Income tax-ppt-revised

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2
Tax is a payment made to
the government of a country
with out “ quid pro quo”i.e.
nothing in return.

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

5
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.

1 Entry no 82
2 83
3 84
4 85
5 92 A,B,C
6 97
a Any other item
b Income tax other than
agrl.
c Customs including
export
d Excise excluding
liquor/norcotics
e Inter state –sales &
services
f Corporate tax
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The two types of taxes are (1)DIRECT (2)INDIRECT
NO DIRECT INDIRECT
1 ON PERSONS ON GOODS &services
2 Collected from assessee
direct
Collected by dealers
&remitted to govt.
3 Burden not shiftable Cannot be shifted
4 On income On sale/purchase

1. Introduction
2. Residential Status
3. Tax Rates
4. Income from Salary
5. Income from House Property
6. Income from Business & Profession
7. Capital Gains
8. Income from Other Sources
9. Clubbing of Income
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10. Set-off Carry Forward
11. Deductions from Gross Total Income
12. Agricultural Income
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 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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1. Person u/s 2(31) includes,
a. An Individual,
b. Hindu Undivided Family (HUF),
c. A Company,
d. A Firm,
e. An Association of Persons(AOP) or Body of
Individuals (BOI),
f. A Local Authority,
g. Every other Artificial Juridical Person
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14
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.

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 assessee’s hands
DIVERSION & APPLICATION OF INCOME

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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4. 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.
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Index

The different types of residential status are:-
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Resident(R)
Not Ordinarily Resident (NOR)
Non-Resident (NR)

The residential status of individual will be determined as under-
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Assessee Basic Condition Additional Condition
Resident
He must satisfy at one of the basic
conditions.
Not required.
Not Ordinarily Resident
He must satisfy at least one of the
basic conditions.
He must satisfy either one or both
the additional conditions given u/s
6(6).
Non-Resident
Should not satisfy any of the basic
conditions.
Not required.

Basic Conditions u/s 6(1):
i. 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.
Additional Conditions u/s 6(6):
i. He must be a non-resident in India in nine out of the ten
previous years preceding that
year; or
ii. He must be outside India during 7 preceding previous
years for aggregate period of 729 days or less.
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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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According to section 6(3) an Indian Company is always
Resident in India. A foreign Company will be resident in
India if Control or Management of its affairs is wholly
situated in India.
Residential Status of a firm or AOP or other person depends
upon control and management of its affairs.
 Resident: If the control and management of the affairs of a firm or
AOP or other person is situated wholly or partly in India then such
a firm or AOP or other person is said to be resident in India.
 Non-Resident: If the control and
management of the affairs of a firm or AOP or
other person is situated outside India then such
a firm or AOP or other person is said to be non-
resident in India.
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24
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

25
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?
Residential Status continued

26
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

27
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. (4 )individual
(5) Co (6) AOP/BOI (7)HUF (8)boi (9)local authority
(10)Artificial judicial person

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

29
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
1 Income from property remitted
from lanka to the assessee in
india
210,000
2 Profit from business in india 100,000
3 Loss from business in lanka
,managed from india
80,000
4 Dividend from foreign cos recd.
o/s India
60,000
5 Interest on deposits from Indian
cos
120,000
6 Total 5,17,000

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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 R NoR Non R
1 Income from
property remitted
from lanka to the
assessee in india
210,000 210,000 210,000
2 Profit from business in
india
100,000 100,000 100,000
3 Loss from business in
lanka ,managed
from india
(80000)
(80000) NT
4 Dividend from
foreign cos recd. o/s
India
60,000
Not
taxabl
e
Not
taxable
5 Interest on deposits
from Indian cos
120,000 120,000 120,000
6 Total 410,000 350,000 430,000

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical
Person.
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S.No INCOME TAX RATE
1 Up to 200,000 NIL
2 200,010-500000 10%
3 500010-1000000 20%
4 Above1000000 30%

2. In case of resident women below 65 years of age.
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S.No INCOME TAX RATE
1 Up to 200000 NIL
2 200010-500000 10%
3 500010-1000000 20%
4 Above 1000000 30%

3. In case of resident senior citizen i.e. age of 65 years or above
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S.No INCOME
(A.Y. 2010-11)
TAX RATE
1 Up to 250000 NIL
2 250010-500000 10%
3 500010-1000000 20%
4 Above 1000000 30%

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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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.
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Index

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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

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.
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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.
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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.
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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.
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1
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.
2
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.
3 The Excess of Rent Paid over 10 % of Salary.

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:
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GovernmentNon- 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
Nothing is deductible
Status of Employee

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.
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Exemption is available on the aforesaid basis in the case of following allowances :-
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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.

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. the amount of allowance ; or
ii. the amount specified in rule
2BB,
Whichever is lower.
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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 is-
a.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.
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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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7. 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.
8. Tiffin allowance - It is taxable.
9. Fixed medical allowance – It is taxable.
10. Servant allowance - It is
taxable.
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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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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.
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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
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3. The value of any benefit or amenity granted or
provided free of cost or at concessional rate in
any of the following cases :
i. By a company to an employee who is a director thereof
;
ii. By a company to an employee, being a person who has
substantial interest in the company ;
iii. By any employer (including a company) to an employee
to whom provisions of (i) and (ii) above do not apply and
whose income under the head “salaries” exclusive of the
value of all benefits or amenities not provided for by way
of monetary benefits, exceeds Rs. 50,000
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4. 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.
5. 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
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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:
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Status of Employee
Government Employee
Non-government
employee covered by the
payment of Gratuity Act,
1972
Non-government employee
not covered by the payment of
Gratuity Act, 1972
It is fully exempt from
tax under section
10(10)(i) Least of following is exempt:
1) “15 days’ salary” x “Length of
service”
2) Rs. 3, 50, 000
3) Gratuity actually received.
Least of following is exempt:
1) “½ month avg. salary” x
“Length of service”
2) Rs. 3, 50, 000
3) Gratuity actually received.

2. PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as follows
:-
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PENSION
Taxable for
Government as well
as Non-
Government
employees
Entire Commuted
Pension is exempt
whether or not
Gratuity received.
UNCOMMUTEDCOMMUTED
Government
Employee
Non-
Government
Employee
1/3 of
commuted
pension is
exempt
If Gratuity
Received
If Gratuity not
Received
1/2 of
commuted
pension is
exempt

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.
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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.
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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.
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60
TAX TREATMENT OF PROVIDENT FUNDS
SL.NO PARTI
culars
St.PF RPF UNRE
COG
PF
PPF
1
EMPL
OYER
WHO
LLY
EXEM
PT
EXEM
PT 12
%
EXEM
PT
NO
contri
butio
n by
empl
oyer
2 8.5%

Encashment of leave by surrendering leave standing to one’s
credit is known as “leave salary”.
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LEAVE ENCASHMENT
During Employment
Retirement / Leaving the Job
Chargeable
to Tax
Non-Government
Employee
Government
Employee
Fully Exempt
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

62
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

1. 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.
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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.
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Index

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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

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SECTIONS -22, 23, 24, 25, 26, &27

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.
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1. 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.
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Particulars Amount Amount
(a) Fair Rent of the House xxx
(b) Municipal Value of House xxx
(c) Whichever is more of (a) and (b) XXX
(d) Standard Rent xxx
Expected Rent [whichever is less of (c) and (d)] XXX
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Step 1 : Calculate Expected Rent as follows:-

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
less Unrealized Rent
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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
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1. 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.
2. 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.
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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.
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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.
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i. 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 pre-
acquisition or pre-construction period.
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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
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CASE
MAXIMUM
DEDUCTION
Interest on capital borrowed on or after 1-4-1999
for acquisition or construction of house 1,50,000
In any other case 30,000

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

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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

3/1/2015 80
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

3/1/2015 81
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
DEDUCTION
S U/S 24 30
% OF AV
2628 4500 5400
INCOME
FROM hp
6132 10,500 12,600Municipal taxes for I unit borne by owner II & III are borne by tenants

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;
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5. any profit on transfer of the Duty Entitlement Pass
Book Scheme.
6. Any profit on the transfer of the duty free
replenishment certificate;
7. Export incentive available to exporters;
8. 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.
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9. Any sum received under a Keyman insurance
policy including bonus;
10. Profits and gains of managing agency; and
11. Income from speculative transaction.
Income from the aforesaid activities is computed
in accordance with the provisions laid down in
section 29 to 44D.
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1. Rent, rates, taxes, repairs and insurance for building
[Sec. 30]
2. Repairs and insurance of machinery, plant and
furniture [Sec. 31]
3. Depreciation allowance [Sec. 32]
4. Tea/coffee/rubber development account [Sec. 33AB]
5. Expenditure on acquisition of patent rights and
copyrights [Sec. 35A]
6. Insurance premium [Sec. 36 (1) (i)]
7. Premier for insurance on health of
employees [Sec. 36(1) (ib)]
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8. Bonus or commission to employees [Sec. 36(1)(ii)]
9. Interest on borrowed capital [Sec. 36(1)(iii)]
10. Employer’s contribution to recognized provident
fund and approved superannuation fund [Sec.
36(1)(iv)]
11. Contribution towards approved gratuity fund [Sec.
36(1)(v)]
12. Employee’s contribution towards staff welfare
schemes
13. Bad debts [Sec. 36(1)(vii)]
14. Family planning expenditure [Sec.
36(1) (ix)]
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15. Banking cash transaction tax, securities
transaction tax and commodities
transaction tax.
16. Advertisement expenses [Sec. 37(2B)].
17. General Deduction [Sec. 37(1)].
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1. Damages and penalty paid for transgressing
the terms of agreement with the State.
2. Penalty and damages paid in connection with
infringement of law.
3. Litigation expenditure incurred for curing any
defect in the title of assets or completing that
title.
4. Litigation expenses for registration of shares.
5. Fees paid for increase of authorized capital.
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6. Expenditure on raising equity share capital and
preference share capital. However, expenditure on
issue of bonus shares id deductible.
7. 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.
8. Amount expended for acquiring a business or a right
of permanent character or an asset
which generates income or for
avoiding compensation in
business.
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9. 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).
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13. Tax paid by the assessee (who is defaulter by not
deducting tax at source under section 195) on behalf of
non-resident.
14. Compensation paid to contracting party with the object
of avoiding an unnecessary investment in capital assets.
15. Expenditure on shifting of registered office.
16. 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.
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18. 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.
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1. Interest, Royalty, fees for Technical Services payable
outside India,if on such amount tax is deductible but
tax has not been deducted or deposited with
Government. [Sec. 40(a)(i)]
2. Fringe Benefit Tax [Sec. 40(a)(ic)]
3. Income-Tax [Sec. 40(a)(ii)]
4. Salary Payable Outside India without Tax Deduction
[sec. 40(a)(iii)]
5. Provident Fund Payment without tax
Deduction at Source [Sec. 40(a)(iv)]
6. Certain specified expenses in case
of Partnership Firm
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7. Interest paid by an AOP/ BOI to its members is not
allowed as deduction by virtue of sec. 40(ba)
8. Payment to relatives in excess of fair value – not
deductible [Section 40A(2)]
9. 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]
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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) If his income from business or profession
exceeds Rs. 1,20,000;
b) Total sales/turnover/gross receipts thereof
exceeds Rs.10,00,000
c) the assessee has claimed his income lower
than deemed profits
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This section applies to following :-
The assessee is required to get his accounts of such
previous year audited by a Chartered
Accountant before 30th September of
the assessment year.
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Person carrying on - Accounts are to be audited for previous year in which -
Business Total sales, turnover or gross receipts exceed Rs. 40,00,000
Profession Gross receipts exceed Rs. 10,00,000
Business covered u/s 44AB,
44AE, 44AF, 4BB and 44BBB
He has claimed his income to be lower than the profits or gains
so deemed under the respective section.

Not withstanding anything contained in Sections 28 to
43C, the following provisions will apply.
98
Sec. 44 AD Sec. 44 AE Sec. 44AF
Business of
Assessee
Civil construction or supply
of labour for it.
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 doesn’t
exceed 10 lacs
Total business
turnover in that
previous year
doesn’t 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.

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.
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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.
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101
SL.
NO
PARTICULARS RATE OF DEP% RS
1 OFFICE building 10 23,00,000
2 Factory building 10 18,00,000
3 Residential for workers 5 900,000
4 officefurniture 15 200,000
5 Residential furniture 15 100,000
6 Copy rights trade marks 25 600,000
7 Plant & m/c normal 20 900,000
8 Do- computer 60 100,000
9 Do- delivery van 20 100,000

Written Down Value [Sec. 43(6)] - Written down
value for the assessment year 2009-10 will be
determined as under:
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Step 1
Find out the depreciated value of the block on the April 1, 2008.
Step 2
To this value, add “actual cost” of the asset (falling in the block) acquired
during the previous year 2008-09.
Step 3
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.

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.
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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.
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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.
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The maximum amount of salary paid to all the partners
during the previous year should not exceed the limits
given below :-
106
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

Applicability of Minimum alternate tax (MAT) sec. 115JB :-
 Minimum alternate tax (MAT) sec. 115 JB MAT is
applicable in case of companies only.
 If tax liability of a company under normal provision is
lower than 10% of book profit.
 In such case, book profit shall be deemed as total
income & 10% of book profits should be deemed as
tax liability.
 Up to assessment year 2001-02 these
provisions were covered by sec. 115
JA.
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 A company is allowed credit of tax paid u/s
115-JB for the assessment year 2006-07 and
onwards in accordance with the provisions
of section 115-JAA.
 MAT credit can be carried forward for a
period of seven years.
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Index

Capital Gain’s 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 under
section 54, 54B, 54D, 54EC, 54F,
54G, and 54GA
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“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”.
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3. Agricultural land in India provided it is not situated –
› in any area within the territorial jurisdiction of a
municipality or cantonment board, having a
population of 10,000 or more; or
› in any notified area.
4. 6½ 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.
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“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
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3/1/2015 114
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

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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.

1. 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)].
2. 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.
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4. 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.
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6. 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.
7. 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.
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1. 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.
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3. 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,
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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.
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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.
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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.
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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.
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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
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126
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

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127
Indexed
Cost of
Acquisition /
Improvemen
t
Cost of
acquisition /
improvement
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

3/1/2015
128
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

3/1/2015 129
Solution
No Details I II III
1 SALE PRICE Rs 25,00,000 25,00,000 25,00,000
2 Brokerage 50,000 50,000 50,000
3 Indexed cost 18,25,581 18,25,581 18,25,581
4 Long tern CG 624 ,419 624,419 624,419
1)In this case no tax will be payable gets exemptions u/s 54
2)In this case he has not availed any .Therefore full amount is taxed .
3)Tax -nil

3/1/2015
130
SALE Rs 25,00,000
Cost 15,70,000+
236 ,090+ 11,001 = 18,17,091= 682, 909.

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”.
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132

1. Dividends.
2. 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.
3. 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
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133

5. 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’.
6. 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
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8. 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. Director’s fee
14. Income of race establishment
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Index

1. Transfer of income without transfer of asset [Sec.
60] :– The income from the asset would be
taxable in the hands of the transferor.
2. Revocable transfer of assets :- Income from such
asset is taxable in the hands of the transferor.
3. 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.
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4. 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.
from assets transferred to son’s wife [Sec.
64(1)(vi)]:- When the asset is transferred
otherwise than (a) for
adequate consideration
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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.
from assets transferred to a person for the benefit
of son’s wife [Sec. 64(1)(viii)] :- It is transferred for
the immediate or deferred
benefit of his/her son’s wife. The
transfer is without adequate
consideration.
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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.
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140

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.
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141

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.
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142

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.
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143

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.
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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.
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145
Index

The process of setting off of losses and their carry forward may be
covered in the following steps:
3/1/2015
147
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.

While dealing with unabsorbed depreciation one should keep in
mind the following points:
3/1/2015 148
Step 1
Depreciation allowance of the previous year is first deductible from the
income chargeable under the head “Profits and gains of business or
profession”.
Step 2
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.
Step 3
If depreciation allowance is still unabsorbed, it can be carried forward to the
subsequent assessment year(s) by the same assessee.

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 –
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149
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.

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’.
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150

Sec. Loss to be carried forward
Income against which the
loss can be setoff
No. of years for which it
can be carried forward
71B Loss from house property Income from house
property
8 years from the end of
the relevant A.Y.
72 Losses under ‘Profits & Gains of
Business or Profession’, except
speculation business loss.
Profits of any
Business/Profession
(including speculation
business profits also)
the relevant A.Y.
73 Losses in speculation business. Income from speculation
business
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
maintaining race horses
the relevant A.Y.
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151
Index

152
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/=

“Agricultural Income” means:
1. Any rent or revenue derived from land which is situated in
India and used for agricultural purposes [sec. 2(1A) (a)].
2. 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)].
3. 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.
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154

INCOME
BUSINESS
INCOME
AGRICULTURAL
INCOME
Growing and manufacturing tea in India 40% 60%
Sale of centrifuged latex or cenex or latex based
creps (such as pale latex crepe) or brown crepes
(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
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%
3/1/2015 155

The scheme of partial integration of non-agricultural
income with agricultural income is applicable if the
following conditions are satisfied –
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156
Condition 1
The taxpayer is an individual, a Hindu undivided family, a body of
individual, an association of persons or an artificial juridical person.
Condition 2
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]
Condition 3
The agricultural income of the taxpayer exceeds Rs. 5,000.

Income-tax will be computed for the assessment
year 2009-10 in the following manner:
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157
Step 1 Net agricultural income is to be computed as if it were income chargeable to income-
tax.
Step 2 Agricultural & non-agricultural income of the assessee will then be aggregated & income-
tax is calculated on the aggregate income.
Step 3 The net agricultural income will then be increased by the amount of exemption limit and
income-tax is calculated on net agricultural income, so increased, as if such income was
the total income of the assessee.
Step 4 The amount of income-tax determined at Step two will be reduced by the amount of
income-tax determined under Step three.
Step 5 Find out the balance. Add surcharge; education cess & SHEC.
Step 6 The amount so arrived will be the total income-tax payable by the assessee.
Index

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.
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159

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.
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160

 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
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161

 Deduction in respect of: Deduction is available in
respect of both of the following –
› Sum deposited by assessee in his account in notified
pension scheme; and
› Contribution made by Central Govt. or any other employer
to assesse’s A/c.
 Quantum of Deduction: Deduction shall be allowed
to the extent of aggregate of the following -
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162
Sum paid/deposited by assessee to the credit of his a/c or 10% of salary,
whichever is lower
Sum contributed by the employer in assesse’s A/c or 10% of salary, whichever is
lower

The aggregate amount of
deductions under section 80C,
section 80CCC and section
80CCD shall not, in any case,
exceed Rs.1,00,000.
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163

 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).
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164

 Deduction is available in respect of –
› expenditure incurred for medical / treatment / nursing /
training/ rehabilitation, or
› amount paid under scheme LIC / UTI other insurer
approved by CBDT for maintenance, of a “dependant”,
being a person with disability.
 Deduction shall be allowed to the extent of –
› Rs. 50,000 (Rs. 75,000 in case of dependant suffering with
severe disability), irrespective of expenditure incurred or
sum paid.
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165

 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).
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166

 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.
3/1/2015
167

 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.
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168

 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.
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169

 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.
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170

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]
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171

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]
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172

Deduction from incomes of Off-shore Banking
Units & International Financial Services Centre
[Sec.80LA]
Deduction in respect of income of Co-
operative Society [Sec. 80P]
Deduction in respect of Royalty Income, etc. of
Author of certain Books other than Text Books
[Sec.80QQB]
Deduction in respect of Royalty Income of
Patents [Sec. 80 RRB]
3/1/2015
173
Index

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
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175

Due Date
Amount payble by Corporate
Assessee
Amount payble by Non-
Corporate Assessee
On or before June 15 of the
previous year
Up to 15 percent of advance
tax payable
-
On or before September 15 of
the previous year
tax payable
tax payable
On or before December 15 of
the previous year
tax payable
tax payable
On or before March 15 of the
previous year
tax payable
tax payable
3/1/2015
176

Under section 234B(1), interest is payable as follows:
3/1/2015 177
When interest is
payable
Interest is
payable on
Rate of interest Period for which interest is payable
An assessee who is
liable to pay
advance tax, has
failed to pay such
tax
Interest is
payable on
accessed tax
Simple interest @ 1
percent for every
month or part of
month
From April 1 of the assessment year
to the date of determination of
income under section 143(1) or
where regular assessment is made
to the date of regular assessment
An assessee who
has paid advance
tax but the amount
of advance tax paid
by him is less than
90 percent of
assessed tax.
Assessed tax
minus advance
tax
Simple interest @ 1
percent for every
month or part of
month
From April 1 of the assessment year
to the date of determination of
income under section 143(1) or
where regular assessment is made
to the date of regular assessment

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.
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178
Index

Different Situations Due Date for filing Return
1. Where the assessee is a company September 30
2. Where the assessee is person other than a
company –
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
September 30
September 30
July 31
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180

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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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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182

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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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.
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184
Index

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