly and exclusively for

such transfer

xxx

Net Consideration

XXX

Less: Cost of Acquisition

xxx

Less: Cost of Improvement

xxx

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

xxx

Taxable Short -term Capital gains

XXX

4/12/15
125

Computation of Long-term
Capital Gains
Particulars

Amount

Full Value of Consideration

XXX

Less: Expenses incurred wholly and exclusively for

such transfer

xxx

Net Consideration

XXX

Less: Indexed Cost of Acquisition

xxx

Less: Indexed Cost of Improvement

xxx

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

xxx

Taxable Long- term Capital gains

XXX

4/12/15
126

Indexed Cost
Indexed
Cost of
Acquisition
/
Improveme
nt

4/12/15

Cost of
acquisition /
improvemen
t x Cost
inflation
Index of the
year of
transfer

Cost Inflation Index

(CII) for the first
year in which the
asset was held by
the assessee or for
the year beginning
on 1.4.1981,
whichever is later /
the year of
improvement

Index
127

Mr.Rohan purchased a residential house in july

1989 for Rs 400,000.sold it on 1 st may 2011
for Rs 25 lakhs .He paid brokerage 2%
.Determine CG in the following cases:
1)Purchased residential house for Rs 470,000/=constructs I
floor by jan 2012 @ cost of Rs 100,000/=deposits Rs
253488/=under CG scheme.by 30/09/2012 being the due date
for filing the return.
2) None of the above
3)He constructs a house for Rs 15lakhs by the end of sep due
date for filing the return.m

4/12/15

128

Solution
No Details

SALE PRICE Rs 25,00,00

0

Brokerage

II

III

25,00,00
0

25,00,00
0

50,000
50,000

Indexed cost

50,000

18,25,58
1

18,25,58
1

18,25,58
1

4 1)InLong
ternno
CG
,419 624,419
624,419
this case
tax will624
be payable
gets exemptions
u/s 54
2)In this case he has not availed any .Therefore full amount is taxed .
3)Tax -nil

4/12/15

129

Mr. Kasad purchases one bangalow for Rs

51,000/= in the year 63-4.constructed 2
additional roomsin 72-3.by spending 1
lakhHe dies on 1/10/79.& as per his will
the house is transferredto his son
Firdosh, who sells it for Rs 25 lakhs in the
AY 2012-13.COMPUTE CG( the fair mkt
value on 81 Rs 2 lakhs). .

SALE Rs
25,00,000
Cost 15,70,000+
236 ,090+ 11,001
= 18,17,091= 682, 909.

4/12/15

130

Income from
Other Sources

4/12/15
131

General [Section 56(1)]

Income of every kind, which is not to be
excluded from the total income and not
chargeable to tax under any other head,
shall be chargeable under the head
Income from Other Sources.

4/12/15
132

1.
2.

3.

Specific Income [Section

56(2)]
Dividends.
Lottery winnings etc.: Winnings from lotteries,
crossword puzzles, races including horse races, card
games and other games of any sort or from gambling
or betting of any form or nature whatsoever.
Any sum received by an employer-assessee from his
employees as contributions to any welfare fund, if the
same is not chargeable under the head Profits and
Gains of Business or Profession.
4.
Income by way of interest on
securities if not chargeable as Profits
and Gains of Business or Profession

4/12/15
133

Contd
5.

6.

Income from letting on hire of Plant, machinery or

furniture belonging to the assessee, if not
chargeable to under the head Profits and Gains of
Business or Profession.
Income from letting on hire of machinery, plant or
furniture and also buildings, and the letting of
buildings is inseparable from letting of such
machinery, plant or furniture, if the same is not
chargeable to income tax under the head Profits
and Gains of Business or Profession.
7.
Interest on bank deposits and
loans

4/12/15
134

Contd
Any sum received under a Keyman insurance policy
including the sum allocated by way of bonus on such
policy, if the same is not chargeable to income-tax
under the head Profits and Gains of Business or
Profession or under the head Salaries.
9. Cash Gifts exceeding Rs. 50,000
10. Interest on foreign government securities
11. Agricultural income received from outside India
12. Income from sub-letting
13. Directors fee
14. Income of race establishment
8.

4/12/15

Index
135

Clubbing of Income

4/12/15
136

1.

2.
3.

Cases where Clubbing

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

4/12/15
137

Contd
An individual is assessable in respect of
income from assets transferred to spouse:When the asset is transferred otherwise than
(a) for adequate consideration, or (b) in
connection with an agreement to live apart.
5. An individual is assessable in respect of
income from assets transferred to sons wife
[Sec. 64(1)(vi)]:- When the asset is
transferred otherwise
than (a) for
adequate consideration
4.

4/12/15
138

Contd
6.

7.

An individual is assessable in respect of income

from assets transferred to a person for the
benefit of spouse [Sec. 64(1)(vii)] :- It is
transferred for the immediate or deferred benefit
of his/her spouse. The transfer is without
adequate consideration.
An individual is assessable in respect of income
from assets transferred to a person for the
benefit of sons wife [Sec. 64(1)(viii)] :- It is
transferred for the
immediate or deferred
benefit of his/her
sons wife. The transfer is
without adequate consideration.

4/12/15
139

Contd
An individual is assessable in respect of
income of his minor child [Sec. 64(1A)] :- The
income of minor will be included in the
income of that parent whose total income
[excluding the income includible under
section 64(1A)] is greater.
9. Clubbing in case of transfer of property to
HUF [Section 64(2)] :- When Income from
asset transferred to HUF for inadequate
consideration.
8.

4/12/15
140

Undisclosed Income /
Investments
1.

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

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

4/12/15
141

Contd
2.

Unexplained investments [Sec.69] Where

in the financial year immediately preceding
the assessment year, the assessee has
made investments which are not recorded
in the books of account maintained by him
and the assessee offers no explanation
about the nature and source of the
investments, the value of the investments
may be deemed to be the income of the
assessee of such financial year.

4/12/15
142

Contd
3.

Unexplained money, etc [sec. 69A] - Where

in any financial year the assessee is found
to be the owner of any money, bullion,
jewellery, or other valuable article which
are not recorded in the books of account
maintained by him and the assessee offers
no explanation about the nature and
source of acquisition then value of such
things may be deemed to the income of
the assessee for such financial year.

4/12/15
143

Contd

4.

Amount of investments, etc., not fully disclosed in

books of account [Sec.69B] Where in any
financial year the assessee has made investments
or is found to be the owner of any bullion,
jewellery or other valuable article, and the A.O.
finds that the amount expended on making such
investments or in acquiring such things exceeds
the amount recorded in the books of account
maintained by the assessee, and he offers no
explanation about such excess amount, the
excess amount may be deemed to be the income
of the assessee, for such
financial year.

4/12/15
144

Contd
5. Unexplained

expenditure, etc. [Sec. 69C] Where in any

financial year an assessee has incurred any expenditure &
he offers no explanation about the source of such
expenditure, the amount covered by such expenditure, may
deemed to be the income of the assessee for such financial
year.
6. Amount borrowed or repaid on hundi [Sec. 69D] Where
any amount is borrowed on a hundi, or any amount due
thereon is repaid otherwise than through an account payee
cheque, the amount so borrowed or repaid shall be deemed
to be the
income of the person borrowing or
repaying for the previous year in which
the amount was
borrowed or repaid.
4/12/15

Index
145

Set-off &
Carry Forward
4/12/15
146

Process of Set-off & Carry

The process of setting offForward
of losses and their carry forward may
be covered in the following steps:
Step 1

Inter-source adjustment under the same head of income

Step 2

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

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

Step 3

Carry forward of loss. Step 3 is applied only if a loss cannot

be set off under Steps 1 and 2.

4/12/15
147

Unabsorbed Depreciation
While dealing with unabsorbed depreciation one should keep in
mind the following points:

Step 1

Step 2

Step 3

4/12/15

Depreciation allowance of the previous year is first deductible

from the income chargeable under the head Profits and gains
of business or profession.

If depreciation allowance is not fully deductible under the head

Profits and gains of business or profession because of absence
or inadequacy of profits, it is deductible from income chargeable
under other heads of income [except income under the head
Salaries] for the same assessment year.

If depreciation allowance is still unabsorbed, it can be carried

forward to the subsequent assessment year(s) by the same
assessee.

148

Inter-Source Set Off [Section

70]

Loss arising from one source of income under a head

can be set off against income arising from any other
source under the same head, except in the following
cases
Loss

Set-off allowed against

Long-term capital Loss

Long-term Capital Gain

Speculation business loss

Speculation business gain

Loss from business of owning and

maintaining race horse

Income from business of owning and

maintaining race horse

Loss from lottery, card games,

gambling betting etc.

Income from lottery, card games,

gambling betting etc.

4/12/15
149

Inter-Head Set-off [Section

71]
Loss arising under one head of income can be set off
against income under any other head, except in the
following cases
1.Loss arising under the head capital gain cannot be
setoff from income under any other head
2.Losses under the head Profits and gains of business
or profession cannot be set off against income under
the head Salaries.
Note: Unabsorbed depreciation of past year(s) is carried
forward u/s 32(2); therefore, the same can be set-off
against income under the head Salaries.

4/12/15
150

Provisions relating to carry forward and setoff of losses

No. of years for which
Income against which
it
can
be
carried
the loss can be setoff
forward

Sec.

Loss to be carried forward

71B

Loss from house property

Income from house

property

8 years from the end of

the relevant A.Y.

72

Losses under Profits & Gains

of Business or Profession,
except speculation business
loss.

Profits of any
Business/Profession
(including speculation
business profits also)

8 years from the end of

the relevant A.Y.

73

Losses in speculation
business.

Income from
business

speculation 4 years from the end of

the relevant A.Y.

74

Losses under the head

Capital gains.

Capital Gains

8 years from the end of

the relevant A.Y.

74A

Loss incurred in activity of

owning and maintaining race
horses.

Income from owning and 4 years from the end of

maintaining race horses
the relevant A.Y.

4/12/15

Index

151

Revision questions
1)For the assessment year 2013-14 ,dividend distribution tax is payable
at __% plus surcharge of __ %by a domestic co if it distributes dividend after ___
2)A person residing in Ahmedabad has salary of Rs 30,000/= pm gets HRA of
Rs 6000/= Rent paid by him Rs 7,000/=calculate exempted HRA
3)State whether the following perks are taxable in the PY 2012 -13
a)Gift of wrist watch costing Rs 51,000/=(b) free meal costing Rs 80/=
C )School fees directly paid by employer Rs 4000/=
D )reimbursement of medical expenses Rs 22,000/= during the year
Ans (1) 15% 5% ,1/04/2003
(2)Rs 48,000/=
(3) yes.; 80- 50= 30 taxable,
(4) fully taxable
(5) Medical expenses in excess of Rs 15,000/=

152

Agricultural Income

4/12/15
153

Meaning
Agricultural Income means:
1.
2.

3.

Any rent or revenue derived from land which is situated in

India and used for agricultural purposes [sec. 2(1A) (a)].
Any income derived from such land by agricultural
operations including processing of the agricultural produce,
raised or received as rent-in-kind so as to render it fit for the
market or sale of such produce [sec. 2(1A)(b)].
Income attributable to a farm house subject to certain
conditions.
4.
With effect from the assessment year
2009-10, any income derived from
saplings or seedlings grown in a nursery
shall be deemed to be agricultural
income.

4/12/15
154

Partially Agricultural & Partially Business Income [Rules 7, 7a,

7b And 8]
BUSINESS
INCOME

AGRICULTURAL
INCOME

40%

60%

35%

65%

Sale of coffee grow and cured by seller

25%

75%

Sale of coffee grown, cured, roasted and

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

40%

60%

INCOME
Growing and manufacturing tea in India
Sale of centrifuged latex or cenex or latex
based creps (such as pale latex crepe) or
brown crepes (such as estate brown crepe,
remilled crepe, smoked blanket crepe or
flat bark crepe) or technically specified
block rubbers manufactured or processed
from field latex or coagulum obtained from
rubber plants grown by the seller in India

4/12/15

155

The Scheme of Partial Integration of

Non-Agricultural Income with Agricultural Income

The scheme of partial integration of nonagricultural income with agricultural income is

applicable if the following conditions are satisfied
Condition 1

Condition 2

The taxpayer is an individual, a Hindu undivided family, a body

of individual, an association of persons or an artificial juridical
person.
The taxpayer has non-agricultural income exceeding the
amount of exemption limit [i.e., Rs. 1,80,000(in case a resident
woman below 65 years), Rs. 2,25,000 (in case of a resident
senior citizen 65 years or more) and Rs. 1,50,000 (in case of
any other individual or every HUF for the assessment year
2009-10]
The agricultural income of the taxpayer exceeds Rs. 5,000.

Condition 3
4/12/15
156

Contd

Income-tax will be computed for the assessment

year 2009-10 in the following manner:
Step 1

Net agricultural income is to be computed as if it were income chargeable to incometax.

Step 2

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

Step 3

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

Step 4

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

Step 5

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

Step 6

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

4/12/15

Index
157

Deductions under
Chapter VI - A
4/12/15
158

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

4/12/15
159

Deduction for Payment of

Life Insurance Premia, etc., [Section 80C]

Deduction under this section is allowed as

follows
Deduction is available only in respect of
specified sums actually paid or deposited
during the previous year (sum not actually
paid and outstanding is not allowed)
Specified
sums
must
have
been
paid/deposited by an Individual or HUF; and
The total amount of deduction under this
section is subject to a maximum limit of
Rs.1,00,000.
4/12/15
160

Contribution To Certain Pension Funds [Section 80CCC]

Amount paid or deposited by individual in the

previous year
out of his income chargeable to tax
to effect or keep in force a contract for any annuity

plan of LIC or any other insurer

for receiving pension from the fund referred to in
section 10(23AAB).

Quantum of Deduction: Deduction shall be

allowed to the extent of lower of the following
Amount so paid or deposited; or
Rs. 1,00,000

4/12/15
161

Contribution to Pension Scheme of Central Government or any

Other Employer [Sec. 80CCD]

Deduction

in respect of: Deduction

available in respect of both of the following

is

Sum deposited by assessee in his account in notified

pension scheme; and

Contribution made by Central Govt. or any other
employer to assesses A/c.

Quantum of Deduction: Deduction shall be

allowed to the extent of aggregate of the following
- paid/deposited by assessee to the credit of his a/c or 10% of
Sum
salary, whichever is lower
Sum contributed by the employer in assesses A/c or 10% of salary,
whichever is lower
4/12/15
162

Aggregate Limit u/s 80C, 80CCC & 80CCD

The aggregate amount of

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

4/12/15
163

Deduction In Respect Of
Health Insurance Premia [Sec. 80D]

Deduction is available in respect of the amount

paid to effect or to keep in force health insurance
under a scheme
made by General Insurance Corporation of India (GIC)

and approved by Central Government; or

made by any other insurer and approved by Insurance
Regulatory and Development Authority.

Deduction shall be to the extent of lower of

Health insurance premia paid in respect of health of any

member

of that HUF; or
Rs. 15,000 (Rs. 20,000 in case the
insured is a senior citizen).

4/12/15
164

Maintenance of A Dependant Being Person With Disability

[Section 80DD]

Deduction is available in respect of

expenditure incurred for medical / treatment / nursing /

training/ rehabilitation, or
amount paid under scheme LIC / UTI other insurer
approved by CBDT for maintenance, of a dependant,
being a person with disability.

Deduction shall be allowed to the extent of

Rs. 50,000 (Rs. 75,000 in case of dependant suffering

with severe disability),

incurred or sum paid.

irrespective

of

expenditure

4/12/15
165

Deduction in respect of
Medical Treatment, etc. [Sec. 80DDB]

Deduction is available in respect of sum actually paid

during previous year for medical treatment of
prescribed disease or ailment for the following
In case of individual: himself or his spouse, children, parents,

brothers and sisters,

In case of HUF: its member(s),
dependant mainly on such individual or HUF for his support
and maintenance.

Deduction shall be available to the extent of lower of

the
following

sum actually paid; or

Rs. 40,000 (Rs. 60,000 in case of a senior
citizen).

4/12/15
166

Deduction in respect of Interest on Loan taken for Higher

Education [Sec.80E]

Deduction in available in respect of

sum paid by the assessee in the
previous year, out of his income
chargeable to tax, by way of interest on
loan taken
for his higher education, or
for the higher education of his

relative.
100% of the amount of interest on such
loan Deduction will be admissible.
4/12/15

167

Deduction in respect of Donations [Section 80G]

Deduction is allowed under this section to all

assesses in respect of donations of sum of money in
the following manner
100% deduction will be allowed if donations are given to

any of the 19 specified funds.

50% deduction will be allowed if donations made to any of
the 5 specified funds.
100% deduction shall be allowed subject to the qualifying
amount if donations are made for promoting family
planning.

50% deduction shall be allowed subject

to the qualifying amount if donations are
made towards any of the 5 specified
purposes.
4/12/15
168

Deductions in respect of Rents Paid [Sec.80GG]

Rent actually paid for any furnished or

unfurnished residential accommodation
occupied by the Individual, who is not in
receipt of any House Rent Allowance
(HRA).
The deduction shall be allowed to the
extent of least of the following
Rs. 2,000 per month;
25% of adjusted total income;
Rent paid less 10% of adjusted

Total

Income.
4/12/15
169

Deduction in respect of person with Disability [Section 80U]

Eligible Assessee: Individual resident in

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

4/12/15
170

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

4/12/15
171

Contd
Deduction available to certain Undertakings in
certain Special category States [Sec.80IC]
Profits & Gains from business of Hotels &
Convention Centre in Specified Areas [Sec. 80ID]
Special
provisions
in
respect
of
certain
Undertakings in North-Eastern States [Sec. 80IE]
Deduction available to assessee in the business of
Collecting & Processing Bio-Degradable Waste
[Sec.80JJA]
Deduction
in
respect
of
Employment of New Workmen
[Sec. 80JJAA]
4/12/15
172

Contd
Deduction from incomes of Off-shore Banking
Units & International Financial Services
Centre [Sec.80LA]
Deduction in respect of income of Cooperative Society [Sec. 80P]
Deduction in respect of Royalty Income, etc.
of Author of certain Books other than Text
Books [Sec.80QQB]
Deduction in respect of Royalty Income of
Patents
[Sec. 80 RRB]
Index
4/12/15
173

Advance Tax

4/12/15
174

Liability to pay Advance Tax

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

4/12/15
175

Due Dates
Due Date

Amount payble by
Corporate Assessee

Amount payble by NonCorporate Assessee

On or before June 15 of Up to 15 percent

the previous year
advance tax payable

of

On or before September Up to 45 percent

15 of the previous year
advance tax payable

of Up to 30 percent
advance tax payable

of

On or before December Up to 75 percent

15 of the previous year
advance tax payable

of Up to 60 percent
advance tax payable

of

On or before March 15 of Up to 100 percent

the previous year
advance tax payable

of Up to 100 percent
advance tax payable

of

4/12/15
176

Default in payment of Advance Tax [Sec. 234B]

Under section 234B(1), interest is payable as
When interest is
Interest is
Rate of interest
Period for which interest is payable
follows:
payable
payable on
An assessee who is Interest
is Simple interest @ 1 From April 1 of the assessment year
liable
to
pay payable
on percent
for
every to the date of determination of
advance tax, has accessed tax
month or part of income under section 143(1) or
failed to pay such
month
where regular assessment is made
tax
to the date of regular assessment

An assessee who Assessed

tax
has paid advance minus advance
tax but the amount tax
of advance tax paid
by him is less than
90
percent
of
assessed tax.

4/12/15

Simple interest @ 1 From April 1 of the assessment year

percent
for
every to the date of determination of
month or part of income under section 143(1) or
month
where regular assessment is made
to the date of regular assessment

177

Deferment of Advance Tax

[Sec. 234C]

Interest is payable under section 234C if an

assessee has not paid advance tax or
underestimated installments of advance tax.
Simple Interest at the rate of 1% per month
is payable for period 3 months for each
installment due.

Index
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178

Assessment Procedures

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179

Time for filing Return of Income [Sec. 139(1)]

Different Situations
1. Where the assessee is a company

2. Where the assessee is person other than a

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

Due Date for filing Return

September 30

September 30

September 30

July 31

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180

Filing of Return in Electronic Form [Sec. 139D]

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

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181

Filing of Return after Due Date [Sec. 139(4)]

If the return is not furnished within the time

allowed under section 139(1) or within the
time allowed under section 142(1), the
person may (before the assessment is
made), furnish the return of any previous
year at any time before the end of one year
from the end of relevant assessment year.

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Consequences of Late
Submission
If return is submitted after the due date of submission of
return of income, the following consequences will be
applicable. These rules are applicable even if a belated
return is submitted within the time-limit given above
The assessee will be liable for penal interest u/s 234A.
A penalty of Rs. 5,000 may be imposed u/s 271F if belated

return is submitted after the end of assessment year.

If return of loss is submitted after the due date, a few losses
cannot be carried forward.

If return is submitted belated, deduction

under section 10A, 10B, 80-IA, 80-IB, 80IC,
80-ID and 80-IE will not be available.

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Interest for defaults in furnishing Return of Income [Section

234A]

If any person fails to furnish his return of income u/s

139 for any assessment year or furnishes such
return after due date specified in section 139(1),
then, he will liable to pay interest at the rate of 1%
per month for the period beginning from the date
immediately following the due date of furnishing
return of income and ending on the Date of
furnishing the return or completion of assessment,
whichever is earlier, calculated on the
amount
of self-assessment tax
payable.

Index
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184